Hong Kong’s Exchange Fund earnings tumble 74% as HKMA warns of more market turbulence

The Hong Kong Exchange Fund's earnings plunged by 74% in the third quarter, with the fund reporting a loss of HK$18.6 billion (US$2.4 billion) due to market uncertainty, according to the Hong Kong Monetary Authority (HKMA). The fund's net earnings for the first nine months of 2026 fell 39.6% compared to the previous year, totaling HK$171.9 billion.

The fund's exposure to international equities resulted in a loss of HK$2.7 billion during the same period. The Hang Seng Index experienced a decline of over 9% in the first 10 months of the year, influenced by worries about interest rates and corporate earnings.

Eddie Yue Wai-man, the HKMA's chief executive, cautioned that the fourth quarter would present significant challenges for the Exchange Fund. He highlighted the market's volatility, attributing it to various global factors such as the Middle East situation, the US midterm elections, and potential shifts in policy that could impact energy prices, inflation, and interest rates. Yue emphasized the need for the fund to focus on long-term returns through proper asset allocation, including regional and currency diversification.

The HKMA had been gradually decreasing its US dollar asset allocation and increasing holdings of other assets to strengthen the portfolio's resilience. However, bond income dropped to HK$49.4 billion in the first nine months, a 56% decrease from the same period last year. Foreign currency translation gains climbed by 39% to HK$42 billion. The fund's exposure to overseas equities declined by 95.3% in the third quarter, contributing HK$1.5 billion to earnings for the first nine months.