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Do you believe in Asia?
The extraordinary opportunities opening up in Asian fixed income,
Chinese bonds and the renminbi
Geoffrey Lunt
Product specialist, Asian fixed income
Non contractual document only intended for professional investors as defined by MiFID
AMFR_Ext_102_2014
Asian fixed income
 The conventional geographical
definition of Asian fixed income is
different to that of Asia
 The market as a whole is worth
about USD8 billion
South Korea
China
Taiwan
Hong Kong
 It comprises of hard currency and
local currency markets
India Thailand
Malaysia
 Some are difficult for foreigners to
access
Philippines
Indonesia
Singapore
Source: HSBC Global Asset Management, Bloomberg, as at 31 December 2013. Based on HSBC Asian Local Bond Index.
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Asian fixed income
Demographics in perspective
Source: www.worldmapper.org. The size of each territory shows the relative proportion of the world's population living there. © Copyright Benjamin D. Hennig (Worldmapper Project).
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Asia is remarkably under represented
 Despite the clear economic importance of the region, Asia ex Japan bond markets represent
less than 1% of the world government bond index
Country
Weight (%)
US
28.65
Japan
26.45
France
7.57
Italy
7.46
Germany
6.69
UK
5.82
Spain
3.91
Netherlands
2.10
Belgium
2.07
Malaysia
0.38
Singapore
0.27
Other
8.63
0.65%
Source: Citigroup, WGBI Index, December 2013.
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Representation of Asia in global bond indices
 While Asia accounts for more than 60% of the total GDP of the emerging market universe, the
current weighting of Asia within the investable GBI-EM Global Index is less than 20%
Weightings within GBI-EM Global vs % of GDP in Global EMs
70%
62.3%
60%
50%
40%
31.7%
26.3%
30%
20%
17.0%
17.2%
14.8%
11.3%
5.8%
10%
0%
EM Asia
EM Latin America
% % weights in GBI-EM Global Index
EM Europe
EM ME & Africa
% of GDP in Global Emerging Markets
Source: JP Morgan Morgan Markets, IMF, World Economic Outlook Database April 2013. *Countries included are those that are included in the GBI-EM Broad Index as of 31 March 2013.
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… as well as within the emerging markets
Asia today
 The Asian local currency bond market has posted a positive return every year since 2001,
except 2013
Calendar year performance of the Asian local currency bond markets in USD (%)
19.3
20
18
16
13.3
14
12
10
8
12.2
10.4
7.7
8.9
8.2
7.0
6.3
5.0
6
4
2
2.0
1.0
0
-2
-4
-6
-5.7
-8
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Source: Bloomberg, data as at 31 December 2013. Based on HSBC Asian Local Bond Index, in USD terms.
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2013 - Asian crisis Mk II?
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Severe weakness was confined to a few markets
 The poor performance was not broad-based across the region
Performance of individual Asian local currency bond markets (in USD) in 2013 (%)
Indonesia
-31.3
India
-10.3
Malaysia
-6.0
Singapore
-5.9
Taiwan
-4.7
Thailand
-4.3
Philippines
-2.7
Hong Kong
-2.5
Korea
2.4
China onshore
2.5
China offshore
-40.0
6.8
-30.0
-20.0
-10.0
0.0
10.0
Source: Bloomberg, data as at 31 December 2013. Based on HSBC Asian Local Bond Index, in USD terms.
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 Some parts of the region are widely regarded as ‘developed’ with investing grade rating
 As the region is progressing both on the sovereign as well as the credit side, further rating
upgrades are likely
Key Asian countries with investment grade rating
Countries
Moody's credit rating
Malaysia
A3
Indonesia
Baa3
Philippines
Baa3
Thailand
Baa1
China
Aa3
India
Baa3
Korea
Aa3
Singapore
Aaa
Hong Kong SAR
Aa1
Source: Bloomberg, January 2014.
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Investing in Asia is not just about investing in emerging markets
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Asia is much more resilient now
 Generally, current account positions are strong
 Currencies are generally floating
 Forex reserves are higher
Current account deficits generally better now…
…as is total external debt to GDP
Source: Haver Analytics, Goldman Sachs September 2013.
