september 2011 hsbc gif chinese equity …...hsbc gif chinese equity presentation september 2011 2...

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For professional clients only

HSBC GIF Chinese Equity PresentationSeptember 2011

2

HSBC Overview

HSBC Global Asset Management

The Investment Team & Emerging Markets Investment Resources

Investment Philosophy and Process

Risk management

Market overview

HSBC GIF Chinese Equity Fund overview

Competitor analysis

Outlook

Appendix

Contents

HSBC Overview

4

HSBC overview

Emerging markets are at the heart of HSBC's corporate identity

HSBC’s roots were formed in China and India in the 19th century

HSBC Group has maintained a strong presence in global trade, particularly in India and China, the world's most dynamic emerging markets.

Headquartered in London, HSBC is one of the largest banking and financial services organisations in the world, with over 300,000 employees spanning

an international network of around 7,500 offices in the Asia-Pacific region, Europe, the Americas, the Middle East and Africa.

One of the largest global financial services networks with offices in 87 countries of which 54 are in emerging market countries

A unique local market knowledge, enhancing the portfolio management processes

Direct access to local companies and investment opportunities

Source: HSBC Holdings Plc, data as of 31st December 2010.

5

Mexico

Honduras

El Salvador Nicaragua

Costa Rica Panama

Colombia

PeruBrazil

ParaguayChile

ArgentinaUruguay

South Africa

Mauritius

Algeria

Libya Egypt

PolandCzech RepublicSlovakia

TurkeyLebanon

IsraelPalestine

Georgia

ArmeniaIraq

KuwaitBahrain, QatarUAE

OmanSaudi Arabia

Kazakhstan

Russia

PakistanChina Korea

India

MaldivesSri Lanka

Taiwan

Philippines

Indonesia

BruneiMalaysia

Singapore

Hong Kong

ThailandVietnam

Macau

Malta

HSBC Global Asset ManagementHSBC Holdings plc

Source: HSBC Global Asset Management, as of 31 December 2010

HSBC’s presence in emerging markets

7


HSBC Global Asset Management is a leading global asset management firm managing assets totalling USD453.4 billion at the end of June 2011.

HSBC Global Asset Management offers clients around the world a diverse and full range of active and quantitative investment products including equity, fixed income, liquidity and alternative strategies.

Worldwide client base invested in both segregated accounts and pooled funds.

HSBC Global Asset Management is part of HSBC Holdings plc.

8

HSBC Global Asset Management -

A leader in emerging markets

Complete investment solutions including equity, fixed income, balanced and alternatives products through:

-

Local strategies: Products managed and distributed locally

-

Global, regional and single country strategies: Products managed

across multiple geographies and distributed globally

An extensive range of emerging markets funds, including some of the world's largest in their sectors

-

One of the largest offshore managers of Brazil, India and BRIC equity funds

-

Our flagship global emerging market products have made us leaders in the management of assets in a wide array of emerging markets, not only in Brazil, India and China but also in Taiwan, Thailand and Turkey

Emerging Markets AUM by region (US$ billion)

Source: HSBC Global Asset Management, Assets under management data as of 30th June 2011

Emerging Markets AUM by asset class (US$ billion)

Among the largest managers of emerging market funds globally, with approximately USD139 billion in assets under management and over 200 dedicated emerging markets investment professionals in 14 key locations

Latin America

58.9

Asia Pacific61.1

EMEAMENA

9.9Global

9.2

Equity39.9

Fixed Income

76.3

Balanced17.3

Alternative0.8

Liquidity4.8

The Investment Team & Emerging Markets Investment Resources

10

An Experienced and Dedicated Team

A large dedicated and experienced team manages over US$8.3b* in dedicated Chinese equities

High conviction ideas generated from proprietary research

Disciplined, valuation driven investment process

*Data as of 30 December 2010, includes both assets managed by HSBC Jintrust

and HSBC Global Asset Management

Name Title Role

Years of experience

with the Group

Years of industry

experience

China Portfolio Management Team (Country Specialist – China)Mandy Chan Investment Director Fund Manager 1 14Alan Zhong CFA Investment Manager Equity Analyst 5 7Joy Yuan Senior Investment Analyst Equity Analyst 7 7Debbie Chan Investment Analyst Equity Analyst 3 7Country Specialist – Hong KongPhilip Mok Investment Director Fund Manager 8 22Elina

Fund Associate Director Equity Analyst 3 10Sector AnalystsHugh Lee Senior Investment Analyst Regional Sector

Analyst5 15

Patrick Crivelli Senior Investment Analyst Regional Sector Analyst

5 9

Mathew Lee Senior Investment Analyst Regional Sector Analyst

5 11

Kwok Wing Cheong Senior Investment Analyst Regional Sector Analyst

5 20

Sami Abouzahr Investment Analyst Regional Sector Analyst

6 6

Portfolio ConstructionFrancis Chung Director, Asia Product Specialist Risk and Portfolio

Construction3 20

Andrew Lee CFA Head of Quantitative Analysis & Implementation

Quantitative Analysis and Portfolio Implementation

6 15

Product SpecialistArwen

Liu Asia Product Specialist Product Specialist 2 2

11

Supported by on the ground research team in Shanghai

Resources of JV, HSBC Jintrust

Greater access to information not reflected in the market

Leverage research resources on dual-listed companies

Name Role Location Years of industry experience

Tom Lin CIO, HSBC Jintrust Shanghai 13David Shao Fund Manager –

Dynamic Strategy Fund Shanghai 18Ally Wang Fund Manager –

Big Cap Fund Shanghai 9Leo Cai Fund Manager –

2026 Lifecycle, Mid & Smallcap

Lifecycle FundShanghai 8

Jeremiah Feng Fund Manager –

2016, 2026 Lifecycle Fund Shanghai 6David Liao Fund Manager –

Dragon Fund, Financials, Property Shanghai 8Ricky Hou Investment Manager, Coal, Utilities, Paper Shanghai 12Kevin Wang Strategist Shanghai 7Rollin Cai Assistant Strategist Shanghai 1Quentin Cao Head of Research Shanghai 6Sammi Yan Research Analyst, Nonferrous, Steel, Building Materials Shanghai 4Timothy Cao Research Analyst, Retail, Electronic Appliance Shanghai 4Carol Duan Research Analyst, Pharmaceutical, F&B Shanghai 4Andy Cao Research Analyst, TMT Shanghai 3Tony Zheng Research Analyst, Chemicals Shanghai 3Michael Liu Research Analyst, Machinery Shanghai 4Jason Zhang Research Analyst, Transportation, Tourism Shanghai 4Rocky Liu Research Analyst, TMT Shanghai 3Dolon

Qiu Research Analyst, Agricultural, F&B Shanghai 3Kaven

Cai Research Analyst, Autos, Agriculture Shanghai 1Joyce Wang Assistant Research Analyst Shanghai 5

Data as of 30 December 2010 HSBC Global Asset Management

12

Investment Team

Source: HSBC Global Asset Management. Data as of July 2011* Years of industry experience are denoted in the brackets(xx) indicates the total number of investment professionals

Bill Maldonado[18yrs]*

Chief Investment Officer, Asia-Pacific

Strategy Chief Investment Officer, Equities

Weekly Local team meetings Asia Forum Portfolio construction meeting Research meeting Country specialist meeting

Lead Portfolio ManagerMandy Chan [15yrs]*

Chinese Equity Research Analysts (3)Debbie Chan [8yrs]

Laurent Wong [11yrs]Joy Yuan [6yrs]

Chinese Equity Team

Quarterly performance review meeting

Regional Portfolio Construction and

Quantitative Research (5)

Product Management (1)

Dealing (6)

Investment Support

Regional Sector Analysts (7)

Research Insights

HSBC Jintrust Investment Management Team

(20)

13

New YorkGEM Fixed Income8 Investmentprofessionals

Mexico CityMexican Fixed IncomeMexican EquityMexican Alternatives11 Investmentprofessionals

