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HSBC — HSBC Global Asset Management — Non-Deal Roadshow (September 2011)
68 slides from HSBC's roadshow presentation, September 2011
Slide 1: HSBC GIF Indian Equity Presentation
September 2011 HSBC GIF Indian 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 Indian 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: 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 11: Investment Team
Investment Team 11-IB-10022 Bill Maldonado[18yrs]* Chief Investment Officer, Asia-Pacific Strategy Chief Investment Officer, Equities Monthly portfolio review meeting Research Insights Indian Equity Team Investment Support Regional Sector Analysts (7) Lead Portfolio Manager Sanjiv Duggal [20yrs]* Re
Slide 12: India Equity Team
India Equity Team Years of experience Years of industry Name Role with the Group experience Key Manager 1: 15+ years at HSBC Indian Portfolio Management Team (Country Specialist – India) Sanjiv Duggal Fund Manager 15 20 Key Manager 2: 8+ years at Viresh Mehta Fund Manager 9 19 HSBC; 5 key member
Slide 13: Indian Equity Capabilities
Indian Equity Capabilities Indian Equity India Alpha Fund Objective To be in the Top 1/3 of peers on a rolling 3-year basis To achieve 20%-25% gross return# in USD per annum Benchmark IFC Investable India N/A Typical number of holdings 60-100 40-80 Ex-ante tracking error 4%-12% N/A S
Slide 14: Investment Philosophy and Process
Investment Philosophy and Process
Slide 15: Investment Philosophy
Investment Philosophy 11-IB-10022 We believe that the Indian equity market is inefficient, and that it can stay inefficient for some time The Indian market is sentiment and rumour/noise driven in the short term The Indian market can be volatile due to the large options and futures markets Th
Slide 16: Investment Process Overview
Investment Process Overview 11-IB-10022 Business Cycle Analysis Stock Analysis Portfolio Construction Risk Monitoring • Formulate view on Indian Qualitative Inputs: Implement investment ideas Continuous assessment of: and Global business and • Industry dynamics based on • Risk limits and guidelines
Slide 17: Investment Process - Business Cycle Analysis (1)
Investment Process - Business Cycle Analysis (1) 11-IB-10022 Formulate sector & thematic positioning Evaluate the Indian and global business cycle and determine cyclical directions – Focus on inflection points Identify structural drivers of the Indian economy – Changes in government policy, for
Slide 18: Investment Process - Business Cycle Analysis (2)
Investment Process - Business Cycle Analysis (2) 11-IB-10022 Unique and disciplined investment process to identify and capture opportunities India Investment Process Business Cycle Investing Value biased Defensive Growth Global Cycle Indian Cycle Government Policy Secular/ Structural opportunities G
Slide 19: Investment Process - Stock Analysis (1)
Investment Process - Stock Analysis (1) 11-IB-10022 In-depth analysis of stocks The in-depth Stock Analysis combines qualitative and quantitative analysis The qualitative analysis is based on individual assessment of: – Industry dynamics – Business model – Management quality / strategy – Competiti
Slide 20: Investment Process - Stock Analysis (2)
Investment Process - Stock Analysis (2) 11-IB-10022 Qualitative assessment Driver Focus Management Effective management Strategy Defined strategy for earnings growth, cash flows and returns on capital Advantage Identifiable competitive advantage within sector Operations/Financials Efficient o
Slide 21: Investment Process
