Global House View: Market OutlookSeptember 2009HSBC GLOBAL ASSET MANAGEMENT

2

16088/HSB1395a

Contents

Market performanceMacro-economic PictureMarket Views: high level asset allocationMarket Views: Equity Regional AllocationConcluding RemarksSummary of views

Section 1

Section 2

Section 3

Section 4

Section 5

Section 6

Market Performance

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Key markets performance

Source: Bloomberg, DataStream, MSCI, Merrill Lynch, Citigroup. Total Returns in local currencies. Performance from the past 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. Data as of September 3rd 2009.Note: Indices and sources used to represent each asset class shown are (from left to right): MSCI World (World equities), MSCI US (US Equities), MSCI EMU (Eurozone Equities), MSCI UK ( UK Equities), MSCI Japan (Japan Equity), MSCI Emerging Markets (Emerging Markets equity), US WTI Crude Oil spot price (Oil); Citigroup World Government Bond Index (World Government Bonds); Merrill Lynch Global Investment Grade (Global Investment Grade); Merrill Lynch Global High Yield (Global High Yield); Yen spot price vs US Dollar Spot price (Yen vs US Dollar), Sterling spot price vs US Dollar Spot price (Sterling vs US Dollar); Euro spot price vs US Dollar spot price (Euro vs US Dollar)

Equities Fixed Income CurrencyCommodity

15.213.6

16.012.4 11.1

43.3

52.4

0.7

13.2

42.7

19.9

-2.1

11.8

2.0

-10

0

10

20

30

40

50

60

World US Eurozone UK Japan EmergingMarkets

Oil WorldGovt

Bonds

GlobalInvest.Grade

GlobalHighYield

EmergingDebt

JPY vsUSD

GBP vsUSD

EUR vsUSD

Tota

l ret

urn,

in lo

cal c

urre

ncy

(%)

Year-to-date

Macro-economic Picture

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-10-505

1015202530

Dec

-00

Aug

-01

Apr

-02

Dec

-02

Aug

-03

Apr

-04

Dec

-04

Aug

-05

Apr

-06

Dec

-06

Aug

-07

Apr

-08

Dec

-08

Aug

-09

% c

hang

e Yo

Y

Korea retail sales China retail sales -25-20-15-10

-505

101520

Mar

-02

Jul-0

2N

ov-0

2M

ar-0

3Ju

l-03

Nov

-03

Mar

-04

Jul-0

4N

ov-0

4M

ar-0

5Ju

l-05

Nov

-05

Mar

-06

Jul-0

6N

ov-0

6M

ar-0

7Ju

l-07

Nov

-07

Mar

-08

Jul-0

8N

ov-0

8M

ar-0

9Ju

l-09

% c

hang

e Yo

Y

Existing home sales Pending home sales

-2-0.3

-3.1

0.1

-3.4

-7-8.4

-10.1 -9.4

1.6

5.9 5.7

2.3 1.9

-12-10

-8-6-4-202468

Jun-

08

Jul-0

8

Aug

-08

Sep-

08

Oct

-08

Nov

-08

Dec

-08

Jan-

09

Feb-

09

Mar

-09

Apr

-09

May

-09

Jun-

09

Jul-0

9

% c

hang

e M

oM

Economic data continues to show signs of global stabilization…

China and Korea retail sales (YoY % change) US existing and pending home sales (YoY % change)

Source: DataStream, HSBC Global Asset Management, as of September 3rd 2009Past 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

Japan industrial production (MoM % change) US industrial production (MoM % change)

0.8 1.3

-4.5

0.8

-6.2

-1-2.6

-3.7-5.2

-0.8-1.7

1.8

-2.5

4.9

-8

-6

-4

-2

0

2

4

6

Jun-

08

Jul-0

8

Aug

-08

Sep-

08

Oct

-08

Nov

-08

Dec

-08

Jan-

09

Feb-

09

Mar

-09

Apr

-09

May

-09

Jun-

09

Jul-0

9

% c

hang

e M

oM

7

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…..but we are not clear of danger yet!

