Regional Investment Perspectives

Regional Investment Perspectives March 2012 The improved scenario since early 2012 is still maintained in March. Although the crisis in Europe is still unresolved, investors sentiment improved when the Greek situation seemed to resolve and US economic data showed an improvement in the labor market. In addition, the Federal Reserve of the United States and the European Central Bank reinforced the beliefs that would keep providing liquidity to global markets. There is an upward general trend within the markets, although there have been negative rounds as a result of profit taking, which were expected after the sharp greed in the first months of the year. Risk aversion levels, as measured by VIX index, are similar to those recorded before August 5, when S&P downgraded the US credit rating. VIX Risk Aversion Index US Unemployment Rate VIX 50 10.0 9.5 45 40 35 S&P baja nota a US 9.0 8.5 30 25 20 8.0 Feb-10 Abr-10 Jun-10 Ago-10 Oct-10 Dic-10 Abr-11 Ago-11 Dic-11 15 10 Jan-11 Source: Bloomberg, HSBC Asset Management. According to JPMorgan MSCI Index, global stock markets grew by 9.0 year to date. The United States grew by 9.0 along with the rest of the world and Latin America outperformed by 13.8. However, the best performer was Emerging Europe, with a 22.4 growth. Main Stock Indicators Source: HSBC Asset Management. JPMorgan. Paula Gándara Regional Senior Investment Analyst paula.gandara@hsbc.com.ar Summary of Recommendations for Latin America: FX Renta Fija Acciones Argentina Neutral Neutral Positivo Brazil Neutral Positivo Positivo Chile Neutral Neutral Positivo Neutral Neutral Positivo México Neutral Positivo Neutral Peru Neutral Neutral Positivo Source: HSBC Asset Management. Note: These ratings are based on the information contained in the following pages. 1 of 9

Context Chile Recent economic activity news surprised on the upside. The economic activity grew by 5.5 annually in January, well above the 4.1 expected. On the other hand, retail sales in January reached 6.3, thus showing moderation in demand indicators. In addition, February s inflation, as measured by CPI, posted higher-than-expected growth of 0.4, that led the annual rate to 4.4, above the Central Bank s target range of +1/-1 3.0. In its last Monetary Policy meeting, the Central Bank decided to maintain its reference rate unchanged. Given the improved domestic and international economic data, we believe the Central Bank has enough range of action to keep the rate unchanged longer than originally planned, may be even for the rest of 2012. Argentina Argentine economy is starting to show slowdown signs, even though with strong spending indicators. Industrial production fell by 1.5 monthly but reached 2.1 annually. The economic activity index recorded 5.5 in December, also below the 6.5 expected, and recorded a monthly fall of -0.2. Consumer spending indicators are still strong, and supermarket sales increased by 16.5 annually, after having grown by 13.7 in December. Brazil During 4Q2011, GDP grew by 0.33, compared to the previous quarter, and reached a 2.7 increase throughout 2011. We expect it will recover in the first half of the year, and will grow by 5.0 on an annual basis. The Central Bank announced more Selic Reference rate cuts are to be expected in its next meetings. CPI inflation will remain above Central Bank s target. In 2011, the CPI index rose by 6.5 and our forecast for 2012 is that such index would end the year by 5.3. The Central Bank will maintain its rate reduction policy, and we expect a Selic rate of 9.5 over the next six months. Industrial production in December posted a 2.4 growth, lower than the 5.5 expected by analyst consensus. However, retail sales increased by 7.5, above the 4.7 expected. In February, the monthly Consumer Price Index posted a 0.61 increase, thus growing by 3.55 annually. During its February meeting, the Central Bank decided to raise the interest rate by 25bps to 5.25. We expect the Monetary Authority will continue with the restrictive monetary cycle. General elections to be held on July 1 st still focus on domestic issues. Domestic economic activity performs moderately in line with the gradual recovery of US economy. However, domestic demand is speeding up, driven by the recovery of credit offer to the private sector. In 2011, the economy grew by 3.9, and the monthly Economic Indicator was 3.5 in December. In addition, inflation in January was 0.71 on a monthly basis, above the 0.65 expected, and reached 4.0 annually. According to the Central Bank, this was due to temporary factors. Peru The CPI grew in February, mainly driven by higher energy and food prices (0.32 over the month), after having decreased by -0.1 the previous month. Nonetheless, y-o-y inflation has kept declining to 4.17, compared to 4.23 in January. In its last monetary policy meeting held on March 8 th, the Central Bank of Peru decided to keep the reference rate unchanged at 4.25, in line with expectations and based on inflation temporary factors and the economic momentum. 2 of 9

