Investment Management Review of the Macao SAR Fiscal Reserve for the first quarter of 2016

Following the approval by the Legislative Assembly of the 2014 government budget balance, MOP90.29 billion was transferred to Macao SAR’s Fiscal Reserve during February 2016 in accordance with the prescribed law. At the end of March 2016, the total amount of the SAR’s Fiscal Reserve recorded a quarterly increase of 26% to MOP436.01 billion (preliminary figure), which comprised MOP132.82 billion as the Basic Reserve and MOP303.19 billion as the Excess Reserve. As of the end of March 2016, the investment portfolio of the Fiscal Reserve was composed of global exposures to fixed-income, equity and money markets, while currency allocation mainly covered the USD, HKD and CNH/CNY. For the first quarter of 2016, the investment return of the Fiscal Reserve was MOP0.62 billion, representing an annualised rate of return of 0.6%. The quarterly performances of the investments in individual financial markets are summarised as follows: 1. The fixed-income market, with proven credit quality of assets in the corresponding portfolio and support for bond prices by lower expectation for US rate hike and sufficient supply of global liquidity, recorded an income of about MOP0.60 billion in the first quarter. Fixed-income investments continued to be one of the main sources of income for the Fiscal Reserve. 2. Money market placements, in line with the transfer of 2014 government budget surplus to the Fiscal Reserve by law within the period, were deployed into proper tenors in a timely manner. The quarterly interest income was about MOP0.58 billion. 3. Equity markets experienced large volatility in the first quarter with a plunge followed by a significant rebound. Along with a stabilising global market, equity investments in the Fiscal Reserve have recovered a majority of the loss in the earlier period of the quarter. At the end of March, the quarterly loss of the equity portfolio narrowed to MOP1.22 billion approximately. 4. Amongst the currency composition of the Fiscal Reserve, the USD weakened on expectations of the rate hike deferral by the US Federal Reserve. The CNY/CNH slightly strengthened due to positive effects of economic stabilisation measures implemented by the central government. The overall revaluation gain from currency exposures amounted to about MOP0.66 billion for the first quarter of 2016. For the first quarter of 2016, the currency exposure, fixed-income investment and interest income offered reasonable returns to the Fiscal Reserve, whereas the equity investment reported a loss in revaluation due to the recent downturn of global equity markets. As a result, the Fiscal Reserve ended the first quarter of 2016 with a total investment return of MOP0.62 billion approximately, representing an annualised rate of return of around 0.6% for the period. The AMCM will continue to strictly comply with the investment philosophy that emphasises safety, efficiency and prudence, according to the statutory requirements and policy functions of the Fiscal Reserve, with an objective to optimise the overall investment management of the Fiscal Reserve. *Annex Table