Coronavirus will hurt the HK$1 trillion pension savings of 3 million Hongkongers as stock markets slump, warns MPF watchdog

• ‘We have very challenging investment markets worldwide this year,’ says chief of the body that regulates the city’s Mandatory Provident Fund
• He revealed the fund generated returns of 12.2 per cent last year as US stock markets soared despite trade war, Brexit

The coronavirus outbreak has caused a global stock market slump which will hurt the returns of almost 3 million Hongkongers with savings tied up in the HK$1 trillion (US$128.38 billion) mandatory pension scheme, according to the regulator and industry watchers.

"We have very challenging investment markets worldwide this year. The Covid-19 outbreak has affected the investment market worldwide. On Monday alone, the US benchmark Dow Jones Industrial Average dropped over 1,000 points and there will be more volatility ahead," said Cheng Yan-chee, executive director of the Mandatory Provident Fund Schemes Authority (MPFA), the pensions regulator.

Cheng issued the warning at a video conference on Tuesday when he released details of the MPF's performance last year. The fund generated a profit of 12.2 per cent in 2019, he revealed, and has achieved an annual average return of 4.1 per cent since the launch of the retirement scheme 20 years ago.

Last year's healthy profit was a turnaround from a loss of 9.3 per cent in 2018, but below gains of 22.3 per cent a year before that, according to the MPFA data.

Its impressive performance last year came despite some strong headwinds.

"The stock market last year has a roller coaster ride due to the trade war, Brexit and social unrest (in Hong Kong). However, the US stock market rose 28 per cent while the Hang Seng Index gained 9 per cent. This boosted the performance of MPF last year as a whole," said Louis Tse Ming-kwong, managing director of VC Asset Management.

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The MPF is the government's compulsory retirement scheme. It had HK$970 billion of assets owned by 2.9 million Hongkongers as of the end of last year, an increase of 20 per cent from 2018.

While the fund is edging close to the HK$1 trillion milestone, it has got off to a bad start this year. It lost 1.87 per cent on average in January, the most since May last year, according to data provider Lipper.

Cheng said the MPF has seen 13 years of gains and six years of losses in its lifetime.

"Employees do not need to worry about the short-term performance of the MPF. Pension funds investment is for the long term " many people will only receive their MPF 30 or 40 years later," he said.

The stock funds were the best performers last year, with an average return of 16.7 per cent, with mixed-asset funds slightly behind on 14.7 per cent. In terms of single-market funds, the US stock funds ranked top with a 27.2 per cent return last year, the MPFA report said.

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The US market has, however, lost 2 per cent this year, with the Dow Jones on Monday tumbling by 1,031.61 points, or 3.6 per cent, to close at 27,960.80. The sharp decline came after Covid-19 spread to Italy and South Korea. The virus started in Wuhan in December and has now infected more than 80,000 people worldwide.

"The outbreak of the coronavirus has already created big fluctuations in the capital market. As there are still many uncertainties about the virus, we expect that will continue," said Kenrick Chung, general manager of employee benefits at Realife Insurance Brokers.

Some sectors of the stock market, such as medical firms and e-commerce, will benefit from the outbreak, he added.

Chung urged MPF members not to panic about the effects of the current health crisis.

"If they sell out their equity funds now, they will realise investment losses. MPF members can consider balancing their chosen funds with both equity and bond investments to lower the risk," he said.

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