Weekly FX Insight. Weekly FX Insight. Jul 18, 2016 with data as of Jul 15, 2016 FX & Eco. Figures Forecast P Citibank Wealth Management

Transcription

1 Citibank Wealth Management Weekly FX Insight *INVESTMENT PRODUCTS: NOT A BANK DEPOSIT. NOT GOVERNMENT INSURED. NO BANK GUARANTEE. MAY LOSE VALUE Please note and carefully read the Important Disclosure on the last part Weekly FX Insight Market Review & Focus P. 1-3 FX Analysis P. 4-9 Jul 18, 2016 with data as of Jul 15, 2016 FX & Eco. Figures Forecast P Citibank Citibank and Arc Design is a registered service mark of Citibank, N.A. or Citigroup Inc. Citibank (Hong Kong) Limited

2 Weekly FX Recap Major Currencies Weekly Performance LAST WEEK PERFORMANCE Year-To- 52 week 52 week 1 year % Close Date Day High Day Low high low change CCY Price Change USD % -2.1% EUR/USD % 1.6% USD/JPY % -12.8% GBP/USD % -10.5% USD/CAD % -6.3% AUD/USD % 4.0% NZD/USD % 4.2% USD/CHF % -2.0% USD/CNY % 3.1% USD/CNH % 2.1% GOLD % 26.0% Please note and carefully read the Important Disclosure on the last part USD INDEX EUR JPY GBP CAD AUD NZD CHF CNY CNH GOLD Weekly changes versus US dollar -4.09% -2.60% -2.11% -0.14% -0.07% -0.13% Source: Bloomberg L.P., as of Jul 15, 2016 Source: Bloomberg L.P., as of Jul 15, % 0.52% 0.12% 0.06% 1.84% -6.00% -4.00% -2.00% 0.00% 2.00% 4.00% USD GBP JPY NZD Gold USD was underpinned amid rising rate hike expectation as US retail sales grew 0.6% in June while industrial production rose 0.6%, both better than expected. The dollar index rose 0.3% to close at USD outlook: The dollar index may range trade between GBP pared gains amid concern about uncertainty of negotiation between the UK and EU. GBP once rose to as the BOE did not cut rates last week, surprising the market. GBP/USD rose 1.8% to close at GBP outlook: GBP/USD may range trade between JPY pared losses amid military coup in Turkey, although JPY once plunged as PM Abe announced to implement measures to boost the economy. USD/JPY rose 4.1% to close at JPY outlook: USD/JPY may range trade between with downside bias. NZD plunged amid concern that the RBNZ may cut economic forecasts significantly as the RBNZ announced to release the latest economic assessment on Thursday. NZD/USD dropped 2.6% to close at NZD outlook: NZD/USD may range trade between Gold retreated amid fund outflows as global markets gained and market risk receded last week. Spot gold/usd dropped 2.1% to close at $1, last week. Gold price outlook: Spot gold/usd may test higher to $1, $1,

3 Please note and carefully read the Important Disclosure on the last part Weekly FX Strategies 1. Bullish - JPY JPY may be underpinned on fund inflows into JPY for risk aversion amid rising geopolitical risk USD/JPY may range trade between ( ), with downside bias 2. Neutral - NZD NZD may be supported on yield advantage as the RBNZ may not cut rates until November NZD/USD may range trade between ( ) 3. Bearish - GBP GBP may be undermined as the BOE may cut rates or even expand policy easing in August GBP/USD may range trade between ( ), with downside bias 2

4 Weekly FX Focus: JPY strength may resume Please note and carefully read the Important Disclosure on the last part JPY plunged as PM Abe announced last week to implement measures to boost the economy and hope for possible helicopter money policy. However, JPY strength may resume amid rising geopolitical risk. Chart: Japan s Initial Budget and Supplementary Budget (Trillion Yen) Trillion Yen The Japan's government will implement stimulus measures to boost the economy Measures to boost the economy: The Japan's government may announce the details of the measures in earl August and a supplementary budget may be approved in mid-september. One-off measures: However, possible measures such as vouchers may be one-off in nature and may not propel the economy sustainably. Limited support for the economy: Over the past few years, even with supplementary budget, there were no significant changes in the total scale of the budget (Chart 1) and technical recession happened three times during the period. Source: Bloomberg L.P., as of Jul 15, 2016 Helicopter money policy is unlikely What is helicopter money: The government issues bonds to the central bank directly and increases expenditure with funds from the central bank. Unlikely to implement the policy this year: Japanese law does not allow the central bank to buy new issues of government bonds. It may need to go through the National Diet's debate and law amendment, which may take a long period of time. JPY may strengthen again Markets may overreact: Short-selling in JPY may be overdone as Japan supplementary budget becomes standard practice in recent years and helicopter money policy is unlikely. Rising geopolitical risk: Terrorist attacks in France and military coup in Turkey may raise geopolitical risk in the short term. Funds may flow into JPY on risk aversion, which may underpin JPY. 3