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 Unlike the developed world, Asia does not has to deal with the lingering overhang stemming
from the global financial crisis
 Their public finances are in stark contrast to those in other parts of the world
Government gross debt as a % of GDP
120
140
100
120
80
100
% of GDP
% of GDP
60
40
20
80
60
40
Asia ex Japan
China
Indonesia
Hong Kong
Korea
Philippines
Taiwan
Thailand
Malaysia
India
Euro area
G7 Countries
UK
US
Singapore
0
20
0
2000
2002
2004
2006
2008
2010
Major advanced economies (G7)
Others
2012 2014F 2016F 2018F
Developing Asia
Source: IMF, World Economic Outlook Database, data as of October 2013
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. For illustrative purposes only.
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Debt ratios are far more sustainable
 Asian currencies experienced sharp volatility last year mostly due to liquidity concerns as a
result of QE tapering, but we don’t believe this is the start of a trend
 Performed generally better than EM currencies as a whole
 On a PPP measure, they are now even more fundamentally undervalued
% under/over valued versus USD on PPP
CHF
EUR
GBP
JPY
SGD
KRW
HKD
CNY
IDR
MYR
PHP
THB
TWD
VND
INR
-80%
-60%
-40%
-20%
0%
20%
40%
60%
Source: IMF World Economic Database, data as of October 2013 – PPP estimates for 2013. 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. For illustrative purpose only.
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Asian currencies have substantial upside potential
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Asia compared to Europe- which would you prefer?
 The valuations are striking
Asia vs Europe
Korea
Belgium
China
France
Moody’s credit rating1
Aa3
Aa3
Aa3
Aa1
10-yr govt yield1
3.6%
2.6%
4.6%
2.6%
GDP growth2
2.8%
0.09%
7.6%
0.19%
GDP in USD (bil)2
1,197.5
507.4
8,939.3
2,738.7
Debt to GDP2
35.7%
100.9%
22.9%
93.5%
Population (mil)2
50.2
11.1
1,360.8
63.7
Source: 1. Bloomberg, as of December 2013. 2. IMF World Economic Outlook, October 2013. IMF estimates for 2013.
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….in the credit world as well as the sovereign
Asia vs Euro high yield
8.5
8.0
7.5
Yield to Worst
7.0
6.5
6.0
5.5
5.0
4.5
4.0
1/16/2013
2/27/2013
4/10/2013
5/22/2013
Euro High Yield
7/3/2013
8/14/2013
9/25/2013
11/6/2013
12/18/2013
Asia High Yield
Source: Bloomberg, as of January 2014. Asia High Yield = JPMorgan Asia Credit Index non- investment grade; Euro High Yield = BofA Euro High Yield Index.
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Do you believe in Asia?
Economic history of China and other major powers
Share of world GDP
Non-Asian ancient civilisations
Source: “Statistics on World Population, GDP and Per Capita GDP, 1-2008 AD”, Angus Maddison, University of Groningen.
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Should we be surprised that China is taking back its place as an
economic superpower?
Gross domestic product, volume, at 2005 PPP, USD
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The world in 2010
GDP per capita in USA 2005 PPPs
Source: OECD ‘Looking to 2060: A Global Vision of Long-Term Growth’, November 2012.
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Gross domestic product, volume, at 2005 PPP, USD
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The world in 2020*
GDP per capita in USA 2005 PPPs
Source: OECD ‘Looking to 2060: A Global Vision of Long-Term Growth’, November 2012. *Forecast only.
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Gross domestic product, volume, at 2005 PPP, USD
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The world in 2030*
GDP per capita in USA 2005 PPPs
Source: OECD ‘Looking to 2060: A Global Vision of Long-Term Growth’, November 2012. *Forecast only.
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Gross domestic product, volume, at 2005 PPP, USD
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The world in 2040*
GDP per capita in USA 2005 PPPs
Source: OECD ‘Looking to 2060: A Global Vision of Long-Term Growth’, November 2012. *Forecast only.
