The United SSE 50 China ETF (the “Fund”), a sub-fund under the UETF, aims to provide investment results that, before fees, costs and expenses (including any taxes and withholding taxes), closely correspond to the performance of the SSE 50 Index (the “SSE 50”). The SSE 50 is an index consisting of the 50 largest stocks of good liquidity listed on the Shanghai Stock Exchange (“SSE”). Advantages of the United SSE 50 China ETF
Access to the China A-Shares market - Offers investors a convenient way to gain investment exposure to the China A-Shares market, which is currently restricted to Chinese nationals and Qualified Foreign Institutional Investors (“QFIIs”) approved by the China Securities Regulatory Commission
Diversification - Investors can gain investment exposure to 50 stocks in one ETF, thereby reducing concentration risk in any single stock
Investment exposure to the 50 largest A-Shares companies listed on SSE - Investors can gain investment exposure to the 50 largest A-Shares companies with good liquidity listed on the Shanghai Stock Exchange
Key Features of the SSE 50
Consists of the 50 largest stocks of good liquidity listed on the SSE
Widely recognised and quoted as a barometer of the China A-Shares market
Represents the performance of the large-cap segment of the China stock market
Invest in China’s Growth via the United SSE 50 China ETF
The strength and resilience of China’s economy has emerged even more clearly in the wake of the global financial crisis and China continues to be one of the fastest growing economies in the world.
China’s Economic Strength and Potential Are Unrivalled
The unprecedented scale of the financial crisis has left almost no economy untouched. As the developed world faces potentially low to negative growth rates going forward, prospects of sustainable growth seem distant and fragile. In contrast, the Chinese economy remains firm and resilient as it looks set to launch into a new growth trajectory. The International Monetary Fund (“IMF”) expects China to grow at a healthy pace of 8.5% in 2009 and 9.0% by 20101
Massive Fiscal Stimulus Expected to Stimulate Domestic Demand
On 9 November 2008, China’s State Council announced a massive RMB 4 trillion (US$590 billion) fiscal package (13% of Gross Domestic Product) to be implemented in 10 areas to stimulate domestic demand2. As a result, real estate, automobile sales, and industrial sales have all rebounded. The Purchasing Manager Index (PMI) has been above 50 for the 8th consecutive month in October 20093, implying sustained expansion in the manufacturing sector
Rise of the Chinese Consumers
The Chinese consumer has proved resilient. With the government stimulus acting as a catalyst, Chinese consumer retail spending continues to post double digit growth on a year on year basis4. While developed markets consumers are forced from spenders into savers, the Chinese government’s efforts in lowering taxes and issuing subsidies have spurred the Chinese, conventionally a nation of savers, to spend. As a result, growth is still spreading across the country despite the decline in exports
Strength of Chinese Companies
Chinese companies are growing rapidly thanks to China’s sterling economic growth since the 1980s. They are also becoming more competitive on a global scale and are buying companies, technology and resources worldwide. Evidence of China’s ascension is everywhere. Three years ago, China did not have a single bank among the world’s top 20, measured by market capitalisation. Today the top three banks are from China5
A-Shares - The Most Direct Way to Invest in China’s Growth
The China A-Shares market is an important segment of China’s stock market. Because China residents have only limited access to foreign security markets, retail investment flows into China A-Shares can be powerful. Participation in A-Shares is currently limited to Chinese nationals and Qualified Foreign Institutional Investors (“QFIIs”) approved by the China Securities Regulatory Commission (“CSRC”)
Invest in 50 Largest Chinese Companies listed on the Shanghai Stock Exchange
The Fund is a convenient way to invest in one of the most dynamic economies in the world. It is also the first China A-Share ETF to be listed on the Singapore Stock Exchange
Currently, the underlying securities to which the SSE 50 relates, may not be directly invested by a non People’s Republic of China person, such as the Fund, unless the person is a Qualified Foreign Institutional Investor (“QFII”) approved by the China Securities Regulatory Commission.
Therefore, instead of holding China A-Shares, the Fund will invest in a type of market access product known as participatory notes (the “P-Notes”) to be issued by suitably rated P-Notes issuer(s). The P-Notes are financial derivative instruments the value of which are linked to the value of a composite portfolio (the “Composite Portfolio”) comprising of an underlying basket of A-Shares held by the relevant QFII. The Composite Portfolio will be constructed by UOB Asset Management (“UOBAM”), as the Managers of the Fund, to track as closely as possible before fees, costs and expenses (including any taxes and withholding taxes) the performance of the SSE 50.
Investors should therefore note that an investment in the Fund is not the same as owning the constituent A-Shares of the SSE 50 as the P-Notes are the obligations of the relevant P-Notes issuer(s), rather than a direct investment in A-Shares. Under the current investment structure of the Fund, Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A. (“Rabobank”) is the sole P-Note issuer while UOBAM and Robeco Institutional Asset Management B.V., (a wholly-owned subsidiary of Rabobank)(“Robeco”) are the relevant QFIIs.
