Fears that $14 billion of Government money invested in the local stock market would be withdrawn when the Land Fund and Exchange Fund are merged next year have been quashed by Hong Kong Monetary Authority chief executive Joseph Yam Chi-kwong. Financial professionals had warned the withdrawal of the $14 billion investment at a time when the market was under considerable pressure could have undermined market confidence and sent the index spiralling lower. Regulations presently state the $195.6 billion Land Fund may invest in local and regional stock markets, while the $636.6 billion Exchange Fund is prohibited from investing in either. The Government has announced plans to merge the funds on April 1, leading to considerable uncertainty over whether the new fund would be able to invest in local and regional stocks. As at the end of December, the Land Fund had 22 per cent of its assets invested in equities equivalent to $44 billion. Of this, about $14 billion was invested locally. Mr Yam yesterday removed fears the merged fund would have to withdraw from the local market saying given present market sentiment it did not make a lot of sense, as the value of its holdings had declined significantly. 'It is obviously not a good time to sell,' he said. 'I think it will form part of our long-term policy for the equities investments of the Land Fund to stay in the Exchange Fund when the two funds are merged.' Despite the reassurances, doubts remain over whether there may be a conflict of interest for the Government if it allows the merged fund to invest in local stocks. The Exchange Fund was originally prohibited from investing locally as the Government may be seen to be favouring certain stocks and could influence share-price movements. Mr Yam said two investment advisory committees of the Land Fund and Exchange Fund were working on how to merge the two and solve the conflict of interest issue. He indicated the issue is less sensitive now than in the past as the HKMA is independent from the Government's other policy-making decisions. 'Before, when we were running the Exchange Fund from within a government department there was the potential for a conflict of interest if the fund invested in the local market,' Mr Yam said. 'Since the establishment of the HKMA in 1993 - independent from the Government - I think this issue has diminished. 'But there are still some conflicts as HKMA policy could affect interest rates, which could in turn affect market movements.' Despite poor market sentiment, he said the Land Fund would not be used to support share prices. 'The Land Fund will enter the market when the investment managers think it is the right time,' Mr Yam said. He said it was up to the investment advisory committees to decide whether the Exchange Fund should increase its investment in the local market. The Land Fund suffered a $3.8 billion decline in value in the last quarter of last year due to the turmoil in the region and has cut its equities exposure as a result. Mr Yam said the Land Fund was managed in a prudent and long-term manner and its strategy would not be affected by short-term market volatility.