GEM funds flows EM bond funds added over USD600m

Transcription

1 Global Emerging Markets EM bond funds added over USD6m Last week s equity flows EMEA total Lat-Am total AxJ total GEMs EM total Last week s bond flows USDbn EM total By Currency Local Hard Blended By Region GEMs AxJ Lat-Am CEEMEA Source: EPFR Global, HSBC USDbn % AuM % AUM EM equity funds faced redemptions We continue to expect the UST 1yr yield to stay low and UST volatility to remain relatively contained in the coming months, benefiting EM bond funds and related assets. However, we believe EXD rather than LCD should profit most as the latter is heavily exposed to expected strong USD and rising EM FX volatility. EM equities are also exposed to USD strength and EM FX gyrations but falling S&P and rising equity volatility (VIX and VXE1) might add fuel to the fire in the near term. We continue to expect differentiation among EM countries, focusing on manageable external vulnerabilities, cyclical growth and constructive reform outlook. EM bond funds reversed last week s losses, in the week ended 8 October, according to EPFR Global. By region (chart 17), GEM and LatAm dedicated regional bond funds captured the strongest inflows. Asia ex-japan and CEEMEA suffered redemptions. By currency type, all funds added money (chart 18). At the country level, Colombia and Brazil added the most funds (chart 13). On EM Corporates, net inflows accelerated from a week ago (charts 19-2). By currency type, all funds added money. By rating category, all quality funds and IG were at the receiving end, while HY funds suffered withdrawals. EM fund flows momentum recovered for bond funds but took a dive for EM equities (page 4). Institutional support improved rapidly for fixed income, particularly EXD, but declined sharply for equities (p1). Retail backing advanced for bonds and was stable for equities. Our equity fund dispersion worsened but improved for bonds somewhat after a sharp decline last week (p5). According to Japan s Ministry of Finance, Japanese institutional investors bought USD1.8bn foreign bonds in the ended October 4 (charts 39-4). On Japanese Uridashi bond issuance (retail) (chart 42), BRL (USD12.7m to USD2.26bn y-t-d), TRY (USD6.9m to USD1.16bn y-t-d) and MXN (USD4.5m to USD39m y-t-d) denominated bonds were issued, during the week ended 8 October. EM equity funds suffered redemptions over the last week at the highest rate since mid-march (chart 55) on the back of sizable redemptions of both ETFs and non-etfs (chart 48). It is worth noting that both retail and institutional funds suffered outflows (chart 5). By regional fund groups, GEMs equity funds (with a broad mandate to invest across EMs) and LatAm equity funds suffered the most outflows (chart 46). These outflows may largely have been due to worries about US monetary tightening and the associated strong USD. Here we think that concerns about US monetary policy are overplayed. Bertrand Delgado EM Strategist HSBC Securities (USA) Inc [email protected] John Lomax* Head of GEMs Equity Strategy HSBC Bank plc [email protected] View HSBC Global Research at: *Employed by a non-us affiliate of HSBC Securities (USA) Inc, and is not registered /qualified pursuant to FINRA regulations. Issuer of report: HSBC Securities (USA) Inc Disclaimer & Disclosures This report must be read with the disclosures and the analyst certifications in the Disclosure appendix, and with the Disclaimer, which forms part of it

2 Historical evolution of flows to EM funds Chart 1. Equity funds: assets under management (USDbn) Chart 2. Bond funds: assets under management (USDbn) 55 5 USD bn GEM Fund Totals Latin America Fund Totals Source: EPFR Global, HSBC Source: Bloomberg, Thomson Reuters Datastream, HSBC Comparison of flows to EM vs. DM Asia ex-japan Fund Totals EMEA Fund Totals Chart 3. Equity funds: EM vs. DM Chart 4. Bond funds: EM vs. DM GEM Funds EM Funds Asia ex-japan Funds (RHS) Latin America Funds (RHS) EMEA Funds (RHS) We acknowledge the contributions of Jessica Mengqi Wu in this report. Ms. Wu is not registered/ qualified pursuant to FINRA regulations. 2.5% 6.% 2.% 5.% 1.5% 4.% 1.% 3.%.5% 2.%.% 1.% -.5%.% -1.% Last Week Last Month Last 3 Months YTD -1.% Last Week Last Month Last 3 Months YTD EM Equities DM Equities EM Bonds DM Bonds Source: EPFR Global, HSBC Source: EPFR Global, HSBC 2

