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For professional clients only
HSBC GIF Turkey Equity PresentationSeptember 2011
2
HSBC Overview
HSBC Global Asset Management
The Investment Team & Emerging Markets Investment Resources
Investment Philosophy and Process
Risk management
Market overview
HSBC GIF Turkey Equity Fund overview
Competitor analysis
Outlook
Appendix
Contents
HSBC Overview
4
HSBC overview
Emerging markets are at the heart of HSBC's corporate identity
HSBC’s roots were formed in China and India in the 19th century
HSBC Group has maintained a strong presence in global trade, particularly in India and China, the world's most dynamic emerging markets.
Headquartered in London, HSBC is one of the largest banking and financial services organisations in the world, with over 300,000 employees spanning
an international network of around 7,500 offices in the Asia-Pacific region, Europe, the Americas, the Middle East and Africa.
One of the largest global financial services networks with offices in 87 countries of which 54 are in emerging market countries
A unique local market knowledge, enhancing the portfolio management processes
Direct access to local companies and investment opportunities
Source: HSBC Holdings Plc, data as of 31st December 2010.
5
Mexico
Honduras
El Salvador Nicaragua
Costa Rica Panama
Colombia
PeruBrazil
ParaguayChile
ArgentinaUruguay
South Africa
Mauritius
Algeria
Libya Egypt
PolandCzech RepublicSlovakia
TurkeyLebanon
IsraelPalestine
Georgia
ArmeniaIraq
KuwaitBahrain, QatarUAE
OmanSaudi Arabia
Kazakhstan
Russia
PakistanChina Korea
India
MaldivesSri Lanka
Taiwan
Philippines
Indonesia
BruneiMalaysia
Singapore
Hong Kong
ThailandVietnam
Macau
Malta
HSBC Global Asset ManagementHSBC Holdings plc
Source: HSBC Global Asset Management, as of 31 December 2010
HSBC’s presence in emerging markets
HSBC Global Asset Management
7
HSBC Global Asset Management
HSBC Global Asset Management is a leading global asset management firm managing assets totalling USD453.4 billion at the end of June 2011.
HSBC Global Asset Management offers clients around the world a diverse and full range of active and quantitative investment products including equity, fixed income, liquidity and alternative strategies.
Worldwide client base invested in both segregated accounts and pooled funds.
HSBC Global Asset Management is part of HSBC Holdings plc.
8
HSBC Global Asset Management -
A leader in emerging markets
Complete investment solutions including equity, fixed income, balanced and alternatives products through:
-
Local strategies: Products managed and distributed locally
-
Global, regional and single country strategies: Products managed
across multiple geographies and distributed globally
An extensive range of emerging markets funds, including some of the world's largest in their sectors
-
One of the largest offshore managers of Brazil, India and BRIC equity funds
-
Our flagship global emerging market products have made us leaders in the management of assets in a wide array of emerging markets, not only in Brazil, India and China but also in Taiwan, Thailand and Turkey
Emerging Markets AUM by region (US$ billion)
Source: HSBC Global Asset Management, Assets under management data as of 30th June 2011
Emerging Markets AUM by asset class (US$ billion)
Among the largest managers of emerging market funds globally, with approximately USD139 billion in assets under management and over 200 dedicated emerging markets investment professionals in 14 key locations
Latin America
58.9
Asia Pacific61.1
EMEAMENA
9.9Global
9.2
Equity39.9
Fixed Income
76.3
Balanced17.3
Alternative0.8
Liquidity4.8
The Investment Team & Emerging Markets Investment Resources
10
A team of Turkey specialists Talented portfolio managers led by a seasoned CIO…
… supported by experienced analysts and a well-respected Chief Economist and also by risk managers who are in good coordination with global risk function.
… supported by experienced analysts and a well-respected Chief Economist and also by risk managers who are in good coordination with global risk function.
Discretionary PortfolioManagement
İlker Ardal
15/3
Risk ManagementÇağdaş
Hatinoğlu
4/4Ahmet Perilioğlu 4/1
General ManagerNamık Aksel 17/6
Macroeconomists
Murat Ülgen / Chief Economist 12/4Melis Metiner
/ Economist 4/1
Company AnalystsCenk Orçan
12/9Bülent Yurdagül 12/10Tamer Şengün 6/2Erol Hullu 4/2Levent Bayar 3/3
Fixed IncomeÇağrı
Özel 10/10Cengiz Yılmaz
4/1Serkan
Saraç
5/3
Equity & Alternative Inv.Ercan Guner 16/2Bülent Ülke
15/1Osman
Yılmaz 4/2Bahar Kavaklıoğlu
3/1
Chief Investment OfficerOmer Gencal
19/2
Source: HSBC – December 2010 - X/X: Years of industry experience / Years at HSBC
11
New YorkGEM Fixed Income8 Investmentprofessionals
Mexico CityMexican Fixed IncomeMexican EquityMexican Alternatives11 Investmentprofessionals
BogotaColombian Fixed IncomeColombian Equity5 Investmentprofessionals
Sao PauloBrazilian Fixed IncomeBrazilian EquityBrazilian AlternativesBrazilian Multimanager21 Investmentprofessionals
Buenos AiresArgentinian Fixed IncomeArgentinian Equity5 Investmentprofessionals
LondonGEM EquityGEM AlternativesGEM Multimanager13 Investmentprofessionals
ParisGEM Fixed IncomeGEM Equity (inc Amanah)9 Investmentprofessionals
IstanbulTurkish Fixed IncomeTurkish EquityTurkish Alternatives10 Investmentprofessionals
RiyadhSaudi Fixed Income (inc
Amanah)Saudi EquitySaudi Alternatives18 Investmentprofessionals
Mumbai Indian Fixed Income Indian Equity19 Investmentprofessionals
SingaporeSingaporean Equity7 Investmentprofessionals
Hong KongHong Kong Fixed IncomeHong Kong EquityHong Kong Alternatives37 Investmentprofessionals
Shanghai Jintrust Chinese Fixed
Income Jintrust Chinese EquityChinese M ultimanager17 Investmentprofessionals
TaipeiTaipei Fixed IncomeTaipei Equity23 Investmentprofessionals
19464
Emerging markets investment capabilities –
A portfolio of opportunities Strategies and locations
As of June 2011
Investment Philosophy and Process
13
Investment Strategy
Investment Objective
The fund seeks long term returns from capital growth and income by investing in equity and equity equivalent securities of companies which have their registered office in and with an official listing on a major exchange of Turkey
Asset Allocation
Weight of equities in total assets can not be lower than two thirds of its non-cash assets in equity. Usually fully invested in stocks, with a minor cash allocation
Number of Stocks
The strategy is to diversify the portfolio between a minimum of 20 stocks to up to 40 stocks
Exposure
For the purpose of efficient portfolio management the fund may also invest in index futures to gain market exposure
Currency
The fund invests in Turkish Lira denominated assets, and the currency risk is unhedged
14
Investment Strategy (continued)
The objective is to maximize the return with a minimum deviation
from the comparative index: tracking error targets*
Aim to consistently deliver a minimum of market return (beta) plus a reasonable excess return (alpha) is the key to our investment philosophy.
