Investment Monthly January 2018 Publication Date: January 9 th 2018

Transcription

1 IM Investment Monthly January 2018 Publication Date: January 9 th 2018 This document contains the views of HSBC Global Asset Management and is distributed by HSBC Investment Funds (Canada) Inc., HSBC Private Wealth Services (Canada) Inc., and the HSBC InvestDirect division within HSBC Securities (Canada) Inc., each of which are subsidiaries of HSBC Bank Canada. This commentary provides a high level overview of the recent economic environment, and is for information purposes only. It is a marketing communication and does not constitute investment advice or a recommendation to any reader of this content to buy or sell investments nor should it be regarded as investment research. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of its dissemination. US Congress passes tax reform bill Key takeaways US tax reform adds to unfriendly backdrop for fixed income assets We remain overweight in global equities and local currency emerging market government bonds. We also retain our underweight stance on developed market government bonds and global investment grade and high yield corporate bonds Global equity markets rose in December amid continuing strong economic data releases US Congress passed its tax reform bill in arguably the biggest overhaul of the US tax system since the 1980s. The reforms should boost US economic growth in 2018 European Central Bank (ECB) President Mario Draghi expressed the bank's "greater confidence that inflation will converge towards our inflation aim" In the UK, the current inflation backdrop is not a comfortable one for the Bank of England, probably pushing it to hike rates again during 2018 The People's Bank of China (PBoC) signalled its intention to keep monetary conditions tight for deleveraging and to pre-empt the risk of capital outflows The long-awaited passage of US tax reform through Congress is expected to provide less than a 50 basis point boost to US economic growth in This is a supportive environment for US equities and corporate earnings. However, the implied US equity risk premium is lower than in many other developed markets. Therefore, a neutral positioning in multi-asset portfolios still makes sense to us. To benefit from the strong global economic backdrop, we find more attractive opportunities in Japan, the eurozone and emerging market equities. With the US economy running at (or very close to) full capacity, fiscal stimulus will also increase the upside potential for inflationary pressures developing. Together with the risk of faster than expected US Federal Reserve (Fed) policy tightening, this is an unfriendly backdrop for fixed income assets. We remain underweight in US Treasuries and corporate bonds, also given that prospective returns still look low relative to competing asset classes. We also retain our overweight stance on emerging market local currency government bonds. We think prospective returns are relatively attractive and the Fed continues to tighten policy very gradually. Equities Government bonds Corporate bonds & other Asian assets Asset class Global OW Move Asset class Developed market (DM) UW Move Asset class Global investment UW grade (IG) Move Asset Class EM agg bond (USD) US N US UW USD IG UW Gold N UK N UK UW EUR and GBP IG UW Other commodities Eurozone OW Eurozone UW Asia N Real estate N Japan OW Japan UW Emerging markets (EM) OW EM (local currency) Global high yield UW OW US UW Asia ex Japan OW Europe UW UW N Move CEE & Latam N Asia N Source: Bloomberg and HSBC Global Asset Management. Data as at close of business 29 December 2017

2 Long-term asset class positioning (>12 months) Basis of views and definitions of Long-term asset class positioning tables s are based on regional HSBC Global Asset Management Asset Allocation meetings held throughout December 2017, HSBC Global Asset Management s long-term expected return forecasts that were generated as at 30 November 2017, our portfolio optimisation process and actual portfolio positions. Icons: on this asset class has been upgraded No change on this asset class has been downgraded, overweight and neutral classifications are the high-level asset allocation tilts applied in diversified, typically multi-asset, portfolios, which reflect a combination of our long-term valuation signals, our shorter-term cyclical views and actual positioning in portfolios. The views are expressed with reference to global portfolios. However, individual portfolio positions may vary according to mandate, benchmark, risk profile and the availability and riskiness of individual asset