3 Comparison of flows to DM and EM and global liquidity Chart 5. Central Bank Balance Sheets: Total Assets. Index end of 26=1 Chart 6. Global liquidity (DM central banks total Assets. Index end of 26=1 ) and fund flows Index % AUM Index ECB FED BOE BOJ Global liquidity (RHS) EM DM Source: Bloomberg, HSBC Source: Bloomberg, EPFR Global, HSBC Chart 7. Global liquidity and DM and EM fixed income fund flows Chart 8. Global liquidity and EM bond fund flows % AUM Index % AUM Index Global liquidity (RHS) EM FI DM FI Global liquidity (RHS) EXD LCD Source: Bloomberg, EPFR Global, HSBC Source: Bloomberg, EPFR Global,, HSBC 3

4 EM funds: Flows Momentum and total returns Chart 9. EM Fund flows momentum (z-score) Chart 1. LCD funds : Flows momentum vs. total returns 3 (%) Z-score Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 EM Equities EXD LCD Source: EPFR Global, HSBC Source: EPFR Global, HSBC GBI-EM total return LCD funds momentum Chart 11. EXD funds: Flows momentum vs. total returns Chart 12. Equity funds: Flows momentum vs. total returns (%) Z-score EMBI total returns EXD funds momentum (%) Z-score Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 MSCI EM return Equity funds momentum Source: EPFR Global, Thomson Reuters Datastream, HSBC Source: EPFR Global, Thomson Reuters Datastream, HSBC 4

5 EM funds: Bond flows per country and dispersion Indicators Chart 13. Bond fund flows per country (USDm) Chart 14. LCD funds : Dispersion indicator (net number of funds adding or subtracting money) Argentina Dom. Republic Egypt Hungary Jamaica Serbia Ukraine Venezuela Vietnam Brazil Chile China Colombia Costa Rica India Indonesia Israel Malaysia Mexico Panama Peru Philippines Poland Russia South Korea South Africa Thailand Turkey Uruguay 1% 5% % -5% High Beta 4wma Last week Low Beta -1% Source: EPFR Global, HSBC Source: EPFR Global, HSBC Chart 15. EXD funds : Dispersion indicator (net number of funds adding or subtracting money) Chart 16. Equity funds : Dispersion indicator (net number of funds adding or subtracting money) 1% 1% 5% 5% % % -5% -5% -1% % Source: EPFR Global, Thomson Reuters Datastream, HSBC Source: EPFR Global, Thomson Reuters Datastream, HSBC 5

6 Bond funds: By region and currency type Chart 17 EM fund flows by region (% of AuM) Chart 18. Funds flows by currency (% of AuM).8%.5%.4%.%.3% -.4%.% -.8% -1.2% Lat-Am GEM Asia ex- Japan Global Last Week Flow Western Europe 4 Week Average USA Japan CEEMEA Source: EPFR Global, Thomson Reuters Datastream, HSBC Source: EPFR Global, Bloomberg, HSBC EM corporate fund flows -.3% All EM Blend Currency Hard Currency Local Currency Last Week Flow 4 Week Average Chart 19. EM corporates funds flows by credit quality (USDm) Chart 2 EM corporates funds flows by currency type (USDm) All ratings HY IG EM Corp Total Last week 4wma -5 BCD EXD LCD EM Corp Last week 4wma Source: EPFR Global, Bloomberg, HSBC Source: EPFR Global, Bloomberg, HSBC 6

