Advantage India: The Unrealised Opportunity€¦ · Advantage India: The Unrealised Opportunity ......

Advantage India:

The Unrealised Opportunity

January 2018

This publication is intended for Professional Clients and intermediaries’ internal use

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

information contained in this publication is not intended as investment advice or

recommendation. This commentary provides a high level overview of the recent

economic environment, and is for information purposes only. It is a marketing

communication and does not constitute investment advice or a recommendation to

any reader of this content to buy or sell investments nor should it be regarded as

investment research. It has not been prepared in accordance with legal

requirements designed to promote the independence of investment research and is

not subject to any prohibition on dealing ahead of its dissemination. The

performance figures displayed in the document relate to the past and past

performance should not be seen as an indication of future returns. Any forecast,

projection or target where provided is indicative only and is not guaranteed in any

way. HSBC Global Asset Management accepts no liability for any failure to meet

such forecast, projection or target.

Non contractual document

1 1 Non contractual document 1

Why India now?

Any forecast, projection or target where provided is indicative only and is not guaranteed in any way. HSBC accepts no liability for any

failure to meet such forecasts, projections or targets. The views expressed were held at the time of preparation and are subject to

change without notice. For illustrative purposes only

India is currently one of the fastest

growing major economies in the

world, having come a long way in

the 25+ years since the country

embraced market-orientated

reforms and opened its doors to

foreign investments. In recent

years, India has demonstrated its

desire to accelerate its economic

growth and create a more

conducive business environment

through a series of key reforms

such as the implementation of a

landmark tax reform and a record

capital injection to shore up its

public banks.

The introduction of these structural

reforms have not been without their

challenges but the government has

persevered, thus paving way for

India to potentially become the

fourth largest economy in the world

by 2022.

This report attempts to outline the

impact of these far-reaching

changes and to examine the

resultant investment opportunities in

both the equity and fixed income

markets, spanning a wide array of

sectors and industries.


India 18%

Rest of world82%

Breathtaking pace of India’s ascent in numbers

Over 300 million households in

India have opened new bank

accounts since 2014, helped by the

government’s financial inclusion

initiatives.

18% of the world’s working age

population resides in India, and

almost half of its population is under

the age of 25.

There are 217 million active

Facebook users in India. Social

network users in India are expected to

exceed the total population of the US

in 3-4 years.

India is the world’s 2nd largest smartphone market but nearly one

billion Indians still do not own a

smartphone.

India has the world’s second largest

and Asia’s largest railway network,

carrying over 23 million passengers

daily. India’s railway network remains

one of the most underinvested.

The government is targeting to raise

India’s renewable energy to 175 GW by 2022. It has already reached 22% of

the target.

Working age population proportion

The Indian economy is expected to

nearly triple in size to reach US$6

trillion in GDP within 10 years.

By 2025, India’s middle class is

expected to double to 550 million

people, which is equivalent to the

current population of the United

States, the United Kingdom, Germany

and France combined.US$ 2,2 trillion

US$ 6 trillion

2016 2026F

Source: World Bank as of December 2017, HSBC Global Asset Management as of December 2017, HSBC Global Research as of

September 2017, Harvard Business Review as of November 2017, Economic Times as of November 2017, Facebook Quarterly Earnings

3Q 2017, Ministry of Railways India, Morgan Stanley as of September 2017, Renewables Now as of September 2017








India is growing at the highest pace

among large economies

India is outpacing China and becoming the

world’s fastest growing economy1. The world

in 2022 may see India surpass France,

United Kingdom and Germany to become the

fourth largest economy.

Real GDP Growth 2018 Forecast

6,7 6,5

3,02,6 2,5

2,2 2,1 1,9 1,81,4 1,3

3,7

0,0

1,0

2,0

3,0

4,0

5,0

6,0

7,0

8,0

India

Chin

a

So

uth

Kore

a

US

A

Bra

zil

Canada

Eu

ro

Russia

Fra

nce

UK

Jap

an

World

%

India is increasingly becoming a

preferred investment destination

Foreign direct investment (FDI) inflows into

India have been on a robust growth trajectory.

While China currently attracts a higher level

of FDI, India’s FDI growth compared to

China’s has been phenomenal. Strong FDI

inflows are enhancing India’s productivity,

funding its current account, and improving its

macro stability.

