Global Emerging Market Equity

Could emerging market equities regain momentum?

December 2016

Global Emerging Market Equity

This document is intended for Professional Clients only and

should not be distributed to or relied upon by Retail Clients.

The information contained in this document is not intended

as investment advice or recommendation. Non contractual

document.

2 Non contractual document

Contents

Introduction 3

Economic Development 4

Profit Outlook 7

Environmental, Social, Governance (ESG) 9

Investment Opportunity 12

Conclusion 14


Introduction

In the mid-to-late 2000s, investors were

captivated by the favourable demographics and

secular development of emerging market

economies and the potential for capital

appreciation in these markets. Between

September 2001 and October 2007, emerging

market equities appreciated 515% in USD

terms, or 35% annualised, as indicated by the

MSCI Daily TR Emerging Markets Net USD

index (Figure 1).

However, the path of emerging market equity

returns has been range-bound over the last five

years, and far from exciting for long-term

investors. In 2011, emerging markets even

began to underperform developed markets on a

five-year annualised return basis (Figure 2).

As emerging market equities rebounded from

lows in February this year, investors gained

new enthusiasm and net inflows increased as

emerging market exports began to accelerate

and individual country industrial production

looked to improve.

However, the recent US Presidential election

has brought additional headwinds for the asset

class, as proposed policies may harm the

emerging market export engine, through on-

shoring manufacturing, imposition of tariffs,

limitation of remittances or repatriation of

foreign profits. It remains to be seen the extent

to which these and other proposals are

implemented, and this could generate market

volatility as debate unfolds. At the time of

writing, specific asset classes, markets, sub-

sectors and currencies have moved on

anticipation of proposed changes. So an

important question remains: could emerging

market equities regain momentum?

Looking at economic development trends and

the outlook for company profits, we believe

emerging markets continue to offer investment

opportunities, and investors today are being

paid to take risk in emerging market equities.

We believe asset allocators and active

managers can be proactive in looking for

attractive entry points and take advantage of

perceived mispricing to capture the long-term

investment potential of emerging markets.

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Figure 2

Emerging markets versus developed

markets

(Five-year annualised return difference, USD, %)

MSCI Daily TR Emerging Markets net versus MSCI Daily TR World net

Source: HSBC Global Asset Management, Bloomberg as at 30

September 2016. For illustrative purposes.

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Figure 1

Emerging market equity performance

(MSCI Daily TR Emerging Markets Net USD)



Fundamentally, emerging market

equity continue to be attractive and

the long-term investment theme

remains intact.

The performance figures displayed in the document relate to the past

and past performance should not be seen as an indication of future

returns.


Economic development

Despite the recent lacklustre performance in

emerging market equities, economic

development continues, providing a solid

foundation for profit growth. As a long-term

investment theme, the case for emerging

markets remains intact.

Demographics

In emerging markets, the overall population and

the share of the working-age population

(Figure 3) both continue to grow.

Urbanisation

Urbanisation has also increased in a majority of

emerging market countries. This is relevant

because urbanisation is consistent with a lift in

GDP per capita (Figure 4): it creates demand

for infrastructure investment while supporting

an expanding workforce with a higher

consumption potential.

Industrialisation

Industrialisation can be illustrated by growth in

electricity generation. In fact, electricity

generation is often considered a reference for

growth, like Gross Domestic Product. Across

emerging markets, net electricity generation

grew from 5.6 trillion kilowatt-hours (kWh) in

2003 to 10.2 trillion kWh in 2012, an increase of

80%, or 6.9% annualised (Figure 5).

50%

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70%

1981

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2009

2013

Emerging Markets Developed Markets

Figure 3

Working age population

(Percentage of total population, %)

Source: HSBC Global Asset Management, International Monetary

Fund, World Economic Outlook Database, April 2016. For

illustrative purposes.

0

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Frontier Markets

Figure 5

Net electricity generation

(Billion kilowatt-hours)

Source: HSBC Global Asset Management, U.S. Energy Information

Administration, September 2016. For illustrative purposes.

