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2004 Exchange Fund Results

2004 Exchange Fund Results. Press Conference 20 January 2005. Investment Objectives of The Exchange Fund. Investment objectives of the Exchange Fund are: (1) to preserve capital;

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2004 Exchange Fund Results

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  1. 2004 Exchange Fund Results Press Conference 20 January 2005

  2. Investment Objectives ofThe Exchange Fund Investment objectives of the Exchange Fund are: (1) to preserve capital; (2) to ensure that the entire Monetary Base at all times will be fully backed by highly liquid short-term US dollar denominated securities; (3) to ensure sufficient liquidity for the purpose of maintaining monetary and financial stability; and (4) subject to (1) – (3) above, to achieve an investment return that will preserve the long-term purchasing power of the assets.

  3. Markets in 2004 • Overall performance volatile: Q1 strong Q2 sharp decline Q3 moderate Q4 strong rally

  4. I 2004 I 2003 2002 2001 2000 (HK$ billion) Full year Q1 Q2 Q3 Q4 Full year Full year Full year Full year Gain / (Loss) on Hong Kong equities* 12.0 1.0 (1.4) 5.5 6.9 21.2 (11.8) (27.1) (7.3) Gain / (Loss) on other equities* 11.2 3.2 2.5 (4.7) 10.2 26.8 (22.7) (3.3) 0.5 Exchange gain / (loss) 8.5 0.6 (2.6) 1.7 8.8 22.9 27.2 (13.0) (11.2) Total return from bonds, etc 25.012.0(5.7)11.67.118.854.350.863.1 Investment income 56.7 16.8 (7.2) 14.1 33.0 89.7 47.0 7.4 45.1 * including dividends Exchange Fund Performance

  5. I 2004 I 2003 (HK$ billion) Full year Q1 Q2 Q3 Q4 Full year Investment income 56.7 16.8 (7.2) 14.1 33.0 89.7 Other income 0.2 0.0 0.1 0.0 0.1 0.2 Interest and expenses(4.8)(1.1)(1.1)(1.3)(1.3)(5.6) Net investment income 52.1 15.7 (8.2) 12.8 31.8 84.3 Treasury’s share(14.5) (4.5) 2.1 (3.6) (8.5) (25.7) Revaluation gain/(loss) on premises affecting accumulated surplus 0.9 0.0 0.0 0.0 0.9 (0.9) Increase/(Decrease) in EF accumulated surplus 38.5 11.2 (6.1) 9.2 24.2 57.7 Exchange FundChange in Accumulated Surplus

  6. Exchange FundHistorical Change in Accumulated Surplus (HK$ billion) 2004* 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 Investment income 56.7 89.7 47.0 7.4 45.1 103.8 93.8 35.6 25.4 46.7 8.9 Other income 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.3 0.2 Interest and expenses(4.8)(5.6)(7.0)(10.5)(11.0)(10.0)(16.0)(18.4)(12.9)(12.6)(8.2) Net investment income/(loss) 52.1 84.3 40.2 (2.9) 34.3 94.0 78.0 17.4 12.7 34.4 0.9 Treasury’s share (14.5) (25.7) (15.6) (1.6) (18.1) (45.4) (26.0) N/A N/A N/A N/A Revaluation gain/(loss) on premises affecting accumulated surplus 0.9 (0.9)N/AN/AN/AN/AN/AN/AN/AN/A N/A Increase/(Decrease) in EF accumulated surplus 38.5 57.7 24.6 (4.5) 16.2 48.6 52.0 17.4 12.7 34.4 0.9 * unaudited figures for 2004

  7. Exchange FundAbridged Balance Sheet (HK$ billion) 2004 2003 Change ASSETS Deposits 63.9 60.7 3.2 Debt securities 771.5 761.1 10.4 Hong Kong equities 82.4 71.2 11.2 Other equities 123.0 99.4 23.6 Other assets 21.1 19.2 1.9 Total assets1,061.9 1,011.6 50.3 LIABILITIES AND FUND EQUITY Certificates of Indebtedness 146.8 134.2 12.6 Government-issued currency notes & coins in circulation 6.3 6.3 0.0 Balance of the banking system 15.8 28.3 (12.5) Exchange Fund Bills and Notes 125.9 123.5 2.4 Placements by other HKSAR government funds 280.1 252.3 27.8 Other liabilities 63.4 82.1(18.7) Total liabilities638.3626.7 11.6 Accumulated surplus 423.4 384.9 38.5 Premises revaluation reserve 0.2 - 0.2 Fund equity423.6384.938.7 Total liabilities and fund equity1,061.9 1,011.6 50.3

  8. Exchange Fund Performance Against Investment Benchmark • Investment return from 2000 computed in accordance with CFA Global Investment Performance Standards

  9. Investment Return* of the Exchange Fund # Hong Kong CPI-A at end-November 2004 * Investment return from 2000 computed in accordance with CFA Global Investment Performance Standards

  10. Outlook for 2005 • US interest rate increases expected • outlook for equities uncertain • currencies may be erratic

  11. Fed Funds Target Rate US interest rate increases expected

  12. Outlook for equities uncertain

  13. Currencies may be erratic

  14. 2004 Exchange Fund Results Press Conference 20 January 2005

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