The Exchange Fund recorded an investment loss of $202.4 billion in 2022, with a negative investment return of 4.4%, the Monetary Authority announced today.

Reporting the fund’s investment results, Monetary Authority Chief Executive Eddie Yue said the financial markets experienced an exceptionally volatile year.

The Russia-Ukraine conflict sent energy and commodity prices significantly higher, while the ongoing COVID-19 pandemic further disrupted global supply chains and caused inflation to soar in major economies.

Successive sharp interest rate hikes by the US Federal Reserve within the year also led to massive sell-offs in the global bond and equity markets, which registered a notable fall of 16.2% and 19.8% 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,” he noted.

The abridged balance sheet showed that the fund’s total assets decreased by $559.1 billion, from $4,570.2 billion at the end of 2021 to $4,011.1 billion at the end of 2022. The accumulated surplus stood at $555.5 billion at end-December 2022.

Looking ahead in 2023, Mr Yue said: “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.

“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.”

He added that with these uncertainties, asset prices will inevitably experience sharp swings or adjustments in the event that the actual situation deviates substantially from market expectations.

On a more positive note, however, the Mainland’s economy may rebound strongly this year with the relaxation of COVID-prevention measures and the introduction of economic stimulus measures.

The Exchange Fund will remain committed to the principle of “capital preservation first while maintaining long-term growth”, Mr Yue said, adding that the authority will monitor market developments to ensure that the fund will continue to serve its purpose of maintaining monetary and financial stability in Hong Kong in an effective manner.