Exchange fund posts $219b income

Aiden He

The Exchange Fund, which backs the Hong Kong dollar, posted a 3 percent year-on-year drop in investment income to HK$219 billion last year after recording a loss of HK$27.4 billion from foreign exchange in the last quarter.

All but one investment category saw a positive return last year, including a profit of HK$135.6 billion from bonds and HK$21.8 billion from Hong Kong stocks, according to data released by the Hong Kong Monetary Authority yesterday.

Gains from other equities amounted to HK$68.7 billion and returns on other investments reached HK$28.5 billion.

However, the fund also suffered a HK$35.6 billion loss on non-Hong Kong dollar assets as a result of the currency translation effect amid a strong US dollar.

The HKMA said some tools could be employed to hedge against the risk of foreign exchange depreciation, but these come with costs.

The fund's overall investment return last year was 5.3 percent, of which the investment portfolio gained 7.2 percent and the backing portfolio rose 4.1 percent.

For the year as a whole, the Exchange Fund achieved a "decent" investment income, with the bond portfolio benefiting from substantial interest income amid persistently high yields, and the equity portfolio also performed well, said HKMA chief executive Eddie Yue Wai-man.

In the fourth quarter alone, however, the fund lost HK$20.1 billion, due to a loss of HK$27.4 billion from valuation changes in foreign exchange, and a decrease of HK$6.7 billion from local stocks.

Yue said global markets became more volatile last quarter and investors turned cautious amid concerns over rising inflation and bond yields. Looking ahead, Yue expects world markets to remain uncertain with interest rate policies continuing to be the focus.

Any escalation in trade frictions among major economies or geopolitical situation could impact real economic activities and may also trigger volatility in the markets, Yue pointed out.

The Exchange Fund paid HK$28.9 billion in total fees to the government on placements of the fiscal reserves and other government funds and statutory bodies last year.

When asked whether the HKMA would help ease the government's fiscal deficit, Yue said the financial secretary may transfer some of the proceeds from the Exchange Fund to the government's general revenue with the prior approval of the chief executive and the Executive Council after consulting the Exchange Fund's advisory committee.

However, Yue emphasized that such allocations must not compromise the fund's ability to safeguard the monetary and financial system.

Hong Kong is set to record a deficit of less than HK$100 billion for the year ending March.

aiden.he@singtaonewscorp.com