India's path to economic recovery

5 October, 2020

Rana Gupta, Indian Equities Specialists

India has not been spared from the global damage caused by COVID-19 pandemic, with the country’s lockdown contributing to a precipitous drop-in economic activity. However, we believe that the worst is likely behind us, as growth is bottoming out, government policies remain supportive, and virus-related health metrics are stabilising. In this investment note, Rana Gupta and Koushik Pal, Indian Equities Specialists, explain that despite the setback, India should benefit from a path of economic normalisation in the short-term and an acceleration of existing structural drivers, such as formalisation and government reinvestment, over a longer time frame.

Our consistent view on India, even before the COVID-19 outbreak, was that the economy faced a cyclical downturn driven by deceleration in the informal economy and credit slowdown among the non-banking financial companies (NBFCs) due to tighter monetary conditions.

While we had expected an economic recovery in the first half of 2020 on the back of policy support from the "Three R's"¹, the pandemic and subsequent government lockdown stifled any upturn. Consequently, second-quarter GDP fell by approximately 24% year-on-year.

Despite this sharp dip in growth, GDP is a backwards-looking number, reflecting the damage of the strict lockdown implemented in India until June. Since then, the economy has gradually reopened, and many activities are normalising. In our view, the worst is likely behind us for three reasons:

The adverse economic conditions have bottomed out.
Monetary conditions remain benign due to supportive flows and supportive policies.
A more stable COVID-19 situation.

These factors augur well for an ongoing rebound in activity and sequential improvement in economic data after the disruption experienced since March. While the upcoming recovery is expected to be uneven, we remain positive on India’s medium-term growth potential, given formalisation should continue to boost the digital economy, and the government's reinvest policies that should herald a revival in manufacturing.

Hong Kong/Mainland China market update

Despite the market fall, we believe that the China Q4 2023 GDP growth trend has already been priced into the index, with some bright spots being neglected. Mainland China’s four mega trends (i.e., the “4As”) remain intact as better-than-expected inventory destocking and increased policy measures suggest a potential bottoming of the economy.

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Growth has bottomed out, and will likely improve

We believe that GDP growth has bottomed out, and we should see sequential improvements going forward – in the fiscal year 2022², we expect double-digit growth in real GDP. However, the recovery will remain uneven across sectors and geographies. That said, with most urban centres now operating almost normally, our confidence in a resumption of activity has subsequently increased.

Many bottom-up indicators on the demand-and-supply side provide evidence for this thesis. Vehicle sales across all categories have improved (See Chart 1). In addition, a rise in bitumen consumption points to a pick-up in the construction sector, while positive rail-freight growth signifies that industrial activity has also started to normalise, albeit gradually (See Chart 2).

Monetary conditions are benign

Divergence in monetary conditions is the critical difference between the earlier cyclical slowdown and the post-pandemic recovery phase. The Reserve Bank of India (RBI) has aggressively cut rates by 115 basis points (bps) since March 2020. It has also provided the banks with additional LTRO and TLTRO liquidity (roughly 4.5% of GDP) at this lower policy rate and continued to intervene in the bond market to ensure that it functions smoothly⁴.

Domestic monetary conditions have also improved, as India's external account situation remains favourable: the capital and current accounts are in better health, with the country's balance of payments in surplus. From a current account perspective, this is primarily due to a rising share of net exports in electronics and chemicals, as well as falling crude oil prices. Robust inflows are driving the capital account recovery in foreign direct investment and foreign portfolio participation in India’s digital economy and manufacturing revival. As a result, India's foreign-exchange reserves increased from US$457 billion in December 2019 to US$541 billion by the end of August 2020⁵.

Benign liquidity conditions are reflected in money- supply (M1) growth (See Chart 3) and lower rates on both the short and long end of the curve (See Chart 4). In fact, real rates are now in negative territory for the first time in five years.

While we expect credit costs to rise from these levels, they will not be debilitating for the banking sector due to lower rates and ample liquidity. An active and vigilant RBI is likely to prevent any systemic refinancing issues. Most major private banks have also raised capital recently, and their balance sheets are adequately capitalised.

