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Emerging Markets Debt · Emerging Markets Debt Balancing risks with yield potential February 2017...
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Emerging Markets Debt
Balancing risks with yield potential
February 2017
Authored by:
Nishant Upadhyay, Head of Global Emerging Markets Debt
Binqi Liu, Senior Portfolio Manager, Emerging Markets Debt
Amanda La Marca, Senior Global Emerging Markets Debt Product Specialist
This publication is intended for Professional Clients
only and should not be distributed to or relied upon
by Retail Clients. The information contained in this
publication is not intended as investment advice
or recommendation. Non contractual document.
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EMD: Balancing risks with yield potential
Introduction 2
Trumponomics: A reality check 3
Rationalizing the US rate hikes 6
Relative value within EMD 9
Conclusion 12
Introduction
Emerging markets debt (EMD) posted impressive returns in 2016 in both
external debt (+10.19% JPM EMBIG) and local debt (+9.94% JPM GBI-EM GD),
driven by several factors: the recovery in oil, low developed market (DM) yields
and risk-driven flows into the asset class. Through October 2016, emerging
markets (EM) rallied by 13.35% in hard currency (JPM EMBIG) and 16.08% in
local debt (JPM GBI-EM GD). However, the November US election stalled the
rally given the negative impact Trump’s protectionist and anti-trade rhetoric
would have on EM countries. As a result, EMD assets experienced a spike in
volatility in the aftermath of the Trump victory and flows to the asset class
reversed with approximately $15 billion of outflows through the end of the year.
Looking ahead to 2017, uncertainty surrounding the Trump administration and
the future path of US interest rates will likely result in elevated levels of volatility
in EMD over the course of the year. While this volatility should warrant caution in
certain segments of the asset class, it also has the potential to create pockets of
opportunity. In this article, we will discuss the areas where we think there may be
attractive opportunities in EMD and where there are possible risks. It is important
to put these risks into perspective when accounting for the attractive yields in the
asset class to see that there is potential to generate positive returns despite the
future risks including higher US interest rates.
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EMD: Balancing risks with yield potentialTrumponomics: A reality check
A key topic of discussion for 2017 is the potential implications of the Trump
presidency and what that means for EM countries. While Trump’s campaign
focused on anti-trade and protectionist views, considerable uncertainty is
surrounding the transition of his rhetoric to implemented policies. Let’s examine
the potential impact of some early promises.
Infrastructure build out
Trump has promised large infrastructure spending and tax cuts to promote US
GDP growth. However, achieving both of these goals would require a form of
deficit financing that goes against the historical views of the Republican
Congress. If the infrastructure spending agenda does become a reality, the
question then becomes the timeframe. If the spending is planned over a longer
time horizon, the benefit to the US economy would clearly be lessened in the
short- to medium-term. Another factor that may impact the potential benefit of
the infrastructure spending is that these programs take time to plan and execute.
While the market has already priced in the positive effect of the increased
spending as a stimulus for US growth, there may be market disappointment if
this agenda gets hijacked by delays or is planned over ten or more years.
In the context of EM, it is important to highlight the positive impact US
infrastructure spending could have on markets. The US would likely have to find
external resources for the commodity-intensive infrastructure build out as most
commodities are not produced in the US, apart from energy, which could benefit
EM economies.
Protectionist views
Trump’s protectionist rhetoric has been rather confrontational towards large EM
trading partners, such as China and Mexico, and has included threats to
implement large tariffs on imports. However, some of the largest trade partners
of the US also represent its largest creditors. Imposing a 35-45% tax barrier on
them will be difficult in an environment where the US may issue more debt to
support infrastructure spending
In the context of
EM, it is important
to highlight the
positive impact US
infrastructure
spending could
have on markets
The commentary and analysis presented in this document reflect the opinion of HSBC Global Asset Management on the
markets, according to the information available to date. They do not constitute any kind of commitment from HSBC Global
Asset Management. Consequently, HSBC Global Asset Management will not be held responsible for any investment or
non-investment decision taken on the basis of the commentary and/or analysis in this document.
