February 2003 Hong Kong Baptist University 1998 Superannuation Fund HSBC Asset Management (Hong Kong) Limited 15/F Citibank Tower, 3 Garden Road, Hong

February 2003

Hong Kong Baptist University1998 Superannuation Fund

HSBC Asset Management (Hong Kong) Limited15/F Citibank Tower, 3 Garden Road, Hong Kong

Telephone: +852 2284 1111 Facsimile: +852 2845 0226Web site : www.assetmanagement.hsbc.com.hk

2H 2002 investment review

…………..………………………………………………………………………………………………………………………………………………………………………………………………HSBC Asset Management 2

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Investment performance

Market outlook

Factors for consideration before switching

Agenda


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Investment performance


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* Bonds: Salomon Smith Barney World Government Bond Indices** Equities: USA (S&P 500), UK (FTSE-100), Germany (DAX), Japan (Nikkei 225), Hong Kong (HSI),

Australia (All Ordinaries), Malaysia (KLSE Composite), Singapore (STI)

7.9 5.9 4.5

-8.6

2.7 1.6 1.3

-0.8

10.9

-6.2

2.75.3

1.3 1.6

8.47.9

USA UK Germany J apan Hong Kong Australia Malaysia Singapore

%

% Change (Local) % Change (HKD)

Currencies

Bonds *

Equities **

2.6

6.2

2.43.6

J apan Euro UK Australia

%

%Change (against HKD)

Market statistics: October to December 2002


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-11.1 -15.4-34.0

-19.2 -12.1 -5.9-10.9 -13.6

-29.9-18.4

-12.1 -5.7-10.9 -12.1-10.6-11.1

USA UK Germany J apan Hong Kong Australia Malaysia Singapore

%

% Change (Local) % Change (HKD)

Currencies

Bonds *

Equities **

* Bonds: Salomon Smith Barney World Government Bond Indices** Equities: USA (S&P 500), UK (FTSE-100), Germany (DAX), Japan (Nikkei 225), Hong Kong (HSI),

Australia (All Ordinaries), Malaysia (KLSE Composite), Singapore (STI)

1.0

6.2 5.6

0.3

J apan Euro UK Australia

%

%Change (against HKD)

Market statistics: July to December 2002


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More suitable forrisk tolerant staff

Balanced FundMore suitable forrisk averse staff

High Growth Fund

Growth Fund

Risk (short-term volatility)

Global Money Funds (HKD/USD)

High

Low High

Stable Fund

Lo

ng

-ter

m p

ote

nti

al r

etu

rn

Risk profile of various investment options


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-1.0 -0.4

0.3 1.0 0.1 0.1

-1.2 -0.7

0.4 0.0 0.1

-0.1

-15

-10

-5

0

5

10

15

HighGrowthFund

Growth Fund

BalancedFund

Stable Fund

GMF – HKDFund

GMF – USDFund

Return %

HKBU Benchmark

Source: HSBC Asset Management

Investment performance: January 2003


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2.93.5 3.2 3.0

0.4 0.3

4.1 3.7 3.3 3.3

0.3 0.3

4.5 4.64.1

3.5

0.0 0.4

-5

0

5

10

High GrowthFund

Growth Fund BalancedFund

Stable Fund GMF – HKDFund

GMF – USDFund

Return %

HKBU W.W. Median Benchmark

Source: HSBC Asset Management, Watson Wyatt Managed Fund Report

Investment performance: October to December 2002


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-12.1

-8.2

-4.3

-0.9

0.8 0.7

-10.7

-6.6

-2.7

1.30.1 0.8

-15

-10

-5

0

5

10

15

High GrowthFund

Growth Fund

BalancedFund

Stable Fund

GMF – HKDFund

GMF – USDFund

Return %

HKBU Benchmark


Investment performance: July to December 2002


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-11.1 -9.2

1.5

11.316.7

28.0

-35

-25

-15

-5

5

15

25

35

High GrowthFund

Growth Fund BalancedFund

Stable Fund GMF – HKDFund

GMF – USDFund

Return %

HKBU

(3/99)


Investment performance since inception (Mar 98 to Jan 03)


