September 2011 HSBC GIF Chinese Equity …...HSBC GIF Chinese Equity Presentation September 2011 2...
Transcript of September 2011 HSBC GIF Chinese Equity …...HSBC GIF Chinese Equity Presentation September 2011 2...
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For professional clients only
HSBC GIF Chinese Equity PresentationSeptember 2011
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HSBC Overview
HSBC Global Asset Management
The Investment Team & Emerging Markets Investment Resources
Investment Philosophy and Process
Risk management
Market overview
HSBC GIF Chinese Equity Fund overview
Competitor analysis
Outlook
Appendix
Contents
HSBC Overview
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HSBC overview
Emerging markets are at the heart of HSBC's corporate identity
HSBC’s roots were formed in China and India in the 19th century
HSBC Group has maintained a strong presence in global trade, particularly in India and China, the world's most dynamic emerging markets.
Headquartered in London, HSBC is one of the largest banking and financial services organisations in the world, with over 300,000 employees spanning
an international network of around 7,500 offices in the Asia-Pacific region, Europe, the Americas, the Middle East and Africa.
One of the largest global financial services networks with offices in 87 countries of which 54 are in emerging market countries
A unique local market knowledge, enhancing the portfolio management processes
Direct access to local companies and investment opportunities
Source: HSBC Holdings Plc, data as of 31st December 2010.
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Mexico
Honduras
El Salvador Nicaragua
Costa Rica Panama
Colombia
PeruBrazil
ParaguayChile
ArgentinaUruguay
South Africa
Mauritius
Algeria
Libya Egypt
PolandCzech RepublicSlovakia
TurkeyLebanon
IsraelPalestine
Georgia
ArmeniaIraq
KuwaitBahrain, QatarUAE
OmanSaudi Arabia
Kazakhstan
Russia
PakistanChina Korea
India
MaldivesSri Lanka
Taiwan
Philippines
Indonesia
BruneiMalaysia
Singapore
Hong Kong
ThailandVietnam
Macau
Malta
HSBC Global Asset ManagementHSBC Holdings plc
Source: HSBC Global Asset Management, as of 31 December 2010
HSBC’s presence in emerging markets
HSBC Global Asset Management
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HSBC Global Asset Management
HSBC Global Asset Management is a leading global asset management firm managing assets totalling USD453.4 billion at the end of June 2011.
HSBC Global Asset Management offers clients around the world a diverse and full range of active and quantitative investment products including equity, fixed income, liquidity and alternative strategies.
Worldwide client base invested in both segregated accounts and pooled funds.
HSBC Global Asset Management is part of HSBC Holdings plc.
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HSBC Global Asset Management -
A leader in emerging markets
Complete investment solutions including equity, fixed income, balanced and alternatives products through:
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Local strategies: Products managed and distributed locally
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Global, regional and single country strategies: Products managed
across multiple geographies and distributed globally
An extensive range of emerging markets funds, including some of the world's largest in their sectors
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One of the largest offshore managers of Brazil, India and BRIC equity funds
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Our flagship global emerging market products have made us leaders in the management of assets in a wide array of emerging markets, not only in Brazil, India and China but also in Taiwan, Thailand and Turkey
Emerging Markets AUM by region (US$ billion)
Source: HSBC Global Asset Management, Assets under management data as of 30th June 2011
Emerging Markets AUM by asset class (US$ billion)
Among the largest managers of emerging market funds globally, with approximately USD139 billion in assets under management and over 200 dedicated emerging markets investment professionals in 14 key locations
Latin America
58.9
Asia Pacific61.1
EMEAMENA
9.9Global
9.2
Equity39.9
Fixed Income
76.3
Balanced17.3
Alternative0.8
Liquidity4.8
The Investment Team & Emerging Markets Investment Resources
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An Experienced and Dedicated Team
A large dedicated and experienced team manages over US$8.3b* in dedicated Chinese equities
High conviction ideas generated from proprietary research
Disciplined, valuation driven investment process
*Data as of 30 December 2010, includes both assets managed by HSBC Jintrust
and HSBC Global Asset Management
Name Title Role
Years of experience
with the Group
Years of industry
experience
China Portfolio Management Team (Country Specialist – China)Mandy Chan Investment Director Fund Manager 1 14Alan Zhong CFA Investment Manager Equity Analyst 5 7Joy Yuan Senior Investment Analyst Equity Analyst 7 7Debbie Chan Investment Analyst Equity Analyst 3 7Country Specialist – Hong KongPhilip Mok Investment Director Fund Manager 8 22Elina
Fund Associate Director Equity Analyst 3 10Sector AnalystsHugh Lee Senior Investment Analyst Regional Sector
Analyst5 15
Patrick Crivelli Senior Investment Analyst Regional Sector Analyst
5 9
Mathew Lee Senior Investment Analyst Regional Sector Analyst
5 11
Kwok Wing Cheong Senior Investment Analyst Regional Sector Analyst
5 20
Sami Abouzahr Investment Analyst Regional Sector Analyst
6 6
Portfolio ConstructionFrancis Chung Director, Asia Product Specialist Risk and Portfolio
Construction3 20
Andrew Lee CFA Head of Quantitative Analysis & Implementation
Quantitative Analysis and Portfolio Implementation
6 15
Product SpecialistArwen
Liu Asia Product Specialist Product Specialist 2 2
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Supported by on the ground research team in Shanghai
Resources of JV, HSBC Jintrust
Greater access to information not reflected in the market
Leverage research resources on dual-listed companies
Name Role Location Years of industry experience
Tom Lin CIO, HSBC Jintrust Shanghai 13David Shao Fund Manager –
Dynamic Strategy Fund Shanghai 18Ally Wang Fund Manager –
Big Cap Fund Shanghai 9Leo Cai Fund Manager –
2026 Lifecycle, Mid & Smallcap
Lifecycle FundShanghai 8
Jeremiah Feng Fund Manager –
2016, 2026 Lifecycle Fund Shanghai 6David Liao Fund Manager –
Dragon Fund, Financials, Property Shanghai 8Ricky Hou Investment Manager, Coal, Utilities, Paper Shanghai 12Kevin Wang Strategist Shanghai 7Rollin Cai Assistant Strategist Shanghai 1Quentin Cao Head of Research Shanghai 6Sammi Yan Research Analyst, Nonferrous, Steel, Building Materials Shanghai 4Timothy Cao Research Analyst, Retail, Electronic Appliance Shanghai 4Carol Duan Research Analyst, Pharmaceutical, F&B Shanghai 4Andy Cao Research Analyst, TMT Shanghai 3Tony Zheng Research Analyst, Chemicals Shanghai 3Michael Liu Research Analyst, Machinery Shanghai 4Jason Zhang Research Analyst, Transportation, Tourism Shanghai 4Rocky Liu Research Analyst, TMT Shanghai 3Dolon
Qiu Research Analyst, Agricultural, F&B Shanghai 3Kaven
Cai Research Analyst, Autos, Agriculture Shanghai 1Joyce Wang Assistant Research Analyst Shanghai 5
Data as of 30 December 2010 HSBC Global Asset Management
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Investment Team
Source: HSBC Global Asset Management. Data as of July 2011* Years of industry experience are denoted in the brackets(xx) indicates the total number of investment professionals
Bill Maldonado[18yrs]*
Chief Investment Officer, Asia-Pacific
Strategy Chief Investment Officer, Equities
Weekly Local team meetings Asia Forum Portfolio construction meeting Research meeting Country specialist meeting
Lead Portfolio ManagerMandy Chan [15yrs]*
Chinese Equity Research Analysts (3)Debbie Chan [8yrs]
Laurent Wong [11yrs]Joy Yuan [6yrs]
Chinese Equity Team
Quarterly performance review meeting
Regional Portfolio Construction and
Quantitative Research (5)
Product Management (1)
Dealing (6)
Investment Support
Regional Sector Analysts (7)
Research Insights
HSBC Jintrust Investment Management Team
(20)
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New YorkGEM Fixed Income8 Investmentprofessionals
Mexico CityMexican Fixed IncomeMexican EquityMexican Alternatives11 Investmentprofessionals
BogotaColombian Fixed IncomeColombian Equity5 Investmentprofessionals
Sao PauloBrazilian Fixed IncomeBrazilian EquityBrazilian AlternativesBrazilian Multimanager21 Investmentprofessionals
Buenos AiresArgentinian Fixed IncomeArgentinian Equity5 Investmentprofessionals
LondonGEM EquityGEM AlternativesGEM Multimanager13 Investmentprofessionals
ParisGEM Fixed IncomeGEM Equity (inc Amanah)9 Investmentprofessionals
IstanbulTurkish Fixed IncomeTurkish EquityTurkish Alternatives10 Investmentprofessionals
RiyadhSaudi Fixed Income (inc
Amanah)Saudi EquitySaudi Alternatives18 Investmentprofessionals
Mumbai Indian Fixed Income Indian Equity19 Investmentprofessionals
SingaporeSingaporean Equity7 Investmentprofessionals
Hong KongHong Kong Fixed IncomeHong Kong EquityHong Kong Alternatives37 Investmentprofessionals
Shanghai Jintrust Chinese Fixed
Income Jintrust Chinese EquityChinese M ultimanager17 Investmentprofessionals
TaipeiTaipei Fixed IncomeTaipei Equity23 Investmentprofessionals
19464
Emerging markets investment capabilities –
A portfolio of opportunities Strategies and locations
As of 31 December 2010
Investment Philosophy and Process
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There is a fundamental economic relationship between valuation and profitability within the Chinese equity universe
Market inefficiencies lead to divergences from that relationship, which should correct over time
Attractive stocks show consistent positioning on valuation/profitability chart and we aim to concentrate positions within valuation outliers
The framework is intuitive: identify “good”
companies at “cheap”
prices. The goal is to buy above average profitability at below market average price. This demonstrably leads to outperformance over time
Investment Philosophy
Source: HSBC Global Asset Management. For illustrative purposes
only.
