Exchange Fund Position at end-December 2022

Press Releases

30 Jan 2023

Exchange Fund Position at end-December 2022

The Hong Kong Monetary Authority (HKMA) today (30 January) published the unaudited financial position of the Exchange Fund at end-December 2022.

The Exchange Fund recorded an investment loss of HK$202.4 billion in 2022.  The main components were:

  • losses on Hong Kong equities of HK$19.5 billion;
  • losses on other equities of HK$61.2 billion;
  • losses on bonds of HK$53.3 billion;
  • negative currency translation effect of HK$40.1 billion on non-Hong Kong dollar assets (Note 1); and
  • losses on other investments of HK$28.3 billion (Note 2).

Fees on placements by the Fiscal Reserves and placements by HKSAR Government funds and statutory bodies were HK$35.0 billion (Note 3) and HK$22.1 billion respectively in 2022, with the rate of fee payment at 5.6% for 2022.

The Abridged Balance Sheet shows that the total assets of the Exchange Fund decreased by HK$559.1 billion, from HK$4,570.2 billion at the end of 2021 to HK$4,011.1 billion at the end of 2022.  Accumulated surplus stood at HK$555.5 billion at end-December 2022.

The Exchange Fund recorded a negative investment return of 4.4% in 2022 (Note 4). Specifically, the Investment Portfolio recorded a negative rate of return of 8.6% and the Backing Portfolio a negative rate of return of 0.4%.  The Long-Term Growth Portfolio (LTGP) recorded an annualised internal rate of return of 13.0% since its inception in 2009 up to the end of September 2022.

Commenting on the performance of the Exchange Fund in 2022, Mr Eddie Yue, Chief Executive of the HKMA, said, “Financial markets experienced an exceptionally volatile year. The Russia-Ukraine conflict at the beginning of the year sent energy and commodity prices significantly higher, while the ongoing pandemic situation further disrupted global supply chains and caused inflation to soar in major economies, prompting major central banks to tighten their monetary policies aggressively.  Successive sharp interest rate hikes for a total of 425 basis points by the US Federal Reserve within the year have led to massive sell-offs in the global bond and equity markets, which registered a notable fall of 16.2% and 19.8% (Note 5) respectively for the year.  This investment environment not only undermined the conventional complementary effects of bonds and equities, but has also marked 2022 as the only year in almost half a century during which returns from equities, bonds and major currencies against the US dollar all recorded negative returns simultaneously.

“Amid this harsh investment environment last year, many investment funds posted unfavourable results and registered losses of varying degrees.  While the Exchange Fund could not stay unscathed, the investment loss sustained by the Exchange Fund was relatively smaller as compared to the performance of major market indices and mixed-asset funds.  This shows that our diversified long-term asset allocation as well as the defensive measures and strategic adjustments in response to changes in the external environment have been effective in mitigating the destructive impact of market storms.”

Mr Yue said, “Looking ahead in 2023, financial markets will continue to face significant uncertainties and asset prices are expected to remain volatile.  The monetary policies of major central banks will continue to dominate the investment outlook, and financial markets will pay close attention to peak policy rates set by major central banks.  The path of inflation is key to all these developments.  Although there were signs indicating inflation may have peaked towards the end of 2022, it is still well above the targets set by major central banks.  Recent minutes of the Federal Open Market Committee meetings also pointed out that containing inflation remains the policy focus, and it is anticipated that ongoing increases in the target range for the federal funds rate would be appropriate.  With uncertainties surrounding the paths of inflation and interest rates, asset prices will inevitably experience sharp swings or adjustments in the event that the actual situation deviates substantially from market expectations.

“Moreover, the continued tightening of monetary policy has posed headwinds to global economic growth. Many institutions have lowered their global economic growth forecasts for this year, and certain major economies may even slide into recession. In addition, the potentially destructive forces of unresolved geopolitical tensions, such as the energy crisis caused by the Russian-Ukraine conflict and trade relationships among major economies, may further impact global economic growth and heighten risk-off sentiments in the market. 

“Nevertheless, on a more positive note, with the relaxation of COVID-prevention measures and the introduction of economic stimulus measures in Mainland China, the Mainland economy may rebound strongly this year. At the same time, amid market expectation of slowing inflation and therefore more gradual rate hikes, bond investments have become more appealing.  With yields of major Government bonds currently at multi-year high levels, investing in bonds would give investors a higher interest income.

“Despite the complicated and challenging investment environment, the Exchange Fund will remain committed to the principle of capital preservation first while maintaining long-term growth. The HKMA will continue to manage the Exchange Fund prudently. We will remain flexible, implement defensive measures as appropriate, and maintain a high degree of liquidity. We will continue to diversify investments to strive for higher long-term returns for the Exchange Fund. We will also monitor market developments closely to ensure that the Exchange Fund will continue to serve its purpose of maintaining monetary and financial stability in Hong Kong in an effective manner.”

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 reflects the valuations at the end of September 2022. Valuation changes of these investments from October to December are not yet available.
Note 3: This does not include the 2022 fee payment to the Future Fund because such amount will only be disclosed when the composite rate for 2022 is available.
Note 4: This return excludes the performance of the Strategic Portfolio and only includes the performance of LTGP up to the end of September 2022. The audited full year return will be disclosed in the 2022 annual report.
Note 5: These figures are based on the declines in the Bloomberg Global Aggregate Total Return Index and the MSCI All Country World Index as measured in US dollar terms.


Annex 1: Exchange Fund Results
Annex 2: Exchange Fund Abridged Balance Sheet
Chart 1: Investment Return of the Exchange Fund (1994 to 2022)

Powerpoint presentation
Remarks by Mr Eddie Yue, Chief Executive of Hong Kong Monetary Authority


Hong Kong Monetary Authority
30 January 2023

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Last revision date : 30 January 2023