New Frontiers: The Next Generation of EM equities contractual document only intended for...
Transcript of New Frontiers: The Next Generation of EM equities contractual document only intended for...
Non contractual document only intended for professional investors as defined by MiFID
New Frontiers: The Next Generation of EM equities
Senior Portfolio Manager
Andrew Brudenell
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* As at 31 December 2013. Source: HSBC Global Asset Management. The views expressed above were held at the time of preparation and are subject to change without notice.
The performance figures displayed in the document relate to the past and past performance should not be seen as an indication of future returns.
Comprehensive universe: our universe of over 3,000 companies and
investment approach provides a sensibly diversified exposure to c.30
frontier market economies
Change: relative improvements by way of reductions in institutional voids
drives productivity growth and hence performance of the asset class over
time
Consumers: frontier markets provide exposure to a large, young, and
growing base of consumers who should fuel further productivity (and GDP)
growth over time
Commodity wealth: many frontier markets are naturally endowed with
commodities which has resulted in a strong government credit position and
the ability to invest in hard and soft infrastructure
Correlations: low correlations across many unconnected countries results
in surprisingly low volatility (less than both emerging and developed
markets)
Cash returns: payout ratios and dividend yields have been consistently
higher in frontier markets than both developed and emerging markets
Cheap: frontier markets currently look cheap relative to developed markets
but slightly expensive to emerging markets, albeit with a higher return on
equity
7Cs characterising global frontier markets:
A pioneer with close to a 6 year track record of investing in frontier
markets, having formed a dedicated frontier markets team in 2007 and
launched our first mutual fund in February 2008
A truly global investment approach that invests across c.30 countries, as
reflected by our customised and exclusive benchmark that is reflective of
our investment strategy
Access to the global resources of HSBC (e.g. offices in Kenya, Saudi
Arabia, etc) and the retail bank network that provides incremental
informational advantages
A robust and enduring process that has withstood the test of time and
extreme market conditions e.g. Global Financial Crisis, Dubai debt default,
Arab Spring
Strong outperformance over most periods and against our bespoke
benchmark that has proven to be a higher hurdle than publically available
alternatives
Our Frontier Markets mutual funds (Luxembourg UCITS III fund and US ‘40
Act’ fund) provide investors with daily pricing (Mon – Thurs)
USD505 million* invested in the frontier markets across two mutual funds
and a managed account for one of the largest and most forward-thinking
US public pension plans
HSBC’s 7 competitive advantages:
HSBC Frontier Markets strategy Executive summary
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Investment case for global frontier markets The 7Cs of frontier markets that will drive convergence over time
1. Comprehensive universe
Reflective of our globally diversified approach
Sensibly diversified and proprietary customised benchmark
7. Cheap
Frontier markets are cheaper than Developed markets
Less researched, less liquid, and lack of sell-side coverage
6. Cash returns
Established companies new to stock exchanges that generate strong free cash flow
Dividend yields are higher than both Emerging and Developed Markets
4. Commodity wealth
Focus on growth commodity markets
Natural endowments, competitive advantage in factor markets, and export markets can generate significant wealth
Associated state infrastructure spending and industrial diversification
5. Correlations
Favourable cross-country correlations drives surprisingly low volatility
Lower volatility than Emerging Markets and Developed Markets provides diversification benefits
3. Consumers
Large and expanding populations, liberalisation, increasing product penetration, etc fuel productivity gains and GDP growth
Positive change in frontier markets drives convergence and returns over the long-run
2. Change
Positive political, economic, and social change over time results in reduced institutional voids and associated productivity gains
Productivity gains improves equity returns
The views expressed above were held at the time of preparation and are subject to change without notice.
