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3 Key Factors Affecting MPF Return in 2021

Greater China stocks, economic impact and recovery brought by COVID-19 vaccination, Gain Miles identifies 3 key factors that will affect MPF performance in 2021.

In 2021, Gain Miles expects 6-8% of return on investment in MPF. 3 key factors will play crucial role in affecting such return.

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1. Greater China Stock Performance

Greater China funds performed the best among all MPF funds in 2020, with the highest return from My Choice China Equity Fund from BOCI-Prudential reaching +51.7%. 

This can be attributed to the good containment of COVID-19 in China, which gave the country favourable conditions to resume normal in terms of fiscal and monetary policies. Its economic indicators are also strong, for example its PMI has been back to the level before the COVID-19 pandemic. Economic recovery is expected to be faster than other markets, with GDP growth this year expected between 8% to 10%. A stable economy is favourable to the Chinese stock market. 

With the relaxation of proportion of MPF investment on A-shares last year, MPF fund managers will have more room to pick and invest in quality A-shares. 

Billy Wong, Executive Director of Gain Miles Group analyses "MPF members can take the opportunity to invest in Greater China stocks. Yet they should also be aware that asset allocation and investment return of different MPF schemes can vary significantly. Such decisions should be made carefully."

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2. Vaccination Effect and the Speed of Recovery of the Old Economy

A "new normal" emerged in 2020 in MPF - performance of passive funds (index tracking) was way behind active funds. It was primarily attributed to stock-picking ability and investment strategy of MPF fund managers on "new economy" stocks (for example technology and medical industries) which have benefited from the pandemic. Performance of these stocks beat that of "old economy" stocks which on the other hand have been dampened by the pandemic.

The old economy is expected to come back gradually with the launch of vaccines globally. "It will stimulate the economy. The actual impact on economic recovery will depend on the timing between vaccination effect and the end of quantitative easing policy."  Billy Wong points out.

"Speed of recovery will depend on multiple factors, including the effectiveness, distribution and people's acceptance of vaccines, and business atmosphere that can be driven. At the same time, Hang Seng Index is conducting market consultation on reforming its market coverage which may bring positive impact on the performance of passive funds. 

Investment return last year reflects the strong ability of fund managers to respond to volatile market to get better return for members who invest on high-risk equities."

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3. Monetary and Fiscal Policy of Central Banks and Governments

Thanks to quantitative easing of central banks, the global stock market rally in 2020. Strong monetary policy even widen the gap between the market and the actual economic condition. 

With the expectation on economic recovery brought by vaccination effect, central banks may gradually move away from quantitative easing. According to Bloomberg, the US Fed, Britain, Japan and Europe has already injected in 56 billion US dollars on quantitative easing. A reduction in liquidity may cause market panic. Governments and central banks should therefore balance the timing to achieve economic recovery.

Billy Wong reminds MPF members that vaccines are not going to solve all the problems and the economy may take a long period of time to recover. Mass scale pull-out of liquidity will also be a critical risk factor. MPF fund managers play an important role in helping members to adjust to market risks. Employees should discuss with their employers on switching to better performing schemes.

In the Media

Hong Kong Economic Journal: Article Title

Hong Kong Economic Times: Article Title

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