HSBC Fund Managers Survey: Tracking Global Money Flows 15 December 2009 Bruno Lee, Regional Head of Wealth Management, Personal Financial Services, Asia-Pacific 1 Survey objectives To identify global liquidity flows. To understand the dynamics of allocation mix globally. To obtain fund managers views on the market. To obtain first-hand information instead of relying on time-lagged, third-party fund flow data. To help customers understand the current investment environment from a global perspective. 2
Survey methodology HSBC s partner fund managers, accounting for about 16.5 per cent of global funds under management (FUM) 1, participated in this quarterly survey: AllianceBernstein, Allianz Global Investors, Baring Asset Management, BlackRock, Fidelity Investment Management, Franklin Templeton Investments, HSBC Global Asset Management, Invesco Asset Management, Investec Asset Management, J.P. Morgan Asset Management, Prudential Asset Management, Schroders Investment Management and Société Générale. The survey analysed participating fund firms FUM breakdowns at the end of 2Q09 and 3Q09 2. The survey also collected fund managers views for 4Q09, covering a number of asset classes and markets. 1. Total global FUM at the end of 2Q09 was US$20.34 trillion (Investment Company Institute). 2. 3Q09 data are as of 30 September 2009. 3 Funds under management (FUM) in 3Q09 Aggregated FUM of managers in the survey reached US$3.72 trillion at the end of 3Q09. Survey estimates FUM recorded an increase of US$356 billion between 2Q09 and 3Q09, up 10.6 per cent. FUM (US$bn), end of 2Q09 and 3Q09 +208 1,177.8 1,386.0 +96 +14 Total increase: US$356 billion U S $ bn 868.4 964.1 268.1 +36 304.6 847.9 861.6 201.3 +2 203.1 2Q 3Q 2Q 3Q 2Q 3Q Equity funds Bond funds Balanced funds 2Q 3Q Money market funds 2Q 3Q Other funds 4
Breakdown of FUM 41 billion FUM breakdown by asset type in 2Q09 FUM breakdown by asset type in 3Q09 Money market funds 25% Other funds 7% Equity funds 35% Money market funds 23% Other funds 5% -USD273 billion Equity funds 37% Balanced funds 7% Bond funds 26% Balanced funds 8% Bond funds 26% Note: Figures may not add up to exactly 100 per cent due to rounding. 5 Estimate of contribution to FUM change by asset class Equity funds contributed the most to the FUM increase during 3Q09. Equity Funds + US$208 billion (58.5%) Bond Funds +US$96 billion (26.9%) Balanced Funds + US$36 billion (10.3%) Money Market Funds + US$14 billion (3.9%) Other Funds + US$2 billion (0.5%) Note: Figures may not add up to exactly 100 per cent due to rounding. 6
Breakdown of funds by geography US was still the dominating region in equity/bond investments in 3Q09, followed by Europe. Asia-Pacific 20% (of which Greater China is 2.9%) Regional equity funds Global emerging markets 12% ` North America 43% Regional bond funds High yield/emerging market bonds Asian bonds 6% Others 2% 2% Europe and UK bonds 11% Japan 5% Europe (including UK) 20% US bonds 79% Note: Figures may not add up to exactly 100 per cent due to rounding. 7 Change in FUM FUM growth/decline 2Q09 FUM growth/decline 3Q09 18.3% 12.5% 21.0% 12.6% Global equities North America equities Europe including UK equities Japan equities 6.2% 9.5% 17.9% 22.0% 44.3% 42.6% Asia Pacific ex-japan equities Greater China equities 9.5% 30.7% 13.8% 50.3% Emerging markets equities Global bonds 10.3% 22.6% -0.01% US bonds 4.97% 8.2% Europe including UK bonds 9.4% 25.6% High yield / EM bonds 32.2% Equity funds Bond funds 8
Market performance in 2Q09 and 3Q09 Market performance in 2Q09 Market performance in 3Q09 16.9% 20.8% Global equities North America equities 15.7% 17.5% 25.3% Europe including UK equities 22.9% 23.1% Japan equities 6.5% 33.1% Asia Pacific ex-japan equities 22.8% 35.6% Greater China equities 7.8% 34.7% Emerging markets equities 20.9% 1.8% 4.0% Global bonds US bonds 3.7% 5.8% 7.3% Europe including UK bonds 6.5% 17.2% High yield / EM bonds 12.8% Equity funds Bond funds Source: Bloomberg and Morningstar. 9 Where did the money go? On equity front, Europe (including UK) equity funds registered the biggest outflow of 5.0% among developed markets as the continuing weakness was seen in the European economy. Bond funds recorded inflows in a low interest rate environment. Estimate of net fund flow in 2Q09-2.5% Global equities -7.9% Estimate of net fund flow in 3Q09-4.3% North America equities 6.3% -4.3% Europe including UK equities -5.0% -10.5% Japan equities -0.3% 11.2% Asia Pacific ex-japan equities 7.9% 7.0% Greater China equities 15.5% Emerging markets equities 1.6% 1.7% 9.8% Global bonds 4.5% -1.8% US bonds 1.2% 0.9% 8.5% Europe including UK bonds High yield / EM bonds 3.0% 19.4% Equity funds Bond funds Source: HSBC Survey. Net fund flow is derived by subtracting market change from FUM change during the period. 10
Investor s quest for yield amidst low interest environment Inv-grade Corp Bond Yield High Yield Corp Bond Yield 3-Mo USD LIBOR % 20 15 10 5 0 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 9.95% 4.52% 0.26% Source: Bloomberg. As of Nov end 2009 11 HSBC Fund Flow Tracker: Equity Funds The pace of equity funds inflow has slowed down on concerns over the sustainability of global economic growth. 150 70,000 30,000 US$m -10,000 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 100 MSCI -50,000-90,000-130,000 50 Quarterly money flow - Equity Funds (US$) MSCI World Free HSBC Fund Flow Tracker - Equity Funds (US$) Note: The HSBC Fund Flow Tracker represents cumulative dollar value of money flows by quarter as reported in the HSBC Fund Managers Survey. 12
