Investing MPF in Japan, US and Asia funds pays off as protests, trade war weigh on Hong Kong stocks in third quarter

The 414 investment funds covered by Hong Kong’s Mandatory Provident Fund suffered an average loss of 1.1 per cent during the July to September period, according to data provider Lipper.

Market sentiment has been rattled by the city’s anti-government protests as well as the US-China trade war, and the MPF, which has a combined HK$910.1 billion (US$116.08 billion) in assets under management and serves the city's 2.9 million self-employed and employees, was not untouched by the chaos.

Hong Kong stock funds were the second-worst performers – a single South Korean stock fund lost 7.3 per cent – and lost 6.9 per cent during the quarter. They, however, beat the benchmark Hang Seng Index, which dropped 8.6 per cent during this period, making it the worst performer among major equity gauges globally.

So, did anyone make any money amid the doom and gloom?

According to analysts, anyone who invested their MPF contribution in stock funds focused on Japan, the United States and Asia-Pacific, did well.

Those who invested in Japan stock funds were best off, reporting gains of 2.9 per cent on average. Japanese benchmark Nikkei 225 rose to a 27-year high in September and reported a 6.7 per cent gain for the July to September quarter. The Tokyo Stock Exchange was the best-performing market for the quarter.

Among the top five best performer MPF funds, four focused on Japan and one on Asia-Pacific.

“Hong Kong has been affected by the trade war and the social events. Hence, a poor stock market performance during the third quarter,” said Kenrick Chung, general manager of employee benefits at Realife Insurance Brokers.

Getting the most out of your MPF?

“Japan [on the other hand] has been treated as a haven for risk avoidance. Moreover, Japan's trade talks with the US in recent months have gone smoother than those between the US and China,” Chung said.

He urged investors to not blindly shift their money to Japan stocks, as the outlook for the Japanese economy was not very optimistic. South Korea, he said, should be another market to avoid because of its trade tensions with Japan, while the country was also suffering from a spillover from the US-China trade war.

He said MPF members could consider investing their contributions in Asian equity funds, as many Southeast Asian countries would benefit from some Chinese manufacturers moving their production from mainland China to these countries to tap lower costs and avoid US tariffs.

MPF’s Asian investments thumped, members guided towards US stocks

On a nine-month basis, Hong Kong stock funds were once again among the worst performers, with an average return of 4 per cent. They performed well below the 7.2 per cent returns on average by all 414 MPF funds, according to Lipper. But they performed better than money market funds and bond funds, which had returns of less than 1 per cent on average.

US stock funds were the best performers in the first nine months, with returns of 18.4 per cent on average. Europe stock funds came in second with returns of 12 per cent, while Japan equity funds posted returns of 10 per cent on average.

“The US stock markets have performed well in the first three quarters, largely due to a strong performing IT sector. Economic data in the US has been good in the first half, but this has turned around in the third quarter, while the stock market was supported by a Federal Reserve rate cut,” said Elvin Yu, chief executive of pension consultancy Goji Consulting.

“With weakening economic data and unresolved trade tensions, the fourth quarter will be challenging for the US markets,” Yu said.

Eleanor Wan, chief executive of BEA Union Investment, said opportunities remained among mainland Chinese A shares and China plays, but suggested being underweight in Hong Kong equities.