Inflation risk
Inflation could erode the purchasing power or the
real value of your investments. The following table shows the effect
of inflation on purchasing power in Hong Kong between 1990 and 2000
- an item costed $100 in early 1990 would have costed $172 in the
last quater of 2000.
Source: Hong Kong Census & Statistics Department
Investment risk
This concerns the possibility that the future value
of your investment can go down. The following table shows that the
possibility of incurring capital loss is higher for equities when
comparing to bonds and cash. At the same time, equities also show
a higher possibility of making capital gains especially in the long
term.
 |
Hang Seng Index |
 |
MSCI AC World US$ |
 |
3-Month HIBOR |
 |
Hong Kong Consumer Price Index (A) |
 |
World Government 5-7 years' US$ Bond Index |
| Source : |
Datastream, Hong Kong Census & Statistics
Department and Salmon Smith Barney |
*The data are shown in the form of indices. For
the first quarter of 1990, all the indices are set at 100.
Inflation risk and investment risk are not the same
Cash involves little investment risk but historically
the return generated by cash is the lowest compared with that of
equities and bonds. In the long term, cash deposit can expose your
asset to the greatest inflation risk.
On the other hand, stocks carry higher investment
risk. Stock prices could fluctuate a lot and in the short term investors
could incur capital loss on stock investments. However, stocks have
historically provided the greatest return when compared with that
of bonds and cash.
| |
Long Term Return |
Investment Risk |
Inflation Risk |
| Equities |
High |
High |
Low |
| Bonds |
Medium |
Medium |
Medium |
| Cash |
Low |
Low |
High |
Investment involves
risks and the prices of units may go down as well as up. Past performance
is not indicative of future returns. Please refer to the Explanatory
Memorandum for further details.
| 
