Exchange Fund Balance Sheet for end-June

The Hong Kong Monetary Authority (HKMA) today (Thursday) published the unaudited balance sheet of the Exchange Fund for the end of June 2005 (Annex 1). The balance sheet shows that in the first half of 2005

• the Accumulated Surplus of the Exchange Fund increased by HK$5.1 billion to HK$428.5 billion at the end of June 2005
• the total assets of the Exchange Fund decreased by HK$3.9 billion to HK$1,058.0 billion at the end of June 2005.

The foreign currency reserves assets of the Exchange Fund decreased by US$1.6 billion, from US$123.6 billion at the end of December 2004 to US$122.0 billion at the end of June 2005.

The Exchange Fund recorded investment income of HK$11.5 billion in the first half of 2005. The main components of this income were (Table 1 of Annex 2)

• a gain of HK$21.1 billion from bonds and other investments
• an exchange valuation loss of HK$13.7 billion, mainly due to the appreciation of the US dollar against other major currencies
• a gain of HK$1.6 billion on the Hong Kong equities portfolio
• a gain of HK$2.5 billion on other equities.

After deducting HK$3.6 billion in interest and other costs and adjustments and HK$2.8 billion representing the sharing of investment income by the fiscal reserves placed with the Exchange Fund, the Accumulated Surplus registered an increase of HK$5.1 billion.

Mr Joseph Yam, Chief Executive of the HKMA, noted that the investment environment in the first half of 2005 had been challenging. "High energy prices dampened the performance of equity markets. The US yield curve flattened as short-term interest rates rose while long-term rates traded within a narrow band. Despite the structural imbalances, the US dollar strengthened against other major currencies primarily on interest rate differentials in favour of the US."

Looking ahead, Mr Yam warned that the investment environment would still be difficult and full of uncertainty. So far, market response to geopolitical risks such as the terrorist attacks in central London has been muted. "However, in view of the uncertainty over the pace of growth in major OECD countries and continued high energy prices, volatility in the markets is likely to continue," Mr Yam said. "The HKMA will exercise vigilance and will continue, under the guidance of the Exchange Fund Advisory Committee, to manage the Exchange Fund in a prudent manner," Mr Yam added.

Attachments

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

For further enquiries, please contact:

Jasmin Fung, Manager (Press), at 2878 8246 or
Hing-Fung Wong, Resource Co-ordinator, at 2878 1802

Hong Kong Monetary Authority
28 July 2005