Hong Kong’s Financial War Chest Swells as Markets Rally
The Hong Kong Monetary Authority (HKMA) has reported a remarkable quarterly return for the Exchange Fund, thanks to a diversified investment approach that capitalized on the recent stock market rallies in Hong Kong and the United States. With a staggering HK$224.7 billion (US$28.8 billion) return in the first nine months of this year, the fund has achieved its best performance on record.
A Prudent Approach Pays Off
The HKMA’s chief executive, Eddie Yue Wai-man, attributed the fund’s success to improved market sentiments, but cautioned that global markets still face uncertainties. “We will continue to closely monitor market situations and adopt a diversified approach to invest the Exchange Fund in a prudent manner,” he said.
A Financial Safety Net
The Exchange Fund, established in 1935 to back the issuance of Hong Kong’s currency notes, has evolved into a financial war chest to defend the local currency’s value against hedge funds and foreign-exchange speculators. Since the Hong Kong dollar’s peg to the US dollar in 1983, the fund has consistently demonstrated its ability to adapt to changing market conditions.
Diversified Investments Yield Strong Returns
The HKMA invests the Exchange Fund in a range of assets, including global bonds, overseas real estate, equities in Hong Kong and abroad, and other long-term projects. In the third quarter, Hong Kong equity investments gained HK$21.9 billion, while overseas stocks earned HK$18.2 billion. Bond investments also performed strongly, with a gain of HK$66.4 billion in the third quarter.
Strong Gains Offset by Foreign-Exchange Losses
While the fund’s stock and bond investments yielded impressive returns, a loss from foreign-exchange depreciation on non-US dollar assets narrowed to HK$8.2 billion in the first nine months. However, this was offset by a gain of HK$8.1 billion in the third quarter.
A Robust Performance
The Exchange Fund’s investments in overseas property and other long-term projects also gained HK$14.1 billion in value in the first half of the year. With four consecutive quarters of gains, the fund is well-positioned to continue its momentum in the fourth quarter.
Staying Ahead of Market Uncertainties
As the HKMA navigates the complexities of global markets, its prudent approach and diversified investment strategy will be crucial in maintaining the Exchange Fund’s strong performance. With its financial war chest swelling, Hong Kong is better equipped to defend its currency peg and maintain economic stability in uncertain times.
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