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Chan said investment sentiment had been hard hit last year by uncertainty in the foreign exchange and stock markets. Photo: AFP

Exchange Fund reports fourth-worst result on foreign exchange losses and poor stock returns

The Exchange Fund reported poor earnings for last year, a gain of just HK$43.6 billion, as a result of foreign exchange losses and poor returns from Hong Kong and overseas stock investments.

The Exchange Fund reported its fourth-worst earnings result last year, a gain of just HK$43.6 billion, as a result of heavy foreign exchange losses and poor returns from Hong Kong and overseas stock investments, Monetary Authority chief executive Norman Chan Tak-lam said on Monday.

The HKMA manages the HK$3 trillion fund that is used to defend the local currency. It invests the fund, which includes the government’s fiscal reserves and other assets, in stocks, bonds, property and currencies.

The fund’s earnings last year were lower than the HK$75.9 billion in 2013 and HK$111.6 billion in 2012, but better than the HK$26.7 billion in 2011.

The investment environment in 2015 will be even more complex and difficult than 2014
Norman Chan

Last year’s rate of return was only 1.4 per cent, compared with 2.7 per cent in 2013 and 4.4 per cent in 2012. The rate of return in 2011 was 1.1 per cent.

The fund’s worst result was a loss of 5.6 per cent in the aftermath of the global financial crisis of 2008, with the second-worst 2001’s dismal 0.7 per cent return.

HKMA chief Norman Chan says policy changes in Japan and Europe will complicate the investment environment this year. Photo: Simon Song
The fund paid HK$27.5 billion to the government last year, down from HK$36.8 billion in 2013.

Chan said investment sentiment had been hard hit last year by uncertainty in the foreign exchange and stock markets. Forex losses stood at HK$52.7 billion last year, compared with a HK$1.6 billion gain in 2013, with losses of HK$24.7 billion in the fourth quarter and HK$28.4 billion in the third on valuation losses on euro, yen and pound holdings against the US dollar.

The valuation gain of the Exchange Fund’s Hong Kong stock holdings last year stood at HK$6.5 billion, down 53 per cent from 2013.

Overseas stocks gained HK$33.7 billion, down 36 per cent from 2013.

Other investments stood at HK$8.8 billion last year, down 48 per cent from 2013.

Bond investments gained HK$47.3 billion, compared with a loss of HK19.1 billion in 2013.

“The investment environment in 2015 will be even more complex and difficult than 2014,” Chan said. “There is considerable uncertainty arising from the timing and pace of US interest rate normalisation.”

Chan said that the situation this year would also be complicated by the implementation of quantitative and qualitative easing in Japan and the launch of a full scale quantitative easing by the European Central Bank.

He said the recent sharp rise in the US dollar, big drop in oil prices and the market turbulence following the Swiss government’s surprise removal of a cap that pegged the Swiss franc to the euro had added to the uncertainty in global financial markets.

“Faced with these challenges, we will continue to exercise prudence and discipline in managing the Exchange Fund in line with its investment objectives, which are to safeguard the principal and to provide abundant liquidity buffers to meet the Exchange Fund’s statutory purposes as and when necessary,” Chan said.

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