What are the key risks?

Investment involves risks. Please refer to the Prospectus for details including the risk factors.

1. General Investment risk

• The Sub-Fund’s investment portfolio may fall in value due to any of the key risk factors below and therefore your investment in the Sub-Fund may suffer losses. There is no guarantee of repayment of principal.

2. Risks associated with debt securities

Interest rate risk

• Investment in debt securities by the Sub-Fund is subject to interest rate risk. In general, the prices of debt securities rise when interest rates fall, whilst their prices fall when interest rates rise.

Credit / Counterparty risk

• The Sub-Fund is exposed to the credit/default risk of issuers of the debt securities that the Sub-Fund may invest in.

Downgrading risk

• The credit rating of a debt security or its issuer or its guarantor may subsequently be downgraded. In the event of such downgrading, the value of the Sub-Fund may be adversely affected. The Manager may or may not be able to dispose of the debt securities that are being degraded.

Credit rating risk

• Credit ratings assigned by rating agencies are subject to limitations and do not guarantee the creditworthiness of the security and/or issuer at all times.

Credit rating agency risk

• The credit appraisal system in Mainland China and the rating methodologies employed in the Mainland China may be different from those employed in other markets. Credit ratings given by Mainland China rating agencies may therefore not be directly comparable with those given by other international rating agencies.

Sovereign debt risk

• The Sub-Fund’s investments in debt securities issued or guaranteed by government may be exposed to political, social and economic risks. In adverse situations, the sovereign issuers may not be able or willing to repay the principal and/or interest when due or may request the Sub-Fund to participate in restructuring such debts. The Sub-Fund may suffer significant losses when there is a default of sovereign debt issuers.

Valuation risk

• Valuation of the Sub-Fund’s investments may involve uncertainties and judgmental determinations. If such valuation turns out to be incorrect, this may affect the net asset value calculation of the Sub-Fund.

Volatility and liquidity risk

• The markets of debt securities in which the Sub-Fund invests (e.g. emerging markets) may be subject to higher volatility and lower liquidity compared to more developed markets. The prices of such securities may be subject to fluctuations. The bid and offer spreads of the price of such securities may be large and the Sub-Fund may incur significant trading costs.

3. Risks associated with LAP

• The Sub-Fund may invest in LAP (e.g., CoCos, senior non-preferred debts, etc.). These instruments are subject to greater risks when compared to traditional debt securities as such instruments are typically subject to the risk of being written down or converted to ordinary shares upon the occurrence of a pre-defined trigger event (e.g. when the issuer is near or at the point of non-viability or when the issuer’s capital ratio falls to a specified level), which are likely to be outside of the issuer’s control. Such trigger events are complex and difficult to predict and can result in a significant or total reduction in the value of such instruments. In the event of the activation of a trigger, there may be potential price contagion and volatility to the entire asset class. Debt securities with LAP may also be exposed to liquidity, valuation and sector concentration risk.

• The Sub-Fund may invest in CoCos which are highly complex and are of high risk. Upon the occurrence of a trigger event, CoCos may be converted into shares of the issuer (potentially at a discounted price), or may be subject to the permanent write-down to zero. Coupon payments on CoCos are discretionary and may be cancelled by the issuer at any point, for any reason, and for any length of time.

• The Sub-Fund may invest in senior non-preferred debts. While these instruments are generally senior to subordinated debts, they may be subject to write-down upon the occurrence of a trigger event and will no longer fall under the creditor ranking hierarchy of the issuer. This may result in total loss of principal invested.

4. Risks relating to investment in derivatives

• Risks associated with derivatives include counterparty/credit risk, liquidity risk, valuation risk, volatility risk and over-the-counter transaction risk. The leverage element/component of derivatives can result in a loss significantly greater than the amount invested in the derivatives by the Sub-Fund. Exposure to derivatives may lead to a high risk of significant loss by the Sub-Fund.

5. Concentration risk

• The Sub-Fund’s investments may be concentrated in debt securities issued by entities exercising a predominant part of their economic activities in a single country or region. The value of the Sub-Fund may be more susceptible to adverse economic, political, policy, foreign exchange, liquidity, tax, legal or regulatory event affecting such country or region. In this case, the value of the Sub-Fund may be more volatile than that of a fund having a more diverse portfolio of investments.

6. Emerging markets risk

• The Sub-Fund may invest in emerging markets which may involve increased risks and special considerations not typically associated with investment in more developed markets, such as liquidity risks, currency risks/control, political and economic uncertainties, legal and taxation risks, settlement risks, custody risk and the likelihood of a high degree of volatility.

7. Currency risk

• The underlying investments of the Sub-Fund may be denominated in currencies other than the base currency of the Sub-Fund. Also, a class of units of the Sub-Fund may be designated in a currency other than the base currency of the Sub-Fund. The net asset value of the Sub-Fund may be affected unfavourably by fluctuations in the exchange rates between these currencies and the base currency and by changes in exchange rate controls.

8. RMB currency and conversion risk associated with RMB-denominated unit classes

• As regards RMB-denominated unit classes of the Sub-Fund, non-RMB based investors investing in such classes are exposed to foreign exchange risk and there is no guarantee that the value of RMB against the investors’ home currencies will not depreciate. Any depreciation of RMB could adversely affect the value of investor’s investment in the Sub-Fund.

• RMB is currently not freely convertible and is subject to exchange controls and restrictions. Under exceptional circumstances, payment of redemptions and/or dividend payment in RMB may be delayed due to the exchange controls and restrictions applicable to RMB.

• The unit classes denominated in RMB may be valued with reference to the offshore RMB (known as “CNH”) rather than onshore RMB (known as “CNY”). Although CNH and CNY are the same currency, they are traded in different and separate markets which operate independently. As such, CNH does not necessarily have the same exchange rate and may not move in the same direction as CNY. Any divergence between CNH and CNY may adversely impact investors.

9.Risks associated with distribution of dividends out of and/or effectively out of capital

• Payment of dividends out of capital and/or effectively out of capital amounts to a return or withdrawal of part of an investor’s original investment or from any capital gains attributable to that original investment. Any such distributions may result in an immediate reduction of the net asset value per share.

• The distribution amount and net asset value of the currency hedged unit classes may be adversely affected by the differences in the interest rates of the reference currency of the currency hedged unit class and the Sub-Fund’s base currency, resulting in an increase in the amount of distribution that is paid out of capital and hence a greater erosion of capital than other non-currency hedged unit classes.