BogotaColombian Fixed IncomeColombian Equity5 Investmentprofessionals

Sao PauloBrazilian Fixed IncomeBrazilian EquityBrazilian AlternativesBrazilian Multimanager21 Investmentprofessionals

Buenos AiresArgentinian Fixed IncomeArgentinian Equity5 Investmentprofessionals

LondonGEM EquityGEM AlternativesGEM Multimanager13 Investmentprofessionals

ParisGEM Fixed IncomeGEM Equity (inc Amanah)9 Investmentprofessionals

IstanbulTurkish Fixed IncomeTurkish EquityTurkish Alternatives10 Investmentprofessionals

RiyadhSaudi Fixed Income (inc

Amanah)Saudi EquitySaudi Alternatives18 Investmentprofessionals

Mumbai Indian Fixed Income Indian Equity19 Investmentprofessionals

SingaporeSingaporean Equity7 Investmentprofessionals

Hong KongHong Kong Fixed IncomeHong Kong EquityHong Kong Alternatives37 Investmentprofessionals

Shanghai Jintrust Chinese Fixed

Income Jintrust Chinese EquityChinese M ultimanager17 Investmentprofessionals

TaipeiTaipei Fixed IncomeTaipei Equity23 Investmentprofessionals

19464

Emerging markets investment capabilities –

A portfolio of opportunities Strategies and locations

As of 31 December 2010

Investment Philosophy and Process

15

There is a fundamental economic relationship between valuation and profitability within the Chinese equity universe

Market inefficiencies lead to divergences from that relationship, which should correct over time

Attractive stocks show consistent positioning on valuation/profitability chart and we aim to concentrate positions within valuation outliers

The framework is intuitive: identify “good”

companies at “cheap”

prices. The goal is to buy above average profitability at below market average price. This demonstrably leads to outperformance over time

Investment Philosophy

Source: HSBC Global Asset Management. For illustrative purposes

only.

0.0

2.0

4.0

6.0

8.0

10.0

12.0

0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0%

ProfitabilityVa

luat

ion

1st Quintile–

the most attractive 2nd Quintile –

attractive

3rd Quintile –

fair value 4th Quintile –

not attractive

5th Quintile –

the least attractive

16

Profitability vs. Valuation Basic Principles

How do we find “good”

companies?–

Profitability identifies “good”

companies whose assets generate above average profits–

We use either equity-only profitability (RoE) or unlevered enterprise-wide profitability (RoIC) as the metric to define “good”

What is an “attractive”

stock?–

Valuation is relative –

there is no absolute measure–

We use either equity-only valuation (P/B) or unlevered enterprise-wide earnings yield (EBIT/EV) as the ratio to identify “cheap”

stocks

17

Benefit stock analysis Dual-listed companies to leverage on-the-ground research resources

Number of dual-listed companies

0 10 20 30 40 50 60 70

2005

2006

2007

2008

2009

2010

The number of dual-listed companies has increased substantially over time

We can better analyse Chinese companies by having both the international perspectives and local insights

We seek to capitalize on the resulting investment opportunities using the on-the-

ground research provided by our local joint venture and actively developing our network of non-financial contacts in China

Using onshore and offshore resources allows us to generate returns via investing along the supply chain and benefitting from cross-

referencing

18

Investment Process


only

Portfolio holdings

Companies’ forwardprofitability

Current marketvaluations

Focus research on higher ranking companies

China investable universeMarket cap > USD 500mn

Research verified stocks for portfolio construction

Profit sustainability analysis Financial strength

Active limitsRisk budgeting

Conviction in stockselection

Risk management

Investment process

Ranked eligible research universe

Stock analysisFundamental, bottom-up

Portfolio design parameters

Ranking MethodologyPortfolio ManagementEquity Analysis

Ranking process

Proprietary profitability analysis

Portfolio construction

19

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Rank

Eligible Research Universe

Stocks are ranked by RoE and P/B separately, then both rankings are combined to arrive at an overall stock ranking

Establish a list of eligible companies for fundamental research

Begin with 1st quintile ranked stocks

Stocks are assigned to the appropriate analyst

Conduct fundamental, bottom-up analysis, leveraging extensive resources of the investment team

Source: HSBC Global Asset Management. Data as of 31 December 2010. For illustrative purposes only to demonstrate our investment process and does not constitute investment advice.

Company Name Sector P/B ROE Rank Quintile

Stock A Materials 1.9 36.9 1 1

Stock B Financials 1.9 34.3 2 1

Stock C Financials 1.5 30.9 3 1

Stock D Industrials 1.2 28.1 4 1

Stock E Materials 1.6 29.6 5 1

Stock F Industrials 3.2 40.7 6 1

Stock G Materials 2.4 34.1 7 1

Stock H Consumer 6.6 61.0 8 1

Stock I Consumer 0.6 18.6 9 1

Stock J Industrials 2.3 29.3 10 1

20

Stock Analysis Methodology

Inputs

Company visits (360 degrees supply chain check, including visiting customers, suppliers, competitors)

Government contacts

Non-financial contacts (commodities traders, car dealers, property evaluators)

Independent third party consultants

On the ground research resource from Jintrust

Profitability: identify under-recognized Profitability

Cash-flow & financial capability: how is Growth financed

Management quality & corporate governance: sustainability of Profitability? significant performance dispersion with the same sector

Valuation: how much Profitability is priced in? we analysis historical valuation of the company; peer group and valuation gap with the broad market

Output

Fundamental, proprietary stock analysis

Internally-deprived financial model and price target


only

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Stock Analysis Fundamental, proprietary stock analysis

Internal Financial ModelROE sustainability analysis Recommendation Document


onlyThe examples above are included for discussion only and do not constitute any investment advice.

Dupont Analysis

Financial strength

Industry analysis

Ability to create shareholder wealth

Profitability / risk

Financial strength

Corporate governance

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Stock Analysis Industry analysis applied at a stock level



Supply & Demand AnalysisIndustry weekly updates Compnay’s earning sensitivity

in relation with industry

Earning Sensitivity for Chinese Commodity CompaniesLast Updated: 17 September 2010

Contact: Debbie Chan

22841155

1. Source: Credit Suisse, Latest updated on 11 August 2010.

Chgs in price assumption % of 10Ebase abs. chg % abs. chg % x % fr base abs. chg %

STEELAngang Steel price US$10/t 2% 0.08 14% 1.79 14% 1x 20% 2.6 20%Magang Steel price US$10/t 2% 0.10 110% 0.94 34% 1x 20% 1.0 35%Baosteel Steel price US$10/t 2% 0.06 8% 0.66 7% 1x 20% 1.7 18%Wugang Steel price US$10/t 1% 0.09 16% 0.82 12% 1x 20% 1.5 21%Panzhihua Steel price US$10/t 2% 0.08 -46% 0.48 10% 1x 20% 0.3 6%COALShenhua Thermal coal spot price US$10/t 10% 0.10 5% 3.03 11% 1x 11% 3.3 12%

Contract price Rmb10/t 2% 0.05 3% 0.73 3%Overall ASP Rmb10/t 2% 0.08 4% 1.19 4%

Chinacoal Thermal coal spot price US$10/t 10% 0.12 14% 1.44 14% 1x 14% 1.4 13%Hard Coking Coal spot price US$10/t 4% 0.01 1% 0.08 1%


Yanzhou Thermal coal spot price US$10/t 10% 0.17 11% 2.08 10% 1x 14% 3.1 15%Semi-coking coal spot price US$10/t 6% 0.08 5% 1.02 5%


CEMENTConch Cement price Rmb10/t 4% 0.63 23% 10.6 37% 1x 11% 3.4 12%CNBM Cement price Rmb10/t 5% 0.34 39% 6.73 59% 1x 14% 3.2 28%Shanshui Cement price Rmb10/t 4% 0.12 41% 1.80 32% 1x 14% 1.3 23%CR cement Cement price HK$10/t 3% 0.04 19% 0.61 14% 1x 11% 0.5 12%TCCI Cement price Rmb10/t 4% 0.12 25% 1.48 37% 1x 14% 1.2 31%Base metals / goldChalco Aluminum price US$0.1/lb 11% 0.35 123% 5.37 51% 1x 10% 1.6 15%Rusal Aluminum price US$0.1/lb 10% 0.06 57% 4.27 40% 1x 13% 1.3 12%JXC Copper price US$0.1/lb 3% 0.10 8% 0.64 5% 1x 17% 2.5 19%Zijin Gold price US$100/oz 10% 0.04 10% 0.90 14% 1x 10% 0.9 10%

Valuation(HK$/sh)EPS (rpt ccy/sh) Valuation (HK$/sh) Chgs in EV/EBITDA

Shipping Freight Index - SummaryLast Updated: 17 September 2010


22841155

Shipping freight index

Period Direction Move this week Highlights this week

BDI Sep 10-17, 2010 BDI was down 11% WoW to 2676 after 4% increase the week before.