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Argentina
Bahrain
Bulgaria
Croatia
Egypt*
Estonia
Kazakhstan
Kenya
Kuwait
Lebanon
Lithuania
Mauritius
Morocco*
Nigeria
Oman
Pakistan
Peru*
*Philippines Qatar
Romania
Serbia Slovenia
Sri Lanka
Tunisia
UAE
Ukraine
Vietnam Jordan
Barbados
Cape Verde
Seychelles
Timor-Leste
Afghanistan
Albania
Algeria
Armenia
Azerbaijan
Bahamas
Belarus
Belize
Bhutan
Bolivia
Brunei-Darussalam
Laos
Cambodia
Cameroon
Costa Rica
Cyprus Dominican Republic
El Salvador
Gabon
Georgia
Guatemala
Guyana
Haiti
Iran
Iraq
Kyrgyzstan
Latvia
Libya
Macedonia
Malawi
Moldova Mongolia Montenegro
Mozambique
Namibia
Nepal
Nicaragua
Panama
Papua
New Guinea Paraguay
Rwanda
Saudi Arabia
Slovakia
Sudan
Swaziland
Syria
Tanzania
Uganda
Uruguay
Uzbekistan
Venezuela
Zambia
Fiji
Myanmar
Tajikistan
Ecuador
Bosnia and Herzegovina
\
Angola
Benin
Botswana
Burkina Faso
Comoros
Côte d'Ivoire
Republic
of Congo
Equatorial Guinea
Ethiopia
Ghana
Jamaica
Trinidad and Tobago
Zimbabwe
Grenada
Lesotho
Mauritania
São Tomé and Príncipe
Senegal Gambia
Togo
Yemen
Maldives
Colombia*
Suriname
Bangladesh
Comprehensive universe Over 3,000 stocks across an eclectic group of countries
Frontier Market (off-benchmark)
Frontier Market (MSCI FEM benchmark)
Source: HSBC Global Asset Management, as at December 2013
Counties shown above have a local stock exchange. Countries in bold are indicative of countries with meaningful stock exchanges.
* These are crossover countries with Emerging Markets
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Change Frontier markets benefit from rapid change and relative improvement
17 of c.27 countries that we have exposure to have improved
Economic freedom covers 10 forms of freedoms in four broad categories: (1) rule of law (property
rights, freedom from corruption); (2) limited government (fiscal freedom, government spending); (3)
regulatory efficiency (business freedom, labour freedom, monetary freedom); and (4) open markets
(trade freedom, investment freedom, financial freedom)
Source: Citi and Heritage Foundation, 2012
Heritage Foundation Index of Economic Freedom (high = good)
0
10
20
30
40
50
60
70
80
90
Vie
tnam
Bulg
aria
Ukra
ine
Zim
babw
e
Bangla
desh
Kazakhsta
n
Egypt
Rom
ania
Mozam
biq
ue
Nig
eria
Cro
atia
Georg
ia
Lebanon
Pakis
tan
Ghana
Slo
venia
Mongolia
Cam
bodia
Kenya
UA
E
Tunis
ia
Lithuania
Qata
r
Phili
ppin
es
Zam
bia
Moro
cco
Sri L
anka
Colo
mbia
Om
an
Saudi A
rabia
Mauritius
Jord
an
Peru
Kuw
ait
Esto
nia
Arg
entina
Panam
a
Trinid
ad
Bahra
in
2000 2012
Free
Mostly Free
Moderately Free
Mostly Unfree
Repressed
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Consumers Frontier markets provide mass exposure to domestic consumption
Frontier markets benefit from a young, large, and growing population of consumers (the so-called
“demographic dividend”)
Growing populations (Population growth - present to 2050) Young populations (median age)
Source: Citi, 2012
0
5
10
15
20
25
30
35
40
Zam
bia
Moza
mbiq
ue
Nig
eria
Kenya
Zim
babw
eG
hana
Jord
an
Paki
stan
Phili
ppin
es
Bangla
desh
Egyp
tM
ongolia
Peru
Saudi A
rabia
Moro
cco
Colo
mbia
Om
an
Panam
aK
uw
ait
Vie
tnam
Tun
isia
UA
EA
rgent
ina
Bahra
inS
ri L
anka
Trin
idad
Qata
rM
auritiu
sG
eorg
iaS
erb
iaR
om
ania
Ukr
ain
eLith
uania
Est
onia
Cro
atia
Bulg
aria
Slo
venia (50%)
