Employee Choice Arrangement expected in November as managers turn bullish on Asian equities

This article is a rewrite of a report from April 2012.

Hong Kong’s MPF “semi-portability” — the Employee Choice Arrangement — was expected to take effect in November 2012, just as fund managers were warming to equities again. At a late-April 2012 press briefing, Allianz Global Investors confirmed its transfer systems were nearly ready and laid out a strikingly upbeat view: Asia-Pacific equities, on attractive valuations, were the most compelling asset class.

When does the Employee Choice Arrangement take effect?

An Allianz Global Investors executive said in April 2012 that the Employee Choice Arrangement was expected to launch in November 2012; the trustee transfer systems built for the reform were all but complete, pending only the MPFA’s detailed sales guidelines, which were not expected to extend coverage to higher-risk products. He added, though, that with a policy vacuum before the new government took shape, he was only cautiously optimistic on equities and expected no big rally.

What is the outlook for markets in the second half?

The firm’s Asia chief investment officer expected global equities to improve as economic growth resumed in the second half, albeit with short-term consolidation; with Asia-Pacific equities strong in the first quarter and momentum likely to last into the summer — while bond valuations looked stretched and cash yields stayed low — Asian stocks were the most attractive asset class.

Why favour mainland and Hong Kong equities?

Mainland markets had a poor 2011 that dragged Hong Kong down, but the negatives had faded:

In Hong Kong, consumer and rental stocks were the top picks on consumption growth — though consumer valuations looked rich and stock selection needed care.

What does this mean for MPF performance?

Equity-linked MPF investments lost money in 2011 but had already rebounded in 2012, the executive revealed — supporting the tilt towards stocks. Coming after the MPF’s overall loss in 2011, the optimism was welcome relief for members in April 2012 — tempered by a warning not to expect too much, with short-term consolidation still likely.