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Allocating to Asia
Key considerations for including Asia in a global portfolio
under current market conditions
January 2020
The information contained in this publication is not intended as investment advice or recommendation. Non contractual document. This commentary provides
a high level overview of the recent economic environment, and is for information purposes only. It is a marketing communication and does not constitute
investment advice or a recommendation to any reader of this content to buy or sell investments nor should it be regarded as investment research. It has not
been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on
dealing ahead of its dissemination. The performance figures displayed in the document relate to the past and past performance should not be seen as an
indication of future returns. Any forecast, projection or target where provided is indicative only and is not guaranteed in any way. HSBC Global Asset
Management accepts no liability for any failure to meet such forecast, projection or target.
Contents
Executive summary 02
Strategic global themes 03
China index inclusion: Onshore assets go mainstream 04
Asia: Under-represented 05
Allocating to Asia:
Structural growth drivers: Asia’s expanding middle-class 06
Structural growth drivers: From a low-skilled to a high-skilled labour force 07
The search for income and yields 08
Two-way volatility 09
Asia’s tech push is advancing 10
Focus on fundamentals: Asian equities 11
Focus on fundamentals: Asian fixed income 12
Key takeaways – Why allocate to Asia? 13
One Asia, countless differences 14
HSBC Global Asset Management:
Experience in managing Asian assets 15
Asian investment capabilities 16
Key risks 17
Important information 18
1
Executive summary
Despite the “emerging” tag attached to many of the key economies and markets in the region, there is
ample evidence that the age of Asia is already upon us. The rest of the world is definitely taking notice
and China’s increasing representation in global indices is one example of this growing recognition of
Asia’s “too big to ignore” status. Through their ongoing reform agendas, a number of key economies in
Asia are trying to foster long term sustainable growth and create economic environments appealing to
foreign businesses and investments.
Though slowing global economic growth has had an impact on Asia, the pillars that support robust long-
term growth in the region – an expanding middle class, an upgrading labour force, and supportive
economic reforms – still stand strong, injecting fuel into Asia’s economic engine. Asia’s swiftness in
adopting, and oftentimes innovating, new technology means that its technological gap with the
developed world is closing, further bolstering its comparative advantage. All these factors, tied together
with the fact that Asian equities and bonds are undervalued and underrepresented in world indices –
and consequently in global investors’ portfolios, make investing in Asia a very attractive proposition.
In this handbook, we delve into details of the aforementioned topics and outline some evolving
investment opportunities that span countries, sectors and industries across the region. We aim to
provide useful information to investors for their consideration in allocating to Asia.
2
Strategic global themes
In the pages to
come, let’s delve
deeper into these
Growth Technology
investment
Stabilising and resilient Big data, AI, and robotics
themes.
Global growth is stabilising, Along with the US, China is
and the risk of recession emerging as a leader in key
remains low technological arenas such as
After rate cuts from central big data, AI, and automation
banks across the board in China’s digital economy
2019, not much monetary accounted for approximately
policy easing, nor the need to 40% of its total GDP in 2018
do so, is expected in 2020 Internet penetration is steadily
Long term structural growth increasing in Asian
story remains intact and Asia’s economies; home-grown
share of global GDP is internet companies are
expected to approach 50% gaining traction
over the next two decades
Valuation Geo-Political risk
Attractive valuation Event-driven volatility
Fixed income yields have Trade tensions between the
tightened year to date, while US and China are abating
equity markets in many parts with a limited trade deal close
of the world have rallied to being realised
sharply The outcome of the US 2020
Asian credit offers superior presidential elections could
yields relative to comparable likely have limited impact on
US and Euro credits the economy and markets but
Asian equities are trading at a it will be an important factor
large discount to developed shaping future geo-political
markets, on both a PE and relations across the globe
PB basis; earnings growth The rising popularity of
remains strong in key markets nationalism might impede
globalisation to some extent
Any forecast, projection or target where provided is indicative only and is not guaranteed in any way. HSBC accepts no liability for any failure to meet such
forecasts, projections or targets. For illustrative purposes only.
3
China index inclusion: Onshore assets go mainstream
The past 24 months marked a watershed in the evolution of Chinese asset markets. In June 2018, MSCI began to
include China A-shares into its global equity indices for the first time and then increased the inclusion factor in
2019. In April 2019 Bloomberg began, a 20-month inclusion process to add China onshore bonds into its indices,
including one of the most widely tracked global bond indices that has an estimated tracking AUM of USD 2.5 trillion.
JP Morgan soon followed suit, by announcing the inclusion of onshore bonds into its Global Bond Index – Emerging
Markets over a 10-month period beginning in February 2020. These transformative developments are in part a
result of China’s steady efforts to open up its capital markets to global investors and implement reforms in its
financial markets. We believe China will continue to make incremental changes to liberalise its markets and its
efforts will be recognised through greater inclusion in due course.
