HSBC Asset Management March 2004 HSBC Asset Management (Hong Kong) Limited 15/F Citibank Tower, 3 Garden Road, Hong Kong Telephone: +852 2284 1111 Facsimile:

HSBC Asset Management

March 2004

HSBC Asset Management (Hong Kong) Limited15/F Citibank Tower, 3 Garden Road, Hong KongTelephone: +852 2284 1111 Facsimile: +852 2845 0226Web site: www.assetmanagement.hsbc.com.hk

Hong Kong Baptist University1998 Superannuation Fund

Investment review

2

HK

BU

27

E_H

C0

2


Agenda

Investment performance

Market outlook

Factors for consideration before switching


3

HK

BU

27

E_H

C0

2

Investment performance

4

HK

BU

27

E_H

C0

2


Currencies

Bonds *

Equities **

* Bonds: Citigroup 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)Source: Thomson Financial Datastream

Market statistics : January 2004 (in HKD terms)

-1.4

1.8 1.21.4

JP Yen Euro UK GBP Aus Dollar

%

% Change (against HKD)

1.21.0 1.6

-0.8-1.6

-0.2

0.6

-0.4

0.40.80.7

1.8

US UK Japan Germany Canada Australia

%

Mkt price return % (Local) Mkt price return % (HKD)

-1.9

1.0

5.7

2.4

5.7 5.14.8

1.7 2.4

-0.7

3.1

-0.1

0.51.01.93.3

US UK Germany Japan Hong Kong Australia Malaysia Singapore

%

% Change (Local) % Change (HKD)

5

HK

BU

27

E_H

C0

2


Currencies

Bonds *

Equities **


Market statistics: 3 months to December 2003 (in HKD terms)8.6 8.0

11.6

4.5


%


0.2 0.6

8.2 8.25.3

-0.3

0.10.7

-0.5 -0.2

11.8

5.2


%


9.418.2

4.512.0 8.28.24.1

21.811.6 9.2 12.0 10.48.511.9

32.2

16.2


%


6

HK

BU

27

E_H

C0

2


Currencies

Bonds *

Equities **


Market statistics: 1 year to December 2003 (in HKD terms)

19.710.7

33.2

10.2


%


2.1 3.8 5.61.813.0

24.2 28.5

2.6

-0.7

2.3

36.7

9.4


%


13.624.5

34.9 31.622.811.1

37.126.4 25.8

37.2 34.9 33.822.325.8

64.048.0


%


7

HK

BU

27

E_H

C0

2


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

8

HK

BU

27

E_H

C0

2


3.7

3.1

2.2

1.5

0.00.2

3.9

3.1

2.3

1.5

0.00.2

0

2

4

6

High GrowthFund

Growth Fund Balanced Fund Stable Fund GMF - HKD Fund GMF - USD Fund

Return %

HKBU Benchmark

Source: HSBC Asset ManagementPast performance is not necessarily a guide to future performance

Investment performance: January 2004

9

HK

BU

27

E_H

C0

2


22.7

19.6

15.1

11.0

0.3 -0.1

24.6

20.4

16.3

11.9

0.1 0.10

10

20

30

High GrowthFund

Growth Fund Balanced Fund Stable Fund GMF – HKDFund

GMF – USDFund

Return %

HKBU Benchmark

Investment performance: 6 months to December 2003

Source: HSBC Asset Management, Watson Wyatt Managed Fund ReportPast performance is not necessarily a guide to future performance

10

HK

BU

27

E_H

C0

2


32.228.3

22.9

18.2

0.9 0.4

34.4

29.3

23.7

17.4

0.5 0.5

35.4

30.1

25.1

19.9

0.0 0.70

10

20

30

40

50

High GrowthFund


GMF – USDFund

Return %

HKBU Wyatt Median Benchmark

Investment performance: January to December 2003

Source: HSBC Asset Management, Watson Wyatt Managed Fund ReportPast performance is not necessarily a guide to future performance

11

HK

BU

27

E_H

C0

2


18.716.9

24.4

30.2

17.0

29.0

0

10

20

30

40

High GrowthFund


GMF – USDFund

Return %

HKBU (3/99)

Investment performance since inception (March 1998 to January 2004)

Source: HSBC Asset ManagementPast performance is not necessarily a guide to future performance

