Exchange Fund sees positive return

January 29, 2019

Monetary Authority Chief Executive Norman Chan:
Despite the highly volatile financial markets and the combination of falling equity prices, rising bond yields and a strong US dollar, the Exchange Fund managed to record a positive investment income of $13.9 billion in 2018. The investment return is made up of equity holdings loss of $59 billion, bond holdings gain of $57.4 billion, a gain of $24.5 billion from other investments and a negative foreign currency translation effect of $9 billion. In particular, the investment return of the Long-Term Growth Portfolio (LTGP) has been rather satisfactory with, since its inception, annualised internal rate of return at 13.8% up to the end of September 2018. The LTGP has helped reduce volatility of investment return of the Exchange Fund and enhance the fund's overall return.

Looking ahead, it is very likely that the investment environment in 2019 will remain as unpredictable and difficult as in 2018. First, the global economy and financial markets will continue to be affected by US-China trade tensions.  

Second, as the Brexit agreement reached between the British government and the European Union was vetoed by the British Parliament, it is uncertain whether there will be a no-deal hard Brexit or a second Brexit referendum.  

Last but not least, the future direction of US economic and monetary policies is unclear. 

All these risk factors will bring about greater uncertainties and potential risk to the global macroeconomic environment and asset markets.
  
The HKMA will continue to manage the Exchange Fund prudently. We will monitor market developments closely and enhance our defensive measures as and when appropriate. We will also continue to diversify our investments so as to further strengthen the Exchange Fund’s resilience against market volatilities.

The Exchange Fund recorded an investment income of $13.9 billion last year, with an investment return of 0.3%, despite unfavourable investment conditions, the Monetary Authority announced today.

The investment income was made up of an equity holdings loss of $59 billion, a bond holdings gain of $57.4 billion, a gain of $24.5 billion from other investments and a negative foreign currency translation effect of $9 billion.

Monetary Authority Chief Executive Norman Chan said: “Despite the highly volatile financial markets and the combination of falling equity prices, rising bond yields and a strong US dollar, the Exchange Fund managed to record a positive investment income of $13.9 billion in 2018.”

He added the Long-Term Growth Portfolio has helped reduce the volatility of the fund’s investment return.

“In particular, the investment return of the Long-Term Growth Portfolio has been rather satisfactory with, since its inception, annualised internal rate of return at 13.8% up to the end of September 2018."

Looking ahead, he said this year’s investment environment will likely remain as unpredictable and difficult as in 2018, as the global economy and financial markets will continue to be affected by the US-China trade tension.

“As the Brexit agreement reached between the British government and the European Union was vetoed by the British Parliament, it is uncertain whether there will be a no-deal hard Brexit or a second Brexit referendum,” he added.

The future direction of US economic and monetary policies is unclear and emerging market economies, including the Mainland, are also facing increasing downside risks, he said.

“All these risk factors will bring about greater uncertainties and potential risks to the global macroeconomic environment and asset markets.”

The authority will manage the Exchange Fund prudently, monitor market developments closely and enhance defensive measures when appropriate, he said, adding that it will diversify investments to further strengthen the fund’s resilience against market volatilities.