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Exchange Fund Position at end-June 2016

The Hong Kong Monetary Authority (HKMA) today (Friday) published the unaudited financial position of the Exchange Fund at end-June 2016.

The Exchange Fund recorded an investment income of HK$40.0 billion in the first half of 2016.  The main components were:

  • gains on bonds of HK$44.3 billion;
  • losses on Hong Kong equities of HK$3.5 billion;
  • losses on other equities of HK$4.8 billion;
  • positive currency translation effect on non-Hong Kong dollar assets of HK$2.7 billion (Note 1); and
  • gains on other investments of HK$1.3 billion (Note 2).

Fees on placements by the Fiscal Reserves and placements by HKSAR government funds and statutory bodies were HK$11.7 billion (Note 3) and HK$4.7 billion respectively in the first half of 2016 (the rate of fee payment for 2016 is 3.3%).  After deducting the fees, interest and other expenses, the Accumulated Surplus (Note 4) of the Exchange Fund recorded an increase of HK$14.2 billion (Annexes 1 & 2).

Total assets of the Exchange Fund stood at HK$3,542.8 billion at the end of June 2016, an increase of HK$119.9 billion compared with the end of 2015.

Commenting on the Exchange Fund results for the first half of 2016, Mr Norman Chan, Chief Executive of the HKMA, said, “We faced a turbulent investment environment in the first half of 2016 as the financial markets were very volatile.  In January and early February, the Hong Kong equity market and other major stock markets plunged amid concerns over global economic slowdown and a further drop in commodity prices.  Sentiment improved subsequently but markets continued to fluctuate.  Global financial markets became even more volatile before and after the Brexit referendum in late June.  In such a difficult investment environment, our prudent asset allocation strategy and defensive measures have helped enhance the resilience of the Exchange Fund and resulted in an investment income of HK$40 billion in the first half of 2016. ”

Looking ahead, Mr Chan said, “There remains considerable uncertainties in the global financial markets.  The Brexit effects on the financial markets have not yet fully crystallised.  Although presently the US economy is expanding at a moderate pace and the labour market has further improved, the timing and pace of increases in US federal funds rate are still quite uncertain, as much will depend on economic data and global financial developments in the future.  In addition, the side effects of the negative interest rate policies adopted in Europe and Japan may also gradually surface.  We expect that financial market volatilities will continue and the investment environment will become even more complex and difficult.  The HKMA will, as before, manage the Exchange Fund prudently.  I would like to reiterate that our prudent investment strategy focuses on the medium- and long-term performance, and our long-term investment objectives and strategy should not be distracted by short-term fluctuations in the markets. ”

 

Note 1:   This is primarily the effect of translating non-US dollar foreign currency assets into Hong Kong dollar after deducting the portion for currency hedging.

Note 2:   This is the valuation change of investments held by investment holding subsidiaries of the Exchange Fund.  This figure represents valuation changes up to the end of March 2016.  Valuations of these investments from April to June are not yet available.

Note 3:   This does not include the 2016 fee payment to the Future Fund because such amount will only be calculated when the figures on the LTGP annual performance for 2016 are available.

Note 4:   This includes valuation loss from the Strategic Portfolio but excludes gains from the investment holding subsidiaries.

 

Annex 1: Exchange Fund Results
Annex 2: Exchange Fund Abridged Balance Sheet
Annex 3: Supplementary Figures

 

Hong Kong Monetary Authority
29 July 2016

Last revision date: 29 July 2016
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