Half-Year Exchange Fund Results 2007

The Hong Kong Monetary Authority (HKMA) today (Thursday) published the investment results of the Exchange Fund for the first half of 2007 (Annex 1) and the unaudited abridged balance sheet of the Exchange Fund at 30 June 2007 (Annex 2).

The Exchange Fund recorded an investment income of HK$47.0 billion in the first half of 2007.  The main components of this income are

• a valuation gain on, and dividends from, Hong Kong equities amounting to HK$15.1 billion
   

• a valuation gain on, and dividends from, other equities amounting to HK$12.1 billion
   

• an exchange valuation gain of HK$7.5 billion, mainly as a result of the appreciation of other currencies against the US dollar
   

• a total return from bonds and other investments of HK$12.3 billion.

After deducting interest and other expenses, net investment income in the first half of 2007 was HK$41.9 billion.  Payment to the Fiscal Reserves amounted to HK$13.3 billion. This comprises the Treasury’s share of the return of HK$6.4 billion for the first quarter of 2007 under the old sharing arrangement and HK$6.9 billion for the second quarter of 2007 under the new fee arrangement¹ effective on 1 April 2007.  An amount of HK$28.6 billion, being the net investment income after deducting the payment to the Fiscal Reserves, was added to the Exchange Fund’s Accumulated Surplus in the first half of 2007 (Annex 1).  At the end of June 2007 the Accumulated Surplus stood at HK$536.3 billion.

 The Abridged Balance Sheet shows that the total assets of the Exchange Fund stood at HK$1,256.9 billion at the end of June 2007, an increase of HK$80.5 billion compared with the end of 2006.

Commenting on the Exchange Fund results for the first half of 2007, Mr Joseph Yam, Chief Executive of the HKMA, stressed that, unlike a conventional investment fund, the Exchange Fund has the statutory purpose under the Exchange Fund Ordinance of maintaining monetary and financial stability in Hong Kong.  He noted that, despite continued global economic growth so far in 2007, financial markets had experienced sharp volatility in the first half of the year, including the stock market correction in late February and early March, and the rise in long-term bond yields in May and June.  "It is nevertheless encouraging that, notwithstanding these sharp and unexpected market movements, the Exchange Fund has been able to earn an investment income of HK$47.0 billion in the first half of the year."  Mr Yam said.

Looking ahead, Mr Yam cautioned that the sustainability of the recent stock market rally on the back of ample liquidity and investor optimism cannot be taken for granted, and uncertainties about global economic strength and interest-rate movements will continue to cloud the investment outlook in the equity, bond and currency markets for the rest of the year.  "The HKMA, under the guidance of the Exchange Fund Advisory Committee and its Investment Sub-Committee, will continue to manage the Exchange Fund prudently to preserve monetary and financial stability in Hong Kong." he said.

Attachments
Annex 1:     Exchange Fund Investment Results (Word file, 41KB)
Annex 2:     Exchange Fund – Abridged Balance Sheet (Excel file, 21KB)
Annex 3:     Supplementary Figures (Word file, 33KB)

For further enquiries, please contact:
Thomas Chan, Senior Manager (Press), at 2878 1480 or
Hing-fung Wong, Officer (Press), at 2878 1802

Hong Kong Monetary Authority
26 July 2007

¹As announced in the budget speech of the Financial Secretary on 28 February 2007, the rate of return on the fiscal reserves for 2007, starting from 1 April, is 7 per cent.