HKMA may widen risk to lift investment return
Options for Exchange Fund assets being studied
The Hong Kong Monetary Authority has hired a new head of direct investment to study the feasibility of widening the investment scope and thus boosting the returns of the Exchange Fund, the reserve that backs the Hong Kong dollar.
Market observers said the fund could invest in equity funds to enhance its investment return but should ensure that there were proper risk controls.
The HK$1.4 trillion reserve, managed by the HKMA, suffered a record investment loss of HK$35 billion in the first half. It was the worst performance in seven years, mainly due to the dramatic decline in global stock prices.
The HKMA's new head of direct investment, Huh Yong-hak, will lead a team studying whether the fund should take on slightly higher risk to boost returns, the Apple Daily reported yesterday.
Mr Huh previously worked for HSBC and JP Morgan before joining the city's de facto central bank in June, an HKMA spokesman said.
He will help formulate and implement asset allocation decisions for the reserve involving bond, equity and related markets.
The move was in line with the fund's strategy to diversify, the paper quoted HKMA chief executive Joseph Yam Chi-kwong as saying.
The spokesman added that the fund was under the control of the financial secretary and might invest in any securities or other assets the secretary considered appropriate, after consulting the Exchange Fund advisory committee.
'The purchasing power of Hong Kong's reserves could be eroded gradually if the investment strategy was too conservative, particularly in face of high inflation,' said Billy Mak Sui-choi, an associate professor at the department of finance and decision science of the Hong Kong Baptist University.
Mr Mak said the current foreign exchange reserve was more than adequate to support the Hong Kong dollar, as well as help the government manage its fiscal reserve.
The fund has a strong accumulated surplus so it can use a small part of the reserve to take slightly higher risk on investment.
Mr Mak said the fund could consider making direct investments overseas through equity funds or invest in local infrastructure projects to enhance returns on a long-term basis. He cited sovereign wealth funds such as China Investment Corp, Singapore's Temasek Holdings and its Government Investment Corp as examples.
'More important is to make sure the investment scale should not be too big so that it will not be derailed from its prime objective of supporting the currency and maintaining the stability of the financial system,' he added.
Sin Chung-kai, the legislator who represents the information technology sector, agreed the investment of the fund should be more diversified to boost its investment return, but 'the pre-condition is to have a proper risk control'.