0%
50%
100%
150%
200%
250%
Zam
bia
Nig
eria
Kenya
Moza
mbiq
ue
Ghana
Kuw
ait
Phili
ppin
es
Zim
babw
eS
audi A
rabia
Jord
an
Paki
stan
UA
EE
gyp
tM
ongolia
Panam
aQ
ata
rB
ahra
inP
eru
Colo
mbia
Om
an
Kaza
khst
an
Bangla
desh
N A
merica
Arg
ent
ina
Moro
cco
Tun
isia
Vie
tnam
Sri L
anka
Lebanon
Mauritiu
sS
lovenia
Euro
peT
rinid
ad
Est
onia
Serb
iaC
roatia
Rom
ania
Lith
uania
Ukr
ain
eG
eorg
iaB
ulg
aria
grow ing
declining
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Consumers Frontier markets benefit from increasing product penetration
Frontier markets are underserved in terms of mobile telephony, internet penetration, transportation,
etc but increasing penetration will drive productivity improvements over time
Internet
Fixed broadband Internet subscribers (per 100 people)*
Mobile phone
Mobile cellular subscriptions (per 100 people)*
Transportation
Passenger cars (per 1,000 people)*
0
5
10
15
20
25
30
35
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
DM EM FM
0
20
40
60
80
100
120
140
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
DM EM FM
0
50
100
150
200
250
300
350
400
450
500
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
DM EM FM
based on the simple average of values for the countries in the respective group. DM, EM and FM classification as per MSCI
Source: World Bank, HSBC Calculations
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Commodity wealth Frontier Markets have a comparative advantage in factor markets
Many frontier markets (e.g. GCC countries) are naturally endowed with sought after commodities
which has facilitated a strong government credit position (unlike developed markets)
Commodities in Frontier Markets
Source: Citi, 2012
43%
30%
21%20%
19% 19%
10%9%
8%
4%3%
0%
30%
20%
4%
15%
29%
24%
3%3%
7%
15%
11%
4%
0%
15%
30%
45%
Oil Natural gas Iron ore Copper Uranium Zinc Coal Aluminium Molybdenum Nickel Gold PGMs
% of global reserves % of global production
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Commodity wealth But it is not just about oil and gas or a ‘commodity play’
Contrary to popular opinion, frontier markets have low correlations with both oil and non-
commodity prices
Wealth generated from commodities funds industrial diversification (eg Qatar) and associated
infrastructure projects
Source: Bloomberg, December 2008 to December 2013, correlation of weekly index levels (Wednesday to Wednesday) over 5 year period.
N.B. Blue font denotes correlation of 0.5 or lower.
Brent Oil DJ UBS Commodities
DM 0.57 0.63
EM 0.54 0.61
FM 0.41 0.41
Qatar 0.32 0.23
Colombia 0.43 0.51
UAE 0.30 0.33
Nigeria 0.15 0.15
Kuwait 0.22 0.22
Kazakhstan 0.38 0.40
Oman 0.28 0.27
Brazil 0.52 0.60
Russia 0.54 0.56
India 0.41 0.45
China 0.45 0.51
BRIC 0.58 0.64
S&P 0.52 0.59
Europe 0.55 0.62
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Commodity wealth Commodities have generated strong credit positions
Strong government credit position, unlike developed markets
Private sector debt is also moderate
Public debt/GDP, 2001-2012 Private sector credit/GDP, 2010
Source: Citi, December 2012.
Any forecast, projection or target where provided is indicative only and is not guaranteed in any way. HSBC Global Asset Management (France) accepts no liability for any failure to meet such forecast, projection or target.
