HGIF Middle East and North Africa Equity Fund · Source: MSCI, CIA Factbook 2009, , IMF Middle East...
Transcript of HGIF Middle East and North Africa Equity Fund · Source: MSCI, CIA Factbook 2009, , IMF Middle East...
HGIF Middle East and North Africa Equity Fund
For Investment Professionals only
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The MENA region : our view
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Economic resilience in the current global economic environment and strong long- term growth potential
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More stable political and regulatory environment, increasingly open to foreign investors
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Historically low correlations to emerging and global markets
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Very attractive valuations
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MENA universe
Source: MSCI, CIA Factbook 2009, WWW.IMF.org, IMF Middle East and Central Asia Regional Economic Survey May 2009, Factset
UAEOman
Lebanon
Morocco
Egypt
Tunisia
Libya
Jordan
Palestinian Territory
QatarBahrain
Kuwait
Iran
Syria
Iraq
Saudi Arabia
Sudan
Western Sahara
Algeria
MENA % of World
Population (million) 357 5.1%
GDP PPP (US$ billion) 2,262 3.7%
Total Market Capitalisation (US$ billion) 152 0.8%
Number of listed firms on Stock Markets 1,713 -
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Macroeconomic overview
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The Middle East is in the process of a structural and economic development that promises to establish the region as a significant player in world markets
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A large, diverse region with the dynamic, resource-rich economies of the Gulf Cooperation Council (GCC) at its core…
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… and beyond, the typically more broad-
based, but less wealthy economies of the more populous North African and Western Asian countries
Oil Exporters
Oil Importers MENA
2008 2008 2008
Real Growth (%) 5.4% 6.2% 5.7%
Fiscal Balance (% GDP) 14.0% -5.8% 7.1%
CPI (year avg, %) 15.6% 14.4% 15.2%
Current Account Balance (% GDP)
21.5% -5.0% 15.2%
Total Government Debt (% GDP)
14.8% 64.9% 32.3%
Source: IMF Middle East and central Asia Regional Economic Survey May 2009
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MENA is expected to grow faster than many Emerging Markets despite the fall in the oil price
Source: Morgan Stanley, April 2009
Real GDP Forecast (%)
-4.0 -3.7
-1.3
2.5
3.7
0.30.8
1.9
3.5
6.4
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
Latam Eastern Europe World MENA Asia
2009E2010E
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MENA is a diverse region – Oil is not the only source of growth
Source: IMF, UBS April 2009
Oil and Non-oil real GDP growth in oil exporting countries
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
2004 2005 2006 2007 2008 2009E 2010E
Oil sector growth Non-oil sector growth Aggregate growth
Real GDP Growth
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
2004 2005 2006 2007 2008 2009E 2010E
Oil exporters Oil importers MENA
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Low debt after years of high oil prices
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Low levels of debt and high FX reserves
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MENA has enjoyed many years of excess liquidity and has a strong
balance sheet today
Gross External Debt / Fx Reserve
0%
50%
100%
150%
200%
250%
300%
350%
400%
450%
Chi
na
Thai
land
Mal
aysi
a
Indi
a
Rus
sia
Bra
zil
Kor
ea
Isra
el
Mex
ico
Cze
ch
S. A
fric
a
Chi
le
Indo
nesi
a
Turk
ey
Pola
nd
Kuw
ait
UA
E
Saud
i Ara
bia
Mor
occo
Egyp
t
Om
an
Qat
ar
Source: Morgan Stanley, April 2009
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Fiscal position strong even after the sharp fall in the oil price
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Most countries break-even at 40-50$
Fiscal Balance (% of GDP)
-20
-15
-10
-5
0
5
10
15
20
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
MENAOil exportersOil importers
Source: Morgan Stanley, April 2009
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Rising middleclasses
Employment creation and strong demographic growth
Supportive government
spending policies
GCC growth driven by domestic demand, not just oil exports
Source: HSBC, May 2009. Data refers to GCC countries only.