65

70

75

80

85

90

Aug

-89

Jun-

90A

pr-9

1Fe

b-92

Dec

-92

Oct

-93

Aug

-94

Jun-

95A

pr-9

6Fe

b-97

Dec

-97

Oct

-98

Aug

-99

Jun-

00A

pr-0

1Fe

b-02

Dec

-02

Oct

-03

Aug

-04

Jun-

05A

pr-0

6Fe

b-07

Dec

-07

Oct

-08

Aug

-09

US

indu

stria

l cap

itici

ty u

tilis

atio

n (%

)

US industrial capacity utilisation (%) US consumption expenditure (YoY % change)

Source: DataStream, HSBC Global Asset Management, as of September 3rd 2009. Consumption data based on constant pricePast 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

US household leverage (debt to personal income ratio)

5060708090

100110120130140

Jun-

59N

ov-6

1M

ar-6

4A

ug-6

6D

ec-6

8M

ay-7

1Se

p-73

Jan-

76Ju

n-78

Oct

-80

Mar

-83

Jul-8

5N

ov-8

7A

pr-9

0A

ug-9

2Ja

n-95

May

-97

Oct

-99

Feb-

02Ju

n-04

Nov

-06

Mar

-09U

S ho

useh

old

debt

to p

erso

nal

inco

me

(in %

)

-4

-2

0

2

4

6

8

10

Sep-

64

Dec

-66

Mar

-69

Jun-

71

Sep-

73D

ec-7

5

Mar

-78

Jun-

80Se

p-82

Dec

-84

Mar

-87

Jun-

89

Sep-

91D

ec-9

3M

ar-9

6

Jun-

98Se

p-00

Dec

-02

Mar

-05

Jun-

07

Sep-

09

Con

sum

ptio

n ex

pend

iture

% Y

oY)

8

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2

3

4

5

6

7

8

9

10

11

Sep-

64De

c-66

Mar

-69

Jun-

71Se

p-73

Dec-

75M

ar-7

8Ju

n-80

Sep-

82De

c-84

Mar

-87

Jun-

89Se

p-91

Dec-

93M

ar-9

6Ju

n-98

Sep-

00De

c-02

Mar

-05

Jun-

07Se

p-09

Unem

plom

ent r

ate

(%)

0

1

2

3

4

5

6

Sep-

64De

c-66

Mar

-69

Jun-

71Se

p-73

Dec-

75M

ar-7

8Ju

n-80

Sep-

82De

c-84

Mar

-87

Jun-

89Se

p-91

Dec-

93M

ar-9

6Ju

n-98

Sep-

00De

c-02

Mar

-05

Jun-

07Se

p-09

Unem

plom

ent r

ate

(%)

..and poor labour market conditions continue to cloud horizon for consumption

9.7% (Aug-09)

Japan unemployment rate (%)

5.7% (Jul-09)

US unemployment rate (%)

Source: DataStream, HSBC Global Asset Management, as of September 3rd 2009..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

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GDP growth expectations for 2010: a case of excessive optimism?

Consensus 2010 GDP forecast in March 2009 vs August 2009

Source: DataStream, Consensus Economics, August 2009 report.Any forecast, projection or target where provided is indicative only and is not guaranteed in any way

1.7

0.5 0.5 0.7

2.92.5

7.88.3

2.3

0.60.9

1.3

3.7

2.8

7.2

9.3

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

USA Eurozone UK Japan Brazil Russia India China

2010

Con

sens

us G

DP

grow

th fo

reca

st (i

n %

)