Figure 4

Urbanisation versus GDP per capita

Source: HSBC Global Asset Management, World Bank as at 30 September

2016. For illustrative purposes.

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GD

P p

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Urban population as share of total, %

Brazil ChileChina ColombiaCzech Republic Egypt, Arab Rep.Greece HungaryIndia IndonesiaKorea, Rep. MalaysiaMexico PeruPhilippines PolandQatar Russian FederationSouth Africa ThailandTurkey United Arab Emirates

Four key trends support the emerging markets story:

• Favourable demographics

• Increasing urbanisation

• Growing Industrialisation

• Developing institutions

The performance figures displayed in the document relate to the past

and past performance should not be seen as an indication of future

returns.


Institutions

The development of institutions has led the

“Ease of Doing Business” ranking of many

emerging countries to improve, which can

facilitate business development (Figure 6).

As an example, patent applications in emerging

markets has grown by 21% annually between

2005-2014 (Figure 7). Not only does this reflect

positive business dynamics, but patents can

help companies move up the value chain in the

production of goods and services.

This has supported growth in emerging market

company Value-Added, which highlights the

contribution of emerging markets to the global

economy as measured by Gross National

Product (GNP). This growth has continued

despite a relatively flat equity market (Figure 8).

At the same time, local capital markets have

grown. The proportion of external debt has

declined, with the duration mix more towards

medium-term and long-term funding, and the

proportion is well below that of developed

market countries. This means emerging

markets are becoming less sensitive to foreign

exchange movements when it comes to

financing growth (Figure 9).

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Figure 6

Improvement in “Ease of Doing Business”

(Positive change in country rank, 2010-2016)

Figure 7:

Patent applications

(Thousands)

Source: HSBC Global Asset Management, World Bank Group,

Doing Business 2016. For illustrative purposes.Source: HSBC Global Asset Management, DataStream, 30


Figure 8:

Emerging market Value-Added

(Billions)

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Value-Added

MSCI Daily TR Emerging Markets Net USD (RHS)

Source: HSBC Global Asset Management, Euromoney,

Bloomberg as at 30 June 2016. For illustrative purposes.

Figure 9:

External debt as a % of GDP


Fund, World Economic Outlook Database, October 2016. For


20%

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Gross government debt - emerging economiesGross government debt - advanced economiesExternal debt -emerging economies

IMF

Forecast

Improving ‘Ease of Doing Business’

and growing local capital markets,

support the investment thesis for

emerging market companies.

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 (France) accepts no liability for any failure to meet such forecast, projection or target.


Economic growth

This robust development has indeed translated

into economic growth.

Emerging markets have outpaced developed

markets in terms of Gross Domestic Product

(GDP) growth, and now contribute about a third

of overall global GDP and half of global growth

(Figure 10). To this end, it is a matter of time

before China becomes the world’s largest

economy. We may also see rapid growth within

frontier markets such as Vietnam and Argentina.

This tremendous growth has been achieved

with an improving current account balance

(Figure 11).

But countries aren’t standing still. Several are

planning additional structural reforms, which

could continue to reinforce their long-term

economic growth (Figure 12).

Figure 11

Current account balance as a % of GDP


Fund, World Economic Outlook Database, October 2016. For


China • Further privatisation

• State-owned enterprise reform

• One-belt, One-road program

• Hong Kong–Shanghai Stock Connect

• Interest rate liberalisation

• Capital account liberalisation, free-

floating currency

India • Unlock bottlenecks

• Goods & Services Tax Bill

Philippines • Infrastructure spending

Korea • Chaebol reform

Brazil • Labour and pension reform

• Reduce corruption

Mexico • Energy reform

• Financial reform

• Labour and education reform

• Legal and judicial reform

Figure 12

Examples of potential structural reforms

Source: HSBC Global Asset Management as at 30 September

2016. For illustrative purposes.

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Emerging economies Advanced economies

Forecast

Forecast

Figure 10

Contribution to global GDP growth

Source: HSBC Global Asset Management, DataStream as at 30

September 2016.

