Hong Kong’s MPF poised for unprecedented third year of losses after last quarter wipes all 2023 gains

On a first nine months’ basis, the pension fund has declined 0.17 per cent this year, performing better than a loss of 21.5 per cent over the same period in 2022. Each MPF member has lost HK$600 on average over the past three quarters.

“With only three months of 2023 remaining, the MPF has fallen into year-to-date losses for the first nine months of this year,” said Francis Chung, MPF Ratings’ chairman. “If this trend continues, it will result in an unprecedented third consecutive year of investment losses.”

Established in December 2000, the MPF requires both employers and employees to contribute 5 per cent of the monthly salary up to HK$3,000 together per month, for investment in different MPF funds. Employees get back the contribution and investment returns at the age of 65.

The MPF reported a loss of 0.28 per cent in 2021, followed by a 15.7 per cent decline last year, according to MPF Ratings data.

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Hong Kong and China stock funds, the most popular investment options that represent 25 per cent of all MPF assets, were the worst performers, losing 8.6 per cent in the first nine months after a loss of 4.2 per cent in the third quarter.

Hong Kong’s benchmark Hang Seng Index has declined 10 per cent in the first nine months of this year, after a decline of 6 per cent in the third quarter. In mainland China, the CSI300 gauge of the biggest firms listed in Shanghai and Shenzhen has declined 4.7 in the first nine months after a loss of 3.5 per cent in the July-to-September quarter.

Money market funds, which invest in the most liquid short-term instruments, lost 0.6 per cent during the first nine months after rising 0.9 per cent in the third quarter. Mixed-asset funds that invest in both stocks and bonds added 0.6 per cent in the first nine months but suffered a loss of 3.5 per cent in the last quarter.

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Underprivileged class bearing the brunt of Hong Kong’s rising inflation

Underprivileged class bearing the brunt of Hong Kong’s rising inflation

US stock funds were the best performers, with an 11.9 per cent return in the first nine months, after a loss of 3.5 per cent in the last quarter. Global funds were second best with a gain of 9 per cent in the first nine months following a loss of 3.54 per cent in the last three months. European equity funds gained 7.6 per cent in the first nine months after a loss of 4.4 per cent in the third quarter.

Default Investment Strategy Funds, which shift investments from stocks to bonds when the members get older, reported a modest gain of 6 per cent for the first nine months and a loss of 3 per cent for the third quarter.

The pension fund’s assets, however, grew by HK$36.7 billion in the nine months’ period to HK$1.088 trillion – or HK$232,880 on average per member – as of the end of September.

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“The MPF’s performance has been affected by the US Federal Reserve’s rate hikes and a slowing economic recovery in China,” said Kenrick Chung, director of Ben Excellence Consultancy.

The MPF’s fourth-quarter performance will depend on developments in China, especially around the debt problem in its property market, Chung said. If China can record a higher speed of recovery, it will benefit the market. So, the MPF’s full-year performance may not be too dismal, he said.

“Following a strong rally in equities in the month, quarter and year-to-date periods ending in July, the months of September and August recorded a long-awaited correction in equities and all risk assets,” said Elvin Yu, CEO of Goji Consulting, a pension consultant.

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“This was mainly caused by the continuing hawkish messaging by the Fed and other G7 central banks, rising long bond yields and an overvalued IT sector. Cash, as a result, was the outstanding winner.

“Within the global equities universe, the Chinese and the rest of the emerging markets bloc also performed poorly. Investors were disappointed with the continuing poor growth in exports as well as domestic demand, and the feeble efforts by the government to reflate. We continue to attach a small probability to a mild US recession, possibly occurring in 2024.

“In the short-term, we continue to think that it would be sensible for investors to continue to adopt a neutral-risk strategy.”