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First loss for HK exchange fund

HONG Kong's Exchange Fund, used to defend the city's currency peg with the United States dollar, posted its first annual investment loss since records began in 1994 because of the slump in global equities.

The fund lost HK$74.9 billion (US$9.7 billion) in 2008, Joseph Yam, chief executive of the Hong Kong Monetary Authority, said yesterday. It gained a record HK$142.2 billion in 2007.

Last year "was a very bad year as we encountered the financial tsunami of the century," Yam said.

The Hang Seng Index, the city's benchmark stock gauge, tumbled 48 percent last year, as the credit crisis pummeled investor confidence, Bloomberg News said. The turmoil, sparked by a slump in US housing, dragged the world's largest economies into recession and caused more than US$1 trillion of losses at financial institutions around the world.

The fund lost HK$77.9 billion on Hong Kong stocks in 2008, while the loss on other equities was HK$73.2 billion, Yam said. Bonds and other investments had a gain of HK$88.6 billion. "The global financial system remains unsettled," Yam said. "The second wave of the financial turmoil will probably be more contagious than when the crisis broke out in September, especially in emerging markets. We have a difficult year ahead."

The HKMA, Hong Kong's de facto central bank, buys and sells US dollars with money from the Exchange Fund to keep the city's currency stable. The Hong Kong dollar has been pegged to its US counterpart since 1983.


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