Exchange Fund Results for the year 2000

The Hong Kong Monetary Authority (HKMA) announced today (Friday) the operating results of the Exchange Fund for the year 2000.

At the end of December 2000, the Exchange Fund had HK$1,023.4 billion of assets, representing an increase of 2.1% over a year before. During the year, the Accumulated Surplus of the Exchange Fund grew by 5.6%, from HK$290.9 billion at the end of December 1999 to HK$307.1　billion at the end of December 2000. Profit for the year, after deducting for the interest payable on fiscal reserves placed with the Exchange Fund, was $16.2 billion, compared with HK$48.6 billion reported for 1999.

The net investment income of the Exchange Fund for 2000 was HK$34.3 billion. The income is attributable to:

1. a loss of HK$11.6 billion on the Hong Kong equity portfolio, with a net decline recorded in the Hang Seng Index in 2000;
2. an exchange loss of HK$11.2 billion, mainly on the euro and the yen, following a net depreciation of the euro by 6% in 2000 and a significant weakening in the yen during the year;
3. interest income and investment gains of HK$67.8 billion on the bond portfolio, aided by the strategic positioning of the Exchange Fund along the yield curve of the US Treasuries and the buy-back of US Treasuries by the US Government, which buoyed bond prices; and
4. other income of HK$0.2 billion, and interest and other expenses of HK$10.9 billion.

The fiscal reserves share in this net investment income on the basis of sharing arrangements effective from April 1998. Out of the HK$34.3 billion, HK$18.1 billion accrues to the fiscal reserves placed with the Exchange Fund, leaving HK$16.2 billion to be added to the Accumulated Surplus of the Exchange Fund.

"The investment environment in 2000 was very difficult," said Mr Joseph Yam, Chief Executive of the HKMA. "Concerns about inflation in the US in the first half of the year were followed by even greater concerns about a slowdown in the US economy later in the year. This led to very high volatility in the international financial markets. As a result, the Exchange Fund recorded losses in both its Hong Kong equity portfolio and its investments in the euro and the yen. Nevertheless, aided by the good performance in the bond markets towards the end of the year, the Exchange Fund recorded a modest surplus of HK$16.2 billion for the year as a whole", Mr Yam added.

Looking into the year ahead, Mr Yam said that the investment outlook for the year 2001 would continue to be difficult. "The investment climate remains uncertain. A lot depends on the shape of the US economy. The HKMA will remain vigilant of changing market conditions in its prudent management of the Exchange Fund under the advice of the Exchange Fund Advisory Committee."

The attached Income and Expenditure Account and Balance Sheet of the Exchange Fund have been prepared without consolidating the accounts of the subsidiaries and associated company, which are considered immaterial to the Fund as a whole. The profits and losses of the subsidiaries attributable to the Fund, as well as their inter-company balances with the Exchange Fund, will be shown in a note to the Accounts to be published in May in the HKMA's Annual Report for 2000.

Attachment

Annex A: Exchange Fund - Income and Expenditure Account for the year ended 31 December 2000

Annex B: Exchange Fund - Balance Sheet as at 31 December 2000

Annex C: Statement of Valuation of the Hong Kong Equity Portfolio

For further enquiries, please contact:

Jasmin Fung, Manager (Press), at 2878 8246 or
Caitlin Wong, Manager (Press), at 2878 1687

Hong Kong Monetary Authority
30 March 2001