FDI net inflows 2013 vs. 2017

USD 20 billion

USD 36 billion

FY2013 FY2017

USD 112billion

USD 124billion

FY2013 FY2017

India China

Indian start-up ecosystem is the

world’s third largest

Indian entrepreneurship continues to thrive as

India retains its place as one of the largest

start-up bases in the world, ranking only

behind the United States and the United

Kingdom. India is seeing a rapid rise in the

tech space, with over 1000 tech start-ups

added in 2017, bringing the total to around

5200.

Advantage India

Note 1: Large economies defined as 2016 nominal GDP

exceeding US$1.28 trillion. Source: Bloomberg, World Bank,

HSBC Global Asset Management, as of January 2018

FY = fiscal year from 1 April to 31 March. Reserve Bank of India,

Ministry of Finance People’s Republic of China, HSBC Global

Asset Management as of December 2017

Source: Nasscom as of November 2017

Healthy growth of start-ups in 2017

Net inflows up by 79.7% Net inflows up by 10.6%

Favourable demographics are

powering consumption

Consumption is the largest contributor to

India’s GDP and will continue to be a growth

driver in the coming years. A growing working

age population, rising urbanisation and

increasing levels of income would continue to

power consumption growth across sectors.

Consumption37%

Investment45%

Government14%

Net exports

4%Consumption

59%

Investment30%

Government12% Net

exports-1%

Source: HSBC Global Research as of September 2017

India:

Economic makeupChina:

Economic makeup

31%28%

13%

5%

15%

25%

35%

Fin-tech Health-tech ecommerce

% growth year-on-year


Monetary and fiscal reforms

Objectives

Progress & impact

Improvement seen across key macro

indicators:

Improve

transparency &

accountability of

monetary policy

Goods and services tax (GST)

Objectives

Progress & impact

Make in India / Ease of Doing

Business

Objectives

Progress & impact

Reform focus

Since assuming office in 2014, the Modi government has placed substantial focus on

structural economic reforms. Highlighted here are four sets of key reforms that are

impacting the economy and financial markets.

Bank recapitalisation and

bankruptcy law

Objectives

Progress & impact

Improved tax

collections are

expected

9,0

10,0

11,0

12,0

FY

15

FY

16

FY

17

FY

18E

FY

19E

FY

20E

India climbing

the ranks of

World Bank’s

ease of doing

business index

Source: World Bank Doing Business 2018 report

FY= fiscal year 1 April to 31 March. Source: HSBC Global

Asset Management as of December 2017

FY= fiscal year 1 April to 31 March. Source: PIB, Business Line,

MTEF of Union Government, YES BANK as of August 2017

FY2013 FY2017

Consumer price

inflation (yoy increase)9.9% 4.5%

Fiscal deficit (% of GDP) 4.9% 3.5%

Current account

balance (% of GDP)-4.8% -0.7%

Foreign exchange

reserves (in billion)USD 260 USD 346

Address public sector

banks’ capital

adequacy issues

Create a single law

for insolvency &

bankruptcy

Reorient economy

from unorganised

to organised

Simplify

tax

structure

Increase

tax

compliance

Increase government

spending on

infrastructure and focus

on fiscal consolidation

Make India

a major design and

manufacturing hub

Improve

ease of doing

business

Robust growth in FDI

The government is

targeting reforms in all 10

categories of Doing

Business, including starting

a business, dealing with

construction permits, and

registering property 2016 2017 2018

100th

130th131st

Expected to

increase tax base

Expected to reduce

systemic leakage

Expected to reduce

logistics and

administrative

bottleneck

Bank recap is expected to strengthen public

sector banks

Bank recap is a major stimulant for corporate

profits and economic growth

Bankruptcy law provides effective and timely

process for lenders to restructure NPAs

Improved environment for business and

settlement of claims; increased FDI

NPAs = non-performing assets. Source: HSBC Global Asset

Management as of January 2018

Centre gross tax

revenues (% of GDP)





Retail landscape: Transforming and

strengthening

Structural reforms (including GST), increasing

income, rising urbanisation, and large working

population are some of the key drivers that

will further propel the growth of organised

retail in India. Organised retail currently

makes up a low percentage of India’s retail

industry, presenting an immense growth

potential for the segment.