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Support for planned capital projects►
High levels of political support
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Strong ability to self finance
Investment spending and Infrastructure are major themes
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Huge capital spending projects are underway across the region despite the recent financial crisis
Catch up infrastructure spending required after two decades of underinvestmentNew capacity required to support next phase of economic growth New provision to provide infrastructure appropriate for increased levels of wealthDespite some cancellations, the investment pipeline is still strong and the vast majority of projects are going ahead
Gulf projects: planned spending
Source: HSBC, Citigroup, Halbis estimates, May 2009
The Gulf is overhauling its entire economic base
0
100
200
300
400
500
Saudi Oman Bahrain Qatar Kuwait UAE0%
50%
100%
150%
200%
250%
Cum
ulat
ive
Plan
ned
Spen
ding
$ B
n
%ag
e of
GD
P
Cumulative planned spending projects bn$
% of GDP (RHS)
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Attractive demographics compared to Developed Markets
Source: UN Population Division, World Population Prospects: The 2006 Revision (2007) – http://esa.un.org, accessed 7th April, 2007
0
50000
100000
150000
200000
250000
300000
350000
400000
450000
500000
1950 2007 2050 Projected
Northern Africa Western Asia Arabian Peninsula
53.5%
44.0% 39.8%
36.4%
39.6%
39.3%
10.1%
16.4%
20.9%
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Positive demographics
Source: UN Population Division, World Population Prospects: The 2006 Revision (2007) –
http://esa.un.org, accessed 4th
April, 2007
0 5 10 15 20 25 30 35 40
FranceUSA
QatarUAE
KuwaitIsrael
BahrainWorld
LebanonTurkeyTunisia
MoroccoLibya
AlgeriaIran
Saudi ArabiaEgyptOman
JordanSyria
IraqPalestine
Yemen
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Median Age of the Populations of MENA Countries, the World, the USA and France, 2005
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MENA Market Capitalisation – US$540 billion
Domestic stock markets coming of age
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GCC countries are gradually allowing foreign investors into their stock markets
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Foreign ownership limits are generally being reduced
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Saudi Arabia is opening up to foreign investors
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New stock markets have recently been launched in Libya and Syria
Source: Bloomberg, as of May 21st
2009
0 20 40 60 80 100 120 140
Oman
Jordan
Egypt
UAE
Kuwait
Saudi
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An asset class with a low correlation
Source: Performance Source: Factset. MSCI returns are Net, USD. Data is from July 2005 -
April 2009.
EMEM WorldWorldArabian Arabian ex Saudi ex Saudi ArabiaArabia
UAE Kuwait Qatar Egypt Morocco Jordan
EMEM 1.001.00 0.910.91 0.670.67 0.51 0.49 0.61 0.81 0.43 0.41
WorldWorld 1.001.00 0.690.69 0.52 0.54 0.60 0.75 0.41 0.43
Arabian ex Arabian ex KSAKSA 1.001.00 0.88 0.77 0.787 0.737 0.427 0.60
UAE 1.00 0.47 0.72 0.56 0.24 0.60
Kuwait 1.00 0.39 0.44 0.35 0.41
Qatar 1.00 0.66 0.22 0.51
Egypt 1.00 0.48 0.46
Morocco 1.00 0.28
Jordan 1.00
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The recent weakness offers an excellent entry point for investors
50
60
70
80
90
100
110
120
130
140
150
160
170
Jun-
05
Sep
-05
Dec
-05
Mar
-06
Jun-
06
Sep
-06
Dec
-06
Mar
-07
Jun-
07
Sep
-07
Dec
-07
Mar
-08
Jun-
08
Sep
-08
Dec
-08
Mar
-09
MSCI Arabian ex-Saudi Index ($)*
+30.0%
-64.0%
Source: Factset. Data as of May 31st 2009
*Includes UAE, Kuwait, Qatar, Oman, Bahrain, Egypt, Morocco, Tunisia, Lebanon and Jordan
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Attractive valuations
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Valuations are near historical lows and are very attractive, both in absolute terms and relative to Global Emerging Markets
P/E Ratio - Arabian Markets x Saudi
0
5
10
15
20
25
30
35
Jan-
06
May
-06
Sep
-06
Jan-
07
May
-07
Sep
-07
Jan-
08
May
-08
Sep
-08
Jan-
09
Arabian Markets x Saudi Arabia
1.1x
1.0x
0.7x
0.8x
0.9x
1.0x
1.1x
1.2x
1.3x
1.4x
1.5x
1.6x
1.7x
1.8x
Jul-0
6
Nov
-06
Mar
-07
Jul-0
7
Nov
-07
Mar
-08
Jul-0
8
Nov
-08
Mar
-09
Arabian Mkt P/E Relative to EM
