ECB signals abrupt end to QE is unlikelyinterest-rate increases and political uncertainty in many regions. Risks to consider: Looking ahead, concerns surrounding Chinese growth, uncertainty

01 November 2016

For Professional Client and

Institutional Investor Use Only

This commentary has been produced by HSBC Global Asset Management to provide a high level overview of the recent economic and financial market environment, and is for information purposes only. The views expressed were held at the time of preparation; are subject to change without notice and may not reflect the views expressed in other HSBC Group communications or strategies. This marketing communication 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. The content 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. You should be aware that the value of any investment can go down as well as up and investors may not get back the amount originally invested. Furthermore, any investments in emerging markets are by their nature higher risk and potentially more volatile than those inherent in established markets. Any performance information shown refers to the past and should not be seen as an indication of future returns. You should always consider seeking professional advice when thinking about undertaking any form of investment.

ECB signals abrupt end to QE is unlikely

Key takeaways Speculation over end to ECB QE appears misplaced

We continue to favour risk assets such as global equities, emerging market (EM) and high-yield debt relative to developed market (DM) government bonds

Given the continued compression of high-yield credit spreads amid rising default risks, we have downgraded our view on this asset class to “neutral” from “overweight”

Global equities edged lower in October on the back of growing expectations of a Fed rate hike and lower oil prices which offset support from broadly upbeat earnings

As expected, the European Central Bank (ECB) kept policy on hold at its October meeting, also signalling that an “abrupt end to bond purchases is unlikely”

The September Federal Open Market Committee (FOMC) meeting minutes showed the decision not to hike was a “close call”. Amid robust data, December should see a 25 basis points US rate hike

The October ECB policy meeting alleviated concerns that

the bank would not extend its Asset Purchase Programme

(APP) beyond the current March 2017 deadline. Amid

resilient global macro data, especially in the Eurozone and

UK, loose global monetary policy continues to underpin

global asset prices. Therefore, maintaining an overweight

exposure to a diversified basket of risk assets – including

equities and local currency EM government debt – continues

to make sense. But we think the continued compression of

high-yield credit spreads warrants a downgrade of our view

on this asset class to “neutral”.

The case for a strategic underweight in core DM bonds

remains strong given their poor implied sustainable return.

Furthermore, the macroeconomic environment is turning

increasingly bond-unfriendly in the context of better activity

data, rising global inflation, gradual Fed tightening and an

increasing shift towards fiscal policy to support growth.

Asset class performance: October 2016

Chart of the month: Sterling fell further in October as ‘Hard Brexit’ fears intensified

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All performance data is calculated in total return terms (capital and income), gross of fees. Equity returns are expressed in local currency. Bond and commodity returns are expressed in USD. Source: Bloomberg, as at 31 October 2016

Source: Bloomberg, as at 1 November 2016

01/11/2016 Investment Monthly 2

Long-term asset class positioning (>12 months)

Asset class View Rationale

Equities

Global Neutral Positive factors: We continue to expect a better long-term reward for holding global equities rather than developed market cash or government bonds. We believe the global economic recovery remains on track, driving global equity markets to deliver positive returns over the long term. Overall, support from incredibly accommodative monetary policy and an increased willingness for looser fiscal policy will, in the medium and longer term, likely outweigh any headwinds from more modest Chinese growth, gradual US interest-rate increases and political uncertainty in many regions.

Risks to consider: Looking ahead, concerns surrounding Chinese growth, uncertainty surrounding the rate of US monetary policy tightening, the implications of lower commodity prices combined with rising political risks may trigger episodic volatility, as in early 2016. Overall, we remain neutral for this asset class given valuations are less attractive now than they were a year or two ago. A notable and persistent decline in the global economic outlook could dampen this view.

US Underweight Rationale of underweight views: Over the last 18 months, profit momentum has slowed amid a stronger US dollar and energy price weakness, whilst US wage inflation has begun to rise. Meanwhile, an elevated corporate profit share suggests little capacity for upside. Relatively high current valuations lead to an implied risk premium that is lower than in other developed markets. Rising inflation without an associated pickup in economic growth implies a less constructive Fed hiking cycle than one driven both by inflation and growth.

Positive factors to consider: A durable US economic recovery and a growth-focused central bank remain supportive for US equities. Meanwhile, low energy prices, a strengthening labour market and robust consumer confidence boost the potential for further sustained gains in consumption growth.

UK Neutral Positive factors: The sharp fall in GBP following the UK vote for ‘Brexit’ may support UK equities going forward given their relatively high dependence on foreign earnings. Furthermore, signs of a stabilisation in commodity prices should also be supportive given the UK market’s heavy exposure to the natural resources sector.

Risks to consider: UK economic growth is likely to weaken in the medium-term amid heightened uncertainty following the referendum vote, although we expect this can be offset to some degree by looser monetary and fiscal policy.

Eurozone Overweight Rationale of overweight views: We favour Eurozone equities because of their higher implied risk premia and the scope for better news in profits given the region’s earlier stage in the recovery phase. Furthermore, the monetary backdrop remains supportive as the ECB’s Asset Purchase programme (APP) remains in place, with a likelihood it will be extended beyond its March 2017 deadline.

Risks to consider: The UK ‘Brexit’ vote raises concerns over the European project’s future, which may dent regional confidence, weighing on growth prospects. Slower UK GDP growth may also hit Eurozone exports to a significant trading partner. Meanwhile, if inflation rises faster than expected, or the ECB raises concerns over the distortive effects of the APP, monetary easing may be less accommodative than expected. The region also remains vulnerable to external headwinds, particularly stagnant global trade growth and emerging market softness. Finally, further political uncertainty lies ahead in the form of the December Italian constitutional reform referendum, and French, German and Dutch elections in 2017.

Japan Neutral Positive factors: In the near to medium term, Japanese earnings per share may rise, supported by the Bank of Japan’s (BoJ) extremely loose monetary policy. The bank’s introduction of “Yield Curve Control” in September may alleviate some of the impact of negative interest rates on financial sector profits. This framework could also allow further cuts into negative territory, which may weigh on the yen, boosting the value of overseas earnings. Furthermore, given the limited scope for further JGB buying and a comparatively small corporate credit market, the BoJ may opt to increase its equity holdings to ease policy. Relative valuations and risk premia are attractive, whilst large cash reserves mean Japanese corporates also have plenty of scope to boost dividends or engage in stock repurchases. Finally the government’s fiscal stimulus package should support growth prospects.

