Hong Kong’s Mandatory Provident Fund scheme is set to close 2022 with losses of about HK$190.7 billion, according to MPF Ratings.
The outlook for 2023 is mildly optimistic given the recent performance of Hong Kong and Chinese equtiies, it said.
"Despite producing forecasted losses of around 20% for 2022 and HK and China equities, MPF’s largest asset class is on track to produce a second consecutive month of good performance giving it momentum going into 2023. Such momentum is cause for cautious optimism,” Francis Chung, MPF Ratings’ chairman, said.
“While only short term, two consecutive months of relatively strong performance gives HK and China equities momentum going into 2023. Given HK and China equities is MPF’s largest asset class it is a truism that when HK/China equities performs well then so too does MPF,” Chung added.
Chinese equities account for about 25% of MPF’s assets.
Investors have been looking for a catalyst to invest in HK and China equities, said Chung, noting that the relaxation of Covid-19 restrictions in China offers a good reason – although there are risks as well.
Investors are revisiting Chinese equities going into 2023 after China dropped its zero-Covid approach in early December, ending the country’s year-long massive lockdown and testing mechanism in favour of self-testing and home quarantines for asymptomatic and mild cases.
Overall, the market expects China's reopening to gain meaningful momentum after March 2023, as the weather warms and more policy direction is given during the national legislative meeting, or Two Sessions, that month.
The pension fund in 2022 also took several steps to boost its long-term return prospects, including allowing MPF to invest in Chinese government bonds and three policy bank bonds in June, and adding China A-share funds, single-country funds, and special funds such as ESG funds in November.
However, there are several steps before members can actually invest in these funds, including product design and product approval by the Mandatory Provident Fund Authority.
MPF’s losses in 2022 is equivalent to about 16% of its assets under management, led by drops in US and global equities.
The pension fund is expected to close the year with assets of around HK$1.05 trillion.
MPF's total assets had dipped below HK$1 trillion by September on the back of record losses of about HK$259 billion for the first nine months of 2022 as markets underwent a torrid time.
Assets under management climbed above the HK$1 trillion-mark again in November, boosted by a rally in Chinese equities, onshore and offshore.
“2022 has proven to be a difficult year with a long list of factors, headlined by rising inflation and interest rate increases, impacting all financial asset classes. Indeed, only once before has MPF seen HK, China and US equities simultaneously produce 20% losses. History will show 2022 was an exception not the norm,” said Chung.
The worst-performing year on record for the MPF is 2008, when the global financial crisis struck and the fund lost 30.2%.
“This is also only the third time in MPF’s history that global equities and bonds have simultaneously produced negative returns,” Chung noted.
MPF has 4.57 million members.
Shushi He contributed to this story.