HSBC GIF Managed Solutions - Asia
Quarterly market review The second quarter has seen a number of uncertainties come to the fore, producing some volatility in stock, bond and currency markets. In Europe, Greece has failed to reach agreement with its creditors and as the quarter ends has its banks closed and capital controls in place awaiting a referendum in early July on whether to accept the latest terms offered. Whatever the result of the referendum uncertainty will remain over Greece s future in Europe. In China the stock market has gone into sudden reverse of its previous strong gains, the Shanghai Composite Index losing 17% from its high on 12th June until the end of June. With many investors using margin to buy stocks there is concern that the decline will continue and begin to have adverse macro-economic effects in an already rather weak Chinese economy. A key question remains when US interest rates will be raised. Economic data from the US has improved somewhat from the weak Q1 performance while inflation remains low, and the Federal Reserve has made it clear that rates will only be raised at a pace that the economy can cope with. Bond yields have moved higher during the quarter with 10 year US Treasury yields, for example, rising by 0.43% to 2.35%. The uncertain background has seen most stock markets lose ground during the quarter, though the MSCI World Index only fell 0.3%. Despite its sharp decline in June, China s stock markets showed positive returns for the quarter, as did the markets of Japan and HK. However other Asian markets declined, the MSCI Asia Pacific ex Japan index losing 1.99%. Bond markets generally saw negative returns as yields rose from, in some cases, extremely low levels at the end of March. Ten year German government bonds, for example, yielded just 0.18% at the end of March, ending Q2 at slightly more reasonable yield, though still low at 0.76%. The high yield market was better able to tolerate the rise in yields, the JACI Non- Investment Grade Index showing a return of 2.71% for the quarter. Currency markets were mixed with most Asian currencies showing small declines against the US dollar while the Euro rose over 4% in the quarter, offsetting the decline in March, and the Yen continued to decline. The sharpest move was the New Zealand dollar which fell 9.69% against the US dollar as interest rates were cut in New Zealand. Overview of historic performance 31/07/2012 MTD (Net) 1 MTD (Gross) QTD (Net) 1 QTD (Gross) Since Inception 2 (Net) 1 Since Inception 2 (Gross) HGIF Managed Solutions - Asia -3.74-3.59-2.51-2.05-0.58 3.54 Note: MTD= Month-To-Date; QTD= Quarter-To-Date 1 Performance Net of Total Expense Ratio (TER). 2 The since inception return is calculated from 15 March 2013 to 30 June 2015. Source: HSBC Global Asset Management as at June 2015. For illustrative purposes only and does not constitute any investment recommendation in the above mentioned fund, indices, countries, asset classes or currencies. Past performance is not indicative of future returns. 2
Quarterly performance Asian stock markets remained volatile in the second quarter. Equity performance was affected by a number of negative market events, including the situation in Greece and the sharp reversal of Chinese stock performance. However, Asian high yield bonds recorded a positive return which offset part of the detraction from equity holdings. Although we have seen a number of easing monetary policies from key Asian central banks in the second quarter, stock market sentiment was generally clouded by the uncertainty of Grexit as the market feared that Greece eventually cannot reach an agreement on bailout proposals with its debt holders. In addition the slump in the Chinese stock market triggered by the unwinding of margin positions at the end of the quarter also reduced the return from Chinese equities. The Asian equity holdings in the portfolio ended lower by 2.92% as a result. The Global equity position was also down by 1.99% over the quarter. Asian high yield bonds were resilient over the quarter returning 0.69%. The credit spread of the asset class broadly tightened which more than offset the negative impact of rising yields over the quarter. The high yield market was generally muted during the correction of the Chinese stock market in June demonstrating the diversification benefit from the asset class. Global emerging market local debts delivered a positive return of 0.96% in the second quarter. The general decline in USD against the major emerging market currencies in the portfolio was supportive to the performance with the Brazilian real being the major contributing currency. Portfolio positioning and activity The risk premium on global equities has moved to a level which can be considered as roughly average compared to history. As such, equity risk can be said to be fairly rewarded. Within Asia, prospective equity returns are more attractive than the global average on a long term basis, and a pro-equity stance therefore still makes sense. For the coming months, returns are likely to be influenced by changes in risk premiums. The global economy is set to perform steadily with a low growth / low inflation mix supportive of low interest rates. Government bond yields have risen somewhat but are still low, suggesting that duration risk is not rewarded. Credit risk is still well rewarded and accessing credit risk premiums with lower duration is therefore the preferred strategy, and Asian credits are particularly attractive in this context. Monetary policy divergence should continue to support the US dollar. We therefore retain exposure to equities and corporate bonds as favoured investments. With emerging markets currency valuations looking broadly attractive we also maintain an overweight position in emerging markets local currency bonds. The current turmoil in the Chinese stock market has the potential to present opportunities in the weeks ahead. Within Chinese stocks, there is a wide dispersion of value, for example between A shares and H Shares, small and large capitalization stocks, and financials and nonfinancials. If the overall market is driven lower by sentiment and trading activity it is likely that some very attractive buying opportunities will present themselves. 3
