1

Bonnie TseHead of Premier, Wealth Management and Mid-Market Segment,

Personal Financial Services, Asia-Pacific

HSBC Fund Managers Survey: Tracking Global Money Flows

9 March 2009

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Survey objectives

•

To identify global liquidity flows

•

To understand the dynamics of allocation mix globally

•

To obtain fund managers’ views on the market

•

To obtain first-hand information instead of relying on time-lagged third- party fund flow data

•

To help customers understand the current investment environment from a global perspective

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Survey methodology•

HSBC’s partner fund managers, accounting for about 17.42 per cent of global funds under management (FUM)1, participated in this quarterly survey: AllianceBernstein, Allianz Global Investors, Baring Asset Management, Deutsche Asset Management, Fidelity Investment Management, Franklin Templeton Investments, HSBC Global Asset Management, Invesco Asset Management, Investec Asset Management, JF Asset Management, Schroders Investment Management and Société Générale

•

The survey analysed participating fund firms’ FUM breakdowns at the end of 3Q08 and 4Q082

•

The survey also collected fund managers’ views for 1Q09, covering a number of asset classes and markets

1. Total global FUM at the end of 3Q08 was US$21.66 trillion (Investment Company Institute)2. 4Q08 data as of 31 December 2008

4

937.2

337.5 341.5

1,081.5

871.3941.7

298.9249.6

954.5

829.5

U S

$ b

nFunds under management in 4Q08

FUM (US$bn), end of 3Q08 and 4Q08

•

Total FUM of fund managers participating in the survey reached US$3.27 trillion at the end of 4Q08. Survey estimates a US$295 billion decrease in FUM in 4Q08, representing an 8.26% drop from 3Q08

Money funds Other funds3Q 4Q

Equity funds Bond funds Balanced funds

Total decrease:US$294.9 billion -252.0 +4.5

-87.9

+83.2

-42.6

3Q 4Q 3Q 4Q 3Q 4Q 3Q 4Q

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Breakdown of funds under management

Note: Figures may not add up to exactly 100 per cent due to rounding.

FUM breakdown by asset type in 4Q08

41 billion

-USD273 billion

FUM breakdown by asset type in 3Q08

Equity funds31%Money market

funds23%

Other funds10%

Bond funds26%

Balanced funds10%

Equity funds25%

Money marketfunds29%

Other funds9%

Bond funds29%

Balanced funds8%

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Equity Funds

Bond Funds

Balanced Funds

Money Market Funds

Other Funds

Estimate of contribution to FUM change by asset class •

Equity funds contributed most to the FUM decrease during 4Q08

- US$252.0 billion ( 85%)

+ US$4.5 billion (-1.5%)

- US$87.9 billion (30%)

+ US$83.2 billion (-28%)

Note: Figures may not add up to exactly 100 per cent due to rounding.

- US$42.6 billion (14.5%)

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• Fund flows tracking market performance

HSBC Fund Flow Tracker – Equity Funds

-150,000

-50,000

50,000

150,000

3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08US

$m

50

100

150

MS

CI %

Quarterly money flow - Equity Funds (US$) MSCI World Free HSBC Fund Flow Tracker - Equity Funds (US$)

Note: The HSBC Fund Flow Tracker represents cumulative dollar value of money flows by quarter as reported in the HSBC Fund Managers Survey

HSBC Fund Flow Tracker – Bond Funds

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• Fund flows demonstrating flight to quality, particularly to US dollar investment grade corporate bonds and European (inc. UK) bonds, and diversification strategy among investors

-150,000

-50,000

50,000

150,000

3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08US

$m

50

100

150

MS

CI %

Quarterly money flow - Bond Funds (US$) Barclay's Capital Global Bond Index HSBC Fund Flow Tracker - Bond Funds (US$)

Note: The HSBC Fund Flow Tracker represents cumulative dollar value of money flows by quarter as reported in the HSBC Fund Managers Survey

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`

Breakdown of funds by geography

Regional equity funds Regional bond funds

•

US and Europe (inc. UK) were still the dominating regions in equity / bond investments in 4Q08

North America44%

Asia-Pacific16%

(of which Greater China

is 3.5%)

Global emerging markets (ex -Emerging Asia ) 9%

Europe (inc. UK)22%

Japan9%

US bonds87%

Asian bonds1%

High yield/emerging market bonds

3%Europe and UK bonds

9%

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Change in funds under managementFUM growth/decline 3Q08 FUM growth/decline 4Q08

Equity funds

Bond funds

-38.1%

5.6%

-13.2%

-29.8%

-22.6%

-29.5%

-18.3%

-6.8%

-21.1%

-12.3%

-12.7% 11.0%

4.2%

-12.1%

-20.6%

-18.5%

-24.0%

-23.2%

-15.1%

-24.2%

8.2%

-36.8%

High yield / EM bonds

Europe including UK bonds

US bonds

Global bonds

Emerging markets equities

Greater China equities

Asia-Pacif ic ex-Japan equities

Japan equities

Europe including UK equities

North America equities

Global equities

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Market performance in 3Q08 and 4Q08Market performance in 4Q08Market performance in 3Q08

Source: Bloomberg and Morningstar

Equity funds

Bond funds

-3.8%

-24.0%

-27.0%

-25.2%

-15.3%

-3.4%

-7.3%

-7.0%

-17.7%

-20.8%

-10.3%

5.3%

-23.0%

-27.6%

-10.7%

-21.8%

6.4%

2.3%

-12.3%

-9.0%

-22.8%

-23.3%

High yield / EM bonds

Europe including UK bonds

US bonds

Global bonds

Emerging markets equities

Greater China equities

Asia-Pacif ic ex-Japan equities

Japan equities

Europe including UK equities

North America equities

Global equities

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9.4%

-5.5%

-11.1%

-6.3%

-4.6%

-1.8%

-8.9%

-5.4%

-3.5%

3.6%

-3.0%

Where did the money go?

