Hong Kong's Mandatory Provident Fund (MPF) achieved a return of 6.78% in the first half of 2026, according to Fidelity International. The best-performing fund category was Asia ex-Japan equities, which delivered an average return of 35.6%, while Hong Kong equities posted an average negative return of 9.97%.
Looking ahead to the second half of 2026, Fidelity anticipates that investor risk appetite will persist, but cautions that market volatility may increase, suggesting that portfolio allocations should prioritize flexibility.
Furthermore, from a regional asset allocation perspective, Fidelity maintains a moderate overweight position on Asia Pacific ex-Japan equities.
Global Market Outlook and Risks
Fidelity International's Director of Investment Strategy, Kan Lik Hang, noted that global equity markets have benefited from robust corporate earnings, declining oil prices, and sustained investment in artificial intelligence, all of which help maintain investor risk appetite. While economic data continues to reflect resilient global growth, geopolitical risks remain significant. An escalation in tensions could disrupt energy and other supply chains, exerting upward pressure on overall prices.
Additionally, a notable rise in global bond yields reflects varying risk premiums for inflation, political risk, and growth prospects. Robust economic growth and persistent inflationary pressures could heighten expectations for central bank interest rate hikes, leading to more volatile interest rate trends. It is expected that US Treasury yields will continue to move within a relatively wide range, creating opportunities for active duration management strategies.
Regional Allocation Strategy
The firm maintains a moderate overweight position on Asia Pacific ex-Japan equities. North Asia holds a unique position within the AI supply chain, encompassing semiconductor manufacturing, tech hardware, industrial automation, and digital services. Strong ongoing demand for AI infrastructure and semiconductors supports the earnings outlook and equity market performance in markets like South Korea and Taiwan.
Conversely, Southeast Asian economies and India, being more reliant on oil imports, are more vulnerable to rising energy prices. Several central banks in the region have indicated they will maintain a cautious stance, with some restarting monetary policy tightening to guard against rising inflation and currency depreciation risks.
Views on Other Major Markets
Fidelity maintains a moderate overweight on Japanese equities. A benign inflation environment continues to favor the Japanese market, as companies can pass on rising costs to consumers, supporting corporate margins and capital investment. Concurrently, accelerating wage growth is boosting household income and domestic consumption. The Bank of Japan continues on a path of gradual interest rate hikes and balance sheet normalization. However, investors need to closely monitor yen volatility, as it could impact corporate earnings and overall market performance.
The firm also expresses a relative preference for US equities. The corporate earnings outlook in the US remains solid, with AI continuing to be a primary structural growth theme driving the market. Furthermore, Federal Reserve policy remains a key market focus. Recent strong labor market data and persistent inflationary pressures may lead policymakers to maintain a cautious stance. While corporate earnings continue to provide support, they may also increase equity market volatility.
Regarding European equities, despite first-quarter corporate earnings exceeding expectations, economic activity in the region remains weak, with the services sector under continued pressure. Both business and consumer confidence remain below long-term averages, indicating that the economic and corporate earnings outlook for Europe still faces challenges. The European Central Bank is likely to adopt a more cautious stance in an environment of rising inflation risks, which could pressure market sentiment. However, increased fiscal support, particularly rising defense spending, is expected to provide some support to the growth outlook.
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