The same philosophy is applied to the portfolio construction process for optimum combination of alpha and beta components of the fund. Significant portion of the portfolio is invested in selected at least 10 “most promising”
stocks and the remaining part is usually invested in a way of benchmark replication to keep the fund returns in tracking error targets.
As our fund management and research team is specialised on Turkey, a bottom up approach is the key element of our stock selection process
However, to some extent our quantitative trading models also make contribution to the performance
Source: HSBC - * For illustrative purpose only as the fund has no official benchmark
15
Stock Picking Process
Investment Universe: We have a list of 90 investable stocks (updated by the research, fund management, risk and internal control teams) out of the 347 listed on the Istanbul Stock Exchange
Investment Universe of 90 stocks is reduced to 40 most preferred
stocks through:-
Liquidity Screening-
Bottom Up Research and Valuation Focus-
Market Direction and Expectations-
Stocks That Promise the Highest Upside Potential
The stock selection process is finalized with 10 top picks selected among 40 most preferred stocks at Stock Selection Committee through :-
Analysis of Sectoral Trends, Company Stories and News-flow-
Flow Analysis-
Quantitative and Technical Analysis
Source: HSBC
16
Committees & Meetings
Daily Portfolio Managers Meeting:
Meeting is held everyday before market opening. Daily evolution of markets, news and company specific information is discussed.
Members: CIO and Portfolio Managers
Strategy Committee:
Committee meets every Friday after markets are closed. Macroeconomic outlook, expectations and political scenarios are discussed. Recent developments in financial markets and trends are summarized. Fundamental, technical, flow of funds and position analysis are fulfilled. Market expectations for the next week are discussed.
Members: CEO, CIO, Portfolio Managers, Chief Economist
Stock Selection Committee:
The Committee meets every Monday to review the portfolio. Company stories, sectoral trends, earning results and revisions are discussed. A review of the “most promising stocks”
is processed and new list of selected stocks is defined.
Members: CIO, Portfolio Managers, Research Analysts
Source: HSBC
Risk Management
18
Framework
Investment Team Operational Control Parent Oversight
Portfolio Manager Risk Guidelines and Portfolio Constraints Market Risks
Trading Desk
Counterparty risks
Market risks
Risk Control In-house risk limits
Regulatory guidelines
Management Assistance Operational risk control
Transaction Review Committee
Internal Control/Compliance Process control
HSBC’s Risk Management and Audit Control of processes (including Risk Control Processes)
Follow up of risk control activities
Limits with respect to the tracking error targets for the fund
The team is supported by a well proven Risk Management Framework which is put into place to comply with the identified risks characterising investments in the Turkish market.
Source: HSBC Global Asset Management, Information is for illustrative purposes only.
Risk Management Framework
Market Overview
20
A peculiar geography with geo-strategic advantage
World’s 17th
largest economy with Europe’s 3rd
largest population at 72 million
At the crossroads of the Balkans, the Middle East and the Caucasus, Turkey is becoming a major energy corridor connecting CIS and Middle Eastern Countries with Europe
Anchored to EU with the accession talks
As being a successful democratic country with a Muslim society, becoming a role model than ever with building greater economic and political ties with Middle Eastern countries
Sources: TURKSTAT, United Nations; December 2010
21
Favourable demographics
A solid reason for a fast economic growth:
Turkey’s 72 m population is growing by 1.3% per annum
The average age of population is 28
Only 15% of population is expected to be over 60 in 2025(F)
10
20
30
40
50
60
70
1927
1935
1940
1945
1950
1955
1960
1965
1970
1975
1980
1985
1990
2000
0%
1%
1%
2%
2%
3%
3%
Population (mn) Annual Grow th Rate (rhs)Cze
chH
unga
ryP
olan
dR
ussi
aTa
iwan
Kor
eaC
hile
Arg
entin
aIs
rael
Thai
land
Chi
naTu
rkey
Bra
zil
Sou
th A
frica
Ven
ezue
laIn
done
sia
Per
uM
exic
oM
alay
sia
Indi
aE
gypt
Phi
lipin
nes
5
10
15
20
25
30
Percent of population above age of 60 in year 2025(F)
Growing population (average growth 1.3% p.a.)