classes in different regions. Overweight implies that, within the context of a well-diversified typically multi-asset portfolio, and relative to relevant internal or external benchmarks, HSBC Global Asset Management has (or would have) a positive tilt towards the asset class. implies that, within the context of a well-diversified typically multi-asset portfolio, and relative to relevant internal or external benchmarks, HSBC Global Asset Management has (or would have) a negative tilt towards the asset class. Neutral implies that, within the context of a well-diversified typically multi-asset portfolio, and relative to relevant internal or external benchmarks, HSBC Global Asset Management has (or would have) neither a particularly negative or positive tilt towards the asset class. For global investment-grade corporate bonds, the underweight, overweight and neutral categories for the asset class at the aggregate level are also based on high-level asset allocation considerations applied in diversified, typically multi-asset, portfolios. However, US dollar investment grade corporate bonds and euro and sterling investment grade corporate bonds are determined relative to the global investment grade corporate bond universe. Equities Asset class Movement Rationale Global Overweight Rationale for overweight views: Global economic growth momentum remains solid, driving global equity markets to deliver positive returns over the long term. Overall, support from still loose accommodative monetary policy and fiscal policy (if needed) will, in the medium and longer term, likely outweigh any headwinds from more modest Chinese growth, US and eurozone monetary policy normalisation, and political uncertainty in many regions. Risks to consider: Fairly narrow implied equity premia (excess return over cash) limit the ability of the market to absorb bad news. Episodic volatility may be triggered by concerns surrounding Chinese growth, US economic policy and/or a potentially more rapid than expected Fed or ECB tightening cycle, coupled with political risks. A notable and persistent deterioration of the global economic outlook could also dampen our view. US Neutral Positive factors: US profits data has shown improvement amid a broadly robust economic backdrop. Tax reform presents an upside risk to earnings. US equities have also been resilient in the face of Fed policy normalisation and supported by historically low volatility. Overall, our measure of the implied risk premium (excess returns over cash) remains consistent with a neutral positioning. Risks to consider: Relatively high current valuations lead to an implied risk premium that is lower than in many other developed markets. A more rapid than expected tightening of Fed policy also poses risks. Canada Modestly overweight Rationale for overweight views: Moderate but sustainable macro indicators (driven by improving global economic growth and still accommodative monetary policy) should enable commodity price stability and earnings growth to resume. Domestic equity valuations are reasonable and show potential for positive absolute and favourable relative-return opportunities over the medium term. Thus, a modestly overweight position in Canadian equities appears to be appropriate at this time. Risks to consider: Disappointing global growth, a less dramatic tightening in monetary policy, geopolitical concerns and a resumption in commodity price weakness would put pressure on domestic employment trends and corporate profits, resulting in compressed earnings estimates and higher risk premiums. UK Neutral Positive factors: The potential for further sterling weakness supports the UK earnings outlook given a large dependency on foreign earnings. Gains in commodity prices would also be a positive. Overall, current valuations are consistent with our neutral positioning. Risks to consider: The prospective reward for bearing equity risk in the UK is relatively low compared to other markets. The UK economy is showing signs of weakness amid inflationary pressures and Brexit-related uncertainty. Source: Bloomberg and HSBC Global Asset Management. Data as at close of business 29 December 2017 January 2018 Investment Monthly 2

