Hong Kong's Exchange Fund, managed by the Monetary Authority, produced an investment return of 10.2%, 70 basis points above the return on the benchmark set by the Financial Secretary on the advice of the Exchange Fund Advisory Committee.

This was the message from authority Chief Executive Joseph Yam speaking on its Annual Report published today.

Mr Yam said after six years of difficulty and uncertainty, Hong Kong's economy experienced a strong rebound in the second half of 2003.

The rebound was helped by a more benign global environment and boosted by measures to strengthen economic ties between Hong Kong and the Mainland.

Mr Yam said the economic impact of SARS had been short-lived, and some important sectors of the economy, such as merchandise trade, were hardly affected.

"During this eventful and turbulent year the authority achieved its objectives of maintaining currency stability, promoting the safety and stability of the banking system, and enhancing the efficiency, integrity and development of the financial system," he said.

Despite the difficult second quarter and considerable volatility in the world's main currencies, the Hong Kong dollar continued to be stable under the Linked Exchange Rate system in 2003.

HK banking system stable

Mr Yam said Hong Kong's banking system remained stable and effective while the banking sector as a whole managed to show an increase in profits for 2003, thanks to the markedly improved economic conditions in the second half of the year and to their own efforts to diversify business.

With regard to infrastructural and market development, Mr Yam said that in April 2003 the authority launched a euro clearing system, and in November, following approval from the State Council, the People's Bank of China agreed to provide clearing arrangements for personal renminbi business in Hong Kong.

Other developments included the introduction in June of cheque imaging and truncation, which greatly reduces the need for physically delivering cheques for clearance, and the launch of new $100 and $500 banknotes, with improved security features.

The report can be purchased at the authority's Information Centre or by post at $100 per copy. A mail order form and an interactive version of the report are available on the authority's website.