Find

Home > Private Customers > Investment and savings > Index-linked bonds > Previous index-linked bonds > Index-linked bond China

Index-linked bond China

The Chinese economy has developed strongly despite global recession fears. Foreign capital is flowing to the country, and China is strengthening its position as a major economic power. By investing in index-linked bond China you diversify your investments in a capital protected way into the Chinese equity markets.

Basic and Extra

It is estimated that China’s robust economic growth will continue, although it will slightly slow down from the record speed of the past few years. Despite global recession fears annual economic growth is expected to remain at nearly 10%. Particularly private consumption and investments are still growing strongly and partly compensate the moderate slowdown of exports. Plenty of foreign capital is still flowing to China, and if the economy continues to grow, the country’s position as a major economic and political power will strengthen further.

Rapid economic growth is often closely connected with robustly developing equity markets. Despite rapid economic growth the Chinese equity markets have also suffered from the decline of global equity markets during the past year. The Chinese equities listed in Hong Kong have dropped by an average of circa 50% due to the financial crisis which started last October. In view of the stable growth prospects and the low valuation of equities, we think that the Chinese equity markets are currently at an attractive level. However, it is worth remembering that the risk included in the emerging equity markets is higher than in Western markets.

Index-linked bond China enables you to invest in a capital protected way and diversify purchases and sales in time.*

 

Index-linked bond China is issued by Nordea Bank Finland Plc. Its return is determined by the performance of the underlying, i.e. FTSE/Xinhua China 25. Index-linked bond China is a capital protected way to invest into the Chinese growth markets: if the equity markets rise, the value of your investment will increase. If share prices decrease, you will get the nominal capital back at maturity.

Index-linked bond China has two alternatives: Basic and Extra. The Basic version is suitable for cautious investors. At maturity, its yield is 87% of the rise of the underlying asset in accordance with the issue terms. Extra suits investors who tolerate limited risk and seek a higher return. The yield on the investment at maturity is 135% of the rise of the underlying asset in accordance with the issue terms. If the underlying asset falls or remains unchanged, no yield is paid and the investor loses the amount paid above par value (in the Extra bond about 10%).

The investment period of both index-linked bonds is approximately five years, and the nominal capital is repaid at maturity irrespective of the performance of the reference index. The investment can also be realised before maturity, in which case the value may be above or below the nominal value depending on market performance. Index-linked bonds involve a risk of the issuer’s repayment ability. Nordea’s credit rating is Aa1 (Moody´s) or AA- (Standard & Poor’s).

Product summary

Maturity	Short	Medium		Long
Capital guarantee	Full*	Partial**		None
Asset class	Interest rate	Credit	FX	Commodity	Equity

* China Basic
** China Extra has a limited capital risk (price above par ca. 10%)

Underlying asset: FTSE/Xinhua China 25 Index

FTSE/Xinhua China 25 is a market value weighted index including the 25 biggest and most traded companies in China, which are traded in Hong Kong. The biggest industries in the index are telecommunications, financials and energy. Further information on the index is available on the Internet at www.ftsexinhua.com.

* The starting value of the investment is counted as an average of the monthly values of the underlying asset during the first six months (November 2008 – May 2009). This diversification of the purchasing time includes the view that share prices may still decrease in the short term. If the underlying asset decreases during the first six months, the averaged starting value makes a more favourable starting level possible. The end value is counted from the semi-annual observations of the underlying asset (October 2010 – October 2013) and can be interpreted as a diversification of the sales time.

Performance of underlying asset 9’2003 – 9’2008
(Starting level indexed at 100)

Source: Bloomberg
The presented figures describe previous yield or value performance and no reliable assumptions on future yield or value can be made based on them.

Nordea Markets is the name of the Markets departments of Nordea Bank Norge ASA, Nordea Bank AB (publ), Nordea Bank Finland Plc and Nordea Bank Danmark A/S.

The information provided herein is intended for background information only and for the sole use of the intended recipient. The views and other information provided herein are the current views of Nordea Markets on the date of this document and are subject to change without notice. This notice is not an exhaustive description of the described product or the risks related to it, and it should not be relied on as such, nor is it a substitute for the judgement of the recipient.

The information provided herein is not intended to constitute and does not constitute investment advice nor is the information intended as an offer or solicitation for the purchase or sale of any financial instrument. The information contained herein has no regard to the specific investment objectives, the financial situation or particular needs of any particular recipient. Relevant and specific professional advice should always be obtained before making any investment or credit decision. It is important to note that past performance is not indicative of future results.

Nordea Markets is not and does not purport to be an adviser as to legal, taxation, accounting or regulatory matters in any jurisdiction.

