Exchange Fund's Income Drops 25 Percent In 2020

The Hong Kong Monetary Authority said on Wednesday that the Exchange Fund’s annual investment income dropped to HK$197.8 billion in 2020, down some 25 percent from HK$262.2 billion the year before.

The authority’s chief executive Eddie Yue said the past year was full of “unexpected twists and turns”, and the outlook for the fund in the year ahead remained uncertain.

“Covid-19, which began to spread across the globe since the start of [2020], has posed significant challenges to the world economy,” he said.

“After major corrections and disruptions in the first quarter of the year, asset markets rebounded quickly amid the ultra-loose monetary policies implemented by major central banks, and a series of relief measures launched by various governments.”

Most sources of the fund’s investment income shrank in 2020 – with the gains on bonds falling to HK$92.5 billion from HK$114.5 billion in 2019, and the returns from equities investment in other regions dropping to HK$69 billion from HK$100.7 billion the year before.

But the fund turned a loss of HK$13 billion in foreign exchange from 2019 to a profit of HK$9.6 billion for 2020.

Looking ahead, Yue said the fund’s performance will depend on the pace of recovery of different economies.

"Global recovery is in sight as vaccines continued to be rolled out, but the evolving pandemic will still have a bearing on the global economic outlook," he explained.

"In addition, geopolitical risks remain a cause for concern. The foreign policy direction of the new US administration, developments of the China-US relations, as well as the implementation of the Brexit agreement will all have impact on the financial markets.

"The persisting low interest rate environment could also bring additional challenges to our equity and bond holdings."

He said the authority will manage the fund prudently and maintain a high degree of liquidity of its assets.