Global House View: Market Outlook

HSBC GLOBAL ASSET MANAGEMENT September 29 Global House View: Market Outlook

Contents 1688/HSB1395a Market performance Macro-economic Picture Market Views: high level asset allocation Market Views: Equity Regional Allocation Concluding Remarks Summary of views Section 1 Section 2 Section 3 Section 4 Section 5 Section 6 2

Market Performance

Key markets performance 6 Year-to-date 52.4 1688/HSB1395a 5 43.3 42.7 Total return, in local currency (%) 4 3 2 1 15.2 13.6 16. 12.4 11.1.7 13.2 19.9 11.8 2. -2.1-1 World US Eurozone UK Japan Emerging Markets Oil World Govt Bonds Global Invest. Grade Global High Yield Emerging Debt JPY vs USD GBP vs USD EUR vs USD Equities Commodity Fixed Income Currency Source: Bloomberg, DataStream, MSCI, Merrill Lynch, Citigroup. Total Returns in local currencies. Performance from the past 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. Data as of September 3 rd 29. Note: Indices and sources used to represent each asset class shown are (from left to right): MSCI World (World equities), MSCI US (US Equities), MSCI EMU (Eurozone Equities), MSCI UK ( UK Equities), MSCI Japan (Japan Equity), MSCI Emerging Markets (Emerging Markets equity), US WTI Crude Oil spot price (Oil); Citigroup World Government Bond Index (World Government Bonds); Merrill Lynch Global Investment Grade (Global Investment Grade); Merrill Lynch Global High Yield (Global High Yield); Yen spot price vs US Dollar Spot price (Yen vs US Dollar), Sterling spot price vs US Dollar Spot price (Sterling vs US Dollar); Euro spot price vs US Dollar spot price (Euro vs US Dollar) 4

Macro-economic Picture

1688/HSB1395a Economic data continues to show signs of global stabilization China and Korea retail sales (YoY % change) US existing and pending home sales (YoY % change) 6 3 25 2 15 1 5-5 -1 Dec- Aug-1 Apr-2 Dec-2 Aug-3 Apr-4 Dec-4 Aug-5 Apr-6 Dec-6 Aug-7 Apr-8 Dec-8 Aug-9 % change YoY Korea retail sales China retail sales 2 15 1 5-5 -1-15 -2-25 Mar-2 Jul-2 Nov-2 Mar-3 Jul-3 Nov-3 Mar-4 Jul-4 Nov-4 Mar-5 Jul-5 Nov-5 Mar-6 Jul-6 Nov-6 Mar-7 Jul-7 Nov-7 Mar-8 Jul-8 Nov-8 Mar-9 Jul-9 % change YoY Existing home sales Pending home sales Japan industrial production (MoM % change) US industrial production (MoM % change) 8 6 4 2-2 -4-6 -8-1 -12-2 -.3-3.1.1-3.4-7 -8.4-1.1-9.4 1.6 5.9 5.7 2.3 1.9 6 4 2-2 -4-6 -8.8 1.3 Jun-8 Jul-8 Aug-8 Sep-8 Oct-8 Nov-8 Dec-8 Jan-9 Feb-9 Mar-9 Apr-9 May-9 Jun-9 Jul-9 Jun-8 Jul-8 Aug-8 Sep-8 Oct-8 Nov-8 Dec-8 Jan-9 Feb-9 Mar-9 Apr-9 May-9 Jun-9 Jul-9 % change MoM -4.5.8-6.2-1 -2.6-3.7-5.2 -.8-1.7 1.8-2.5 4.9 % change MoM Source: DataStream, HSBC Global Asset Management, as of September 3 rd 29 Past performance should not be seen as an indication of future returns. Any forecast, projection or target where provided is indicative only and is not guaranteed in any way

