New RMB funds for MPF

With a view to enhancing the range of investment options available to members of Hong Kong's Mandatory Provident Fund (MPF) schemes and in light of the growing interest in China and RMB exposure, some providers of MPF schemes have recently launched MPF constituent funds which invest primarily in RMB denominated assets (RMB Funds). The portfolio of these RMB Funds typically contains debt and money market instruments denominated in RMB, including RMB denominated government bonds and corporate bonds (or "dim sum" bonds), treasury bills and notes, fixed deposits and certificates of deposit. RMB Funds cannot invest through the Qualified Foreign Institutional Investor (QFII) or Renminbi Foreign Institutional Investor (RQFII) schemes and therefore their investments are issued outside mainland China.

Debt securities that can be purchased by an MPF constituent fund must satisfy the minimum credit rating or listing requirements prescribed under the MPF regulations. In our experience, issuers of MPF Funds are required to demonstrate that there are sufficient instruments which can satisfy minimum credit rating requirements, and that such instruments are liquid in the secondary market. RMB Funds are denominated in Hong Kong Dollars (HKD) although a majority of their assets are RMB-denominated. Further, they must maintain a minimum of 30% HKD currency exposure which may be achieved either through investment in HKD-denominated investments or permitted currency hedging.

Given the growing interest in exposure to RMB and diversification, we believe that there will be continued interest in providers adding RMB Funds to their MPF platforms.