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EMD: Balancing risks with yield potentialTrumponomics: A reality check
Anti-trade rhetoric
If anti-trade sentiment becomes reality, it is critical to quantify its potential impact
on EM countries. To do this, we can start by looking at the size of the US as a
buyer of exports from EM countries. With the exception of Mexico, exports to the
US contribute a small percentage to the GDP of individual EM countries (Figure
1). When looking at Mexico, remember that trade is a two-way street and that
Mexico imports from the US as well. Mexico plays a key role in the US value
chain, especially in the automobile industry. It would take years for many US
corporations to rethink and implement alternative strategies for shifting elements
of the complex value chain embedded in Mexico. Certainly future foreign direct
investment (FDI) to Mexico may be impacted, but that will not undo the large
flows they have received over the past 10+ years.
Source: HSBC Global Asset Management, Bloomberg as of December 2016.
Figure 1: Export to the US in terms of GDP percentage
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
0%
5%
10%
15%
20%
25%
30%
Export to US/GDP % Export/GDP % (rhs)
The commentary and analysis presented in this document reflect the opinion of HSBC Global Asset Management on the
markets, according to the information available to date. They do not constitute any kind of commitment from HSBC Global
Asset Management. Consequently, HSBC Global Asset Management will not be held responsible for any investment or
non-investment decision taken on the basis of the commentary and/or analysis in this document.
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0,0%
0,0%
0,0%
0,1%
0,1%
0,1%
0,2%
0,2%
0,3%
0,4%
0,5%
0,5%
0,6%
0,6%
0,8%
1,0%
1,0%
1,3%
1,4%
3,1%
Kazakhstan
Ukraine
Poland
Indonesia
Hungary
Peru
Turkey
China
Philippines
Russia
South Africa
Malaysia
Argentina
Lebanon
Colombia
Venezuela
Chile
Brazil
Panama
Mexico
US FDI as % of GDP - Top 20 EM countries in EMBIG
EMD: Balancing risks with yield potentialTrumponomics: A reality check
If we dig a bit further into FDI, we see that, as an investor, the US has limited
impact on EM countries: the top 13 countries receiving US FDI are DM countries
(Figure 2). Mexico is the top ranking EM country at 15th on the list with $36
billion. While this may seem high, when we look at what the $36 billion actually
represents, we see that it only accounts for 3% of Mexico’s GDP. Overall, the US
invests only a limited amount in EM economies, so the potential effect of stricter
US trade policy on EM countries may be less than the market is anticipating.
Source: HSBC Global Asset Management, Bloomberg as of December 7, 2016.
Figure 2: Distribution of US FDI
15
15
18
21
24
25
27
28
30
31
36
38
43
45
47
51
61
137
144
201
251
319
342
414
569
Hong Kong
Luxembourg
Other
China
Brazil
Israel
UAE
Bermuda
Norway
Singapore
Mexico
Korea,…
Belgium
Australia
Italy
Sweden
Spain
Netherlands
Switzerland
Ireland
France
Germany
Canada
Japan
UK
Top 20 US FDI destinations (US$ bn)
The commentary and analysis presented in this document reflect the opinion of HSBC Global Asset Management on the
markets, according to the information available to date. They do not constitute any kind of commitment from HSBC Global
Asset Management. Consequently, HSBC Global Asset Management will not be held responsible for any investment or
non-investment decision taken on the basis of the commentary and/or analysis in this document.
Korea
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-4
-2
0
2
4
6
8
Perc
ent (%
)
US Nominal GDP Growth yoy (%) UST 10y Yield
Many investors have voiced concerns about the pressures of rising US Treasury
rates on EM countries. US 10-year Treasury yields rose sharply in the last two
months of 2016 and ended the year at 2.44%. Given the inflationary measures
proposed by Trump, these yields are likely to continue increasing going forward.
