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Global Emerging Markets Fixed IncomeGlobal Emerging Markets … · 2014. 3. 5. · Global Emerging...
Transcript of Global Emerging Markets Fixed IncomeGlobal Emerging Markets … · 2014. 3. 5. · Global Emerging...
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Global Emerging Markets Fixed IncomeGlobal Emerging Markets Fixed Income
March 2014
Investment products:
ARE NOT A BANK DEPOSIT OR OBLIGATION OF THE BANK OR ANY
ARE NOT FDIC INSURED
ARE NOT INSURED BY ANY FEDERAL GOVERNMENT
ARE NOT GUARANTEED BY THE BANK OR ANY OF ITS
MAY LOSE VALUE
For institutional one on one use only. Not for further distribution.
OBLIGATION OF THE BANK OR ANY OF ITS AFFILIATES
INSURED FEDERAL GOVERNMENT AGENCY
THE BANK OR ANY OF ITS AFFILIATES
VALUE
All decisions regarding the tax implications of your investment(s) should be made in connection with your independent tax advisor.
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An asset manager with a deep Emerging Markets reach
One of the world’s leading investment management organizations with more than US$419.1 billion in assets under management– Total emerging markets assets have grown from US$46 billion in 2005 to US$146.6 billion ending
September 2013– Emerging markets fixed income assets total US$98.7 billion, 67% of total emerging markets assets– Emerging markets debt assets managed by team in New York total US$14.5 billion
150
175Emerging Markets Assets Growth*
75
100
125
150
S$
billio
ns
$14.5
$31.3
$16.5
0
25
50
75
US
$84.2
2007 2008 2009 2010 2011 2012 YTD 2013
EM Fixed Income (ex-NY EMD) EM EquityEM Other NY EMD Team
2For institutional one on one use only. Not for further distribution.
Source: HSBC Global Asset Management. Data as of 30 September 2013. Differences due to rounding. * Prior to 2010, assets managed in Hong Kong and Singapore were not classified as Emerging markets.
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“Putting our money where our mouth is”Supplemental information as of 31 January 2014
Our holistic approach to portfolio construction is built without an inherent bias to any particular emerging market asset class and actively allocates among potentially optimal opportunities
Emerging Markets Debt – Total Return Net Historical Exposures
100%
80%84%
93% 94%102%
99%
88% 91%82%
100%
120%
10.0
12.0
75%
64% 63%
74%80%
75%82%
37%
48%52%
31%32%
51%60%
80%
6.0
8.0
Duration
30%30%37%
23%20%22%
20%
40%
2.0
4.0
(years)
-20%
0%
Dec
-11
Jan-
12
Feb-
12
Mar
-12
Apr-
12
May
-12
Jun-
12
Jul-1
2
Aug-
12
Sep-
12
Oct
-12
Nov
-12
Dec
-12
Jan-
13
Feb-
13
Mar
-13
Apr-
13
May
-13
Jun-
13
Jul-1
3
Aug-
13
Sep-
13
Oct
-13
Nov
-13
Dec
-13
Jan-
14
-2.0
0.0
Source: HSBC Global Asset Management. Data as of 31 January 2014. Weightings and holdings are subject to change without notice. Please see important disclosure at the end of this presentation concerning calculation methodology for characteristics. Any portfolio characteristics shown herein, including average position sizes and sector allocations among others, are for ill t ti d fl t th t ti t f th it I f ti h ld t b t d d ti li it ti t b ll iti ithi th
D J F M A M J A S O N D J F M A M J A S O N D J
Sovereign Quasi Corporate Local Rates Local Fx Equity― Net Exposure ― Duration (rhs)
3For institutional one on one use only. Not for further distribution.
illustrative purposes and reflects the representative account of the composite. Information should not be construed as a recommendation or solicitation to buy or sell any securities within the sectors shown. Data is supplemental to the GIPS® compliant presentation at the end of this material. Each portfolio may differ due to individual client restrictions and guidelines. Accordingly individual results will vary.
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Emerging Markets volatility, a consequence of interbank illiquidity
2012’s outsized EM debt returns, and 2013’s correction was much more a consequence of technicals than a change in fundamentals
Technicals and valuations are now extremely supportive of both hard currency and local currency assets
It is important to not confuse currency depreciation with fundamental deterioration
Bifurcation
4For institutional one on one use only. Not for further distribution.
Past performance is no guarantee of future results.
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2013 inflows into emerging market debt were strong until late May …
2013 began with strong inflows to EMD, continuing the trend from 2012With the Fed hinting at tapering, emerging markets corrected sharply with close to -$40bn in net g p g, g g p y $outflows
120
80.1
97.5
80
100
46.643.2
20
40
60
US
$ bn
-3.2
9.7
-20
0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov DecJan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2008 2009 2010 2011 2012 2013
5For institutional one on one use only. Not for further distribution.
Source: HSBC Global Asset Management, JPMorgan, as of 31 December 2013. Asset class flows include both retail flows and strategic flows. Past performance is no guarantee of future results.
