HSBC Holdings PLC · LSE:HSBA
HSBC — HSBC Global Asset Management — Investor Presentation (September 2011)
54 slides from HSBC's investor presentation, September 2011
Slide 1: HSBC GIF Chinese Equity Presentation
September 2011 HSBC GIF Chinese Equity Presentation For professional clients only 1
Slide 2: Contents
Contents HSBC Overview HSBC Global Asset Management The Investment Team & Emerging Markets Investment Resources Investment Philosophy and Process Risk management Market overview HSBC GIF Chinese Equity Fund overview Competitor analysis Outlook Appendix 2
Slide 3: HSBC Overview
HSBC Overview HSBC €> Global Asset Management
Slide 4: HSBC overview
HSBC overview Emerging markets are at the heart of HSBC's corporate identity HSBC’s roots were formed in China and India in the 19th century HSBC Group has maintained a strong presence in global trade, particularly in India and China, the world's most dynamic emerging markets. Headquartered
Slide 5: HSBC's presence in emerging markets
HSBC’s presence in emerging markets Russia Poland Czech Republic Slovakia Georgia Kazakhstan Turkey Korea Malta Lebanon Armenia China Israel Iraq Pakistan Algeria Palestine Kuwait Mexico Bahrain, Qatar Hong Kong Taiwan Libya Egypt UAE Macau Saudi Honduras Oman India Arabia Thailand Philippines Nicar
Slide 6: HSBC Global Asset Management
HSBC Global Asset Management
Slide 7: HSBC Global Asset Management
HSBC Global Asset Management HSBC Global Asset Management is a leading global asset management firm managing assets totalling USD453.4 billion at the end of June 2011. HSBC Global Asset Management offers clients around the world a diverse and full range of active and quantitative investment prod
Slide 8: HSBC - A leader in emerging markets
HSBC Global Asset Management - A leader in emerging markets Among the largest managers of emerging market funds globally, with approximately USD139 billion in assets under management and over 200 dedicated emerging markets investment professionals in 14 key locations Emerging Markets AUM by asset
Slide 9: The Investment Team & Emerging Markets Investment Resources
The Investment Team & Emerging Markets Investment Resources
Slide 10: An Experienced and Dedicated Team
An Experienced and Dedicated Team Years of Years of experience Name Title Role industry with the experience Group China Portfolio Management Team (Country Specialist – China) A large dedicated and Mandy Chan Investment Director Fund Manager 1 14 experienced team manages Alan Zhong CFA Investment M
Slide 11: Supported by on the ground research team in Shanghai
Supported by on the ground research team in Shanghai Years of industry Name Role Location experience Resources of JV, HSBC Tom Lin CIO, HSBC Jintrust Shanghai 13 Jintrust David Shao Fund Manager – Dynamic Strategy Fund Shanghai 18 Ally Wang Fund Manager – Big Cap Fund Shanghai 9 Leo Cai Fund Manag
Slide 12: Investment Team
Investment Team Bill Maldonado[18yrs]* Chief Investment Officer, Asia-Pacific Strategy Chief Investment Officer, Equities Quarterly performance review meeting Chinese Equity Team Research Insights Investment Support Lead Portfolio Manager Regional Portfolio Regional Sector Analysts (7) Mandy Chan [1
Slide 13: Emerging markets investment capabilities – A portfolio of opportunities
Emerging markets investment capabilities – A portfolio of opportunities Strategies and locations London GEM Equity GEM A lternatives GEM M ultimanager 13 Investment professionals New York GEM Fixed Income 8 Investment Istanbul professionals Turkish Fixed Income Turkish Equity Mexico City
Slide 14: Investment Philosophy and Process
Investment Philosophy and Process
Slide 15: Investment Philosophy