But how much further can rates rise in the near-term? While this depends on US
GDP growth and inflation rates, putting things in perspective can help better
understand the trajectory.
Learning from history
Over the past 6-7 years, US nominal GDP has ranged between 2.5% and 5.0%,
while the yield on US 10-year Treasuries has ranged between 1.5% and 3.5%.
We believe if US GDP growth were to rise toward the upper bounds of this range
over the next few years, which is a distinct possibility, there is a strong likelihood
that the US 10-year Treasury yield would also increase to the upper band of its
range to 3.5%. While this would mean a 100 basis point (bps) increase from
today’s levels, it is still far lower than the 4.5-5.5% that some market participants
are citing. To put this fear into historical context, 4.5-5.5% 10-year Treasury
yields are higher than the yields seen in the early 2000’s, when US nominal GDP
growth was at 7% and the country was at the peak of its housing boom. We
believe that, given this historic range, there is limited potential for US Treasury
yields to blow out; instead, we think, over the next three years, 10-year yields are
likely to stay within more recent norms, between 2-4%.
Source: HSBC Global Asset Management, Bloomberg as of December 31, 2016.
EMD: Balancing risks with yield potentialRationalizing the US rate hikes
Figure 3: US GDP growth and US Treasury Yields have been closely tied
We think, over the
next three years,
10-year US
Treasury yields are
likely to stay within
more recent norms,
between 2-4%.
The commentary and analysis presented in this document reflect the opinion of HSBC Global Asset Management on the
markets, according to the information available to date. They do not constitute any kind of commitment from HSBC Global
Asset Management. Consequently, HSBC Global Asset Management will not be held responsible for any investment or
non-investment decision taken on the basis of the commentary and/or analysis in this document.
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Local Debt - Annualized 3-Year returns
Scenario analysis – EM local debt returns versus DM returns
bp change Germany Japan US EM Local
-100 4.78 3.54 6.25 9.97
-50 3.20 1.95 4.79 9.16
-25 2.41 1.15 4.07 8.76
0 1.61 0.35 3.34 8.35
25 0.82 -0.44 2.61 7.94
50 0.03 -1.24 1.89 7.54
100 -1.55 -2.84 0.43 6.72
150 -3.14 -4.43 -1.02 5.91
200 -4.72 -6.02 -2.48 5.10
EMD: Balancing risks with yield potentialRationalizing the US rate hikes
EMD in a rising rate environment
Though it is true that a rise in US Treasury yields will have a negative impact on EMD, we feel the degree of the
impact may not be as drastic as some imagine. We have conducted numerous scenario analyses for both EM
local debt and EM hard currency debt to determine the potential impact of US rate hikes on each asset class and
to help determine returns EMD investors can expect to achieve over the next few years.
Let’s begin with EM local debt. We evaluated the annualized 3-year return for the EM local debt index (JPM GBI-
EM GD) under various scenarios of rate increases, from 100 bps cuts to 200 bps hikes (left column of Figure 5),
in DM countries. We also assumed -50 bps of yield compression for the EM local index because the current gap
between the yields of EM and G3 is at historic peaks and there is a likelihood for some retracement. Applying
the assumptions that DM overnight interest rates were to rise by 100 bps over the next three years and the yield
index were to compress by 50 bps, EM local debt would achieve an annualized return of 6.72% (see red box in
Figure 5). In contrast, Germany and Japan would experience negative returns and the US would have close to
flat returns. Furthermore, this scenario analysis does not take into account EM local currencies, which, with
today’s extremely cheap valuations, could provide an additional boost to EM local debt returns.
Source: HSBC Global Asset Management, Bloomberg of January 17, 2017.
Figure 5: EM vs DM historical yields
Source: HSBC Global Asset Management, Bloomberg of January 2017.
