HK MPFs Continue to Have a Rough Time This Year

Hong Kong workers’ retirement pots took a hit in the fist half of 2022 because of harsh corrections across geographies and asset classes.

Kate Lin 14 July, 2022 | 14:18
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Hong Kong workers have continued to endure losses in their retirement accounts through the first half of 2022. Since the beginning of this year, the average performance of 477 MPF funds was down 12.4%. For the month of June, MPF account holders had an average loss of 3.0%.

For just the second time in 40 years, bonds and stocks both posted losses for two consecutive quarters. The COVID-19 pandemic-sparked supply chain snarls have lingered, and this was further compounded by Russia’s attack on Ukraine that fueled a jump in energy prices. All contributed to continued inflation, which has deepened recessionary fears.

During the year-to-date period, out of 477 MPFs in Morningstar’s database, only 31 Hong Kong Dollar money market funds and two guaranteed funds have returns in the positive territory, but most of these were flat.

 

A Different Picture for China

In terms of single-month performances, Hong Kong and China & Greater China equity funds had a stronger month while other categories plunged on recessionary worries.

For the past year or so, China’s regulatory actions against key internet and consumer companies, the specter of delisting of U.S.-traded shares for some firms, and rolling lockdowns in major cities brought down the market returns. Relief came only in June as the authorities released a set of measures to jumpstart the economy and eased some COVID restrictions.

The Morningstar China Index ended June up 5.7%, supporting returns of MPFs investing in Hong Kong and China & greater China equities. However, their year-to-date returns are less impressive, with all of the top monthly funds losing slightly less than 10%.

 

Who Were Some of the Worst Performers?

Inflation in South Korea continued to climb in June, as in other countries. In South Korea, inflation was at 6%, the country’s largest increase since November 1998. This has fueled expectation of a big rate hike by the central bank, even after it already raised key rates five times this year. This added further pressure to the equity market. Last month, the market was among the worst performers globally, with the Morningstar Korea Index sliding 17.3% in USD terms. Two share classes of Haitong’s Korean equity MPF delivered the poorest June performance as they lost 12.3% and ended the half-year period with losses slightly shy of 20%.

The remaining of the worst performers in June were equity funds that invested in Europe, Asia-Pacific ex-Japan, U.S., and global markets. It was worth noting that the Manulife GS MPF Euro Eq was also the worst performer in the last six months, losing 35.4% year-to-date. In terms of returns between January and June, Mass MPF US Equity and Manulife GS MPF N Amer Eq also saw losses around the 30% mark.

 

Erasing Gains from 2021

There’s no better test of fortitude than a market downturn. A majority of winners in 2021 were not spared from the correction and gave up much of what they gained last year.

Investors in Manulife GS MPF Euro Eq (the best performer in 2021 but the worst performer in 2022, so far) have felt the pain. The fund’s 27% return was more than erased by its 35.4% loss recorded in 2021, reverting a cumulative gain to an 18% loss since the beginning of 2021. Looking at the rest of the top 10 from 2021, all were U.S. equity funds and have sacrificed gains earned from last year.

Significant losses recorded in bond assets made MPF contributors nowhere to hide. In the MPF scheme, in 2022 so far, losses from global bond MPFs averaged 12.5% and HKD bond MPFs at 7.2%, even though they are typically lower-risk products than equity portfolios in the scheme. In comparison, during the first wave of pandemic hits, Hong Kong workers found shelter in global bonds and HKD bonds, which returned 0.5% and 3.71% respectively while all other risky categories suffered a loss.

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About Author

Kate Lin

Kate Lin  is a Data Journalist for Morningstar Asia, and is based in Hong Kong

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