Exchange Fund Results for 2012

Press Releases

14 Jan 2013

Exchange Fund Results for 2012

The Hong Kong Monetary Authority (HKMA) announced today (Monday) the Exchange Fund results (Note 1) for 2012.

The Exchange Fund recorded an investment income of HK$108.6 billion in 2012.  The main components were (Annex 1)

  • a valuation gain on, and dividends from, Hong Kong equities amounting to HK$30.7 billion
  • a valuation gain on, and dividends from, other equities amounting to HK$42.6 billion
  • a total return from bonds of HK$33.1 billion
  • a valuation gain on other investments (Note 2) amounting to HK$3.6 billion.
  • an exchange valuation loss of HK$1.4 billion

After deducting interest and other expenses, the net investment income in 2012 was HK$104.4 billion.  The fee payments to the Fiscal Reserves amounted to HK$37.8 billion.  The fee payments to placements by HKSAR government funds and statutory bodies amounted to HK$8.0 billion.  The Accumulated Surplus (Note 3) recorded an increase of HK$55.8 billion (Annex 1).

The Abridged Balance Sheet (Annex 2) shows that the total assets of the Exchange Fund increased by HK$294.2 billion, from HK$2,488.0 billion at the end of 2011 to HK$2,782.2 billion at the end of 2012.  The increase is mainly attributable to increases in the Aggregate Balance and Certificates of Indebtedness, and placements received from fiscal reserves, HKSAR government funds and statutory bodies.

The 2012 Exchange Fund investment return is 4.4% (Chart 1) (Note 4).  To reflect the long-term nature of the Fund, the HKMA is also releasing the average investment returns of the Exchange Fund over a number of different time horizons.  The average return was 3.0% over the last three years, 1.8% over the last five years, 4.9% over the last ten years, and 5.6% since 1994 (Note 5).

On the outlook for the coming year, Mr Norman Chan, Chief Executive of the HKMA, said, “I expect that global financial markets will continue to be subject to many uncertainties in 2013.  Although Europe has earned some respite from its debt crisis, the outlook for the real economy and employment situation in the eurozone does not provide any ground for optimism.  As for the US, the momentum for growth remains lacklustre.  While the full impact of a “fiscal cliff” was averted with a last-minute tax deal between the Democrats and the Republicans, we expect major challenges over raising the country’s debt ceiling and reducing government spending by the end of February this year.  Should this highly politically charged process be managed poorly, tremors similar to those that shook the global financial markets in August 2011 may recur.  At present, sentiment in the US and European stock markets is rather positive.  However, we must be mindful that the current asset prices are the result of both close-to-zero interest rate and the massive quantitative easing by the US and other major advanced countries.  The valuations of the equity markets do not appear to be supported by improved fundamentals, and it is unclear how long they can hold.  Furthermore, the US Treasury yields have already dropped to very low levels following several rounds of quantitative easing, with the 10-year Treasuries yield falling below 2%.  Investors who rely on interest incomes from their bond holdings are greatly affected.  The movement of the yield curve in the future is also fraught with great uncertainties.  In this highly unstable macro economic environment, the HKMA will continue to manage the Exchange Fund prudently and pursue the investments in the Long-Term Growth Portfolio in a gradual manner.”

Note 1:      Unaudited figures.
Note 2:     This is the valuation change of investment held by investment holding subsidiaries of the Exchange Fund.
Note 3:      This includes gain from the Strategic Portfolio (HK$0.8 billion) but excludes income from the investment holding companies.
Note 4:     This return excludes the performance of the Strategic Portfolio.
Note 5:     Averages over different time horizons are calculated on an annually compounded basis.

 

Annex 1:  Exchange Fund Results
Annex 2:  Exchange Fund Abridged Balance Sheet
Chart 1:    Investment Return of the Exchange Fund (1994 to 2012)

Remarks by Mr Norman T.L. Chan, Chief Executive of Hong Kong Monetary Authority (PDF File, 32KB)

Powerpoint Presentation (PDF File, 203KB)

Hong Kong Monetary Authority
14 January 2013

 

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Last revision date : 14 January 2013