-
2
4
6
8
10
Yiel
d (
%)
G-3 blended rate Difference EM local yield
The commentary and analysis presented in this document reflect the opinion of HSBC Global Asset Management on the
markets, according to the information available to date. They do not constitute any kind of commitment from HSBC Global
Asset Management. Consequently, HSBC Global Asset Management will not be held responsible for any investment or
non-investment decision taken on the basis of the commentary and/or analysis in this document.
The performance figures displayed in the document relate to the past and past performance should not be seen as an
indication of future returns.
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Hard Currency - Annualized 3-Year returns
bp change Germany Japan USEM Hard
Currency
-100 4.78 3.54 6.25 8.99
-50 3.20 1.95 4.79 7.90
-25 2.41 1.15 4.07 7.36
0 1.61 0.35 3.34 6.81
25 0.82 -0.44 2.61 6.27
50 0.03 -1.24 1.89 5.73
100 -1.55 -2.84 0.43 4.64
150 -3.14 -4.43 -1.02 3.55
200 -4.72 -6.02 -2.48 2.47
EMD: Balancing risks with yield potentialRationalizing the US rate hikes
Our analysis showed, assuming a 100 bps rise in DM overnight rates over the
next three years, EM hard currency debt would deliver a potential 3-year
annualized return of 4.64% (see red box in Figure 6). So, even if US Treasury
yields continued to rise over the next 3-years, the asset class could still
potentially deliver attractive relative returns as the current level of EM yields
provide a substantial cushion against US rate hikes. Even in the worst case
scenario, if EM hard currency spreads increased by 100 basis points, the JPM
EMBIG index could still potentially post a positive annualized 3-year return of
2.67%.
Figure 6: Scenario analysis – EM hard currency returns versus DM returns
We performed a similar exercise with the EMD hard currency index (JPM
EMBIG). We analyzed its potential annualized 3-year returns versus a range of
DM 10-year bonds, assuming no spread changes to the index.
Source: HSBC Global Asset Management, Bloomberg of January 2017.
The commentary and analysis presented in this document reflect the opinion of HSBC Global Asset Management on the
markets, according to the information available to date. They do not constitute any kind of commitment from HSBC Global
Asset Management. Consequently, HSBC Global Asset Management will not be held responsible for any investment or
non-investment decision taken on the basis of the commentary and/or analysis in this document.
The performance figures displayed in the document relate to the past and past performance should not be seen as an
indication of future returns.
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EMD: Balancing risks with yield potentialRelative value within EMD
EMD valuations have shifted with the recent spike in volatility and heightened
investor sensitivity to risk in the asset class. In some cases, we see compelling
investment opportunities, whereas, in others, we think prices look expensive in
terms of the future risks ahead. Here we examine valuations across three main
EMD segments: hard currency debt, local rates and local currencies.
Hard Currency Debt
Following the US election, EM hard currency index spreads widened by more
than 50bps (JPM EMBIG) but have since retraced back to the tight levels seen
prior the election.
Figure 7: EM Hard Currency Spreads (JPM EMBIG)
Source: HSBC Global Asset Management, Bloomberg of December 2016.
As a result, hard currency spread levels do not appear cheap. However, it is
important to view these spread levels in a wider EM context. First, it should be
noted that tighter spread levels may be somewhat warranted given the improved
fundamental picture in many EM countries. For many EM countries with floating
currency exchange rate regimes, the significant drop in commodity prices over
the last few years resulted in weaker currency levels and sharp falls in their
respective terms of trade. As a result of the weaker currencies, the terms of trade
have begun to stabilize and, in many cases, current account balances are
starting to improve. The second point of note is that while spreads today may not
appear attractive compared to historic levels, EM spreads are trading at a
significant premium to DM assets, especially in the investment grade sector. The
spread differential should contribute to demand for EMD assets going forward.
