SMD-AM China A Shares Fund

What are the key risks?

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

1 - 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 the repayment of principal.

2 - Currency risk

• 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 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 unfavorably by fluctuations in the exchange rates between these currencies and the base currency and by changes in exchange rate controls.

3 - Equity market risk

• The Sub-Fund’s investment in equity securities is subject to general market risks, whose value may fluctuate due to various factors, such as changes in investment sentiment, political and economic conditions and issuer-specific factors.

4 - Concentration risk

• The Sub-Fund’s investments are concentrated in China A Shares and may be concentrated in a specific industry sector. The value of the Sub-Fund may be more volatile than that of a fund having a more diverse portfolio of investments.
• 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 market.

5 - Mainland China market risk

• Investing in the mainland China market may involve a greater risk of loss than investing in more developed markets due to, among other factors, greater political, tax, economic, foreign exchange, liquidity, settlement, custody, legal, regulatory, accounting and reporting risks. Generally, there is greater market volatility, lower trading volume, more governmental control of currency conversion and future movements in exchange rate than those typically found in developed markets.

6 - Risks relating to China A-Shares

• The Sub-Fund’s assets may be invested in China A Shares. The securities market in China, including China A Shares, may be more volatile, unstable (for example, due to the risk of suspension/limitation in trading of a particular stock or government implementing policies that may affect the financial markets) than markets in more developed countries and has potential settlement difficulties. This may result in significant fluctuations in the prices of securities traded in such market and thereby affecting the prices of shares of the Sub-Fund.

7 - RMB currency and conversion risks

• RMB is currently not freely convertible and is subject to exchange controls and restrictions.
• The Sub-Fund is exposed to foreign exchange risk and there is no guarantee that the value of RMB against the Sub-Fund’s base currency will not depreciate.  Any depreciation of RMB could adversely affect the value of investor’s investment in the Sub-Fund.
• Although offshore RMB (CNH) and onshore RMB (CNY) are the same currency, they trade at different rates. Any divergence between CNH and CNY may adversely impact investors.
• 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.

8 - Risks associated with the Stock Connect

• The relevant rules and regulations on the Stock Connect are subject to change which may have potential retrospective effect. The Stock Connect are subject to quota limitations. Where a suspension in the trading through the programme is effected, the Sub-Fund’s ability to invest in China A Shares or access the PRC market through the programme will be adversely affected. In such event, the Sub-Fund’s ability to achieve its investment objective could be negatively affected.

9 - Risks associated with investment made through the QFI regime

• The Sub-Fund’s ability to make the relevant investments or to fully implement or pursue its investment objective and strategy is subject to the applicable laws, rules and regulations (including restrictions on investments and repatriation of principal and profits) in the PRC, which are subject to change and such change may have potential retrospective effect.
• The Sub-Fund may suffer substantial losses if the approval of the QFI status is being revoked/terminated or otherwise invalidated as the Sub-Fund may be prohibited from trading of relevant securities and repatriation of the Sub-Fund’s monies, or if any of the key operators or parties (including QFI custodian/brokers) is bankrupt/in default and/or is disqualified from performing its obligations (including execution or settlement of any transaction or transfer of monies or securities).

10 - PRC tax risk

• There are risks and uncertainties associated with the current PRC tax laws, regulations and practice in respect of capital gains realised via QFI status or the Stock Connect or 5 access products on the Sub-Fund’s investments in the PRC (which may have retrospective effect). Any increased tax liabilities on the Sub-Fund may adversely affect the Sub-Fund’s value.
• Based on professional and independent tax advice, the Sub-Fund will not make any tax provisions on realised and/or unrealised capital gains and/or dividends on China A Shares.

11 - Risk associated with micro-capitalisation / small-capitalisation / mid-capitalisation companies

• The stock of micro-capitalisation / small-capitalisation / mid-capitalisation companies may have lower liquidity and their prices are more volatile to adverse economic developments than those of larger capitalisation companies in general.

12 - Risks relating to hedging and the hedged share classes

• There can be no assurance that any currency hedging strategy employed by the Sub-Fund will fully and effectively eliminate the currency exposure of the Sub-Fund.
• Hedging strategies may preclude investors from benefiting from an increase in the value of the Sub-Fund’s base currency.
• Any expenses arising from such hedging transactions will be borne by the Sub-Fund or the relevant currency hedged class.

13 - Risks associated with usage of financial derivative instruments (“FDIs”)

• Risks associated with FDIs include counterparty/credit risk, liquidity risk, valuation risk, volatility risk and over-the-counter transaction risk. The leverage element/component of an FDI can result in a loss significantly greater than the amount invested in the FDI by the Sub-Fund. Exposure to FDIs may lead to a high risk of significant loss by the Sub- Fund.
• There can be no assurance that the use of FDIs for hedging purposes will fully and effectively eliminate the risk exposure of the Sub-Fund. The use of FDIs and hedging strategies may be ineffective and the Sub-Fund may suffer substantial losses.

14 - Risks associated with distribution out of/effectively out of the Sub-Fund’s capital

• In respect of Class A (USD-M), 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.