Overall, we expect the credit-transmission mechanism to pick up. This will be driven by a gradual reopening of the economy, the containment of asset-quality deterioration, and the well-capitalised balance sheets of the large private-sector banks. There are also lower nominal rates and negative real rates.

Finally, we do not anticipate any substantial depreciation in the value of the rupee, as better capital flows will help to revive growth. In addition, we do not believe that the trade deficit will expand meaningfully, as the share of domestic manufacturing has improved and should continue to do so.

Confidence in an economic reopening is rising

Beyond the headlines about a high number of confirmed cases, there are a few positives to take away from the pandemic situation in India: case recoveries have notably increased over the past three months, while mortality rates have declined. This has brought the curve of active cases under control. Since July, these factors have combined to increase confidence among the government and the people to resume economic activity, even as cases continue to rise at a headline level.

Overall, despite rising infection numbers, we also sense that the COVID-19 situation is stabilising. Our base case does not foresee any further national lockdowns.

Economic formalisation and reinvestment should drive growth

Over the short-to-medium term, we retain an optimistic cyclical view based on the gradual reopening of the economy. From a mid-to-long-term perspective, we are positive on the structural economic changes being driven by the powerful themes of formalisation through the digital economy and reinvestment in manufacturing. If anything, the pandemic has accelerated these trends; companies across sectors — from consumer staples, retail, healthcare, media, BFSI and even automobile companies have launched innovative digital platforms to engage with customers and find new ways to catalyse revenue growth. These developments have the potential to feed off each other and create the kind of virtuous cycle (see Chart 5) we’ve seen in China and other East Asian economies.

On the one hand, economic formalisation is driving the growth of India’s massive digital economy. In turn, the digital economy is itself propelling the formalisation process by boosting productivity.

We also believe that manufacturing growth is at an inflection point, led by the government’s supportive reinvest policies (incentives and tax cuts for domestic production) and a conducive global environment that is looking for a supply base outside of China. We have already seen a significant amount of investment by international firms, and this structural trend should continue to attract global capital to realise its potential⁸.

As formalisation grows, government revenues should increase, which, in turn, will lead to higher spending on infrastructure. As manufacturing expands, the creation of more formal jobs will drive income growth and consumption, thereby unleashing a virtuous cycle. Together, these themes will serve as strong drivers over the medium term, notwithstanding the recent cyclical challenges.

So far, the fiscal stimulus measures announced in response to the pandemic have primarily focused on liquidity (roughly 4.5% of GDP) and credit-guarantee measures (approximately 2% of GDP)⁹. There has been less of direct fiscal impulse (about 1% of GDP)⁹. Fiscal measures have avoided a broad-based fiscal impulse and focused instead on the provision of basic foodstuffs and income to the most vulnerable sections of society. It is possible that the government may announce additional fiscal measures when the economy is operating at a higher utilisation level to ensure they have a better multiplier impact.

More importantly, the government has concentrated its policy efforts on catalysing a longer-term manufacturing revival and increasing import substitution. These range from additional duties on imports, investment-linked incentives, as well as long-needed simplification of labour laws to improve the ease of doing business in India and incentivise more domestic manufacturing that are in line with the government’s reinvest policies¹⁰. Recently, the aim is to boost domestic manufacturing in sectors such as chemicals, active pharmaceutical ingredients (API), mobile phones, and consumer durables.

Such moves should lead to an increase in fresh investment leading to a recovery in the capital-formation cycle, improvements in employment opportunities, and gains in net exports for India.

Our latest sector views

Based on these changes in the Indian economy, we have updated our sector views:

More constructive on:

Financials: We expect banking asset quality to remain under control, as large private banks have raised capital to strengthen their balance sheets, and the RBI has actively intervened in the market to prevent systemic issues. A positive outlook exists for financial services, as these benefit from higher spending through the formal channels, such as digital (e.g. credit cards), and a revival in car and housing sales (e.g. general insurance).
Consumer discretionary (auto, apparel and food services): As urban areas in India rebound economically, coupled with better results in the recently concluded earnings season, we saw many consumer-related companies show impressive cost control and a structural re-engineering of costs. As the recovery looms, many of these firms should operate with greater efficiency. We should also see auto companies do well as people prefer personal mobility over public transport to maintain safe distancing.
Materials: This is a play on both a resumption in industrial activity in India, through cement, as well as global recovery through metals.
IT Services: The sector continues to benefit from faster digital transformation initiatives, as companies across the globe are trying to reimagine their business models and processes in response to the pandemic.
Structural themes: We are still constructive on macro themes like import substitution plays benefitting from government policy of encouraging domestic manufacturing (Electronic Manufacturing Services, or EMS companies, auto ancillaries), as well as a diversification of production away from China due to the trade war (specialty chemicals and pharma).