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…while new issuance accelerated substantially
$198bn of issuance from Jan –May was absorbed by only $40bn f f
Amount Issued (USD notionally)
01 Jan 2012 –31 May 2012
01 Jan 2013 –31 May 2013 2012 2013
YoYchangeof inflows to the asset class
Issuance increase 10.6% y-o-y in 2013 vs 2012
31 May 2012 31 May 2013 change
OVERALL 146,979,973,250 198,516,133,079 307,366,600,778 339,834,923,249 10.6%
USD-denom 139,982,126,000 182,587,309,000 286,501,045,188 292,190,220,416
EUR-denom 6,997,847,250 15,928,824,079 20,865,555,590 47,644,702,8332013 vs 2012
Growth in IG issuance was close to flat while non-IG increased by 32% (incl ding not rated b cket
Sovereign 43,904,290,000 33,511,313,961 69,445,592,088 75,453,572,092 8.7%
Corporate 103,075,683,250 165,004,819,118 237,921,008,689 264,381,351,157 11.1%
LatAm 45,557,126,000 49,887,549,000 107,164,843,743 119,416,650,985 11.4%
Asia 46,125,000,000 74,873,503,118 85,558,964,490 102,615,604,898 19.9%32% (including not-rated bucket which may contain some IG)
East Europe 36,050,147,250 53,040,690,961 78,971,044,736 85,269,219,866 8.0%Middle East/ Africa 17,247,700,000 20,414,390,000 34,786,747,809 32,533,447,500 -6.5%
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Source: Bloomberg as of 31 December 2013 and HSBC Global Asset Management calculations. For illustrative purposes only.
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Trends in external debt spreads vary by rating sector
Evolution of emerging markets spreads over Treasuries
56 JPM EMBIG Spread (%)
Investment grade spreads have remained stable
012345
Steady increase in high yield spreads which is likely to continue– Fundamentals in many high yield
t i h k d
0Dec-10 Dec-11 Dec-12 Dec-13
3
4 IG Spread (%)
countries have weakened– CCC rating implies limited access to
market funding0
1
2
Dec-10 Dec-11 Dec-12 Dec-13Dec 10 Dec 11 Dec 12 Dec 13
468
10 HY Spread (%)
024
Dec-10 Dec-11 Dec-12 Dec-13
7For institutional one on one use only. Not for further distribution.
Source: HSBC Global Asset Management, Bloomberg. Data as of 31 January 2014. For illustrative purposes only. Past performance is no guarantee of future results.
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EM external debt valuations and yields began to improve in May 2013
Aggregate Spread Levels E t l D bt I d Yi ld
12/31/2012 12/31/2013
< 150 bps 31.43% 15.13%
gg g p
6 5
7
7,5External Debt Index Yield
150 – 200 bps 40.02% 19.06%
200 – 300 bps 2.90% 34.78% 5,5
6
6,5
Perc
ent
300 – 400 bps 6.34% 15.11%
400 – 500 bps 3.45% 1.86%
> 500 bps 13 86% 13 24%
4,5
5
> 500 bps 13.86% 13.24% 4Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13
8For institutional one on one use only. Not for further distribution.
Sources: HSBC Global Asset Management, JP Morgan, External Debt Index Yield data as of 31 January 2014. For illustrative purposes only. Information may be dated and should not be relied upon. Review and outlook is subject to change without notice. Past performance is no guarantee of future results.
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Balance sheets are strong across the larger IG sovereign countries
Real GDP (% y/y)
CPI (% y/y)
Budget balance (% of GDP)
Public ext. debt (% of GDP)
Total ext. debt (% of GDP)
Reserves(% of GDP)( y y) ( y y) ( ) ( ) ( ) ( )
Brazil 2.6 5.7 -3.4 5.1 23.4 17.5
Indonesia 5.5 7.0 -2.2 10.2 26.1 10.8
Colombia 4.5 2.7 -0.6 10.9 21.9 10.9
Peru 5.7 2.8 0.8 10.5 23.3 30.6
Poland 2.9 1.5 0.0 26.5 70.3 21.2
Panama 7.0 3.9 -2.7 29.9 36.2 6.3
Mexico 3.4 3.3 -3.4 16.6 29.1 12.5
Russia 2.8 5.9 -0.5 9.4 24.0 24.3
South Africa 3.3 5.2 -4.2 16.0 37.0 13.8
Turkey 4.0 7.4 -2.4 13.3 45.9 14.2
9For institutional one on one use only. Not for further distribution.
Source: Economist Intelligence Unit as of 31 December 2013. For illustrative purposes only.
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EM IG corporates look attractive and offer a pickup in spread compared to US peers
160
130
140
150
160
100
110
120
bps
70
80
90
60
Jan-
13
Feb-
13
Mar
-13
Apr
-13
May
-13
Jun-
13
Jul-1
3
Aug
-13
Sep
-13
Oct
-13
Nov
-13
Dec
-13
Jan-
14
CEMBI IG - Barclays US IG spreads 1yr avgCEMBI IG - Barclays US IG spreads 1yr avg
10For institutional one on one use only. Not for further distribution.
