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.” 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. Will Hong Kong’s pension scheme enjoy roaring success in Year of the Tiger? 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. 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. Mixed-asset funds lost 8 per cent while European stock funds lost 6.9 per cent, according to MPF Ratings data. The losses in the first quarter of this year came after the MPF made a modest gain of 0.64 per cent, or HK$7.6 billion, in 2021, far lower than the 12.2 per cent earnings reported in 2020 and the 12.7 per cent gained in 2019. But the result was an improvement upon a loss of 8.2 per cent on average in 2018, according to data by Refinitiv Lipper. MPF members should, however, not change their fund choices in the current volatile market, said Kenrick Chung, general manager of employee benefits at Realife Insurance Brokers. Sovereign bonds could soon be in MPF members’ investment portfolio “Switching to more conservative investment options will realise investment losses at this moment. MPF members with high investment risk tolerance can consider contributing monthly to markets with growth potential, such as [those invested in by the] China Equity Fund,” he said. “As long as mainland China can control the pandemic, there is still a chance for the economy to grow this year. The People’s Bank of China may also introduce more measures to stimulate the economy.” Kenny Ng, a securities strategist at Everbright Securities International, was more optimistic. “The market in the first quarter has largely reflected the war in Ukraine and the potential delisting of Chinese stocks in the US. It is expected that the performance of the global market in the second quarter may improve,” he said. “The relatively low valuations of Hong Kong stocks are expected to provide a strong defence. At the same time, there are signals of positive support for the capital market in mainland China,” he added.