Hong Kong’s Exchange Fund, the war chest to defend the local currency , made a strong comeback in the second quarter, posting returns of HK$101.4 billion (US$13.08 billion) on the back of rising stock markets, which helped it to recover almost all its losses in the first quarter. The returns in the April to June quarter were the best since it made HK$$133.4 billion in the first quarter of 2019, helping it to offset the first quarter loss at HK$112 billion , according to a statement from the Hong Kong Monetary Authority on Friday. The performance helped the Exchange Fund narrow its losses in the first half to HK$10.6 billion. The HKMA’s returns were helped by stock market rallies across the world. Overseas equity investments rose HK$67.7 billion in the second quarter, compared to a heavy loss of HK$83.1 billion in the first quarter. The fund made HK$8.8 billion from Hong Kong equities, against a loss of HK$28.4 billion in the first quarter. “The outbreak of Covid-19 caused wild swings in financial markets in the first half of the year,” said Eddie Yue Wai-man, chief executive of HKMA in a statement. “Looking ahead, the investment environment in the second half of the year remains challenging,” he said. “While many governments have begun to relax their anti-epidemic measures, the global economy is still very fragile, and the timing and speed of recovery remain highly uncertain. Geopolitical developments and the risk of resurgence of Covid-19 also add to uncertainties surrounding the markets.” The first-half losses, as well as the market intervention, has eroded the Exchange Fund’s assets by HK$11.4 billion in the first half of this year to about HK$4.2 trillion as at the end of June. Hong Kong has attracted US$14 billion in net capital inflows since April, Yue said in a statement on Thursday, in an effort to reassure banks in the city of the financial conditions amid controversies surrounding the national security law. The HKMA has intervened 29 times since then in the currency market, selling HK$109.3 billion of its currency to prevent it from breaking the stronger end of its trading band. The Exchange Fund can do even better in the third quarter, according to Gordon Tsui Luen-on, chairman of Hong Kong Securities Association. Recent market gains powered by tech and health care stocks could prolong, he added. Yue also said stimulus measures also helped bond prices, which increased as global central banks cut key interest rates to near zero since mid-March. The Exchange Fund's bond portfolio generated HK$20.3 billion of gains in the second quarter versus HK$54.4 billion in the first quarter. Fee payment to the government’s fiscal reserves amounted to HK$18.6 billion in the first half, the HKMA said, compared with HK$15.3 billion the same period last year.