Employee Choice Arrangement eyed for mid-2012 launch; fund association sees no mass redemptions

At a mid-September 2011 media gathering, the Hong Kong Investment Funds Association gave its read on markets and on “MPF semi-portability”: money was not leaving the market in any size, and the Employee Choice Arrangement proposal would go to the Legislative Council for discussion, with launch expected around mid-2012.

What is the Employee Choice Arrangement?

The Employee Choice Arrangement (dubbed “MPF semi-portability”) lets employees transfer their MPF accrued benefits to a scheme of their own choosing. The association said the proposal will be put to the Legislative Council, with launch expected around mid-2012 — a move set to intensify competition among providers and spur fee cuts.

No large-scale redemption wave

The association’s vice-chairman said there was still no large-scale fund redemption wave, and money had not left the market; some clients had redeemed high-risk products only to rotate into lower-risk ones. Fund houses wanting to de-risk had other tools too, he added — selling index futures to cut equity exposure — and Hong Kong investors remained confident about medium-to-long-term investing.

July inflows into Hong Kong and Greater China funds

The chief executive added that Hong Kong equity and Greater China funds still recorded net inflows in July 2011. With European and US financial markets volatile, investors might favour Asia and emerging markets they trusted more. The vice-chairman estimated that any net outflows in August and September would concentrate in equity funds — though bargain hunters were buying the dips, and it was unclear whether that would offset the outflows.

In favour: defensive plays, commodity equities, high yield

The chairwoman said investors were favouring defensive plays, commodity equities and high-yield products.

Fee cuts: check whether it’s all funds or just some

Some MPF fees had been cut, she noted — but investors should check whether a company cut prices across all products or only some. With administrative work and costs involved in running MPF schemes, she saw limited room for further cuts.