Exchange Fund Balance Sheet for end-June published

The Hong Kong Monetary Authority (HKMA) today (Thursday) published the unaudited balance sheet of the Exchange Fund at the end of June 2003 (Annex 1). The balance sheet shows that in the first half of 2003:

• the Accumulated Surplus of the Exchange Fund increased by HK$29.9 billion, from HK$327.2 billion at the end of December 2002 to HK$357.1 billion at the end of June 2003
• the total assets of the Exchange Fund increased by HK$24.8 billion, from HK$955.1 billion at the end of December 2002 to HK$979.9 billion at the end of June 2003.

The foreign exchange assets of the Exchange Fund increased by US$2.5 billion, from US$111.9 billion at the end of December 2002 to US$114.4 billion at the end of June 2003.

The Exchange Fund recorded investment income of HK$47.8 billion in the first half of 2003. The main components of this income were (Table 1 of Annex 2):

• a profit of HK$19.2 billion from bonds and other investments
• an exchange gain of HK$14.9 billion, mainly due to the appreciation of the euro against the US dollar
• a gain of HK$2.9 billion on the Hong Kong equities portfolio
• a gain of HK$10.8 billion on other equities.

After deducting HK$2.8 billion of interest and other costs and HK$15.1 billion representing the sharing of investment income with the fiscal reserves placed with the Exchange Fund, the Accumulated Surplus registered an increase of HK$29.9 billion.

Mr Joseph Yam, Chief Executive of the HKMA, said that the global markets had been volatile over the past half-year because of the uncertainties surrounding the war in Iraq and concerns about the risk of global deflation. "The Exchange Fund nevertheless managed to achieve a healthy investment income in the first half of 2003. The weaker US dollar, lower bond yields, and higher equity markets all contributed to the positive return," Mr Yam said.

Mr Yam said that the investment return for the first half of 2003 was 5.1%. "This is higher than the rate of return on the investment benchmark determined by the Financial Secretary with the advice of the Exchange Fund Advisory Committee," he said. Mr Yam added that, over the longer term, the Exchange Fund had achieved a compounded 6.6% annual investment return in the nine-and-a-half-year period from January 1994 to the end of June 2003.

"The valuation of assets in the Exchange Fund shows short-term fluctuations, which reflect the volatility in the financial markets in which they are invested. Despite these fluctuations, the management of the Exchange Fund, in which the fiscal reserves are deposited, is organised so as to ensure that the Fund is at all times able to meet liquidity requirements," Mr Yam said.

Mr Yam said that volatility was likely to increase in the global investment environment during the remainder of 2003, as the uncertain outlook on the pace of growth in the US, Europe and Japan continued to affect markets. "The HKMA will, as always, exercise prudence in its management of the Exchange Fund with the aim of achieving a balance in terms of return, risk and liquidity, in compliance with the guidelines set by the Financial Secretary with the advice of the Exchange Fund Advisory Committee," Mr Yam added.

Attachments

Annex 1: Exchange Fund Balance Sheet
Annex 2: Supplementary Figures

For further enquiries, please contact:

Thomas Chan, Senior Manager (Press), at 2878 1480 or
Jasmin Fung, Manager (Press), at 2878 8246

Hong Kong Monetary Authority
24 July 2003