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Press Releases

Exchange Fund Results for the year 1998

The Hong Kong Monetary Authority (HKMA) today announced the operating results of the Exchange Fund for the year 1998.

At the end of December 1998, the Exchange Fund had HK$921.4 billion of assets, representing an increase of 44.7% over a year ago. While this large increase partly reflects the placement of the Land Fund with the Exchange Fund in November 1998, there was a high profitability for Exchange Fund investments in 1998. The accumulated surplus of the Exchange Fund grew by 27.5%, from HK$190.1 billion at the end of December 1997 to HK$242.3 billion at the end of December 1998. This is the highest growth rate for the accumulated surplus of the Exchange Fund since the establishment of the HKMA.

Total investment income of the Exchange Fund was HK$94.2 billion in 1998, which is 2.65 times of that in 1997. This extraordinary performance reflects in part the book profits of HK$35.1 billion made on the Hong Kong equity portfolio acquired in August 1998. Excluding the profits made on the Hong Kong equity portfolio, investment income of the Exchange Fund in 1998 is still a hefty 66% higher than that in 1997. Profits for the year 1998, after deducting amongst other things, the return payable on fiscal reserves placed with the Exchange Fund of HK$26 billion, was HK$52.2 billion, which is 3 times of that for 1997. This is in great contrast to the generally lower profitability reported by the financial sector.

Commenting on the operating results of the Exchange Fund for 1998, the Chief Executive of the HKMA, Mr Joseph Yam, said that he was pleased with such impressive investment performance in the management of the Exchange Fund, particularly when conditions in international financial markets in 1998 have been very volatile.

Mr Yam also said that, after consultation with the Exchange Fund Advisory Committee, a major review on the investment strategy of the Exchange Fund had earlier been completed. The review was necessary as a result of:

(a) the arrangement, with effect from April 1998, for the fiscal reserves placed with the Exchange Fund to share the same rate of return as that of the Exchange Fund;

(b) the acquisition of the Hong Kong equity portfolio in August 1998;

(c) the creation of a new portfolio of liquid US dollar assets in September 1998 specifically for the purpose of backing the monetary base; and

(d) the placement of the Land Fund with the Exchange Fund in November 1998.

Looking ahead, Mr Yam anticipated a much more difficult investment environment in 1999. "With the US equity market at an unprecedented high level, with limited scope for further cuts in US interest rates, with the Japanese economy still struggling for a revival and moderating economic growth in Europe, and with volatile currencies and greatly reduced market liquidity, it is inevitable that the investment performance of the Exchange Fund in 1999 will be affected. But the HKMA shall continue to be prudent in the management of the Exchange Fund in accordance with the new investment strategy," Mr Yam said.

Hong Kong Monetary Authority
26 March 1999

(Exchange Fund Income and Expenditure Account for the year ended 31 December 1998)

Last revision date: 1 August 2011
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