Mandatory Provident Fund (MPF)

Investors hunker down in conservative funds after market wobble, MPF data shows

The trend towards conservative investing will continue for the year as trade tensions between the US and China rattle markets, one analyst says

PUBLISHED : Sunday, 06 May, 2018, 6:24pm
UPDATED : Monday, 07 May, 2018, 4:07pm

Funds held in Hong Kong’s Mandatory Provident Fund have been shifting away from equity and towards more conservative investment strategies in the first quarter, amid rising stock market volatility.

Equity funds tied to the retirement scheme saw net outflows of HK$2.09 billion (US$266.28 million) in the first three months this year, while the pension scheme added HK$12.84 billion in the first quarter, according to data compiled by consulting company Mercer.

“They are moving from riskier funds to more conservative ones because of the volatility of the market,” Billy Wong, wealth business leader for Mercer in Hong Kong, China and South Korea, said at a media briefing on Thursday.

The net outflow in equity funds comes after four quarters of net inflows, according to Mercer.

The trend towards conservative investing will continue for the year as trade tensions between the US and China rattle markets, Wong said.

The benchmark Hang Seng Index fell 11 per cent, or 3,647 points in 11 trading days from January 26, having set a record after rising 35 per cent last year.

“In the first and second quarter of 2017, money was moving from bond and cash funds to equities funds as the stock market surged,” said Wong. “Now it’s moving back.”

Bond, cash and guaranteed funds saw net inflows of HK$16.51 billion in the first quarter, representing 128.6 per cent of MPF net inflows, which suggests a major shift towards conservative investments inside the pension scheme.

The 481 funds in the MPF fell 1.85 per cent in March on average, extending losses from February. For the quarter the funds are down 0.26 per cent on average, according to MPF fund operator Convoy Services.

All MPF funds with stock investments – including equity funds and mixed asset funds, reported losses in March, according to Thomson Reuters Lipper.

Wong urged young retirement scheme holders to invest with a long-term view, as they have 20 or 30 years to cash out and can bear higher risk.

They should not move money out of equity funds just because the stock market is volatile now, Wong said.

The MPF pension scheme, covers 2.8 million employees and had HK$843.5 billion in assets last year, according to the latest report from its regulatory body, the Mandatory Provident Fund Schemes Authority.