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  • March 2018

    Emerging markets equity outlook

    This presentation is intended for Professional Clients as defined by MIFID only and should not be

    distributed to or relied upon by Non professional clients. The information contained in this publication is

    not intended as investment advice or recommendation. For illustrative purpose only, this document is a

    global view of the recent evolution of the economic conditions. This is a marketing support which does

    not constitute neither an investment advice or a recommendation to buy or sell investment. This

    commentary is not the result of 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.

    Non contractual document

  • 2

    Emerging markets equity outlook 2018 market performance

    Investment involves risks. Past performance is not indicative of future performance Source, HSBC Global Asset Management as of February 2018.

    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 accepts no liability for any failure to meet such forecast, projection or target. For illustrative purposes only.

    95

    100

    105

    110

    2 9 D

    e c 1

    7

    5 J

    a n 1

    8

    1 2 J

    a n 1

    8

    1 9 J

    a n 1

    8

    2 6 J

    a n 1

    8

    2 F

    e b

    1 8

    9 F

    e b

    1 8

    1 6 F

    e b 1

    8

    MSCI Emerging Markets MSCI ACWI S&P 500

     Strong inflows into equities in early January drove a

    continuation of the 2017 rally

     Higher than expected US wage growth triggered

    inflation fears and concerns that interest rates would

    rise faster than expected, leading to a sharp correction

     Emerging markets have since recovered back to

    positive territory year-to-date

     The positive outlook for emerging markets equities has

    not changed

    – Attractive expected returns

    – Operating leverage and capital expenditure could allow for

    further growth in earnings and improvements in profitability

    – Macro environment remains supportive

    – Valuation-profitability looks attractive versus own history and

    versus developed markets

     Global growth should drive cyclical inflation; the key

    market risk is whether this inflation increases faster

    than expected

    Equity market performance

    (Rebased to 100 on 29 Dec 2017)

  • 3

    Emerging markets equity outlook Expected returns

    Forecast 10-year nominal returns

    (annualised, USD unhedged)

     Equities offer more attractive potential returns relative to bonds

    and cash

     Within equities, emerging markets offer favourable returns

    versus developed markets

    Investment involves risks. Past performance is not indicative of future performance Source: HSBC Global Asset Management as at 31 January 2018.

    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 accepts no liability for any failure to meet such forecast, projection or target. For illustrative purposes only.

    0% 2% 4% 6% 8% 10%

    Global bonds

    US Corporate Credit

    EUR High Yield

    US High Yield

    Local EM Debt

    Global listed real estate

    Asia ex Japan

    Emerging markets

    Japan

    UK

    Euroland

    Canada

    US

    Developed markets

    Global

    E q u it y

  • Earnings

  • 5

    Emerging markets equity outlook Earnings outlook – summary

     Upward trend in earnings revisions

     Earnings growth supported by improvements in operating margins

     Increase in capital expenditures underscores positive corporate outlook

     Earnings growth evident across sectors

     Profitability has improved

    Investment involves risks. Past performance is not indicative of future performance Source, HSBC Global Asset Management as of February 2018.

    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 accepts no liability for any failure to meet such forecast, projection or target. For illustrative purposes only.

  • 6

    Emerging markets equity outlook Earnings revisions

    Emerging markets earnings revisions

    (MSCI Emerging Markets)

     Continued upward trend in net earnings revisions

    Source: HSBC Global Asset Management, Bloomberg as of 31 January 2018.

    -60

    -40

    -20

    0

    20

    2013 2014 2015 2016 2017 2018

    N e t n u m

    b e r

    o f c o m

    p a n ie

    s w

    it h p

    o s it iv

    e r

    e v is

    io n s a

    s a

    % o

    f to

    ta l

    5-year average

    Investment involves risks. Past performance is not indicative of future performance 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 accepts no liability for any failure to meet such forecast, projection or target. For illustrative purposes only.

  • 7

    Emerging markets equity outlook Earnings growth

    Emerging markets equity earnings growth

    (MSCI Emerging Markets)

     2017 saw strong earnings growth with economic acceleration

     Consensus estimates double digit growth of 13.3% in 2018

    Source: HSBC Global Asset Management, Bloomberg as at 31 January 2018.

    For illustrative purposes only.

    -50

    -40

    -30

    -20

    -10

    0

    10

    20

    30

    40

    50

    60

    2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

    Y e a r-

    o n -y

    e a r

    E a rn

    in g s P

    e r

    S h a re

    g ro

    w th

    ( %

    )

    2018e 2017 2016

    Emerging Markets 13.3% 23.4% 7.5%

    Source: Bank of America Merrill Lynch Global Research, MSCI, IBES estimates, as at 31 January

    2018. For illustrative purposes only.

    Emerging markets equity earnings growth

    (MSCI Emerging Markets)

    Investment involves risks. Past performance is not indicative of future performance 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 accepts no liability for any failure to meet such forecast, projection or target. For illustrative purposes only.

  • 8

    Emerging markets equity outlook Operating margin

    Operating margin

    (MSCI Emerging Markets)

     Operating margin has improved

    Source: HSBC Global Asset Management, Bloomberg as at 31 January 2018.

    8

    10

    12

    14

    16

    2007 2009 2011 2013 2015 2017

    O p e ra

    ti n

    g m

    a rg

    in (

    % )

    Investment involves risks. Past performance is not indicative of future performance 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 accepts no liability for any failure to meet such forecast, projection or target. For illustrative purposes only.

  • 9

    Emerging markets equity outlook Capital expenditure

    Capital expenditure

    (MSCI Emerging Markets)

     Increase in capital spending underscores positive corporate

    outlook

    Source: HSBC Global Asset Management, Bloomberg as at 31 January 2018.

    -140

    -120

    -100

    -80

    -60

    2013 2014 2015 2016 2017

    C a p it a l e x p e n d it u re

    Investment involves risks. Past performance is not indicative of future performance 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 accepts no liability for any failure to meet such forecast, projection or target. For illustrative purposes only.

  • 10

    Emerging markets equity outlook Free cash flow

    Free cash flow

    (MSCI Emerging Markets)

     Higher free cash flow could support shareholder returns

    Source: HSBC Global Asset Management, Bloomberg as at 31 January 2018.

    0

    10

    20

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    50

    60

    70

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