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Gross domestic product, volume, at 2005 PPP, USD
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The world in 2050*
GDP per capita in USA 2005 PPPs
Source: OECD ‘Looking to 2060: A Global Vision of Long-Term Growth’, November 2012. *Forecast only.
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Gross domestic product, volume, at 2005 PPP, USD
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The world in 2060*
GDP per capita in USA 2005 PPPs
Source: OECD ‘Looking to 2060: A Global Vision of Long-Term Growth’, November 2012. *Forecast only.
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The world of Asia?
 By 2060, Asia ex Japan may make up of more than half of the world’s GDP
% of global GDP in 2005 PPPs
Source: OECD ‘Looking to 2060: A Global Vision of Long-Term Growth’, November 2012. Global GDP is taken as sum of GDP for 34 OECD and 8 non-OECD G20 countries.
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Onshore market*
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The RMB bond markets
Offshore market
 Began mid 2010, but growing quickly
 One of the largest bond markets in the world
 More broad based issuer and investor base
 Accessible on a restricted basis
to certain foreign investor types
 Can be accessed by all offshore investors
– RMB clearing banks
– RMB settlement banks
– Central banks
– Insurance companies
– Supranational entities
– RQFII (recently expanded)
– QFII
Size (RMBbn)
Eligible Investors
Offshore
Onshore*
558
24,205
 Retail and institutional
 Fund managers, private banks, commercial banks,
insurance companies, corporate and central banks are
all active investors in this market
 No quota restriction
 Onshore institutional investors
 Offshore institutions must invest through
 QFII and RQFII quota with restriction in proportion
 Special quotas for foreign central banks, monetary
authorities, clearing & participating banks, insurers
Source: HSBC, Asian Development Bank, as of November 2013. *Refer to CIBM.
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Size of the onshore RMB bond market1
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The RMB bond markets have grown phenomenally quickly
Size of the offshore RMB bond market2
5,000
4,500
600
4,000
500
3,500
3,000
CNY Billion
400
2,500
2,000
1,500
300
200
1,000
100
500
Govt (in USD Billions)
04/13
01/13
10/12
07/12
04/12
01/12
10/11
07/11
04/11
01/11
10/10
06/98
09/98
12/98
03/99
06/99
09/99
12/99
03/00
06/00
09/00
12/00
03/01
06/01
09/01
12/01
03/02
06/02
09/02
12/02
03/03
06/03
09/03
12/03
03/04
06/04
09/04
12/04
03/05
06/05
09/05
12/05
03/06
06/06
09/06
12/06
03/07
06/07
09/07
12/07
03/08
06/08
09/08
12/08
03/09
06/09
09/09
12/09
03/10
06/10
09/10
12/10
03/11
06/11
09/11
12/11
03/12
06/12
09/12
12/12
03/13
06/13
09/13
0
Corp (in USD Billions)
Source: 1. Asian Development Bank, data as of September 2013. 2. PBoC, Xinhua, Bloomberg, Standard Chartered, data as of May 2013.
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 The world government bond index does not cover China currently
 If we include the Chinese onshore government bond market, it would account for around 13%
Market weight of the WGBI Index (with China)
Other 4%
25
US 25%
20
15
Europe 35%
10
5
0
Japan 23%
China 13%
Source: HSBC Global Asset Management, Chinabond, Citigroup. Based on WGBI Index, December 2013. 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. For illustrative purposes only.
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If China is included, what might the world government bond index
look like?
 Assuming the size of the bond markets grows in the same rate as the projected GDP growth
rate, the Chinese onshore government bond market would account for around 23% in 2030,
catching up with the US
Market weight of the WGBI Index (with China)
Other 5.0
US 23.9
Europe 31.0
Japan 17.4
China 22.7
Source: HSBC Global Asset Management, Chinabond, Citigroup. Based on WGBI Index, December 2013. 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. For illustrative purposes only.
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If China is included, what might the world government bond index
look like in 2030?
