As of 20 May, OnePlatform MPF Composite Index was 235.34, with a 3.94% month-to-month decrease.
Wide-spread inflation saw little sign of slowing in May as Russia’s invasion against Ukraine continues, lockdowns in China persist, and interest rates remain relatively low. The main culprits behind price increases are commodities which propped up markets but drove up the cost of living. Oil futures continued to climb over the month as America and Europe wean off Russian energy supplies. Further, the European Union’s ban on Russian coal pushed futures up. Vladimir Putin retaliated to sanctions, cutting off gas supplies to some European nations. Meanwhile, food prices hit a 14-year-high in May and have almost doubled since a year prior, as Ukrainian crop output and transport networks are stifled amid war. India also restricted wheat exports as food inflation reached 8.38% in April, stoking fears of protectionism.
Fed raises rates by 50 basis points to tackle Inflation
In the United States, GDP contracted at an annualized 1.4% in Q1, well below the forecast 1% gain. Although slower in April, inflation of 8.3% was still above expectations. President Joe Biden blamed the pandemic and war for high prices and warned of rough times ahead for food inflation, which climbed 9.4% in April – the highest in 40 years. At its May meeting, the Federal Reserve increased rates by 50 bps and said it would start shrinking the balance sheet from June. Jerome Powell, who was granted a second term as Fed Chair, said the bank is “moving expeditiously” to rein in inflation. On a positive note, US politicians found common ground regarding Ukraine, agreeing on a US$40 billion aid package, while Biden was travelling to South Korea and Japan in a bid to improve chip supply chains and limit the country’s reliance on Chinese exports.
UK energy rates soar as consumer confidence falls to a record low
The United Kingdom is not faring much better vis-à-vis growth and inflation. The economy contracted 0.1% in March and prices climbed 9% in April. Energy rates are particularly high. Meanwhile, the Bank of England hiked rates by 25 bps to 1% and warned that inflation could reach double digits by October. The GfK Consumer Confidence indicator fell to a record low in May and manufacturing optimism dropped in Q2. Energy prices are also soaring on the continent as the European Union tries to wean itself off Russian supplies. Inflation in the European Union remained at 7.4% in April and the Commission adjusted its inflation expectations for 2022 from 3.5% to 6.1% – well above its 2% target. The European Central Bank officials have suggested a July hike is a possibility.
Japan announces a ¥6.2 trillion spending package to combat rising prices In Japan, inflation finally broke above 2%, with consumer prices up 2.5% and producer prices up 10%. Bank of Japan Governor Haruhiko Kuroda said inflation would need to prove persistent before officials considered tightening. Meanwhile, Prime Minister Fumio Kishida announced a ¥6.2 trillion spending package to ease cost pressures on households and businesses. The central bank revised its fiscal year CPI up from 1.1% to 1.9% and dropped its growth forecast from 3.8% to 2.9%, owing to Covid-19, commodity markets and global economic slowdowns.
Summary of MPF Fund Performance in May
Inflation around the world has no sign yet of slowing down in May. The impact of the Russia-Ukraine war, the reduction of Europe’s energy dependence on Russia, and the epidemic situation in China push up food and energy prices, and the rising pressure of inflation drags down the market sentiment. Global Equity Fund fell by 9.91% over the month.
US markets are experiencing prolonged declines, with the S&P 500 falling for seven straight weeks (the longest since the dotcom bubble burst in 2001) and the Dow Jones for eight weeks (the longest in almost a century). The CBOE Volatility Index (VIX) spent much of the month above the high-volatility 30 mark. Concerns over inflation and supply constraints were compounded by large drops in stock prices of big-name companies. United States Equity Fund posted returns of -13.23%.
European markets faced similar challenges. Like its US counterpart, the VSTOXX volatility index climbed above the 30 mark during May to reach a high of 36.06, highlighting insecurities surrounding energy supply, inflation and rate hikes. However, declines were less drastic than across the pond, with the Euro STOXX 50 and 600 indices down 6.15% and 6.30%, respectively. Europe Equity Fund lost 6.87% in May.
Although Japanese officials revised inflation forecasts upwards and growth expectations downwards, the government announced a phased approach to easing Covid restrictions, which includes increasing the cap on incoming visitors and relaxing quarantine and testing rules. The boost in sentiment propped up the Nikkei and TOPIX indices which posted milder declines of 1.76% and 1.97%, respectively. Japan Equity Fund fell by 1.80%.
Chinese and Hong Kong equity markets performed relatively well, with the CSI 300 posting a positive return of 0.17% and the Hang Sang Tech Index returning 3.64%. Strict lockdowns, however, are wreaking havoc on supply chains and souring sentiment, weighing on China Equity Fund fell by 0.58%, Greater China Equity Fund fell by 2.28% and Hong Kong Equity Fund fell by 1.32%.
Bond Funds: Bond markets were a mixed bag. Although they benefited from the decline in equities and risk-off sentiment, the rising rate environment and slugging growth figures pushed yields upwards. During the month, returns on 10-year Treasuries broke above the 3% mark before the yield curve flattened to 2.85%. Global Bond Fund fell by 1.62% and Asia Bond Fund dropped 1.82%.
Mixed Assets Funds:
Mixed asset funds performed in line with expectations, with equity-heavy funds dragged by large declines across global stock markets. MPF Mixed Asset（21% to 40% equity）fell by 2.74% in May and MPF Mixed Asset（81% to 100% equity）posted a larger decline of 5.37%.
Meanwhile, the two money market funds – predominantly comprising short-term borrowings and deposits – posted returns of 0.00% and -1.73%. The former was the only MPF fund without negative returns amid market upheavals across asset classes.