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Following is a question by the Hon Mrs Regina Ip and a reply by the Financial Secretary, Mr John C Tsang, in the Legislative Council today (January 27):
Question:
According to the Annual Report 2008 of the Hong Kong Monetary Authority ("HKMA"), in terms of currency mix, the investment benchmark of the Exchange Fund ("EF") was that 86% of the assets were in United States ("US") dollar and other currencies (which included the Hong Kong dollar) while the remaining 14% were in other currencies (which included mainly Euro, Yen and Sterling). EF's compounded annual return from 1994 to 2008 was 6.1%, which was lower than that of other funds. For example, the compounded annual return of the Government of Singapore Investment Corporation Pte Limited from 1981 to 2006 was 9.5%, and that of the Stanford University Merged Pool from 1998 to 2008 was 8.9%. In this connection, will the Government inform this Council:
(a) whether HKMA will consider updating EF's existing investment benchmark so as to raise EF's return rate;
(b) given the sluggish US economy as well as persistently weak US dollar exchange rate and low US interest rate, plus the fact that a number of scholars have pointed out that the US national debt has reached an astronomical figure and will most likely be monetised by the US Government, thus leading to depreciation of the US dollar, whether HKMA will consider shifting those assets which are currently allocated to the US dollar to other currencies; if not, of the reasons for that; and
(c) given that Renminbi continues to be strong, whether HKMA will consider increasing the percentage of Renminbi assets in the investment benchmark?
Reply:
President,
My reply to the three-part question is as follows:
1. The Hong Kong Monetary Authority will regularly review the investment benchmark allocation, and to ensure that it consistently meets the investment objectives of the Exchange Fund under the changing financial market conditions.
2. Since the primary objective of the Exchange Fund is to maintain monetary stability, the investment benchmark of the Exchange Fund contains a substantial allocation to US dollar-denominated assets.
When conducting the regular review, we will take account of long-term historical data and developments in the global financial markets in order to assess the optimal currency and asset mix for the Exchange Fund, including the allocation to US dollar and other currencies, so as to achieve the investment objectives of the Exchange Fund in the long term.
3. We will regularly review the Exchange Fund's investment benchmark allocation. We will, in view of the changing financial market environment, assess and determine the optimal currency and asset mix for the Exchange Fund, including whether particular currencies (e.g. Renminbi) should be held, and the optimal allocation to different currencies so as to achieve its investment objectives in the long term.
Ends/Wednesday, January 27, 2010
Issued at HKT 11:31
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