Hong Kong’s Exchange Fund expected to report third consecutive quarterly loss, war chest on course for its worst year on record, analysts say

The loss for the July-to-September period might top the worst quarterly loss on record of HK$112 billion, analyst says

Even if it were to bounce back in the fourth quarter, the Exchange Fund is still on course to reporting its worst yearly performance ever

Reading Time:4 minutes

Exchange Square in Hong Kong. The HKMA’s Eddie Yue will present the fund’s investment returns at a meeting of the Legislative Council’s financial affairs panel on Wednesday. Photo: AFP

Published: 8:30am, 29 Nov 2022

Hong Kong’s Exchange Fund, the war chest the city uses to defend its currency peg with the US dollar against short-seller attacks, is this week expected to report its worst quarterly loss on record amid a “perfect storm” in global markets that has eroded its investments, analysts said.

Eddie Yue Wai-man, CEO of the Hong Kong Monetary Authority (HKMA), which is the city’s de facto central bank and manages the fund, will present the fund’s investment returns at a meeting of the Legislative Council’s financial affairs panel on Wednesday.

Yue warned of a significant loss resulting from a perfect storm in the markets in the fund’s interim report earlier this year, citing volatile asset prices. A triple whammy in the form of concurrent declines in equities, bonds and currency markets was expected to erode returns.

“It is inevitable that the Exchange Fund will report a substantial loss during the third quarter, because rising interest rates and high market volatility have hurt the performance of global stocks, bonds and currency markets,” said Louis Tse Ming-kwong, managing director at Wealthy Securities.

The loss for the July-to-September period might widen from the second quarter, which was already the second-worst quarterly loss on record at HK$95.4 billion (US$12.2 billion), Tse said. It might even challenge the worst quarterly loss on record, the HK$112 billion deficit recorded in the first three-month period of 2020, when the coronavirus pandemic first hit.