Current asset allocation Weightings (%) European Equity 1.29 Global Emerging Market Local Debt 11.04 Global Equity 4.34 Asian High Yield Bond 9.69 Asian Equity 70.30 Cash* 3.39 Total 100.0 * The cash position includes strategic holding and cash in the underlying asset allocation sleeves pending investment when attractive investment opportunities arise. Source: HSBC Global Asset Management as at June 2015. Data shown is for illustrative purposes only and does not constitute any investment recommendation to buy or sell in the above-mentioned asset classes. Past performance is not indicative of future returns. Note: The above weightings (%) are rounded up figures. 4
Appendix: Overview of investment process The Asia Fund aims to maximize the long-term total return through a diversified portfolio of asset classes We look to maximize potential upside through flexible asset allocation into a portfolio of equity and fixed income securities, primarily based in the Asia Pacific ex-japan region The investment process can be described as follows: Return assessment Asset allocation Portfolio construction Risk monitoring Assess risk adjusted total returns available in the different asset classes Make allocations between different asset classes with a min exposure of 70% in Asia Pacific (ex Japan) oriented assets Build portfolio through underlying asset classes managed by HSBC investment specialists Review portfolio regularly to monitor asset class and overall portfolio risk Source: HSBC Global Asset Management as at June 2015. For illustrative purposes only. Risk Disclosure The value of investments can go down as well as up and investors in the funds may not get back the amount originally invested. Changes to currency exchange rates may also cause fluctuations in the value of the funds. The funds invest a proportion of their assets in emerging markets which are, by their nature, higher risk and potentially more volatile than those inherent in some established markets. The proportion of the investment in these markets varies by fund. For a full list of risks, please refer to the Prospectus. 5
Disclaimer This document is prepared for general information purposes only and the opinions expressed are subject to change without notice. The opinions expressed herein should not be considered to be a recommendation by HSBC Global Asset Management (Singapore) Limited to any reader of this material to buy or sell securities, commodities, currencies or other investments referred to herein. It is published for information only and does not have any regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this document. This document does not constitute an offering document. Investors should not invest in the Fund solely based on the information provided in this document and should read the offering document of the Fund for details. Investors may wish to seek advice from a financial adviser before purchasing units in the fund. In the event that the investor chooses not to seek advice from a financial adviser, he should consider whether the fund in question is suitable for him. Investment involves risk. The past performance of any fund and the manager and any economic and market trends/forecasts are not necessarily indicative of the future or likely performance of the fund. The value of investments and units may go down as well as up, and the investor may not get back the original sum invested. Investors and potential investors should read the Singapore prospectus (including the risk warnings) which is available at HSBC Global Asset Management (Singapore) Limited or its authorised distributors, before investing. Changes in rates of currency exchange may affect significantly the value of the investment. HSBC Holdings plc, its subsidiaries and other associated companies which are its subsidiaries, and including without limitation HSBC Global Asset Management (Singapore) Limited (collectively, the HSBC Group ), affiliates and clients of the HSBC Group, and directors and/or staff of any of the foregoing 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 Global Asset Management (Singapore) Limited has based this document on information obtained from sources it believes to be reliable but which it has not independently verified. Care has been taken to ensure the accuracy and completeness of this presentation but HSBC Global Asset Management (Singapore) Limited and HSBC Group accept no responsibility or liability for any errors or omissions contained therein. HSBC Global Asset Management (Singapore) Limited 21 Collyer Quay #06-01 HSBC Building Singapore 049320 Telephone: (65) 6658 2900 Facsimile: (65) 6225 4324 Website: www.assetmanagement.hsbc.com/sg Company Registration No. 198602036R 6