Risks to consider: Europe and Japan have similar expected returns but the required return for Japan is greater in our view, due to the larger uncertainty surrounding the earnings outlook. Earnings momentum has slowed somewhat amid external headwinds and poor domestic fundamentals. Despite the Bank of Japan’s adoption of Negative Interest Rate Policy (NIRP) in late January 2016, the yen has since strengthened – a key risk for export-sensitive Japanese stocks. Finally, BoJ equity purchases raise uncertainties related to the bank becoming a major shareholder in the Japanese stock market. Overall, we continue to hold this position with a positive bias, rather than a full overweight position.

Emerging Markets (EM)

Overweight Rationale of overweight views: EM equities are attractive for western-based investors (USD, GBP or EUR based) given our expectation of longer-term currency appreciation. However, we continue to be selective in EM equity valuations, especially as sovereign bond returns remain high. Within EM, Asia is our preferred region, as the prospective returns look higher, sustained by a continued supportive economic environment, whilst parts of EM Europe also look attractive.


Risks to consider: There could be some near-term volatility as worries remain around the uncertain path for future Fed tightening, the rate of economic adjustment in China and the robustness of the global economy as a whole. Meanwhile, further (or persistent) weakness in commodity prices poses risks for major commodity exporters.

Asia ex-Japan Overweight

Rationale of overweight views: The combination of near-term growth stabilisation (particularly in China), earnings cycle improvement, and a benign global rates and liquidity backdrop supports Asia ex-Japan equities. There are tentative signs that profit margins may have bottomed, although it is too early to suggest they are in a structural upswing. Strong free-cash-flow growth, robust balance sheets and high cash-to-market-capitalisation levels also support a stable or higher dividend payout. Valuations remain attractive, particularly against the region’s firm macro fundamentals, reinforced by sound monetary policy and fiscal discipline. Structural reforms provide a re-rating potential in some markets.

Risks to consider: Key risks include a more aggressive Fed hiking cycle than expected by the market; steeper DM yield curves; persistent and high global growth uncertainty; renewed concerns about China’s economic and policy prospects; commodity price volatility; rising protectionism and populism in DMs; and regional geopolitical events. Given the low global growth environment, we see few catalysts to drive a more significant earnings rebound, and the prospects for a sustainable turnaround in ROE also remains difficult in the near term. High leverage, bank asset-quality concerns, and diminishing efficacy of monetary policy in some economies also present headwinds.

CEE & Latam Neutral Positive factors: Longer term, we anticipate positive growth differentials with Developed Markets to be maintained.

Risks to consider: Shorter term, these markets are vulnerable to concerns about reduced global liquidity, whilst commodity prices may continue to be a severe impediment for commodity-dependent producers. Geopolitical tensions are also high and unpredictable, whilst domestic political and macroeconomic fundamentals remain poor in many countries, such as Brazil.

Government bonds

Global Underweight Rationale of underweight views: At an aggregate level, global government bond yields (the majority of which are core developed market) are still too low in our view. Flat curves and ultra-low yields imply that sustainable returns are very poor and term premia are very negative.

Positive factors to consider: Government bonds still play an important role in providing diversification benefits and reducing volatility within multi-asset portfolios. A broader adoption of negative interest rate policy or a renewal of deflationary pressures may provide further price support. Meanwhile, “secular stagnation” forces are powerful (ageing demographics, low productivity and investment), the global pool of safety assets is limited, whilst the Fed rate hiking cycle is expected to be “uber gradual”. Therefore, the “normalisation” of bond yields could last several years. Finally, despite evidence for a pick-up in cyclical inflation in the US, the bond market continues to discount a low inflation world. Therefore, Treasury Inflation Protected Securities (TIPS) look relatively attractive, although absolute returns are less so.

US Underweight Rationale of underweight views: We believe US Treasuries are currently pricing in an overly pessimistic outlook for the US economy. The US labour market is at (or close to) full employment and underlying inflation is rising. With yields still low (and real yields even lower), we prefer to be underweight and instead maintain a preference for risk assets such as equities, high-yield credit and EM debt.

Positive factors to consider: If US growth disappoints or the recent rise in inflation stalls, monetary policy may become more accommodative and prove supportive for this asset class in the short- to medium-term, although market expectations are already set for a very benign environment. Government bonds continue to offer a diversification element, important in a volatile environment.

UK Underweight Rationale of underweight views: Prospective returns on UK gilt yields are also very low. Although there is a high likelihood the UK economy will slow in the coming quarters, any compression of yields is likely to be offset by higher inflation following the recent fall in sterling and the potential for a medium term growth recovery. Hence, on a relative basis we generally prefer risk assets to perceived ‘safe-haven’ government bonds.

Positive factors to consider: UK monetary policy is likely to stay highly accommodative for a longer period, with the Bank of England having re-launched Quantitative Easing (QE) and moving closer to the zero bound. This places UK monetary policy more in line with what we expect for the ECB, rather than being closer to the US Federal Reserve as was the case before the ‘Brexit’ vote.

Eurozone Underweight Rationale of underweight views: Similarly, core European bonds are overvalued in our view, even when taking into account the backdrop of relatively sluggish growth in Europe. There is also a risk that the ECB’s QE programme – a key pillar of support – is tapered after the current March 2017 deadline.

Positive factors to consider: The extension of the ECB’s Asset Purchase Programme (APP) beyond March 2017 may provide further near-term support to this asset class. Meanwhile, core inflationary pressures and long-term inflation expectations in the region remain subdued, which should keep ultra-accommodative monetary policy in place for an extended period of time.

Japan Underweight Rationale of underweight views: In our view, Japanese government bonds are overvalued, with yields up to ten-year maturities still slightly in negative territory. The current QE programme is supportive, but the commitment to keep 10-year yields at their current level could be reviewed, and given the high level of JGB purchases already made, the Bank of Japan may have to explore other asset class purchases to ease policy.


Positive factors to consider: The Bank of Japan’s new policy framework of “Yield Curve Control” will limit volatility and reduce the risk of higher yields in the near term. Meanwhile, BoJ Governor Kuroda has indicated that cutting policy rates (already at -0.1%) could play a central role in future policy decisions.

Emerging markets Overweight Rationale of overweight views: The yield available on EM sovereign bonds makes them attractive relative to DM government debt, in our view. Furthermore, our estimate of the sustainable return on EM currencies reinforces our choice to hold this position unhedged.

Risks to consider: Spreads in the EM debt universe are at risk of widening as US policy tightens. Bonds from commodity-dependent currencies and with significant external financing needs are particularly at risk.

Corporate bonds

Global investment grade (IG)

Neutral Positive factors: Corporate balance sheets remain in good shape and default rates are low. Furthermore, although spreads have narrowed significantly this year, they continue to look attractive on a relative basis versus what is available to multi-asset investors in other asset classes.