Sources: TURKSTAT, United Nations ; December 2010 - Any forecast, projection or target contained in this presentation is for information purposes only and is not guaranteed in any way. HSBC accepts no liability for any failure to meet such forecasts, projections or targets.
22
Overview of the economy: A solid turnaround in the last decade
World’s 17th
largest economy with a GDP of USD 736billion
(2010)
1990s have been characterised by ‘boom and bust’
cycles, i.e. high growth coupled with high inflation followed by recessions, due to mainly lack of political stability to carry out a structural reform process
The most severe economic crisis of its recent history in 2001 has opened way for a decade of political stability and structural reforms.
Following 2001 crisis, the economy has bounced back rapidly growing on average 6% until 2008 when interrupted by the global crisis
Seven consecutive years of disinflation since 2001, CPI tumbled from 77% in 2001 to 5.5% in 2009. Latest level is around
4% both for CPI and core inflation.
After the shock of global crisis, the economy started to grow rapidly in 2010: GDP growth have been 8.9%
Current account deficit can be considered as the major risk ahead.
Sources: TURKSTAT, United Nations ; December 2010
23
Investment Case:
Turkey: During global crisis
Strong performance during the global crisis as opposed to previous examples of crises•
relatively strong Turkish Lira,•
low level of interest rates, •
falling inflation,•
no requirement of
IMF funding.
Consequently, Turkey passed the test of global financial and economic crisis successfully.
A decade of structural reforms provided Turkey a shield against
shocks and initiated a positive paradigm shift that has been
more visible with the help of global crisis.
We expect this paradigm shift to change dramatically the
spending and investment behaviour of households and corporations. This will be main pillar of
growth in the long-run.
Rating upgrades has started: Fitch, Moody’s, JCR, S&P all acted.
More to come...
Perceptions
of local and international investors on Turkey have started to turn into a “long-term growth story”
rather than a “cyclical play”.
24
Investment Case:
Turkey: A locomotive country for global growth
in recovery from global crisis
In 2009 domestic and foreign demand collapsed and economy contracted sharply
But recovered very fast: 8.9% GDP growth in 2010.
It is not a cyclical recovery but expected to continue at around
5% in next two years with strong long-term dynamics, because;
•
Favourable demographics: Young, large and fast growing population •
Relatively low level of debt supports growth: Both for public and household•
First time ever single digit interest rate environment
stimulates spending and investment•
Huge pent-up domestic demand and low inventory levels•
Solid banking sector: well capitalized, profitable
and prepared to finance economic growth•
Low level of financial penetration sets the stage for further growth
Sharply widening current account deficit seems to be the only risk factor
Sources: TURKSTAT, United Nations ; June 2011
25
Solid Banking Sector
Strictly regulated
and...
–
Tight banking sector regulations preventing banks from taking excessive risk
–
No derivative products–
No sub-prime bonds–
No off-balance sheet hidden risks–
No long-short FX risk
...Self funded banking system
Source: BRSA, TBB ; April 2011
Loan to deposit ratio of Turkish banking system
30%
40%
50%
60%
70%
80%
90%
1Q03
2Q03
3Q03
4Q03
1Q04
2Q04
3Q04
4Q04
1Q05
2Q05
3Q05
4Q05
1Q06
2Q06
3Q06
4Q06
1Q07
2Q07
3Q07
4Q07
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
Feb-
11
Banking system liability breakdown76%
3%6%
10%5%
62%
10%7%
14%
7%
64%
9%6%
14%
7%
0%
10%
20%
30%
40%
50%
60%
70%
80%
Deposits Borrowings(Banks)
Borrowings(Repo)
Shareholdersequity
Other
State Banks Private Banks Banking Sector
26
Banking sector aggregate CAR31%
29%
24%22%
18%19%
24%
17%18%
10%
15%
20%
25%
30%
35%
2002
2003
2004
2005
2006
2007
2008
Oct
-08
Nov
-08
Dec
-08
Jan-
09Fe
b-09
Mar
-09
Apr-0
9M
ay-0
9Ju
n-09
Jul-0
9Au
g-09
Sep-
09O
ct-0
9N
ov-0
9D
ec-0
9Ja
n-10
Feb-
10M
ar-1
0Ap
r-10
May
-10
Jun-
10Ju
l-10
Aug-
10Se
p-10
Oct
-10
Nov
-10
Dec
-10
Jan-
11Fe
b-11
Solid Banking Sector (continued)
Enjoying solid Return on Equity (ROE) and high Capital Adequacy Ratio (CAR)
Entered the crisis with the CAR around 17% and increased to approximately 20% recently
Despite a significant jump in NPL’s
during the crisis, banking ROE’s remained high and recently NPL’s
started to come down
Source: BRSA ; April 2011
BRSA's requirement: 12%
Banking sector-NPL Ratio
2.0%2.5%3.0%3.5%4.0%4.5%5.0%5.5%
Dec-0
7Fe
b-08
Apr-0
8Ju
n-08
Aug-0
8Oc
t-08
Dec-0
8Fe
b-09
Apr-0
9Ju
n-09
Aug-0
9Oc
t-09
Dec-0
9Fe
b-10
Apr-1
0Ju
n-10
Aug-1
0Oc
t-10
Dec-1
0Fe
b-11
Banking Sector ROAE
0%
5%
10%
15%
20%
25%
2004
2005
2006
2007
2008
2009
2010
Mar-1
1
27
Financial penetration is increasing but still low
Banking sector grew at higher rates than GDP in last decade
Banking assets to GDP ratio is at 91% (2010) and still have large room for future growth
Source: HSBC, BRSA, Turkstat - Any forecast, projection or target contained in this presentation is for information purposes only and is not guaranteed in any way. HSBC accepts no liability for any failure to meet such forecasts, projections or targets.
