HSBC Saudi Freestyle Equity Fund Interim Report - H1 2020

Transcription

1. INTERIM REPORT – H1 2020 - HSBC Saudi Freestyle Equity Fund - *FUND REPORTS ARE AVAILABLE UPON REQUEST FREE OF CHARGE
2. Table of Contents A . Management Information ........................................................................................................ 3 B. Detailed Fundamental, Material, Notifiable, or Significant Changes Made on the Fund’s Terms and Conditions During the Year................................................................................................. 4 C. Investment Activities of the Period ........................................................................................... 4 D. Commentary on Investment Fund’s Performance During the Period ......................................... 4 E. Valuation or Pricing Errors during the Year ............................................................................... 4 F. Any Additional Information that Might Enable Unit Holders to Make Informed Decisions ....... 4 G. Distribution of Management Fees ............................................................................................ 5 H. Special Commission Received by Fund Manager ....................................................................... 5 2
3. A . Management Information HSBC Saudi Freestyle Equity Fund 1. Fund Name 2. Fund Manager Name Address 3. Fund Sub-Manager (if any) Name Address 4. Advisor (if any) Name Address 3 HSBC Saudi Arabia 7267 Olaya, AlMurooj Riyadh 12283-2255 Kingdom of Saudi Arabia Phone: 920022688 Fax: +966112992385 Website: www.hsbcsaudi.com None None
4. B . Detailed Fundamental, Material, Notifiable, or Significant Changes Made on the Fund’s Terms and Conditions During the Period Date Change 11-Mar-20 Appointment of Ms. Areej Almokbel as a new independent fund board member and updating the financial information of the fund and HSBC SA 21-May-20 Resignation of Ms. Areej Almokbel as independent fund board member C. Investment Activities of the Period During H1 of 2020, the Fund significantly decreased its exposure to the banking sector on the ground of decrease in interest rate, increase in provisions, decrease in interest margins, and uncertainty about the capability of the banking sector to maintain the same dividends distribution level. The Fund further decreased its exposure to the basic material sectors due to continuous decrease in petrochemicals products prices and export-oriented products profitability margins which were greatly impacted due to sharp decrease in demand. Furthermore, the Fund decreased its exposure to a number of sectors to increase cash of the Fund to confront decrease in benchmark performance. D. Commentary on Investment Fund’s Performance During the Period During H1 of 2020, S&P Saudi Equity Shariah Index decreased by 87.24%. The first half of 2020 seen a spread of COVID-19 pandemic worldwide, causing global economic crisis and resulting into several implications starting from dropdown of oil prices to less than 20 dollars per barrel, then reducing interest price to around zero by USA Federal Reserve Board and stopping majority of commercial activities globally, which were reflected into Saudi economy. The Kingdom taken severe financial procedures to confront damages caused by this pandemic. During the period, the market reached lower level, 803.1 points and the first half was closed at 976.9 points, due to improvement in oil prices. The oil prices increased upwards to 40 dollars per barrel with the closure of the first half of 2020. During the period, the Fund decreased by 5.22% as compared to the performance of the benchmark index, which decreased by 7.24%. E. Valuation or Pricing Errors during the period None. F. Any Additional Information that Might Enable Unit Holders to Make Informed Decisions that are Based on Sufficient Information about the Fund During the Year There is no additional information to be disclosed; however, investors need to read and understand the Fund’s Terms and Conditions and all related documents and/or obtain advice from their own legal, regulatory, tax, and/or investment advisors. 4
