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Fund Managers Turn Positive on Greater China Equities

13 March 2012

Over half of global fund managers overweight Greater China equities

Positive outlook on Asian bonds and global emerging markets/high yield bonds

New York, NY - Global fund managers are most optimistic about Greater China1 equities, with 56% holding an overweight view in the first quarter of 2012 as they look to move away from cash to equities and bonds this quarter, according to HSBC's latest Fund Managers' Survey.

Over a tenth of fund managers shifted from neutral to overweight views towards Greater China equities in 1Q 2012, initially one of the worst performing asset classes last year that started to turn around in 4Q11. MSCI China and Hang Seng Index fell 18.2% and 17.3% in 2011, versus a 2.1% gain for Standard & Poor's 500 in the U.S. and a 10.5% drop for MSCI Europe. The performance reversed in the last quarter as Chinese equities recovered by 8.1%.

Malik Sarwar, HSBC's Head of Wealth Development, Group Wealth Management, said: "Greater China equities are trading at a price-to-earnings ratio of nearly 12 times for 2012. With an attractive valuation, Greater China equities may offer potential wealth opportunities. China's recent monetary easing measures such as cutting the reserve ratio requirement also improved market sentiment. Investors expect further easing which will continue to support the Chinese equities market."

1Q 2012 asset allocation strategies

As equity markets rebound, fund managers are less bearish on equities with 50% and 30% of respondents holding neutral and overweight views, respectively (vs 20% and 30% in 4Q 2011). Only one-fifth (20%) of respondents hold an underweight view in 1Q 2012, dropping significantly from 50% in the previous quarter. Apart from Greater China equities, an increasing number of fund managers favor emerging markets equities (55%) and Asia Pacific ex Japan equities (40%) this quarter, compared with 27% and 20% respectively in 4Q 2011.

Over four in ten (44%) fund managers favor bonds as an asset class (vs. 22% in 4Q 2011). As many companies have solid fundamentals and are supported by relatively strong Asian economies, the majority of respondents are bullish on Asian bonds (88%) and global emerging markets/high yield bonds (78%) while bearish on European bonds (89%). More fund managers are underweight towards cash (44% this quarter, compared with 22% in 4Q 2011.

"While the survey shows a continued and increasing preference for bonds as investors look for yield in a prolonged low interest environment, fund managers are looking at riskier assets again on the back of improving economies, resilient corporate earnings and attractive valuations," said Mr Sarwar.

Asset class allocation strategy

Underweight Neutral Overweight
1Q 2012 4Q 2011 1Q 2012 4Q 2011 1Q 2012 4Q 2011
Equities 20% 50% 50% 20% 30% 30%
Greater China 11% 11% 33% 44% 56% 44%
Emerging Markets 18% 18% 27% 55% 55% 27%
Asia Pacific ex. Japan 30% 30% 30% 50% 40% 20%
Bonds 22% 22% 33% 56% 44% 22%
Asian 0% 0% 13% 38% 88% 63%
Global emerging markets/high yield 0% 11% 22% 11% 78% 78%
European 89% 89% 11% 11% 0% 0%
Cash 44% 22% 33% 33% 22% 44%

4Q 2011 global fund flows

Funds under management (FUM) across the 13 of the world's leading fund management houses2 polled reached US$3.81 trillion3 at the end of 4Q 2011, up by 3.7% from the previous quarter. Reflecting investors' conservative outlook amidst a volatile market, money market funds contributed 36.2% of the increase in FUM.

The survey recorded a net outflow of USD42.2 billion for equity funds in 4Q 2011 as investor sentiment was dampened by the European debt crisis. As investors continued to search for safe havens, bonds fund recorded a net inflow of USD19.7 billion last quarter, particularly US bonds.

Net fund flows4 (as a percentage of FUM):

Asset class End 4Q 2011 End 3Q 2011
US bonds +4.6% -3.9%
Japan equities +3.1% -4.4%
Emerging markets/High yield bonds +2.8% -3.6%
Europe including UK bonds +2.7% -3.7%
Global bonds +2.6 -4.4%
Asian bonds +0.5% +4.7%
Emerging markets equities -1.8% -4.2%
Asia-Pacific ex-Japan equities -2.0% -6.4%
Europe including UK equities -2.4% +2.9%
North American equities -2.8% -2.7%
Greater China equities -5.5% +5.5%
Global equities -6.1% -2.9%

Market performance 4Q 2011 vs 3Q 2011

The majority of equity and bond funds recorded positive returns in Q4 2011. Greater China equities posted one of the largest rebound, becoming the second best performer in Q4 2011 (+8.1%) from being the worst performer (-25.2%) in Q3 2011. Emerging markets equities and Europe including UK equities also showed a strong turnaround from -22.6% to +4.4% and from -22.6% to +5.1% in Q3 2011 and Q4 2011 respectively. Mr Sarwar added, "This quarter, there are signs of improved investor outlook, with selective prospects in equities and bonds. In a dynamic market, retail investors should review their asset allocation strategies regularly and re-balance their portfolios to tap investment opportunities aligned with their risk appetite."

Notes to editors:

HSBC Bank USA, National Association, with total assets of $210.3 billion as of 31 December 2011 (US GAAP), serves 3.8 million customers through its personal financial services, commercial banking, private banking, asset management, and global banking and markets segments. It operates more than 470 bank branches throughout the United States. There are over 370 in New York state as well as branches in Connecticut, Washington, D.C., Florida, New Jersey, Pennsylvania, Maryland, Virginia, California, Delaware, Illinois, Oregon and Washington State. HSBC Bank USA, N.A. is the principal subsidiary of HSBC USA Inc., an indirect, wholly-owned subsidiary of HSBC North America Holdings Inc., one of the nation's largest bank holding companies by assets. HSBC Bank USA, N.A. is a member of the FDIC.

Media Contacts

1 Greater China includes mainland China, Hong Kong and Taiwan

2 The 13 participating fund managers in the survey are: AllianceBernstein, Allianz Global Investors, Baring Asset Management, BlackRock, Fidelity Investment Management, Franklin Templeton Investments, HSBC Global Asset Management, Invesco Asset Management, Investec Asset Management, J.P. Morgan Asset Management, Prudential, Schroders Investment Management and Société Générale.

3 Funds under management of fund managers polled in 4Q 2011 reached US$3.81 trillion, accounting for about 16% of global funds under management. According to the Investment Company Institute, total global FUM at the end of 3Q 2011 was US$23.13 trillion

4 Net fund flows are derived by subtracting market change from funds under management (FUM) change during 4Q 2011.

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