Risks to consider: We retain a neutral positioning for this asset class, particularly as tighter US monetary policy remains a risk given the exceptionally low market expectations.

- USD investment grade

Neutral Positive factors: There is a wide spread between USD and EUR-denominated investment grade corporate bonds. The US may outperform given conservative selection.

Risks to consider: Improved relative valuations for USD-denominated credit is offset in the nearer term by the risk of a more aggressive pace of Fed tightening. The US credit cycle is more mature than that in Europe which remains nascent. Furthermore, the profit share of GDP has been on a declining trend over the past year, bank lending standards have continued to tighten in Q2, and leverage ratios are rising.

- EUR and GBP investment grade

Neutral Positive factors: Euro and sterling-denominated investment-grade corporate bonds should find continued support from the ECB and BoE’s corporate bond-buying programmes. Meanwhile, in the Eurozone, the latest survey data suggests a gradual improvement in credit conditions, and default rates remain low. However, valuations are still around neutral levels.

Risks to consider: The potential for a worsening economic environment should global growth surprise to the downside. Stripping out currency effects, GBP-denominated credit for UK-focused names could deteriorate if the UK economy slows, although this may be offset by looser monetary (and fiscal) policy.

Global high-yield Changed from Overweight to Neutral

Rationale of view change: The recent spread compression seen in high-yield credit has left a thin margin of safety amid rising default rates, also reducing our estimate of the expected return for this asset class.

Positive factors: Defaults remain comparatively low and are likely to be contained to commodity-related sectors. Selective parts of the credit universe remain relatively attractive, such as US short-duration high-yield (in order to capture credit risk whilst minimising duration risk given the scope for a less dovish Fed).

Risks to consider: Default rates are expected to accelerate this year, before a likely early 2017 peak, and could spread beyond the commodity sector. This highlights the importance of being selective within this asset class, with a focus on quality names. As with IG, as the market starts to anticipate tighter US monetary policy, high-yield credit could be volatile, particularly in the short term. Another key source of price volatility is a high amount of “fallen angels” dropping from the IG category over the coming quarters.

Gold Neutral Positive factors: The likelihood of further significant USD appreciation, a negative for gold, seems limited as Fed hikes are likely to remain very gradual. Meanwhile, the increasing adoption of negative interest rate policy (NIRP) on deposits among global central banks reduces the opportunity-cost of holding the yellow metal. Fear of further depreciation of the Chinese yuan could support gold whilst any significant deterioration in the US economy could force the Fed to pause its hiking cycle, providing further support.

Risks to consider: Subdued inflation expectations mean demand as an inflation-hedge is likely to be limited. A stronger-than-expected Fed hiking cycle may push the USD higher.

Other commodities Neutral Positive factors: With oil demand growth remaining fairly robust, there is scope for the market to continue to rebalance in the near-term, as non-OPEC supply declines moderately after a period of low investment in the sector. OPEC’s September announcement to cut output moderately is also a positive step, although this is yet to be confirmed.

Risks to consider: For oil, the market could remain oversupplied if demand growth slows materially, US production remains resilient, and the OPEC cuts fail to materialise. Industrial metals remain exposed to the pace of China’s economic rebalancing and global economic growth.

Real estate Neutral Positive factors: Based on our outlook for future rents and current dividend yields, we believe global listed property equities offer reasonably attractive long-run prospective returns relative to core developed-market government bonds. After years of QE, which have led to falling property yields in many markets, rental value growth (rather than yield compression) is expected to become the main driver of future net asset value growth. Risks to consider: The UK's decision to leave the EU has damaged rental growth prospects, especially in Central London, and increased the uncertainty surrounding future occupier demand. Having fallen immediately after the vote, UK real estate equity prices partially recovered but remain some 12% below their pre-referendum levels in aggregate, with some central London specialists down by over 20%. Several unlisted daily-dealt UK direct property funds, which had suspended dealing after the referendum due to significant redemptions, have now re-opened for dealing or have announced their intention to do so.


over the coming weeks.

Basis of Views and Definitions of ‘Long term Asset class positioning’ table

Views are based on regional HSBC Global Asset Management Asset Allocation meetings held throughout October 2016, HSBC Global Asset Management’s long-term expected return forecasts which were generated as at 30 September 2016, our portfolio optimisation process and actual portfolio positions.

Icons: View on this asset class has been upgraded View on this asset class has been downgraded Underweight, overweight and neutral classifications are the high-level asset allocations tilts applied in diversified, typically multi-asset portfolios, which reflect a combination of our long-term valuation signals, our shorter-term cyclical views and actual positioning in portfolios. The views are expressed with reference to global portfolios. However, individual portfolio positions may vary according to mandate, benchmark, risk profile and the availability and riskiness of individual asset classes in different regions.

“Overweight” implies that, within the context of a well-diversified typically multi-asset portfolio, and relative to relevant internal or external benchmarks, HSBC Global Asset Management has (or would have) a positive tilt towards the asset class.

“Underweight” implies that, within the context of a well-diversified typically multi-asset portfolio, and relative to relevant internal or external benchmarks, HSBC Global Asset Management has (or would) have a negative tilt towards the asset class.

“Neutral” implies that, within the context of a well-diversified typically multi-asset portfolio, and relative to relevant internal or external benchmarks HSBC Global Asset Management has (or would have) neither a particularly negative or positive tilt towards the asset class

For global investment-grade corporate bonds, the underweight, overweight and neutral categories for the asset class at the aggregate level are also based on high-level asset allocation considerations applied in diversified, typically multi-asset portfolios. However, USD investment-grade corporate bonds and EUR and GBP investment-grade corporate bonds are determined relative to the global investment-grade corporate bond universe.



Global equities edged lower in October amid increased Fed

rate hike expectations and lower oil prices

Global equities edged lower in October amid growing

expectations of a Fed rate hike this year and lower oil prices.

This offset support from broadly upbeat earnings releases and

from the ECB signalling a continued willingness to maintain

loose policy. The MSCI AC World index finished 0.6% lower

over the month (in local currency terms). In the US, the S&P

500 finished the month lower (-1.9%), whilst in Japan, the

Nikkei outperformed over the month (+5.9%), mainly on the

back of a weaker yen, supportive of exporters’ shares. In

Europe, the Euro Stoxx 50 also rose (+1.8%), amid upbeat

economic data, with strong gains in financial shares, buoyed by

a steepening yield curve (supporting the outlook for profitability

in the sector).

Meanwhile, emerging market stocks outperformed their

developed world counterparts again in October, with the MSCI

EM index gaining (+0.6%). In particular, Brazilian stocks

performed strongly, with gains in the MSCI Brazil (+10.8%) as

the new market-friendly government of President Michel Temer

pushed ahead with its economic reform agenda.

