Mandatory Provident Funds averaged a loss of 6.1% in the first quarter of 2022. The worst performers were Hong Kong workers’ favorite MPF categories – Hong Kong equity and China & greater China equity. These two categories are the largest in the MPF scheme by assets under management.
MPFs investing in Hong Kong equity (which have 47 active and passive products) started the year strong. The same was true for China and greater China equity funds. The tide then turned after the U.S. Securities and Exchange Commission identified 11 Chinese firms that are potentially non-compliant on the audit front, which may ultimately lead to these companies delisting from the New York exchanges.
While Morningstar analysts expect the delisting to pose no value destruction to the Chinese companies, the selling from global investors was vast and intense. Earlier in March, the Hang Seng Index plunged more than 20% from where it started 2022, hitting a six-year low, and the Hang Seng Tech Index collapsed by as much as 40%. The selling pressure was not isolated to the identified names’ U.S.-listed class but impacted their dual-listing shares on the Hong Kong bourse as well as some other potential delisting candidates.
The Worst Times Since the 2008 Global Financial Crisis
At the onset of the coronarvirus pandemic, Chinese equities crashed in the first quarter of 2020, before quickly heading for a rebound that lasted five quarters. The previous worst consecutive losses in Hong Kong and China equities, gauged with MPF returns, dated back to 2018, when China’s capital markets faced a trade dispute with the US and questions around its real economy following decades of fast growth. The 2018 market correction was milder, though. That means the current backdrop makes the worst three quarters for Hong Kong and China funds since 2008.
In March, among more than 400 MPFs, the poorest performer for the category and the whole MPF universe was Principal 800 China Equity I which dipped by 7.8%. The fund was also among the quarterly worst performers with a 14.8% loss.
However, the single fund that recorded the most loss in the quarter was Manulife GS MPF Euro Eq. The European equity fund, which carries a five-star rating, plunged 16.7% in the first quarter after Russia’s invasion of Ukraine.
Other than Hong Kong, China, and Asia equities, target date funds, which categorize stock-bond portfolios that typically match investment horizon with investors’ estimated retirement age, fell across the board during the first quarter, on average dipping 8.23%. Manulife GS MPF 2035 Retirement, 2040 Retirement, and 2045 Retirement ended the quarter with more than 9% loss and were the range of funds that performed the worst in the category.
Turning to the top funds, risk-off sentiment prevailed and products that invest with lower risk exposure became the first quarter’s winners. Nine of the top ten performers were money market funds, with most of them investing in instruments denominated in Hong Kong dollar and Renminbi.
In March, global, US and Europe equities took a breather from the February selldown. Thematic fund Manulife GS MPF Healthcare was a major beneficiary of a rally in global healthcare equities, scoring a 5.4% single-month gain. Haitong’s Korea fund followed with a 4.8% gain. US equities also ended the month on a stronger footing, with products managed by AIA, Principal, Hang Seng and HSBC completing the remaining of the top 10 list – each returning more than 3%.
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