Hong Kong – 2026 Policy Address: Policies on Eligible Index Tracking ETFs for MPF investment
In the 2026 Policy Address delivered on 16 September 2026, Hong Kong’s Chief Executive proposed lifting the “total investment limit” on eligible index‑tracking exchange traded funds (ETFs) by Mandatory Provident Fund (MPF) funds to “facilitating MPF funds to take advantage of quality local ETFs”. The Chairman of the Mandatory Provident Fund Schemes Authority (MPFA) supported this initiative, and MPFA will “relax the restrictions on MPF funds investing in eligible index-tracking ETFs by lifting the total investment limit.”
Current position on index-tracking ETF investments by MPF funds
Currently, MPF funds (including constituent funds and approved pooled investment funds (APIFs)) can gain exposure to index-tracking ETFs through the following routes:
- Sections 6 and 6A of Schedule 1 to the Mandatory Provident Fund Schemes (General) Regulation (Regulation) – an ETF listed on an approved stock exchange or an ETF authorised by the Securities and Futures Commission (SFC) (and listed on the Hong Kong Stock Exchange) is eligible to apply for approval from the MPFA as an approved index‑tracking collective investment scheme (Approved ITCIS) (see our previous article for details on obtaining ITCIS approval). Once approved, such Approved ITCIS is available for investment by all MPF funds.
The limit of investment in an Approved ITCIS would depend on the MPF fund structure. For an MPF fund which is a feeder fund, it can invest entirely in one Approved ITCIS and for an MPF fund which is a portfolio management fund, it may invest up to 90% of its total funds in one Approved ITCIS. - Section 8(1)(b) of Schedule 1 to the Regulation – A direct investment MPF fund may invest in Approved ITCIS subject to the spread requirements in section 2 of Schedule 1 to the Regulation (e.g., the total amount invested in shares/units of an Approved ITCIS must not exceed 10 per cent of the total funds of an MPF fund).
- Section 8(2)(c) of Schedule 1 to the Regulation – A direct investment MPF fund may invest in SFC-authorized index-tracking ETFs (except those adopting a synthetic replication strategy through the use of financial derivative instruments to replicate the index performance) subject to an aggregate 10% investment cap (10% Cap). This 10% Cap is shared with other permissible investments under the same section (e.g., fully-paid up shares listed on a non-approved stock exchange, securities that are approved, or are of a kind approved, by the MPFA, other than shares listed on an approved stock exchange, and authorized unit trusts and mutual funds).
For the avoidance of doubt, SFC-authorized index-tracking ETFs which are permissible for investment under this section are those other than Approved ITCIS. They may include ETFs tracking a narrowly concentrated index (e.g., a single market or having a small number of constituent securities) which, may not be able to satisfy the requirements to be approved by the MPFA as Approved ITCIS.
Outlook
The proposed reform builds on recent steps by the MPFA to broaden the range of investment tools available to MPF funds. In March, the MPFA included active ETFs as permissible investment for MPF funds (see our previous article). In July, the MPFA expanded eligible investments for gold ETFs from a case-by-case approval basis to a categorical approval framework (see our previous article). The Government’s initiative is expected to bring further relaxation for investment in eligible local ETFs.
According to the Policy Address, by the end of 2026, Hong Kong will complete its review of the relevant regulatory framework regarding ITCIS under the MPF System, and consult stakeholders on proposals to enhance the framework. In response, the MPFA Chairman confirmed that the “MPFA will study the legislative proposals to improve the regulatory framework for ITCIS with a view to providing scheme members with a wider selection of approved index-tracking MPF funds.”
The Policy Address does not set out the eligibility criteria for the relevant ETFs or an implementation timeline. Three points will materially shape the practical effect of the reform and are worth watching:
- The eligibility criteria for local ETFs to benefit from the relaxed limit.
- The nature of the limit increase – what is the new limit, whether there will be an increase in the aggregate limit or the investment limit will merely be raised or re-calibrated for eligible local ETFs.
- Whether a new vetting process will apply to such local ETFs, which may require revising the existing ITCIS approval process.
Practical takeaway
Although the specifics remain to be published, the recent sequence of relaxations creates a clear incentive for ETF providers to bring eligible products into the Hong Kong market. Those considering product launch strategies should monitor the forthcoming legislative and regulatory amendments closely, as the details will determine which products qualify and on what terms.
Index companies may consider designing MPF-suitable indices tailored for the MPF investment purposes.
For further information, please contact:
Ming Chiu Li, Partner, Deacons
mingchiu.li@deacons.com
