Hong Kong’s compulsory pension fund is up 3.78 per cent this year, led by China and HK equity funds

The Mandatory Provident Fund enjoyed a third straight monthly gain in August with an average return of 1.46 per cent, thanks to a robust rally in the Hong Kong and mainland stock markets after the announcement of the Shenzhen-Hong Kong Stock Connect.

China equity funds were the best performers, posting a return of 6.55 per cent, followed by Hong Kong equity funds at 5.15 per cent. Greater China funds ranked third with an average return of 4.55 per cent, according to Thomson Reuters Lipper, which tracks the performance of 435 MPF investment funds on a monthly basis.

The MPF should be back to black for this year as a whole

JOSEPH TONG, CHAIRMAN, MORTON SECURITIES

Joseph Tong, chairman of Morton Securities, said: “A majority of the MPF is investing in Hong Kong and Asian stocks so the its returns are very much related to the performance of the Hong Kong and Asian stock markets.”

The eagerly-awaited Shenzhen-Hong Kong Stock Connect, the second cross-border trading scheme between Hong Kong and mainland investors, could be launched as early as November, officials said last month.

It will allow international investors who have an account with any stockbroker registered with HKEX to trade 880 Shenzhen stocks, while mainlanders will be able to trade Hong Kong stocks through stockbrokers via Shenzhen Stock Exchange.

The announcement of the new scheme has led Hong Kong stocks higher for two months in a row. They gained 5 per cent last month, reaching one of their highest levels this year. The Shanghai Composite Index rose 3.56 per cent in August, its biggest monthly gain since March, extending its winning streak to three consecutive months.

About 40 per cent of the HK$607.33 billion under MPF management is invested in equity funds, while 37 per cent is in mixed assets. The remainder is spread between bond funds, conservative funds, guarantee funds and money market funds, according to data from the Mandatory Provident Fund Schemes Authority, which oversees the scheme.

Mixed-asset funds, the second most popular fund choice, which invest in both bonds and equities, returned 0.91 per cent.

The equity funds in Japan and Korea, last year’s high-flyers, found themselves in the red last month, losing 0.07 per cent and 2.24 per cent respectively.

August marked the third month in a row that the MPF has reported a positive return, a rally which has offset a sharp decline in the first two months of the year. It brings the year-to-date gain to 3.78 per cent.

Tong sees the MPF’s rally continuing throughout 2016.

“The stock markets in Hong Kong and mainland China are likely to deliver a stable return in the following months,” he said. “The mainland economy seems to have turned stable while the negative impact of Brexit seems to be over. The MPF should be back to black for this year as a whole.”

Last year, the MPF reported a decline of 2.95 per cent, its worst annual performance since 2011, when it lost 8.57 per cent after the stock and bond markets were hit by the European debt crisis.

The MPF was a steady performer in the intervening years, rising 1.55 per cent in 2014, 8 per cent in 2013 and 12.18 per cent in 2012.