China Fund News Wu Juanjuan
On January 26, 2024, the Hong Kong Monetary Authority (hereinafter referred to as the Hong Kong Monetary Authority) announced the unaudited financial status of the Exchange Fund as of the end of 2023. Data show that the Exchange Fund recorded investment income of HK$212.7 billion in 2023. Among them, bond investment recorded income of HK$144 billion, making it the asset class with the largest contribution. 2023 will be the year with the highest return on investment in Exchange Fund bonds. In terms of stocks, Hong Kong stocks recorded investment losses of HK$15.5 billion in 2023, and stocks in markets outside Hong Kong recorded investment gains of HK$73.2 billion. For the whole year of 2023, the Exchange Fund’s overall investment return was 5.2%. In terms of asset size, as of the end of 2023, the total assets of the Exchange Fund were HK$4,017.8 billion, an increase of HK$9.8 billion from HK$4,008 billion at the end of 2022. Among them, debt securities assets amounted to HK$2,799.7 billion, accounting for approximately 70% of the total assets of the Exchange Fund.
The Exchange Fund will reverse the situation in 2023. The Exchange Fund recorded a loss of HK$202.4 billion in 2022, a rare year in the history of the Exchange Fund in which stocks, bonds, and foreign exchange suffered losses at the same time.
According to the Exchange Fund Ordinance, the primary objective of the Exchange Fund is to directly or indirectly affect the exchange rate of the Hong Kong dollar. The Exchange Fund (Amendment) Ordinance passed in 1992 expanded the scope of the Exchange Fund's functions and defined its secondary purpose as maintaining the stability and soundness of Hong Kong's monetary and financial system in order to maintain Hong Kong's status as an international financial center. Over the past few decades, when Hong Kong banks encountered crises or Hong Kong experienced financial crises, the Exchange Fund played an extremely important role. According to
data, the Exchange Fund contains four major portfolios. Support portfolios, portfolios, long-term growth portfolios and strategic portfolios. The support portfolio accounts for the majority of the Exchange Fund. It holds U.S. dollar assets with good liquidity and good credit credentials. Outside of the Support Portfolio, the Portfolio holds open market assets, including developed market and emerging market assets. The third is the long-term growth portfolio holding private equity and real estate as an alternative asset portfolio of the Exchange Fund. Finally, there is the strategic asset portfolio, which holds shares of Hong Kong Exchanges and Clearing Limited. Among the four major portfolios of
, the support portfolio's annual investment return in 2023 is 5%, which is the highest level of investment return for this portfolio since 2009.
Source: Hong Kong Monetary Authority official website.
Maintaining the stability of the Hong Kong dollar exchange rate is the primary goal.
The Exchange Fund portfolio contains Hong Kong stocks. When asked how he views the recent trend of Hong Kong stocks, Yu Weiman, President of the Hong Kong Monetary Authority, said that the goals of the Exchange Fund include the following aspects: asset preservation and maintaining asset liquidity. , achieve long-term asset appreciation. The most important mission behind this is to maintain Hong Kong’s linked exchange rate system. He pointed out that not only Hong Kong, but also most places around the world have foreign exchange reserve asset allocations dominated by overseas assets. This is because foreign exchange reserves need to be liquidated quickly when necessary to maintain financial stability. If the asset allocation is dominated by local assets, the process of liquidation will put pressure on the local market. Based on this, foreign exchange reserves have always preferred overseas assets with good liquidity. During the Asian financial crisis 25 years ago, the Exchange Fund bought Hong Kong stocks in order to snipe the "predators". After the rescue was completed, these assets were listed in the form of Tracker Fund. He said that the Exchange Fund has held this asset for a long time and has maintained an attitude of neither increasing nor reducing its holdings of related assets.
Hong Kong Monetary Authority President Yu Weiwen and Hong Kong Monetary Authority Vice President Li Dazhi were at the press conference. Picture source, taken by reporters.
At the same media conference, Li Dazhi, deputy president of the Hong Kong Monetary Authority, also said that the Exchange Fund’s primary goal is to maintain the stability of the Hong Kong dollar exchange rate, and buying Hong Kong stocks cannot promote the realization of this goal.
Li Dazhi said that the Exchange Fund recorded good investment performance in 2023. Among them, U.S. interest rates are at a high level and U.S. bond yields are considerable, which is an important reason. Entering 2024, although U.S. interest rates may fall back, they are not expected to fall back to the levels of a few years ago. Therefore, the interest income from U.S. bonds in the Exchange Fund will still remain at a relatively considerable level.
Looking forward to 2024, Yu Weiwen said that the global financial market still faces many challenges. At present, the market generally expects that the interest rate hike cycle of major central banks is coming to an end, but there is still uncertainty about when inflation will return to the central bank's target level.In addition, the market generally expects the Federal Reserve to cut interest rates in the near future. However, if the actual timing and pace of interest rate cuts are inconsistent with market expectations, asset prices may fluctuate and adjust significantly. He further pointed out that, coupled with the cumulative impact of previous interest rate hikes on the global real economy, corporate profits and macroeconomic growth may slow down. These factors create significant uncertainty in global asset markets.
He added that outside of the market and economy, the geopolitical situation remains unclear and related risks may continue to impact the global economy and financial markets. Elections will be held in many countries in 2024, which will also add uncertainty to the market and bring challenges to the investment of the Exchange Fund.
Facing the complex and ever-changing environment, Yu Weiman reiterated that the HKMA will continue to adhere to the investment principle of "preserving capital first and long-term value appreciation", manage the Exchange Fund prudently and flexibly, make appropriate defensive arrangements, and maintain good liquidity. He said that the Exchange Fund will continue to diversify its investments and strive to increase the Exchange Fund's long-term investment returns to ensure that it can continue to effectively maintain Hong Kong's monetary and financial stability.
Editor: Joey
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