Hong Kong’s pension fund trustees and managers are exploring contingency plans, as the latest credit rating downgrade of the United States has spurred concerns about a potential cut of US Treasurys in their investment portfolios, according to the Hong Kong Investment Funds Association (HKIFA).

Philip Tso Wai-pong, co-chair of the HKIFA Pensions Subcommittee, said on Tuesday that the association is working with stakeholders to examine the situation.

If investments in US Treasurys need to be reallocated, the transition should be compliant with regulatory frameworks and conducted in an orderly way, he said. But, he noted, it is hard to say when a concrete contingency plan will be ready.

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Sally Wong Chi-ming, CEO of the HKIFA, echoed Tso’s remarks, emphasizing that Mandatory Provident Fund (MPF) trustees and fund managers are in close communication. Wong said, in the event of significant developments, she expects there will be targeted plans that align with Hong Kong Mandatory Provident Fund Schemes Authority (MPFA) regulations and investment goals.

Moody’s Corp in mid-May lowered the US credit rating by one notch, leaving Japan’s Rating and Investment Information (R&I) as the only agency recognized by the MPFA still maintaining the highest rating for the US.

If R&I were to follow suit, the world’s largest economy would lose its “exempt authority” status under MPFA rules. This would lead to the proportion of MPF investment in US government debt being capped at 10 percent.  

Manulife, one of the MPF trustees, told China Daily that “no specific actions are required at this stage” in relation to the US rating downgrade, and it is working with investment managers to monitor the situation and protect MPF members’ interests.

Another trustee, Sun Life, said its investment team is continuously monitoring the external economic environment and reviewing portfolios to ensure clients’ interests are safeguarded.

Tso said, trustees and fund managers are not required to take immediate action for now, given that the US is still in the MPFA’s “exempt authority” scope, stressing that there is no need for investors to panic.

However, Tso said he encourages investors to maintain a balanced and diversified portfolio. “Ongoing geopolitical tensions are expected to persist, leading to greater volatility and a flight to assets perceived as safer, such as gold and short-term US government debt,” he said.

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According to HKIFA data released on Tuesday, all 25 MPF categories posted gains in the 12 months up to April. Hong Kong equity index-tracking funds led the pack, surging an average of 28.92 percent. China equity funds followed with an average gain of 26.06 percent.  

Investor sentiment towards Hong Kong and the Chinese mainland market has notably improved following mainland artificial intelligence (AI) firm DeepSeek’s technology breakthroughs earlier this year, according to the HKIFA.  

Over three- and 10-year periods, US equity funds ranked as the top-performing MPF category, reporting average cumulative returns of more than 30 percent and 150 percent, respectively.

Contact the writer at irisli@chinadailyhk.com