Hong Kong’s Mandatory Provident Fund lost a total of HK$105.7 billion (US$13.6 billion) – about HK$35,223 for each of the about 3 million people covered by the city’s retirement schemes – during the first quarter of this year, amid a coronavirus pandemic-led global market meltdown.
This is the MPF’s worst quarterly performance since the July-September quarter of 2011, when the pension fund lost 12.1 per cent during the European sovereign-debt crisis. The loss almost wiped out an average gain of 12.6 per cent recorded during last year as a whole, which was the MPF's third-best year of the decade. The MPF had HK$969.46 billion in total assets as of the end of 2019.
“The Covid-19 pandemic has pushed the global economy into recession. It started as a supply chain disruption and quickly widened to damage the demand side of economic activities, due to lockdowns in many countries,” said Elvin Yu, chief executive of pension consultancy Goji Consulting.
The 407 investment funds under the MPF reported an average loss of 10.9 per cent in the first quarter, according to data provider Lipper. “The outlook is unpredictable, as there is no cure or vaccine in the imminent future. Therefore, [the markets are] unlikely to see any immediate and strong rebound. Don’t expect a V-shape recovery,” Yu added.
In March itself, the MPF lost 7.3 per cent, following a loss of 2.3 per cent in February and 1.9 per cent in January. Except for bond funds, which were 0.8 per cent higher in March and reported a 4.1 per cent gain in the first quarter, almost all other funds were in the red.
“Equity funds in other markets also dropped because of the Covid-19 pandemic. Hence, it was not strange to see such performance in the first quarter,” said Kenrick Chung, general manager of employee benefits at Realife Insurance Brokers. “As only around 23 per cent of MPF assets are invested in fixed-income [funds], the MPF’s defensive capabilities are weak.”
Stock funds in Europe – the centre of the outbreak in March – were the worst performers and lost 15.8 per cent on average in March and 24.8 per cent on average in the first quarter of the year. Asian stock funds excluding Japan dropped 21.2 per cent in the first quarter, while Hong Kong stock funds lost 15.2 per cent, US stock funds lost 19.1 per cent and Chinese equity funds lost 12.2 per cent.
This was in line with stock market performances, with Hong Kong’s Hang Seng Index dropping 16 per cent in the first quarter of the year, while indices in Japan and South Korea both plunged 20 per cent and the Australian market plummeted by 24 per cent. The Dow Jones Industrial Average lost 23 per cent in the quarter for its worst quarterly loss since the fourth quarter of 1987.
Mixed-asset funds, a popular fund choice with bonds and stocks, also reported an average loss of 14 per cent.
The US and Europe last month announced rate cuts and a lot of measures to boost their economies. “While these measures provided ample liquidity to keep the financial system functioning, these drastic moves also sent an alarming message to the market, resulting in panic selling and extreme volatility,” Goji Consulting’s Yu said.
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This article Hong Kong Mandatory Provident Fund lost US$13.6 billion in first quarter amid wider market meltdown first appeared on South China Morning Post