20-05-2025
$166B Pension Shock? Moody's Downgrade Could Force Hong Kong to Dump US Treasuries
Hong Kong's pension giants may soon hit an uncomfortable ceiling. After Moody's (NYSE:MCO) downgraded the US credit rating last week, fund managers operating under the city's $166 billion Mandatory Provident Fund (MPF) system are warning that they could be forced to trim their Treasury holdings. Under current rules, MPF funds can only invest more than 10% of assets into a single issuerlike the US governmentif that issuer still holds a AAA rating from a list of approved agencies. With only Japan's R&I maintaining that rating, the margin for error is getting thin.
Warning! GuruFocus has detected 5 Warning Signs with MCO.
Behind the scenes, the Hong Kong Investment Funds Association has already flagged the issue to regulators, according to sources close to the matter. Their message? Make an exception for US Treasuries before fund managers are forced to reduce exposure. As of Q4 2024, MPF bond and mixed asset funds with US debt exposure stood at HK$484 billionnearly a third of the system. The MPFA has acknowledged the risk and said it will closely monitor developments, but no formal changes have been announced.
For now, global investors can mostly ignore the noise. Most aren't bound by Hong Kong's strict AAA requirement, so they're unlikely to be sellers. Still, 30-year US yields briefly rose toward 4.90% after the downgrade, before stabilizing. If R&I wavers next, that could leave MPF funds in regulatory limboand markets might not shrug it off so easily the second time around.
This article first appeared on GuruFocus.