China A-share equity: Slowly but surely China onshore bonds: RMB to become the
making progress fourth largest currency in index
MSCI has increased the inclusion factor of China A- Onshore Chinese bonds are no longer an off-
shares to 20% in a three-step process in 2019; the benchmark option for investors tracking Bloomberg
weight of China A-shares in MSCI Emerging Market Barclays Global Aggregate Index, which would, by
Index is now around 4.0% (as of 31 December default, have an allocation of 6.1% by the end of the
2019), from the previous 0.8% phased-in inclusion period in November 2020
In September 2019, S&P Dow Jones Indices added The Chinese yuan will end up being the fourth
the China A-shares under the Hong Kong largest currency in the index
Northbound route to its Global Benchmark Indices An estimated USD 150 billion of inflows is expected
with an Emerging Market classification, using an during the inclusion period
inclusion factor of 25%. This game-changing inclusion will transform the
FTSE Russell will increase the inclusion factor for way China bonds are represented, marking a
A-shares within the FTSE Global Equity Index tipping point for global fixed income investing
Series from 15% in September 2019 to 25% in
March 2020
Currency breakdown before and after
MSCI China A-share inclusion timeline inclusion of China bonds
Inclusion Market value of Bloomberg Barclays Global Aggregate Index
Period factor MSCI action on China A-shares 50%
Partial inclusion of China A
June 2018
5% large cap shares in two phases
Sept 2018 40%
(implemented)
Increase inclusion factor of
China A large cap shares. 30%
May 2019 10% ChiNext large cap shares are
eligible for inclusion beginning
May 2019 20%
From 0%
Increase inclusion factor of to 6.1%
Aug 2019 15% China A large cap shares, 10%
including ChiNext shares
Increase inclusion factor of 0%
China A large cap shares,
AUD
USD
EUR
CAD
KRW
JPY
SEK
Others
CNY
GBP
CHF
including ChiNext shares
Nov 2019 20%
Add China A mid cap shares,
including ChiNext shares, with
Weight before inclusion period (Mar 2019)
20% inclusion factor
Current weight (Dec 2019)
Projected end weight (Nov 2020)
Source: MSCI timeline, as of December 2019
Source: Bloomberg as of December 2019
Any forecast, projection or target where provided is indicative only and is not guaranteed in any way. HSBC accepts no liability for any failure to meet such
forecasts, projections or targets. For illustrative purposes only.
4
…yet Asia remains under-represented
Asia ex Japan’s share of global GDP is rising…
Asia’s world-beating growth, coupled with the GDP as % of world
implementation of key structural reforms, rising 90
consumption power and increasing innovation, has IMF
helped expand the region’s share of the world economy. 80 Estimates
Today, Asia ex Japan’s contribution to world GDP is
38%, having almost doubled in the last two decades. 70
Looking ahead, this economic contribution is expected
to continue to rise, further cementing Asia’s rising 60
Today, that
influence in the world, and exceeding 50% over the next proportion has
50 In 2000, Asia ex grown to 38%
two decades. Meanwhile, the inclusion of onshore Japan only made
Chinese equities and bonds in major global indices over up 21% of the
40
the past year has been an important step towards world’s GDP
facilitating better representation of Asia’s sizable 30
markets in these indices. Still, Asia’s capital markets At the current rate of growth,
remain grossly underrepresented. In the equity space, 20 Asia ex Japan could
Asia ex Japan accounts for a quarter of the global potentially overtake the rest
of the world by 2040
market capitalisation but has only a 10% representation 10
2022
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
2024
in MSCI’s global equity index. Similarly, bonds
outstanding in the Asia ex Japan region account for
approximately 21% of the total size of the global bond Asia ex Japan Rest of the world
market, yet only making up 6% of the global bond index. Source: IMF, data as of October 2019. GDP data is based on purchasing
power parity (PPP) share of world total
Yet Asia ex Japan remains
under-represented in equity indices …and in bond indices
Equity: Market size versus index representation Bonds: Market size versus index representation
The index weight is expected to increase as Bloomberg
60% When capital markets in Asia, including China A- 50% Barclays is in a 20-month inclusion process of adding
shares, go mainstream, the gap will likely narrow onshore Chinese bonds
50% 40%
40%
30%
30%
20%
20%
10%
10%
0% 0%
Asia ex United Western Japan South Asia ex United Western Japan South
Japan States Europe America Japan States Europe America
Market cap as % of world Index representation Bond size % of world Index representation
Source: Bloomberg, MSCI, as of 31 December 2019. Source: Bloomberg, MSCI, as of 30 November 2019. Bond index
Equity index used: MSCI All-Country World Index. used: Bloomberg Barclays Global Aggregate Index
Any forecast, projection or target where provided is indicative only and is not guaranteed in any way. HSBC accepts no liability for any failure to meet such
forecasts, projections or targets. For illustrative purposes only.