5. G . Distribution of Management Fees (only if the fund is substantially investing in other funds) Not Applicable. H. Special Commission Received by Fund Manager (if any, including what they are and the manner in which they were utilized) The Fund Manager receives reports published by HSBC SA Brokerage which are accessible to all HSBC SA Brokerage clients. In addition, HSBC SA Brokerage facilitates meetings between the Fund Manager and listed companies in the Saudi market upon request. 5
6. HSBC SAUDI FREESTYLE EQUITY FUND (An open-ended mutual fund) Managed by HSBC Saudi Arabia Interim condensed financial statements For the six-month period ended 30 June 2020 together with the Independent auditor’s review report
7. HSBC SAUDI FREESTYLE EQUITY FUND (An open-ended mutual fund) Managed by HSBC Saudi Arabia Interim condensed financial statements For the six-month period ended 30 June 2020 INDEX PAGE Independent auditor’s review report 1 Interim condensed statement of financial position 2 Interim condensed statement of comprehensive income 3 Interim condensed statement of changes in net assets (equity) attributable to the unitholders 4 Interim condensed statement of cash flows 5 Notes to the interim condensed financial statements 6-12
8. KPMG Al Fozan & Partners Certified Public Accountants Riyadh Front, Airport road P. 0. Box 92876 Riyadh 11663 Kingdom of Saudi Arabia Telephone +966 (011) 874 8500 Fax +966 (011) 874 8600 www.kpmg.com/sa Internet Licence No. 46/11/323 issued 11/3/1992 Independent auditor's review report on the interim condensed financial statements To the unitholders of HSBC Saudi Freestyle Equity Fund Introduction We have reviewed the accompanying 30 June 2020 interim condensed financial statements of HSBC Saudi Freestyle Equity Fund ("the Fund"), managed by HSBC Saudi Arabia ("the Fund Manager"), which comprises: • • • • • the condensed statement of financial position as at 30 June 2020; the condensed statement of comprehensive income for the six months period ended 30 June 2020; the condensed statement of changes in net assets (equity) attributable to the unitholders for the six months period ended 30 June 2020; the condensed statement of cash flows for the six months period ended 30 June 2020; and the notes to the interim condensed financial statements. The Fund Manager is responsible for the preparation and presentation of these interim condensed financial statements in accordance with the International Accounting Standard 34: Interim Financial Reporting ("IAS 34") that is endorsed in the Kingdom of Saudi Arabia and to comply with the applicable provisions of the Investment Fund Regulations issued by the <;;apital Market Authority, the Fund's Terms and Conditions and Information Memorandum. Our responsibility is to express a conclusion on these interim condensed financial statements based on our review. Scope of review We conducted our review in accordance with the International Standard on Review Engagements 2410: Review of Interim Financial Information Performed by the Independent Auditor of the Entity ("ISRE 241O") that is endorsed in the Kingdom of Saudi Arabia. A review of interim condensed financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with the International Standards on Auditing ("ISA") that are endorsed in the Kingdom of Saudi Arabia, and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Conclusion Based on our review, nothing has come to our attention that causes us to believe that the accompanying 30 June 2020 interim condensed financial statements of HSBC Saudi Freestyle Equity Fund are not prepared, in all material respects, in accordance with IAS 34 that is endorsed in the Kingdom of Saudi Arabia. For KPMG Al Fozan & Partners Certified Public Accountants Hani Hamzah A. Beda License No. 460 Date: 5 Muharram 1442H Corresponding to: 24 August 2020 KPMG Al Fozan & Partners Certified Public Accountants, a registered company in the Kingdom of Saudi Arabia, and a non­ partner member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative, a Swiss entity.
