HONGKONG'S central banker is to play New York's stock market with a potential tens of billions of dollars from financial reserves, in a radical departure from previous policy. But last night it was warned the move, the first time Hongkong's foreign reserves have been invested in volatile equity markets, could pose serious risks. The newly-formed Monetary Authority has decided to invest a small proportion of the foreign funds under its control in the New York stock market in a bid to get a better rate of return. With the territory's Exchange Fund and reserves said to be worth more than $235 billion, an investment of even a few per cent would amount to tens of billions of dollars. The money was to create an index-tracking portfolio, the authority's chief executive, Mr Joseph Yam Chi-kwong, revealed. But the new strategy has run into fierce criticism from pro-China legislator, Mr Philip Wong Yu-hong. ''The function of the financial reserves is to stabilise Hongkong's currency. Any equity market carries a risk that it will crash. How can you guarantee it?'' said Mr Wong, a former deputy chairman of the Stock Exchange of Hongkong, as well as a China adviser. ''I have a lot of respect for Mr Yam's talent in the financial market. But if I was him, I would not take this risk. ''Sometimes you can't tell the difference between investment and speculation, even for a blue-chip buy. Why should he give other people the chance to criticise him if he makes a loss in the US market?'' But legislator Mr Henry Tang Ying-yen welcomed the move. He said the previous investment portfolio, which went into investment in the currency and bond markets, was too conservative. Because of high inflation in the territory, the fund had been devalued in real terms. Mr Tang said limited participation in the US equity market was ''absolutely acceptable''. Mr Yam said last week the Monetary Authority was waiting for the right moment to enter the market. He stressed the approach to managing reserves remained cautious. An index-tracker is a conservative equity investment that mirrors the movement of the index. ''We are not in a position to pick US stock because we don't know these companies so well,'' he said. Until now, the Exchange Fund and financial reserves have been passively invested in currencies and bonds. Accountants Ernst and Young estimated that with this approach the fund had been losing two per cent a year in real terms. Translated into money that amounts to almost $5 billion annually. Mr Yam would not comment on the estimates but said it was misleading to compare the fund's rate of return with Hongkong's high inflation.