For illustrative purposes.

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2016

Emerging markets Developed markets


returns. Any forecast, projection or target where provided is indicative only and is not guaranteed in any way. HSBC Global Asset

Management (France) accepts no liability for any failure to meet such forecast, projection or target.


We believe that, over the long term, corporate

profits and growth expectations for those profits

are the fundamental drivers of share prices and

equity markets.

Emerging market profits grew rapidly from

December 1999 to their peak in July 2011, but

have trended lower since then (Figure 13).

Unsurprisingly, we see valuations, whether

Price-to-Book or Price-to Earnings, near historic

lows and close to the bottom of a trading range

(Figure 14).

Weak global growth has affected profitability

(Return On Equity) in both emerging and

developed markets, suggesting that trends in

emerging markets are not unique (Figure 15).

For emerging market corporates, lower ROE in

recent years seems to owe far more to

investments in future growth than to lacklustre

business performance.

Economic expansion, industrialisation and new

product development require capital

expenditure, and higher depreciation has put

pressure on both margins and asset turnover,

while requiring increased financing and

leverage.

The relationship between profitability and

valuation suggests an investment opportunity,

in our view (Figure 16). If investors start seeing

a recovery in profitability, they may anticipate

an expansion in valuation multiples.

As a consequence, while low valuation is often

given as the primary reason to invest in

emerging markets, we believe that investors

should focus first and foremost on the direction

of corporate profits. To this end, consideration

should also be given to Environmental, Social,

Governance (ESG) factors that may materially

impact company fundamentals. We discuss this

theme in more detail in the following section.

Profit outlook

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Net income, USD billions (LHS)

MSCI Daily TR Emerging Markets Net USD (RHS)

Figure 16

The relationship between profitability and

valuation

Trailing estimates, Emerging Markets: MSCI Emerging Markets USD and Developed Markets: MSCI World USD Source: HSBC Global Asset

Management, DataStream, Bloomberg as at 30 September 2016. For illustrative purposes. The performance figures displayed in the

document relate to the past and past performance should not be seen as an indication of future returns.

Figure 14

Price-to-Book valuation (x)

Figure 13

Emerging market profits

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Figure 15

Return on Equity

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Profits by sector

The relatively flat profit growth of emerging

markets masks underlying trends at the sector

level.

The growth in profits in the energy and materials

sectors was a key driver of overall emerging

market profits throughout the period to 2011,

comprising 37% of overall profits at December

2011. Since then, these profits have declined

almost USD200 billion to 11% of overall profits

because of softer commodity prices (Figure 17).

A rise in commodity prices could reduce this

headwind to overall emerging market profit

growth.

The financial sector generates by far the largest

portion (59%) of overall emerging market

profits, and has helped offset commodity

weakness, but profit growth has been flat given

the environment of subdued economic growth

and lower interest rates (Figure 18).

The technology and healthcare sectors have

delivered profit growth despite economic

headwinds (Figure 19).

Within technology, existing companies have

grown while world-class “New Economy”

companies such as Tencent, Alibaba and

Yandex have listed1. Rapid technology

adoption could support higher levels of

economic growth over the long term, despite a

recent dip in profits. The index weight of

technology in the MSCI Emerging Markets

index is now 23.6% as compared to 15.1% in

the developed markets MSCI World.2

Healthcare has also shown steady growth,

though starting from a smaller base. This

underscores the increasing consumption of this

kind of products and services that should

continue to support profits in this sector.

Consumer sector profits (Figure 20) have

moved sideways recently, as have industrials’

profits, while telecom and utilities have been

facing deflationary pressures.