7 Bond funds: Weekly FI flows to EM and DM Chart 21. All Bond Funds Chart 22. All Emerging Market Bond Funds Chart 23. GEM Bond Funds.6%.3%.% -.3% -.6% -.9% % 2% 1% % -1% -2% -3% % 2% 1% % -1% -2% -3% Source: EPFR Global, HSBC Source: EPFR Global, HSBC Source: EPFR Global, HSBC Chart 24. Asia ex Japan Bond Funds Chart 25. Latin American Bond Funds Chart 26. EMEA Bond Funds 5% 4% 3% 2% 1% % -1% -2% -3% % 2% % -2% -4% % 2% % -2% -4% Source: EPFR Global, HSBC Source: EPFR Global, HSBC Source: EPFR Global, HSBC 7

8 Bond funds: Flows and valuations Chart 27. EXD bond flows and spread (% of AUM) Chart 28. LCD bond flows and Spread (GBI-EM Yield UST 1yr yield) 1.5 % AUM bps % AUM % Jan-12 Jan-13 Jan-14 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 EMBI Gl Spreads (rhs) 4wma flows to EXD funds Spread (RHS) 4wma flows to LCD funds Source: EPFR Global, Thomson Reuters Datastream, HSBC Source: EPFR Global, Thomson Reuters Datastream, HSBC Chart 29. LCD bond flows and EM FX Spot Chart 3. LCD bond flows and GBI-EM Yield 1.5 % AUM % AUM % Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 EMFX spot (rhs) 4wma flows to LCD funds Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 GBI-EM Yield (rhs) 4wma flows to LCD funds 7.5 Source: EPFR Global, Thomson Reuters Datastream, HSBC Source: EPFR Global, Thomson Reuters Datastream, HSBC 8

9 Bond funds: Flows and Volatility Chart 31. EM bond fund flows and UST vol (MOVE Index) and FX vol ( average of EMFX vol and global FX vol) Chart 32. EM equity fund flows and equity vol (average of CBOE VIX and VXE1) FI and FX vol EM FI (RHS) Eq vol EM Eq (RHS) Source: Bloomberg, Thomson Reuters Datastream, HSBC Source: Bloomberg, Thomson Reuters Datastream, HSBC Chart 33. EXD fund flows and UST volatility (MOVE Index) Chart 34. LCD fund flows and EM FX Vol 1.5 % AUM Index % AUM Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 MOVE Index (RHS) 4wma flows to EXD funds Jan-12 Jan-13 Jan-14 EMFX 3m Implied vol (rhs) 4wma flows to LCD funds 16 Source: Bloomberg, Thomson Reuters Datastream, HSBC Source: Bloomberg, Thomson Reuters Datastream, HSBC 9

10 Flows by investor type Chart 35. Weekly EXD and LCD non-etf (USDm) Chart 36. Weekly EXD and LCD ETF funds (USDm) 1,5 1, , -1,5-2, -2,5 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Non-ETF EM EXD Non-ETF EM LCD Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 ETF EM EXD ETF EM LCD Source: EPFR Global, HSBC Source: EPFR Global, HSBC Chart 37. Weekly EXD and LCD Institutional funds (USDm) Chart 38. Weekly EXD and LCD Retail funds (USDm) 1,5 1, , -1,5 Jan-13Mar-13May-13Jul-13Sep-13Nov-13Jan-14Mar-14May-14Jul-14Sep-14Nov-14 Inst. EM EXD Inst. EM LCD , -1,25-1,5 Jan-13Mar-13May-13Jul-13Sep-13Nov-13Jan-14Mar-14May-14Jul-14Sep-14Nov-14 Retail EM EXD Retail EM LCD Source: EPFR Global, HSBC Source: EPFR Global, HSBC 1

