HSBC - Equity Insights Quarterly by riteshbhansali

VIEWS: 2 PAGES: 76

More Info
									Second Quarter 2013                        Equity Strategy
                                           Global                                                                 abc
                                                                                                                  Global Research



                                           Equity Insights Quarterly
                                           Help from earnings needed
                                            Markets have rallied strongly, but only from a rise in the PE

                                            For the next leg up, earnings need to come through. Our
                                             models, pointing to 10% growth this year, suggest they will

                                            We raise the US to OW and Japan to neutral, and cut Europe
                                             to UW. Sector overweights: IT, financials, telecoms


                                           The 6% rise in global equities so far this year has been driven purely by an expansion in
                                           the earnings multiple (caused, we believe, mainly by QE reducing tail-risk and triggering
                                           retail investor buying of equities). But for equities to achieve our 15% total return target
                                           for the year, earnings growth – almost zero over the past 12 months – now needs to come
                                           through. We see signs in leading indicators that earnings are picking up – and our top-
                                           down model points to 10% growth in 2013. So we stick to our return target for the year
Garry Evans*                               which (after dividends) means there is another 7% to go.
Global Head of Equity Strategy
The Hongkong and Shanghai Banking          But, in the short term, the market looks to have outrun the fundamentals, and we would
Corporation Limited
+852 2996 6916                             not be surprised to see a modest correction. Not least, US growth has tended over the past
garryevans@hsbc.com.hk                     few years to disappoint over the summer, and our economists expect the same again this
Daniel Grosvenor*                          year. Europe’s structural problems are coming to the fore again.
Strategist
HSBC Bank plc                              Correlations between markets and stocks have started to wane, after five years when
+44 20 7991 4246                           everything moved together on macro factors. This makes country and sector allocation
daniel.grosvenor@hsbcib.com
                                           more important than recently.
This report replaces the version of the
same date and title published earlier to   In our country allocation, we increase the emphasis on the shorter-term drivers of equity
correct errors in the weightings           returns: earnings momentum and the monetary policy backdrop. Accordingly, we raise the
mentioned on pages 18, 19, and 24
                                           US to overweight: relative earnings momentum has consistently beaten the rest of the
View HSBC Global Research at:              world and we believe monetary policy will remain supportive over the next 12 months.
http://www.research.hsbc.com
                                           We had previously favoured Europe on valuation grounds but, following a period of
*Employed by a non-US affiliate of
HSBC Securities (USA) Inc, and is not
                                           strong performance, the relative valuation case is no longer as clear. Also, the ECB
registered/qualified pursuant to FINRA     remains reluctant to do QE, and earnings in Europe ex UK are likely to disappoint. We cut
regulations
                                           Europe to underweight. We remain overweight emerging markets where valuations look
Issuer of The Hongkong and Shanghai
report:   Banking Corporation Limited      attractive, and where prospects for growth are considerably better than in DM. We raise
                                           Japan to neutral following the recent announcements on monetary policy.
Disclaimer &
Disclosures                                On sectors, we favour Financials and IT due to their strong earnings momentum and
This report must be read                   relatively cheap valuations, and we remain overweight Telecoms given its attractive long-
with the disclosures and                   term story and the potential for further positive newsflow in the near term.
the analyst certifications in
the Disclosure appendix,
and with the Disclaimer,                                                                             th
                                                              Extel Survey 2013 runs from March 25 through to May 3
                                                                                                                       rd


which forms part of it                                        if you value our service and insight please vote for HSBC at
                                                                               www.extelsurveys.com
    Equity Insights Quarterly
    Global                                                                                                                             abc
    Second Quarter 2013




HSBC Strategy Recommendations

Global market calls (benchmark: MSCI AC World index; countries shown have a minimum weight of 0.5%)
Market                               _____ HSBC call ______     _____ Weight (%) _______                                                       Target
                                   current     (previous)        MSCI AC           HSBC         Diff   Blue-chip index      current          end-2013       % from
                                                                                                                              level              level      current
Americas
US                                 Over          (Under)             47.3          50.0          2.7   S&P 500               1,553              1,680           8%
Canada                             Neutral       (Neutral)            3.9           3.9                S&P/TSX              12,332             13,100           6%
Brazil                             Over          (Over)               1.5           2.3          0.8   Bovespa              55,051             66,000          20%
Mexico                             Under         (Under)              0.7           0.2         -0.5   Bolsa                43,244             45,000           4%
Europe
UK                                 Neutral       (Neutral)            8.0           8.0                FTSE 100              6,250              6,600           6%
France                             Under         (Neutral)            3.4           2.0         -1.4   CAC 40                3,663              3,780           3%
Germany                            Under         (Over)               3.1           2.0         -1.1   DAX 30                7,659              8,000           4%
Switzerland                        Under         (Over)               3.4           2.0         -1.4   SMI                   7,641              8,000           5%
Spain                              Neutral       (Over)               1.0           1.0                IBEX 35               7,798              8,300           6%
Italy                              Under         (Under)              0.7           0.2         -0.5   FTS E MIB            15,250             16,000           5%
Netherlands                        Under         (Neutral)            0.9           0.4         -0.5   AEX                     341                350           3%
Sweden                             Neutral       (Neutral)            1.2           1.2                OMX                   1,169              1,240           6%
Russia                             Over          (Over)               0.7           1.0          0.3   RTS                   1,411              1,500           6%
Eurozone                           Under         (Over)              10.2           6.7         -3.5   EUROSTOXX 50          2,585              2,700           4%
Pan-Europe                         Under         (Over)              24.7          19.8         -4.9   FTSE Eurofirst 300    1,162              1,220           5%
Asia Pacific
Japan                              Neutral       (Under)               7.9          7.9                TOPIX                 1,066              1,130           6%
Australia                          Over          (Over)                3.3          4.0          0.7   S&P/ASX 200           4,899              5,400          10%
China                              Over          (Over)                2.2          3.7          1.5   MSCI China               58                 70          21%
Korea                              Neutral       (Over)                1.7          1.7                KOSPI                 1,927              2,170          13%
Taiwan                             Under         (Neutral)             1.3          0.4         -0.9   TAIEX                 7,942              8,300           5%
Hong Kong                          Over          (Neutral)             1.1          1.6          0.5   Hang Seng            21,727             24,000          10%
India                              Neutral       (Neutral)             0.8          0.8                SENSEX               18,450             20,700          12%
Singapore                          Over          (Over)                0.7          1.2          0.5   STI                   3,300              3,800          15%
Other
South Africa                       Under         (Under)               0.8          0.3         -0.5   JSE All-Share        38,500             39,500           3%
World (USD terms)
Developed world                    Under         (Under)             88.0          87.4         -0.6   MSCI DM               1,419               1500           6%
Emerging world                     Over          (Over)              12.0          12.6          0.6   MSCI EM               1,008               1140          13%
All-countries world                                                 100.0         100.0                MSCI AC                 356                380           7%
Source: MSCI, Thomson Reuters Datastream, HSBC




Global sector calls
Sector                                                 ______________ HSBC call _______________ _____________ Weight (%) ______________
                                                                   current            (previous)          MSCI AC                 HSBC                   Difference
                                                                                                         World (%)                  (%)                      (% pts)
Energy                                                             Neutral                (Neutral)                10.2               10.2
Materials                                                          Neutral                (Neutral)                 6.7                6.7
Industrials                                                         Under                 (Neutral)                10.4                9.0                      -1.4
Consumer Discretionary                                              Under                  (Under)                 10.9                7.9                      -3.0
Consumer Staples                                                   Neutral                 (Under)                 10.9               10.9
Health Care                                                        Neutral                 (Under)                 10.0               10.0
Financials                                                           Over                   (Over)                 21.4               23.4                       2.0
IT                                                                   Over                 (Neutral)                11.8               14.0                       2.2
Telecom Services                                                     Over                   (Over)                  4.3                6.0                       1.7
Utilities                                                           Under                   (Over)                  3.5                2.0                      -1.5
Source: MSCI, Thomson Reuters Datastream, HSBC




2
  Equity Insights Quarterly
  Global                                                                abc
  Second Quarter 2013




Contents

Investment strategy            4   Data pack                                     33
A pause for breath             4   Performance (% US$)                           34
                                   Institutional investor holdings               45
The View                      17   Valuations                                    47
After the bounce              17   Valuations                                    48
Strategy in bullets           18   Earnings: Revisions ratios                    51
Q1 performance recap          18   MSCI ACWI sector earnings: Revisions ratios   52
                                   EPS vs peak and trend                         54
                                   Growth indicators                             60
Regional/country view         19
                                   Monetary conditions                           61
Scorecards                    19
                                   Sentiment                                     62
Emerging vs. Developed        20
                                   Consensus aggregations                        63
US                            21
Europe                        22
Japan                         23   Disclosure appendix                           73
Asia ex Japan                 24
Other GEMS                    25   Disclaimer                                    75

Sector view                   26
Scorecard methodology         31




                                                                                  3
      Equity Insights Quarterly
      Global                                                                                                                                      abc
      Second Quarter 2013




Investment strategy
 A near-term correction is possible since equities have overshot
       economic growth, which may anyway slow over the summer
 But a combination of 10% earnings growth and a further small
       decline in the risk premium (helped by QE) means we stick to our
       target of a 15% return from global equities this year
 After 6% in Q1, that means modest further upside to year-end




A pause for breath                                                                            earnings (see Chart 2 overleaf): trailing global
                                                                                              EPS have grown by only 0.2% over the past 12
In our 2013 preview published last December, we
                                                                                              months, although earnings momentum has begun
predicted that global equities would give a total
                                                                                              to pick up of late.
return of about 15% this year, driven by high
single-digit earnings growth, an expansion of the                                             We see little need to change our view. Economic
earnings multiple as tail-risks receded and a                                                 growth is likely to remain sluggish this year
dividend yield of 3%.                                                                         according to HSBC’s economists: they see 1.7%
                                                                                              real GDP growth in the US and have cut their
In the first quarter, the MSCI All Country World
                                                                                              forecast for the Eurozone to -0.4% (although they
Index rose 6%. The rise was due to an expansion
                                                                                              see emerging market GDP growth accelerating to
in the multiple (12-month forward PE rose to
                                                                                              5.4% from 4.8% last year). But our top-down
12.9x from 12.2x) rather than to a rebound in


    1. Performance of major stock markets over the past year*

    120
                        US              JP             EURx UK                 UK             GEM
    110


    100


     90


     80


     70
       M ar-12                                  Jun-12                                   Sep-12                  Dec-12                 Mar-13

    Source: MSCI, Bloomberg, HSBC (*MSCI indices in USD terms, indexed to 100 one year ago)




4
   Equity Insights Quarterly
   Global                                                                                                                                                          abc
   Second Quarter 2013




 2. Breakdown of year-on-year returns in the MSCI ACW Index into change in earnings and change in PE

  60                                    EPS             PE             Index
  50
  40
  30
  20
  10
   0
 -10 90             92             94            96            98             00            02            04            06            08             10       12
 -20
 -30
 -40
 -50

 Source: MSCI, Thomson Reuters Datastream, HSBC (EPS=trailing 12-month EPS; PE=change in 12-month forward PE over the past 12 months; Index=y-o-y % change)




earnings models, based on the economists’                                                  This is not to say there will no hiccups along the
forecasts, indicate 11% EPS growth for the US,                                             way. US growth has shown an uncanny knack in
5% for Europe ex UK and 13% in emerging                                                    recent years of surprising on the upside at the start
markets this year.                                                                         of the year and then disappointing over the spring
                                                                                           and summer. Our economists expect the same this
We see the multiple expanding a little further – or
                                                                                           year, as the effect of the payroll tax rises and
at least holding its current level – since valuations
                                                                                           sequestration come through.
are undemanding by historical standards.
Quantitative easing in the US will continue all
year at the rate of USD85bn a month, in our view,
with the Bank of Japan lately joining the party,
with a plan to buy USD74bn a month. The
European Central Bank (ECB) has a much less
expansionary monetary policy (its balance-sheet is
actually shrinking) but its programme of Outright
Monetary Transactions (OMT) is effectively a put
option for any large peripheral country that runs
into trouble (though we see no signs of this on the
immediate horizon). The continuation of
accommodative monetary policy – triggering
increased willingness by retail investors to take
risk in the equity market – could push down the
risk premium a little further.




