Exchange Fund Results for 2010

Press Releases

26 Jan 2011

Exchange Fund Results for 2010

The Hong Kong Monetary Authority (HKMA) announced today (Wednesday) the Exchange Fund results (Note 1) for 2010.

The Exchange Fund recorded an investment income of HK$79.0 billion in 2010. The main components were (Annex 1)

  • a total return from bonds of HK$42.1 billion
  • a valuation gain on, and dividends from, Hong Kong equities amounting to HK$11.6 billion
  • a valuation gain on, and dividends from, foreign equities amounting to HK$27.0 billion
  • an exchange valuation loss of HK$3.1 billion, mainly a result of depreciation of other currencies against the US dollar
  • a valuation gain on other investments (Note 2) amounting to HK$1.4 billion.

After deducting interest and other expenses, the net investment income in 2010 was HK$74.4 billion. The fee payments to the Fiscal Reserves amounted to HK$33.8 billion. The fee payments to placements by HKSAR government funds and statutory bodies amounted to HK$3.9 billion. The Accumulated Surplus (Note 3) recorded an increase of HK$37.9 billion (Annex 1).

The Abridged Balance Sheet (Annex 2) shows that the total assets of the Exchange Fund increased in 2010 by HK$196.3 billion, from HK$2,149.4 billion at the end of 2009 to HK$2,345.7 billion at the end of 2010. The increase is mainly attributable to the increase in placements received from fiscal reserves, HKSAR government funds and statutory bodies.

The 2010 Exchange Fund investment return is 3.6% (Chart 1) (Note 4). To reflect the long-term nature of the Fund, the HKMA is also releasing the average investment returns of the Exchange Fund over a number of different time horizons. The average return was 1.2% over the last three years, 4.9% over the last five and 10 years, and 5.9% since 1994 (Note 5).

Commenting on the Exchange Fund results for 2010, Mr Norman Chan, Chief Executive of the HKMA, said that as expected in the beginning of 2010, the global investment environment remained difficult and volatile. "Investor sentiment was shaken by the European sovereign debt crisis in the first half of the year, leading to decline in the global equity market. Meanwhile, flight-to-quality trades led to a strengthening of US dollar. Together, these brought a minor loss to the Fund in the first half of the year. Following the speech of the US Federal Reserve Chairman in August to provide additional monetary accommodation if it proves necessary, the global equity market rebounded sharply, leading to a turnaround in the investment performance of the Exchange Fund in the second half of the year, and bringing an overall investment gain of $79 billion to the Fund for the full year."

Regarding the outlook for the year ahead, Mr. Chan said that the markets will continue to be uncertain and volatile. "The fundamental factors in the US, notably the high unemployment rate, very soft housing market, the de-leveraging of the US households and the debt problem of the US federal and municipal governments may cause negative drag to the recovery of the US economy. At the same time, emerging market economies are facing pressures from capital inflow, rising domestic prices inflation as well as asset price inflation. Some of them are pursuing tightening policies and measures of different kinds and to varying degrees to cope with these pressures. All these factors will bring significant instability and uncertainty to the macro financial environment and investment markets this year. Against this backdrop, I will take a cautious stance in the outlook of the financial market this year. The investment team of the HKMA will manage the Exchange Fund with great care and prudence."

Note 1: Unaudited figures.
Note 2: This is the valuation change of investment held by investment holding subsidiaries of the Exchange
Note 3: This includes income from the Strategic Portfolio (HK$2.6 billion) but excludes income from the investment holding subsidiaries.
Note 4: This return excludes the performance of the Strategic Portfolio.
Note 5: Averages over different time horizons are calculated on an annually compounded basis.

Annex 1: Exchange Fund Results
Annex 2: Exchange Fund Abridged Balance Sheet
Chart 1: Investment Return of the Exchange Fund (1994 to 2010)
Remarks by Mr Norman T.L. Chan, Chief Executive of Hong Kong Monetary Authority
Powerpoint Presentation

Hong Kong Monetary Authority
26 January 2011

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Last revision date : 26 January 2011