Summary fact sheet. Must be able to settle internationally, such as via Euroclear. Minimum of one year remaining to maturity

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1 Fixed Income Global Research HSBC n USD Bond Index (ADBI) Summary fact sheet The HSBC n US Dollar Bond Index (ADBI) tracks the total return 1 performance of a non-japan n bond portfolio consisting of US dollar-denominated, fixed-rate, straight bonds satisfying a set of simple issue size and liquidity criteria Louisa Lam Analyst The Hongkong and Shanghai Banking Corporation Limited Louisamclam@hsbc.com.hk Kelly Fu Credit Associate The Hongkong and Shanghai Banking Corporation Limited kellyyfu@hsbc.com.hk The Index constituent selection process is completely mechanistic, yet constituent weightings are jointly determined by market capitalisation and constituents liquidity rankings, ensuring a fair and replicable benchmark that uniquely focuses on the non-japan n bond sector The ADBI High Grade Bond Index, a sub-index of ADBI, tracks the total return performance of USD-denominated investment-grade bonds in the ex-japan region The HSBC n High Yield Bond Index (AHBI), a standalone index, tracks the total return performance of USDdenominated high-yield bonds in the ex-japan region Zhi Ming Zhang Head of China Research The Hongkong and Shanghai Banking Corporation Limited zhimingzhang@hsbc.com.hk Issuer of report: The Hongkong and Shanghai Banking Corporation Limited Disclaimer & Disclosures This report must be read with the disclosures and the analyst certifications in the Disclosure appendix, and with the Disclaimer, that form part of it. 1. Constituent selection criteria of ADBI Issuer Non-Japan n sovereigns and corporates Currency US dollar in respect of both principal and interest Coupon type Fixed-rate Bond Credit ratings Issue size Settlement Maturity Straight Eurobond, Yankee or Global bonds issued pursuant to Reg. S, a SEC registration statement, Rule 144A or Reg. D No restrictions Minimum of USD250m Must be able to settle internationally, such as via Euroclear Minimum of one year remaining to maturity. 1. ADBI and AHBI s total return defined as the sum of pure capital returns and accrual returns in USD.

2 2. ADBI computation methodology Return calculation Total return, including price changes and accrued and re-invested coupon payments. A sub-index is calculated as the cumulative value of the sum of the weighted daily total return of each constituent relative to its base level. The ADBI is calculated as the cumulative value of the weighted daily total return of each sub-index relative to 100 Index base 31 December 1996 = 100 Pricing Weightings Coupon reinvestment Addition of new constituents Withdrawal of current constituent Availability Current sub-indices HSBC bid prices at Hong Kong closing time Liquidity-adjusted market capitalisation Full amount of cash coupon payments will be held in cash intra-month and will be re-invested in the corresponding sub-index at month-end Qualified new issues launched intra month are added to the index at the first business day of the following month with the highest (100%) liquidity ranking Month-end at which the remaining maturity is less than one year, defaulted or with outstanding size less than threshold Every Hong Kong business day 1) China 2) Hong Kong SAR 3) India 4) Indonesia 5) Malaysia 6) Mongolia 7) Philippines 8) Singapore 9) South Korea 10) Sri Lanka 11) Thailand 12) Vietnam 13) n High Grade 2

3 Liquidity rankings and criteria Each index constituent is assigned one of three liquidity rankings: 1.0, 0.5, or 0.0. The ranking is used to discount each constituent s impact on the index. In effect, the final weighting of a bond is determined by its liquidity-weighted market value. Ideally, liquidity should be defined in objective and quantifiable terms, such as bid-offer spreads (adjusted for duration) and trading volume, etc. Unfortunately, for most of the credit products in the non-japan n countries, no reliable statistics are readily available (and probably will not be in the near future). Given the importance of liquidity, and the lack of any liquidity of many of the index constituents, making no adjustment for liquidity would result in some of the illiquid bonds adversely impacting the level of the ADBI. That is, illiquid bonds, with less reliable and meaningful price data, could end up carrying weights higher than they deserve. Under this constraint, HSBC has adopted an innovative and pragmatic approach in dealing with the liquidity issue, one that appropriately discounts the impact of illiquid issues on the level of the ADBI. The following describes the liquidity ranking and the criteria used. 3. Liquidity ranking Raking Definition Weighting L1 Liquid 100% L2 Traded 50% L3 Illiquid 0% The criteria used for liquidity ranking, in descending order of importance, are as follows: 1. Quoted bid/ask spreads, adjusted for duration, observed from market sources. There are two types of market sources, major brokers and market makers. 2. Quoted depths (size) associated with each bid and ask. 3. Frequency of market quotes observed. This is the number of times the quotes are observed per month, regardless of which side of the quote it is, i.e. a quote for both bid/ask counts as two. 4. Observed trade volume. 5. Frequency of enquiry regarding a constituent s spreads/prices. Appointed third party calculation agent The appointed third party calculation agent is currently Euromoney Trading Ltd. 3

