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Analysts expect Hong Kong’s compulsory retirement to bounce back in the fourth quarter. Photo: K. Y. Cheng

Hong Kong residents’ nest eggs shrink by HK$56,500 each as Mandatory Provident Fund posts record HK$258.9 billion nine-month loss

  • The MPF on average lost 21.5 per cent in the first nine months, the worst performance since it launched 22 years ago
  • Analysts are optimistic about the outlook as they believe the market may rebound in the fourth quarter
The Mandatory Provident Fund (MPF) reported a loss of HK$258.9 billion (US$32.98 billion) in the first nine months of the year, its worst performance for the period on record, as soaring global inflation and interest rates rattled markets.

That equates to a loss of HK$56,500 on average per person.

Analysts expect Hong Kong’s compulsory retirement scheme, which covers 4.6 million employees in Hong Kong, to bounce back in the fourth quarter, however.

The loss caused the value of assets of the scheme to drop below HK$1 trillion for the first time in two years, to HK$965 billion, according to data provided by MPF Ratings, an independent pension research firm. That compares with HK$1.2 trillion at the end of 2021.

Overall the fund lost 21.5 per cent between January and the end of September, its worst nine-month performance since the launch of the MPF in December 2000. It can however still beat the Hang Seng Index, which fell 26 per cent in the same period.

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“Global inflation, interest rates and recession concerns continue to be the biggest market risks fuelling the current volatility,” said MPF Ratings’ chairman, Francis Chung.

“A global confluence of geopolitical issues and economic concerns has seen MPF account balances fall to a two-year low as the total assets fall below HK$1 trillion for the first time since the milestone was exceeded in July 2020.”

In September alone the MPF shed HK$82.1 billion, bringing the third-quarter loss to HK$106.2 billion.

Despite the record loss, Chung said the MPF remained a highly secure and robust system.

“It is important to emphasise that while average MPF member account balances are now back to June 2020 levels, accrued market losses are not a result of the MPF system. Investment gains and losses are a function of financial markets, something the MPF system does not control,” he said.

“It is imperative that MPF members remain invested for the long term and remain well diversified.”

Janet Li, Asia wealth leader of consulting firm Mercer, expects the market to continue to be volatile.

“The market has been volatile since the beginning of the year,” she said. “It is not surprising to see retirement investments impacted. Nevertheless, retirement investments should take the long view, especially with the dollar cost averaging contributory arrangements under the MPF. ... Employees should regularly review their risk tolerance and life stage in order to make the appropriate investments.”

Analysts are optimistic about the outlook. The Hang Seng Index rose 6 per cent on Wednesday.

“The market may rebound in the fourth quarter when global inflation reaches a high and the mainland economy recovers,” said Kenny Ng Lai-yin, a strategist at Everbright Securities International.

“However, it will be difficult to recover all the losses from the first nine months, so 2022 will probably record a loss still.”

The MPF’s returns to pensioners have been diminishing for the past four years. They dropped from a 12.7 per cent gain in 2019 to a 12.2 per cent increase in 2020, then to a 0.6 per cent rise last year, according to data from Refinitiv Lipper.

“The bad MPF performance we’ve just seen was mainly caused by the collapse of the capital markets including stocks and bonds,” said Kenrick Chung, director of Ben. Excellence Consultancy, a Hong Kong-based insurance broker.

“Unless you have switched your MPF assets to the capital guarantee fund or conservative fund, almost nobody can escape from the disaster.

“If central banks soften their tapering policies, there is hope that markets can bounce back. Moreover, policies in China after the National Congress will be another critical factor for our MPF investment performance.”

Almost all categories of fund suffered a loss in the first nine months. The conservative fund, which invests in bank deposits and generated zero returns, was the exception, according to MPF Ratings.

Hong Kong and China stock funds were the worst performers, losing on average 28.7 per cent, while mixed asset funds that invest in both bonds and stocks lost 27 per cent.

Asian equity funds lost 26 per cent while US stock funds lost 24.8 per cent.

Even money-market funds that invest in the time deposits of different currencies reported a loss of 5.6 per cent, as a result of the fall of foreign currency values against the US dollar.

The poor performance of the MPF this year coincides with the city entering into economic recession after social-distancing measures for the pandemic hit a wide range of businesses. Several large restaurant and cake shops collapsed and some defaulted on payments of salaries and MPF contributions.

Hong Kong’s pension regulator, the Mandatory Provident Fund Schemes Authority, is investigating Hoixe Cake Shop, which owes pension contributions of about HK$760,000 involving 580 staff members.
The news comes weeks after bakery chain Crostini, which owned 15 outlets in Hong Kong, suddenly announced its closure, leaving up to 100 staff with pay in arrears.

“The poor economic situation may lead to the recent cases of some large companies’ default payment of salaries and MPF contributions,” Ayesha Macpherson Lau, chairwoman of the MPFA, said on the sidelines of an event on Thursday. “The trend may continue as the economic outlook remains uncertain.”

She said the authority has chased down HK$69 million in unpaid MPF contributions from employers during the four months until August, which is $1 million higher than a year earlier.

Lau did not comment on MPF performance, but a spokeswoman urged the public not to worry.

“Over the past 21 years, the MPF recorded positive returns in 14 years, and most of the time rebounded after the years with negative returns,” the spokeswoman said.

A negative return of 30.2 per cent during the financial tsunami in 2008 was followed by a positive return of 26.6 per cent in 2009 and 7.8 per cent in 2010. The annualised return of the MPF stands at 2.8 per cent since its inception, higher than the inflation rate of 1.8 per cent during the same period.

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