MPF assets back above HK$1 trillion on Chinese equity gains

A strong rebound in Chinese equities in November helped to reverse Hong Kong’s mandatory retirement fund’s performance losses over five consecutive months and drove its total assets under management back above the HK$1 trillion ($128.6 billion) mark.

The Mandatory Provident Fund (MPF) saw an aggregate investment gain of HK$92.9 billion in November, fuelled by a rally in Chinese equities, both onshore and offshore, which accounted for about 25% of MPF’s total assets.

All asset classes produced positive monthly returns. As measured by the MPF Ratings’ All Fund Performance Index, the scheme reported a monthly return of 9.83% - the best monthly return since MPF’s launch in 2000.

As a result, MPF’s total AUM climbed back to the HK$1 trillion level, standing at about HK$1.04 trillion ($133.8 billion) as of the end of November 2022. The fund's AUM dipped below that threshold in September, hit by global market turmoil, especially the signficant correction in Chinese equities.

The MPF hit the HK$1 trillion level for the first time in July 2020. 

“The behaviour of Hong Kong and China equities in the past two months should actually be a powerful but positive lesson for MPF members and investors generally, that equities can generate good returns, but they can be volatile as well. So, diversification and long-term investing are key messages that should be highlighted,” said Francis Chung, chairman of MPF Ratings.

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MPF Ratings’ MPFR Index returns by asset class (as at 30 November 2022)

MPF’s Hong Kong and China equity funds went from a 14.82% loss in October to a 25.50% return in November - a 40.33% month-on-month performance turnaround - as measured by the MPFR Equity Fund (HK & China) Index.

November's gains helped narrow the retirement fund’s estimated year-to-date loss to HK$190.7 billion, according to MPF Ratings data released on December 5.

After factoring in monthly contributions, the average account balances per member are approximately HK$227,700 in November, a monthly increase of HK$21,200, reducing 2022 losses to HK$30,000.

Francis Chung,

MPF Ratings

Cheered by China’s easing Covid restrictions with a gradual reopening in sight, the Hang Seng Index jumped by 26.6% in November, and the onshore Shanghai Composite Index also climbed 8.9%. 

Against the backdrop of China’s gradual reopening, Chung believes MPF should report positive returns in December as well, which he noted is traditionally a good month for global markets.

However, it will not be enough to reverse a full-year loss for MPF, he noted.

“There's no doubt 2022 will be seen as a tough year for the MPF system from a return perspective. But it won't be the worst year on record [as some in the market have predicted],” Chung told AsianInvestor.

The worst-performing year on record for the MPF is 2008, when the global financial crisis struck and the fund lost 30.2%. Year to date, MPF has lost close to 16%.

“Unless markets drop significantly in December, MPF shouldn’t be heading for the worst year on record,” Chung said.

Compared to some global peers, MPF’s investment is not centrally managed. Instead, different MPF managers provide retail funds for members to decide on asset allocation.

In 2022, the Mandatory Provident Fund Schemes Authority (MPFA) made several moves to widen the investible universe, 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, it takes several steps before members can actually invest in these funds, including product design and product approval by MPFA. 

MPF has 4.57 million members.