Sources: HSBC Global Asset Management, JP Morgan, Bloomberg, Data as of 31 January 2014. Past performance is no guarantee of future results.
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Valuations and yields also improved in EM local debt and currencies
Local Rate Index Yield (%) Local Currency Index (%)
7
7,5
1,2
1,3
( ) y ( )
Internal assessment of EM currencies looks attractive
6,5 1,1
5,5
6
0,9
1,0
5
Aug
-12
Sep
-12
Oct
-12
Nov
-12
Dec
-12
Jan-
13
Feb-
13
Mar
-13
Apr
-13
May
-13
Jun-
13
Jul-1
3
Aug
-13
Sep
-13
Oct
-13
Nov
-13
Dec
-13
Jan-
14
0,8
Jan-
01
Jan-
02
Jan-
03
Jan-
04
Jan-
05
Jan-
06
Jan-
07
Jan-
08
Jan-
09
Jan-
10
Jan-
11
Jan-
12
Jan-
13
Jan-
14
USD/ELMI historical USD/ELMI theoreticalUSD/ELMI historical USD/ELMI theoretical
11For institutional one on one use only. Not for further distribution.
Source: HSBC Global Asset Management, JP Morgan. Local Rate Index Field data as of 31 January 2014. Local rate index is the JPM GBI-EM Global Diversified. For illustrative purposes only. Past performance is no guarantee of future results.
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The technical currency positioning is also now much cleaner…
200000
300000
400000
110
115
lSpeculative Currency Positioning
-200000
-100000
0
100000
200000
90
95
100
105
US
D C
ontra
cts
cal C
urre
ncy
Leve
-500000
-400000
-300000
80
85
90
Dec-06 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13
# U
Loc
L l C I d IMM USD I d
150.000
200.000
s
Local Currency Index IMM USD Index
Mexican Peso Positioning
0
50.000
100.000
# M
XN
Con
tract
s
-50.000
0
Dec-05 Nov-06 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13
Source: HSBC Global Asset Management, Bloomberg. Data as of 31 January 2014. The data presented is for informational purposes only and is not intended as an offer or solicitation for the
12For institutional one on one use only. Not for further distribution.
g g y p p p ypurchase or sale of any financial instrument or investment strategy. Past performance is no guarantee of future results. US$ positions expressed as the sum of the number of contracts of MXN, CAD, AUD, EUR, and GBP that speculative accounts were long/short vs US$ at the Chicago Mercantile Exchange (CME).
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Currency valuations price in very pessimistic outcomes
Four countries, which account for 36.4% of the local bond benchmark, explain more than 90% of the - 8.9% lost by the local bond benchmark in 2013y
Local bond and FX spot returns in USD (2013)Local Bond
(% p.a.)FX spot returns
(% p.a.)JPM GBI-EM GD
(weight %)Hungary 12 7 2 1 6 2Hungary 12.7 2.1 6.2Poland 4.5 2.3 10.0Nigeria 5.5 -2.6 2.0Mexico 0.1 -1.4 10.0Thailand -4.3 -6.5 8.0Chile -12 9 -8 8 0 5Chile -12.9 -8.8 0.5Malaysia -6.2 -6.7 10.0Colombia -14.2 -8.4 3.5Philippines -10.6 -7.6 0.5Russia -3.2 -7.1 10.0Brazil -13 6 -13 2 10 0Brazil -13.6 -13.2 10.0Peru -17.2 -8.8 1.8Turkey -20.8 -17.0 9.5Indonesia -31.2 -19.5 6.9South Africa -18.5 -19.2 10.0Romania 14 9 3 5 1 5Romania 14.9 3.5 1.5
Source: HSBC Global Asset Management, Bloomberg, JP Morgan as of 31 December 2013. Past performance is no guarantee of future results. Any forecast, projection or target contained in this
13For institutional one on one use only. Not for further distribution.
Source: HSBC Global Asset Management, Bloomberg, JP Morgan as of 31 December 2013. Past performance is no guarantee of future results. Any forecast, projection or target contained in this presentation is for information purposes only and is not guaranteed in any way. HSBC accepts no liability for any failure to meet such forecasts, projections or targets. Forecasted calculations are based on existing market conditions.
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Terms of trade dynamics should support BRL…
USDBRL (inverted), Citibank Brazil Terms of Trade, and Brazil quarterly CA/GDP
14For institutional one on one use only. Not for further distribution.
Source: HSBC Global Asset Management, Bloomberg, 31 December 2002 – 31 January 2014. Past performance is no guarantee of future results. For illustrative purposes only.
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…while we see an improvement in trade balance data
Brazil: Trade balance monthly
15For institutional one on one use only. Not for further distribution.
Source: HSBC Global Asset Management, Bloomberg, 31 December 2008 – 31 January 2014. Past performance is no guarantee of future results. For illustrative purposes only.
