The Monetary Authority of Macau (AMCM) is expecting that a hike in US interest rates will ‘substantially affect’ the revaluation of the city’s fiscal reserve that last year amounted to almost MOP250 billion. Macau’s central bank is aiming to strengthen its investment in equities this year and estimates that China will follow the majority of central banks around the world and lower its interest rates. In a report published last week, AMCM said it expects a rise in the US interest rate this year, a movement that will have an impact on economic and financial policies in the biggest countries in the world and bring back volatility to global bond markets, exchange rates and stock markets. For Macau, the FED – US central bank – move will have a direct impact, as the local currency is pegged to the US dollar through the Hong Kong dollar. And also, because 47 per cent of the city’s fiscal reserve is allocated to bonds, the majority denominated in US dollars and renminbi. AMCM says these factors ‘could substantially’ affect the short term revaluation results of the fiscal reserve. ‘Against this backdrop, the AMCM will closely track market developments and aim to safely and effectively implement dynamic portfolio allocations based on an overall appropriate risk level. In particular, the Fiscal Reserve will make use of market opportunities to further strengthen the portfolio’s weighting on the equity sector’. The institution is willing to diversify its investment in order to compensate for the expected turbulence following the US interest hike in stocks, bonds and currency values with one of the strategies being to invest more in equities. Regarding the renminbi, AMCM predicts that People’s Bank of China will follow major central banks that are cutting interest rates in order to stimulate their economies. AMCM assured that it would follow developments ‘closely and execute necessary hedging strategy, and adjust appropriately the ultimate asset allocation in renminbi based on risk and return consideration, thus ensuring the safety of funds invested while at the same time pursuing a steady medium to long term rate of return’. Last year, the total size of the fiscal reserve amounted to MOP246.34 billion, with MOP116.46 billion allocated to the Basic Reserve and MOP129.88 billion to the Excess Reserve. The investment in bonds represented almost half of it (47 per cent) in December, of which US dollar and renminbi denominated bonds were the major components. The total income generated from bond investments amounted to MOP3.65 billion and continued to be the greatest source of income for the fiscal reserve, the report said. The return rate last year was 3.3 per cent compared to 2.2 per cent in 2013. In a separate report, AMCM announced that the official reserves assets had increased 8.3 per cent in February from a year ago to MOP133.9 billion. Since December of last year, the reserves increased by MOP2.5 billion.
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