0.0
2.0
4.0
6.0
8.0
10.0
12.0
0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0%
ProfitabilityVa
luat
ion
1st Quintile–
the most attractive 2nd Quintile –
attractive
3rd Quintile –
fair value 4th Quintile –
not attractive
5th Quintile –
the least attractive
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Profitability vs. Valuation Basic Principles
How do we find “good”
companies?–
Profitability identifies “good”
companies whose assets generate above average profits–
We use either equity-only profitability (RoE) or unlevered enterprise-wide profitability (RoIC) as the metric to define “good”
What is an “attractive”
stock?–
Valuation is relative –
there is no absolute measure–
We use either equity-only valuation (P/B) or unlevered enterprise-wide earnings yield (EBIT/EV) as the ratio to identify “cheap”
stocks
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Benefit stock analysis Dual-listed companies to leverage on-the-ground research resources
Number of dual-listed companies
0 10 20 30 40 50 60 70
2005
2006
2007
2008
2009
2010
The number of dual-listed companies has increased substantially over time
We can better analyse Chinese companies by having both the international perspectives and local insights
We seek to capitalize on the resulting investment opportunities using the on-the-
ground research provided by our local joint venture and actively developing our network of non-financial contacts in China
Using onshore and offshore resources allows us to generate returns via investing along the supply chain and benefitting from cross-
referencing
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Investment Process
Source: HSBC Global Asset Management. For illustrative purposes
only
Portfolio holdings
Companies’ forwardprofitability
Current marketvaluations
Focus research on higher ranking companies
China investable universeMarket cap > USD 500mn
Research verified stocks for portfolio construction
Profit sustainability analysis Financial strength
Active limitsRisk budgeting
Conviction in stockselection
Risk management
Investment process
Ranked eligible research universe
Stock analysisFundamental, bottom-up
Portfolio design parameters
Ranking MethodologyPortfolio ManagementEquity Analysis
Ranking process
Proprietary profitability analysis
Portfolio construction
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Rank
Eligible Research Universe
Stocks are ranked by RoE and P/B separately, then both rankings are combined to arrive at an overall stock ranking
Establish a list of eligible companies for fundamental research
Begin with 1st quintile ranked stocks
Stocks are assigned to the appropriate analyst
Conduct fundamental, bottom-up analysis, leveraging extensive resources of the investment team
Source: HSBC Global Asset Management. Data as of 31 December 2010. For illustrative purposes only to demonstrate our investment process and does not constitute investment advice.
Company Name Sector P/B ROE Rank Quintile
Stock A Materials 1.9 36.9 1 1
Stock B Financials 1.9 34.3 2 1
Stock C Financials 1.5 30.9 3 1
Stock D Industrials 1.2 28.1 4 1
Stock E Materials 1.6 29.6 5 1
Stock F Industrials 3.2 40.7 6 1
Stock G Materials 2.4 34.1 7 1
Stock H Consumer 6.6 61.0 8 1
Stock I Consumer 0.6 18.6 9 1
Stock J Industrials 2.3 29.3 10 1
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Stock Analysis Methodology
Inputs
Company visits (360 degrees supply chain check, including visiting customers, suppliers, competitors)
Government contacts
Non-financial contacts (commodities traders, car dealers, property evaluators)
Independent third party consultants
On the ground research resource from Jintrust
Profitability: identify under-recognized Profitability
Cash-flow & financial capability: how is Growth financed
Management quality & corporate governance: sustainability of Profitability? significant performance dispersion with the same sector
Valuation: how much Profitability is priced in? we analysis historical valuation of the company; peer group and valuation gap with the broad market
Output
Fundamental, proprietary stock analysis
Internally-deprived financial model and price target
Source: HSBC Global Asset Management. For illustrative purposes
only
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Stock Analysis Fundamental, proprietary stock analysis
Internal Financial ModelROE sustainability analysis Recommendation Document
Source: HSBC Global Asset Management. For illustrative purposes
onlyThe examples above are included for discussion only and do not constitute any investment advice.
Dupont Analysis
Financial strength
Industry analysis
Ability to create shareholder wealth
Profitability / risk
Financial strength
Corporate governance
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Stock Analysis Industry analysis applied at a stock level
Source: HSBC Global Asset Management. For illustrative purposes
onlyThe examples above are included for discussion only and do not constitute any investment advice.
Supply & Demand AnalysisIndustry weekly updates Compnay’s earning sensitivity
in relation with industry
Earning Sensitivity for Chinese Commodity CompaniesLast Updated: 17 September 2010
Contact: Debbie Chan
22841155
1. Source: Credit Suisse, Latest updated on 11 August 2010.
Chgs in price assumption % of 10Ebase abs. chg % abs. chg % x % fr base abs. chg %
STEELAngang Steel price US$10/t 2% 0.08 14% 1.79 14% 1x 20% 2.6 20%Magang Steel price US$10/t 2% 0.10 110% 0.94 34% 1x 20% 1.0 35%Baosteel Steel price US$10/t 2% 0.06 8% 0.66 7% 1x 20% 1.7 18%Wugang Steel price US$10/t 1% 0.09 16% 0.82 12% 1x 20% 1.5 21%Panzhihua Steel price US$10/t 2% 0.08 -46% 0.48 10% 1x 20% 0.3 6%COALShenhua Thermal coal spot price US$10/t 10% 0.10 5% 3.03 11% 1x 11% 3.3 12%
Contract price Rmb10/t 2% 0.05 3% 0.73 3%Overall ASP Rmb10/t 2% 0.08 4% 1.19 4%
Chinacoal Thermal coal spot price US$10/t 10% 0.12 14% 1.44 14% 1x 14% 1.4 13%Hard Coking Coal spot price US$10/t 4% 0.01 1% 0.08 1%
Contract price Rmb10/t 2% 0.03 4% 0.36 3%Overall ASP Rmb10/t 2% 0.05 6% 0.59 6%
Yanzhou Thermal coal spot price US$10/t 10% 0.17 11% 2.08 10% 1x 14% 3.1 15%Semi-coking coal spot price US$10/t 6% 0.08 5% 1.02 5%
Contract price Rmb10/t 2% 0.02 1% 0.19 1%Overall ASP Rmb10/t 2% 0.05 3% 0.58 3%
CEMENTConch Cement price Rmb10/t 4% 0.63 23% 10.6 37% 1x 11% 3.4 12%CNBM Cement price Rmb10/t 5% 0.34 39% 6.73 59% 1x 14% 3.2 28%Shanshui Cement price Rmb10/t 4% 0.12 41% 1.80 32% 1x 14% 1.3 23%CR cement Cement price HK$10/t 3% 0.04 19% 0.61 14% 1x 11% 0.5 12%TCCI Cement price Rmb10/t 4% 0.12 25% 1.48 37% 1x 14% 1.2 31%Base metals / goldChalco Aluminum price US$0.1/lb 11% 0.35 123% 5.37 51% 1x 10% 1.6 15%Rusal Aluminum price US$0.1/lb 10% 0.06 57% 4.27 40% 1x 13% 1.3 12%JXC Copper price US$0.1/lb 3% 0.10 8% 0.64 5% 1x 17% 2.5 19%Zijin Gold price US$100/oz 10% 0.04 10% 0.90 14% 1x 10% 0.9 10%
Valuation(HK$/sh)EPS (rpt ccy/sh) Valuation (HK$/sh) Chgs in EV/EBITDA
Shipping Freight Index - SummaryLast Updated: 17 September 2010
Contact: Debbie Chan
22841155
Shipping freight index
Period Direction Move this week Highlights this week
BDI Sep 10-17, 2010 BDI was down 11% WoW to 2676 after 4% increase the week before.
