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HSBC Asset Management
5 September 2003
HSBC Asset Management (Hong Kong) Limited15/F Citibank Tower, 3 Garden Road, Hong KongTelephone: +852 2284 1111 Facsimile: +852 2845 0226Web site: www.assetmanagement.hsbc.com.hk
Hong Kong Baptist University1998 Superannuation Fund
January to July 2003 investment review
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Agenda
Investment performance
Market outlook
Factors for consideration before switching
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Investment performance
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Currencies
Bonds *
Equities **
* Bonds: Salomon Smith Barney World Government Bond Indices** Equities: USA (S&P 500), UK (FTSE-100), Germany (DAX), Japan (Nikkei 225), Hong Kong (HSI), Australia (All
Ordinaries), Malaysia (KLSE Composite), Singapore (STI)Source: Thomson Financial Datastream
Market statistics: January - July 20037.3
-0.1
15.1
-1.5
J P Yen Euro UK GBP Aus Dollar
%
% Change (against HKD)
0.9 0.5 2.3 2.2 1.8
-0.8
0.79.8 14.7 17.2
-0.8 -1.1
US UK J apan Germany Canada Australia
%
Mkt price return % (Local) Mkt price return % (HKD)
5.511.5 8.7 11.5
16.2
5.39.8 8.7 11.5 14.7
4.4
20.612.6 12.6
29.320.2
US UK Germany J apan Hong Kong Australia Malaysia Singapore
%
% Change (Local) % Change (HKD)
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More suitable forrisk tolerant staff
Balanced FundMore suitable forrisk averse staff
High Growth Fund
Growth Fund
Risk (short-term volatility)
Global Money Funds (HKD/USD)
High
Low High
Stable Fund
Lo
ng
-ter
m p
ote
nti
al r
etu
rn
Risk profile of various investment options
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15.5
12.7
9.3
6.3
0.7 0.6
0
5
10
15
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High GrowthFund
Growth Fund Balanced Fund Stable Fund GMF – HKDFund
GMF – USDFund
Return %
HKBU
Source: HSBC Asset ManagementPast performance is not necessary a guide to future performance
Investment performance: January to 27 August 2003
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7.77.2 6.8 6.4
0.6 0.5
8.4 8.47.2
6.4
0.5 0.5
8.68.1
7.67.1
0.00.6
0
5
10
15
High GrowthFund
Growth Fund Balanced Fund Stable Fund GMF – HKDFund
GMF – USDFund
Return %
HKBU Wyatt Median Benchmark
Investment performance: January to June 2003
Source: HSBC Asset Management, Thomson Financial DatastreamPast performance is not necessary a guide to future performance
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0.3 0.1
9.1
16.7 17.2
28.7
-15
-5
5
15
25
35
High GrowthFund
Growth Fund Balanced Fund Stable Fund GMF – HKDFund
GMF – USDFund
Return %
HKBU (3/99)
Investment performance since inception (Mar 98 to July 03)
Source: HSBC Asset Management, Thomson Financial DatastreamPast performance is not necessary a guide to future performance
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Equities
Hong Kong 30.0 25.1 24.0 20.5 17.0 13.5 10.0 8.5
Japan 12.0 9.1 9.0 6.9 6.5 4.4 4.0 2.4
Other Asia Pac. 12.0 18.0 9.0 14.1 6.5 10.1 4.0 6.7
N. America 18.0 19.3 14.0 16.0 10.0 10.9 6.0 7.3
Europe 18.0 18.4 14.0 14.9 10.0 10.3 6.0 6.8
Total 90.0 89.9 70.0 72.4 50.0 49.2 30.0 31.7 0.0
Bonds
US Bonds 1.6 1.1 5.7 4.0 7.4 13.6 10.1
Non US Bonds 5.4 4.8 19.3 16.9 31.6 46.4 43.1
Total 7.0 5.9 25.0 20.9 45.0 39.0 60.0 53.2 0.0
Cash 3.0 4.2 5.0 6.7 5.0 11.8 10.0 15.1 100.0
Equities
Hong Kong 30.0 25.1 24.0 20.5 17.0 13.5 10.0 8.5
Japan 12.0 9.1 9.0 6.9 6.5 4.4 4.0 2.4
Other Asia Pac. 12.0 18.0 9.0 14.1 6.5 10.1 4.0 6.7
N. America 18.0 19.3 14.0 16.0 10.0 10.9 6.0 7.3
Europe 18.0 18.4 14.0 14.9 10.0 10.3 6.0 6.8
Total 90.0 89.9 70.0 72.4 50.0 49.2 30.0 31.7 0.0
Bonds
US Bonds 1.6 1.1 5.7 4.0 7.4 13.6 10.1
Non US Bonds 5.4 4.8 19.3 16.9 31.6 46.4 43.1
Total 7.0 5.9 25.0 20.9 45.0 39.0 60.0 53.2 0.0
Cash 3.0 4.2 5.0 6.7 5.0 11.8 10.0 15.1 100.0
HKBU HKBU HKBU HKBU HKBU GMFHigh Growth Growth Balanced Stable HKD / USD
Bmk Fund Bmk Fund Bmk Fund Bmk Fund Fund
(%) (%) (%) (%) (%) (%) (%) (%) (%)
Asset allocation – 31 July 2003
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Market outlook
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US
– Due to the impact of combined monetary and fiscal stimulus, economic data continue to improve (i.e. Q2 GDP, ISM, durable goods, factory orders)
– Overall corporate earnings results were better than expected
– Expecting a stronger growth in H2 driven by short-term rebuilding of inventories
– High unemployment rate remains a concern
Outlook
– Neutral in US
– GDP growth forecast for 2003 (+2.2%); 2004 (+3.2%)
Data as at 5 August 2003
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Euroland
– Economy remains weak but with improving outlook such as household confidence, IFO & ZEW Surveys
– Growth has been downgraded further– Earnings growth improved, driven by a cost cutting rather than top line growth
UK
Two-tier economy remain:– Robust consumer spending holding up despite some weakness in the housing market– Manufacturing PMI indicates the sector is picking up
Outlook– Euroland - moderate underweight; UK - moderate overweight– GDP forecast (2003) : Euroland (+0.7%); UK (1.8%)
Data as at 5 August 2003
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Japan
– Experiencing cyclical upswings after years of stagnation
– Tankan Survey showed slight improvement, while business conditions were broadly unchanged in the non-manufacturing sector
– Revised up our earnings growth forecasts to mid-single digit
– Foreign fund managers reducing underweight position
– Structural problems remain: rising unemployment and low capacity utilisation
Outlook
– Underweight in Japan
– GDP growth forecast (2003) : 1.0%
Data as at 5 August 2003