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South African dynamics resemble those of Brazil…
USDZAR (inverted), Citibank South Africa Terms of Trade, and SOAF quarterly CA/GDP
16For institutional one on one use only. Not for further distribution.
Source: HSBC Global Asset Management, Bloomberg, 31 December 2008 – 31 January 2014. Past performance is no guarantee of future results. For illustrative purposes only.
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…and we are seeing the beginning of a turnaround in the trade balance dynamics
South Africa Trade Balance
17For institutional one on one use only. Not for further distribution.
Source: HSBC Global Asset Management, Bloomberg, 31 December 2008 – 31 December 2013. Past performance is no guarantee of future results. For illustrative purposes only.
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Indonesia has also benefited from a terms of trade recovery…
USDIDR (inverted), Citibank Indonesia Terms of Trade, and Indonesia quarterly CA/GDP
18For institutional one on one use only. Not for further distribution.
Source: HSBC Global Asset Management, Bloomberg, 31 December 2009 – 31 January 2014. Past performance is no guarantee of future results. For illustrative purposes only.
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…that seems to be supporting the trade balance and reserve accumulation
Indonesia Trade Balance
19For institutional one on one use only. Not for further distribution.
Source: HSBC Global Asset Management, Bloomberg, 31 January 2009 – 31 December 2013. Past performance is no guarantee of future results. For illustrative purposes only.
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China’s growth stabilization an important factor behind more stable commodity prices
China Current Account Balance (%GDP)China Real Annual GDP (yoy%)
China crude steel output (metric tons)
40
50 WTO Creditcrisis
y/y %
0
10
20
30
-20
-10
0
1985 1988 1991 1994 1997 2000 2003 2006 2009 2012
20For institutional one on one use only. Not for further distribution.
Source: HSBC Global Asset Management, Bloomberg, Real Annual GDP from 31 December 1997 – 31 December 2013. Current Account Balance from 31 December 1990 – 30 September 2013.China Crude Steel Output source: HSBC Global Asset Management, Datastream, last updated 31 October 2013. Past performance is no guarantee of future results. For illustrative purposes only.
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There is value in IG sovereign credit and selected EM currencies
Total carry and capitalization potential for Investment Grade sovereign credit, and selected currencies are attractive.
Main Sovereign hard currency overweights: Brazil, Colombia, Indonesia, South Africa, and Turkey
Main Local currency overweights: BRL, INR, IDR, MXN, ZAR, TRY
Large underweights (zero weights, or short) on B and CCC rated sovereign credits
21For institutional one on one use only. Not for further distribution.
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Important Information
For institutional one on one use only. Not for further distribution.
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Important Information
Gross performance information. Performance data is calculated gross of fees and assumes the reinvestment of dividends, income and any capital gains and is net of transaction costs. The results are shown before the deduction of investment advisory fees and other expenses, which would reduce a return. Information about investment advisory fees is available in our Form ADV Part 2A, which is available upon request. The following hypothetical illustrates how investment advisory fees, compounded over time, could impact performance. Assuming a portfolio’s annual rate of return is 15% for 5 years and the annual investment advisory fee is 50 basis points, the gross cumulative five-year return would be 101.1% and the five-year return net of fees would be 96.8%.
Ch t i ti th d l C h i l t d fi d it ith t it f l th 1 D t ti i l t d lit di t ib tiCharacteristics methodology. Cash equivalents are defined as any security with a maturity of less than 1 year. Data representing regional, sector and quality distribution characteristics of the strategy have been calculated after removing cash and cash equivalents and rebalancing the remaining investments to 100%. Average Quality ratings are based on HSBC methodology and may differ from published sources. The average quality is calculated utilizing a weighted average of each fund's holdings in accordance with HSBC’s internal methodology, which includes taking the highest rating of S&P, Moody’s or Fitch where available. If a security is unrated, it will be assigned a rating in accordance with HSBC’s internal methodology. Unrated categories reflect Cash and cash equivalents. Country distribution data reflects the total exposure to a country which includes local currency exposure. Duration calculations include cash and cash equivalents.
Attribution and Contribution to Returns for the components are based on the aggregate relative performance of the underlying holdings, which includes both contributors and p gg g p y g g ,detractors.
