The Hong Kong Monetary Authority (HKMA) published today (31 July 2000) the unaudited consolidated balance sheet of the Exchange Fund as at the end of June 2000 (Annex 1). The figures therein show that in the first half of 2000 the Accumulated Surplus of the Exchange Fund decreased by HK$5.4 billion, from HK$291.3 billion at the end of December 1999 to HK$285.9 billion at the end of June 2000. The decrease in the Accumulated Surplus was caused by the significant fall in the prices of the Hong Kong stocks held by the Exchange Fund during the period. There was an evaluation loss of HK$24 billion in the Exchange Fund's equity portfolio, which more than offset the investments gains in bonds and other financial instruments held by the Fund.
During the first half of this year, total assets of the Exchange Fund decreased by HK$48.0 billion from HK$1,014.4 billion to HK$966.4 billion. The main reasons for this decrease are:
- (a) the HK$22.1 billion redemption of bank notes issued at the end of last year to cope with seasonal and Y2K related demand. A net amount of HK$22.1 billion was withdrawn from circulation in the first half of 2000;
- a fall of HK$16.1 billion in "Placements by other institutions". "Placements by other institutions" include placements from other statutory bodies and bank borrowings. Hong Kong dollar proceeds from the disposal of Hong Kong equities through the TraHK Tap Facility have been used to reduce bank borrowings;
- unwinding of Y2K contingency liquidity held by banks with the HKMA. The Aggregate Balance in the clearing accounts of banks held with the HKMA fell by HK$6.6 billion; and
- the HK$5.4 billion reduction in acccumulated surplus due to the evaluation loss on Hong Kong equities.
"Concerns in developed economies, particularly the US, over inflation have led to very high volatility in international financial markets, including the Hong Kong equity market, and the performance of the Exchange Fund in the first half of 2000 has been adversely affected by the net fall in the prices of Hong Kong equities during the period. " said Mr Joseph Yam, Chief Executive of the HKMA. "As an illustration of the impact of such volatility on the returns on the Exchange Fund, the evaluation loss of the Exchange Fund's Hong Kong equity portfolio in the first half of this year were largely recouped as the Hang Seng Index rallied by over 1,000 points in the first three weeks in July. Since then, however, the market has fallen by about 780 points in the last three trading days of the same month." Mr Yam added. "Until the outlook for interest rates becomes clearer the investment environment for the rest of the year will remain uncertain and we can expect to see more ups and downs of this kind. The HKMA will continue its prudent management of the Exchange Fund in accordance with the guidelines set by the Exchange Fund Advisory Committee," he added.
An accompanying Statement of Valuation of the Hong Kong Equity Portfolio is also published (Annex 2), showing that the market value of the equity investments of the Portfolio at the end of June amounted to HK$170.9 billion.
Attachment
Annex 1: Exchange Fund Consolidated Balance Sheet
Annex 2: Statement of Valuation of the Hong Kong Equity Portfolio
For further enquiries, please contact:
Thomas Chan, Senior Manager (Press), at 2878 1480 or
Caitlin Wong, Manager (Press), at 2878 1687
Hong Kong Monetary Authority
31 July 2000
