Hong Kong’s Exchange Fund earns record HK$170.8 billion in first half of 2019, driven by bond portfolio as central banks turn dovish

Hong Kong’s Exchange Fund, the war chest used to keep the city’s currency stable against short sellers, reported investment returns of HK$170.8 billion (US$21.8 billion) in the first half this year, a record high, driven primarily by gains in its bond portfolio, according to the Hong Kong Monetary Authority (HKMA). That compared with HK$35 billion in the first half of 2018.

After interest and other expenses, the fund reported net income of HK$159.5 billion, the HKMA, the city’s de facto central bank, said on Wednesday.

The fund earned HK$76.4 billion on its bond holdings in the first six months of the year, up from HK$19.5 billion in the same period in 2018, the HKMA said.

Norman Chan Tak-lam, the HKMA’s chief executive, said the fund’s bond portfolio recorded “good gains” as central banks around the world, including the Federal Reserve, became more dovish in terms of monetary policy. The Fed is widely expected to cut interest rates later this month after pausing rate increases this year.

“Following a sharp fall in the fourth quarter last year due to the worsening US-China trade conflict, the global equity markets rebounded significantly in early 2019, amid expectations of easing trade tensions,” Chan said.

“However, with a renewed impasse in US-China trade negotiations in May, the markets registered a correction again. Another rebound in global equities happened in June, when China and the US indicated that negotiations would resume, and the markets expected interest rate cuts by the US Federal Reserve.”