As low as 0 %
Derivatives knowledge not required
iFund risk rating methodology is a qualitative and quantitative assessment of a single fund’s geographic and asset class focus, investment style and any potential risk factors, as measured from one (1) (lowest risk) to six (6) (highest risk). For the funds with risk rating five (5) or six (6), these are mainly aimed at providing capital appreciation to investors by investing primarily in single market equities, single industry equities or derivatives etc. For more details, please refer to the Due Diligence section under the Procedures page.
As low as 0 %
Derivatives knowledge not required
The investment objective of the Sub-Fund is to seek long-term capital appreciation through investing primarily (i.e. at least 70% of its non-cash assets) in equity securities that are either (a) traded in Hong Kong or China, or (b) issued by entities incorporated in China or entities which have significant operations in or assets in, or derive significant portion of revenue or profits from China. For the remaining assets, the Manager has the freedom to invest outside Sub-Fund’s principal geographies, market sectors, industries or asset classes.
Investment involves risks. Please refer to the Explanatory Memorandum for details including the risk factors.
1. Investment and market risk
The Sub-Fund is an investment fund. The Sub-Fund’s investment portfolio may fall in value and therefore your investment in the Sub-Fund may suffer losses.
2. Equity risk
The Sub-Fund invests directly or indirectly in equities and thus is subject to the risks generally associated with equity investment. Factors affecting the stock values include but not limited to changes in investment sentiment, political, economic and social environment and liquidity and volatility in the equity markets.
3. Concentration risk and risk of investing in China
The Sub-Fund’s investments are concentrated in China. This may result in greater volatility than portfolios which comprise broad-based global investments.
Investing in China involves a greater risk of loss than investing in more developed markets due to, among other factors, greater political, tax, economic, foreign exchange, liquidity and regulatory risks.
The Sub-Fund’s investments in equity interests of Chinese companies may include China BShares. As the number of these securities and their total market value are relatively small compared to more developed markets, investments in these securities may be subject to increased price volatility and lower liquidity.
The Chinese government’s control over currency conversion and movements in the Renminbi exchange rates may adversely affect the operations and financial results of Chinese companies.
Securities exchanges in China may suspend or limit trading in any security traded on the relevant exchange; a suspension will render it impossible to liquidate positions and can thereby expose the Sub-Fund to losses.
4. Risks associated with Stock Connects
The Stock Connects is a programme novel in nature. The relevant regulations are untested and subject to change. The programme is subject to different risks, including quota limitations (which may restrict the Sub-Fund’s ability to invest in China A-Shares), suspension in the trading through the Stock Connects, and certain restrictions on selling. Due to the differences in trading days, the Sub-Fund may be subject to a risk of price fluctuations in China A-Shares on a day that the PRC market is open for trading but the Hong Kong market is closed.
Trading in securities through the Stock Connects may be subject to clearing and settlement risk. Further, the Sub-Fund’s investments through the Stock Connects are not covered by the Hong Kong’s Investor Compensation Fund or the China Securities Investor Protection Fund (中國投資者保護基金) in the PRC.
5. China tax risk
By investing in China shares (including China A-, B- and H-Shares), Renminbi denominated corporate and government bonds, securities investment fund and warrants listed on China stock exchanges, the Sub-Fund may be subject to withholding and other taxes imposed in China.
6. Risk of equity linked securities
The Sub-Fund may invest in instruments which are linked to the performance of securities or indices such as equity linked notes or other similar instruments (“equity linked instruments”). Equity linked instruments may not be listed and are subject to the terms and conditions imposed by their issuer and the credit risk of their issuer, and these instruments can be illiquid as there may not be an active market. Furthermore, investment through equity linked instruments may lead to a dilution of performance of the Sub-Fund when compared to a fund investing directly in the underlying securities.
7. Currency risk
The Sub-Fund is denominated in US dollars although it may be invested in whole or in part in assets quoted in other currencies. The performance of the Sub-Fund will therefore be affected by movements in the exchange rate between the currencies in which the assets are held and US dollars. Where the class currency of a class of Units is different from the base currency of the Sub-Fund, Unitholders of such class of units are also subject to exchange rate risks between the two currencies.
8. Derivative risk
The Sub-Fund may invest in financial futures contracts and currency forward contracts. Investments in these instruments generally involve higher risks, which may result in a significant loss to the Sub-Fund. These risks include:
credit and counterparty risk, i.e. risk of default or insolvency of the issuer or counterparties of the instruments;
liquidity risk - if there is no active market for the instruments, in extreme market conditions, the Sub-Fund may have difficulty in selling the instruments or may be forced to sell at a substantial discount to market value;
volatility risk, i.e. risk of higher fluctuation in value of the instruments and thus that of the Sub-Fund.
