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Exchange Fund Position at end-June 2017

The Hong Kong Monetary Authority (HKMA) today (Thursday) published the unaudited financial position of the Exchange Fund at end-June 2017.

The Exchange Fund recorded an investment income of HK$126.5 billion in the first half of 2017. The main components were:

  • gains on Hong Kong equities of HK$27.8 billion;
  • gains on other equities of HK$40.1 billion;
  • gains on bonds of HK$16.5 billion;
  • positive currency translation effect on non-Hong Kong dollar assets of HK$34.3 billion (Note 1); and
  • gains on other investments of HK$7.8 billion (Note 2).

Fees on placements by the Fiscal Reserves and placements by HKSAR government funds and statutory bodies were HK$11.4 billion (Note 3) and HK$4.3 billion respectively in the first half of 2017 (the rate of fee payment for 2017 is 2.8%). After deducting the fees, interest and other expenses, the Accumulated Surplus (Note 4) of the Exchange Fund recorded an increase of HK$91.7 billion (Annexes 1 & 2).

Total assets of the Exchange Fund stood at HK$3,904.9 billion at the end of June 2017, an increase of HK$286.2 billion compared with the end of 2016.

Mr Norman Chan, Chief Executive of the HKMA, said, “Global financial markets finished the first half of the year with positive results in general. Global equity markets, including Hong Kong’s equity market, performed well and accordingly the Exchange Fund’s equity investment portfolio achieved an income of HK$68 billion. On foreign exchange, amidst market expectation of narrowing differences in economic performance and monetary policies between the US and other economies including Europe and the UK, the US dollar index went down instead of up, bringing a positive currency translation effect of about HK$34 billion when translating the Exchange Fund’s foreign currency assets into Hong Kong dollar. These resulted in the Exchange Fund’s record high investment return of over HK$120 billion for the first half of the year.” He continued, “The positive trend of the global financial markets in the first half of the year may not be sustainable. The investment environment in the second half of the year is still fraught with uncertainties, including the pace of the US interest rate normalisation and the timing of commencement of the Federal Reserve’s balance sheet reduction, as well as the prospect of any reversal in the accommodative monetary policies of other major central banks. In addition, the various economic stimulus measures as proposed by the US administration have yet to materialise, the Brexit negotiations have become complex, and geopolitical risks in selected regions have intensified. These uncertainties could affect market sentiments easily, leading to adjustment in the asset markets. In the face of the complex and unstable investment environment, the HKMA will continue to manage the Exchange Fund prudently through appropriate defensive measures and investment diversification including increased investments under the Long-Term Growth Portfolio, with a view to achieving better returns for the Exchange Fund in the long run within acceptable risk levels.”

Note 1:

This is primarily the effect of translating foreign currency assets into Hong Kong dollar after deducting the portion for currency hedging.

Note 2:

This is the valuation change of investments held by investment holding subsidiaries of the Exchange Fund.  This figure represents valuation changes up to the end of March 2017.  Valuations of these investments from April to June are not yet available.

Note 3:

This does not include the 2017 fee payment to the Future Fund because such amount will only be calculated when the composite rate for 2017 is available.

Note 4:

This includes valuation gain from the Strategic Portfolio but excludes gains from the investment holding subsidiaries.

 

Annex 1:   Exchange Fund Results
Annex 2:   Exchange Fund Abridged Balance Sheet

Hong Kong Monetary Authority
27 July 2017

 

Last revision date: 27 July 2017
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