Less constructive on:

Communications services and consumer staples where valuations have re-rated ahead of growth expectations, as they were seen to benefit from the lockdown.

The key risk to our view remains a second wave of infections in India, pushing up the active-case growth curve and new lockdowns.

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1 The Three R's are: "Recycle" (privatisation of state-owned enterprises), "Rebuild" (tax cut to corporates and middle-income household) and "Reinvest" (lower tax rate for investments on the ground).

2 The period from 1 April 2021 to 31 March 2022.

3 CEIC, Kotak Institutional Equities, as of 12 September 2020. The April 2020 data for ppassenger vehicle and two-wheeler were not released by the "Society of Indian Automobile Manufacturers".

4 Manulife Investment Management made the GDP estimate. The other analysis comes from the Reserve Bank of India, 31 August 2020.

5 Reserve Bank of India and Bloomberg, as of 31 August 2020.

6 Bloomberg, as of 28 August 2020.

7 Bloomberg, as of 15 September 2020.

8 TIMESNOWNEWS.COM: "$20 billion and counting! Investments attracted by India in 3 months during Covid-19", 16 July 2020.

9 Manulife Investment Management estimates, as of 21 September 2020.

10 The Economic times: "Labour reforms intend to put India among top 10 nations in ease of doing business", 22 September 2020.

Hong Kong/Mainland China market update

Despite the market fall, we believe that the China Q4 2023 GDP growth trend has already been priced into the index, with some bright spots being neglected. Mainland China’s four mega trends (i.e., the “4As”) remain intact as better-than-expected inventory destocking and increased policy measures suggest a potential bottoming of the economy.

Read more
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Some funds may invest in a single country/region and/or a particular industry sector which may be concentrated and subject to greater risks than diversified investments in several countries and/or regions and across sectors.
Some funds may invest directly in certain China A shares via the Stock Connect, which may involve risks related to investments via the Stock Connect and Mainland China investment.
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Some funds with significant exposure to RMB bonds/equity/assets may hold a significant portion of assets in deposits if there are not sufficient RMB instruments to invest in. This may adversely affect the funds’ return and performance.
Some funds using Qualified Foreign Institutional Investor (“QFII”) quota to invest directly in debt instruments/shares in Mainland China may be subject to various requirements and restrictions under the laws of Mainland China related to QFII investment and custodial risks.
Some funds are subject to the risks of investing in other funds and the risks relating to asset allocation strategy and/or downside risk management process.
As RMB is not freely convertible, currency conversion is subject to exchange controls and restrictions. There can be no assurance that RMB will not be subject to devaluation. Insufficient amount of RMB for currency conversion or devaluation of RMB could adversely affect the value of investors’ investments in the RMB denominated class(es) of certain funds. The “Dim Sum” bond market is still a relatively small market which is more susceptible to volatility and illiquidity. Due to RMB concentration risk, the value of the funds with substantial RMB exposure may be more volatile than that of a fund having a more diverse portfolio of investments.
Some funds’ performance will be closely tied to the economic, political, regulatory, geopolitical, market, currency or other conditions in the European Economic Area and may be subject to increased liquidity, price, and foreign exchange risk.
Some funds may invest in Russia and some investments in Russian securities may be unlisted securities not dealt on a regulated market. The Russian market presents specific risks in relation to the settlement and safekeeping of securities.
Investment involves risk. Investors may expose to capital loss and should not invest solely based on the information on this website alone and should read the offering documents for details including the associated risk factors, charges and features of the funds and their share/unit classes. Past performance information is not indicative of future performance.

