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. Risk associated with debt securities rated below investment grade or unrated

• The Sub-Fund may invest up to 50% of its net asset value in debt securities (or its issuer) rated below investment grade (by Standard & Poor’s, Moody’s, Fitch or other internationally recognised credit rating agency) or unrated. Such securities are generally subject to lower liquidity, higher volatility and greater risk of loss of principal and interest than high-rated debt securities.
• Investments in such securities may also be subject to greater credit risk. If the issuer of a security is in default with respect to interest or principal payments, the Sub-Fund may lose its entire investment.
• Adverse events or market conditions may have a larger negative impact on the prices of non-investment grade or unrated debt securities than on higher-rated debt securities. For example, during economic downturns, such debt securities typically fall more in value than investment grade debt securities as investors become more risk averse and default risk rises. Such debt securities in emerging markets may also be subject to higher volatility and lower liquidity compared to debt securities in more developed markets.

3. Risks associated with debt securities

Interest rate risk

• Investment in the Sub-Fund is subject to interest rate risk. In general, the prices of debt securities rise when interest rates falls, 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 instruments or its issuer 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 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.

“Dim Sum” bond (i.e. bonds issued outside of Mainland China but denominated in offshore RMB (CNH)) market risks

• The “Dim Sum” bond markets is still a relatively small market which is more susceptible to volatility and illiquidity. The operation of the “Dim Sum” bond market as well as new issuances could be disrupted causing a fall in the net asset value of the Sub-Fund should there be any promulgation of new rules which limit or restrict the ability of issuers to raise RMB by way of bond issuances and/or reversal or suspension of the liberalisation of the offshore RMB (CNH) market by the relevant regulator(s).

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.

4. Concentration risk

• The Sub-Fund’s investment are concentrated in debt securities issued by entities exercising a predominant part of their economic activities in Mainland China. The value of the Sub-Fund may be more susceptible to adverse economic, political, policy, foreign exchange, liquidity, tax, legal or regulatory event affecting the Mainland China markets. Also, the value of the Sub-Fund may be more volatile than that of a fund having a more diverse portfolio of investments.

5. Risk of investing in Mainland China markets

• Investing in emerging markets, such as Mainland China markets, involves 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.

6. Risks associated with CIBM and Bond Connect

• Investing in the CIBM under the Foreign Access Regime and/or Bond Connect is subject to regulatory risks and various risks such as volatility risk, liquidity risk, settlement and counterparty risk as well as other risk factors typically applicable to debt securities. The relevant rules and regulations are subject to change which may be potential retrospective effect.

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 shares 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

• The Sub-Fund may invest significantly in RMB-denominated investments. Non-RMB based investors are exposed to foreign exchange risk and there is no guarantee that the value of RMB against the investors’ base currencies (e.g. USD or HKD) will not depreciate. Any depreciation of RMB could adversely affect the value of investor’s investment in the Sub-Fund.
• The Sub-Fund’s investment in RMB-denominated investments and the share classes denominated in RMB may be valued with reference to the offshore RMB (CNH) rather than onshore RMB (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.
• 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.

9. Risks relating to sale and repurchase transactions

• The Sub-Fund may engage in sale and repurchase transactions where the Sub-Fund sells its securities (i.e. in effect, the collateral placed out by the Sub-Fund for the transactions) to a counterparty and agrees to buy such securities back at an agreed price with a financing cost in the future. In the event of the failure of the counterparty with which collateral has been placed, the Sub-Fund may suffer loss as there may be delays in recovering collateral placed out or the cash originally received may be less than the collateral placed with the counterparty due to inaccurate pricing of the collateral or market movements.

10. Risks relating to reverse repurchase transactions

• The Sub-Fund may engage in reverse repurchase transactions where the Sub-Fund purchases securities (i.e. in effect, the collateral received by the Sub-Fund for the transactions) from a counterparty and agrees to sell such securities back at an agreed price in the future. In the event of the failure of the counterparty with which cash has been placed, the Sub-Fund may suffer loss as there may be delay in recovering cash placed out or difficulty in realising collateral or proceeds from the sale of the collateral may be less than the cash placed with the counterparty due to inaccurate pricing of the collateral or market movements.

11. 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 investments. Any such distributions may result in an immediate reduction of the net asset value per share.