HKMA Exchange Fund not heavily allocated to China: senior executive

Exposure to renminbi assets is less than 15% for the fund dedicated to defending Hong Kong’s dollar peg. However, a fund executive cautions against missing out on a China rebound.
HKMA Exchange Fund not heavily allocated to China: senior executive

The Exchange Fund of the Hong Kong Monetary Authority – the city’s de facto central bank – is not heavily allocated to China due to structural reasons, a senior executive said.

“For structural reasons, we're not heavily allocated to China,” said Albert Goh, chief investment officer for external managers of the Exchange Fund, during a panel discussion at the Milken Institute Global Investors’ Symposium in Hong Kong last week.

Albert Goh, HKMA

Goh didn’t elaborate on whether he was referring to general country exposure or assets denominated in renminbi (RMB), the Chinese currency.

As a reserve fund designed to defend the exchange rate of the Hong Kong dollar against the US dollar, the Exchange Fund’s exposures to currencies other than the US dollar and Hong Kong dollar accounted for around 10-14% of the fund’s assets, equivalent to about $72 billion, according to an HKMA spokesperson.

“As part of our long-term investment and diversified portfolio, the Exchange Fund invests in RMB assets as well,” the spokesperson told AsianInvestor.

As of the end of January, total assets of the Exchange Fund stood at HK$4.05 trillion ($517 billion), HK$28.7 billion higher than at the end of 2023 due to increased purchases of foreign currency securities.

One of the fund’s key investment objectives is to ensure the city’s monetary base is fully backed by highly liquid US dollar-denominated assets.

“In line with these investment objectives, around half of the Exchange Fund's investments are highly liquid and high credit quality USD-assets, i.e. under the Backing Portfolio,” the spokesperson said.

The remainder of investments are held in a diversified portfolio comprising bonds, supplemented with equities and other asset classes, according to the spokesperson. The portfolio includes public-market assets in both developed and developing markets.

The spokesperson didn’t provide details on the fund’s exposure to Chinese assets due to market sensitivity.

Source: HKMA


Exposures notwithstanding, the Exchange Fund’s Goh said China is generally “very investible” amid its transition to high-quality growth.

“Nearly $7 trillion have come out of this market. To me, that’s $7 trillion less risk,” Goh said.  

“You can pick up some amazing assets at rock-bottom prices…For any long-term investors, that’s actually a no-brainer,” he said.

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He pointed to urbanisation, new technology, and climate action as key economic drivers amid China’s transition to higher quality growth.

“There are many investors waiting on the sidelines. And I tell them: ‘If you wait for mega stimulus to come, if you wait for the animal spirit to come back, the market would have moved, and you will be too late,’” he said.

Global investors have been on the lookout for a large stimulus package from the Chinese authorities to boost the domestic economy, from the indebted property sector to domestic consumption to private businesses.

However, statements from the country’s annual plenary policymaking meeting, the Two Sessions, disappointed markets by giving few clear plans or stimulus measures beyond a stated annual growth target of around 5%.

Some asset owners such as Ping An Insurance Group and HSBC Life Hong Kong, which have had a longtime presence in the world’s second-largest economy, see opportunities in selective sectors supported by national policies such as the energy transition and long-term rental properties.

“If you are underweight China, and China rebounds, that will be a significant drag on your performance,” Goh said.

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