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Manulife Global Fund is an umbrella fund comprising a number of sub-funds investing in equity and/or fixed income securities, each of which has a different investment objective and risk profile and may involve equity market, geographical concentration, sovereign debt, liquidity, volatility, credit downgrade, interest rate, counterparty risks.
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Certain sub-funds invest in emerging economies or markets, where special risks, including liquidity, volatility, government policies, taxation, currency, currency repatriation, political and regulatory risks, may be substantially higher than the risks normally associated with more developed economies or markets.
Certain sub-funds invest in securities of small and medium sized companies in the relevant markets. This can involve greater risk than is customarily associated with investments in larger and more established companies.
Certain sub-funds concentrate their investments in a single country and/or a particular industry sector are subject to greater risks than diversified investments in several countries and/or regions and across sectors.
Certain sub-funds may invest directly in certain China A shares via Stock Connect, which may involve in risk related to Investments via Stock Connect and Mainland China investment.
Investment involves risk. The sub-funds may expose their investors to capital loss. Investors should not invest solely based on this material and should read the offering document for details including the risk factors, charges and features of the sub-funds and their share classes.
Each sub-fund intends to use financial derivative instruments (“FDIs”) for investment, efficient portfolio management and/or hedging purposes. The use of FDIs exposes the Fund to additional risks, including counterparty/credit risk, liquidity risk, valuation risk, volatility risk and over-the-counter transaction risk.
Given RMB is currently not a freely convertible currency, payment of redemptions and/or dividend payment in RMB may be delayed due to the exchange controls and restrictions applicable to RMB. As offshore RMB (CNH) will be used for the valuation of RMB denominated Class(es), CNH rate may be at a premium or discount to the exchange rate for onshore RMB (CNY) and there may be significant bid and offer spreads and thus the value of the RMB denominated Class(es) will be subject to fluctuation. Any devaluation of RMB could adversely affect the value of investors’ investments in the RMB denominated Class(es) of certain sub-funds.

Manulife Advanced Fund SPC

Manulife Advanced Fund SPC is an umbrella fund comprising a number of sub-funds investing primarily in equity and bond securities, each of which has a different investment objective and risk level.
The sub-funds do not guarantee distribution of dividends, the frequency of distribution, and the amount/rate of dividends. A sub-fund may at its discretion pay dividend out of capital or gross income while charging / paying all or part of its fees and expenses out of its capital. This amounts to a return or withdrawal of part of an investor’s original investment or from any capital gains attributable to that original investment, and may result in an immediate reduction of the net asset value per share of the respective share classes after the distribution date.
Certain sub-funds with significant exposure to Renminbi (“RMB”) bonds/equity/assets or emerging markets, may involve debt instrument, credit/counterparty, concentration, liquidity, volatility, currency, tax, economic, foreign exchange/multi-currency conversion, down-grading, regulatory and political risks and these risks could be substantially higher than the risks normally associated with the world's more established markets.
A bond sub-fund may hold a significant portion of assets in deposits if there are not sufficient RMB instruments for it to invest in. This may adversely affect its return and performance.
Certain sub-funds using invest directly in debt instruments/shares via QFII regime, the Bond Connect and/or the Foreign Access Regime are subject to various requirements and restrictions under the laws of Mainland China related to investment in QFII and/or China Interbank Market and custodial risks.
RMB is not freely convertible and is subject to exchange controls and restrictions.
Certain sub-funds may have significant concentrated exposures to particular industry sectors and geography's, which subjects investors to concentration and equity market risk.
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Manulife Hong Kong Series (“the Series”) is an open-ended unit trust comprising a number of funds primarily investing in equities, debt securities, exchange-traded funds and/or collective investment schemes, each of which has a different investment objective and risk level.
The funds do not guarantee distribution of dividends, the frequency of distribution, and the amount/rate of dividends. Dividends may be paid out of capital and/or out of gross income of certain funds in respect of Inc classes, while charging/paying all or part of certain funds’ fees and expenses to/out of capital of certain funds. This represents a return or a withdrawal of part of an investor's original investment amount or capital gain attributable to that amount. Distributions will result in an immediate decrease in the net asset value of the relevant units. Class AA (RMB) Inc Hedged Unit of certain funds is subject to higher distribution risks than other non-hedged unit classes.
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Certain funds are subject to the risks of investing in other funds and the risks relating to asset allocation strategy and/or downside risk management process.
Certain fund is subject to the risks of investing in other funds and the risks relating to investment in exchange traded funds, Strategic and Tactical Asset Rebalancing Strategy (“STARS”), small- and mid-capped companies, convertible bonds and the risks associated with securitised debt instruments and investments in loss-absorption features. Certain fund is a feeder fund that invests all or substantially all of its assets in another collective investment scheme (the “master fund”) and is therefore subject to the risks of investing in the master fund.
As RMB is not freely convertible, currency conversion is subject to exchange controls, and restrictions. There can be no assurance that RMB will not be subject to devaluation. Insufficient amount of RMB for currency conversion or devaluation of RMB could adversely affect the value of investors’ investments in the RMB denominated class(es) of certain funds. The “Dim Sum” bond market is still a relatively small market which is more susceptible to volatility and illiquidity. Due to RMB concentration risk, the value of the funds may be more volatile than that of a fund having a more diverse portfolio of investments.
Certain fund will not have direct investments other than cash, cash equivalents and financial derivative instruments (such as futures, options and forwards).
Investment involves risk. The funds may expose its investors to capital loss. Investors should not make investment decisions based on this material alone but should read the offering document for details, including the risk factors, charges and features of the Fund and its unit classes.