9. HSBC SAUDI FREESTYLE EQUITY FUND (An open-ended mutual fund) Managed by HSBC Saudi Arabia Interim condensed statement of financial position As at 30 June 2020 (Amounts in Saudi Arabian Riyal) Note ASSETS Cash at bank Investments at fair value through profit or loss (FVTPL) Receivables and advances TOTAL ASSETS LIABILITIES Accrued expenses As at 30 June 2020 (Unaudited) As at 31 December 2019 (Audited) 10 11 57,475,640 229,510,420 2,901,411 289,887,471 9,582,334 310,951,436 4,865,453 325,399,223 13 263,991 698,773 263,991 698,773 289,623,480 324,700,450 13,834,247 14,700,798 TOTAL LIABILITIES NET ASSETS (EQUITY) ATTRIBUTABLE TO THE UNITHOLDERS Units in issue (numbers) Net assets value (equity) per unit – Dealing 17 20.94 22.09 Net assets value (equity) per unit – IFRS 17 20.94 22.09 The accompanying notes 1 to 20 form an integral part of these interim condensed financial statements. 2
10. HSBC SAUDI FREESTYLE EQUITY FUND (An open-ended mutual fund) Managed by HSBC Saudi Arabia Interim condensed statement of comprehensive income (Unaudited) For the six-month period ended 30 June (Amounts in Saudi Arabian Riyal) Note INVESTMENT INCOME Net (loss) / gain on investments at FVTPL Dividend income TOTAL INVESTMENT (LOSS) / INCOME EXPENSES Management fees Other expenses TOTAL EXPENSES NET (LOSS) / INCOME FOR THE PERIOD Other comprehensive income for the period TOTAL COMPREHENSIVE (LOSS) / INCOME FOR THE PERIOD For the six-month period ended 30 June 2020 2019 12 (17,962,785) 4,463,488 (13,499,297) 37,183,101 7,363,178 44,546,279 14 2,539,651 208,567 2,748,218 3,038,599 -3,038,599 (16,247,515) 41,507,680 -- -- (16,247,515) 41,507,680 The accompanying notes 1 to 20 form an integral part of these interim condensed financial statements. 3
11. HSBC SAUDI FREESTYLE EQUITY FUND (An open-ended mutual fund) Managed by HSBC Saudi Arabia Interim condensed statement of changes in net assets (equity) attributable to the Unitholders (Unaudited) For the six-month period ended 30 June (Amounts in Saudi Arabian Riyal) For the six-month period ended 30 June 2020 2019 Net assets (equity) attributable to the unitholders as at the beginning of the period 324,700,450 355,400,254 Net (loss) / income for the period (16,247,515) 41,507,680 Contributions and redemptions by the Unitholders: Proceeds from issuance of units Payments for redemption of units Net change from unit transactions 24,148,441 (42,977,896) (18,829,455) 13,694,505 (82,885,729) (69,191,224) Net assets (equity) attributable to the unitholders as at 30 June 289,623,480 327,716,710 UNIT TRANSACTIONS Transactions in units for the period ended 30 June are summarised as follows: For the six-month period ended 30 June 2020 2019 in numbers Units at the beginning of the period 14,700,798 19,596,665 Units issued during the period Units redeemed during the period Net decrease in units 1,135,688 (2,002,239) (866,551) 684,624 (4,197,124) (3,512,500) Units as at end of the period 13,834,247 16,084,165 The accompanying notes 1 to 20 form integral part of these interim condensed financial statements. 4
12. HSBC SAUDI FREESTYLE EQUITY FUND (An open-ended mutual fund) Managed by HSBC Saudi Arabia Interim condensed statement of cash flows (Unaudited) For the six-month period ended 30 June (Amounts in Saudi Arabian Riyal) Note For the six-month period ended 30 June 2020 2019 Cash flows from operating activities Net (loss) / income for the period (16,247,515) 41,507,680 33,381,214 17,133,699 (4,636,166) 36,871,514 48,059,803 1,964,041 (434,782) 66,722,761 48,974,510 4,558,913 (1,576,310) 88,828,627 24,148,441 (42,977,896) (18,829,455) 13,694,505 (82,885,729) (69,191,224) 47,893,306 19,637,403 Cash and cash equivalents at the beginning of the period 9,582,334 1,129,922 Cash and cash equivalents as at the end of the period 57,475,640 20,767,325 Adjustment for: Unrealised loss / (gain) on investments at FVTPL 12 Net change in operating assets and liabilities Decrease in investments at FVTPL Decrease in receivables and advances Decrease in accrued expenses Net cash generated from operating activities Cash flows from financing activities Proceeds from issuance of units Payments for redemption of units Net cash used in financing activities Net increase in cash and cash equivalents The accompanying notes 1 to 20 form integral part of these interim condensed financial statements. 5