Elsewhere, WTI and Brent oil prices dipped in October,

reversing strong gains seen at the beginning of the month, after

talks between OPEC and other major producers failed to yield

concrete details on an agreement to cut production. A stronger

US dollar also weighed.

Meanwhile, most developed market government bond markets

fell sharply (yields rose) in October amid rising inflation

expectations and increasing prospects of a Fed rate hike in

December. In particular, UK gilts saw a heavy sell-off (10 year

yields rose 49bps to 1.24%), whilst equivalent maturity Italian

yields also increased (+47bps to 1.66%) ahead of December’s

crucial Italian referendum on constitutional reform. (All data

above as of close of 31 October in local currency, price return,

month-to-date terms.)

US economic releases in October remained broadly

positive, supporting Fed rate hike prospects this year

October’s US economic data releases indicate a firm economic

backdrop. Most importantly, September’s PMI releases showed

that activity data rebounded from August’s air pocket. The Non-

Manufacturing ISM release (57.1 vs. 51.4 prior) saw the largest

one-month increase since the series began in 1997.

Encouragingly, the uptick in the Manufacturing ISM (51.5 vs.

49.4 previously) was driven primarily by a sharp rebound in new

orders (55.1 vs. 49.1 prior). Meanwhile, September’s

employment report showed nonfarm payrolls rising 156,000,

slightly weaker than the 172,000 forecast but still comfortably

above the levels mooted by various Fedspeakers as the trend-

rate of expansion.

In line with expectations, both September’s headline retail sales

(0.6% mom vs -0.2% prior) and retail sales excluding autos and

gasoline (0.3%) rose strongly. But core retail sales, which

exclude food, autos, gasoline and building materials, were

weaker than expected at 0.1% mom against 0.4%. This release

points to continued giveback from a particularly strong Q2. This

is reflected in the first estimate of US Q3 GDP which, although

coming in higher than expected (at 2.9% qoq annualised), saw

a lower contribution from consumption growth versus Q2

(Figure 1).

Figure 1: US Q3 GDP came in higher than expected at 2.9% qoq annualised, supported by net exports

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This broadly positive data was coupled with the mid-October

release of the September FOMC meeting minutes which

confirmed the decision not to hike rates was a “close call”.

Some policymakers expressed concern that if tightening was

delayed, inflation pressures may mount and require a more

aggressive tightening than would otherwise be needed.

Importantly, this month’s key Fedspeak has expressed a

general comfort in running a “high-pressure” economy, although

Vice Chair Fischer voiced concerns over allowing the economy

to overheat. Typically uber-dovish Chicago Fed President

Evans provided some further clarity by stating that he sees

three rate hikes between now and the end of 2017. This

maintains the gulf between market pricing, which expects the

third rate hike in mid-2018, and the Fed, which expects it in

mid-2017. We continue to look for one rate hike this year, most

likely in December, and for one to two rate hikes in 2017.

The ECB signals an abrupt end to bond purchases is

unlikely as the Eurozone economy remains resilient

In the Eurozone, data releases in October point to a slight

acceleration in economic activity, surpassing expectations and

pushing the Citi Surprise Index to an 18-month high (Figure 2).

In terms of high-frequency indicators, the preliminary PMIs for

October were particularly encouraging, with the composite

index rising 1.1pts to 53.7, its highest level since December

2015. However, given the previous month’s sharp decline, the

12-month moving average composite PMI remains steady at

around 53.0. The country breakdown available for France and

Germany indicates the latter continues to outperform. This is

reflected in Germany’s Ifo Business Climate Index rising to a

two-and-a-half year high in October (110.5). Overall, this bodes

well for growth prospects if the improvement is sustained, so

we may see Eurozone GDP growth accelerate in Q4 from the

preliminary estimate of 0.3% qoq in Q3.



Figure 2: An unexpected pick-up in Eurozone activity has pushed the Citi-Surprise index to an 18-month high

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In terms of monetary policy, as expected the ECB kept policy

on hold at its October meeting. At the press conference, ECB

President Draghi confirmed the Governing Council “didn't

discuss tapering or the intended horizon of the bank’s asset

purchase programme", emphasising that the next meeting in

December would "define the monetary policy environment".

Crucially, Draghi also confirmed an “abrupt end to bond

purchases is unlikely”, alleviating recent speculation that the

programme wouldn’t be extended.

UK Q3 GDP surprises to the upside, but uncertainty and

higher inflation remain risks to the outlook

In the UK, the most recent data continues to show a resilient

economy with GDP expanding by 0.5% qoq in Q3, beating

expectations of 0.3%. Although this represents a slowdown

from Q2 growth (+0.7%) – with growth remaining dependent on

the services sector – this should provide the Bank of England

with enough confidence to keep policy on hold at its November

meeting.

Looking ahead, we expect heightened Brexit-related uncertainty

to dampen business investment whilst consumer spending

should feel the hit of higher inflation due to sterling weakness

lifting import prices (Figure 3). Meanwhile, details of the UK

government’s fiscal plans, and how they may support growth

prospects, will be closely scrutinised at the upcoming Autumn

statement on 23 November.

Figure 3: The increased cost of importing goods into the UK should feed into higher headline CPI in the coming months

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The Chinese economy looks on track to achieve this year’s

GDP growth target of 6.5-7.0% yoy

In China, Q3 GDP growth stabilised at 6.7% yoy. The service

sector and consumption remained the key growth drivers.

September activity data also indicated broadly stable growth

momentum, though weaker exports and continued adjustment

in some over-capacity industries weighed on industrial

production (IP) growth. Meanwhile, the 54-month-long decline

in producer prices (on a yoy basis) ended in September, which

should help improve industrial corporate earnings/profitability,

and lower the real interest burden for indebted industrial

corporates. Excess capacity reduction (in the steel and coal

industries) and housing inventory adjustment have made visible

progress, while economic restructuring continues.

Looking forward, property sales and real estate investment

growth will likely weaken with city-specific tightening measures.

Auto sales, which have been a key driver for retail sales growth,

may slow given weaker housing market activity and the

expiration of tax benefits by year-end. However, we expect

continued policy support for infrastructure investment. We also

expect the PBoC to maintain a stable liquidity and credit policy.

Overall, therefore, the economy looks on track to achieve this

year’s growth target of 6.5-7.0%.

