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Press Releases

Exchange Fund position at the end of 2005

The Hong Kong Monetary Authority (HKMA) announced today (Thursday) the position1 of the Exchange Fund at the end of 2005.

The Exchange Fund recorded an investment income of HK$38.1 billion in 2005. The main components of this income were (Annex 1)

  • total return from bonds and other investments of HK$30.1 billion
  • valuation gain on, and dividends from, the Hong Kong equities portfolio amounting to HK$7.0 billion
  • valuation gain on, and dividends from, other equities amounting to HK$20.5 billion
  • an exchange valuation loss of HK$19.5 billion, mainly as a result of the depreciation of the euro and the yen against the US dollar.

After deducting interest and other expenses, net investment income in 2005 was HK$30.4 billion, of which the Fiscal Reserves' share amounted to HK$10.0 billion. An amount of HK$20.4 billion, being the net investment income after deducting the Fiscal Reserves' share, was added to the Exchange Fund's Accumulated Surplus for 2005. There was also a downward adjustment of HK$0.6 billion to the opening balance of the Accumulated Surplus, following the implementation of new Hong Kong Accounting Standards (Annex 2). At the end of 2005 the Accumulated Surplus stood at HK$443.2 billion.

Commenting on the Exchange Fund results for 2005, Mr Joseph Yam, Chief Executive of the HKMA, said that the investment environment had been unsettled in 2005, with global financial markets pulling in different directions. "Rising energy prices and continued removal of the accommodative stance in the US constrained the performance of the US equity and bond markets, while the interest rate differential led to a rebound of the US dollar against other major currencies despite the large US current account and fiscal deficits. Against that backdrop, the Exchange Fund outperformed the benchmark by 0.2% through the adoption of prudent investment strategies."

The Abridged Balance Sheet (Annex 3) shows that in 2005 the total assets of the Exchange Fund increased by HK$7.0 billion, from HK$1,061.9 billion at the end of 2004 to HK$1,068.9 billion at the end of 2005.

In 2005 the Exchange Fund achieved an investment return of 3.1%, compared with the investment return of 2.9% for the benchmark portfolio determined by the Financial Secretary after consultation with the Exchange Fund Advisory Committee. Since 1999 the Exchange Fund has achieved a 5.7% annual return2 , 1.2% above the benchmark's 4.5% annual return2 for the same period. Since 1994 the Exchange Fund has generated an annual return2 of 6.3%, compared with the annual inflation rate2 of 1.3% over the same period (Chart 1).

Commenting on the outlook for the year ahead, Mr Yam said that the investment environment in 2006 would be challenging. "Despite the strong performance of the global equity markets recently, continued rising energy prices and the less certain US monetary stance could tilt the investment landscape with little forewarning," Mr Yam said. "Working under the guidance of the Exchange Fund Advisory Committee and its investment Sub-Committee, the HKMA will continue to exercise vigilance in this difficult environment and to manage the Exchange Fund prudently," Mr Yam added.

Annex 1: Exchange Fund Performance

Annex 2: Exchange Fund - Change in Accumulated Surplus

Annex 3: Exchange Fund - Abridged Balance Sheet

Annex 4: Supplementary Figures - Market Performance (2004 and 2005)

Chart 1: Investment Return of the Exchange Fund (1994 to 2005)

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
19 January 2006

1 Unaudited figures for 2005.

2 Compounded.

Last revision date: 1 August 2011
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