20%
40%
60%
80%
100%
120%
140%
2001 2003 2005 2007 2009 2011
Frontier Emerging Developed
0%
40%
80%
120%
160%
200%
Frontier Emerging Developed
Corporate debt Household debt
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DM 1.00
EM 0.86 1.00
FM 0.56 0.60 1.00
Qatar 0.42 0.44 0.77 1.00
Colombia 0.58 0.67 0.47 0.29 1.00
UAE 0.41 0.45 0.76 0.59 0.33 1.00
Nigeria 0.21 0.25 0.43 0.22 0.18 0.24 1.00
Kuwait 0.26 0.30 0.77 0.53 0.31 0.40 0.07 1.00
Philippines 0.45 0.61 0.48 0.38 0.43 0.38 0.22 0.28 1.00
Peru 0.64 0.66 0.33 0.22 0.53 0.25 0.09 0.14 0.41 1.00
Pakistan 0.18 0.23 0.42 0.30 0.13 0.34 0.12 0.32 0.15 0.04 1.00
Kazakhstan 0.53 0.59 0.43 0.31 0.42 0.33 0.23 0.12 0.30 0.35 0.11 1.00
Oman 0.38 0.37 0.65 0.61 0.21 0.62 0.11 0.47 0.32 0.22 0.31 0.26 1.00
Kenya 0.23 0.19 0.29 0.18 0.17 0.15 0.24 0.13 0.17 0.12 0.15 0.11 0.21 1.00
Egypt 0.36 0.44 0.49 0.37 0.33 0.43 0.23 0.28 0.35 0.21 0.25 0.30 0.32 0.22 1.00
Argentina 0.56 0.57 0.46 0.31 0.38 0.26 0.19 0.22 0.35 0.45 0.18 0.30 0.24 0.12 0.27 1.00
Vietnam 0.35 0.39 0.41 0.29 0.29 0.27 0.20 0.18 0.30 0.24 0.16 0.32 0.25 0.19 0.24 0.24 1.00
Lebanon 0.13 0.17 0.22 0.16 0.11 0.14 0.20 0.07 0.16 0.08 0.03 0.14 0.07 0.17 0.18 0.15 0.21 1.00
Croatia 0.54 0.56 0.45 0.33 0.42 0.31 0.23 0.18 0.29 0.38 0.09 0.37 0.29 0.13 0.22 0.36 0.37 0.05 1.00
Correlations Low cross-country correlations
Low correlations between frontier and emerging markets and individual country constituents
Source: Bloomberg, December 2008 to December 2013, correlation of weekly index levels (Wednesday to Wednesday) over a 5 year period.
N.B. Blue font denotes correlation of 0.5 or lower.
EM
FM
Qata
r
Co
lom
bia
UA
E
Nig
eria
Ku
wait
Ph
ilipp
ines
Peru
Pakis
tan
Kazakh
sta
n
Om
an
Ken
ya
Eg
yp
t
Arg
en
tina
Vie
tnam
Leb
an
on
Cro
atia
DM
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0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
Dec 2007 Jun 2008 Dec 2008 Jun 2009 Dec 2009 Jun 2010 Dec 2010 Jun 2011 Dec 2011 Jun 2012 Dec 2012 Jun 2013 Dec 2013
MSCI FEM Capped MSCI World MSCI EM
Frontier Markets have consistently produced lower volatility of returns compared to emerging and
developed markets
Correlations Low correlations drive surprisingly low volatility1
Rolling 12 month annualised volatility of returns
Source: Bloomberg, weekly data (Wednesday to Wednesday) from December 2007 to December 2013. The views expressed above were held at the time of preparation and are subject to change without notice.
1. So long as investors embrace a truly diversified frontier markets portfolio globally. Otherwise, investors who selectively target a small number of frontier market countries (perhaps through a GEM only
allocation) will inevitably experience higher idiosyncratic risk and hence much higher levels of volatility. Past performance is not an indication of future returns.
5
9.6%
15.7%
10.1%
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Cash returns Frontier Markets tend to have the highest dividend yields
Frontier markets have consistently offered higher dividends yields than both developed and
emerging markets
Certain countries offer dividend yields over 10% e.g. Kazakhstan
12 month trailing dividend yield 12 month trailing dividend yield at year end
Source: MSCI, Thomson Reuters DataStream, HSBC Calculations, December 2013. * Based on the MSCI indices. World represents EM + DM + FM. DM = Developed Markets, EM = Emerging Markets, FM = Frontier Markets. The
views expressed above were held at the time of preparation and are subject to change without notice. The level of yield is not guaranteed and may rise or fall in the future.
2.6% 2.4%
3.6%
1.5%
2.5%
3.5%
4.5%
5.5%
6.5%
7.5%
8.5%
Dec 07 Dec 08 Dec 09 Dec 10 Dec 11 Dec 12 Dec 13
DM EM FM
3.8
%
2.4
%
2.5
% 2.9
%
2.8
%
2.4
%
4.1
%
2% 2
.2%
2.9
%
2.7
%
2.6
%
6.3
%
4.4
%
4.2
%
5.5
%
4.2
%
3.6
%
1.5%
2.5%
3.5%
4.5%
5.5%
6.5%
7.5%
8.5%
2008 2009 2010 2011 2012 2013
DM EM FM
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0.5x
1.0x
1.5x
2.0x
2.5x
3.0x
3.5x
Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13
DM EM FM
Cheap Frontier markets look undervalued on a trailing basis
Frontier Markets are cheaper than Developed Markets although slightly more expensive than
Emerging Markets on a trailing Price to Book basis but with a higher level of return on equity
12-month trailing Price to Book Return on Equity
1.7x
2.2x
1.5x
13.2%
12.0%
12.7%
Source: MSCI, Thomson Reuters DataStream, HSBC Calculations, December 2013. * Based on the MSCI indices. World represents EM + DM + FM. DM = Developed Markets, EM = Emerging Markets, FM = Frontier Markets.