General Risk Disclosure

Funds offered on this platform may invest in equity, fixed income securities, exchange-traded funds, collective investment schemes and/or other instruments, including derivatives, and each of which has its specific investment objective/ policy with its specific features and different risk profile.
Distribution of dividends, the frequency of distribution and the amount/rate of dividends are not guaranteed. Dividend of certain share/unit classes, at the fund or the investment manager’s discretion, may be paid out of capital or gross income while charging / paying all or part of its fees and expenses out of its capital. This amounts to a return or withdrawal of part of an investor’s original investment or from any capital gains attributable to that original investment, and may result in an immediate reduction of the net asset value per share/unit of the respective share/unit classes after the distribution date.
Some funds may invest in bonds or debt securities which may be subject to credit, liquidity, counterparty and market risks.
Some funds may invest in non-investment grade bonds and unrated securities which may be subject to greater credit and liquidity risks, and may be more volatile than higher rated securities. Some funds may invest in investment grade debt securities, which may be subject to ratings downgrades by the rating agencies that may affect the net asset value of the fund.
Some funds may invest in derivative instruments which may involve additional risks. (For example, leverage may cause greater volatility.)
Some funds may make extensive use of derivatives including more complex derivative instruments or strategies to achieve the investment objective, this may give rise to additional exposure in that performance may rise or fall more than it would have done otherwise. In adverse situations, the fund’s use of derivative instruments may become ineffective and the fund may suffer significant losses. The use of derivatives may give rise to leverage, liquidity, counterparty and valuation risks.
Some funds may invest in emerging economies or markets, where special risks, including liquidity, volatility, government policies, taxation, currency, currency repatriation, political and regulatory risks, may be substantially higher than the risks normally associated with more developed economies or markets.
Some funds may invest in securities of small and/or medium sized companies in the relevant markets. This can involve greater risk than is customarily associated with investments in larger and more established companies.
Some funds may invest in a single country/region and/or a particular industry sector which may be concentrated and subject to greater risks than diversified investments in several countries and/or regions and across sectors.
Some funds may invest directly in certain China A shares via the Stock Connect, which may involve risks related to investments via the Stock Connect and Mainland China investment.
Some funds may have significant exposure to Renminbi ("RMB") bonds/equity/assets or emerging markets, which will be subject to debt instrument, credit/counterparty, concentration, liquidity, volatility, currency, tax, economic, foreign exchange/multi-currency conversion, down-grading, regulatory and political risks and these risks could be substantially higher than the risks normally associated with more established markets.
Some funds with significant exposure to RMB bonds/equity/assets may hold a significant portion of assets in deposits if there are not sufficient RMB instruments to invest in. This may adversely affect the funds’ return and performance.
Some funds using Qualified Foreign Institutional Investor (“QFII”) quota to invest directly in debt instruments/shares in Mainland China may be subject to various requirements and restrictions under the laws of Mainland China related to QFII investment and custodial risks.
Some funds are subject to the risks of investing in other funds and the risks relating to asset allocation strategy and/or downside risk management process.
As RMB is not freely convertible, currency conversion is subject to exchange controls and restrictions. There can be no assurance that RMB will not be subject to devaluation. Insufficient amount of RMB for currency conversion or devaluation of RMB could adversely affect the value of investors’ investments in the RMB denominated class(es) of certain funds. The “Dim Sum” bond market is still a relatively small market which is more susceptible to volatility and illiquidity. Due to RMB concentration risk, the value of the funds with substantial RMB exposure may be more volatile than that of a fund having a more diverse portfolio of investments.
Some funds’ performance will be closely tied to the economic, political, regulatory, geopolitical, market, currency or other conditions in the European Economic Area and may be subject to increased liquidity, price, and foreign exchange risk.
Some funds may invest in Russia and some investments in Russian securities may be unlisted securities not dealt on a regulated market. The Russian market presents specific risks in relation to the settlement and safekeeping of securities.
Investment involves risk. Investors may expose to capital loss and should not invest solely based on the information on this website alone and should read the offering documents for details including the associated risk factors, charges and features of the funds and their share/unit classes. Past performance information is not indicative of future performance.