Organised9%

Unorganised91%

Household savings structure: Shift

to financial assets

Domestic households are reducing their

allocation to physical assets such as real

estate and gold, given positive real rates.

Instead, exposure to financial savings has

been on the rise, indicating a shift in the

savings structure that is beneficial for

economic growth.

Digitalisation of the economy

Digitalisation is surging in India, with digital

transactions increasing at 77% compounded

annual growth rate (CAGR) over the past four

years. Smartphone penetration has also more

than doubled in the last three years.

However, overall levels of digital use in India

are still low relative to other major nations,

creating a huge growth opportunity for the

digital space as India continues to develop

and catch up to other countries.

INR billion

0

5 000

10 000

15 000

20 000

25 000

FY

2013

FY

2014

FY

2015

FY

2016

FY

2017

Credit cards Debit card POS m-wallet Mobile banking

FY = fiscal year from 1 April to 31 March. Source: Reserve

Bank of India, CLSA, HSBC Global Asset Management, August

2017

Spotlight on structural shifts

Digital Payments

Internet penetration

Source: We Are Social, Internet World Stats, International

Telecommunication Union, Internet Live Stats, CIA World

Factbook, Facebook, National Regulatory Authorities as of

January 2017

Distribution of household savings

FY = fiscal year from 1 April to 31 March. FY2017 physical

savings are based on estimates. Source: Reserve Bank of

India, HSBC Global Asset Management, December 2017

Canada

91%

USA

88%

Brazil

66%

UK

92%

Germany

89%

Russia

73%

Japan

93%China

53%

South Korea

90%

Australia

87%

India

35%

South Africa

52%

Mexico

59% Nigeria

51%

Saudi Arabia

70%

Source: IBEF as of November 2017

Retail industry

penetration

31%

33%

36%

36%

41%

44%

69%

67%

64%

64%

59%

56%

FY2012

FY2013

FY2014

FY2015

FY2016

FY2017

Financial savings Physical savings

Source: Reserve Bank of India, CLSA, IBEF & HSBC Global Asset Management. Any forecast, projection or target where provided is

indicative only and is not guaranteed in any way. HSBC accepts no liability for any failure to meet such forecasts, projections or targets.

The views expressed were held at the time of preparation and are subject to change without notice. For illustrative purposes only


Banks

Private sector banks: The outlook is positive

for select private banks that have the best-in-

class retail deposit franchises but are

currently underappreciated by the market.

Public sector banks: Confidence in the

banking sector was boosted by a recent move

by the government to inject a record US$32

billion worth of capital into public sector

banks.

Household credit

Urbanisation, rising incomes, as well as

supportive government initiatives have

pushed up the demand for affordable housing

in India. There exists an emerging opportunity

for the housing finance sector, particularly

with housing affordability for middle and low

income housing at one of its best levels in the

last two decades, reaching a 28% mortgage

payment to post-tax income ratio in FY2017

versus 36% in FY2012. Mortgage penetration

in India is also the lowest amongst major

economies at only 9% of GDP.

Investment opportunities

Germany

42%

Australia

93%USA

68%

China

18%India

9%

Autos

The Indian automobile industry is currently

ranked fifth in the world. Favourable

conditions will continue to support the

industry’s prospects, including:

1. Strong demand arising from increasing

income and young population

2. Robust FDI investments and allowing

100% foreign ownership in the sector

3. Government support, with Automotive

Mission Plan 2026 targeting a fourfold

growth in the industry

4. Focus on electric vehicles (EV) with

ambitious government target of 40% EV

penetration by 2032

Industrials

Industrials in India are seeing improved

conditions, as consumer demand is strong,

exports are recovering and capital investment

in the sector is rising. A key driver for the

sector is the current government’s thrust on

infrastructure building including railways,

roads, urban transportation and airports.

Further, lower cost of capital and better

legislative environment are important supply-

side catalysts.