5Structural growth drivers
Asia’s expanding middle class
Asian economies - high growth, and a lot more potential
70,000 Asian economies are generally
Singapore
United States experiencing relatively high growth
60,000 despite some blips in the short term;
Australia
GDP per capita (current US$)
yet there is a lot of room for
50,000
Hong Kong (SAR) expansion, considering most countries
New Zealand
in Asia are still categorised as
40,000
European Union “developing”. With annual GDP per
Japan
South Korea capita of less than USD 10,000, many
30,000
fast growing Asian economies are still
20,000 lagging far behind their developed
peers in the region (e.g. Japan, Hong
10,000 Malaysia Kong (SAR), Singapore, etc.).
Thailand mainland China
Pakistan Indonesia
India These emerging Asian economies will
0
0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 continue to inch closer to the
GDP per capita growth (annual %) developed world, and in the process
generate investment opportunities in a
Source: IMF, HSBC Global Asset Management, data as of December 2018
broad range of sectors and industries.
A growing economy is usually accompanied by an expanding middle class.
Almost 9 in 10 of the next billion middle-class consumers in the world will
be Asian, according to research from Brookings. An expanding middle-
class fuels increasing demand for products and services, spawning the
birth of many new businesses eager to take advantage of a growing
consumer base. Private consumption now accounts for an increasing share
of many prominent Asian economies, a clear sign of the potential that lies
within Asia’s rapidly growing middle-class population.
Household consumption (as % of overall GDP)
60.0% 41.0%
59.3%
59.1%
58.8%
It is well-known that China’s 59.0% 40.0%
58.1% 58.0%
economy is transitioning from an
58.0% 57.6% 39.4% 39.0%
investment-driven one to being 39.4%
39.0%
more consumption-oriented.
57.0% 56.5% 38.0%
56.2% 38.0%
56.0%
Although it’s not brought up nearly 56.0% 37.5% 37.0%
as frequently, India’s economy is
36.7% 36.8%
also becoming increasingly 55.0%
36.3%
36.0%
consumption-driven over time. 35.6%
54.0% 35.0%
2010 2011 2012 2013 2014 2015 2016 2017 2018
India (LHS) China (RHS)
Source: IMF, CEIC, data as of December 2018
Any forecast, projection or target where provided is indicative only and is not guaranteed in any way. HSBC accepts no liability for any failure to meet such
forecasts, projections or targets. For illustrative purposes only.
6Structural growth drivers
From low-skilled to high-skilled labour force
Moving from farms to cities 90
The extent to which a country’s population is 80
urbanised is indicative of how advanced its economy
Urban Population (% of total)
is, because people living in cities tend to be engaged 70
in high-skilled and more productive employment.
60
It is clear that the demographics of developing Asian
economies are rapidly urbanising, but sizable 50
portions of the population in these countries still
reside in rural areas – their productivity potential 40
largely underutilised. More than 50% of Asia’s
30
population now live in cities but India’s rural
population (897 million) is still the largest in the world,
20
followed by China (564 million). By 2050, it is China India Indonesia Malaysia Thailand
projected that India will have added 405 million urban
dwellers, China 236 million. Increasing urbanisation 2009 2019 2029 (Est.) 2039 (Est.)
would translate to higher demand for infrastructure, Source: United Nations, Department of Economic and Social Affairs data
as of December 2019
property, consumer goods, technology, healthcare
and education.
As China’s economy grows, manufacturers have to pay ever-increasing wages, gradually eroding their initial
competitive edge of low labour costs. Faced with growing competition from lower cost manufacturing
centres such as Vietnam and Bangladesh, China has been making steady efforts to steer away from low-
skill manufacturing to high-tech manufacturing and services.
Chinese workforce – upgrade in progress
As it attempts to shake off the “world’s
Graduates R&D Personnel
factory” label, China has, in recent years,
5,500 3,100 been pushing for a skills upgrade of its labour
5,300 2,900
force, seeing it as a key driver of future
5,100 economic growth. China’s labour force is
2,700
4,900 indeed becoming more sophisticated over
4,700 2,500 time, with an ever increasing proportion of its
4,500 2,300 population receiving tertiary education.
4,300 2,100 Moreover, a growing percentage of China’s
4,100 workforce is engaged in R&D activities. Over
1,900
3,900
1,700
time, China has managed to climb up the
3,700
value chain in a number of industries, and in
3,500 1,500
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 some high tech areas Chinese companies are
now on par with or even ahead of its global
Graduates from tertiary education (per million inhabitants, LHS)
competitors.
