Global Emerging Markets Fixed Income

Transcription

1 Global Emerging Markets Fixed Income Amanda La Marca Product Specialist, Emerging Market Debt only intended for professional investors as defined by MiFID

2 US$ billions AMFR_Ext_103_ inflows into emerging market debt were strong until late May 2013 began with strong inflows to EMD, continuing the trend from Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: HSBC Global Asset Management, JPMorgan, as of 31 December Asset class flows include both retail flows and strategic flows. Past performance is no guarantee of future results.

3 while issuance remained substantial $198bn of issuance from Jan May was absorbed by only $40bn of inflows to the asset class Amount Issued (USD notionally) 01 Jan May Jan May Year-onyear change (%)* Issuance increase 10.6% y-o-y in 2013 vs 2012 OVERALL 146,979,973, ,516,133, ,366,600, ,834,923, % USD-denom 139,982,126, ,587,309, ,501,045, ,190,220,416 EUR-denom 6,997,847,250 15,928,824,079 20,865,555,590 47,644,702,833 Sovereign 43,904,290,000 33,511,313,961 69,445,592,088 75,453,572, % Corporate 103,075,683, ,004,819, ,921,008, ,381,351, % LatAm 45,557,126,000 49,887,549, ,164,843, ,416,650, % Asia 46,125,000,000 74,873,503,118 85,558,964, ,615,604, % East Europe 36,050,147,250 53,040,690,961 78,971,044,736 85,269,219, % Middle East/ Africa 17,247,700,000 20,414,390,000 34,786,747,809 32,533,447, % * As of Year to date 31 December Source: Bloomberg as of 31 December 2013 and HSBC Global Asset Management calculations. For illustrative purposes only.

4 EM external debt valuations and yields began to improve in May Aggregate Spread Levels 12/31/ /31/2013 < 150 bps 31.43% 15.13% bps 40.02% 19.06% bps 2.90% 34.78% bps 6.34% 15.11% bps 3.45% 1.86% External Debt Index Yield > 500 bps 13.86% 13.24% 4.0 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Sources: HSBC Global Asset Management, JP Morgan, External Debt Index Yield data as of 07 January For illustrative purposes only. Information may be dated and should not be relied upon. Review and outlook is subject to change without notice. Past performance is no guarantee of future results.

5 31-Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec-13 AMFR_Ext_103_2014 Evolution of emerging market yields compared to EU peripherals Ireland 10 year Yield Spain 10 year Yield Italy 10 year Yield Brazil 10 year Yield Mexico 10 year Yield Sources: HSBC Global Asset Management, Bloomberg, Data as of 15 January For illustrative purposes only. Past performance is no guarantee of future results.

6 Evolution of emerging market fundamentals compared to EU peripherals Public debt as % of GDP continues to increase in EU peripherals Debt levels in Brazil and Mexico remain relatively low January 2013 GDP (% real change pa) Public debt (% of GDP) Spain Ireland Italy Mexico Brazil December 2013 GDP (% real change pa) Public debt (% of GDP) Spain Ireland Italy Mexico Brazil Sources: HSBC Global Asset Management, Bloomberg, Data as of 31 December Past performance is no guarantee of future results.

7 EM IG corporates look attractive and offer a pickup in spread compared to US peers Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 CEMBI IG - Barclays US IG spreads 1yr avg Sources: HSBC Global Asset Management, JP Morgan, Bloomberg, Data as of 15 January Past performance is no guarantee of future results.

8 Valuations and yields also improved in EM local debt and currencies 7.5 Local Rate Index Yield (%) Local Currency Index (%) 7.0 Internal assessment of EM currencies looks attractive Aug-12 Dec-12 Apr-13 Aug-13 Dec-13 Source: HSBC Global Asset Management, Bloomberg. USD/ELMI Data as of 07 January Local rate index is the JPM GBI-EM Global Diversified. Local Currency index is the JPM ELMI+ index. For illustrative purposes only. Past performance is no guarantee of future results. USD/ELMI theoretical is composed of HSBC Global Asset Management calculations based on inflation-adjusted productivity differentials between EM and US productivity indices.