Some of the key risks of an investment in the Fund include:
Risk of over-concentration - One P-Notes issuer (being Rabobank) initially. The Fund may therefore be subject to over-concentration risks of having a single counterparty and be exposed to a higher level of risk than portfolios diversifying their holdings across different issuers
Counterparty risks - Save as described below, the Fund will be exposed to the credit risk of the P-Notes issuer and UOBAM as swap counterparty under the Swap Agreement with Rabobank (acting through its Hong Kong branch (‘Rabobank HK’))
Market risk/Volatility of underlying securities - Market volatility, lack of a liquid trading market and settlement difficulties in the A-Share markets may have adverse effect on the price of P-Notes and net asset value of the Fund
Possible limited duration of the Fund - P-Notes issued at the launch of the Fund launch may settle automatically 3 years after their issue and the duration of the Fund may depend on, among other things, the ability of the Fund to renew the term of the P-Notes. The P-Notes may also be redeemed early by the issuer upon the occurrence of certain events under the terms and conditions of the P-Notes6
Risks relating to the QFII investment quota - Investment quota may be restricted, suspended or halted. Where insufficient investment quota is available, the supply of P-Notes will be affected and may result in the Fund being unable to create further units and/or cause the units to trade at a premium to its net asset value
Legal risks - There is a risk that the assignment/charge of the Rabobank HK’s rights under the Swap Agreement and the collateral to the Trustee for the benefit of the Fund may not be enforceable (or enforcement may be restricted) under applicable laws7. The net asset value of the Fund will be adversely affected to the extent that such securities are not effectively enforced
Tracking error risk - Due to its investment structure, the Fund may experience greater tracking error than typical exchange traded index funds.
Please refer to the Prospectus for further details, including a full description of the above risks as well as other risks that may be associated with an investment into units of the United SSE 50 China ETF.
As of 30 December 2011, the list of constituent stocks of the SSE 50 is as below8:
Constituent Name
Constituent Name
1
China Merchants Bank Co Ltd
26
China Petroleum and Chemical Corp (Sinopec)
2
China Minsheng Banking Corp Ltd
27
Inner Mongolia Baotou Steel Rare-Earth Hi-Tech Co Ltd
3
Ping An Insurance (Group) Company of China Ltd
28
China Life Insurance Company Limited
4
Bank of Communications Co Ltd
29
SAIC Motor Co Ltd
5
Shanghai Pudong Development Bank Co Ltd
30
Baoshan Iron &Steel Co Ltd
6
Industrial Bank
31
China Shipbuilding Industry Co Ltd
7
China Shenhua Energy Co Ltd
32
Gemdale Corporation
8
Kweichow Moutai Co Ltd
33
TBEA Co Ltd
9
CITIC Securities Co Ltd
34
Shandong Gold-Mining Co Ltd
10
Industrial and Commercial Bank of China Ltd
35
Shanxi Lu'an Environmental Energy Development Co Ltd
11
Haitong Securities Company Limited
36
Aluminum Corporation of China Limited
12
China Pacific Insurance (Group) Co Ltd
37
Shanxi Guoyang New Energy Co Ltd
13
China United Network Communications Co Ltd
38
Jiangxi Copper Co Ltd
14
Daqin Railway Co Ltd
39
Western Mining Co Ltd
15
China State Construction Engineering Co Ltd
40
Zhongjin Gold Co Ltd
16
China Construction Bank
41
CSR Co Ltd
17
Bank of Beijing Co Ltd
42
China Coal Energy Co Ltd
18
Agricultural Bank of China Co Ltd
43
Yanzhou Coal Mining Co Ltd
19
Sany Heavy Industry Co Ltd
44
Huatai Securities Co Ltd
20
PetroChina Co Ltd
45
China Railway Co Ltd
21
Poly Real Estate Group Co Ltd
46
China Everbright Bank Co Ltd
22
China Yangtze Power Co Ltd
47
Jinduicheng Molybdenum Co Ltd
23
Anhui Conch Cement Co Ltd
48
China Cosco Holdings Co Ltd
24
Hua Xia Bank Co Ltd
49
Air China Ltd
25
Zijin Mining Group Co Ltd
50
China Hainan Rubber Industry Group Co Ltd
Source : China Securities Index Ltd, Co (30 December 2011)
Sector Breakdown of the SSE 50 (as at 30 December 2011)8
For further information, investors can call 24-hour hotline number at 1800 22 22 228 or
email us at uobam@uobgroup.com Notes 1) Source: International Monetary Fund (IMF), October 2009
2) Source: Bloomberg, Reuters, HSBC, 1st Quarter 2009
3) Source: China Federation of Logistics and Purchasing (CFLP) and China Logistics Information Centre (CLIC), October 2009
4) Source: UBS, 1 September 2009
5) Source: Financial Times, The Decade for Global Banks, 22 March 2009
6) Please refer to Appendix 5 of the Prospectus for further details on the risks and considerations associated with the P-Notes issued by Rabobank)
7) Please refer to the Prospectus for further details
8) The information presented in the table/diagram is subject to change by the index provider. Investors should note that the information relating to the SSE 50 Index was obtained from publicly available documents that have not been prepared or independently verified by UOBAM or Trustee or any of their respective affiliates or advisers in connection with the offering and listing of Units and none of them makes any representation as to or takes any responsibility for the accuracy, timeliness or completeness of the information contained therein. Any liability for errors or omissions in any of the aforementioned table, or for any action taken in reliance on the information contained therein is hereby expressly disclaimed. No warranty of any kind, implied, express or statutory is given in conjunction with the aforementioned table and any information contained therein.