Total Assets of Credit Institutions / GDP (%), 2008
79.4
0
50
100
150
200
250
300
350
400
450
500
United
Kingdo
mAus
triaFranc
eEU-27
German
ySpa
inPort
ugal
Sweden Ita
lyFinl
and
Greece
Bulgari
a
Czech
Rep
ublic
Slovakia
Turkey
Poland
Roman
ia
Banking Sector Real Growth Rate
-10%
-5%
0%
5%
10%
15%
20%
25%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Banking Real Growth GDP Growth Banking Average
28
Interest rates at historical lows
Between
2002-2008, nominal and real interest rates hovered around 20% and 10% levels respectively.
During the crisis, the strength of Turkish financial markets and
proactive policy action by the Central Bank of Turkey reduced the risk premium significantly and supported by
global
disinflation, interest rates reached to lowest
levels
in
financial history.
Sources: Ministry of Finance, CBT, Reuters ; April 2011 - Any forecast, projection or target contained in this presentation is for information purposes only and is not guaranteed in any way. HSBC accepts no liability for any failure to meet such forecasts, projections or targets.
* Based on 2 Year index of reference Government Bond and Expected CPI
Benchmark Bond vs CBT Policy Rate (%)
6
8
10
12
14
16
18
20
22
24
26
Sep-
06
Dec
-06
Mar
-07
Jun-
07
Sep-
07
Dec
-07
Mar
-08
Jun-
08
Sep-
08
Dec
-08
Mar
-09
Jun-
09
Sep-
09
Dec
-09
Mar
-10
Jun-
10
Sep-
10
Dec
-10
Mar
-11
Benchmark Bond Yield CBT Policy Rate (comp)
2 Year Ex-Ante Real Interest Rates *
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
Sep-
06
Dec
-06
Mar
-07
Jun-
07
Sep-
07
Dec
-07
Mar
-08
Jun-
08
Sep-
08
Dec
-08
Mar
-09
Jun-
09
Sep-
09
Dec
-09
Mar
-10
Jun-
10
Sep-
10
Dec
-10
Mar
-11
29
01020304050607080
Spai
n
Portu
gal
EU27
Gre
ece
Italy
Hun
gary
Pola
nd
Cze
chR
ep.
Turk
ey
Household Debt excl. mortgages/GDP (%) Household Debt/GDP (%)
Low level
of household and corporate debt...
–
Low level of household debt at only 15% of GDP and embryonic mortgage market will provide fuel for future growth potential of Turkish economy.
Comparison of household debt (as of 2008)
Source: CBRT, HSBC - Any forecast, projection or target contained in this presentation is for information purposes only and is not guaranteed in any way. HSBC accepts no liability for any failure to meet such forecasts, projections or targets.
–
Corporate sector had
been shy of increasing leverage because of unstable economy and politics, lack of longer-term borrowing facilities and relatively high interest rates.
Corporate Debt (as % of balance sheet total)
30
35
40
45
50
55
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Leveraging will provide further boost to Turkish economy with the help of low interest rates, contrary to the ongoing deleveraging process in many other countries.
* Balance sheet of large enterprises, CBRT
30
...and also relatively
better picture
in
public debt
Decade long disciplined budget policy reduced Debt to GDP ratio sharply. Following
a
slight increase
in 2009, it came down to
42% in 2010
and expected to continue
to fall in coming years.
One
of the lowest in Europe.
Source: CBRT, HSBC, EU Banking Structures 2010 - Any forecast, projection or target contained in this presentation is for information purposes only and is not guaranteed in any way. HSBC accepts no liability for any failure to meet such forecasts, projections or targets.
Manageable budget deficit and lower public debt stock also eliminate the risk of crowding- out, allowing full speed growth of private sector.
Government Debt % of GDP (2010 Forecast)
42%
25%
50%
75%
100%
125%
150%
Greece Ita
ly
Belgium
Portug
al
France
Irelan
dUK
German
yMalt
a
Austria
Netherl
ands
Spain
Cyprus
Finlan
d
Turkey
Slovakia
Gross public debt stock (% of GDP)
35%
40%
45%
50%
55%
60%
65%
70%
75%
80%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011F 2012F
31
A strong come back from global crisis: robust economic
recovery...
Sources: TURKSTAT, Bloomberg, April 2011 - Any forecast, projection or target contained in this presentation is for information purposes only and is not guaranteed in any way. HSBC accepts no liability for any failure to meet such forecasts, projections or targets.
Within EMEA, despite strong base effect of 2010, Turkey is expected to have the highest GDP growth rates: 4.6% in 2011
and 4.8% in 2012. A high beta exposure in the region.
After a break of two years, economic growth is back on track. Economy grew by 8.9%
in 2010.
GDP Growth - Quarterly
-16%
-12%
-8%
-4%
0%
4%
8%
12%
1Q00
2Q00
3Q00
4Q00
1Q01
2Q01
3Q01
4Q01
1Q02
2Q02
3Q02
4Q02
1Q03
2Q03
3Q03
4Q03
1Q04
2Q04
3Q04
4Q04
1Q05
2Q05
3Q05
4Q05
1Q06
2Q06
3Q06
4Q06
1Q07
2Q07
3Q07
4Q07
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
-8%
-6%
-4%
-2%
0%
2%
4%
6%
Real GDP YoY chg. (LHS) Seasonally Adj QoQ chg. (RHS)
EMEA Region GDP Growth Forecasts(Bloomberg Cont. Comp.)
-8
-6
-4
-2
0
2
4
6
8
10
CzechRep.
Hungary Poland Russia SouthAfrica
Turkey
2009 (%) 2010 (%) 2011F (%) 2012F (%)
32
...with an unpleasant side effect: sharply widening current account deficit
Growth periods of Turkey have always resulted in large current account deficits and deficit financed by capital flows.