9 # MXN Contracts # USD Contracts AMFR_Ext_103_2014 Technical currency position is also much cleaner Speculative Currency Positioning 400, , , , ,000 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec ,000 Mexican Peso Positioning 150, ,000 50, ,000 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Source: HSBC Global Asset Management, Bloomberg. Data as of 31 December The data presented is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of any financial instrument or investment strategy. Past performance is no guarantee of future results. US$ positions expressed as the sum of the number of contracts of MXN, CAD, AUD, EUR, and GBP that speculative accounts were long/short vs US$ at the Chicago Mercantile Exchange (CME).

10 2013 underperformance in the EM local bond index driven by four countries Brazil, Turkey, Indonesia and South Africa, which account for 36.4% of the local bond benchmark, explain more than 90% of the - 8.9% lost by the local bond benchmark in 2013 Local bond and FX spot returns in USD (2013) Local Bond (% p.a.) FX spot returns (% p.a.) JPM GBI-EM GD (weight %) Hungary Poland Nigeria Mexico Thailand Chile Malaysia Colombia Philippines Russia Brazil Peru Turkey Indonesia South Africa Romania Source: HSBC Global Asset Management, Bloomberg, JP Morgan as of 31 December Past performance is no guarantee of future results.

11 Terms of trade are improving in many of these countries USD/EM BRL (inverted), Citibank Brazil Terms of Trade Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Citibank Terms of Trade - Brazil USD/BRL (L1) Source: HSBC Global Asset Management, Bloomberg, 31 December December Past performance is no guarantee of future results. For illustrative purposes only.

12 Performance and Characteristics Emerging Markets Debt Total Return

13 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Duration (years) AMFR_Ext_103_2014 Historical sector exposure in detail Supplemental information as of 31 December 2013 Holistic approach to portfolio construction built without an inherent bias to an emerging market asset class and actively allocates among optimal opportunities 120% Emerging Markets Debt Total Return Net Historical Exposures % 80% 60% 40% 100% 75% 64% 63% 51% 74% 80% 84% 48% 32% 37% 30% 30% 22% 20% 23% 31% 52% 93% 94% 102% 99% 75% 88% 91% % 2.0 0% % -2.0 Sovereign Quasi Corporate Local Rates Local Fx Equity Net Exposure Duration (rhs) Source: HSBC Global Asset Management. Data as of 31 December Weightings and holdings are subject to change without notice. Please see important disclosure at the end of this presentation concerning calculation methodology for characteristics. Any portfolio characteristics shown herein, including average position sizes and sector allocations among others, are for illustrative purposes and reflects the representative account of the composite. Information should not be construed as a recommendation or solicitation to buy or sell any securities within the sectors shown. Data is supplemental to the GIPS compliant presentation at the end of this material. Each portfolio may differ due to individual client restrictions and guidelines. Accordingly individual results will vary.

14 Total Return delivered strong returns with significantly lower volatility Supplemental information as of 31 December 2013 Emerging Markets Debt Total Return has achieved higher returns and lower volatility than a blend of the emerging market indices 1 Year to 31 Dec 2013 JPM EMBIG (External debt) JPM ELMI+ (Local currency) JPM GBI-EM GD (Local bond) Blended Benchmark* HSBC EMD Total Return Annualized Return Standard Deviation Year to 31 Dec 2013 Blended Benchmark* HSBC EMD Total Return Annualized Return Standard Deviation *Blended emerging market benchmark is 50% JPM EMBIG (external debt) / 25% JPM GBI-EM GD (local debt) / 25% JPM ELMI+ (local currency). Source: HSBC Global Asset Management, JP Morgan. Data as of 31 December Inception Date: 31 October Benchmark data is for illustrative purposes only and does not represent any actual benchmark for the EMD Total Return strategy. Returns are shown gross of fees in US$ and include reinvestment of dividends and income. Had fees been included, returns would be lower. Returns greater than one year are annualized returns. Past performance is not indicative of future performance. Annualized Returns and Standard Deviation are based on composite date. Data is supplemental to the GIPS compliant presentation at the end of this material. Please see important disclosure at the end of this presentation concerning the impact of investment advisory fees and expenses on performance, benchmark definitions and calculation methodology for characteristics. Each portfolio may differ due to individual client restrictions and guidelines. Accordingly individual results will vary.