BDI declined 11%, the most in 10 weeks, on steel output cuts by China which will probably continue to the year’s end because of limited power supplies for mills. The reductions are aimed at meeting energy-efficiency targets, according to Ministry of Industry and Information Technology. China started restricting power to mills this month and will accelerate measures to boost energy efficiency in the fourth quarter.
CCBFI Sep 8-15, 2010 CCBFI rose by 3% WoW to 1355 after 7% increase the week before.
CCBFI was up by 3% last week, mainly driven by 6% freight rate for coal transportation. Freight rate for oil products has remained stable while freight rate for ore and grain showed 1-2% decline WoW.
CCFI Sep 10-17, 2010 CCFI was flat at 1198 last week. The rebound in global trade and by slow steaming has brought the overall demand-supply equilibrium into a relative balance so far this year despite the reintroduction of over 1.28 Mteu of idle capacity. · However, the expected slowdown in trade volumes in the fourth quarter and into 2011 could result in over-supply in the next 12-18 months with fleet capacity expected to continue to grow by 9.6% next year, according to Alphaliner.
Tanker Sep 10-17, 2010 Baltic Dirty Tanker was down 1.6% last week, while Baltic Clean Tanker Indices was up 2.1% WoW.
Slowing demand and influx of new vessels have plunged oil tanker rates by around 50% after a V-shaped rebound in 1H10. We see limited downside from current level, while tanker outlook doesn't look rosy either.
WS-VLCC Sep 10-17, 2010 WS-VLCC was flat last week. Crude oil was down 4% last week to US$74/bbl.
Source: Citi Investment Research, Shanghai Shipping Exchange, Clarkson, Bloomberg
Commodity Weekly Updates – AluminumLast Updated: 17 September 2010
Chinese domestic aluminum inventory down slightly to 494,782 tons, (inventory level representing 25 days of production and above normal level of 300,000 t ) up 0.9% WoW. LME aluminum inventory down 0.3% WoW to 4,393,425 tonnes.
China continues to be a net exporter of aluminum since end of Oct09.
SHFE Aluminum price (including VAT): US2,272/t or Rmb15,280/t, up 0.7% WoW.
LME Aluminum price: US2,152/t or Rmb14,469t, up 3.9% WoW.
This is compared with the marginal cost of Chinese aluminum producers at around US2100/t or Rmb15,011/t. For Aluminum Corp of China, the breakeven aluminum price for the company in 2H10 is Rmb15,000/t (including VAT).
We expect the high cost producers to consider idling capacity if prices remain below marginal costs.
1. Price and Inventory data are weekly data. Latest data available every Monday day end.
2. Production, import, export and consumption data are monthly data released by National Bureau Statistics and China Customs. Latest data available at the end of the following month.
Contact: Debbie Chan
22841155
Aluminum Net Export (000 tonnes)
-400
-300
-200
-100
0
100
200
300
Jan-
05
Apr-
05
Jul-0
5
Oct
-05
Jan-
06
Apr-
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Jul-0
6
Oct
-06
Jan-
07
Apr-
07
Jul-0
7
Oct
-07
Jan-
08
Apr-
08
Jul-0
8
Oct
-08
Jan-
09
Apr-
09
Jul-0
9
Oct
-09
Jan-
10
Apr-
10
Jul-1
0
Domestic Inventory (w k, t)
0
100,000
200,000
300,000
400,000
500,000
600,000
Jan-
05
Apr-
05
Jul-0
5
Oct
-05
Jan-
06
Apr-
06
Jul-0
6
Oct
-06
Jan-
07
Apr-
07
Jul-0
7
Oct
-07
Jan-
08
Apr-
08
Jul-0
8
Oct
-08
Jan-
09
Apr-
09
Jul-0
9
Oct
-09
Jan-
10
Apr-
10
Jul-1
0
Aluminum Px
0
5,000
10,000
15,000
20,000
25,000
Jan-
05
May
-05
Sep-
05
Jan-
06
May
-06
Sep-
06
Jan-
07
May
-07
Sep-
07
Jan-
08
May
-08
Sep-
08
Jan-
09
May
-09
Sep-
09
Jan-
10
May
-10
Sep-
10
(Rm
b/t,
incl
.VA
T)
0
500
1000
1500
2000
2500
3000
3500
(US$
/t)
Shanghai Px (LHD) LME Px
Commodity Weekly Updates – CopperLast Updated: 17 September 2010
Move This Week: Domestic copper inventory up 0.2% WoW to 98,225 tons (18.5 inventory days, below normal level of 120,000 t) while LME copper inventory down 1.8% WoW to 384,200 tons.
Move This Week: SHFE Copper price (including VAT): US8,818/t (Rmb59,300/t), up 1.2% WoW. LME Copper price: US7,711/t (Rmb51,857/t), up 3.2%WoW.
1. Price and Inventory data are weekly data. Latest data available every Monday day end.
2. Production, import, export and consumption data are monthly data released by National Bureau Statistics and China Customs. Latest data available at the end of the following month.
Contact: Debbie Chan
22841155
Copper Px
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
Date18
-Mar-
0510
-Jun-0
52-S
ep-05
25-N
ov-05
17-F
eb-06
12-M
ay-06
4-Aug
-0627
-Oct-
0619
-Jan-0
713
-Apr-
076-J
ul-07
28-S
ep-07
21-D
ec-07
14-M
ar-08
6-Jun
-0829
-Aug
-0821
-Nov
-0813
-Feb
-098-M
ay-09
31-Ju
l-09
23-O
ct-09
15-Ja
n-10
9-Apr-
102-J
ul-10
(Rm
b/t,
incl
. VA
T)
-2000
-1800
-1600
-1400
-1200
-1000
-800
-600
-400
-200
0
(US$
/t)
SH Px (LHD) Px Gap (Int'l - CN) (RHD)
Domestic Inventory of Copper (t/week)
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
180,000
200,000
Jan-
05M
ar-0
5M
ay-0
5Ju
l-05
Sep-
05N
ov-0
5Ja
n-06
Mar
-06
May
-06
Jul-0
6Se
p-06
Nov
-06
Jan-
07M
ar-0
7M
ay-0
7Ju
l-07
Sep-
07N
ov-0
7Ja
n-08
Mar
-08
May
-08
Jul-0
8Se
p-08
Nov
-08
Jan-
09M
ar-0
9M
ay-0
9Ju
l-09
Sep-
09N
ov-0
9Ja
n-10
Mar
-10
May
-10
Jul-1
0Se
p-10
Proprietary industry data base for identifying leading indicators
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Stock Analysis Sector leading indicators
We have leading indicators for each sector and industry group, based on their different business nature.
