24th August 2023
System in good shape to protect members as China real estate woes impact markets
Key points are as follows:
- MPF is on track to record an average investment loss of -5.31% in August (as measured by the MPFR All Fund Performance Index). Since inception, the system has previously recorded a monthly loss greater than -5% 13 times.
- A -5.31% loss would be MPF’s worst monthly loss since September 2022 and would erode more than 80% of its 2023 year-to-date gain.
- In absolute dollar terms August’s estimated investment loss is equivalent to -$53.4bn (or -$11,400 per MPF’s 4.69m members). After factoring in contributions, total MPF assets are presently forecasted to end August 2023 at approximately $1.099tr (up $47.6bn since beginning of 2023), equivalent to an average MPF account balance of $234,100.
- While HK & China Equity Funds is MPF’s biggest asset class by market share, its influence over MPF returns has reduced over time as members heed MPFA’s message to diversify.
- Proactive MPFA governance measures and diversification focused member education should ensure any investment loss impact will be less than in the past.
Francis Chung (叢川普), Chairman of MPF Ratings Ltd, Hong Kong’s independent provider of MPF research, views and education today highlighted that sharp Hong Kong and Chinese equities’ losses, stemming from the Mainland’s real estate woes, have the MPF system on track to produce an August investment loss of approximately -5.31%. Such a loss would erode a significant portion of the system’s 2023 investment gain and reduce the size of MPF’s total assets to approximately $1.099tr, equivalent to an average account balance of $234,100 per MPF’s 4.69m members. While the magnitude of August’s forecasted loss may surprise some observers, Mr Chung was quick to point out that MPFA measures to strengthen governance and to educate members of diversification benefits are having a positive effect and should ensure the long term impacts arising from short term investment losses are likely to be less than otherwise could be.
August loss puts MPF on the cusp of giving up 2023’s investment gain in one month
“2023’s first 7 months saw the MPF system add approximately $64.6bn in investment gains. MPF’s August investment loss is approximately $53.4bn, putting it on the cusp to erode a significant portion of its 2023 gain in just one month. While the investment result may be disappointing, proactive MPFA governance measures and diversification focused member education appears to be having a positive effect.”
How MPFA initiatives are having a positive effect despite sharp market loss
“Members appear to heeding the MPFA’s message that diversification is key to consistent long term investing. From its 2015 peak Hong Kong and China Equity Fund has lost about 8% MPF market share. Conversely, since its 2017 inception, the MPFA’s low cost and well diversified Default Investment Strategy (DIS) funds has gained approximately 8.5% market share. MPF Ratings stands with the MPFA and its members’ message to invest long term and be well diversified.”
How significant are the China property concerns for MPF and what is the outlook for the rest of 2023?
“Chinese property and overall economic concerns may impact the rest of the year however the MPFA has worked earnestly to put good governance principles in place. Such principles don’t directly affect financial markets but they do promote accountability that minimizes the prospects of MPF scheme trustee appointed fund managers having undue holdings in overly exposed companies.”
Table 1: MPF Ratings’ MPFR Index returns by asset class (as at 21st August 2023)
Source: MPF Ratings