4 ADBI High Grade Bond Index HSBC launched the ADBI High Grade Bond sub-index in 31 January 2006, which tracks the total returns of USD-dominated ex-japan high grade issues. As a sub-index of the ADBI, it is an extraction of ADBI with bonds rated Baa3/BBB- or above by Moody s, S&P and Fitch, and incorporates the same index methodology. The index, including index characteristics, is updated daily along with ADBI on the same Bloomberg page (HSBI). 4. ADBI High Grade Bond Index computation methodology Return calculation Total return, including price changes and accrued and re-invested coupon payments. The index is calculated as the cumulative value of the weighted daily total return of each sub-index relative to 100. Index base 31 January 2006 = 100 Pricing Weightings Coupon reinvestment Bonds Credit ratings Addition of new constituents Withdrawal of current constituent Availability HSBC bid prices at Hong Kong closing time Market capitalisation Full amount of cash coupon payments will be held in cash intra month, and will be re-invested in the corresponding sub-index at month-end Bonds in ADBI which fulfil the credit ratings criteria below Baa3/BBB- or above by Moody s, S&P and Fitch, respectively In case of split ratings, bonds must be rated at Baa3/BBB- or above by both Moody s and S&P for inclusion; eg, issues rated Baa3/BB+ will not be included. In case of rating downgrades, bonds will be removed from the index only on unanimous downgrade to BB+ or below. In the event of incomplete or missing ratings, HSBC retains the discretion to add or remove ADBI High Grade Bond Index constituents Qualified new issues launched intra month are added to the index at the first business day of the following month Month-end at which the remaining maturity is less than one year, defaulted, with outstanding size less than threshold or downgraded to below investment grade by both Moody s and S&P Every Hong Kong business day 4

5 HSBC n High Yield Bond Index (AHBI) AHBI is a standalone index from ADBI. It tracks the total return performance of all USD-denominated high-yield issues in the ex-japan region with a minimum outstanding size of USD200m and rated Ba1/BB+ or below by Moody s, S&P or Fitch. That includes bonds with embedded options, such as callable, putable and step-up features. These are typical characteristics of high-yield bonds that are excluded from the ADBI. HSBC n High Yield Corporate Bond Index (AHBI-Corp) is a sub-index of AHBI, which tracks the total return of high-yield corporate bonds in the region. The indices, including index characteristics, are updated daily along with ADBI on the same Bloomberg page (HSBI) and under the same format as the ADBI. 5. AHBI computation methodology Return calculation Total return, including price changes and accrued and re-invested coupon payments. Index is calculated after closing of Hong Kong market Index base 31 December 2004 = 100 Pricing Weightings Coupon reinvestment Addition of new constituents Withdrawal of current constituent Availability HSBC bid prices at Hong Kong closing time Market capitalisation Full amount re-invested at the end of the month Qualified new issues are added to the index on the first business day of each month Bonds not meeting any of the constituent selection criteria on the cut-off date are removed from the index on the last business day of the month; eg, bond size less than 200m due to buy-back, maturity less than one year, etc. Every Hong Kong business day 6. AHBI and AHBI-Corp constituent selection criteria Issuer Eligible markets Currency Coupon type Bond Credit ratings Issue size: Settlement: Maturity: AHBI: Non-Japan n high yield sovereigns, corporates and banks AHBI-Corp: Corporate bonds within AHBI Include China, Hong Kong SAR, India, Indonesia, Malaysia, Mongolia, the Philippines, South Korea, Singapore, Sri Lanka, Thailand, Vietnam and Taiwan US dollar in respect of both principal and interest Fixed-rate only, but includes bonds with embedded options; eg, callable, putable or step-up issues are included Eurobond, Yankee or Global bonds issued pursuant to Reg. S, a SEC registration statement, Rule 144A or Reg. D Ba1/BB+ or below by Moody s, S&P and Fitch, respectively, and not on default In case of split ratings, bonds must be rated at Ba1/BB+ or lower by one of the rating agencies, eg issues rated Baa3/BB+ will also be included. In case of rating upgrades, bonds will only be removed from the index on unanimous upgrade to BBB- or above. In case of rating downgrades for bonds previously rated higher than Ba1/BB+, they will be added to the index on the subsequent month after they are rated at or below Ba1 or BB+ by Moody s, or S&P or Fitch. In the event of incomplete or missing ratings, HSBC retains the discretion to add or remove AHBI constituents Minimum of USD200m Must be able to settle internationally, eg via Euroclear Minimum of one year remaining to maturity 5

