TNAG-2475-FCO40-3605-Hong-Kong-exchange-fund-report-and-accounts-for-1991-1992 — Page 85

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Mr Byens telsent

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MA's loz/s

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FROM: P F Ricketts, HKD DATE: 16 April 1992

Ложк

cc: Mr Broadbent with

Economic Advisers

Miss Brooks,

Legal Advisers

HONG KONG EXCHANGE FUND ORDINANCE: APPROVED INVESTMENTS

1.

Hong Kong telno 718 sought the Secretary of State's approval for a slight broadening in the investment strategy of the Exchange Fund. The Exchange Fund already invests in foreign government bonds and shares of certain Hong Kong companies. The Exchange Fund Advisory Committee havé recently suggested that a proportion of the Fund should also be invested in US equities.

2.

The

We consulted the Bank of England and the Treasury. Neither had any problem of principle with this proposal. Bank of England wondered about the timing, particularly in the light of their recent report on the Exchange Fund operations, which suggested that the Exchange Fund Office were short of staff and systems to monitor investments of the Fund. We reflected these points in our telno 552 to Hong Kong. Hong Kong's response (their telno 988) said that they did not believe that additional resources would be required to monitor what would be essentially a passive form of investment in US equities. They hoped to receive the Secretary of State's agreement to the principle of expanding the Exchange Fund's investment strategy in this way, and undertook to discuss with the Advisory Committee our cautionary noises about timing.

3.

Our

We have looked into the question of whether the Secretary of State's personal agreement is necessary. Legal Adviser tells us that it is not. The last time in which the Secretary of State's approval was given for an expansion of the investment policy of the Exchange Fund (in 1983), the decision was made at working level on the Secretary of State's behalf. On this occasion, the Bank of England and the Treasury are content with the principle. Hong Kong have undertaken to consider further our views on the question of timing of a move in this direction. I therefore believe that we can authorise this change without reference to Ministers.

4. I submit a draft telegram.

Kichetts

PF Ricketts

PATAHW

Aqued

TA?

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