Emerging Markets
Access the growth potential of the world’s emerging economies with HSBC
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The new engine of global growth
Why invest in emerging markets?
Solid leadership from BRIC countries
HSBC — living and working in emerging markets
Understanding and managing risk
Issued by HSBC Investment Funds (Canada) Inc.
HSBC Investment Funds (Canada) Inc.
The new engine of global growth
Home to over 80% of the world’s population, emerging
market countries are undergoing rapid economic growth and
industrialization. Together, these emerging markets are a true
powerhouse, representing approximately one-third of world
trade and accounting for 90% of global growth in 2009.*
More than 20 countries worldwide are officially considered
emerging markets, including the BRIC countries (Brazil,
Russia, India and China) and others in Southeast Asia,
Eastern Europe, Latin America and Africa.
Emerging Markets
“Growth in the first half of the 21st century is likely to be driven by the inexorable
rise of new growth poles in the emerging economies of the world; countries
such as China and India, and other emerging economic powerhouses.”
Prospects for Development
The World Bank
March 2010
*Sources: International Monetary Fund and World Bank Report 2010
HSBC Investment Funds (Canada) Inc.
Why invest in emerging markets?
Growth, innovation and diversification…
Spectacular growth
Remarkable innovation
Emerging markets have enjoyed phenomenal growth. A
Emerging market companies have moved far beyond simply
$10,000 investment in 1990 in the broad basket of stocks
emulating the innovative practices or products of their
represented by the MSCI Emerging Markets Total Return
counterparts in more established economies. They are now
Index would have grown to $67,443 by 2010.
innovation leaders in their own right.
The emerging world’s share of global gross domestic
Every year, 75,000 students in China and 60,000 in India
product increased from 36% in 1980 to 45% in 2008. And
graduate with advanced degrees in engineering or computer
according to the International Monetary Fund, this share is
science,1 compared to only 16,000 in Canada.2 Fortune
forecast to grow to 51% by 2014.
500 companies recognize the technical expertise in these
countries, and have established close to 100 research
facilities in China and more than 60 in India.1
Growth of $10,000 over 20 years
Unmatched diversification
$90,000
$80,000
$67,442.56
$70,000
Incorporating emerging markets into your investment
portfolio is an excellent strategy for diversification and
$60,000
long-term growth, enabling you to tap into companies
$50,000
and market sectors that are not represented in more
$40,000
$28,598.55
$30,000
established economies.
The recent financial crisis is a case in point. Although no
$20,000
economy emerged unscathed, many emerging economies
$10,000
bounced back quickly, in large part because they were less
Jan-10
Jan-08
Jan-06
Jan-04
Jan-02
Jan-00
Jan-98
Jan-96
Jan-94
Jan-92
Jan-90
$0
exposed to some of the worst aspects of the crisis.
Emerging market equities are also an increasingly important
asset class as developing economies play an ever more
MSCI World Total Return Index (C$)
central role in the global economy. The emerging market
MSCI Emerging Markets Total Return Index (C$)
equities universe is now worth $2.4 trillion — or around 12%
Source: TD Newcrest and Bloomberg
of the MSCI Global Index.3 It simply makes sense to include
these equities in a diversified investment portfolio.
“The emerging world, long a source of cheap labour, now rivals the rich countries
for business innovation.”
The Economist
April 15, 2010
The Economist: A special report on innovation in emerging markets, April 15, 2010
Statistics Canada. Graduating in Canada: Profile, Labour Market Outcomes and Student Debt of the Class of 2005
Factset, MSCI as at December 2009
1
2
3
HSBC Investment Funds (Canada) Inc.
…Confident consumers, rising middle class and leading companies
Confident consumers
Leading companies
Long-term growth in emerging markets is underpinned
These dynamic populations in emerging countries aren’t just
by youthful, increasingly well-educated and confident
consuming goods and services. They are also building and
consumers. With over 50% of their populations younger than
running some of the world’s most successful companies. The
25, emerging market countries will experience rising demand
United Nations World Investment Report estimates there are
for products and services.
more than 21,000 multinational companies based in emerging
markets. And the number of companies from Brazil, Russia,
India and China on the Financial Times 500 list more than
Real GDP Growth
10
Emerging and
developing economies
8
6
4
2
0
Advanced
economies
1970
80
90
2000
-2
10
-4
Source: International Monetary Fund,
World Economic Outlook, October 2009
quadrupled between 2006 and 2008, from 15 to 62.