Manulife Global Fund

Manulife Global Fund is an umbrella fund comprising a number of sub-funds investing in equity and/or fixed income securities, each of which has a different investment objective and risk profile and may involve equity market, geographical concentration, sovereign debt, liquidity, volatility, credit downgrade, interest rate, counterparty risks.
The relevant distributing class of the sub-funds does not guarantee distribution of dividends, the frequency of distribution and the amount/rate of dividends. Dividends may be paid out of income, realized capital gains and/or out of capital of certain sub-funds in respect of Inc share class(es). Dividends may be paid out of realized capital gains, capital and/or gross income while charging all or part of their fees and expenses to capital (i.e. payment of fees and expenses out of capital) in respect of MDIST (G) and R MDIST (G) share class(es). Dividends paid out of capital of these sub-funds amounts to a return or withdrawal of part of the amount of an investor’s original investment or from any capital gains attributable to that original investment and may result in an immediate decrease in the net asset value per share in respect of such class(es) of the sub-funds.
Certain sub-funds invest in emerging economies or markets, where special risks, including liquidity, volatility, government policies, taxation, currency, currency repatriation, political and regulatory risks, may be substantially higher than the risks normally associated with more developed economies or markets.
Certain sub-funds invest in securities of small and medium sized companies in the relevant markets. This can involve greater risk than is customarily associated with investments in larger and more established companies.
Certain sub-funds concentrate their investments in a single country and/or a particular industry sector are subject to greater risks than diversified investments in several countries and/or regions and across sectors.
Certain sub-funds may invest directly in certain China A shares via Stock Connect, which may involve in risk related to Investments via Stock Connect and Mainland China investment.
Investment involves risk. The sub-funds may expose their investors to capital loss. Investors should not invest solely based on this material and should read the offering document for details including the risk factors, charges and features of the sub-funds and their share classes.
Each sub-fund intends to use financial derivative instruments (“FDIs”) for investment, efficient portfolio management and/or hedging purposes. The use of FDIs exposes the Fund to additional risks, including counterparty/credit risk, liquidity risk, valuation risk, volatility risk and over-the-counter transaction risk.
Given RMB is currently not a freely convertible currency, payment of redemptions and/or dividend payment in RMB may be delayed due to the exchange controls and restrictions applicable to RMB. As offshore RMB (CNH) will be used for the valuation of RMB denominated Class(es), CNH rate may be at a premium or discount to the exchange rate for onshore RMB (CNY) and there may be significant bid and offer spreads and thus the value of the RMB denominated Class(es) will be subject to fluctuation. Any devaluation of RMB could adversely affect the value of investors’ investments in the RMB denominated Class(es) of certain sub-funds.