13. HSBC SAUDI FREESTYLE EQUITY FUND (An open-ended mutual fund) Managed by HSBC Saudi Arabia Notes to the interim condensed financial statements (Unaudited) For the six-month period ended 30 June 2020 (Amounts in Saudi Arabian Riyal) 1 GENERAL HSBC Saudi Freestyle Equity Fund (“the Fund”) is an investment fund established through an agreement between HSBC Saudi Arabia (“the Fund Manager”) and investors (“the Unitholders”). The objective of the Fund is to achieve capital appreciation over the medium to long-term by investing in shariah compliant saudi equities listed on Tadawul (Saudi Stock Market). The Fund invests in a concentrated portfolio and is managed in a manner that is both active and flexible to provide returns to investors that are not linked to a benchmark or weighting tied to an index. The Fund is managed by the Fund Manager who also acts as the administrator of the Fund. Albilad Capital is the custodian of the Fund. All income is reinvested in the Fund and is reflected in the unit price. 2 REGULATING AUTHORITY The Fund is governed by the Investment Fund Regulations (“the Regulations”) published by the Capital Market Authority (“the CMA”). 3 SUBSCRIPTION / REDEMPTION (DEALING DAY AND VALUATION DAY) The Fund is open for subscriptions / redemptions of units twice weekly on Sunday and Tuesday (each being a “Dealing Day”). The value of the Fund’s portfolio is determined twice weekly on Monday and Wednesday (each being a “Valuation Day”). The net asset value of the Fund for the purpose of purchase or sale of units is determined by dividing the net value of assets (fair value of fund assets minus fund liabilities) by the total number of outstanding fund units on the relevant Valuation Day. 4 BASIS OF PREPARATION These interim condensed financial statements have been prepared in accordance with the International Accounting Standard 34 Interim Financial Reporting (“IAS 34”) as endorsed in the Kingdom of Saudi Arabia and other standards and pronouncements issued by Saudi Organization for Certified Public Accountants (“SOCPA”) and to comply with the applicable provisions of the Investment Fund Regulations issued by the Capital Market Authority, the Fund’s Terms and Conditions and the Information Memorandum. The interim condensed financial statements do not include all the information and disclosures required in the annual financial statements and should be read in conjunction with the Fund’s annual financial statements as at 31 December 2019. 5 FUNCTIONAL AND PRESENTATION CURRENCY These interim condensed financial statements are presented in Saudi Arabian Riyal (“SAR”), which is the Fund’s functional currency. 6 BASIS OF MEASUREMENT These interim condensed financial statements have been prepared on a historical cost basis, except for investments at fair value through profit or loss (“FVTPL”) which are stated at their fair value using the accrual basis of accounting. The Fund Manager has made an assessment of the Fund’s ability to continue as a going concern and is satisfied that the Fund has resources to continue in business for the foreseeable future. Furthermore, the Fund Manager is not aware of any material uncertainties that may cast significant doubt upon the Fund’s ability to continue as a going concern. Therefore, the interim condensed financial statements continue to be prepared on the going concern basis. 6
14. HSBC SAUDI FREESTYLE EQUITY FUND (An open-ended mutual fund) Managed by HSBC Saudi Arabia Notes to the interim condensed financial statements (Unaudited) For the six-month period ended 30 June 2020 (Amounts in Saudi Arabian Riyal) 6 BASIS OF MEASUREMENT (CONTINUED) The interim condensed financial statement accounts in the statement of financial position have been presented in the order of liquidity. 7 USE OF CRITICAL JUDGEMENTS AND ESTIMATES Preparation of these interim condensed financial statements in conformity with IFRS requires the use of certain critical accounting judgements, estimates and assumptions that affect the reported amounts of assets and liabilities. It also requires management to exercise its judgement in the process of applying the Fund’s accounting policies. Such judgements, estimates and assumptions are continually evaluated and are based on historical experience and other factors, including obtaining professional advices and expectations of future events that are believed to be reasonable under the circumstances. