Global Emerging Markets EM bond funds added over USD6m Last week s equity flows EMEA total Lat-Am total AxJ total GEMs EM total -4. -3. -2. -1.. 1. 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 -.2..2.4.6.8 % AuM -1. -.8 -.5 -.3..3 % AUM -1. -.5..5 1. 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. +1 212 525 745 bertrand.j.delgado@us.hsbc.com John Lomax* Head of GEMs Equity Strategy HSBC Bank plc +44 2 7992 3712 john.lomax@hsbcib.com View HSBC Global Research at: http://www.research.hsbc.com *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
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 45 4 35 3 25 2 15 1 5 26 27 28 29 21 211 212 213 214 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 3 25 2 15 1 5 26 27 28 29 21 211 212 213 214 GEM Funds EM Funds Asia ex-japan Funds (RHS) Latin America Funds (RHS) EMEA Funds (RHS) 3 25 2 15 1 5 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
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 6 1 4 5 4 3 2 1 27 28 29 21 211 212 213 214 ECB FED BOE BOJ 8 6 4 2-2 27 28 29 21 211 212 213 214 Global liquidity (RHS) EM DM 35 3 25 2 15 1 5 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 15 4 35 4 12 35 3 35 9 6 3-3 27 28 29 21 211 212 213 214 Global liquidity (RHS) EM FI DM FI 3 25 2 15 1 5 25 2 15 1 5-5 27 28 29 21 211 212 213 214 Global liquidity (RHS) EXD LCD 3 25 2 15 1 5 Source: Bloomberg, EPFR Global, HSBC Source: Bloomberg, EPFR Global,, HSBC 3
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 1.5 2 1. 1-1 -2-3 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14.5. -.5-1. -1.5-2. 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 1.5 1..5. -.5-1. -1.5-2. -2.5-3. -3.5 (%) Z-score EMBI total returns EXD funds momentum (%) Z-score 3. 2. 1.. -1. -2. -3. -4. 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
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) 14 12 1 8 6 4 2-2 -4 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% 27 28 29 21 211 212 213 214 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% 27 28 29 21 211 212 213 214-1% 27 28 29 21 211 212 213 214 Source: EPFR Global, Thomson Reuters Datastream, HSBC Source: EPFR Global, Thomson Reuters Datastream, HSBC 5
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) 24 25 2 16 12 2 15 8 1 4-4 5-8 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
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% 21 211 212 213 214 3% 2% 1% % -1% -2% -3% 21 211 212 213 214 3% 2% 1% % -1% -2% -3% 21 211 212 213 214 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% 21 211 212 213 214 4% 2% % -2% -4% 21 211 212 213 214 4% 2% % -2% -4% 21 211 212 213 214 Source: EPFR Global, HSBC Source: EPFR Global, HSBC Source: EPFR Global, HSBC 7
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 % 25 1.5 3. 1. 27 1. 29 3.5.5. 31 33 35.5. 4. -.5 37 -.5 39 4.5-1. 41 43-1. -1.5 5. -1.5 45 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 1 1.5 % AUM % 5. 1..5 95 1..5 5.5 6.. -.5-1. 9 85. -.5-1. 6.5 7. -1.5 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 EMFX spot (rhs) 4wma flows to LCD funds 8-1.5 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
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) 36-6. 3-8. 3-4.5-3. 25-4. 24-1.5 2. 18. 1.5 15 4. 12 3. 1 8. 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 45 1.5 % AUM 6 1. 6 1. 8.5. -.5 75 9.5. -.5 1 12-1. 15-1. 14-1.5 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 MOVE Index (RHS) 4wma flows to EXD funds 12-1.5 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
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, 5-5 -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 7 5 3 1-1 -3-5 -7 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, 5-5 -1, -1,5 Jan-13Mar-13May-13Jul-13Sep-13Nov-13Jan-14Mar-14May-14Jul-14Sep-14Nov-14 Inst. EM EXD Inst. EM LCD 5 25-25 -5-75 -1, -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
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) 5 4 25 2 15 3 1 2 5 1-5 -1-15 -1-2 -2-25 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) 7 4-4 -7 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 7 23 148 (235) IDR 1 (13) 81 89 INR 94 77 2 33 KRW (9) (14) (2) (5) MXN (5) (6) 15 48 PHP (9) (6) (2) (34) PLN (4) (4) (57) 9 THB (4) 6 3 5 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
Chart 43. Weekly and year-to-date flows into fixed income funds Last week (USDbn) 5 1 15 2 Last 4 weeks (USDbn). 2. 4. 6. 8. Year To Date (USDbn) 5 1 15 2 Year To Date (% AUM). 2. 4. 6. All Fund Totals Developed Mkts Fund Total Emerging Mkts Fund Totals -1.5. 1.5 3. 4.5 6. 7.5 9.1.512.13.5 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 -.1..1.2.3.4.5 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 -1.5-1.-.5..51.1.52.2.53.3.54.4.55.5.5-2-1 123456789-4 -3-2 -1 1 2 -.1..1.2-3 -2 2 3 5 6-1 -5 5 1 Source: EPFR Global, HSBC 12
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 8 6 4 2-2 -4-6 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 21 211 212 213 214 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