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EquitiesHong Kong 30.0 28.6 24.0 23.3 17.0 16.2 10.0 9.2N. America 18.0 17.3 14.0 13.6 10.0 9.6 6.0 5.6Japan 12.0 10.7 9.0 7.3 6.5 5.3 4.0 3.2Europe 18.0 17.9 14.0 14.4 10.0 9.6 6.0 4.8Other Asia Pac. 12.0 14.0 9.0 11.2 6.5 8.4 4.0 5.5

Total 90.0 88.5 70.0 69.8 50.0 49.1 30.0 28.3 0.0

BondsUS Bonds 1.6 2.0 5.7 6.2 10.3 13.6 14.4Non US Bonds 5.4 5.4 19.3 20.8 33.2 46.4 45.6

Total 7.0 7.4 25.0 27.0 45.0 43.5 60.0 60.0 0.0

Cash 3.0 4.1 5.0 3.2 5.0 7.4 10.0 11.7 100.0

EquitiesHong Kong 30.0 28.6 24.0 23.3 17.0 16.2 10.0 9.2N. America 18.0 17.3 14.0 13.6 10.0 9.6 6.0 5.6Japan 12.0 10.7 9.0 7.3 6.5 5.3 4.0 3.2Europe 18.0 17.9 14.0 14.4 10.0 9.6 6.0 4.8Other Asia Pac. 12.0 14.0 9.0 11.2 6.5 8.4 4.0 5.5

Total 90.0 88.5 70.0 69.8 50.0 49.1 30.0 28.3 0.0

BondsUS Bonds 1.6 2.0 5.7 6.2 10.3 13.6 14.4Non US Bonds 5.4 5.4 19.3 20.8 33.2 46.4 45.6

Total 7.0 7.4 25.0 27.0 45.0 43.5 60.0 60.0 0.0

Cash 3.0 4.1 5.0 3.2 5.0 7.4 10.0 11.7 100.0

HKBU HKBU HKBU HKBU HKBU GMFHigh Growth Growth Balanced Stable HKD / USD

Bmk Fund Bmk Fund Bmk Fund Bmk Fund Fund(%) (%) (%) (%) (%) (%) (%) (%) (%)

Asset allocation – 31 December 2002


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Market outlook


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US

Recent data generally positive - 2003 GDP forecast 2.2%(i.e. ISM 53.9, Personal Spending +0.9%, Unemployment 5.7%, Home Sales 1,082K)

2003 growth more balanced (improvement in business investment) Fiscal (tax package) as well as Monetary (low interest rates) policies remain

supportive Robust recovery unlikely

– Middle East– Low earnings visibility

Outlook Neutral in US Earnings growth for 2003 (7%)


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Europe

German economy a concern (weak IFO 87.4/ Unemployment 10.3%) Rest of Euroland better with France leading the way ECB fiscal policy restriction (Germany & France - exceed the 3% limit) Expect Euroland to lag US in global cycle

UK Government spending remains strong and expect to continue Unemployment remains stable compared to US/Europe Insurance sector - relaxing solvency ratio by regulators

Outlook Underweight in Europe, overweight in UK GDP forecast for 2003 (Europe 1.2%, UK 2.5%)


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Japan

Economic data remain poor(Industrial Production -1.6%, Household Spending -2%, Unemployment 5.4%)

Deteriorating employment picture Financial reform - do not expect immediate solution Economy restrained (high uncertainty, weak global growth)

Outlook Underweight in Japan 2003 GDP forecast 0.8%


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Asia ex-Japan

Favour domestic oriented over export driven stocks Liquidity remains supportive Valuations remain cheap and attractive External risk

– Middle East – United States– North Korea

Outlook Overweight in Asia (ex Japan) Defensive bias over the near term


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Asia ex-Japan

Hong Kong Outlook for the domestic economy remains subdued

( i.e. unemployment, deflation and property sector) Concern on government budget deficit Exports expected to slow down Market range bound - lack of upside catalyst

Korea Economic growth driven by strong consumer spending and exports Liquidity and low unemployment rates (2.8%) remain supportive Concerns - North Korea’s nuclear issue, slowing consumption

Taiwan Performance of the US market (NASDAQ) important Politics - an area of focus (2004 presidential election) Short-term focus - non-technology stocks Remain underweight - looking to the US market for direction


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Bond market outlook

In the US, we expect the anticipated war with Iraq to be relatively short-lived, and the Fed will have to take back the 50 bps rate cut of last November within 12 months.

