As of 19 December, OnePlatform MPF Composite Index was 226.97, with a 2.47% month-to-month increase.

In December, China’s dynamic zero-Covid strategy changed after three years, boosting the performance of the Asian equity market, driving the OnePlatform MPF Equity Index to record a 3.88% month-to-month increase in December. OnePlatform MPF Bond Index and OnePlatform MPF DIS Age 65 Plus Index increased by 1.98% and 0.19% respectively. The only index which decreased is OnePlatform MPF DIS Core Accumulation Index which dropped by 0.76%.

To sum up 2022, OnePlatform MPF Composite Index dropped by 14.10% year-to-date, while the overall OnePlatform MPF Index recorded a double-digit decline under the global inflation surge and Russia-Ukraine war. Among them, the equity index performed the worst, with a year-to-date loss of 16.87%.

Summary of MPF Fund Performance in December

Recent data is signaling a recession, for example, exports dropped significantly in South Korea, China’s trade surplus fell below forecasted levels, and US exports declined for a second consecutive month. Meanwhile, many central banks are on the inflation warpath, prioritising price stability overgrowth. Energy market also retreated amid falling demand and Covid outbreaks in China, the world’s largest importer of crude oil. Crude and Brent oil dropped 5.56% and 9.15% over the month, respectively, and have fallen around 42% from their March highs. Despite a lack of optimism on the growth front, global equities were buoyed by strong returns in Asia. Global Equity Fund just slightly dropped 1.77% in December.

Equity Funds:

The Fed reaffirmed its commitment to price stability, which it deemed the “bedrock” of the US economy. A hawkish Fed coupled with slower growth culminated in net negative returns, especially for growth stocks, with Apple (-10.57%), Microsoft (-0.66%), Amazon (-8.16%), Tesla (-10.72%), and Alphabet (-7.49%) all posting losses. United States Equity Fund dropped 3.56% over the month.

Echoing her US counterpart, European Central Bank (ECB) President Christine Lagarde said rates have room to rise before they are sufficiently restrictive. The central bank also announced that it would begin reducing its asset purchase programme portfolio from March 2023 at an average rate of €15 billion per month. Markets, however, were buoyed slightly by relaxed restrictions in China which boosted demand expectations. Major European indices – FTSE 100 (-0.21%), DAX (-3.04%), and Euro STOXX 50 (-2.51%) – indices fell in December, although Europe Equity Fund slightly increased by 0.22%.

Following three years of strict regulations, markets celebrated when China announced an end to its zero-Covid regime. The People’s Bank of China also cut banks’ reserve requirement ratio by 25 bps and injected more liquidity into the banking system to further support real estate. Low inflation bodes also well for continued economic support. Meanwhile, Hong Kong markets benefited from the looser restrictions, with the Hang Seng and Hang Seng Tech indices climbing 9.61% and 13.58%, respectively. Returns were positive across the region: Japan Equity Fund increased by 0.13%, Hong Kong Equity Fund increased by 9.71%, Asian Equity Fund increased by 2.94%, Greater China Equity Fund increased by 6.80%, and China Equity Fund increased by 9.30%.

Mixed Assets Funds & Money Market:

Mixed-asset funds gained from positive performance across asset classes, with equity-heavy funds benefitting slightly more than their fixed interest-heavy counterparts MPF Mixed Asset – 21% to 40% returned 1.73%, while Mixed Asset – 81% to 100% Equity rose by 2.74%.

Meanwhile, money market sectors – predominantly comprising short-term borrowings and deposits – continued to show relatively little movement, with returns of 0.12% and 1.22%.

Market review in December

2022 has been a remarkable year. Coming off the back of a Covid-driven supply crunch and an array of ultra-accommodative policies, monetary authorities knew the time would come to rein in inflation. However, Russian President Vladimir Putin threw a spanner in the works when Russia invaded Ukraine in February last year, giving rise to an energy crisis and pushing global inflation to levels not seen in decades, if ever. Stuck between a rock and a hard place, authorities have had to manage rising prices alongside slower growth, often prioritising the former. Higher interest rates, energy shortages and lower living standards have further impacted economic performance. Indeed, the  Organisation for Economic Co-operation and Development (OECD) forecasts global growth will slow to 2.2% in 2023 and that inflation in OECD nations will decline from 9.4% in 2022 to 6.5% in 2023.

Fed slows rate rises with 50bp increase

Owing to a prolonged period of volatility as well as unique circumstances, central banks have preferred to make decisions on current data and have avoided offering much forward-looking guidance. Investors thus breathed a sigh of relief when the US Federal Reserve acted in line with expectations, raising the benchmark rate by 50 basis points following a string of 75-bp hikes. November inflation also dropped markedly from 7.7% to 7.1%. However, Fed Chair Jerome Powell was quick to temper the ensuing optimism, reminding market participants that monetary policy is not yet “sufficiently restrictive”. Further, according to the Fed dot plot, the majority of the committee sees the median fed funds rate (currently 4.25-4.50%) climbing above 5.0% next year – higher than previous expectations of 4.6%.

Europe’s energy crisis gets worse as winter arrives

Policymakers, firms and households in the UK were also relieved when inflation readings dropped to 10.7% in November and core inflation came in at a below-forecast 6.3%. Yet, the cost of living crisis has resulted in strikes across the public sector, from nurses to postal workers to train operators. A cold snap has also put additional pressure on an already-fragile energy grid, increasing the likelihood of energy shortages. As such, the British government approved the first new deep coal mine in three decades and that decision was met with fervent criticism. Energy supply is also a concern elsewhere in Europe, with France preparing for the possibility of rolling blackouts. The Bank of England and ECB both implemented 50-bp rate increases over the last month, slowing tightening from previous hikes of 75 bps. The ECB also revised upwards its inflation forecasts for 2022 to 8.4% and 2023 to 6.3%, and warned of a relatively short-lived and shallow recession in the near term, with lackluster growth of 0.5% this coming year.

China and Japan maintain supportive economic policies

Japan and China are the exception to the rule, maintaining supportive policies amid recession concerns. Japan is facing broad-based inflation but the nation’s central bank is set on supporting growth until wages increase meaningfully. China saw annual inflation fall to 1.6% in November and consumer prices decline by 0.2% over the month. Notably, the Chinese government did away with many of its zero-Covid policies in the face of wide-spread discontent and protests. Unfortunately, given the speed of the transition, infection and fatality numbers have already begun to rise.