All market indexes, category averages, and fund performances are quoted in HKD for comparison purposes unless otherwise stated.
Market Overview
2015 was an action-packed year. The US economy was finally strong enough for the Fed to commence interest rate normalisation, while other major countries around the world continued to pursue aggressive monetary easing as their economies slowed. The reignited Greek debt crisis, China’s turbulent stock market, and the roughly 30% drop in crude oil prices all contributed to global uncertainty. This rattled global equity markets and the MSCI World Index was down 0.87% (in US dollar terms) for the year.
After a year of rampant speculation about when the US Federal Reserve would raise interest rates, the Fed finally announced a target range hike from 0%-0.25% to 0.25%-0.5% at its December meeting, ending almost a decade of near-zero rates. The FOMC cited considerable improvement in the labour market, and its reasonable confidence in inflation rising over the medium term to its 2% objective. Furthermore, it reassured that the stance of monetary policy will remain accommodative after this increase, and that it “expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal-funds rate”. The US stock market took the news well and the S&P 500 was up 6.87% (in US dollar terms) in the fourth quarter. Overall, the index gained a meagre 0.75% (in US dollar terms) for the year. The continued strength of the US dollar presents a potential headwind for economic recovery, and the US Dollar Index, or DXY, gained 9.26% in 2015.
The European Central Bank rolled out a quantitative easing program in 2015 which entailed the monthly bond purchase of EUR 60 billion to raise eurozone inflation to its target of just under 2%. Since the program’s March implementation, monthly inflation has hovered just above 0% throughout the rest of the year (with the exception of September, which posted a deflationary reading of negative 0.1%). That said, inflation remained well short of the ECB’s target, and the market speculated more stimulus. In December, the ECB cut its deposit rate further into negative territory by 10 basis points to negative 0.3%. ECB president Mario Draghi also announced that the bank will extend the program to at least March 2017, rather than September 2016 as initially broadcasted. Although this underwhelmed many investors, the eurozone’s slow and steady growth propelled the equity market, and the MSCI Europe Index gained a healthy 8.22% for the year when measured in euros. Nonetheless, the euro’s roughly 10% depreciation against the US dollar led to the index’s annual loss of 2.84% when quoted in US dollars.
The Bank of Japan maintained its monetary stimulus plan of purchasing JPY 80 trillion worth of Japanese government bonds, a program first implemented in April 2013 as part of Abenomics to revive the Japanese economy. In October, the central bank postponed its forecast for reaching its inflation target of 2%, the second time in 2015, to around the six-month period through March 2017 in the wake of weak oil prices. In December, the bank made a few tweaks to the existing program, including buying bonds of longer maturity and putting fresh cash into exchange-traded funds. The Nikkei rose by 9.07% in 2015 (in yen terms). The yen stabilised against the US dollar over the year, though it remained weak overall.
Concerns over China’s economic slowdown intensified over the year as gross domestic product growth moderated from 7% from the first half of 2015 to 6.9% in the third quarter. This was the first time that China’s economic growth rate has fallen below 7% since 2009, and also under the government’s annual growth target of around 7%. Along with deflation woes, China has stepped up its monetary easing efforts. The People’s Bank of China cut the yuan’s central parity rate against the US dollar on three consecutive days in mid-August, resulting in an approximately 3% devaluation. Furthermore, the central bank cut interest rates by 25 basis points in October, the sixth cut since November 2014, bringing the one-year lending rate to 4.35% and the one-year deposit rate to 1.5%. The required reserve ratio for all banks was further lowered by 50 basis points. Regardless, the Caixin China General Manufacturing PMI ended the year at 48.2, extending a record streak of contractionary readings. The Chinese stock market had a roller coaster year. The CSI 300 Index surged to a seven-year high in early June, only to plummet by 40% to an annual low in late August. In response, the government rolled out a series of aggressive measures to support the stock market. Overall, the index gained a solid 5.58% (in CNY terms) for the year. The Hong Kong stock market exhibited similar, though arguably less pronounced, volatility. The Hang Seng Index slid by 4.06% for the year.
The Fed’s rate hike nudged the US 10-year Treasury yield up from 2.17% at the end of 2014 to 2.27% at the end of 2015. On the back of moderate eurozone growth, the 10-year German bund yield rose to 0.63% at the end of 2015 from 0.54% a year ago. Conversely, 10-year Japanese government bond yields fell 0.27% at the end of 2015 from 0.33% a year ago. Bond yield and prices move inversely, and the Barclays Global Aggregate Index retreated by 3.15% in 2015 in US dollar terms.
MPF Performance
Many MPFs were unable to recover from the brutal third quarter, and only a handful of our MPF categories delivered positive returns in 2015. On the back of a soaring Japanese stock market and a stable yen, Japan equity MPFs posted the strongest returns among all MPF categories in the past year, gaining a solid 8.63% on average. Within the category Manulife GS MPF Japan Equity led the pack with a robust 12.80% annual return.
HKD Bond MPFs performed steadily throughout the year, and was among the best performing category in 2015, averaging a 1.35% return. My Choice HKD Bond Provident managed to beat its peers with a respectable 2.37% gain.
Aided by the ECB’s monetary stimulus, European stocks rallied and our Europe Equity Morningstar Category was up by meagre 0.26% on average in the past year. Mass MPF European Equity topped the category with a 3.00% gain.
China and Greater China Equity MPFs, Hong Kong investors’ favourite category, were unfortunately the second-worst performers of the year, sliding 8.69% on average. Category winner Manulife GS MPF China Value offered investors little consolation by being 3.30% in the red. Hong Kong equity MPFs did not fare much better, and posted an average annual loss of 5.65%. Sun Life First State MPF Hong Kong Equity B, however, managed to stay afloat with a 0.58% gain.
The biggest losers of 2015 were Asia ex-Japan equity MPFs, slumping 8.96% on average. Top performer Haitong Asia Pacific (ex-HK) T was down 5.62%.
As always, we believe investors are best served by adhering to their long-term investment plans with a well-diversified portfolio and by avoiding 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.
2015 Best Performing MPFs by Category
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