The Monetary Authority said on Friday the Exchange Fund returned to black last year, following a record loss in 2022.

The fund, which is used to defend the Hong Kong dollar, posted an investment income of HK$212.7 billion in 2023, its fourth-best performance ever.

That's due in part to a record HK$144 billion gain from investments in bonds as a result of higher interest income on short-term bonds, along with rising yields.

The fund lost HK$15.5 billion in local equities, but that was offset by HK$73.2 billion in gains in other stocks.

Its foreign exchange assets posted an investment loss of HK$0.5 billion.

The overall investment return stood at 5.2 percent last year.

In 2022, the Exchange Fund suffered a record loss of HK$205.4 billion.

The Monetary Authority’s chief executive Eddie Yue said the fund did very well last year amid a complex and uncertain investment environment.

As for the 2024 outlook, he said it remains challenging due to geopolitical risks as well as uncertainty about interest rates.

“If the timing and pace of interest rate cuts fall short of market expectations, we may see heightened volatility and corrections in asset prices. In addition, the impact of rate hikes on the global real economy is becoming more visible, with corporate earnings and macroeconomic growth starting to slow down,” Yue said.

“Escalation of tensions and situations like the Russia-Ukraine war or the conflicts in the Middle East and Red Sea... these all could have a substantial impact on the global economy."