12

HK

BU

27

E_H

C0

2


Equities

Hong Kong 30.0 32.2 24.0 26.7 17.0 17.7 10.0 11.7

Japan 12.0 10.5 9.0 7.8 6.5 5.0 4.0 2.8

Other Asia Pac. 12.0 14.1 9.0 10.4 6.5 7.6 4.0 5.1

N. America 18.0 16.0 14.0 13.4 10.0 8.6 6.0 5.6

Europe 18.0 18.3 14.0 15.0 10.0 10.2 6.0 7.1

Total 90.0 91.1 70.0 73.3 50.0 49.1 30.0 32.3 0.0

Bonds

US Bonds 1.6 1.1 5.7 4.3 7.4 13.6 10.0

Non US Bonds 5.4 5.0 19.3 19.3 33.2 46.4 46.6

Total 7.0 6.1 25.0 23.6 45.0 40.6 60.0 56.6 0.0

Cash 3.0 2.8 5.0 3.1 5.0 10.3 10.0 11.1 100.0

Equities

Hong Kong 30.0 32.2 24.0 26.7 17.0 17.7 10.0 11.7

Japan 12.0 10.5 9.0 7.8 6.5 5.0 4.0 2.8

Other Asia Pac. 12.0 14.1 9.0 10.4 6.5 7.6 4.0 5.1

N. America 18.0 16.0 14.0 13.4 10.0 8.6 6.0 5.6

Europe 18.0 18.3 14.0 15.0 10.0 10.2 6.0 7.1

Total 90.0 91.1 70.0 73.3 50.0 49.1 30.0 32.3 0.0

Bonds

US Bonds 1.6 1.1 5.7 4.3 7.4 13.6 10.0

Non US Bonds 5.4 5.0 19.3 19.3 33.2 46.4 46.6

Total 7.0 6.1 25.0 23.6 45.0 40.6 60.0 56.6 0.0

Cash 3.0 2.8 5.0 3.1 5.0 10.3 10.0 11.1 100.0

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

Bmk Fund Bmk Fund Bmk Fund Bmk Fund Fund

(%) (%) (%) (%) (%) (%) (%) (%) (%)

Asset allocation – 31 January 2004


13

HK

BU

27

E_H

C0

2

Market outlook

14

HK

BU

27

E_H

C0

2


US

– Q4 GDP growth was slightly weaker than expected, but growth should remain well above trend for the next two to three quarters.

– As the inventory cycle turns strongly positive and consumers benefit from further tax cuts in 1H2004, 5-6% growth rates in first half of 2004 are expected before slowing.

– Monetary policy should remain accommodative; interest rates at around 3% by mid 2005.

– We expect earnings growth has peaked even though Q4 earnings have been slightly better than expected, growing by 24%.

– The strong run since March 2003 has pushed valuations to slightly expensive, the market is looking for earnings strength to drive further gains.

Outlook– US - Moderate underweight

– GDP growth forecast for 2004 (+4.8%); 2005 (+3.6%)

Data as at 3 February 2004

15

HK

BU

27

E_H

C0

2


Europe Euroland

– Expect continued industrial recovery and supporting investment spending (German Industrial Production rose by 2.35% in 4Q 2003).

– Exports remain a positive growth contributor despite the rising Euro. – Steady economic improvement is expected in 2004, taking GDP growth back to slightly

above trend at 2.2%.– Market reasonably valued at a forward PE ratio of 15x and looks cheap if economic growth

remains strong.

UK– Consumer confidence and spending remain resilient.– Prospect of more rate hikes and a rising currency are not beneficial for larger and more

globally exposed stocks, but valuations are still supportive (12x of 2004 earnings).

Outlook– Euroland - Moderate overweight; UK - Neutral– GDP growth forecast for 2004 and 2005: Euroland (+2.2%, +2.5%); UK (+3.0%, +2.4%)


16

HK

BU

27

E_H

C0

2


Japan

– The economy is experiencing an export led recovery with positive investment.

– Recent better than expected unemployment figures would lead to an improvement in overall income growth, setting a more positive trend in future consumption.

– Further USD weakness will be a concern despite supports from the BoJ.

– Earnings estimates have been downgraded recently due to currency rise.

– Valuations reasonable but change to earnings expectations and a decreasing impact from foreign buying may hold the market back.

Outlook– Japan - Neutral

– GDP growth forecast for 2004 (+2.3%) and 2005 (+1.6%)


17

HK

BU

27

E_H

C0

2


Asia (ex-Japan)

– The actual impact on Asian economies of avian flu is relatively benign as growth momentum remains on track driven by both exports and private consumption.

– Thailand’s 2004 GDP could be reduced by as much as 1% on the back of avian flu, but growth is still expected to be around 4.5 to 5%.

