The Mandatory Provident Fund is on course to report its best performance in four years in 2024, while most analysts believe next year’s performance will remain on a positive trajectory.
As of December 18, the MPF’s 379 investment funds had an estimated gain of HK$102.8 billion (US$13.2 billion) for this year, the third time the fund’s gain has exceeded HK$100 billion, according to MPF Ratings, an independent research firm.
The US stock funds were the best performers so far this year, boasting a 21.5 per cent gain, with Japan stock funds second at 18.7 per cent. China and Hong Kong stock funds ranked third at 15.5 per cent.
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Established in 2000, MPF is a compulsory retirement scheme that covers 4.7 million current and former workers.
An illustration of the MPF in Hong Kong, on 29 March 2018. Photo: Martin Chan alt=An illustration of the MPF in Hong Kong, on 29 March 2018. Photo: Martin Chan>
“Protectionism and deregulation appear to be Trump’s calling card, and while the rhetoric is proving popular for US equities, there may also be unintended consequences,” Chung said. “MPF members may be tempted to have a US bias in their portfolio, but diversification is important.”
Philip Tso, head of APAC institutional business at Allianz Global Investors, said MPF members can consider leaning more toward higher-risk assets in 2025.
“As we enter 2025, following a decisive result in the US election, the outlook for risky assets seems positive, with a soft landing in sight for the US and world economies despite the potential for volatility ahead,” Tso said.
Tso said Trump’s promises of lower corporate taxes and deregulation should bring more positivity to the market and benefit corporate margins.
People posed in front of a Christmas tree outside the New York Stock Exchange. Photo: Agence France-Presse alt=People posed in front of a Christmas tree outside the New York Stock Exchange. Photo: Agence France-Presse>
“If these measures lead to a period of calm in equity markets, investors may increase equity positions,” he said. “We see this environment as particularly favourable for US equities.”
Tso said as interest rates fall, MPF members who are holding cash or low-risk money market funds could move into assets with medium levels of risk, like fixed-income or stock funds.
“In a lower interest rate environment, investors should adopt strategic approaches for their MPF investments to maximise returns,” Tso said. “Focusing on equity funds, particularly those in growth sectors like technology and healthcare, may yield better returns than traditional fixed-income options.”
People stand near an electronic stock board showing Japan’s Nikkei index at a securities firm on December 23, 2024, in Tokyo. Photo: AP alt=People stand near an electronic stock board showing Japan’s Nikkei index at a securities firm on December 23, 2024, in Tokyo. Photo: AP>
Outside the US, China recently unveiled a new US$1.4 trillion package to restructure local government debt, which Tso said is a step in the right direction to support Chinese markets.
AIA chief investment officer Mark Konyn also expects the outlook for the US and China to be positive.
“US economic growth, lower bond yields and a benign outlook for risk assets provides a positive backdrop for 2025,” Konyn said. “The growing expectation of economic support in China, if realised, would further support local market sentiment.”
“Investors are watching closely for any policy initiatives following the presidential inauguration, particularly in trade policy.”
Trump’s policy is likely to have a positive effect on US stocks and a muted effect on China markets, said Kenny Ng Lai-yin, a strategist at Everbright Securities International.
“Trump will implement tax reduction policies and pursue trade protectionism, which will be supportive of the US stock market,” Ng said. “On the other hand, concerns in the market about Trump imposing tariffs on China may have a dampening effect on the Chinese and Hong Kong stock markets.”
Overall, Ng believes the MPF in 2025 will continue to perform well due to strong momentum in the world’s major stock markets.
Elvin Yu, CEO of Goji Consulting, is not so optimistic.
“With the two largest economies in the world, the US and China, likely to spend big fiscal sums to boost their domestic economies, and given that the US economy is operating close to maximum capacity, it is easy to see inflationary pressures building up in the goods and services sector,” Yu said.
Yu urged MPF members to adopt a flexible asset allocation in 2025 rather than adopting an overweight position in equities.
“We will see quite severe corrections, caused by a potential reversal of the easy monetary policy of the US Fed as higher inflation threatens again,” Yu said. “Cash was trash in 2023 and 2024. But it may be a more useful asset to own in 2025.”
