Exchange Fund totals US$180.66 billion
Assets of the Hong Kong Exchange Fund amounted to US$180.66 billion at end-June. This is US$5.05 billion less than the month before, according to the Hong Kong Monetary Authority.
Foreign currency assets decreased US$2.28 billion and Hong Kong dollar assets decreased US$2.76 billion.
The decline in foreign currency assets is due mainly to valuation losses on foreign currency investments, which were partially offset by interest and dividend income from foreign currency assets and an increase in Certificates of Indebtedness.
The decline in Hong Kong dollar assets is due mainly to valuation losses on Hong Kong equities held by the Exchange Fund and fiscal drawdowns, which were partially offset by an increase in Exchange Fund bills and notes issued but not yet settled.
The Currency Board Account shows the monetary base at end-June was US$41.82 billion, a US$128.2 million (0.3%) increase from end-May. The rise is due mainly to an increase in Certificates of Indebtedness.
Backing assets grew US$320.51 million, or 0.7%, to US$46.05 billion. The increase is attributable mainly to the issuance of Certificates of Indebtedness in the monetary base, together with revaluation gains and interest from investments. Reflecting this, the backing ratio rose from 109.7% at end-May to 110.14% at end-June.
Exchange Fund posts loss in first half of 2008
The Hong Kong Monetary Authority (HKMA) recorded an investment loss of US$4.48 billion in the first half of 2008, it was reported July 31. The main components were:
- a valuation loss, net of dividends, on the Hong Kong equities portfolio amounting to US$4.11 billion
- a valuation loss, net of dividends, on other equities amounting to US$3.25 billion
- an exchange valuation gain of US$1.48 billion, mainly as a result of the appreciation of other currencies against the U.S. dollar
- a total return from bonds and other investments of US$1.39 billion
The fee payment to the fiscal reserves was US$3.02 billion, and the Strategic Portfolio decreased in value (net of dividends) US$833.33 million. These factors, together with interest and other expenses, resulted in a reduction in the Accumulated Surplus by US$8.76 billion.
The abridged balance sheet shows the total assets of the Exchange Fund stood at US$180.66 billion at end-June, a decrease of US$666.66 million since the end of 2007.
Chief Executive of the HKMA Joseph Yam said the deepening of the U.S. subprime mortgage crisis and the ensuing credit crunch, fears of a global recession and concerns about inflation had all exerted pressures on financial markets.
Looking ahead, Mr. Yam said the global economy will likely continue to be weighed down by concerns about higher commodity prices, pressures on corporate profitability, potentially tighter monetary policies to tackle inflation expectations and dampened consumer sentiment. The investment environment is therefore expected to continue to be unfavorable.
“The HKMA, under the guidance of the Exchange Fund Advisory Committee and its Investment Subcommittee, and in accordance with the fund’s investment objectives, will continue to manage the Exchange Fund prudently to preserve monetary and financial stability in Hong Kong.” he said.
Foreign currency reserves at US$157.7 billion
Hong Kong’s foreign currency reserves stood at US$157.7 billion at end-July, according to the Hong Kong Monetary Authority, compared to US$157.6 billion at end-June.
Including unsettled forward contracts, the foreign currency reserve assets also stood at US$157.7 billion, compared to US$157.6 billion at end-June.
Hong Kong is the world’s ninth-largest holder of foreign currency reserves after mainland China, Japan, Russia, India, Taiwan, South Korea, Brazil and Singapore.
The total foreign currency reserve assets represent more than seven times the currency in circulation, or approximately 40% of Hong Kong dollar M3.
HKEx half-year profit increases
Income for Hong Kong Exchanges & Clearing (HKEx) rose 33% year-on-year in the first half of 2008, to US$539.74 million. Profits attributable to shareholders rose 28%, to US$380.76 million. The HKEx Board declared an interim dividend of US$0.31 a share, 39% more than a year earlier.
According to interim results, the average daily turnover in the period was US$11.19 billion, up 47% year-on-year. The average daily number of derivatives contracts traded on the Futures Exchange rose 31%, to 191,179, while that for stock options contracts traded on the Stock Exchange rose 82%, to 238,970.
HKEx Chairman Ronald Arculli said the rise in profit is primarily attributable to the higher turnover-related income resulting from an increase in the level of activities in the cash and derivatives markets and growth in net investment income on account of higher net interest income in 2008.
The higher net investment income is due to a significant increase in net interest income of margin funds, arising from an increase in fund size during the first six months.
Looking ahead, Mr. Arculli said the second half of the year will be challenging. The group will pursue its 2007-2009 strategic plan to achieve sustainable growth. The review of its existing corporate social responsibility policies and practices, currently under way, will contribute in this aspect.
“With the twin objectives of expanding our product range and broadening our investor base, the first non-financial futures contract, gold futures, will be launched in October this year,” he added.
To develop the markets and reinforce Hong Kong’s position as a leading international financial center, the group will continue its strategic investments in information technology systems to upgrade its market infrastructure, as well as other services.
Interest rates edge up slightly
 Although the U.S. Fed Fund Target Rate remained unchanged in June and July, Hong Kong Interbank Offered Rates (HIBORs) edged up slightly. On the back of higher funding cost, some banks in Hong Kong raised mortgage rates during the period.
Dollar stabilizes against major currencies
 The U.S. dollar weakened against other major currencies in June but has registered some rebound since mid-July. Tracking closely to the U.S. dollar, the value of the Hong Kong dollar against trading partners’ currencies also showed signs of stabilization in the latter part of July. The renminbi continued to appreciate against the U.S. dollar over the past two months, attaining a high of 6.81 per US$1 in mid-July. This represented a 21.5% appreciation against the U.S. dollar since the exchange rate reform of July 2005.
Local stock market remains volatile
 The local stock market remained weak and volatile in recent months, in the face of lingering turbulence in financial markets and dimmer global economic prospects. The Hang Seng Index dropped to approximately 21,000 in mid-July and then fluctuated up to 23,000 between end-July and early-August. Trading activity was lackluster amid the cooling-off of investor sentiments, with the average daily turnover of the stock market falling to US$8.1 billion in July, the lowest since April 2007.
US$2.11 billion deficit recorded
The Hong Kong Special Administrative Region Government (HKSAR) had expenditures of US$7.65 billion and revenue of US$5.53 billion for the period April to June 2008, resulting in a deficit of US$2.11 billion in the first three months of its 2008-09 financial year.
A HKSARG spokesman said that the deficit for the period was mainly because some major revenue items, including salaries and profits taxes, were mostly received towards the end of the financial year.
The territory’s fiscal reserves stood at US$61.07 billion as of June 30, 2008.
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