– While avian flu serves as an excuse for short term profit taking in Asian equities, we remain positive over the medium term due to the region’s economic and corporate growth stories.

– Cash calls from companies and fund flows should be monitored closely (new equity issues/placements by companies in Hong Kong)

– Reporting season in markets such as Hong Kong and China is likely to be a catalyst for market sentiment.

Outlook– Asia (ex-Japan) - Moderate overweight


18

HK

BU

27

E_H

C0

2


Asia (ex-Japan)

Hong Kong (overweight)– Fundamentals stay firm : better employment conditions and lower deflationary pressure– Earnings revision remains upbeat, and positive management guidance in the forthcoming reporting season

would be the key to trigger another round of earnings upgrades– Risks are increased cash calls, and avian flu, though likely to be contained, that may provide excuse for profit

taking in the short term

Korea (moderate overweight)– The potential resolution of LG Card issue may gradually increase retail investors’ risk appetite. – More optimistic outlook for consumer spending and strong export will increase the possibility of positive

fixed capital formation in second half of 2004. – Nevertheless, major risks include the potential MSCI re-weighting; potential margin erosion on rising commodity

prices and the Won appreciation.

Taiwan (neutral)– Macro conditions still positive - expect pick up in domestic consumption to be another growth factor.– Potential MSCI re-weighting would drive the market positively.– Political noises in the run up to the election remain a concern.– Factors like corporate IT spending and the TWD rise are to be carefully monitored.


19

HK

BU

27

E_H

C0

2


Bond market outlook

– U.S.: We retain our central expectation of unchanged policy over 3 months, but a cumulative tightening of 1% over next 12 months. Fed’s evolution of policy rhetoric towards an eventual tightening will continue to challenge bond yields, particularly following the recent rally.

– Euroland: Despite the improvement in some business surveys, the general strength of the Euro and the lack of meaningful follow-through lessen the need for the ECB to follow the Fed and MPC in tightening policy. We do not expect ECB to start its tightening cycle over the next 3 or 12 months. However, the general drift towards higher global bond yields is likely to lead to rising bond yields across Europe. We therefore adopt a short duration position.

– Japan: Although economic outlook continues to improve, there is little prospect of an increase in official interest rates until inflation turns and remains in positive territory. While signals are more positive in Japan then in a number of other markets, the global backdrop, low absolute yields and concern over increasing supply make us unwilling to adopt a more positive position.


20

HK

BU

27

E_H

C0

2


Asset class rating :

US, Australia,Canada

UK, Japan,

Equity market rating :

Europe, HKAsia (ex JP/HK),

GEM

Most preferred market(s)

Neutral UnderweightOverweight ModerateOverweight

ModerateUnderweight

OverweightOverweight NeutralEquities, Bonds, Cash

NeutralEquities, Bonds, Cash

UnderweightUnderweight

Least preferred market(s)

HSBC Asset Management Investment Strategy


21

HK

BU

27

E_H

C0

2


Explanatory notes and disclaimers

The document is confidential and is supplied to you solely for your information. This document should not be reproduced or further distributed to any person or entities, whether in whole or in part, for any purpose.

Please also note that investment involves risk and past performance is not indicative of future performance.

The opinions expressed herein should not be considered to be a recommendation by HSBC Asset Management (Hong Kong) Limited to any reader of this material to buy or sell securities, commodities, currencies or other investments referred to herein. HSBC Asset Management (Hong Kong) Limited, its ultimate and intermediate holding companies, subsidiaries, affiliates, clients, directors and/or staff may, at any time, have a position in the markets referred to herein, and may buy or sell securities, currencies, or any other financial instruments in such markets.

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. Information in this report is subject to change without notice.

22

HK

BU

27

E_H

C0

2


HSBC Asset Management (Hong Kong) Limited


23

HK

BU

27

E_H

C0

2

Factors for consideration before switching

24

HK

BU

27

E_H

C0

2


Principles of retirement investment3 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

25

HK

BU

27

E_H

C0

2


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

26

HK

BU

27

E_H

C0

2


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

27

HK

BU

27

E_H

C0

2


Therefore Therefore

Different people have different needs

Investment choices are provided for different risk profilesInvestment choices are provided for different risk profiles

Range of investment choices

Documents

HSBC Asset Management March 2004 HSBC Asset Management (Hong Kong) Limited 15/F Citibank Tower, 3 Garden Road, Hong Kong Telephone: +852 2284 1111 Facsimile: