Exchange Fund recovers from massive hit amidst $1.6b gain in Q3

However, performance is likely to remain subdued amidst forex losses.

Hong Kong Exchange Funds reversed the massive $7.7b hit in the previous quarter after booking $1.6b gains in Q3, according to OCBC Treasury Research.

Overseas stock investments and bond investments gained $12.8b and $9.7b respectively in Q3. As of end-September, exchange fund assets stands at $4.03t which is much stronger than the $0.91t by end-1998.

“The resilience of banks and financial system in Hong Kong has been greatly enhanced since the Asian Financial Crisis. The Exchange Fund of Hong Kong holds over $4 trillion worth of assets, more than 80% of which being foreign exchange reserves, providing powerful defence for our financial stability,” Howard Lee, Deputy Chief Executive of the HKMA said in a previous statement.

However, OCBC Treasury Research warns that exchange fund performance is likely to remain dismal in the coming quarters as more forex losses loom in light of sustained dollar strength.

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The USD’s sustained strength has resulted in forex losses of $16.2b. Local stock investments also booked a $4.7b loss as China’s economic slowdown and rising US-Sino trade frictions wreaked havoc on global equities. “[G]lobal equity markets will also take a hit amidst the Fed’s gradual tightening, US-China trade war escalation and the diminishing chances of tax reform 2.0 in the US,” the firm added.

Bond investments are also likely to see some losses as the 10-year US Treasury Yield has hit its highest level since 2011 at 3.23%.