Manulife Advanced Fund SPC

Manulife Advanced Fund SPC is an umbrella fund comprising a number of sub-funds investing primarily in equity and bond securities, each of which has a different investment objective and risk level.
The sub-funds do not guarantee distribution of dividends, the frequency of distribution, and the amount/rate of dividends. A sub-fund may at its discretion pay dividend out of capital or gross income while charging / paying all or part of its fees and expenses out of its capital. This amounts to a return or withdrawal of part of an investor’s original investment or from any capital gains attributable to that original investment, and may result in an immediate reduction of the net asset value per share of the respective share classes after the distribution date.
Certain sub-funds with significant exposure to Renminbi (“RMB”) bonds/equity/assets or emerging markets, may involve debt instrument, credit/counterparty, concentration, liquidity, volatility, currency, tax, economic, foreign exchange/multi-currency conversion, down-grading, regulatory and political risks and these risks could be substantially higher than the risks normally associated with the world's more established markets.
A bond sub-fund may hold a significant portion of assets in deposits if there are not sufficient RMB instruments for it to invest in. This may adversely affect its return and performance.
Certain sub-funds using invest directly in debt instruments/shares via QFII regime, the Bond Connect and/or the Foreign Access Regime are subject to various requirements and restrictions under the laws of Mainland China related to investment in QFII and/or China Interbank Market and custodial risks.
RMB is not freely convertible and is subject to exchange controls and restrictions.
Certain sub-funds may have significant concentrated exposures to particular industry sectors and geography's, which subjects investors to concentration and equity market risk.
Certain sub-funds may invest in equities of small- and mid-capitalization companies, which can expose investors to liquidity and volatility risks, and is subject to greater risk than is customarily associated with investments in larger capitalization companies.
Investment involves risk. The sub-funds may expose to a high risk of capital loss. Investors should not invest solely based on this material and should read the offering document for details including the risk factors, charges and features of the sub-funds.

Manulife Hong Kong Series

Manulife Hong Kong Series (“the Series”) is an open-ended unit trust comprising a number of funds primarily investing in equities, debt securities, exchange-traded funds and/or collective investment schemes, each of which has a different investment objective and risk level.
The funds do not guarantee distribution of dividends, the frequency of distribution, and the amount/rate of dividends. Dividends may be paid out of capital and/or out of gross income of certain funds in respect of Inc classes, while charging/paying all or part of certain funds’ fees and expenses to/out of capital of certain funds. This represents a return or a withdrawal of part of an investor's original investment amount or capital gain attributable to that amount. Distributions will result in an immediate decrease in the net asset value of the relevant units. Class AA (RMB) Inc Hedged Unit of certain funds is subject to higher distribution risks than other non-hedged unit classes.
Certain funds may involve equity market, emerging markets, Dim Sum bond market, concentration, volatility, liquidity, credit, credit ratings, below investment grade and unrated securities, credit rating downgrading, interest rates, valuation, sovereign debt, unlisted debt securities, political and regulatory, currency, foreign exchange, derivative and structured product, hedging, and distribution risks.
Certain funds are subject to the risks of investing in other funds and the risks relating to asset allocation strategy and/or downside risk management process.
Certain fund is subject to the risks of investing in other funds and the risks relating to investment in exchange traded funds, Strategic and Tactical Asset Rebalancing Strategy (“STARS”), small- and mid-capped companies, convertible bonds and the risks associated with securitised debt instruments and investments in loss-absorption features. Certain fund is a feeder fund that invests all or substantially all of its assets in another collective investment scheme (the “master fund”) and is therefore subject to the risks of investing in the master fund.
As RMB is not freely convertible, currency conversion is subject to exchange controls, and restrictions. There can be no assurance that RMB will not be subject to devaluation. Insufficient amount of RMB for currency conversion or devaluation of RMB could adversely affect the value of investors’ investments in the RMB denominated class(es) of certain funds. The “Dim Sum” bond market is still a relatively small market which is more susceptible to volatility and illiquidity. Due to RMB concentration risk, the value of the funds may be more volatile than that of a fund having a more diverse portfolio of investments.
Certain fund will not have direct investments other than cash, cash equivalents and financial derivative instruments (such as futures, options and forwards).
Investment involves risk. The funds may expose its investors to capital loss. Investors should not make investment decisions based on this material alone but should read the offering document for details, including the risk factors, charges and features of the Fund and its unit classes.