September’s biggest losers lead MPF to first quarterly loss in two years

6th October 2021

*Widening local equity losses may prompt substantial changes in MPF member asset allocation***

MPF Ratings’ September MPF Performance Survey has now been uploaded.

Key points are as follows:

MPF Ratings’ MPFR All Fund Performance Index fell 2.74% in September and 4.11% for the September quarter (See Table 1), the largest 1-month and quarterly losses since the start of the global coronavirus pandemic.
1st quarterly loss after 5 consecutive quarters of investment gains sees investment losses estimated to be approximately -37.68bn in September and -$65.13bn for the September quarter, an equivalent average investment loss of -$8,000 per member in September and -$14,000 per member for the September quarter.
Total MPF assets is expected to decline from $1.177tr as of 24 September to approximately $1.167tr as at end of month.
After factoring in the forecasted loss and MPF contributions, MPF average account balances are expected to decline to approximately $257,000 as of 30 September from an all time high of $269,000 in June 2021.
For the 1st time in 3 years HK and China Equity Fund (as measured by the MPFR Equity Fund (HK & China) Index) recorded a 4th consecutive month of losses leading to the calendar year-to-date outperformance of US equities relative to HK/China equities to be 24.43% which is the widest differential since MPF’s inception.

Francis Chung (叢川普), Chairman of Hong Kong’s specialist independent MPF research group, MPF Ratings today released MPF Ratings’ September MPF Performance Survey by warning that ongoing losses in HK/China equities, and the continued record return differential between US and, Hong Kong and China equities, may see MPF members significantly change their MPF asset allocations in the near future.

Why MPF members may re-think their asset allocation

“Approximately $25 out of every $100 in the MPF system is invested directly into Hong Kong and China equity so a quarterly loss of -14% coupled with growing Mainland concerns over power shortages, trade pinch points, the impact of China Evergrande Group’s immediate future, and a record performance difference with US equities will doubtless cause MPF members to rethink their asset allocation.”

History teaches us much about MPF member behaviour

“The MPF system affords MPF members the ability to choose their underlying investment funds. While this flexibility should be applauded, members (often without the benefit of professional guidance) have historically reacted to disappointing news by re-allocating their MPF contributions at the wrong time. I fear the latest quarterly fund flow data (which we will release in a few weeks) will show this.”

Consequences of timing markets

“Members who aggressively try to time markets and do so at the wrong time, will not only produce disappointing returns but they also expose themselves to further losses. Members need to understand it is diversification, and “time in market” not “market timing”, which produces long term consistent returns. I for one continue to be invested in Hong Kong and China equities, and diversified, through a number of mixed asset funds.”

Table 1: 1-month, quarterly and year-to-date MPFR Index returns as of 30 September 2021