R&D Personnel (full-time equivalents per million inhabitants, RHS)
Source: NBS China, data as of December 2018
Any forecast, projection or target where provided is indicative only and is not guaranteed in any way. HSBC accepts no liability for any failure to meet such
forecasts, projections or targets. For illustrative purposes only.
7The search for income and yields
How can an allocation to Asia boost income and yields
Yields for Asian credit are trading at a premium over
comparable US and Euro credit, despite improving
fundamentals for Asian credit
Asian equities are a good source of income as dividends
account for a significant portion of long-term shareholder
return. Careful balance sheet management, improvement in
corporate governance and focus on shareholder returns are
important factors supporting the attractive dividend payout of
Asian companies
Since the beginning of 2000, the Asia Pacific ex Japan index
has grown 172% just from dividend return, whereas dividends
have only contributed 98% to the world index
Dividends are a significant piece of long- Asian bonds offer higher yields vs global
term total shareholder return in Asia counterparts
Total return (price + dividends) since 2000 (%, yields)
490% 9.0
440% 8.0
390% 7.0
340%
6.0
290%
5.0
240%
4.0
190%
3.0
140%
2.0
90%
1.0
40%
-10% 0.0
Australia Asia Asia ex United Europe Japan Asia IG US IG Euro IG Asia HY US HY Euro HY
Pacific Japan States
ex Japan
Price return Dividend return 10Y average Now
Source: Bloomberg, MSCI, data between 31 December 1999 through 31 Source: Bloomberg, data as of 31 December 2019
December 2019. Regions are represented by respective MSCI indices
Investment involves risk. Past performance is not indicative of future performance.
Any forecast, projection or target where provided is indicative only and is not guaranteed in any way. HSBC accepts no liability for any failure to meet such
forecasts, projections or targets. For illustrative purposes only.
8Two-way volatility
Higher volatility, higher Asian assets: greater volatility but higher
reward returns
Asia is more volatile than its Expected return in USD
peers due to a number of
legacy reasons, such as 10.0%
greater reliance on exports, 8.0% AxJ Equity
Asia HY
lower market liquidity, 6.0% EUR Equity
US Equity
inefficient financial
infrastructure and potential for 4.0% Asia IG US HY
policy missteps 2.0% US IG EUR HY
EUR IG
But Asia continues to outpace 0.0%
developed markets in terms 0% 5% 10% 15% 20% 25%
of growth, so volatility actually Expected volatility
gives rise to more frequent
Source: HSBC Global Asset Management, data as of December 2019
and attractive mispricing
opportunities
Asia buys Asia New Asian bond issues allocation by regions
The shift in wealth from 100%
physical assets to financial
80%
assets, limitations on 54 55 59 62 61 67
60% 78 77 76 80
investing overseas and an
inherent home-bias have 40% 21 20 19 19 17
driven Asian investors to 20% 16
26 26 23 12 15 14 12
20 21 17
invest domestically 0% 10 9 10 8
2013
2014
2010
2011
2012
2015
2016
2017
2018
2019
Domestic investors tend to be
sticky and are less likely to
pull their money out of Asia in US Europe Asia
a risk-off scenario Source: J.P. Morgan, data as of September 2019
More self-reliant Asia’s largest export market is itself
As the region develops, Asian % of Asia’s exports that are intra-Asia
economies are increasingly 57%
trading amongst themselves
52%
Similarly the capital accounts
of key economies are in a 47%
much stronger position since
the Asian financial crisis, 42%
adding to the region’s overall
37%
resilience
As Asia is becoming more 32%
self-reliant, it will be less
27%
susceptible to negative
1988 1992 1996 2000 2004 2008 2012 2016
shocks emanating from other
parts of the world Source: WITS, data as of December 2018
Investment involves risk. Past performance is not indicative of future performance.
Any forecast, projection or target where provided is indicative only and is not guaranteed in any way. HSBC accepts no liability for any failure to meet such
forecasts, projections or targets. For illustrative purposes only. Stock market investments should be viewed as a medium to long term investment.
9Asia’s tech push is advancing
In an attempt to grow their economies, improve infrastructure, speed up urbanisation and move up the value chain,
many Asian markets are adopting technology-driven solutions to address long-standing economic and social
challenges. China, for instance, has invested heavily in industrial robots to address its rising labor cost and aging
population. At the same time, China has also pushed out a number of policies to encourage the adoption of electric
vehicles, in an effort to reduce air pollution in smog-choked cities.