HSBC Fund Flow Tracker: Bond Funds Bond funds saw inflows since this year as investors quested for yield in a low interest rate environment and market uncertainties persisted. 120,000 150 90,000 60,000 30,000 US$m 0 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 100 Barclay's -30,000-60,000-90,000 50 Quarterly money flow - Bond Funds (US$) Barclay's Capital Global Bond Index HSBC Fund Flow Tracker - Bond Funds (US$) Note: The HSBC Fund Flow Tracker represents cumulative dollar value of money flows by quarter as reported in the HSBC Fund Managers Survey. 13 4Q09 asset allocation strategies by class No fund managers hold overweight position towards cash in a low interest rate environment. Given global markets have rebounded significantly since March s bottom, 56% of fund managers turn cautious towards equities while more fund managers shift to bonds with overweight position. Asset class allocation strategy Underweight Neutral Overweight Equities 11% (20%) 56% (30%) (50%) Bonds 11% (0%) (70%) 56% (30%) Cash 71% (57%) 29% (43%) 0% (0%) Notes: Figures in brackets indicate survey results from the previous quarter (3Q09). Overweight: Refers to an investment position that is larger than the generally accepted benchmark. It implies that one is more optimistic or bullish on the outlook of that position. Underweight: Refers to an investment position that is smaller than the generally accepted benchmark. It implies that one is more pessimistic or bearish on the outlook of that position. Neutral: Refers to an investment position that is equal to the generally accepted benchmark. It implies that one has no biased view on the outlook of that position. Figures may not add up to exactly 100 per cent due to rounding. 14
4Q09 Asset allocation strategies by geography On equity front, fund managers views are mixed. Overall fund managers are bullish on emerging markets but the proportion of positive fund managers has decreased. On fixed income side, fund managers favour emerging markets / high yield bonds as global economic recovery has broadened. Underweight Neutral Overweight Regional Allocation Strategy 4Q09 3Q09 4Q09 3Q09 4Q09 3Q09 Equities North America 36% 44% 45% 22% 18% Europe (incl UK) 55% 67% 36% 0% 9% Japan 60% 64% 30% 27% 10% 9% Asia Pacific ex Japan 0% 0% 30% 9% 70% 91% Emerging Markets 11% 9% 18% 56% 73% Greater China 0% 0% 43% 25% 57% 75% Bonds US Dollar 14% 11% 57% 44% 29% 44% European 14% 13% 29% 50% 57% 38% Global Emerging Markets/High Yield 14% 14% 14% 43% 71% 43% Asian Bond 25% 25% 50% Note: Figures may not add up to exactly 100 per cent due to rounding. 15 HSBC Fund Flow Tracker: Greater China Equity Funds Greater China has seen continue inflows with its strong economic fundamentals. 150 9,000 6,000 US$m 3,000 100 MSCI 0 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09-3,000 50 Quarterly money flow - Greater China (US$) MSCI China HSBC Fund Flow Tracker - Greater China (US$) Note: The HSBC Fund Flow Tracker represents cumulative dollar value of money flows by quarter as reported in the HSBC Fund Managers Survey. 16
HSBC Fund Flow Tracker: Asia-Pacific ex-japan Equity Funds Asia Pacific ex-japan equity funds attract inflows as Asian economies better weathered the financial crisis. 15,000 150 10,000 5,000 US$m 0 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 100 MSCI -5,000-10,000-15,000 50 Quarterly money flow - Asia Pacific ex Japan (US$) HSBC Fund Flow Tracker - Asia Pacific ex Japan (US$) MSCI Asia Pacific ex Japan 17 Survey Highlights Fund flows from 2Q09 to 3Q09 North America equity funds, emerging market equity funds, Asia Pacific ex- Japan equity funds and greater China equity funds posted net inflows in 3Q09, showing economic recovery has broadened. Net outflows were recorded for European (incl. UK) and Japan equity funds. Net inflows into bond funds were registered given a low interest rate environment and uncertainties in the strength of economic recovery. Fund managers views for 4Q09 No fund managers are overweight towards cash in a low interest rate environment. 56% of fund managers hold a neutral view on equities while more fund managers shift towards bonds. Within equities, overall fund managers favour Asia Pacific ex-japan, emerging markets and greater China but the proportion of positive fund managers has decreased. On fixed income side, fund managers favour emerging markets / high yield bonds with improvement of global economy. 18
Disclaimer The information obtained in the survey has been provided by third parties and the Bank has not independently verified such information. The Bank makes no guarantee, representation or warranty and accepts no responsibility or liability as to the accuracy or completeness of the information. The information or opinion expressed herein does not constitute an offer to sell and should not be construed to be a recommendation to buy or sell any securities, currencies, commodities or financial instruments referred to above. The Bank shall not be held liable for damages arising out of any person's reliance upon this information or for opinion or conclusion which the reader may draw from the information. Source of information All graphs are derived from HSBC Fund Managers Survey except for the graphs on slides 9 and 11, which are sourced from Bloomberg and Morningstar. 19