Hong Kong residents’ nest eggs shrink by HK$56,500 each as Mandatory Provident Fund posts record HK$258.9 billion nine-month loss

    The MPF on average lost 21.5 per cent in the first nine months, the worst performance since it launched 22 years ago
    Analysts are optimistic about the outlook as they believe the market may rebound in the fourth quarter

Enoch Yiu
Enoch Yiu
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Published: 10:43am, 6 Oct, 2022
The Mandatory Provident Fund (MPF) reported a loss of HK$258.9 billion (US$32.98 billion) in the first nine months of the year, its worst performance for the period on record, as soaring global inflation and interest rates rattled markets.

That equates to a loss of HK$56,500 per person.

Analysts expect Hong Kong’s compulsory retirement scheme, which covers 4.6 million employees in Hong Kong, to bounce back in the fourth quarter, however.

The loss caused the value of assets of the scheme to drop below HK$1 trillion for the first time in two years, to HK$965 billion, according to data provided by MPF Ratings, an independent pension research firm. That compares with HK$1.2 trillion at the end of 2021.

Overall the fund lost 21.5 per cent between January and the end of September, its worst nine-month performance since the launch of the MPF in December 2000. It can however still beat the Hang Seng Index, which fell 26 per cent in the same period.

“Global inflation, interest rates and recession concerns continue to be the biggest market risks fuelling the current volatility,” said MPF Ratings’ chairman, Francis Chung.

“A global confluence of geopolitical issues and economic concerns has seen MPF account balances fall to a two-year low as the total assets fall below HK$1 trillion for the first time since the milestone was exceeded in July 2020.”

In September alone the MPF shed HK$82.1 billion, bringing the third-quarter loss to HK$106.2 billion.

Despite the record loss, Chung said the MPF remained a highly secure and robust system.

“It is important to emphasise that while average MPF member account balances are now back to June 2020 levels, accrued market losses are not a result of the MPF system. Investment gains and losses are a function of financial markets, something the MPF system does not control,” he said.

“It is imperative that MPF members remain invested for the long term and remain well diversified.”

Analysts are optimistic about the outlook. The Hang Seng Index rose 6 per cent on Wednesday.

“The market may rebound in the fourth quarter when global inflation reaches a high and the mainland economy recovers,” said Kenny Ng Lai-yin, a strategist at Everbright Securities International.

“However, it will be difficult to recover all the losses from the first nine months, so 2022 will probably record a loss still.”

The MPF’s returns to pensioners have been diminishing for the past four years. They dropped from a 12.7 per cent gain in 2019 to a 12.2 per cent increase in 2020, then to a 0.6 per cent rise last year, according to data from Refinitiv Lipper.

“The bad MPF performance we’ve just seen was mainly caused by the collapse of the capital markets including stocks and bonds,” said Kenrick Chung, director of Ben. Excellence Consultancy, a Hong Kong-based insurance broker.

“Unless you have switched your MPF assets to the capital guarantee fund or conservative fund, almost nobody can escape from the disaster.

“If central banks soften their tapering policies, there is hope that markets can bounce back. Moreover, policies in China after the National Congress will be another critical factor for our MPF investment performance.”

Almost all categories of fund suffered a loss in the first nine months. The conservative fund, which invests in bank deposits and generated zero returns, was the exception, according to MPF Ratings.

Hong Kong and China stock funds were the worst performers, losing on average 28.7 per cent, while mixed asset funds that invest in both bonds and stocks lost 27 per cent.

Asian equity funds lost 26 per cent while US stock funds lost 24.8 per cent.

Even money-market funds that invest in the time deposits of different currencies reported a loss of 5.6 per cent, as a result of the fall of foreign currency values against the US dollar.