The views expressed above were held at the time of preparation and are subject to change without notice.
5.5%
7.5%
9.5%
11.5%
13.5%
15.5%
17.5%
19.5%
Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13
DM EM FM
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Trailing 12-month P/E estimates
Source: MSCI, Thomson Reuters DataStream, HSBC Calculations, December 2013.
The views expressed above were held at the time of preparation and are subject to change without notice. Any forecast, projection or target when provided is indicative only and is not guaranteed in any way
Cheap Frontier countries: Trailing P/E estimates
There is significant variation in valuation levels across the frontier universe
3.3 3.8
6.2 6.77.6
10.4 10.7 10.7
13.0 13.2 13.3 13.8 13.8 14.0 14.3 14.4 14.5 14.5 14.9 15.4 15.5 16.0 16.1 16.2
17.7 17.7 18.0 18.118.8
22.7
12.1
0.0
5.0
10.0
15.0
20.0
25.0
Ukra
ine
Serb
ia
Arg
entina
Bulg
aria
Kazakhsta
n
Pakis
tan
Mauritius
Om
an
Rom
ania
Cro
atia
Nig
eria
Lithuania
Slo
venia
Moro
cco
Esto
nia
Kenya
Qata
r
Peru
Jord
an
Sri L
anka
Lebanon
Tunis
ia
Bangla
desh
Vie
tnam
UA
E
Saudi A
rabia
Bahra
in
Colo
mbia
Kuw
ait
Phili
ppin
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Egypt
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Fund performance Supplemental information as at 31 December 2013
Calendar year returns Gross performance comparison: strong relative performance on a calendar year basis versus both the fund’s
customised comparative index* (MSCI Frontier EM Capped) and the MSCI Frontier Markets index
Performance (%) of HSBC GIF
Frontier Markets versus : 2013 2012 2011 2010 2009 2008**
MSCI Frontier EM Capped +11.13 +8.96 +1.25 +3.94 +18.37 -3.54
MSCI Frontier Markets +2.72 +17.01 +1.22 +3.60 +31.13 -2.99
25.87%
42.74%
16.91%
24.37%25.89%
8.85%11.61%
(57.82%)
27.35%28.61%
(17.51%)
(54.28%)
17.48%
23.41%
(18.76%)
(54.83%)
23.75%
(18.73%)
(60%)
(50%)
(40%)
(30%)
(20%)
(10%)
0%
10%
20%
30%
40%
50%
YTD 2012 2011 2010 2009 2008**
HSBC GIF Frontier Markets MSCI Frontier Emerging Markets Capped MSCI Frontier Markets
Source: HSBC Global Asset Management as at end of December 2013. Data is supplemental to the GIPS® compliant performance. Please see important disclosure in the Appendix. Performance is shown gross of fees. The
performance figures displayed in the document relate to the past and past performance should not be seen as an indication of future returns. *The comparative index is a customised MSCI Frontier Emerging Markets Capped Net
index. Prior to 1 June 2009, the comparative index was the MSCI Frontier Emerging Markets index uncapped. This is the current internal index, which may change and is not detailed in the fund's prospectus. For illustrative
purposes only as the fund has no official benchmark. ** 2008 performance is from 4 February 2008. Non contractual document
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Fund performance Supplemental information as at 31 December 2013
Rolling returns Gross performance comparison: strong relative rolling performance generated versus both the fund’s customised
comparative index* (MSCI Frontier EM Capped) and the MSCI Frontier Markets index
Performance (%) of HSBC GIF
Frontier Markets versus : 3 months YTD 1 year 3 years (pa) 5 years (pa) Inception (pa)**
MSCI Frontier EM Capped +3.43 +11.13 +11.13 +6.41 +8.05 +4.46
MSCI Frontier Markets +1.86 +2.72 +2.72 +6.47 +10.42 +6.38
8.41%
28.61% 28.61%
10.13%
19.42%
0.40%
4.98%
17.48% 17.48%
3.72%
11.37%
(4.06%)
6.55%
25.89% 25.89%
3.66%
9.00%
(5.98%)(10%)
(5%)
0%
5%
10%
15%
20%
25%
30%
35%
40%
3 months YTD 1 year 3 years (pa) 5 years (pa) Inception (pa)**
HSBC GIF Frontier Markets MSCI Frontier Emerging Markets Capped MSCI Frontier Markets
Source: HSBC Global Asset Management as at end of December 2013. Data is supplemental to the GIPS® compliant performance. Please see important disclosure in the Appendix. Performance is shown gross of fees. The
performance figures displayed in the document relate to the past and past performance should not be seen as an indication of future returns. *The comparative index is a customised MSCI Frontier Emerging Markets capped Net
index. Prior to 1 June 2009, the comparative index was the MSCI Frontier Emerging Markets index uncapped. This is the current internal index, which may change and is not detailed in the fund's prospectus. For illustrative
purposes only as the fund has no official benchmark. ** Inception from 4 February 2008..