11 Monitoring Japanese flows Chart 39. Net purchases of foreign securities by Japanese residents (USDbn) Chart 4. Net purchases of foreign securities by Japanese residents (USDbn) Equities Bonds Money Market Total Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Last week 4wma Total Bonds Equities (RHS) Money Mkts (RHS) Source: Ministry of Finance Japan Source: Ministry of Finance Japan Chart 41. Toshin flows (USDm) Chart 42. Uridashi bond flows (USDm) Equities Bonds August 3mma August 3mma BRL (235) IDR 1 (13) INR KRW (9) (14) (2) (5) MXN (5) (6) PHP (9) (6) (2) (34) PLN (4) (4) (57) 9 THB (4) TRY (25) (1) (27) (31) TWD 6 (9) ZAR (5) (4) 6 (26) Source: Investment Trust Association of Japan, HSBC Source: Bloomberg 4 2 BRL MXN RUB TRY ZAR INR Last week 4wma 11

12 Chart 43. Weekly and year-to-date flows into fixed income funds Last week (USDbn) Last 4 weeks (USDbn) Year To Date (USDbn) Year To Date (% AUM) All Fund Totals Developed Mkts Fund Total Emerging Mkts Fund Totals EM Funds by Currency Hard Currency Local Currency Blend EM Funds by Region GEM Fund Totals Asia ex-japan Fund Totals Latin America Fund Totals EMEA Fund Totals Developed Market Funds Global Fund Totals Global Global ex-usa Canada USA Fund Totals High Yield Munis Tips Western Europe Japan Fund Totals Pacific Fund Totals Australia Estimated Country Flows Emerging Asia China Indonesia Korea (South) Malaysia Latin America Brazil Colombia Mexico Peru Emerging Europe and Africa Hungary Poland Russia South Africa Turkey Middle East Source: EPFR Global, HSBC 12

13 Equity funds: Cross-sectional comparison (% of AuM) Chart 44. By country (represent flows into the dedicated country funds) Chart 45. Cumulative flows by year into Emerging market equity funds 1% 8% 6% 4% 2% % -2% -4% -6% -8% Chile S. Korea Poland Mexico Russia Malaysia Colombia Thailand Qatar India Czech Rep. China Indonesia UAE Turkey Philippines S. Africa Taiwan Greece Brazil Peru Egypt Last Week 4 Week Average 1 USD bn Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: EPFR Global, HSBC Source: EPFR Global, HSBC Chart 46. By region Chart 47. By sector (represent flows into the sector equities as estimated by EPFR).2%.% -.2% -.4% -.6% -.8% -1.% EMEA Asia ex Japan Global USA Western Europe GEM Japan Lat-Am.% -.5% -.1% -.15% -.2% -.25% -.3% -.35% -.4% -.45% Industrials HealthCare Materials Cons. Disc. Utilities Telecom IT Cons. Staples Financials Energy Last Week 4 Week Average Last Week 4 Week Average Source: EPFR Global, HSBC Source: EPFR Global, HSBC 13

14 Fund flows: By category Chart 48. By ETFs and Non ETFs All EM equity funds (% AuM) Chart 49. By Active and Passive All EM equity funds (% AuM) 2.%.8% 2.% 1.5%.6% 1.5% 1.%.4% 1.%.2%.5%.%.5%.% -.2%.% -.5% -.4% -.5% -1.% -.6% -1.5% -.8% -1.% -2.% -1.% -1.5% Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 ETFs Non ETFs,rhs Active funds Passive funds Source: EPFR Global, HSBC Source: EPFR Global, HSBC Chart 5. By Retail and Institutional All EM equity funds (% AuM) Chart 51: Cumulative flows into bond, equity and money market funds (Since Jan 13) - Global 1.5% 1.%.5%.% -.5% USDbn -1.% Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Retail funds Institutional funds -15 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Bond Funds Equity Funds Money Market Funds Source: EPFR Global, HSBC Source: EPFR Global, HSBC 14

15 Chart 52: Outflows streak EM equity funds Jan-1 Jan-2 Jan-3 Jan-4 Jan-5 Jan-6 Jan-7 Jan-8 Jan-9 Jan-1 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Weeks of outflows from EM equity funds MSCI EM price index (USD) Source: EPFR Global, MSCI, HSBC Chart 53: EM fund flow strength index* vs. 12M subsequent performance of MSCI EM % Fund Flow Strength Index of EM Subsequent 12M returns on MSCI EM (RHS) Note: *Fund flow strength index (FSI) is calculated similar to RSI for the equity index. FSI smoothed for the last 52-weeks acts as a contrarian indicator to the subsequent returns. Helps in identifying the inflection points. Source: EPFR Global, MSCI, HSBC 1% 8% 6% 4% 2% % -2% -4% -6% 15

