A new way of treating the return on the government's deposits in the Exchange Fund will push the city's de facto central bank to adopt a more aggressive investment strategy, analysts said.
Starting next month, the budgeted annual return on Hong Kong's reserves will be deemed to be the average return of the Exchange Fund's investment portfolio over the previous six years - the average length of an investment cycle for the Hong Kong Monetary Authority (HKMA), according to Financial Secretary Henry Tang Ying-yen.
Using that formula, the government estimates the return on reserves in the next financial year will be 7 per cent, or HK$25.8 billion.
The reserves, at HK$365 billion, account for about 30 per cent of the Exchange Fund, and its 2006-2007 return of around 8 per cent is about the same as the fund's overall return.
The government said the new treatment of income from reserves was aimed at stabilising returns and better planning its budgets in future. The deposit's return for 2006-2007 was HK$29.5 billion, boosted by global stock markets which performed exceptionally well.
Raymond So Wai-man, an associate professor at Chinese University's department of finance, said the decision would exert pressure on the HKMA to come up with a more aggressive investment portfolio because it would have to match the government's estimate for returns.