This document may not be copied, distributed or published for any purpose without a prior consent in writing of Nordea Markets.

Terms of issue in brief

Issuer	Nordea Bank Finland Plc
Issue date	29 September 2008
Due date	7 November 2013
Subscription period	29 September – 6 November 2008
Places of subscription	Nordea Bank Finland Plc and its branches in the Baltics
Subscription price	Basic 4168A: variable, about 100% Extra 4168B: variable, about 110%
Minimum subscription	EUR 1,000
Yield at maturity	Basic 4176A: 87% of the rise of the underlying asset in accordance with the issue terms Extra 4176B: 135% of the rise of the underlying asset in accordance with the issue terms
Underlying asset	FTSE/Xinhua China 25 (BB: XIN0I Index)
Starting value	The average of the monthly closing values of the underlying asset 12 November 2008 – 12 May 2009
Closing value	The average of the semi-annual closing values of the underlying asset from 23 October 2010 to 23 October 2013.
Repayment of the principal	The issuer Nordea Bank Finland Plc will repay the nominal principal of the bonds in full at maturity irrespective of the performance of the underlying asset. The bonds involve a risk of the issuer’s repayment ability.
Early redemption	Early redemption is possible only if a hedging instrument has to be dissolved due to amendments to law or legal praxis.
Security	The bonds are unsecured.
Structuring cost	The subscription price includes a structuring cost, which is about 0.9% p.a. (see the issue terms). No separate subscription or management fee is charged on the bonds.
Secondary market	The issuer Nordea Bank Finland Plc quotes a monthly repurchase price for the bonds, which may be lower or higher than the nominal value.
Taxation	No tax is deducted at source for non-residents in Finland.
Custody	Free of charge with Nordea Bank Finland Plc.
Cancellation of the issue	The issuer has the right to cancel the issue based on changes in the economic circumstances, or if the total amount of subscriptions is low, or if something should occur which the issuer considers might endanger the issue.

An application will be made for the bonds to be listed on the Helsinki Stock Exchange.

Yield table for the index-linked bonds China Basic and China Extra

Change in the reference asset according to the terms of the issue	China Basic		China Extra
	Issue price ca.	100 %	Issue price ca.	110 %
	Participation rate	87 %	Participation rate	135 %
	Value at maturity	Return p.a	Value at maturity	Return p.a
-50 %	100 %	0.0 %	100 %	-1.9 %
-25 %	100 %	0.0 %	100 %	-1.9 %
0 %	100 %	0.0 %	100 %	-1.9 %
25 %	122 %	4.0 %	134 %	4.0 %
50 %	144 %	7.5 %	168 %	8.8 %
75 %	165 %	10.6 %	201 %	12.8 %
100 %	187 %	13.3 %	235 %	16.4 %

Loans 4176A and 4176B under the MTN programme (a medium term note programme reported to the Finnish Financial Supervision Authority from Sweden in accordance with the Prospectus Directive) of Nordea Bank AB (publ) and Nordea Bank Finland Plc dated 7 June 2007. The loan-specific terms are available at the places of subscription.

Growth will slow down moderately – risks of overheating will decrease

The Chinese economy has continued to grow robustly. However, after several years of strong growth there seems to be signs of moderate slowdown in the Chinese economy. In the past few years, the main goal of the government has been quieting down economic growth and curtailing overheating. Measures taken have included the tightening of monetary policy in order to curb inflationary pressures, the introduction of a more flexible exchange rate system in order to slow down exports and cuts in several export subsidies and VAT discounts.

It seems that the goal has been reached. The slowdown of global economy and the strengthening of the Chinese currency have caused forceful pressure on net exports. Additionally, rising inflation has slowed down since the beginning of the year when it accelerated strongly mainly due to the rise in food prices. Thus, there is no reason to expect that regulations on monetary policy and export would be tightened up more. As a matter of fact, both may be eased again.

Private consumption benefits now from the significant increase in purchasing power, and as the standard of living has also generally risen, the total consumption starts to cover more and more products, which were previously considered as luxury items (for example, cars). Government spending is also growing rapidly, which maintains economic growth, and building activities after the earthquake in Sichuan in May adds momentum to investments both in 2008 and 2009.

Despite the global credit crisis also foreign capital is still flowing to China. As the Chinese current account is also clearly on the surplus, the country´s exchange reserves continue to grow like in the past few years. If the exchange reserves grow at the current speed during the two-year forecast period, they may expand to the incredible 3000 billion dollars, and strengthen thus China´s position as a major economic and political power.

Source: Nordea Economic Research