Hong Kong’s Exchange Fund posts record 9-month gain of US$28.8 billion as markets rallied – Technologist

The Exchange Fund reported one of its best quarterly returns as stock markets rallied in Hong Kong and the United States, as a diversified investment approach helped to swell the financial war chest for defending the city’s currency peg.

“With improved market sentiments, we hope we can continue the momentum and achieve positive returns for the Exchange Fund in the fourth quarter,” the HKMA’s chief executive Eddie Yue Wai-man said in a report to the city’s Legislative Council. “We should note that the global markets still face a lot of uncertainties in October. HKMA will continue to closely monitor the market situations and adopt a diversified approached to invest the Exchange Fund in a prudent manner.”

The fund, which traces its root to Hong Kong’s Currency Ordinance of 1935 to back the issuance of the city’s currency notes, has notched up four consecutive quarters of gains. Since the Hong Kong dollar’s peg to the US dollar in 1983, the fund has evolved into a financial war chest for the HKMA to deploy to defend the local currency’s value against hedge funds and foreign-exchange speculators.

The HKMA, the city’s de facto central bank, invests the Exchange Fund in global bonds, overseas real estate, equities in Hong Kong and abroad, as well as other long-term projects.

The fund’s Hong Kong equity investments gained HK$21.9 billion in the third quarter, tracing the 19 per cent jump in the city’s Hang Seng Index, turning around from last year’s HK$5.6 billion loss. In the first nine months, Hong Kong equities earned HK$28.5 billion for the fund owing to the Hang Seng’s 24 per cent surge, compared with a HK$10.5 billion loss during the same period a year ago.