Exchange Fund Position at end-June 2011

Press Releases

21 Jul 2011

Exchange Fund Position at end-June 2011

The Hong Kong Monetary Authority (HKMA) today (Thursday) published the position of the Exchange Fund at end-June 2011.

The Exchange Fund recorded an investment income of HK$46.3 billion in the first half of 2011. The main components were (Annex 1)

  • a total return from bonds of HK$14.5 billion
  • an exchange valuation gain of HK$22.2 billion, mainly as a result of the appreciation of other currencies against the US dollar
  • a valuation loss, net of dividends, on Hong Kong equities amounting to HK$1.0 billion
  • a valuation gain on, and dividends from, other equities amounting to HK$9.5 billion
  • a valuation gain on other investments (Note 1) amounting to HK$1.1 billion.

After deducting interest and other expenses, the net investment income in the first half of 2011 was HK$43.6 billion. The fee payments to the Fiscal Reserves amounted to HK$18.3 billion. The fee payments to placements by HKSAR government funds and statutory bodies amounted to HK$2.4 billion. The Accumulated Surplus (Note 2) recorded an increase of HK$21.2 billion (Annex 1).

The Abridged Balance Sheet (Annex 2) shows that the total assets of the Exchange Fund stood at HK$2,433.2 billion at the end of June 2011, an increase of HK$88.2 billion compared with the end of 2010.

Commenting on the Exchange Fund results for the first half of 2011, Mr Norman Chan, Chief Executive of the HKMA, said that the asset markets had been rather volatile in the first half of 2011. "Following the launch of the second round of quantitative easing policy and a sizable package of fiscal measures in the US towards the end of 2010, the US equity market performed well, leading to an upward trend in the global equity markets in the fourth quarter of 2010 and the first quarter of this year. As a result, the Exchange Fund achieved reasonable investment gains in the first quarter this year. However, the global equity markets have been affected since May by the deterioration of Greece’s sovereign debt crisis. Investors’ risk-aversion sentiment heightened, resulting in marked declines in the global equity markets, almost offsetting the gains since the beginning of the year. The markets only stabilised towards the end of June, with a significant rebound in the last week of the month. Meanwhile, the Hong Kong equity market underperformed the global markets in the second quarter, wiping out the gains recorded in the first quarter of this year. With the gains in bond investments and exchange valuation, the Exchange Fund achieved an overall investment income of HK$46.3 billion in the first half of 2011," said Mr Chan.

Looking ahead, Mr Chan said that the investment environment will remain complicated in the second half of the year: "Notwithstanding the continuation of a very low interest rate environment and abundant supply of liquidity, the pace of economic recovery in the US is likely to be more subdued than expected. This is because of the drags caused by a depressed housing market, a persistently high unemployment rate and the fiscal deficit problems. In Europe, the sovereign debt crisis of Greece, Portugal and Ireland will linger on, and investors from time to time may become jittery about the contagion risk of the sovereign debt crisis, thereby causing volatility in the financial markets. At the same time, emerging markets are pushing ahead into stronger measures to deal with massive inflows of funds and rising inflationary pressures, which can affect the flow of funds and the pace of economic growth. Against the backdrop of these global economic and financial imbalances, foreign exchange, equity and bond markets are likely to remain volatile, which in turn will affect the investment performance of the Exchange Fund in the second half of the year. As before, the HKMA will continue to manage the Exchange Fund in a vigilant and prudent manner."

Note 1: This is the valuation change of investment held by investment holding subsidiaries of the Exchange Fund.
Note 2: This includes losses from the Strategic Portfolio (HK$0.6 billion) but excludes income from the investment holding subsidiaries.

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

Hong Kong Monetary Authority
21 July 2011

Latest Press Releases
Last revision date : 19 August 2011