Hong Kong’s Exchange Fund’s investments bounced back in the first quarter as local stocks rallied, but the head of the city’s de facto central bank warned that uncertainty from US tariff hikes on imports overshadows the fund.
The Exchange Fund, Hong Kong’s foreign reserves used to defend the value of the local dollar, earned an investment income of HK$67.2 billion (US$8.66 billion) in the first three months of the year following a HK$20.3 billion loss in the last quarter of 2024.
Eddie Yue, chief executive of the Hong Kong Monetary Authority (HKMA), which supervises the fund, said the investment gain was up 7.86% from HK$62.3 billion in the first quarter of 2024.
He said the fund’s investments recovered as Hong Kong stocks rallied after Chinese technology firm DeepSeek upended the global artificial intelligence industry with a cost-efficient AI model.
But “US tariff policy is expected to cast greater uncertainty over the Exchange Fund for the rest of the year”, Yue said at a meeting of Hong Kong’s Legislative Council on May 6.
He pointed out that the HKMA has been gradually diversifying the fund’s investments into non-US dollar assets to minimise market risk, and that 79% of holdings in its investment portfolio were in US dollar assets as of end-2024, down from more than 90% several years ago.
“The investment portfolio is highly diversified and it not only includes US dollar bonds or US dollar assets, but also many other assets,” he said, adding however that “the dominance of the greenback as a reserve currency will not change in the short term”.