1688/HSB1395a Sep-9..but we are not clear of danger yet! US industrial capacity utilisation (%) US consumption expenditure (YoY % change) 9 Jun-7 85 8 75 7 7 65 US industrial capiticity utilisation (%) Aug-89 Jun-9 Apr-91 Feb-92 Dec-92 Oct-93 Aug-94 Jun-95 Apr-96 Feb-97 Dec-97 Oct-98 Aug-99 Jun- Apr-1 Feb-2 Dec-2 Oct-3 Aug-4 Jun-5 Apr-6 Feb-7 Dec-7 Oct-8 Aug-9 US household leverage (debt to personal income ratio) 14 13 12 11 1 9 8 7 6 5 1 8 6 4 2-2 -4 Jun-59 Nov-61 Mar-64 Aug-66 Dec-68 May-71 Sep-73 Jan-76 Jun-78 Oct-8 Mar-83 Jul-85 Nov-87 Apr-9 Aug-92 Jan-95 May-97 Oct-99 Feb-2 Jun-4 Nov-6 Mar-9 Sep-64 Dec-66 Mar-69 Jun-71 Sep-73 Dec-75 Mar-78 Jun-8 Sep-82 Dec-84 Mar-87 Jun-89 Sep-91 Dec-93 Mar-96 Jun-98 Sep- Dec-2 US household debt to personal income (in %) Consumption expenditure % YoY) Mar-5 Source: DataStream, HSBC Global Asset Management, as of September 3 rd 29. Consumption data based on constant price Past performance should not be seen as an indication of future returns. Any forecast, projection or target where provided is indicative only and is not guaranteed in any way

1688/HSB1395a Sep-9..and poor labour market conditions continue to cloud horizon for consumption US unemployment rate (%) 11 6 9.7% (Aug-9) 5.7% (Jul-9) 1 8 9 5 8 7 6 5 4 3 2 4 3 2 Sep-64 Dec-66 Mar-69 Jun-71 Sep-73 Dec-75 Mar-78 Jun-8 Sep-82 Dec-84 Mar-87 Jun-89 Sep-91 Dec-93 Mar-96 Jun-98 Sep- Dec-2 Mar-5 Jun-7 Sep-9 Unemploment rate (%) 1 Jun-7 Sep-64 Dec-66 Mar-69 Jun-71 Sep-73 Dec-75 Mar-78 Jun-8 Sep-82 Dec-84 Mar-87 Jun-89 Sep-91 Dec-93 Mar-96 Jun-98 Sep- Dec-2 Mar-5 Japan unemployment rate (%) Unemploment rate (%) Source: DataStream, HSBC Global Asset Management, as of September 3 rd 29.. Past performance should not be seen as an indication of future returns. Any forecast, projection or target where provided is indicative only and is not guaranteed in any way

GDP growth expectations for 21: a case of excessive optimism? Consensus 21 GDP forecast in March 29 vs August 29 1688/HSB1395a 1. +1. 9.3 21 Consensus GDP growth forecast (in %) 9. 8. 7. 6. 5. 4. 3. 2. 1. +.6 1.7 2.3 +.1 +.4.5.6.5.9 +.6.7 1.3 +.8 2.9 3.7 +.3 2.5 2.8 7.8 7.2 8.3. USA Eurozone UK Japan Brazil Russia India China March 21 GDP forecast August 21 GDP forecast Source: DataStream, Consensus Economics, August 29 report. Any forecast, projection or target where provided is indicative only and is not guaranteed in any way 1