Leaders include India’s ArcelorMittal, the world’s largest
steel company and owner of Canada’s Dofasco. Tata, an
Indian conglomerate, now owns Jaguar Land Rover — a
business built around two iconic UK car brands. PetroChina
has significant stakes in Alberta’s oil sands. Brazil’s Embraer
is a top producer of jet aircraft, and its mining giant Vale
now owns Canada’s Inco. These and other companies
based in emerging markets have evolved and grown, and
now have strong management teams, healthy balance
sheets and the increasing ability to generate value for
investors. Legal and regulatory regimes have improved, and
companies and governance practices are becoming more
shareholder-friendly.
Rising middle class
The demand for domestic and imported goods in emerging
markets is also fuelled by an expanding middle class. China’s
middle class is already as big as the population of the United
States, and over half of Brazil’s 192 million people are
officially considered middle class. In the coming decades,
hundreds of millions of people in both China and India will
join the ranks of the middle class, giving them access to
increased spending power and economic opportunities.
HSBC Investment Funds (Canada) Inc.
Solid leadership from BRIC countries
Brazil, Russia, India and China — setting the pace in emerging markets,
poised to lead the world
By 2050, it’s expected that the BRIC countries will represent four of
the world’s five largest economies.1 Already, they are standouts in a
remarkable field of emerging market growth stories.
The BRIC countries represent more than 40% of the world’s
population, and their 2.8 billion consumers and burgeoning middle
classes are spurring massive economic growth. BRIC countries are
investing trillions of dollars in infrastructure development and creating
enormous investment opportunities.
HSBC’s investment solutions give you access to these fast-growing
and dynamic BRIC markets.
BRIC at a glance
Investment solutions at HSBC
Self-sufficient in oil; large offshore discoveries in 2007 are
likely to make it a big oil exporter
World’s largest exporter of commercial jets
World’s fourth-largest steel exporter
World’s tenth-largest economy
HSBC 2010 GDP growth forecast: 5.8%
HSBC BRIC Equity Fund
Brazil
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World’s largest exporter of natural gas
World’s second-largest exporter of oil
World’s third-largest exporter of steel and aluminum
World’s eighth-largest economy
HSBC 2010 GDP growth forecast: 4.7%
HSBC BRIC Equity Fund
Russia
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India
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Strong, well-capitalized banks
Low-cost and highly educated English-speaking labour force
Global leader in IT and business-process outsourcing
World’s fifth-largest economy
HSBC 2010 GDP growth forecast: 8.2%
China
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Economy has grown more than tenfold since 1978
Accounts for about 60% of foreign direct investment in emerging markets
Significant presence in aerospace, shipbuilding and IT
World’s third-largest economy
HSBC 2010 GDP growth forecast: 10.3%
HSBC Indian Equity Fund
HSBC BRIC Equity Fund
HSBC Chinese Equity Fund
HSBC BRIC Equity Fund
Sources: International Monetary Fund, World Bank, CIA World Factbook. All data are from 2009. Economic size is measured in purchasing power parity terms,
which takes differences in exchange rates into account when quantifying GDP. HSBC forecasts for Brazil and Russia are as at April 2010; forecasts for China and
India are as at May 2010.
Goldman Sachs, March 2007
1
HSBC Investment Funds (Canada) Inc.
HSBC — living and working in emerging markets
Leveraging global knowledge and local insight
HSBC is a recognized world leader in emerging market
investment solutions, with C$94 billion of assets under
management1 in emerging markets globally. We manage
some of the largest Indian, Chinese and Brazilian equity
mutual funds in the world.2 And in Canada, HSBC offers
investors one of the broadest ranges of emerging market
funds available, with access to the key fast-growth markets.
Our expertise is based on first-hand knowledge: more than
200 dedicated emerging markets investment professionals
are located in HSBC offices around the world. We use this
local insight to uncover exciting investment opportunities and
leverage the strength of our global resources to offer you
access to these opportunities.
Many of our investment professionals live and work in emerging markets, and our regional equity teams
are some of the best in the world.