Investment Process 11-IB-10022 Construct optimal long portfolio within defined trading limits Implement investment ideas based on – Sector and thematic views – active bet size – Upside to relative and absolute fair value – Stock conviction level – active bet size – Risk limits and client guideline
Slide 22: Investment Process
Investment Process 11-IB-10022 Monitor portfolio positions and adjust if necessary The portfolio is monitored by independent risk monitoring teams External risk monitoring is overseen by an independent Risk Management department within HSBC Global Asset Management The team continuously monitor
Slide 23: Risk Management
Risk Management HSBC €> Global Asset Management
Slide 24: 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 Indian market. Framework Investment Team Operational Control Parent Oversight Portfolio Manager Risk Control HSBC
Slide 25: Risk Control
Risk Control 11-IB-10022 Define Risk Limits The long portfolios are constructed typically taking the following risk limits into consideration Factor Single name exposure 10% Cash weighting Maximum of 10% Benchmark weight Max sector exposure 0-10% 3x benchmark weight Sector Limits 10-20% 2x benchma
Slide 26: Sell Discipline
Sell Discipline 11-IB-10022 Portfolio managers adhere to a strict sell discipline that may be triggered by any of the following: – A change in our sector and thematic views driven by our investment process – A fundamental deterioration in a stock – Adverse changes in management and strategy – Corp
Slide 27: Trade Implementation
Trade Implementation 11-IB-10022 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 28: 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 29: Risk Management
Risk Management 11-IB-10022 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 30: Market Overview
Market Overview HSBC €> Global Asset Management
Slide 31: India = a must-have allocation for growth portfolios
India = a must-have allocation for growth portfolios * Vision 2020 • Over 7% CAGR in GDP in this decade • To remain amongst fastest growing large economies • Nominal economy to treble in size Favourable demographics • India's population expected to cross China‘s by 2025 • One of the largest labo
Slide 32: Valuations close to 10-year average
Valuations close to 10-year average 26 MSCI India 12M Fwd PE, 1995-2011 MSCI India Fwd PE Dec 07 23 Feb 00 20 5 Yr Avg (16.3) 17 Dec 03 14 10 Yr Avg June (14.4) 2011 11 (14.5) Nov-98 Sep 01 Apr 03 Nov 08 8 2000 2002 2003 2004 2005 2006 2010 2011 2001 1998 1999 1997 1995 2007 2009 1996 2008 Consens
Slide 33: Great growth potential – Rising GDP per capita on a PPP basis
Great growth potential Rising GDP per capita on a PPP basis India China (US$) 14,000 China >2.2x 12,000 India in 2010 I ndia inf le ct ion poin t ? 10,000 Chin a inf le ct ion point 8,000 India > China 6,000 in 1990 4,000 2,000 - 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 Upd
Slide 34: India vs. China – great growth potential
India vs. China great growth potential 12,000 Nominal GDP (US$ bn) 10,000 China's 2009 GDP 8,000 India's 2009 GDP 6,000 4,000 2,000 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11 Year 12 Year 13 Year 14 Year 15 Year 16 Year 17 Year 18 Year 19 Year 20 Year 21 Year
Slide 35: Bullish economy in short, medium & long term
Bullish economy in short, medium & long term Over 7% CAGR GDP growth expected over decade to 2020 25 %y/y Real 10.0 Real GDP %y/y 20 GDP Industry 9.0 15 (incl. constr.) Services 8.0 10 7.0 5 6.0 0 -5 5.0 Agriculture -10 4.0 -15 3.0 Mar-02 Mar-03 Mar-04 Mar-05 Mar-07 Mar-09 Mar-10 Mar-11 Mar-06 Mar-0
Slide 36: Favourable demographics support consumption & economic growth
Favourable demographics support consumption & economic growth Over 30% of population below age 15 Percentage of the population below the age of 15 India 30.6 Indonesia 27.0 Brazil 25.5 US 20.1 China 19.5 France 18.4 Denmark 18.0 UK 17.4 Canada 16.4 Germany 13.5 Japan 13.4 10 15 20 25 30 35 Rising
