MPF funds in Hong Kong have had a tough year, suffering their most significant losses since the inception of the mandatory pension scheme in December 2000, on the back of the financial turmoil in equity and bond markets.
According to statistics provided by the MPF Authority, the aggregate MPF balance has dropped 16.9 per cent from HK$264.8billion in December 2007, to HK$223.8billion at the end of September this year. This means that HK$67billion of value has been lost during the first nine months of 2008.
This has translated into tangible losses for individual MPF investors, with the average balance dropping from HK$110,000 at the end of December 2007 to HK$92,000 as of September31, 2008, a decline of 16.3 per cent.
The biggest declines were in high-risk products, such as equity and life-cycle funds, while the more conservative money market and bond funds managed to post marginal positive returns. Equity and life-cycle funds account for 73per cent of MPF investments, with money market and bond funds only accounting for 2per cent.
Overall, the total losses are greater than those experienced when stock markets crashed in 2001 on the back of the dotcom bubble, with the pension funds recording a loss of 7.6 per cent in 2001 and a loss of 6.7 per cent in 2002.
'MPF was introduced at a market downturn and went through a prolonged period of recession since its inception in 2000 to the first half of 2003,' said Paul Chan, chief investment officer at Invesco. 'While the decline was deep, it was not as sharp as this round of corrections and more importantly, members' balance was much less at that time and therefore pain was not deeply felt.'
