Investment funds covered by Hong Kong’s Mandatory Provident Fund recorded their worst performance in eight months as the outbreak of coronavirus in mainland China triggered a global market selloff during Lunar New Year.
The 414 funds recorded a 1.87 per cent loss on average in January, the most since a 4.09 per cent setback in May last year when trade war between the US and China escalated, according to data provider Lipper. The firm is part of the Refinitiv group, which tracks the performance of funds offered by MPF to 2.9 million employees and self-employed people in the city.
The poor start to the new year came after MPF ended 2019 with a 12.6 per cent average gain, its third-best year of the decade.
Stocks plunged in Hong Kong after markets reopened for trading on January 29, and losses hit Tokyo to London as the coronavirus outbreak claimed more lives and spread to more than a dozen countries. China’s markets followed on February 3 after an extended halt in trading.
Unsurprisingly, China equity funds were the worst performers among all categories of funds. They lost 7.8 per cent on average in January, not far off the 8 per cent decline in an index tracking mainland companies listed in Hong Kong.
The MPF imposed tough restrictions about investment in so-called A shares, or onshore listed shares of mainland companies. Thus, the performance of China equity funds mainly reflects H-shares performance in Hong Kong.
Hong Kong equity funds were the second-worst performers, losing 6.5 per cent and tracking 6.7 per cent slide in the benchmark Hang Seng Index. South Korea equity funds also slumped, by 5.3 per cent.
“The recent decrease in the market is mainly because of the coronavirus outbreak,” said Kenrick Chung, general manager of employee benefits at Realife Insurance Brokers. “Hence, the recent market drop has, to a large extent, reflects the situation.”
Although most Asian markets including China and Hong Kong rebounded on Tuesday, Chung said the recovery may still be tentative.
“MPF members have to be very rational and stay calm,” he said. “As a long-term investment for retirement, should not conduct fund switching because of some ad hoc news or information. Every country is taking action to stem the coronavirus outbreak.”
On the flip side, gains in bond prices helped limit January’s losses, according to Lipper. Fixed-income funds were the best performers in January with a 1.51 per cent average increase amid a rush for safety. US equity funds rose 0.61 per cent, the only equity fund to buck the trend. The Dow Average, though, fell by 1 per cent last month.
The viral outbreak may have further impact to the overall supply chain in various sectors, which will lead to a higher volatility in the equity markets, according to Elvin Yu, chief executive of pension consultancy Goji Consulting.
“The impact on the supply chain may also lead to a correction, especially as the US market has rallied for quite a long period of time,” Yu said. “In addition, there will be a lot of uncertainties related to post-Brexit era. MPF members should expect high volatility in equity markets and keep a diversified portfolio.”
The MPF is a compulsory retirement plan in Hong Kong with employer and employee each contributing 5 per cent of monthly pay to the plan, up to HK$3,000 in total. That money is invested into different funds chosen by contributors.
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