BDI declined 11%, the most in 10 weeks, on steel output cuts by China which will probably continue to the year’s end because of limited power supplies for mills. The reductions are aimed at meeting energy-efficiency targets, according to Ministry of Industry and Information Technology. China started restricting power to mills this month and will accelerate measures to boost energy efficiency in the fourth quarter.

CCBFI Sep 8-15, 2010 CCBFI rose by 3% WoW to 1355 after 7% increase the week before.

CCBFI was up by 3% last week, mainly driven by 6% freight rate for coal transportation. Freight rate for oil products has remained stable while freight rate for ore and grain showed 1-2% decline WoW.

CCFI Sep 10-17, 2010 CCFI was flat at 1198 last week. The rebound in global trade and by slow steaming has brought the overall demand-supply equilibrium into a relative balance so far this year despite the reintroduction of over 1.28 Mteu of idle capacity. · However, the expected slowdown in trade volumes in the fourth quarter and into 2011 could result in over-supply in the next 12-18 months with fleet capacity expected to continue to grow by 9.6% next year, according to Alphaliner.

Tanker Sep 10-17, 2010 Baltic Dirty Tanker was down 1.6% last week, while Baltic Clean Tanker Indices was up 2.1% WoW.

Slowing demand and influx of new vessels have plunged oil tanker rates by around 50% after a V-shaped rebound in 1H10. We see limited downside from current level, while tanker outlook doesn't look rosy either.

WS-VLCC Sep 10-17, 2010 WS-VLCC was flat last week. Crude oil was down 4% last week to US$74/bbl.

Source: Citi Investment Research, Shanghai Shipping Exchange, Clarkson, Bloomberg

Commodity Weekly Updates – AluminumLast Updated: 17 September 2010

Chinese domestic aluminum inventory down slightly to 494,782 tons, (inventory level representing 25 days of production and above normal level of 300,000 t ) up 0.9% WoW. LME aluminum inventory down 0.3% WoW to 4,393,425 tonnes.

China continues to be a net exporter of aluminum since end of Oct09.

SHFE Aluminum price (including VAT): US2,272/t or Rmb15,280/t, up 0.7% WoW.

LME Aluminum price: US2,152/t or Rmb14,469t, up 3.9% WoW.

This is compared with the marginal cost of Chinese aluminum producers at around US2100/t or Rmb15,011/t. For Aluminum Corp of China, the breakeven aluminum price for the company in 2H10 is Rmb15,000/t (including VAT).

We expect the high cost producers to consider idling capacity if prices remain below marginal costs.

1. Price and Inventory data are weekly data. Latest data available every Monday day end.

2. Production, import, export and consumption data are monthly data released by National Bureau Statistics and China Customs. Latest data available at the end of the following month.


22841155

Aluminum Net Export (000 tonnes)

-400

-300

-200

-100

0

100

200

300

Jan-

05

Apr-

05

Jul-0

5

Oct

-05

Jan-

06

Apr-

06

Jul-0

6

Oct

-06

Jan-

07

Apr-

07

Jul-0

7

Oct

-07

Jan-

08

Apr-

08

Jul-0

8

Oct

-08

Jan-

09

Apr-

09

Jul-0

9

Oct

-09

Jan-

10

Apr-

10

Jul-1

0

Domestic Inventory (w k, t)

0

100,000

200,000

300,000

400,000

500,000

600,000

Jan-

05

Apr-

05

Jul-0

5

Oct

-05

Jan-

06

Apr-

06

Jul-0

6

Oct

-06

Jan-

07

Apr-

07

Jul-0

7

Oct

-07

Jan-

08

Apr-

08

Jul-0

8

Oct

-08

Jan-

09

Apr-

09

Jul-0

9

Oct

-09

Jan-

10

Apr-

10

Jul-1

0

Aluminum Px

0

5,000

10,000

15,000

20,000

25,000

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

Jan-

10

May

-10

Sep-

10

(Rm

b/t,

incl

.VA

T)

0

500

1000

1500

2000

2500

3000

3500

(US$

/t)

Shanghai Px (LHD) LME Px

Commodity Weekly Updates – CopperLast Updated: 17 September 2010

Move This Week: Domestic copper inventory up 0.2% WoW to 98,225 tons (18.5 inventory days, below normal level of 120,000 t) while LME copper inventory down 1.8% WoW to 384,200 tons.

Move This Week: SHFE Copper price (including VAT): US8,818/t (Rmb59,300/t), up 1.2% WoW. LME Copper price: US7,711/t (Rmb51,857/t), up 3.2%WoW.

1. Price and Inventory data are weekly data. Latest data available every Monday day end.

2. Production, import, export and consumption data are monthly data released by National Bureau Statistics and China Customs. Latest data available at the end of the following month.


22841155

Copper Px

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

Date18

-Mar-

0510

-Jun-0

52-S

ep-05

25-N

ov-05

17-F

eb-06

12-M

ay-06

4-Aug

-0627

-Oct-

0619

-Jan-0

713

-Apr-

076-J

ul-07

28-S

ep-07

21-D

ec-07

14-M

ar-08

6-Jun

-0829

-Aug

-0821

-Nov

-0813

-Feb

-098-M

ay-09

31-Ju

l-09

23-O

ct-09

15-Ja

n-10

9-Apr-

102-J

ul-10

(Rm

b/t,

incl

. VA

T)

-2000

-1800

-1600

-1400

-1200

-1000

-800

-600

-400

-200

0

(US$

/t)

SH Px (LHD) Px Gap (Int'l - CN) (RHD)

Domestic Inventory of Copper (t/week)

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

200,000

Jan-

05M

ar-0

5M

ay-0

5Ju

l-05

Sep-

05N

ov-0

5Ja

n-06

Mar

-06

May

-06

Jul-0

6Se

p-06

Nov

-06

Jan-

07M

ar-0

7M

ay-0

7Ju

l-07

Sep-

07N

ov-0

7Ja

n-08

Mar

-08

May

-08

Jul-0

8Se

p-08

Nov

-08

Jan-

09M

ar-0

9M

ay-0

9Ju

l-09

Sep-

09N

ov-0

9Ja

n-10

Mar

-10

May

-10

Jul-1

0Se

p-10

Proprietary industry data base for identifying leading indicators

23

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Stock Analysis Sector leading indicators

We have leading indicators for each sector and industry group, based on their different business nature.