1688/HSB1395a Inflation outlook remains positive to moderate Oil price vs. year-on-year percentage change 12% 1% 6 5 4 11 3 2 1-1 -2 Sep-4 Nov-4 Jan-5 Mar-5 May-5 Jul-5 Sep-5 Nov-5 Jan-6 Mar-6 May-6 Jul-6 Sep-6 Nov-6 Jan-7 Mar-7 May-7 Jul-7 Sep-7 Nov-7 Jan-8 Mar-8 May-8 Jul-8 Sep-8 Nov-8 Jan-9 Mar-9 May-9 Jul-9 CPI (% YoY) 8% 6% 4% 2% % -2% -4% -6% 16 14 12 1 8 6 US Core CPI US CPI all times -8% Nov-7 Jan-8 Mar-8 May-8 Jul-8 Sep-8 Nov-8 Jan-9 Mar-9 May-9 Jul-9 Sep-9 Oil price (y-o-y % change) Oil price (US$/brl) 4 2 US core vs. all items CPI (% YoY) UK core vs. all items CPI (% YoY) 6 5 4 3 2 y-o-y % change in oil price Oil price (US$/brl) 1 Sep-4 Nov-4 Jan-5 Mar-5 May-5 Jul-5 Sep-5 Nov-5 Jan-6 Mar-6 May-6 Jul-6 Sep-6 Nov-6 Jan-7 Mar-7 May-7 Jul-7 Sep-7 Nov-7 Jan-8 Mar-8 May-8 Jul-8 Sep-8 Nov-8 Jan-9 Mar-9 May-9 Jul-9 CPI (% YoY) UK CPI all items UK Core CPI Source: DataStream, UK Office of National Statistics, HSBC Global Asset Management, as of September 3 rd 29 Any forecast, projection or target where provided is indicative only and is not guaranteed in any way. Performance from the past should not be seen as an indication of future returns

Consensus Inflation forecasts for 29 & 21 1688/HSB1395a 29 & 21 Consensus Inflation Forecasts 12 1.8 1 8 6 4 2-2 9.2 6.2 5.9 4.4 4.3 1.8 1.8 2.1 1.7 1.2.3 -.5 -.6 -.5-1.2 US Euro Zone UK JP China India Russia Brazil 29 Consensus inflation 21 Consensus inflation Source: Consensus Economics, HSBC Global Asset Management, August 29 report. Any forecast, projection or target where provided is indicative only and is not guaranteed in any way 12

Market Views: high level asset allocation

1688/HSB1395a 15 Equity valuations no longer at bargain levels MSCI World P/E MSCI Emerging Markets P/E 38 4 33 35 28 23 18 3 25 2 15 13 8 Dec-93 Sep-94 Jun-95 Mar-96 Dec-96 Sep-97 Jun-98 Mar-99 Dec-99 Sep- Jun-1 Mar-2 Dec-2 Sep-3 Jun-4 Mar-5 Dec-5 Sep-6 Jun-7 Mar-8 Dec-8 Sep-9 MSCI 12 PE ratio 1 5 Dec-95 Sep-96 Jun-97 Mar-98 Dec-98 Sep-99 Jun- Mar-1 Dec-1 Sep-2 Jun-3 Mar-4 Dec-4 Sep-5 Jun-6 Mar-7 Dec-7 Sep-8 Jun-9 MSCI 12 PE ratio MSCI 12Mth forward PE MSCI 12Mth trailing PE MSCI 12Mth forward PE MSCI 12Mth trailing PE Source: Thomson Financial, HSBC Global Asset Management, weekly data as of September 3 rd 29 Past performance should not be seen as an indication of future returns. Any forecast, projection or target where provided is indicative only and is not guaranteed in any way.