China, the world’s biggest market for industrial robots since 2013, produced more robots in 2018 than the next
three countries – Japan, USA and Korea – combined, as part of its efforts to streamline production and
automate its supply chain. China ranks second in the number of artificial-intelligence companies, lagging only
behind the US, as companies seek to leverage the country’s vast troves of data and capital
Because of the scarcity of established financial institutions, large percentage of underbanked population and
low penetration of credit cards in many Asian countries, digital payment platforms are rapidly gaining in
popularity as the region, led by China, gradually embraces the notion of a cashless society
China is the leading market for industrial China has second largest number of AI
robots companies (end 2018)
'000 of units 0 500 1000 1500 2000 2500
133.2 US
140
China
120
UK
100
Canada
80 India
60 52.4
38.137.6 Israel
40 27.9 France
20 11.3 8.3 5.6 5.5 5.3 Germany
5 4.8 4.5 3.8 3.4
Sweden
0
Spain
USA
India
Japan
Germany
Thailand
Korea
Taiwan
Mexico
Singapore
Vietnam
Italy
Mainland China
France
Spain
Canada
Netherlands
Japan
Source: IFR World Robotics 2019 Outlook Source: Statista, as of August 2019
Internet economy (GMV*, USD $billion) China leads the world in annual electric
ASEAN markets vehicle sales
USDbn mn per year
30.0
300 USD282b
25.0
250
20.0
200
15.0
150
USD94b 10.0
100
5.0
50 USD31b
0.0
0 2015 2018 2021 2024 2027 2030
2015 2019E 2025E
China US Germany
Indonesia Malaysia Philippines
Rest of Europe France Japan
Singapore Thailand Vietnam UK Rest of World
Note: *GMV is short for Gross Merchandise Value Source: Bloomberg estimates, as of December 2019
Source: Google Temasek Bain e-Conomy SEA 2019 report
Any forecast, projection or target where provided is indicative only and is not guaranteed in any way. HSBC accepts no liability for any failure to meet such
forecasts, projections or targets. For illustrative purposes only.
10Focus on fundamentals: Asian equities
Sound and improving fundamentals in recent years
With a decreasing net debt-to-equity ratio, an increasing free cashflow per share, and a PE-ratio that trades at a
significant discount to those of developed markets, the fundamentals for Asian equities form an attractive backdrop
for investors considering the asset class.
Healthy balance sheets
Balance sheets of corporates in Asia have been improving on the back of rising margins and better
cashflows
Net debt-to-equity has fallen in markets across the region, helped by more disciplined capex spending and
improved balance sheet management
Attractive valuations
The Asia Pacific ex Japan equity market trades at a significant discount to other global markets. On price-to-
earnings terms, the discount is currently 19% versus developed markets; this current discount is larger than the
long-term average discount (since 1996) of 12%
Solid fundamentals for Asian equities
MSCI Asia Pacific ex Japan Index
Net debt-to-equity Price-to-earnings
70% 40
22.0
65% 35 20.6
60% 30 20.0
55% 25 18.0 16.6
50% 20 16.0
45% 15
14.0
40% 10
35% 5 12.0
30% 0 10.0
01/16
07/17
07/16
01/17
01/18
07/18
01/19
07/19
04/07
04/09
04/11
04/13
04/15
04/17
04/19
12/17
12/09
12/11
12/13
12/15
12/19
Asia Pacific ex Japan
Asia Pacific ex Japan free cashflow per share (USD) Developed markets
Source: MSCI, Bloomberg, data as of December 2019
Free cash flow and dividends
Higher free cashflow per share suggests that companies in Asia Pacific ex Japan are finding it easier to
generate profits
The positive trend, over the past decade, of increasing free cashflows implies a better potential for higher
dividend payments and share buybacks
Any forecast, projection or target where provided is indicative only and is not guaranteed in any way. HSBC accepts no liability for any failure to meet such
forecasts, projections or targets. For illustrative purposes only. Stock market investments should be viewed as a medium to long term investment.
11Focus on fundamentals: Asian fixed income
Solid fundamentals with diversification benefits
Solid bottom-up fundamentals
Bottom-up fundamentals remain solid, with the overall market seeing improving EBITDA ratios, lower leverage
and rising cash to debt ratios. For Asian IG corporates, leverage has come down to near historical lows.
