The Hong Kong Monetary Authority (HKMA) today (Friday) published the unaudited balance sheet of the Exchange Fund as at the end of June 2001 (Annex 1).
The balance sheet shows that in the first half of 2001:
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the total assets of the Exchange Fund increased by HK$4.3 billion, from HK$1,023.4 billion at the end of December 2000 to HK$1,027.7 billion at the end of June 2001
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the Accumulated Surplus of the Exchange Fund declined by HK$15.0 billion, from HK$307.1 billion at the end of December 2000 to HK$292.1 billion at the end of June 2001
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the foreign exchange assets of the Exchange Fund increased by US$6.6 billion, from US$107.5 billion at the end of December 2000 to US$114.1 billion at the end of June 2001.
The Exchange Fund incurred an investment loss of HK$16.5 billion in the first half of 2001. This is equivalent to 1.7% of the size of the Exchange Fund. The main components of the half-year results are:
After deducting interest and other costs, and taking account of the profit/loss sharing arrangements with the fiscal reserves, a fall of HK$15.0 billion in the Accumulated Surplus of the Exchange Fund was recorded for the first half of 2001.
Commenting on the half-year Exchange Fund Balance Sheet, Mr Joseph Yam, Chief Executive of the HKMA, noted that market conditions had been extremely difficult during the first six months of 2001. "Since the beginning of the year, US interest rates have been reduced by a total of 275 basis points. As the end of this phase of monetary easing approaches, bond markets have recently come under increasing pressure. Yet at the same time, despite the monetary and fiscal stimulus in progress in the US, equity markets remain weak against a background of disappointing corporate earnings and continuing uncertainty about the world economy."
Looking towards the remainder of the year, Mr Yam said that the extreme volatility in bond, equity and currency markets was likely to persist for some time. "The outlook for the world economy hinges on the prospects for recovery in the US, which will continue to be uncertain for some time to come," Mr Yam said. He said that the investment environment for the Fund would therefore continue to be difficult for the remainder of the year and beyond, although equity markets would eventually improve once the US economy showed signs of a recovery. "The HKMA will continue its prudent management of the Exchange Fund in accordance with the guidelines set by the Exchange Fund Advisory Committee," Mr Yam said.
The performance of the Exchange Fund is comparable to that of funds of similar composition in the private sector. The performance should be viewed against a background of an average 7.3% annual investment return achieved for the Exchange Fund over the last three-and-a-half years (see tables 2 and 3 of Annex 2).
An accompanying Statement of Valuation of the Hong Kong Equity Portfolio is published (Annex 3), showing that the market value of the equity investments of the Portfolio at the end of June amounted to HK$107.8 billion.
Attachments
Annex 1: Exchange Fund Balance Sheet
Annex 2: Supplementary Figures
Annex 3: 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
27 July 2001