                                                                                                                                                                     5
      Equity Insights Quarterly
      Global                                                                                                                 abc
      Second Quarter 2013




And, to a degree, the stock market has run ahead                     (notably peripheral Europe and some emerging
of the economy and it may require a pause (or                        markets). Successful portfolio management over
mild correction) to bring it back in line. There                     the next nine months may, we believe, be more a
hasn’t been a pullback in MSCI ACWI of 5% or                         matter of smart allocation and stockpicking, rather
more since September-November last year (Chart                       than – as has been the case for the past five years –
3). One may be overdue. The bull market                              getting the macro calls right.
beginning in March 2009 has been characterised
                                                                     But before we get on to The View, with our
by numerous 5%-plus corrections (eight so far,
                                                                     recommendations for country and sector
compared to only five in the entire 2003-7 bull
                                                                     allocation (see p.17), here is how we see the key
market) – unsurprising given the unusually high
                                                                     macro drivers.
level of risk.
                                                                     Economic surprises – just seasonal?
 Investor sentiment had got too optimistic at the
end of January and, partly as a result, global                       How much has the rally over the past four months
equities have been treading water since then                         been driven by better economic data? Perhaps a
(MSCI ACWI is up only 1%). Sentiment, as we                          little. HSBC’s Surprise Indexes (Chart 4) for both
will show later, has since fallen to neutral levels,                 the US and Eurozone have picked up since Q4,
but it may need to come down a little further                        although the European numbers have started to
before the next strong up-leg for equities.                          surprise on the downside again in recent weeks –
                                                                     and note that, despite investor excitement, the
But everything (earnings, monetary policy,                           Japanese economy continues to disappoint.
valuation, investor sentiment) is lined up to suggest
that there should be modest further rises in equities
to the end of the year. We believe it is more a
question now of where to invest, not whether to.
Correlations between markets and stocks have
fallen sharply this year, back to more normal levels.
While global equities have risen healthily, there are
plenty of markets that are down year-to-date



    3. 5%-plus corrections in MSCI AWCI since 2009

    400                                                                   -24%
                                                                    -7%
    350                                                                                       -14%        -7%
                                             -16%        -6%
                                     -10%
    300
                       -8%
    250


    200


    150
      Jan-09             Jul-09     Jan-10      Jul-10     Jan-11         Jul-11     Jan-12      Jul-12         Jan-13

    Source: MSCI, Bloomberg, HSBC




6
   Equity Insights Quarterly
   Global                                                                                                                                    abc
   Second Quarter 2013




 4. HSBC Surprise Indexes                                               Q3. He sees government spending and
  40                                                                    consumption being hit by the recent changes in
  30                                                                    tax and fiscal policy. We don’t think this
  20
  10                                                                    slowdown is likely to be a tremendous shock to
   0                                                                    the equity market (indeed, consensus GDP
 -10
 -20                                                                    forecasts have already been pared back to 1.8%
 -30                                                                    for the US in 2013 – Chart 6) but it might hurt
 -40
 -50                                                                    sentiment temporarily.
       01 02 03 04 05 06 07 08 09 10 11 12 13                            6. Consensus 2013 real GDP growth forecasts (%)
                    US                   Eurozone            Japan
                                                                         6
 Source: HSBC FX Quantitative Strategy
                                                                         5
                                                                         4
But, since 2009, the US Surprise Index has a                             3
tendency to rise around the start of the year and                        2
                                                                         1
then dip in the spring and summer. This can be
                                                                         0
seen more clearly in Chart 5.                                            -1

 5. US Surprise Index since 2010                                              Jan-12     Apr-12        Jul-12      Oct-12   Jan-13

                                                                                       US                       Eurozone         Asia ex J
 10                                                                                    UK                       Japan
   0
                                                                         Source: Consensus Economics
 -10
 -20                                                                    The slowdown was perhaps presaged by the
 -30                                                                    surprisingly weak US manufacturing ISM in
 -40                                                                    March, which fell to 51.3 from 54.2 in February
 -50                                                                    and against a consensus expectation of 54.0.
       Jan             Apr                 Jul             Oct
                                                                        The manufacturing ISM, as we have often argued,
               2010              2011               2012         2013
                                                                        is perhaps the single best cyclical indicator for
 Source: HSBC FX Quantitative Strategy
                                                                        global stocks (and has a key advantage of being
                                                                        published quickly). The correlation with the y-o-y
There may be some problems with seasonal
                                                                        change in the MSCI ACWI is 0.8 over the past 20
adjustment, with the huge drop in activity after
                                                                        years, with every major market (except China)
October 2008 being interpreted by some
                                                                        having a correlation with it of at least 0.5 (Chart 7
adjustment software as a seasonal effect.
                                                                        and Table 8). As a rough rule of thumb, an ISM
Announcements of new monetary policy measures
                                                                        over 50 means that stocks rise y-o-y.
have often happened in late summer (around the
Jackson Hole conclave), giving a short-lived boost
to growth.

Whatever the reason, it seems possible that
growth may slow seasonally again this year too.
Our US economist, Kevin Logan, thinks q-o-q
annualised GDP growth was 3.3% in Q1, but that
it will slow sharply to 0.9% I nQ2 and 1.1% in



                                                                                                                                               7
      Equity Insights Quarterly
      Global                                                                                                                                         abc
      Second Quarter 2013




    7. US manufacturing ISM v MSCI ACWI                                        9. US GDP forecasts vs S&P500 index

                       ISM (LHS)             MSCI index y /y %                             US 12m fw d GDP (LHS)               SPX % y -o-y
    70                                                                 60      6                                                               60
    65                                                                         5
                                                                       40                                                                      40
    60                                                                         4
    55                                                                 20      3                                                               20

    50                                                                 0        2                                                              0
    45                                                                 -20      1                                                              -20
    40                                                                          0
    35                                                                 -40     -1                                                              -40
    30                                                                 -60     -2                                                              -60
         89       93         97        01        05      09       13                01 02 03 04 05 06 07 08 09 10 11 12 13

    Source: MSCI, Thomson Reuters Datastream, HSBC                             Source: Consensus Economics, HSBC



8. Highest correlations with the US manufacturing ISM                         Bolstered by QE
MSCI index                                  20-year correlation with US ISM   In our view, the main explanation for the market
US                                                                     0.80   running a little ahead of the economy and
World                                                                  0.80
UK                                                                     0.79   earnings – and the reason why the multiple has
Japan                                                                  0.77   expanded further this year – is central bank action.
Sweden                                                                 0.77
Switzerland                                                            0.76
South Africa                                                           0.75   The Fed has already grown its balance-sheet this
Canada                                                                 0.72   year by USD269bn (or 9%), in line with its
Mexico                                                                 0.72
Korea                                                                  0.72   commitment at the end of last year to buy
HK                                                                     0.70
Netherlands                                                            0.70   USD85bn of Treasuries and mortgage-backed
France                                                                 0.70   securities a month. This is shown in Chart 10,
GEMS                                                                   0.69
Australia                                                              0.69   with our estimate of the end-2013 balance-sheet
Germany                                                                0.69
Singapore                                                              0.68   shown as the dot on the far right.
Taiwan                                                                 0.68
Italy                                                                  0.66    10. Central bank balance-sheets (2007=100)
Russia                                                                 0.62
India                                                                  0.60    650                 Fed             ECB        BoE        BoJ
Spain                                                                  0.54
Brazil                                                                 0.53    550
China                                                                  0.46
                                                                               450
Source: MSCI, Thomson Reuters Datastream, HSBC
                                                                               350

We also worry slightly that stocks have run up in                              250
the short term a little more than would be justified                           150
by the economic numbers. There is a reasonable                                  50
correlation between the 12-month forward real                                        07       08         09        10    11     12     13
GDP growth forecast in the US (calculated using
                                                                               Source: Bloomberg, HSBC
a rolling mix of this and next year’s consensus
forecasts) and US stocks (Chart 9). The recent rise
                                                                              The Bank of Japan has done less to date – its
in the S&P500 is more compatible with 3% US
                                                                              balance-sheet has grown by only 4% since end-
growth rather than the 2% or so that the consensus
                                                                              December – but its recently announced JPY51trn
forecasts for the next 12 months.
                                                                              of asset purchases by year-end represent a 27%
                                                                              ballooning of its assets from now on (compared to


8
   Equity Insights Quarterly
   Global                                                                                                                                            abc
   Second Quarter 2013




 11. MSCI ACWI, shown against monthly changes in the Fed and ECB balance-sheets

  15%                                                                                                                                        400
                                  QE1                                                 QE2                    LTROs            Draghi/
  10%
                                                                                                                              QE3            350


   5%                                                                                                                                        300

   0%                                                                                                                                        250


  -5%                                                                                                                                        200

 -10%                                                                                                                                        150
          09                                    10                                   11                        12                     13
                                Fed                                                    ECB                                  ACWI (RHS)

