This undated photo shows the building of the Hong Kong Monetary Authority. (PHOTO / IC)
Hong Kong’s Exchange Fund, the city’s war chest to back the Hong Kong dollar, recorded its worst-ever investment loss of HK$202.4 billion ($25.8 billion) in 2022 as a deteriorating global market eroded investments in financial assets, the Hong Kong Monetary Authority said Monday.
The fund’s heavy losses last year came as a stark contrast to an investment income of HK$191.9 billion in 2021, marking its third annual loss since the first disclosure in 2000.
Managed by the HKMA, the Exchange Fund comes under the control of the financial secretary and invests in equities, bonds, foreign exchange and other assets, serving the purpose of maintaining monetary and financial stability in Hong Kong.
Specifically, the Exchange Fund lost HK$80.7 billion on its portfolio of domestic and foreign equities while its shortfall on bonds was HK$53.3 billion, data from the HKMA showed. It posted a negative investment return of 4.4 percent in 2022.
The Russia-Ukraine conflict at the beginning of the year sent energy and commodity prices significantly higher, while the ongoing pandemic situation further disrupted global supply chains and caused inflation to soar in major economies, prompting major central banks to tighten their monetary policies aggressively.
Eddie Yue Wai-man, HKMA chief executive
HKMA Chief Executive Eddie Yue Wai-man ascribed the record annual loss last year to an “exceptionally volatile” financial market.
“The Russia-Ukraine conflict at the beginning of the year sent energy and commodity prices significantly higher, while the ongoing pandemic situation further disrupted global supply chains and caused inflation to soar in major economies, prompting major central banks to tighten their monetary policies aggressively,” Yue said.
In 2022, the US Federal Reserve initiated successive sharp interest rate hikes of 425 basis points, leading to massive sell-offs in the global stock and fixed-income markets.
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Yue said the Exchange Fund could not stay unscathed amid the harsh investment environment, while the investment loss it sustained was smaller when compared to the performance of major market indices and mixed-asset funds, which registered losses of varying degrees.
The investment outlook for this year will continue to face “significant uncertainties” and asset prices are expected to remain volatile, Yue said at a news conference.
“The monetary policies of major central banks will continue to dominate the investment outlook, and financial markets will pay close attention to peak policy rates set by major central banks,” he added.
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On a positive note, Yue said the Exchange Fund is expected to capitalize on the Chinese mainland economic rebound — driven by the easing of COVID-prevention measures and the introduction of stimulus packages.
Fixed-income investments have also become more appealing as yields of major government bonds are currently at multiyear high levels amid market expectations of slowing inflation and more gradual rate hikes, Yue said.
Contact the writer at evanliu@chinadailyhk.com