Investors turn to equities
With the US economy slowing down, mandatory provident fund providers believe that Europe and China markets should be areas of focus among retail investors. As a result, several MPF providers have launched funds that invest in European and Chinese equities market.
Launching funds that have pure regional growth focus is relatively new in the MPF market partly because MPF investors were mostly conservative when the scheme was established in 2000. The popular investment options among more reserved Hong Kong investors were capital guaranteed funds and capital preservation funds.
According to statistics from the Mandatory Provident Fund Schemes Authority (MPFA), while HK$1.7billion of net assets were invested in capital preservation funds at the end of February 2001, HK$28billion of net assets were invested in capital preservation funds at the end of September this year. What is significant is the growth of equity funds. At the end of February 2001, HK$1.7billion of net assets were invested in equity funds. However, at the end of September this year, HK$69billion of net assets were invested in equity funds.
'In the past seven years, investors have changed when picking funds,' said Desmond Ng, Invesco's head of institutional sales in Asia.
Invesco took a cautious stance when it entered the market in 2000. The fund manager did not attempt to overwhelm investors with a wide range of fund choices.
'Most investors were defensive because of a lack of investment knowledge which led to the popularity of capital preservation and capital guaranteed funds. But in the past few years things have changed. Investors have become more confident and have started to consider funds that offer growth rather than those that focus on capital preservation.'
Lau Ka-shi, managing director and chief executive of Bank Consortium Trust, said investors were more conservative in 2000 and there was a long way to go before they accepted more fund choices.
Bank Consortium Trust conducted a survey, published last month, which found that most respondents underestimated the benefits of MPF. The 500 respondents, on average, estimated just 7 per cent of the wealth the scheme could bring in for an individual over 40 years.
'In the past most MPF investors tended to focus on balanced strategy. These investors considered life-style funds, mixed-asset funds and balanced funds as less risky as other equity funds,' Ms Lau said.
Figures provided by the government's MPF regulator, the MPFA, show that at the end of September this year, there was a total of HK$130billion of net assets invested in mixed asset funds. At the end of February 2001, there was only HK$5.3billion invested in mixed asset funds.
Now about 51 per cent of net assets are invested in mixed asset funds, 26 per cent are invested in equity funds, 11 per cent in capital preservation funds, 10 per cent in guaranteed funds and the remaining 2 per cent are invested in bond and money market funds. Many MPF providers see the growing interest in equity funds, but they tend to focus on diversified strategies which means that there are relatively few funds that invest directly in regional stocks.
Mr Ng said: 'More often it is mixed asset funds that offer some exposure to US equities or European equities.'
The growing interest in China has prompted Bank Consortium Trust, Invesco and Manulife to introduce equity funds that invest in the mainland stock market.
But there are some restrictions. The MPFA does not allow MPF providers to invest in the mainland's A-share market. Most mainland equity funds for MPF investors invest in H shares or red chips.