The Exchange Fund has posted a record investment loss of HK$202.4 billion in 2022, and the Hong Kong Monetary Authority said the financial markets will continue to face challenges this year.
The Monetary Authority, which manages the fund that backs the Hong Kong dollar, said investments in stocks, foreign exchange and bonds were all in the red last year.
Stock investments posted a loss of HK$80.7 billion; bonds were in the red for HK$53.3 billion; a loss of HK$40.1 billion was recorded for foreign exchange investments; and losses on other investments totalled HK$28.3 billion.
The Exchange Fund recorded a negative investment return of 4.4 percent in 2022.
The fund did perform better towards the end of the year, posting an investment gain of HK$76.4 billion in the fourth quarter, offsetting some of the losses for the entire year.
The Monetary Authority's chief executive, Eddie Yue, described 2022 as a difficult and unusual year, saying the war in Ukraine and the Covid situation were unforeseeable.
He added that worsening inflation and changes to the US monetary policy also led to market volatility.
But Yue said the Exchange Fund still outperformed many other mixed-asset funds.
Looking ahead, he said financial markets will continue to face significant uncertainties this year, and asset prices are expected to remain volatile.
"The monetary policies of major central banks, including the peak policy rates they set, will continue to dominate the investment outlook. The path of inflation will be key to these developments," he said.
"The continued tightening of monetary policy has posed headwinds to global economic growth... Lingering geopolitical tensions may further impact global economic growth and heighten risk-off sentiments in the markets."
But Yue said the mainland economy may rebound strongly now that Covid measures have been eased.
Simon Lee, an honorary fellow at the Chinese University's Asia-Pacific Institute of Business, said he expects the Exchange Fund to do better in 2023, but made it clear uncertainties remain.
"I think this year the performance will be better, a bit better... but the geopolitical situation is still quite volatile, and how China deals with the economic recovery is also a question mark.
"Definitely we won't see a very sharp or very frequent increase in (US) interest rates, it'll be more stable, but there'll still be more volatility than what we see in previous years."