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February 2003
Hong Kong Baptist University1998 Superannuation Fund
HSBC Asset Management (Hong Kong) Limited15/F Citibank Tower, 3 Garden Road, Hong Kong
Telephone: +852 2284 1111 Facsimile: +852 2845 0226Web site : www.assetmanagement.hsbc.com.hk
2H 2002 investment review
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Investment performance
Market outlook
Factors for consideration before switching
Agenda
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Investment performance
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* 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)
7.9 5.9 4.5
-8.6
2.7 1.6 1.3
-0.8
10.9
-6.2
2.75.3
1.3 1.6
8.47.9
USA UK Germany J apan Hong Kong Australia Malaysia Singapore
%
% Change (Local) % Change (HKD)
Currencies
Bonds *
Equities **
2.6
6.2
2.43.6
J apan Euro UK Australia
%
%Change (against HKD)
Market statistics: October to December 2002
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-11.1 -15.4-34.0
-19.2 -12.1 -5.9-10.9 -13.6
-29.9-18.4
-12.1 -5.7-10.9 -12.1-10.6-11.1
USA UK Germany J apan Hong Kong Australia Malaysia Singapore
%
% Change (Local) % Change (HKD)
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)
1.0
6.2 5.6
0.3
J apan Euro UK Australia
%
%Change (against HKD)
Market statistics: July to December 2002
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More suitable forrisk tolerant staff
Balanced FundMore suitable forrisk averse staff
High Growth Fund
Growth Fund
Risk (short-term volatility)
Global Money Funds (HKD/USD)
High
Low High
Stable Fund
Lo
ng
-ter
m p
ote
nti
al r
etu
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Risk profile of various investment options
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-1.0 -0.4
0.3 1.0 0.1 0.1
-1.2 -0.7
0.4 0.0 0.1
-0.1
-15
-10
-5
0
5
10
15
HighGrowthFund
Growth Fund
BalancedFund
Stable Fund
GMF – HKDFund
GMF – USDFund
Return %
HKBU Benchmark
Source: HSBC Asset Management
Investment performance: January 2003
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2.93.5 3.2 3.0
0.4 0.3
4.1 3.7 3.3 3.3
0.3 0.3
4.5 4.64.1
3.5
0.0 0.4
-5
0
5
10
High GrowthFund
Growth Fund BalancedFund
Stable Fund GMF – HKDFund
GMF – USDFund
Return %
HKBU W.W. Median Benchmark
Source: HSBC Asset Management, Watson Wyatt Managed Fund Report
Investment performance: October to December 2002
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-12.1
-8.2
-4.3
-0.9
0.8 0.7
-10.7
-6.6
-2.7
1.30.1 0.8
-15
-10
-5
0
5
10
15
High GrowthFund
Growth Fund
BalancedFund
Stable Fund
GMF – HKDFund
GMF – USDFund
Return %
HKBU Benchmark
Source: HSBC Asset Management
Investment performance: July to December 2002
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-11.1 -9.2
1.5
11.316.7
28.0
-35
-25
-15
-5
5
15
25
35
High GrowthFund
Growth Fund BalancedFund
Stable Fund GMF – HKDFund
GMF – USDFund
Return %
HKBU
(3/99)
Source: HSBC Asset Management
Investment performance since inception (Mar 98 to Jan 03)
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EquitiesHong Kong 30.0 28.6 24.0 23.3 17.0 16.2 10.0 9.2N. America 18.0 17.3 14.0 13.6 10.0 9.6 6.0 5.6Japan 12.0 10.7 9.0 7.3 6.5 5.3 4.0 3.2Europe 18.0 17.9 14.0 14.4 10.0 9.6 6.0 4.8Other 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
BondsUS Bonds 1.6 2.0 5.7 6.2 10.3 13.6 14.4Non 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
EquitiesHong Kong 30.0 28.6 24.0 23.3 17.0 16.2 10.0 9.2N. America 18.0 17.3 14.0 13.6 10.0 9.6 6.0 5.6Japan 12.0 10.7 9.0 7.3 6.5 5.3 4.0 3.2Europe 18.0 17.9 14.0 14.4 10.0 9.6 6.0 4.8Other 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
BondsUS Bonds 1.6 2.0 5.7 6.2 10.3 13.6 14.4Non 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 GMFHigh Growth Growth Balanced Stable HKD / USD
Bmk Fund Bmk Fund Bmk Fund Bmk Fund Fund(%) (%) (%) (%) (%) (%) (%) (%) (%)
Asset allocation – 31 December 2002
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Market outlook
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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%)
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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%)
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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%
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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
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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
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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.
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Asset class preference : Equities / Cash / Bonds
(neutral)
Data as at 4 February 2003
Asia ex.HK/JP
HK JapanEurope ex. UK
USGlobalEmergingMarkets
least preferred markets
Regional investment weightings
UK Canada Australia
Most preferred markets
HSBC Asset Management Investment Strategy
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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.
HSBC Asset Management (Hong Kong) Limited
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Factors for consideration before
switching
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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
Principles of retirement investment
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-40
-30
-20
-10
0
10
20
30
40
12/88 12/90 12/92 12/94 12/96 12/98 12/00 12/02
Mon
thly
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*
Cash (3-month HKD Deposit Rate)Global Bonds (Salomon Smith Barney World Government Bond Index)Global Equities (MSCI World Index)Hong Kong Equities (Hang Seng Index)
-40
-30
-20
-10
0
10
20
30
40
12/88 12/90 12/92 12/94 12/96 12/98 12/00 12/02
Mon
thly
retu
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*
Cash (3-month HKD Deposit Rate)Global Bonds (Salomon Smith Barney World Government Bond Index)Global Equities (MSCI World Index)Hong Kong Equities (Hang Seng Index)
* Calculated in HK$ termsSource: Thomson Financial Datastream
Examination of investment markets
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* Calculated in HK$ termsSource: Thomson Financial Datastream
-100
0
100
200
300
400
500
600
700
800
900
12/88 12/89 12/90 12/91 12/92 12/93 12/94 12/95 12/96 12/97 12/98 12/99 12/00 12/01 12/02
Cumulative return %*
Hong Kong CPI inflationCash (3-month HKD Deposit Rate)Global Bonds (Salomon Smith Barney World Government Bond Index)Global Equities (MSCI World Index)Hong Kong Equities (Hang Seng Index)
Examination of investment markets – cumulative return 1989-2002
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Dollar Cost Averaging : = +3.6%105-101.4 101.4
Buy
Sell
Buy
Buy
Sell
Sell
Maximum Loss : 89.3-109 104.5- 111 105-121.5 109 111 121.5
=- 37.5%+ +
Sell
Buy
Buy
Sell
Maximum Profit : 111-89.25 121.5-104.5 89.25 104.5
=+40.6%+
Dollar cost averaginge.g. HSBC Holdings
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-25
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50
HKD / USDMoney Market
Fund
Stable Fund
Balanced Fund
Growth Fund
High GrowthFund
95%Probability
Annalised return (%)
Source: HSBC Asset Management
The more aggressive the fund, the wider the range of likely returns
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Do not time / chase markets!Do not time / chase markets!
Please remember
Identify personal factors Establish risk / return profile
Understand investment choices
Make investment decisions using a long-term approach
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Different people have different needs!!Different people have different needs!!
A guide to investing
Factors to consider Years to retirement
Other personal assets
Planned uses for retirement assets
Financial and other personal circumstances
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Therefore Therefore
Different people have different needs
Investment choices are provided for different risk profiles
Investment choices are provided for different risk profiles
Range of investment choices