Hong Kong Exchange Fund reports US$7 billion gain in first quarter thanks to rise in overseas stock investments
- War chest that defends the local currency gained HK$54.3 billion (US$7 billion) from overseas stock investments, tracking 10 per cent increase in S&P500
- Local stock investments suffered a HK$2.3 billion loss as the Hang Seng Index fell 3 per cent during the quarter
Hong Kong’s Exchange Fund, the war chest used to defend the local currency, continued its comeback in the first quarter, posting a return of HK$54.3 billion (US$7 billion) as rising overseas stock markets offset losses in domestic equities.
That is 50 per cent lower than the HK$108 billion gain in the same quarter of 2023, and 55 per cent lower than the HK$120.1 billion returned in the previous three month-period, according to data provided by the Hong Kong Monetary Authority (HKMA) on Monday.
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“After the Hong Kong government’s efforts to arrange many events to attract visitors, we expect to see the economy grow steadily and the local financial markets remain resilient.”
The gains in the first quarter continue a recovery in the Exchange Fund’s investment performance, following a HK$120.1 billion return in the final three months of 2023. The two consecutive positive quarters represent a turnaround from a loss of HK$10.5 billion in the third quarter of 2023.
“Looking ahead, there will continue to be a lot of uncertainties in the investment markets,” Yue said in a media briefing after the Legco meeting.
As well as the unclear timeline for US interest rate cuts, the conflict in the Middle East would hurt the markets, he said.
“Facing these uncertainties, we will continue to be defensive in positioning the Exchange Fund to make sure there is sufficient liquidity to cope with the rapidly changing investment environment,” said Yue.
The fund’s total assets were HK$4.063 trillion at the end of March, a HK$46 billion increase from the end of last year.
The Exchange Fund reported the fourth-best annual result on record in 2023 as it gained HK$212.7 billion, a strong bounce back from a record loss of HK$205.4 billion in 2022, according to data from the HKMA.
The fund’s Hong Kong stock investments lost HK$2.3 billion during the January to March period of 2024, compared with a HK$3.3 billion gain a year earlier, reflecting the 3 per cent drop in the Hang Seng Index and the 7.6 per cent fall in the Hang Seng Tech Index during the span.
“The outlook is more positive for the Hong Kong stock market as the Hang Seng Index has risen almost 10 per cent since April,” said Howard Lee, deputy CEO of HKMA, at the Legco meeting.
The loss in domestic stocks was offset by a gain of HK$36.3 billion from the fund’s overseas stock investments during the quarter, tracking the 10 per cent increase in the S&P500 index in New York. This is compared with a HK$25.3 billion gain in the same quarter a year earlier.
The Exchange Fund reported a gain in its bond investment of HK$25.1 billion, worse than a gain of HK$43.9 billion a year ago as high inflation delayed interest rate cuts, hurting bond prices during the quarter.
The HKMA on Thursday said it would leave its base rate unchanged at 5.75 per cent hours after the Fed kept its target rate in a range between 5.25 per cent and 5.5 per cent, citing several “hotter-than-expected” price and growth reports.
The Exchange Fund reported a loss of HK$4.8 billion in the first quarter from foreign-exchange valuation change on its non-US dollar assets, compared with a HK$25.2 billion gain a year earlier. The US dollar DXY Index has dropped 0.2 per cent this year against a basket of currencies.
The HKMA did not report its returns on long-term investments during the quarter, which is consistent with its usual practice of announcing them at a later stage.
Fee payments to the government’s fiscal reserves amounted to HK$3.9 billion in the first quarter, the HKMA said, compared with HK$5.4 billion in the same period a year earlier.