 Source: MSCI, Bloomberg, HSBC (Grey shaded area represents periods of QE by either the Fed or ECB)




a scheduled 23% increase for the Fed). The Bank                                              The theory and the practice of QE and equities
of England is harder to forecast, since much will                                            Why should QE matter for equities anyway? After
depend on the direction taken by new governor,                                               all, our economists believe that it has done little
Mark Carney, who takes office in July.                                                       for the economy. In their latest Quarterly, they
                                                                                             argue that “despite the efforts of central banks so
The odd one out is the ECB (or, to be accurate, the
                                                                                             far…the growth consequences [of the enormous
Eurosystem, since our data include the balance-
                                                                                             expansion in their balance-sheets] have been
sheets of the Eurozone national central banks). Its
                                                                                             disappointing” (see The central banking
balance-sheet has shrunk by EUR375bn (12%)
                                                                                             revolution, March 2013).
since the start of the year, mainly because some
banks repaid their long-term refinancing operation                                           In practice, at least, periods of QE have clearly
(LTRO) funds. The ECB is reluctant to be                                                     been positive for equities. Since 2009, in months
aggressive about monetary policy. Its official rate                                          when either the Fed or ECB expanded its balance-
remains at 0.75% (compared to 0.25% for the Fed                                              sheet significantly – shown as the grey areas in
and 0.1% for the BoJ). It has discussed liquidity                                            Chart 11 – MSCI ACWI has risen by 2.6% a
injections only to reduce systemic risk, rather than                                         month on average; outside these periods it has
to boost growth (as the other three major central                                            fallen by 2.3%.
banks have explicitly done). Its OMT programme
                                                                                             How does QE affect equities in theory? QE does
will kick in in the event of a peripheral Eurozone
                                                                                             seem to have had some impact on money supply
country experiencing a destabilising rise in its bond
                                                                                             growth (Chart 12), which often is well correlated
yield and on condition that the country applies for a
                                                                                             with equities. This impact is especially clear in the
finance package from the European Union. In that
                                                                                             US: for example, M1 growth accelerated in 2010-
sense, it reduces tail risk. But the ECB’s reluctance
                                                                                             11 under QE2 and then slowed after that
to use QE in any other way is, in our view, a
                                                                                             programme ended in mid-2011. But in the
significant drag on European stocks (and one
                                                                                             Eurozone, M1 and M3 showed only a modest rise
reason why we have gone underweight on them).
                                                                                             after the LTROs in December 2011 and February
                                                                                             2012. The difference may come down to banks’
                                                                                             willingness to use the extra liquidity: in the US,



                                                                                                                                                       9
     Equity Insights Quarterly
     Global                                                                                                        abc
     Second Quarter 2013




banks have been increasing outstanding loans in            Put in an equity context, this signaling implies
the past couple of years (in February total lending        (1) a commitment by the central bank to do
was up 4% y-o-y), whereas in Europe balances are           “whatever it takes”, in ECB president Mario
shrinking 2% y-o-y.                                        Draghi’s words, to prevent systemic downside
                                                           risk, and (2) that the central bank commits not to
 12. US and Eurozone money supply growth (% y-o-y)
                                                           tighten policy prematurely, even after the first
 20
                                                           signs of growth or moderate inflation reappear.
 15                                                        Those effectively reduce risk (systemic risk and
                                                           excess tightening risk) for equities and hence
 10
                                                           justify a lower risk premium. That, in our view, is
     5                                                     why the rally in equities since November has been
                                                           driven by multiple expansion and, therefore, why
     0
                                                           the expansion is likely to persist as QE continues.
         07     08       09      10   11      12      13
                     US M1                    EZ M1        Flows still lumpy
                     US M2                    EZ M3

 Source: Bloomberg, HSBC
                                                           The lower perceived risk has finally persuaded
                                                           investors back into risk assets. But, despite the
Standard academic theory argues that QE works              general perception that there has been a “Great
through the “portfolio rebalancing effect”, forcing        Rotation” from bonds into equities, in fact both
down risk-free rates and thereby pushing investors         asset classes have seen strong retail investor
to buy riskier assets. This undoubtedly has been a         buying in the past few months (Chart 13). Equity
factor in the past few months, as investors finally        funds have seen USD103bn of inflows y-t-d and
began to get fed up with the low yields available          bond funds USD49bn. What seems to have
on relatively safe government bonds and took the           happened is that investors have pulled money out
bait to buy equities (see below). But investors            of low-risk assets, such as bank deposits, and put
remained rather nervous of equities during                 them to work in mutual funds, starting with bonds
previous rounds of QE, so this cannot be a                 in early 2012 and then adding equity funds from
complete explanation.                                      late last year.

The most recent academic work tends to                     It is tempting to think that the portfolio switch has
emphasise the signaling effect of QE. Michael              now taken place, since the flows into equities
Woodford of Columbia University – who literally            have been the fastest since EPFR started
wrote the textbook on monetary policy theory –             collecting this data in the mid-1990s.
argued in a key speech entitled Methods of Policy
Accommodation at the Interest-Rate Lower Bound
at the Jackson Hole symposium last August that
“[asset] purchases can be helpful as ways of
changing expectations about future policy –
essentially, as a type of signaling that can usefully
supplement purely verbal forms of forward
guidance”. He prefers, however, more explicit
signals such as a commitment to return nominal
GDP to the previous trend path.



10
   Equity Insights Quarterly
   Global                                                                                                                                       abc
   Second Quarter 2013




 13. Net flows into mutual funds globally (USDbn)                             14. Net flows into equity funds, by domicile of fund (USDbn)

 800                       Bond             Equity            MMF                 250
                                                                                                  US        Europe          RoW
 600                                                                              200
 400                                                                              150

 200                                                                              100
    0                                                                             50
 -200 04      05      06     07     08      09     10    11    12   13              0
 -400                                                                             -50 04     05   06   07   08   09    10     11     12   13

 -600                                                                         -100

 Source: EPFR (MMF=Money market funds)                                        Source: EPFR



But the inflows have so far been heavily tilted to                          Sentiment has calmed down
the US, which represents 75% of this year’s net                             Indeed, market sentiment seems to have cooled
flow (Chart 14). European investors have been                               from the rather optimistic levels that existed in
much more cautious and those in the rest of the                             late January.
world have put only USD1.7bn into equity funds
since the start of the year. This data certainly                            This can be seen in our revamped Sentiment
chimes with anecdotal evidence that retail                                  Index. This uses the CBOE put/call ratio, the VIX
investors in Germany, Switzerland – and even                                and the AAII survey of individual investors, and
Singapore and Hong Kong – have remained wary                                we have now added global mutual fund flows,
of buying equities.                                                         which we find are a good contrarian indicator for
                                                                            short-term performance. We have also de-trended
We expect that over the rest of the year – barring                          the series, which makes it easier to spot peaks and
a much worse fundamental outlook than we are                                troughs (see Tracking global investor sentiment,
forecasting – retail investors will be net buyers.                          8 April for details).




 15. HSBC Sentiment Index

 1.5                                                                                                                                      6.0
                                                                                                            Sentiment bull ish
 1.0                                                                                                                                      5.9

 0.5
                                                                                                                                          5.8
 0.0
                                                                                                                                          5.7
 -0.5

 -1.0                                                                                                                                     5.6

                                                                                                            Sentiment bear ish
 -1.5                                                                                                                                     5.5
    Dec-09          Apr-10         Aug-10          Dec-10      Apr-11    Aug-11         Dec-11     Apr-12     Aug-12        Dec-12

                                  Sentiment indicator                                             MSCI ACWI (RHS, logged)
 Source: Thomson Reuters Datastream, EPFR Global, HSBC




                                                                                                                                                  11
     Equity Insights Quarterly
     Global                                                                                                                                               abc
     Second Quarter 2013




The latest Sentiment Index is shown in Chart 15.                                   17. Consensus forecasts of EPS growth by market

Sentiment has subsided since January, with the                                     40%
index now just above its long-term average. Of
                                                                                   30%
the four indicators, only the VIX, at around 12,
                                                                                   20%
suggests investors are overly optimistic. By
contrast, in the AAII survey, only 38% of                                          10%

respondents at the end of March said they thought                                    0%
US stocks would rise over the next six months,                                     -10%
down from a peak of 52% at the end of January.                                               ACWI        US        UK      Ex UK       EM    JP     AEJ
                                                                                                       2012f         2013f        2014f      (FY)
Sentiment is now broadly neutral, suggesting that
fundamental developments are likely to drive                                       Source: MSCI, Thomson Reuters Datastream, I/B/E/S, HSBC

markets over the next few months.
                                                                                  In our view, the main reason for the
Can earnings pick up the baton?                                                   disappointment last year was the unexpected
In particular, markets would need to see clearer                                  slowdown in emerging markets demand – a key
signs of earnings growth coming through (the                                      marginal driver of revenue growth for European
other part of our calculation of a 15% rise in                                    and US companies as well as for the EM
equities this year) in order for them to make                                     corporates themselves. Emerging economies
significant progress over the next few quarters.                                  performed much worse than the consensus among
                                                                                  economists had predicted at the start of the year,
Earnings have disappointed over the past 18
                                                                                  while the European and the US economies were
months or so. At the start of 2012, the consensus
                                                                                  roughly in line with (low) expectations. This both
expected about 11% global growth during the
                                                                                  lowered revenue growth and hurt margins. The
year; it now looks as though it came in at only 1%
                                                                                  US may have been less affected because
(Chart 16).
                                                                                  companies there have less exposure to EM than
 16. Consensus forecast of y-o-y EPS growth (%) by year                           do European companies.
 20
                                                                                  So an important factor in whether the consensus is
 15                                                                               right in forecasting 11% global earnings growth
                                                                                  this year is whether the recent improvement in
 10                                                                               EM growth can be sustained.

     5                     2011                 2012                              The lead indicators for earnings are pointing in
                           2013                 2014
                                                                                  the right direction. Earnings momentum (how the
     0
                                                                                  12-month forward consensus EPS forecast has
         Jan-10


                  Jul-10


                              Jan-11


                                       Jul-11


                                                       Jan-12


                                                                Jul-12


                                                                         Jan-13




                                                                                  changed over the past six months) for MSCI
                                                                                  ACWI turned positive in February for the first
 Source: MSCI, Thomson Reuters Datastream, I/B/E/S, HSBC
                                                                                  time since mid-2012 (Chart 18). All major
The disappointments were across the board: Europe                                 markets are now showing positive earnings
and emerging markets saw negative growth, and                                     momentum (Table 19), with Japan and Asia ex
even the US managed only 7% (Chart 17).                                           Japan particularly strong.




