HSBC ASSET MANAGEMENT
$35bn in Asia (ex-Japan) equities

Flagship product:

HSBC GIF Asia ex Japan Equity Fund

Investment process and risk management:

A four-step process underpinned by fundamental analysis, comprises:

1.  Uses of quantitative screens and in-the-field research provide the basis for identifying stocks that might be mis-priced.
   These stocks are included in the HSBC Asset Management stock list (400 stocks regionally, covering at least 80 per cent of the benchmark by capitalisation).
2. Senior team members review the potential causes of mis-pricing and degree of under-valuation of stock list stocks. The research agenda is set for the most promising ideas (typically 15-25 stocks per country) to ensure that the key factors are covered when research is undertaken.
3. Detailed analysis is undertaken on stocks that research reveals to have the highest alpha potential (typically 100 stocks). This includes:

• Fundamental research involves reviewing annual reports, broker reports, industry studies, and company announcements and interacting with in-house global research teams;
• In-the-field research includes company visits and cross-checking with suppliers, competitors, industry experts;
•  Financial modelling: Income statement, cash flow statement, and balance sheets (with at least five years’ history and five years’ forecast) are prepared for each stock. From the detailed analysis, an intrinsic value is calculated for each stock. The intrinsic value is cross-checked with traditional valuation metrics.
  

     4. Portfolio construction. The portfolio manager determines the target weight, taking into account the expected return, conviction, and the risk parameters.

Detailed risk reports are reviewed by senior fund managers, the chief investment officer and a risk management committee. Risks monitored include:

-Overall portfolio risk

- Country risk

-Sector risk

-Stock specific risk

- Sensitivity analysis to macro factors

Team composition

• Ayaz Ebrahim joined HSBC Asset Management as chief investment officer, Asia Pacific (ex-Japan) Equities in January 2003. Prior to joining the company, he worked for Crédit Agricole Asset Management (formerly Indosuez Asset Management) where he managed Asian regional portfolios for institutional clients and established an excellent reputation across the region. Mr Ebrahim has 14 years of experience in managing Asian equity portfolios.

Future trends

  Asian markets will outperform developed markets this year – a position reflected in the firm’s balanced portfolios – due to a combination of strong economic growth, improving corporate practices, good earnings and attractive relative and absolute valuations.