All the indicators are updated regularly to reflect the most recent company activity
It enables us to compare different companies with their peers
We invite independent third parties to discuss sector outlook and profitability drivers with the team on a monthly basis
Department Store
Key industry data watch list Frequency Source Remarks
Key operating parameters Frequency Source RemarksSame-store-sales growth Monthly (NWDS semi-annually) Company (through channel check) Key indicator of company's organic growthSales ramp-up of new stores Updated periodically Company Affects marginConcessionaire margin Semi-annually (Parkson quarterly) Company Driven by level of promotion and new store success levelNew store opening dates Updated periodically Company Driver of company's future growth
Event calendar Date Source RemarksSSS, New store openings schedule Ongoing updates based on company's guidance / news Company, news flow
Apparel & Footwear
Key industry data watch list Frequency Source RemarksCompetitors' retail discount Updated periodically Chanel checks Measure the competition intensityDepartment SSSG Updated periodically Proxy to many apparel/footwear sales
Key operating parameters Frequency Source RemarksTrade fair order book growth Quarterly Company Translates into 90-95% of revenueOrder fulfillment rate Updated periodically Company Usually 95-98%; Affects revenueReplenishment orders Updated periodically Company Translates into 5-10% of revenueRetail inventory/monthly sales ratio Quarterly Company Measure inventory level in the retail channelA/R days Semi-annually Company Indirectly reflects the channel inventory levelSame-store-sales growth Updated periodically Company Key driver of company's organic growthNo. of existing POS Semi-annually Company Indicator of penetration potentialNew store opening(%) Semi-annually Company Key driver of company's inorganic growthWholesale discount and distributor rebates Quarterly Company Affects GP marginRaw material price (mainly cotton, leather, anUpdated periodically Affects GP marginA&P cost Semi-annually Company Affects EBIT margin; largest cost item (8-15% of sales)Staff cost Semi-annually CompanyRetail discount Updated periodically Company Measure the competition intensity
Event calendar Date Source RemarksSSS, order book, Inventory ratio, discount, stoOngoing updates upon company's guidance / news Company, news flow
Supermarket
Key industry data watch list Frequency Source RemarksChina CPI Monthly, released around the 15th-20th of each month National Bureau of Statistics Correlates with SSSGFood CPI Monthly, released around the 15th-20th of each month National Bureau of Statistics Correlates with SSSG
Key operating parameters Frequency Source RemarksSame-store-sales growth Quarterly Company Key indicator of company's organic growthNo. of existing stores Quarterly CompanyNew store opening(%) Quarterly Company Key driver of company's inorganic growthSales per m2 Quarterly Company Key driver of revenueProduct mix Quarterly Company Affects GPM (non-food has higher GPM)Direct sourcing % Semi-annually Company Affects GPMDC coverage Semi-annually Company Affects GPMConsolidated GP margin Semi-annually Company Includes supplier income and rental incomeStaff cost Semi-annually Company Sensitive to minimum wageRental cost Semi-annually Company Key driver of EBIT margin Inventory and AR days Semi-annually CompanyCapex Semi-annually Company Access balance sheet strength
Event calendar Date Source RemarksOngoing updates upon company's guidance / news Company, news flow
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Stock Analysis Tracking analyst’s recommendation
Source: HSBC Global Asset Management. For illustrative purposes
onlyThe examples above are included for discussion only and do not constitute any investment advice.
45.93%17.9512.30HOTransportationCHINA INTL MAR-B200039 CH Equity18
-33.72%22.5534.02OAutomobilesGREAT WALL MOT-H2333 HK Equity17
-2.33%10.5410.30UAutomobilesGUANGZHOU AUTO-H2238 HK Equity16
-10.00%7.266.60UElectrical EquipmentBOER POWER HOLDI1685 HK Equity15
-20.58%5.486.90OCommunications EquipmentO-NET COMMUNICAT877 HK Equity14
5.36OSemiconductors & SemiconductorTRONY SOLAR HOLD2468 HK Equity13
-31.74%5.878.60HAutomobilesBRILLIANCE CHINA1114 HK Equity12
57.30%77.0849.00HOInternetSINA CORPSINA US Equity11
-31.77%22.8933.55HOInternetPERFECT WORL-ADRPWRD US Equity10
-5.66%179.10169.50HUInternetTENCENT HOLDINGS700 HK Equity9
-3.47%15.5215.00HUInternetALIBABA.COM LTD1688 HK Equity8
-22.91%82.3567.00HUTransportationORIENT OVERSEAS316 HK Equity7
-20.78%8.7711.07MOTransportationCHINA COSCO HO-H1919 HK Equity6
1.17%9.299.40HUTransportationAIR CHINA LTD-H753 HK Equity5
32.27%47.9570.80HUCapital GoodsWEICHAI POWER-H2338 HK Equity4
45.93%17.9512.30HOTransportationCHINA INTL MAR-B200039 CH Equity3
1.86%14.2614.00HOAutomobilesDONGFENG MOTOR-H489 HK Equity2
-11.92%43.6539.00HUAutomobilesBYD CO LTD-H1211 HK Equity1
Upside / Downsize
Current Price (Stock)
PX_LASTTarget Price
(stock)Conviction (H,M)Idea (O,U)Sector (stock)GICS_INDUSTRY_NAME
Company / Country / Industry NameSHORT_NAMESedol (stock)Item
Definition: O = overweight, U = underweight, H = High, M = Medium
45.93%17.9512.30HOTransportationCHINA INTL MAR-B200039 CH Equity18
-33.72%22.5534.02OAutomobilesGREAT WALL MOT-H2333 HK Equity17
-2.33%10.5410.30UAutomobilesGUANGZHOU AUTO-H2238 HK Equity16
-10.00%7.266.60UElectrical EquipmentBOER POWER HOLDI1685 HK Equity15
-20.58%5.486.90OCommunications EquipmentO-NET COMMUNICAT877 HK Equity14
5.36OSemiconductors & SemiconductorTRONY SOLAR HOLD2468 HK Equity13
-31.74%5.878.60HAutomobilesBRILLIANCE CHINA1114 HK Equity12
57.30%77.0849.00HOInternetSINA CORPSINA US Equity11
-31.77%22.8933.55HOInternetPERFECT WORL-ADRPWRD US Equity10
-5.66%179.10169.50HUInternetTENCENT HOLDINGS700 HK Equity9
-3.47%15.5215.00HUInternetALIBABA.COM LTD1688 HK Equity8
-22.91%82.3567.00HUTransportationORIENT OVERSEAS316 HK Equity7
-20.78%8.7711.07MOTransportationCHINA COSCO HO-H1919 HK Equity6
1.17%9.299.40HUTransportationAIR CHINA LTD-H753 HK Equity5
32.27%47.9570.80HUCapital GoodsWEICHAI POWER-H2338 HK Equity4
45.93%17.9512.30HOTransportationCHINA INTL MAR-B200039 CH Equity3
1.86%14.2614.00HOAutomobilesDONGFENG MOTOR-H489 HK Equity2
-11.92%43.6539.00HUAutomobilesBYD CO LTD-H1211 HK Equity1
Upside / Downsize
Current Price (Stock)
PX_LASTTarget Price
(stock)Conviction (H,M)Idea (O,U)Sector (stock)GICS_INDUSTRY_NAME
Company / Country / Industry NameSHORT_NAMESedol (stock)Item
Definition: O = overweight, U = underweight, H = High, M = Medium
Analysts’
stock recommendation is closely tracked with various metrics considered
Recommendations’
performance is linked to analysts’
compensation
25
10-IB-10107
Portfolio Construction Investment parameters
Parameters
Benchmark MSCI China
Single stock active weight 5%
Sector active weight 10%
Typical number of stocks 60 -
90
Tracking error 3% -
8%
Turnover c. 100%
Sector weighting is a function of bottom up stock selection
Increase size of bet if our internal earnings model displays a 20-30% difference from market consensus
Parameters designed to constrain risk not returns
Focus on risk management also revolves around risk budgets and contribution to active risk
Source: HSBC Global Asset ManagementFor indication only. May change from time to time without notice.
Investment parameters
10-IB-10107
26
Trade Implementation
Trade Implementation is an integral part of the investment process. The in-house dealing team’s mandate is to preserve alpha for investment decisions made by portfolio managers
Through transaction cost analysis, dealers are evaluated based on their performance against the most appropriate dealing benchmarks
Source: ITG. ITG refers to Investment Technology Group, a trading service firm, on the trade implementation slide of the presentation. For illustrative purpose only.
