European Debt Crisis Hammers Europe MPF Funds; 2011 Focus Shifts to Asia Equities

2010 was a turbulent year for MPF fund performance: Greece triggered the European debt crisis, the mainland tightened monetary policy, and the US swung from double-dip fears to a second round of quantitative easing. MPF rode a roller-coaster — European funds were the casualties — and 2011’s focus turns to Asian equities.

How did MPF perform in 2010?

First-half returns fell 4.82% — the fourth-worst half-year since MPF began. Lipper Hong Kong data shows the European debt crisis and global slowdown fears dragging overall MPF down 4.82% in H1, with equity funds worst at -8.13% and mixed-asset funds off about 5%. Conservative investments held firm: guaranteed, bond and money funds returned 0.78%, 0.86% and 0.01%. By market, China equity and Hong Kong equity funds fell 5.65% and 6.51%; Europe plunged 14%–17%.

Why did the second half rebound?

US QE2 plus effective mainland curbs — over 8% recovered from June to November. From July, talk of US QE2 and effective mainland property curbs eased tightening fears; bonds bounced first, then equities and commodities followed. By November, overall MPF was up 4.91%. European funds stayed trapped though — Morningstar data shows every European equity and bond fund in the red.

How to position for 2011?

Focus on Asia equities, but mind Europe’s aftershocks. The HKIFA’s Harish Sharda estimates the “PIIGS” drag on MPF global bond funds at about 1.4% — not huge. Hong Kong equities beat Greater China; mainland policy and US QE moves are the keys. When reviewing portfolios, members should diversify across regions and asset classes — don’t put every egg in the European basket.

To compare charges and returns across MPF funds, visit MPF fund comparison.