Hong Kong’s MPF pension managers consider investing more in China’s A shares after rule change

Lam Ka-sing
·4-min read

More investment managers under the Mandatory Provident Fund (MPF) scheme are considering plans to invest in mainland Chinese stocks following a rule change last year, according to the regulator of Hong Kong’s retirement savings system.

Some 22 funds are discussing with the authority about including A shares, or yuan-denominated stocks, listed in Shanghai and Shenzhen in their investment portfolios, said Alice Law Shing-mui, managing director of the Mandatory Provident Fund Schemes Authority.

“After investment restrictions were relaxed, I believe more funds will invest in the A-share market,” she said at a briefing on Thursday. Funds are amending their prospectuses that previously reflected a low percentage or no exposure to onshore stocks, she added.

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The move gives the scheme’s 4.46 million members an option to buy stocks listed in Shanghai and Shenzhen, two of the world’s top performing major equity markets after their 13.9 per cent and 38.7 per cent respective surge in 2020. Until the rule change in November, only an estimated 1.1 per cent of the MPF’s HK$1.1 trillion (US$141.9 billion) assets were invested in A shares, chiefly through the cross-border Stock Connect programme.

Alice Law Shing-mui, deputy chairman and managing director of Mandatory Provident Fund Schemes Authority. Photo: Nora Tam
Alice Law Shing-mui, deputy chairman and managing director of Mandatory Provident Fund Schemes Authority. Photo: Nora Tam

Gain Miles Group, a Hong Kong-based wealth management consultancy, expects HK$7 billion to HK$10 billion inflows into A shares from members in 2021. The size of MPF’s Greater China equity assets stood at about HK$70 billion or 6 per cent of MPF assets at the end of January, it said.

“Three factors will affect the speed of investing in A shares,” said executive director Billy Wong said in an email interview. They are “the relative performance of CSI 300 Index versus the Hang Seng Index, the relative performance of Greater China equities versus peers, as well as investment-switching behaviour of MPF members,’’ he added.

While Chinese stocks have continued to rally this year and are still relatively under-owned by foreign funds, investors are also facing wilder price swings at this juncture amid concerns about valuations and jitters over central bank’s liquidity support.

“The mainland A-share market should continue to attract greater attention as international investors look to increase their long term allocations,” Stephen Kam, head of product management for Asia ex-Japan equities at Schroders, said in a note to clients last week. Still, he is cautious on internet and e-commerce firms due to valuations and regulatory risks.

The Mandatory Provident Fund Schemes Authority eased its investment rules in November by adding Shanghai and Shenzhen to the list of more than 40 approved global exchanges, after years of industry lobbying. Over the years, linkages between Hong Kong and the mainland markets strengthened while China widened access to global investors.

The MPF is a compulsory retirement scheme in Hong Kong covering an estimated 4.46 million salaried workers and self-employed contributors. An employer and an employee pay 5 per cent of the salary into the pension plan every month.

The scheme had 418 approved constituent funds at the end of September, according to its most-recent quarterly report. It has generated an internal rate of return of 3.9 per cent since its inception in December 2000.

Law of MPF authority cautioned funds and members about the risk of investing in industries that pay high yields in the short term but face existential risks. These include the high-polluting industries that could suffer from punitive taxes as governments turn to clean, renewable energy.

The MPF authority will promote more transparency in disclosure on environment, social and governance issues and welcomes discussion for a new green index for MPF funds, Law added.

Meanwhile, the authority has again rejected calls by some quarters to allow scheme members to withdraw their contributions to tide over the recent economic crunch, after unemployment surged amid the city’s worst recession.

Early withdrawals would undermine the integrity of the MPF scheme as the accrued benefits will leak from the system, it said in a statement on Friday. It will also defeat its purpose of assisting the working population in growing their retirement nest-egg, it added.

Besides, “allowing scheme members to early withdraw their MPF on the grounds of financial difficulties would be subject to legislative amendments, which would require a rather long time and cannot meet their immediate financial needs.”

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