But HKMA cautions uncertainties in this year's investment prospect

The Hong Kong Monetary Authority (HKMA) Exchange Fund posted an investment return of HK$108.6 billion ($14.01 billion) in 2012, the second highest in history, due to the buoyant share market performance, HKMA announced in a statement on Monday. However, it cautioned that the investment prospect in 2013 is still uncertain.

Local and overseas share investment brought a return of HK$73.3 billion, bond investment HK$33.1 billion and other investment HK$3.6 billion. However, foreign exchange investment incurred a loss of HK$1.4 billion.

The HK$108.6 billion return represented an investment return rate of 4.4 percent in 2012. That compared with a 1.1 percent return or HK$27.1 billion investment gain in 2011.

The average return was 3.0 percent over the last three years, 1.8 percent over the last five years, 4.9 percent over the last 10 years, and 5.6 percent since 1994.

HKMA Chief Executive Norman Chan expected the global financial markets to continue to be subject to many uncertainties in 2013.

"We must be mindful that the current asset prices are the result of both close-to-zero interest rate and the massive quantitative easing by the US and other major advanced countries. The valuations of the equity markets do not appear to be supported by improved fundamentals, and it is unclear how long they can hold."

"Furthermore, the US Treasury yields have already dropped to very low levels following several rounds of quantitative easing, with the 10-year Treasuries yield falling below 2 percent. Investors who rely on interest incomes from their bond holdings are greatly affected," Chan reckoned.

"With the unfavorable employment situation in European countries and the lackluster economic growth progress in the US, should this highly politically charged process be managed poorly, tremors similar to those that shook the global financial markets in August 2011 may recur," Chan cautioned.

Chan pledged that the HKMA will continue to manage the Exchange Fund prudently and pursue the investments in the Long-Term Growth Portfolio in a gradual manner.

The fee payments to the Fiscal Reserves amounted to HK$37.8 billion and the Accumulated Surplus recorded an increase of HK$55.8 billion.

The total assets of the Exchange swelled from HK$2.49 trillion at the end of 2011 to HK$2.78 trillion at the end of 2012.

The HKMA is the key manager of the Exchange Fund, which is under the control of the financial secretary, invests in equities, bonds, foreign exchange and other alternative assets. The Exchange is used to defend the local currency which has been pegged to the US dollar since 1983.

oswald@chinadailyhk.com

(HK Edition 01/15/2013 page2)