March 2010 GDP forecast August 2010 GDP forecast

+0.6

+0.4+0.6

+0.8 +0.3

+1.0

+0.1

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-2-10123456

Sep-

04N

ov-0

4Ja

n-05

Mar

-05

May

-05

Jul-0

5Se

p-05

Nov

-05

Jan-

06M

ar-0

6M

ay-0

6Ju

l-06

Sep-

06N

ov-0

6Ja

n-07

Mar

-07

May

-07

Jul-0

7Se

p-07

Nov

-07

Jan-

08M

ar-0

8M

ay-0

8Ju

l-08

Sep-

08N

ov-0

8Ja

n-09

Mar

-09

May

-09

Jul-0

9

CPI

(%

YoY

)

US Core CPI US CPI all times

Inflation outlook remains positive to moderate

-80%

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

120%

Nov

-07

Jan-

08

Mar

-08

May

-08

Jul-0

8

Sep-

08

Nov

-08

Jan-

09

Mar

-09

May

-09

Jul-0

9

Sep-

09

Oil

pric

e (y

-o-y

% c

hang

e)

0

20

40

60

80

100

120

140

160

Oil

pric

e (U

S$/b

rl)

y-o-y % change in oil price Oil price (US$/brl)

Source: DataStream, UK Office of National Statistics, HSBC Global Asset Management, as of September 3rd 2009Any forecast, projection or target where provided is indicative only and is not guaranteed in any way. Performance from the past should not be seen as an indication of future returns

US core vs. all items CPI (% YoY)Oil price vs. year-on-year percentage change

0

1

2

3

4

5

6

Sep-

04N

ov-0

4Ja

n-05

Mar

-05

May

-05

Jul-0

5Se

p-05

Nov

-05

Jan-

06M

ar-0

6M

ay-0

6Ju

l-06

Sep-

06N

ov-0

6Ja

n-07

Mar

-07

May

-07

Jul-0

7Se

p-07

Nov

-07

Jan-

08M

ar-0

8M

ay-0

8Ju

l-08

Sep-

08N

ov-0

8Ja

n-09

Mar

-09

May

-09

Jul-0

9

CPI

(%

YoY

)

UK CPI all items UK Core CPI

UK core vs. all items CPI (% YoY)

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Consensus Inflation forecasts for 2009 & 2010

-0.5

0.3

1.8

-1.2-0.5

6.2

10.8

4.4

1.81.2 1.7

-0.6

2.1

5.9

9.2

4.3

-2

0

2

4

6

8

10

12

US Euro Zone UK JP China India Russia Brazil

2009 Consensus inflation 2010 Consensus inflation

2009 & 2010 Consensus Inflation Forecasts

Source: Consensus Economics, HSBC Global Asset Management, August 2009 report.Any forecast, projection or target where provided is indicative only and is not guaranteed in any way

Market Views: high level asset allocation

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16088/HSB1395a

Equity valuations no longer at bargain levels

MSCI World P/E

Source: Thomson Financial, HSBC Global Asset Management, weekly data as of September 3rd 2009Past 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.

MSCI Emerging Markets P/E

8

13

18

23

28

33

38

Dec

-93

Sep-

94Ju

n-95

Mar

-96

Dec

-96

Sep-

97Ju

n-98

Mar

-99

Dec

-99

Sep-

00Ju

n-01

Mar

-02

Dec

-02

Sep-

03Ju

n-04

Mar

-05

Dec

-05

Sep-

06Ju

n-07

Mar

-08

Dec

-08

Sep-

09

MSC

I 12

PE

ratio

MSCI 12Mth forward PE MSCI 12Mth trailing PE

5

10

15

20

25

30

35

40

Dec

-95

Sep-

96Ju

n-97

Mar

-98

Dec

-98

Sep-

99Ju

n-00

Mar

-01

Dec

-01

Sep-

02Ju

n-03

Mar

-04

Dec

-04

Sep-

05Ju

n-06

Mar

-07

Dec

-07

Sep-

08Ju

n-09

MSC

I 12

PE

ratio

MSCI 12Mth forward PE MSCI 12Mth trailing PE

16

16088/HSB1395a

Earnings expectations for 2010: another case of excessive optimism?