All the indicators are updated regularly to reflect the most recent company activity

It enables us to compare different companies with their peers

We invite independent third parties to discuss sector outlook and profitability drivers with the team on a monthly basis

Department Store

Key industry data watch list Frequency Source Remarks

Key operating parameters Frequency Source RemarksSame-store-sales growth Monthly (NWDS semi-annually) Company (through channel check) Key indicator of company's organic growthSales ramp-up of new stores Updated periodically Company Affects marginConcessionaire margin Semi-annually (Parkson quarterly) Company Driven by level of promotion and new store success levelNew store opening dates Updated periodically Company Driver of company's future growth

Event calendar Date Source RemarksSSS, New store openings schedule Ongoing updates based on company's guidance / news Company, news flow

Apparel & Footwear

Key industry data watch list Frequency Source RemarksCompetitors' retail discount Updated periodically Chanel checks Measure the competition intensityDepartment SSSG Updated periodically Proxy to many apparel/footwear sales

Key operating parameters Frequency Source RemarksTrade fair order book growth Quarterly Company Translates into 90-95% of revenueOrder fulfillment rate Updated periodically Company Usually 95-98%; Affects revenueReplenishment orders Updated periodically Company Translates into 5-10% of revenueRetail inventory/monthly sales ratio Quarterly Company Measure inventory level in the retail channelA/R days Semi-annually Company Indirectly reflects the channel inventory levelSame-store-sales growth Updated periodically Company Key driver of company's organic growthNo. of existing POS Semi-annually Company Indicator of penetration potentialNew store opening(%) Semi-annually Company Key driver of company's inorganic growthWholesale discount and distributor rebates Quarterly Company Affects GP marginRaw material price (mainly cotton, leather, anUpdated periodically Affects GP marginA&P cost Semi-annually Company Affects EBIT margin; largest cost item (8-15% of sales)Staff cost Semi-annually CompanyRetail discount Updated periodically Company Measure the competition intensity

Event calendar Date Source RemarksSSS, order book, Inventory ratio, discount, stoOngoing updates upon company's guidance / news Company, news flow

Supermarket

Key industry data watch list Frequency Source RemarksChina CPI Monthly, released around the 15th-20th of each month National Bureau of Statistics Correlates with SSSGFood CPI Monthly, released around the 15th-20th of each month National Bureau of Statistics Correlates with SSSG

Key operating parameters Frequency Source RemarksSame-store-sales growth Quarterly Company Key indicator of company's organic growthNo. of existing stores Quarterly CompanyNew store opening(%) Quarterly Company Key driver of company's inorganic growthSales per m2 Quarterly Company Key driver of revenueProduct mix Quarterly Company Affects GPM (non-food has higher GPM)Direct sourcing % Semi-annually Company Affects GPMDC coverage Semi-annually Company Affects GPMConsolidated GP margin Semi-annually Company Includes supplier income and rental incomeStaff cost Semi-annually Company Sensitive to minimum wageRental cost Semi-annually Company Key driver of EBIT margin Inventory and AR days Semi-annually CompanyCapex Semi-annually Company Access balance sheet strength

Event calendar Date Source RemarksOngoing updates upon company's guidance / news Company, news flow

24

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Stock Analysis Tracking analyst’s recommendation



45.93%17.9512.30HOTransportationCHINA INTL MAR-B200039 CH Equity18

-33.72%22.5534.02OAutomobilesGREAT WALL MOT-H2333 HK Equity17

-2.33%10.5410.30UAutomobilesGUANGZHOU AUTO-H2238 HK Equity16

-10.00%7.266.60UElectrical EquipmentBOER POWER HOLDI1685 HK Equity15

-20.58%5.486.90OCommunications EquipmentO-NET COMMUNICAT877 HK Equity14

5.36OSemiconductors & SemiconductorTRONY SOLAR HOLD2468 HK Equity13

-31.74%5.878.60HAutomobilesBRILLIANCE CHINA1114 HK Equity12

57.30%77.0849.00HOInternetSINA CORPSINA US Equity11

-31.77%22.8933.55HOInternetPERFECT WORL-ADRPWRD US Equity10

-5.66%179.10169.50HUInternetTENCENT HOLDINGS700 HK Equity9

-3.47%15.5215.00HUInternetALIBABA.COM LTD1688 HK Equity8

-22.91%82.3567.00HUTransportationORIENT OVERSEAS316 HK Equity7

-20.78%8.7711.07MOTransportationCHINA COSCO HO-H1919 HK Equity6

1.17%9.299.40HUTransportationAIR CHINA LTD-H753 HK Equity5

32.27%47.9570.80HUCapital GoodsWEICHAI POWER-H2338 HK Equity4


1.86%14.2614.00HOAutomobilesDONGFENG MOTOR-H489 HK Equity2

-11.92%43.6539.00HUAutomobilesBYD CO LTD-H1211 HK Equity1

Upside / Downsize

Current Price (Stock)

PX_LASTTarget Price

(stock)Conviction (H,M)Idea (O,U)Sector (stock)GICS_INDUSTRY_NAME

Company / Country / Industry NameSHORT_NAMESedol (stock)Item

Definition: O = overweight, U = underweight, H = High, M = Medium


-33.72%22.5534.02OAutomobilesGREAT WALL MOT-H2333 HK Equity17

-2.33%10.5410.30UAutomobilesGUANGZHOU AUTO-H2238 HK Equity16

-10.00%7.266.60UElectrical EquipmentBOER POWER HOLDI1685 HK Equity15

-20.58%5.486.90OCommunications EquipmentO-NET COMMUNICAT877 HK Equity14

5.36OSemiconductors & SemiconductorTRONY SOLAR HOLD2468 HK Equity13

-31.74%5.878.60HAutomobilesBRILLIANCE CHINA1114 HK Equity12

57.30%77.0849.00HOInternetSINA CORPSINA US Equity11

-31.77%22.8933.55HOInternetPERFECT WORL-ADRPWRD US Equity10

-5.66%179.10169.50HUInternetTENCENT HOLDINGS700 HK Equity9

-3.47%15.5215.00HUInternetALIBABA.COM LTD1688 HK Equity8

-22.91%82.3567.00HUTransportationORIENT OVERSEAS316 HK Equity7

-20.78%8.7711.07MOTransportationCHINA COSCO HO-H1919 HK Equity6

1.17%9.299.40HUTransportationAIR CHINA LTD-H753 HK Equity5

32.27%47.9570.80HUCapital GoodsWEICHAI POWER-H2338 HK Equity4


1.86%14.2614.00HOAutomobilesDONGFENG MOTOR-H489 HK Equity2

-11.92%43.6539.00HUAutomobilesBYD CO LTD-H1211 HK Equity1

Upside / Downsize

Current Price (Stock)

PX_LASTTarget Price

(stock)Conviction (H,M)Idea (O,U)Sector (stock)GICS_INDUSTRY_NAME

Company / Country / Industry NameSHORT_NAMESedol (stock)Item

Definition: O = overweight, U = underweight, H = High, M = Medium

Analysts’

stock recommendation is closely tracked with various metrics considered

Recommendations’

performance is linked to analysts’

compensation

25

10-IB-10107

Portfolio Construction Investment parameters

Parameters

Benchmark MSCI China

Single stock active weight 5%

Sector active weight 10%

Typical number of stocks 60 -

90

Tracking error 3% -

8%

Turnover c. 100%

Sector weighting is a function of bottom up stock selection

Increase size of bet if our internal earnings model displays a 20-30% difference from market consensus

Parameters designed to constrain risk not returns

Focus on risk management also revolves around risk budgets and contribution to active risk

Source: HSBC Global Asset ManagementFor indication only. May change from time to time without notice.

Investment parameters

10-IB-10107

26

Trade Implementation

Trade Implementation is an integral part of the investment process. The in-house dealing team’s mandate is to preserve alpha for investment decisions made by portfolio managers

Through transaction cost analysis, dealers are evaluated based on their performance against the most appropriate dealing benchmarks

Source: ITG. ITG refers to Investment Technology Group, a trading service firm, on the trade implementation slide of the presentation. For illustrative purpose only.