240
290
340
390
440
490
540
Spre
ad L
evel (B
ps)
Tapering
Decline in Oil Prices
Oil Rebound
Trump
Inflows into Riskier Assets
The spread
differential
between EM and
DM should
contribute to
demand for EMD
assets going
forward.
The commentary and analysis presented in this document reflect the opinion of HSBC Global Asset Management on the
markets, according to the information available to date. They do not constitute any kind of commitment from HSBC Global
Asset Management. Consequently, HSBC Global Asset Management will not be held responsible for any investment or
non-investment decision taken on the basis of the commentary and/or analysis in this document.
10 Non contractual document
EMD: Balancing risks with yield potentialRelative value within EMD
Local Rates
Following the post-election sell-off in November, we have become increasingly
positive on EM local rates as we believe there are pockets of opportunity despite
the potential for further US interest rate hikes.
As seen in Figure 8, several EM countries have hiked rates significantly (dark
blue bars) since the 2013 taper tantrum, and, in many cases, market participants
are anticipating rates increasing even further over the next year (light bars). For
example, Mexico has increased policy rates by close to 200 bps since 2013 and
the market is pricing in further hikes over the next year due to the Fed’s agenda
to continue increasing rates. In contrast, the market is expecting rate cuts in
Brazil, Colombia and Russia in the next year.
Figure 8: Global policy rate movements
Source: HSBC Global Asset Management, Bloomberg as of December 2016.
We combined the interest rate movements that have already taken place with
what is priced in over the next twelve months to evaluate the value potential
across the different EM countries (gray line). Based on this, we believe there are
attractive valuations in many EM countries purely from a rate perspective as the
bond prices have cheapened in countries like Turkey and Brazil. On the other
hand, there are also some countries that appear expensive. Hungary, for
instance, has experienced over 300 bps of rate cuts so yields have compressed
and there is no expectation for future hikes. As we can see, in the EMD local rate
segment, investors must understand and monitor relative value positions.
-600
-400
-200
0
200
400
600
800
Polic
y R
ate
Change (
bps)
Policy rate change since 12/31/2012 Policy rate change priced in 1 year Sum
There are attractive
valuations in many
EM countries
purely from a rate
perspective as the
bond prices have
cheapened
The commentary and analysis presented in this document reflect the opinion of HSBC Global Asset Management on the
markets, according to the information available to date. They do not constitute any kind of commitment from HSBC Global
Asset Management. Consequently, HSBC Global Asset Management will not be held responsible for any investment or
non-investment decision taken on the basis of the commentary and/or analysis in this document.
11 Non contractual document
EMD: Balancing risks with yield potentialRelative value within EMD
Local Currency
Select EM currencies have cheapened meaningfully over the past few years in
terms of the real effective exchange rates (REER)1 versus their 5-year average
(horizontal axis) resulting in attractive valuations. In addition, these currencies
offer high levels of carry2 in many cases (vertical axis).
Figure 9: Valuations of EM local currencies
Source: HSBC Global Asset Management, Bloomberg as of December 31, 2016.
We think these EM currencies, such as the Brazilian real, Turkish lira and
Russian ruble (circled in the upper left of Figure 9) have represented particularly
compelling opportunities over the past year. In addition to attractive valuations
and high yields, the sharp depreciation in these currencies has translated into an
improving fundamental picture in select countries as we see trade balances and
current accounts stabilizing and, in some cases, improving.
In the other circle, we identified currencies that have not adjusted over this same
period and, as a result, valuations remain expensive. Many of these expensive
currencies also offer very low yield and, in some cases, negative carry. Most of
these currencies are Asian and Eastern European currencies where we hold
underweight positions in our portfolios. Similar to local rates, the theme of
relative value is critical in evaluating local currencies.
1The real effective exchange rate: the weighted average of a country's currency relative to an index or basket of
other major currencies, adjusted for the effects of inflation.
2Carry refers to the implied money market rate earned on a long currency position.