16 Equity Weekly Chart 54. All Equity Funds Chart 55. All Emerging Market Equity Funds Chart 56. GEM Equity Funds.5%.4%.3%.2%.1%.% -.1% -.2% -.3% -.4% -.5% %.8%.6%.4%.2%.% -.2% -.4% -.6% -.8% -1.% % 1.%.5%.% -.5% -1.% -1.5% Source: EPFR Global, HSBC Source: EPFR Global, HSBC Source: EPFR Global, HSBC Chart 57. Asia ex Japan Equity Funds Chart 58. Latin American Equity Funds Chart 59. EMEA Equity Funds 1.%.8%.6%.4%.2%.% -.2% -.4% -.6% -.8% % 2.% 1.5% 1.%.5%.% -.5% -1.% -1.5% -2.% %.5%.% -.5% -1.% -1.5% Source: EPFR Global, HSBC Source: EPFR Global, HSBC Source: EPFR Global, HSBC 16

17 Chart 6: Year-to-date flows into equity funds (Country flows represent the flows into the dedicated country funds) 1.% 8.% 6.% 4.% 2.%.% -2.% -4.% Source: EPFR Global, HSBC BRIC Global Emerging Markets GEM Fund Totals Asia ex-japan Regional China Greater China Hong Kong India Indonesia Korea (South) Malaysia Singapore Taiwan Thailand Vietnam Asia ex-japan Fund Totals Brazil Chile Colom bia Latin America Regional Mexico Latin America Fund Totals Africa Regional Egypt Emerging Europe Regional Europe, Middle East & Africa Regional Israel Middle East & Africa Regional Middle East Regional Poland Russia South Africa Turkey EMEA Fund Totals Emerging Market Fund Totals Greece Flows (% of AuM) AuM (USD bn) ETFs AuM (USD bn), RHS Non-ETFs AuM (USD bn), RHS All Funds flows (% of AuM)

18 Appendix This report uses the fund flows data provided by EPFR Global. We use the weekly data to analyse the flow trends into various emerging markets. About EPFR Global: EPFR tracks both traditional and alternative funds with around USD$15 trillion in total assets under management (assets or AuM). Approximately 7% of money invested in these funds is from institutional investors - primarily Pension funds and Insurance companies. Funds covered by EPFR are domiciled across the globe and with investment focus into US, Western Europe, Japan, Pacific, Asia ex Japan, EMEA and Latin America. Also, the fund base includes the dedicated country funds. Salient definitions/points: Net Fund Flows: investor purchases/redemptions for individual funds and for various fund categories Net Flows calculations exclude portfolio performance and currency fluctuations Tracks beginning of period and end of period asset levels and flows by fund Weekly Net Flows: Investor purchases/redemptions of fund shares (US$ terms) Weekly Net Flows (% of AuM): Investor purchases/redemptions based on Beginning of the week assets (% terms) Calculation of Weekly Net Flows: Weekly Net Flows = (Weekly Net Change) (Weekly Portfolio Change) Weekly Net Change = (Assets EoW) (Assets BoW) (Weekly Forex Change) Weekly Portfolio Change = (Assets BoW) x Weekly performance of the fund* *Change in NAV per share includes any dividend distributions Country Flows: The country flows data provided in this report represents the Net Fund Flows into the dedicated funds for that particular country and not the total inflows into the country s stock market. We believe that by looking at the dedicated country fund flow data, we would be better positioned to gauge the end-investor sentiment in that particular market / country. Sector Flows: The sector flows data provided in this report represents the Net Total Flows into the equities of that sector. Estimated by EPFR, the data considers the flows into the total equity sector funds and positioning of the GEM equity funds into sectors for calculation of the sector flows. Caveats: One should bear in mind that the data provided by EPFR is a representative sample of the investment industry and does not account for the size of total industry. 18

