HKMA head rejects calls to prop up sinking Hong Kong stock market

The chief executive of the Hong Kong Monetary Authority has dismissed calls from lawmakers for Hong Kong’s de facto sovereign wealth fund to boost investment in the tumbling domestic stock market.

Eddie Yue, head of Hong Kong’s de facto central bank, said on Monday that the move would be counterproductive, adding there was “almost no place in the global market” where foreign exchange reserves were used to invest in the domestic market.

Yue’s comments came after Kennedy Wong Ying-ho, a legislator representing the import and export constituency, asked the HKMA head whether the Exchange Fund could invest in Hong Kong’s real estate or stocks to support the local market.

“Everyone in the world wants to support the local market, but not to use their own money to only invest in foreign products,” Wong said during a Legislative Council financial affairs panel meeting.

This article was previously published by Ignites Asia, a title owned by the FT Group.

“Can the Exchange Fund be allowed to invest more flexibly, for example in local real estate or stocks, except for the part to maintain the linked exchange rate system?” he asked.

Yue countered the proposal by explaining that liquidity was essential to “maintain the stability of local currency”, adding that assets would be sold to support the local currency when liquidity was needed.

If the Exchange Fund needs to sell local assets under such circumstances, it may be counterproductive to the local market, he added.

“No matter if you sell local properties or stocks [to increase liquidity], it would be like putting in a few more cuts in the local market,” Yue said.

He reiterated that the Exchange Fund’s current holdings of Hong Kong-listed equities were left over from its market entry in 1998 and that they would only remain in the portfolio as asset diversification without any increase or decrease in holdings.

The Exchange Fund acquired a substantial portfolio of Hong Kong equities in 1998 as a result of the government’s intervention in the local stock market during the Asian financial crisis.

The HKMA currently manages the Hong Kong equities portfolio exclusively through external fund managers.

Yue pointed out the potential risks of the Exchange Fund investing in the local market a day before China’s state-owned sovereign wealth fund stepped in again to boost the slumping mainland stock market.

Central Huijin Investment, part of China’s $1.2tn sovereign wealth fund China Investment Corporation, announced it would continue to increase China stock holdings to “firmly safeguard the stable operation of the capital market”.

The state-run company said it fully recognised the current allocation value of the A-share market and had recently expanded its holdings of exchange traded funds.

After the announcement on Tuesday, the Hong Kong, Shanghai and Shenzhen stock markets ended their months-long downturn.

Hong Kong stocks closed with the biggest one-day gain of 4 per cent in more than half a year, while Shanghai stocks rose 3.23 per cent, the biggest one-day gain in almost two years.

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Hong Kong’s Exchange Fund posted the fourth-best year in 2023, with an annual investment income of HK$212.7bn ($27.2bn), according to the HKMA’s announcement in late January.

Yue described the investment performance as “experiencing ups and downs but recorded a good return overall”.

The Exchange Fund’s bond investment income reached a record high of HK$144bn, while equity investment income was only HK$57.7bn, with Hong Kong equities recording a loss of HK$15.5bn.

*Ignites Asia is a news service published by FT Specialist for professionals working in the asset management industry. Trials and subscriptions are available at ignitesasia.com.