Exchange Fund earns $247b in second-best year

Business | Kevin Xu 24 Jan 2020

The Exchange Fund's investment income surged by 21.7 times in 2019 to HK$247.2 billion, the second-highest ever, but analysts do not expect the robust performance to persist in the first quarter.

The fund recorded an investment return of 6.2 percent in the year.

Gains on Hong Kong equities and other equities totaled HK$22.1 billion and HK$100.3 billion, respectively, compared with losses in both segments last year. Gains on bonds expanded by 99 percent to HK$114.4 billion last year, while non-Hong Kong dollar assets saw a negative currency translation effect of HK$13 billion.

Hong Kong Monetary Authority deputy chief executive Howard Lee Tat-chi said most of the assets in the Exchange Fund are denominated in the US dollar and much has been invested in US government bonds, which saw decreasing yields and rising bond prices. However, Lee said bond investment performance is likely to worsen this year.

HKMA chief executive Eddie Yue Wai-man, said global financial markets were clouded by the slowdown of global economic growth and US-China trade tensions last year, but accommodative monetary policies by major central banks lent support to equity and bond markets.

He said market uncertainties have subsided somewhat with initial signs of stabilization in the global economy, but potential risks remain, including the progress of the next phase US-China trade talks, implementation of Brexit and the evolving situation in the Middle East, which can all potentially affect market sentiment.

"Since the rally in the equity markets last year was mainly driven by liquidity rather than fundamentals such as favorable corporate earnings and macroeconomic factors, and with asset valuations across markets at stretched levels, it is questionable whether markets can maintain their upward momentum without a strong rebound in the global economy," he said.

"The HKMA will continue to manage the Exchange Fund prudently. We will monitor market developments closely and adjust our investment strategy as and when appropriate. We will also further diversify our investments to strive for higher long-term returns for the Exchange Fund while adhering to the principle of maintaining sufficient liquidity and preserving capital first," Yue added.

Meanwhile, Francis Chu Siu-chuen, chief operating officer at HKMA's Exchange Fund investment office, said the HKMA will adopt defensive measures such as increasing short-term cash holdings.

Economist Andy Kwan Cheuk-chiu, director of the ACE Centre for Business and Economic Research, expects the Exchange Fund's performance to retreat in the first quarter, due to the base effect and the escalating coronavirus outbreak.

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