19 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: Bertrand Delgado and John Lomax Important disclosures Equities: Stock ratings and basis for financial analysis 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 equity 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 12 month time horizon; and 2) from time to time to identify short-term investment opportunities that are derived from fundamental, quantitative, technical or event-driven techniques on a -3 month time horizon and which may differ from our long-term investment rating. HSBC has assigned ratings for its long-term investment opportunities as described below. This report addresses only the long-term investment opportunities of the companies referred to in the report. As and when HSBC publishes a short-term trading idea the stocks to which these relate are identified on the website at Details of these short-term investment opportunities can be found under the Reports section of this website. HSBC believes an investor's decision to buy or sell a stock should depend on individual circumstances such as the investor's existing holdings and other considerations. Different securities firms use a variety of ratings terms as well as different rating systems to describe their recommendations. Investors should carefully read the definitions of the ratings 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 rating. In any case, ratings should not be used or relied on in isolation as investment advice. Rating definitions for long-term investment opportunities Stock ratings HSBC assigns ratings to its stocks in this sector on the following basis: For each stock we set a required rate of return calculated from the cost of equity for that stock s domestic or, as appropriate, regional market established by our strategy team. The price target for a stock represents the value the analyst expects the stock to reach over our performance horizon. The performance horizon is 12 months. For a stock to be classified as Overweight, the potential return, which equals the percentage difference between the current share price and the target price, including the forecast dividend yield when indicated, must exceed the required return by at least 5 percentage points over the next 12 months (or 1 percentage points for a stock classified as Volatile*). For a stock to be classified as Underweight, the stock must be expected to underperform its required return by at least 5 percentage points over the next 12 months (or 1 percentage points for a stock classified as Volatile*). Stocks between these bands are classified as Neutral. 19

20 Our ratings are re-calibrated against these bands at the time of any 'material change' (initiation of coverage, change of volatility status or change in price target). Notwithstanding this, and although ratings are subject to ongoing management review, expected returns will be permitted to move outside the bands as a result of normal share price fluctuations without necessarily triggering a rating change. *A stock will be classified as volatile if its historical volatility has exceeded 4%, if the stock has been listed for less than 12 months (unless it is in an industry or sector where volatility is low) or if the analyst expects significant volatility. However, stocks which we do not consider volatile may in fact also behave in such a way. Historical volatility is defined as the past month's average of the daily 365-day moving average volatilities. In order to avoid misleadingly frequent changes in rating, however, volatility has to move 2.5 percentage points past the 4% benchmark in either direction for a stock's status to change. Rating distribution for long-term investment opportunities As of, the distribution of all ratings published is as follows: Overweight (Buy) 45% (29% of these provided with Investment Banking Services) Neutral (Hold) 37% (29% of these provided with Investment Banking Services) Underweight (Sell) 18% (2% of these provided with Investment Banking Services) 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. Whether, or in what time frame, an update of this analysis will be published is not determined in advance. 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 9 October 214, 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. 2

