Flagship Exchange Fund sheds HK$6.1b in first half

Weak bond markets and depreciating foreign currencies sparked a dramatic reversal in the performance of the Hong Kong government's flagship Exchange Fund.

It posted an investment loss of HK$25.2 billion in the second quarter, more than wiping out the gain of HK$19.1 billion in the first quarter. The first-half loss was HK$6.1 billion, compared with an increase of HK$38.9 billion in the same period last year.

That represents a return of minus 0.3 per cent, which still beat that of the Mandatory Provident Fund, at minus 0.56 per cent.

The macroeconomic environment was normalising from one of ultralow interest rates, posing a real challenge to the Exchange Fund's manager, the Hong Kong Monetary Authority, to generate positive returns, said Chan Kin-por, lawmaker for the insurance sector.

The city's de facto central bank had made changes in its asset allocation strategy to mitigate the impact of future United States interest rate rises, deputy chief executive Eddie Yue said on the HKMA's website yesterday.

Besides diversifying its portfolio to include private equity and overseas property, it had doubled the share of cash and cash equivalents, such as short-term paper, in the past three years, reduced the share of long-term bonds and increased the share of bonds denominated in currencies other than the US dollar and the euro, Yue said.