Exchange Fund Position at end-June 2010

The Hong Kong Monetary Authority (HKMA) today (Friday) published the position of the Exchange Fund at end-June 2010.

The Exchange Fund recorded an investment loss of HK$1.4 billion in the first half of 2010. The main components were (Annex 1)

• a valuation loss, net of dividends, on Hong Kong equities portfolio amounting to HK$7.7 billion
• a valuation loss, net of dividends, on other equities amounting to HK$10.2 billion
• an exchange valuation loss of HK$24.3 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$40.8 billion.

Fee payments to the Fiscal Reserves and to placements by HKSAR government funds and statutory bodies were HK$18.6 billion. The Strategic Portfolio decreased in value (net of dividends) by HK$0.9 billion. These factors, together with interest and other expenses, resulted in a decrease in the Accumulated Surplus of HK$23.2 billion (Annex 1).

The Abridged Balance Sheet (Annex 2) shows that the total assets of the Exchange Fund stood at HK$2,227.9 billion at the end of June 2010, an increase of HK$78.5 billion compared with the end of 2009.

Commenting on the Exchange Fund results for the first half of 2010, Mr Norman Chan, Chief Executive of the HKMA, said: "As I indicated when announcing the 2009 results of the Exchange Fund in January this year, there would be uncertainties in the global financial markets. The sustainability and momentum of economic recovery are far from assured and the underlying tone of the global financial system remains weak. It is expected that there would be significant volatility in the global asset markets in 2010." Mr Chan added: "The rebound in the global equity markets since mid-February was short-lived. Risk aversion sentiment intensified in the second quarter amidst the European sovereign debt crisis. Despite efforts of the US and European countries to stabilise the economic and financial systems, investor sentiment remained fragile. Due to the fall in valuation of its equities and the exchange loss, the Exchange Fund recorded an overall investment loss of HK$1.4 billion in the first half of the year."

As for the outlook for the second half of 2010, Mr Chan said he maintained the same market assessment made earlier in the year: "Global financial markets are watching very closely whether the US and the European countries are able to sustain the momentum of economic recovery and mitigate the adverse impact of the fiscal austerity measures at the same time. Given these uncertainties, the financial markets would still be turbulent. The HKMA will remain on high alert and manage the Exchange Fund cautiously and prudently in the second half of 2010."

Annex 1: Exchange Fund Results
Annex 2: Exchange Fund Abridged Balance Sheet
Annex 3: Supplementary Figures

For media enquiries, please contact:
Anissa Wong, Manager (Communications), at 2878 1802 or
Yokee Wong, Manager (Communications), at 2878 1213

Hong Kong Monetary Authority
30 July 2010