The Exchange Fund recorded an investment income of HK$67.2 billion in the first quarter, reversing a loss from the previous three months.

The fund backing the local currency was boosted in part by rallies in local stocks in the January-March period, as investment interests surged over mainland stocks following AI firm DeepSeek's release of its cost-efficient AI models.

The gains compared with an investment loss of HK$20.3 billion in the fourth quarter of 2024 and represented a 7.8 percent increase year on year.

Announcing the Exchange Fund's performance on Tuesday, Hong Kong Monetary Authority (HKMA) chief executive Eddie Yue said the authorities have in recent years reduced the holdings of US dollar assets, diversifying the fund's investment portfolio.

Speaking in a Legislative Council panel meeting, Yue said while the dominance of the greenback as a reserve currency will not change in the short term, the HKMA has been gradually diversifying its investments to minimise risks.

"The investment portfolio is highly diversified, and it not only includes US dollar bonds or US dollar assets, but also many other assets," he said.

"At the end of last year, our annual report showed that the holding of our US dollar assets stood at about 79 percent in our two investment portfolios, compared with more than 90 percent a few years ago. So we have gradually diversified our investment portfolio into non-US dollar assets, including renminbi, the euro, the Japanese yen, the British pound, etc."

Looking ahead, Yue expects the Exchange Fund to face greater uncertainties for the rest of the year due to the tariffs announced by US President Donald Trump.

Meanwhile, Yue said the Hong Kong dollar could strengthen further in the coming months due to high demand.

He said the appreciation will depend on several factors, including upcoming IPO activities, stock dividends and reduced carry trade activities, an arbitrage whereby investors borrow low-yielding currencies to buy high-yielding currencies.

The HKMA has intervened in the currency market in recent days to stop the Hong Kong dollar from breaching the upper end of its trading range.

Yue said the city's currency market continues to operate in a smooth and orderly manner.