Transcript HSBC Asset Management

HSBC Asset Management
Hong Kong Baptist University
1998 Superannuation Fund
Investment review
HSBC Asset Management (Hong Kong) Limited
15/F Citibank Tower, 3 Garden Road, Hong Kong
Telephone: +852 2284 1111
Facsimile: +852 2845 0226
Web site: www.assetmanagement.hsbc.com.hk
March 2004
HSBC Asset Management
Agenda

Investment performance

Market outlook

Factors for consideration before switching
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HSBC Asset Management
Investment performance
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HSBC Asset Management
Market statistics : January 2004 (in HKD terms)
%
1.4
Currencies
-1.4
Euro
JP Yen
1.8
1.2
UK GBP
Aus Dollar
% Change (against HKD)
%
0.8
1.6
1.0
1.8
0.4
-0.2
Bonds *
US
1.2
0.6
-0.4
-0.8
UK
Japan
-1.6
Canada
Germany
Mkt price return % (Local)
0.7
Mkt price return % (HKD)
%
5.7 5.7
2.4
1.7 1.9
Equities **
US
-0.1
-1.9
UK
1.0
1.0
Australia
3.1 3.3
2.4
4.8 5.1
0.5
-0.7
Germany
Hong Kong
Australia
Malaysia
Singapore
% Change (HKD)
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% Change (Local)
Japan
* Bonds: Citigroup World Government Bond Indices
** Equities: USA (S&P 500), UK (FTSE-100), Germany (DAX), Japan (Nikkei 225), Hong Kong (HSI), Australia (All Ordinaries), Malaysia (KLSE Composite), Singapore (STI)
Source: Thomson Financial Datastream
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HSBC Asset Management
Market statistics: 3 months to December 2003 (in HKD terms)
%
11.6
8.6
8.0
Euro
UK GBP
4.5
Currencies
JP Yen
Aus Dollar
% Change (against HKD)
%
8.2
5.2
-0.5 -0.2
US
5.3
0.7
0.2
Bonds *
11.8
8.2
UK
0.6
-0.3
Germany
Japan
Mkt price return % (Local)
%
0.1
Canada
Australia
Mkt price return % (HKD)
32.2
11.6 11.9
18.2
21.8
9.4
4.5
9.2
12.0 12.0
Equities **
US
UK
Germany
Hong Kong
Australia
8.2
8.5
Malaysia
8.2 10.4
Singapore
% Change (HKD)
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% Change (Local)
Japan
16.2
4.1
* Bonds: Citigroup World Government Bond Indices
** Equities: USA (S&P 500), UK (FTSE-100), Germany (DAX), Japan (Nikkei 225), Hong Kong (HSI), Australia (All Ordinaries), Malaysia (KLSE Composite), Singapore (STI)
Source: Thomson Financial Datastream
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HSBC Asset Management
Market statistics: 1 year to December 2003 (in HKD terms)
%
33.2
19.7
10.2
10.7
Currencies
JP Yen
Euro
UK GBP
Aus Dollar
% Change (against HKD)
%
13.0
2.3
1.8
9.4
2.1
Bonds *
US
-0.7
Japan
UK
%
5.6
3.8
Germany
Mkt price return % (Local)
25.8
13.6
25.8
37.1
24.5
2.6
Canada
Australia
Mkt price return % (HKD)
64.0
26.4
36.7
28.5
24.2
37.2
48.0
34.9 34.9
11.1
22.8 22.3
31.6 33.8
Equities **
US
UK
Germany
Hong Kong
Australia
Malaysia
Singapore
% Change (HKD)
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% Change (Local)
Japan
* Bonds: Citigroup World Government Bond Indices
** Equities: USA (S&P 500), UK (FTSE-100), Germany (DAX), Japan (Nikkei 225), Hong Kong (HSI), Australia (All Ordinaries), Malaysia (KLSE Composite), Singapore (STI)
Source: Thomson Financial Datastream
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HSBC Asset Management
Risk profile of various investment options
More suitable for
risk tolerant staff
Long-term potential return
High
Growth Fund
More suitable for
risk averse staff
Balanced Fund
Stable Fund
Global Money Funds (HKD/USD)
Risk (short-term volatility)
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Low
High Growth Fund
High
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HSBC Asset Management
Investment performance: January 2004
Return %
6
4
3.7
3.9
3.1
3.1
2.2
2.3
2
1.5
1.5
0.0
0.0
0.2
0.2
0
High Growth
Fund
Growth Fund
Balanced Fund
HKBU
Stable Fund
GMF - HKD Fund GMF - USD Fund
Benchmark
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Source: HSBC Asset Management
