Hong Kong’s Exchange Fund posts US$7 billion quarterly loss amid ‘triple whammy’ hit from slumping stocks, bonds and a stronger US dollar
- The fund lost HK$55 billion (US$7 billion) from investments in the first quarter, its third-biggest loss in 18 years since the fund began reporting its quarterly performance
- The fund’s Hong Kong stock investments lost HK$9.4 billion during the first quarter, compared with a HK$7.6 billion profit a year earlier
Hong Kong’s Exchange Fund reported its third-biggest quarterly investment loss in nearly two decades, as the city’s financial war chest suffered what the de facto central bank called a “triple whammy” hit of devaluing equities, bonds and a stronger US dollar.
“The war between Russia and Ukraine added inflationary pressure in Europe, while rising US interest rates may lead to capital outflow in the emerging market,” Yue said, adding that the Exchange Fund will continue to face such uncertainties in the following months.
Any capital outflow will weaken the Hong Kong dollar’s exchange rate against the US dollar, pushing it to the lower end of its trading band against the greenback, which would compel the HKMA to intervene in the market to keep the exchange rate stable. Hong Kong’s financial markets remain “deep and liquid, so we can cope with these challenges,” he said.
The Exchange Fund, established to defend Hong Kong’s currency peg with the US dollar, will have to sail through rough seas ahead, as the US Federal Reserve has foreshadowed a series of 10 increases in its benchmark rate through the end of 2023 to tamp down rising US inflation. That compels the HKMA, which runs its monetary policy in lockstep with the Fed, to also raise Hong Kong’s rates, which would exert further strain on the city’s slumping economy and stock market.
