MPF gains as US and Japan stocks rally

Pension scheme builds on 2023 rebound with 2.47% boost in first quarter

The Mandatory Provident Fund (MPF), the compulsory retirement scheme that covers 4.75 million people in Hong Kong, improved its investment results last quarter on the back of record gains in US and Japanese stocks, building on a rebound in performance last year.

The 379 investment funds under the scheme earned a combined HK$28.5 billion in income in the January-March period, according to data compiled by MPF Ratings, an independent research firm. That was equivalent to HK$6,000 for each of its members.

The MPF generated an average return of 2.47 per cent, compared with 4.1 per cent in the same quarter last year. It returned 3.5 per cent in 2023, halting two years of pandemic-driven losses.

The annualised net return of the scheme since its inception in December 2000 is 2.6 per cent, according to the provisional data released by the Mandatory Provident Fund Schemes Authority (MPFA) yesterday. This beats the 1.9 per cent inflation rate during the same period.

“MPF is a long-term investment spanning over 40 years,” MPFA managing director Cheng Yan-chee said. “Scheme members should not adopt a shortterm investment approach in managing MPF and try to time the market.”

MPF Ratings estimated the scheme’s return for the financial year to March 31 at 1.93 per cent, the first positive figure in three years.

Its total assets rose by 3.53 per cent to HK$1.18 trillion on March 31 from December 31, after taking into account investment gains and new contributions from its members, according to MPF Ratings. That works out to about HK$248,700 per member on average.

Funds dedicated to Japanese and US stocks were the star performers. The benchmark Nikkei 225 Index rallied by 21 per cent last quarter in local-currency terms, hitting an all-time high in March, before the Bank of Japan ended its zero-interest-rate policy.

In the United States, solid job data and slowing inflation fuelled bets on a rate cut, underpinning the S&P 500’s 10 per cent surge and the Nasdaq’s 8.5 per cent advance.

The first-quarter result was “very solid and gives the MPF system a chance to deliver an additional HK$100 billion in 2024”, MPF Ratings chairman Francis Chung said.

“Global inflation and interest rates will determine 2024’s direction, but with most MPF money invested in local equities, our market performance will be key.”

Japan stock funds performed the best among all MPF funds, with a return of 12.3 per cent in the first quarter, followed by US stock funds, at 9.82 per cent, with global stock funds gaining 7.59 per cent, according to MPF Ratings.

Hong Kong and mainland stock funds, traditionally the most popular picks among MPF members that soak up almost a quarter of MPF assets, were laggards. They lost 2.4 per cent in the three months to March 31, according to MPF Ratings, aided somewhat by Beijing’s state-driven market intervention.

Hong Kong’s benchmark Hang Seng Index fell 3 by per cent in the first quarter, while the CSI 300 Index, which tracks the top 300 stocks listed in Shanghai and Shenzhen, added 3 per cent.

“With the global trend of lower interest rates, except in Japan, equity markets are expected to keep rising,” said Kenrick Chung, director of Ben. Excellence Consultancy, an insurance broker in Hong Kong.

MPF members with high risk tolerance could consider investing in the Asia Equity Fund in the coming quarters, he added.

“The US government will try its best to keep the economy healthy in the election year,” he said.

MPFA’s Cheng urged scheme members to build a diversified investment portfolio.

“MPF members are advised to review their portfolio regularly and take into consideration factors such as their life stage, financial situation, risk tolerance level, etc when making the assessment,” he said.

Chung of MPF Ratings said investors could invest in the default investment strategy (DIS) funds, which automatically swap investments between stocks and bonds according to their agebased risk profiles.

DIS funds with higher allocations in stocks rose by 4.72 per cent in the first quarter, data from MPF Ratings showed. Those focused on bonds made a 1.04 per cent gain.

Nearly 3.3 million MPF accounts invested in DIS funds as of the end of last year, or 13.8 per cent more than in 2022.

Total assets in these funds stood at HK$109.4 billion, or 9.6 per cent of the MPF’s total assets, according to the MPFA.