3 Asset class Movement Rationale Eurozone Overweight Rationale for overweight views: Eurozone equities benefit from relatively high implied risk premia and scope for better earnings news given the region s earlier point in the activity cycle. Ultra-low ECB policy interest rates are likely to persist until the end of the decade. Risks to consider: Valuations have become less attractive following the rally over the last year. Political risks also remain amid looming Italian general elections, tensions in Spain (Catalonia) and Brexit-related uncertainty. A weaker UK economy may dent exports to a significant trading partner. ECB monetary policy may also be less accommodative than expected. Japan Overweight Rationale for overweight views: Relative valuations and risk premiums are attractive, in our view, while the Bank of Japan s (BoJ) very loose monetary policy and the government s recent fiscal stimulus may boost earnings. Large corporate cash reserves provide firms with the scope to boost dividends or engage in stock repurchases. Earnings momentum remains positive. Risks to consider: Although there has been a pickup in investment, domestic economic fundamentals are relatively sluggish. Emerging markets Overweight Rationale for overweight views: Emerging market economic growth momentum continues to look good (especially relative to stable growth in developed markets). Based on current pricing, we also think there is still significant potential for (selected) emerging market currencies to appreciate over the medium term. Unhedged exposures to emerging markets in Asia offer the best riskadjusted rewards, in our view. Risks to consider: Aggregate emerging market equity valuations no longer look anomalously cheap. There could be some near-term volatility as worries persist around the uncertain path for future Fed tightening, the potential for increased trade protectionism, economic transition in China and the robustness of the global economy as a whole. Geopolitical uncertainty also poses risks. Asia ex Japan Overweight Rationale for overweight views: Earnings have benefited from a cyclical recovery, corporate actions and structural tailwinds. Margins and return on equity have also been boosted by capital expenditure discipline, more efficient operations and use of cash on balance sheets, and cost controls. Structural/corporate governance reforms are potential catalysts in some markets. Risks to consider: A sharp rise in Treasury yields is a key risk. Fed balance-sheet reduction and ECB tapering could raise uncertainty. Other risks include US protectionist policies, geopolitical events, commodity price and/or currency volatility, a fragile or faltering global growth recovery, and renewed concerns about China s growth, policy and financial risks. Central and Eastern Europe & Latin America Neutral Positive factors: Brazil exited recession in Q1 and is embarking on an ambitious reform agenda, and Mexico s economy is resilient. We believe Poland, Russia and Hungary offer attractive risk premiums. Risks to consider: Geopolitical tensions are high and unpredictable. High local cash rates and sovereign yields in many countries diminish the case for bearing equity risk. Government bonds Asset class Movement Rationale Developed Markets (DM) Rationale of underweight views: Prospective returns still look low relative to competing asset classes. In a bond-unfriendly environment (strong global activity, the risk of cyclical inflationary pressures and gradual Fed/ECB policy normalisation), global bond yields could move higher still. Positive factors: Government bonds still provide diversification benefits and reduce volatility within our multi-asset portfolios. Meanwhile, secular stagnation forces (ageing populations, low productivity and investment) are powerful and the global pool of safety assets is limited. US Rationale of underweight views: The US labour market is at (or close to) full employment so underlying inflationary pressures may build, especially following tax reform. In addition, prospective returns still look low relative to competing asset classes. Positive factors: Today s environment of price stability means that the term premium (compensation for bearing duration risk) may be capped at a lower level than it has been historically. We think 10-year US Treasuries offer a reasonable way to diversify portfolios at not too high a cost. Canada Rationale of underweight views: Many key central banks including the Fed, the Bank of England and even the ECB have signalled that global policy rates will likely be moving higher in concert following years of aggressive, co-ordinated monetary stimulus. Similarly, the Bank of Canada raised rates 25 basis points in both July and September. In recent weeks the Bank has softened their messaging and thus expectations for further rate hikes have been pushed further out into the future. This has resulted in slightly lower bond yields, a flatter yield curve and a weaker currency. That said, the increasing evidence of a more universal global expansion continues to provide a positive backdrop for equity markets and challenging Source: Bloomberg and HSBC Global Asset Management. Data as at close of business 29 December 2017 January 2018 Investment Monthly 3