Sample ITG Peer Analysis of Asian trading cost
Assumption: Fund AUM USD 2bn and 75% annual turnover
Average cost = 50 bps
Standard deviation = 15 bps
6550
35
10.5
15.0
19.5
Poor Execution Average Execution Good Execution
bps per trade Cost (USD million)
Risk Management
28
Framework
Investment Team Operational Control Parent Oversight
Portfolio Manager Risk Guidelines and Portfolio Constraints Market Risks
Trading Desk Pre-trade compliance
Coherence of orders
Counterparty risks
Market risks
Risk Control Front-end Systems
Clients guidelines
In-house risk limits
Regulatory guidelines
Management Assistance Operational risk control
Transaction Review Committee
Internal Control/Compliance Process control
HSBC’s Risk Management and Audit Control of processes (including Risk Control Processes)
Follow up of risk control activities
The team is supported by a well proven Risk Management Framework which is put into place to comply with the identified risks characterising investments in the Chinese market.
Risk Management Framework
Source: HSBC Global Asset Management March 2011. The above material is for information only and does not constitute any recommendation to buy or sell any investments. For illustrative purposes only.
29
Risk Management Reflect conviction in a risk appropriate manner
Analyse and balance investment fundamentals and portfolio risk
Use Style Research monthly
Focus on risk budgets reflecting qualitative conviction
Investment involves risk. This example has been included for discussion purposes only and does not constitute investment advice.
The above material is for information only and does not constitute any recommendation to buy or sell any investments. Data as at end of February 2011.
Stock NamePor % Bmark %
Por- Bmark
Weighted MCAR
Wgt %
China Petroleum & Chemical-H 4.27 2.34 1.93 -0.19 6.96%
China Construction Bank-H 8.38 6.58 1.80 -0.26 9.41%
China Unicom Hong Kong Ltd 2.38 1.43 0.94 -0.06 2.15%
Skyworth Digital Hldgs
Ltd 1.12 0.18 0.94 -0.01 0.45%
China Resources Power Holdin 1.58 0.67 0.91 -0.11 4.10%
Shimao
Property Holdings Ltd 1.30 0.45 0.85 -0.19 6.91%
Bawang
International Group 0.79 - 0.79 -0.10 3.47%
Bank of China Ltd-H 5.96 5.23 0.73 -0.11 4.12%
China Life Insurance Co-H 6.62 5.96 0.67 -0.08 3.01%
China Communications Const-H 1.35 0.70 0.65 -0.08 3.06%
0%
4%
8%
12%
0.0 0.5 1.0 1.5 2.0 2.5
A ctive weight %
Sample portfolio: Active risk vs. Active weight
30
Risk Management Real-time stock attribution analysis
Portfolio manager has real-time stock attribution analysis to analyse performance on a stock level
It helps to monitor and facilitate portfolio construction
Investment involves risk. This example has been included for discussion purposes only and does not constitute investment advice.
Dai
ly P
erfo
rman
ce
Attr
ibut
ion
Allocation Selection + TotalAverage Total Contribution Average Total Contribution Effect Interaction Currency Total
China Stock Type Weight Return To Return Weight Return To Return (Local) (Local) Effect Effect
Total 100.00 -1.78 -1.78 100.00 -2.12 -2.12 -0.14 0.50 -0.01 0.34
A-SHARE P-CERT 6.34 -1.43 -0.09 -- -- -- 0.05 -- -0.01 0.04Agricultural Bank of China Ltd. - B620Y4 0.83 -0.62 -0.01 -- -- -- 0.01 -- -0.00 0.01Anhui Conch Cement Co. Ltd. - 644159 1.02 -0.13 -0.00 -- -- -- 0.02 -- -0.00 0.02China Merchants Bank Co. Ltd 'A' - 651872 0.47 -0.10 -0.00 -- -- -- 0.01 -- -0.00 0.01China Merchants Property Development Co. Ltd. - 620587 -- -- -- -- -- -- -- -- -- --China Pacific Insurance (Group) Co. Ltd. - B29WFR -- -- -- -- -- -- -- -- -- --Industrial & Commercial Bank of China Ltd. - B1G2JY 1.03 -0.10 -0.00 -- -- -- 0.02 -- -0.00 0.02Kweichow Moutai Co. Ltd. - 641483 1.38 0.12 0.00 -- -- -- 0.03 -- -0.00 0.03Shanghai Pudong Development Bank Co. Ltd. - 618204 -- -- -- -- -- -- -- -- -- --Shanxi Xishan Coal & Electricity Power Co. Ltd. - 628151 -- -- -- -- -- -- -- -- -- --Suzhou Gold Mantis Construction Decoration Co. Ltd. - B1GGYB 0.43 -0.88 -0.00 -- -- -- 0.01 -- -0.00 0.01Wuliangye Yibin Co. Ltd. - 610990 -- -- -- -- -- -- -- -- -- --Zhejiang Jinggong Science & Technology Co. Ltd. - B01KBF 1.17 -6.78 -0.08 -- -- -- -0.05 -- -0.00 -0.06Zhejiang Longsheng Group Co. Ltd. - 667328 -- -- -- -- -- -- -- -- -- --ZTE Corp. - 607306 -- -- -- -- -- -- -- -- -- --
HSBC CHINA MOMENTUM FD (M)# - Transactions vs. China Momentum Customized Benchmark
CHINA MOMENTUM FD (M) Momentum Benchmark Attribution Analysis
MTD
Per
form
ance
A
ttrib
utio
nYT
D P
erfo
rman
ce
Attr
ibut
ion
Allocation Selection + TotalAverage Total Contribution Average Total Contribution Effect Interaction Currency Total
China Stock Type Weight Return To Return Weight Return To Return (Local) (Local) Effect Effect
Total 100.00 -2.03 -2.03 100.00 -1.84 -1.84 -0.09 -0.11 -0.00 -0.19
A-SHARE P-CERT 6.39 -1.65 -0.11 -- -- -- 0.01 -- 0.00 0.01Agricultural Bank of China Ltd. - B620Y4 0.84 -0.76 -0.01 -- -- -- 0.01 -- 0.00 0.01Anhui Conch Cement Co. Ltd. - 644159 1.03 -0.17 -0.00 -- -- -- 0.02 -- 0.00 0.02China Merchants Bank Co. Ltd 'A' - 651872 0.48 -0.79 -0.00 -- -- -- 0.00 -- 0.00 0.01China Merchants Property Development Co. Ltd. - 620587 -- -- -- -- -- -- -- -- -- --China Pacific Insurance (Group) Co. Ltd. - B29WFR -- -- -- -- -- -- -- -- -- --Industrial & Commercial Bank of China Ltd. - B1G2JY 1.04 -0.47 -0.00 -- -- -- 0.01 -- 0.00 0.01Kweichow Moutai Co. Ltd. - 641483 1.39 -1.29 -0.02 -- -- -- 0.01 -- 0.00 0.01Shanghai Pudong Development Bank Co. Ltd. - 618204 -- -- -- -- -- -- -- -- -- --Shanxi Xishan Coal & Electricity Power Co. Ltd. - 628151 -- -- -- -- -- -- -- -- -- --Suzhou Gold Mantis Construction Decoration Co. Ltd. - B1GGYB 0.44 -1.54 -0.01 -- -- -- 0.00 -- 0.00 0.00Wuliangye Yibin Co. Ltd. - 610990 -- -- -- -- -- -- -- -- -- --Zhejiang Jinggong Science & Technology Co. Ltd. - B01KBF 1.18 -5.45 -0.06 -- -- -- -0.04 -- 0.00 -0.04Zhejiang Longsheng Group Co. Ltd. - 667328 -- -- -- -- -- -- -- -- -- --ZTE Corp. - 607306 -- -- -- -- -- -- -- -- -- --
HSBC CHINA MOMENTUM FD (M)# - Transactions vs. China Momentum Customized Benchmark
