RMB Bonds and Deposits in MPF: What the 2011 Rules Allowed

In November 2011, Ah Chik’s uncle wanted to put money into promising RMB products — and asked in passing whether their MPF could invest in RMB bonds, equities or deposits. With the renminbi appreciating, plenty of investors were eyeing RMB-linked products; the question was very much of its moment.

Could MPF buy RMB bonds or deposits?

Yes. As of November 2011, MPF funds could invest in non-HKD products — including RMB bonds, equities and deposits — provided the relevant investment restrictions and guidelines were met. Some trustees’ MPF funds already held RMB bonds and deposits; but funds had to be dealt in Hong Kong dollars and hold at least 30% of their investments in HKD assets.

Four limits, whatever the MPF fund type

Regardless of MPF fund type, RMB investments had to clear four hurdles: first, only securities listed on an MPFA-approved exchange, such as RMB-denominated securities on the Hong Kong Stock Exchange; second, bonds rated at least S&P BBB or Moody’s Baa2 — no exception for RMB bonds; third, at least 30% HKD investments with all dealing in HKD; fourth, a fund’s total exposure to bonds, equities or other permitted investments (excluding deposits) issued or guaranteed by a single company generally could not exceed 10% of the fund’s total assets, to enforce diversification.

Why the obsession with currency risk?

Ah Chik explained that MPF is workers’ key retirement reserve and must be tightly regulated to cap currency risk — the reason for the 30% HKD rule and HKD dealing. The 10% single-issuer cap likewise stops one issuer’s troubles from sinking a whole fund. Questions on fund investment rules: MPFA hotline 2918 0102.