Risk Considerations. There is no assurance that a portfolio will achieve its investment objective. In addition, there is no guarantee that any investment strategy will work under all market conditions, and each investor should evaluate their ability to invest for the long-term, especially during periods of downturn in the market. Portfolios are subject to market risk, which is the possibility that the market values of securities owned by the portfolio will decline. Accordingly, you can lose money investing in any of these strategies. Please be aware that these strategies may be subject to certain additional risks, which should be considered carefully along with the strategy’s investment objectives and fees before investing. Foreign and emerging markets. Investments in foreign markets entail special risks such as currency, political, economic, and market risks. The risks of investing in emerging market countries are greater than the risks generally associated with foreign investments Fixed income securities Subject to credit and interest rate riskinvesting in emerging-market countries are greater than the risks generally associated with foreign investments. Fixed income securities. Subject to credit and interest-rate risk. Credit risk refers to the ability of an issuer to make timely payments of interest and principal. Interest-rate risk refers to fluctuations in the value of a fixed-income security resulting from changes in the general level of interest rates. In a declining interest-rate environment, the portfolio may generate less income. In a rising interest-rate environment, bond prices fall. Credit Quality. Investments in high-yield securities (commonly referred to as “junk bonds”) are often considered speculative investments and have significantly higher credit risk than investment-grade securities. The prices of high-yield securities, which may be less liquid than higher rated securities, may be more vulnerable to adverse market, economic or political conditions. Convertibles. Subject to the risks of equity securities when the underlying stock price is high relative to the conversion price (because more of the security’s value resides in the conversion feature) and debt instruments when the underlying stock price is low relative to the conversion price (because the conversion feature is less valuable) A convertible bond is not as sensitive to interest rate changes as a similar non convertible debt instrument and generally has less potentialconversion feature is less valuable). A convertible bond is not as sensitive to interest rate changes as a similar non-convertible debt instrument, and generally has less potential for gain or loss than the underlying equity security. Exchange-Traded Fund Risk. Subject to the underlying securities the ETF is designed to track, although lack of liquidity in an ETF could result in it being more volatile than the underlying portfolio of securities. Disruptions in the markets for the securities underlying ETFs could result in losses on the Portfolio’s investments. ETFs also have management fees that increase their costs versus owning the underlying securities directly. Derivative instruments. Derivatives can be illiquid, may disproportionately increase losses and may have a potentially large negative impact on performance. Non-diversification. Focusing investments in a small number of issuers, industries, foreign currencies or particular countries or regions increases the risks associated with a single economic, political or regulatory occurrence.
23For institutional one on one use only. Not for further distribution.
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Important InformationIndex DefinitionsIndex DefinitionsThese indices are presented to provide you with an understanding of their historic long-term performance, and are not presented to illustrate the performance of any security or trading strategy. All indices are unmanaged. Index returns do not reflect any fees, expenses or sales charges associated with investing. Investors cannot invest directly in an index.
The JP Morgan EMBI-Global (EMBIG) Index includes US$-denominated Brady bonds, Eurobonds, and traded loans issued by sovereign and quasi-sovereign entities, and is a traditional market-capitalization weighted index. The JP Morgan GBI-EM Diversified Index provides a measure of local currency denominated, fixed rate, government debt issued in emerging markets. Weightings among the countries are more evenly distributed within the diversified index compared to it’s three main composite indices consisting of the GBI-EM, GBI EM Global, and GBI EM Broad indices. The JP Morgan GBI-EM Global Diversified Index is a comprehensive global local emerging markets index, and consists of liquid, fixed rate, domestic currency government bonds. The JP Morgan ELMI+ Index is an emerging markets currency (FX) benchmark; the index contains more countries and also brings in the currency aspect of the market, which is an important component of our strategy. The JPM Corporate Emerging Markets Bond Index (JPM CEMBI) measures the performance of corporate bonds issued in emerging markets. The CEMBI Broad is a comprehensive version of the CEMBI, and is also available in a Diversified version, in which weightings are more evenly distributed.
Fi Di lFirm DisclosureHSBC Global Asset Management is a group of companies in many countries and territories throughout the world that are engaged in investment advisory and fund management activities, which are ultimately owned by HSBC Holdings Plc. HSBC Global Asset Management is the brand name for the asset management business of HSBC Group. HSBC Global Asset Management (USA) Inc. is an investment adviser registered with the US Securities and Exchange Commission.
Statistical information pertaining to personnel, as well as assets, may be aggregated in reference to the above-mentioned group of companies including satellite affiliates unless indicated otherwise. Funds under advice (other than direct management) may comprise assets managed by affiliates of HSBC Global Asset Management, which provide advice in the form of portfolio construction sector allocations and / or stock list recommendationsin the form of portfolio construction, sector allocations and / or stock list recommendations.
This material has been prepared or is distributed for informational purposes only and is not a solicitation or an offer to buy or sell any security or instrument or to participate in any trading or investment strategy. All opinions and assumptions included in this presentation are based upon current market conditions as of the date of this presentation and are subject to change. All investments involve risk including the loss of principal. This presentation contains data compiled from third party sources believed to be reliable, but the accuracy of such data has not been verified.
This information has been prepared for informational purposes only, and is not intended to provide and should not be relied on for accounting, legal or tax advice. You should consult your tax or legal advisor regarding such matters. y g g gAny portfolio characteristics, including position sizes and sector allocations among others, are generally averages and are for illustrative purposes only and do not reflect the investments of an actual portfolio unless otherwise noted. The investment guidelines of an actual portfolio may permit or restrict investments that are materially different in size, nature and risk from those shown. The investment processes, research processes or risk processes shown herein are for informational purposes to demonstrate an overview of the process. Such processes may differ by product, client mandate or market conditions.
