On average, Hong Kong workers earned a flat return of 0.4% in July in their retirement accounts, mainly driven by strong returns from U.S., European, and global equities. As a category, U.S. equity funds produced a 9.4% monthly gain, followed by around 5% positive returns from global equity and Europe equity categories. Only six of 23 MPF categories recorded a loss in July and five of them invest in either China or Asia markets.
The Market Isn’t the Economy
There’s no shortage of concerning news on the U.S. economy – the blistering inflation rate hit a new peak of 9.1% in June (data printed in mid-July), even as recession expectations rise. Hearing these signals, the U.S. Federal Reserve hiked rates by another 75 basis points in its July meeting. On the other hand, tech giant bellwether stocks like Amazon (AMZN) and Microsoft (MSFT) posting strong quarterly earnings, and soothed investors’ concerns about the ability of companies to navigate the tough macro environment. This backdrop put Morningstar U.S. Index 9.3% higher in July, posting the index’s best month since November 2020, when it rose 11.79%.
While U.S. equity MPFs took eight spots in the top 10, the best performing fund came from European equity.
Manulife GS MPF Euro Eq generated a positive return of 12.9% for the month. On a year-to-date basis, though, the fund ranked the worst among all MPFs with a loss of 27%. Another non-US best performer was a global equity product, Mass MPF Global Eq, which returned 8.9% in July yet lost 18.2% year to date.
Deeper Losses for China
Bucking the trend of a summer rally are the China and Hong Kong markets and MPFs with a focus on these markets were the worst performers last month. The Morningstar China Index plunged 9% in July, the worst monthly return in a year. Hong Kong equity MPFs lost 8.0% on average while China & greater China equity lost 7.4%.
Domestically, homebuyers on the mainland have started to withhold mortgage payments on hundreds of unfinished housing projects. While our analysts believed this would have a limited risk on the country’s entire banking system, the incident will further slow the recovery of the troubled property sector. The long-running auditing impasse between the U.S. and China continues to simmer. Alibaba Group (BABA, 09988) was the latest to be identified by the HFCAA list. Cumulatively, China & greater China equity MPFs have given out the worst performance so far this year, losing just shy of 20%.
Since the beginning of 2022, returns of 474 MPF products averaged a negative 12.5% and only 30 funds, all belonging to the conservative allocation category, delivered a positive YTD performance.
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