The main US federal government pension fund is to exclude China- and Hong Kong-listed stocks on the recommendation of its adviser, which cited the rising tensions between the world’s two largest economies.

The $771bn Federal Retirement Thrift Investment Board said on Wednesday that it would change the benchmark index followed by its international fund. The move will mean a shift away from an index that includes Hong Kong-listed equities.

Washington has increasingly limited the range of Chinese companies available to US investors on the basis of national security, with a series of rule changes first under former president Donald Trump and then Joe Biden.

In 2020, Trump demanded that the FRTIB not make a switch that it was considering to an index with some China exposure. His advisers warned that such a shift would expose the fund to risks from investments in companies that posed national security and humanitarian concerns by operating in violation of US sanctions.

The FRTIB, which manages retirement saving accounts for almost 7mn people, said the decision on Wednesday to change the benchmark followed by its $68bn I Fund was made on the recommendation of its investment consultant, Aon, and staff.

The FRTIB quoted Aon as saying: “If the current investment restrictions on China are the beginning of further restrictions spanning China and Hong Kong investments, this level of uncertainty can outweigh the benefits of expanding the I Fund to include China and retaining exposure to Hong Kong.”

The fund will switch from the MSCI Europe, Australasia and Far East index to the MSCI All Country World ex-USA ex-China ex-Hong Kong Investable Market index.

The adjustment will more than double the number of countries included in the fund, which will be invested in more than 5,600 stocks, compared with almost 800 now, the FRTIB said.

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