An introduction to HSBC Asset Management

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2H 2002 investment review
HSBC Asset Management (Hong Kong) Limited 15/F
Citibank Tower, 3 Garden Road, Hong
Kong Telephone [phone] Facsimile
852 2845 0226 Web site www.assetmanagement.hsbc
.com.hk
February 2003
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Agenda
Investment performance
Market outlook
Factors for consideration before switching
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Investment performance
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Market statistics October to December 2002
Currencies
Bonds
Equities
Bonds Salomon Smith Barney World Government
Bond Indices Equities USA (SP 500), UK
(FTSE-100), Germany (DAX), Japan (Nikkei 225),
Hong Kong (HSI), Australia (All Ordinaries),
Malaysia (KLSE Composite), Singapore (STI)
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Market statistics July to December 2002
Currencies
Bonds
Equities
Bonds Salomon Smith Barney World Government
Bond Indices Equities USA (SP 500), UK
(FTSE-100), Germany (DAX), Japan (Nikkei 225),
Hong Kong (HSI), Australia (All Ordinaries),
Malaysia (KLSE Composite), Singapore (STI)
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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
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Investment performance January 2003
Source HSBC Asset Management
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Investment performance October to December 2002
Source HSBC Asset Management, Watson Wyatt
Managed Fund Report
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Investment performance July to December 2002
Source HSBC Asset Management
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Investment performance since inception (Mar 98 to
Jan 03)
(3/99)
Source HSBC Asset Management
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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 Oth
er Asia Pac. 12.0 14.0 9.0 11.2 6.5 8.4 4.0 5.5 T
otal 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 N
on US Bonds 5.4 5.4 19.3 20.8 33.2 46.4 45.6 Tot
al 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
() () () () () () () () ()
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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 Koreas 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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HSBC Asset Management Investment Strategy
Asset class preference
Equities / Cash / Bonds (neutral)
Regional investment weightings
least preferred markets
Most preferred markets
Asia ex. HK/JP
HK
Japan
Europe ex. UK
US
Global Emerging Markets
UK
Canada
Australia
Data as at 4 February 2003
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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.
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Factors for consideration before switching
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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/corporation
  s
• Returns from interest payments
• Short term volatility lower than equities
• Cash
• Very low short term volatility

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Examination of investment markets
Calculated in HK terms Source Thomson
Financial Datastream
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Examination of investment markets cumulative
return 1989-2002
Calculated in HK terms Source Thomson
Financial Datastream
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Dollar cost averaging

• e.g. HSBC Holdings

Source Thomson Financial Datastream
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The more aggressive the fund, the wider the range
of likely returns
Annalised return ()
Source HSBC Asset Management
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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!
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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!!
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Range of investment choices

• Different people have different needs

Therefore
Investment choices are provided for different
risk profiles