24 February 2021
But rising bond yields pose a new risk to MPF members
Key points are as follows:
- MPF member accounts are on track to receive an average of $12,500 in investment earnings in February. A 5th consecutive month of positive earnings and a 10th month of positive earnings out of the past 12 months.
- MPF account balances are forecasted to reach approximately $273,000.
- MPF system is on track to generate $55.64bn in February earnings, lifting MPF to $1.22tr in size. Highest level ever recorded.
- With a forecasted monthly return of 9.15%, and for a 2nd consecutive month, Equity Fund (HK and China) is expected to produce the best asset class return while Bond Funds, with a return of -0.85%, are expected to deliver negative returns for a second consecutive month.
- MPF industry is on track to generate an average monthly fund return of 4.10% in February; well above (3.69%) MPF’s average monthly return of 0.40% since inception.
Bolstered by expected February investment earnings of $55.64bn MPF Ratings Ltd, an independent Mandatory Provident Fund (MPF) research specialist, is forecasting average MPF account balances for Hong Kong’s 4.46m MPF members will reach an all-time high of approximately $273,000 in February and the MPF system to reach an all-time high asset size of $1.22tr (see Chart 1).
MPF Ratings also believes the MPF industry is on track to generate an average monthly fund return of approximately 4.10% in February, 3.69% above MPF’s long term monthly average, largely attributed to strong returns from Hong Kong and China equities (see Table 1).
Despite the continued growth in MPF account balances, MPF Ratings’ Chairman Mr Francis Chung (叢川普) urged members to exercise caution in managing their MPF stating, “It’s great news that MPF members are on track to receive additional estimated average earnings of $12,500 in February, and average account balances are expected to reach an all-time high of $273,000, however rising US bond yields pose a new risk, signaling inflation concerns and making equities, especially in sectors which are already overvalued, less attractive leading to the possibility of a correction in markets.” Mr Chung further explained, “Some people perceive bonds to be a defensive asset class, but as bond yields rise the price of bonds fall, and bond returns have now fallen in the first two months of 2021. Diversification and a long term investment focus are more critical than ever. With MPF account balances at record levels there is now more to lose than ever before, even for the most conservative investors.”
Chart 1: Average MPF account balance per member and MPF total assets
Source: MPF Ratings and MPFA
Table 1: Forecasted average investment returns by MPF asset class for February 2021
Source: MPF Ratings