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Hong Kong Monetary Authority (HKMA)

Hong Kong’s war chest swells as market rally boosts nine-month income to record HK$189.8 billion

Exchange Fund’s nine-month investment income jumps nearly threefold from 2016

PUBLISHED : Monday, 06 November, 2017, 12:30pm
UPDATED : Friday, 26 January, 2018, 4:14pm

Hong Kong’s Exchange Fund, the city’s reserves and cash arsenal for defending the currency, posted a record investment income of HK$189.8 billion in the first three quarters of this year, boosted by a rally in global stock markets, according to Hong Kong Monetary Authority on Monday.

The figure has increased nearly threefold from the full-year investment gains of 2016, which stood at HK$68.1 billion.

“The results of the first three quarters were strongly backed by the upbeat investor sentiment in the market,” said Norman Chan Tak-lam, chief executive officer of the HKMA, in the Legislative Council.

For the first three quarters Hong Kong equities contributed HK$42.2 billion and other equities achieved investment returns of HK$58.9 billion.

Returns from bonds, foreign exchange and other investments were HK$27.2 billion, HK$44 billion, and HK$17.5 billion respectively.

The Hang Seng Index has rallied more than 28 per cent this year, one of the best performers in the world markets, according to data from Bloomberg.

In the third quarter, the Exchange Fund had an investment income of HK$53.6 billion, the lowest quarterly figure this year, but still up 14 per cent from the same period a year ago.

In the second quarter, the fund recorded investment gains of HK$71.3 billion, the highest quarterly figure in nearly seven years. In the first quarter of 2017, it generated investment income of HK$64.9 billion.

During the July to September period, gains on Hong Kong equities reached HK$14.4 billion, while gains on other equities stood at HK$18.8 billion. Investment yields from bonds were HK$10.7 billion, and income from foreign exchange was HK$9.7 billion.

Nonetheless, Chan raised concerns over the outlook of US interest rates and global geopolitical uncertainties.

The financial market may be “overly optimistic” and has not fully priced in the above risks, Chan said.

“Will the US inflation and interest rates rise as moderately as the market currently expects? It’s still uncertain,” he said, suggesting that higher US rates may cause capital outflows from Hong Kong.

Rising geopolitical tensions on the Korean peninsula and other regions in the world also pose potential risks to the market.

Additional reporting by Peggy Sito