Stock Markets Main Latin American Stock Market Indices in Local Currency Source: HSBC Asset Management. Data as at March 12. Argentina The Argentine stock market fell by 5.0 in February, and it has fallen by 0.2 so far in March. Despite these figures, the Merval index has increased by 8.9 year to date. Over the month, the domestic market was affected by the potential nationalization of YPF. This company stock fell by 24 during the month. The stock market may still trade upwards, driven by improved global perspectives. In addition, we find Commodities, Telecommunication and Banking sectors valuable. Net earnings per share growth forecast for 2012 would be revised downwards to 21.0, compared to 30.0 growth reported in 2011. Brazil The Brazilian market has performed well so far in March, with a 0.9 growth, in line with February s good performance, since it recorded a 4.3 increase. Year to date, it has almost recovered the 2011 fall by 18.4. We have a constructive view for this market, since the short-term performance will still be influenced by the global situation. In addition, we maintain a cautious medium-term position. Net earnings per share growth forecast for 2012 would reach 13.0, compared to a 6.0 growth reported in 2011. Chile The Chilean stock market has been trading downwards in March, with a 0.2 decline, against the 6.5 increase of the IPSA index in February. Year to date, the stock market has already grown by 9.0, and it has not been able to recover the 2011 fall by 15.7. We have a constructive view towards this market in 2012. In, the IGBC index grew by 7.7 in February. So far in March, there was a 0.7 growth, reaching a 17.9 rise in 2012, thus outgrowing the -17.7 fall in the n stock market during the previous year. We hold a constructive view of this market for 2012 and expect that it will trade on the upside. In addition, we find financial and commodities sectors valuable. In addition, net earnings per share growth forecast for 2012 would reach 22.5, compared to the 30.0 growth reported in 2011. So far in March, the domestic stock index Mexbol stepped back by 0.6, whereas it grew by 1.1 in February, thus reaching a 2.6 aggregate year to date. We think that the situation of as a growing economy with moderate growth and inflation and a strong foreign position should keep on supporting this market performance. Net earnings per share growth forecast for 2012 would reach 15.7, compared to the 18.5 growth reported in 2011. Peru The IGBVL index in Peru posted a 3.6 growth in February, whereas it has already grown by 1.2 in March, thus increasing by 19.4 year to date and outgrowing the previous year s fall. We hold a very constructive approach towards the Peruvian stock market. High growth expectations for the country will benefit this stock market, mainly private consumption and construction related sectors. 3 of 9

In general, local emerging markets keep performing positively year to date. The index that measures this asset class performance in US dollars, called JPMorgan GBI, posted an 8.6 rise. Nonetheless, Latin America increased by 9.1, and Asia by 2.7. Bond Markets Main Global Domestic Markets Source: HSBC Asset Management. Data as at March 12. Brazil Domestic Bonds in BRL Year to date, the country has fallen by 5.7 in aggregate. However, January and February have been positive months for fixed income instruments in Brazil, and they have grown by 5.2 year to date. The Central Bank surprisingly cut its Selic Reference Rate by 75bps to 9.75. Shortterm rates reacted favorably. We find nominal and real instruments valuable. 7.0 6.5 6.0 5.5 5.0 4.5 4.0 3.5 Oct-10 Dec-10 Jan-11 BRL 15 BRL 12 14.0 13.3 12.5 11.8 11.0 10.3 9.5 Source: Bloomberg In March, n bonds still trade upwards like in January and February, and have accumulated an 11.9 US-dollar denominated return year to date. We consider local sovereign fixed income is still very appealing, given interest rate differentials, compared to developed economies, the strong local economy and monetary fundamentals. TES Domestic Bonds in COP 9.0 8.0 7.0 6.0 5.0 TES 14 TES 20 Aug-10 Oct-10 Dec-10 Jan-11 4 of 9

Chile Chilean sovereign bond rates modified its downward trend posted throughout 2011 and accumulated a 10.7 return in US dollars year to date. Nonetheless, so far in March, there was a 1.2 drop due to the change in investors' positions to add new sovereign issues of 20-year nominal bond and 10-year inflation-adjusted bond. In addition, betterthan-expected economic data led to increased expectations for the TPM reference rate for the next months. We find short-term inflation-adjusted bonds as well as long-term nominal bonds valuable. Peru In March, sovereign bonds grew by 1.2, and continued the increase posted in January and February, and accumulated a 4.7 growth year to date. Sovereign bonds still trade strongly. Bond yields are close to the adjusted levels of September 2011, after President Humala s market-supporting speech calmed down markets. We have an optimistic view of this market, since it will be supported by strong economic fundamentals and exchange rate stability. As at March 13, domestic bonds increased by 1.8, and reversed the 0.3 fall posted in February, accumulating a 13.1 growth year to date. These figures are totally opposite to the 3.3 drop accumulated in 2011. In February, the yield curve was overly sharp for domestic sovereign bonds, since short-term bonds went up by 10bps and long-term bonds did so by 30bps. We expect domestic market flows will support rate falls. In addition, we consider long-term bonds have more relative value than shortterm ones. MBonos Domestic Bonds in MXN 8.3 7.5 6.8 6.0 5.3 MBono 19 MBono 15 4.5 Dec-10 CURRENCIES Main Latin American Currencies Negative means appreciation. Data as at March 12. Source: HSBC Asset Management. 5 of 9

