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2002 Exchange Fund Results

2002 Exchange Fund Results. Press Conference 16 January 2003. The Markets in 2002. Overall trend : Economic recovery decelerated in 2H 2002 which gave rise to deflationary concerns Geopolitical tensions intensified Corporate governance came under severe scrutiny Market response :

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2002 Exchange Fund Results

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  1. 2002 Exchange Fund Results Press Conference 16 January 2003

  2. The Markets in 2002 • Overall trend: • Economic recovery decelerated in 2H 2002 which gave rise to deflationary concerns • Geopolitical tensions intensified • Corporate governance came under severe scrutiny • Market response: • Bond markets rallied • Major equity markets fell for the third consecutive year • the euro and the yen rose against the US dollar

  3. Exchange Fund Performance 2002 2001 2000 (HK$ billion) Gain / (Loss) on HK equities* (11.8) (27.1) (7.3) Gain / (Loss) on other equities* (22.8) (3.3) 0.5 Exchange gain / (loss) 27.3 (13.0) (11.2) Total return from bonds, etc54.350.863.1 Investment income 47.0 7.4 45.1 * including dividends

  4. Exchange FundPerformance against Investment Benchmark * Preliminary, unaudited figures for 2002

  5. 8% 6% 4.8% ¨ ¨ 4% 2% 0.7% ¨ ¨ 0% -2% -4% -6% 1st Quartile -8% 2nd Quartile 3rd Quartile 4th Quartile -10% 2000 2001 2002 Investment Performance of Exchange Fund and Comparable Balanced Funds ¨ 5.1%  Exchange Fund Balanced Funds with 20% - 30% Equity Component Source: Watson Wyatt and Standard & Poor’s

  6. Exchange FundHistorical Return # HK CPI-A as of end-November 2002

  7. Exchange FundAbridged Balance Sheet (HK$ billion) 2002 2001 Change ASSETS Deposits 51.2 99.2 (48.0) Debt securities 764.5 732.7 31.8 Hong Kong equities 50.9 85.9 (35.0) Other equities 63.2 35.3 27.9 Other assets 25.326.0(0.7) Total assets 955.1 979.1 (24.0) LIABILITIES AND ACCUMULATED SURPLUS Certificates of Indebtedness 118.5 107.5 11.0 Government-issued currency notes & coins in circulation5.9 5.7 0.2 Balance of banking system 0.5 0.7 (0.2) Exchange Fund Bills and Notes 122.9 118.1 4.8 Placements by other HKSAR government funds 301.7 380.6 (78.9) Other liabilities 78.363.914.4 Total liabilities 627.8 676.5 (48.7) Accumulated surplus 327.3302.624.7 Total liabilities and accumulated surplus 955.1 979.1 (24.0)

  8. I 2002 I 2001 (HK$ billion) Full year Q1 Q2 Q3 Q4 Full year Investment income/(loss) 47.0 (3.7) 26.5 (2.1) 26.3 7.4 Other income 0.2 0.0 0.1 0.0 0.1 0.2 Interest and expenses(6.8) (1.6)(1.7)(1.7) (1.8) (10.5) Net investment income/(loss) 40.4 (5.3) 24.9 (3.8) 24.6 (2.9) Treasury’s share(15.7)1.6(9.7)0.8 (8.4) (1.6) Increase/(Decrease) in EF accumulated surplus 24.7 (3.7) 15.2 (3.0) 16.2 (4.5) Exchange FundChange in Accumulated Surplus

  9. Exchange FundHong Kong Equity Portfolio (HK$ billion) Cost of shares purchased in August 1998 118.1 Shares transferred from Land Fund (November 1998) 9.0 Proceeds from disposal of Hong Kong stocks Initial public offering of TraHK 33.3 Tap facility (Q4 1999 - Q4 2002) 107.1 140.4 Dividend and other income 24.8 Total disposal and other income 165.2 Long-term Hong Kong equity portfolio (at 31 December 2002) 50.9* * about 5.3% of the total assets of the Exchange Fund at end Dec 2002

  10. Prospects for 2003 • Strength of economic recovery uncertain • Interest rates near historic lows - limited room to fall further • Geopolitical tensions persist

  11. 2002 Exchange Fund Results Press Conference 16 January 2003

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