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Source: HSBC Global Asset Management, MSCI as of December 2013. Information is given for illustrative purposes. Data represents the HSBC GIF Frontier Markets Fund. Comparative index is the MSCI Frontier Emerging
Markets Capped Net Index. This is the current internal comparative index, which may change and is not detailed in the fund's prospectus. For illustrative purposes only as the fund has no official benchmark.
Data is supplemental to the GIPS® compliant performance details.
MENA (48.2%)
Asia (21.0%)
Sub-Saharan Africa (12.5%)
Eastern Europe (10.4%)
Latin America (6.1%)
Cash (1.8%)
Fund metrics Regional positioning
Regional Weightings (%) Regional Weightings vs. MSCI FEM Capped* (%)
(10.5)
(3.4)
(0.7)
3.3
9.4
(14.0)
(9.0)
(4.0)
1.0
6.0
11.0
Latin
Am
erica
Su
b-S
ah
ara
n A
fric
a
Ea
ste
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Asia
ME
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Top 10 Country Holdings Top & Bottom 5 Country Weightings vs. MSCI FEM Capped* (%)
Country Portfolio Weight (%)
United Arab Emirates 14.85
Qatar 14.28
Nigeria 11.41
Pakistan 10.65
Saudi Arabia 7.89
Kuwait 6.13
Vietnam 3.93
Oman 3.81
Philippines 3.72
Georgia 2.86
Source: HSBC Global Asset Management, MSCI as of December 2013. Information is given for illustrative purposes. Data represents the HSBC GIF Frontier Markets Fund. Comparative index is the MSCI Frontier Emerging Markets
Capped Net Index. This is the current internal comparative index, which may change and is not detailed in the fund's prospectus. For illustrative purposes only as the fund has no official benchmark.
Data is supplemental to the GIPS® compliant performance details.
Fund metrics Country positioning
(5.8) (5.8)
(3.5) (2.7) (2.3)
2.93.8 4.3
5.4
7.9
(10.0)(8.0)(6.0)(4.0)(2.0)
0.02.04.06.08.0
10.0
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Banks (35.8%)
Consumers (26.9%)
Infrastructure (12.6%)
Energy (10.8%)
Materials (5.8%)
Conglomerates (4.4%)
Healthcare (1.9%)
Cash (1.8%)
Financials (44.9%)
Industrials (13.0%)
Energy (10.8%)
Materials (9.3%)
Telecom Services (6.9%)
Consumer Staples (6.1%)
Utilities (3.1%)
Consumer Discretionary (2.3%)
Healthcare (1.9%)
Cash (1.8%)
Sector Weightings (%) – GICS Classification
* The HSBC Global Asset Management classification above is a subjective classification based upon our assessment of the true nature of the economic exposures based on the investment team’s investment thesis:
1) ‘Consumers’ includes consumer discretionary, consumer staples, malls, casinos, cruise ships, low cost airlines, and mobile phones.
2) ‘Infrastructure’ includes cement, ports, power, and transportation.
3) ‘Conglomerates’ is defined as companies having no dominant sector theme.
Source: HSBC Global Asset Management, MSCI as of December 2013. Information is given for illustrative purposes. Data represents the HSBC GIF Frontier Markets Fund.