Brazil The Brazilian currency started 2012 with an appreciating trend, and appreciated by 1.7 in February. However, this situation has reverted in March and the currency depreciated by 4.6, reaching a 3.7 appreciation year to date and trading at BRL 1.80 per US dollar. In the medium term, the scenario for this currency may be more benevolent from an external perspective. Nonetheless, volatility may prevail over performance in the short term, as a result of risk aversion fluctuations. We expect that a trading level close to BRL 1.70 per US dollar will cause Central Bank interventions. The Brazilian currency and VIX Peru In February, the Peruvian currency strengthened by 0.4 and by 0.3 in March, appreciating by 1.0 year to date, and following the same trend of 2011. The Central Bank of Peru actively intervenes in the exchange market to prevent currency volatility. Therefore, we consider the currency will keep on trading within a tight range close to current values. The Peruvian currency PEN 3.3 3.2 3.1 3.0 VIX 50 BRL 2.00 2.9 2.8 40 1.90 2.7 30 20 10 VIX BRL 1.80 1.70 1.60 1.50 Mar-09 May-09 Jul-09 Oct-09 Dec-09 Feb-10 Apr-10 Jul-10 Chile In February, the CLP appreciated by 2.5, but this trend changed in March and the currency has accumulated a 1.2 depreciation. Therefore, it has appreciated by 6.6 year to date, with a CLP 485.45 level per US dollar. We expect the CLP will continue trading on the upside, mainly supported by strong fundamentals, international trade figures and interest rate differentials compared to the rest of the world. However, future market volatility due to risk aversion as a result of the global situation cannot be disregarded. Copper and CLP Cobre 4.5 4.3 4.0 3.8 3.5 3.3 Cobre CLP CLP 450 The COP increased by 9.0 year to date, 474 498 522 546 The Mexican currency appreciated by 1.0 in February, and 0.8 in March, thus accumulating a 9.0 appreciation year to date. The MXN, the most liquid currency in the region, went through high volatility rounds in 2011, since it was particularly exposed to the US economic evolution. In addition, since participates in international trade agreements, the Central Bank cannot exert controls to prevent uncertainty scenarios from affecting the currency. We expect the MXN will trade upwards given the improved international situation, and expect a value of MXN12.90 per US dollar over the next six months. The Mexican currency 15.0 14.2 13.5 12.7 12.0 11.2 Jul-09 Sep-09 Dec-09 Feb-10 May-10 Jul-10 Dec-10 ource: Bloomberg. Argentina In February, the Argentine currency S 6 of 9

appreciating by 2.4 in February and 0.2 in March. Therefore, the real value is COP 1,763.90 per US dollar. In February, the Central Bank decided to extend until August the daily purchasing program for a minimum amount of USD20 million, in order to moderate the sharp COP appreciation. We expect this appreciating trend will continue to be supported by high commodity prices, the interest rate bullish cycle and the inflows expected from foreign direct investment. We think that the COP will trade skewed upwards to reach a COP 1,740 per US dollar value over the next six months. depreciated by 0.5, and unlike the upward trend shown over the last months, the currency appreciated by 0.3 in February, thus reaching a 1.1 appreciation year to date, to ARS4.35 per US dollar. The Kirchner administration keeps on preventing currency depreciation by applying controls over the foreign exchange market. Reserves and the ARS ARS / USD 4.39 4.31 4.23 4.15 4.07 3.99 3.91 3.83 3.75 Jan-10 Mar-10 May-10 Jul-10 ARS Jan-11 Res ervas USD Bn 56 54 52 51 49 47 46 44 7 of 9

Asset Management Regional Team Mario S Felisberto Regional Chief Investment Officer mario.s.felisberto@hsbc.com.br Paula Gándara Regional Senior Investment Analyst Chile, Peru paula.gandara@hsbc.com.ar Latin America Argentina Daniel Cagnoni Chief Investment Officer Argentina daniel.cagnoni@hsbc.com.ar Alberto G Inga Chief Portfolio Manager alberto.inga@hsbc.com.ar Brazil Mario S Felisberto Chief Investment Officer Brazil mario.s.felisberto@hsbc.com.br Camilo Syllos Head of Sales Brazil camilo.h.syllos@hsbc.com.br Eduardo Jarra Economist eduardo.j.jarra@hsbc.com.br Alexandra Prieto Chief Investment Officer alexandra.prieto@hsbc.com.co Monica Contreras Head of Sales monica.contreras@hsbc.com.co Andrés Gomez Portfolio Manager andres.gomez@hsbc.com.co Erick Vega Chief Investment Officer erick.vega@hsbc.com.mx Mercedes Reyes Head of Sales México mercedes.reyes@hsbc.com.mx 8 of 9

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