We think these EM
currencies, such as
the Brazilian real,
Turkish lira and
Russian ruble have
represented
particularly
compelling
opportunities over
the past year
TRY
BRL
RUB
ZARCOP
MXNIDR INRCNY
PEN
CLP
MYRPHP
PLN THBSGD KRW
RONHUF ILS TWD-2%
0%
2%
4%
6%
8%
10%
12%
-35,0% -30,0% -25,0% -20,0% -15,0% -10,0% -5,0% 0,0% 5,0%
Carr
y
5y REER Adjustment
The commentary and analysis presented in this document reflect the opinion of HSBC Global Asset Management on the
markets, according to the information available to date. They do not constitute any kind of commitment from HSBC Global
Asset Management. Consequently, HSBC Global Asset Management will not be held responsible for any investment or
non-investment decision taken on the basis of the commentary and/or analysis in this document.
12 Non contractual document
EMD: Balancing risks with yield potentialConclusion
Following the presidential election in the US, the landscape for EM countries has
been altered due to uncertainty surrounding US policies and their implications on
EM countries. Adding to these risks is the future path of US Treasury yields if
Trump’s policies do in fact lead to stronger US growth and inflation. Other
important risks for EMD include the elections across Europe, muted demand for
oil, as well as elections in key EM countries.
While these risk factors and further US interest rate hikes heighten market
uncertainty and potential volatility for EMD in 2017, the attractive yields offered
by EMD assets compared to DM assets can absorb some of the impact of these
risks. As seen in our scenario analyses, even in a rising rate environment, EM
hard currency and local debt asset classes could provide positive annualized
returns over the next three years.
As we manage our portfolios in the upcoming year, we will focus on determining
how EM countries will perform in this rising rate environment and which
segments of the asset class have the potential to outperform. With a multitude of
risks and uncertainties facing EMD, tactical trading and active management is
required when investing in the asset class to identify attractive opportunities in
areas that have repriced and offer more attractive valuations and to take a
cautious view towards areas that have not adjusted and appear expensive.
The commentary and analysis presented in this document reflect the opinion of HSBC Global Asset Management on the
markets, according to the information available to date. They do not constitute any kind of commitment from HSBC Global
Asset Management. Consequently, HSBC Global Asset Management will not be held responsible for any investment or
non-investment decision taken on the basis of the commentary and/or analysis in this document.
Any forecast, projection or target where provided is indicative only and is not guaranteed in any way. HSBC Global Asset
Management accepts no liability for any failure to meet such forecast, projection or target.
13 Non contractual document
Authors?
Nishant Upadhyay
Head of Global Emerging Markets Debt
Mr. Upadhyay, as Head of the Global Emerging Markets Debt team, is responsible
for the Global Emerging Markets Debt portfolios. He joined the team in September
2015 from PIMCO where he was an emerging markets and global credit portfolio
manager for nine years. During his time at PIMCO, Mr. Upadhyay spent time as an
Associate to PIMCO’s Global Bond portfolio management team with exposure to
rates and currency products before managing emerging markets debt portfolios
and diversified income portfolios (hybrids of EMD and credit). Prior to joining the
firm, Mr. Upadhyay held positions at Citibank and ABN AMRO Bank and has been
working in the financial industry since 2000. Mr. Upadhyay has a Bachelor of
Science from the Hindu College, Delhi University (India) and a MBA from the
Indian Institute of Management, Indore, India.
Binqi Liu
Senior Portfolio Manager
Mrs. Liu is a senior portfolio manager for the Global Emerging Markets Debt team.
She joined the firm as an analyst in June 2008 focusing on sovereign analysis and
local markets developing the team's country credit and currency valuation models.