Data is supplemental to the GIPS® compliant performance details.
Thematic Weightings (%) – HSBC Classification*
1
2
3
Fund metrics Sector positioning
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Frontier Markets outlook Regional market outlook
Middle East and North Africa
We are focused on the Arabian Gulf countries, with a preference for the UAE and Qatar where we have increased our exposure as we expect growth to
accelerate driven by government spending; the next largest exposure is Saudi Arabia.
In North Africa, we have no exposure to Morocco or Tunisia and small exposure to special situations in Egypt given low prices but an uncertain outlook.
Eastern Europe
Our exposure is small in absolute terms and very stock specific with a focus on domestic growth opportunities having avoided much of the region in the
last few years due to concerns about the troubled Eurozone countries, but this could change in 2014.
The largest country exposure is Georgia through one very well run holding which should continue to benefit from the positive outlook of the economy.
Sub-Saharan Africa
The exposure to Sub-Sahara Africa is the lowest in the strategy’s history; Nigeria remains our favourite market but profits have been taken after strong
returns in 2012 and 2013.
There is only one other SSA holding, in Kenya where profits were taken after a very strong 2013 has left valuations unattractive.
Asia
Pakistan is our favoured country with cheap valuations, a high dividend yield, an IMF deal in place and a relatively new government making progress on
necessary reforms.
Valuations in the Philippines, Sri Lanka, and Bangladesh are still unattractive although the Philippine economy continues to perform well.
Latin America
Our largest holding is a high quality industrial company in Panama that gives exposure to increased business activity in Central and South America.
We remain underweight Colombia and Peru due to valuation and poor growth prospects, but with the local markets off their highs by over 20% and 30%
respectively some value may start to re-appear in 2014.
We continue to monitor the ongoing changes in the political landscape in Argentina and potential impact on economic policy but currently have no
exposure.
Note: The views expressed above were held at the time of preparation and are subject to change without notice.
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HSBC Frontier Markets strategy Supplemental information - Risk and return over 3 years
Data is supplemental to the GIPS© compliance performance details at the end of this presentation. The performance figures displayed in the document relate to the past and past performance should not be seen as an indication of
future returns.
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Frontier Markets Equity GIPS report to 30 September 2013
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Returns for the composite are shown gross of fees. Returns greater than one year are annualised returns. The performance figures displayed in the document relate to the past and past performance should not be seen
as an indication of future returns.
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Important information
This presentation is distributed by HSBC Global Asset Management (France) and is only intended for professional investors as defined by MIFID. The information contained herein is subject to change without notice. All non-authorised reproduction or use of this commentary and analysis will be the responsibility of the user and will be likely to lead to legal proceedings. This document has no contractual value and is not by any means intended as a solicitation, nor an investment advice for the purchase or sale of any financial instrument in any jurisdiction in which such an offer is not lawful. The commentary and analysis presented in this document reflect the opinion of HSBC Global Asset Management (France) on the markets, according to the information available to date. They do not constitute any kind of commitment neither from HSBC Global Asset Management (France). Consequently, HSBC Global Asset Management (France) will not be held responsible for any investment or disinvestment decision taken on the basis of the commentary and/or analysis in this document. All data from HSBC Global Asset Management unless otherwise specified. Any third party information has been obtained from sources we believe to be reliable, but which we have not independently verified. It is complete without the oral briefing provided by the representatives of HSBC Global Asset Management (France).
The products presented in this document may not be registered and/or authorised for sale in your country. The performance figures displayed in the document relate to the past and past performance should not be seen as an indication of future returns. Any forecast, projection or target where provided is indicative only and is not guaranteed in any way. Capital is not guaranteed.
Please note that according to article 314-13 of AMF General Regulations, performance for periods of less than 12 months cannot be shown to non-professional investors, as defined by the MIF directive.
The risk also exists that an emergency situation may arise in one or more developing markets as a result of which trading of securities may cease or may be substantially curtailed and prices for a strategy’s securities in such markets may not be readily available.