5 USD/JPY USD/JPY may range trade between ( ), with downside bias Last Price (73.93) High (72.93) Low (77.30) Support (78.35) 1st Support (77.54) The brackets are the exchange rates in terms of Hong Kong dollar, with HKD $ exchange rate for reference 1st Resistance (72.58) Resistance (72.02) 0-3m Forecast 103 (75.32) 6-12m Forecast 105 (73.88) Please note and carefully read the Important Disclosure on the last part Upcoming Economic Data No Important Economic Data Release Market Recap: JPY pared losses on military coup in Turkey, although JPY once plunged as Japan may implement measures to boost the economy by early August. JPY Outlook: We expect the Japan's government may announce the details of measures in early August may pass the supplementary budget in mid-september. It has become standard practice in recent years to compile a supplementary budget later every year, which could not reverse Japan s weak economy. And some of these may be one-off measures. Thus, we expect the impact on the economy may be limited (Jun & Jul 8 lows) (Jun 24 top & Apr 7 low) Measures may disappoint markets and Japan's equity market may drop again. Together with geopolitical instability, JPY may find support. Technical Analysis: The pair may range trade between ( ), with downside Source: Bloomberg L.P., as of Jul 15,

6 AUD/USD Last Price (5.88) AUD may range trade as rate cuts are likely despite strong Australia's economy Weekly recap: AUD pared gains as military coup in Turkey dampened market sentiment, although AUD rose last week as Australia's full employment surged 38K in June. Outlook analysis: Amid strong Australia's economy, monetary policy in the future may depend on Q2 inflation data. Rising gasoline prices may underpin inflation but it may still undershoot RBA's forecast. Thus, we expect the RBA may cut rates in August, which may restrain the AUD. Technical analysis: Due to the neutral RSI, AUD/USD may range trade between ( ). NZD/USD Last Price (5.52) High (5.95) High (5.68) Low (5.83) Low (5.51) Support (5.67) Support (5.35) 1st Support (5.81) 1st Support (5.39) 1st Resistance (5.95) 1st Resistance (5.71) Resistance 0-3m 6-12m (6.08) 0.72 (5.59) 0.74 (5.74) NZD may find support at lows as the RBNZ may defer rate cuts to November Weekly recap: NZD plunged amid concern that the RBNZ may cut economic forecasts as the RBNZ announced to release the latest economic assessment on Thursday. Outlook analysis: We expect the RBNZ to defer its rate cut from August to November. Yield advantage may support NZD at lows. Technical analysis: Due to the neutral RSI, NZD/USD may range trade between ( ). Please note and carefully read the Important Disclosure on the last part The brackets are the exchange rates in terms of Hong Kong dollar, with HKD $ exchange rate for reference Resistance 0-3m 6-12m (5.86) 0.69 (5.35) 0.70 (5.43) (Last week top) AUD/USD Daily Chart (Apr top) Source: Bloomberg L.P., as of Jul 15, (fibo 0.50) NZD/USD Daily Chart (Jul 12 top) (Jun 15 low) Source: Bloomberg L.P., as of Jul 15,

7 GBP/USD GBP/USD may range trade between ( ) Last Price (10.23) High (10.45) Market Recap: Low (9.96) Support (9.70) 1st Support (9.92) GBP pared gains as a BOE member said the central bank needed to further ease the policy, although GBP once surged as the BOE kept the interest rate unchanged. GBP Outlook: The policy statement showed most members thought Brexit would impact economic activities. Thus, the central bank may implement policy easing in August. In our view, BOE's inaction may increase the pressure of a significant rate cut and expansion of policy easing in August. The central bank may announce to cut the interest rate by 25bps in August and may implement asset purchase program if needed, such as purchase of corporate bonds and asset backed securities. Policy easing may increase GBP downside pressure in the medium and long term. Technical Analysis: Since the RSI rebounded from the oversold territory, the pair may range trade between ( ). The brackets are the exchange rates in terms of Hong Kong dollar, with HKD $ exchange rate for reference 1st Resistance (10.47) Resistance (10.58) (2009 low) 0-3m Forecast 1.25 (9.69) Source: Bloomberg L.P., as of Jul 15, m Forecast 1.28 (9.93) Please note and carefully read the Important Disclosure on the last part Upcoming Economic Data Jul 19: CPI (Jun low) Jul 20: ILO Unemployment Rate (3-Month) 6