Arabian Mkt P/B Relative to EM
Source: Morgan Stanley, April 2009
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Strong underlying profitability
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MENA markets (as measured by the MSCI Arabian markets Index) offer the highest ROEs
across Emerging Markets at attractive valuations
Source: MSCI, Factset
2009 ROE
Trailing P/BV
Arabian Markets * (MENA)
Latam
Emerging Asia MSCI GEM
Higher ROE at lower valuations
1.4x
1.5x
1.6x
1.7x
1.8x
1.9x
2.0x
8.0% 10.0% 12.0% 14.0% 16.0% 18.0% 20.0%
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Risks
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Extreme movements in the oil price
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The MENA region is more sensitive to geo-political risks both within the region and externally
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Relatively undeveloped financial markets with a higher degree of
intrinsic risk
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Younger and less established democracies still at the beginning of the reform pattern and with a limited track record of operating in the global economy
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Model Portfolio Positioning HGIF Middle East and North Africa Fund
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Portfolio Holdings – HSBC GIF Middle East and North Africa Equity Fund
Universe
Equity in companies listed/based in the following countries: Kuwait, United Arab Emirates, Qatar, Oman, Bahrain, Jordan, Lebanon, Morocco, Egypt, Tunisia
However, the fund may also invest in other MENA countries such as Libya, Syria and Saudi Arabia
Fund Characteristics
Number of stocks: 50-60Maximum exposure to a single security: 10%Market-cap: Not less than US$50m*
* Internal decision for liquidity reason
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Model portfolio for HSBC GIF Middle East and North Africa Equity Fund
Source: HSBC HALBIS FACTSET 30 August 2009
Country Weight
United Arab Emirates 22%
Egypt 20%
Qatar 15%
Kuwait 13%
Morocco 7%
Oman 7%
Lebanon 5%
Saudi Arabia 5%
Jordan 3%
Tunisia 3%
Sector Weight
Financials 50%
Telecommunications 25%
Industrials 14%
Energy 5%
Consumer 4%
Utilities 2%
Financials 50%
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Example – Qatar National Bank (Qatar)
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Investment caseQatar’s largest bank, with strong links to the government
Qatar experiencing continued economic boom, driven by LNG production (IMF expects GDP growth of 18% in 2009 and 16% in 2010)
Strong balance sheet and capital position, well positioned to capture growth opportunities
Strong profitability with ROE in excess of 20%
Trading at attractive valuations
Source: Bloomberg consensus estimates;
Primary listing Qatar P/E (FY 09) 9 x
Market capitalisation USD 9.7 billion Earnings growth (FY 09) 9%
Qatar real GDP growth
0%
5%
10%
15%
20%
2003 2004 2005 2006 2007 2008 2009 2010
Source: IMF, April 2009
FF
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Example – Poulina (Tunisia)
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Investment caseLargest Tunisian company with operations as diverse as ceramics, steel products, packaging, real estate and food production
Exposed to growing government spending and foreign direct investment in Tunisia, Algeria and Libya
Strong GDP growth expected in 2009: Tunisia 4.5%, Algeria 2.1%, Libya 5.5%
Successfully listed in August 2008
Source: Halbis, IMF BMI Graph Source: IPO Prospectus Any forecast provided is indicative only and is not guaranteed in any way.
Revenues (TNDm)
0.0
0.5
1.0
1.5
2.0
2006 2007 2008 2009F 2010F
Primary listing Tunisia P/E (FY 09) 12 x
Market capitalisation USD 755 million Earnings growth (FY 09) 25%
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Example – Galfar Engineering (Oman)
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Investment caseEngineering and contracting company based in Oman, involved in civil infrastructure projects and oil & gas
More than 90% of Galfar’s order book are government contracts
Healthy order book with no significant cancellations and new government contracts awards expected this year
Potential for margin expansion as raw material prices fall
Source: Halbis estimates; Graph source: company annual reportAny forecast provided is indicative only and is not guaranteed in any way.