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are recognized prospectively. 8 SIGNIFICANT ACCOUNTING POLICIES The significant accounting and risk management policies used in the preparation of these interim condensed financial statements are consistent with those used and disclosed in the financial statements for the year ended 31 December 2019. A number of standards are effective from 1 January 2020 but they do not have a material impact on these interim condensed financial statements. 9 STANDARDS ISSUED BUT NOT YET EFFECTIVE A number of new standards and amendments to standards are effective for annual periods beginning after 1 January 2020 and earlier application is permitted; however, the Fund has not early adopted any of the forthcoming new or amended standards in preparing these interim financial statements. 10 CASH AT BANK Cash at bank comprise of balances with banks who have investment grade credit ratings, as rated by the international rating agencies. 11 INVESTMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS The exposures of the trading investments as at 30 June 2020 is as follows: 30 June 2020 (Unaudited) Cost Fair value Equities Energy Banks Materials Retailing Healthcare Equipment & Services Telecommunication Services Real Estate Management & Development Food & Beverage Insurance Consumer Services Capital Goods 31 December 2019 (Audited) Cost Fair value 32,003,205 30,117,259 24,793,598 16,291,703 12,545,625 64,227,470 40,812,200 35,815,441 29,021,068 19,875,624 14,285,837 43,212,102 53,114,820 34,926,838 31,395,622 21,562,829 9,775,839 55,112,018 74,246,815 44,787,581 40,888,932 22,194,077 9,703,750 12,340,877 10,765,281 2,453,162 2,534,972 7,995,159 4,505,938 --- 9,894,322 4,813,177 --- 14,595,215 22,208,132 5,144,711 19,791,521 26,140,436 6,658,618 56,736,104 7
15. HSBC SAUDI FREESTYLE EQUITY FUND (An open-ended mutual fund) Managed by HSBC Saudi Arabia Notes to the interim condensed financial statements (Unaudited) For the six-month period ended 30 June 2020 (Amounts in Saudi Arabian Riyal) 11 INVESTMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS (CONTINUED) Mutual Funds HSBC Saudi Construction & Cement Companies Equity Fund Total 12 -- -- 7,000,000 8,892,716 197,329,468 229,510,420 245,389,270 310,951,436 NET GAIN FROM INVESTMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS For the six-month period ended 30 June 2020 2019 Realised gains for the period Unrealised (losses) / gains for the period Total 15,418,429 (33,381,214) (17,962,785) 32,546,935 4,636,166 37,183,101 Realized (loss) / gain on investments at FVTPL is calculated based on weighted average cost of securities. 13 ACCRUED EXPENSES Accrued expenses include management fee payable (inclusive of VAT) to the Fund Manager. 14 TRANSACTIONS WITH RELATED PARTIES Related parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial or operational decisions. In considering each possible related party relationship, attention is directed to the substance of the relationship, not merely the legal form. Related parties of the Fund comprise HSBC Saudi Arabia (being the Fund Manager, the Fund Board and administrator of the Fund), and The Saudi British Bank (“SABB”) (being significant shareholder of the Fund Manager). In the ordinary course of its activities, the Fund transacts business with related parties. Related party transactions are governed by limits set by the regulations issued by CMA. All the related party transactions are undertaken at mutually agreed prices and approved by the Fund Manager. These transactions are carried out on the basis of approved Terms and Conditions of the Fund. The Fund Manager charges to the Fund on each Valuation Day, management fees at a rate of 1.70% (2019: 1.70% of Net assets value), Administration fees at 0.05% (2019: 0.05%) and custody fee at 0.03% (2019: 0.03%) of Net assets value. Subscription fee up to 2% is not considered in these interim condensed financial statement of the Fund, as investment in the Fund are always net of subscription fees. The Fund does not charge any redemption fees on redemption of units. During the period, the Fund entered into the following transactions with related parties in the ordinary course of business. 8