The Japanese economy continues to struggle to gain

momentum as the Bank of Japan holds steady

High-frequency data suggests the Japanese economy

continues to struggle to gain momentum. Retail sales remain in

negative territory (on a yoy basis) with little sign of a

turnaround. Meanwhile, although goods export volumes

performed well in Q3, a strong yen is likely to limit further

improvement. The underlying softness in the economy is

reflected in anaemic inflation dynamics, with the Bank of

Japan's core CPI measure (ex. fresh food and energy) slowing

for a seventh consecutive month in August to 0.2% (Figure 4).

Figure 4: Japanese inflation remains extremely anaemic, with the Bank of Japan’s preferred measure well below target

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At its October policy meeting, the Bank of Japan (BoJ) stayed

on hold, keeping the short term policy rate at -0.1% and the 10-

year JGB yield at about 0%, while maintaining its annual target

of buying JPY6 trillion of equity ETFs and JPY90 billion of real-

estate investment trusts. More importantly, the BoJ inflation

forecasts for the next three years were revised lower, with core

inflation anticipated to reach the BoJ target of 2% in 2019 at the

earliest. Bearing in mind that Japanese policymakers pledged

in September to keep expanding the monetary base (i.e. buying

financial assets in exchange for liquidity) until inflation

sustainably overshoots the 2% target, this implies the BoJ may

find it increasingly difficult to buy the appropriate amount of

JGBs on the secondary market.

Emerging market assets remain supported by resilient

macro data and an uber-gradual Fed tightening cycle

Emerging market equity assets ended October little changed,

supported by higher oil prices and encouraging economic data.

Although investors continue to price in a near-term US rate

hike, the impact is somewhat dampened by the uber-gradual

tightening path ahead.

In India, the newly appointed Reserve Bank of India (RBI)

monetary policy committee (MPC), under the helm of Governor

Urjit Patel, delivered a 25 basis-point cut in the repo rate to

6.25% on 4 October. The minutes released later in October

showed that most members remained sanguine on the inflation

outlook. The members also expressed concerns over weak

private investment and low capacity utilisation, although they

noted signs of a gradual growth recovery. Against this

backdrop, we think the space for further easing remains open.

A larger than anticipated decline in Brazilian inflation (8.48%

yoy against 8.60% expected and 8.97% prior) saw the COPOM

cut interest rates for the first time in four years. The 25bp cut

took the Selic rate to 14.00%, although the central bank

highlighted that the easing cycle will be “moderate and

gradual”. Constitutional reforms to cap Federal spending

passed the Lower House, limiting spending increases to the

rate of inflation for the next twenty years. Encouragingly, the

market now expects growth to return one quarter earlier, in Q1-

2017, three years after the last expansionary quarter.

The release of the Mexican central bank’s (Banxico)

September meeting minutes showed that the decision to raise

policy rates by 50bps to 4.75% came from a desire to keep

inflationary pressures and expectations well anchored. Looking

ahead, we expect Banxico to maintain a tightening bias to avoid

a relative policy loosening versus the US as the Fed normalises

its rates.

As expected, the October Central Bank of Russia (CBR)

meeting saw rates held at 10.00%, after September’s 50bp cut

driven by the recent inflation slowdown. While growth is not

expected to return until Q1-2017, the September PMI releases

firmed (composite at 53.1 against 52.9 prior) and retail sales fell

less than expected (-3.6% yoy against -5.1% prior and -4.4%

forecast). Regardless, the central bank has made it clear that it

has not taken a dovish turn and retains its inflation-fighting

focus, which rouble strength is likely to support.

After cutting the overnight lending rate by 250 basis points over

the past seven months, the Central Bank of Turkey (CBRT)

unexpectedly left the rate unchanged at 8.25%. The decision

was driven by lira weakness as the bank highlighted that “the

recent developments in exchange rates and other cost factors

restrain the improvement in inflation outlook and thus

necessitate the maintenance of a cautious monetary policy

stance”. Nevertheless, the central bank kept the door open for

further rate cuts if the lira stabilises.

We continue to prefer risk assets, although we downgrade

our view on high-yield credit to a neutral positioning

Amid a backdrop of resilient global macroeconomic data, rising

global inflationary pressures (particularly in the US) and a Fed

in tightening mode, the case for a strategic underweight

positioning in core developed market government bond markets

remains strong. However, we also continue to recognise that

the normalisation in bond yields is likely to be uber-gradual.

In this environment, we maintain our preference for an

overweight exposure to a diversified basket of risk assets,

including equities (in particular Europe and selective parts of

EM) and local currency EM debt, within the context of a well-

diversified multi-asset portfolio, from a strategic and long-term

perspective. However, given the recent compression in high-

yield credit spreads (implying a narrower “margin of safety”)

amid rising default risks, we have downgraded our view for this

asset class to “neutral”, with a preference for short-duration

bonds.

Sources: Bloomberg, HSBC Global Asset Management. Data as at close of business 31 October 2016. Past performance is not an indication of future returns.


Economic and market charts: macroeconomy

1. The Eurozone manufacturing PMI rose to a two-and-a-half year high in October, whilst the Chinese PMI also rose strongly

2. Eurozone and Japanese economic data releases outperformed expectations in October

45

50

55

60

Jan 14 Jul 14 Jan 15 Jul 15 Jan 16 Jul 16

Index

Global Manufacturing PMI US ISM Manufacturing PMI

Eurozone Manufacturing PMI China Manufacturing PMI

-75-60-45-30-15

01530456075

Jan 16 Apr 16 Jul 16 Oct 16Citi Economic Surprise Index - USCiti Economic Surprise Index - EurozoneCiti Economic Surprise Index - ChinaCiti Economic Surprise Index - Japan

3. The August employment report showed nonfarm payrolls rose by 156,000, marginally less than the expected 172,000

4. Amid a tightening labour market, US wage growth has been on a steady upward trend since early 2015

050

100150200250300350400450

11 12 13 14 15 16

thousands

Change in Non-Farm Payrolls (mom) 6M Moving Average

-5

5

15

25

35

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17

%

Average Hourly Earnings (yoy), LHS

NFIB Compensation Survey, adv 12M, RHS

5. The recent uptick in the Eurozone composite PMI bodes well for growth prospects if sustained

6. The services sector continues to do the heavy lifting in the UK economy with GDP expanding by 0.5% qoq in Q3

-0.6

-0.4

-0.2

0

0.2

0.4

0.6

0.8

1

46

48

50

52

54

56

58

10 11 12 13 14 15 16

Index

Eurozone Composite PMI, LHS Eurozone GDP, RHS

% qoq

-3

-2

-1

0

1

2

3

Jan 16 Feb 16 Mar 16 Apr 16 May 16 Jun 16 Jul 16 Aug 16

% mom

Construction Services IP

7. Chinese house prices have been rising strongly throughout 2016…..

8. …although the rebound in real-estate investment seen earlier this year is cooling amid city-specific tightening measures

