Exchange Fund income tumbles 24pc to $197b

Finance | Avery Chen 28 Jan 2021

Hong Kong's Exchange Fund reported an investment income of HK$197.8 billion in 2020, a drop of nearly 24.6 percent from a year ago, according to the Hong Kong Monetary Authority.

That compared with a gain of HK$262.2 billion in 2019. The Exchange Fund is managed by the HKMA to safeguard the exchange value of the Hong Kong dollar and to maintain the stability and integrity of monetary and financial systems.

The investment return rate also fell to 4.4 percent from 6.6 percent in 2019.

In 2020, Exchange Fund reported a gain of HK$92.5 billion from bonds investment, 19.2 percent lower than a year before. Income from local equities was only HK$4 billion compared to HK$22.10 billion in 2019 while investment in other equities brought HK$69 billion in returns, compared to HK$100.7 billion the year before.

Gains from other investments were HK$22.7 billion, down from HK$37.9 billion in 2019.

HKMA chief executive Eddie Yue Wai-man said the coronavirus has posed significant challenges to the world economy but markets rebounded quickly from sharp corrections, thanks to ultra-loose monetary policy and a series of relief measures launched by various governments.

The main focus for 2021 will be the timing and pace of recovery of different economies, he said. "Global recovery is in sight but the pandemic will still have a bearing on the global economic outlook. In addition, geopolitical risks remain a cause for concern. The foreign policy direction of the new US administration, developments of the China-US relations, as well as implementation of the Brexit agreement will all have impact on the financial markets," Yue said.

He warns that the global equity markets have recorded substantial gains for two consecutive years, thanks to the persisting low-interest rates. "It is still uncertain whether the lofty valuations can be sustained," Yue said.

A low-interest-rate environment will also bring about significant challenges to substantial bond holding, as it will put pressure on the interest income from bonds, he added.

"We will implement defensive measures as appropriate and maintain a high degree of liquidity to deal with possible financial disruptions," he said.

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