Exchange Fund hammered as global stocks stumble

The Exchange Fund reported a record loss of HK$86.1 billion in the first quarter, dragged down by the global stocks slump, the Hong Kong Monetary Authority said.

The news came after the fund's investment income surged to the second-highest level on record of HK$262.2 billion last year.

The fund - used to defend the currency peg with US dollar - partly pared the first-quarter loss in April with a gain of around HK$30 billion to HK$40 billion as global equity markets recovered, HKMA deputy chief executive Howard Lee Tat-chi told the Legislative Council yesterday.

Lee said global financial markets had plummeted due to the pandemic and oil price collapse, with most of the equity markets recording double-digit declines. In the first quarter, the fund lost HK$28.4 billion in local equities and HK$83.1 billion in foreign stocks.

The fund, with total assets of HK$4.09 trillion, also suffered a loss of HK$29 billion in foreign exchange as the US dollar surged to a three-year high. But it generated HK$54.4 billion from bonds, thanks to an increase in price, Lee said.

He said the market should not read too much into the short-term volatility because the fund looks for long-term returns, adding it lost HK$80 billion in March before earning it back in April.

Chief executive Eddie Yue Wai-man said it is difficult to predict whether the fund will record an annual loss as the economic fallout from the pandemic remains uncertain.

Yue said the HKMA has diversified the fund's portfolio to reduce any risk, such as raising holdings in cash or short-term bonds. The fund also lowered non-US dollar and non-Hong Kong dollar assets to less than 10 percent of the total portfolio, after the foreign exchange sector made losses over several years due to the strengthening US dollar.

The aggregate balance of local banks is still abundant with a robust capital buffer, with no need to ask banks to cut dividends, he continued.

Negative equity cases rose recently, meaning some mortgage loans will exceed the market value of the property.

Yue added that most cases came from bank staff or investors who have applied for the mortgage insurance program and that the HKMA will keep monitoring the situation.

He said he had not seen a cyclical change in local home prices although transactions and property prices saw a slight fall recently.

Edmond Lau Ying-pan, senior executive director of HKMA, said the HK$10,000 cash handouts for permanent residents cannot be paid through the Faster Payment System because its registration is by phone number or e-mail, instead of by Hong Kong Identity Card number.

Separately, Christopher Hui Ching-yu, the new Secretary for Financial Services and the Treasury, said the bureau plans to maintain financial market stability, promote financial market development and create a more convenient environment for businesses to prepare for recovery.

avery.chen@singtaonewscorp.com