Figure 17

Commodity sectors profits

Figure 18

Financial sector profits

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Figure 20

Consumer, Industrial, Telecom, Utilities

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1 For illustrative purposes only and does not constitute any investment recommendation in the above mentioned companies.2 For illustrative purposes. Source: Bloomberg as of 31 October 2016. Source: HSBC Global Asset Management, Datastream as at 30 September 2016.

For illustrative purposes. The performance figures displayed in the document relate to the past and past performance should not be seen as

an indication of future returns.

The financial sector contributes the

most to profits generated in

emerging markets, while technology

and healthcare drive profit growth.


Importance to company profits

We see ESG factors as a key driver of long-

term profits, as these factors can have a

material impact on a company’s fundamental

outlook. Asset managers have been

encouraged to consider ESG factors in

investment decisions, and we see such ESG

integration as an essential component of

investment due diligence, and critical to a

holistic, sustainable Responsible Investment

approach that would include engagement,

voting and reporting.

For active managers, the consideration of a

company’s ESG profile could sit alongside other

analyses like the strategic or financial analysis

to provide investment insight, whether

evaluating equity or credit. Whether ESG factors

can drive investment returns is often debated

and academic studies are inconclusive. In our

view, investment opportunity is driven by

whether a company’s fundamental outlook is

reflected in the share price, and it would be

difficult to argue that a single piece of analysis in

isolation could be a predictor of performance.

Broad support and reinforcement

The attention to ESG has been reinforced from

several directions. The PRI (Principles for

Responsible Investment) have been pivotal in

developing awareness and commitment. More

asset owners are requiring asset managers to

communicate how they integrate such analysis

in their investment decision-making. Stock

exchanges are also involved. For example, the

Bovespa in Brazil manages its own

sustainability index, while the Johannesburg

Stock Exchange is working to increase South

African corporates’ ESG disclosure. The Hong

Kong Exchange announced ESG would form

part of its reporting requirements going forward,

stating "Issuers starting to report on their ESG

performance may reap the benefits of better

risk management, improved access to capital,

greater capacity to meet supply chain demands

and lower operational costs, to name a few of

the advantages that ESG reporting could bring

to issuers' businesses“. In June 2016, China’s

State Administration of Taxation issued much

more stringent disclosure rules on related-party

transactions.

ESG in emerging markets

The nature of developing economies may

encourage investors to consider ESG issues. In

emerging markets, there is a prevalence of

environmentally sensitive sectors e.g.

resources and power generation. Global issues

such as water availability and climate change

may have a disproportionate impact on

developing countries. Social issues are present

given labour-intensive industries and the impact

of investments on communities. Governance

issues are also visible, with State-Owned

Enterprises or family-owners as majority

shareholders.

Such analysis is important at the company

level, as there is a breadth of scores across

companies (Figure 21), and because a

company’s ESG profile can change. We have

seen that, within three and five years, about

half of the universe improved while the other

half saw their ESG score declining (Figure 22).

This data highlights how the availability of

emerging market ESG information has

improved. Currently, investors can access

information for over 1,600 emerging market

companies, whereas about 280 companies

have a three-year history and only about 80

companies have a five-year history.

Environmental, Social, Governance (ESG)

Figure 21

Distribution of ESG scores

(Industry-adjusted score: 2015)

Based on companies within the MSCI ESG database

Source: HSBC Global Asset Management, MSCI as at 30


Figure 22

Distribution of ESG score change

(Industry-adjusted score: 2010-2015, 2012-2015)

Based on companies with historic information within the MSCI

ESG database

Source: HSBC Global Asset Management, MSCI as at 30


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Companies

2010-2015 2012-2015

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Companies


The environment and emerging markets

Within the Environment pillar of ESG, it is clear

that environmental issues, climate change and

carbon pricing can impact long-term profits, and

recent environmental initiatives have amplified

these ESG trends.

For example, by signing the Dubai declaration

in late October 2016, the core of the United

Arab Emirates’ financial institutions have

committed to integrating ESG and Green

Investing in their practices. Another illustration

is the deal agreed in Kigali, Rwanda, in October

2016, whereby 197 countries signed a legally-

binding document committing to reducing the

use of hydro-fluorocarbons, a powerful

greenhouse gas used in refrigerators and air-

conditioners.

