2022 Was a Tough Year for the Hong Kong Monetary Authority Exchange Fund
Posted on 01/31/2023
The Hong Kong Monetary Authority (HKMA) published the unaudited financial position of the Hong Kong Monetary Authority Exchange Fund at end-December 2022.
The Exchange Fund recorded an investment loss of HK$ 202.4 billion in 2022. The main components were: losses on Hong Kong equities of HK$ 19.5 billion; losses on other equities of HK$ 61.2 billion; losses on bonds of HK$ 53.3 billion; negative currency translation effect of HK$ 40.1 billion on non-Hong Kong dollar assets; and losses on other investments of HK$ 28.3 billion.
The only other negative years for the fund were in 2008 (-5.6%) and 2015 (-0.6%). In September 2022, the fund had HK$ 364.2 billion (US$ 46.5 billion) allocated to private equity and HK$ 116.6 billion allocated to real estate.
The Abridged Balance Sheet shows that the total assets of the Exchange Fund decreased by HK$ 559.1 billion, from HK$ 4,570.2 billion at the end of 2021 to HK$ 4,011.1 billion at the end of 2022. Accumulated surplus stood at HK$ 555.5 billion at end-December 2022.
The Exchange Fund recorded a negative investment return of 4.4% in 2022. Specifically, the Investment Portfolio recorded a negative rate of return of 8.6% and the Backing Portfolio a negative rate of return of 0.4%.
Commenting on the performance of the Exchange Fund in 2022, Mr Eddie Yue, Chief Executive of the HKMA, said in a press release, “Financial markets experienced an exceptionally volatile year. 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. Successive sharp interest rate hikes for a total of 425 basis points by the US Federal Reserve within the year have led to massive sell-offs in the global bond and equity markets, which registered a notable fall of 16.2% and 19.8% (Note 5) respectively for the year. This investment environment not only undermined the conventional complementary effects of bonds and equities, but has also marked 2022 as the only year in almost half a century during which returns from equities, bonds and major currencies against the US dollar all recorded negative returns simultaneously.”
HKMA is seeing some light with the yields of major government bonds currently at multi-year high levels and that investing in bonds would give investors a higher interest income.