Hong Kong’s sovereign fund posts 5.2% gain in 2023, faces ‘numerous challenges’ (2024)

FAQs

Did Hong Kong Wealth Fund post $27 billion gain in 2023 on bonds? ›

Hong Kong's wealth fund posted a HK$212.7 billion ($27.2 billion) gain in 2023, boosted by returns on bonds and international stocks. The Exchange Fund gained HK$57.7 billion on its portfolio of domestic and foreign stocks, and HK$144 billion on bonds, the Hong Kong Monetary Authority said on Friday.

In 2023, the Exchange Fund recorded an investment return of HK$212.7 billion, or 5.2%. Its assets under management (AUM) increased by HK$9.8 billion from a year earlier to HK$4.02 trillion ($514.4 billion) by end-2023.

The Exchange Fund recorded an investment return of 5.2% in 2023 (Note 4). Specifically, the Investment Portfolio achieved a rate of return of 6.4%.

The territory's de-facto sovereign fund, which is used to back the Hong Kong dollar and has HK$4.02 trillion in assets, posted a HK$212.7 billion (S$36.5 billion) investment gain in 2023.

Norway is home to the biggest sovereign wealth fund globally, valued at nearly $1.4 trillion. In 2023, the fund posted record profits, bolstered by tech holdings that include Microsoft, Apple, and Nvidia.

Norway's sovereign wealth fund, the world's largest, was established in the 1990s to invest the surplus revenues of the country's oil and gas sector. To date, the fund has put money in more than 8,500 companies in 70 countries around the world.

In 2023, the HKMA will prioritise regulatory updates, strengthen the collaborative eco-system response to money laundering and terrorist financing (ML/TF) risks, and further efforts in anti-money laundering (AML) supervisory technology (Suptech) and regulatory technology (Regtech).

The Abridged Balance Sheet shows that the total assets of the Exchange Fund increased by HK$9.8 billion, from HK$4,008.0 billion at the end of 2022 to HK$4,017.8 billion at the end of 2023.

Total government revenue for 2022-23 is estimated to be HKD 715.9 billion (2021-22: HKD 682.7 billion) within which tax revenues (i.e., Profits Tax, Stamp Duty, Salaries Tax) account for 49.4%, followed by land premiums at 16.7% and investment income at 15.2%.

As a bank supervisor, the HKMA has taken concrete steps to strengthen banks' climate resilience. In 2022, we developed a two-year plan to embed climate risk considerations into our supervisory processes, and looked to harnessing the power of technology to help banks assess the impact of physical risks.

Are exchange funds a good idea? ›

Diversifying your holdings reduces the risk to your finances if the company faces business challenges. Instead of being forced to liquidate when you're in a high tax bracket, exchange funds let you diversify today and maintain control over when you liquidate your stock (if at all).

The return is calculated as the change in market value, adjusted for incoming and outgoing payments, since the last calculation date (month-end or date of previous transfer to the fund). Sub-periods are geometrically linked when calculating return for longer periods, such as quarterly, annual and year-to-date returns.

In 1984, the British and Chinese governments signed the Sino-British Joint Declaration which stated that the sovereignty of Hong Kong should be transferred to the PRC on 1 July 1997, and Hong Kong should enjoy a "high degree of autonomy" under the "One Country, Two Systems" principle.

Despite the advantages, SWFs are not without their drawbacks. One concern is the potential for mismanagement and corruption. Poor governance and lack of transparency can lead to funds being misappropriated or invested in risky ventures, resulting in significant financial losses.

Hong Kong raises revenues from the sale and taxation of land and through attracting international businesses to provide capital for its public finance, due to its low tax policy.

In 2023, the average fund in the bank loan and high-yield bond Morningstar Categories gained 12.1% each. On the other hand, investors who accepted more duration risk, or sensitivity to shifting yields, stomached an uneasy ride over the past 12 months.

The Hong Kong 3 Years Government Bond has a 3.623% yield (last update 7 May 2024 14:15 GMT+0).

US high yield bonds were one of fixed income's top performers in 2023 but yields remain high by historical standards. Current yields in the US high yield bond market have historically been associated with strong returns in the ensuing 12-24 months.

The Hong Kong 10Y Government Bond has a 3.776% yield. 10 Years vs 2 Years bond spread is -7.6 bp. Yield Curve is inverted in Long-Term vs Short-Term Maturities.