Hong Kong's Exchange Fund posts record 9-month gain of US$28.8 billion as markets rallied

The Exchange Fund reported one of its best quarterly returns as stock markets rallied in Hong Kong and the United States, as a diversified investment approach helped to swell the financial war chest for defending the city’s currency peg.

The fund’s investment return more than doubled to HK$224.7 billion (US$28.8 billion) in the first nine months of this year, making it the best return on record, according to the Hong Kong Monetary Authority (HKMA). The fund earned HK$114.6 billion during the fiscal second quarter that ended in September, a turnaround from a loss of HK$10.5 billion in the same period last year.

“With improved market sentiments, we hope we can continue the momentum and achieve positive returns for the Exchange Fund in the fourth quarter,” the HKMA’s chief executive Eddie Yue Wai-man said in a report to the city’s Legislative Council. “We should note that the global markets still face a lot of uncertainties in October. HKMA will continue to closely monitor the market situations and adopt a diversified approached to invest the Exchange Fund in a prudent manner.”

Do you have questions about the biggest topics and trends from around the world? Get the answers with SCMP Knowledge, our new platform of curated content with explainers, FAQs, analyses and infographics brought to you by our award-winning team.

The fund, which traces its root to Hong Kong’s Currency Ordinance of 1935 to back the issuance of the city’s currency notes, has notched up four consecutive quarters of gains. Since the Hong Kong dollar’s peg to the US dollar in 1983, the fund has evolved into a financial war chest for the HKMA to deploy to defend the local currency’s value against hedge funds and foreign-exchange speculators.

Pedestrians walk past the USD, GDP, RMB and the other country bank notes displayed outside a currency exchange shop at Sheung Wan on October 21, 2022. Photo: Yik Yeung -man alt=Pedestrians walk past the USD, GDP, RMB and the other country bank notes displayed outside a currency exchange shop at Sheung Wan on October 21, 2022. Photo: Yik Yeung -man>

The HKMA, the city’s de facto central bank, invests the Exchange Fund in global bonds, overseas real estate, equities in Hong Kong and abroad, as well as other long-term projects.

The fund’s Hong Kong equity investments gained HK$21.9 billion in the third quarter, tracing the 19 per cent jump in the city’s Hang Seng Index, turning around from last year’s HK$5.6 billion loss. In the first nine months, Hong Kong equities earned HK$28.5 billion for the fund owing to the Hang Seng’s 24 per cent surge, compared with a HK$10.5 billion loss during the same period a year ago.

Story Continues

Stocks rallied after the US Federal Reserve lowered its key interest rate by 50 basis points on September 18, the first reduction in four years, and gathered steam after Beijing unleashed bold stimulus measures to reverse the housing market slump and boost the stock market and economy on September 24.

Overseas stocks nourished the fund, earning it HK$18.2 billion during the third quarter, a turnaround from a loss of HK$8 billion a year earlier. Stock gains jumped 63 per cent in the first nine months from a year earlier to HK$66 billion.

That echoes the performance of the S&P500 index in New York, which rose 5.5 per cent in the third quarter and 20.8 per cent in the nine-month span.

The Exchange Fund’s bond investments gained HK$66.4 billion in the third quarter, four times of gain of HK$15.7 billion in the year-earlier quarter. Bonds earned HK$124.3 billion in the first nine months, compared with HK$73.7 billion a year earlier.

In the first nine months, the strong gains from stocks and bonds were offset by a loss from foreign-exchange depreciation on non-US dollar assets at HK$8.2 billion, narrowing from a loss of HK$9.3 billion a year earlier. In the third quarter, it had a gain of HK$8.1 billion, a turnaround from a loss of HK$7.5 billion in the same quarter a year earlier.

The ICE US dollar Index declined 4.8 per cent in the third quarter against other major currencies, and dropped by 0.5 per cent in the first nine months.

The Exchange Fund’s investments in overseas property and other long-term projects gained HK$14.1 billion in value in the first half of the year, compared with a gain of HK$16.5 billion a year earlier.

The HKMA will report the third-quarter and nine-month performance of its long-term investments at a later date.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP’s Facebook and Twitter pages. Copyright © 2024 South China Morning Post Publishers Ltd. All rights reserved.

Source link