Net Income (OMR mln)
0
5
10
15
20
25
30
35
2006 2007 2008 2009F 2010F
Primary listing Oman P/E (FY 09) 7.6 x
Market capitalisation USD 580 million Earnings growth (FY 09) 15%
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HSBC GIF MENA Equity Investment Team
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The team was established in December 2007 with the hiring of Andrea Nannini, an experienced Frontier Markets investment professional
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The team has experienced no personnel turnover since its inception
Name Title Responsibilities Years Experience
Years with Firm
Education/Degree
Andrea Nannini Senior Portfolio Manager
Head of MENA Portfolio Management 10 1 MSc –
Bocconi University; CFA
Andrew Brudenell
Portfolio Manager
MENA Portfolio Management
11 2MSc –
The London School of Economics; CFA
Basak Yavuz Portfolio Manager
MENA Portfolio Management
11 1 BA (2) –
Bosphorus University; CFA
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Emerging Markets Equities and Fixed Income
Portfolio Managers
Investment Support Support, Risk
Economists
Global Macro Team
Portfolio ManagersAndrea Nannini
Andrew BrudenellBasak Yavuz
Product Specialists
Legal / Compliance / RiskDedicated in-house
expertiseDedicated Client Service
HSBC AccessHSBC brand well-known in
emerging and frontier markets
Global ReachLocal investment teams help mitigate regional risks and
generate ideas
HSBC GIF MENA Equity Investment Resources
Halbis ResourcesOver 70 investment and support resources
HSBC Resources
Dealing
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Investment Process – Summary
Strategy Development Stock Selection Portfolio Construction Risk Monitoring
Continuous assessment of portfolio positioning
Ensure adherence to regulatory and fund specific guidelines-
Front-end systems-
Client guidelines-
In-house risk limits-
Regulatory guidelines
Output: Portfolio Strategy
Output: Investment Ideas
Output:Client Portfolio
Output:Assessment of
Portfolio Positions
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Approximately 70% of our process is focused on stock selection; 30% on country selection
Implement Investment ideas
Determine optimal position sizes, based on risk-
Upside to fair value-
Identified inflection points
- Conviction levels
Sell discipline
Global cycle analysis
Development of themes
Country analysis- Local macro- Local politics- Local investor base
Bottom-up fundamental analysis
Development of investment ideas, exploiting themes and value opportunities
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Investment Process – Bottom-Up Stock Selection
Re-investment opportunities
Sustainability of returns
Industry dynamics
Competitor analysis
Barriers to entry
Growth potential
Acquisition opportunities
Payout ratio
Cash flow and accounting Management Valuation Investment
conclusion
Cash generation
Balance sheet structure
Accounting issues
Track record
Capital allocation
Reward structure
Cashflow modelling
Cross checked with sector relevant valuation models
Key drivers
Key risks
Fair value target
Conviction level
On-the-ground research
Internal screening processes
External sources
HSBC global network
Idea Generation
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Investment Process – Decision Making Framework
Monthly Bi-Weekly Daily
Emerging Markets monthly meeting
EM Equity
Research
Local EM teams
EMD team
MENA team’s bi-weekly portfolioreview meeting
Review themes and overall strategy
Discuss risk framework and positioning
Review current holdings
Performance review
Daily reports produced
Daily performance
Risk reports
Output: Macro Outlook
Output: Daily Reports
Output: Adjustments to portfolio
Ad-hoc
Interaction across Halbis/HSBC
Local EM equity teams
Private equity
Local senior bank personnel
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Halbis competitive advantage
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A dedicated team of investment professionals with extensive experience in managing money in the MENA region
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A proven investment process, leveraging on the experience from the HSBC New Frontiers fund
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HSBC’s strong local presence in the Middle East
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Fund key features
Investment objective
Long term capital growth, investing at least two thirds of its total non cash assets in equity and equity equivalent securities of companies in the Middle East & North Africa region (MENA).
Benchmark
The MSCI Arabian ex Saudi Arabia Total Return Index (Net).
Number of Holdings
Typically the fund will hold around 50 to 60 stocks.
Key Features for HGIF Middle East and North Africa Fund
Fund Name: HSBC Global Investment Funds – Middle East and North Africa
Domicile: LuxembourgStatus: Sub-fund of HSBC Global Investment Funds,
a UCITS SICAVCurrency denomination:
USD
Target launch date:
6 October 2009
Stock limit 10% of NAVCountry Limit: +/- 20% relative to benchmarkSector Limit: UnconstrainedNAV pricing: Daily (Monday to Thursday)Dealing day: Daily (Monday to Thursday)
Fee StructureA (retail) I (Institutional)
Minimum investment: $5,000 $1mManagement fee: 1.50% 0.75%Operating & admin fee: 0.40% 0.30%
Source: HSBC HALBIS 30 April 2009
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Summary
The HSBC GIF MENA Equity Fund offers …
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Exposure to the one of the most attractive regions in Emerging Markets with strong economic fundamentals and improving political stability
strong demographics
attractive valuations
low volatility and low correlations with global equity markets
… from a leader in Emerging Markets fund management …
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HSBC Global Asset Management manages over US$ 69 billion* in Global Emerging Market assets worldwide
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Managed by an experienced team drawing on HSBC’s presence in 83 countries and territories around the world
*As of end of Junel 2009
Source: HSBC Global Asset Management
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Team biographies
Andrea Nannini, CFASenior Portfolio Manager
Andrea Nannini joined Halbis in December 2007 as Senior Portfolio Manager with responsibility for Frontier Emerging Markets.
Prior to this, Andrea
spent
8 years as a fund manager at BankInvest
in Copenhagen, with responsibility for Eastern Europe, Middle East and Africa (EMEA). During this period he was lead manager for an Eastern Europe fund and a Frontier Emerging Markets fund, which he had
a key role in developing and launching in 2005. He previously worked as a research analyst at
Banca
Intesa
and RAS Asset Management in Milan. Andrea is a graduate in
economics
from Bocconi
University in Milan and is a CFA charterholder.