Coming back to the growth path, current account deficit started to widen again.
Sources: CBRT ; HSBC ; April 2011 - Any forecast, projection or target contained in this presentation is for information purposes only and is not guaranteed in any way. HSBC accepts no liability for any failure to meet such forecasts, projections or targets.
Current Account Deficit % GDP and GDP Growth
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
(F)
CAD % of GDP GDP Growth
What is worrying this time?– Acceleration in the pace of deficit implies a
much higher deficit than seen in previous cycle
– Quality of capital flows, which mostly consist of portfolio inflows and banking sector foreign borrowing
Current Account Deficit (12m rolling)
-10
0
10
20
30
40
50
60
70
Jan-
00
Jan-
01
Jan-
02
Jan-
03
Jan-
04
Jan-
05
Jan-
06
Jan-
07
Jan-
08
Jan-
09
Jan-
10
Jan-
11
USD bn
33
Measures taken by the Central Bank of Turkey
What can be done to contain current account deficit and increase the quality of finance?
–
Economic growth is mostly driven by strong domestic demand. It needs to be slowdown until external demand catches up
–
Free float exchange rate regime should work as a balancing mechanism
Sources: CBRT ; HSBC ; May 2010 - Any forecast, projection or target contained in this presentation is for information purposes only and is not guaranteed in any way. HSBC accepts no liability for any failure to meet such forecasts, projections or targets.
In late 2010, CBT introduced a new policy mix
aiming to reduce loan growth and discourage short-term foreign fund flows
–
Low policy rates –
Wide over-night interest rate corridor–
Hike in bank’s reserve requirement ratios
TRY against the basket of EUR and USD
1.60
1.70
1.80
1.90
2.00
2.10
Jan-
09
Mar
-09
May
-09
Jul-0
9
Sep-
09
Nov
-09
Jan-
10
Mar
-10
May
-10
Jul-1
0
Sep-
10
Nov
-10
Jan-
11
Mar
-11
May
-11
Total loan growth (y-o-y) and 12-m rolling C/A gap (USD bn)
0%5%
10%15%20%25%30%35%40%45%
Jan-
07
Apr-
07
Jul-0
7
Oct
-07
Jan-
08
Apr-
08
Jul-0
8
Oct
-08
Jan-
09
Apr-
09
Jul-0
9
Oct
-09
Jan-
10
Apr-
10
Jul-1
0
Oct
-10
Jan-
11
Apr-
11
-65
-55
-45
-35
-25
-15
Total loans Current account balance (12-m, right axis, inverted)
bn USDy-o-y
34
Measures taken by the Central Bank of Turkey
(Continued)
Policy rate(weekly
repo) cut by 75bps to 6.25% and ON borrowing rate by 425 bps to 1.5% aiming to;
– Increase the volatility in short-term rates – Discourage short-term carry trades– Replace hot money with longer-term portfolio
inflows
Sources: CBRT ; HSBC ; April 2011 - Any forecast, projection or target contained in this presentation is for information purposes only and is not guaranteed in any way. HSBC accepts no liability for any failure to meet such forecasts, projections or targets.
RRR on shorter-term deposits increased by 1100 bps to 16% aiming to
reduce loan growth by;
–Increasing banks’
cost base and loan rates
–Draining liquidity from banking system
Over-night and Policy Rates of CBT (%)
Reserve Requirement Ratio on Deposits (%)
35
JPN
ESP
FRA
GBR
DEU
USA
ROU
PRT
LTULVA
ITA
AUT
IRL
GRC
EST
BGR
SVKCZE
EGY
UKR
TUR
ZAF RUS
POLKAZ
HUN
y = 0.16x + 3.95R2 = 0.62
3.5
4.0
4.5
5.0
5.5
6.0
6.5
7.0
7.5
0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0
Average Rating (AAA=1, C=21)
Log(
5yr C
DS)
CDS Market Analysis: Rating has Upward Momentum!
Fitch, Moody’s and finally S&P increased sovereign rating of Turkey.
Turkey is one notch below investment grade by Fitch and two notches below by S&P and Moody’s with all positive outlook
In our opinion, this was a late action by rating agencies and credit spreads already reflect possibility of further upgrades. For long, Turkey CDS level has been close to peers (Russia, South Africa and Poland) who are investment grade.
We also believe that Turkey is likely to be the next candidate for investment grade, although CAD concerns delayed the expectations to 2012.
Source: Bloomberg; May 2011
Source: Bloomberg
Source: HSBC - April 2011 -Any forecast, projection or target contained in this presentation is for information purposes only and is not guaranteed in any way. HSBC accepts no liability for any failure to meet such forecasts, projections or targets.
31/12/2009 27/05/2011 Change in Bps S&P RatingGREECE 281 1450 1169 BPORTUGAL 91 683 592 BBB-IRELAND 156 677 521 BBB+SPAIN 111 256 145 AAITALY 109 167 58 A+HUNGARY 242 264 22 BBB-POLAND 132 146 14 A-SOUTH KOREA 87 98 11 ABRAZIL 123 108 -15 BBB-TURKEY 183 166 -17 BBCZECH REPUBLIC 94 77 -17 ASOUTH AFRICA 142 123 -19 BBB+MEXICO 134 105 -29 BBBRUSSIA 186 143 -43 BBB
PIIGS + EM CDS Performance Since 2009
HSBC GIF Turkey Equity Fund -
Overview
37
Fund type and domicile
UCITS III Luxembourg SICAV part of the HSBC GIF range
Launch Date
Fund:
22/03/2005
Base Currency
Euro
Benchmark*
MSCI Turkey
Liquidity
Daily
Minimum Investment –
Institutional Share Class
USD 1,000,000 –
Retail Share Class
USD 5,000
Fee Structure–
Institutional Share Class 0.875 % Fixed Management Fee–
Retail Share Class
1. 75 % Fixed Management Fee
Investment Vehicle
*This is the current internal benchmark, which may change and is not detailed in the fund's prospectus. This benchmark is indicative only and is not guaranteed in any way. HSBC Global Asset Management (UK) Limited accepts no liability for any failure to meet this benchmark.