Despite stronger credit fundamentals in the region, Asian credits are still trading at a yield premium over
comparable US and Euro credits. This should offer better value for Asian bond investors
Diversification of opportunities
Asian fixed income can potentially offer diversification in a global portfolio. Asian economies are in
different credit cycles as compared to developed markets and have low correlation of spread movements
versus other regions. Owing to this divergence, the risk return profile of a portfolio can be enhanced with Asian
bonds, as Asian bonds have achieved better risk adjusted returns over various periods
Investment in Asian local currency bonds can offer investors more drivers of return: in addition
to credit and interest rates, currency is a return driver that contributes to the low correlation of Asian credit
versus single currency credit
Solid fundamentals for Asian USD credit
35%
14.0 2.6
2.4 33%
12.0 2.2
2.0 31%
10.0 1.8
29%
1.6
8.0 1.4 27%
1.2
6.0 1.0 25%
20191H
2011
2012
2013
2014
2015
2016
2017
2018
20191H
2011
2012
2013
2014
2015
2016
2017
2018
2011
2012
2013
2014
2015
2016
2017
2018
20191H
EBITDA/Int Exp Net Debt/EBITDA Cash/Total Debt
Source: JP Morgan, data as of December 2019
Adding 20% Asian USD credit to global bond portfolio, on USD hedged basis
3.8
3.6 1.83
2.3 1.52
2.1
Annualised return (%) Annualised volatility (%) Risk adjusted annualised return
Bloomberg Barclays Global Agg USD hedged 20% Asian credit + 80% Bloomberg Barclays Global Agg USD Hedged
Source: Barclays Bloomberg Global Aggregate Total Return Index USD unhedged, JACI Total Return Index, HSBC Global Asset Management, for the past 5 years
as of 31 December 2019.
Simulated data is shown for illustrative purposes only, and should not be relied on as indication for future returns. Simulations are based on Back Testing assuming
that the optimisation models and rules in place today are applied to historical data. As with any mathematical model that calculates results from inputs, results may
vary significantly according to the values inputted. Prospective investors should understand the assumptions and evaluate whether they are appropriate for their
purposes. Some relevant events or conditions may not have been considered in the assumptions. Actual events or conditions may differ materially from
assumptions. Past performance is not a reliable indication of future returns.
Any forecast, projection or target where provided is indicative only and is not guaranteed in any way. HSBC accepts no liability for any failure to meet such
forecasts, projections or targets. Investment involves risks. For illustrative purpose only and does not constitute investment advice.
12Key takeaways
Why Allocate to Asia?
Asia ex Japan is under-represented in equity and bond indices
relative to its significant, and still growing, contribution to global GDP
Increasing
representation Inclusion of onshore Chinese assets into global indices is a concrete
step towards closing the representation gap; seen prompting strong
inflows into Asian markets over the next few years
Asian economies are becoming more consumption-driven and less
reliant on investment-fuelled growth and exports
Continuing
economic A fast-growing middle class and rising urbanisation present a large
growth and universe of opportunities for new and existing businesses
transformation
Skills-upgrade of the labour force can help unleash the productivity
potential of Asian workers
Asian bonds offer higher yields relative to their global counterparts
Equities and
Asian equities are trading at a discount to equities in the developed
bonds -
world
attractive
valuations Solid and improving fundamentals in both Asian bonds and Asian
equities
China is the world’s leading producer of industrial robots and has the
second largest number of AI companies, after the US
A hotbed of
China will have the largest market for electric vehicles for decades
technological
to come
innovation
Asian markets are quickly adopting mobile payment platforms,
embracing the notion of a cashless society
2019 election outcomes (of India, Indonesia, Thailand, and
Supportive Philippines) are largely in line with market expectations, alleviating
policy uncertainty
backdrop Policies conducive to economic growth are expected to be maintained
in the region; structural reforms to continue
Any forecast, projection or target where provided is indicative only and is not guaranteed in any way. HSBC accepts no liability for any failure to meet such
forecasts, projections or targets. For illustrative purposes only.
13One Asia, countless differences
Asian economies are very diverse in their characteristics, which means different markets tend to perform
differently. The offsetting nature of their performances means that returns generated by the region as a whole
are generally more steady
India (Baa2/BBB-) Mainland China (A1/A+)
GDP per capita: $2,172 GDP per capita: $10,099
GDP growth: +6.1% GDP growth: +6.1%
CPI: +3.9% CPI: +2.2%
10yr rate: 6.56% 10yr rate: 3.14%
Thailand (Baa1/BBB+) Korea (Aa2/AA)
GDP per capita: $7,792 GDP per capita: $31,431
GDP growth: +2.9% GDP growth: +2.0%
CPI: +1.3% CPI: +0.7%
10yr rate: 1.47% 10yr rate: 1.68%
Sri Lanka (B2/B) Taiwan (Aa3/AA-)
GDP per capita: $3,947 GDP per capita: $24,828
GDP growth: +2.7% GDP growth: +2.0%
CPI: +4.2% CPI: +0.8%
10yr rate: 10.07% 10yr rate: 0.69%
Hong Kong (SAR)
Malaysia (A3/A-)
(Aa2/AA+)
GDP per capita: $11,137
GDP per capita: $49,334
GDP growth: +4.5%
GDP growth: +0.3%
CPI: +1.9%
CPI: +3.0%
10yr rate: 3.31%
10yr rate: 1.46%
Singapore (Aaa/AAA) Indonesia (Baa2/BBB) Philippines (Baa2/BBB+) Australia (Aaa/AAA) New Zealand (Aaa/AA+)
GDP per capita: $63,987 GDP per capita: $4,164 GDP per capita: $3,294 GDP per capita: $53,825 GDP per capita: $40,634
GDP growth: +0.5% GDP growth: +5.0% GDP growth: +5.7% GDP growth: +1.7% GDP growth: +2.5%
CPI: +0.7% CPI: +3.4% CPI: +1.6% CPI: +1.8% CPI: +1.5%
10yr rate: 1.73% 10yr rate: 7.93% 10yr rate: 4.34% 10yr rate: 1.37% 10yr rate: 1.70%
Source: IMF, Bloomberg, as of December 2019. Real GDP growth and CPI pertain to 2019’s year-on-year figures, based on latest available actual figures or forecasts.