GDP contribution 7.1%

Manufacturing GDP contribution 22%

2017-2026 forecast CAGR of

passenger vehicles domestic

sales

12.9%

India autos

5

10

15

20

FY13 FY14 FY15 FY16 FY17BE FY18E

USD billion

Capex growth for Indian railwaysPublic sector banks expected to be stronger

following bank recapitalisation

Mortgage penetration

as % of GDP

Source: CLSA as of August 2017, HSBC Global Asset

Management as of November 2017 Source: IBEF as of November 2017

Source: HSBC Global Asset Management as of November 2017 Source: JP Morgan, Ministry of Railways, Economic Times as of

January 2017

1. Clean up balance sheets

2. Speed up resolution of bad loans

3. Meet Basel III requirements

4. Increase propensity to lend

5. Improve profitability

The content of this page is historic and contains information that is not current. It is not intended as an advice or recommendation to buy

or sell any sector or financial instrument. Allocation is as at the date indicated, may not represent current or future allocation and is

subject to change without prior notice. Investment involves risk. Past performance is not indicative of future performance. Any

forecast, projection or target where provided is indicative only and is not guaranteed in any way. HSBC accepts no liability for any failure

to meet such forecasts, projections or targets. The views expressed were held at the time of preparation and are subject to change

without notice. For illustrative purposes only


Indian equities: a US$2.2 trillion

market is underrepresented

India’s economy is one of the world’s largest

but its equity market representation in the

MSCI AC World Index remains at only 1.0%.

This means there is potential for a sizeable

increase in the index weight in the coming

years.

CountryWorld GDP

contribution (%)

MSCI AC World

Index weight (%)

United States 24.6 51.0

Japan 6.5 7.9

United Kingdom 3.5 5.4

China 14.8 3.1

Australia 1.6 2.3

South Korea 1.8 1.8

Hong Kong 0.4 1.5

India 3.0 1.0

Relative valuations remain

reasonable

India’s equity market has historically traded at

a premium relative to Asia ex Japan (AXJ),

which can be attributed to historically higher

return-on-equity as well as a more diversified

market composition as compared to the

region.

0,9

1,4

1,9

1/1

3

5/1

3

9/1

3

1/1

4

5/1

4

9/1

4

1/1

5

5/1

5

9/1

5

1/1

6

5/1

6

9/1

6

1/1

7

5/1

7

9/1

7

5-year average = 1.48

Now = 1.55

Championed by domestic investors

Achieve portfolio diversification with Indian equities

India’s equity market

India USA EuropeDeveloped

markets

Emerging

marketsAsia China

India 1.00

USA 0.44 1.00

Europe 0.39 0.70 1.00

Developed markets 0.47 0.96 0.85 1.00

Emerging markets 0.56 0.65 0.49 0.65 1.00

Asia 0.54 0.78 0.70 0.86 0.80 1.00

China 0.37 0.55 0.36 0.55 0.90 0.77 1.00

Institutional investors 2016 2017

Foreign 2.9 7.6

Domestic 5.3 14.0

Note: Correlation is calculated using monthly returns of respective MSCI local currency indices from December 2013 to December

2017. Source: Bloomberg, HSBC Global Asset Management, data as of December 2017

Note: GDP data is based on 2016 calendar year GDP.

Source: Bloomberg, World Bank, HSBC Global Asset

Management, data as of December 2017

Source: Bloomberg as of December 2017

Fund flows into equities (in USD billions)

Correlation matrix of major equity markets

Equity representation vs GDP contribution

India’s P/E premium vs

Asia ex Japan

India AXJ

ROE 14.1% 11.6%

Forward

EPS growth19.4% 12.5%

Note: Respective equity markets are represented by MSCI

Indices. Source: Bloomberg, HSBC Global Asset

Management as of December 2017

Equity market composition

0%

20%

40%

60%

80%

100%

AXJ China India

Health Care

Utilities

Telecommunication Services

Energy

Materials

Consumer Staples

Real Estate

Industrials

Consumer Discretionary

Financials

Information Technology

India/AXJ P/E

Source: Bloomberg, MSCI & HSBC Global Asset Management. Investment involves risk. Past performance is not indicative of

future performance. Any forecast, projection or target where provided is indicative only and is not guaranteed in any way. HSBC

accepts no liability for any failure to meet such forecasts, projections or targets. The views expressed were held at the time of

preparation and are subject to change without notice. For illustrative purposes only


Indian bonds offer attractive bond

yields

In a low yield global environment, Indian

bonds offer a premium to other markets, with

an attractive 7.32% yield on its 10-year

government bonds.

