HK Exchange Fund's assets continue to fall

PUBLISHED : Saturday, 29 November, 2008, 12:00am
UPDATED : Saturday, 29 November, 2008, 12:00am

With losses over the last three quarters, the total assets of Hong Kong's Exchange Fund continued to fall in October - by HK$87.7 billion, to HK$1,338.6 billion - the Monetary Authority's latest figures showed. The accumulated surplus also dropped by 14.2 per cent to HK$416.9 billion from a month earlier.

The city's de facto central bank attributed the reduction to a number of factors, such as a decrease in bank borrowings, a sharp decline in the stock market and unexpected fluctuation in foreign currency values.

Economist Andy Kwan Cheuk-chiu of Chinese University said: 'The value of assets will continue to fall throughout the remainder of the year, but the fall should not be as large as the HK$100 billion the market predicts.'

The government also said its financial position improved in October as income from profits tax began to roll in. The month saw an HK$11.3 billion surplus, which reduced the deficit from HK$48.6 billion in September to HK$37.3 billion.

The government predicted that the total deficit this year would be HK$7.5 billion.

Dr Kwan was not so optimistic. 'Income tax revenue will be much less than estimated,' he said.

'If the chief executive does not give out any further handouts in the coming months, it is estimated that the government will run into a deficit of around HK$50 billion to HK$60 billion. The original estimate of HK$7.5 billion in deficit can certainly not be achieved.

'But unless our fiscal reserves run below an amount that is less than 12 months of recurrent expenditure, we have nothing to be alarmed about.'

Fiscal reserves stood at HK$455.6 billion as at October 31, and Financial Secretary John Tsang Chun-wah estimated that revenue for 2008-09 would be HK$240.2 billion.

Dr Kwan said the Hong Kong dollar was not at risk of attack.

'Our fiscal reserves are substantially above the level in 1997 and are still capable of maintaining the Hong Kong-US dollar peg,' he said.

Monetary Authority figures show that total loans and advances shrank by 0.4 per cent last month, and the loan-to-deposit ratio contracted to 81.1 per cent, reflecting unwillingness by banks to lend despite repeated monetary and fiscal measures. But Dr Kwan said Monetary Authority and government measures had served their intended purpose and the situation would have been worse otherwise.

Falling funds

With little movement in the yuan exchange rate, some investors have quit the currency

Yuan deposits in Hong Kong fell 5.5 per cent to, in yuan,: 66.1b