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The key risks of investing in Renminbi-denominated securities ("RMB securities")

Market risk

There is a risk that the company's share price will drop below its initial IPO price, once the company's shares commence trading on the stock market. Share price will fluctuate over time, your investment in the product may suffer a loss even if the RMB appreciates against HKD or other currencies.

Company risk

It is vital to understand the company and business being invested in. Investors should study thoroughly the prospectus, financial report and even seek professional advice before making the investment decision.

Liquidity risk

RMB equity products are a new type of investment product in Hong Kong. Regular trading or an active secondary market may not develop in these products. Therefore you may not be able to sell your investments in the RMB equity products on a timely basis, or you may have to sell them at a deep discount to their value in order to find a buyer.

Also, should the China government tighten foreign exchange controls, the liquidity of RMB or RMB equity products in Hong Kong will be affected and you may be exposed to greater liquidity risk.

Currency risk

If you are a non-mainland China investor who holds a local currency other than RMB, you will be exposed to currency risk if you invest in RMB equity products. You will incur currency conversion costs, being the spread between buying and selling RMB, when you convert between your local currency and RMB during the purchase and sale of an RMB equity product.

Moreover, RMB is a restricted currency and subject to foreign exchange controls. Although the China government has relaxed the restrictions by allowing banks in Hong Kong to conduct some forms of RMB business, RMB is still not freely convertible in Hong Kong. You may not be able to convert RMB at your preferred time and/or in your preferred amount or at all, which may lead to investment losses.

Exchange rate risk

As RMB equity products are traded and settled in RMB, they are exposed to exchange rate risk. Even if the RMB/HKD exchange rate remains steady, and the price of the RMB equity products you are holding does not change, you may not receive the same amount of HKD when you sell the products due to the spread between buying and selling RMB. RMB equity products are not an investment instrument for you to use to speculate on movements of the RMB/HKD exchange rate.

Default risk

In general, RMB equity products are exposed to the usual kind of default risks that might be associated with equity products denominated in other currencies.

RMB equity products exposed to the mainland China market are particularly subject to risks that may arise from the relevant market/industry/sector in mainland China.

Over-subscribing to an IPO

In some cases, IPO may be oversubscribed. The company may go through an allocation process to determine whether an investor will receive any shares and, if so, in what quantity. An investor may be tempted to subscribe for more shares than he intends to, if he thinks he will not receive the full amount in case of an over-subscription. However, if the IPO is not oversubscribed, the investor will receive all the quantity applied for and will incur the full cost.