38
Sector Weightings versus Benchmark**Sector Weightings
HSBC GIF Turkey Equity Fund – Sector weightings*
Source: HSBC Global Asset Management as at 30th June 2011. * For illustrative purposes only. This benchmark is indicative only and is not guaranteed in any way. HSBC Global Asset Management (UK) Limited accepts no liability for any failure to meet this benchmark.
-5.2% -4.8%-4.3%
-3.3%
-1.1%
1.0% 1.1%
2.6% 2.7% 3.0% 3.2%
1%
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
Tele
com
mun
icat
ions
Food
& B
ever
ages
Food
& D
rug
Ret
aile
rs
Oil
& G
as P
rodu
cers
Bank
s
Rea
l Est
ate
Hou
seho
ld G
oods
Trav
el &
Lei
sure
Oth
ers
Auto
mob
iles
& P
arts
Min
ing
Con
glom
erat
es
Banks47.8%
Others2.6%
Oil & Gas Producers2.3%
Automobiles & Parts2.7%
Household Goods2.9%
Food & Drug Retailers0.5%
Real Estate2.9%
Food & Beverages1.9%
Mining3.0%
Travel & Leisure3.1%
Industrial Metals5.7%
Telecommunications7.5%
Conglomerates16.5%
Cash0.7%
39
HSBC GIF Turkey Equity Fund – Overview individual stock exposures*
Top 10 Holdings
Source: HSBC Global Asset Management as at 30th June 2011. * For illustrative purposes only. This benchmark is indicative only and is not guaranteed in any way. HSBC Global Asset Management (UK) Limited accepts no liability for any failure to meet this benchmark.
Company Sector Portfolio Weight (%)
Is Bankasi Banks 9.74%
Garanti Bankasi Banks 9.59%
Halkbank Banks 7.61%
Akbank Banks 7.27%
Yapı ve Kredi Bankasi Banks 5.51%
Vakifbank Banks 4.90%
Turkcell Telecommunications 4.57%
Enka Insaat Conglomerates 4.34%
Sabanci Holding Conglomerates 3.84%
Kardemir Industrial Metals 3.29%
60.7%TOTAL
40
Performance Net –
AC Share Class
Source: Morningstar as at 30th June 2011. Gross income reinvested, Bid to Bid USD. For illustrative purposes only. This benchmark is indicative only and is not guaranteed in any way. HSBC Global Asset Management (UK) Limited accepts no liability for any failure to meet this benchmark. Any forecast, projection or target where provided is indicative only and is not guaranteed in any way
Rolling time 30/06/2005 to 30/06/2006
30/06/2006 to 30/06/2007
30/06/2007 to 30/06/2008
30/06/2008 to 30/06/2009
30/06/2009 to 30/06/20010
30/06/2010 to 30/06/2011
HSBC GIF Turkey Equity Fund -1.92 40.33 -17.86 -1.55 70.46 -3.82
As at 30 June 2011 1 M 3 M 6 M 1 Y 3 Y 5 Y
HSBC GIF Turkey Equity Fund -1.71 -6.49 -15.37 -3.82 61.41 93.70
Benchmark -1.95 -7.46 -15.16 -6.36 82.49 90.52
Calendar years 2011 2010 2009 2008 2007 2006
HSBC GIF Turkey Equity Fund -15.37 37.65 101.50 -48.30 24.70 -4.80
Benchmark -15.16 27.80 92.30 -42.50 39.00 -6.70
Fund Benchmark Fund Benchmark
119.1% 128.0% -1.7% -2.0%
13.4% 14.1% -6.5% -7.5%
34.4% 30.6% -15.4% -15.2%
-34.1% -29.2% -15.4% -15.2%
60.0% 58.7% -3.8% -6.4%
3.9% 28.4% 24.8%* All returns longer than 1 year are annualised
Returns - 2 years*
Returns - 1 year
Returns - 1 Month
Returns - 3 Months
Returns - 6 Months
Returns - Year To Date
% Positive Months
Tracking Error
Monthly Statistics
Returns Since Inception
Best Month
Annualised Returns
Worst Month
Outlook
42
Market Overview
376
stocks are listed on ISE with
290
Bio USD market capitalisation and 25% free float
Market capitalisation is expected to grow with new public offerings in 2011
and 2012 (more than 20 new offerings expected)
One of the most liquid market in the region.
Sources: Reuters, ISE, June 2011 - Any forecast, projection or target contained in this presentation is for information purposes only and is not guaranteed in any way. HSBC accepts no liability for any failure to meet such forecasts, projections or targets.
ISE 100 Index has rallied since 2009
5,000
15,000
25,000
35,000
45,000
55,000
65,000
Dec-99
May-00
Oct-00
Mar-01
Aug-01
Jan-0
2Ju
n-02
Nov-02
Apr-03
Sep-03
Feb-04
Jul-0
4Dec
-04May
-05Oct-
05Mar-
06Aug
-06Ja
n-07
Jun-0
7Nov
-07Apr-
08Sep
-08Feb
-09Ju
l-09
Dec-09
May-10
Oct-10
Mar-11
Daily average trading volume (m$)
0
200
400
600
800
1000
1200
1400
1600
1800
2000
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Jan-1
0Feb
-10Mar-
10Apr-
10May
-10Ju
n-10
Jul-1
0Aug
-10Sep
-10Oct-
10Nov
-10Dec
-10Ja
n-11
Feb-11
Mar-11
Apr-11
May-11
Jun-1
1
43
ISE Investor Profile
Foreign investors:–
Better investment environment and high growth prospects for Turkish companies attracted more foreign investors in 2000’s
–
Consequently, the holdings of foreign investors in ISE grew from
low 40%s in 2003 to 62% of the free float in 2011.
