Note: The difference in the net values of RMB subscription unit and the RMB redemption unit is due to the use of different applicable rates.  For details, please refer to the prospectus.

Frequently asked questions on the Asia Wealth Creation Choice Fund

Recently, CCB has from time to time received queries on the Asia Wealth Creation Choice Fund.  For this, we would like to thank our investors for their interest.  In order that our investors have better understanding of the operation of this product, we are summarising our answers to the various questions as follows:

1.   Renminbi is used for subscribing this product.  What currencies are used in investing locally, for example, in Hong Kong, Indian and China?

A:   The Asia Wealth Creation Choice Fund invests mainly in a basket of single country market funds and money market funds in the Asian Pacific region.  Although the price of this product is reckoned in renminbi, in investing in equity funds in various local markets, conversions to the respective local currencies will first be carried out.

2.    This year, the trend is for renminbi to appreciate against the US dollar.  How would this affect this product and what countermeasures will you be taking?

A.   It is expected that in the coming year, renminbi will keep on appreciating against the US dollar.  As far as exchange rate policy is concerned, all central banks (including the People’s Bank of China) have a common responsibility and duty, that is, to ensure that fluctuations in exchange rates in their respective country are within control (no matter it is appreciation or depreciation).

Judging from the trend of other Asian currencies with respect to the renminbi, it can be discerned that, since China’s exchange rate reform, the main Asian currencies are all appreciating in step with the renminbi.  In particular, appreciation of the Thai baht, the Malaysia ringgit, the Philippine peso and the Singapore dollars are all much greater than that of the renminbi.  Investing in the markets of these countries not only allows higher returns in the respective local markets but also brings in additional earnings from changes in exchange rates.  Therefore, compared to products investing in American and European markets, this product is exposed to significantly less currency risk.

From the following diagrams, it can be seen that Asian currencies have substantial potentials for appreciation:

[汇率趋势—Currency Exchange Trends

三个月平均移动线—3-month Moving Average

实质有效效率—Real Effective Exchange Rate (REER)

名义有效效率—Nominal Effective Exchange Rate (NEER)

上升=升值—Rise=Appreciation

来源--Source

亚洲货币按购买力计算是否高估/低估—Estimation of Over or Under-valuation of Asian Currencies According to Purchasing Parity Calculations]

3.    Currently, fluctuations in global financial markets are getting more violent.  Under such circumstances, what are the considerations of CCB’s Asia Wealth Creation Choice Fund in choosing Asia markets for investment?

A:   There are four main considerations in deciding to invest in Asia:

First, around the world, Asia has the highest rate of economic growth and the largest potential for further growth.  On the one hand, Asian markets in the last few years have far out-performed those in Europe and America and, with average returns of 33.4% in the last three years, Asian stocks have outraced the global index and the Standard & Poor indices for three consecutive years.  Thus their excellent performance is apparent to everyone.  On the other hand, economic growth of many Asian countries is just beginning and, at such a prime age of economic development, their potentials for further development are huge.  Moreover, with an average P/E ratio of their stock markets at a mere 15.3 (according to JP Morgan Chase’s research report on September 17th 2007), momentum for follow-on growth is strong.  As such, it is perhaps an excellent investment opportunity.

Second, it is apparent that the Asian economies are complementary to each other, and complementation in advantages can provide extra stability in the economic development of the whole region.  Meanwhile, since our scope of investment covers the whole of Asia (including Australia), we can effectively avoid or lower investment risks brought about economic fluctuations in any one location.  So, in comparison to products investing solely in Hong Kong stocks or A-shares, the Asia Wealth Creation Choice Fund has a much higher degree of risk dispersion.

Third, with the incessant inflow of foreign funds, Asian currencies are generally appreciating.  In fact, many of them are appreciating much more against the US dollar than the renminbi.

Fourth, the recent sub-prime crisis in the US is having serious impacts on European and American markets, so much so that Alan Greenspan has recently expressed his concerns in this matter in a very pessimistic tone.  Asian markets, however, are relatively untouched by the crisis and so investing in Asia at this juncture is a relatively safer choice.

