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

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. 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.

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.