march 2006 hsbc investments (hong kong) limited level 22, hsbc main building, 1 queen’s road...

March 2006

HSBC Investments (Hong Kong) LimitedLevel 22, HSBC Main Building, 1 Queen’s Road Central, Hong KongTelephone: +852 2284 1111 Facsimile: +852 2845 0226Web site: www.hsbcinvestments.com.hk

Hong Kong Baptist University1998 Superannuation FundInvestment review

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Agenda

Market performance

Investment choice

Fund performance

Peers review

Asset allocation

Investment strategy

Factors for consideration before switching

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Market performance

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Currencies

Bonds *

Equities **

* Bonds: Citigroup World Government Bond Indices, HSBC HKD Bond Index (Overall)** Equities: USA (S&P 500), UK (FTSE-100), Germany (DAX), Japan (Nikkei 225), Hong Kong (HSI), Australia (All Ordinaries), Taiwan (WPI), Korea (KOSPI)Source: Thomson Financial Datastream, Bloomberg

Market statistics: 3 months to December 2005 (in HKD terms)

-2.2 -3.0-4.0-4.0

JP Yen Euro UK GBP Aus Dollar

%

% Change (against HKD)

1.1

-0.3

0.4 0.92.8

-0.1

2.00.20.7 0.9

-2.4

0.7

-2.1-3.8

US UK Japan Germany Canada Australia Hong Kong

%

Mkt price return % (Local) Mkt price return % (HKD)

2.6

18.7

-3.6

13.07.0

2.57.2

1.6

-0.5

13.9

-3.6

16.38.1

1.5 4.8

-1.6

US UK Germany Japan Hong Kong Australia Taiwan Korea

%

% Change (Local) % Change (HKD)

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Currencies

Bonds *

Equities **


Market statistics: 1 year to December 2005 (in HKD terms)

-13.4-10.8

-6.7

-13.4


%


5.4 7.0

-1.4

2.5

-3.7

9.5

-1.4

2.8 0.75.78.0

-8.8-12.8

-1.3


%


16.7

40.2

4.5

54.0

6.716.2

27.1

3.0 4.121.4

4.5

57.3

2.72.7 10.0 8.4


%


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Currencies

Bonds *

Equities **


Market statistics: 3 months to January 2006 (in HKD terms)1.4

0.51.3

-0.5


%


0.9

3.9 4.2

2.43.4

0.2

1.8

0.21.2

2.41.71.3

3.2

-0.3US UK Japan Germany Canada Australia Hong Kong

%


8.3

22.4

9.5

20.913.310.6

15.16.1 8.8

21.8

9.5

30.4

19.0

6.1

16.812.0


%


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Currencies

Bonds *

Equities **


Market statistics: 1 year to January 2006 (in HKD terms)

-7.4 -6.3-2.9

-12.1


%


3.3 4.81.2 2.1

13.1

-0.4

1.7

-0.1

5.69.0

-0.4-4.3-12.2

2.6


%


18.7

46.2

14.8

50.1

9.018.8

33.4

8.4 11.328.5

14.8

58.7

7.87.823.5 15.4


%


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Investment choice

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More suitable forrisk tolerant staff

Balanced FundMore suitable forrisk averse staff

High Growth Fund

Growth Fund

Risk (short-term volatility)

Global Money Funds (HKD/USD)

High

Low High

Stable Fund

Lo

ng

-ter

m p

ote

nti

al r

etu

rn

Risk profile of various investment options

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Fund performance

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5.1 2.38.0

19.2

80.0

47.1

5.12.0

7.8

18.5

88.5

59.0

0

20

40

60

80

100

Jan-06 4Q 2005 3Q 2005 1 Year 3 Year Since26Apr02

Return %

HKBU Benchmark

Source: HSBC InvestmentsPerformance is net of fees return in HKD.Past performance is not necessarily a guide to future performance

Investment performance: HKBU 1998 – High Growth FundCumulative return to 31 Jan 2006

