Hong Kong Exchange Fund records smallest gain in 5 quarters amid Middle East crisis Hong Kong’s Exchange Fund, the war chest used to defend the local currency, reported its smallest investment gain in five quarters as the Middle East crisis weighed on stock market performance. The fund gained HK$34.5 billion (US$4.4 billion) in the first quarter, 56 per cent lower than HK$79.2 billion a year earlier, according to data released by the Hong Kong Monetary Authority (HKMA) on Monday. The fund still managed to report its fifth consecutive quarterly gain, but it was the smallest gain among the five quarters. The Exchange Fund, which has investments in Hong Kong and overseas stocks, was hit hard by a stock market slump in March following the start of the US-Israel war on Iran on February 28, as investors shifted from stocks to cash or other safer bets. “The Middle East conflicts have led the market on a roller coaster, with the global stock market falling 10 per cent in March after the war started,” the de facto central bank’s chief executive, Eddie Yue Wai-man, said during his quarterly meeting with lawmakers on Monday. “The ceasefire in April led the market to bounce back, but the outlook is still full of uncertainties. “The interest rate outlook is also affected by the Middle East conflicts, as traders generally expected no interest rate cut this year due to inflation worries from increased oil prices. Overall, the Middle East crisis has brought a lot of uncertainties to Asia and Hong Kong, but the local economy and capital market remain resilient. The initial public offering market remains active and the property market has recovered.” The fund’s total assets stood at HK$4.34 trillion at the end of March, a HK$19 billion increase from the end of last year. In the first quarter, the fund’s Hong Kong stock investments lost HK$5 billion, compared with a gain of HK$16.4 billion a year earlier. Hong Kong’s benchmark Hang Seng Index fell 7 per cent in March, its worst monthly performance in three years. The loss wiped out a strong gain in the first two months of the year, resulting in a 3.3 per cent drop for the quarter. The fund reported that its overseas stock investments lost HK$11 billion in the quarter, more than three times the year-earlier loss of HK$2.8 billion. The S&P 500 fell 4.6 per cent in the first quarter and the Nasdaq dropped 7.1 per cent, the worst quarter since the second quarter of 2022. The Exchange Fund reported a gain of HK$24.6 billion on its bond investments in the first quarter, 39 per cent less than HK$40.6 billion in the same quarter a year earlier. The fund reported a gain of HK$25.9 billion in the first quarter from a foreign-exchange valuation change on its non-US-dollar assets, double from a year-earlier gain of HK$13 billion. The HKMA did not report its returns on long-term investments in the first quarter, consistent with its practice of disclosing them later. However, it reported a fourth-quarter long-term investment gain of HK$5.1 billion, bringing the total fourth-quarter investment gain to HK$52.6 billion. After adding that data, the total investment gain of the Exchange Fund in 2025 stood at HK$337.4 billion, the best annual gain since the HKMA was established in 1993. The Exchange Fund will pay HK$5.8 billion to the government’s fiscal reserves in the first quarter as its regular payment, compared with HK$4.5 billion a year earlier. The government holds its reserves in the Exchange Fund and receives a fee based on the fund’s long-term investment gains or losses. In his February budget speech, Financial Secretary Paul Chan Mo-po unveiled a plan to transfer HK$150 billion from the Exchange Fund to support the Northern Metropolis and other infrastructure initiatives. The metropolis aims to turn 30,000 hectares (74,132 acres) of land into a new engine for economic growth with a population of about 2.5 million and around 650,000 jobs by 2034. Yue said that even after the transfer of the HK$150 billion, the Exchange Fund would still have a high surplus to maintain the stability of the local currency and the local market. https://www.scmp.com/business/markets/article/3352304/hong-kong-exchange-fund-records-smallest-gain-5-quarters-amid-middle-east-crisis?module=top_story&pgtype=section (ICE HONG KONG)

Fonte notizia: South China Morning Post