6 Appendix Major changes Effective from 1 January 2014 All the Pakistan bonds will be removed from the ADBI and its sub-indices effective from 1 January Following the market development, we noticed that Pakistan bonds trading mechanism and movements are more in line with Middle Eastern peers instead of other n bonds. Hence, they no longer fit the purpose and universe of the ADBI. Yet, the Pakistan sub-index s historical performance would still be kept in the ADBI from 18 February 2004, when it joined the indices, to 31 December As of writing, there are only three Pakistan sovereign bonds in the ADBI, namely PKSTAN '16, '17 and '36, with a total weight of 0.40%. The bonds removal should bring in minimal impact to the ADBI given the small weighting. 6

7 Disclosure appendix Analyst Certification The following analyst(s), economist(s), and/or strategist(s) who is(are) primarily responsible for this report, certifies(y) that the opinion(s) on the subject security(ies) or issuer(s) and/or any other views or forecasts expressed herein accurately reflect their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report: Louisa Lam, Kelly Fu and Zhi Ming Zhang Credit: Basis for financial analysis This report is designed for, and should only be utilised by, institutional investors. Furthermore, HSBC believes an investor's decision to make an investment should depend on individual circumstances such as the investor's existing holdings and other considerations. HSBC believes that investors utilise various disciplines and investment horizons when making investment decisions, which depend largely on individual circumstances such as the investor's existing holdings, risk tolerance and other considerations. Given these differences, HSBC has two principal aims in its credit research: 1) to identify long-term investment opportunities based on particular themes or ideas that may affect the future earnings or cash flows of companies on a six-month time horizon; and 2) from time to time to identify trade ideas on a time horizon of up to three months, relating to specific instruments, which are predominantly derived from relative value considerations or driven by events and which may differ from our long-term credit opinion on an issuer. HSBC has assigned a fundamental recommendation structure only for its longterm investment opportunities, as described below. HSBC believes an investor's decision to buy or sell a bond should depend on individual circumstances such as the investor's existing holdings and other considerations. Different securities firms use a variety of terms as well as different systems to describe their recommendations. Investors should carefully read the definitions of the recommendations used in each research report. In addition, because research reports contain more complete information concerning the analysts' views, investors should carefully read the entire research report and should not infer its contents from the recommendation. In any case, recommendations should not be used or relied on in isolation as investment advice. HSBC Global Research is not and does not hold itself out to be a Credit Rating Agency as defined under the Hong Kong Securities and Futures Ordinance. Definitions for fundamental credit recommendations Overweight: The credits of the issuer are expected to outperform those of other issuers in the sector over the next six months Neutral: The credits of the issuer are expected to perform in line with those of other issuers in the sector over the next six months Underweight: The credits of the issuer are expected to underperform those of other issuers in the sector over the next six months Prior to 1 July 2007, HSBC applied a recommendation structure in Europe that ranked euro- and sterling-denominated bonds and CDS relative to the relevant iboxx/itraxx indices over a 3-month horizon. Distribution of fundamental credit opinions As of 16 December 2013, the distribution of all credit opinions published is as follows: 7

8 All Covered Companies Companies where HSBC has provided Investment Banking in the past 12 months Count Percentage Count Percentage Overweight Neutral Underweight HSBC and its affiliates will from time to time sell to and buy from customers the securities/instruments (including derivatives) of companies covered in HSBC Research on a principal or agency basis. Analysts, economists, and strategists are paid in part by reference to the profitability of HSBC which includes investment banking revenues. For disclosures in respect of any company mentioned in this report, please see the most recently published report on that company available at Additional disclosures 1 This report is dated as at. 2 All market data included in this report are dated as at close 16 December 2013, unless otherwise indicated in the report. 3 HSBC has procedures in place to identify and manage any potential conflicts of interest that arise in connection with its Research business. HSBC's analysts and its other staff who are involved in the preparation and dissemination of Research operate and have a management reporting line independent of HSBC's Investment Banking business. Information Barrier procedures are in place between the Investment Banking and Research businesses to ensure that any confidential and/or price sensitive information is handled in an appropriate manner. 8

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