15 Conclusion We continue to favor investment grade hard currency sovereign with strong balance sheets and whose spreads widened disproportionately from May to August 2013 This portion of the asset class was aggressively liquidated as asset managers attempted to raise liquidity and reduce duration during this period We believe that the bulk of this correction in investment grade assets was driven by technical factors rather than a deterioration in fundaments The simultaneous increase in US Treasuries and credit spreads pushed the yield for the investment grade component above 5% When we include the roll-down of the yield curve, investors in the segment of the hard currency asset class are left with a total carry that is close to 7% which we believe is a significant cushion against future US Treasury movements We continue to be cautious around a number of high yield countries that face a probability of default over the next three years Should these countries default, although we do not expect systemic implications for emerging markets as a whole, volatility should increase which is why we continue to emphasize that investors should focus on the investment grade rated component of the asset class We are positive on select emerging market currencies that depreciated substantially though May to August 2013 and offer attractive valuations with improving terms of trade and current account balances The yields of these currencies also improved and have increasingly become more liquid with a cleaner technical position than other high yielding assets The information above is provided by and represents the opinions of HSBC Global Asset Management and is subject to change without notice. Any forecast, projection or target contained in this presentation is for information purposes only and is not guaranteed in any way. HSBC accepts no liability for any failure to meet such forecasts, projections or targets. Past performance is no guarantee of future results.

16 Total Return should be well positioned to address 2014 challenges General "bifurcation" of the asset class between investment grade and high yield countries Strategy isolates risk rather than accepting the beta of select countries due to a benchmark Relative valuation External debt underperformed in 2013 compared to its fixed income peers in spite of relatively stable fundamentals in many investment grade countries; 2014 valuations are compelling Local assets also look compelling given the bearishness priced by the market relative to underlying fundamentals. Valuations and carry in local assets are attractive in 2014 Duration Duration in the external debt benchmark is quite high which will likely hurt the asset class as US Treasury rates move higher. We expect to profit from market dislocation and buy discounted (and high quality) assets when investors are selling Treasury sensitive assets in order to reduce duration and/or raise cash Liquidity Liquidity in our markets is challenging given increased regulation by policy makers and the effect on banks Volatility The strategy s ability to respond and adjust to the volatility will be important in a market that has increasingly become more volatile due to high volatility in US Treasuries and lower liquidity The information above is provided by and represents the opinions of HSBC Global Asset Management and is subject to change without notice. Any forecast, projection or target contained in this presentation is for information purposes only and is not guaranteed in any way. HSBC accepts no liability for any failure to meet such forecasts, projections or targets. Past performance is no guarantee of future results.

17 Appendix GIPS Compliant Presentations AMFR_Ext_103_2014

18 Emerging Markets Debt Total Return Supplemental GIPS report Report To 31 December 2013 Past performance is not indicative of future performance. Returns greater than one year are annualized. Data is supplemental to the GIPS compliant presentation on the following pages. Please see Important Information concerning the impact of investment advisory fees and expenses on performance and for benchmark definitions.

19 Emerging Markets Debt Total Return GIPS report Report To 30 September 2013 Past performance is not indicative of future performance. Returns greater than one year are annualized. Please see Important Information concerning the impact of investment advisory fees and expenses on performance and for benchmark definitions.