Sample ITG Peer Analysis of Asian trading cost

Assumption: Fund AUM USD 2bn and 75% annual turnover

Average cost = 50 bps

Standard deviation = 15 bps

6550

35

10.5

15.0

19.5

Poor Execution Average Execution Good Execution

bps per trade Cost (USD million)

Risk Management

28

Framework

Investment Team Operational Control Parent Oversight

Portfolio Manager Risk Guidelines and Portfolio Constraints Market Risks

Trading Desk Pre-trade compliance

Coherence of orders

Counterparty risks

Market risks

Risk Control Front-end Systems

Clients guidelines

In-house risk limits

Regulatory guidelines

Management Assistance Operational risk control

Transaction Review Committee

Internal Control/Compliance Process control

HSBC’s Risk Management and Audit Control of processes (including Risk Control Processes)

Follow up of risk control activities

The team is supported by a well proven Risk Management Framework which is put into place to comply with the identified risks characterising investments in the Chinese market.

Risk Management Framework

Source: HSBC Global Asset Management March 2011. The above material is for information only and does not constitute any recommendation to buy or sell any investments. For illustrative purposes only.

29

Risk Management Reflect conviction in a risk appropriate manner

Analyse and balance investment fundamentals and portfolio risk

Use Style Research monthly

Focus on risk budgets reflecting qualitative conviction

Investment involves risk. This example has been included for discussion purposes only and does not constitute investment advice.

The above material is for information only and does not constitute any recommendation to buy or sell any investments. Data as at end of February 2011.

Stock NamePor % Bmark %

Por- Bmark

Weighted MCAR

Wgt %

China Petroleum & Chemical-H 4.27 2.34 1.93 -0.19 6.96%

China Construction Bank-H 8.38 6.58 1.80 -0.26 9.41%

China Unicom Hong Kong Ltd 2.38 1.43 0.94 -0.06 2.15%

Skyworth Digital Hldgs

Ltd 1.12 0.18 0.94 -0.01 0.45%

China Resources Power Holdin 1.58 0.67 0.91 -0.11 4.10%

Shimao

Property Holdings Ltd 1.30 0.45 0.85 -0.19 6.91%

Bawang

International Group 0.79 - 0.79 -0.10 3.47%

Bank of China Ltd-H 5.96 5.23 0.73 -0.11 4.12%

China Life Insurance Co-H 6.62 5.96 0.67 -0.08 3.01%

China Communications Const-H 1.35 0.70 0.65 -0.08 3.06%

0%

4%

8%

12%

0.0 0.5 1.0 1.5 2.0 2.5

A ctive weight %

Sample portfolio: Active risk vs. Active weight

30

Risk Management Real-time stock attribution analysis

Portfolio manager has real-time stock attribution analysis to analyse performance on a stock level

It helps to monitor and facilitate portfolio construction

Investment involves risk. This example has been included for discussion purposes only and does not constitute investment advice.

Dai

ly P

erfo

rman

ce

Attr

ibut

ion

Allocation Selection + TotalAverage Total Contribution Average Total Contribution Effect Interaction Currency Total

China Stock Type Weight Return To Return Weight Return To Return (Local) (Local) Effect Effect

Total 100.00 -1.78 -1.78 100.00 -2.12 -2.12 -0.14 0.50 -0.01 0.34

A-SHARE P-CERT 6.34 -1.43 -0.09 -- -- -- 0.05 -- -0.01 0.04Agricultural Bank of China Ltd. - B620Y4 0.83 -0.62 -0.01 -- -- -- 0.01 -- -0.00 0.01Anhui Conch Cement Co. Ltd. - 644159 1.02 -0.13 -0.00 -- -- -- 0.02 -- -0.00 0.02China Merchants Bank Co. Ltd 'A' - 651872 0.47 -0.10 -0.00 -- -- -- 0.01 -- -0.00 0.01China Merchants Property Development Co. Ltd. - 620587 -- -- -- -- -- -- -- -- -- --China Pacific Insurance (Group) Co. Ltd. - B29WFR -- -- -- -- -- -- -- -- -- --Industrial & Commercial Bank of China Ltd. - B1G2JY 1.03 -0.10 -0.00 -- -- -- 0.02 -- -0.00 0.02Kweichow Moutai Co. Ltd. - 641483 1.38 0.12 0.00 -- -- -- 0.03 -- -0.00 0.03Shanghai Pudong Development Bank Co. Ltd. - 618204 -- -- -- -- -- -- -- -- -- --Shanxi Xishan Coal & Electricity Power Co. Ltd. - 628151 -- -- -- -- -- -- -- -- -- --Suzhou Gold Mantis Construction Decoration Co. Ltd. - B1GGYB 0.43 -0.88 -0.00 -- -- -- 0.01 -- -0.00 0.01Wuliangye Yibin Co. Ltd. - 610990 -- -- -- -- -- -- -- -- -- --Zhejiang Jinggong Science & Technology Co. Ltd. - B01KBF 1.17 -6.78 -0.08 -- -- -- -0.05 -- -0.00 -0.06Zhejiang Longsheng Group Co. Ltd. - 667328 -- -- -- -- -- -- -- -- -- --ZTE Corp. - 607306 -- -- -- -- -- -- -- -- -- --

HSBC CHINA MOMENTUM FD (M)# - Transactions vs. China Momentum Customized Benchmark

CHINA MOMENTUM FD (M) Momentum Benchmark Attribution Analysis

MTD

Per

form

ance

A

ttrib

utio

nYT

D P

erfo

rman

ce

Attr

ibut

ion



Total 100.00 -2.03 -2.03 100.00 -1.84 -1.84 -0.09 -0.11 -0.00 -0.19

A-SHARE P-CERT 6.39 -1.65 -0.11 -- -- -- 0.01 -- 0.00 0.01Agricultural Bank of China Ltd. - B620Y4 0.84 -0.76 -0.01 -- -- -- 0.01 -- 0.00 0.01Anhui Conch Cement Co. Ltd. - 644159 1.03 -0.17 -0.00 -- -- -- 0.02 -- 0.00 0.02China Merchants Bank Co. Ltd 'A' - 651872 0.48 -0.79 -0.00 -- -- -- 0.00 -- 0.00 0.01China Merchants Property Development Co. Ltd. - 620587 -- -- -- -- -- -- -- -- -- --China Pacific Insurance (Group) Co. Ltd. - B29WFR -- -- -- -- -- -- -- -- -- --Industrial & Commercial Bank of China Ltd. - B1G2JY 1.04 -0.47 -0.00 -- -- -- 0.01 -- 0.00 0.01Kweichow Moutai Co. Ltd. - 641483 1.39 -1.29 -0.02 -- -- -- 0.01 -- 0.00 0.01Shanghai Pudong Development Bank Co. Ltd. - 618204 -- -- -- -- -- -- -- -- -- --Shanxi Xishan Coal & Electricity Power Co. Ltd. - 628151 -- -- -- -- -- -- -- -- -- --Suzhou Gold Mantis Construction Decoration Co. Ltd. - B1GGYB 0.44 -1.54 -0.01 -- -- -- 0.00 -- 0.00 0.00Wuliangye Yibin Co. Ltd. - 610990 -- -- -- -- -- -- -- -- -- --Zhejiang Jinggong Science & Technology Co. Ltd. - B01KBF 1.18 -5.45 -0.06 -- -- -- -0.04 -- 0.00 -0.04Zhejiang Longsheng Group Co. Ltd. - 667328 -- -- -- -- -- -- -- -- -- --ZTE Corp. - 607306 -- -- -- -- -- -- -- -- -- --





