The Hong Kong Monetary Authority (HKMA) has published the unaudited financial position of the Exchange Fund as of the end of June 2024, revealing an investment income of HK$104 billion for the first half of the year, according to HKMA.

Investment Gains and Losses

The Exchange Fund’s investment income was driven by several components:

• Gains on bonds amounting to HK$57.9 billion;
• Gains on Hong Kong equities totaling HK$6.6 billion;
• Gains on other equities reaching HK$47.8 billion;
• A negative currency translation effect of HK$16.3 billion on non-Hong Kong dollar assets;
• Gains on other investments of HK$8.0 billion.

Fees on placements by the Fiscal Reserves and placements by HKSAR Government funds and statutory bodies were HK$7.0 billion and HK$8.4 billion respectively, with a fee payment rate of 3.7% for 2024.

Total Assets and Surplus

At the end of June 2024, the total assets of the Exchange Fund stood at HK$3,978.6 billion, marking a decrease of HK$37.9 billion from the end of 2023. The accumulated surplus was HK$688.3 billion.

Market Performance and Outlook

Chief Executive of the HKMA, Mr. Eddie Yue, commented on the performance, stating, “In the first half of this year, most major equity markets recorded significant gains. Market optimism about interest rate cuts due to moderating inflationary pressures in major economies has driven major equity indices to new highs. The Hong Kong equity market also posted modest gains. Despite falling bond prices from rising yields of major government bonds, bond holdings recorded positive returns after accounting for interest income.”

Looking ahead, Mr. Yue highlighted several uncertainties that could impact the investment environment, including future policy rate paths, global growth outlook, and geopolitical tensions. He noted, “While the market generally anticipates that the US rate cut cycle will begin in 2024, recent economic data have been mixed; the timing and pace of the Fed’s rate cuts remain unclear. As global equity markets and asset valuations have registered substantial gains in recent years, any slowdown in the global economy or deterioration in corporate earnings could trigger heightened market volatility and adjustments in asset prices. Furthermore, it is difficult to predict the impact of geopolitical tensions, including the ongoing Russia-Ukraine conflict and the situation in the Middle East, as well as the upcoming US presidential election on the global economy and financial markets. These factors could lead to sudden reversals in market conditions.”

Future Strategy

In response to these challenges, the HKMA will continue to prioritize capital preservation while aiming for long-term growth. Mr. Yue affirmed, “We shall continue to manage the Exchange Fund with prudence and flexibility, implement appropriate defensive measures, and maintain a high degree of liquidity. We will also continue our investment diversification to strive for higher long-term investment returns, ensuring that the Exchange Fund will continue to serve its purpose of maintaining monetary and financial stability of Hong Kong effectively.”

Image source: Shutterstock