20 Emerging Markets Debt Total Return Disclosures HSBC Global Asset Management (the Firm) claims compliance with the Global Investment Performance Standards (GIPS ) and has prepared and presented this report in compliance with the GIPS standards. The Firm has been independently verified for the periods 1 January 2006 through 31 December The resultant verification report is available upon request. Verification assesses whether (1) the firm has complied with all the composite construction requirements of the GIPS standards on a firm-wide basis and (2) the firm's policies and procedures are designed to calculate and present performance in compliance with the GIPS standards. Verification does not ensure the accuracy of any specific composite presentation. The composite creation date is 31/08/2006 A complete list and description of all Firm composites, as well as additional information regarding policies for calculating and reporting returns, is available on request from the contact shown on the document or presentation to which this report is attached. Prior to 2011 HSBC Global Asset Management maintained eight distinct GIPS Firms. The Firms were defined by legal business entity. All existing group Firms were thereafter amalgamated into a single global Firm definition. Historical performance shown prior to January 1, 2006 reflects the performance of a legacy Firm GIPS composite. HSBC Global Asset Management (the Firm) consists of discretionary accounts and sub-accounts managed as discrete mandates within specified local HSBC Global Asset Management entities. The Firm comprises the following: HSBC Global Asset Management (Deutschland) GmbH, HSBC Global Asset Management (Hong Kong) Limited, HSBC Global Asset Management (USA) Inc., HSBC Global Asset Management (France), HSBC Global Asset Management (Canada) Limited, and HSBC Global Asset Management (UK) Limited. The Firm excludes portfolios and funds managed by the Alternative Investments teams, LDI products, French regulated employee (FCPE) schemes, and private client accounts as these products operate under a materially different philosophy and process and/or regulatory environment. The Emerging Markets Debt - Total Return composite consists of only actual, fee paying, fully discretionary accounts managed by HSBC Global Asset Management (USA) Inc. The underlying strategy is not constrained by benchmark and may hold long and short positions in emerging market fixed income, equities, currencies, and other financial instruments. Given the strategy s absolute return orientation, cash may be actively used as a defensive tactic to protect principal. The base currency of the composite is US$. Investment results are measured against the Merrill Lynch 3 month LIBOR Constant Maturity Index. Performance returns are calculated gross of investment management fees and other non-trading related expenses. The performance presented in this composite report is calculated net of unreclaimable withholding taxes. Warnings: The historical performance presented in these reports should not be seen as an indication of future performance; The value of your investment and any income from it can go down as well as up. Where overseas securities are held the rate of exchange may cause the value of the investment to go down as well as up.investors should also be aware that other performance calculation methods may produce different results, and that the results for specific portfolios and for different periods may vary from the returns presented in these reports; Comparisons of investment returns should consider qualitative circumstances and should be made only to portfolios with generally similar investment objectives. In the USA, this information is intended for use solely in one-on-one presentations. Significant Event - Atlantic Advisors: Atlantic Advisors was acquired by HSBC Investments (USA) Inc. in June The members of Atlantic Advisors are now the global emerging markets fixed income team at HSBC Global Asset Management (USA) Inc. (formerly HSBC Halbis Partners (USA) Inc.). The composite performance results represent historical composite returns produced by the global emerging markets fixed income team while employed at the previous advisor linked, pursuant to GIPS Guidelines, with the performance results produced by the global emerging markets fixed income team since joining the firm. Exchange Rates The exchange rates used by accounts in this composite may be different than those used by the benchmark. The management process for accounts in this composite uses leverage and short sales instruments as a source of potential return. The firm also may employ the following derivative instruments both for hedging and return enhancement purposes; Options on Securities & Securities Indices, Currency transactions, Repurchase agreements, Interest rate swaps, caps, floors, and collars, and Forward contracts on securities or currencies. The firm also reserves the right to use new derivative techniques and instruments that may be developed in the future. Usage of Pre 2000 data The performance for periods presented prior to 1 January 2000 is not GIPS compliant as not all funds managed by the Firm have been allocated to composites for these periods. All funds which are eligible for inclusion in this composite have been included in the performance shown. Less than $200 million: 0.75% flat fee with a 20% annual performance fee (net of the base fee) above the relevant money market rate. Over $200 million: 0.50% flat fee with a 20% annual performance fee (net of the base fee) above the relevant money market rate.