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Asia ex-Japan
– The economic situation in Asia remains relatively positive
– Driven by higher beta, lower quality stocks, this may lead to consolidation
– Monetary and fiscal policies remain supportive
– Asian economies to benefit from outsourcing trend
– Undemanding valuation
Outlook
– Moderate overweight in Asia (ex Japan)
Data as at 5 August 2003
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Asia ex-Japan Hong Kong (neutral)
– Market driven by ample liquidity and improving sentiment– Positive news flow: relaxation of travel arrangement for mainland residents, CEPA initiatives & the
construction of bridge linking HK / Macau / China serve as additional catalysts– Remain cautious on the back of subdued economic fundamentals
Korea (overweight)– Liquidity and positive performance in US market - main driver of the market– Momentum remains positive as exports continue to be the major growth engine– Monetary & fiscal policy remain accommodative – Earnings upgrade to be witnessed in key technology companies
Taiwan (overweight)– Favourable liquidity environment and the potential MSCI review of Limited Investability Factor (LIF)
of Taiwan serve as the major drivers to the market – Pre-election pump-priming measures provide further boost to the economy and market sentiment – Concerns: valuation look stretched for selective tech stocks & need to see upward revisions in
corporate earnings for a sustainable rally
Data as at 5 August 2003
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Bond market outlook
– U.S. : On the back of Greenspan’s recent upbeat comments and better-than-expected economic data reinforced our belief that the rate-cutting cycle has come to an end. We expect no change in interest rates in the 3-month and 12-month period. Our short-to-intermediate view is for falling yields.
– Euroland : As economic data continue to display softness, the ECB is expected to reduce official rates by 0.25% in 3 months. Gradual economic recovery forecast for 2004, coupled with low inflation, should keep rates on hold at 1.75% for the 12-month period. With risk premium and flow / market positions becoming more positive, we turn more positive on Euroland bonds.
– Japan : We see little chance of any move in short-term interest rates in both the short- and medium-term. Bonds are now more equally valued to equities and real interest rates have risen; we have retained our negative view on the market.
Data as at 5 August 2003
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Asset class rating :
JapanEuropeUS,Canada,Australia,
HK
Equity market rating :
UK,Asia (ex Jp/HK),
GEM
Most preferred market(s)
Neutral UnderweightOverweight ModerateOverweight
ModerateUnderweight
OverweightOverweight NeutralEquities, Bonds &
Cash
NeutralEquities, Bonds &
Cash
UnderweightUnderweight
Least preferred market(s)
HSBC Asset Management Investment Strategy
Data as at 5 August 2003
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Explanatory notes and disclaimers
The document is confidential and is supplied to you solely for your information. This document should not be reproduced or further distributed to any person or entities, whether in whole or in part, for any purpose.
Please also note that investment involves risk and past performance is not indicative of future performance.
The opinions expressed herein should not be considered to be a recommendation by HSBC Asset Management (Hong Kong) Limited to any reader of this material to buy or sell securities, commodities, currencies or other investments referred to herein. HSBC Asset Management (Hong Kong) Limited, its ultimate and intermediate holding companies, subsidiaries, affiliates, clients, directors and/or staff 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 Asset Management (Hong Kong) Limited has based this document on information obtained from sources it believes to be reliable but which it has not independently verified. HSBC Asset Management (Hong Kong) Limited and the HSBC Group make no guarantees, representations or warranties and accept no responsibility or liability as to its accuracy or completeness. Information in this report is subject to change without notice.
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HSBC Asset Management (Hong Kong) Limited
HSBC Asset Management
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Factors for consideration before switching
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Principles of retirement investment3 major types of investment instruments
Equities– Ownership of companies
– Returns from dividends & capital appreciation
– High short term volatility
Bonds– Debt instruments issued by governments/corporations
– Returns from interest payments
– Short term volatility lower than equities
Cash– very low short term volatility
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Do not time / chase markets!Do not time / chase markets!
Please remember
Identify personal factors– Establish risk / return profile
– Understand investment choices
– Make investment decisions using a long-term approach
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Different people have different needs!!Different people have different needs!!
A guide to investing
Factors to consider– Years to retirement
– Other personal assets
– Planned uses for retirement assets
– Financial and other personal circumstances
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Therefore Therefore
Different people have different needs
Investment choices are provided for different risk profilesInvestment choices are provided for different risk profiles
Range of investment choices