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4.31.3

6.2

13.7

63.6

44.3

4.21.1

5.8

13.2

69.5

54.2

0

20

40

60

80

Jan-06 4Q 2005 3Q 2005 1 Year 3 Year Since 26Apr02

Return %

HKBU Benchmark


Investment performance: HKBU 1998 –Growth FundCumulative return to 31 Jan 2006

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3.40.6

4.58.2

45.5

37.4

3.40.3

3.8

7.9

52.448.3

0

20

40

60


Return %

HKBU Benchmark


Investment performance: HKBU 1998 –Balanced FundCumulative return to 31 Jan 2006

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2.5

-0.5

2.4 3.0

30.6 30.8

2.5

-0.4

1.9 3.3

36.5

41.6

-10

0

10

20

30

40

50


Return %

HKBU Benchmark


Investment performance: HKBU 1998 – Stable FundCumulative return to 31 Jan 2006

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0.3

0.80.6

2.2

3.2

4.5

0.20.5

0.3

1.2 1.2 1.4

0

2.5

5


Return %

HKBU Benchmark


Investment performance: HKBU 1998 – Money Market FundCumulative return to 31 Jan 2006

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0.30.8

0.5

2.3

4.2

5.4

0.4

1.00.7

3.0

5.9

7.2

0

2

4

6

8


Return %

HKBU Benchmark


Investment performance: HKBU 1998 – USD Money Market FundCumulative return to 31 Jan 2006

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Peers review

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Investment performance: Year 2005

Source: HSBC Investments, Watson Wyatt Managed Fund Report, December 2005.Portfolio net of fees performance in HKD term.Past performance is not necessarily a guide to future performance

11.2

6.9

2.9

-1.1

1.9 2.5

13.3

9.5

5.3

1.9 2.0 2.0

-5

5

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High GrowthFund

Growth Fund Balanced Fund Stable Fund GMF-HKD GMF-USD

Return %

HKBU Watson Wyatt Median

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Asset allocation

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Asset allocation as at 31 January 2006 Hong Kong Baptist University 1998 Superannuation Fund

High Growth Growth Balanced StableBenchmark Fund Benchmark Fund Benchmark Fund Benchmark Fund

Equities

Hong Kong 30.0 27.9 24.0 22.6 17.0 15.9 10.0 10.2

Japan 12.0 13.9 9.0 12.7 6.5 9.6 4.0 6.5

Other Asia Pacific 12.0 16.7 9.0 12.4 6.5 12.1 4.0 6.3

N. America 18.0 16.8 14.0 13.7 10.0 7.7 6.0 5.4

Europe inc. UK 18.0 18.9 14.0 14.8 10.0 10.3 6.0 6.3

Others 0.0 2.0 0.0 0.3 0.0 0.0 0.0 0.0

Sub-total 90.0 96.2 70.0 76.5 50.0 55.6 30.0 34.7

Bonds

US 0.5 4.4 8.7 10.7

Non-USD 3.1 16.4 30.4 39.7

Sub-total 7.0 3.6 25.0 20.8 45.0 39.4 60.0 50.4

Cash 3.0 0.2 5.0 2.7 5.0 5.0 10.0 14.9

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Investment strategy

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Equity market outlook

Low returns during Fed tightening cycle

Strong returns expected if economy soft lands

Equity market valuation remains attractive against other asset classes– Favour Asia & Emerging markets on

growth & valuation basis

5%

10%

15%

20%

25%

30%

35%

40%

1.0 1.5 2.0 2.5 3.0 3.5

Price To Book

Re

turn

On

Eq

uity

Russia

Thailand

India

China

Korea

Australia

Taiwan

Japan

US

Germany

France

U

Singapore

Brazil

EXPENSIVE

CHEAP

US Equity Market

ReturnDuring FED Tightening Cycle

First half

3%Second Half

-1%

12 Months After FED Stops Tightening

Soft Landing

15%Hard Landing

-14%

Emerging markets remain cheap

Monetary pause favours equities

Hong Kong

Europe

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Bond and currency outlook

Bond marketValuations improved but real yields still lowBonds offer cash-like returnsRange trading expected

Currency marketUS dollar rally in 2005 driven by higher US ratesInterest rates differential narrowing coupled with record twin deficits, US dollar expected to resume longer term weakening

