Hong Kong’s Exchange Fund, the war chest used to defend the local currency, posted HK$104 billion ($13.3 billion) in investment income in the first half of the year, bolstered by a rally in the stock market in anticipation of an interest rate cut by the US Federal Reserve.
The gain is lower than the HK$116.4 billion the fund posted for the same period a year earlier.
The income came mostly from bond gains, which amounted to HK$57.9 billion. Hong Kong equities showed a turnaround in the first six months, reversing from a loss of HK$4.8 billion a year earlier to an investment income of HK$6.6 billion, the Hong Kong Monetary Authority said on Tuesday.
Other equities recorded a gain of HK$47.8 billion, down 1.4 percent year-on-year.
Total assets of the fund had fallen by HK$37.9 billion to HK$3.98 trillion as of the end of June, compared to the end of 2023, with an accumulated surplus standing at HK$688.3 billion.
“Overall, the Exchange Fund registered a decent investment income in the first half of 2024,” said Eddie Yue Wai-man, chief executive of the HKMA.
“Most major equity markets recorded significant gains. In particular, market optimism about interest rate cuts on the back of moderating inflationary pressures in major economies has driven major equity indices to new highs. The Hong Kong equity market also posted modest gains,” he said.
In bond markets, despite falling bond prices resulting from the rising yields of major government bonds, bond holdings recorded positive returns after interest income was taken into account, as bond yields stayed at a relatively high level, he added.
However, he said that the investment environment is expected to remain uncertain driven by factors like future policy rate paths, the global growth outlook, and geopolitical tensions.
“These factors could lead to sudden reversals in market conditions,” he warned.
Yue said the HKMA will prioritize capital preservation and seek to maintain long-term growth in its investment strategy by managing the Exchange Fund with prudence and flexibility, implementing appropriate defensive measures, and maintaining a high degree of liquidity.
“We will also continue our investment diversification to strive for higher long-term investment returns, and ensure that the Exchange Fund will continue to serve its purpose of maintaining the monetary and financial stability of Hong Kong in an effective manner.”
sally@chinadailyhk.com