–
Although favoured by fund managers over the last years, Turkey’s share in foreign funds
remains relatively low. Rating upgrades and increase in market capitalization may eventually lead more positioning of foreign investors in Turkish stocks.
Sources: ISE, EPFR ; June 2011
GEM & Eastern European funds weights in EMEA(%)
0%
2%
4%
6%
8%
10%
12%
Cze
ch
Egyp
t
Hun
gary
Jord
on
Mor
occo
Pola
nd
Rus
sia
SA
Turk
ey
Oth
er E
MEA
0%
10%
20%
30%
40%
50%
60%
GEM fund managers' position(left) EE fund managers' position(right)
Foreign Equity Holdings % of Free Float
Jun-1162%
58
60
62
64
66
68
70
72
74
Jan-
05Ap
r-05
Jul-0
5O
ct-0
5Ja
n-06
Apr-
06Ju
l-06
Oct
-06
Jan-
07Ap
r-07
Jul-0
7O
ct-0
7Ja
n-08
Apr-
08Ju
l-08
Oct
-08
Jan-
09Ap
r-09
Jul-0
9O
ct-0
9Ja
n-10
Apr-
10Ju
l-10
Oct
-10
Jan-
11Ap
r-11
44
ISE Investor Profile
Local investors:–
Real rates started to fall consistently after 2002. The decline has been more distinct in 2009
and
2010–
First signals of increase in the equity investments of mutual funds is seen–
However there’s a lot more way to go under the new low-yield environment–
Overall still fixed income constitutes the bulk and a tiny portion of savings are invested in stocks–
Locals are under-invested in ISE
Sources: TURKSTAT, ISE, CBRT - June 2011
Mutual Funds' Equity Share (%)
Jun-11 5.1 %
0
5
10
15
20
Jan-
98
Jul-9
8
Jan-
99
Jul-9
9
Jan-
00
Jul-0
0
Jan-
01
Jul-0
1
Jan-
02
Jul-0
2
Jan-
03
Jul-0
3
Jan-
04
Jul-0
4
Jan-
05
Jul-0
5
Jan-
06
Jul-0
6
Jan-
07
Jul-0
7
Jan-
08
Jul-0
8
Jan-
09
Jul-0
9
Jan-
10
Jul-1
0
Jan-
11
45
Turkish Equity -
Relative Performance
With the effects of global down turn and uneasiness in local politics in 2008, Turkey equities underperformed their peers in EM and bounced back in 2009
and
2010.
Despite the
rebound in 2009 and 2010, Turkish equities remains relatively inexpensive compare to the EM countries
Source: HSBC Research, 25/07/2011 - Ratios are based on HSBC Global Research Coverage - Any forecast, projection or target contained in this presentation is for information purposes only and is not guaranteed in any way. HSBC accepts no liability for any failure to meet such forecasts, projections or targets.
*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 to create any financial instruments or products or any indices. The MSCI information is provided on an 'as is' basis and the user of this information assumes the entire risk of any use it may make or permit to be made of this information. Neither MSCI, any of its affiliates or any other person involved in or related to compiling, computing or creating the MSCI information (collectively, the 'MSCI Parties') makes any express or implied warranties or representations with respect to such information or the results to be obtained by the use thereof, and the MSCI Parties hereby expressly disclaim all warranties (including, without limitation, all warranties of originality, accuracy, completeness, timeliness, non-infringement, merchantability and fitness for a particular purpose) with respect to this information. Without limiting any of the foregoing, in no event shall any MSCI Party have any liability for any direct, indirect, special, incidental, punitive, consequential or any other damages (including, without limitation, lost profits) even if notified of, or if it might otherwise have anticipated, the possibility of such damages.
P/E EV/EBITDA P/E EV/EBITDA
TURKEY 10.3 7.1 9.0 6.2
CEEMEA 8.8 6.4 8.4 6.0
EM 10.5 8.7 9.4 7.9
2011 (F) 2012 (F)
2006 2007 2008 2009 2010 June - 2011
MSCI Turkey -2.5% 44.8% -50.1% 92.8% 24.5% -3.8%
MSCI EM EMEA 25.8% 21.9% -48.6% 50.3% 19.2% -0.1%
MSCI EM Asia 27.7% 39.1% -47.1% 68.1% 15.0% -0.4%
MSCI EM Lat. Am. 37.6% 35.6% -37.7% 63.2% 9.2% -6.7%
MSCI Index Returns as of June 2011
Appendix
47
Fund manager biography
Ercan Güner – Lead Fund Manager Ercan
Güner
is the Head of Equity and Structured Funds for HSBC Global Asset Management Turkey. Prior to joining HSBC in 2008, he served as the CFO for Akdede
Group. He began his career in finance at Yapi
Kredi
Investment Banking arm as equity trader in 1992 and later moved to Yapi
Kredi
Asset Management, as fund manager.
