The global financial crisis took place almost ten years ago. As the bull market enters it tenth year, accompanied by a synchronised global recovery, while geopolitical uncertainties mount, FSA ponders the events of 2008, using historical data.
The financial crisis triggered by the collapse of a housing bubble in the US resulted in a liquidity crisis and a failure of several financial institutions.
Most investment sectors were subsequently impacted, with fixed income suffering as well as equities.
FSA decided to take a look at performance of fixed income mutual funds authorised for sale in Hong Kong in 2008, using data from FE. Did any one sector do well during the steepest plunge of the S&P, from July 1, 2008 – April 1, 2009?
The result is a surprise. While most fixed income fund categories suffered significant losses in the aftermath of the collapse, only one category posted gains throughout the period: Domestic Hong Kong-dollar fixed income funds.
This is possibly because the Hong Kong government, which typically runs a budget surplus, took an active role in mitigating the effects of the crisis.
Yang Zhang wrote in East Asian Policy, a quarterly journal of the East Asian Institute, National University of Singapore:
“Soon after the outbreak of the financial crisis, two pre-emptive measures were announced in October 2008 by the Financial Secretary. One is to use the Exchange Fund to guarantee repayment of all deposits held with authorised institutions in Hong Kong. Two is the establishment of a Contingent Bank Capital Facility to provide additional capital to locally incorporated banks when necessary. These measures helped stabilise Hong Kong’s financial system.”
