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Hong Kong’s Exchange Fund investments spew red ink, “substantial” 2022 loss seen

Exchange Fund
By Hui Ching-hoo   
December 2, 2022

Hong Kong’s Exchange Fund suffered a HK$100.1 billion (US$12.8 billion) investment loss in July through September, its second highest quarterly loss on record, with the full-year figure likely to be “substantial” as its investments in stocks and bonds spill red ink.

In a presentation to the city’s legislature on November 30, Eddie Yue, chief executive of the Hong Kong Monetary Authority (HKMA), said the market outlook will remain “very uncertain and challenging” in 2023, with recessions possible in some countries or regions.

HKMA, Hong Kong’s de facto central bank, supervises the Exchange Fund, the city’s foreign reserves for defending the value of the local dollar. The currency is kept within a HK$7.75-HK$7.85 range against the US dollar.

The fund’s loss in the three months to September was only exceeded by its HK$112 billion loss in the first quarter of 2020 when the coronavirus pandemic broke out.

It was the fund’s third consecutive quarterly loss in 2022, bringing the total for the first nine months to HK$265.5 billion, equivalent to a 6% loss, compared to a HK$126.5 billion gain in the same period of last year.

Yue told legislators that even though the Hong Kong stock market has rebounded recently, the Exchange Fund is expected to make a “substantial loss” for 2022 because its equity and bond portfolios have already lost over 10% up until September.

This expectation is “inevitable” after three quarters of losses, according to Howard Lee, HKMA’s deputy chief executive.

“The 6% investment loss was better than the market, where many portfolios lost more than 20% with the US interest rate hikes and central banks tightening monetary policies,” Lee told legislators.

The Exchange Fund had around HK$3.45 trillion of assets as of September 2022.