Govt incurs 3.4 pct loss of financial reserves’ investment last year

2023-02-23 02:49     BY Tony Wong    Comment:0

The local government recorded a loss of 20.75 billion patacas last year from investing its financial reserves, representing an annual negative return of 3.4 percent, the Macau Monetary Authority (AMCM) announced in a statement yesterday.

At the end of last year, according to the statement, the Macau Special Administrative Region’s (MSAR) financial reserves stood at 557.97 billion patacas, consisting of basic reserves of 185.13 billion patacas and extraordinary reserves of 372.84 billion patacas.

According to the law on the MSAR’s financial reserves, the reserves consist of basic and extraordinary reserves. According to the law, the Macau Monetary Authority – the city’s quasi-central bank – is responsible for the management of the MSAR’s financial reserves, as well as for investing the financial reserves.

The statement attributed last year’s investment loss to a number of factors, such as geopolitical crisis, the disruption to the global supply chain resulting from the COVID-19 pandemic, and interest rate hikes by major central banks worldwide.

However, the statement underlined that the loss rate of 3.4 percent last year still outperformed last year’s average benchmark performance of the global investment market.

The statement also underlined that the MSAR’s financial reserves recorded investment gains of a total of 95.18 billion patacas during the previous five years between 2017 and 2021.

The statement said that last year’s global financial market was hit by a rare phenomenon that had not occurred over the past several decades, where the stock market and the bond market simultaneously recorded significant levels of negative returns.

The statement said that AMCM officials implemented a number of measures with the aim of minimising last year’s investment loss of the MSAR’s financial reserves resulting from last year’s negative performance of the global stock and bond markets, such as using hedging tools.

According to the statement, the MSAR’s financial reserves also incurred a loss from its investment in foreign exchange last year, because of the depreciation of various currencies including renminbi (aka yuan) resulting from last year’s strong US dollar.

In contrast, the MSAR’s financial reserves recorded an investment gain from the money market (interest gained from savings) last year thanks to an increase in the interest rates for the Hong Kong dollar and US dollar. The interest gained from the money market last year by the financial reserves’ investment was significantly higher than in 2021, the statement said.

2023 prospects

The statement noted that international financial and monetary agencies have predicted that the global economic growth would continue to slow down this year. In addition, major central banks in the world are expected to continue with their contractionary monetary policies this year as the globe’s current inflation still remains at a relatively high level, the statement said.

Furthermore, there is no sign that the ongoing geopolitical crisis would be alleviated in the near future, the statement said.

Because of these adverse factors, the statement said, the large fluctuation in financial asset prices may continue this year.

The statement said that the local government would continue to face “enormous” challenges in its investment in the MSAR’s financial reserves this year because of the predicament.

With the “complexity and dynamics” of the global financial market, the statement said, the local government’s investment in low-risk assets, namely the money market, will remain a relatively high ratio in the investment portfolio of the MSAR’s financial reserves this year. 

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