Exchange Fund records US$10.12 billion investment income in 2010

The Hong Kong Exchange Fund recorded an investment income of US$10.12 billion(unaudited figure)in 2010, according to the Hong Kong Monetary Authority (HKMA). The main components were:

  • a total return from bonds of US$5.39 billion;
  • a valuation gain on, and dividends from, Hong Kong equities amounting to US$1.48 billion;
  • a valuation gain on, and dividends from, foreign equities amounting to US$3.46 billion;
  • an exchange valuation loss of US$397.43 million, mainly a result of depreciation of other currencies against the US dollar; and
  • a valuation gain on other investments amounting to US$179.48 million.

After deducting interest and other expenses, the net investment income in 2010 was US$9.53 billion.  The fee payments to the fiscal reserves amounted to US$4.33 billion.  The fee payments to placements by Hong Kong Special Administrative Region (HKSAR) government funds and statutory bodies amounted to US$500 million.  The Accumulated Surplus recorded an increase of US$4.85 billion.

The Abridged Balance Sheet shows that the total assets of the Exchange Fund increased in 2010 by US$25.16 billion, from US$275.56 billion at the end of 2009 to US$300.73 billion at the end of 2010.  The increase is mainly attributable to the increase in placements received from fiscal reserves, HKSAR government funds and statutory bodies.

The 2010 Exchange Fund investment return is 3.6%.  To reflect the long-term nature of the fund, the HKMA is also releasing the average investment returns of the Exchange Fund over a number of different time horizons.  The average return was 1.2% over the past three years, 4.9% over the past five and 10 years, and 5.9% since 1994.

Commenting on the Exchange Fund results, Chief Executive of the HKMA Norman Chan said that the global investment environment remained difficult and volatile.

HKMA Chief Executive Norman Chan

“Investor sentiment was shaken by the European sovereign debt crisis in the first half of the year, leading to decline in the global equity market,” he said. “Meanwhile, flight-to-quality trades led to a strengthening of U.S. dollar.  Together, these brought a minor loss to the fund in the first half of the year.  Following the speech of the U.S. Federal Reserve Chairman in August to provide additional monetary accommodation if it proves necessary, the global equity market rebounded sharply, leading to a turnaround in the investment performance of the Exchange Fund in the second half of the year, and bringing an overall investment gain of US$10.12 billion to the fund for the full year.

Regarding the outlook for the year ahead, Mr. Chan said that the markets will continue to be uncertain and volatile.  “The fundamental factors in the U.S., notably the high unemployment rate, very soft housing market, the de-leveraging of the U.S. households and the debt problem of the U.S. federal and municipal governments may cause negative drag to the recovery of the U.S. economy.  At the same time, emerging market economies are facing pressures from capital inflow, rising domestic prices inflation as well as asset price inflation.  Some of them are pursuing tightening policies and measures of different kinds and to varying degrees to cope with these pressures.  All these factors will bring significant instability and uncertainty to the macro financial environment and investment markets this year.  Against this backdrop, I will take a cautious stance in the outlook of the financial market this year.  The investment team of the HKMA will manage the Exchange Fund with great care and prudence.”



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