16. HSBC SAUDI FREESTYLE EQUITY FUND (An open-ended mutual fund) Managed by HSBC Saudi Arabia Notes to the interim condensed financial statements (Unaudited) For the six-month period ended 30 June 2020 (Amounts in Saudi Arabian Riyal) 14 TRANSACTIONS WITH RELATED PARTIES (CONTINUED) Related party HSBC Saudi Arabia (Fund Manager) Nature of transactions Fund management fee Administration fee Board member fee Amount of transaction for the six-month period ended Closing balance 30 June 30 June 30 June 2020 31 December 2020 2019 (Unaudited) 2019 (Audited) 2,539,651 74,696 9,891 3,038,599 --- 70,644 16,400 10,981 95,138 15,401 6,959 Following mutual funds managed by the Fund Manager had transactions in units of the Fund: Amount / Fund name Period 2020 HSBC Multi-Assets Defensive Fund 2019 HSBC Multi-Assets Balanced 2019 HSBC Multi-Assets Growth Redemption balance -- 2,034,255 97,169 -- 97,169 Amounts -- 7,296,955 -- Units -- 376,047 -- 10,900,000 -- 27,733,807 520,687 -- 1,324,739 Amounts -- 24,174,193 17,759,343 Units -- 1,207,477 804,052 4,890,000 -- 21,941,580 227,219 -- 1,048,066 Amounts -- 16,934,494 18,130,304 Units -- 845,059 820,847 Amounts Amounts Units 2019 Issuance 2,090,000 Units 2020 Fund Amounts Units 2020 Fund Units Closing No special commission is accrued against the cash balances in the respective bank accounts with the related parties. The Fund has invested in HSBC Saudi Construction & Cement Companies Equity Fund managed by the Fund Manager (refer note 11). 15 FAIR VALUES OF FINANCIAL INSTRUMENTS Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either: • • In the principal market for the asset or liability, or In the absence of a principal market, in the most advantageous market for the asset or liability 9
17. HSBC SAUDI FREESTYLE EQUITY FUND (An open-ended mutual fund) Managed by HSBC Saudi Arabia Notes to the interim condensed financial statements (Unaudited) For the six-month period ended 30 June 2020 (Amounts in Saudi Arabian Riyal) 15 FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED) When available, the Fund measures the fair value of an instrument using the quoted price in an active market for that instrument. A market is regarded as active if transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an on-going basis. The Fund measures instruments quoted in an active market at a market price, because this price is reasonable approximation of the exit price. If there is no quoted price in an active market, then the Fund uses valuation techniques that maximise the use of relevant observable inputs and minimise the use of unobservable inputs. The chosen valuation technique incorporates all of the factors that market participants would take into account in pricing a transaction. The Fund recognizes transfer between levels of fair value at the end of the reporting period during which the change has occurred. The fair value hierarchy has the following levels: • • • Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date; Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and Level 3 inputs are unobservable inputs for the asset or liability. The table below presents the financial instruments measured at their fair values as of reporting date based on the fair value hierarchy: 30 June 2020 (Unaudited) Carrying value Investments at FVTPL Total 229,510,420 229,510,420 Level 1 Level 2 229,510,420 229,510,420 Level 3 --- Total --- 229,510,420 229,510,420 31 December 2019 (Audited) Carrying value Investments at FVTPL Total 310,951,436 310,951,436 Level 1 Level 2 310,951,436 310,951,436 Level 3 -- Total -- 310,951,436 310,951,436 During the period, no transfer in fair value hierarchy has taken place for the investments at fair value through profit or loss. Other financial instruments such as receivables and advances and accrued expenses are short-term financial assets and financial liabilities respectively, whose carrying amounts approximate fair value, being short-term in nature and high credit quality of counterparties. 16 FINANCIAL RISK MANAGEMENT The Fund has exposure to the following risks from financial instruments: - credit risk; liquidity risk; and equity price risk. 10
