MARKET RISKS IN THE LEVEL OF FUND INCOMES
Prices on the short-term financial market are affected by economic factors, political factors, investment psychology, trading system and various other factors, which may lead to variation of the level of fund incomes and produce risks. The risks in this aspect will mainly include the follows:
1. Policy. Changes in the state's macro-economic policies (e.g. monetary policy, financial policy, industrial policy, regional development policy, etc.) may lead to the fluctuation of market prices and produce risks.
2. Interest Rate Change. The fluctuation of interest rate on the financial market may lead to the change of price and yield on the securities market. Interest rate directly affects the prices and yields of bonds and the financing costs and profits of enterprises.
3. Credit. This risk mainly means the risk of debtor's breach of contract. If a debtor becomes insolvent for poor operation, the creditor may lose most investment. This risk mainly exists in business debts.
4. Bond Yield Curve Change. The risk arising from the change of bond yield curve means the risk related to the non-parallel move of yield curve. The single duration index cannot fully show the existence of this risk.
5. Reinvestment. The risk of reinvestment reflects the impact of the drop of interest rate on income from reinvestment with the interest income of fixed-income securities. This risk and the price risk brought about by the rise of interest rate (i.e.
the interest rate risk referred to above) have a relation that this grows and the other declines. To be accurate, when interest rate drops, the Fund will get a lower yield when making reinvestment with the interest income from the fixed-income
securities in which the Fund has made investment.
6. Fluctuation. The risk of fluctuation mainly exists in investment in convertible bonds and shows itself as the impact of the fluctuation of the corresponding stock prices on the price of convertible bonds.