Hong Kong Exchange Fund recorded an investment income of 56.7 billion HK dollars (7.27 billion US dollars) in 2004, the Hong Kong Monetary Authority (HKMA) Chief Executive Joseph Yam said Thursday.

Speaking at a press conference, Yam said there were four main components of the investment income, namely total return from bonds and other investments of 25 billion HK dollars (3.2 billion US dollars); valuation gain on, and dividends from, the Hong Kong equities portfolio amounting to 12 billion HK dollars (1.5 billion US dollars); valuation gain on, and dividends from, other equities amounting to 11.2 billion HK dollars (1.4 billion US dollars); and an exchange valuation gain of 8.5 billion HK dollars (1.1 billion US dollars), mainly as a result of the appreciation of the euro against the US dollar.

Yam said that after deducting interest and other expenses, net investment income in 2004 was 52.1 billion HK dollars (6.7 billion US dollars). Of this, the fiscal reserves share amounted to 14.5 billion HK dollars (1.9 billion US dollars), which exceeded the amount budgeted of 12.3 billion HK dollars (1.6 billion US dollars) in the fiscal year 2004-05.

An amount of 38.5 billion HK dollars (4.9 billion US dollars), being the net investment income after deducting the fiscal reserves share of 37.6 billion HK dollars (4.8 billion US dollars) together with part of a premises revaluation surplus of 0.9 billion HK dollars (115 million US dollars), has been added to the Exchange Fund's accumulated surplus for 2004.

Commenting on the Exchange Fund results for 2004, Yam said the investment environment in 2004 had been volatile.

"In the first half of the year, bond and equity markets retreated on fears of aggressive monetary tightening in the United States. Losses were recouped when equity markets and currencies rebounded in the last few months of the year," said Yam.

The abridged balance sheet shows that in 2004 the total assets of the Exchange Fund increased by 50.3 billion HK dollars (6.4 billion US dollars), from 1.012 trillion HK dollars (130 billion US dollars) at the end of 2003 to 1.062 trillion HK dollars (136 billion US dollars) at the end of 2004.

In 2004 the Exchange Fund achieved an investment return of 5.7 percent, which met the investment return of the benchmark portfolio determined by the Financial Secretary after consultation with the Exchange Fund Advisory Committee, said Yam.

He said that since 1999 the Exchange Fund has achieved a 6.2 percent annual return, or an annual out-performance of 1.4 percent above the benchmark's 4.8 percent annual return for the same period.

Since 1994 the Exchange Fund has generated an annual return of 6.6 percent, compared with the annual inflation rate of 1.3 percent over the same period.

Yam warned that the investment environment in 2005 would be difficult.

"The markets have begun the year in a highly volatile way, and this volatility is likely to continue," Yam said.

"The HKMA will exercise vigilance in this erratic environment and will continue, under the guidance of the Exchange Fund Advisory Committee, to manage the Exchange Fund in a prudent manner," said Yam.

Source: Xinhua