Exchange Fund Investments lost $2.1 billion in the first three months of the year due to falling stock and bond prices, according to the Hong Kong Monetary Authority. The government shared $700 million of the loss for the quarter, the HKMA wrote in a paper released on the Legco website yesterday. The Legco financial affairs panel will discuss it next Friday. The loss brings the Exchange Fund down to $1.05 trillion at the end of last month, a loss of $1.8 billion from February. The government deposits its fiscal reserve with the Exchange Fund, while HKMA invests that reserve and other assets. The government then shares about a third of any profit or loss. 'The investment income suffered from the rebound of the US dollar, the rise in bond yields and the fall in equity markets,' the HKMA wrote. 'We expect the rest of 2005 to be as challenging as the first quarter of the year.' The fund's heaviest loss came from the local Hong Kong stock portfolio, which fell $3.5 billion. It lost $900 million in other equities and $3 billion on currencies. Stanley Wong Yuen-fai, ICBC (Asia) director and deputy general manager, said the Exchange Fund investment losses reflected market conditions. 'The majority of the Exchange Fund is invested into the bond market and would be hard hit by the interest-rate rise which led to a fall in the bond price,' he said. Both foreign currency assets and Hong Kong dollar assets decreased, by $14 billion and $4 billion respectively in the first quarter. The monetary base as at the end of March was $286.5 billion, down 3.3 per cent or $9.7 billion from February.