Although the financial markets performed quite volatile last year, the global stock market generally prevailed, pushing foreign exchange funds to achieve good returns
The HKMA announced that the investment income of the Exchange Fund in 2019 was 247.2 billion yuan, second only to the 264 billion yuan in the bull market in 2017, which is the second best performance in history. Compared with the investment income of 2018, it was only 10.9 billion yuan, a 21.68-fold increase. The return on investment is 6.2%, which is higher than the 4.8% compound annual return on investment since 1994.
Market valuation is expensive
The Chief Executive of the HKMA, Yu Weiwen, explained that the global financial market was plagued by the global economic slowdown and the Sino-US trade conflict last year, but the major central banks adopted loose monetary policies to support the stock and bond market, which will bring good results for foreign exchange fund stock bond investment in 2019. Gains. However, he pointed out that the rise in the stock bond market last year was not driven by corporate profitability or better economic performance. At present, the valuations of many major stock markets have been high, coupled with uncertain factors such as China-US trade negotiations and the situation in the Middle East. The environment remains challenging.
Looking into the future, Yu Weiwen said that the signing of the first-phase trade agreement between China and the US will help alleviate market instability. The global economy seems to be stabilizing, but there are still many uncertain factors in the market outlook, such as the follow-up trade negotiations between China and the United States. Progress, how Brexit is implemented, and the evolving situation in the Middle East will all influence the investment market sentiment.
He continued that global interest rates are already at a low level, and some major central banks have adopted negative interest rate policies. In the future, there is limited room for central banks to use monetary policy to stimulate the economy. If the global economy has not seen a significant rebound, it is doubtful whether the market can maintain its upward trend The HKMA will closely monitor the development of the market, continue to take the principle of capital preservation, maintain sufficient liquidity, and seek long-term growth as its strategy, and adjust its investment portfolio in accordance with market conditions in a timely manner.
The Exchange Fund’s stock portfolio income in 2019 was 122.4 billion yuan, of which Hong Kong and foreign stocks earned 22.1 billion and 100.3 billion yuan respectively. In 2018, the two assets lost 20.7 billion yuan and 38.7 billion yuan respectively. Bond investment income was 114.4 billion yuan, an increase of 99.3% year-on-year; foreign exchange valuation of non-Hong Kong dollar assets was reduced by 13 billion yuan; other investment income including private equity and real estate was 23.4 billion yuan, an increase of 6.85% year-on-year.
Li Dazhi, Chief Executive Officer of the Exchange Fund Investment Office, emphasized that the Exchange Fund is denominated in Hong Kong dollars. In the last quarter of last year, due to the strengthening of the Hong Kong dollar, the foreign currencies involved in overseas investments depreciated accordingly, resulting in a downward adjustment of foreign exchange valuations. Liu Huijuan, chief risk officer of the Exchange Fund Investment Office, revealed that since 2014, in order to avoid large exchange losses due to fluctuations in the foreign exchange market, the proportion of foreign exchange fund non-US dollar assets has dropped from nearly 18% at the time to about 10% at the end of last year.
Difficult to find suitable objects for alternative assets
Since 2009, the Exchange Fund has introduced long-term growth portfolios to invest in alternative assets. As of the end of September last year, the invested amount was 319.4 billion yuan, and the amount of projects that had been undertaken but not drawn for investment was 225 billion yuan. The internal return of alternative assets over the years The rate is 12.4%.
Li Dazhi said that with the huge gains of the Exchange Fund last year, the accumulated surplus was more than 100 billion yuan, and there is more room for alternative investments in the future, but the difficulty lies in finding suitable projects.
The interest rate paid by the Exchange Fund to the fiscal reserve deposits and the Hong Kong government funds and statutory organization deposits in 2019 is 2.9%. The relevant fees are 29.4 billion yuan and 9 billion yuan, respectively.