Hong Kong’s Mandatory Provident Fund Schemes Authority (MPFA) revised the Guidelines on Approved Exchanges (Guidelines III.4) with effect from 13 November 2020, adding Shanghai Stock Exchange, Shenzhen Stock Exchange, Indonesia Stock Exchange and Warsaw Stock Exchange (Additional Exchanges) to the list of approved stock exchanges for the purpose of the Mandatory Provident Fund Schemes (General) Regulation (Regulation).
This change will increase the ability of an MPF constituent fund or an approved pooled investment fund (MPF Funds) which is a direct investment fund to invest in permissible investments (e.g. debt securities, equities and other securities that are approved or are of a kind approved by the MPFA, convertible debt securities, warrants, and financial option contracts) listed, traded or to be listed on the Additional Exchanges.
For example, under the Regulation, an MPF Fund may invest all or substantially all of its assets in fully paid-up shares listed on an approved stock exchange whereas the aggregate amount of investments in fully paid-up shares listed on non-approved stock exchanges (together with investments in securities that are approved, or are of a kind approved by the MPFA, other than shares listed on an approved stock exchange and authorized unit trusts or mutual funds approved by the MPFA) may not exceed 10% in total of the funds of an MPF fund.
The inclusion of the Additional Exchanges in the list of approved stock exchanges, will increase MPF Fund managers’ flexibility in a number of respects in constituting the investment portfolios of MPF Funds.
However, before making use of the increased flexibility, managers should ensure that investments in the Additional Exchanges are consistent with the relevant MPF Fund’s investment objectives and policies, and where appropriate or necessary, subject to regulatory approval, amend the relevant MPF Fund’s investment objectives and policies to align with the revised investment policies. Managers should also assess whether the offering document of an MPF Fund contains sufficient disclosures regarding the investment, market and taxation risks associated with investments in the Additional Exchanges.
The MPFA also issued a circular on 13 November 2020 to remind MPF trustees of their duties with respect to the management of risks of MPF constituent funds. Trustees should ensure that the funds of MPF schemes are invested in different investments so as to minimize the risk of losses, having regard to factors such as size, sectoral diversity, stage of development of the economies of the relevant markets, and market size and volatility of those markets. In addition, trustees should ensure that managers have appropriate systems in place to manage risks, and should regularly review liquidity risks and liaise with managers to ensure there is sufficient liquidity for meeting redemption requests.