Hong Kong People Shifted Pension Out of City, China Stocks

(Bloomberg) -- Hong Kong workers stepped away from local and Chinese equities last month at levels not seen since 2016, as political tensions returned and investors chased big stock gains elsewhere.

Participants in the city’s Mandatory Provident Fund program pulled a net HK$384 million ($50 million) out of Hong Kong and Chinese stocks, the biggest monthly total in four years, according to data from MPF Rating, a consultant that tracks the city’s retirement savings. There were HK$210 billion of MPF assets in those equities to end May.

Meanwhile, regional equity funds excluding Asia was the asset class with May’s biggest net inflow at HK$1.17 billion. More than 80% of that went into U.S. equities, MPF Rating data showed.

May’s outflows from Hong Kong and Chinese stocks came as fresh questions emerged about Hong Kong’s future. Late in the month, China announced plans to impose national security legislation on the city. Meanwhile, Chinese investors have been buying Hong Kong equities at a record pace.

Hong Kong stocks fell in May, lagging global equities by the most since 1998, and they were little changed in China amid a broad rally as economies started to reopen around the world following shutdowns to stem the coronavirus’ spread. At the end of May, the S&P 500 Index in the U.S. was 36% above its March low, versus 6% for the Hang Seng Index in Hong Kong and 7% for the Shanghai Composite Index.

MPF funds moving out of Chinese and Hong Kong equities and into other areas has been occurring “for some time now,” said MPF Rating, amid political protests in Hong Kong the past year and more recently the pandemic. “We are comfortable that the trend will continue given the prevailing uncertainties in the market.”

U.S. and European equities, which account for about 4% of MPF assets, made up nearly one-quarter of May’s net inflows. While local investors in May might have sought U.S. equities amid the rebound there, “the magnitude of the fund flow difference between Hong Kong and China versus the U.S. would suggest something more significant is occurring,” said Francis Chung, chairman of MPF Ratings. “There appears to be a loss of confidence in Hong Kong and China equities among MPF members.”

However, investors in Hong Kong have flocked to the local stock listings for Chinese tech firms JD.com Inc. and NetEase Inc. The retail portions of both deals were significantly oversubscribed.

The HSI is up 6.62% since the end of May.

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