MPF fund performance: up 2.9% in a week, but euro summit deadlock threatens more falls

For the week ended 14 October 2011, MPF fund performance averaged a 2.93% gain, led by equities. But Lipper Hong Kong research director 黃澤銘 warned: with the world’s attention on the EU summit in Brussels, failure to produce a workable sovereign-debt plan could end the rally that began in early October — and asset prices could fall again.

With the euro crisis unresolved, where does MPF go?

In October 2011, if the EU summit failed to deliver an effective euro-debt rescue, MPF and global asset prices risked falling: France and Germany remained split over expanding the €440 billion European Financial Stability Facility (EFSF), a German 10-year bond auction was undersubscribed, and the German-French yield spread widened 24% to 114 basis points; the CBOE volatility index had bounced back to 34.4 from below 30 — and history showed rallies rarely last until the index climbs back above 43.

The week’s fund performance

Where the deadlock lay

Two main splits: France wanted to turn the EFSF into a bank able to draw funding from the European Central Bank — Germany opposed; banks lobbied against deeper haircuts on Greek debt. Chancellor Merkel had already cautioned markets not to expect too much from the summit. In just five days (14–19 October), the 10-year German-French yield gap widened 24%; Germany planned to sell €5 billion of 10-year bonds but placed only €4.08 billion, at an average yield of 2.09% — 16% above the previous month’s auction.

Reading the volatility index

黃澤銘 suggested investors watch the Chicago Board Options Exchange (CBOE) volatility index: since August 2011, each time it fell to 30, the global equity rebound ended, followed by fresh corrections until the index climbed back above 43. It dipped below 30 on 14 October and had since recovered to 34.4.

What members can do

In uncertain markets, checking your risk tolerance beats guessing summit outcomes. Diversification matters more than chasing rebounds — the MPF education hub explains each fund category’s role in a downturn.