Investment Philosophy There is a fundamental economic relationship between valuation and profitability within the 12.0 Chinese equity universe 10.0 Market inefficiencies lead to divergences from that relationship, which should correct over time 8.0 Attractive stocks show consistent positioning
Slide 16: Profitability vs. Valuation Basic Principles
Profitability vs. Valuation Basic Principles How do we find “good” companies? – Profitability identifies “good” companies whose assets generate above average profits – We use either equity-only profitability (RoE) or unlevered enterprise-wide profitability (RoIC) as the metric to define “good” W
Slide 17: Benefit stock analysis
Benefit stock analysis Dual-listed companies to leverage on-the-ground research resources The number of dual-listed companies has increased substantially over time Number of dual-listed companies We can better analyse Chinese companies by having both the international perspectives and local insi
Slide 18: Investment Process
Investment Process Investment process China investable universe Ranking Methodology Market cap > USD 500mn Portfolio Management Equity Analysis Ranking process Companies’ forward Current market profitability Ranked eligible research universe valuations Focus research on higher ranking companies Prof
Slide 19: Rank Eligible Research Universe
Rank Eligible Research Universe 10-IB-10107 Stocks are ranked by RoE and P/B separately, then both rankings are Company Name Sector P/B ROE Rank Quintile combined to arrive at an overall stock Stock A Materials 1.9 36.9 1 1 ranking Stock B Financials 1.9 34.3 2 1 Stock C Financials 1.5 30.9 3 1 St
Slide 20: Stock Analysis
Stock Analysis Methodology Inputs Company visits (360 degrees supply chain Output check, including visiting Profitability: identify under-recognized customers, suppliers, Profitability Fundamental, competitors) Cash-flow & financial capability: how is proprietary stock Growth financed analysis
Slide 21: Stock Analysis
Stock Analysis 10-IB-10107 Fundamental, proprietary stock analysis ROE sustainability analysis Recommendation Document Internal Financial Model Dupont Industry analysis Analysis Ability to create shareholder wealth Profitability / risk Financial strength Corporate Financial governance strength Sourc
Slide 22: Stock Analysis
Stock Analysis 10-IB-10107 Industry analysis applied at a stock level Proprietary industry data base for identifying leading indicators Industry weekly updates Compnay’s earning sensitivity Supply & Demand Analysis in relation with industry Commodity Weekly Updates – Aluminum Contact: Debbie Chan
Slide 23: Stock Analysis
Stock Analysis 10-IB-10107 Sector leading indicators We have leading indicators for each Department Store Key industry data watch list Frequency Source Remarks sector and industry group, based on their different business nature. Key operating parameters Same-store-sales growth Frequency Monthly (N
Slide 24: Stock Analysis
Stock Analysis 10-IB-10107 Tracking analyst’s recommendation Definition: O = overweight, U = underweight, H = High, M = Medium Analysts’ stock recommendation is Current Price closely tracked with various metrics Company / Country / Industry Name Sector (stock) Target Price (Stock) Upside / conside
Slide 25: Portfolio Construction
Portfolio Construction 10-IB-10107 Investment parameters Investment parameters Sector weighting is a function of bottom up stock selection Parameters Increase size of bet if our internal earnings model displays a 20-30% difference from Benchmark MSCI China market consensus Parameters designed
Slide 26: Trade Implementation
Trade Implementation 10-IB-10107 Trade Implementation is an integral part of Sample ITG Peer Analysis of Asian trading cost the investment process. The in-house dealing team’s mandate is to preserve alpha Assumption: Fund AUM USD 2bn and 75% annual turnover for investment decisions made by portfol
Slide 27: Risk Management