1999 2000 2001 2002 2003 2004 20050

1

2

3

4

5

6

7

8

85

90

95

100

105

110

115

120

125

US FED FundsUSD Trade weighted index (RHS)

21/11/05

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 051.50

2.00

2.50

3.00

3.50

4.00

4.50

5.00

5.50

US real bond yield

Average real bond yield

1.50

2.00

2.50

3.00

3.50

4.00

4.50

5.00

5.50

Attractive

Expensive

Record US deficit fully financed by portfolio flows

Source: Thomson Financial Datastream Source: Thomson Financial Datastream Source: Morgan Stanley Research. Trailing four-quarter average as of 2Q05

Dollar supported by higher ratesBonds are becoming less expensive(%) (%)(%)

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Summary

Global growth to moderate with gradual increase in inflation in 2006. US Fed to raise rates 50 basis points in 1Q and pause thereafter. China remains the key driver.

Equity markets remain favourable as profit growth is sound, valuations supportive and rate cycle likely to pause.

Asian and emerging market equities remain attractively priced and domestic fundamentals in Asia strong.

Bond yields are expected to range trade.

US dollar expected to weaken in 2006.

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Asset Class Outlook

Equities Fundamental conditions are positive for financial markets, particularly equities

Cash We moderately underweight cash

Bonds Bond returns to be around cash levels

Asia Expect domestic consumption and asset reflation as prominent themes

Japan Positive earnings revision compensate for market appreciation

Eurozone Low macro risk with low inflation and modest increases in short term interest rates

UK Mining sector strength and takeover activity continue to drive market performance

Hong Kong Could be due for short-term consolidation

US Investor sentiment is becoming stretched, consolidation could happen in the near term

Data as of February 2006

Regional Outlook

Overweight Neutral Underweight

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Factors for consideration before switching

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Dangers of market timing

11.9

8.2

5.9

4.2

0

5

10

15%

HSI full period return

HSI full period less 10 best performing days



Data as at 31 December 2005Source ： Thomson Financial DatastreamInvestment involves risk. Investment value can rise as well as fall. For internal use only 。 The opinions expressed herein should not be considered to be a recommendation to any reader of this material to buy or sell securities, commodities, currencies or other investments referred to herein.

Average annualized return (1980 - 2005)

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HKBU - High Growth Fund

HKBU - Growth Fund

HKBU - Balanced Fund

HKBU - Stable Fund

HKBU - Money Market Funds

Note: Please note that the above table is designed for an average member. The final choice for any member may be based on a variety of factors.

– Most appropriate– Appropriate – Acceptable – Not appropriate

Investment horizon (e.g. years to retirement)

Fund type 30+ >20-30 >10-20 5-10 Very short years years years years (< 5 years)

Reference table for suggested investment choices

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Contact details

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Members Choice Investment Hotline : 2284 1281

Investment Service e-mail : [email protected]

Web site : http://www.hsbcinvestments.com.hk

How to contact us ?

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Explanatory notes and disclaimers

The document is confidential and is supplied to you solely for your information. This document should not be reproduced or further distributed to any person or entities, whether in whole or in part, for any purpose.

Please also note that investment involves risk and past performance is not indicative of future performance.

The opinions expressed herein should not be considered to be a recommendation by HSBC Investments (Hong Kong) Limited to any reader of this material to buy or sell securities, commodities, currencies or other investments referred to herein. HSBC Investments (Hong Kong) Limited, its ultimate and intermediate holding companies, subsidiaries, affiliates, clients, directors and/or staff may, at any time, have a position in the markets referred to herein, and may buy or sell securities, currencies, or any other financial instruments in such markets.

HSBC Investments (Hong Kong) Limited has based this document on information obtained from sources it believes to be reliable but which it has not independently verified. HSBC Investments (Hong Kong) Limited and the HSBC Group make no guarantees, representations or warranties and accept no responsibility or liability as to its accuracy or completeness. Information in this report is subject to change without notice.

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HSBC Investments (Hong Kong) Limited

march 2006 hsbc investments (hong kong) limited level 22, hsbc main building, 1 queen’s road...

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