CHINA MOMENTUM FD (M) Momentum Benchmark Attribution Analysis
Allocation Selection + TotalAverage Total Contribution Average Total Contribution Effect Interaction Currency Total
China Stock Type Weight Return To Return Weight Return To Return (Local) (Local) Effect Effect
Total 100.00 -4.44 -4.44 100.00 -3.20 -3.20 -1.11 -0.14 0.01 -1.24
A-SHARE P-CERT 8.09 -12.24 -1.13 -- -- -- -1.01 -- 0.01 -0.99Agricultural Bank of China Ltd. - B620Y4 0.81 -3.04 -0.02 -- -- -- 0.00 -- 0.00 0.00Anhui Conch Cement Co. Ltd. - 644159 1.27 -0.46 -0.08 -- -- -- -0.06 -- 0.00 -0.06Beijing Shunxin Agriculture Co. Ltd. - 612804 -- -- -- -- -- -- -- -- -- --China CAMC Engineering Co. Ltd. - B15T1T 0.62 -22.91 -0.24 -- -- -- -0.23 -- 0.00 -0.22China Merchants Bank Co. Ltd 'A' - 651872 0.62 -1.84 -0.01 -- -- -- -0.00 -- 0.00 -0.00China Merchants Property Development Co. Ltd. - 620587 -- -- -- -- -- -- -- -- -- --China Pacific Insurance (Group) Co. Ltd. - B29WFR -- -- -- -- -- -- -- -- -- --Dongfang Electric Corp. Ltd. - 627857 -- -- -- -- -- -- -- -- -- --Gree Electric Appliances Inc. of Zhuhai - 699025 -- -- -- -- -- -- -- -- -- --Industrial & Commercial Bank of China Ltd. - B1G2JY 1.00 -0.06 0.00 -- -- -- 0.03 -- 0.00 0.03Kweichow Moutai Co. Ltd. - 641483 1.40 -4.10 -0.05 -- -- -- -0.04 -- 0.00 -0.04Liaoning Cheng Da Co. Ltd. - 651585 -- -- -- -- -- -- -- -- -- --Neusoft Corp. - 680247 -- -- -- -- -- -- -- -- -- --Ping An Insurance (Group) Co. of China Ltd. - B1SVWB 0.31 -11.65 -0.09 -- -- -- -0.13 -- 0.00 -0.13Shanghai Pudong Development Bank Co. Ltd. - 618204 -- -- -- -- -- -- -- -- -- --Shanxi Xishan Coal & Electricity Power Co. Ltd. - 628151 -- -- -- -- -- -- -- -- -- --Suzhou Gold Mantis Construction Decoration Co. Ltd. - B1GGYB 0.45 -9.65 -0.05 -- -- -- -0.03 -- 0.00 -0.03Wuliangye Yibin Co. Ltd. - 610990 -- -- -- -- -- -- -- -- -- --Yantai Moon Co. Ltd. - 611747 0.91 -19.86 -0.45 -- -- -- -0.48 -- 0.00 -0.48Zhejiang Jinggong Science & Technology Co. Ltd. - B01KBF 0.75 -10.74 -0.13 -- -- -- -0.08 -- 0.00 -0.08Zhejiang Longsheng Group Co. Ltd. - 667328 -- -- -- -- -- -- -- -- -- --ZTE Corp. - 607306 -- -- -- -- -- -- -- -- -- --
HSBC CHINA MOMENTUM FD (M)# - Transactions vs. China Momentum Customized Benchmark
CHINA MOMENTUM FD (M) Momentum Benchmark Attribution Analysis
31
10-IB-10107
Risk Management
Source: HSBC Global Asset Management. For illustrative purposes only.
Understanding and managing risk is as important as returns
Rigorous risk management, through a sophisticated approach to risk budgeting and a risk management process adhering to HSBC Group’s guidelines
•A
•B
•C
•D
Performance attributionDecomposition of RiskStyle analytics
Positioning through time
8For Professional Investors only. Not for further distribution.
Positioning over time
Value
-2.0
-1.0
0.0
1.0
2.0
Jan
2006
Apr 20
06Ju
l 200
6Oct
2006
Jan
2007
Apr 20
07Ju
l 200
7Oct
2007
Jan
2008
Apr 20
08Ju
l 200
8Oct
2008
Jan
2009
Apr 20
09Ju
l 200
9Oct
2009
Jan
2010
Apr 20
10Ju
l 201
0
Forward Growth
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
Jan 2
006
Apr 20
06Ju
l 200
6Oct
2006
Jan 2
007
Apr 20
07Ju
l 200
7Oct
2007
Jan 2
008
Apr 20
08Ju
l 200
8Oct
2008
Jan 2
009
Apr 2
009
Jul 2
009
Oct 20
09Ja
n 201
0Apr
2010
Jul 2
010
Historic Growth
-2.0
-1.0
0.0
1.0
2.0
Jan
2006
Apr 20
06Ju
l 200
6Oct
2006
Jan
2007
Apr 20
07Ju
l 200
7Oct
2007
Jan
2008
Apr 20
08Ju
l 200
8Oct
2008
Jan
2009
Apr 20
09Ju
l 200
9Oct
2009
Jan
2010
Apr 20
10Ju
l 201
0
Market Cap
-2.0
-1.0
0.0
1.0
2.0
Jan 2
006
Apr 20
06Ju
l 200
6Oct
2006
Jan 2
007
Apr 20
07Ju
l 200
7Oct
2007
Jan 2
008
Apr 20
08Ju
l 200
8Oct
2008
Jan 2
009
Apr 2
009
Jul 2
009
Oct 20
09Ja
n 201
0Apr
2010
Jul 2
010
Momentum Medium Term
-6.0
-5.0-4.0-3.0-2.0
-1.00.01.0
2.03.04.05.0
6.0
Jan 2
006
Apr 20
06Ju
l 200
6Oct
2006
Jan 2
007
Apr 2
007
Jul 2
007
Oct 20
07Ja
n 200
8Ap
r 200
8Ju
l 200
8Oct
2008
Jan 2
009
Apr 2
009
Jul 2
009
Oct 20
09Ja
n 201
0Apr
2010
Jul 2
010
Market Beta
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
Jan
2006
Apr 20
06Ju
l 200
6Oct
2006
Jan
2007
Apr 20
07Ju
l 200
7Oct
2007
Jan
2008
Apr 20
08Ju
l 200
8Oct
2008
Jan
2009
Apr 2
009
Jul 2
009
Oct 20
09Ja
n 20
10Ap
r 201
0Ju
l 201
0
32
10-IB-10107
Risk Management Three independent levels of risk management control
Source: HSBC Global Asset Management. For illustrative purposes
only.
Rigorous risk management, through a sophisticated approach to risk budgeting and a risk control process adhering to HSBC Group’s guidelines
HSBC Global Asset Management HSBC Group
Portfolio Manager
Implementation ofRisk Budgeting
Front Office tools
Risk Control TeamClients’
guidelinesIn-house risk limits
Regulatory guidelines pre and
post trade
Management Assistance
Operational risk control
Valuation ControlDaily matching of stocks and flows
Internal Control Team / Compliance
TeamProcess and
regulatory control
HSBC’s Risk Management and
AuditControl of processes
(including Risk Control Processes)
Follow up of risk control activities
Portfolio ManagerRisk guidelines and Portfolio Constraints
Market risks
Dealing DeskCoherence of ordersCounterparty risks
Investment Risk & Portfolio
Construction TeamEx-post risk metrics
Risk Budgeting
Portfolio Manager Controls
Second Level
Risk Management TeamAnalysis of process
Analysis of portfolio constraintsDetermination of indicators
Definition of risk management processClients’
guidelinesIn-house risk limits
Regulatory guidelines pre and post tradeManagement Assistance
Operational risk controlValuation Control
Daily matching of stocks and flows
First Level Third Level
Market Overview
34
Hard landing is unlikely in China
We believe given Chinese government’s favorable position to use fiscal and monetary policy tools, a hard landing is unlikely
China data year-to-date remains resilient–
Machine tool production +45%–
Dept store sales +18-30%–
Sales of Mercedes +68%–
Jewellery
sales +43%–
FAI by local governments +28%–
Oil demand +11%–
3G phone subscribers +256%–
RMB850bn of social housing in H2
Source: HSBC, CEIC, Consensus Economics, Bloomberg, as at July 31, 2011.