2010 Earnings Momentum (World)

Source: DataStream, IBES, HSBC Global Asset Management, data as of September 3rd 2009Past 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.

-40

-35

-30

-25

-20

-15

-10

-5

0

5

10

Sep

-04

Jan-

05

May

-05

Sep

-05

Jan-

06

May

-06

Sep

-06

Jan-

07

May

-07

Sep

-07

Jan-

08

May

-08

Sep

-08

Jan-

09

May

-09

Sep

-09

% c

hang

e in

201

0 E

PS fo

reca

st

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

2010

EPS

upg

rade

s/do

wng

rade

s ra

tio

3mth % change 6mth % change Upgrade/downgrade ratio

2010 2009

Earnings growth estimates (in %)

Percentile relative to historical

estimates (1)

Earnings growth estimates (in %)

Percentile relative to historical

estimates (1)

MSCI World 24.9 100% -10.4 0%

MSCI Germany 35.8 90% -9.2 15

MSCI Japan 15.4 50% -2.0 0%

MSCI U.S.A 21.0 85% -8.5 0%

MSCI UK 21.0 85% -34.4 0%

MSCI Emerging Markets 27.5 90% -7.9 0%

MSCI Brazil 25.1 51% -15.6 1%

MSCI China 20.4 92% 8.1 31%

MSCI India 20.7 53% 15.6 40%

MSCI Russia 28.5 91% -40.4 0%

Notes (1): A Higher number indicates a more optimistic prospect

2010 and 2009 Earnings growth estimates

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Support from cash reserve liquidity to be possibly weaker

Net % overweight cash vs. average cash balance (%)

Source: Merrill Lynch, Fund Manager Survey Global, August 19th 2009Past performance should not be seen as an indication of future returns.

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Government Bonds: Yield curve shift since Jan 2009

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5Current Yield Curve 31-Dec-08 Yield Curve

Source: Thomson Financial, Bloomberg, HSBC Global Asset Management, data as of September 10th 2009Past performance should not be seen as an indication of future returns.

US Yield Curve shift UK Yield Curve shift

6 M

1YR

2YR

3YR

5YR

7YR

10YR 30Y

Bon

d yi

eld

(in %

)

3 M

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5Current Yield Curve 31-Dec-08 Yield Curve

6 M

1YR

2YR

3YR

5YR

7YR

10YR 30Y

Bon

d yi

eld

(in %

)

3 M

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Significant contraction in spreads but overall valuations are still attractive

Source: Barclay’s Capital, HSBC Global Asset Management, data as of September 3rd 2009. Pre-Lehman OAS is given as of September 12th 2008.Past performance should not be seen as an indication of future returns.