India’s bond market

Sovereign credit ratings on the rise

Indian bond market:

large and diversified

The Indian bond market has grown rapidly

and has surpassed USD 1.1 trillion in size.

While 66% of the market is made up of

government bonds, the corporate market is

likely to grow strong in the coming years.

30

40

50

60

70

0

200

400

600

800

1 000

1 200

1 400

09/1

2

09/1

3

09/1

4

09/1

5

09/1

6

09/1

7

Government bonds

Corporate bonds

GDP

Source: Bloomberg, data as of 29 December 2017

Yield (%)USD billion

Source: HSBC Global Research as of September 2017

Long term rating Economic outlook Date

Moody's Baa2 Stable Nov 2017

Fitch BBB- Stable May 2017

S&P BBB- Stable Sep 2014

Source: Moody’s, Standard & Poor’s, and Fitch ratings, as of 31 December 2017

Market access Major issuers • Government bonds (51%)

• State Government bonds (24%)

• Corporate bonds (25%)

Market access by

foreign investors

• Foreign Professional Investors (FPI) can access market via an FPI license

from a Designated Depository Participant (DDP)

• Coupons and capital gains are taxed

Foreign ownership 4.29%

Impact of government

regulation

• Total FPI government securities limit set at 5% of total outstanding bonds1.

The quota is reviewed every 6 months and released every quarter

• FPIs can invest in dated government securities and corporate bonds having

residual maturity of 3 years or above

• Reserve Bank of India (RBI) has opened up State Development Loans (SDLs)

and Masala bonds to foreign investors

Note 1: Denominated in INR terms

Source: AsiaBondsOnline, Reserve Bank of India, HSBC Global Research, HSBC Global Asset Management, as of November 2017

Bonds outstanding 10-year government bond yields

0

1

2

3

4

5

6

7

8

Russia

India

Indonesia

Bra

zil

Ma

laysia

Chin

a

New

Ze

ala

nd

Au

str

alia

US

A

Th

aila

nd

Canada

Sin

ga

pore

UK

Fra

nce

Germ

any

Jap

an

GDP %

Investment involves risk. Past performance is not indicative of future performance. Any forecast, projection or target where

provided is indicative only and is not guaranteed in any way. HSBC accepts no liability for any failure to meet such forecasts, projections

or targets. The views expressed were held at the time of preparation and are subject to change without notice. For illustrative purposes

only


India is quickly emerging as a major economic powerhouse, fueled by many important

factors, one of which is its incredible population size. With 29 states and a total

population of 1.3 billion people, India can be thought of as a country of countries. The

below map provides our global audience with an idea of how the people of India are

spread out across its states and territories by illustrating population in country equivalent

terms.

A country of countries

Source: IIFL, CEIC, The Economist, World Bank, HSBC Global Asset Management as of January 2018

Less than 25 25 - <50 50 - <75 75 - <100 100 or more

Population (millions)

Country equivalent

(Indian state/territory)

India’s population is equivalent to:

= European Union × 2.6

= North America × 3.7

= Latin America & Caribbean × 2.1

= Middle East & North Africa × 3.0

Somalia

(Jammu and Kashmir)

Hong Kong

(Himachal Pradesh)

Malaysia

(Punjab) Belgium

(Uttarakhand)

Yemen

(Haryana)Romania

(Delhi)

Brazil

(Uttar Pradesh)Thailand

(Rajasthan)

France

(Gujarat) Germany

(Madhya Pradesh)

United Kingdom

(Karnataka)

Peru

(Chhattisgarh)

South

Africa

(Andhra

Pradesh)

Argentina

(Odisha)

Slovenia

(Goa)

Japan

(Maharashtra)

Bahrain

(Puducherry)

Philippines

(Bihar)

Poland

(Jharkhand)Vietnam

(West

Bengal)

Mauritius

(Sikkim)

Morocco

(Assam)

Gambia

(Arunachal Pradesh)

Macedonia

(Nagaland)

Mongolia

(Manipur)

Uruguay

(Meghalaya)

Cyprus

(Mizoram)

Canada

(Kerala)

Turkey

(Tamil Nadu)

Kuwait

(Tripura)

Bermuda

(Lakshadweep)

The Bahamas

(Andaman and Nicobar Islands)

South Korea

(Northeast India)

Algeria

(Telangana)