Consensus forecast of real GDP growth
6
7
8
9
10
11
Jan-08 Jan-09 Jan-10 Jan-11
2009 2010 2011 2012
China
35
Moreover, inflation is likely to fall in 2H11
Headline CPI number came out at 6.5%, mostly driven by high pork price, which is temporary
The base effect of CPI is coming off too, which will lead to lower headline numbers in the coming months
Source: HSBC Research, Bloomberg, as at July 31, 2011.
CPI composition and forward projection
Jan-
10
Jan-
11
Jan-
12
-2
-1
0
1
2
3
4
5
6
7
Apr-1
0
Jul-1
0
Oct-1
0
Apr-1
1
Jul-1
1
Oct-1
1
ProjectionCPI m-o-m
Base effect
36
Chinese equities may have bottomed
In 2004, China H shares bottomed 4 months prior to the peak in inflation in August
As inflation peaks in 2011, we expect PE to normalise
and the market to re-rate
Source: Deutsche Bank, as of December 31, 2010. Any forecast, projection or target where provided is indicative only and is not guaranteed in any way.
4,000
4,200
4,400
4,600
4,800
5,000
5,200
Dec-03 Feb-04 Apr-04 Jun-04 Aug-04 Oct-04 Dec-04
HSCE
I
2.5
3.0
3.5
4.0
4.5
5.0
5.5
NJA
CPI (Y
oY%
)
HANG SENG CHINA ENTERPRISES NJA Inflation (YoY% )
22% rally from lowLow in H shares Apr 2004
CPI High August 2004
37
Valuations are attractive
MSCI China is trading 1 std dev. below its 5 year average and poses an attractive entry point for investors
0.0
5 .0
10 .0
15 .0
20 .0
25 .0
30 .0
Jan-
06
Jul-0
6
Jan-
07
Jul-0
7
Jan-
08
Jul-0
8
Jan-
09
Jul-0
9
Jan-
10
Jul-1
0
Jan-
11
Jul-1
1
PE 12M Fw d Mean +/-1 Std
Source: HSBC Global Asset Management, Bloomberg, data as at July 31, 2011.
MSCI China 12mth forward PE
HSBC GIF Chinese Equity Fund -
Overview
39
Fund type and domicile
UCITS III Luxembourg SICAV part of the HGIF range
Launch Date
25/06/1992
Base Currency
USD
Benchmark*
MSCI China 10/40 Capped
Liquidity
Daily
Minimum Investment –
Institutional Share Class
USD 1,000,000 –
Retail Share Class
USD 5,000
Fee Structure–
Institutional Share Class 0.75 % Fixed Management Fee–
Retail Share Class
1. 50 % Fixed Management Fee
Investment Vehicle
*This is the current internal benchmark, which may change and is not detailed in the fund's prospectus. This benchmark is indicative only and is not guaranteed in any way. HSBC Global Asset Management (UK) Limited accepts no liability for any failure to meet this benchmark.
40
Sector Weightings versus Benchmark*Sector Weightings
HSBC GIF Chinese Equity Fund – Sector weightings*
Source: HSBC Global Asset Management as at 30th June 2011. The above material is for information only and does not constitute any recommendation to buy or sell any investments* For illustrative purposes only‘.
Energy21.0%
Telecommunication Services11.5%
Utilities0.6%
Cash2.9%
Industrials3.1%
Consumer Discretionary
4.6%
Information Technology
7.3%Financials
38.9%
Materials10.0%
-5.39-4.51
-1.39 -1.29 -0.92
0.231.12
2.403.20
3.61
-6-5-4-3-2-1012345
Con
sum
er S
tapl
es
Indu
stria
ls
Con
sum
erD
iscr
etio
nary
Util
ities
Hea
lth C
are
Tele
com
mun
icat
ion
Serv
ices
Info
rmat
ion
Tech
nolo
gy
Ener
gy
Mat
eria
ls
Fina
ncia
ls
41
Source: HSBC Global Asset Management as at 30th June 2011. The above material is for information only and does not constitute any recommendation to buy or sell any investments* For illustrative purposes only'
HSBC GIF Chinese Equity Fund – Overview individual stock exposures*
Top 5/Bottom 5 versus Benchmark**Top 10 Holdings
Company Sector Top 5 and Bottom 5 Relative weight (%)
Industrial & Commercial Bank of China Financials (*) AIA Group 2.51
China Mobile Financials Yanzhou Coal Mining 2.47
CNOOC Energy Industrial & Commercial Bank of China 2.45
China Construction Bank Telecommunication Services CNOOC 2.24
Bank of China Financials China Overseas Land & Investment 1.72
PetroChina Information Technology (**) Hengan International Group Co. Ltd. -0.95
Tencent Holdings Energy Ping An Insurance (Group) Co. of China Ltd -1.28
China Life Insurance Energy (**) Belle International Holdings Ltd. -1.29
Yanzhou Coal Mining Financials (**) China Merchants Bank Co. Ltd 'H' -1.37
China Overseas Land & Investment Materials China Shenhua Energy Co. Ltd. -2.35
(*) Stock is not included in benchmark (**) Stock is not held by Portfolio
42
Source: Morningstar as of 30th June 2011. *Past performance is net of fees, bid-bid, USD. It is for illustrative purposes only, and should not be relied on as indication for future returns.
Performance Net –
AC Share Class
0
100
200
300
400
500
600
700
800
900
1000
Dec
-98
Apr-9
9Au
g-99
Dec
-99
Apr-0
0Au
g-00
Dec
-00
Apr-0
1Au
g-01
Dec
-01
Apr-0
2Au
g-02
Dec
-02
Apr-0
3Au
g-03
Dec
-03
Apr-0
4Au
g-04
Dec
-04
Apr-0
5Au
g-05
Dec
-05
Apr-0
6Au
g-06
Dec
-06
Apr-0
7Au
g-07
Dec
-07
Apr-0
8Au
g-08
Dec
-08
Apr-0
9Au
g-09
Dec
-09
Apr-1
0Au
g-10
Dec
-10
Apr-1
1
HSBC GIF Chinese Equity AC USD MSCI China 10-40 NR USD
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD
2011 -1.01 -2.79 7.06 3.09 -1.13 -3.98 0.83
2010 -9.44 1.87 4.93 -0.12 -7.86 0.78 3.32 -3.01 10.17 4.48 -1.45 -1.08 0.95
2009 -9.42 -3.02 14.65 11.60 15.68 3.01 9.82 -7.48 4.65 6.32 3.53 0.21 57.07
2008 -22.34 10.63 -14.72 13.37 -3.71 -12.54 1.95 -7.94 -21.41 -20.88 3.32 9.51 -53.81
2007 -4.96 -2.42 3.10 4.27 7.23 10.33 10.18 6.44 19.76 14.55 -14.28 -4.49 55.37
2006 14.19 3.82 3.38 3.91 -4.70 3.21 2.80 1.36 2.78 6.48 10.26 16.08 82.83
Monthly Performance Net of FeesRolling time 30/ 06/ 2005 to
30/ 06/ 200630/ 06/ 2006 to
30/ 06/ 200730/ 06/ 2007 to
30/ 06/ 200830/ 06/ 2008 to
30/ 06/ 200930/ 06/ 2009 to
30/ 06/ 201030/ 06/ 2010 to
30/ 06/ 2011
HSBC GIF Chinese Equity Fund 38.51 72.14 -7.85 -11.56 5.31 13.37
As at 30 June 2011 1 M 3 M 6 M 1 Y 3 Y 5 YHSBC GIF Chinese Equity Fund -3.98 -2.13 0.83 13.37 5.59 67.49
Benchmark -3.74 -1.90 0.93 12.72 17.62 108.29
Calendar years 2011 2010 2009 2008 2007 2006HSBC GIF Chinese Equity Fund 0.83 0.95 57.07 -53.81 55.37 82.83
Benchmark 0.93 4.51 69.07 -51.62 64.30 80.47
43
Performance Net –
IC Share Class
Source: Morningstar as of 30th June 2011. *Past performance is net of fees, bid-bid, USD. It is for illustrative purposes only, and should not be relied on as indication for future returns.