4 Asset class Movement Rationale outlook for government fixed income assets going forward. The Government of Canada 10-year yield, considered to be a proxy for the overall government bond market, traded within a 75 basis point range (~1.40%-2.15%) in 2017 and is currently trading towards the upper end of its 2017 range. Thus, current valuations in government bonds are more attractive than they were early this year but our medium-term outlook continues to expect yield levels to move higher. Therefore, we have maintained our underweight view on Canadian government bonds and have maintained our preference for corporate bonds. Positive factors: If Canadian growth disappoints, more accommodative monetary policy may prove supportive for this asset class. Periods of risk aversion and flight to liquidity may also prove to be supportive. In addition, government bonds continue to offer a diversification element important in a volatile environment. UK Rationale of underweight views: Although the UK economy could slow amid Brexit uncertainty, boosting safe-haven demand for gilts, we think current valuations are extreme. Positive factors: Amid downside risks to growth, UK monetary policy is likely to remain accommodative for a longer period. Eurozone Rationale of underweight views: Similarly, core European bonds are overvalued, in our view. A key risk is the eventual termination of ECB asset purchases. Positive factors: Core inflationary pressures in the region remain subdued, which should keep accommodative monetary policy in place for an extended period of time. Japan Rationale of underweight views: Japanese government bonds (JGBs) are overvalued, in our view. The BoJ has also recently reduced the amount of its JGB purchases and could modify its yield targeting framework. Positive factors: The Yield Curve Control framework should limit volatility and reduce the risk of significantly higher yields in the near term. Emerging markets (EM) Overweight Rationale of overweight views: Despite the recent strong performance, most countries still offer high prospective returns, especially relative to the opportunity set. Our estimate of the sustainable return on emerging market currencies reinforces our choice to hold this position unhedged. Risks to consider: A more aggressive than expected tightening of Fed policy and idiosyncratic political risks. Being selective is key. Corporate bonds Asset class Movement Rationale Global investment grade Rationale of underweight views: Low implied credit premiums mean that the margin of safety against negative shocks, such as a slight deterioration in the data or default outlook, is very thin. Given current pricing, we think there are better opportunities in other risky asset classes, such as equities. We also prefer government bonds to investment grade credits as a safety asset. Positive factors: The macro environment remains supportive for credits implied recession probabilities are near zero. The risk of defaults and downgrades appears limited for now. USD investment grade Rationale of underweight views: Apart from low implied credit premiums, the duration of US investment grade corporate bonds a measure of their sensitivity to shifts in underlying interest rates is at record highs, making them vulnerable to a more aggressive pace of Fed tightening. Positive factors: US investment grade debt looks more attractive than European credit. Carefully selected US credit may outperform. EUR and sterling investment grade Rationale of underweight views: Alongside a compressed credit risk premium, euro investment grade prospective returns are also weighed down by a negative duration risk premium (i.e., we are being penalised for bearing interest rate risk). Positive factors: For the time being, the ECB s corporate bond-buying programme remains supportive. Default rates also remain low. Asia investment grade Neutral Positive factors: Within the investment grade universe, the carry offered by Asian credits looks attractive relative to those in developed markets. Our measure of the implied credit risk premium is also relatively high. Accelerating underlying activity in emerging markets in Asia and a neutral monetary policy stance in most countries are also supportive. Risks to consider: A more aggressive than expected Fed policy normalisation poses a key risk, particularly for corporates who borrow in US dollars. Risks from rising protectionism cannot be ignored either, while the extent of Chinese leverage remains a long-term issue. Source: Bloomberg and HSBC Global Asset Management. Data as at close of business 29 December 2017 January 2018 Investment Monthly 4

