All market indices, category averages and fund performance are quoted in HKD for comparison purposes.
Market Overview
The US stock market continued its rally in the second quarter of 2013 on the back of the Federal Reserve’s huge stimulus program, which involves buying US$85 billion worth of debt securities per month. This keeps long-term interest rates (and hence cost of borrowing) low and promotes economy recovery. However, concerns over the Fed winding down such quantitative easing spiked in June and sent jitters across major global markets as investors worried that such unwinding would send interest rates through the roof and lead to a swoon in equity prices. This caused the S&P 500 Index to drop 1.58% in June; however, the index ended the second quarter at a positive 2.28%. Similarly, the MSCI World Index, representing global equities, fell 2.55% in June but posted a 0.56% gain in Q2 of 2013.
European stock markets had a lackluster second quarter, with the MSCI Europe Index down 0.59%. Despite the positive backdrop of the European Central Bank (ECB) cutting interest rates in early May, the index slumped 4.91% in June after the news that the US Fed may taper off bond purchases. A reduced Eurozone GDP forecast also weighed on European markets.
June also proved to be a tough month for China. In addition to concerns over slower economic growth, Chinese interbank lending rates soared to a record high on June 20 as banks deal with a liquidity crunch. This raised fears over the stability of China’s banking system and caused the CSI 300 index to slump an alarming 15.68% in June; the index posted a quarterly loss of 10.77%. Given Hong Kong’s close ties with mainland China and global equity markets, the Hang Seng index also suffered a 6.71% loss over the quarter.
Japan was the only major Asian market that managed to stay afloat during the second quarter of 2013. In order to reach the inflation target of 2% and eliminate the threat of deflation, Prime Minister Shinzo Abe has implemented aggressive expansionary policies since early this year. Through injecting money into the market, it has indirectly caused the Yen to depreciate. While this benefits exporters such as car manufacturers and electronic makers, a weak yen also makes imports costlier, which could be a cause of concern for energy-heavy industries going forward. The Nikkei 225 index clocked a quarterly gain of 4.33%.
MPF Performance
Only five out of our 17 MPF categories managed to deliver positive returns for the second quarter of 2013. The best performing category in this quarter was Japan Equity, which posted an average return of 6.23%. This figure is significantly lower than the average return of 12.85% in the previous quarter, as concerns over the effectiveness of “Abenomics” to revive the Japanese economy surfaced in Q2. Within the category, the best performer was Manulife GF MPF Japan Equity, with a quarterly gain of 7.48%. This fund was also the best performer out of the entire MPF universe year-to-date, returning 23.24% for investors in the first half of 2013.
The second best performing category was US Equity. However, concerns over the Fed edging back on its bond buying program has eaten into the category’s Q2 returns; average returns fell from 9.09% in Q1 to 1.40% in Q2. AIA MPF – PVC North American Equity was the best performing fund within the category. Although the category fared relatively well as a whole, there were also some weak performers. For example, AIA MPF – PVC American made a 0.97% loss for the quarter. The AIA MPF – PVC North American Equity fund primarily invests in shares of US companies, while the AIA MPF – PVC American fund invests in American equity market index-tracking funds.
Despite the receding MSCI Europe Index, MPFs invested in European equities recorded a positive gain of 0.64% on average this quarter. In particular, BCT (Pro) European Equity Fund served investors well in the second quarter by recording a 3.41% gain.
Unfortunately, one of the worst performing categories in the second quarter of 2013 was also one of Hong Kong investors’ favourite categories: China & Greater China Equity. The category slid 5.60% as investors worried about a potential credit crisis in China. Investors in BEA (MPF) BEA China Tracker suffered the most this quarter, with the fund posting a painful loss of 12.15%. Hong Kong Equity MPF funds did not fare much better, having registered an average loss of 5.03%.
Most MPF categories suffered this quarter against the backdrop of various discouraging macroeconomic events. However, as always, we urge investors to invest with a long-term mindset and not focus on short term volatility. Furthermore, investors should by no means rely on simple performance data when making investment decisions. A key factor to consider is fees, as high fees will certainly erode an MPF’s future returns potential. Different MPFs bear different degrees of risk; for example, equity funds are generally riskier than bond funds, and investors should select their MPFs according to their own risk appetite.
Best Q2 2013 Performing MPFs by Category
MPF Category MPF Q2 2013 Return (%, HKD) Total Expense Ratio (%) Aggressive Allocation AIA MPF - PVC Fidelity Growth -0.86 NA Asia Equity Sun Life RCM MPF Asian Equity B -3.85 1.89 Cautious Allocation Hang Seng MPF-ST Plus-Flexi-Managed -1.33 1.67 Cautious Allocation HSBC MPF-ST Plus-Flexi-Managed -1.33 1.70 China & Greater China Equity BEA Greater China Equity -1.55 NA Europe Equity BCT (Pro) European Equity Fund 3.41 1.73 Global Bond BEA Global Bond -1.55 NA Global Equity Haitong Global Diversification-T 2.05 2.14 Guaranteed Funds AXA Smart Plan-Guaranteed 0.99 2.26 HKD Money Market BCOM Joy MPF Conservative 0.23 0.85 Hong Kong Equity Haitong Hong Kong SAR Fund - T -1.16 1.78 Japan Equity Manulife GS MPF Japan Eq 7.48 1.99 Moderate Allocation Fidelity RMT-Stable Growth -1.43 1.63 Other Bond BCT (Pro) RMB Bond Fund -1.00 NA Other Equity Manulife GS MPF Healthcare 2.60 2.01 Other Money Market Sun Life MPF RMB & HKD B 0.86 NA Target Date Fidelity RMT-Fidelity SaveEasy 2030 -0.90 1.78 US Equity AIA MPF - PVC North American Equity 3.40 2.09
To review the full Q2 2013 MPF Performance Report, please click here.
Germaine Share is a research analyst with Morningstar.