Vancouver
London
Toronto
Paris
New York
Dusseldorf
Istanbul
Tokyo
Bermuda
Shanghai
Mexico City
San Salvador
Riyadh
Hong Kong
Dubai
San Jose
Panama City
Mumbai
Singapore
Taipei
Brunei
Bogota
Bogotá
São Paolo
Sydney
Buenos Aires
HSBC Global Asset Management
At April 30, 2010
Lipper, March 2010
1
2
HSBC Investment Funds (Canada) Inc.
Understanding and managing risk
Tremendous opportunities demand a
prudent approach
Emerging markets are best suited for long-term investors
willing to ride out market volatility. While past performance
is no guarantee of future performance, the long-term track
record of emerging markets suggests patience is rewarded.
There are a number of specific risks to consider when
investing in emerging markets. Governance — the catch-all
term that covers accounting, auditing, financial and
other standards — may be weak in some jurisdictions.
Investments may be affected by foreign exchange controls,
tax and other regulatory changes. In extreme cases, political
unrest or war can also affect markets.
Reducing risk through active
management
One risk associated with emerging markets is that
information flow is not perfect and the securities of
companies can be mispriced. This is why investment
solutions such as exchange-traded funds (ETFs) — which
must invest in every company listed on an index — can be
higher risk and more volatile in the emerging market area
than actively managed investment solutions like mutual
funds. With our approach to active management, we
minimize risk by choosing to invest only in well-managed and
good quality emerging market companies that add value to
your portfolio.
HSBC Investment Funds (Canada) Inc.
How to get started
The first step is to work with your advisor to determine your risk tolerance level. Then consider adding a small amount of exposure
to emerging markets in your portfolio. The chart below shows how allocating just 5% or 10% of your overall investment to emerging
markets can boost returns with only a modest impact to volatility. As you become more comfortable with emerging markets, and as
these economies grow in significance, you can work with your advisor to increase your holdings prudently and progressively.
Adding emerging markets to a diversified portfolio can potentially boost performance with modest incremental risk:
$18,000
$15,862.18
$15,193.05
$14,547.59
$16,000
$14,000
$12,000
$10,000
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$8,000
0% Emerging Markets
5% Emerging Markets
Asset Class
Index (Total Return in C$)
Cash
10% Emerging Markets
Weighting 0% EM
Weighting 5% EM
Weighting 10% EM
DEX 91 Day Treasury Bill
5%
5%
5%
Canadian Bonds
DEX Universe Bond
35%
35%
35%
Canadian Equities
S&P/TSX Composite
35%
32.5%
30%
International Equities
MSCI World
25%
22.5%
20%
Emerging Market Equities
MSCI Emerging Markets
0%
5%
10%
8.7%
8.9%
9.2%
5-Year Annualized Standard Deviation (Volatility)
Returns are for illustrative purposes only and are not intended to reflect actual returns.
These hypothetical returns track the performance of $10,000 invested from December 31, 2000 to April 30, 2010 based on the returns of the above indices.
Sources: Bloomberg, PC Bond and TD Newcrest
Contact your advisor today
Learn more about the attractive long-term opportunities offered by emerging markets.
Talk to your investment advisor today or visit us at hsbc.ca/emergingmarkets.
HSBC Investment Funds (Canada) Inc.
“We have reached a tipping point in global
economic affairs. No longer is it possible to
argue convincingly that the US or European
nations determine the agenda for the world
economy as a whole. 2009 will surely go
down as the year when we both uncovered
the scale of the crisis in the developed world
and celebrated the resilience of much of the
emerging world in the face of what appeared
to be a perfect economic storm.”
Stephen King, HSBC Group Chief Economist
10
HSBC Investment Funds (Canada) Inc.
HSBC Global Asset Management (Canada) Limited is a subsidiary of HSBC Bank Canada and provides services in all provinces
of Canada except Prince Edward Island. HSBC Mutual Funds are distributed by HSBC Investment Funds (Canada) Inc. and
authorized dealers. Commissions, trailing commissions, management fees and expenses all may be associated with mutual
fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed or covered by the Canada
Deposit Insurance Corporation, HSBC Bank Canada or any other deposit insurer. Their values change frequently and past
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performance may not be repeated. The unit value of money market funds may not remain constant.