As of the end of the first half of 2017, total assets of the Macao SAR Fiscal Reserve stood at MOP478.1 billion approximately, composing the Basic Reserve of MOP128.0 billion and the Excess Reserve of MOP350.1 billion.  During the first two quarters of 2017, the Fiscal Reserve continued to be managed under a prudent and effective strategy and recorded an investment income of MOP10.1 billion, representing an annualized rate of return of 4.4%.

In the first half of 2017, asset allocation of the Fiscal Reserve continued to include global bonds (around 31.5%), global equities (around 13.1%) and money market instruments (around 55.4%), with detailed breakdown as shown in Table 1 below.  Currency exposure mainly included currencies such as the USD, HKD and Chinese Yuan.

• Fixed income market – the US Federal Reserve interest rate hikes during the first and second quarter and the European Central Bank’s relatively positive assessment of improving economic performance brought unfavorable price performance in global bonds.  However, on a relative basis, bonds in the US and UK outperformed their European peers for the first six months.  China interbank bond market, nevertheless, lagged behind as monetary policies moved towards a more neutral stance in the onshore market.  Overall, the Fiscal Reserve’s investment in the fixed income markets brought a total income of MOP2.5 billion approximately for the first half of the year.

• Equity market – the Fiscal Reserve’s equity investment saw a satisfactory performance in the first half of 2017.  Improvement in the US economy coupled with a reduction in political risks in the Eurozone helped fuel a significant rally in global developed market equities.  Global emerging market equities performed strongly in the period and became the best sector amongst the Fiscal Reserve’s equity investment.  China’s A share market also picked up during the period under review.  Benefiting from a well-balanced allocation, overall performance of the Fiscal Reserve’s equity investment was in line with major global market indices, recording a total income of MOP6.0 billion approximately for the first half of the year.

• Money market – the two rate hikes by the US Federal Reserve in the first half helped improve USD money market rates.  The Fiscal Reserve determined placement activities taking into account specific interest rate levels.  For the first half of the year, money market placements generated an income of MOP1.9 billion for the Fiscal Reserve.

• Foreign exchange market – the USD strength faded from the beginning of this year and the USD depreciated against most of the major currencies.  From the second quarter onwards, hawkish changes in certain major central banks’ policy tone set market expectation of a narrowing interest rate differential advantage of the USD and the USD saw further weakness.  During the period, the Fiscal Reserve timely adjusted its currency allocation and hedge ratio, resulting in a sharply lower revaluation loss of MOP0.3 billion from the portfolio’s currency position after taking into account the hedging costs.

For the first half of 2017, as demonstrated in Table 2, the Fiscal Reserve recorded a total investment income of around MOP10.1 billion, equivalent to an annualized return rate of 4.4%.  Equity investment by the Fiscal Reserve, regarded as carrying higher market risk, generated a satisfactory performance as global equity markets rallied.  Equity investment thus became the largest income source for the Fiscal Reserve for the period.  At the same time, investment in the traditionally more stable fixed income market and money market generated a steady income stream, while the operating result in foreign exchange market incurred a small loss, as dragged by the related hedging costs.

Monetary Authority of Macao

1 August 2017