US Pension Fund's Exit May Shake Hong Kong Markets

(MENAFN- Asia Times) Hong Kong's status as an international financial hub faces a new challenge as the United States' federal pension fund has decided to exclude Hong Kong-listed shares from the benchmark indexes for its international funds.

The decision was announced by the US Federal Retirement Thrift investment Board (FRTIB) on Tuesday before Chinese President Xi Jinping and US President Joe Biden met in San Francisco on Wednesday. In a dinner on Wednesday evening, Xi called on the US business community to boost investment in China.

The FRTIB said it had conducted a routine review of the four benchmark indexes followed by its Thrift Savings Plan (TSP) and decided to adjust its International Stock Index Investment Fund, or I Fund, which has an asset size of US$68 billion as of the end of last month. It said it had reviewed the recommendations of its staff and Aon, its investment consultant.

“Overall, operational complexity has increased when investing in emerging markets in recent years given a range of events such as investment restrictions on sensitive Chinese technology sectors, delisting of Chinese companies and sanctions on Russian securities due to the Russia-Ukraine conflict,” Aon said .

“These types of unforeseen events can incur transaction costs and may cause performance and volatility swings,” it said.

It said any announcement of investment restrictions can cause the value of a stock to decline at a time where the investor is forced to sell. It said, given the asset size of the I Fund, the forced selling or restricted investments could incur higher than average market impact costs due to liquidity challenges.


Asia Times

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