Investors should carefully consider the investment objectives, risks and fees of the strategy carefully before investing. A separately managed account may not be suitable for all investors and a minimum asset level is required. Please refer to the Form ADV Part 2A for important information about the investment manager.The products and/or services discussed are: Not a deposit or other obligation of the bank or any of its affiliates; Not FDIC insured or insured by any federal government agency of the United States; not obligations guaranteed by the bank or any of its affiliates; and are subject to investment risk, including possible loss of principal invested.
Past performance is not indicative of future performance. Information is for institutional or qualified investors only.
© Copyright 2014. HSBC Global Asset Management (USA) Inc. All rights reserved.
CA 14-02-59
24For institutional one on one use only. Not for further distribution.
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Appendix
For institutional one on one use only. Not for further distribution.
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Emerging Market Debt capabilities
Emerging Markets Debt – Core EMD – Total Return EMD Local Debt (Blended) EMD – Local Debt
Launch date 1998 1999 2007 2011
Investment universe Predominantly emerging market hard currency sovereign and quasi-sovereign debt; tactical use of emerging market hard currency corporate debt as well as emerging market local sovereign debt and currencies
Predominantly hard currencyemerging market sovereign, quasi-sovereign and corporate debt as well as emerging market local sovereign debt and currencies
Predominantly emerging market local currency sovereign debt and currencies; blended benchmark widens the investment universe while reducing duration
Predominantly emerging market local currency sovereign debt as well as emerging market currencies
Comparative index* JPM EMBI Global Benchmark agnostic, flexible approach to the various opportunities available in emerging markets
50% JPM GBI-EM Global Diversified/ 50% JPM ELMI+
JPM GBI-EM Global Diversified
Assets under management (US$)
$7,474.5 million $4,045.3 million $1,184.7 million $366.8 million
Regional exposure Average number of countries: 40-60B h k t ti ( 70%) i
Average number of countries: 15-35Fl ibl i
Average number of countries: 15-25B h k t ti ( 70%) i
Average number of countries: 15-25B h k l di t ib t d th hBenchmark concentration (~70%) in
Latin America and Eastern Europe Flexible region exposure Benchmark concentration (~70%) in
Asia and Eastern Europe Benchmark evenly distributed through Asia, Europe and Latin America
Ratings quality exposure
Average credit quality: BBB Average credit quality: A- Average credit quality: A Average credit quality: A-
Average duration +/- 1 year of benchmark (6.76 yrs) Flexible +/- 2 year of benchmark (2.40 yrs) +/- 2 years of benchmark (4.79 yrs)
Target risk and return** Target tracking error: 1.5 – 4.0% Seeks to deliver 50-75% of the Target tracking error: 1.5 – 4.0% Target tracking error: 1.5 – 4.0%Target information ratio of 0.75 – 1.0 volatility associated with emerging
market external debt, local debt and currencies indices
Target information ratio of 0.75 – 1.0 Target information ratio of 0.75 – 1.0
Source: HSBC Global Asset Management. As of 30 September 2013. Any objectives, expectations, and targets presented are indicative only, are not guaranteed in any way, and do not constitute any engagement on the part of HSBC Global Asset Management. HSBC Global Asset Management accepts no liability for any failure to meet these objectives, expectations, and targets. Please see important disclosure at the end of this presentation for benchmark definitions and calculation methodology for characteristics. * These indices are for comparison purposes only.
26For institutional one on one use only. Not for further distribution.
** Expected volatility herein is provided for illustrative purposes only. These expectations are based on volatility of the benchmark over a cycle, and then the overall objectives of the portfolio such as the targeted level of volatility for the strategy and the overall out performance target, the outputs from the risk budgeting process (i.e expected tracking error), the risk profile of the investment strategy. These ranges are against the observed benchmark volatility.
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Emerging Market Debt capabilities
EMD Corporate (Unconstrained) EMD Investment Grade EM Inflation Linked Bond
Launch date 2010 2010 2012
Investment universe Predominantly emerging market hard currency corporate debt; tactical use of emerging market hard currencysovereign and quasi-sovereign debt
Predominantly emerging market hard and local currency sovereign debt as well as hard currency quasi-sovereign debt; tactical use of emerging market hard currency corporate debt
Predominantly Emerging market local currency sovereign inflation-linked debt and currencies; tactical use of emerging market hard currency nominal debt
C ti i d * JPM CEMBI Di ifi d 50% JPM EMBI Gl b l IG B l E i M k tComparative index* JPM CEMBI Diversified 50% JPM EMBI Global IG50% JPM GBI-EM GD IG
Barclays Emerging MarketsTradable Inflation-linked Bond
Assets under management (US$)
$12.1 million $1,117.0 million $161.3 million
Regional exposure Average number of countries: 20-50 Average number of countries: 15-30 Brazil, Mexico, Turkey, Israel, S. g p gBenchmark concentration (~70%) in Latin America and Asia
gevenly distributed through Asia, Europe and Latin America
, , y, ,Africa, Korea, Thailand, Poland, Chile
Ratings quality exposure
Average credit quality: BBB Average credit quality: A- Average credit quality: A-
Average duration +/- 2 year of benchmark (5.68 yrs) +/- 2 year of benchmark (6.06 yrs) +/- 2 years of benchmark (7.64 yrs)
Target risk and return** Target tracking error: 1.5 – 4.0%Target information ratio of 0.75 – 1.0
Target tracking error: 1.5 – 4.0%Target information ratio of 0.75 – 1.0
Target tracking error: 1.5 – 4.0%Target information ratio of 0.75 – 1.0
Source: HSBC Global Asset Management. As of 30 September 2013. Any objectives, expectations, and targets presented are indicative only, are not guaranteed in any way, and do not constitute any engagement on the part of HSBC Global Asset Management. HSBC Global Asset Management accepts no liability for any failure to meet these objectives, expectations, and targets. Please see
important disclosure at the end of this presentation for benchmark definitions and calculation methodology for characteristics. * These indices are for comparison purposes only.