8 Spot Gold Spot gold/usd may test higher to $1, $1, gradually Please note and carefully read the Important Disclosure on the last part The brackets are the exchange rates in terms of Hong Kong dollar, with HKD $ exchange rate for reference Last Price High Low Support 1st Support 1st Resistance Resistance 0-3m Forecast 6-12m Forecast Market Recap: Gold price pared losses amid geopolitical instability due to military coup in Turkey, although gold price once retreated from tops amid cooling concern about Brexit. Gold Outlook: Despite cooling risk aversion, gold ETF holdings rose to 2013 tonnes further last week, reflecting strong demand for gold. Apart from the military coup in Turkey, there are still potential political risks for the coming months such as UK presidential election, possible second referendum on independence announced by the Scottish National Party. Political uncertainty may raise risk aversion again, which may support gold price. 1, (Aug 2013 top) 1, (Mar 2014 top) 1, , (May & Jun 16 top) Technical Analysis: Gold price may test higher to 1, , upon consolidation, with support at 1, Source: Bloomberg L.P., as of Jul 15,

9 USD/CAD USD/CAD may range trade between ( ) Last Price (5.98) High (5.90) Low (6.03) Support (6.13) 1st Support (6.04) The brackets are the exchange rates in terms of Hong Kong dollar, with HKD $ exchange rate for reference 1st Resistance (5.90) Resistance (5.82) 0-3m Forecast 1.30 (5.97) 6-12m Forecast 1.26 (6.16) Please note and carefully read the Important Disclosure on the last part Upcoming Economic Data Jul 22: CPI (YoY) Market Recap: CAD rebounded last week as the BOC kept the interest rate unchanged with less-dovishthan expected monetary policy statement. CAD Outlook: (Jul 11 top) The BOC thought despite rising domestic financial risk and increasing global economic downside risk, total risk level is endurable. Current monetary policy is enough to support inflation to reach the target level. In our view, due to external economic uncertainty, uncertain effect of fiscal stimulus measures and potential risk of housing price bubbles, the BOC may cut rates in Q4 2016, which may restrain CAD (Jun & Jul 4 lows) Technical Analysis: The pair may range trade between ( ). Source: Bloomberg L.P., as of Jul 15,

10 EUR/USD Last Price (8.56) High (8.66) Low (8.54) EUR may be restrained as the ECB may cut rates in September Weekly recap: EUR retreated amid concern about European geopolitics, although EUR rose last week amid military coup in Turkey. Outlook analysis: The ECB will announce the rate decision this week. Although we expect the ECB may keep the interest rate and monetary policy unchanged, it may keep its dovish policy stance and may announce to extend QE in September, which may undermine EUR. Technical analysis: EUR/USD may find resistance at The pair may range trade between ( ), with downside bias. USD/CNH Support (8.36) 1st Support (8.48) 1st Resistance (8.68) Resistance 0-3m 6-12m (8.81) 1.10 (8.53) Please note and carefully read the Important Disclosure on the last part The brackets are the exchange rates in terms of Hong Kong dollar, with HKD $ exchange rate for reference 1.15 (8.92) (fibo 0.618) USD/CAD Daily Chart Source: Bloomberg L.P., as of Jul 15, (fibo 0.382) (fibo 0.236) Last Price High Low Support 1st Support 1st Resistance Resistance (1.1555) (1.1540) (1.1614) (1.1677) (1.1596) (1.1467) (1.1428) CNH may be undermined as Chinese economy may face downside risk in 2H Weekly recap: Although China's economic growth reached 6.7% YoY in Q2, higher than expectation of 6.6%, it was still the second lowest level since 1992, which pressured CNH. Outlook analysis: Although recent economic and trade data showed China's economy is stabilizing gradually, Economic growth may have only 6.2%-6.3% in 2H due to falling private investment and impacts of weather in Yangtze River, which may undermine CNH. Technical analysis: Since the RSI is at the overbought territory, the pair may test higher to (1.1467) upon consolidation, with support at ( ). USD/JPY Daily Chart (Jan top) (fibo & 0.236) Source: Bloomberg L.P., as of Jul 15,

