MPF investments broadened to include Chinese government bonds

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Authored by: Ming Chiu Li

Hong Kong’s Mandatory Provident Fund Schemes (General) Regulation (Cap. 485A) has been amended to facilitate the investment of MPF funds into debt securities issued or unconditionally guaranteed by the Central People’s Government, the People’s Bank of China, the Agricultural Development Bank of China, the China Development Bank and The Export-Import Bank of China. Pursuant to the amendments, these entities will be added to the category of “exempt authority”. An MPF constituent fund may invest up to 30% of its funds in debt securities of the same issue issued or unconditionally guaranteed by an exempt authority. All of the funds of the MPF constituent fund could also be invested in debt securities comprising at least six different issues issued or unconditionally guaranteed by the same exempt authority.

As the MPFA continues to review permissible classes of assets, this legislative amendment is seen to further diversify the types of investments that may be held by MPF funds.

In recent years, we have seen MPF product providers diversify their range of products to cover “onshore” China assets, as the connectivity between the Mainland and the Hong Kong markets continues to develop. In 2020, the Shanghai Stock Exchange and the Shenzhen Stock Exchange were added to the list of approved stock exchanges for the purpose of investment in equity securities. In respect of debt securities, some trustees have already offered constituents funds that provide exposure to bonds traded on the China interbank bond market through the Bond Connect. MPF investments in bonds are subject to relevant requirements prescribed in the Mandatory Provident Fund Schemes (General) Regulation, applicable to the issuers or the credit ratings of the bonds.

We foresee that product providers will review their existing range of products and launch new funds to benefit from the legislative amendments. These new changes are expected to improve the investment choice for delivering retirement solutions to MPF scheme members, who can choose to diversify their holdings into the relevant assets, in order to achieve their intended overall asset allocation.

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Ming Chiu Li

Partner | Financial Services

Email or call +852 2825 9752