Investment Grade vs. High Yield EM sovereign vs. EM corporate

-

500

1,000

1,500

2,000

2,500

3,000

Sep-

04Ja

n-05

May

-05

Sep-

05Ja

n-06

May

-06

Sep-

06Ja

n-07

May

-07

Sep-

07Ja

n-08

May

-08

Sep-

08Ja

n-09

May

-09

Corp

orat

e EM

D - O

AS in

bps

0

100

200

300

400

500

600

700

800

900

1000

EMD

Sove

reig

n - O

AS in

bps

Global Corporate EMDEMD Sovereign

Global Corp. EMD Pre-Lehman OAS 843 bps

EMD Sovereign Pre-Lehman OAS

334 bps

-

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

Sep-

04Ja

n-05

May

-05

Sep-

05Ja

n-06

May

-06

Sep-

06Ja

n-07

May

-07

Sep-

07Ja

n-08

May

-08

Sep-

08

Jan-

09M

ay-0

9

Glo

bal H

igh

Yiel

d/ C

orpo

rate

EM

D - O

AS in

bps

0

100

200

300

400

500

600

Glo

bal A

ggre

gate

Cor

pora

tes/

EM

D S

over

eign

- O

AS

in b

ps

Global High Yield IndexGlobal Aggregate - Corporates Index

Global High Yield Pre-Lehman OAS

756 bps

Global Invest. Grade Pre-Lehman OAS

268 bps

Market Views: Equity Regional Allocation

21

16088/HSB1395a

4

5

6

7

8

9

10

11

12

13

14

Mar

-96

Sep-

96

Mar

-97

Sep-

97

Mar

-98

Sep-

98

Mar

-99

Sep-

99

Mar

-00

Sep-

00

Mar

-01

Sep-

01

Mar

-02

Sep-

02

Mar

-03

Sep-

03

Mar

-04

Sep-

04

Mar

-05

Sep-

05

Mar

-06

Sep-

06

Mar

-07

Sep-

07

Mar

-08

Sep-

08

Mar

-09

Sep-

09

Valuations continue to diverge but no strong signal

Source: Thomson Financial, HSBC Global Asset Management, September 3rd 2009Past 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.

Dispersion in global valuations

22

16088/HSB1395a

Interesting valuation-driven opportunities in defensives sector and Latam

Latin America discount to Emerging Asia (based on MSCI 12 trailing PE)

Global sector valuation levels (from cheapest to most expensive)

Past performance does not guarantee future results. Any forecast, projection or target where provided is indicative only and is not guaranteed in any waySource: DataStream, IBES, HSBC Global Asset Management, as of September 3rd 2009

Sectors 12 month forward PE

Telecommunications & Services 11.5

Health Care 11.8

Utilities 12.3

Energy 12.7

Consumer Staples 13.9

Financials 15.6

Industrials 16.6

IT 17.8

Materials 19.5

Consumer Discretionary 20.7

-55%

-45%

-35%

-25%

-15%

-5%

5%

15%

Aug-

04

Dec-

04

Apr-0

5

Aug-

05

Dec-

05

Apr-0

6

Aug-

06

Dec-

06

Apr-0

7

Aug-

07

Dec-

07

Apr-0

8

Aug-

08

Dec-

08

Apr-0

9

Aug-

09

Trai

ling

PE d

isco

unt

Average discount from 31-Aug-04 to31- Aug- 09

Concluding Remarks

24

16088/HSB1395a

Concluding Remarks

Key word remains uncertainty with any recovery in 2010 likely to be fairly weak

Weak growth picture poses a challenge for earnings, hence suggests cautious stance on equities

Within fixed income space, preference for corporate debt on valuations grounds

Moderately negative on Sterling vs. Euro

Summary of views

26

16088/HSB1395a

Summary of views

Source: HSBC Global Asset Management, as of September 3rd 2009Any forecast, projection or target where provided is indicative only and is not guaranteed in any way.

Overweight

Equity Cash

Govt Bonds High YieldInvest. Grade

EM debt

GBP EUR

Underweight

Strong Moderate Neutral Moderate Strong

UK Gilt UK Infl-Linked

High YieldInvest. Grade

Latin America Equity

Global Health Care / Utilities /

Telecom &Svs

Cyclical Sectors Equity

Emerging Asia Equity

27

16088/HSB1395a

Firm Disclosure

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 in this presentation is for information only and does not constitute investment advice or a recommendation to any reader of this material to buy or sell investments. It is intended for investment professionals only and not for distribution to Retail Clients.

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.

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. Any performance information shown refers to the past and 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. Where overseas investments are held the rate of exchange may cause the value of such investments to go down as well as up. Investments in emerging markets are by their nature higher risk and potentially more volatile than those inherent in established markets. Stockmarket investments should be viewed as a medium to long term investment and should be held for at least five years.

This presentation is approved for issue in the UK by HSBC Global Asset Management (UK) Limited authorised and regulated by the Financial Services Authority. 17366/0909/FP09-1012www.assetmanagement.hsbc.com/uk