Earnings expectations for 21: another case of excessive optimism? 1688/HSB1395a 21 Earnings Momentum (World) % change in 21 EPS forecast 1 5-5 -1-15 -2-25 -3-35 1.8 1.6 1.4 1.2 1.8.6.4.2 21 EPS upgrades/downgrades ratio 21 and 29 Earnings growth estimates Earnings growth estimates (in %) 21 29 Percentile relative to Earnings growth historical estimates (in %) estimates (1) Percentile relative to historical estimates (1) MSCI World 24.9 1% -1.4 % MSCI Germany 35.8 9% -9.2 15 MSCI Japan 15.4 5% -2. % MSCI U.S.A 21. 85% -8.5 % MSCI UK 21. 85% -34.4 % MSCI Emerging Markets 27.5 9% -7.9 % MSCI Brazil 25.1 51% -15.6 1% -4 MSCI China 2.4 92% 8.1 31% Sep-4 Jan-5 May-5 Sep-5 Jan-6 May-6 Sep-6 Jan-7 May-7 Sep-7 Jan-8 May-8 Sep-8 Jan-9 May-9 Sep-9 MSCI India 2.7 53% 15.6 4% 3mth % change 6mth % change Upgrade/downgrade ratio MSCI Russia 28.5 91% -4.4 % Source: DataStream, IBES, HSBC Global Asset Management, data as of September 3 rd 29 Past performance should not be seen as an indication of future returns. Any forecast, projection or target where provided is indicative only and is not guaranteed in any way. Notes (1): A Higher number indicates a more optimistic prospect 16

Support from cash reserve liquidity to be possibly weaker 1688/HSB1395a Net % overweight cash vs. average cash balance (%) Source: Merrill Lynch, Fund Manager Survey Global, August 19 th 29 Past performance should not be seen as an indication of future returns. 17

Government Bonds: Yield curve shift since Jan 29 1688/HSB1395a US Yield Curve shift UK Yield Curve shift 4.5 Current Yield Curve 31-Dec-8 Yield Curve 4.5 Current Yield Curve 31-Dec-8 Yield Curve 4. 4. 3.5 3.5 Bond yield (in %) 3. 2.5 2. Bond yield (in %) 3. 2.5 2. 1.5 1.5 1. 1..5.5. 3 M 6 M 1YR 3YR 2YR 5YR 7YR 1YR 3Y. 3 M 6 M 1YR 3YR 2YR 5YR 7YR 1YR 3Y Source: Thomson Financial, Bloomberg, HSBC Global Asset Management, data as of September 1 th 29 Past performance should not be seen as an indication of future returns. 18

Significant contraction in spreads but overall valuations are still attractive Investment Grade vs. High Yield Global High Yield/ Corporate EMD - OAS in bps 2, 1,8 1,6 1,4 1,2 1, 8 6 4 2 - Global High Yield Index Global Aggregate - Corporates Index Global Invest. Grade Pre-Lehman OAS 268 bps Global High Yield Pre-Lehman OAS 756 bps 6 5 4 3 2 1 EM sovereign vs. EM corporate Corporate EMD - OAS in bps 3, 2,5 2, 1,5 1, 5 - Global Corporate EMD EMD Sovereign EM D Sove re ign Pre-Lehman OAS 334 bps Global Corp. EMD Pre-Lehman OAS 843 bps 1 9 1688/HSB1395a Sep-4 Jan-5 May-5 Sep-5 Jan-6 May-6 Sep-6 Jan-7 May-7 Sep-7 Jan-8 May-8 Sep-8 Jan-9 May-9 8 7 6 5 4 3 2 1 Sep-4 EMD Sovereign - OAS in bps Jan-5 May-5 Sep-5 Jan-6 May-6 Sep-6 Jan-7 May-7 Sep-7 Jan-8 May-8 Sep-8 Jan-9 May-9 Global Aggregate Corporates/ EMD Sovereign - OAS in bps Source: Barclay s Capital, HSBC Global Asset Management, data as of September 3 rd 29. Pre-Lehman OAS is given as of September 12 th 28. Past performance should not be seen as an indication of future returns. 19

Market Views: Equity Regional Allocation

1688/HSB1395a Sep-9 Mar-9 Sep-8 Mar-8 14 13 21 12 11 1 9 8 7 6 5 4 Mar-96 Sep-96 Mar-97 Sep-97 Mar-98 Sep-98 Mar-99 Sep-99 Mar- Sep- Mar-1 Sep-1 Mar-2 Sep-2 Mar-3 Sep-3 Mar-4 Sep-4 Mar-5 Sep-5 Mar-6 Sep-6 Mar-7 Sep-7 Valuations continue to diverge but no strong signal Dispersion in global valuations Source: Thomson Financial, HSBC Global Asset Management, September 3 rd 29 Past performance should not be seen as an indication of future returns. Any forecast, projection or target where provided is indicative only and is not guaranteed in any way.