-10-505

101520253035

06 07 08 09 10 11 12 13 14 15 16

%

China First Tier Cities House Prices, yoyChina Second Tier Cities House Prices, yoyChina Third Tier Cities House Prices, yoy

-5

0

5

10

15

20

25

30

Jan 13 Jul 13 Jan 14 Jul 14 Jan 15 Jul 15 Jan 16 Jul 16

% yoy, 3M MA

Infrastructure Investment Manufacturing Investment

Real Estate Investment



Economic and market charts: financial markets

1. Global equities edged lower in October amid increased Fed rate hike expectations and lower oil prices

2. A sharp depreciation in sterling has pushed the UK’s FTSE 100 to outperform this year in local currency terms

85

90

95

100

105

110

115

Jan 16 Mar 16 May 16 Jul 16 Sep 16 Nov 16

Rebased Jan 2016 = 100

MSCI AC World MSCI World (DM) MSCI EM

80

90

100

110

120

Jan 16 Mar 16 May 16 Jul 16 Sep 16S&P 500 Euro STOXX 50Nikkei 225 Shanghai CompositeFTSE 100

Rebased, 4 Jan 2016 = 100

3. Long-term inflation expectations have recently ticked up in the US and Eurozone….

4. …which has contributed to rising global government bond yields in October

1.0

1.5

2.0

2.5

3.0

3.5

12 13 14 15 16

%

US Inflation Expectations (5Y5Y forward), LHSEZ Inflation Expectations (5Y5Y forward), LHSFed and ECB Inflation Target

-0.4-0.3-0.2-0.10.00.10.20.30.40.50.60.7

0.5

1.0

1.5

2.0

2.5


%%

US Treasury 10Y Yield, LHS UK Gilt 10Y Yield, LHSGerman Bund 10Y Yield, RHS Japan JGB 10Y Yield, RHS

5. Sterling plunged further in October despite a narrowing of short-term rate expectations versus the US

6. The Brazilian real has outperformed other emerging market currencies this year amid positive political change...

the

1.101.151.201.251.301.351.401.451.501.551.60

-1.2

-0.7

-0.2

0.3

Jan 15 Apr 15 Jul 15 Oct 15 Jan 16 Apr 16 Jul 16 Oct 16

UK - US 2-year interest rate swap differential, LHS

USD/GBP, RHS

859095

100105110115120125130


Rebased, Jan 1 2016 = 100

South African Rand Russian RubleTurkish Lira Brazilian RealColumbian Peso

7. ….with EM asset classes also supported by a rebound in commodity prices this year

8. The valuation gap between equities and DM government bonds is essentially unchanged since the start of the year

75

90

105

120

135

150

Jan 16 Mar 16 May 16 Jul 16 Sep 16

Rebased, Jan 2016 = 100

S&P GSCI Energy Index S&P GSCI Industrial Metals IndexS&P GSCI Agriculture Index S&P GSCI Precious Metals Index

-2

0

2

4

6

8

10

12

98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

%

MSCI World Forward Earnings Yield minus US TIPS 10-Year YieldAverage

Source: HSBC Global Asset Management. Past performance is not an indication of future returns.


Global Strategic Asset Allocations

Risk Profile 2 – Global Multi-Asset Model Portfolio

Asset Class Current Model Portfolio Reference SAA

Portfolio Tilt (September 2016)

Portfolio Tilt Change

Global Equities 22.0% 21.0% 1.0% 1.0%

Global Government Bonds 12.0% 17.0% -5.0% 0.0%

DM Government Bonds 6.0% 12.0% -6.0% 0.0%

EM Government Bonds 6.0% 5.0% 1.0% 0.0%

Global Corporate Bonds 58.5% 56.0% 2.5% 0.0%

Global Investment Grade 42.5% 41.0% 1.5% 0.0%

Global High Yield 12.0% 10.0% 2.0% -1.0%

EM Debt (Hard Currency) 4.0% 5.0% -1.0% 1.0%

Global Real Estate 5.0% 5.0% 0.0% 0.0%

Cash 2.5% 1.0% 1.5% -1.0%

Total 100.0% 100% 0.0% 0.0%

Target Volatility 5-8%





Global Equities 48.0% 47.0% 1.0% 1.0%

Global Government Bonds 9.0% 10.0% -1.0% 0.0%

DM Government Bonds 3.0% 5.0% -2.0% 0.0%


Global Corporate Bonds 36.5% 37.0% -0.5% 0.0%

Global Investment Grade 20.5% 22.0% -1.5% 0.0%




Cash 1.5% 1.0% 0.5% -1.0%

Total 100.0% 100.0% 0.0% 0.0%


Global Strategic Asset Allocations (as at 30 September 2016)

September saw global equities broadly flat, buoyed by the US Federal Reserve (Fed) and Bank of Japan (BoJ) reinforcing their longer-term dovish bias as well as higher oil prices. Consequently, equity expected returns in a selection of countries are little changed with reasonable compensation for taking equity risk. Meanwhile in the credit space, expected returns for corporate bonds continue to look attractive relative to what is available to multi-asset investors in other asset classes. However, in the US high-yield market, recent spread compression has left a thin “margin of safety” amid increasing defaults, warranting a more cautious stance. For global investment-grade bonds, we maintain our neutral stance given that (ex-energy) there is only a moderate deterioration in corporate fundamentals. Generally speaking, we prefer exposure to Europe given the more stable outlook, the earlier stage in the economic cycle and the ECB’s activist stance. Developed market government bond markets had another mixed month in September. Shorter-dated US Treasuries gained slightly as the Fed kept policy on hold at its September policy meeting and signalled a more gradual path of future interest rate increases. Japanese 10-year yields were little changed as the Bank of Japan said it would target this yield at around 0% as part of its new policy framework. In Europe, UK gilts sold off as solid domestic economic data weighed on prospects for further near-term policy easing by the Bank of England. Overall, prospective returns for DM bonds continue to look poor and we estimate a negative duration risk premium – investors are having to pay for bearing term risk. We maintain our underweight positioning for this asset class. Within the allocations of our global multi-asset model portfolios, we continue to remain overweight global high-yield corporate bonds versus DM government bonds, but this is only significantly visible within the model portfolio for Risk Profile 2, where the lower volatility target prevents too high an allocation to global equities.

Sources: HSBC Global Asset Management. Data as at close of business 27 November 2015. Past performance is not an indication of future returns.