Judging from the performance of stock markets of Asian and those of the world as a whole, we have already given full consideration to the potentials in investment opportunities, growth and safety of the various markets in designing this product and have tried our best in providing a chance of obtaining higher earnings to our investors under reasonable risk conditions.

4.    What are the prospects of the Asian stock markets and the Chinese stock markets?

A:   As a whole, the basics of the stock markets in the Asian Pacific region are sound and foreign funds are infusing into marketing continuously.  Therefore, in the long term, it is the most favoured region for investment by institutional investors including JP Morgan Fleming, the overseas investment manager of the Asia Wealth Creation Choice Fund.  The Asian market consists of a number of youthful and vigorous countries like India, South Korea, Singapore, Philippine, Indonesia, etc.  With an average economic growth rate of above 8% in the next few years, their potentials for development is huge.  In addition, the economic significance of Asian countries and locations are growing with time.  For example, China is already the most important manufacturing hub of the world, while India is the top software development centre globally.  Likewise, Taiwan and South Korea have long established themselves as the world’s key locations for the research, design and development of electronic products, and Singapore has in recent years become the Asian headquarters of European private banks wanting to develop their business in the region.  These all demonstrate that Asian countries are playing a more and more prominent role in the global economy.

Some differences in structure of Asian stock markets and the A share markets are as follows:

*     The Asia Pacific region include such countries or locations as Australia, New Zealand, Hong Kong, India, Indonesia, South Korea, Malaysia, Philippine, Singapore, Taiwan, Thailand, Pakistan and Vietnam.  The indexes used include the MSCI AC Asia Pacific ex Japan Index, the SSE A-share Index and the Hang Sang China Enterprises Index.

**   The fluctuation for the Asia Pacific region is reckoned in US dollars, while that for A shares and H shares are reckoned at the local currencies.

*** As reckoned by the JP Morgan Asia Currency Index.

Sources of data: Thomson Datastream, Bloomberg, JP Morgan Securities and Factset.

5.    If there are major changes in the political-economic relationship in China and in locations where the Fund is invested, what are the impacts to the Fund and what countermeasures will CCB take?

A:   The “JP Morgan Asia Wealth Creation Choice” Fund mainly invests in a number of Asian locations and sectors and investment targets include but are not restricted to a basket of single country market funds and money market funds in the Asian Pacific region, and the performance of these markets is related to that of the Chinese stock markets in a definite way.  Therefore, in terms of investment targets and investment markets, the Fund has already been sufficiently diversified, and such diversification of investment has rendered this Fund relatively unaffected by fluctuations in a single market.  In addition, there is also the use of such financial derivatives as index futures to hedge against market downturn risks.  From this point of view, diversification of assets and the flexible use of hedging measures have allowed fairly good aversion of risks and minimisation of impact to the whole portfolio caused by market fluctuations in any single market.  In addition, as at September 30th 2007, at JP Morgan Fleming Asset Management, the overseas investment manager of this Fund, there are 67 investment professionals each with an average 13 years of investment experience stationing in seven offices around the Asia Pacific region.  Having been in the business of investment management in Asia for over 35 years, JP Morgan Fleming is therefore in a position to grasp the market situation at any moment and carry out in-depth analysis of the various markets.  It can therefore obtain a lot of market data for making judgment of individual markets and keeping abreast of their latest situations.  To sum up, we are of the opinion that, even if drastic changes in any one investment location may have an impact on the performance of the Fund, we can make use of the advantage of our investment manager in the Asia Pacific region to carry out effective risk controls.

6.    At a time when Chinese A-share funds are already producing earnings, what are the situations of the funds invested by CCB?

A:   The latest operation and performance of the Asia Wealth Creation Choice Fund are available for checking on CCB’s website every Thursday.  A-share funds and the Asia Wealth Creation Choice Fund are basically different types of products investing in different markets, so by nature there is not much to compare them about.  Currently, the Asia Wealth Creation Choice Fund mainly invests in a basket of Asian single-market equity funds such as those in Hong Kong, India and Indonesia and is employing financial derivatives such as index futures to hedge against risk of stock market downturns in any single market.  By contrast, Chinese A-share funds are mainly investing in the A-share markets in China, so they have quite dissimilar investing styles.

