Exchange Fund, Hong Kong’s currency-peg defender, suffers US$18.4 billion record loss on ‘perfect storm’ of war, disease and slumping markets
- The loss represents the biggest setback since the HKMA started reporting half-yearly results in 2004
- The fund has only suffered losses in two years in recent past, in 2008 and 2015, both characterised by financial-market crises
Hong Kong’s Exchange Fund, a US$535 billion war chest to defend the city’s currency peg, suffered the biggest investment blow since it started publishing half-yearly report cards in 2004 as a “perfect storm” in global markets eroded investments in financial assets.
The fund reported a record HK$144.2 billion (US$18.4 billion) loss in the six months to June 30, according to unaudited data released by the Hong Kong Monetary Authority (HKMA) on Friday. It had a HK$139.7 billion investment gain in the same period last year. The fund’s total assets diminished by HK$359.7 billion to HK$4.2 trillion over the six months.
The Fund, which is managed by the HKMA, has only suffered two annual losses in the recent past – in 2008 and 2015 – each characterised by major financial-market crisis when Lehman Brothers collapsed and Chinese equities crashed.
HKMA Chief executive Eddie Yue Wai-man had forewarned about “a significant loss” in its interim report, citing volatile asset prices. A “triple whammy” in the form of concurrent declines in equity, bond and currency markets eroded returns, at the same time the Federal Reserve embarked on the most aggressive policy tightening since 1994 to douse inflation.
“The global financial markets struggled in the first half, facing intensifying inflationary pressures, tightening of monetary policies by major central banks, geopolitical conflicts and global economic slowdown,” Yue said in Friday’s statement. “The Exchange Fund’s long-term asset allocation and defensive measures have helped stabilise medium and long-term investment return.”
Still, policy tightening amid persistently high inflation may further stoke volatility in asset markets, he said, adding that the investment environment “will continue to be tough for the remaining part of the year.”