Risk Management HSBC €> Global Asset Management
Slide 28: Risk Management Framework
Risk Management Framework The team is supported by a well proven Risk Management Framework which is put into place to comply with the identified risks characterising investments in the Chinese market. Framework Investment Team Operational Control Parent Oversight Portfolio Manager Risk Control HSB
Slide 29: Risk Management
Risk Management Reflect conviction in a risk appropriate manner Sample portfolio: Active risk vs. Active weight Analyse and balance investment fundamentals and portfolio risk Por Por- Weighted Wgt Stock Name % Bmark % Bmark MCAR % Use Style Research monthly China Petroleum & Chemical-H 4.27 2.34
Slide 30: Real-time stock attribution analysis
Risk Management Real-time stock attribution analysis HSBC CHINA MOMENTUM FD (M)# - Transactions vs. China Momentum Customized Benchmark CHINA MOMENTUM FD (M) Momentum Benchmark Attribution Analysis Daily Performance Allocation Selection + Total Average Total Contribution Average Total Contribution E
Slide 31: Positioning over time
Ja Ja n n -2.0 -1.0 0.0 1.0 2.0 -2.0 -1.0 0.0 1.0 2.0 A p 2 00 A p 200 r 6 r2 6 Ju 2 00 Ju 00 l 6 l 6 O c 2 00 O 200 t 6 ct 6 Jan 2 0 Ja 200 06 n 6 A p 2 00 A p 20 r2 7 r 2 07 Ju 00 Ju 00 l 7 l 7 O 2 00 O 200 ct 7 ct 7 Jan 2 00 Ja 200 7 n 7 A p 2 00 A p 200 r 8 r2 8 J u 2 00 J u 00 l 8 l 8 Value O 2
Slide 32: Three independent levels of risk management control
Risk Management 10-IB-10107 Three independent levels of risk management control Rigorous risk management, through a sophisticated approach to risk budgeting and a risk control process adhering to HSBC Group’s guidelines HSBC Global Asset Management HSBC Group Portfolio Risk Manager First Level Sec
Slide 33: Market Overview
Market Overview HSBC €> Global Asset Management
Slide 34: Hard landing is unlikely in China
Hard landing is unlikely in China Consensus forecast of real GDP growth We believe given Chinese government’s favorable position to use fiscal and monetary 11 policy tools, a hard landing is unlikely C hina 10 China data year-to-date remains resilient 9 – Machine tool production +45% – Dept stor
Slide 35: Inflation is likely to fall in 2H11
Moreover, inflation is likely to fall in 2H11 Headline CPI number came out at 6.5%, mostly driven by high pork price, which is temporary The base effect of CPI is coming off too, which will lead to lower headline numbers in the coming months CPI composition and forward projection 7 Projection CP
Slide 36: Chinese equities may have bottomed
Chinese equities may have bottomed In 2004, China H shares bottomed 4 months prior to the peak in inflation in August As inflation peaks in 2011, we expect PE to normalise and the market to re-rate CPI High August 2004 5,200 5.5 5,000 5.0 4,800 4.5 NJA CPI (YoY%) HSCEI 4,600 4.0 4,400 3.5 4,200
Slide 37: Valuations are attractive
Valuations are attractive MSCI China is trading 1 std dev. below its 5 year average and poses an attractive entry point for investors MSCI China 12mth forward PE 3 0 .0 PE 12M Fw d Mean +/-1 Std 2 5 .0 2 0 .0 1 5 .0 1 0 .0 5 .0 0 .0 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Ju
Slide 38: HSBC GIF Chinese Equity Fund - Overview
HSBC GIF Chinese Equity Fund - Overview
Slide 39: Investment Vehicle
Investment Vehicle Fund type and domicile UCITS III Luxembourg SICAV part of the HGIF range Launch Date 25/06/1992 Base Currency USD Benchmark* MSCI China 10/40 Capped Liquidity Daily Minimum Investment – Institutional Share Class USD 1,000,000 – Retail Share Class USD 5,000 Fee Struct
Slide 40: HSBC GIF Chinese Equity Fund – Sector weightings
HSBC GIF Chinese Equity Fund – Sector weightings* Sector Weightings Sector Weightings versus Benchmark* Industrials Cash 3.1% 2.9% Utilities 5 0.6% 4 3.61 3.20 Consumer 2.40 3 Discretionary 2 1.12 4.6% 1 0.23 Information 0 Technology Financials -1 7.3% 38.9% -0.92 -2 -1.39 -1.29 Materials -3 10.0% -