Although the latter is undoubtedly important, it

cannot eclipse the United Nations Conference

on Climate Change, COP21, which brought

increased attention to the broad impact of

climate change on the global economy.

The Paris Agreement on Climate has now been

ratified by some 76 countries committing to help

limit global warming to 2oC and totalling close to

60% of the world’s CO2 emissions. Three of the

largest emerging markets are also among the

world’s five largest carbon emitters: together

Brazil, India and China represent 26% of the

world’s CO2 emissions.

These three countries have ratified the Paris

Agreement, and they are considering using

market mechanisms to further their aims.

Whilst a global carbon price wasn’t agreed in

Paris, it was referenced in the Agreement,

which recognises the “important role of

providing incentives for emission reduction

activities, including tools such as domestic

policies and carbon pricing.” Indeed, more than

90 of the National Determined Contributions to

the Paris Agreement included proposals for

emissions trading schemes (ETS), carbon

taxes and other carbon-pricing initiatives.

In fact, in 2015 the World Bank Group and the

OECD issued a report on carbon pricing

schemes using input from the IMF. Globally,

there are already 40 national carbon-pricing

schemes – such as ETS or carbon taxes – and

another 23 at the level of cities, states and

regions (Figure 23). At the time these

represented about 7 billion tonnes of CO2, or

12% of global greenhouse-gas emissions.

Carbon pricing took a major step forward in

September 2015 when China announced its

plans for a national ETS. Chinese President Xi

Jinping stated that the national ETS would

begin in 2017, and initial indicators suggest that

the scheme will cover the iron and steel, non-

ferrous metals, power generation, cement and

glass, chemicals, petrochemicals, pulp and

paper, and aviation sectors.

Figure 23

Existing, emerging and potential regional, national and subnational carbon pricing initiatives

(ETS and tax).

Source: World Bank Group 2015

ETS implemented or scheduled

for implementation

Carbon tax implemented or

scheduled for implementation

ETS or carbon tax under

consideration

ETS and carbon tax implemented

or scheduled

ETS implemented or scheduled,

tax under consideration

Carbon tax implemented or

scheduled, ETS under

consideration


Going forward, we believe the Paris Agreement

will prove to be a game changer, as it will very

likely trigger a wave of changes in terms of

power generation, smart-grid-related innovation,

transport and many other industries as part of an

industrial transition to a low carbon economy

that creates opportunities and risks as well as

winners and losers.

These parameters will increasingly become

drivers of investment decisions. Companies that

consider this transition within their corporate

strategy should be better placed to maintain or

enhance their competitive position, with the

potential to deliver sustained or improving

profitability in the future.

As asset managers sign the Montreal Carbon

Pledge, committing to report investment portfolio

carbon exposure, carbon could begin to

influence portfolio decision-making.

Analysis suggests that relatively few emerging

market companies comprise a significant

proportion of total emissions within the listed

emerging market universe (Figure 24); these

may be most exposed to regulation and

industrial change.

Universe comprises emerging markets companies within the

Trucost database

Source: HSBC Global Asset Management, Trucost; 2014 emissions

as at April 2016. For illustrative purposes.

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Figure 24

Cumulative emissions (CO2 equivalents)


Investment opportunity

Emerging market beta

For asset allocation and investment decision

making purposes, we assess medium-term

expected returns for emerging markets equity.

We base this assessment on dividend yield,

earnings per share growth, and market re-

pricing.

The results show that, as at 30 September

2016, emerging market equities’ expected

returns appear attractive versus developed

market equities, government bonds and cash

(Figure 25).

In a low interest-rate environment, emerging

markets have also been offering an attractive

dividend yield relative to developed market

equities, indicating discipline in their cash flow

management (Figure 26).