5 Asset class Movement Rationale Global highyield Rationale for underweight views: Our measure of implied high yield credit risk premiums (compensation for bearing credit risk) is low. We think we are better rewarded by equities as a way to benefit from a strong economic backdrop. Positive factors: Corporate fundamentals are improving following a pickup in the global activity cycle and defaults are low. We prefer higher-rated high yield bonds. US high yield Rationale for underweight views: The recent compression of credit risk premiums makes US high yield credits even more vulnerable to even a slight deterioration in the data or default outlook. A sustained fall in commodity prices and a more aggressive Fed tightening cycle all pose risks. Positive factors: Broad-based strength in US economic activity continues to support corporate fundamentals. Tax reforms will also help. Default rates are relatively low. High yield bonds also have a shorter effective duration, making them more exposed to growth than to interest rate risk. Europe high yield Rationale for underweight views: The carry offered in euro high yield has declined in 2017 and now looks less attractive when compared to European equities. The ECB asset purchase programme, which has so far been positive for this asset class, is likely to be terminated by Overall, our measure of prospective risk-adjusted returns in euro high yield is consistent with an underweight positioning. Positive factors: The robust eurozone recovery, coupled with spillover effects from the ECB asset purchase programme, remain supportive. The default outlook also looks benign. Asia high yield Neutral Positive factors: The carry offered by Asian high yield looks attractive given the alternatives, with relatively high prospective risk-adjusted returns. Economic momentum continues to build and inflationary pressures appear to have mostly stabilised. Risks to consider: A Fed error in its normalisation of monetary policy poses a key risk, particularly for corporates who borrow in US dollars. Risks from rising protectionism cannot be ignored either, while the extent of Chinese leverage remains a long-term issue. Other Asset class Movement Rationale Emerging market aggregate bonds (USD) Rationale for underweight views: Dollar-denominated emerging market bonds have performed well over the year. Consequently, prospective risk-adjusted returns now look poor relative to the opportunity set. The risk of a more hawkish Fed and a stronger US dollar poses a significant risk to US-dollar-denominated debt holdings in the emerging market universe. US dollar debt leverage is high in some economies. Positive factors: Investors reach for yield may continue to support emerging market hardcurrency bonds. Gold Neutral Positive factors: Gold futures can offer reasonable diversification benefits to our multi-asset portfolios and have some inflation-hedging characteristics. Risks to consider: Based on our expected returns framework, prospective returns on gold futures look poor today given current market pricing. This is due to the large negative expected roll yield (the cost of renewing futures contracts) and a negative expected spot price return. Other commodities Neutral Positive factors: Commodity futures can offer reasonable diversification benefits to our multiasset portfolios and have some inflation-hedging characteristics. Risks to consider: Based on our expected returns framework, prospective returns on commodity futures look poor today given current market pricing. This is primarily because there is a large negative expected roll yield (the cost of renewing futures contracts). Real estate Neutral Positive factors: Based on our dividend growth assumptions and current yields, which offer a premium of over 1.4% above the dividend yield from wider equities, we believe real estate equities are priced to deliver reasonably attractive long-run returns compared to developed market government bonds. In the long run, rents are positively related to wider economic growth and offer a partial inflation hedge. Risks to consider: The US has underperformed other listed property markets over the last 12 months in US dollar terms. Concerns over the health of some retailers have dragged down retailoriented real estate investment trusts, although recent takeover activity has boosted the prices of some stocks owning high-quality malls. US office markets, such as those in New York and Washington, are suffering from excess supply. The UK's decision to leave the European Union has reduced rental growth prospects, especially in central London, and increased uncertainty around future occupier demand in the UK. Source: Bloomberg and HSBC Global Asset Management. Data as at close of business 29 December 2017 January 2018 Investment Monthly 5

