A stock market rally helped the Exchange Fund turn around its ledger with strong investment gains in the third quarter, but the Hong Kong Monetary Authority warned that investment conditions remained challenging.
The Exchange Fund, the reserve the HKMA uses to defend the Hong Kong dollar, reaped investment gains of HK$49 billion during the quarter, turning around from a HK$23.2 billion investment loss in the second quarter, said Norman Chan Tak-lam, chief executive of the HKMA, which administers the fund.
Chan released the figures in a quarterly briefing to legislators yesterday. He said the strong performance of stock markets worldwide during the quarter, after the United States maintained its monetary easing policy, helped the fund's performance.
The Hang Seng Index rose 10 per cent in the third quarter, compared with a drop of 8.2 per cent in the first half.
Separately, the Hong Kong Investment Funds Association (HKIFA) reported that the city's retail funds made gross sales of US$16.2 billion in the third quarter, down 19 per cent from the previous quarter. Net sales amounted to US$235.8 million, indicating significant redemptions.
The Exchange Fund's overseas stock portfolio doubled its year-on-year gains to HK$17.9 billion in the quarter, while the Hong Kong stock portfolio added HK$13.7 billion and the foreign exchange portfolio was up HK$15.6 billion. However, investment gains for the first nine months fell 45 per cent year on year to HK$44.9 billion.
"The investment markets have been very volatile in the past nine months. The Europe and US economic outlook remains uncertain. As such, we would not be sure what the whole-year investment performance would look like," Chan said.
He said the city's de facto central bank had prepared its investment strategy for a volatile market and the potential impact of any future US interest rate rises.
He said that while the property market had seen some price falls following the government's cooling measures, it was not time to ease mortgage and other anti-speculation policies. "We will only relax our policies when there are confirmation signs of a downward cycle in the property market," he said.
The HKMA has diversified its Exchange Fund investments into overseas property to boost returns. It has also increased its holdings of bonds and stocks in emerging markets and yuan products.
It said last week that it would pay £101 million (HK$1.2 billion) for a 50 per cent stake in a joint venture with British-based Great Portland Estates to develop the Hanover Square Estate project in London's Mayfair.
In the report on retail funds, the HKIFA said equity funds had been the main contributor to the third-quarter inflows: gross sales reached US$6.6 billion, 49 per cent higher than the second quarter. They accounted for 40.5 per cent of the industry gross total.
Gross sales of balanced funds fell 33 per cent to US$4.7 billion.
Lieven Debruyne, chairman of the HKIFA and chief executive of Schroders Investment Management (Hong Kong), said he expected demand for both equity funds and balanced funds to remain strong next year.
Additional reporting by Kanis Li