Hong Kong’s Mandatory Provident Fund reports its lowest annual return since 2011
- Members of the compulsory scheme lost HK$21,191 in 2018, according to financial planning consultants Gain Miles
- Overall return of MPF in 2019 likely to be ‘minimal’
Hong Kong’s compulsory pension scheme, the Mandatory Provident Fund, reported its lowest annual return since 2011, amid a slump in the Hong Kong and mainland China stock markets, according to Refinitiv, the former risk and financial business of Thomson Reuters.
According to Refinitiv, the loss in 2018 – 8.21 per cent – is worse only to the decline reported in seven years ago, 8.94 per cent in 2011. This is in big contrast to 2017, when it gained 20.94 per cent, its second strongest performance on record after 2009, when it generated a return of 25.89 per cent.
According to the Mandatory Provident Fund Schemes Authority, the pension scheme had assets worth HK$858.3 billion under management at the end of September. And given the number of registered employees and self-employed persons in Hong Kong was about 2.8 million at the time, the average loss in book value per person was about HK$24,891.
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A report by financial planning consultants Gain Miles, put the loss at HK$21,191, or 10.36 per cent, on average, for the whole of 2018, which represents the scheme’s biggest decline in seven years.
And market watchers were not optimistic about MPF performance in 2019. “It is likely that the US-China trade war will persist, causing the market to remain unstable this year. As a result, the overall return of the MPF this year is likely to be minimal,” said Gordon Tsui, managing director of Hantec Group Hong Kong.
Among the different types of funds under the scheme, Hong Kong Dollar Bond and Hong Kong Dollar Money Market were the only ones that recorded positive returns. Equity funds slumped badly overall in 2018, in which the worst performer, Equity Korea, fell by 24.7 per cent, while Equity Hong Kong fell by 13.11 per cent and Equity China fell by 13.64 per cent. Equity Asia-Pacific (excluding Japan) and Equity Global dropped by 15.16 per cent and 12.6 per cent, respectively. Equity Europe and Equity Hong Kong, on the other hand, fell by 15.42 per cent and 17.29 per cent, respectively. Equity US performed the best out of all regions, but still reported a decline of 7.39 per cent.
Defensive assets also suffered, with the Guaranteed Fund dropping by 2.22 per cent, while Bond Global and Bond CNY had a recorded loss of 1.72 per cent and 0.21 per cent, respectively.
The Hong Kong Dollar Bond fund and the Hong Kong Dollar Money Market recorded returns of 0.61 per cent and 0.39 per cent, respectively.
In December, the compulsory scheme, which comprises 426 MPF investment funds, reported a loss of 2.59 per cent. The worst-performing fund category was Equity US with a 9.26 per cent decline, followed by Equity Japan, with a 8.4 per cent loss, Equity Global with a 6.2 per cent drop, Equity China with a 4.37 per cent loss, as well as Equity Hong Kong, which reported a 2.92 per cent decline.
In November, the scheme reported a 1.77 per cent gain, according to data from Refinitiv. This compared with a 5.87 per cent decline in the first 11 months.
The Hong Kong stock market rebound in November 2018, which helped each member of the MPF earn HK$5,106, but it was not enough to rescue the scheme from suffering a loss for the year. On average, each member still lost HK$14,139 in the first 11 months of 2018, according to data from financial services firm Convoy Financial.
Under the scheme, employers in Hong Kong match contributions made by employees, which stands at 5 per cent of their salaries, up to a combined HK$3,000 per month. This amount is then invested into a number of investment funds.