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Press Releases

Exchange Fund 2003 results announced

The Hong Kong Monetary Authority (HKMA) announced today (Thursday) the investment performance* of the Exchange Fund for the year 2003.

The Exchange Fund recorded an investment income of HK$89.6 billion in 2003. The main components of this income were (Annex 1)

  • total return from bonds and other investments of HK$18.7 billion

  • valuation gain on and dividends from the Hong Kong equities portfolio amounting to HK$21.2 billion

  • valuation gain on and dividends from other equities amounting to HK$26.8 billion

  • an exchange valuation gain of HK$22.9 billion, mainly as a result of the appreciation of the euro against the US dollar.

After deducting interest and other expenses, net investment income in 2003 was HK$83.4 billion. Of this, the Fiscal Reserves' share amounted to HK$25.7 billion which is more than double the amount budgeted for (HK$12.1 billion) in the financial year 2003-04. The balance of HK$57.7 billion (Annex 2) has been added to the Exchange Fund's Accumulated Surplus for 2003.

Commenting on the Exchange Fund results for 2003, Mr Joseph Yam, Chief Executive of the HKMA, said that the investment environment in 2003 had been particularly volatile and challenging. "The strong recovery in the second half of the year contrasted markedly with a difficult first half, in which world financial markets were clouded with uncertainties about the war in Iraq and the performance of the major economies. Income from bonds, though positive, was lower than in previous years, but this was more than offset by gains in equity holdings. The further sharp appreciation of the euro also contributed to the Exchange Fund's investment performance," Mr Yam said.

The Abridged Balance Sheet (Annex 3) shows that in 2003 the total assets of the Exchange Fund increased by HK$56.1 billion, from HK$955.1 billion at the end of December 2002 to HK$1,011.2 billion at the end of December 2003.

In 2003 the Exchange Fund achieved an investment return of 10.2%**, which is 70 basis points above the investment return of the benchmark portfolio determined by the Financial Secretary after consultation with the Exchange Fund Advisory Committee. Since 1999 the Exchange Fund has achieved a compounded 6.3% annual return, or an annual out-performance of 170 basis points above the benchmark's compounded 4.6% annual return for the same period. Since 1994 the Exchange Fund has generated a compounded annual return of 6.7%, compared with the compounded annual inflation rate of 1.3% over the same period (Chart 1).

Commenting on the outlook for the year ahead, Mr Yam warned that the investment environment in 2004 was unlikely to be conducive to the kind of gains seen by the Exchange Fund in 2003. "Returns on bonds will most likely continue to be limited, the prospects for equities are uncertain, and currency markets will probably continue to be volatile," Mr Yam said. "The HKMA will exercise vigilance in this rapidly changing environment and will continue, under the guidance of the Exchange Fund Advisory Committee, to manage the Exchange Fund in a prudent manner," Mr Yam added.

* Unaudited figures for 2003.

** The reported investment return of 10.2% is computed in US dollar terms in accordance with AIMR Global Investment Performance Standards. The difference between investment return as reported and simple return is attributable primarily to the difference between gross assets at year-end and average investible assets for the year and the translation differential arising from the strengthening of the Hong Kong dollar against the US dollar.

Attachments:

Annex 1: Exchange Fund Performance

Annex 2: Exchange Fund - Change in Accumulated Surplus

Annex 3: Exchange Fund - Abridged Balance Sheet

Chart 1: Investment Return of the Exchange Fund (1994 to 2003)

Powerpoint Presentation

 

For further enquiries, please contact:

Kevin Ip, Manager (Press), at 2878 1687 or

Thomas Chan, Senior Manager (Press), at 2878 1480

Hong Kong Monetary Authority
15 January 2004

Last revision date: 1 August 2011
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