Slide 41: Overview individual stock exposures
HSBC GIF Chinese Equity Fund – Overview individual stock exposures* Top 10 Holdings Top 5/Bottom 5 versus Benchmark** Company Sector Top 5 and Bottom 5 Relative weight (%) Industrial & Commercial Bank of China Financials (*) AIA Group 2.51 China Mobile Financials Yanzhou Coal Mining 2.47 CNOOC Energ
Slide 42: Performance Net – AC Share Class
Performance Net – AC Share Class 1000 900 800 700 600 500 400 300 200 100 0 Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Apr-99 Aug-99 Apr-00 Aug-00 Apr-01 Aug-01 Apr-02 Aug-02 Apr-03 Aug-03 Apr-04 Aug-04 Apr-05 Aug-05 Apr-06 Aug-06 Apr-07 Aug-07 Apr-08
Slide 43: Performance Net – IC Share Class
Performance Net – IC Share Class 400 350 300 250 200 150 100 50 Apr-07 Apr-08 Apr-09 Apr-10 Jul-05 Oct-05 Apr-06 Oct-08 Jan-06 Jul-06 Oct-06 Jan-07 Jul-07 Oct-07 Jan-08 Jul-08 Jan-09 Jul-09 Oct-09 Oct-10 Apr-11 Jan-10 Jul-10 Jan-11 HSBC GIF Chinese Equity IC USD MSCI China 10-40 NR USD 30/ 06/ 2005
Slide 44: Quarterly Performance attribution – Sector
Quarterly Performance attribution – Sector 31/03/2011 to 30/06/2011 Port. Avg BM Avg Allocation Selection + Top 5 sector Total Effect Weight Weight Effect Interaction Financials 36.18 36.78 0.01 0.51 0.52 Materials 9.40 6.54 -0.13 0.63 0.50 Industrials 5.17 7.84 0.22 0.00 0.22 Health Care 0.00 0.81
Slide 45: Quarterly Performance attribution – Stock
Quarterly Performance attribution – Stock 31/03/2011 to 30/06/2011 Port. Ending Benchmark Relative Top 5 stock Sector Total Effect Weight Weight Weight Evergrande Real Estate Group Financials 1.52 0.50 1.03 0.20 Yanzhou Coal Mining Co. Energy 3.55 1.08 2.47 0.19 China State Construction Internationa
Slide 46: Competitor Analysis
Competitor Analysis HSBC €> Global Asset Management
Slide 47: Competitor Analysis
Competitor Analysis Comparative Advantage ► HSBC Chinese equity Fund recently have a manager change with a new investment process ► The fund sits in 1st quartile in YTD performance in Morningstar China Equity Sector ► Lipper FMI Equities Greater China sector had -$788m outflows over the past 12 mont
Slide 48: Competitor Analysis
Competitor Analysis 48 Source: Morningstar Direct, Lipper FMI, June 2011
Slide 49: Outlook
Outlook HSBC €> Global Asset Management
Slide 50: Sector views
Sector views Sector Positioning Comments Energy Neutral Cautious on the back of slowing global economic growth We prefer Gold as a defensive play in the current market situation Materials Neutral and we are cautious regarding commodities Information Technology Neutral Intensifying price compet
Slide 51: Appendix
Appendix HSBC €> Global Asset Management
Slide 52: Mandy Chan, Investment Director, Chinese Equities
Mandy Chan, Investment Director, Chinese Equities Ms Chan has been working in the asset management industry since 1997. She is currently heading the Chinese Equities team and works closely with portfolio managers and sector analysts based in Hong Kong and Shanghai. Prior to joining the firm in Decem
Slide 53: Important information
Important information This presentation is intended for Professional Clients only and should not be distributed to or relied upon by Retail Clients. 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 par
Slide 54: Important information (cont'd)
Important information (cont’d) MSCI Index – The MSCI information may only be used for your internal use, may not be reproduced or redisseminated in any form and may not be used to create any financial instruments or products or any indices. The MSCI information is provided on an ‘as is’ basis and th
HSBC Global Asset Management — Investor Presentation (September 2011) on 6ix