9) For complete information on fees and charges (including fees and charges payable on subscriptions), please refer to the Fund’s prospectus.
Important Notice and Disclaimers This document is for general information only. It does not constitute an offer or solicitation to deal in units in the Fund (“Units”) or investment advice or recommendation and was prepared without regard to the specific objectives, financial situation or needs of any particular person who may receive it. The information contained in this document, including any data, projections and underlying assumptions, are based upon certain assumptions, management forecasts and analysis of information available and reflects prevailing conditions and our views as of the date of the document, all of which are subject to change at any time without notice. In preparing this document, UOBAM has relied upon and assumed, without independent verification, the accuracy and completeness of all information available from public sources or which was otherwise reviewed by UOBAM. While the information provided herein is believed to be reliable, UOBAM makes no representation or warranty whether express or implied, and accepts no responsibility or liability for its completeness or accuracy. Nothing in this document shall, under any circumstances constitute a continuing representation or give rise to any implication that there has not been or there will not be any change affecting the Fund. No representation or promise as to the performance of the Fund or the return on your investment is made. Past performance of the Fund or UOBAM and any past performance or prediction, projection or forecast of the economic trends or securities market are not necessarily indicative of the future or likely performance of the Fund or UOBAM. The value of Units and the income from them, if any, may fall as well as rise. Investments in Units involves risks, including the possible loss of the principal amount invested, and are not obligations of, deposits in, or guaranteed or insured by United Overseas Bank Limited (“UOB”), UOBAM, or any of their subsidiary, associate or affiliate (“UOB Group”) or distributors of the Fund. The UOB Group may have interests in the Units and may also perform or seek to perform brokering and other investment or securities-related services for the Fund.
Investors should note that the Fund is not like a conventional unit trust in that an investor cannot redeem his Units directly with UOBAM and can only do so through the participating dealer, UOB Kay Hian Pte Ltd, (either directly or through his stockbroker) if his redemption amount satisfies a prescribed minimum that will be comparatively larger than that required for redemptions of units in a conventional unit trust. An investor may therefore only be able to realise the value of his Units by selling the Units on the Singapore Exchange (“SGX”). Investors should also note that any listing and quotation of Units on the SGX does not guarantee a liquid market for the Units.
Investors should also note that the investment quota of a QFII (a qualified foreign institutional investor able to participate in the China A-Shares) may be restricted, suspended or halted. Where insufficient investment quota is available, the supply of P-Notes, being the type of China A-Shares access product which the Fund will be investing into, will be affected and may result in the Fund being unable to create further Units (because the Fund is unable to purchase more P-Notes) and/or cause the Units to trade at a premium to its value. Further, as it is intended that the Fund will initially have one P-Notes issuer (being Rabobank), the Fund may be subject to over-concentration risks of having a single counterparty and be exposed to a higher level of risk than portfolios diversifying their holdings across different issuers.The Managers intend to diversify the number of, and the relative exposure of the Sub-Fund to, various other suitably rated P-Notes issuers. However, investors should note that the evaluation process that the Managers will have to conduct on such potential P-Notes issuers will mean that it may take time before new suitably rated P-Notes issuers are identified and signed on. In the event this diversification does not occur, the Fund will remain subject to over-concentration risks. The Fund will also be subject to the credit risks of the P-Notes issuer(s). Such risks are more fully set out in the Fund’s prospectus together with other risks associated with an investment into the Units (including risks inherent in investing in the P-Notes).
An investment in unit trusts is subject to investment risks and foreign exchange risks, including the possible loss of the principal amount invested. Investors should read the Fund’s prospectus, which is available and may be obtained from UOBAM or any of its appointed agents or distributors, before deciding whether to subscribe for or purchase any Units. You may wish to seek advice from a financial adviser before making a commitment to invest in any Units, and in the event that you choose not to do so, you should consider carefully whether the Fund is suitable for you. The Prospectus sets out the methods and procedures through which units in the Fund may be purchased.