12
     Equity Insights Quarterly
     Global                                                                                                                                                                  abc
     Second Quarter 2013




  18. Earnings momentum*: MSCI ACWI                                                             But, here again, we see some signs that MSCI
   30%                                                               ACWI                       ACWI has risen faster than the earnings revisions
   20%                                                                                          would justify – revisions would need to go back
   10%                                                                                          over 50 to justify equities continuing to rise at a
    0%                                                                                          10-15% annual pace.
  -10% 93            96         99        02         05         08        11
                                                                                                   20. ACWI earnings revision ratio vs MSCI ACWI index
  -20%
                                                                                                  %                                                                    %
  -30%                                                                                            90                                                                   60
                                                                                                  80
  -40%                                                                                                                                                                 40
                                                                                                  70
                                                                                                  60                                                                   20
  Source: MSCI, Thomson Reuters Datastream, I/B/E/S, HSBC (*Change over past six
                                                                                                  50
  months in the 12-month forward EPS forecast)                                                                                                                         0
                                                                                                  40
                                                                                                  30                                                                   -20
19. Earnings momentum by market                                                                   20
                                                                                                                                                                       -40
                                                                                                  10
                            Now           3m ago           6m ago            1yr ago               0                                                                   -60
ACWI                       2.7%             -3.6%             -0.3%               0.3%                  04    05 06 07 08 09                        10 11 12 13
US                         1.9%             -1.4%              2.3%               4.9%                       ACWI earning rev isions                  MSCI ACWI YoY (RHS)
EUR x UK                   1.1%             -6.9%             -1.6%              -8.5%
UK                         3.9%             -8.8%             -5.0%              -2.1%
                                                                                                   Source: MSCI, Thomson Reuters Datastream, I/B/E/S, HSBC
JP                        14.4%             -5.2%              1.5%              -4.6%
GEM                        2.7%             -2.8%             -1.2%               4.4%
AEJ                        4.6%             -2.2%              0.7%               4.0%
                                                                                                Top-down model points to 10% growth
Source: MSCI, Thomson Reuters Datastream, I/B/E/S, HSBC
                                                                                                We have expanded HSBC’s top-down earnings
                                                                                                models to include the emerging markets (see What
The other earnings indicator we keep a close eye on,
                                                                                                drives EM performance? 20 February for details).
the analysts’ revision ratio (Chart 20), has also been
                                                                                                The updated models (Table 21) suggest that the
moving up since August last year, although it
                                                                                                consensus is a little too cautious on US earnings
remains below 50 – in other words, analysts are
                                                                                                growth for this year, especially at the revenue line
cutting more forecasts than they are raising, but the
                                                                                                (perhaps reflecting our above-consensus forecasts
pace of downward revisions has declined. The ratio
                                                                                                for EM economic growth): the model indicates 11%
has been a good leading indicator for the equity
                                                                                                EPS growth versus a consensus forecast of 7%.
market (note, for example, how it bottomed in early
2009 and mid-2012 before the market began to rise).


21. HSBC top-down earnings model
                              US                                                              Europe ex UK                                                     EM
                                                                         2013       2014                                                         2013   2014                         2013   2014
Sales growth (%)              HSBC                                           8          9     HSBC                                                  2      4   HSBC                   13     14
                              Consensus                                      3          5     Consensus                                             1      4   Consensus                9      7
Inputs                        US consumption growth                        1.7        2.1     EU Cons growth                                     -0.2    0.6   EM GDP                 5.4    5.7
                              World investment growth                      5.1        5.9     World investment growth                             5.1    5.9   EM CPI                 5.7    5.8
                              US CPI                                       1.7        1.8     Euro/$                                              2.0    4.0
                                                                                              EU CPI                                              1.8    1.7
Margin expansion (%) HSBC                                                  3.3       4.7      HSBC                                                3.8    3.2   HSBC                  -0.2    2.3
                     Consensus                                             4.0       6.3      Consensus                                           7.2    9.1   Consensus             12.0    3.3
Inputs               Sales growth                                          7.8       9.1      Sales growth                                        1.5    3.6   EM GDP                 5.4    5.7
                     Wage growth                                           2.0       2.0      Avg wage growth                                     2.1    2.0   Chinese wage growth   13.5   13.0
                     Tax rate                                             30.0      31.0      Tax rate                                           31.0   31.0   Tax rate              24.5   25.0
                     Corp bond yield (5yr avg)                             4.2       3.4      Avg govt bond yield (5y avg)                        2.0    1.8
EPS growth (%)       HSBC                                                  11        14       HSBC                                                  5      7   HSBC                   13     16
                     Consensus                                               7       12       Consensus                                             8    13    Consensus              15     11
Source: Thomson Reuters Datastream, HSBC “HSBC world investment forecasts have been adjusted to be consistent with historical World Bank data”




                                                                                                                                                                                              13
     Equity Insights Quarterly
     Global                                                                                                                                   abc
     Second Quarter 2013




In Europe, the model suggests that the consensus         22. 12-month forward PE, MSCI ACWI

expectation of a big rebound in margins is               25
excessive: this means that the model prediction of       20
EPS growth is a little lower than the consensus at
                                                         15
5% versus 8%.
                                                         10
For the emerging markets, the model points to             5
stronger revenue growth but no margin expansion                                    MSCI ACWI
                                                          0
(where analysts look for a strong recovery in
                                                              88 90 92 94 96 98 00 02 04 06 08 10 12
margins), with the result that the EPS forecasts for
the two come out looking similar.                        Source: MSCI, Thomson Reuters Datastream, I/B/E/S, HSBC (Red lines show rolling
                                                         historical mean and 1 standard deviation either side of the mean)

On a weighted basis, the models point to global
EPS growth of 10%, roughly in line with the            But that is still almost one standard deviation
analysts’ consensus forecast. Of course, this          below the average of 15.9x since the MSCI
implies that analysts won’t revise up their            indexes began in 1988. Indeed, every major
forecasts in aggregate this year – and that,           region is trading well below the long-run average
therefore, the revisions ratio is unlikely to move     on both forward PE and PB (Table 23).
above 50 any time soon. That’s another reason          23. Forward PE and PB for major markets compared to history
why, absent any major upside surprises for global                        PE                                        PB
                                                                                 Hist      # of  % of                       Hist       # of
growth, we are reluctant to push our targets for                                 ave     stdev months                       ave      stdev
                                                                                          from  lower                                 from
equity returns this year higher than 15%.                                                   ave                                         ave
                                                       ACWI            12.9     15.8        -0.9          19     1.88       2.44       -1.0
Valuation is not an issue                              US              13.9     15.4        -0.4          38     2.39       2.89       -0.5
                                                       EUR x UK        12.4     14.3        -0.5          35     1.51       2.09       -0.8
A word on valuation. We won’t go into this topic       UK              11.4     13.7        -0.6          30     1.80       2.29       -0.8
in detail, partly because we have discussed it fully   JP              14.3     30.0        -1.1          13     1.26       2.05       -0.8
                                                       GEM             10.3     13.3        -0.8          22     1.63       1.83       -0.5
in previous Quarterlies, partly because we think it    AEJ             10.6     14.5        -0.9          17     1.68       1.92       -0.6
is incontrovertible that valuations in most markets    Source: MSCI, Thomson Reuters Datastream, I/B/E/S, HSBC

remains cheap by historical standards and that
valuation, therefore, is unlikely to be a major        And valuations look even cheaper if one takes
driver of markets over the coming months.              current low interest rates into the equation. For
                                                       example, the global earnings yield (1/PE) is
The forward PE for MSCI ACWI has been rerated
                                                       currently 7.8%, compared to the average yield on
to 12.9x, from 12.2x at the end of December last
                                                       BBB-rated corporate bonds of 4.9% (Chart 24).
year and 10.7x at the end of 2011 (Chart 22).
                                                       The earnings yield has been above the bond yield
                                                       steadily since 2010 but not before that sustainably
                                                       at any time, probably since the 1950s. Note,
                                                       however, that the spread has come down to 290bp
                                                       recently from a high of 420bp last summer – and
                                                       our multi-asset team argues now that, on a tactical
                                                       basis, relative value favours credit over equity
                                                       (see Time to slash risk, 3 April).




14
     Equity Insights Quarterly
     Global                                                                                                                   abc
     Second Quarter 2013




25. HSBC dividend discount model
                                                             S&P500    FTSE100       DAX        CAC        TPX    Hang Seng
Underlying data
Current DY                                                    2.2%       3.8%       3.4%       4.1%       1.9%        3.6%
Current index level                                           1,560      6,344      7,817      3,726      1,038      22,337
Next 2 years’ consensus forecast EPS growth (%)                 9.5        8.5        5.0        7.2       32.9         9.0
Payout ratio now (%)                                           31.2       44.3       39.4       45.9       38.2        38.3
Assumptions
Growth in stage 2                                               2.0        2.0        2.0        2.0        2.0         4.0
No. of years of stage 2                                           8          8          8          8          8           8
Payout ratio at end of stage 2                                  40         50         60         60         50          40
Perpetual growth rate                                           4.0        4.0        4.0        4.0        3.0         4.0
Equity risk premium                                             4.0        4.5        6.0        6.0        4.0         5.5
COE (%)                                                         5.8        6.3        7.8        7.8        5.8         7.3
Results
Fair value                                                    2,061      9,035      7,597      3,814        974      25,478
Under/overvalued (%)                                          -24.3      -29.8         2.9       -2.3       6.5       -12.3
Implied ERP                                                      5.4        6.5        5.8        6.2       3.7         6.3
Fair PE                                                        18.6       16.5       11.3       11.6       13.3        12.1
Source: Thomson Reuters Datastream, I/B/E/S, HSBC



  24. Global earnings yield vs BBB 5-year bond yield                   The results suggest that the US market, in
  12                                                                   particular, looks very undervalued, even if we
  10                                                                   assume only very low nominal earnings growth of
   8                                                                   2% a year in 2015-2022 and 4% after that.
   6                                                                   Europe, by contrast, looks around fair value. But
   4
                                                                       the reason for this is the high equity risk premium
   2
                                                                       (ERP) we assume (6%), because European
   0
                                                                       markets have recently been so much more volatile
       88 90 92 94 96 98 00 02 04 06 08 10 12
                                   EY               BBB BY             than the US. Europe would look cheap when
                                                                       volatility comes down enough to justify an ERP
  Source: MSCI, Thomson Reuters Datastream, I/B/E/S, HSBC
                                                                       of 4-5%, something that our European strategists
We have also updated our dividend discount model                       do expect over the long term. But we have also
(Table 25). This takes consensus forecasts for                         assumed similar growth in Europe as in the US
earnings and dividends this year and next, makes                       and this may be too optimistic given poorer
assumptions for growth in the 2015-2022 period and                     demographics and the medium-term problems
then in perpetuity after that. We use 10-year US                       caused by the Euro.
Treasuries as the risk-free rate and our standard                      Japan also looks only around fair value, partly
methodology for equity risk premium (which                             because we assume a slightly lower long-term
assumes 4% for the US and then scales up other                         growth rate of 3%. The Hang Seng looks to have
markets based on their volatility relative to the US                   some upside, as long as China-related growth is
over the past 10 years on a time-weighted basis).                      sufficient to allow EPS growth of 4% in Stage 2.
As with all such discount models, it is very
sensitive to the assumptions used, particularly for
the cost of equity (COE). It is most useful,
therefore, to see what the current level of the
market implies in terms of growth and COE.