Investment involves risk. Past performance is not indicative of future performance.
Any forecast, projection or target where provided is indicative only and is not guaranteed in any way. HSBC accepts no liability for any failure to meet such
forecasts, projections or targets. For illustrative purposes only.
14HSBC Global Asset Management
Experience in managing Asian assets
Experienced investment Strong global investment
teams with a strong track platform across
record dating back to geographies
1986 for Asian equities,
and 1996 for Asian bonds
A well resourced, stable A robust investment Embedded into the strong
and award winning team process built on solid compliance and
proprietary research governance framework of
the HSBC group
Asia-
Total USD516.4 billion AUM USD143.2 billion AUM
Pacific1
Strong global investment platform and operations support local investment teams
Americas EMEA Asia-Pacific1
86 investment
professionals
364 investment
professionals
179 investment
professionals
Switzerland
Luxembourg
Sweden
Canada UK Germany
Jersey Austria
France
Spain Italy Mainland
USA Turkey Japan
Bermuda Malta China2
Saudi Arabia UAE
Mexico India Taiwan
Hong Kong (SAR)
Singapore
Australia
Argentina
HSBC Global Asset Management offices
Notes:
1. Asia-Pacific includes employees and assets of Hang Seng Bank, in which HSBC has a majority holding
2. HSBC Jintrust Fund Management company is a joint venture between HSBC Global Asset Management and Shanxi Trust Corporation Limited
Source: HSBC Global Asset Management as at 30 September 2019. Any differences are due to rounding. Cross-border and domestic assets by Legal Entity
15HSBC Global Asset Management
Asian investment capabilities
Asian Equities
Regional Single region
Asia ex Japan Equity Chinese equity
Asia Pacific ex Japan Volatility Focused Indian equity
Asia Pacific ex Japan Equity High Dividend Hong Kong equity
Asia ex Japan Equity Smaller Companies Taiwan equity
Thailand equity
Asian Fixed Income
Pan Asian fixed income Single currency fixed income
Asian credit (IG and HY) RMB bonds
Asian currencies Indian fixed income
Indonesian fixed income
HKD bonds
SGD bonds
Asian Multi-Asset
Regional Single region
Asia Focused Series China Multi-Asset Income
Asian Liquidity
Single region
Australia
Mainland China
Hong Kong (SAR)
India
Taiwan
16Key Risks
The value of investments and any income from them can go down as well as up and
investors may not get back the amount originally invested.
