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Press Releases

Exchange Fund Position at the end of December 2008

The Hong Kong Monetary Authority (HKMA) announced today (Wednesday) the position* of the Exchange Fund at the end of December 2008.

The Exchange Fund recorded an investment loss of HK$74.9 billion in 2008. The main components were (Annex 1)

  • a valuation loss, net of dividends, on the Hong Kong equities portfolio amounting to HK$77.9 billion
  • a valuation loss, net of dividends, on other equities amounting to HK$73.2 billion
  • an exchange valuation loss of HK$12.4 billion, mainly as a result of the depreciation of other currencies against the US dollar
  • a total return from bonds and other investments of HK$88.6 billion.

The fee payment to the Fiscal Reserves was HK$46.4 billion and the Strategic Portfolio decreased in value (net of dividends) by HK$8.9 billion. These factors, together with interest and other expenses, resulted in a reduction in the Accumulated Surplus of HK$136.3 billion (Annex 1).

The Abridged Balance Sheet (Annex 2) shows that the total assets of the Exchange Fund increased in 2008 by HK$143.3 billion, from HK$1,414.4 billion at the end of 2007 to HK$1,557.7 billion at the end of 2008. The increase is mainly attributable to the increase in the Aggregate Balance.

In 2008 the Exchange Fund recorded a negative investment return of 5.6%. The calculation excludes the performance of the Strategic Portfolio. Since 1994 the Exchange Fund has generated an annual return** of 6.1%, compared with the annual inflation rate** of 1.5% over the same period (Chart 1).

Commenting on the Exchange Fund results for 2008, Mr Joseph Yam, Chief Executive of the HKMA, said that the financial markets experienced an exceptionally turbulent and perilous year in 2008. "The world financial crisis weighed heavily on global business sentiment and investor confidence. Flight-to-quality trades, credit deterioration and balance-sheet de-leveraging in the financial markets led to significant downward adjustments in asset prices and extreme market volatility during the year. Following a very difficult third quarter, the Exchange Fund made a positive return in the fourth quarter as markets stabilised somewhat, resulting in an overall investment loss of HK$74.9 billion for the year. If the Hong Kong equities, which are held for long-term investment purposes, are excluded the Fund achieved a HK$3 billion investment income. The prudent investment strategy of the Exchange Fund has helped minimise the investment loss in 2008." (Chart 2)

Commenting on the outlook for the year ahead, Mr Yam said that the investment environment would continue to be uncertain and difficult. "The global financial system remains unsettled. Whether monetary easing and large fiscal stimulus packages in major economies will be effective in restoring investor confidence remains to be seen. Financial markets are under immense stress and we expect volatile conditions to continue for some time," he said. "The HKMA, in accordance with the Fund's investment objectives set by the Financial Secretary on the advice of the EFAC, will continue to be vigilant in this challenging environment and manage the Exchange Fund prudently," Mr Yam added.

* 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 2008)
Chart 2: Exchange Fund Performance Against Investment Benchmark (1999 to 2008)
Powerpoint Presentation

For further enquiries, please contact:
Peggy Lo, Manager (Communications), at 2878 1687 or
Hing-fung Wong, Manager (Communications), at 2878 1802

Hong Kong Monetary Authority
21 January 2009

Last revision date: 1 August 2011
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