Emerging markets equities could be additive to

an equity allocation. The correlation between

emerging market and developed market returns

has remained relatively low, which means an

allocation to emerging markets may not

significantly raise the overall portfolio volatility.

Alpha opportunity

Many investors may wish to seek excess return

over emerging market beta.

The inherent excess volatility in emerging

markets may enable an alternative weighting

scheme, such as fundamental weighting or

lower volatility, to utilise systematic rebalancing

to capture excess returns.

For active stock selection, there is an array of

investment opportunities – over 800 names

across 23 countries and 11 sectors in the

standard MSCI Emerging Markets index – and

the wide breadth of historic stock returns

confirms that stock selection has the potential to

add value.

Looking forward, we see a dispersion in the

relationship between Profitability and Valuation

(Figure 27), indicating a potential investment

opportunity that could be confirmed through

proprietary fundamental research.

As we have shown in the previous section, ESG

analysis has the potential to becoming an

integral component of the investment research

and due diligence that active managers carry.

By providing an additional insight, the ESG

profile of a company, may improve stock

selection and search for alpha.

Figure 25

Expected 10-year nominal returns

(Annualised, USD unhedged, %)

Source: HSBC Global Asset Management as at 30 September 2016. For

illustrative purposes only. Any forecast, projection or targets 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 targets.

(1,6%)(1,0%)

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4,2%6,9%

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5,1%

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(5%) 0% 5% 10% 15%

Japan JGBsGerman Bunds

UK GiltsUS Government Bonds

US Corporate CreditEUR High Yield

US High YieldLocal EM Debt

Global listed real estate

Developed Markets

Asia ex JapanEmerging Markets

Global

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Figure 26

Dividend yield

(12m forward, %)

Source: IBES, MSCI, DataStream, HSBC Global Asset Management as

at 30 September 2016. For illustrative purposes.

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Source: HSBC Global Asset Management as of 30 September 2016. For


Figure 27

Dispersion in Profitability-Valuation

(Return on Equity and Price-to-Book)

The performance figures displayed in the document relate to the

past and past performance should not be seen as an indication of

future returns.


Tactical allocation considerations

In making tactical allocations to emerging

market equities, investors have traditionally

considered the direction of oil prices, the

strength of the US Dollar, and the direction of

interest rates when aiming to understand the

potential direction of emerging market equities.

Oil price sensitivity

There appears to be an historic positive

relationship between the level of emerging

market equities and the level of oil prices

(Figure 28). Oil prices could be an indication of

economic growth, with marginal demand largely

arising from emerging markets.

Certainly, a rise in oil and commodity prices

could have a beneficial impact on overall

profitability and index return, though the impact

could be more muted than expected, as energy

and materials names now comprise only a

13.6% weighting within the MSCI Emerging

Markets index.

US Dollar sensitivity

There appears to be an historic inverse

relationship between the level of emerging

markets and the level of the Dollar Index,

possibly reflecting the historic sensitivity of

external debt positions of emerging market

countries to foreign exchange movements

(Figure 29). As we have seen, external debt

positions have fallen over time, and there has

been a shift away from short-term debt towards

medium to long-term debt. Foreign exchange

reserves may offer a buffer for short-term

external debt.

A strong US dollar may also be beneficial to

emerging market exports.

Direction of interest rates

There is a relatively low correlation between

emerging market returns and changes in US 10-

year Treasury yields (Figure 30), averaging 0.20

over the past twenty years.

The communications of the US Federal Reserve

may contribute to this, as policy moves are well-

signalled.

Rising interest rates may also signal confidence

in economic growth, which could be supportive

of emerging market profits, though it may raise

the discount rate for long duration assets.



