MPF fund performance plunges 11.08% in Q3 2011, wiping out over HK$16,000 per account

The European debt crisis swept through global markets in the third quarter of 2011, and even workers who had never touched a stock could not escape. MPF fund performance for the quarter came in at negative 11.08% as of 27 September 2011. Based on total MPF assets of HK$384.475 billion reported by the MPFA as of end-June 2011, more than two million scheme members lost a combined HK$42.599 billion.

Why did MPF fund performance collapse in the third quarter?

MPF fund performance collapsed in Q3 2011 mainly because the European debt crisis dragged down equity markets worldwide. As of 27 September 2011, MPF funds returned negative 11.08% for the quarter, almost matching the worst quarterly record of negative 11.6% set during the 2008 financial crisis. After an average 5.27% slide in August, September was expected to plunge a further 6.48% — the biggest evaporation of retirement wealth since the collapse of Lehman Brothers.

On a per-account basis, the average member’s balance stood at about HK$151,308 before the storm; the rout wiped out more than HK$16,000 of hard-earned savings per person — far exceeding the government’s HK$6,000 handout. Year to date in 2011, MPF funds were expected to be down a cumulative 9.51%.

Which fund types were hit hardest?

Equity funds bore the brunt. As of 27 September 2011, Korea equity funds and Greater China equity funds were down 24.68% and 24.63% respectively year to date. The only bright spots were bonds, as safe-haven money poured into debt markets: Hong Kong dollar bond funds gained 5.51% year to date, global bond funds rose 3.23%, and Hong Kong dollar money market funds edged up 0.04%.

What is the outlook?

A Hong Kong research director at fund data provider Lipper was not optimistic about equities in the fourth quarter of 2011, with no sign of the European debt crisis being resolved. But he noted that younger members still 20 to 30 years from retirement could stay invested in higher-volatility, Greater China-focused equities without letting short-term sentiment dictate decisions.

An institutional and retirement business executive at a global asset manager said markets were in a panic phase, with safe-haven money rushing into bonds; over the long run, however, equities should still beat bonds, with Asian equities worth an overweight. Her advice: members unwilling to stomach outsized risk in a turbulent market could shift part of their allocation to Asian bond funds, which are sheltered from the debt turmoil in Europe, the US and Japan.

To compare how different fund types fared through the turmoil, see MPF fund search.