As published on finews.asia, Monday 4 May, 2020.
Hong Kong’s exchange fund shrunk HK$83.2 billion loss in the first quarter – the worst three-month period on record since reporting started 16 years ago.
Record-high losses of around $11 billion starkly contrast with the same period last year when the fund reported record-high gains of $17.2 billion. For the whole year of 2019, the fund, which is used as a war chest to defend the HKD/USD peg, registered $31.9 billion in returns, the second-highest year ever recorded.
"The decline in foreign currency assets was mainly due to the mark-to-market revaluation on foreign currency investments and a decrease in unsettled purchases of securities," the Hong Kong Monetary Authority said in a statement.
"[W]hile the rise in Hong Kong dollar assets was mainly due to an increase in Exchange Fund Bills and Notes issued but not yet settled, which was partly offset by withdrawals of placements by fiscal reserves and a decrease in the market value of Hong Kong equities."
The recorded loss follows another statement issued by HKMA deputy chief Howard Lee that anticipated the poor quarterly showing citing a flurry of headwinds including a Russia-Saudi Arabia oil war alongside an ongoing coronavirus pandemic.
"[T]he black swan has arrived," Lee said on his official government blog, highlighting a greater focus on alternatives for uncorrelated exposure.