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Press Releases

Exchange Fund Results for 2007

The Hong Kong Monetary Authority (HKMA) announced today (Monday) the Exchange Fund results* for 2007.

The investment income of the Exchange Fund1 in 2007 was HK$142.2 billion. The valuation gain and dividend income of the Strategic Portfolio amounted to HK$4.7 billion, making a total return of HK$146.9 billion.

Of the investment income of HK$142.2 billion, the main components were (Annex 1)

  • a valuation gain on, and dividends from, the Hong Kong equities portfolio amounting to HK$55.8 billion
  • a valuation gain on, and dividends from, other equities amounting to HK$6.7 billion
  • an exchange valuation gain of HK$18.7 billion, mainly as a result of the appreciation of other currencies against the US dollar
  • a total return from bonds and other investments of HK$61.0 billion.

After deducting interest and other expenses, the net investment income in 2007 was HK$132.2 billion. The payment to the Fiscal Reserves was HK$27.6 billion. This amount consists of HK$6.4 billion, being the Treasury's share of the Exchange Fund return for the first quarter of 2007 under the old sharing arrangement, and HK$21.2 billion for the remaining months of 2007 under the new fixed-rate fee arrangement2 introduced on 1 April 2007.

HK$109.3 billion was added to the Exchange Fund's Accumulated Surplus for 2007 (Annex 1), being the net investment income (HK$132.2 billion) less the payment to the Fiscal Reserves (HK$27.6 billion), and adding back the valuation change and dividend income from the Strategic Portfolio (HK$4.7 billion). At the end of 2007 the Accumulated Surplus stood at HK$617.0 billion.

The Abridged Balance Sheet (Annex 2) shows that the total assets of the Exchange Fund increased in 2007 by HK$240.6 billion, from HK$1,176.4 billion at the end of 2006 to HK$1,417.0 billion at the end of 2007.

In 2007 the Exchange Fund achieved an investment return of 11.8%, compared with the investment return of 10.6% for the benchmark portfolio determined by the Financial Secretary after consultation with the Exchange Fund Advisory Committee (EFAC). This return does not include the performance of the Strategic Portfolio. Since 1994 the Exchange Fund has generated an annual return** of 7.0%, compared with the annual inflation rate** of 1.4% over the same period (Chart 1).

Commenting on the Exchange Fund results for 2007, Mr Joseph Yam, Chief Executive of the HKMA, said that the financial markets had been extremely volatile in 2007, especially in the second half of the year. "As the US sub-prime-mortgage crisis intensified, the US government bond market benefited from risk aversion and a flight to quality, while major central banks eased monetary policy. Gains in foreign equities markets in the first half of the year were partly reversed in the second half because of concerns about money-market tightness and corporate profits. Local equities reached a record high in October but there was a significant correction in the last two months of the year. The US dollar weakened against all major currencies. Despite these sharp market fluctuations, the Exchange Fund outperformed its benchmark by 126 basis points, compared with 63 basis points in 2006. Most of this out performance came from the Exchange Fund's holding of local equities." (Chart 2)

Commenting on the outlook for the year ahead, Mr Yam said that the investment environment would continue to be challenging in 2008. "Concerns about widening credit spreads, the profitability of financial institutions and the risks to US economic growth will continue to affect sentiment. Market volatility is likely to remain high, given developments in international financial markets and the likely continued macro-economic tightening on the Mainland. The HKMA will make its best efforts to manage the Exchange Fund prudently within the investment objectives set by the Financial Secretary on the advice of the EFAC."

* Unaudited figures
** Compounded

Annex 1: Exchange Fund Results
Annex 2: Exchange Fund Abridged Balance Sheet
Chart 1: Investment Return of the Exchange Fund (1994 to 2007)
Chart 2: Exchange Fund Performance Against Investment Benchmark (1999 to 2007)
Powerpoint Presentation

For further enquiries, please contact:
Thomas Chan, Senior Manager (Press), at 2878 1480 or
Peggy Lo, Manager (Press), at 2878 1687

Hong Kong Monetary Authority
21 January 2008

1 Investment income refers to income from both Backing and Investment Portfolios, but excluding valuation change and dividends of the Strategic Portfolio which is established to hold the Government's 5.88% shareholding in Hong Kong Exchanges and Clearing Limited for strategic purposes.

2 As announced in the budget speech of the Financial Secretary on 28 February 2007, the rate of return on the fiscal reserves for 2007, starting from 1 April, is 7 per cent.

Last revision date: 1 August 2011
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