Despite the volatility in the equity market, most managers of local provident funds have maintained their largest weighting in Hong Kong dollar assets.
George Chan, director of Peregrine Asset Management (Hong Kong), said it made sense for fund managers to invest in the local stock market.
The main benchmark for the performance of their fund was the rate of wage inflation in the local economy.
While salary inflation this year is hovering between 6 and 7 per cent, it has been double digit for many years. The high growth which has maintained Hong Kong's salary inflation at high levels also makes for high returns on Hong Kong stocks.
'Fund managers historically have had a higher weighting in Hong Kong to beat the local wage inflation and because local investments are more tied in with the Hong Kong economy,' Mr Chan said.
Ironically, investing in the more stable US or European markets bore a risk for local provident funds, because they were unlikely to keep up with the high salary inflation rates and they carried a currency risk.
'Most other markets carry a currency risk. Previously, most fund managers regarded the peg as secure and included the US dollar with the Hong Kong dollar, but the latest volatility has made them more cautious,' he said.