May 6, 2019 / 5:26 AM / 19 days ago

UPDATE 1-HK Exchange Fund Q1 investment income more than triples

* Investment income in Q1 leaps 245 pct y/y

* HKMA chief suggests looking at returns on mid to long-term basis

* Cites risk of escalation in U.S.-China trade dispute (Adds comment from HKMA chief)

HONG KONG, May 6 (Reuters) - Hong Kong’s Exchange Fund, which is used to back the Hong Kong dollar, posted a more than three-fold jump in investment income in the first quarter of 2019 due to gains in equities, bonds and currencies.

Investment income rose 245.4 percent from a year earlier to HK$120.9 billion ($15.41 billion) in the first quarter, the Hong Kong Monetary Authority (HKMA) said on Monday. That compared with a HK$35.0 billion investment gain in the same period a year earlier, and an adjusted HK$33.6 billion investment loss in the fourth quarter of 2018.

Despite the strong results for the exchange fund, HKMA’s chief executive Norman Chan suggested that the fund’s performance should be judged on a medium to longer-term basis as short-term results are highly volatile by nature.

A further escalation of the trade conflict between China and the United States could pose a risk to financial markets, Chan said.

On Sunday, U.S. President Donald Trump dramatically increased pressure on China to reach a trade deal, saying he would hike U.S. tariffs on $200 billion worth of Chinese goods this week and target hundreds of billions more soon.

“If the two sides fail to reach a settlement, then the market reaction will be strong,” Chan said. “If that’s the case, that will affect global markets, including the stock market. As a result, the exchange fund returns in the near term - the second or third quarter - will be affected.”

In 2018, the exchange fund recorded adjusted investment income of HK$10.9 billion, a 95.9 percent drop from 2017.

The HKMA is the key manager of the Exchange Fund, which is under the control of the financial secretary and invests in equities, bonds, foreign exchange and other securities and assets.

$1 = 7.8452 Hong Kong dollars Reporting by Twinnie Siu; Editing by Jacqueline Wong

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