6 US Congress passes tax reform bill Markets: Global equities rose again in December; US Treasury yield curve continued to flatten; crude oil prices gained Global equities rose again in December amid continuing strong economic data releases and as the US Congress finally passed the tax reform bill. The MSCI AC World Index closed 1.3% higher over the month. The US Treasury yield curve continued to flatten, while European government bonds were underpinned by soft inflation data. Crude oil prices rose, supported by OPEC members agreeing to extend supply cuts by nine months and until the end of (All data above as of close of 29 December in local currency, price return, month-to-date terms.) US: Tax reform bill approved by Congress; Fed maintains its interest rate projection intact The US Congress passed its tax reform bill in arguably the biggest overhaul of the US tax system since the 1980s. The reforms should boost US economic growth via increased consumer spending and business investment, but the magnitude is uncertain. As expected, the Federal Open Market Committee (FOMC) raised the fed funds target range by 25 bps at its December meeting. The Fed s median projection of interest rates (or dot plot ) still signals three more rate hikes in Despite continuing upbeat growth momentum, reflected in an upgrade to the Fed s GDP growth forecasts over , inflationary pressures remain subdued for the time being (November core PCE came in at 1.5% yoy). Europe: Mounting risks of the end to ECB asset purchases in September 2018; Bank of England likely to tread cautious path Eurozone activity data remains very strong. The eurozone composite flash PMI rose to a fresh six-and-a-half-year high of 58.0 in December. The manufacturing index hit an all-time high of This data bodes well for Q4 GDP prospects. At the ECB s December policy meeting, ECB President Mario Draghi expressed the bank s greater confidence that inflation will converge towards our inflation aim. This adds to the risk that the bank s asset purchases will end in September In the UK, the current inflation backdrop is not a comfortable one for the Bank of England, probably pushing it to hike rates again during However, aggressive tightening is unlikely as the UK economy remains fragile amid Brexit-related uncertainty. Asia: The PBoC signals intention to keep monetary conditions tight; BoJ policy on hold The PBoC raised the open market operations and medium-term lending facility rates by 5 bps and signalled its intention to keep monetary conditions tight for deleveraging and to pre-empt the risk of capital outflows. At its December meeting, the Reserve Bank of India remained cautious about the inflation outlook while waiting for further data to assess the strength of a growth recovery, with an extended pause on rates likely. In Japan, Q3 GDP growth was revised up, mainly due to improved business investment. Meanwhile, BoJ officials downplayed the possibility of an earlier than expected adjustment of their quantitative easing programme, as inflationary pressures remain muted. Other emerging markets: 2018 prospects bright amid upbeat global growth and higher commodity prices, idiosyncratic headwinds remain Generally speaking, emerging market economies should start 2018 on a strong note, boosted by upbeat global growth and trade as well as higher commodity prices. Countries with high US dollar debt piles should also find comfort from extremely gradual Fed tightening. Brazil s GDP expanded by just 0.1% qoq in Q3, although Q2 data was revised up to 0.7%. Broadly speaking, Brazil s cyclical recovery is slowly developing. Less positively, Mexico s economy is slowing amid recent monetary policy tightening. In South Africa, factors supportive of GDP growth in 2017 such as a sharp rebound in agricultural production are now fading. More positively, the election of business-friendly Cyril Ramaphosa as leader of the ANC could be a longer-run positive for the economy. In Turkey, a credit-fuelled boost to economic activity has resulted in high inflation, contributing to lira weakness. Nevertheless, at its December policy meeting, the Central Bank of Turkey failed to tighten policy, in line with market expectations. Source: Bloomberg and HSBC Global Asset Management. Data as at close of business 29 December 2017 January 2018 Investment Monthly 6

