Global Private Banking Investment Outlook Report Disclaimer Risks to our View invested principal in certain circumstances. Interest Should the China Central Government tighten the The key risk factors include adverse regulatory payments may be variable, deferred or canceled. control, the liquidity of renminbi or even renminbi changes, health concerns, spectrum cost and Investors may face uncertainties over when and bonds in Hong Kong will be affected and you may allocation issues excess capital expenditure by how much they can receive such payments. be exposed to higher liquidity risks. Investors telecom operators, trade tensions, evolvement of • Contingent convertible or bail-in debentures should be prepared that you may need to hold a 5G standards, uncertainties in pricing and demand - Contingent convertible and bail-in debentures renminbi bond until maturity. for new products and services in 5G and related are hybrid debt-equity instruments that may be Risk disclosure on Emerging Markets offerings. written off or converted to common stock on Investment in emerging markets may involve Risk Disclosures the occurrence of a trigger event. Contingent certain, additional risks which may not be typically convertible debentures refer to debentures that associated with investing in more established Risks of investment in fixed income contain a clause requiring them to be written off or economies and/or securities markets. Such risks converted to common stock on the occurrence of include (a) the risk of nationalization or expropriation There are several key issues that one should a trigger event. These debentures generally absorb consider before making an investment into fixed losses while the issuer remains a going concern (i.e. of assets; (b) economic and political uncertainty; income. The risk specific to this type of investment in advance of the point of non-viability). “Bail-in” (c) less liquidity in so far of securities markets; (d) may include, but are not limited to: generally refers to (a) contractual mechanisms fluctuations in currency exchange rate; (c) higher (i.e. contractual bail-in) under which debentures rates of inflation; (f) less oversight by a regulator Credit risk contain a clause requiring them to be written off of local securities market; (g) longer settlement Investor is subject to the credit risk of the issuer. or converted to common stock on the occurrence periods in so far as securities transactions and (h) Investor is also subject to the credit risk of the of a trigger event, or (b) statutory mechanisms (i.e. less stringent laws in so far the duties of company government and/or the appointed trustee for debts statutory bail-in) whereby a national resolution officers and protection of Investors. that are guaranteed by the government. authority writes down or converts debentures Risk disclosure on FX Margin under specified conditions to common stock. Risks associated with high yield fixed income Bail-in debentures generally absorb losses at the The price fluctuation of FX could be substantial instruments point of non-viability. These features can introduce under certain market conditions and/or occurrence High yield fixed income instruments are typically notable risks to investors who may lose all their of certain events, news or developments and rated below investment grade or are unrated and invested principal. this could pose significant risk to the Customer. as such are often subject to a higher risk of issuer Changes in legislation and/or regulation Leveraged FX trading carry a high degree of risk default. The net asset value of a high-yield bond and the Customer may suffer losses exceeding their fund may decline or be negatively affected if there Changes in legislation and/or regulation could initial margin funds. Market conditions may make is a default of any of the high yield bonds that it affect the performance, prices and mark-to-market it impossible to square/close-out FX contracts/ invests in or if interest rates change. The special valuation on the investment. options. Customers could face substantial margin features and risks of high-yield bond funds may also calls and therefore liquidity problems if the relevant include the following: Nationalization risk price of the currency goes against them. • Capital growth risk - some high-yield bond funds The uncertainty as to the coupons and principal Currency risk – where product relates to other may have fees and/ or dividends paid out of capital. will be paid on schedule and/or that the risk currencies As a result, the capital that the fund has available on the ranking of the bond seniority would be When an investment is denominated in a currency for investment in the future and capital growth may compromised following nationalization. other than your local or reporting currency, changes be reduced; and Reinvestment risk in exchange rates may have a negative effect on • Dividend distributions - some high-yield bond A decline in interest rate would affect investors as your investment. funds may not distribute dividends, but instead coupons received and any return of principal may Chinese Yuan (“CNY”) risks reinvest the dividends into the fund or alternatively, be reinvested at a lower rate. the investment manager may have discretion on There is a liquidity risk associated with CNY whether or not to make any distribution out of Changes in interest rate, volatility, credit spread, products, especially if such investments do not income and/ or capital of the fund. Also, a high rating agencies actions, liquidity and market have an active secondary market and their prices distribution yield does not imply a positive or high conditions may significantly affect the prices and have large bid/offer spreads. return on the total investment. mark-to-market valuation. CNY is currently not freely convertible and • Vulnerability to economic cycles - during Risk disclosure on Dim Sum Bonds conversion of CNY through banks in Hong Kong economic downturns such instruments may Although sovereign bonds may be guaranteed by and Singapore is subject to certain restrictions. typically fall more in value than investment grade the China Central Government, investors should CNY products are denominated and settled in CNY bonds as (i) investors become more risk averse and note that unless otherwise specified, other renminbi deliverable in Hong Kong and Singapore, which (ii) default risk rises. bonds will not be guaranteed by the China Central represents a market which is different from that of Government. CNY deliverable in Mainland China. Risks associated with subordinated debentures, perpetual debentures, and contingent convertible Renminbi bonds are settled in renminbi, changes in There is a possibility of not receiving the full amount or bail-in debentures exchange rates may have an adverse effect on the in CNY upon settlement, if the Bank is not able to value of that investment. You may not get back the obtain sufficient amount of CNY in a timely manner • Subordinated debentures - subordinated due to the exchange controls and restrictions debentures will bear higher risks than holders of same amount of Hong Kong Dollars upon maturity applicable to the currency. senior debentures of the issuer due to a lower of the bond. priority of claim in the event of the issuer’s There may not be active secondary market available Illiquid markets/products liquidation. even if a renminbi bond is listed. Therefore, you In the case of investments for which there is no • Perpetual debentures - perpetual debentures need to face a certain degree of liquidity risk. recognised market, it may be difficult for investors often are callable, do not have maturity dates and Renminbi is subject to foreign exchange control. to sell their investments or to obtain reliable are subordinated. Investors may incur reinvestment Renminbi is not freely convertible in Hong Kong. information about their value or the extent of the and subordination risks. Investors may lose all their risk to which they are exposed. 40