Figure 29

Dollar Index

(DXY)

60

80

100

120

1400

200

400

600

800

1 000

1 200

1 400

janv.-

95

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97

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99

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01

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03

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05

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07

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09

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11

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13

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15

MSCI Emerging MarketsDollar Index (DXY inverted, RHS)

Figure 28

Oil prices

(Brent Crude $/bbl)

0

50

100

150

200

0

200

400

600

800

1 000

1 200

1 400

janv.-

95

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janv.-

15

MSCI Emerging MarketsBrent Crude ($/bbl, RHS)





Figure 30

Correlation with interest rate changes

(MSCI Daily TR Emerging Markets Net vs

US 10-Year Treasury yield)

0

2

4

6

8-0,6

-0,4

-0,2

0,0

0,2

0,4

0,6

0,8

janv.-

96

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98

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00

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02

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04

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06

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16

Correlation

US 10-Year Treasury yield (%, RHS)


returns.


The secular economic development theme in

emerging markets remains robust, and we see

profit growth as key in supporting further

emerging market equity appreciation.

We believe there are several potential catalysts

for profit growth:

• Improvements in global growth

• Stabilisation in commodity sector profits

• Accelerating growth of local economies

• Valuation multiple expansion on rising

expectations for profit growth

• Company (and investor) attention to

Environment, Social and Governance

considerations

We believe emerging market equities can be a

core building block of an asset allocation, as

correlations between emerging market and

developed market equity returns has remained

relatively low.

Apparent headwinds, such as oil prices, US

Dollar strength, and interest rate hikes, appear

to reflect an historic perspective rather than

current reality.

While the US Presidential election may create

headwinds and uncertainty leading to market

volatility, we believe asset allocators and active

managers can be proactive in looking for

attractive entry points and take advantage of

perceived mispricing.

Capturing this investment potential of emerging

markets requires robust investment solutions.

HSBC Global Asset Management offers a

breadth of equity investment capabilities that are

differentiated by design and tailored to deliver

clients’ investment objectives.

Conclusion

Contacts

Client Management

Tel: +33 (0)1 41 02 51 00

Email: [email protected]

mailto:[email protected]


Important information

This document is distributed by HSBC Global Asset Management (France) and is only intended for professional investors

as defined by MiFID. The information contained herein is subject to change without notice. All non-authorised

reproduction or use of this commentary and analysis will be the responsibility of the user and will be likely to lead to legal

proceedings. 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 commentary and analysis presented in this document reflect the opinion of HSBC Global Asset Management on the

markets, according to the information available to date. They do not constitute any kind of commitment from HSBC Global

Asset Management (France). Consequently, HSBC Global Asset Management (France) will not be held responsible for

any investment or disinvestment decision taken on the basis of the commentary and/or analysis in this document.

It is important to remember that the value of investments and any income from them can go down as well as up and is not

guaranteed. Investments in emerging markets are by their nature higher risk and potentially more volatile than those

inherent in established markets. Fluctuations in the rate of exchange of currencies may have a significant impact on

performance. The value of the underlying assets are strongly affected by interest rate fluctuations and by changes in the

credit ratings of the underlying issuer of the assets. All data from HSBC Global Asset Management unless otherwise

specified. Any third party information has been obtained from sources we believe to be reliable, but which we have not

independently verified. Past performance is not a guide to future performance.

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 a 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 on 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, any 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.mscibarra.com)

Important information for Luxembourg investors: HSBC entities in Luxembourg are regulated and authorised by the

Commission de Surveillance du Secteur Financier (CSSF).

Important information for Swiss investors: This document is intended exclusively towards qualified investors in the

meaning of Art. 10 para 3, 3bis and 3ter of the Federal Collective Investment Schemes Act (CISA).

HSBC Global Asset Management is the brand name for the asset management business of HSBC Group. The above

document has been produced by HSBC Global Asset Management (France) and has been approved for distribution/issue

by the following entity:

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the French regulatory authority AMF (no. GP99026) with capital of 8.050.320 euros.

Postal address: 75419 Paris cedex 08, France. Offices: Immeuble Coeur Défense | Tour A - Etage 21, 110, esplanade du

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Copyright © 2016. HSBC Global Asset Management (France). All rights reserved. Updated in December 2016.

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Global Emerging Market Equity