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% 45 35 25 15 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
Chart 52: Outflows streak EM equity funds 14 12 1 8 6 4 2 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.9.8.7.6.5.4.3-8% 24 25 26 27 28 29 21 211 212 213 214 215 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
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% 212 213 214 1.%.8%.6%.4%.2%.% -.2% -.4% -.6% -.8% -1.% 212 213 214 1.5% 1.%.5%.% -.5% -1.% -1.5% 212 213 214 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% 212 213 214 2.5% 2.% 1.5% 1.%.5%.% -.5% -1.% -1.5% -2.% 212 213 214 1.%.5%.% -.5% -1.% -1.5% 212 213 214 Source: EPFR Global, HSBC Source: EPFR Global, HSBC Source: EPFR Global, HSBC 16
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 84 72 6 48 36 24 12 17 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)
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
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 www.hsbcnet.com/research. 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
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 www.hsbcnet.com/research. 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
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GEMs Research Team Dr. Murat Ulgen Global Head of Emerging Markets Research +44 2 7991 6782 muratulgen@hsbc.com Bertrand Delgado EM Strategist +1 212 525 745 bertrand.j.delgado@us.hsbc.com Jessica Wu EM Strategist +852-2822 4337 jessica.m.wu@hsbc.com.hk EM Fixed Income Research Americas Gordian Kemen Head of Latin America Fixed Income Research +1 212 525 2593 gordian.x.kemen@us.hsbc.com Alejandro Mártinez-Cruz +52 55 5721 238 alejandro.martinezcr@hsbc.com.mx Aaron T Gifford +1 212 525 3277 aaron.t.gifford@us.hsbc.com Asia André de Silva, CFA Head of Global EM Rates Research +852 2822 2217 andre.de.silva@hsbcib.com Pin-ru Tan +852 2822 4665 pinrutan@hsbc.com.hk Himanshu Malik +852 3941 76 himanshu1malik@hsbc.com.hk Dayeon Hong +852 3941 79 dayeonhong@hsbc.com.hk EMEA Di Luo +44 2 7991 6753 di.luo@hsbcib.com Tom Nash +44 2 7991 522 thomas.nash@hsbcib.com EM Currency Strategy Asia Paul Mackel Head of Asia FX Strategy +852 2996 6565 paulmackel@hsbc.com.hk Dominic Bunning +852 2822 1672 dominic.bunning@hsbc.com Ju Wang +852 2822 434 juwang@hsbc.com.hk Joey Chew +852 2996 6568 joey.s.chew@hsbc.com.hk Americas Clyde Wardle +1 212 525 3345 clyde.wardle@us.hsbc.com Marjorie Hernandez +1 212 525 419 marjorie.hernandez@us.hsbc.com CEEMEA Murat Toprak +44 2 7991 5415 murat.toprak@hsbcib.com EM Equity Strategy Herald Van Der Linde Deputy of Equity Research and Head of Equity Strategy, Asia- Pacific +852 2996 6575 heraldvanderlinde@hsbc.com.hk Devendra Joshi +852 2996 6592 devendrajoshi@hsbc.com.hk John Lomax Head of Global Emerging Market Equity Strategy +44 2 7992 3712 john.lomax@hsbcib.com Wietse Nijenhuis +27 11 676 4218 wietse.nijenhuis@za.hsbc.com Economics Latin America Andre Loes Chief Economist, Latin America +55 11 3371 8184 andre.a.loes@hsbc.com.br Javier Finkman Chief Economist, South America ex-brazil +54 11 4344 8144 javier.finkman@hsbc.com.ar Ramiro D Blazquez +54 11 4348 2616 ramiro.blazquez@hsbc.com.ar Lorena Dominguez +52 55 5721 2172 lorena.dominguez@hsbc.com.mx Constantin Jancso +55 11 3371-8183 constantin.c.jancso@hsbc.com.br Priscila Godoy +55 11 3847 519 priscila.h.godoy@hsbc.com.br Jorge Morgenstern +54 11 413 9229 jorge.morgenstern@hsbc.com.ar Emerging Europe, Middle East and Africa Simon Williams Chief Economist, Middle East and North Africa +971 4 57 7614 simon.williams@hsbc.com Elizabeth Martins +44 2 7991 217 liz.martins@hsbc.com Alexander Morozov +7 495 783 8855 alexander.morozov@hsbc.com Artem Biryukov Economist, Russia and CIS +7 495 721 1515 artem.biryukov@hsbc.com Melis Metiner +9 212 376 4618 melismetiner@hsbc.com.tr David Faulkner +27 11 676 4569 david.faulkner@za.hsbc.com Agata Urbanska-Giner +44 2 7992 2774 agata.urbanska@hsbcib.com Asia Pacific Qu Hongbin Managing Director, Co-head Asian Economics Research and Chief Economist Greater China +852 2822 225 hongbinqu@hsbc.com.hk Frederic Neumann Managing Director, Co-head Asian Economics Research +852 2822 4556 fredericneumann@hsbc.com.hk Paul Bloxham Chief Economist, Australia and New Zealand +61 2925 52635 paulbloxham@hsbc.com.au Su Sian Lim +65 6658 8963 susianlim@hsbc.com.sg Sophia Ma +86 1 5999 8232 xiaopingma@hsbc.com.cn Izumi Devalier +852 2822 1647 izumidevalier@hsbc.com.hk Ronald Man +852 2996 6743 ronaldman@hsbc.com.hk Trinh Nguyen +852 2996 6975 trinhdnguyen@hsbc.com.hk John Zhu +852 2996 6621 john.zhu@hsbc.com.hk Joseph Incalcaterra +852 2822 4687 joseph.f.incalcaterra@hsbc.com.hk Trinh Nguyen +852 2996 6975 trinhdnguyen@hsbc.com.hk Ronald Man +852 2996 6743 ronaldman@hsbc.com.hk Julia Wang +852 364 3663 juliarwang@hsbc.com.hk Nalin Chutchotitham +662 614 4887 nalin.chutchotitham@hsbc.co.th