48
This presentation is intended for Professional Clients only and should not be distributed to or relied upon by Retail Clients. The contents of this presentation are confidential and may not be reproduced or further distributed to any person or entity, whether in whole or in part, for any purpose. The material contained herein is for information only and does not constitute investment advice or a recommendation to any reader of this material to buy or sell investments. HSBC Global Asset Management (UK) Limited has based this presentation on information obtained from sources it believes to be reliable but which it has not independently verified. HSBC Global Asset Management (UK) Limited and HSBC Group accept no responsibility as to its accuracy or completeness. This presentation is intended for discussion only and shall not be capable of creating any contractual or other legal obligations on the part of HSBC Global Asset Management (UK) Limited or any other HSBC Group company. Care has been taken to
ensure the accuracy of this presentation but HSBC Global Asset Management (UK) Limited accepts no responsibility for any errors or omissions contained therein. This presentation and any issues or disputes arising out of or in connection with it (whether such disputes are contractual or non-contractual in nature, such as claims in tort, for breach of statute or regulation or otherwise) shall be governed by and construed in accordance with English law.The views expressed above were held at the time of preparation and are subject to change without notice.Any forecast, projection or target where provided is indicative only and is not guaranteed in any way. HSBC Global Asset Management (UK) Limited accepts no liability for any failure to meet such forecast, projection or target.The value of investments and any income from them can go down as
well as up and investors may not get back the amount originally
invested. Where overseas investments are held the rate of currency exchange may cause the value of such investments to go down as well as up.HSBC GIF Turkey Equity Fund is a sub-fund of the HSBC Global Investment Funds, a Luxembourg domiciled
SICAV. UK based investors in HSBC Global Investment Funds are advised that they may not be afforded some of the protections conveyed by the provisions of the Financial Services and Markets Act 2000. HSBC Global Investment Funds is recognised in the United Kingdom by the Financial Services Authority under section 264 of the Act. The shares in HSBC Global Investment Funds have not been and will not be offered for sale or sold in the United States of America, its territories or possessions and all areas subject to its jurisdiction, or to United States Persons. All applications are made on the basis of the current HSBC Global Investment Funds Prospectus, simplified prospectus and most recent annual and semi-annual reports, which can be obtained upon request free of charge from HSBC Global Asset Management (UK) Limited, 8 Canada Square, Canary Wharf, London, E14 5HQ. UK, or the local distributors. Investors and potential investors should read and note the risk warnings in the prospectus and relevant simplified prospectus. Investments in emerging markets are by their nature higher risk and potentially more volatile than those inherent in established
markets. Economies in Emerging Markets generally are heavily dependent upon international trade and, accordingly, have been and may continue to be affected adversely by trade barriers, exchange controls, managed adjustments in relative currency values and other protectionist measures imposed or negotiated by the
countries with which they trade. These economies also have been and may continue to be affected adversely by economic conditions in the countries in which they trade.Brokerage commissions, custodial services and other costs relating to investment in Emerging Markets generally are more expensive than those relating to investment in more developed markets. Lack of adequate custodial systems in some markets may prevent investment in a given country or may require a
sub-fund to accept greater custodial risks in order to invest, although the Custodian will endeavour to minimise such risks through the appointment of correspondents that are
international, reputable and creditworthy financial institutions. In addition, such markets have different settlement and clearance procedures. In certain markets there have been times when settlements have been unable to keep pace with the volume of securities transactions, making it difficult to conduct such transactions. The inability of a sub-fund to make intended securities purchases due to settlement problems could cause the sub-fund to miss attractive investment opportunities. Inability to dispose of a portfolio security caused by settlement problems could result either in losses to a sub-fund due to subsequent declines in value of the portfolio security or, if a sub-fund has entered into a contract to sell the security, could result in potential liability to the purchaser.
Important information
49
MSCI Index – 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 to create any financial instruments or products or any indices. The MSCI information is provided on an ‘as is’
basis and the user of this information assumes the entire risk of any use it may make or permit to be made of this information. Neither MSCI, any of its affiliates or any other person involved in or related to compiling, computing or creating the MSCI information (collectively, the ‘MSCI Parties’) makes any express or implied warranties or representations with respect to such information or the results to be obtained by the use thereof, and the MSCI Parties hereby expressly disclaim all warranties (including, without limitation, all warranties of originality, accuracy, completeness, timeliness, non-infringement, merchantability and fitness for a particular purpose) with respect to this information. Without limiting any of the foregoing, in no event shall any MSCI Party have any liability for any direct, indirect, special, incidental, punitive, consequential or any other damages (including, without limitation, lost profits) even if notified of, or if it might otherwise have anticipated, the possibility of such damagesThe risk also exists that an emergency situation may arise in one or more developing markets as a result of which trading of securities may cease or may be substantially curtailed and prices for a sub-fund’s securities in such markets may not be readily available.Investors should note that changes in the political climate in Emerging Markets may result in significant shifts in the attitude
to the taxation of foreign investors. Such changes may result in changes to legislation, the interpretation
of legislation, or the granting of foreign investors the benefit of tax exemptions or international tax treaties. The effect of such changes can be retrospective and can (if they occur) have an adverse impact on the investment return of shareholders in any sub-fund so affected.This sub-fund invests predominantly in one geographic area; therefore any
decline in the economy of this area may affect the prices and value of the underlying assets. Stockmarket
investments should be viewed as a medium to long term investment and should be held for at least five years. Any performance information shown refers to the past and should not be seen as an indication of future returns.To help improve our service and in the interests of security we may record and/or monitor your communication with us.HSBC Global Asset Management (UK) Limited provides information to Institutions, Professional Advisers and their clients on the investment products and services of the HSBC Group. This presentation is approved for issue in the UK by HSBC Global
Asset Management (UK) Limited, who are authorised and regulated
by the Financial Services Authority. www.assetmanagement.hsbc.com/ukCopyright ©
HSBC Global Asset Management (UK) Limited 2011. All rights reserved. 20869/082011/FP11-1566
Important information (cont’d)