Hong Kong Baptist University1998 Superannuation Fund 2H 2002 investment review HSBC Asset Management (Hong Kong) Limited 15/F Citibank Tower, 3 Garden Road, Hong Kong Telephone: +852 2284 1111 Facsimile: +852 2845 0226 Web site : www.assetmanagement.hsbc.com.hk February 2003
Agenda Investment performance Market outlook Factors for consideration before switching
Market statistics: October to December 2002 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)
Market statistics: July to December 2002 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)
Risk profile of various investment options More suitable for risk tolerant staff High High Growth Fund Growth Fund Balanced Fund Long-term potential return More suitable for risk averse staff Stable Fund Global Money Funds (HKD/USD) Risk (short-term volatility) Low High
Investment performance: January 2003 Source: HSBC Asset Management
Investment performance: October to December 2002 Source: HSBC Asset Management, Watson Wyatt Managed Fund Report
Investment performance: July to December 2002 Source: HSBC Asset Management
Investment performance since inception (Mar 98 to Jan 03) (3/99) Source: HSBC Asset Management
Asset allocation – 31 December 2002 Equities Hong Kong 30.0 28.6 24.0 23.3 17.0 16.2 10.0 9.2 N. America 18.0 17.3 14.0 13.6 10.0 9.6 6.0 5.6 Japan 12.0 10.7 9.0 7.3 6.5 5.3 4.0 3.2 Europe 18.0 17.9 14.0 14.4 10.0 9.6 6.0 4.8 Other Asia Pac. 12.0 14.0 9.0 11.2 6.5 8.4 4.0 5.5 Total 90.0 88.5 70.0 69.8 50.0 49.1 30.0 28.3 0.0 Bonds US Bonds 1.6 2.0 5.7 6.2 10.3 13.6 14.4 Non US Bonds 5.4 5.4 19.3 20.8 33.2 46.4 45.6 Total 7.0 7.4 25.0 27.0 45.0 43.5 60.0 60.0 0.0 Cash 3.0 4.1 5.0 3.2 5.0 7.4 10.0 11.7 100.0 HKBU HKBU HKBU HKBU HKBU GMF High Growth Growth Balanced Stable HKD / USD Bmk Fund Bmk Fund Bmk Fund Bmk Fund Fund (%) (%) (%) (%) (%) (%) (%) (%) (%)
US • Recent data generally positive - 2003 GDP forecast 2.2%(i.e. ISM 53.9, Personal Spending +0.9%, Unemployment 5.7%, Home Sales 1,082K) • 2003 growth more balanced (improvement in business investment) • Fiscal (tax package) as well as Monetary (low interest rates) policies remain supportive • Robust recovery unlikely • Middle East • Low earnings visibility • Outlook • Neutral in US • Earnings growth for 2003 (7%)
Europe • German economy a concern (weak IFO 87.4/ Unemployment 10.3%) • Rest of Euroland better with France leading the way • ECB fiscal policy restriction (Germany & France - exceed the 3% limit) • Expect Euroland to lag US in global cycle • UK • Government spending remains strong and expect to continue • Unemployment remains stable compared to US/Europe • Insurance sector - relaxing solvency ratio by regulators • Outlook • Underweight in Europe, overweight in UK • GDP forecast for 2003 (Europe 1.2%, UK 2.5%)
Japan • Economic data remain poor(Industrial Production -1.6%, Household Spending -2%, Unemployment 5.4%) • Deteriorating employment picture • Financial reform - do not expect immediate solution • Economy restrained (high uncertainty, weak global growth) • Outlook • Underweight in Japan • 2003 GDP forecast 0.8%
Asia ex-Japan • Favour domestic oriented over export driven stocks • Liquidity remains supportive • Valuations remain cheap and attractive • External risk • Middle East • United States • North Korea • Outlook • Overweight in Asia (ex Japan) • Defensive bias over the near term
Asia ex-Japan • Hong Kong • Outlook for the domestic economy remains subdued( i.e. unemployment, deflation and property sector) • Concern on government budget deficit • Exports expected to slow down • Market range bound - lack of upside catalyst • Korea • Economic growth driven by strong consumer spending and exports • Liquidity and low unemployment rates (2.8%) remain supportive • Concerns - North Korea’s nuclear issue, slowing consumption • Taiwan • Performance of the US market (NASDAQ) important • Politics - an area of focus (2004 presidential election) • Short-term focus - non-technology stocks • Remain underweight - looking to the US market for direction
Bond market outlook • In the US, we expect the anticipated war with Iraq to be relatively short-lived, and the Fed will have to take back the 50 bps rate cut of last November within 12 months. • In Europe, we anticipate the ECB to sanction an additional easing of 50 bps within the next 3 months, with no further changes forecast over 12 months.
HSBC Asset Management Investment Strategy Asset class preference : Equities / Cash / Bonds (neutral) Regional investment weightings Most preferred markets least preferred markets Asia ex. HK/JP UK Global Emerging Markets US HK Canada Australia Europe ex. UK Japan Data as at 4 February 2003
HSBC Asset Management (Hong Kong) Limited The document is confidential and is supplied to you solely for your information. This document should not be distributed, must not be reproduced or further distributed to any person or entities, whether in whole or in part, for any purpose. This document can only be given to people to whom the relevant HSBC entity are not prohibited by law to provide discretionary investment service under their respective licences issued by the regulators. This document is not and should not be construed as an offer to sell or solicitation of an offer to purchase or subscribe for any investment. 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. Expressions of opinion herein are subject to change without notice.
Principles of retirement investment • 3 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
Examination of investment markets * Calculated in HK$ terms Source: Thomson Financial Datastream
Examination of investment markets – cumulative return 1989-2002 * Calculated in HK$ terms Source: Thomson Financial Datastream
Maximum Profit : 111-89.25 121.5-104.5 89.25 104.5 =+40.6% + Sell Buy Sell Buy Sell Sell Buy Buy Buy Sell Maximum Loss : 89.3-109 104.5- 111 105-121.5 109 111 121.5 Dollar Cost Averaging : = +3.6% 105-101.4 101.4 + + =- 37.5% Dollar cost averaging • e.g. HSBC Holdings Source: Thomson Financial Datastream
95%Probability The more aggressive the fund, the wider the range of likely returns Annalised return (%) Source: HSBC Asset Management
Please remember • Identify personal factors • Establish risk / return profile • Understand investment choices • Make investment decisions using a long-term approach Do not time / chase markets!
A guide to investing • Factors to consider • Years to retirement • Other personal assets • Planned uses for retirement assets • Financial and other personal circumstances Different people have different needs!!
Range of investment choices • Different people have different needs Therefore Investment choices are provided for different risk profiles