18. HSBC SAUDI FREESTYLE EQUITY FUND (An open-ended mutual fund) Managed by HSBC Saudi Arabia Notes to the interim condensed financial statements (Unaudited) For the six-month period ended 30 June 2020 (Amounts in Saudi Arabian Riyal) 16 FINANCIAL RISK MANAGEMENT (CONTINUED) Risk management framework The risk management framework and policies of the Fund are consistent with those used and disclosed in the annual financial statements of the Fund for the year ended 31 December 2019. Credit risk Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. The Fund is exposed to credit risk for its cash at bank, investments measured at FVTPL, and receivables and advances. The Fund Manager seeks to limit its credit risk by monitoring credit exposures and by dealing with only reputable counterparties. Liquidity risk Liquidity risk is the risk that the Fund will encounter difficulty in releasing funds to meet commitments associated with financial liabilities. The Fund’s Terms and Conditions provide for the subscriptions and redemptions of units on Dealing Day and it is, therefore, exposed to the liquidity risk of meeting unitholders redemptions at any time. However, the Fund is allowed to borrow in order to satisfy redemptions. Substantially all of the Fund’s cash at bank, investments measured at FVTPL and receivables and advances are either short-term or considered to be readily realisable. The Fund Manager monitors liquidity requirements on a regular basis and seeks to ensure that funds are available to meet commitments as they arise. Equity price risk Equity price risk is the risk that the value of financial instruments will fluctuate because of changes in market prices. The Fund’s investments are susceptible to equity price risk arising from uncertainties about future prices. The Fund Manager manages this risk through diversification of its investment portfolio in terms of industry concentration. 17 LAST VALUATION DAY The last valuation day for the period was 29 June 2019 (2019: 31 December 2019) and the dealing net assets value on this day was SR 20.94 per unit (31 December 2019: SR 22.09). The IFRS net assets value per unit on 29 June 2020 was SR 20.94 per unit (31 December 2019: SR 22.09). 18 IMPACT OF COVID 19 OUTBREAK During March 2020, the World Health Organisation (“WHO”) declared the Coronavirus (“COVID-19”) outbreak as a pandemic in recognition of its rapid spread across the globe. This outbreak has also affected the GCC region including the Kingdom of Saudi Arabia. Governments all over the world took steps to contain the spread of the virus. Saudi Arabia in particular implemented closure of borders, released social distancing guidelines and enforced country wide lockdowns and curfews. Oil prices witnessed significant volatility during the first half of 2020, owing not just to demand issues arising from COVID-19 as the world economies went into lockdown, but also supply issues driven by volume which had predated the pandemic. The oil prices have shown some recovery in late Q2 2020 as oil producing countries cut back production coupled with increasing of demand as countries emerged from lockdowns. 11
19. HSBC SAUDI FREESTYLE EQUITY FUND (An open-ended mutual fund) Managed by HSBC Saudi Arabia Notes to the interim condensed financial statements (Unaudited) For the six-month period ended 30 June 2020 (Amounts in Saudi Arabian Riyal) 18 IMPACT OF COVID 19 OUTBREAK (CONTINUED) These events have significantly impacted the stock market and created volatility in prices of equities which impacted the Fund’s earnings and cash flows. The Fund Manager continues to evaluate the current situation through reviewing its investment strategy and other risk management practices to manage the impact COVID-19 outbreak has had on its normal operations and financial performance. 19 SUBSEQUENT EVENTS There were no events subsequent to the reporting date which require adjustments of or disclosure in the interim condensed financial statements or notes thereto. 20 APPROVAL OF INTERIM CONDENSED FINANCIAL STATEMENTS These interim condensed financial statements were approved by the Fund Board on 4 Muharram 1442H (corresponding to 23 August 2020). 12