Hong Kong’s Exchange Fund, which is managed by the Hong Kong Monetary Authority (HKMA) to promote the stability of the local currency, posted a record high investment income of HK$126.5 billion (US$16.19 billion) in the first half of 2017, thanks to the global stock market rally.
The investment income represents a hefty 185.56% increase from HK$44.3 billion in the year ago period, HKMA says in a July 27 statement.
HKMA Chief Executive Norman Chan notes in the statement that “global financial markets finished the first half of the year with positive results in general. Global equity markets including Hong Kong’s equity market performed well.”
That helped the Exchange Fund’s equity investment portfolio record an income of about HK$68 billion, a turnaround from the HK$8.3 billion loss in the first half of 2016, he says.
The Hong Kong equities portion gained HK$27.8 billion, recovering from a HK$3.5 billion loss a year ago. Other equities also rebounded to post a gain of HK$40.1 billion from a HK$4.8 billion loss in the first half of 2016.
By contrast, the fund’s investment in bonds yielded HK$16.5 billion in the first half, down from HK$44.3 billion in the same period of 2016.
Mr. Chan also says the US dollar index’s decline in the first half of 2017 resulted in a positive currency translation effect of about HK$34 billion when the fund’s foreign currency assets are converted into Hong Kong dollars.
The Exchange Fund had HK$3.9 trillion in total assets as at end-June 2017, up HK$286.2 billion from six months ago.
Derek Mok, chief investment officer of Convoy Asset Management, tells Asia Asset Management that the results are better than the market had expected.
“The fund’s equity investment has done very well this year, especially for Hong Kong equities that outperformed the benchmark Hang Seng Index. The currency translation effect was also a significant income contributor as about 90% of the fund’s portfolio is denominated in foreign currencies,” Mr. Mok says.
According to Mr. Chan, “the positive trend of the global financial markets in the first half may not be sustainable”. Uncertainties such as the pace of US interest rate hikes and the commencement of the US Federal Reserve’s balance sheet reduction could easily affect market sentiment, he says.
As such, “the HKMA will continue to manage the Exchange Fund prudently through appropriate defensive measures and investment diversification,” he says.