Our product offerings:
 Asian hard currency bonds
 Asian local currency bonds
 Indian fixed income
 Asian high yield bonds
 Offshore RMB bonds
 Onshore RMB bonds
 Onshore RMB money market
Source: HSBC Global Asset Management, January 2014.
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Tap the enormous potential in Asian fixed income and China’s
bond markets
Investor should be reminded that investment in some of the developing Asian countries may involve special considerations and risks. Political
changes, government regulation, social instability or diplomatic development , etc. could affect adversely the economies of such countries or
the value of the investment.
Change of interest rate may affect the value of the investments. Bonds and other fixed income securities are more susceptible to fluctuation in
interest rate and may fall in value if interest rates change.
The assets and liabilities of the investments may be denominated in Asian currencies which is different from the base currency of the
investments. Therefore, the investments maybe affected favorably or unfavorably by exchange control regulation or changes in the exchange
rates between the base currency and other currencies.
The investments may have exposure in credit risk whereby investments in non- investment grade debt obligations involves a high amount of
risk. An issuer suffering an adverse change in its financial condition could lower the credit quality of a security, leading to greater price volatility
of the security.
Investments made may have exposure in financial derivative instruments, such as futures, forwards and swaps, etc. Investments in financial
derivative instruments may involve a greater degree of risk than in case with conventional securities and may subject to liquidity and
counterparty risks.
Currency movement and market condition may affect the value of investments
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Key risks
This presentation is distributed by HSBC Global Asset Management (France) and is only intended for professional investors as defined by MiFID.
It is incomplete without the oral briefing provided by the representatives of HSBC Global Asset Management (France). 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.
All data come 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. Representative overview of the investment process, which may differ by product, client mandate or market conditions.
The fund presented in this document may not be registered and/or authorised for sale in your country. The performance figures displayed in the document relate to the past and past performance should not
be seen as an indication of future returns. 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. Please note that the fund is
authorised to invest a in structured products and derivatives, which may be less liquid than standard bond issues. Please note that the fund is invested in investment grade, below investment grade and non
rated issues. Non rated issues represent a higher risk of default compared to Investment Grade issues. Fluctuations in the rate of exchange of currencies may have a significant impact on fund performance.
Please note that according to article 314-13 of AMF General Regulation, performance for periods of less than 12 months cannot be shown to non-professional investors, as defined by MiFID.
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.
The above mentioned target/limits/objectives is/are to be considered on the recommended minimum investment period; there can be no assurance that the strategy of the fund will achieve this objective.
The fund is exposed to Over the Counter (OTC) markets for all or part of its total assets. The fund will therefore be subject to the risk that its direct counterparty will not perform its obligations under the OTC
transactions and that the Sub-Fund will sustain losses.
Investment in Financial Derivative Instruments (FDI) may result in losses in excess of the amount invested. This is because a small movement in the price of the underlying financial instrument may result in a
substantial movement in the price of the FDI. The performance figures displayed in the document relate to the past and past performance should not be seen as an indication of future returns.
All subscriptions in any fund presented in this document are accepted only on the basis of the current prospectus, available on request from HSBC Global Asset Management (France), the centralisation
agent, the financial department or the usual representative. Before subscription, investors should refer to the Key Investor Information Document (KIID) and/or the simplified prospectus of the fund as well as
its complete prospectus. For more detailed information on the risk associated with the sub-fund, investors should refer to the complete prospectus of the sub-fund. HSBC GIF RMB Fixed Income fund is a
sub-fund of HSBC Global Investment Funds, a Luxemburg domiciled SICAV. The shares of HGIF 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.
HSBC Global Asset Management (France) - 421 345 489 RCS Nanterre.
Portfolio management company authorised by the French regulatory authority AMF (no. GP99026) with capital of 8.050.320 euros
Postal address: 75419 Paris cedex 08
Offices: Immeuble Ile de France - 4 place de la Pyramide - La Défense 9 - 92800 Puteaux – France.
Copyright © 2014. HSBC Global Asset Management (France). All rights reserved. www.assetmanagement.hsbc.com/fr
Non contractual document, updated in January 2014
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Important information