Past performance is not necessarily a guide to future performance
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HSBC Asset Management
Investment performance: 6 months to December 2003
Return %
30
24.6
22.7
19.6
20
20.4
15.1
16.3
11.0
11.9
10
0.3
0.1
-0.1
0.1
0
High Growth
Fund
Growth Fund
Balanced Fund
GMF – HKD
Fund
GMF – USD
Fund
Benchmark
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HKBU
Stable Fund
Source: HSBC Asset Management, Watson Wyatt Managed Fund Report
Past performance is not necessarily a guide to future performance
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HSBC Asset Management
Investment performance: January to December 2003
Return %
50
40
32.2
34.4 35.4
30
30.1
28.3 29.3
25.1
22.9 23.7
18.2 17.4
20
19.9
10
0.9 0.5 0.0
0.4 0.5 0.7
GMF – HKD
Fund
GMF – USD
Fund
0
High Growth
Fund
Growth Fund
Wyatt Median
Stable Fund
Benchmark
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HKBU
Balanced Fund
Source: HSBC Asset Management, Watson Wyatt Managed Fund Report
Past performance is not necessarily a guide to future performance
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HSBC Asset Management
Investment performance since inception (March 1998 to January 2004)
Return %
40
30.2
30
29.0
24.4
20
18.7
16.9
17.0
10
0
High Growth
Fund
Growth Fund
Balanced Fund
HKBU
Stable Fund
GMF – HKD
Fund
GMF – USD
Fund
(3/99)
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Source: HSBC Asset Management
Past performance is not necessarily a guide to future performance
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HSBC Asset Management
Asset allocation – 31 January 2004
HKBU
High Growth
HKBU
Growth
HKBU
Balanced
Fund
(%)
Bmk
(%)
Fund
(%)
Bmk
(%)
Fund
(%)
Equities
Hong Kong
Japan
Other Asia Pac.
N. America
Europe
Total
30.0
12.0
12.0
18.0
18.0
90.0
32.2
10.5
14.1
16.0
18.3
91.1
24.0
9.0
9.0
14.0
14.0
70.0
26.7
7.8
10.4
13.4
15.0
73.3
17.0
6.5
6.5
10.0
10.0
50.0
17.7
5.0
7.6
8.6
10.2
49.1
Bonds
US Bonds
Non US Bonds
Total
1.6
5.4
7.0
1.1
5.0
6.1
5.7
19.3
25.0
4.3
19.3
23.6
Cash
3.0
2.8
5.0
3.1
Bmk
(%)
HKBU GMF
HKD / USD
Fund
(%)
Fund
(%)
10.0
4.0
4.0
6.0
6.0
30.0
11.7
2.8
5.1
5.6
7.1
32.3
0.0
45.0
7.4
33.2
40.6
13.6
46.4
60.0
10.0
46.6
56.6
0.0
5.0
10.3
10.0
11.1
100.0
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Bmk
(%)
HKBU
Stable
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HSBC Asset Management
Market outlook
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US
– Q4 GDP growth was slightly weaker than expected, but growth should remain well above
trend for the next two to three quarters.
– As the inventory cycle turns strongly positive and consumers benefit from further tax cuts in
1H2004, 5-6% growth rates in first half of 2004 are expected before slowing.
– Monetary policy should remain accommodative; interest rates at around 3% by mid 2005.
– We expect earnings growth has peaked even though Q4 earnings have been slightly better
than expected, growing by 24%.
– The strong run since March 2003 has pushed valuations to slightly expensive, the market
is looking for earnings strength to drive further gains.
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Outlook
– US - Moderate underweight
– GDP growth forecast for 2004 (+4.8%); 2005 (+3.6%)
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Data as at 3 February 2004
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HSBC Asset Management
Europe
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Euroland
– Expect continued industrial recovery and supporting investment spending (German
Industrial Production rose by 2.35% in 4Q 2003).
– Exports remain a positive growth contributor despite the rising Euro.
– Steady economic improvement is expected in 2004, taking GDP growth back to slightly
above trend at 2.2%.
– Market reasonably valued at a forward PE ratio of 15x and looks cheap if economic growth
remains strong.

