Exchange Fund Position at end-December 2016

Press Releases

25 Jan 2017

Exchange Fund Position at end-December 2016

The Hong Kong Monetary Authority (HKMA) today (Wednesday) published the unaudited financial position of the Exchange Fund at end-December 2016.

The Exchange Fund recorded an investment income of HK$61 billion in 2016.  The main components were:

  • gains on Hong Kong equities of HK$5.3 billion;
  • gains on other equities of HK$28.3 billion;
  • gains on bonds of HK$33 billion;
  • gains on other investments of HK$10.2 billion (Note 1); and
  • negative currency translation effect of HK$15.8 billion on non-Hong Kong dollar assets (Note 2). 

Fees on placements by the Fiscal Reserves and placements by HKSAR government funds and statutory bodies were HK$23 billion (Note 3) and HK$9.6 billion respectively in 2016 (the rate of fee payment for 2016 is 3.3%).

The Abridged Balance Sheet shows that the total assets of the Exchange Fund increased by HK$207 billion, from HK$3,422.9 billion at the end of 2015 to HK$3,629.9 billion at the end of 2016.  The increase was mainly attributable to increases in the Certificates of Indebtedness and placements by the Fiscal Reserves.

The Exchange Fund recorded an investment return of 1.8% in 2016 (Note 4).  Specifically, the Investment Portfolio achieved a rate of return of 2.8%, and the rate of return on the Backing Portfolio was 0.7%.  The Long-Term Growth Portfolio (LTGP) recorded an annualised internal rate of return of about 10.9% since its inception in 2009.

Commenting on the performance of the Exchange Fund in 2016, Mr Norman Chan, Chief Executive of the HKMA, said, “2016 was full of surprises and black swan events.  The global financial markets were highly volatile and turbulent.  In the past two to three years, in view of the worsening external investment environment, we have already deployed a series of defensive measures.  First, we have reduced the Fund’s holdings in long-term bonds and increased short-term bonds and cash to lessen the negative impact of possible increase in US interest rates on bond valuations.  Secondly, we have reduced the Fund’s holdings of non-US dollar and non-Hong Kong dollar assets to mitigate the negative currency translation effect caused by a strong US dollar.  The share of these assets was lowered to around 8% at the end of 2016 from 17.5% at the end of 2014.  Thirdly, we have expanded investments under the LTGP. These defensive measures enabled the Exchange Fund to achieve an investment income of over HK$60 billion in 2016 despite a very difficult investment environment.”

Looking ahead, Mr Chan said, “Stepping into 2017¸ the global political and economic environment is still highly complex and unpredictable.  There are great uncertainties over the direction of the trade, economic and fiscal policies of the new US administration, as well as the approach, extent and timing of implementation of the policies.  It also remains to be seen how long the current optimistic market sentiment will last.  In Europe, the coming national elections in the Netherlands, France and Germany, as well as the impending formal trigger of the Brexit process in the UK in March, will bring about further uncertainties and may result in market turbulences.  In addition, the pace of US interest rate normalisation is still highly uncertain, and will affect global fund flows, exchange rates and asset markets.  In the face of the continued complex and difficult investment environment, we will adopt a combination of both prudent and proactive strategies.  While continuing to implement defensive measures, we will expand investments under the LTGP with a view to minimising the shocks brought by short-term market fluctuations and achieving better returns for the Exchange Fund in the medium to long term. ”

Note 1:      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 September 2016.  Valuations of these investments from October to December are not yet available.

Note 2:      This is primarily the effect of translating non-US dollar foreign currency assets into Hong Kong dollar after deducting the portion for currency hedging.

Note 3:      This does not include the 2016 fee payment to the Future Fund because such amount will only be calculated when the figures on the LTGP annual performance for 2016 are available.

Note 4:      This return excludes the performance of the Strategic Portfolio.


Annex 1:   Exchange Fund Results
Annex 2:   Exchange Fund Abridged Balance Sheet
Chart 1:    Investment Return of the Exchange Fund (1994 to 2016)

Powerpoint Presentation (PDF File, 581KB)
Remarks by Mr Norman T.L. Chan, Chief Executive of Hong Kong Monetary Authority (PDF File, 108KB)

Hong Kong Monetary Authority
25 January 2017


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Last revision date : 25 January 2017