Exchange Fund totals US$188.16 billion
Assets of the Hong Kong Exchange Fund amounted to US$188.16 billion at end-April — US$1.03 billion higher than a month earlier, according to the Hong Kong Monetary Authority.
Foreign currency assets decreased US$2.02 billion, while Hong Kong dollar assets increased US$3.06 billion.
The decline in foreign currency assets is due mainly to valuation losses on foreign currency investments and redemption of Certificates of Indebtedness. These decreases were partially offset by interest and dividend income from foreign currency assets.
The increase in Hong Kong dollar assets is due mainly to valuation gains on Hong Kong equities held by the Exchange Fund and placements received from fiscal reserves.
The Currency Board Account shows the monetary base at end-April was US$41.82 billion, a decrease of US$320.51 million, or 0.8%, from end-March. The decline is due mainly to decreases in Certificates of Indebtedness and the market value of Exchange Fund bills and notes outstanding.
Backing assets decreased US$576.92 million, or 1.2%, to US$45.97 billion. The decrease is attributable mainly to the redemption of Certificates of Indebtedness in the monetary base and revaluation losses, which were partially offset by investment interest. Reflecting this, the backing ratio declined from 110.44% at end-March to 109.91% at end-April.
HKSARG posts US$230.76 million surplus
The Hong Kong Special Administrative Region Government (HKSARG) had expenditures of US$2.61 billion and revenue of US$2.84 billion in April, the first month of the 2008-09 financial year, resulting in a surplus of US$230.76 million.
An HKSARG spokesman said the surplus is mainly due to the collection of salaries and profits taxes and stamp duties.
The territory’s fiscal reserves stood at US$63.43 billion as of April 30.
Foreign currency reserves at US$159 billion
Hong Kong’s foreign currency reserves stood at US$159 billion at end- May, according to the Hong Kong Monetary Authority, compared to US$159.9 billion at end-April.
Including unsettled forward contracts, the foreign currency reserve assets also stood at US$159 billion, compared to US$159.9 billion at end-April.
Hong Kong is the world’s ninth-largest holder of foreign currency reserves, after mainland China, Japan, Russia, India, Taiwan, Korea, Brazil and Singapore.
The total foreign currency reserve assets represent more than seven times the currency in circulation, or approximately 39% of Hong Kong dollar M3.
HKMC releases 2007 annual report
On June 2, the Hong Kong Mortgage Corp. (HKMC) published its 2007 Annual Report.
“The good performance in 2007 reflects the successful implementation of the corporation’s business diversification plan and the effectiveness of its funding strategy. I am confident the HKMC will again rise to the challenge in 2008, and meet its objectives of reinforcing banking stability and promoting home ownership and debt market development in Hong Kong,” said Mr. John C. Tsang, chairman of the HKMC board of directors. Mr. Tsang also serves as Financial Secretary of the Hong Kong Special Administrative Region.
The report highlights the HKMC’s achievements in 2007:
- Purchasing US$1.23 billion in financial assets, including US$384.61 million in residential mortgage loans and US$141.02 million in non-mortgage assets in Hong Kong, as well as the inaugural overseas purchase of US$705.12 million in Korean residential mortgage loans in the form of mortgage-backed securities.
- Providing mortgage insurance coverage for newly originated mortgage loans totaling US$1.69 billion, achieving a market penetration of 12%.
- Issuance of US$2.1 billion in debt securities and maintaining its position as the most active corporate issuer in the Hong Kong dollar debt market for seven consecutive years.
- Maintaining excellent asset quality, with a combined delinquency (above 90 days) and rescheduled loan ratio of 0.03% for the mortgage insurance portfolio, 0.21% for the Hong Kong residential mortgage portfolio (compared to the industry average of 0.31%), and 0.14% across all asset classes.
- Achieving long-term foreign and local currency debt ratings of Aaa and AA by Moody's Investors Service and Standard & Poor’s, respectively.
The HKMC is the first — and so far, the only — Aaa-rated institution in Hong Kong.
The HKMC achieved a record profit after taxes of US$94.96 million in 2007, with the return on shareholder’s equity remaining strong at 13.7% and cost-to-income ratio at 13.6%. Its capital-to-assets ratio remained at 11.2%, well above the minimum 5% guideline stipulated by the Financial Secretary. For the fourth consecutive year, the HKMC declared a dividend of US$32.05 million, or US$0.016 per share, representing 33.8% of the profit after tax.
Interest rates stable
 Local banks kept their best lending rates unchanged in May, notwithstanding the 25-basis-point cut in the U.S. Fed Fund Target Rate in late April. Tracking their U.S. counterparts in the review period, the Hong Kong Interbank Offered Rates (HIBORs) were largely stable, with a slight increase in April and a slight decline in May after the Fed rate cut.
Hong Kong dollar index stops falling
 The U.S. dollar rebounded modestly against other major currencies as confidence recovered after the Fed signaled in late April rate cuts may come to an end. Tracking closely the U.S. dollar, the declining trend of the Hong Kong dollar’s Effective Exchange Rate Index reversed in April and May.
Local stock market rebounds
 In tandem with the better performance of other major stock markets this spring, local stock prices recovered some of the ground lost earlier in the year. The improvement reflected improved market sentiment as concerns over turbulence in the financial markets eased somewhat.
The Hang Seng Index rebounded from just above 21,000 in mid-March to a high of approximately 26,400 in early May, before easing again to close the month at 24,533. The average daily turnover of the stock market, at US$10.48 billion in April and May combined, was down 17% compared to the first quarter.
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