Andrew Brudenell, CFAPortfolio Manager Andrew Brudenell joined Halbis’
as the Global Technology, Telecommunications and Industrials analyst in 2007. In 2008, he joined the New Frontiers team. Prior to his joining Halbis, Andrew worked at Scudder Investments in New York as a US
fund manager. He began his investment career at Deutsche Asset Management in 1997. Andrew Brudenell holds an MSc from the London School of Economics and is a CFA Charterholder.
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Team biographies (cont’d)
Basak Yavuz, CFAPortfolio Manager
Basak Yavuz joined Halbis Capital Management in February 2008 as
part of the New Frontiers team. Basak has over 10 years of experience in Emerging Markets. She has most recently been an analyst at Alliance Bernstein in London, focusing on the energy and materials sector. Basak is a CFA Charterholder.
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Risks and drawbacks
►
Economies in Emerging Markets generally are heavily dependent upon international trade and, accordingly, have been and may continue to be affected adversely by trade barriers, exchange controls, managed adjustments in relative currency values and other protectionist measures imposed or negotiated by the countries with which they trade. These economies also have been and may continue to be affected adversely by economic conditions in the countries in which they trade
►
Brokerage commissions, custodial services and other costs relating to investment in Emerging Markets generally are more expensive than those relating to investment in more developed markets. Lack of adequate custodial systems in some markets may prevent investment in a given country or may require a sub-fund to accept greater custodial risks in order to invest, although the Custodian will endeavour to minimise such risks through the appointment of correspondents that are international, reputable and creditworthy financial institutions. In addition, such markets have different settlement and clearance procedures. In certain markets there have been times when settlements have been
unable to keep pace with the volume of securities transactions, making it difficult to conduct such transactions
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Risks and drawbacks (cont’d)
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The inability of a sub-fund to make intended securities purchases due to settlement problems could cause the sub-fund to miss attractive investment opportunities. Inability to dispose of a portfolio security caused by settlement problems could result either in losses to a sub-fund due to subsequent declines in value of the portfolio security or, if a sub-fund has entered into a contract to sell the security, could result in potential liability to the purchaser
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The risk also exists that an emergency situation may arise in one or more developing markets as a result of which trading of securities may cease or may be substantially curtailed and prices for a sub-fund’s securities in such markets may not be readily available
►
Investors should note that changes in the political climate in Emerging Markets may result in significant shifts in the attitude to the taxation of foreign investors. Such changes may result in changes to legislation, the interpretation of legislation, or
the granting of foreign investors the benefit of tax exemptions or international tax treaties. The
effect of such changes can be retrospective and can (if they occur) have an adverse impact on the investment return of shareholders in any sub-fund so affected
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The foregoing risk factors do not purport to be a complete explanation of the risks involved in investing in the shares. Prospective investors should read the entire Prospectus and consult with their legal, tax and financial advisors before making any decision to invest in any sub-fund
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Important information
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.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.The HSBC GIF Middle East and North Africa Equity fund is a sub-fund of HSBC Global Investment Funds (HGIF), a Luxembourg domiciled SICAV. The Investment Adviser to the fund is Halbis
Capital Management (UK) Limited. UK based investors in the HGIF funds are advised that they may not be afforded some of the protections conveyed by the provisions of the Financial Services and Markets Act 2000. The shares in HGIF funds have not been and will not be offered for sale or sold in the United States of America, its territories
or possessions and all areas subject to its jurisdiction, or to United States Persons. All applications are made on the basis of the current HGIF Prospectus, Simplified Prospectus and most recent annual and semi-annual reports, which can be obtained upon request free of charge from HSBC Global Asset Management (UK) Limited, 8 Canada Square, London E14 5HQ, UK or the local distributors. There are risks involved with this type of investment. Please refer to the Prospectus for general risk factors and to the Simplified Prospectus for specific risk factors. It is important to remember that the value of investments and any income from them can go down as well as up, and you may not get back the amount originally invested. 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. Any performance information shown refers to the past should not be seen as an indication of future returns.The sub-fund invests predominantly in one geographic area, therefore any
decline in the economy of this area may affect the prices and value of the underlying assets. You should view this investment as medium to long term, and should plan to keep it for at least five years. This presentation is issued in the UK by HSBC Global Asset Management (UK) Limited. Authorised and regulated by the Financial Services Authority. Copyright 2009 ©
HSBC Global Asset management (UK) Limited. All Rights Reserved.
17003 –
FP09-0614