Why invest in bonds?
Yield Enhancement

• Investing in bonds can increase your return as comparing to holding cash

Source of Stable Income

• Bonds can provide a stable and predictable interest income. And you can expect the return of principal at maturity date

Tool of Diversification

• Bonds have a low co-relation with other asset classes, so bonds can increase the stability of a portfolio
• Bonds might not outperform stocks in the long run, but bonds are certainly less volatile

Potential for Capital Gain

• Market price of bond is affected by market interest rates and credibility of the issuer
• Capital gain can be achieved from the increase of bond price due to the drop of market interest rates or improvement of issuer’s credibility

Custodian
Where do we keep the bonds after purchase?
• Clients can keep the bonds in our company account opened with Central Moneymarkets Unit (CMU) operated by HKMA or Euroclear settlement system

Can we keep the bond certificate by ourselves?
• No, in general speaking. The majority of bonds are settled electronically nowadays. Investors would not receive any bond certificates. Bondholders may confirm their entitlement based on the statement of account issued by financial intermediaries.
Key Risks
All investments carry risks. Bonds are no exception.

1.Credit Risk & Risk of Default by Issuer/ Guarantor

You assume the full credit risk of the issuer and the guarantor (where applicable). You are relying on the issuer and the guarantor to meet its/their payment obligations under the Bond. Should the issuer and/or the guarantor become insolvent or default on its/their obligations (including payment obligations) or fail in any other way, you may not receive any repayment of your principal amount or any other payments due to you under the terms of the Bond. A credit rating is not a recommendation or assurance as to the issuer’s and/or the guarantor’s (where applicable) creditworthiness or the risks, returns or suitability of the Bond.

2.Interest Rate Risk

The market value of the bond is exposed to the movement of interest rates during the tenor of the bond and whenever it is terminated or sold. As interest rates move upwards, the value of the bond will generally fall. Moreover, the longer the tenor of the bond, the more sensitive it will be to interest rate changes.

3.Currency Risk

Where the bond is denominated in a non-local currency, including the Renminbi (the “RMB”), you face the risk of exchange rate fluctuations and controls (where applicable) that may (i) affect the applicable exchange rate and result in the receipt of reduced coupon(s), cash settlement amounts and/or a loss of principal when converted back into your local currency and (ii) make it impossible or impracticable for the issuer to pay you in the original settlement currency. Conversion between the RMB and other currencies, including the Hong Kong dollar, is subject to PRC regulatory restrictions. Exchange Controls imposed by the relevant authorities may also adversely affect the applicable exchange rate. You should be aware that the RMB is currently not a freely convertible currency and that conversion of the RMB through banks in Hong Kong is subject to certain restrictions such as a regulatorily- prescribed daily conversion limit.

4.Liquidity Risk

There is no guarantee that a liquid secondary market will exist for the bonds. Some bond securities are illiquid and are not designed to be short-term trading instruments. For such bonds, you must be prepared to hold them until maturity or until the issuer chooses to repurchase them. This means that you may not be able to sell the bonds or terminate the investment at the expected time or price or at all.

5.Inflation Risk

The return on bond investments will lose purchasing power if commodity prices go up. Inflation is therefore a serious concern for those who need to rely on the regular income from bonds.

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