Hong Kong Wealth Fund Sees Record $11 Billion Quarterly Loss

(Bloomberg) -- Hong Kong's wealth fund suffered a record HK$86.1 billion ($11 billion) loss in the first quarter as stocks tumbled globally, adding pressure on the city bracing for its worst ever economic contraction this year.

The Exchange Fund, managed in its current form by the Hong Kong Monetary Authority since 1998, lost HK$111.5 billion on its portfolio of domestic and foreign stocks, while bonds gained HK$54.4 billion in the quarter, according to a presentation by HKMA Deputy Chief Executive Howard Lee to lawmakers Monday.

“We shouldn't read much into the short-term gains or losses, instead we should look at the long-term returns,” Lee said. “The outlook is difficult given the pandemic, pace of economic recovery and trade tensions.”

The HK$4 trillion fund acts as a backstop to ensure the stability of Hong Kong's currency and as a stabilizer in times of crisis. It joins other funds around the world in posting losses at the start of the year as markets tumbled due to the coronavirus outbreak. The MSCI global stock index slumped 22% in the first three months of the year.

Hong Kong's economy is facing a second year of recession, hit by twin blows from the coronavirus and anti-government protests that started last year. Now with the outbreak under control -- with several days of no new cases reported over the past two weeks -- the city is again facing fresh political unrest.

At the same time, the city has been tapping its currency reserves to ease pressure on the Hong Kong dollar, which has been trading at the strong end of a band against its U.S. counterpart. Funds have flowed into the Hong Kong dollar to take advantage of higher interest rates relative to the greenback.

The fund clawed back some losses in April, seeing gains of about HK$30 billion to HK$40 billion, according to Lee.

Chief Executive Eddie Yue said in the same briefing that the HKMA has been gradually lowering the fund's assets in currencies other than the Hong Kong and U.S. dollars. They now constitute less than 10% of the fund's assets.

It also invests in private equity and real estate. It returned an overall 6.6% last year.

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