HKMA head warns of difficult quarter for Exchange Fund amid market volatility
Hong Kong Monetary Authority chief Eddie Yue expects a tough quarter for the Exchange Fund due to market uncertainty. He noted reduced US dollar exposure and shorter bond maturities to buffer against rate rises, while watching Middle East tensions, US midterm elections and AI sector risks.
Eddie Yue, the chief executive of the Hong Kong Monetary Authority (HKMA), has warned that the Exchange Fund will likely face a difficult quarter due to persistent market uncertainty. Speaking on 6 November, Yue said the investment landscape is highly volatile and that the fund's performance must be assessed from a long-term perspective, with a focus on diversified asset allocation across regions and currencies.
Yue said the fund has gradually reduced its exposure to US dollar assets since the end of last year, while increasing allocations to other assets to strengthen the portfolio's defensive capability. He added that the fund has strategically adjusted its liquidity management, including by further shortening the duration of its bond holdings. This move, he said, should help limit the impact on the portfolio even if market bond yields rise further, with losses offset by other asset classes.
The HKMA chief pointed to ongoing changes in the Middle East and said the authority is closely monitoring whether the US midterm elections will lead to a policy shift. Yue said such changes would directly affect energy prices, inflation and interest rates, and in turn influence the performance of stock and bond markets. He also highlighted the need to watch the fiscal situation in European and US countries and its impact on markets.
Yue noted that the US midterm elections have drawn attention to whether the development of artificial intelligence (AI) and data centres will slow down, causing major stock market fluctuations. He also expressed concern about whether corporate revenues can support the huge spending on AI, which could lead to credit problems. Yue concluded that market performance is expected to remain volatile in the current quarter.