The views expressed 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 accepts no liability for any failure to meet such forecasts,

projections or targets. For illustrative purposes only


HSBC Global Asset ManagementIndian Investment Capabilities

Key products HSBC GIF Indian Equity HSBC GIF India Fixed Income

Key proposition High conviction and diversified Indian

equity portfolio with differentiated

strategy

Invests in Indian fixed income across

the credit spectrum, in both onshore

and offshore markets

Benchmark S&P/IFCI Investable India Index* None

Approach Bottom-up fundamental approach

Concentrated positions with below

average valuation for a given level

of profitability

Integrated approach towards

fundamental research and local

insight

Robust rate process

Investment universe Equities of companies domiciled,

based or carrying out large part of

business in India (minimum 90%)

Investment grade, high yield, and

unrated INR bonds, including

corporates and government

Investment grade, high yield, and

unrated bonds in other currencies

hedged back to INR, including

corporates and government

Fund AUM (Dec. 2017) USD1,828 million USD 797 million

Inception March 1996 August 2012

Source: HSBC Global Asset Management, data as of November 2017. Investment involves risk. Past performance is not

indicative of future performance. Characteristics are for information only, are not guaranteed and are subject to change over time,

and without prior notice, taking into account any changes in markets. The views expressed were held at the time of preparation and

are subject to change without notice. For illustrative purposes only

Why active management with HSBC?

Indian

equities

Attractive combination of profitability and valuation – Concentration of

overweight positions in profitable companies at below-average valuations,

enhancing returns over the long run

Strong fundamental focus – Significant value added with strong fundamental

focus, which is supported by high quality research

Indian

fixed income

Rigorous credit selection and risk management – An integrated approach

towards fundamental research and local insight that marries rigorous credit

selection with stringent risk controls

Robust rate process – Investment views formulated through extensive analysis of

economic fundamentals, central bank policies and liquidity, to derive appropriate

rate strategy for the portfolio; process is fully supported by the on-the-ground

investment team in India

Emerging

markets

expertise

HSBC Global Asset Management is one of the largest managers of emerging

market assets. HSBC Group’s longstanding brand equity in the emerging world

provides a unique level of access to management teams as well as a nuanced

understanding of local politics, cultures, and markets

Reputation and

brand equity

open doors

The actively managed portfolios benefit from goodwill and strong relationships that

come with being a part of the HSBC Group

Note: In addition to the key products showcased, HSBC Global Asset Management offers a full suite of offshore

and onshore capabilities related to Indian investment strategies, including multi-asset, infrastructure, liquidity,

equity small/mid cap, and other equity and fixed income expertise

*Index given for comparative and illustrative purposes only. The fund is not managed to the index, is actively managed and returns may

deviate materially from the performance of the specified index.

Representative overview of the investment process, which may differ by product, client mandate or market conditions. For

illustrative purposes only.


The value of investments and any income from them can go down as well as up and

investors may not get back the amount originally invested.

• Exchange rate risk: Investing in assets denominated in a currency other than that of the

investor’s own currency perspective exposes the value of the investment to exchange rate

fluctuations.

• Liquidity risk: Liquidity is a measure of how easily an investment can be converted to cash

without a loss of capital and/or income in the process. The value of assets may be significantly

impacted by liquidity risk during adverse market conditions.

• Emerging market risk: Emerging economies typically exhibit higher levels of investment risk.

Markets are not always well regulated or efficient and investments can be affected by reduced

liquidity.

• Derivative risk: The use of derivatives instruments can involve risks different from, and in

certain cases greater than, the risks associated with more traditional assets. The value of

derivative contracts is dependent upon the performance of underlying assets. A small

movement in the value of the underlying assets can cause a large movement in the exposure

and value of derivatives. Unlike exchange traded derivatives, over-the-counter (OTC)

derivatives have credit and legal risk associated with the counterparty or the institution that

facilitates the trade.

• Operational risk: The main risks are related to systems and process failures. Investment

processes are overseen by independent risk functions which are subject to independent audit

and supervised by regulators.

• Concentration risk: Funds with a narrow or concentrated investment strategy may experience

higher risk and return fluctuations and lower liquidity than funds with a broader portfolio.

• Interest rate risk: As interest rates rise debt securities will fall in value. The value of debt

securities is inversely proportional to interest rate movements.

