Strongest January on record: MPF performance ranking puts China equity funds up 11.16% on top

This article is a rewrite of a report from February 2012.

Hong Kong’s MPF market got off to a flying start in 2012. Data from Lipper Hong Kong as of end-January 2012 showed the average MPF fund gained 4.9 per cent in January — the strongest January since the MPF system’s launch. Based on the Mandatory Provident Fund Schemes Authority’s figure of HK$336.9 billion in total MPF assets as of end-September 2011 (excluding subsequent contributions), the system earned more than HK$16.5 billion on paper in the month, or about HK$6,423 per worker.

What does the “strongest January” in the MPF performance ranking mean?

The “strongest January” means the average MPF fund’s 4.9 per cent gain in January 2012 was the best January return since the MPF system began. Using the MPFA’s HK$336.9 billion asset figure as of end-September 2011, the month’s paper profit exceeded HK$16.5 billion — roughly HK$6,423 per scheme member on average. Members should note this is a paper gain, not cash in hand.

MPF performance ranking for January 2012: which categories topped the table?

In a reversal of 2011, when developed markets beat Asia, Asian equity funds dominated January 2012:

US, European and Japanese equity funds lagged, gaining only 3.3 to 4.9 per cent.

Does a strong January mean a strong year? The January effect has failed three years running

A good start is what every worker hopes for, but the industry warns against reading too much into it: the MPF market’s January effect has failed three years in a row — a January gain does not guarantee gains for the full year.

A director at HSBC Global Asset Management attributed January’s strength to a sustained low-rate environment, cheap equity valuations, improving US data and easing fears over Europe’s debt crisis, which pushed money into stocks. But she cautioned that the problems of 2011 would not vanish overnight, and Europe’s debt woes plus weak developed-market economies would keep markets volatile in the near term.

She added that equities should do better in 2012 than in 2011, particularly in Asia in the second half: H-shares were then trading at about 8.2 times forecast earnings versus a 10-year average of 12.5 times, making them attractive for younger members. A Lipper research director noted the market was being driven by speculators and policy, with the US presidential election year and ample liquidity raising the odds that the bear market had bottomed the previous October. Members can check historical fund rankings at browse MPF funds.