Exchange Fund income doubles to $52.8b in Q3

Finance | Reuters and Winnie Lee 3 Nov 2020

The Exchange Fund's investment income in the third quarter more than doubled to HK$52.8 billion from a year before, but the performance in the fourth quarter is clouded by geopolitical uncertainties, the Hong Kong Monetary Authority said.

HKMA chief executive Eddie Yue Wai-man said: "The performance in October was fine but there are great uncertainties in November and December, including US presidential election, Brexit, and Covid-19 resurgence in Europe."

Yue said the outlook for the fourth quarter is "very uncertain" and it was "very hard" to foresee due to Brexit negotiations and the pandemic, which will drag down the global economy in both the short and long term.

The de-facto central bank said it will continue to be defensive and place liquidity as one of the foremost factors in consideration to preserve capital and prioritize long-term value-add, but urged the public to manage risks.

On a quarterly basis, investment income plunged 57 percent in the third quarter.

The figure compared with an investment gain of HK$23.5 billion in the year-ago period and a revised HK$121.6 billion investment income in the second quarter in 2020.

The Exchange Fund, which is used to back the Hong Kong dollar, recorded an investment income of HK$62.4 billion in the first three quarters, down by 69 percent year-on-year, due to investment losses in Hong Kong equities.

The fund saw gains on bonds of HK$83.2 billion in the first nine months, however, both Hong Kong equities and foreign exchange recorded losses of HK$19.9 billion and HK$9.7 billion, respectively.

Yue also revealed that the de-facto central bank has purchased

US dollars to the tune of US$400 billion (HK$3.12 trillion) as the local currency repeatedly hit the strong end of its trading band with the greenback.

"Hong Kong's financial market and the linked exchange rate system continue to operate effectively," Yue said during a presentation at the Legislative Council of Hong Kong, while reiterating that the LERS does not need to change.

Commenting on the upcoming US presidential elections, Yue said he believes Hong Kong's financial sector could fend off the impact of possible market panic if there was no clear winner and the results were disputed.

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