                                                                                                                                15
     Equity Insights Quarterly
     Global                                                                                                                       abc
     Second Quarter 2013




But what sort of market?                                   27. Least correlated industrial group with M SCI ACWI

One under-appreciated characteristic of the global                                         Minimum
                                                           1.0
equity market this year is that the risk on/risk off
paradigm which has dominated since the Global              0.5
Financial Crisis began in 2007 seems to be
waning. Finally investors are being rewarded for           0.0
making the correct allocation decisions and                       95    97     99     01    03    05    07      09     11    13
picking stocks rather than just getting their macro        -0.5
calls and market timing right.
                                                           -1.0
Chart 26 shows the average correlation between
                                                           Source: MSCI, Bloomberg, HSBC
the 49 countries in the MSCI ACWI and the
overall index. This has fallen to 0.45 in Q1 of this
                                                          The same phenomenon can be seen at the
year, compared to 0.71 the same period last year.
                                                          individual stock level. The CBOE contract on the
Japan, for example, has had a correlation of only
                                                          implied correlation of stocks in the S&P500 has
0.27 this year, compared to 0.65 in Q1 last. South
                                                          fallen to 0.56 recently, the lowest level since 2008
Africa is 0.12 versus 0.87.
                                                          (Chart 28).
 26. Average correlation between countries in MSCI ACWI
                                                           28. Implied correlation between S&P500 stocks
 1.0                                                       90
                   Av erage
 0.8
                                                           80
                                                           70
 0.6                                                       60
                                                           50
 0.4                                                       40
                                                           30
 0.2
                                                           20
 0.0                                                       10                                               Implied correlation
                                                            0
       90 92 94 96 98 00 02 04 06 08 10 12
                                                                07        08         09      10        11         12        13
 Source: MSCI, Bloomberg, HSBC
                                                           Source: Bloomberg, HSBC


The effect is a little less obvious at the sector
                                                          With this in mind, please turn over to The View
level. The correlation with the headline index has
                                                          section where we explain our country and sector
fallen to 0.82 from 0.88. But the decline can best
                                                          recommendations in detail.
be seen by looking at the global sector which has
the lowest correlation with ACWI (Chart 27).
Early last year there were periods when the least
correlated sector still had a 0.92 correlation. This
March the least correlated (tech hardware) was
down to 0.36.




16
   Equity Insights Quarterly
   Global                                                                                                                           abc
   Second Quarter 2013




The View
 Global equities expected to grind higher out to the year-end (+9%
      total return)
 OW: US, EM, Financials, IT and Telecoms
 UW: Europe-ex-UK, Consumer Discretionary, Industrials and
      Utilities



After the bounce                                                         Given this outlook we place more emphasis on the
                                                                         shorter-term drivers of equity returns: earnings
Global equities rose by 6% in Q1, continuing their
                                                                         momentum and the monetary policy backdrop (see
strong performance from the second half of last
                                                                         pages 19 and 26 below and page 31 for a detailed
year. This rally has largely been driven by a
                                                                         description of the scorecard methodology). We
reduction in tail-risks and a declining risk
                                                                         continue to like value as a longer-term theme, but
premium – equity multiples have expanded
                                                                         following strong performance over the past two
sharply but there has been little change in
                                                                         quarters we scale back our exposure and only favour
underlying expectations for growth (chart 1). We
                                                                         those sectors or countries where valuations remain at
feel that the re-rating story is almost complete, but
                                                                         extreme lows.
equities should continue to grind higher on the
back of modest earnings growth. Our MSCI All                             At the regional level this points to a more positive
Country world index target for end-2013 implies                          stance on the US where earnings momentum has
9% return over the next three quarters.                                  consistently beaten the rest of the world over the
                                                                         past year, and we expect further upgrades in the
                                                                         coming quarters. We had previously favoured


 1. MSCI ACWI 12 month fwd PE and EPS                                     2. MSCI world value vs. growth

 14                                                                 31    3.0

 13                                                                 30    2.5

 12                                                                 29    2.0

 11                                                                 28    1.5

 10                                                                 27    1.0

                                                                          0.5
  9                                                                 26
                                                                                74 77 80 83 86 89 92 95 98 01 04 07 10
   Dec-10        Jun-11         Dec-11        Jun-12       Dec-12
             12 mth fw d PE                     12 mth fw d EPS (RHS)                                 MSCI World v alue/grow th

 Source: MSCI, Thomson Reuters Datastream, I/B/E/S, HSBC                  Source: MSCI, Thomson Reuters Datastream, I/B/E/S, HSBC




                                                                                                                                      17
     Equity Insights Quarterly
     Global                                                                                                                                                                              abc
     Second Quarter 2013




Europe on valuation grounds, but following a                               Overweight: Financials, IT, Telecoms
period of strong performance the relative                                  Underweight: Utilities, Industrials,
valuation case is no longer as clear. We                                    Consumer Discretionary
therefore raise the US to overweight and lower
Europe to underweight.                                                    Q1 performance recap
                                                                          Global equities continued their strong
Elsewhere, we remain overweight EM where
                                                                          performance in Q1, rising 7% in USD terms.
valuations do still look attractive, and where
                                                                          However, there was big divergence at the regional
prospects for growth are considerably better. And
                                                                          level with the rise largely driven by Japan (+12%)
we raise Japan to neutral following the recent
                                                                          and the US (+11%). In contrast, Europe
announcements on monetary policy.
                                                                          underperformed the global market and EM and
On sectors, we favour Financials and IT due to                            Asia ex-Japan equities actually declined in
their strong earnings momentum and relatively                             absolute terms by -2% and -0.5% respectively.
cheap valuations, and we remain overweight
                                                                          Currency moves also had a very large impact on
Telecoms given its attractive long-term story and
                                                                          performance with dollar strength leading to
the potential for further positive newsflow in the
                                                                          weaker USD returns in all other regions. This was
near term. Our underweights are Utilities,
                                                                          obviously most significant in Japan and the UK,
Industrials and Consumer Discretionary.
                                                                          but it also had a large impact in Europe-ex-UK.
Strategy in bullets                                                       At the sector level, performance continued to be
 MSCI ACWI expected to record 9% total                                   mixed. Defensive sectors led the way in the form of
  return by end-2013                                                      Health Care (+14%) and Consumer Staples (+12%),
 Remain overweight EM and raise the US to                                but Consumer Discretionary (+9%) and Industrials
  overweight (from underweight)                                           (+8%) also outperformed the overall market.
 Remain overweight Asia ex Japan
 Neutral on the UK
 Raise Japan to neutral (from underweight)
 Lower Europe-ex-UK to underweight (from
  overweight)


 3. MSCI regional performance: Q1 2013                                      4. MSCI sector performance: Q1 2013

 25                                                                        20
 20
                                                                           15
 15
 10                                                                        10

     5                                                                       5
     0
                                                                             0
  -5
                                                                                  Health

                                                                                           Con Stap



                                                                                                                     Industrials




                                                                                                                                                       Utilities
                                                                                                                                   ACWI




                                                                                                                                                                           IT
                                                                                                          Con Disc




                                                                                                                                                                   Telco
                                                                                                                                          Financials




                                                                                                                                                                                Energy
                                   ACWI
                          DM
         JP

                 US




                                                    UK




                                                                     EM
                                            EUxUK




                                                              ASxJ




                    $                                    LC                                           $                                                            LC
 Source: MSCI, Thomson Reuters Datastream, HSBC                             Source: MSCI, Thomson Reuters Datastream, HSBC




18
    Equity Insights Quarterly
    Global                                                                                                                          abc
    Second Quarter 2013




Regional/country view
 Raise US to overweight and cut Europe to underweight
 Remain overweight on EM
 Raise Japan to neutral from underweight




Scorecards
5. HSBC regional scorecard
                          Monetary       Growth     Loved / Newsflow /   Valuation Long-term     Dividend      Weighted    HSBC
                     policy/liquidity   surprise   Unloved     shocks                  story         yield      average      call
                                20%         20%        10%        10%         10%       20%           10%         100%
EM                                 0          1          3          -1           2           2             1       1.10        O
US                                 3          1         -1           0           0           1             0       0.90        O
Asia ex Japan                      0          0          2          -1           1           2             0       0.60        O
UK                                 2          1         -1          -1           1          -1             2       0.50        N
Japan                              3          0         -1           1           1          -2             0       0.30        N
DM                                 2          0         -3           0           0           0             1       0.20        U
Europe ex UK                       0          0          0          -1           2          -1             2       0.10        U
Source: HSBC




6. HSBC country scorecard
                         Monetary        Growth     Loved / Newsflow /   Valuation   Long-term Dividend        Weighted    HSBC
                    policy/liquidity    surprise   Unloved     shocks                    story     yield        average      call
                               20%          20%        10%        10%         10%         20%       10%           100%
Australia                          0           1         3           0           1           1        2             1.00       O
US                                 3           1        -1          -1           0           1        0             0.80       O
China                              0           0         1           0           2           2        1             0.80       O
Russia                            -1           2         0          -1           2           1        2             0.70       O
Brazil                            -2           1         2           0           2           1        2             0.60       O
Hong Kong                          1           1         1          -2           1           1        0             0.60       O
Singapore                          0           0         1          -1           1           2        1             0.60       O
Korea                              0           0         0           0           2           2        0             0.60       N
United Kingdom                     2           1        -1          -1           1          -1        2             0.50       N
Spain                              0           0         1          -1           3          -1        3             0.40       N
India                              0          -1         1          -1           2           2        0             0.40       N
Canada                             1           0        -1           0           1           0        1             0.30       N
Sweden                             0           1        -1           1          -1           0        2             0.30       N
Japan                              3           0        -1           1           1          -2        0             0.30       N
Germany                            0           0         2           0          -1           0        1             0.20       U
Taiwan                             0          -1         1           0           0           1        1             0.20       U
Mexico                             0          -1         2           1          -2           1        0             0.10       U
Netherlands                        0          -1         2          -1           3          -1        1             0.10       U
Switzerland                        0           0         0           0          -1           0        1             0.00       U
South Africa                       0          -1         2          -1           0           0        1             0.00       U
Italy                              0          -1         0          -2           3          -2        2            -0.30       U
France                             0           0        -2          -1           2          -2        2            -0.30       U
Source: HSBC




                                                                                                                                      19
     Equity Insights Quarterly
     Global                                                                                                                                        abc
     Second Quarter 2013