Source: HSBC Survey

Estimate of net fund flow in 4Q08Estimate of net fund flow in 3Q08

Equity funds

Bond funds

• Emerging markets equities and high yield/emerging markets bonds posted the highest outflows due to concerns that the recession in developed countries will impact emerging economies

• Europe (inc. UK) bonds posted the highest inflows due to interest rate cuts by the European Central Bank (ECB) and the Bank of England (BOE)

• US bonds and US equities posted inflows aided by economic recovery and government stimulus policies

2.9%

-1.0%

-9.2%

-11.9%

-4.4%

-0.5%

-2.3%

8.7%

-3.0%

2.7%

3.3%

High yield / EM bonds

Europe including UK bonds

US bonds

Global bonds

Emerging markets equities

Greater China equities

Asia-Pacif ic ex-Japan equities

Japan equities

Europe including UK equities

North America equities

Global equities

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1Q09 asset allocation strategies by class•

Due to weak economic data and continued uncertainty in stock markets, fund managers are more optimistic about bonds

Notes:

•

Figures in brackets indicate survey results from the previous quarter (4Q08).

•

Overweight: Refers to an investment position that is stronger than the generally accepted benchmark. It implies that one is more optimistic / bullish in outlook for that asset class

•

Underweight: Refers to an investment position that is weaker than the generally accepted benchmark. It implies that one is more pessimistic / bearish in outlook for that asset class

•

Neutral: Refers to an investment position that is equal to the generally accepted benchmark. It implies that one has no biased view on the outlook for that asset class

•

Figures may not add up to exactly 100 per cent due to rounding

Asset class allocation strategy Underweight Neutral Overweight

Equities 22% (30%) 44% (20%) 33% (50%)

Bonds 0% (20% ) 43% (30%) 57%(50%)

Cash 17% (13% ) 50% (63%) 33% (25%)

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1Q09 asset allocation strategies by geography•

Fund managers are turning bullish on Greater China equities as China’s stimulus policies are expected to support domestic demand and economic growth

•

The sentiment towards US equities improved from negative to neutral while views towards Asia-Pacific ex- Japan equities became less optimistic

•

Fund managers hold positive views on European bonds on expectation of further rate cuts by both the ECB and the BOE

•

Sentiment on US dollar investment grade bonds remains weak due to concerns that US treasury bonds have become overvalued with yields of US Treasuries down to historic lows

Allocation strategy by geographyUnderweight Neutral Overweight

1Q09 4Q08 1Q09 4Q08 1Q09 4Q08Equities

North America 33% 50% 33% 20% 33% 30%

Europe (incl. UK) 22% 50% 56% 30% 22% 20%

Japan 33% 33% 56% 56% 11% 11%Asia-Pacific ex-Japan 22% 22% 33% 22% 44% 56%Emerging markets 38% 33% 25% 11% 38% 56%Greater China 0% 38% 33% 13% 67% 50%BondsUS Dollar 43% 56% 29% 33% 29% 11%European 0% 11% 50% 33% 50% 56%Global emerging markets/High yield 33% 33% 33% 11% 33% 56%Asian bond 17% 13% 50% 63% 33% 25%

Note: Figures may not add up to exactly 100 per cent due to rounding

HSBC Fund Flow Tracker – Greater China Equity Funds

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• Stable fund flows support the positive view of fund managers

-15,000

-10,000

-5,000

0

5,000

10,000

15,000

3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08US

$m

50

100

150

MSC

I %

Quarterly money flow - Greater China (US$) MSCI China HSBC Fund Flow Tracker - Greater China (US$)

Note: The HSBC Fund Flow Tracker represents cumulative dollar value of money flows by quarter as reported in the HSBC Fund Managers Survey

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Survey highlights

•

Both equity and fixed income funds recorded outflows during 4Q08, though at lower proportions of FUM compared to 3Q08

•

Among equity funds, North America equity funds saw an inflow of 2.7% of FUM, partly driven by the loosening policies of the US Federal Reserve and US government. Global emerging market equity funds continued to post the highest outflow at 9.2% of FUM due to concerns that the recession in developed markets could place emerging market equities at risk

•

Fund managers are more optimistic about bonds given weak economic data and uncertainty in stock markets

•

On equities:– Fund managers are turning bullish on Greater China equities, given expectations that China government stimulus policies will support domestic demand and economic growth– Sentiment on US equities improved from negative to neutral while the view on Asia-Pacific ex- Japan equities is less optimistic

•

On fixed income:– Fund managers hold positive views towards European bonds on expectations of further rate cuts by both the ECB and the BOE– Sentiment towards US dollar investment grade bonds remains weak due to concerns that US treasury bonds have become overvalued with yields of treasuries down to historic lows

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Disclaimer

The information obtained in the survey has been provided by third parties and the Bank has not independently verified such information. The Bank makes no guarantee, representation or warranty and accepts no responsibility or liability as to the accuracy or completeness of the information. The information or opinion expressed herein does not constitute an offer to sell and should not be construed to be a recommendation to buy or sell any securities, currencies, commodities or financial instruments referred to above. The Bank shall not be held liable for damages arising out of any person's reliance upon this information or for any opinion or conclusion that the reader may draw from the information.

All graphs are derived from HSBC Fund Managers Survey except for the graph on market growth (slide 9), which was sourced from Bloomberg and Morningstar.

Source of information