Opening the gate to A-shares? HKEX said to have lobbied the MPFA to let MPF funds buy more of them

Should MPF money be allowed to buy more A-shares? In August 2017, reports surfaced that the HKEX chief executive had written to the Mandatory Provident Fund Schemes Authority urging it to add mainland A-share markets to its list of approved stock exchanges. The MPFA confirmed it was studying whether to include the Shanghai and Shenzhen exchanges. Currently, MPF funds may invest at most 10 per cent in mainland A-shares — a cap that would loosen substantially if the markets made the approved list.

The numbers

Two motives named

According to the Hong Kong Economic Journal (Shin Pao), citing sources, the HKEX letter had two aims:

1. More A-share-heavy products: enabling the fund industry to launch MPF products with larger A-share weightings;
2. Negotiating leverage: giving the exchange an extra bargaining chip in talks with the mainland over connect-scheme cooperation.

An HKEX spokesman declined to comment on market rumours.

The MPFA: cautious study; the industry wants to move first

An MPFA spokesman said the authority, in its duty to protect scheme members’ interests, had to take a prudent approach to investment regulations and was reviewing the two mainland exchanges, weighing market and economic developments in other regions, industry views and investment risks.

The Hong Kong Investment Funds Association had already applied last year for both exchanges to join the approved list and was awaiting a reply. Its chief executive said the association had, at the MPFA’s request, submitted documents “several phone books” thick, much of the material sourced via the mainland exchanges, and hoped for early approval — while acknowledging the authority needed time to study the matter.

The vetting is exacting: disclosure, corporate governance, information flow, fund flows and redemption restrictions must all meet requirements. The association argued conditions were already ripe and Hong Kong should not wait for the mainland’s capital account to open — by then other index funds would already have moved in. With its proximity, Hong Kong had an edge, A-shares suited Hong Kong people’s long-term investing, and the authority should seize the first-mover advantage.

What it means for members

This is a race between speed and prudence: the industry wants the head start, the regulator wants certainty. For members, the real question is: if the cap is lifted, will your fund raise its A-share weighting? A-shares swing harder, so a bigger allocation means a riskier portfolio. Whether that trade-off is worth it depends on your time horizon and risk appetite.

Action list

• Check how much A-share exposure your MPF scheme already has
• Assess what more A-share weighting would do to your portfolio’s volatility — don’t watch the upside without the risk
• Follow the MPFA’s study: inclusion on the approved list does not mean forced investment
• Long-horizon investors can consider geographic diversification; those near retirement should stay conservative