27For institutional one on one use only. Not for further distribution.
** Expected volatility herein is provided for illustrative purposes only. These expectations are based on volatility of the benchmark over a cycle, and then the overall objectives of the portfolio such as the targeted level of volatility for the strategy and the overall out performance target, the outputs from the risk budgeting process (i.e expected tracking error), the risk profile of the investment strategy. These
ranges are against the observed benchmark volatility.
-
Long-term case for emerging markets credit is strong
Emerging markets sovereign balance sheets have strengthened substantially over the last ten years
Emerging vs. Developed market current accounts(Data forecasted to year-end 2013)
Emerging Markets Foreign Currency Reserves(Data forecasted to year-end 2013)
e (U
S$ b
illion
s)
400
600
800
ns
6000
7000
8000
9000
rent
acc
ount
bal
ance
-400
-200
0
200
US$
billi
on
2000
3000
4000
5000
Cur
r
-6001980 1984 1988 1992 1996 2000 2004 2008 2012
Advanced economies Emerging market and developing economies
0
1000
1980 1985 1990 1995 2000 2005 2010
EM International Reserves
Source: IMF HSBC Global Asset Management Data as of October 2012 Any forecast projection or target contained in this presentation is for information purposes only and is not guaranteed in
28For institutional one on one use only. Not for further distribution.
Source: IMF, HSBC Global Asset Management. Data as of October 2012. Any forecast, projection or target contained in this presentation is for information purposes only and is not guaranteed in any way. HSBC accepts no liability for any failure to meet such forecasts, projections or targets. Review and outlook is subject to change without notice. Past performance is no guarantee of future results.
-
Cheap currencies are supported by inflation adjusted productivity growth differentials vs. USD and EUR
Real exchange rate appreciation potentialEM currency under/overvaluation relative to US$
8 0
0,0
2,0
4,0
6,0
8,0
ntia
l* (%
p.a
.)
Inflation adjusted productivity differential
SGDBRLUYU
ILSJPYEUR
-8,0
-6,0
-4,0
-2,0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Pro
duct
ivity
diff
ere
US vs EM
EU vs EM
CNYIDR
MXNHKDKRWRUBCLP
170
180
190
200 Cumulative productivity change (vs. Developing world)
EM Productivity Index
US Productivity Index
EURO Z P d ti it I d
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
MYRPLNTRYRONHUFCZKCOP
120
130
140
150
160
Bas
is p
oint
s
EURO Zone Productivity Index
UAHTWDARSZARTHBPHPPEN
* The difference between the EM Productivity Index and the US Productivity Index adjusted for inflation.Source: IMF, WEO, EIU, HSBC Global Asset Management. EM currency valuation data as of 02 July 2013. Productivity data as of April 2011. Data beginning May 2011 is forecasted data. Past
100
110
120
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014-80% -60% -40% -20% 0% 20%
INREGPUAH
29For institutional one on one use only. Not for further distribution.
g y y y p g g yperformance is no guarantee of future results. Any forecast, projection or target contained in this presentation is for information purposes only and is not guaranteed in any way. HSBC accepts no liability for any failure to meet such forecasts, projections or targets.
-
Emerging Markets Debt – Total Return Supplemental GIPS reportSupplemental GIPS report
Report To 31 January 2014
Past performance is not indicative of future performance Returns greater than one year are annualized Data is supplemental to the GIPS® compliant presentation on the following pages Please
30For institutional one on one use only. Not for further distribution.
Past performance is not indicative of future performance. Returns greater than one year are annualized. Data is supplemental to the GIPS® compliant presentation on the following pages. Please see “Important Information” concerning the impact of investment advisory fees and expenses on performance and for benchmark definitions.
-
Emerging Markets Debt – Total Return GIPS reportGIPS report
Report To 30 September 2013
Past performance is not indicative of future performance Returns greater than one year are annualized Please see “Important Information” concerning the impact of investment advisory fees and
31For institutional one on one use only. Not for further distribution.