Slide 37: HSBC GIF Indian Equity Fund - Overview
HSBC GIF Indian Equity Fund - Overview
Slide 38: Investment Vehicle
Investment Vehicle Fund type and domicile UCITS III Luxembourg SICAV part of the HGIF range Launch Date 04/03/1996 Base Currency USD Benchmark* IFCI India Liquidity Daily Minimum Investment – Institutional Share Class USD 1,000,000 – Retail Share Class USD 5,000 Fee Structure – Institu
Slide 39: HSBC GIF Indian Equity Fund – Sector weightings
HSBC GIF Indian Equity Fund – Sector weightings* Sector Weightings Sector Weightings versus Benchmark* Telecommunication Cash Services 1.8% 8 6.78 Utilities 1.9% 6 2.1% Financials 3.06 3.48 19.2% 4 2.46 Consumer Staples 6.1% 2 0.08 Health Care 0 7.9% -2 -0.93 -1.81 -4 -3.44 Energy -3.78 8.7% Informa
Slide 40: Overview individual stock exposures
HSBC GIF Indian Equity Fund – Overview individual stock exposures* Top 10 Holdings Top 5/Bottom 5 versus Benchmark** Company Sector Portfolio Weight % Top 5 and Bottom 5 Relative weight (%) HCL Technologies Information Technology 9.67 HCL Technologies 9.19 Maruti Suzuki Consumer Discretionary 8.75 M
Slide 41: Performance Net – AC Share Class
Performance Net – AC Share Class 3000 2500 2000 1500 1000 500 0 Feb-96 Feb-97 Feb-98 Feb-99 Feb-00 Feb-01 Feb-02 Feb-03 Feb-04 Feb-05 Feb-06 Feb-07 Feb-08 Feb-09 Feb-10 Feb-11 HSBC GIF Indian Equity AC USD S&P/IFCI India TR USD 30/06/2005 to 30/06/2006 to 30/06/2007 to 30/06/2008 to 30/06/2009 to 30
Slide 42: 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 Information Technology 15.47 14.58 0.05 0.83 0.88 Energy 9.36 17.11 0.47 -0.28 0.20 Telecommunication Services 2.30 3.57 -0.09 0.14 0
Slide 43: Quarterly Performance attribution – Stock
Quarterly Performance attribution – Stock 31/03/2011 to 30/06/2011 Portfolio Benchmark Relative Top 5 stock Total Effect Weight Weight weight HCL Technologies Ltd. 9.67 0.47 9.19 0.58 Maruti Suzuki India Ltd. 8.75 0.47 8.29 -0.52 Cairn Energy PLC 7.56 0.00 7.56 -0.56 Jindal Steel & Power Ltd. 6.82 1
Slide 44: Competitor Analysis
Competitor Analysis HSBC €> Global Asset Management
Slide 45: Competitor Analysis
Competitor Analysis Comparative Advantage ► The fund sits in the top decile in 2009 ► Lipper FMI Equities India sector had -$979m outflows 12 months to May 2011 ► HSBC Indian Equity Fund has AUM $5.6bn with -$881m outflows in the past 12 months 12 months net Fund Name 3 months net sales to May 2010
Slide 46: Competitor Analysis
Competitor Analysis Source: Morningstar Direct, Lipper FMI, June 2011 46
Slide 47: Outlook
Outlook HSBC €> Global Asset Management
Slide 48: Net foreign direct & portfolio investments
Net foreign direct & portfolio investments Big contrast New FDI inflows likely in retail, insurance, aviation, banking, etc when FDI restrictions are relaxed Pharma sector limits to be tightened? Source: RBI, SEBI, Motilal Oswal. FDI is excl acquisitions and 2QCY11 QTD FDI is as of 30 April 2011
Slide 49: Who is right in the flow fight?
Who is right in the flow fight? Daily institutional flows Source: SEBI, NSE, Motilal Oswal. as of 7 July 2011 For illustrative purposes only and does not constitute any investment recommendation to buy or sell in the above-mentioned index. 49
Slide 50: A study in contrast
A study in contrast India underperforms the US by over 22% in recent months; was over 30% in February 130 QE II 120 announced 110 100 90 80 Nov-10 Nov-10 Jan-11 Jan-11 Jun-11 Jun-11 Mar-11 Mar-11 Sep-10 Oct-10 Oct-10 Feb-11 Feb-11 Apr-11 Apr-11 May-11 May-11 Dec-10 Dec-10 S&P 500 Dollex QE II was
Slide 51: Export growth in Asia: who is leading the pack?