UK
– Consumer confidence and spending remain resilient.
– Prospect of more rate hikes and a rising currency are not beneficial for larger and more
globally exposed stocks, but valuations are still supportive (12x of 2004 earnings).

Outlook
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– Euroland - Moderate overweight; UK - Neutral
– GDP growth forecast for 2004 and 2005: Euroland (+2.2%, +2.5%); UK (+3.0%, +2.4%)
Data as at 3 February 2004
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HSBC Asset Management
Japan
– The economy is experiencing an export led recovery with positive investment.
– Recent better than expected unemployment figures would lead to an improvement in overall
income growth, setting a more positive trend in future consumption.
– Further USD weakness will be a concern despite supports from the BoJ.
– Earnings estimates have been downgraded recently due to currency rise.
– Valuations reasonable but change to earnings expectations and a decreasing impact from
foreign buying may hold the market back.

Outlook
– Japan - Neutral
– GDP growth forecast for 2004 (+2.3%) and 2005 (+1.6%)
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HSBC Asset Management
Asia (ex-Japan)
– The actual impact on Asian economies of avian flu is relatively benign as growth momentum
remains on track driven by both exports and private consumption.
– Thailand’s 2004 GDP could be reduced by as much as 1% on the back of avian flu, but
growth is still expected to be around 4.5 to 5%.
– While avian flu serves as an excuse for short term profit taking in Asian equities, we remain
positive over the medium term due to the region’s economic and corporate growth stories.
– Cash calls from companies and fund flows should be monitored closely (new equity
issues/placements by companies in Hong Kong)
– Reporting season in markets such as Hong Kong and China is likely to be a catalyst for
market sentiment.

Outlook
– Asia (ex-Japan) - Moderate overweight
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Data as at 3 February 2004
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HSBC Asset Management
Asia (ex-Japan)
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Hong Kong (overweight)
– Fundamentals stay firm : better employment conditions and lower deflationary pressure
– Earnings revision remains upbeat, and positive management guidance in the forthcoming reporting
season would be the key to trigger another round of earnings upgrades
– Risks are increased cash calls, and avian flu, though likely to be contained, that may provide excuse for
profit taking in the short term
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Korea (moderate overweight)
– The potential resolution of LG Card issue may gradually increase retail investors’ risk appetite.
– More optimistic outlook for consumer spending and strong export will increase the possibility of
positive fixed capital formation in second half of 2004.
– Nevertheless, major risks include the potential MSCI re-weighting; potential margin erosion on rising
commodity prices and the Won appreciation.

Taiwan (neutral)
Macro conditions still positive - expect pick up in domestic consumption to be another growth factor.
Potential MSCI re-weighting would drive the market positively.
Political noises in the run up to the election remain a concern.
Factors like corporate IT spending and the TWD rise are to be carefully monitored.
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Data as at 3 February 2004
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Bond market outlook
– U.S.: We retain our central expectation of unchanged policy over 3 months, but a
cumulative tightening of 1% over next 12 months. Fed’s evolution of policy rhetoric
towards an eventual tightening will continue to challenge bond yields, particularly following
the recent rally.
– Euroland: Despite the improvement in some business surveys, the general strength of the
Euro and the lack of meaningful follow-through lessen the need for the ECB to follow the Fed
and MPC in tightening policy. We do not expect ECB to start its tightening cycle over the
next 3 or 12 months. However, the general drift towards higher global bond yields is likely to
lead to rising bond yields across Europe. We therefore adopt a short duration position.
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– Japan: Although economic outlook continues to improve, there is little prospect of an
increase in official interest rates until inflation turns and remains in positive territory.
While signals are more positive in Japan then in a number of other markets, the global
backdrop, low absolute yields and concern over increasing supply make us unwilling to adopt
a more positive position.
Data as at 3 February 2004
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HSBC Asset Management
HSBC Asset Management Investment Strategy
Asset class rating :
Overweight
Neutral
Equities,
Bonds,
Cash
Underweight
Equity market rating :
Most
preferred
market(s)
Overweight
Least
preferred
market(s)
Neutral
Moderate
Underweight
Europe, HK
Asia (ex JP/HK),
GEM
UK, Japan,
US, Australia,
Canada
Underweight
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Moderate
Overweight
Data as at 3 February 2004
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Explanatory notes and disclaimers

The document is confidential and is supplied to you solely for your information. This document should not be reproduced or
further distributed to any person or entities, whether in whole or in part, for any purpose.

Please also note that investment involves risk and past performance is not indicative of future performance.

The opinions expressed herein should not be considered to be a recommendation by HSBC Asset Management (Hong Kong)
Limited to any reader of this material to buy or sell securities, commodities, currencies or other investments referred to herein.
HSBC Asset Management (Hong Kong) Limited, its ultimate and intermediate holding companies, subsidiaries, affiliates, clients,
directors and/or staff may, at any time, have a position in the markets referred to herein, and may buy or sell securities,
currencies, or any other financial instruments in such markets.

HSBC Asset Management (Hong Kong) Limited has based this document on information obtained from sources it believes to be
reliable but which it has not independently verified. HSBC Asset Management (Hong Kong) Limited and the HSBC Group make
no guarantees, representations or warranties and accept no responsibility or liability as to its accuracy or completeness.
Information in this report is subject to change without notice.
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HSBC Asset Management
HSBC Asset Management (Hong Kong) Limited
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HSBC Asset Management
Factors for consideration
before switching
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Principles of retirement investment
3 major types of investment instruments

Equities
– Ownership of companies
– Returns from dividends & capital appreciation
– High short term volatility

Bonds
– Debt instruments issued by governments/corporations
– Returns from interest payments
– Short term volatility lower than equities

Cash
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– very low short term volatility
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HSBC Asset Management
Please remember

Identify personal factors
– Establish risk / return profile
– Understand investment choices
– Make investment decisions using a long-term approach
Do not time / chase markets!
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HSBC Asset Management
A guide to investing

Factors to consider
– Years to retirement
– Other personal assets
– Planned uses for retirement assets
– Financial and other personal circumstances
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Different people have different needs!!
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HSBC Asset Management
Range of investment choices

Different people have different needs
Therefore
Investment choices are provided for different risk profiles
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