Exchange Fund sees $26.7b investment income

January 19, 2012

The Exchange Fund achieved an investment income of $26.7 billion last year, despite the very difficult investment environment, Monetary Authority Chief Executive Norman Chan said today.
 
The main components of the income were a total return from bonds of $71.9 billion, a valuation loss net of dividends on Hong Kong equities amounting to $24.2 billion, a valuation loss net of dividends on other equities amounting to $12.2 billion, an exchange valuation loss of $9.1 billion, mainly a result of depreciation of other currencies against the US dollar, and a valuation gain on other investments amounting to $300 million.
 
After deducting interest and other expenses, net investment income was $22.3 billion.
 
Mr Chan said the macro financial environment and investment markets were overshadowed by instability and uncertainty. The markets were hit by the Greek sovereign debt crisis again in May and increased volatilities set in.
 
“As the European debt crisis intensified, risk appetite declined sharply and market confidence weakened considerably in the third quarter. A sell-off frenzy to retreat from risky assets followed the downgrade of the US sovereign credit rating in August. This drove equity markets sharply down while the US dollar strengthened, which wiped out most of the investment income gained by the Exchange Fund in the first half of the year.”
 
For 2012, Mr Chan said: “Europe still faces great uncertainties arising from the European sovereign debt problem and lack of growth momentum. The US will continue to be troubled by high unemployment, a subdued housing market and fiscal problems."
 
He forecast investment market confidence will remain fragile, capital flows will be unpredictable and markets will continue to be volatile.
 
“Facing these volatile and difficult global financial conditions, the authority will continue to manage the Exchange Fund in a cautious and prudent manner."