Total 100.00 -4.44 -4.44 100.00 -3.20 -3.20 -1.11 -0.14 0.01 -1.24

A-SHARE P-CERT 8.09 -12.24 -1.13 -- -- -- -1.01 -- 0.01 -0.99Agricultural Bank of China Ltd. - B620Y4 0.81 -3.04 -0.02 -- -- -- 0.00 -- 0.00 0.00Anhui Conch Cement Co. Ltd. - 644159 1.27 -0.46 -0.08 -- -- -- -0.06 -- 0.00 -0.06Beijing Shunxin Agriculture Co. Ltd. - 612804 -- -- -- -- -- -- -- -- -- --China CAMC Engineering Co. Ltd. - B15T1T 0.62 -22.91 -0.24 -- -- -- -0.23 -- 0.00 -0.22China Merchants Bank Co. Ltd 'A' - 651872 0.62 -1.84 -0.01 -- -- -- -0.00 -- 0.00 -0.00China Merchants Property Development Co. Ltd. - 620587 -- -- -- -- -- -- -- -- -- --China Pacific Insurance (Group) Co. Ltd. - B29WFR -- -- -- -- -- -- -- -- -- --Dongfang Electric Corp. Ltd. - 627857 -- -- -- -- -- -- -- -- -- --Gree Electric Appliances Inc. of Zhuhai - 699025 -- -- -- -- -- -- -- -- -- --Industrial & Commercial Bank of China Ltd. - B1G2JY 1.00 -0.06 0.00 -- -- -- 0.03 -- 0.00 0.03Kweichow Moutai Co. Ltd. - 641483 1.40 -4.10 -0.05 -- -- -- -0.04 -- 0.00 -0.04Liaoning Cheng Da Co. Ltd. - 651585 -- -- -- -- -- -- -- -- -- --Neusoft Corp. - 680247 -- -- -- -- -- -- -- -- -- --Ping An Insurance (Group) Co. of China Ltd. - B1SVWB 0.31 -11.65 -0.09 -- -- -- -0.13 -- 0.00 -0.13Shanghai Pudong Development Bank Co. Ltd. - 618204 -- -- -- -- -- -- -- -- -- --Shanxi Xishan Coal & Electricity Power Co. Ltd. - 628151 -- -- -- -- -- -- -- -- -- --Suzhou Gold Mantis Construction Decoration Co. Ltd. - B1GGYB 0.45 -9.65 -0.05 -- -- -- -0.03 -- 0.00 -0.03Wuliangye Yibin Co. Ltd. - 610990 -- -- -- -- -- -- -- -- -- --Yantai Moon Co. Ltd. - 611747 0.91 -19.86 -0.45 -- -- -- -0.48 -- 0.00 -0.48Zhejiang Jinggong Science & Technology Co. Ltd. - B01KBF 0.75 -10.74 -0.13 -- -- -- -0.08 -- 0.00 -0.08Zhejiang Longsheng Group Co. Ltd. - 667328 -- -- -- -- -- -- -- -- -- --ZTE Corp. - 607306 -- -- -- -- -- -- -- -- -- --



31

10-IB-10107

Risk Management

Source: HSBC Global Asset Management. For illustrative purposes only.

Understanding and managing risk is as important as returns

Rigorous risk management, through a sophisticated approach to risk budgeting and a risk management process adhering to HSBC Group’s guidelines

•A

•B

•C

•D

Performance attributionDecomposition of RiskStyle analytics

Positioning through time

8For Professional Investors only. Not for further distribution.

Positioning over time

Value

-2.0

-1.0

0.0

1.0

2.0

Jan

2006

Apr 20

06Ju

l 200

6Oct

2006

Jan

2007

Apr 20

07Ju

l 200

7Oct

2007

Jan

2008

Apr 20

08Ju

l 200

8Oct

2008

Jan

2009

Apr 20

09Ju

l 200

9Oct

2009

Jan

2010

Apr 20

10Ju

l 201

0

Forward Growth

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

Jan 2

006

Apr 20

06Ju

l 200

6Oct

2006

Jan 2

007

Apr 20

07Ju

l 200

7Oct

2007

Jan 2

008

Apr 20

08Ju

l 200

8Oct

2008

Jan 2

009

Apr 2

009

Jul 2

009

Oct 20

09Ja

n 201

0Apr

2010

Jul 2

010

Historic Growth

-2.0

-1.0

0.0

1.0

2.0

Jan

2006

Apr 20

06Ju

l 200

6Oct

2006

Jan

2007

Apr 20

07Ju

l 200

7Oct

2007

Jan

2008

Apr 20

08Ju

l 200

8Oct

2008

Jan

2009

Apr 20

09Ju

l 200

9Oct

2009

Jan

2010

Apr 20

10Ju

l 201

0

Market Cap

-2.0

-1.0

0.0

1.0

2.0

Jan 2

006

Apr 20

06Ju

l 200

6Oct

2006

Jan 2

007

Apr 20

07Ju

l 200

7Oct

2007

Jan 2

008

Apr 20

08Ju

l 200

8Oct

2008

Jan 2

009

Apr 2

009

Jul 2

009

Oct 20

09Ja

n 201

0Apr

2010

Jul 2

010

Momentum Medium Term

-6.0

-5.0-4.0-3.0-2.0

-1.00.01.0

2.03.04.05.0

6.0

Jan 2

006

Apr 20

06Ju

l 200

6Oct

2006

Jan 2

007

Apr 2

007

Jul 2

007

Oct 20

07Ja

n 200

8Ap

r 200

8Ju

l 200

8Oct

2008

Jan 2

009

Apr 2

009

Jul 2

009

Oct 20

09Ja

n 201

0Apr

2010

Jul 2

010

Market Beta

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

Jan

2006

Apr 20

06Ju

l 200

6Oct

2006

Jan

2007

Apr 20

07Ju

l 200

7Oct

2007

Jan

2008

Apr 20

08Ju

l 200

8Oct

2008

Jan

2009

Apr 2

009

Jul 2

009

Oct 20

09Ja

n 20

10Ap

r 201

0Ju

l 201

0

32

10-IB-10107

Risk Management Three independent levels of risk management control


only.

Rigorous risk management, through a sophisticated approach to risk budgeting and a risk control process adhering to HSBC Group’s guidelines

HSBC Global Asset Management HSBC Group

Portfolio Manager

Implementation ofRisk Budgeting

Front Office tools

Risk Control TeamClients’

guidelinesIn-house risk limits

Regulatory guidelines pre and

post trade

Management Assistance

Operational risk control

Valuation ControlDaily matching of stocks and flows

Internal Control Team / Compliance

TeamProcess and

regulatory control

HSBC’s Risk Management and

AuditControl of processes

(including Risk Control Processes)

Follow up of risk control activities

Portfolio ManagerRisk guidelines and Portfolio Constraints

Market risks

Dealing DeskCoherence of ordersCounterparty risks

Investment Risk & Portfolio

Construction TeamEx-post risk metrics

Risk Budgeting

Portfolio Manager Controls

Second Level

Risk Management TeamAnalysis of process

Analysis of portfolio constraintsDetermination of indicators

Definition of risk management processClients’

guidelinesIn-house risk limits

Regulatory guidelines pre and post tradeManagement Assistance

Operational risk controlValuation Control

Daily matching of stocks and flows

First Level Third Level

Market Overview

34

Hard landing is unlikely in China

We believe given Chinese government’s favorable position to use fiscal and monetary policy tools, a hard landing is unlikely

China data year-to-date remains resilient–

Machine tool production +45%–

Dept store sales +18-30%–

Sales of Mercedes +68%–

Jewellery

sales +43%–

FAI by local governments +28%–

Oil demand +11%–

3G phone subscribers +256%–

RMB850bn of social housing in H2

Source: HSBC, CEIC, Consensus Economics, Bloomberg, as at July 31, 2011.

Consensus forecast of real GDP growth

6

7

8

9

10

11

Jan-08 Jan-09 Jan-10 Jan-11

2009 2010 2011 2012

China

35

Moreover, inflation is likely to fall in 2H11

Headline CPI number came out at 6.5%, mostly driven by high pork price, which is temporary

The base effect of CPI is coming off too, which will lead to lower headline numbers in the coming months

Source: HSBC Research, Bloomberg, as at July 31, 2011.