Export growth in Asia: who is leading the pack? India reacts with faster export growth in Q1 CY2011 Exports growth, YoY, 3-month moving average 50% 60% 45% 40% 40% 35% 20% 30% 25% 0% 20% 15% -20% 10% 5% -40% 0% Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 India China Korea Singapore Taiwan China
Slide 52: India is close to the head of the pack
India is close to the head of the pack Revenue share of export-oriented sectors in Asia 90% 2011 revenue share from 80% 70% Export/USD-denominated 60% sectors for FY12/CY11 50% 40% 30% 20% 10% 0% Singapore Hong Kong Indones ia Malays ia China Korea India Taiwan 2010 Exports as % of GDP 200 180 160 1
Slide 53: FY12 Union Budget – The Inclusive Growth Mantra
FY12 Union Budget – The Inclusive Growth Mantra Fiscal deficit for FY12 targeted at 4.6% (FY11 estimated at 5.2%) Fiscal deficit targeted to be brought down to 3.5% by FY14 Assumed nominal GDP growth of 14% appears conservative Moderate tax rates and simplify system, introduce Direct Taxes C
Slide 54: Inflation – a concern being addressed
Inflation – a concern being addressed Outlook: we expect RBI to raise policy rates by 25-50 bps by March 2012 Growth Expectation Inflation forecast RBI 8% 6% + Our View 7.5-8% 7.5-8% Food wastage: 40% of fruit and vegetable production wasted (Budget Speech) Source: CLSA Asia Pacific Markets, RBI
Slide 55: Corruption
Corruption Multiple corruption / bribery issues affected market sentiment in recent months 2G Telecom ‘scandal’ from early 2008 New Delhi Commonwealth Games Raids on financial institutions in 4th quarter 2010 Food, fertiliser and fuel subsidy losses Leakage to be reduced substantially by
Slide 56: Path to UID implementation
Path to UID implementation 700 m C umulative enrollments 600 500 European Union 400 Russia + Brazil 300 France + Germany + Russia 200 France + Germany 100 France - Aug-10 Oct-10 Dec-10 Feb-11 Aug-11C L Aug-13C L Aug-15C L Source: UIDAI = Unique Identification Authority in India, CLSA Asia-Pacific Ma
Slide 57: Building up Infrastructure
Building up Infrastructure Investments have slowed due to global crisis, tough stance taken by the Environment Minister, corruption / bribery issues, Cabinet Minister changes, lack of policy clarity Investments to pick up post monsoon: Environment Minister clearing projects Positive Minister
Slide 58: Infrastructure investment at an inflection point
Infrastructure investment at an inflection point 12th Plan investment targeted at >USD 1,000Bn 1,200 4.5x 1,025 1,000 800 2.3x 600 514 400 227 200 0 10th Plan actual 11th Plan revised 12th Plan target 5 year periods ending 31 March 2007, 31 March 2012, etc Infrastructure investment in 11th Plan re
Slide 59: In high spirits (1)
In high spirits (1) Shift from local liquor to branded liquor is seen Beer (litres/capita) 120 108.2 100 88.7 77.3 150m people to 80 70.4 64.4 reach drinking age in next 5 years – 60 30% higher than 40 31.3 existing base of ~485m 20 1.5 0 Germany Australia USA UK Brazil France India Rising aspiratio
Slide 60: In high spirits (2)
In high spirits (2) Shift from local liquor to branded liquor is seen Spirits (litres/capita) 8 7.1 7 6.3 5.7 6 5.4 5.2 5 4 2.9 3 1.7 2 1 0 Brazil France Germany USA UK Australia India Wines (litres/capita) 45 39.1 40 35 30 26.2 23.4 25 19.7 20 15 8.7 10 2.3 5 0.0 0 France Germany UK Australia USA B
Slide 61: Housing remains affordable – overweight real estate
Housing remains affordable – overweight real estate Property Cost - RHS Annual Income - RHS Affordability - LHS 25 4.0 22.0 20 3.2 15.6 15 2.4 No of Times INR mn 11.1 10 8.3 1.6 6.6 5.9 5.3 5.1 4.6 5.0 5.1 5.0 4.5 4.7 4.7 4.3 5 0.8 0 0.0 FY01 FY03 FY05 FY00 FY02 FY04 FY06 FY96 FY98 FY10 FY97 FY99 FY
Slide 62: Conclusion
Conclusion Investment spend delayed due to government inaction and tight monetary policy Consumption to remain bouyant; near normal monsoon forecast Corruption issue has peaked – UID scheme will reduce subsidy losses Closely monitor government action on policy and reforms Monitor trends in
Slide 63: Appendix
Appendix HSBC €> Global Asset Management
Slide 64: Investment team – continuity over 14+ years
Investment team continuity over 14+ years 5 key people who first worked together in 2004 Sanjiv Duggal – Fund Manager Sanjiv joined HSBC in April 1996 and is responsible for the management of Indian equities. With over 16 years of investment experience, Sanjiv has been involved in running the fl
Slide 65: Investment team – continuity over 14+ years
Investment team continuity over 14+ years 5 key people who first worked together in 2004 Divya Balakrishnan – Investment Analyst Divya is assisting the fund management team in researching sectors and stocks for their portfolio. She joined HSBC Singapore in July 2005 as a Management Associate, prio
Slide 66: Investment team – continuity over 14+ years
Investment team continuity over 14+ years 5 key people who first worked together in 2004 Singapore Support Team Roshan Padamadan – Product Specialist Roshan joined HSBC in 2006. He became the Product Specialist for South and Southeast Asian Equities in June 2010, based out of Singapore. He has pre
Slide 67: 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 68: 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
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