Mrs. Liu became a portfolio manager in January 2011 when she was pointed as
Co-portfolio manager for our flagship local funds. Mrs. Liu was relocated to HSBC
Global Asset Management UK in February 2015, taking time zone and geographic
advantage of research and trading hours, as well as broader support of global fixed
income platform in London. Besides her role as a portfolio manager, Mrs. Liu
currently also serves as the economist of the Global Emerging Markets Debt team,
responsible for global macro and sovereign economic research for both local and
external markets. Before joining the firm, she worked as a research assistant for
Robert A. Mundell, Nobel Prize winner in Economics, June 2007. Mrs. Liu has a
B.A. from Hunan University in China and an M.P.A. from Columbia University. Mrs.
Liu is fluent in Mandarin and Cantonese.
Amanda J. La Marca
Senior Global Emerging Markets Debt Product Specialist
Ms. La Marca is a senior product specialist for the Global Emerging Markets Debt
capabilities. Prior to her current role, Ms. La Marca was a client service specialist
for HSBC Global Asset Management, responsible for servicing US-based client
accounts across various fixed income products. Before joining HSBC in April 2008,
she worked for PricewaterhouseCoopers LLP. in the systems and process
assurance division. Ms. La Marca has been working in the industry since 2006.
She holds a BS from the University of Maryland.
14 Non contractual document
Important information?
Firm Disclosure
This publication is distributed by HSBC Global Asset Management (France) and is only intended for professional investors as
defined by MiFID. It is incomplete without the oral briefing provided by the representatives of HSBC Global Asset Management
(France). The information contained herein is subject to change without notice. All non-authorised reproduction or use of this
commentary and analysis will be the responsibility of the user and will be likely to lead to legal proceedings. This document has
no contractual value and is not by any means intended as a solicitation, nor a recommendation for the purchase or sale of any
financial instrument in any jurisdiction in which such an offer is not lawful.
The commentary and analysis presented in this document reflect the opinion of HSBC Global Asset Management on the
markets, according to the information available to date. They do not constitute any kind of commitment from HSBC Global Asset
Management (France).Consequently, HSBC Global Asset Management (France) will not be held responsible for any investment
or disinvestment decision taken on the basis of the commentary and/or analysis in this document. All data from HSBC Global
Asset Management unless otherwise specified. Any third party information has been obtained from sources we believe to be
reliable, but which we have not independently verified.
The performance figures displayed in the document relate to the past and past performance 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. Capital is not guaranteed.
Investments in emerging markets are by their nature higher risk and potentially more volatile than those inherent in established
markets. Investors are reminded that investments in High Yield issues represent a higher risk of default compared to Investment
Grade issues. Investments in Credit Default Swaps (CDS) are less liquid than standard bond issues. Fluctuations in the rate of
exchange of currencies may have a significant impact on performance. Investment in Financial Derivative Instruments (FDI) may
result in losses in excess of the amount invested. This is because a small movement in the price of the underlying financial
instrument may result in a substantial movement in the price of the FDI. The strategies can invest in sub investment grade bonds,
which may produce a higher level of income than investment grade bonds, but carry increased risk of default on repayment. The
value of the underlying assets are strongly affected by interest rate fluctuations and by changes in the credit ratings of the
underlying issuer of the assets.
Important information for Luxembourg investors: HSBC entities in Luxembourg are regulated and authorised by the Commission
de Surveillance du Secteur Financier (CSSF).
Important information for Swiss investors: This publication is intended exclusively towards qualified investors in the meaning of
Art. 10 para 3, 3bis and 3ter of the Federal Collective Investment Schemes Act (CISA).
HSBC Global Asset Management is the brand name for the asset management business of HSBC Group. The above document
has been produced by HSBC Global Asset Management (France) and has been approved for distribution/issue by the following
entities :
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Offices: HSBC Global Asset Management (France) - Immeuble Coeur Défense - 110, esplanade du Général Charles de Gaulle -
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Copyright © 2017. HSBC Global Asset Management (France). All rights reserved.
Non contractual document updated in February 2017 - AMFR_Ext_112_2017
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