CPI composition and forward projection

Jan-

10

Jan-

11

Jan-

12

-2

-1

0

1

2

3

4

5

6

7

Apr-1

0

Jul-1

0

Oct-1

0

Apr-1

1

Jul-1

1

Oct-1

1

ProjectionCPI m-o-m

Base effect

36

Chinese equities may have bottomed

In 2004, China H shares bottomed 4 months prior to the peak in inflation in August

As inflation peaks in 2011, we expect PE to normalise

and the market to re-rate

Source: Deutsche Bank, as of December 31, 2010. Any forecast, projection or target where provided is indicative only and is not guaranteed in any way.

4,000

4,200

4,400

4,600

4,800

5,000

5,200

Dec-03 Feb-04 Apr-04 Jun-04 Aug-04 Oct-04 Dec-04

HSCE

I

2.5

3.0

3.5

4.0

4.5

5.0

5.5

NJA

CPI (Y

oY%

)

HANG SENG CHINA ENTERPRISES NJA Inflation (YoY% )

22% rally from lowLow in H shares Apr 2004

CPI High August 2004

37

Valuations are attractive

MSCI China is trading 1 std dev. below its 5 year average and poses an attractive entry point for investors

0.0

5 .0

10 .0

15 .0

20 .0

25 .0

30 .0

Jan-

06

Jul-0

6

Jan-

07

Jul-0

7

Jan-

08

Jul-0

8

Jan-

09

Jul-0

9

Jan-

10

Jul-1

0

Jan-

11

Jul-1

1

PE 12M Fw d Mean +/-1 Std

Source: HSBC Global Asset Management, Bloomberg, data as at July 31, 2011.

MSCI China 12mth forward PE

HSBC GIF Chinese Equity Fund -

Overview

39

Fund type and domicile

UCITS III Luxembourg SICAV part of the HGIF range

Launch Date

25/06/1992

Base Currency

USD

Benchmark*

MSCI China 10/40 Capped

Liquidity

Daily

Minimum Investment –

Institutional Share Class

USD 1,000,000 –

Retail Share Class

USD 5,000

Fee Structure–

Institutional Share Class 0.75 % Fixed Management Fee–

Retail Share Class

1. 50 % Fixed Management Fee

Investment Vehicle

*This is the current internal benchmark, which may change and is not detailed in the fund's prospectus. This benchmark is indicative only and is not guaranteed in any way. HSBC Global Asset Management (UK) Limited accepts no liability for any failure to meet this benchmark.

40

Sector Weightings versus Benchmark*Sector Weightings

HSBC GIF Chinese Equity Fund – Sector weightings*

Source: HSBC Global Asset Management as at 30th June 2011. The above material is for information only and does not constitute any recommendation to buy or sell any investments* For illustrative purposes only‘.

Energy21.0%

Telecommunication Services11.5%

Utilities0.6%

Cash2.9%

Industrials3.1%

Consumer Discretionary

4.6%

Information Technology

7.3%Financials

38.9%

Materials10.0%

-5.39-4.51

-1.39 -1.29 -0.92

0.231.12

2.403.20

3.61

-6-5-4-3-2-1012345

Con

sum

er S

tapl

es

Indu

stria

ls

Con

sum

erD

iscr

etio

nary

Util

ities

Hea

lth C

are

Tele

com

mun

icat

ion

Serv

ices

Info

rmat

ion

Tech

nolo

gy

Ener

gy

Mat

eria

ls

Fina

ncia

ls

41

Source: HSBC Global Asset Management as at 30th June 2011. The above material is for information only and does not constitute any recommendation to buy or sell any investments* For illustrative purposes only'

HSBC GIF Chinese Equity Fund – Overview individual stock exposures*

Top 5/Bottom 5 versus Benchmark**Top 10 Holdings

Company Sector Top 5 and Bottom 5 Relative weight (%)

Industrial & Commercial Bank of China Financials (*) AIA Group 2.51

China Mobile Financials Yanzhou Coal Mining 2.47

CNOOC Energy Industrial & Commercial Bank of China 2.45

China Construction Bank Telecommunication Services CNOOC 2.24

Bank of China Financials China Overseas Land & Investment 1.72

PetroChina Information Technology (**) Hengan International Group Co. Ltd. -0.95

Tencent Holdings Energy Ping An Insurance (Group) Co. of China Ltd -1.28

China Life Insurance Energy (**) Belle International Holdings Ltd. -1.29

Yanzhou Coal Mining Financials (**) China Merchants Bank Co. Ltd 'H' -1.37

China Overseas Land & Investment Materials China Shenhua Energy Co. Ltd. -2.35

(*) Stock is not included in benchmark (**) Stock is not held by Portfolio

42

Source: Morningstar as of 30th June 2011. *Past performance is net of fees, bid-bid, USD. It is for illustrative purposes only, and should not be relied on as indication for future returns.

Performance Net –

AC Share Class

0

100

200

300

400

500

600

700

800

900

1000

Dec

-98

Apr-9

9Au

g-99

Dec

-99

Apr-0

0Au

g-00

Dec

-00

Apr-0

1Au

g-01

Dec

-01

Apr-0

2Au

g-02

Dec

-02

Apr-0

3Au

g-03

Dec

-03

Apr-0

4Au

g-04

Dec

-04

Apr-0

5Au

g-05

Dec

-05

Apr-0

6Au

g-06

Dec

-06

Apr-0

7Au

g-07

Dec

-07

Apr-0

8Au

g-08

Dec

-08

Apr-0

9Au

g-09

Dec

-09

Apr-1

0Au

g-10

Dec

-10

Apr-1

1

HSBC GIF Chinese Equity AC USD MSCI China 10-40 NR USD

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD

2011 -1.01 -2.79 7.06 3.09 -1.13 -3.98 0.83

2010 -9.44 1.87 4.93 -0.12 -7.86 0.78 3.32 -3.01 10.17 4.48 -1.45 -1.08 0.95

2009 -9.42 -3.02 14.65 11.60 15.68 3.01 9.82 -7.48 4.65 6.32 3.53 0.21 57.07

2008 -22.34 10.63 -14.72 13.37 -3.71 -12.54 1.95 -7.94 -21.41 -20.88 3.32 9.51 -53.81

2007 -4.96 -2.42 3.10 4.27 7.23 10.33 10.18 6.44 19.76 14.55 -14.28 -4.49 55.37

2006 14.19 3.82 3.38 3.91 -4.70 3.21 2.80 1.36 2.78 6.48 10.26 16.08 82.83

Monthly Performance Net of FeesRolling time 30/ 06/ 2005 to

30/ 06/ 200630/ 06/ 2006 to

30/ 06/ 200730/ 06/ 2007 to

30/ 06/ 200830/ 06/ 2008 to

30/ 06/ 200930/ 06/ 2009 to

30/ 06/ 201030/ 06/ 2010 to

30/ 06/ 2011

HSBC GIF Chinese Equity Fund 38.51 72.14 -7.85 -11.56 5.31 13.37

As at 30 June 2011 1 M 3 M 6 M 1 Y 3 Y 5 YHSBC GIF Chinese Equity Fund -3.98 -2.13 0.83 13.37 5.59 67.49

Benchmark -3.74 -1.90 0.93 12.72 17.62 108.29

Calendar years 2011 2010 2009 2008 2007 2006HSBC GIF Chinese Equity Fund 0.83 0.95 57.07 -53.81 55.37 82.83

Benchmark 0.93 4.51 69.07 -51.62 64.30 80.47

43

Performance Net –

IC Share Class

Source: Morningstar as of 30th June 2011. *Past performance is net of fees, bid-bid, USD. It is for illustrative purposes only, and should not be relied on as indication for future returns.