21 Important information AMFR_Ext_103_2014

22 Important information Gross performance information. Performance data is calculated gross of fees and assumes the reinvestment of dividends, income and any capital gains and is net of transaction costs. The results are shown before the deduction of investment advisory fees and other expenses, which would reduce a return. Information about investment advisory fees is available in our Form ADV Part 2A, which is available upon request. The following hypothetical illustrates how investment advisory fees, compounded over time, could impact performance. Assuming a portfolio s annual rate of return is 15% for 5 years and the annual investment advisory fee is 50 basis points, the gross cumulative five-year return would be 101.1% and the five-year return net of fees would be 96.8%. Characteristics methodology. Cash equivalents are defined as any security with a maturity of less than 1 year. Data representing regional, sector and quality distribution characteristics of the strategy have been calculated after removing cash and cash equivalents and rebalancing the remaining investments to 100%. Average Quality ratings are based on HSBC methodology and may differ from published sources. The average quality is calculated utilizing a weighted average of each fund's holdings in accordance with HSBC s internal methodology, which includes taking the highest rating of S&P, Moody s or Fitch where available. If a security is unrated, it will be assigned a rating in accordance with HSBC s internal methodology. Unrated categories reflect Cash and cash equivalents. Country distribution data reflects the total exposure to a country which includes local currency exposure. Duration calculations include cash and cash equivalents. Risk Considerations. There is no assurance that a portfolio will achieve its investment objective. In addition, there is no guarantee that any investment strategy will work under all market conditions, and each investor should evaluate their ability to invest for the long-term, especially during periods of downturn in the market. Portfolios are subject to market risk, which is the possibility that the market values of securities owned by the portfolio will decline. Accordingly, you can lose money investing in any of these strategies. Please be aware that these strategies may be subject to certain additional risks, which should be considered carefully along with the strategy s investment objectives and fees before investing. Equity. In general equity securities values also fluctuate in response to activities specific to a company. Foreign and emerging markets. Investments in foreign markets entail special risks such as currency, political, economic, and market risks. The risks of investing in emerging-market countries are greater than the risks generally associated with foreign investments. Fixed income securities. Subject to credit and interest-rate risk. Credit risk refers to the ability of an issuer to make timely payments of interest and principal. Interest-rate risk refers to fluctuations in the value of a fixed-income security resulting from changes in the general level of interest rates. In a declining interest-rate environment, the portfolio may generate less income. In a rising interest-rate environment, bond prices fall. Credit Quality. Investments in high-yield securities (commonly referred to as junk bonds ) are often considered speculative investments and have significantly higher credit risk than investment-grade securities. The prices of high-yield securities, which may be less liquid than higher rated securities, may be more vulnerable to adverse market, economic or political conditions. Convertibles. Subject to the risks of equity securities when the underlying stock price is high relative to the conversion price (because more of the security s value resides in the conversion feature) and debt instruments when the underlying stock price is low relative to the conversion price (because the conversion feature is less valuable). A convertible bond is not as sensitive to interest rate changes as a similar nonconvertible debt instrument, and generally has less potential for gain or loss than the underlying equity security. Exchange-Traded Fund Risk. Subject to the underlying securities the ETF is designed to track, although lack of liquidity in an ETF could result in it being more volatile than the underlying portfolio of securities. Disruptions in the markets for the securities underlying ETFs could result in losses on the Portfolio s investments. ETFs also have management fees that increase their costs versus owning the underlying securities directly. Derivative instruments. Derivatives can be illiquid, may disproportionately increase losses and may have a potentially large negative impact on performance. Non-diversification. Focusing investments in a small number of issuers, industries, foreign currencies or particular countries or regions increases the risks associated with a single economic, political or regulatory occurrence. Benchmark definitions. These indices are presented to provide you with an understanding of their historic long-term performance, and are not presented to illustrate the performance of any security or trading strategy. All indices are unmanaged. Index returns do not reflect any fees, expenses or sales charges associated with investing. Investors cannot invest directly in an index. The JP Morgan EMBI-Global (EMBIG) Index includes USD-denominated Brady bonds, Eurobonds, and traded loans issued by sovereign and quasi-sovereign entities, and is a traditional market-capitalization weighted index. The JP Morgan GBI-EM Diversified Index provides a measure of local currency denominated, fixed rate, government debt issued in emerging markets. Weightings among the countries are more evenly distributed within the diversified index compared to it s three main composite indices consisting of the GBI-EM, GBI EM Global, and GBI EM Broad indices. The JP Morgan GBI-EM Global Diversified Index is a comprehensive global local emerging markets index, and consists of liquid, fixed rate, domestic currency government bonds. The JP Morgan ELMI+ Index is an emerging markets currency (FX) benchmark; the index contains more countries and also brings in the currency aspect of the market, which is an important component of our strategy. The JPM Corporate Emerging Markets Bond Index (JPM CEMBI) measures the performance of corporate bonds issued in emerging markets. The CEMBI Broad is a comprehensive version of the CEMBI, and is also available in a Diversified version, in which weightings are more evenly distributed

