Hong Kong MPF on course for best return in 4 years this year; “positive” outlook for 2025

The Compulsory Provident Fund is poised 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 mutual funds had an estimated gain of HK$102.8 billion (US$13.2 billion) for this year, the third time the fund’s gain exceeded HK$100 billion. HK dollars, according to MPF Ratings, an independent research firm.

US equity funds have been the best performers so far this year, with a gain of 21.5%, with Japanese funds second at 18.7%. China and Hong Kong equity funds ranked third with 15.5 percent.

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Created in 2000, MPF is a compulsory retirement scheme covering 4.7 million current and former workers.

An illustration of the MPF in Hong Kong on March 29, 2018. Photo: Martin Chan alt=An illustration of the MPF in Hong Kong on March 29, 2018. Photo: Martin Chan>

Looking ahead, said Francis Chung, president of MPF Ratings the incoming Trump administration should be an interesting 2025.

“Protectionism and deregulation seem to be Trump’s calling card, and while the rhetoric is proving popular for US stocks, 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 may consider leaning more towards riskier assets in 2025.

“As we enter 2025, following a decisive outcome in the US election, the outlook for risk assets looks positive, with a soft landing in sight for the US and global economies despite the potential of volatility that is expected,” Tso said.

Tso said Trump’s promises to lower corporate taxes and deregulation should bring more positivity to the market and benefit corporate margins.

People stood in front of a Christmas tree in front of the New York Stock Exchange. Photo: Agence France-Presse alt=People posed in front of a Christmas tree in front of 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 favorable for US stocks.”

Tso said that as interest rates fall, MPF members holding cash or low-risk money market funds could move into assets with medium risk levels, such as fixed-income funds or stocks.

“In an environment of lower interest rates, investors should take strategic approaches to their MPF investments to maximize returns,” Tso said. “Focusing on equity funds, especially in growth sectors like technology and healthcare, can yield better returns than traditional fixed income options.”

People stand near an electronic stock board showing Japan’s Nikkei index at a stock firm on December 23, 2024 in Tokyo. Photo: AP alt=People stand near an electronic stock board showing Japan’s Nikkei index at a stock firm on December 23, 2024 in Tokyo. Photo: AP>

Outside the US, China recently unveiled a new $1.4 trillion package to restructure local government debt, which Tso says 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.

“U.S. economic growth, lower bond yields and a favorable outlook for risk assets provide a positive backdrop for 2025,” Konyn said. “The growing expectation of economic support in China, if realized, would further support local market sentiment.”

“Investors are closely watching any policy initiatives after the presidential inauguration, especially on trade policy.”

Trump’s policy is likely to have a positive effect on US stocks and a soft effect on Chinese marketssaid Kenny Ng Lai-yin, strategist at Everbright Securities International.

“Trump will implement tax-cutting policies and pursue trade protectionism, which will support the US stock market,” Ng said. “On the other hand, market concerns about Trump’s imposition of tariffs on China may have a dampening effect on 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 equity markets.

Elvin Yu, CEO of Goji Consulting, is not so optimistic.

“With the two largest economies in the world, the US and China, they are likely to spend huge fiscal sums to boost their domestic economies, and given that the US economy is operating close to its 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 instead of taking an overweight position in equities.

“We will see quite severe corrections, caused by a possible 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 hold in 2025.”

This article originally appeared on South China Morning Post (SCMP)the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, explore the SCMP application or visit the SCMPs Facebook i Twitter pages Copyright © 2024 South China Morning Post Publishers Ltd. All rights reserved.

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