Emerging vs. Developed                                           (chart 8). However, a notable development in the
                                                                 past couple of months is that these funds have started
 We remain overweight EM
                                                                 buying EM equities again and their underweight
 Valuations are attractive, investors are                       position has been closing. We view this renewed
  pessimistic, and we expect earnings to                         interest as a positive medium-term signal for the
  surprise on the upside                                         region (see Fund holdings: renewed interest in EM,
                                                                 28 March 2013).
 Inflation is a risk for the EM region, but
  we expect price pressures to remain                            Indeed, we believe that sentiment towards EM
  relatively benign this year                                    could improve further given the region’s better
                                                                 growth outlook. Our economists forecast EM
The emerging markets (EM) have underperformed
                                                                 GDP to grow by 5.7% in 2013, compared to DM
developed (DM) by 8% in Q1, giving up all of their
                                                                 of just 1.6%. And our EM earnings model
gains from the second half of last year. However, as
                                                                 suggests we could see upward surprises over the
we outlined in What drives EM performance,
                                                                 next two years. It points to 13% EPS growth in
20 February 2013, we think the region has fallen too
                                                                 2013 and 16% in 2014, compared to consensus of
far out of favour, and that it is well placed to
                                                                 15% and 11% respectively.
outperform over the next few quarters. We therefore
remain overweight EM and underweight DM.                         The one category in our scorecard where EM
                                                                 scores far lower than DM is monetary policy.
Investors’ caution towards EM can be seen in the
                                                                 Indeed, a deteriorating growth/inflation trade-off
region’s relative valuation. It currently trades on a
                                                                 coupled with loose policy in the developed world
forward PE of just 10.3x, which represents a 23%
                                                                 could lead to renewed inflationary pressures in the
discount to DM (chart 7). It is true that EM has
                                                                 EM region. However, with commodity prices
traded at a far larger discount in the past, but this was
                                                                 remaining subdued we do not think this is a
following the Asian Crisis when the region was de-
                                                                 significant risk this year, and our economists are
rated significantly. Compared to a more recent
                                                                 not forecasting the start of a new tightening cycle in
history the current valuation gap is extreme.
                                                                 the major emerging markets.
And the region also looks unloved on our proprietary
holdings analysis with international funds currently 2
standard deviations underweight compared to history


  7. Valuations are attractive in EM                              8. International funds are starting to buy EM again

 30                                                                3.0
 25                                                                2.0
                                                                   1.0
 20                                                                0.0
 15                                                               -1.0
 10                                                               -2.0
                                                                  -3.0
     5
                                                                  -4.0
     0
                                                                                  Dec -06
                                                                         Dec-05




                                                                                             Dec-07

                                                                                                      Dec-08

                                                                                                               Dec-09

                                                                                                                        Dec-10

                                                                                                                                 Dec-11

                                                                                                                                          Dec-12




         87 89 91 93 95 97 99 01 03 05 07 09 11

                        EM                                  DM                              EM activ e w eight: rolling z-score
  Source: MSCI, Thomson Reuters Datastream, I/B/E/S, HSBC         Source: EPFR Global, HSBC




20
   Equity Insights Quarterly
   Global                                                                                                                                      abc
   Second Quarter 2013




US                                                                 Indeed, when we incorporate our global growth
                                                                   estimates into our US earnings model we see a
 We upgrade the US to overweight
                                                                   potential upside surprise on earnings growth
 Monetary policy is the most supportive in                        (chart 9). In 2013 we expect US earnings to grow
  our global universe                                              by 11% versus a consensus expectation of 7%.
                                                                   And in 2014 we forecast earnings growth of 14%
 We see potential for earnings upgrades
                                                                   versus a consensus expectation of 12%.
With the European re-rating story (both absolute
                                                                   Earnings momentum is the US has consistently
and relative) starting to lose momentum, we
                                                                   beaten the rest of the world over the past few years
believe that the time is right to take another look
                                                                   and we expect this to continue in 2013 (chart 10).
at the US where the shorter-term drivers are more
supportive. We upgrade the US to overweight.                       We also expect monetary policy support to drive
                                                                   US outperformance in Q2. In our view, the US
The economic outlook in the US is stronger than
                                                                   has the best monetary policy backdrop in our
for other DM regions with our economics team
                                                                   country universe (see our scorecard table 6). The
expecting US GDP growth to lead the DM world
                                                                   Fed is buying USD85bn of debt a month and has
over the next two years. Of course, there is still a
                                                                   given a clear signal that monetary policy will be
large amount of uncertainty over fiscal policy, but
                                                                   accommodative until the unemployment rate falls
our forecast of 1.7% GDP growth for this year
                                                                   to 6.5%. Our US economists do not expect the
already factors in the implementation of the full
                                                                   purchases to taper off until sometime in the first
USD85bn sequestration. This is broadly in-line
                                                                   half of 2014.
with consensus and therefore we no longer view
the ongoing budget negotiations as a risk to                       Our target for the S&P 500 is raised from 1560 to
growth estimates in the US.                                        1680. This implies an 8% capital gain from
                                                                   current levels




 9. HSBC US earnings growth estimates vs. consensus (%)             10. US relative revisions ratio

 15                                                                                            0.15
                                                                    Relative revisi ons, ppt




                                                                                               0.10
 10
                                                                                               0.05

  5                                                                                            0.00

                                                                                               -0.05
  0                                                                                            -0.10
                2012                    2013                2014                                   Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13
                HSBC                                 Consensus                                                       US
 Source: MSCI, Thomson Reuters Datastream, I/B/E/S, HSBC            Source: MSCI, Thomson Reuters Datastream, I/B/E/S, HSBC




                                                                                                                                                 21
     Equity Insights Quarterly
     Global                                                                                                                                      abc
     Second Quarter 2013




Europe                                                                 A stagnant domestic macro backdrop is clearly
                                                                       not helping and euro strength is a further
 We cut Europe to underweight (from
                                                                       headwind. Our economists see this continuing
  overweight)
                                                                       over the medium term. Their updated estimates
 We expect a weaker domestic growth                                   for European GDP growth show a decline of 0.1%
  backdrop and less supportive monetary                                for this year followed by a marginal improvement
  policy than the US and Japan                                         to +1.1% next year.

 Valuation remains relatively attractive but                          Therefore, for earnings we see little scope for an
  uncertainty and the potential for negative                           upside surprise this year. Our earnings models
  shocks is higher than elsewhere                                      now point to growth in Europe-ex-UK being
                                                                       below consensus expectations in 2012 and 2013
We cut Europe to underweight from overweight.
                                                                       (see page 13). Indeed, earnings momentum in
The region has had a good run since Mr Draghi
rode to the rescue on 26 July 2012 with his ‘do                        continental Europe is the weakest in our regional
whatever it takes’ comment. Since then MSCI                            universe (see chart 12).
Europe has returned +21% (total return in USD                          Monetary policy has played a prominent role in
terms) versus a return of +17% for the US and                          supporting stock prices over recent times and this
+18% of the world.                                                     driver is less supportive for Europe compared to
We view this bounce as primarily being a re-                           other competing markets, in particular the US and
rating story from what was a very depressed                            Japan. We note that the ECB’s balance sheet is no
valuation (chart 11). But, with Eurozone                               longer expanding (see chart 14 on following page)
uncertainties re-surfacing in Q1 (Italian election,                    so in response we cut the score for monetary
UK credit rating downgrade and the Cyprus                              policy in our scorecard to 0 from 2 (see table 6).
bailout) we now see the valuation driver as being
                                                                       Within Europe, our preferred markets are the UK
less supportive in the months ahead.
                                                                       and Spain. Our least preferred is France.
It follows that we expect the focus to switch to the
shorter-term drivers of equity markets, in
particular, earnings momentum and the monetary
policy backdrop. Both of these look far less
appealing in Europe.


 11. Europe price-to-book relative to the US                            12. Earnings momentum is negative in Europe

 1.0                                                                           Japan
                                                                                  UK
 0.9                                                                     Asia Pac ex -
                                                                                   US
 0.8                                                                            World
                                                                                   EM
 0.7
                                                                              LATAM
 0.6                                                                    Europe ex -UK


 0.5                                                                                       -15     -10     -5       0       5     10   15   20

       93   95     97     99     01     03    05   07   09   11   13                           Relativ e earnings rev isions (1 month)

 Source: MSCI, Thomson Reuters Datastream, HSBC                         Source: MSCI, Thomson Reuters Datastream, I/B/E/S, HSBC




22
    Equity Insights Quarterly
    Global                                                                                                                           abc
    Second Quarter 2013




Japan                                               Fed’s in an economy 2.7x bigger. The BoJ’s
                                                    balance-sheet should expand by 27% to year-end,
 We raise Japan to neutral
                                                    compared to 23% for the Fed (Chart 14). In the
 Japanese equities have already risen on the       same way you don’t fight the Fed, you don’t
  expectation of aggressive monetary policy         battle the BoJ.

 But the Bank of Japan surprised with the          But there are questions about how effective the
  boldness of its QE programme                      policy will be, one reason we are neutral not
                                                    overweight. Can QE really create inflation? Japan
Japanese equities have risen strongly since mid-
                                                    – with growth close to zero, deflation and little
November on expectations that the new Bank of
                                                    appetite for bank borrowing – starts from a very
Japan governor would take extraordinary
                                                    different position to the US, where real growth
measures to achieve an inflation target of 2%.
                                                    and inflation have remained around 2%. Even if
MSCI Japan has risen by 47% since then
                                                    inflation does emerge, what will this do for wages
(although only 25% in USD terms – which
                                                    and interest rates? Will savers accept negative real
nonetheless means it has outperformed global
                                                    rates? We also are cautious about the
equities by 8%). Foreign investors have put
                                                    effectiveness of fiscal stimulus and the likelihood
USD63bn into Japanese equities since November
                                                    of structural reforms.
(Chart 13) and, while they are still underweight,
they are the least underweight they have been in    In our scorecard, we give a top score of 3 for
the past five years.                                monetary policy. But in other categories Japan
                                                    scores so badly it is impossible to justify an
But the BoJ’s new aggressive monetary policy
                                                    overweight recommendation. Analysts already
beat the already high expectations. It announced
                                                    forecast 49% earnings growth in the year ending
JPY7trn (USD74bn) a month of asset purchases,
                                                    March 2014 (after 35% last fiscal year), leaving
an extension of the average maturity of its
                                                    little room for positive growth surprises.
Japanese government bond holdings to seven
                                                    Valuation is not cheap, with forward PE of 14.2x
years from three, made the purchase programme
                                                    the highest among developed markets. And the
open-ended, and introduced a two-year “time
                                                    long-term story remains negative, with poor
horizon” on achieving the inflation goal. The
                                                    demographics and corporate competitiveness.
monthly purchases are almost as much as the


 13. Cumulative net flows into Japanese equities     14. Central bank balance-sheets with likely end-13 size

         500                                         650                  Fed           ECB              BoE             BoJ
                           Japan
         400                                         550

         300                                         450
  $ bn




         200                                         350

         100                                         250

           0                                         150

         -100                                         50
                2000
                2001
                2002
                2003
                2004
                2005
                2006
                2007
                2008
                2009
                2010
                2011
                2012
                2013




                                                           07        08         09      10        11        12        13

 Source: Bloomberg, HSBC                             Source: Bloomberg, HSBC (Jan 2007=100. Assumes BoJ does JPY59trn of purchases
                                                     during 2013)




                                                                                                                                       23
     Equity Insights Quarterly
     Global                                                                                                                                          abc
     Second Quarter 2013




Asia ex Japan                                                             upside over the coming quarters given relatively
                                                                          low expectations. Analysts currently expect just
 We remain overweight Asia-ex-Japan
                                                                          10.5% EPS growth in 2013 and 11% in 2014.
 The region is unloved, inexpensive and has
                                                                          We are overweight on Singapore. It is one of the
  a good long-term story
                                                                          more stable, low beta Asian markets with very
 OW: China, Hong Kong and Singapore;                                     low earnings volatility. The expected dividend
  UW: Taiwan                                                              yield is in the upper end of the region’s range, and
                                                                          one of the main attractions of the market. With
We believe that Asian equities are well placed to
                                                                          markets across the region stuck in a holding
outperform. The market currently trades at a 10%
                                                                          pattern, we believe Singapore is a relatively safe
discount to MSCI ACWI on a price-to-book basis,
                                                                          haven. Our economist, Leif Eskesen, expects 3%
whereas it has actually traded at a premium for
                                                                          GDP growth in 2013, an acceleration y-o-y.
much of the past five years. It also looks unloved
– international funds are almost 3 standard                               We are less positive on India where we see the
deviations underweight compared to history, and                           risk of slower earnings growth given the poor
sell-side analysts have less buy ratings on Asian                         economic backdrop. The country continues to
stocks than at any point since late 2009 (chart 15).                      struggle with higher inflation and the recently
                                                                          announced budget was a disappointment for those
We see these as good contrarian indicators for
                                                                          hoping for some renewed reform momentum.
medium-term performance, and importantly, we
are also beginning to see some positive signs on                          Finally, we downgrade Taiwan to underweight
growth which could provide a catalyst in the near                         from neutral. Whilst there is the potential for
term. The Asia Business index has improved in                             upside to the current GDP consensus, bottom-up
recent months and is now firmly above 50. This is                         expectations are far more aggressive and risk is on
usually closely correlated with earnings                                  the downside.
momentum (chart 16).