Global Equities 71.5% 70.5% 1.0% 1.0%

Global Government Bonds 6.0% 5.0% 1.0% 0.0%

DM Government Bonds 0.0% 0.0% 0.0% 0.0%


Global Corporate Bonds 16.5% 18.5% -2.0% -0.5%

Global Investment Grade 1.0% 3.5% -2.5% 0.0%




Cash 1.0% 1.0% 0.0% -0.5%

Total 100.0% 100.0% 0.0% 0.0%


The above ‘Current Portfolio’ is based on regional HSBC Global Asset Management Asset Allocation meetings held throughout October 2016. The ‘SAA Portfolio’ is the result of HSBC Global Asset Management’s portfolio optimisation process. These model portfolios are expressed in USD. Key Terms

Strategic Asset Allocation Portfolio: Within AMG’s multi-asset investment process, the ‘SAA’ refers to the ‘Strategic

Asset Allocations’, which are generated through optimising long-term estimates of both expected return and covariance. These form the portfolios’ reference allocation for each risk level.

Current Portfolio: The ‘Current Portfolio’ represents the portfolio’s current target exposure. This reflects any active

positions currently held in the portfolio (i.e. ‘over/under weight’ positions relative to the SAA).

Portfolio Tilt: The difference between the ‘Current Portfolio’ and ‘SAA Portfolio’ allocations. Positive values reflect

overweight exposure i.e. where a positive outlook on a particular asset class is currently held. Conversely, negative values reflect underweight positions i.e. where the team currently maintain a more cautious outlook.

Portfolio Tilt Change: The change in Portfolio Tilts from the previous Multi-Asset Strategy meeting.

Risk Profiles

Each of the three portfolios outlined above match different customer risk profiles, as defined by their target long-term volatility bands:

Risk Profile 2 has a long-term target volatility of 5-8%. This portfolio typically has a substantial allocation to fixed income

investments and some allocations to growth-oriented investments such as equities.

Risk Profile 3 has a long-term target volatility of 8-11%. This portfolio typically has allocations to both fixed income

investments and growth-oriented investments such as equities.

Risk Profile 4 has a long-term target volatility of 11-14%. This portfolio typically has a high allocation to growth-oriented

investments with higher risk levels.

Note: The ‘Strategic Asset Allocations’ detailed above may sometimes appear to differ from the ‘Long-term Asset Class positioning’ table on pages 2 and 3 primarily due to portfolio constraints which include achieving portfolio volatility within the target long-term volatility bands and minimum and maximum asset class weights. The above ‘Current Portfolio’ allocations are based on HSBC Global Asset Management’s current outlook and portfolio positioning. These positions are revisited on a monthly basis. The allocations are for illustrative purposes and are designed to be broadly representative of our current multi-asset positioning. Actual portfolio positioning may differ by product or client mandate due to manager discretion, local requirements, portfolio constraints and other additional factors. The ‘Current Portfolio’ allocations do not consider the investment objectives, risk tolerance or financial circumstances of any particular client. They should not be relied upon as investment advice, research, or a recommendation by HSBC Global Asset Management. Asset allocation and diversification may not protect against market risk, loss of principal or volatility of returns. The reference index for ‘Equities’ is the MSCI All Country World Index (ACWI), which includes both developed and emerging market equities. The reference index for ‘Real Estate’ is the FTSE EPRA/NAREIT Developed Index, which is designed to track the performance of listed real estate companies and Real Estate Investment Trusts (REITs).



Market Data

MTD 3M 1-year YTD 52-week 52-week Fwd

Close Change Change Change Change High Low P/E

Equity Indices (% ) (% ) (% ) (% ) (X)

World

MSCI AC World Index (USD) 411 -1.8 -1.2 -0.1 2.9 425 351 16.7

North America

US Dow Jones Industrial Average 18,142 -0.9 -1.6 2.7 4.1 18,668 15,451 16.6

US S&P 500 Index 2,126 -1.9 -2.2 2.3 4.0 2,194 1,810 17.9

US NASDAQ Composite Index 5,189 -2.3 0.5 2.7 3.6 5,343 4,210 21.8

Canada S&P/TSX Composite Index 14,787 0.4 1.4 9.3 13.7 14,964 11,531 19.9

Europe

MSCI AC Europe (USD) 389 -3.2 -2.3 -9.9 -5.4 436 354 15.6

Euro STOXX 50 Index 3,055 1.8 2.2 -10.6 -6.5 3,524 2,673 14.6

UK FTSE 100 Index 6,954 0.8 3.4 9.3 11.4 7,130 5,500 16.8

Germany DAX Index* 10,665 1.5 3.2 -1.7 -0.7 11,431 8,699 13.4

France CAC-40 Index 4,509 1.4 1.6 -7.9 -2.8 5,012 3,892 14.7

Spain IBEX 35 Index 9,143 4.1 6.5 -11.8 -4.2 10,632 7,580 16.1

Asia Pacific

MSCI AC Asia Pacific ex Japan (USD) 443 -1.7 1.5 4.9 7.8 459 357 14.6

Japan Nikkei-225 Stock Average 17,425 5.9 5.2 -8.7 -8.5 20,012 14,864 17.5

Australian Stock Exchange 200 5,318 -2.2 -4.4 1.5 0.4 5,611 4,707 16.0

Hong Kong Hang Seng Index 22,935 -1.6 4.8 1.3 4.7 24,364 18,279 12.8

Shanghai Stock Exchange Composite Index 3,100 3.2 4.1 -8.3 -12.4 3,685 2,638 14.8

Hang Seng China Enterprises Index 9,559 -0.2 6.7 -8.1 -1.1 10,736 7,499 8.6

Taiwan TAIEX Index 9,290 1.3 3.4 8.6 11.4 9,400 7,628 14.8

Korea KOSPI Index 2,008 -1.7 -0.4 -1.0 2.4 2,074 1,818 11.4

India SENSEX 30 Index 27,930 0.2 -0.4 4.8 6.9 29,077 22,495 18.6

Indonesia Jakarta Stock Price Index 5,423 1.1 4.0 21.7 18.1 5,483 4,331 17.8

Malaysia Kuala Lumpur Composite Index 1,672 1.2 1.2 0.4 -1.2 1,729 1,601 16.7

Philippines Stock Exchange PSE Index 7,405 -2.9 -7.0 3.8 6.5 8,118 6,084 18.7

Singapore FTSE Straits Times Index 2,814 -1.9 -1.9 -6.2 -2.4 3,044 2,528 13.5

Thailand SET Index 1,496 0.8 -1.9 7.2 16.1 1,558 1,221 15.6

Latam

Argentina Merval Index 17,610 5.6 11.4 41.3 50.8 18,432 9,200 18.8

Brazil Bovespa Index* 64,925 11.2 13.3 41.5 49.8 65,054 37,046 16.2

Chile IPSA Index 4,290 6.8 4.2 12.1 16.6 4,321 3,419 16.1

Colombia COLCAP Index 1,366 2.0 4.4 12.1 18.4 1,419 1,046 14.5

Mexico Index 48,009 1.6 2.9 7.8 11.7 48,956 39,924 21.7

EEMEA

Russia MICEX Index 1,990 0.6 2.3 16.2 13.0 2,063 1,583 6.9

South Africa JSE Index 50,590 -2.6 -4.2 -6.0 -0.2 54,761 45,976 16.1

Turkey ISE 100 Index* 78,536 2.7 4.2 -1.1 9.5 86,931 68,230 9.3

*Indices expressed as total returns. All others are price returns.