7.    In designing the structure of this product, CCB has introduced the concept of “fund of funds”.  What advantages does such a structure impart to the product?

A:   The structure of the Asia Wealth Creation Choice Fund has been meticulously thought over at the designing stage.  It is widely known that, according to the stipulations of the China Banking Regulatory Commission, QDII products of domestic banks are allowed to invest in funds which are registered, publicly traded or approved in Hong Kong.  Since no investment ratio is specified for investing in equity-typed assets, 100% allocation to equity-type funds is allowed.  Since funds registered in Hong Kong are varied in types and extensive in investment areas, by investing in overseas markets through this product, investors not only can economise on investment costs but can also reap earnings from upturns of foreign markets by relying on the experience of investment experts.  The term “fund of funds” implies that investment targets for this fund is other funds.  One advantage of this fund is that it offers two layers of risk dispersion; another advantage is that it can benefit from two tiers of professional management.  Historical data reveal that, there have been violent fluctuations in the Standard & Poor’s 500 Index from 1990 to 2005: in the period from 1997 to 2000, it had grown substantially by over 300%, but, after the bursting of the Internet bubble in 2000, it had retreated in big strides.  In contrast, returns of portfolio type funds in general managed to maintain a steady upward trend even in face of the drastic downturn of the Standard & Poor’s 500 Index after 2000.  In the long term, by diversifying investments in different markets, a portfolio fund can offer more stable earnings.

8.    This product is mainly investing in related funds in the Asia markets and, in particular, all of the funds are JP Morgan Fleming ones.  Would there be any danger of over-centralisation?

A:   With over 30 years of experience in Hong Kong under its belt, JP Morgan Fleming Asset Management is now an expert in investing in the Asian Pacific markets.  It has a large number of funds in any one country, in any business sector or in medium or small cap stocks in the Asian Pacific region, so much so that it has funds in practically every major Asian market.  So there is no problem of our investment being too centralised.  Quite the opposite, our investment is very flexible.  If there is any drastic market downswing in any one country or location, investments in that country or location can be quickly shifted to other markets within Asia for flexible allocation.

Before deciding to cooperate with such an experienced company as JP Morgan Fleming Asset Management, we have carried out lengthy and in-depth studies of its professional capability, business ethics, decision mechanism and risk control.  In addition, we have also considered such factors as transaction costs, cash flow efficiency and operability, etc before deciding on investing in JP Morgan Fleming funds.

In the detailed investment management agreement signed between CCB and JP Morgan Fleming Asset Management, there are stringent stipulations on the rights and obligations of both parties.  In addition, to further standardise the operation of this product and to monitor investment and management practices, a quadra-partite agreement has been entered by CCB, JP Morgan Fleming Asset Management, Bank of Communications (as domestic custodian) and North American Trust (as offshore custodian).

9.    When can one expect to see positive earnings from the investment (Please give relatively precise time indications, not macro-economic analysis)?

A:  The Asia Wealth Creation Choice Fund is not a fixed income product and its aim is to create long-term returns of value to investors.  We suggest that investors should first make an assessment of their requirements for investment earnings, for example, how much market fluctuation can they tolerate, in how much time can they expect to obtain how much earnings, etc and then decide whether a certain type of product fits in with their particular investment characteristics.  In addition, we are pleased to inform our investors that, in the three months after its inception, the investment earnings of Asia Wealth Creation Choice Fund in US dollar terms have always been positive.  Also, the performance of similar funds issued in Hong Kong on September 10th 2006 is better than that of QDII products issued in the Mainland in the same period.  Moreover, the investment manager has an excellent track record.  For example, since it inception (in 1971), the JF Oriental Fund (one of the earliest funds JP Morgan Fleming has invested in Asia) issued by JP Morgan Fleming in Hong Kong has, as of today (December 2007), achieved a return of 288 times its original investment after 30 plus years of operation.  We believe that this investment manager can bring stable long-term incomes to our investors.