Hong Kong’s compulsory pension scheme has reported its third-best performing year in the last decade as a global stock market rally last year helped produce an average return of 12.6 per cent, according to data from Lipper Refinitiv released on Friday.
It represents a turnaround from a loss of 8.3 per cent in 2018. It is the joint-third highest annual gain since 2008, lower than the 20.9 per cent in 2017 and 27. 5 per cent in 2009 and the same as the return in 2012.
It is however only the fifth-highest return since Lipper started tracking the fund’s performance in 2005.
The Mandatory Provident Fund (MPF) is a compulsory retirement scheme that covers 2.9 million people in the city, allowing employees to choose how to allocate their contributions into different investment funds.
Those opting to put their pension assets in stock funds were the biggest winners last year. Top of the league were the US equity funds which generated an average return of 27.9 per cent return in 2019. Their strong performance came as the US markets reached a record high, with the S&P 500 rising 29 per cent last year, the best annual gain since 2013.
In second place was the Greater China equity fund, which saw an average gain of 23.2 per cent, thanks to the Shanghai stock market climbing 22 per cent. Hong Kong-listed Chinese firms, known as H shares, also rose 10 per cent during the same period.
Other equity funds, which invest in US and Hong Kong markets, finished off the top three with an average gain of 22.5 per cent. European equity funds and global equity funds both saw strong returns at about 20 per cent.
Hong Kong equity funds, a popular choice for MPF investors, produced a return at 13.3 per cent, which beat the Hang Seng Index return of 9 per cent but fell short of the Japanese equity funds and Asia-Pacific equity funds which both generated a return at 17.9 per cent.
Mixed-asset funds, another popular choice that invests in a mixture of bonds and stocks, saw an annual gain of 14.6 per cent.
A Korean equity fund was the only one that reported a loss, falling 6.8 per cent last year. The other poor performer was the money market fund with a 1 per cent gain, while Hong Kong bond funds returned 3 per cent.
“One of the major reasons for the MPF to report its third-best annual return in 2019 was the strong performance of stock markets worldwide. Over 60 per cent of MPF assets are invested in equities, including 36 per cent in Hong Kong equities. The performance of last year is a reasonable return for the employees,” said Kenrick Chung, general manager of employee benefits at Realife Insurance Brokers.
However, Chung warned employees to beware of risks in 2020.
“There are different types of risks which we have to pay attention to. The development of the trade war between China and the US, Brexit in the UK and the geopolitical risks of the Middle East and North Korea are some of them,” Chung said.
“In relation to Hong Kong, the economy of China and the local social unrest will directly affect the performance of Hong Kong equities. If the above-mentioned risks do not get worse, we believe the rally can continue.”
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