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Exchange Fund Results for 2014
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The following is issued on behalf of the Hong Kong Monetary Authority:

     The Hong Kong Monetary Authority (HKMA) announced today (January 26) the Exchange Fund results (Note 1) for 2014.

     The Exchange Fund recorded an investment income of HK$43.6 billion in 2014. The main components were as follows:

* gains on Hong Kong equities amounting to HK$6.5 billion;
* gains on other equities amounting to HK$33.7 billion;
* gains on bonds of HK$47.3 billion;
* an exchange loss of HK$52.7 billion; and
* gains on other investments amounting to HK$8.8 billion (Note 2).

     The fee payable to the Fiscal Reserves amounted to HK$27.5 billion in 2014 (Note 3). Fee payments on placements by HKSAR government funds and statutory bodies amounted to HK$8.6 billion. After deducting the fee payments, interest and other expenses, the Accumulated Surplus (Note 4) of the Exchange Fund recorded a decrease of HK$2.0 billion (Annexes 1 and 2).

     The Abridged Balance Sheet shows that the total assets of the Exchange Fund increased by HK$119.3 billion, from HK$3,032.8 billion at the end of 2013 to HK$3,152.1 billion at the end of 2014. The increase is mainly attributable to an increase in the balance of the banking system and placements received from HKSAR government funds and statutory bodies.

     The 2014 Exchange Fund investment return is 1.4 per cent (Chart 1) (Note 5). Specifically, the Investment Portfolio, which does not include the Long-Term Growth Portfolio, achieved a rate of return of 2.0 per cent. Given the long-term nature of the Fund's investments, the HKMA also releases the average investment returns of the Exchange Fund over a number of different time horizons. The average return was 2.8 per cent over the last three years, 2.6 per cent over the last five years, 3.7 per cent over the last ten years, and 5.2 per cent since 1994 (Note 6).

     On the outlook for the coming year, the Chief Executive of the HKMA, Mr Norman Chan, said, "the investment environment in 2015 will be even more complex and difficult than 2014. There is considerable uncertainty arising from the timing and pace of the US interest rate normalisation, which is then complicated by the implementation of QQE by Japan and the launch of a full scale QE by the ECB. The recent sharp rise in the USD, big drop in oil prices and the market turbulence following the surprise move by the SNB to drop the one way peg of the Swiss Franc against Euro were just some of the more notable manifestations of the market reaction to a very abnormal global financial and macroeconomic environment. Faced with these challenges, we will continue to exercise prudence and discipline in managing the Exchange Fund in line with its investment objectives, which are to safeguard the principal and to provide abundant liquidity buffers to meet the Exchange Fund's statutory purposes as and when it is necessary."

Note 1: Unaudited figures.
Note 2: This is the valuation change of investments held by investment holding subsidiaries of the Exchange Fund. (The above figures represent valuation changes up to the end of September 2014. Valuations of these investments from October to December are not yet available.)
Note 3: In accordance with a directive made by the Financial Secretary, the fee in respect of the Fiscal Reserves for 2014 was not paid on December 31, 2014. The amount will continue to earn fee at the Fixed Rate until further notice by the Financial Secretary.
Note 4: This includes gain from the Strategic Portfolio but excludes income from the investment holding companies.
Note 5: This return excludes the performance of the Strategic Portfolio.
Note 6: Averages over different time horizons are calculated on an annually compounded basis.

Ends/Monday, January 26, 2015
Issued at HKT 17:03

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