21 Disclaimer * Legal entities as at 3 May 214 UAE HSBC Bank Middle East Limited, Dubai; HK The Hongkong and Shanghai Banking Corporation Limited, Hong Kong; TW HSBC Securities (Taiwan) Corporation Limited; 'CA' HSBC Bank Canada, Toronto; HSBC Bank, Paris Branch; HSBC France; DE HSBC Trinkaus & Burkhardt AG, Düsseldorf; HSBC Bank (RR), Moscow; IN HSBC Securities and Capital Markets (India) Private Limited, Mumbai; JP HSBC Securities (Japan) Limited, Tokyo; EG HSBC Securities Egypt SAE, Cairo; CN HSBC Investment Bank Asia Limited, Beijing Representative Office; The Hongkong and Shanghai Banking Corporation Limited, Singapore Branch; The Hongkong and Shanghai Banking Corporation Limited, Seoul Securities Branch; The Hongkong and Shanghai Banking Corporation Limited, Seoul Branch; HSBC Securities (South Africa) (Pty) Ltd, Johannesburg; HSBC Bank plc, London, Madrid, Milan, Stockholm, Tel Aviv; US HSBC Securities (USA) Inc, New York; HSBC Yatirim Menkul Degerler AS, Istanbul; HSBC México, SA, Institución de Banca Múltiple, Grupo Financiero HSBC; HSBC Bank Brasil SA Banco Múltiplo; HSBC Bank Australia Limited; HSBC Bank Argentina SA; HSBC Saudi Arabia Limited; The Hongkong and Shanghai Banking Corporation Limited, New Zealand Branch incorporated in Hong Kong SAR; The Hongkong and Shanghai Banking Corporation Limited, Bangkok Branch Issuer of report HSBC Securities (USA) Inc 452 Fifth Avenue, 9th floor HSBC Tower New York, NY 118, USA Telephone: Fax: Website: This material was prepared and is being distributed by HSBC Securities (USA) Inc., ("HSI") a member of the HSBC Group, the NYSE and FINRA. This material is for the information of clients of HSI and is not for publication to other persons, whether through the press or by other means. It is based on information from sources, which HSI believes to be reliable but it is not guaranteed as to the accuracy or completeness. This material is not, and should not be construed as, an offer or the solicitation of an offer to buy or sell any securities. The opinions contained within the report are based upon publicly available information at the time of publication and are subject to change without notice. HSI and/or its affiliated companies will buy or sell from customers on a principal basis the securities of the issuer(s) whose securities are recommended in this report. Employees of HSI and its affiliates not involved in the preparation of this report may have positions in the securities mentioned in this report and may from time to time add or dispose of any such securities in a manner different than discussed in this report. Past performance is not necessarily a guide to future performance. The value of any investment or income may go down as well as up and you may not get back the full amount invested. Where an investment is denominated in a currency other than the local currency of the recipient of the research report, changes in the exchange rates may have an adverse effect on the value, price or income of that investment. In case of investments for which there is no recognised market it may be difficult for investors to sell their investments or to obtain reliable information about its value or the extent of the risk to which it is exposed. In the UK this report may only be distributed to persons of a kind described in Article 19(5) of the Financial Services and Markets Act 2 (Financial Promotion) Order 25. The protections afforded by the UK regulatory regime are available only to those dealing with a representative of HSBC Bank plc in the UK. In Singapore, this publication is distributed by The Hongkong and Shanghai Banking Corporation Limited, Singapore Branch for the general information of institutional investors or other persons specified in Sections 274 and 34 of the Securities and Futures Act (Chapter 289) ( SFA ) and accredited investors and other persons in accordance with the conditions specified in Sections 275 and 35 of the SFA. This publication is not a prospectus as defined in the SFA. It may not be further distributed in whole or in part for any purpose. The Hongkong and Shanghai Banking Corporation Limited Singapore Branch is regulated by the Monetary Authority of Singapore. Recipients in Singapore should contact a "Hongkong and Shanghai Banking Corporation Limited, Singapore Branch" representative in respect of any matters arising from, or in connection with this report. In Hong Kong, this document has been distributed by The Hongkong and Shanghai Banking Corporation Limited in the conduct of its Hong Kong regulated business for the information of its institutional and professional customers; it is not intended for and should not be distributed to retail customers in Hong Kong. The Hongkong and Shanghai Banking Corporation Limited makes no representations that the products or services mentioned in this document are available to persons in Hong Kong or are necessarily suitable for any particular person or appropriate in accordance with local law. All inquiries by such recipients must be directed to The Hongkong and Shanghai Banking Corporation Limited. In Korea, this publication is distributed by either The Hongkong and Shanghai Banking Corporation Limited, Seoul Securities Branch ("HBAP SLS") or The Hongkong and Shanghai Banking Corporation Limited, Seoul Branch ("HBAP SEL") for the general information of professional investors specified in Article 9 of the Financial Investment Services and Capital Markets Act ( FSCMA ). This publication is not a prospectus as defined in the FSCMA. It may not be further distributed in whole or in part for any purpose. Both HBAP SLS and HBAP SEL are regulated by the Financial Services Commission and the Financial Supervisory Service of Korea. In Australia, this publication has been distributed by The Hongkong and Shanghai Banking Corporation Limited (ABN , AFSL 31737) for the general information of its wholesale customers (as defined in the Corporations Act 21). Where distributed to retail customers, this research is distributed by HSBC Bank Australia Limited (AFSL No ). These respective entities make no representations that the products or services mentioned in this document are available to persons in Australia or are necessarily suitable for any particular person or appropriate in accordance with local law. No consideration has been given to the particular investment objectives, financial situation or particular needs of any recipient. This publication is distributed in New Zealand by The Hongkong and Shanghai Banking Corporation Limited, New Zealand Branch incorporated in Hong Kong SAR. In Canada, this document has been distributed by HSBC Bank Canada and/or its affiliates. Where this document contains market updates/overviews, or similar materials (collectively deemed Commentary in Canada although other affiliate jurisdictions may term Commentary as either macro-research or research ), the Commentary is not an offer to sell, or a solicitation of an offer to sell or subscribe for, any financial product or instrument (including, without limitation, any currencies, securities, commodities or other financial instruments). Copyright 214, HSBC Securities (USA) Inc, ALL RIGHTS RESERVED. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, on any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of HSBC Securities (USA) Inc. MICA (P) 157/6/214, MICA (P) 171/4/214 and MICA (P) 77/1/214 21

