The Mandatory Provident Fund is on track to report its best performance in four years in 2024, while most analysts believe next year's performance will remain on a positive track.
As of December 18, the MPF's 379 investment funds had estimated earnings of HK$102.8 billion (US$13.2 billion) for this year, the third time the fund's earnings exceeded HK$100 billion, according to the MPF Ratings, an independent research company.
US stocks were the best performers so far this year, boasting a 21.5 percent gain, with Japanese stocks second on 18.7 percent. China and Hong Kong stock funds came third at 15.5 per cent.
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Established in 2000, MPF is a compulsory retirement scheme covering 4.7 million current and former employees.
Picture of the MPF in Hong Kong, on 29 March 2018. Photo: Martin Chan alt=Picture of the MPF in Hong Kong, on 29 March 2018. Photo: Martin Chan >
“Protectionism and deregulation seem to be Trump's calling card, and while the rhetoric is 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 may consider leaning more towards higher risk assets in 2025.
“As we head into 2025, following a decisive outcome in the US election, the outlook for risky assets appears positive, with a soft landing in sight for the US and world economies though the worst potential for volatility ahead,” said Tso.
Tso said Trump's promises of lower corporate taxes and deregulation should bring more positivity to the market and benefit corporate margins.
People pose in front of a Christmas tree outside the New York Stock Exchange. Photo: Agence France-Presse alt=People stand 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 the equity markets, investors may increase equity positions,” he said. “We see this environment as particularly favorable for US equities.”
Tso said that as interest rates fall, MPF members holding cash or low-risk money market funds could move to assets with medium levels of risk, such as fixed income or stock funds.
“In a lower interest rate environment, investors should adopt strategic approaches to their MPF investments to maximize returns,” said Tso. “Focusing on equity funds, particularly those in growth sectors such as technology and healthcare, may lead to 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 was 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 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 watching closely for any policy initiatives following the president's inauguration, particularly in trade policy.”
Trump's policy is likely to have a positive impact on US stocks and a muted effect on China's marketssaid Kenny Ng Lai-yin, 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 that Trump is imposing tariffs on China could have an adverse effect on the Chinese and Hong Kong stock markets.”
Overall, Ng believes that 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 United States and China, likely to spend large fiscal sums to boost their domestic economies, and given that the US economy is operating close to maximum capacity, it' n easy to see inflationary pressures building up in the goods and services sector,” said Yu.
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 possible reversal of easy monetary policy US Fed as higher inflation threatens again,” said Yu. “Cash was trash in 2023 and 2024. But it may be a more useful asset to own in 2025.”