50
100
150
200
250
300
350
400
Jul-0
5
Oct
-05
Jan-
06
Apr
-06
Jul-0
6
Oct
-06
Jan-
07
Apr
-07
Jul-0
7
Oct
-07
Jan-
08
Apr
-08
Jul-0
8
Oct
-08
Jan-
09
Apr
-09
Jul-0
9
Oct
-09
Jan-
10
Apr
-10
Jul-1
0
Oct
-10
Jan-
11
Apr
-11
HSBC GIF Chinese Equity IC USD MSCI China 10-40 NR USD
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD
2011 -0.94 -2.73 7.14 3.16 -1.06 -3.91 1.26
2010 -9.38 1.94 5.01 -0.05 -7.79 0.85 3.39 -2.94 10.24 4.55 -1.38 -1.00 1.81
2009 -9.36 -2.96 14.73 11.68 15.76 3.09 9.90 -7.41 4.72 6.39 3.61 0.28 58.41
2008 -22.28 10.70 -14.65 13.45 -3.64 -12.48 2.02 -7.87 -21.35 -20.82 3.38 9.60 -53.41
2007 -4.89 -2.36 3.17 4.35 7.31 10.40 10.26 6.51 19.84 14.64 -14.22 -4.42 56.70
2006 14.26 3.90 3.45 3.98 -4.62 3.28 2.88 1.43 2.85 6.57 10.33 16.16 84.39
2005 -0.27 5.02 -9.14 5.74 3.59 4.23
Monthly Performance Net of Fees Rolling time 30/ 06/ 2005 to 30/ 06/ 2006
30/ 06/ 2006 to 30/ 06/ 2007
30/ 06/ 2007 to 30/ 06/ 2008
30/ 06/ 2008 to 30/ 06/ 2009
30/ 06/ 2009 to 30/ 06/ 2010
30/ 06/ 2010 to 30/ 06/ 2011
HSBC GIF Chinese Equity Fund N/A 73.60 -7.06 -10.81 6.21 14.34
As at 30 June 2011 1 M 3 M 6 M 1 Y 3 Y 5 YHSBC GIF Chinese Equity Fund -3.91 -1.92 1.26 14.34 8.32 74.77
Benchmark -3.74 -1.90 0.93 12.72 17.62 108.29
Calendar years 2011 2010 2009 2008 2007 2006
HSBC GIF Chinese Equity Fund 1.26 1.81 58.41 -53.41 56.70 84.39
Benchmark 0.93 4.51 69.07 -51.62 64.30 80.47
44
Quarterly Performance attribution – Sector31/03/2011 to 30/06/2011
Source: HSBC Global Asset Management as of 30th June 2011. It is for illustrative purposes only. Any performance information shown refers to the past and should not be seen as an indication of future returns
Top 5 sector Port. Avg Weight
BM Avg Weight
Allocation Effect
Selection + Interaction Total Effect
Financials 36.18 36.78 0.01 0.51 0.52
Materials 9.40 6.54 -0.13 0.63 0.50
Industrials 5.17 7.84 0.22 0.00 0.22
Health Care 0.00 0.81 0.06 0.00 0.06
Utilities 0.07 1.87 -0.02 0.01 0.00
Bottom 5 sector Port. Avg Weight
BM Avg Weight
Allocation Effect
Selection + Interaction Total Effect
Telecommunication Services 8.87 10.93 -0.12 0.09 -0.03
Consumer Discretionary 4.66 5.40 -0.08 -0.10 -0.18
Energy 22.77 18.45 -0.08 -0.15 -0.23
Information Technology 8.22 6.24 0.13 -0.62 -0.49
Consumer Staples 0.02 5.15 -0.59 -0.01 -0.59
45
Quarterly Performance attribution – Stock31/03/2011 to 30/06/2011
Source: HSBC Global Asset Management as of 30th June 2011. It is for illustrative purposes only. Any performance information shown refers to the past and should not be seen as an indication of future returns. the above material is for information only and does not constitute any recommendation to buy or sell any investments.
Top 5 stock Sector Port. Ending Weight
Benchmark Weight
Relative Weight Total Effect
Evergrande Real Estate Group Financials 1.52 0.50 1.03 0.20
Yanzhou Coal Mining Co. Energy 3.55 1.08 2.47 0.19
China State Construction International Industrials 0.66 0.21 0.45 0.19
Huabao International Holdings Materials 0.00 0.25 -0.25 0.16
Xinyi Glass Holdings Consumer Discretionary 0.00 0.00 0.00 0.15
Bottom 5 stock Sector Port. Ending Weight
Benchmark Weight
Relative Weight Total Effect
Trina Solar Information Technology 0.00 0.00 0.00 -0.33
GCL-Poly Energy Holdings Information Technology 0.00 0.52 -0.52 -0.29
Belle International Holdings Consumer Discretionary 0.00 1.29 -1.29 -0.20
Hengan International Group Co. Consumer Staples 0.00 0.95 -0.95 -0.18
Tingyi (Cayman Islands) Holding Corp Consumer Staples 0.00 0.88 -0.88 -0.18
Competitor Analysis
47
Competitor Analysis
Fund Net Sales Data in USD Million as of May 2011 AUM
3 months net sales
12 months net sales to May 2011 2010 net sales 2009 net sales 2008 net sales 2007 net sales
HSBC GIF Chinese Equity 2,918 -169 -586 -428 27 -818 -1,451
Lipper FMI Equities Greater China Sector Total 132,687 15 -788 11,330 40,278 393 62,294
Comparative Advantage
►
HSBC Chinese equity Fund recently have a manager change with a new investment process
►
The fund sits in 1st quartile in YTD performance in Morningstar China Equity Sector
►
Lipper FMI Equities Greater China sector had -$788m outflows over the past 12 months to May 2011
►
HSBC Chinese Equity Fund has AUM $2.9bn with -$586m outflows in the past 12 months
Source: Morningstar Direct, Lipper FMI, June 2011
48
Competitor Analysis
Source: Morningstar Direct, Lipper FMI, June 2011
Outlook
50Source: HSBC Global Asset Management, as at July 31, 2011.
Sector Positioning Comments
Energy Neutral
Cautious on the back of slowing global economic growth
Materials Neutral
We prefer Gold as a defensive play in the current market situation and we are cautious regarding commodities
Information Technology Neutral
Intensifying price competition of products going into 2012
Financials OW
Prefer
banks over insurance companies; Valuations look attractive
Telecom OW
Likely profitability turnaround amongst tier 2 operators given its subscriber base and subsidies
Consumer Staples UW but adding
We might increase exposure as soft commodities prices are likely
to peak out
Consumer Discretionary UW
Favour
the
luxury goods sector on the back of high savings rates and growing number of high net worth individuals in China; We are cautious on the sportswear and some other sectors based on intensifying competition and margin pressure.
Industrials UW
Due to slowing demand, inventory destocking is likely to continue for a while
Health Care UW
Earnings downward revisions from potential ASP cut
Utilities UW
Rising coal prices will negatively affect operating margins of IPPs
Sector views
Appendix
52
Mandy Chan, Investment Director, Chinese Equities
Ms Chan has been working in the asset management industry since 1997. She is currently heading the Chinese Equities team and works closely with portfolio managers and sector analysts based in Hong Kong and Shanghai. Prior to joining the firm in December 2009, she was the Chief Investment Officer for Greater China equities at ABN AMRO Asset Management Ltd (ultimately acquired by BNP Paribas Group), where she managed a range of China funds and Hong Kong institutional portfolios. Before that, she worked as a Senior Investment Analyst at Pacific Century Insurance Investment Management Limited responsible for equity investments in China, Taiwan and Korea for absolute return products. Prior to returning to Hong Kong, Ms Chan spent three years in Canada managing investment portfolios for high net worth individuals at TD Asset Management LtdMs Chan graduated with a Bachelor of Commerce degree in Finance from the University of British Columbia, Canada. She is also a CFA charterholderMandy Chan was the recipient of the 2008 Asian Investor HK Equities “Best in 5-Year Performance”
in 2008
53
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