All market indexes, category averages, and fund performances are quoted in HKD for comparison purposes unless otherwise stated.
Market Overview
The global economy had a tumultuous quarter amid the reignited Greece debt crisis and weakening global demand. Numerous countries across the globe, including India, China, Korea, and Russia, cut interest rates to stimulate their domestic economies. Overall, the MSCI World Index gained a meager 0.30% for the quarter.
The U.S. Federal Reserve kept interest rates unchanged at the Federal Open Market Committee meeting in June. Economic activity expanded moderately after a stagnant first quarter, and labor market conditions somewhat improved. On the other hand, inflation continued to run below the Fed’s longer-run objective of 2%, though some of the downward pressure from earlier sharp declines in energy prices has abated. Chairwoman Janet Yellen reiterated that a rate hike will be appropriate when the Committee has seen further improvement in the labor market and is reasonably confident that inflation will move back to its target. All in all, the S&P 500 was down 0.24% for the quarter.
Yields rose across major bond markets. The U.S. 10-year Treasury yield rose to 2.35% from 1.94% in the second quarter as the market anticipates an eventual rate hike. The 10-year German bund yield rebounded to 0.76% from 0.18%, while 10-year Japanese government bond yields trended up to 0.47% from 0.41% during the quarter. As a result, the Barclays Global Aggregate Index fell by 1.18% in U.S. dollar terms but experienced a steeper loss of 4.74% when quoted in euros.
The European Central Bank’s (ECB) quantitative easing program that was rolled out in March has shown early signs of promise. After five months of deflation or stagnation, the eurozone registered a positive estimated inflation of 0.2% in June. However, the biggest story that came out of Europe was the Greece saga, as news vacillated between whether the country would be able to repay its debts. Greece missed its 30 June debt payment of about USD 1.7 billion to the International Monetary Fund, which raised concerns on whether it would be able to fulfil its debt obligations toward the ECB on 20 July. The country voted “no” against a bailout offer on 5 July, and there are renewed fears of Grexit. The MSCI Europe Index retreated by 3.27% in the second quarter when measured in euros.
China’s economy grew at 7% in the first quarter of 2015, its slowest pace in six years. While this signals a slowdown in the economy, it is in line with the country’s 2015 growth target under the “new normal”. The Markit/HSBC China Manufacturing Purchasing Managers Index ended the second quarter with a reading of 49.4, signalling a contraction in the manufacturing sector. To combat decelerating growth, the People’s Bank of China lowered the reserve requirement ratio (RRR) for the second time since February by 100 basis points to 18.5% in April, and further lowered it by 50 basis points for commercial banks serving rural areas, agriculture, and small businesses and by 300 basis points for finance companies in June. In addition, the central bank cut its benchmark interest rates for the fourth time since November 2014, putting the one-year lending rate at 4.85% and one-year deposit rate at 2.00% as at the end of June. Ongoing monetary stimuli propelled China’s onshore stock market, and the CSI 300 Index made seven-year highs before it plummeted by 7.62% in June. Overall, the index soared by 10.38% for the quarter. The Hong Kong stock market exhibited similar, though less pronounced, volatility. The Hang Seng Index surged on the back of strong fund flows from mainland money managers through the Shanghai-Hong Kong Stock Connect and spillover effects from the onshore market rally, only to tumble in June. Overall, the index clocked a robust quarterly gain of 5.42%.
MPF Performance
Most of our MPF categories posted positive returns in the second quarter of 2015. On the back of the onshore Chinese stock market rally, MPF investors’ favourite category, China and Greater China equity, was one of the strongest performers, returning 6.93% on average. Manulife GS MPF China Value led the pack with an impressive quarterly gain of 9.21%. Hong Kong equity MPFs were a close second, averaging a quarterly return of 6.70%. Within the category, Hang Seng MPF-ST Plus-HK and Chinese Equity ranked in the top percentile with an 8.74% gain.
Aided by the Bank of Japan’s aggressive monetary stimulus program which entails the annual purchase of JPY 80 trillion worth of Japanese government bonds, Japan equity MPFs were among the front-runners this quarter, up by 3.11% on average. Manulife GS MPF Japan Equity comfortably beat its peers with a solid 5.77% quarterly return.
On the other side of the spectrum, Europe equity MPFs were among the worst performers this quarter amid the Greece debacle, registering an average loss of 0.18%. Category winner AMTD Invesco Europe managed to stay afloat by 0.36%.
Given the rising bond yields globally, MPFs that invest in global bonds were in the red by 1.59% on average, making the category the biggest loser for the quarter. Top performer My Choice Global Bond Provident offered investors little consolation with a 0.90% loss.
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 erode an MPF’s future return potential. Different MPFs bear varying 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.
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