All market indices, category averages and fund performance are quoted in HKD for comparison purposes.
The performance of stock markets varied this quarter against a backdrop of geopolitical worries and mixed economic data. Here, we take a look at the major macro-economic events of the past quarter and how they affected the performance of MPFs.
Global equities had a rocky third quarter in the face of a number of geopolitical fears. Investors worried about the tension between Ukraine and Russia and its reverberations on the European and global economies. The ongoing conflict in the Middle East resulted in the U.S. and its allies launching air strikes against targets in Iraq and Syria in September. The vote for Scottish independence, although ultimately unsuccessful, also created some short-term turbulence. Overall, the MSCI World index was down 1.97% for the quarter.
Despite various geopolitical concerns, U.S. equities continued to rise and the S&P 500 index was up 0.81% this quarter, clocking a robust gain of 6.86% year-to-date. The U.S. Federal Reserve has stayed its course on tapering its quantitative easing program and announced on 17 September that it would reduce its monthly asset purchases by another US$10 billion to US$15 billion at the beginning of October. Furthermore, the Fed has indicated if incoming information supported its expectations about labour market conditions and inflation it would end its asset purchase program at its next meeting, scheduled for late October. The FOMC has reiterated that interest rates would stay low “for a considerable time” after the program ends, though a rate hike sometime in 2015 is widely anticipated.
The threat of deflation in the eurozone intensified as inflation dropped to a mere 0.3% in August, well below the European Central Bank’s (ECB) target of just under 2%. As the region’s recovery loses momentum, the ECB surprised the market on 4 September with its announcement of a much more supportive monetary policy. This included another round of interest rate cuts to more record lows and a plan to start a quantitative easing program that would entail buying asset-backed securities and covered bonds. Meanwhile, the Markit Eurozone Manufacturing Purchasing Manager’s Index (PMI) fell to a 14-month low of 50.3 in September, signalling weakness in the region’s economy. Even the strongest economy in the region, Germany, has begun to slow as investor confidence dropped. The MSCI Europe index plunged by 6.83% in the third quarter and wiped out all gains made earlier this year. This is mainly attributable to the euro’s weakness, which has depreciated against the US dollar (to which the Hong Kong dollar is pegged) by 7.73% this quarter.
Concerns over China missing its annual growth target of 7.5% persisted. The HSBC/Markit PMI fell to 50.2 in September from 51.7 in July, marking sluggish growth in factory activity. On 30 September, the People’s Bank of China (PBOC) loosened mortgage restrictions to address the country’s troubled housing market, which has become a significant drag on the country’s economy. Second-home buyers can now pay a 30% down payment instead of 60% and get lower interest rates on their mortgages so long as they have paid off their initial mortgages. As the preparation and testing continued for the upcoming Shanghai-Hong Kong Stock Connect, the CSI 300 index soared 14.63% this quarter. Conversely, the Hang Seng index slumped by 1.11% amid pro-democracy protests in Hong Kong in late September.
MPF Performance
Most of our MPF categories posted losses in the third quarter and those in the black managed to deliver only meagre positive returns. This was a reversal of the strong upward trend we observed in the second quarter. One of the best-performing categories this quarter was U.S. Equity, which managed to stay afloat by 0.48% on average. Within the category, Principal 800 US Eq D led the pack by returning 1.40% for the quarter. On the back of the U.S. stock market rally, U.S. Equity MPFs have been one of the strongest performers this year, delivering an admirable average return of 6.05% year-to-date.
Hong Kong Equity MPFs trailed closely behind, with an average quarterly loss of 0.17%. Within the category, Principal 800 HK Equity D led the pack by returning 1.36% for the quarter.
China and Greater China MPFs were again among the front-runners this quarter. However, the category failed to capture the CSI 300’s strong rally and was up down by 0.34% on average. Within this popular category, Principal 800 China Equity D beat its peers with a 3.28% gain.
Plagued by euro’s depreciation and the region’s disappointing growth, Europe Equity was the worst performing MPF category of the quarter, sinking 5.22% on average. Although being at the top of the category, AMTD Invesco Europe wasin the red by 3.51%.
As always, we believe investors are best served by adhering to their long-term investment plans with a well-diversified portfolio and avoid being swayed by short-term changes in the macroeconomic environment. Furthermore, investors should not rely on simple performance data when making investment decisions. A key factor to consider is fees, as high fees will certainly erode an MPF’s future returns potential. Different MPFs bear different degrees of risk; for example, equity funds are generally riskier than bond funds and investors should select their MPFs according to their own risk appetite and tolerance.
Q3 2014 Best Performing MPFs by Category
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To review the full Q3 2014 MPF Performance Report, please click here.