7 Market Data Equity Indices Close MTD 3-Month 1-Year YTD 52- Week High 52- Week Low FWD P/E(X) World MSCI AC World Index (USD) North America US Dow Jones Industrial Average 24, ,876 19, US S&P 500 Index 2, ,695 2, US NASDAQ Composite Index 6, ,004 5, Canada S&P/TSX Composite Index 16, ,232 14, Europe MSCI AC Europe (USD) Euro STOXX 50 Index 3,504 (1.8) (2.5) ,709 3, UK FTSE 100 Index 7, ,698 7, Germany DAX Index* 12,918 (0.8) ,526 11, France CAC-40 Index 5,313 (1.1) (0.3) ,536 4, Spain IBEX 35 Index 10,044 (1.6) (3.3) ,184 9, Asia Pacific MSCI AC Asia Pacific ex Japan (USD) Japan Nikkei-225 Stock Average 22, ,382 18, Australian Stock Exchange 200 6, ,093 5, Hong Kong Hang Seng Index 29, ,494 21, Shanghai Stock Exchange Composite Index 3,307 (0.3) (1.2) ,450 3, Hang Seng China Enterprises Index 11, ,101 9, Taiwan TAIEX Index 10, ,883 9, Korea KOSPI Index 2,467 (0.4) ,562 2, India SENSEX 30 Index 34, ,138 26, Indonesia Jakarta Stock Price Index 6, ,446 5, Malaysia Kuala Lumpur Composite Index 1, ,797 1, Philippines Stock Exchange PSE Index 8, ,640 6, Singapore FTSE Straits Times Index 3,403 (0.9) ,469 2, Thailand SET Index 1, ,763 1, Latam Argentina Merval Index 30, ,278 16, Brazil Bovespa Index* 76, ,024 59, Chile IPSA Index 5, ,646 4, Colombia COLCAP Index 1, ,515 1, Mexico Index 49, (2.0) ,772 45, EEMEA Russia MICEX Index 2, (5.5) (5.5) 2,294 1, South Africa JSE Index 59,505 (0.4) ,299 50, Turkey ISE 100 Index* 115, ,265 75, *Indices expressed as total returns. All others are price returns. 3-Month YTD 1-Year 3-Year 5-Year Equity Indices - Total Return Global equities US equities Europe equities Asia Pacific ex Japan equities Japan equities Latam equities (2.3) (15.0) Emerging Markets equities All total returns quoted in US dollar terms. Data sourced from MSCI AC World Total Return Index, MSCI USA Total Return Index, MSCI AC Europe Total Return Index, MSCI AC Asia Pacific ex Japan Total Return Index, MSCI Japan Total Return Index, MSCI Emerging Markets Latin America Total Return Index and MSCI Emerging Markets Total Return Index. Source: Bloomberg and HSBC Global Asset Management. Data as at close of business 29 December 2017 January 2018 Investment Monthly 7

8 Market Data (continued) Close MTD 3-Month 1-year YTD Bond Indices - Total Return BarCap GlobalAgg (Hedged in USD) JPM EMBI Global BarCap US Corporate Index (USD) 2, BarCap Euro Corporate Index (Eur) 247 (0.3) BarCap Global High Yield (Hedged in USD) Markit iboxx Asia ex-japan Bond Index (USD) Markit iboxx Asia ex-japan High-Yield Bond Index (USD) Total return includes income from dividends and interest as well as appreciation or depreciation in the price of an asset over the given period End of last mth. 3-Months Ago 1 Year Ago Year-End 2016 Bonds Close US Treasury yields 3-Month Year Year Year Year Developed market 10-year bond yields Japan UK Germany France Italy Spain End of last mth. 3 Months Ago 1 Year Ago Year-End Week High 52-Week Low Currencies (versus US dollar) Latest Developed markets EUR/USD GBP/USD CHF/USD CAD JPY AUD NZD Asia HKD CNY INR MYR KRW 1,067 1,088 1,145 1,206 1,206 1,212 1,061 TWD Latam BRL COP 2,986 3,016 2,938 3,002 3,002 3,103 2,831 MXN EEMEA RUB ZAR TRY MTD 3-Month 1-Year YTD 52-Week 52-Week Commodities Latest High Low Gold 1, ,358 1,146 Brent Oil WTI Crude Oil R/J CRB Futures Index LME Copper 7, ,313 5,451 Source: Bloomberg and HSBC Global Asset Management. Data as at close of business 29 December 2017 January 2018 Investment Monthly 8

9 Important information This document has been prepared by HSBC Global Asset Management Limited (AMG) and is distributed by HSBC Investment Funds (Canada) Inc. (HIFC), HSBC Private Wealth Services (Canada) Inc. (HPWS), and the HSBC InvestDirect division within HSBC Securities (Canada) Inc. (HIDC) ( we refers to AMG, HIFC, HPWS, and HIDC collectively). The contents of this document may not be reproduced or further distributed to any person or entity, whether in whole or in part, for any purpose or otherwise, without the prior written permission of AMG. All non-authorised reproduction or use of this document will be the responsibility of the user and may lead to legal proceedings. The material contained in this document is for general information purposes only and does not constitute advice or a recommendation to buy or sell investments. Some of the statements contained in this document may be considered forward-looking statements which provide current expectations or forecasts of future events. Such forward-looking statements are