23 Important information This presentation is distributed by HSBC Global Asset Management (France) and is only intended for professional investors as defined by MiFID. It is incomplete without the oral briefing provided by the representatives of HSBC Global Asset Management (France). The information contained herein is subject to change without notice. All non-authorised reproduction or use of this commentary and analysis will be the responsibility of the user and will be likely to lead to legal proceedings. This document has no contractual value and is not by any means intended as a solicitation, nor a recommendation for the purchase or sale of any financial instrument in any jurisdiction in which such an offer is not lawful. The commentary and analysis presented in this document reflect the opinion of HSBC Global Asset Management on the markets, according to the information available to date. They do not constitute any kind of commitment from HSBC Global Asset Management (France).Consequently, HSBC Global Asset Management (France) will not be held responsible for any investment or disinvestment decision taken on the basis of the commentary and/or analysis in this document. All data from HSBC Global Asset Management unless otherwise specified. Any third party information has been obtained from sources we believe to be reliable, but which we have not independently verified. The product presented in this document may not be registered and/or authorised for sale in your country. The performance figures displayed in the document relate to the past and past performance should not be seen as an indication of future returns. Please note that according to article of the French AMF Regulations, performance for periods of less than 12 months cannot be shown to non-professional investors, as defined by Mifid. Please note that according to article of AMF General Regulations, performance for periods of less than 12 months cannot be shown to non-professional investors, as defined by the MIF directive. Subscriptions are accepted only on the basis of the current prospectus accompanied by the latest annual or half-yearly report, available on request. It is important to remember that the value of investments and any income from them can go down as well as up and is not guaranteed. Where overseas investments are held the rate of exchange may cause the value to go down as well as up. Investments in emerging markets are by their nature higher risk and potentially more volatile than those inherent in established markets. The GEM Debt Total Return strategy is exposed to the following risks: interest rate risk, exchange rate risk, derivative risk, operational risk, emerging market fixed income risk. Before subscription, investors should refer to the prospectus for general risk factors and to the KIID for specific risk factors associated with this product. The performance figures displayed in the document relate to the past and past performance should not be seen as an indication of future returns. The value of investments and any income from them can go down as well as up. Capital is not guaranteed. Investments in emerging markets are by their nature higher risk and potentially more volatile than those inherent in established markets. Investors are reminded that investments in High Yield issues represent a higher risk of default compared to Investment Grade issues. Investments in Credit Default Swaps (CDS) are less liquid than standard bond issues. Fluctuations in the rate of exchange of currencies may have a significant impact on performance. Investment in Financial Derivative Instruments (FDI) may result in losses in excess of the amount invested. This is because a small movement in the price of the underlying financial instrument may result in a substantial movement in the price of the FDI. The strategies can invest in sub investment grade bonds, which may produce a higher level of income than investment grade bonds, but carry increased risk of default on repayment. The value of the underlying assets are strongly affected by interest rate fluctuations and by changes in the credit ratings of the underlying issuer of the assets. HSBC Global Asset Management (France) RCS Nanterre. Portfolio management company authorised by the French regulatory authority AMF (no. GP99026) with capital of euros. Postal address: Paris cedex 08 - France. Office: Immeuble Ile de France - 4 place de la Pyramide - La Défense Puteaux France. Copyright HSBC Global Asset Management (France). All rights reserved. updated in January AMFR_Ext_103_2014