11 Upcoming Economic Figures and Events ECB rate decision may become market focus Please note and carefully read the Important Disclosure on the last part US June Housing Starts Housing starts may reach 1.165m in June, in line with the levels over the past two months. Better-than-expected data may raise expectation of rate hikes by the Fed, which may underpin USD. Jul 19 (Tue): Housing Starts Citi Forecast Previous 1.165m 1.164m Australia RBA Minutes We expect the minutes may provide more information with reasons why the RBA kept the interest rate unchanged. Jul 19 (Tue): RBA Minutes U.K. June CPI Rising oil prices and GBP depreciation may boost UK inflation in June. We expect a plunge in GBP after Brexit referendum may finally cause inflation in UK and inflation may rise above the BOE s target price of 2% in early Jul 19 (Tue): CPI (YoY) Citi Forecast Previous 0.5% 0.3% Euro Area ECB Rate Decision We expect the ECB may not cut rates but may keep the dovish stance. The central bank may cut rates and extend QE in September. Jul 21 (Thu): ECB Rate Decision 10

12 Appendix 1: Citi Interest Rate and FX Forecast for month 6-12 month 7/15/16 3Q 16 4Q 16 1Q 17 Dollar Index EUR/USD GBP/USD USD/JPY USD/CHF AUD/USD NZD/USD USD/CAD USD/CNY EUR Citi FX Outlook Forecast Source: Citi, forecast as of Jun 27, 2016 Please note and carefully read the Important Disclosure on the last part Citi FX Interest Rate Forecast Rate cut expectations Rate hike expectations Since Brexit may increase EU political uncertainty, we revised down EUR 0-3 month forecast to GBP GBP may be undermined as Brexit may make a significant impact on UK economy and politics. Thus, we revised down GBP/USD 0-3 month and 6-12 month forecasts significantly to 1.25 and 1.28 respectively. AUD CHF JPY Since the trade relations between the UK and Australia are not close, Brexit may have limited impact on AUD. Thus, we revised up AUD 0-3 month and 6-12 month forecasts to 0.72 and The CHF remains overvalued, but we still think the SNB may continue to favour intervening in FX markets, which may undermine CHF. Thus, we revised up USD/CHF 6-12 month forecast to Brexit prompted fund inflows into safe-haven assets, which may underpin JPY. However, the BOJ may expand QE in Jul, which may limit JPY upside. Thus, we revised down USD/JPY 0-3 month and 6-12 month forecasts to 103 and 105 respectively. 11

13 Appendix 3: Last week s Economic Figures Please note and carefully read the Important Disclosure on the last part Time Importance Event Period Actual Survey Prior Monday 07/11/ :00 EC!! Euro-Area Finance Ministers Meeting Jul Tuesday 07/12/ :30 AU! NAB Business Conditions Jun Wednesday 07/13/2016 CH!! Trade Balance Jun $45.65b $48.11b $49.98b 07/13/ :00 CA!! Bank of Canada Rate Decision Jul 0.50% 0.50% 0.50% Thursday 07/14/ :00 US! Monthly Budget Statement Jun $6.3b $19.0b $50.5b 07/14/ :00 US!! U.S. Federal Reserve Releases Beige Book Jul 07/14/ :01 UK!! RICS House Price Balance Jun 16% 0% 19% 07/14/ :00 NZ! ANZ Consumer Confidence MoM Jul -0.60% % 07/14/ :30 AU!! Employment Change Jun 7.9k 10.0k 19.2k 07/14/ :30 AU!! Unemployment Rate Jun 5.80% 5.80% 5.70% 07/14/ :00 UK!!! Bank of England Bank Rate Jul 0.50% 0.25% 0.50% 07/14/ :30 US!! Initial Jobless Claims Jul 254k 265k 254k Friday 07/15/ :00 CH!! Industrial Production YoY Jun 6.20% 5.90% 6.00% 07/15/ :00 CH!! Retail Sales YoY Jun 10.60% 9.90% 10.00% 07/15/ :00 CH!!! GDP YoY 2Q 6.70% 6.60% 6.70% 07/15/ :00 EC!! CPI YoY Jun 0.10% 0.10% 0.10% 07/15/ :30 US!! Retail Sales Advance MoM Jun 0.60% 0.10% 0.20% 07/15/ :30 US!! Retail Sales Ex Auto MoM Jun 0.70% 0.40% 0.40% 07/15/ :30 US!! CPI YoY Jun 1.00% 1.10% 1.00% 07/15/ :30 US!! CPI Ex Food and Energy YoY Jun 2.30% 2.20% 2.20% 07/15/ :00 CA! Existing Home Sales MoM Jun -0.90% % 07/15/ :15 US! Industrial Production MoM Jun 0.60% 0.30% -0.30% 07/15/ :00 US!! U. of Mich. Sentiment Jul Source: Bloomberg L.P. 12

