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Assets fall on Y2K unwinding

Source: South China Morning Post Publication date: 2000-08-01

Assets in the Exchange Fund shrank by HK$48 billion, or 4.7 per cent, in the first half of the year, due largely to the unwinding of Y2K-related contingency arrangements, according to the Hong Kong Monetary Authority. The Exchange Fund, which backs the Hong Kong dollar and is managed by the authority, stood at HK$966.4 billion as of June 30, down from HK$1.01 trillion recorded at the end of last year.

About 60 per cent of the fund's drop, or HK$28.7 billion, was due to the reversing of contingencies made in anticipation of millennium- related computer problems.

Bank notes worth HK$22.1 billion were withdrawn from circulation, and extra liquidity worth HK$6.6 billion was withdrawn from banks' clearing accounts with the authority.

The rest of the decline was due to a reduction in holdings belonging to other statutory bodies, payment of bank borrowings and a drop in the value of the fund's equity portfolio.

Placements by other statutory bodies and the fund's bank borrowings declined by HK$16.1 billion.

Some statutory bodies, such as the Hong Kong Mortgage Corp, place money in the fund so the authority can manage it for them. Bank borrowings were repaid by disposing of listed equities through the Tap Facility of the Tracker Fund.

The remaining drop in the fund's assets was due to a HK$5.4 billion decrease in its accumulated surplus, which stood at HK$285.9 billion as of the end of June. The surplus shrank because the fund's equity portfolio suffered a HK$24 billion evaluation loss.

Authority chief executive Joseph Yam Chi-kwong attributed the declining value of the fund's stock holdings to "very high volatility in international financial markets".

To highlight the extent of that volatility, Mr Yam said the first- half evaluation loss was largely recouped in the first three weeks of last month as the Hang Seng Index rallied by more than 1,000 points.

However, it reappeared when the benchmark dropped about 780 points in the final three trading days of the month.

"Until the outlook for interest rates becomes clearer the investment environment will remain uncertain, and we can expect to see more ups and downs of this kind," he said.

-- (, August 01, 2000

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