Thursday July 30, 10:42 AM
UPDATE 1-HK says Exchange Fund posted $3.2 bln H1 gain
HONG KONG, July 30 (Reuters) - Hong Kong's Exchange Fund, which is used to back the territory's currency peg with the U.S. dollar, rebounded in the second quarter to post a HK$25 billion (US$3.2 billion) investment gain for
the first half, the central bank said on Thursday.
The second-quarter gain, of HK$58.5 billion according to Reuters calculations, reflected a rebound in Hong Kong equities, which have rallied more than 50 percent since March, and follows a HK$33.5 billion investment loss for the first quarter.
In 2008, the fund recorded a HK$74.9 billion loss, its first full-year loss since at least 1994, as financial markets plunged in the wake of the global financial crisis.
However, while financial markets have been buoyed recently by hopes the global economy could soon start to pick up, Joseph Yam, Chief Executive of the Hong Kong Monetary Authority (HKMA), warned that there was no guarantee the fund could produce a gain in the second half.
'On several occasions ... in the past couple of months I have drawn attention to the possible disconnection between financial-market performance and economic performance, and pointed to the risk that, as economic reality (in the form of continued economic weakness and a slow recovery) sinks in, we may see disappointments in the financial markets in the months ahead,' Yam wrote in a weekly column on the HKMA website www.info.gov.hk/hkma/eng.
The Hong Kong government also draws a portion of its annual revenue from the Exchange Fund, based on the fund's rolling six-year average return. For the first half it would receive HK$17.6 billion, the HKMA said.
Unaudited results from the HKMA showed the Exchange Fund made a HK$26.1 billion gain on Hong Kong equities in the first six months of this year and a HK$9.2 billion gain on other equities. It made a HK$12.3 billion loss on bond investments.
Exchange Fund assets totalled HK$1,833.2 billion at the end of June 2009 and its accumulated surplus increased by HK$8.5 billion in the first half.
(Reporting by Susan Fenton, Editing by Chris Lewis)
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