Interesting valuation-driven opportunities in defensives sector and Latam Latin America discount to Emerging Asia (based on MSCI 12 trailing PE) Global sector valuation levels (from cheapest to most expensive) 1688/HSB1395a 15% Sectors 12 month forward PE 5% Telecommunications & Services 11.5 Trailing PE discount -5% -15% -25% -35% -45% Average discount from 31-Aug-4 to31- Aug- 9 Health Care 11.8 Utilities 12.3 Energy 12.7 Consumer Staples 13.9 Financials 15.6 Industrials 16.6 IT 17.8-55% Materials 19.5 Aug-4 Dec-4 Apr-5 Aug-5 Dec-5 Apr-6 Aug-6 Dec-6 Apr-7 Aug-7 Dec-7 Apr-8 Aug-8 Dec-8 Apr-9 Aug-9 Consumer Discretionary 2.7 22 Past performance does not guarantee future results. Any forecast, projection or target where provided is indicative only and is not guaranteed in any way Source: DataStream, IBES, HSBC Global Asset Management, as of September 3 rd 29

Concluding Remarks

Concluding Remarks 1688/HSB1395a Key word remains uncertainty with any recovery in 21 likely to be fairly weak Weak growth picture poses a challenge for earnings, hence suggests cautious stance on equities Within fixed income space, preference for corporate debt on valuations grounds Moderately negative on Sterling vs. Euro 24

Summary of views

Summary of views 1688/HSB1395a Underweight Overweight Emerging Asia Equity Cyclical Sectors Equity GBP EM debt Govt Bonds Equity Latin America Equity Global Health Care / Utilities / Telecom &Svs EUR High Yield Invest. Grade High Yield Invest. Grade Cash UK Gilt UK Infl-Linked Strong Moderate Neutral Moderate Strong Source: HSBC Global Asset Management, as of September 3 rd 29 Any forecast, projection or target where provided is indicative only and is not guaranteed in any way. 26

Firm Disclosure 1688/HSB1395a The contents of this presentation are confidential and may not be reproduced or further distributed to any person or entity, whether in whole or in part, for any purpose. The material contained in this presentation is for information only and does not constitute investment advice or a recommendation to any reader of this material to buy or sell investments. It is intended for investment professionals only and not for distribution to Retail Clients. HSBC Global Asset Management (UK) Limited has based this presentation on information obtained from sources it believes to be reliable but which it has not independently verified. HSBC Global Asset Management (UK) Limited and HSBC Group accept no responsibility as to its accuracy or completeness. This presentation is intended for discussion only and shall not be capable of creating any contractual or other legal obligations on the part of HSBC Global Asset Management (UK) Limited or any other HSBC Group company. Care has been taken to ensure the accuracy of this presentation but HSBC Global Asset Management (UK) Limited accepts no responsibility for any errors or omissions contained therein. This presentation and any issues or disputes arising out of or in connection with it (whether such disputes are contractual or non/contractual in nature, such as claims in tort, for breach of statute or regulation or otherwise) shall be governed by and construed in accordance with English law. Any forecast, projection or target where provided is indicative only and is not guaranteed in any way. HSBC Global Asset Management (UK) Limited accepts no liability for any failure to meet such forecast, projection or target. Any performance information shown refers to the past and 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. Where overseas investments are held the rate of 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 established markets. Stockmarket investments should be viewed as a medium to long term investment and should be held for at least five years. This presentation is approved for issue in the UK by HSBC Global Asset Management (UK) Limited authorised and regulated by the Financial Services Authority. 17366/99/FP9-112 www.assetmanagement.hsbc.com/uk 27