22 GEMs Research Team Dr. Murat Ulgen Global Head of Emerging Markets Research [email protected] Bertrand Delgado EM Strategist [email protected] Jessica Wu EM Strategist [email protected] EM Fixed Income Research Americas Gordian Kemen Head of Latin America Fixed Income Research [email protected] Alejandro Mártinez-Cruz [email protected] Aaron T Gifford [email protected] Asia André de Silva, CFA Head of Global EM Rates Research [email protected] Pin-ru Tan [email protected] Himanshu Malik [email protected] Dayeon Hong [email protected] EMEA Di Luo [email protected] Tom Nash [email protected] EM Currency Strategy Asia Paul Mackel Head of Asia FX Strategy [email protected] Dominic Bunning [email protected] Ju Wang [email protected] Joey Chew [email protected] Americas Clyde Wardle [email protected] Marjorie Hernandez [email protected] CEEMEA Murat Toprak [email protected] EM Equity Strategy Herald Van Der Linde Deputy of Equity Research and Head of Equity Strategy, Asia- Pacific [email protected] Devendra Joshi [email protected] John Lomax Head of Global Emerging Market Equity Strategy [email protected] Wietse Nijenhuis [email protected] Economics Latin America Andre Loes Chief Economist, Latin America [email protected] Javier Finkman Chief Economist, South America ex-brazil [email protected] Ramiro D Blazquez [email protected] Lorena Dominguez [email protected] Constantin Jancso [email protected] Priscila Godoy [email protected] Jorge Morgenstern [email protected] Emerging Europe, Middle East and Africa Simon Williams Chief Economist, Middle East and North Africa [email protected] Elizabeth Martins [email protected] Alexander Morozov [email protected] Artem Biryukov Economist, Russia and CIS [email protected] Melis Metiner [email protected] David Faulkner [email protected] Agata Urbanska-Giner [email protected] Asia Pacific Qu Hongbin Managing Director, Co-head Asian Economics Research and Chief Economist Greater China [email protected] Frederic Neumann Managing Director, Co-head Asian Economics Research [email protected] Paul Bloxham Chief Economist, Australia and New Zealand [email protected] Su Sian Lim [email protected] Sophia Ma [email protected] Izumi Devalier [email protected] Ronald Man [email protected] Trinh Nguyen [email protected] John Zhu [email protected] Joseph Incalcaterra [email protected] Trinh Nguyen [email protected] Ronald Man [email protected] Julia Wang [email protected] Nalin Chutchotitham [email protected]