14 Please note and carefully read the Important Disclosure on the last part Appendix 4: Upcoming Economic Figures (Jul 18, 2016 Jul 22, 2016) Time Importance Event Period Actual Survey Prior Australia 07/19/ :30 Tue!! RBA July Meeting Minutes Jul 07/21/ :30 Thu! NAB Business Confidence 2Q Canada 07/18/ :30 Mon! Int'l Securities Transactions May b 07/22/ :30 Fri! Retail Sales MoM May % 0.90% 07/22/ :30 Fri! Retail Sales Ex Auto MoM May % 1.30% 07/22/ :30 Fri!! CPI YoY Jun % 1.50% 07/22/ :30 Fri!! CPI Core YoY Jun % 2.10% Euro Area 07/19/ :00 Tue! ZEW Survey Expectations Jul /20/ :00 Wed! ECB Current Account SA May b 07/21/ :45 Thu!!! ECB Main Refinancing Rate Jul % 0.00% 07/22/ :00 Fri!! Markit Eurozone Manufacturing PMI Jul New Zeland 07/18/ :45 Mon!! CPI QoQ 2Q % 0.20% U.K. 07/19/ :30 Tue!! CPI YoY Jun % 0.30% 07/20/ :30 Wed!! Weekly Earnings ex Bonus 3M/YoY May % 2.30% 07/20/ :30 Wed!! ILO Unemployment Rate 3Mths May % 5.00% 07/21/ :30 Thu!! Retail Sales Ex Auto Fuel YoY Jun % 5.70% 07/21/ :30 Thu!! Retail Sales Inc Auto Fuel YoY Jun % 6.00% U.S. 07/19/ :00 Tue! Total Net TIC Flows May $80.4b 07/19/ :30 Tue!! Housing Starts MoM Jun % -0.30% 07/19/ :30 Tue!! Building Permits MoM Jun % 0.70% 07/21/ :30 Thu!! Initial Jobless Claims Jul k 07/21/ :00 Thu!! Existing Home Sales MoM Jun % 1.80% 07/21/ :00 Thu! Leading Index Jun % -0.20% Source: Bloomberg L.P. 13

15 Important Disclosure Citi analysts refers to investment professionals within Citi Research (CR) and Citi Global Markets (CGM) and voting members of the Global Investment Committee of Global Wealth Management. Citibank N.A. and its affiliates / subsidiaries provide no independent research or analysis in the substance or preparation of this document. Investment products are not available to US persons and not all products and services are provided by all affiliates or are available at all locations. This document is for general informational purposes only and is not intended as a recommendation or an offer or solicitation for the purchase or sale of any security, currency, investment, service or to attract any funds or deposits. Information in this document has been prepared without taking account of the objectives, financial situation or needs of any particular investor. Therefore, investment products mentioned in this document may not be suitable for all investors. Any person considering an investment should seek independent advice on the suitability or otherwise of a particular investment. Before making any investment, each investor must obtain the investment offering materials, which include a description of the risks, fees and expenses and the performance history, if any, which may be considered in connection with making an investment decision. Each investor should carefully consider the risks associated with the investment and make a determination based upon the investor s own particular circumstances, that the investment is consistent with the investor s investment objectives In any event, past performance is no guarantee of future results, and future results may not meet our expectations due to a variety of economic, market and other factors. Further, any projections of potential risk or return are illustrative and should not be taken as limitations of the maximum possible loss or gain. Investments are not deposits or other obligations of, guaranteed or insured by Citibank N.A., Citigroup Inc., or any of their affiliates or subsidiaries, or by any local government or insurance agency, and are subject to investment risk, including the possible loss of the principal amount invested. Investors investing in funds denominated in non-local currency should be aware of the risk of exchange rate fluctuations that may cause a loss of principal. Neither Citigroup nor its affiliates can accept responsibility for the tax treatment of any investment product, whether or not the investment is purchased by a trust or company administered by an affiliate of Citigroup. Citigroup assumes that, before making any commitment to invest, the investor and (where applicable, its beneficial owners) have taken whatever tax, legal or other advice the investor/beneficial owners consider necessary and have arranged to account for any tax lawfully due on the income or gains arising from any investment product provided by Citigroup. If an investor changes country of residence, citizenship, nationality, or place of work, it is his/her responsibility to understand how his/her investment transactions are affected by such change and comply with all applicable laws and regulations as and when such becomes applicable. 14