9. Currency hedging risk
Currency hedged class units may be available in the Sub-Fund and are designated in currencies other than the Sub-Fund’s base currency. In such circumstances adverse exchange rate fluctuations between the base currency of the Sub-Fund and the class currency of the currency hedged class units may result in a decrease in return and/or loss of capital for unitholders. The Manager will try to mitigate this usually by hedging the foreign currency exposure of the currency hedged class units into the base currency of the relevant Sub-Fund or into the currency or currencies in which the assets of the relevant Sub-Fund are denominated. However, over-hedged or under-hedged positions may arise and there can be no assurance that these currency hedged class units will be hedged at all times or that the Manager will be successful in employing the hedge.
10. Risks associated with RMB class of units
Investors may invest in Class A RMB (Hedged) Units. It should be noted that the RMB is currently not a freely convertible currency as it is subject to foreign exchange control policies of the Chinese government. The Chinese government’s policies on exchange control and repatriation restrictions are subject to change, and the investors’ investment in the RMB class of units may be adversely affected.
There is also no assurance that the RMB will not be subject to devaluation. Any devaluation of the RMB could adversely affect the value of investors’ investments in the RMB class of units.
If investors are non RMB-based (e.g. Hong Kong) investors and convert other currencies into RMB so as to invest in the RMB class of units and subsequently convert the RMB realisation proceeds and/or dividend payment (if any) back into other currencies, they may incur currency conversion costs and may suffer a loss if RMB depreciates against such other currencies.
When calculating the value of the RMB class of units, reference to the CNH rate (i.e. the exchange rate for the offshore RMB market in Hong Kong) rather than the CNY rate (i.e. the exchange rate for the onshore RMB market) will be made and the value of the RMB class of units thus calculated will be affected by fluctuations in the CNH rate. While CNH and CNY represent the same currency, they are traded in different and separate markets which operate independently. As such, CNH does not necessary have the same exchange rate and may not move in the same direction as CNY.
In respect of the hedged RMB class of units, the Manager may attempt to hedge the base currency of the Sub-Fund and/or other currencies of non-RMB-denominated underlying investments of the Sub-Fund back to RMB. The costs of the hedging transactions will be reflected in the net asset value of the hedged RMB class of units and therefore, an investor of such hedged RMB class of units will have to bear the associated hedging costs, which may be significant depending on prevailing market conditions. If the counterparties of the instruments used for hedging purpose default, investors of the hedged RMB class of units may be exposed to RMB currency exchange risk on an unhedged basis and may therefore suffer further losses.
Furthermore, there is no guarantee that the hedging strategy will be effective and you may still be subject to the RMB currency exchange risk which may apply to the nonhedged RMB class.
Whilst the hedging strategy may protect investors against a decline in the value of the Sub-Fund’s base currency and/or other currencies of non-RMB-denominated underlying investments relative to RMB, investors will not benefit from any potential gain in the value of the hedged RMB class of units if the Sub-Fund’s base currency and/or other currencies of non-RMB-denominated underlying investments of the Sub-Fund rise against RMB.
The PRC government’s imposition of restrictions on the repatriation of RMB out of China may limit the depth of the RMB market outside the PRC and make it impossible for the Sub-Fund to hold sufficient amounts of RMB outside the PRC to meet realisation requests and/or pay dividends in RMB. In particular, the Sub-Fund may not be able to get sufficient amounts of RMB in a timely manner to meet realisation requests of the RMB class of units and/or pay dividends (if any) if all or a substantial portion of its underlying investments are non-RMB denominated.
Even if the Sub-Fund aims to pay realisation proceeds and/or dividends to investors of the RMB class of units in RMB, investors may not receive RMB upon realisation of their investments or receive dividend payments in RMB under extreme market conditions when there is not sufficient RMB for currency conversion. Under such circumstances, the Manager may pay realisation proceeds and/or dividends in USD. There is also a risk that payment of investors’ realisation proceeds and/or dividends in RMB may be delayed when there is not sufficient RMB for currency conversion for settlement of the realization proceeds and dividends. In any event, realisation proceeds will be paid within one calendar month of the relevant Dealing Day or (if later) receipt of a properly documented request for realisation of units.