Exchange rate risk: Investing in assets denominated in a currency other than that of the investor’s
own currency perspective exposes the value of the investment to exchange rate fluctuations
Liquidity risk: Liquidity is a measure of how easily an investment can be converted to cash without a
loss of capital and/or income in the process. The value of assets may be significantly impacted by
liquidity risk during adverse market conditions
Emerging market risk: Emerging economies typically exhibit higher levels of investment risk. Markets
are not always well regulated or efficient and investments can be affected by reduced liquidity
Derivative risk: The use of derivatives instruments can involve risks different from, and in certain
cases greater than, the risks associated with more traditional assets. The value of derivative
contracts is dependent upon the performance of underlying assets. A small movement in the value of
the underlying assets can cause a large movement in the exposure and value of derivatives. Unlike
exchange traded derivatives, over-the-counter (OTC) derivatives have credit and legal risk
associated with the counterparty or the institution that facilitates the trade
Operational risk: The main risks are related to systems and process failures. Investment processes
are overseen by independent risk functions which are subject to independent audit and supervised
by regulators
Concentration risk: Funds with a narrow or concentrated investment strategy may experience higher
risk and return fluctuations and lower liquidity than funds with a broader portfolio
Interest rate risk: As interest rates rise debt securities will fall in value. The value of debt securities is
inversely proportional to interest rate movements
Derivative risk (leverage): The value of derivative contracts depends on the performance of an
underlying asset. A small movement in the value of the underlying can cause a large movement in
the value of the derivative. Over-the-counter (OTC) derivatives have credit risk associated with the
counterparty or institution facilitating the trade. Investing in derivatives involves leverage (sometimes
known as gearing). High degrees of leverage can present risks to sub-funds by magnifying the
impact of asset price or rate movements
Emerging market fixed income risk: Emerging economies typically exhibit higher levels of investment
risk. Markets are not always well regulated or efficient and investments can be affected by reduced
liquidity, a measure of how easily an investment can be converted to cash without a loss of capital,
and a higher risk of debt securities failing to meet their repayment obligations, known as default
High yield risk: Higher yielding debt securities characteristically bear greater credit risk than
investment grade and/or government securities
Contingent Convertible Security (CoCo) risk: Hybrid capital securities that absorb losses when the
capital of the issuer falls below a certain level. Under certain circumstances CoCos can be converted
into shares of the issuing company, potentially at a discounted price, or the principal amount
invested may be lost
17Important Information
The value of investments and the income from them can go down as well as up and investors may not get back the amount originally
invested. Past performance contained in this document is not a reliable indicator of future performance whilst any forecasts,
projections and simulations contained herein should not be relied upon as an indication of future results. Where overseas
investments are held the rate of currency exchange may cause the value of such investments to go down as well as up. Investments
in emerging markets are by their nature higher risk and potentially more volatile than those inherent in some established markets.
Economies in Emerging Markets generally are heavily dependent upon international trade and, accordingly, have been and may
continue to be affected adversely by trade barriers, exchange controls, managed adjustments in relative currency values and other
protectionist measures imposed or negotiated by the countries with which they trade. These economies also have been and may
continue to be affected adversely by economic conditions in the countries in which they trade. Mutual fund investments are subject
to market risks, read all scheme related documents carefully.
The contents of this document may not be reproduced or further distributed to any person or entity, whether in whole or in part, for any
purpose. All non-authorised reproduction or use of this document will be the responsibility of the user and may lead to legal proceedings. The
material contained in this document is for general information purposes only and does not constitute advice or a recommendation to buy or sell
investments. Some of the statements contained in this document may be considered forward looking statements which provide current
expectations or forecasts of future events. Such forward looking statements are not guarantees of future performance or events and involve
risks and uncertainties. Actual results may differ materially from those described in such forward-looking statements as a result of various
factors. We do not undertake any obligation to update the forward-looking statements contained herein, or to update the reasons why actual
results could differ from those projected in the forward-looking statements. This document has no contractual value and is not by any means
intended as a solicitation, nor a recommendation for the purchase or sale of any financial instrument in any jurisdiction in which such an offer
is not lawful. The views and opinions expressed herein are those of HSBC Global Asset Management Global Investment Strategy Unit at the
time of preparation, and are subject to change at any time. These views may not necessarily indicate current portfolios' composition. Individual
portfolios managed by HSBC Global Asset Management primarily reflect individual clients' objectives, risk preferences, time horizon, and
market liquidity.
We accept no responsibility for the accuracy and/or completeness of any third party information obtained from sources we believe to be
reliable but which have not been independently verified.
Source: MSCI. 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 as basis for or a component of any financial instruments or products or indices. None of the MSCI information is intended to
constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on
as such. Historical data and analysis should not be taken as an indication or guarantee of any future performance analysis, forecast or
prediction. The MSCI information is provided as an "as is" basis and the user of this information assumes the entire risk of any use made of
this information. MSCI, each of its affiliates and each other person involved in or related to compiling, computing or creating any MSCI
information (collectively 'the MSCI Parties') expressly disclaims all warranties (including, without limitation, all warranties of originality, accuracy,
completeness, timeliness, non-infringement, merchantability and fitness for a particular purpose) with respect to this information. Without
limiting any of the foregoing, in no event shall any MSCI Party have any liability for any direct, indirect, special, incidental, punitive,
consequential (including, without limitation, lost profits) or any other damages. (www.msci.com)
Copyright © HSBC Global Asset Management (Hong Kong) Limited 2019. All rights reserved. No part of this publication may be reproduced,
stored in a retrieval system, or transmitted, on any form or by any means, electronic, mechanical, photocopying, recording, or otherwise,
without the prior written permission of HSBC Global Asset Management (Hong Kong) Limited.
This document has not been reviewed by the Securities and Futures Commission.
HSBC Global Asset Management is the brand name for the asset management business of HSBC Group. The above communication is
distributed in Hong Kong by HSBC Global Asset Management (Hong Kong) Limited.
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