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Mandatory Provident Fund (MPF)
BusinessBanking & Finance

Hong Kong’s compulsory pension scheme faces ‘extreme volatility’ after members lose HK$16,600 on average in first quarter

  • Markets are unlikely to rebound in the short term, chairman of independent research firm says
  • Don’t change their fund choices in the current volatile market: insurance brokerage executive

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Hong Kong’s Central business district. The performance of the city’s about 400 MPF investment funds has been hit by a 6 per cent slump in the Hang Seng Index, as well as a 20 per cent slump in the Hang Seng Tech Index, in the first quarter. Photo: Felix Wong
Enoch Yiu

Hong Kong’s compulsory pensions scheme lost a total of HK$76.2 billion (US$9.8 billion), or 6.2 per cent, during the first quarter of 2022 because of a global market rout – and the outlook for the second quarter remained extremely volatile.

Each of the 4.6 million people covered by the Mandatory Provident Fund (MPF) lost HK$16,600 on average, according to data from MPF Ratings, an independent pensions research firm. This was the MPF’s worst quarterly performance since the first three-month period of 2020, when the Covid-19 pandemic began and led to a global market meltdown, and Hong Kong’s compulsory retirement funds lost a total of HK$105.7 billion.

“Markets are unlikely to rebound in the short term, as recession fears add to market volatility,” Francis Chung, MPF Ratings’ chairman, said on Wednesday. “March saw US 10-year Treasury yields invert for the first time since 2019, adding to recession and stagflation concerns. Our expectation is that, without resolutions to the growing risks to financial markets, markets will remain extremely volatile in the next three months.”

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The MPF covers current workers and retirees in Hong Kong, who can choose where their monthly contributions are invested. The performance of the about 400 MPF investment funds has been hit by a 6 per cent slump in the city’s benchmark Hang Seng Index, as well as a 20 per cent slump in the Hang Seng Tech Index, in the first quarter.

As of the end of last year, all assets held by MPF funds amounted to HK$1.2 trillion. Hong Kong and China stock funds, which are the most popular options among MPF members and represent a third of all MPF assets, were last quarter’s worst performers, losing as much as 10 per cent.
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In fact, almost all types of stock and bond funds suffered during the quarter because of a global market rout brought on by Russia’s invasion of Ukraine, and the United States raising its interest rates. Only money market funds that invest in time deposits reported a modest gain of 0.6 per cent.

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