Valuations are attractive for China, with the
market trading on a forward PE of just 9x
compared to its 10-year average of over 12x. And
we see the potential for earnings to surprise on the


 15. Asia-ex-Japan: analyst buys and sells                                 16. ABI index vs. Asia-ex-Japan earnings momentum

 100%                                                                      60                                                                 30%
                                                                                                                                              20%
     80%
                                                                           55                                                                 10%
     60%                                                                                                                                      0%
                                                                           50
     40%                                                                                                                                      -10%
                                                                           45                                                                 -20%
     20%
                                                                                                                                              -30%
     0%                                                                    40                                                                 -40%
           05    06       07      08       09      10      11   12   13         05     06     07      08     09      10        11   12   13
                    % buy s                                % sells                    ABI Index                3-mth earnings momentum(RHS)

 Source: MSCI, Thomson Reuters Datastream, I/B/E/S, HSBC                   Source: Thomson Reuters Datastream, I/B/E/S, HSBC




24
            Equity Insights Quarterly
            Global                                                                                                                                 abc
            Second Quarter 2013




Other GEMS                                                         We cut our Russian exposure within our GEMs
                                                                   portfolio to neutral recently, but we maintain a small
 Within CEEMEA we are underweight
                                                                   overweight globally. We continue to think that the
  South Africa and neutral on Russia
                                                                   consumer story in Russia is a good one, but the
  (overweight globally)
                                                                   problem is that there are few ways to play this.
 We have a counter consensus overweight on
                                                                   We have a counter-consensus overweight on Brazil.
  Brazil where we see cyclical improvements
                                                                   It is a poor structural story, struggling to generate
 And we are underweight Mexico, largely                           much GDP growth, despite strong fiscal and
  on valuation grounds                                             monetary stimulus, but with uncomfortably high
                                                                   inflation. Despite this, we see very depressed
We remain underweight South African equities.
                                                                   earnings and economy that will incrementally
The impediment for the consumer-facing segment
                                                                   recover, with some signs that government
of the market is partly valuation (which is high),
                                                                   interventionism is easing, and historically low
but also both near-term and long-term this is one
                                                                   investor weightings and sentiment. Our portfolio is
of the least exciting consumer stories in the EM
                                                                   focused on large cap financials, ‘relative value’
space, in terms of prospective growth. In
                                                                   consumer stocks (such as AB-InBev rather than
valuation terms, since the beginning of the year,
                                                                   Ambev), and a not overly bearish view on index
the consumer staples sector has de-rated relative
                                                                   heavy-weights Vale and Petrobras.
to its peer group and is becoming more interesting
but discretionary and banks are still relatively                   We are underweight Mexico. It is in many ways
expensive compared with where they have traded                     the opposite of Brazil. A market with a strong
historically. Currency risk remains an additional                  structural reform agenda, robust GDP growth, and
obstacle, although the HSBC FX strategy team                       a cheap currency. It is also however at historic
forecast that the rand will appreciate.                            high valuations, seeing strong equity issuance,
                                                                   with poor earnings momentum. The structural
Russia is likely to be negatively impacted by any
                                                                   reform agenda will hurt equities in the short term
resumption of difficulties in Europe since it acts
                                                                   – through competition and fiscal reform – and we
more as a risk than a fundamental play. So – by
                                                                   favour the FX and real estate for exposure here.
extension – if investors become less enthusiastic
about the European risk environment, they will also
become less constructive on Russia.


 17. SA consumer staples have de-rated relative to EM staples       18. Mexico vs. Brazil 12 month forward PE

                          1.00                                      20
                          0.95
  Relative to EM sector




                                                                    15
                          0.90
                          0.85                                      10
                          0.80
                          0.75                                       5
                          0.70
                                                                     0
                                 Oct-10




                                 Oct-11




                                 Oct-12
                                 Jan-10

                                  Jul-10

                                 Jan-11

                                  Jul-11

                                 Jan-12

                                  Jul-12

                                 Jan-13
                                 Apr-10




                                 Apr-11




                                 Apr-12




                                 Apr-13




                                                                      Apr-08       Apr-09        Apr-10       Apr-11          Apr-12      Apr-13
                                  South African consumer staples                        Brazil                                  Mex ico
 Source: MSCI, Thomson Reuters Datastream, I/B/E/S, HSBC            Source: MSCI, Thomson Reuters Datastream, I/B/E/S, HSBC




                                                                                                                                                     25
     Equity Insights Quarterly
     Global                                                                                                                abc
     Second Quarter 2013




Sector view
 We introduce a new earnings momentum measure to our sector
     scorecard
 We raise IT to overweight along-side Financials and Telecoms
 Underweight: Industrials, Utilities and Consumer Discretionary



In this section we give an overview of our global              IT have strong earnings momentum and look
sector allocations. They should be read alongside the          relatively inexpensive. Telecoms does not score so
sector scorecard shown below which is the                      well in-terms of short-term growth, but we continue
framework behind these calls. This quarter we have             to like the sector’s long-term story and its attractive
adjusted this scorecard by replacing the subjective            dividend yield.
‘growth surprise’ category with an enhanced
                                                               At the other end of the table we lower Industrials
measure of earnings momentum. This ranks the
                                                               and Utilities to underweight. On Industrials we are
sectors by their relative earnings revisions, but
                                                               beginning to see some positive signs on earnings
assigns a higher score when the dispersion in
                                                               with capex indicators turning up, but valuations look
forecasts is low. We find that this produces a more
                                                               relatively rich so we choose to take our cyclical
reliable signal than the revisions ratio on its own and
                                                               exposure elsewhere. On Utilities the continuing
is a useful guide to relative performance in the short
                                                               regulatory uncertainty in Europe could create
to medium-term (for details see When analysts
                                                               negative newsflow in the short term and is likely to
agree, 26 October 2012). We give this category a
                                                               hinder longer-term returns.
weight of 20% to reflect our renewed focus on
shorter term drivers.                                          We remain underweight Consumer Discretionary
                                                               as it looks expensive and is well loved by both sell-
This scorecard points to overweight positions in
                                                               side analysts and international funds.
Financials, IT and Telecoms. Both financials and

19. HSBC sector scorecard
                   Earnings       Loved /   Newsflow /    Valuation   Long-term     Dividend     Weighted     HSBC call
                  momentum       Unloved       shocks                     story         yield     average
                       20%           10%          20%          15%         20%           15%        100%
Financials                   3         -2            1            2           1            1          1.25             O
IT                           3          2            0            1           1            0          1.15             O
Telecoms                    -1          1            2           -1           2            3          1.00             O
Energy                      -2          3            0            3           1            1          0.70             N
Cons Staples                 0          3            0           -1           2            1          0.70             N
Materials                    0          0            0            2           1            1          0.65             N
Health Care                  2          0            0            0           0            0          0.40             N
Utilities                    0          1           -1            2          -1            2          0.30             U
Industrials                  1          0            0           -1           1            0          0.25             U
Cons Disc                    1         -3            0           -3           2            0         -0.15             U
Source: HSBC




26
      Equity Insights Quarterly
      Global                                                                                                                                        abc
      Second Quarter 2013




Financials (remain overweight)                                21. International funds are overweight financials globally

Financials underperformed the wider market in Q1,                                   6
but are still up by 10% since June last year. We think                              4




                                                              Active weight, ppt
the sector will continue to outperform from here.                                   2
                                                                                    0
It is true that the sector does not look as cheap as it
                                                                                   -2
did in early 2012, but we believe that valuations are
                                                                                   -4
still supportive – globally Financials trades on a
                                                                                   -6
price-to-book of just 1.2x which is almost 1 standard
                                                                                    Aug-09       Aug-10         Aug-11          Aug-12
deviation below its long-term average on a relative
                                                                                        Global         Europe            GEMS                 US
basis (chart 20). And underlying fundamentals
                                                              Source: EPFR Global, HSBC
continue to improve. It is the only sector globally
that is seeing more upgrades to earnings forecasts
                                                             IT (raise to overweight from neutral)
than downgrades with a revisions ratio of 54%.
                                                             IT was the second worst performing sector in Q1,
 20. ACWI Financials price-to-book relative
                                                             underperforming the wider market by 2%. However,
               0.85                                          there are signs that dynamics are improving.
               0.80
                                                             Earnings continue to be revised down, but the pace
               0.75
                                                             of downward revisions has slowed and the sector’s
 PB relative




               0.70
               0.65                                          revision ratio has increased relative to the wider
               0.60                                          market. Furthermore, the dispersion in forecasts has
               0.55                                          fallen in recent months, which suggests that there is
               0.50
                                                             a reasonably strong consensus among analysts (chart
                      03 04 05 06 07 08 09 10 11 12 13
                                                             22). This is usually a good signal for future
                       AC W Financials            10Y av g
                       +/- 1SD                               performance, so the sector scores +3 for earnings
 Source: MSCI, Thomson Reuters Datastream, HSBC              momentum on our scorecard.

