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HK's Exchange Fund records huge losses

(Xinhua)
Updated: 2009-01-22 08:40

Hong Kong's Exchange Fund took a fierce blow on its investment amid the global financial crisis with a record losses of HK$74.9 billion ($9.66 billion) last year, revealed the Monetary Authority Wednesday.

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Announcing the Exchange Fund's investment results Wednesday, Joseph Yam, Chief Executive of the Monetary Authority, the city's de facto central bank that runs the fund, said the losses in 2008 represented a negative investment return of 5.6 percent.

Yam said the strategic portfolio fell in value by HK$8.9 billion last year and the fee payment to the fiscal reserves was HK$46.4 billion.

Together with interest and other expenses, a reduction in the accumulated surplus of HK$136.3 billion was recorded.

Total assets of the fund, however, grew by HK$143.3 billion to HK$1.558 trillion at the end of 2008, mainly due to the growth in the Aggregate Balance.

Yam said the financial markets experienced "an exceptionally turbulent and perilous" year in 2008, adding: "Flight-to-quality trades, credit deterioration and balance-sheet deleveraging in the financial markets led to significant downward adjustments in asset prices and extreme market volatility during the year."

He said the Exchange Fund made a positive return in the fourth quarter as markets stabilized somewhat.

If the Hong Kong equities, which are held for long-term investment purposes, are excluded, the fund achieved a HK$3 billion of investment income, Yam said, adding the fund's prudent investment strategy has helped minimize the investment loss.

For the year ahead the Monetary Authority expected the investment environment will continue to be uncertain and difficult.

"The global financial system remains unsettled. Whether monetary easing and large fiscal stimulus packages in major economies will be effective in restoring investor confidence remains to be seen. Financial markets are under immense stress and we expect volatile conditions to continue for some time," Yam said.

The second wave of the global fiscal turmoil seems to be coming and it may be more contagious than the first wave because many emerging markets experienced economic damage in the first wave and their situations are deteriorating, he said.

"It will be even more difficult to predict what will happen in the financial markets in 2009. We will closely monitor the development and will exercise flexibility in formulating strategies," he said.

"The Monetary Authority will continue to be vigilant in this challenging environment and manage the fund prudently," he added.