Past performance is not indicative of future performance. Returns greater than one year are annualized. Please see Important Information concerning the impact of investment advisory fees and expenses on performance and for benchmark definitions.
-
Emerging Markets Debt – Total Return DisclosuresDisclosures
HSBC Global Asset Management (the Firm) claims compliance with the Global Investment Performance Standards (GIPS®) and has prepared and presented this report in compliance with the GIPS standards. The Firm has been independently verified for the periods 1 January 2006 through 31 December 2012. The resultant verification report is available upon request. Verification assesses whether (1) the firm has complied with all the composite construction requirements of the GIPS standards on a firm-wide basis and (2) the firm's policies and procedures are designed to calculate and present performance in compliance with the GIPS standards Verification does not ensure the accuracy of any specific composite presentationand present performance in compliance with the GIPS standards. Verification does not ensure the accuracy of any specific composite presentation.The composite creation date is 31/08/2006A complete list and description of all Firm composites, as well as additional information regarding policies for calculating and reporting returns, is available on request from the contact shown on the document or presentation to which this report is attached.Prior to 2011 HSBC Global Asset Management maintained eight distinct GIPS Firms. The Firms were defined by legal business entity. All existing group Firms were thereafter amalgamated into a single global Firm definition. Historical performance shown prior to January 1, 2006 reflects the performance of a legacy Firm GIPS composite.HSBC Global Asset Management (the Firm) consists of discretionary accounts and sub-accounts managed as discrete mandates within specified local HSBC Global Asset Management entities. The Firm comprises the following: HSBC Global Asset Management (Deutschland) GmbH HSBC Global Asset Management (Hong Kong) Limited HSBC Global Asset Management (USA) Inc HSBCFirm comprises the following: HSBC Global Asset Management (Deutschland) GmbH, HSBC Global Asset Management (Hong Kong) Limited, HSBC Global Asset Management (USA) Inc., HSBC Global Asset Management (France), HSBC Global Asset Management (Canada) Limited, and HSBC Global Asset Management (UK) Limited. The Firm excludes portfolios and funds managed by the Alternative Investments teams, LDI products, French regulated employee (FCPE) schemes, and private client accounts as these products operate under a materially different philosophy and process and/or regulatory environment.The Emerging Markets Debt - Total Return composite consists of only actual, fee paying, fully discretionary accounts managed by HSBC Global Asset Management (USA) Inc. The underlying strategy is not constrained by benchmark and may hold long and short positions in emerging market fixed income, equities, currencies, and other financial instruments. Given the strategy¿s absolute return orientation, cash may be actively used as a defensive tactic to protect principal. The base currency of the composite is US$. Investment results are measured against the Merrill Lynch 3 month LIBOR Constant Maturity Index.Performance returns are calculated gross of investment management fees and other non-trading related expenses.The performance presented in this composite report is calculated net of unreclaimable withholding taxes.Warnings: The historical performance presented in these reports should not be seen as an indication of future performance; The value of your investment and any income from it can go down as well as up. Where overseas securities are held the rate of exchange may cause the value of the investment to go down as well as up.Investors should also be aware that other performance calculation methods may produce different results, and that the results for specific portfolios and for different periods may vary from the returns presented in these reports; Comparisons of investment returns should consider qualitative circumstances and should be made only to portfolios with generally similar investment objectives. In the USA, this information is intended for use solely in one-on-one presentations.Significant Event Atlantic Advisors: Atlantic Advisors was acquired by HSBC Investments (USA) Inc in June 2005 The members of Atlantic Advisors are now the global emerging markets fixedSignificant Event - Atlantic Advisors: Atlantic Advisors was acquired by HSBC Investments (USA) Inc. in June 2005. The members of Atlantic Advisors are now the global emerging markets fixed income team at HSBC Global Asset Management (USA) Inc. (formerly HSBC Halbis Partners (USA) Inc.). The composite performance results represent historical composite returns produced by the global emerging markets fixed income team while employed at the previous advisor linked, pursuant to GIPS Guidelines, with the performance results produced by the global emerging markets fixed income team since joining the firm.Exchange Rates The exchange rates used by accounts in this composite may be different than those used by the benchmark.The management process for accounts in this composite uses leverage and short sales instruments as a source of potential return. The firm also may employ the following derivative instruments both for hedging and return enhancement purposes; Options on Securities & Securities Indices, Currency transactions, Repurchase agreements, Interest rate swaps, caps, floors, and collars, and Forward contracts on securities or currencies. The firm also reserves the right to use new derivative techniques and instruments that may be developed in the future.Usage of Pre 2000 data The performance for periods presented prior to 1 January 2000 is not GIPS compliant as not all funds managed by the Firm have been allocated to composites for these periods. All funds which are eligible for inclusion in this composite have been included in the performance shown.Less than $200 million: 0.75% flat fee with a 20% annual performance fee (net of the base fee) above the relevant money market rate.Over $200 million: 0.50% flat fee with a 20% annual performance fee (net of the base fee) above the relevant money market rate.
32For institutional one on one use only. Not for further distribution.