Hong Kong’s MPF lost each member US$1,387, as China regulatory storm, Evergrande debt saga pounded markets in third quarter

A rout in Hong Kong and mainland China stocks has hurt the performance of the city’s Mandatory Provident Fund (MPF), whose members lost about HK$10,800 (US$1,387) on average in the third quarter of this year.

The 400 or so MPF investment funds tracked by data provider Refinitiv Lipper lost 4 per cent on average in the three-month period, wiping out almost all of the 4.5 per cent gain recorded in the first half of 2021. The MPF’s gains for the first nine months of this year now stand at a modest 0.3 per cent.

It was also the compulsory pension scheme’s worst quarterly average performance since the first quarter of 2018, when MPF funds lost 6.5 per cent on average.

“The MPF’s third-quarter performance was negatively affected by China Evergrande, Beijing’s crackdown on different industries in China and concerns about inflation globally. Moreover, the possibility of the US Federal Reserve tapering off quantitative easing and concerns about the US government’s debt ceiling have also added worries to the market,” said Kenrick Chung, general manager of employee benefits at Realife Insurance Brokers.

The MPF covers 4.5 million current workers and retirees in Hong Kong, who can choose where their monthly contributions are invested. The compulsory scheme’s performance has been affected by a 14.7 per cent slump in the city’s benchmark Hang Seng Index, as well as a 25 per cent drop in the Hang Seng Tech Index in the third quarter, because Hong Kong and China stock funds are popular among MPF members, who usually invest about third of their money in them.

The market in Hong Kong has been hit by Beijing’s crackdown on technology and private education firms in July, and the more recent debt crisis at mainland Chinese developer China Evergrande Group.

“We noticed the adverse stock market sentiment. Since the MPF is a long-term investment spanning 30 to 40 years, it is inevitable that there will be economic cycles over such a long period. MPF scheme members, therefore, need not be too concerned about short-term market fluctuations,” a spokeswoman of the Mandatory Provident Fund Schemes Authority (MPFA) said on Tuesday.

The HK$1.22 trillion MPF lost a total of HK$48.6 billion in the third quarter, according to calculations based on data provided by Refinitiv Lipper and the MPFA. That equals a loss of HK$10,803 for each of the scheme’s 4.5 million members.

“The outlook for the fourth quarter is conservatively optimistic. We hope that the disagreements on trade between China and the US do not get worse,” said Realife Insurance’s Chung. MPF members who could accept higher investment risks could consider Asian equity funds, while those with a lower risk tolerance could consider guaranteed funds, he added.

China stock funds, which invest mainly in shares of mainland Chinese companies listed in Hong Kong, lost 16 per cent on average during the third quarter and were the worst performers among funds tracked by Refinitiv Lipper. These funds have also lost 14 per cent in the first nine months of this year, and were the worst performers for this time frame too.

Hong Kong stock funds were the second worst performers, losing 14 per cent in the third quarter and 8.8 per cent in the first nine months of this year, the data showed.

Among the winners in the third quarter were Japanese equity funds, which recorded a gain of 5.4 per cent as Japanese stocks rebounded to 30-year highs and became the world’s best performers in September and the third quarter.

Health care sector funds and US stock funds both rose about 1.4 per cent during the three-month period. US stock funds were the top performers in the first nine months of the year, rising by 15.7 per cent.