16 Important Disclosure Although information in this document has been obtained from sources believed to be reliable, Citigroup and its affiliates do not guarantee its accuracy or completeness and accept no liability for any direct or consequential losses arising from its use. Opinions expressed herein may differ from the opinions expressed by other businesses or affiliates of Citigroup, and are not intended to be a forecast of future events, a guarantee of future results or investment advice, and are subject to change based on market and other conditions. The information contained herein is also not intended to be an exhaustive discussion of the strategies or concepts. At any time, Citigroup companies may compensate affiliates and their representatives for providing products and services to clients. This is not an official statement of Citigroup Inc. and may not reflect all of your investments with or made through Citibank. For an accurate record of your accounts and transactions, please consult your official statement. If this document shows information coming from Citi Research, please refer to the attached link: which contains the important disclosures regarding companies covered by Citi's Equity Research analysts, and please refer to the attached link: for details on the Citi Research ratings system. This document may not be reproduced or circulated without Citigroup written authority. The manner of circulation and distribution may be restricted by law or regulation in certain countries. Persons who come into possession of this document are required to inform themselves of, and to observe such restrictions. Any unauthorised use, duplication, or disclosure of this document is prohibited by law and may result in prosecution. This document is distributed in Hong Kong by Citibank (Hong Kong) Limited ( CHKL ). Prices and availability of financial instruments can be subject to change without notice. Certain high-volatility investmentscanbesubjecttosuddenandlarge falls in value that could equal the amount invested. 15

17 Important Disclosure Unrated or non investment grade Debt Securities typically offer a higher yield than investment grade Debt Securities, but also present greater risks with respect to liquidity, volatility, and non-payment of principal and interest. As a result of being classified as non investment grade Debt Securities, these Debt Securities present a greater degree of credit risk relative to many other fixed income Debt Securities. Higher Credit Risk Unrated or non investment grade Debt Securities generally have predominantly speculative characteristics with respect to the issuer s capacity to pay interest and repay principal. There is greater risk of non-payment of interest and loss of principal. Many issuers of these Debt Securities have experienced substantial difficulties in servicing their debt obligations, which has led to default and restructurings. The issuers of these Debt Securities generally have to pay a higher rate of interest than investment grade Debt Securities. Higher Liquidity and Secondary Market Risk The markets in which unrated or non investment grade Debt Securities are traded are generally more limited than those in which investment grade Debt Securities are traded. This lack of liquidity may make it more difficult to resell these Debt Securities and obtain market quotations. Downgrade Risk Downgrades in the credit rating of unrated or non investment grade Debt Securities by rating agencies are generally accompanied by declines in the market value of these Debt Securities. In some circumstances, investors in the unrated or non investment grade Debt Securities market may anticipate such downgrades as a result of these credits being placed on credit watch by rating agencies, causing volatility and speculation of further credit deterioration. Higher Vulnerability to economic cycles - During economic downturns, unrated or non investment grade Debt Securities are typically more susceptible to price volatility and fall more in value than investment grade Debt Securities as i) investors may reevaluate holdings in lower-quality bonds in favor of investment-grade corporate Debt Securities; ii) investors become more risk averse; and iii) default risk rises. This is often referred to a flight to quality. Event Risk This includes any of a variety of events that can adversely affect the issuer of unrated or non investment grade Debt Securities, and therefore the issuer s ability to meet debt service obligations to repay principal and interest to Debt Securities holders. Event risk may pertain to the issuer specifically, the industry or business sector of the issuer, or generally upon the overall economy. It could have a direct or indirect impact on the issuer and their outstanding debts. 16

18 Important Disclosure Risk relating to RMB If you choose RMB as the base currency or the alternate currency, you should also note the following: RMB is currently not freely convertible through banks in Hong Kong. Due to exchange controls and/or restrictions imposed on the convertibility, utilisation or transferability of RMB (if any) which in turn is affected by, amongst other things, the PRC government's control, there is no guarantee that disruption in the transferability, convertibility or liquidity of RMB will not occur. There is thus a likelihood that you may not be able to convert RMB received into other freely convertible currencies. CNH exchange rates and CNY exchange rates are currently quoted in different markets with different exchange rates, whereby their exchange rate movements may not be in the same direction or magnitude. Therefore, the CNH exchange rate may be different from the CNY exchange rate. 17