Hong Kong Mandatory Provident Fund lost US$13.6 billion in first quarter amid wider market meltdown

Hong Kong’s Mandatory Provident Fund lost a total of HK$105.7 billion (US$13.6 billion) – about HK$35,223 for each of the about 3 million people covered by the city’s retirement schemes – during the first quarter of this year, amid a coronavirus pandemic-led global market meltdown.

This is the MPF’s worst quarterly performance since the July-September quarter of 2011, when the pension fund lost 12.1 per cent during the European sovereign-debt crisis. The loss almost wiped out an average gain of 12.6 per cent recorded during last year as a whole, which was the MPF's third-best year of the decade. The MPF had HK$969.46 billion in total assets as of the end of 2019.

“The Covid-19 pandemic has pushed the global economy into recession. It started as a supply chain disruption and quickly widened to damage the demand side of economic activities, due to lockdowns in many countries,” said Elvin Yu, chief executive of pension consultancy Goji Consulting.

The 407 investment funds under the MPF reported an average loss of 10.9 per cent in the first quarter, according to data provider Lipper. “The outlook is unpredictable, as there is no cure or vaccine in the imminent future. Therefore, [the markets are] unlikely to see any immediate and strong rebound. Don’t expect a V-shape recovery,” Yu added.

In March itself, the MPF lost 7.3 per cent, following a loss of 2.3 per cent in February and 1.9 per cent in January. Except for bond funds, which were 0.8 per cent higher in March and reported a 4.1 per cent gain in the first quarter, almost all other funds were in the red.

“Equity funds in other markets also dropped because of the Covid-19 pandemic. Hence, it was not strange to see such performance in the first quarter,” said Kenrick Chung, general manager of employee benefits at Realife Insurance Brokers. “As only around 23 per cent of MPF assets are invested in fixed-income [funds], the MPF’s defensive capabilities are weak.”