Investors should note that changes in the political climate in Emerging Markets may result in significant shifts in the attitude to the taxation of foreign investors. Such changes may result in changes to legislation, the interpretation of legislation, or the granting of foreign investors the benefit of tax exemptions or international tax treaties. The effect of such changes can be retrospective and can (if they occur) have an adverse impact on the investment return of the strategy. Where overseas investments are held the rate of exchange may cause the value to go down as well as up. Investments in emerging markets are by their nature higher risk and potentially more volatile than those inherent in established markets. Fluctuations in the rate of exchange of currencies may have a significant impact on fund performance. Emerging economies typically exhibit higher levels of investment risk. Markets are not always well regulated or efficient and investments can be affected by reduced liquidity. The value of derivative contracts is dependent upon the performance of an underlying asset. A small movement in the value of the underlying can cause a large movement in the value derivative. Unlike exchange traded derivatives, over-the-counter (OTC) derivatives have credit risk associated with the counterparty or institution facilitating the trade. Operational risks are borne by the Investment Adviser. The main risks are related to systems and process failures. The Investment Advisers are overseen by independent risk functions, are subject to independent internal and external audit and are supervised by regulators. It is important to remember that the value of investments and any income from them can go down as well as up and capital is not guaranteed. All subscriptions in any fund presented in this document are accepted only on the basis of the current prospectus accompanied by the latest annual or half-yearly report, available on request from HSBC Global Asset Management (France), the centralisation agent, the financial department or the usual representative. Before subscription, investors should refer to the Key Investor Information Document (KIID) and/or the simplified prospectus of the fund as well as its complete prospectus. For more detailed information on the risks associated with this fund, investors should refer to the complete prospectus of the fund.
HSBC GIF Frontier Markets is a sub-fund of HSBC Global Investment Funds, a Luxemburg domiciled SICAV. The shares of HGIF have not been and will not be offered for sale or sold in the United States of America, its territories or possessions and all areas subject to its jurisdiction, or to United States Persons.
The MSCI information may only be used for your internal use, may not be reproduced or redisseminated in any form and may not be used to create any financial instruments or products or any indices. The MSCI information is provided on an 'as is' basis and the user of this information assumes the entire risk of any use it may make or permit to be made of this information. Neither MSCI, any of its affiliates or any other person involved in or related to compiling, computing or creating the MSCI information (collectively, the 'MSCI Parties') makes any express or implied warranties or representations with respect to such information or the results to be obtained by the use thereof, and the MSCI Parties hereby expressly disclaim all warranties (including, without limitation, all warranties of originality, accuracy, completeness, timeliness, non-infringement, merchantability and fitness for a particular purpose) with respect to this information. Without limiting any of the foregoing, in no event shall any MSCI Party have any liability for any direct, indirect, special, incidental, punitive, consequential or any other damages (including, without limitation, lost profits) even if notified of, or if it might otherwise have anticipated, the possibility of such damages.
Important information for Swiss investors: The presented fund is authorised for public distribution according to Art. 120 of the Federal Collective Investment Schemes Act in Switzerland. This presentation is intended exclusively towards qualified investors in the meaning of Art. 10 para 3 lit. a and b of the Federal Collective Investment Schemes Act (CISA). The prospectus, Key Investor Information Document (KIID) of the afore mentioned sub-fund and (semi-) annual reports of the Company can be obtained free of charge at the Swiss office of the Swiss representative of the fund: ACOLIN Fund Services AG, Stadelhoferstrasse 18, CH-8001 Zurich. Paying agent in Switzerland: HSBC Private Bank (Suisse) S.A., Quai Général Guisan 2, P.O. Box 3580, 1211 Geneva 3.
HSBC Global Asset Management is the brand name for the asset management business of HSBC Group. The above document has been produced by HSBC Global Asset Management (France) and has been approved for distribution/issue by the following entities:
HSBC Global Asset Management (France) - 421 345 489 RCS Nanterre. Portfolio management company authorised by the French regulatory authority AMF (no. GP99026) with capital of 8.050.320 euros.
Postal address: 75419 Paris cedex 08, France.
Offices: Immeuble Ile de France - 4 place de la Pyramide - La Défense 9 - 92800 Puteaux – France. (Website: www.assetmanagement.hsbc.com.fr).
HSBC Global Asset Management (Switzerland) Limited
Bederstrasse 49, P.O. Box, CH-8027 Zurich, Switzerland (Website: www.assetmanagement.hsbc.com/ch)
Copyright © 2014. HSBC Global Asset Management (France). All rights reserved.
Non contractual document, updated in January 2014
Non contractual document