not guarantees of future performance or events and involve risks and uncertainties. Actual results may differ materially from those described in such forward-looking statements as a result of various factors. We do not undertake any obligation to update the forward-looking statements contained herein, or to update the reasons why actual results could differ from those projected in the forward-looking statements. This document has no contractual value and is not by any means intended as a solicitation, nor a recommendation for the purchase or sale of any financial instrument in any jurisdiction in which such an offer is not lawful. The views and opinions expressed herein are those of AMG at the time of preparation, and are subject to change at any time. These views may not necessarily indicate current portfolios' composition. Individual portfolios managed by AMG or HSBC Global Asset Management (Canada) Limited (AMCA) primarily reflect individual clients' objectives, risk preferences, time horizon, and market liquidity. The value of investments and the income from them can go down as well as up and investors may not get back the amount originally invested. Past performance contained in this document is not a reliable indicator of future performance whilst any forecasts, projections and simulations contained herein should not be relied upon as an indication of future results. Where overseas investments are held, the rate of currency exchange may cause the value of such investments 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 some established markets. Economies in emerging markets generally are heavily dependent upon international trade and, accordingly, have been and may continue to be affected adversely by trade barriers, exchange controls, managed adjustments in relative currency values and other protectionist measures imposed or negotiated by the countries with which they trade. These economies also have been and may continue to be affected adversely by economic conditions in the countries in which they trade. We accept no responsibility for the accuracy and/or completeness of any third party information obtained from sources we believe to be reliable but which have not been independently verified. This information has been prepared for informational purposes only, and is not intended to provide and should not be relied on for accounting, legal or tax advice. You are advised to obtain appropriate professional advice where necessary. Important Information about HSBC Global Asset Management (Canada) Limited (AMCA) HSBC Global Asset Management is a group of companies that are engaged in investment advisory and fund management activities, which are ultimately owned by HSBC Holdings plc. AMCA is a wholly owned subsidiary of, but separate entity from, HSBC Bank Canada and provides its services in all provinces of Canada except Prince Edward Island. Important Information about HSBC Investment Funds (Canada) Inc. (HIFC) HIFC is a subsidiary of AMCA, and indirect subsidiary of HSBC Bank Canada, and is the principal distributor of the HSBC Mutual Funds and HSBC Pooled Funds. HIFC provides its products and services in all provinces of Canada except Prince Edward Island. Mutual fund investments are subject to risks. Please read the Fund Facts before investing. Important Information about HSBC Private Wealth Services (Canada) Inc. (HPWS) HPWS is a direct subsidiary of HSBC Bank Canada and provides services in all provinces of Canada except Prince Edward Island. The Private Investment Management service is a discretionary portfolio management service offered by HPWS. Under this discretionary service, assets of participating clients will be invested by HPWS or its delegated portfolio manager in securities, including but not limited to, stocks, bonds, pooled funds, mutual funds and derivatives. The value of an investment in or purchased as part of the Private Investment Management service may change frequently and past performance may not be repeated. Important Information about HSBC InvestDirect (HIDC) HIDC is a division of HSBC Securities (Canada) Inc., a direct subsidiary of, but separate entity from, HSBC Bank Canada. HIDC is an order execution only service. HIDC will not conduct suitability assessments of client account holdings or of the orders submitted by clients or from anyone authorized to trade on the client s behalf. Clients have the sole responsibility for their investment decisions and securities transactions. Copyright HSBC Global Asset Management Limited All rights reserved. Expiry: March 1, 2018 DK A, H , P , HD E January 2018 Investment Monthly 9.