• Derivative risk (leverage): The value of derivative contracts depends on the performance of an

underlying asset. A small movement in the value of the underlying can cause a large movement

in the value of the derivative. Over-the-counter (OTC) derivatives have credit risk associated

with the counterparty or institution facilitating the trade. Investing in derivatives involves

leverage (sometimes known as gearing). High degrees of leverage can present risks to sub-

funds by magnifying the impact of asset price or rate movements.

• Emerging market fixed income risk: Emerging economies typically exhibit higher levels of

investment risk. Markets are not always well regulated or efficient and investments can be

affected by reduced liquidity, a measure of how easily an investment can be converted to cash

without a loss of capital, and a higher risk of debt securities failing to meet their repayment

obligations, known as default.

• High yield risk: Higher yielding debt securities characteristically bear greater credit risk than

investment grade and/or government securities.

• Contingent Convertible Security (CoCo) risk: Hybrid capital securities that absorb losses when

the capital of the issuer falls below a certain level. Under certain circumstances CoCos can be

converted into shares of the issuing company, potentially at a discounted price, or the principal

amount invested may be lost.

Key Risks

For more detailed information on the risks associated with the funds presented in this document, investors should refer to the prospectus.


Important information

This document is distributed in France, Italy, Spain and Sweden by HSBC Global Asset Management (France), in Switzerland by HSBC Global Asset

Management (Switzerland) Ltd 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. 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.

Consequently, HSBC Global Asset Management 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 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.

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 value of investments and any income from them can go down as well as up. Capital is not guaranteed. Investments in emerging markets are

by their nature higher risk and potentially more volatile than those inherent in established markets.

Source: MSCI. The MSCI information may only be used for your internal use, may not be reproduced or redisseminated in any form and may not be used

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.

The funds presented herein are sub funds of HSBC Global Investment Funds, a Luxemburg domiciled SICAV. Shares of the Company may not be offered

or sold for sale or sold to any "U.S. Person within the meaning of the Articles of Incorporation, i.e. a citizen or resident of the United States of America (the

"United States"), a partnership organised or existing under the laws of any state, territory or possession of the United States, or a corporation organised or

existing under the laws of the United States or of any state, territory or possession thereof, or any estate or trust, other than an estate or trust the income of

which from sources outside the United States is not includible in gross income for purposes of computing United States income tax payable by it. 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 Investors Information Document (KIID) of the fund as well as its complete prospectus. For more

detailed information on the risk associated with this fund, investors should refer to the complete prospectus of the fund. Subscriptions are accepted only on

the basis of the current prospectus accompanied by the latest annual or half-yearly report, available on request.

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 may be distributed in Switzerland only to qualified investors according to Art. 10 para 3, 3bis and

3ter of the Federal Collective Investment Schemes Act (CISA). The presented fund is authorised for distribution in Switzerland in the meaning of Art. 120 of

the Federal Collective Investment Schemes Act. (Potential) investors are kindly asked to consult the latest issued Key Investor Information Document

(KIID), prospectus, articles of incorporation and the (semi-)annual report of the fund which may be obtained free of charge at the head office of the

representative: HSBC Global Asset Management (Switzerland) Ltd., Gartenstrasse 26, P.O. Box, CH-8002 Zurich. Paying agent in Switzerland: HSBC

Private Bank (Suisse) SA, Quai des Bergues 9-17, P.O Box 2888, CH-1211 Genève 1.

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 entities :

HSBC Global Asset Management (France)

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.

Offices: HSBC Global Asset Management (France) - Immeuble Coeur Défense - 110, esplanade du Général Charles de Gaulle - 92400 Courbevoie - La

Défense 4 – France.

(Website: www.assetmanagement.hsbc.com/fr).

HSBC Global Asset Management (Switzerland) Limited

Gartenstrasse 26, P.O. Box, CH-8002 Zurich. Paying agent: HSBC Private Bank (Suisse) S.A., Quai des Bergues 9-17, P. O. Box 2888, CH-1211 Geneva

1(Website: www.assetmanagement.hsbc.com/ch)

Copyright © 2018. HSBC Global Asset Management (France). All rights reserved.

Non contractual document - AMFR_Ext_65_2018 expires February 2019.

http://www.assetmanagement.hsbc.com/fr

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