Main risks

Main risks for investment in “Offshore Bonds”

• Credit Risk
  Investors shall assume the credit risks of the issuers. Any downgrading of credit rating or insolvency of the issuers may result in the redemption of bonds at an amount lower than the principal. Credit risk is also known as default risk, which is used to assess the credit value of the bond issuers. This includes the ability to pay interest and repay principal as promised. Usually, investors will demand for higher return on investment if the credit risk of the issuer is higher. Investors may rely on international professional ratings by institutions like S&P and Moody’s for related information and credit rating. An “AAA bond” is better than an “AA bond” in credit rating. Yet, the coupon rate of an “AA bond” is usually higher than that of an “AAA bond” since the credit risk of the former is relatively higher.
• Market Risk
  Market risk refers to the fluctuation of bond prices resulting from the interest rates movement in the market thereby causing capital loss. Bonds are sensitive to the fluctuation of interest rates of the denomination currency. When the currency’s interest rate rises, the market price of bonds may fall or even fall below its face value. If investors’ objectives are to receive fixed interest at regular intervals and choose to hold bonds until maturity, they are not likely to be affected by the market risk arising from the fluctuation of market price before the maturity of the bonds. However, if investors have the investment objective of making capital gain through bond trades, they are recommended to pay close attention to interest rate movements.
• Liquidity Risk
  Liquidity risk refers to the ability to convert bonds into cash. In a situation where liquidity is scarce or relatively low, investors may not be able to convert bonds held into cash or the market price may be lower than the face value.
• The Risk of Selling the Bonds Before Maturity
  Where investors may choose to sell the bonds held before maturity, the price of the bonds may be affected by market fluctuation; thus, investors may not receive 100% of their initial investment back.
• Foreign Exchange Risk
  If the bonds invested are denominated in a foreign currency, a foreign exchange risk may arise. Foreign exchange rate fluctuation may cause unexpected results in the process of conversion to local currency. At the same time, investors also assume the overall risk of the country where the object of investment is registered. If investors convert from a currency other than the bond’s denomination currency, they are urged to pay attention to the foreign exchange risk that may arise from the principal and interest conversion to the original currency.
• Reinvestment Risk
  Cash flows for callable bonds are uncertain. If the bonds are called by issuers before maturity and the interest rate is lower than the interest rate at the time of the initial purchase, investors who choose to reinvest will be compelled to invest in products with less favorable terms.
• Inflation Risk
  For investors investing in fixed rates bonds, the fixed coupon rate offered is unable to reflect changes in the inflation rate. For example, if the coupon rate of bonds held by the investors is 8% and the inflation rate rises to 10%, the purchasing power generated by cash flow from investment in this bond will decrease.
• Event Risk
  The rating of this investment may be downgraded if some major events happen to the Issuer or Guarantor.
• Country Risk
  Investor’s return may be influenced if some major events happen to the Issuer’s country.
• Settlement Risk
  Settlement date will be suspended or delayed under the special circumstances of emergency, market movement and/or business convention in the registered country of the Issuer, the exchange of underlying assets or payment settlement institutions.

Offshore Bond Related Information

• About Offshore Bond
• Fees & Channels
• Credit Rating & Investment Example

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