Hong Kong’s compulsory pension scheme records worst performance in three years, pays for over reliance on Hong Kong and Chinese stocks

·4-min read

The Hong Kong compulsory pension scheme’s over reliance on Hong Kong and Chinese stocks proved to be its undoing in 2021.

As the Hang Seng Index and the Hong Kong-listed shares of mainland Chinese companies slumped to their biggest losses in a decade, the about 400 investment funds under the city’s HK$1.2 trillion (US$153.8 billion) Mandatory Provident Fund (MPF) last year recorded their worst overall performance in three years, according to Refinitiv Lipper data. In 2018, these funds reported a loss of 8.2 per cent on average. In 2019 and 2020, they reported gains of 12.7 per cent and 12.2 per cent, respectively.

Last year, the funds mustered a gain of 0.64 per cent, or HK$7.6 billion (US$984.6 million), according to calculations made by the Post using the Refinitiv Lipper data. On average, each of the 4.5 million MPF ­members earned about HK$1,706 last year – far lower than about HK$30,000 in 2020.

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Hong Kong’s MPF scheme faces challenges after first-half investment gains

“Overall MPF performance in 2021 was affected by the poor performance of Hong Kong equities,” said Kenrick Chung, general manager of employee benefits at Realife Insurance Brokers. “In 2022, there are still systematic risks – of the Covid-19 pandemic, China-US tensions, geopolitical risks and inflation – to be concerned about,” he said. Additionally, many central banks may increase interest rates this year to fight inflation, which will pose a risk to capital markets, Chung added.

The MPF allows members to choose how they allocate their contributions, in different funds that invest in stocks, bonds, currencies and mixed assets. Both China and Hong Kong equity funds last year reported their worst losses in 10 years, which hit many members hard as they are the most popular fund choices and represent a third of all MPF assets.

China stock funds, which invest mainly in shares of Chinese companies listed in Hong Kong, lost 19 per cent on average last year and were the worst performers among the funds tracked by Refinitiv Lipper. This was their worst performance since a 20.5 per cent loss in 2011. These funds gained 13.5 per cent in 2020.

MPF members investing in Hong Kong stock funds also suffered a 14 per cent decline, which was also their worst performance in 10 years, since a 19.8 per cent loss in 2011.

The China and Hong Kong stock funds’ performance last year reflected the Hong Kong market’s worst performance in 10 years, triggered by China’s tightening of regulations in the technology and private education sectors in July last year.

Pension fund chief to widen reforms as MPF managers urge easing of rules

The Hang Seng Index fell 14 per cent in 2021, making Hong Kong the worst-performing market out of 92 major indexes tracked by Bloomberg. Only the city’s Hang Seng China Enterprises Index, which tracks the performance of Chinese companies, fared worse, retracing 23.3 per cent over the past 12 months.

There were, however, some winners last year. US stock funds recorded a gain of 25.3 per cent in 2021, thanks to a surge in the US markets – the S&P 500 and Nasdaq added 27 per cent and 21 per cent, respectively, last year. These funds also reported a strong 27.6 per cent in 2019 and 18.9 per cent in 2020.

Health care funds also gained 19 per cent, while Europe stock funds earned 17 per cent.

Digitised Hong Kong pension scheme to save members billions in fees

BCT Group, an MPF provider, launched a new MPF US stock index fund in November that tracks both the S&P500 and Nasdaq 100. “While the US stock market has risen a lot in 2021, we believe it will continue to have more upside in 2022, as US corporate earnings and other market indicators remain positive,” said Bob Lee, BCT’s deputy CEO.

MPF members should, however, continue to invest in Asian equities, said Realife’s Chung. “If China can rectify its market, it will still be a major economic engine for the world. There are still many tools, both fiscal and monetary, that China can use to stimulate its economy,” he said.

“MPF members with a high-risk tolerance level can consider Asian equity funds, which cover Asia as well as China.”

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