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Hong Kong's pension fund posts 4.5 per cent investment gain in first half, but policy and regulatory challenges lie ahead

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Hongkongers probably earned the most returns in two years from their US$154 billion pension scheme in the first half of this year from a rally in global stocks. These winnings could be eroded by policy tightening in the US and a tech sector crackdown at home by China.

The Mandatory Provident Fund (MPF) generated HK$52.6 billion (US$6.8 billion) of investment income in the January to June period, according to calculations by the Post based on data provided by Refinitiv. That is equivalent to a 4.5 per cent gain, or about HK$11,690 per member. The scheme suffered a 2.7 per cent loss, or HK$7,752 each, in the same period last year when the Covid-19 pandemic struck.

The MPF oversees some HK$1.2 trillion of funds for about 4.5 million scheme contributors in the city, and offers more than 400 investment vehicles from asset management companies worldwide, including stocks, bonds and exchange-traded funds. The retirement nest-egg was seen as insufficient for retirement for nine out of 10 Hongkongers between the ages of 50 and 59, according to a recent survey.

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The second half of this year will be challenging, as the US Federal Reserve has indicated a potential lift-off or increase in borrowing costs from late 2023, while encouraging debates about dialling back its bond purchases or policy stimulus. China has, however, separately signalled possible monetary easing to support a potentially faltering economic recovery.

A tech sell-off at home has knocked US$245 billion off the market value of such companies so far this month. Photo: Sam Tsang alt=A tech sell-off at home has knocked US$245 billion off the market value of such companies so far this month. Photo: Sam Tsang

Global stocks have wavered near all-time highs, while a sell-off in tech stocks at home has lopped at least US$245 billion off their market value this month amid tightened regulatory curbs in China. The broader Hong Kong market has lost HK$3.14 trillion in capitalisation.

"China's regulatory reforms will add a lot of uncertainties in the market, which could lead to a correction in the Hong Kong and mainland China markets through the third quarter," said Louis Tse Ming-kwong, managing director of Wealthy Securities.

US stock funds were the best performers in the first half of this year, according to Refinitiv, handing MPF members a 14 per cent gain on average as US benchmarks charted successive record highs. That was ahead of the 12 per cent gain in funds that focused on European equities.

Funds that bet on Hong Kong equities, the most popular choice among MPF members, rose by 6 per cent based on performance tracked by Lipper, which is a member of Refinitiv group. The Hang Seng Index rose 5.8 per cent in the same period, while the city's inflation-linked bonds yielded 2 per cent.

The worst performers among MPF's stable of funds were those that invested in global bonds, which lost 2 per cent on average, according to Lipper.

MPF members can expect greater market volatility ahead as the regulatory curbs in mainland China play out over time, Tse of Wealthy Securities said.

The Hang Seng Index slumped 2.9 per cent on Thursday, erasing all of its gains this year. China's central bank said it will continue to crack down on online payment companies for anti-monopoly practices, deputy governor Fan Yifei told mainland Chinese media on Thursday.

"MPF members should be more cautious in their investment selection under such circumstances," Tse added. "However, when all the regulatory changes are more settled, markets may well bounce back in the fourth quarter again."

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2021 South China Morning Post Publishers Ltd. All rights reserved.

Copyright (c) 2021. South China Morning Post Publishers Ltd. All rights reserved.