3-month YTD 1-year 3-year 5-year

Change Change Change Change Change

Equity Indices - Total Return (% ) (% ) (% ) (% ) (% )

Global equities -0.8 4.8 2.0 9.9 47.1

US equities -1.8 5.2 3.7 25.9 82.4

Europe equities -1.9 -2.7 -7.1 -10.0 20.9

Asia Pacific ex Japan equities 2.2 10.4 8.0 0.5 19.9

Japan equities 3.3 3.9 3.2 11.8 44.9

Latam equities 9.8 45.3 33.3 -18.1 -23.4

Emerging Markets equities 4.1 16.3 9.3 -6.0 2.8

All total returns quoted in USD terms. Data sourced from MSCI AC World Total Return Index, MSCI USA Total Return Index, MSCI AC Europe Total Return Index, MSCI AC Asia Pacific ex Japan Total Return Index, MSCI Japan Total Return Index, MSCI Latam Total Return Index and MSCI Emerging Markets Total Return Index.



Market Data (continued)

MTD 3-month 1-year YTD

Close Change Change Change Change

Bond indices - Total Return (% ) (% ) (% ) (% )

BarCap GlobalAgg (Hedged in USD) 506 -1.0 -1.0 5.2 5.4

JPM EMBI Global 760 -1.5 0.6 11.6 13.4

BarCap US Corporate Index (USD) 2,783 -0.8 -0.9 7.2 8.3

BarCap Euro Corporate Index (Eur) 242 -0.7 -0.6 5.1 5.2

BarCap Global High Yield (USD) 429 0.2 2.9 10.9 14.7

Markit iBoxx Asia ex-Japan Bond Index (USD) 190 -0.6 -0.1 7.1 7.6

Markit iBoxx Asia ex-Japan High-Yield Bond Index (USD) 236 0.5 1.7 11.4 13.4

Total return includes income from dividends and interest as well as appreciation or depreciation in the price of an asset over the given period

End of 3-months 1-year Year End

Bonds Close last mth. Ago Ago 2015

US Treasury yields (%)

3-Month 0.30 0.27 0.25 0.07 0.16

2-Year 0.84 0.76 0.66 0.72 1.05

5-Year 1.31 1.15 1.02 1.52 1.76

10-Year 1.83 1.59 1.45 2.14 2.27

30-Year 2.58 2.32 2.18 2.92 3.02

Developed market 10-year bond yields (%)

Japan -0.05 -0.09 -0.20 0.30 0.26

UK 1.24 0.75 0.68 1.92 1.96

Germany 0.16 -0.12 -0.12 0.52 0.63

France 0.46 0.18 0.10 0.86 0.99

Italy 1.66 1.19 1.17 1.48 1.59

Spain 1.20 0.88 1.02 1.67 1.77

End of 3-months 1-year Year End 52-week 52-week

Currencies (vs USD) Latest last mth. Ago Ago 2015 High Low

Developed markets

EUR/USD 1.10 1.12 1.12 1.10 1.09 1.16 1.05

GBP/USD 1.22 1.30 1.32 1.54 1.47 1.54 1.18

CHF/USD 1.01 1.03 1.03 1.01 1.00 1.06 0.97

CAD 1.34 1.31 1.30 1.31 1.38 1.47 1.25

JPY 104.8 101.4 102.1 120.6 120.2 123.8 99.0

AUD 1.31 1.31 1.32 1.40 1.37 1.46 1.28

NZD 1.40 1.37 1.39 1.48 1.46 1.58 1.34

Asia

HKD 7.76 7.76 7.76 7.75 7.75 7.83 7.75

CNY 6.78 6.67 6.64 6.32 6.49 6.79 6.33

INR 66.78 66.61 67.00 65.27 66.15 68.79 65.42

MYR 4.19 4.14 4.07 4.30 4.29 4.44 3.84

KRW 1,144 1,101 1,120 1,141 1,175 1,245 1,090

TWD 31.56 31.36 31.95 32.60 32.86 33.79 31.01

Latam

BRL 3.19 3.26 3.25 3.86 3.96 4.17 3.10

COP 3,007 2,882 3,071 2,897 3,175 3,453 2,785

MXN 18.86 19.39 18.75 16.50 17.21 19.93 16.36

EEMEA

RUB 63.39 62.88 65.94 63.95 72.52 85.96 61.83

ZAR 13.47 13.72 13.88 13.82 15.47 17.92 13.20

TRY 3.09 3.00 2.99 2.92 2.92 3.13 2.79

Latest MTD 3-month 1-year YTD 52-week 52-week

Change Change Change Change High Low

Commodities (% ) (% ) (% ) (% )

Gold 1,277 -2.9 -5.5 11.8 20.3 1,375 1,046

Brent Oil 48.3 -1.5 13.8 -2.5 29.6 54 27

WTI Crude Oil 46.9 -2.9 12.6 0.6 26.5 52 26

R/J CRB Futures Index 186 0.0 2.9 -4.8 5.8 198 155

LME Copper 4,853 -0.2 -1.5 -5.1 3.1 5,220 4,318


For Professional Clients and intermediaries within countries set out below; and for Institutional Investors and Financial Advisors in Canada and the US. This document should not be distributed to or relied upon by Retail clients/investors.

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. 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. 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Mutual fund investments are subject to market risks, read all scheme related documents carefully. 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. HSBC Global Asset Management is a group of companies in many countries and territories throughout the world that are engaged in investment advisory and fund management activities, which are ultimately owned by HSBC Holdings Plc. HSBC Global Asset Management is the brand name for the asset management business of HSBC Group. The above communication is distributed by the following entities: in the UK by HSBC Global Asset Management (UK) Limited, who are authorised and regulated by the Financial Conduct Authority; in France, Italy, Spain and Sweden by HSBC Global Asset Management (France), a Portfolio Management Company authorised by the French regulatory authority AMF (no. 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