In Europe, we anticipate the ECB to sanction an additional easing of 50 bps within the next 3 months, with no further changes forecast over 12 months.


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Asset class preference : Equities / Cash / Bonds

(neutral)

Data as at 4 February 2003

Asia ex.HK/JP

HK JapanEurope ex. UK

USGlobalEmergingMarkets

least preferred markets

Regional investment weightings

UK Canada Australia

Most preferred markets

HSBC Asset Management Investment Strategy


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The document is confidential and is supplied to you solely for your information. This document should not be distributed, must not be reproduced or further distributed to any person or entities, whether in whole or in part, for any purpose. This document can only be given to people to whom the relevant HSBC entity are not prohibited by law to provide discretionary investment service under their respective licences issued by the regulators. This document is not and should not be construed as an offer to sell or solicitation of an offer to purchase or subscribe for any investment. HSBC Asset Management (Hong Kong) Limited has based this document on information obtained from sources it believes to be reliable but which it has not independently verified. HSBC Asset Management (Hong Kong) Limited and the HSBC Group make no guarantees, representations or warranties and accept no responsibility or liability as to its accuracy or completeness. Expressions of opinion herein are subject to change without notice.

HSBC Asset Management (Hong Kong) Limited


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Factors for consideration before

switching


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3 major types of investment instruments

Equities– Ownership of companies– Returns from dividends & capital appreciation– High short term volatility

Bonds– Debt instruments issued by

governments/corporations– Returns from interest payments– Short term volatility lower than equities

Cash– Very low short term volatility

Principles of retirement investment


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-40

-30

-20

-10

0

10

20

30

40

12/88 12/90 12/92 12/94 12/96 12/98 12/00 12/02

Mon

thly

retu

rn %

*

Cash (3-month HKD Deposit Rate)Global Bonds (Salomon Smith Barney World Government Bond Index)Global Equities (MSCI World Index)Hong Kong Equities (Hang Seng Index)

-40

-30

-20

-10

0

10

20

30

40

12/88 12/90 12/92 12/94 12/96 12/98 12/00 12/02

Mon

thly

retu

rn %

*

Cash (3-month HKD Deposit Rate)Global Bonds (Salomon Smith Barney World Government Bond Index)Global Equities (MSCI World Index)Hong Kong Equities (Hang Seng Index)

* Calculated in HK$ termsSource: Thomson Financial Datastream

Examination of investment markets


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* Calculated in HK$ termsSource: Thomson Financial Datastream

-100

0

100

200

300

400

500

600

700

800

900

12/88 12/89 12/90 12/91 12/92 12/93 12/94 12/95 12/96 12/97 12/98 12/99 12/00 12/01 12/02

Cumulative return %*

Hong Kong CPI inflationCash (3-month HKD Deposit Rate)Global Bonds (Salomon Smith Barney World Government Bond Index)Global Equities (MSCI World Index)Hong Kong Equities (Hang Seng Index)

Examination of investment markets – cumulative return 1989-2002


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Dollar Cost Averaging : = +3.6%105-101.4 101.4

Buy

Sell

Buy

Buy

Sell

Sell

Maximum Loss : 89.3-109 104.5- 111 105-121.5 109 111 121.5

=- 37.5%+ +

Sell

Buy

Buy

Sell

Maximum Profit : 111-89.25 121.5-104.5 89.25 104.5

=+40.6%+

Dollar cost averaginge.g. HSBC Holdings


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-25

0

25

50

HKD / USDMoney Market

Fund

Stable Fund

Balanced Fund

Growth Fund

High GrowthFund

95%Probability

Annalised return (%)


The more aggressive the fund, the wider the range of likely returns


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Do not time / chase markets!Do not time / chase markets!

Please remember

Identify personal factors Establish risk / return profile

Understand investment choices

Make investment decisions using a long-term approach


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Different people have different needs!!Different people have different needs!!

A guide to investing

Factors to consider Years to retirement

Other personal assets

Planned uses for retirement assets

Financial and other personal circumstances


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Therefore Therefore

Different people have different needs

Investment choices are provided for different risk profiles

Investment choices are provided for different risk profiles

Range of investment choices

Documents

February 2003 Hong Kong Baptist University 1998 Superannuation Fund HSBC Asset Management (Hong Kong) Limited 15/F Citibank Tower, 3 Garden Road, Hong