50

100

150

200

250

300

350

400

Jul-0

5

Oct

-05

Jan-

06

Apr

-06

Jul-0

6

Oct

-06

Jan-

07

Apr

-07

Jul-0

7

Oct

-07

Jan-

08

Apr

-08

Jul-0

8

Oct

-08

Jan-

09

Apr

-09

Jul-0

9

Oct

-09

Jan-

10

Apr

-10

Jul-1

0

Oct

-10

Jan-

11

Apr

-11

HSBC GIF Chinese Equity IC USD MSCI China 10-40 NR USD

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD

2011 -0.94 -2.73 7.14 3.16 -1.06 -3.91 1.26

2010 -9.38 1.94 5.01 -0.05 -7.79 0.85 3.39 -2.94 10.24 4.55 -1.38 -1.00 1.81

2009 -9.36 -2.96 14.73 11.68 15.76 3.09 9.90 -7.41 4.72 6.39 3.61 0.28 58.41

2008 -22.28 10.70 -14.65 13.45 -3.64 -12.48 2.02 -7.87 -21.35 -20.82 3.38 9.60 -53.41

2007 -4.89 -2.36 3.17 4.35 7.31 10.40 10.26 6.51 19.84 14.64 -14.22 -4.42 56.70

2006 14.26 3.90 3.45 3.98 -4.62 3.28 2.88 1.43 2.85 6.57 10.33 16.16 84.39

2005 -0.27 5.02 -9.14 5.74 3.59 4.23

Monthly Performance Net of Fees Rolling time 30/ 06/ 2005 to 30/ 06/ 2006

30/ 06/ 2006 to 30/ 06/ 2007

30/ 06/ 2007 to 30/ 06/ 2008

30/ 06/ 2008 to 30/ 06/ 2009

30/ 06/ 2009 to 30/ 06/ 2010

30/ 06/ 2010 to 30/ 06/ 2011

HSBC GIF Chinese Equity Fund N/A 73.60 -7.06 -10.81 6.21 14.34

As at 30 June 2011 1 M 3 M 6 M 1 Y 3 Y 5 YHSBC GIF Chinese Equity Fund -3.91 -1.92 1.26 14.34 8.32 74.77

Benchmark -3.74 -1.90 0.93 12.72 17.62 108.29

Calendar years 2011 2010 2009 2008 2007 2006

HSBC GIF Chinese Equity Fund 1.26 1.81 58.41 -53.41 56.70 84.39

Benchmark 0.93 4.51 69.07 -51.62 64.30 80.47

44

Quarterly Performance attribution – Sector31/03/2011 to 30/06/2011

Source: HSBC Global Asset Management as of 30th June 2011. It is for illustrative purposes only. Any performance information shown refers to the past and should not be seen as an indication of future returns

Top 5 sector Port. Avg Weight

BM Avg Weight

Allocation Effect

Selection + Interaction Total Effect

Financials 36.18 36.78 0.01 0.51 0.52

Materials 9.40 6.54 -0.13 0.63 0.50

Industrials 5.17 7.84 0.22 0.00 0.22

Health Care 0.00 0.81 0.06 0.00 0.06

Utilities 0.07 1.87 -0.02 0.01 0.00

Bottom 5 sector Port. Avg Weight

BM Avg Weight

Allocation Effect

Selection + Interaction Total Effect

Telecommunication Services 8.87 10.93 -0.12 0.09 -0.03

Consumer Discretionary 4.66 5.40 -0.08 -0.10 -0.18

Energy 22.77 18.45 -0.08 -0.15 -0.23

Information Technology 8.22 6.24 0.13 -0.62 -0.49

Consumer Staples 0.02 5.15 -0.59 -0.01 -0.59

45

Quarterly Performance attribution – Stock31/03/2011 to 30/06/2011

Source: HSBC Global Asset Management as of 30th June 2011. It is for illustrative purposes only. Any performance information shown refers to the past and should not be seen as an indication of future returns. the above material is for information only and does not constitute any recommendation to buy or sell any investments.

Top 5 stock Sector Port. Ending Weight

Benchmark Weight

Relative Weight Total Effect

Evergrande Real Estate Group Financials 1.52 0.50 1.03 0.20

Yanzhou Coal Mining Co. Energy 3.55 1.08 2.47 0.19

China State Construction International Industrials 0.66 0.21 0.45 0.19

Huabao International Holdings Materials 0.00 0.25 -0.25 0.16

Xinyi Glass Holdings Consumer Discretionary 0.00 0.00 0.00 0.15

Bottom 5 stock Sector Port. Ending Weight

Benchmark Weight

Relative Weight Total Effect

Trina Solar Information Technology 0.00 0.00 0.00 -0.33

GCL-Poly Energy Holdings Information Technology 0.00 0.52 -0.52 -0.29

Belle International Holdings Consumer Discretionary 0.00 1.29 -1.29 -0.20

Hengan International Group Co. Consumer Staples 0.00 0.95 -0.95 -0.18

Tingyi (Cayman Islands) Holding Corp Consumer Staples 0.00 0.88 -0.88 -0.18

Competitor Analysis

47

Competitor Analysis

Fund Net Sales Data in USD Million as of May 2011 AUM

3 months net sales

12 months net sales to May 2011 2010 net sales 2009 net sales 2008 net sales 2007 net sales

HSBC GIF Chinese Equity 2,918 -169 -586 -428 27 -818 -1,451

Lipper FMI Equities Greater China Sector Total 132,687 15 -788 11,330 40,278 393 62,294

Comparative Advantage

►

HSBC Chinese equity Fund recently have a manager change with a new investment process

►

The fund sits in 1st quartile in YTD performance in Morningstar China Equity Sector

►

Lipper FMI Equities Greater China sector had -$788m outflows over the past 12 months to May 2011

►

HSBC Chinese Equity Fund has AUM $2.9bn with -$586m outflows in the past 12 months

Source: Morningstar Direct, Lipper FMI, June 2011

48

Competitor Analysis

Source: Morningstar Direct, Lipper FMI, June 2011

Outlook

50Source: HSBC Global Asset Management, as at July 31, 2011.

Sector Positioning Comments

Energy Neutral

Cautious on the back of slowing global economic growth

Materials Neutral

We prefer Gold as a defensive play in the current market situation and we are cautious regarding commodities

Information Technology Neutral

Intensifying price competition of products going into 2012

Financials OW

Prefer

banks over insurance companies; Valuations look attractive

Telecom OW

Likely profitability turnaround amongst tier 2 operators given its subscriber base and subsidies

Consumer Staples UW but adding

We might increase exposure as soft commodities prices are likely

to peak out

Consumer Discretionary UW

Favour

the

luxury goods sector on the back of high savings rates and growing number of high net worth individuals in China; We are cautious on the sportswear and some other sectors based on intensifying competition and margin pressure.

Industrials UW

Due to slowing demand, inventory destocking is likely to continue for a while

Health Care UW

Earnings downward revisions from potential ASP cut

Utilities UW

Rising coal prices will negatively affect operating margins of IPPs

Sector views

Appendix

52

Mandy Chan, Investment Director, Chinese Equities

Ms Chan has been working in the asset management industry since 1997. She is currently heading the Chinese Equities team and works closely with portfolio managers and sector analysts based in Hong Kong and Shanghai. Prior to joining the firm in December 2009, she was the Chief Investment Officer for Greater China equities at ABN AMRO Asset Management Ltd (ultimately acquired by BNP Paribas Group), where she managed a range of China funds and Hong Kong institutional portfolios. Before that, she worked as a Senior Investment Analyst at Pacific Century Insurance Investment Management Limited responsible for equity investments in China, Taiwan and Korea for absolute return products. Prior to returning to Hong Kong, Ms Chan spent three years in Canada managing investment portfolios for high net worth individuals at TD Asset Management LtdMs Chan graduated with a Bachelor of Commerce degree in Finance from the University of British Columbia, Canada. She is also a CFA charterholderMandy Chan was the recipient of the 2008 Asian Investor HK Equities “Best in 5-Year Performance”

in 2008

53

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Important information

54

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