                                                              22. Global IT: relative earnings revisions and earnings
One important factor to note is that this position is         forecast dispersion
no longer a contrarian call. Indeed, our fund holdings        20                                                                               5
analysis shows that international funds are actually          15                                                                               4
                                                                                                                                               3
overweight the sector from a global perspective               10                                                                               2
(chart 21). This overweight is largely driven by the                 5                                                                         1
                                                                     0                                                                         0
US and EM funds, but even European funds have                                                                                                  -1
been increasing their holdings in recent months. For             -5                                                                            -2
this reason the sector scores a -2 for loved/unloved          -10                                                                              -3
                                                                                   07       08    09       10      11       12           13
on our sector scorecard, but this is not enough to
                                                                                                   Relativ e rev isions ratio
offset the positive valuation and momentum scores.
                                                                                                   Dispersion z-score (RHS)

                                                              Source: MSCI, Thomson Reuters Datastream, I/B/E/S, HSBC



                                                             We are also beginning to see signs that investors
                                                             are warming up towards the sector. Mutual funds
                                                             had been selling IT equities since 2011, but they



                                                                                                                                                      27
            Equity Insights Quarterly
            Global                                                                                                                                                 abc
            Second Quarter 2013




have increased their holdings over the past two                          be argued that the sector deserves to be re-rated. We
months (chart 23). It is too early to tell whether                       therefore remain overweight in our global portfolio.
this buying will be sustained, but it is an
                                                                          24. Telecoms: relative recommendation consensus score
encouraging sign. We therefore raise the sector to
                                                                                                   0.20
overweight in our global portfolio.                                                                             Bearish
                                                                                                   0.15




                                                                          RCS point differential
 23. Global IT: international fund holdings                                                        0.10
                                                                                                   0.05
                          4
                                                                                                   0.00
                          3
 Active weight, z-score




                                                                                                   -0.05
                          2
                                                                                                   -0.10
                          1                                                                                     Bullish
                                                                                                   -0.15
                          0
                                                                                                   -0.20
                          -1
                                                                                                           05   06    07        08   09   10   11        12   13
                          -2
                          -3                                              Source: MSCI, Thomson Reuters Datastream, I/B/E/S, HSBC

                               07   08   09     10        11   12   13
                                                                         Consumer Discretionary (remain
                                              Global IT
                                                                         underweight)
 Source: EPFR Global, HSBC
                                                                         Consumer Discretionary also has a positive long-
Telecoms (remain overweight)                                             term story, driven by the dramatic rise in wealth in
                                                                         the emerging world (see Consumer in 2050: The rise
We continue to like Telecom’s long-term story,
                                                                         of the EM middle class, 15 October 2012). However,
particularly in Europe. Indeed, our analysts believe
                                                                         the sector is already very loved with mutual funds
that recent steps towards a single telecoms market in
                                                                         almost 250bp overweight in aggregate (chart 25),
Europe are likely to facilitate consolidation by
                                                                         and it looks expensive, trading at a 30% premium to
making it easier for mergers to comply with EC
                                                                         MSCI ACWI on a price-to-book basis.
competition rules, and therefore induce market repair
(see Fast track to a single telecoms market – and                        Furthermore, whilst the sector has seen very strong
consolidation, 18 March 2013). This, coupled with                        earnings momentum over the past 3 years there are
positive moves on fibre regulation and the ongoing                       signs that this is beginning to fade. The sector’s
shift towards media usage, should help the sector                        revisions ratio remains below 50, and is now only
return to growth.                                                        just positive relative to the wider market (chart 26).

Significantly, this seems to remain a contrarian call.                    25. Consumer Discretionary: international fund holdings
Global mutual funds are 1 standard deviation                                                       3.0
underweight compared to history, and sell-side                                                     2.5
                                                                          Active weight, z-score




analysts have considerably more sell                                                               2.0
recommendations on Telecoms stocks than on stocks                                                  1.5
from other sectors (chart 24).                                                                     1.0

The sector does not score particularly well for                                                    0.5

valuation on our scorecard as its price-to-book of                                                 0.0

1.9x is broadly in-line with its historical average.                                                       07   08         09        10   11        12        13

However, with the positive long-term story it could                                                                  Consumer Discretionary
                                                                          Source: EPFR Global, HSBC




28
                 Equity Insights Quarterly
                 Global                                                                                                                             abc
                 Second Quarter 2013




 26. Consumer Discretionary: relative revisions ratio                                   27. Industrials: price-to-book relative

                                  20                                                                  1.3
 Relative revision rati o, ppts




                                  15
                                                                                                      1.2
                                  10




                                                                                        PB relative
                                   5                                                                  1.1
                                   0
                                                                                                      1.0
                                   -5
                                  -10                                                                 0.9
                                  -15                                                                       03 04 05 06 07 08 09 10 11 12 13
                                        03 04   05   06 07   08 09   10   11 12   13
                                                                                                             AC W Industrials            10Y av g
                                                        Cons Disc                                            +/-1SD

 Source: MSCI, Thomson Reuters Datastream, I/B/E/S, HSBC                                Source: MSCI, Thomson Reuters Datastream, HSBC



Industrials (lower to underweight from                                                 Utilities (lower to underweight from
neutral)                                                                               overweight)
Our analysts believe that we could be nearing the                                      Utilities has underperformed consistently since the
end of the downgrade cycle for industrials, with the                                   financial crisis, both relative to the wider market and
HSBC capital goods global lead indicator improving                                     relative to the other traditionally defensive sectors
during the first quarter (see Around the World in 80                                   (chart 28). This has left the sector looking both
Datapoints, 18 March 2013). However, this                                              inexpensive and unloved. However, we see no
improvement is largely concentrated in short-cycle                                     catalysts for a re-rating over the next few quarters
sectors such as manufacturing, with longer-cycle                                       and so cut the sector to underweight.
sectors such as utilities and mining remaining close
                                                                                       We had turned more positive on Utilities towards the
to double-dip levels. Therefore overall earnings
                                                                                       end of last year on the back of a rebound in earnings
momentum remains weak compared to other
                                                                                       momentum, but this proved to be short-lived.
cyclicals and the sector scores just +1 for the
                                                                                       Indeed, with sluggish demand and considerable
category on our scorecard.
                                                                                       overcapacity our analysts see little scope for power
The sector also looks relatively expensive from a                                      prices to rise anytime soon.
global perspective. It trades on a price-to-book of
                                                                                       Politics remains an important driver within
2.2x, which represents a 20% premium to the wider
                                                                                       Europe, and with elections coming up in
market. We therefore look for our cyclical exposure
                                                                                       Germany, political paralysis in Italy and French
elsewhere, and lower Industrials to underweight
                                                                                       budgetary concerns, there is plenty of scope for
from neutral in our global portfolio.
                                                                                       negative newsflow over the next few quarters.




                                                                                                                                                      29
     Equity Insights Quarterly
     Global                                                             abc
     Second Quarter 2013




 28. Utilities has underperformed both relative to the market,
 and relative to other defensives (Dec 2005 = 100)

 160

 140

 120

 100

     80

     60
          05   06        07       08       09     10       11      12
               rel to defensiv es                      rel to market
 Source: MSCI, Thomson Reuters Datastream, HSBC




30
   Equity Insights Quarterly
   Global                                                                                                     abc
   Second Quarter 2013




Scorecard methodology                                   is low. We believe that when dispersion is low the
                                                        signal from earnings revisions is more credible
We base our country and sector calls on numerical
                                                        because it shows that there is a strong consensus
scorecards. These are not intended to be a
                                                        across analysts (see When analysts agree,
quantitative model, but rather a tool to help us
                                                        26 October 2012 for details).
systematically assess the factors that will drive
relative performance in the coming quarters. They       Subjective measures
are based on a mixture of objective and                 The remaining factors are subjective. At the sector
subjective measures with each assigned a score          level, we ask our analysts to assign the scores for
between +3 and -3.                                      each category, whereas at the country level they
Objective measures                                      are our own judgment call based on discussions
                                                        with our economists and on examining a wide
1. “Loved/unloved”
                                                        range of data.
With this category, we look to gauge the degree of
optimism about each sector or market. We                1. Monetary policy (countries only)
consider a combination of aggregate sell-side           This factor looks at how supportive monetary
analyst recommendations and the active weights          conditions are for each market. We consider both
of mutual funds from our proprietary holdings           current conditions and our economists’
analysis. To account for any long-term structural       expectations for future policy movements.
over- or under-weights, we calculate current
                                                        2. Growth surprises (countries only)
positions relative to their long-term average. As
                                                        This factor looks at the likelihood for earnings
these measures represent a contrarian indicator,
                                                        surprises relative to the consensus forecasts. We
optimistic positions are assigned a low score in
                                                        use a combination of our top-down earnings
our final scorecard tables.
                                                        models and our economists’ forecasts to
2. Valuation                                            determine the scores.
For valuation, we look at the 12 month trailing
                                                        3. Newsflow/shocks
price-to-book multiple in two stages. First, we
                                                        This factor considers any non-growth shocks that
look at the absolute PB compared to history to
                                                        could affect the performance of a market or a
determine whether the market or sector will
                                                        sector. For example, negative shocks could
receive a positive or negative score. Then, we
                                                        include political risk, bankruptcies or corporate
look at the relative PB compared to history to
                                                        governance issues, whereas positive shocks could
determine the magnitude of the final score.
                                                        include political reforms or M&A activity.
3. Dividend yield
                                                        4. Long-term story
This simply reflects the current absolute dividend
                                                        This factor considers any positive or negative
yield for each market or sector. The highest score,
                                                        structural trends that are likely to drive returns
3, is assigned to dividend yields above 4.5%,
                                                        over the next two to five years.
while a 0 is assigned to yields below 2.5%.

4. Earnings momentum (sectors only)
For sectors we look at an enhanced measure of
earnings momentum. We rank the sectors by their
relative earnings revisions (upgrades as a % of total
revisions), but assign a higher score when dispersion


                                                                                                                31
     Equity Insights Quarterly
     Global                                                                    abc
     Second Quarter 2013




                                 This page has intentionally been left blank




32
Equity Insights Quarterly
Global                           abc
Second Quarter 2013




                            Data pack




                                    33
     Equity Insights Quarterly
     Global                                                                                                                                       abc
     Second Quarter 2013




Performance (% US$)
Regions/countries
 North America                                                            Europe ex UK

 110                                                             125      80                                                                 94
                                                                 120                                                                         90
 100                                                                      70
                                                                 115                                                                         86
     90                                                                                                                                      82
                                                                 110      60
     80                                                                                                                                      78
                                                                 105
                                                                          50                                                                 74
     70                                                          100                                                                         70
     60                                                          95       40                                                                 66
      Mar-11        Sep-11        Mar-12          Sep-12    Mar-13         Mar-11           Sep-11         Mar-12          Sep-12    Mar-13
               Absolute (LHS)                       3M MA                               Absolute (LHS)                      3M MA
               Rel to w orld (RHS)                  3M MA                               Rel to w orld (RHS)                 3M MA

 Source: MSCI, Thomson Reuters Datastream, HSBC                           Source: MSCI, Thomson Reuters Datastream, HSBC




 UK                                                                       Asia Pac ex Jap

 80                                                                  95   100                                                            120
                                                                                                                                         115
                                                                           90
 70                                                                  90                                                                  110
                                                                           80                                                            105
 60                                                                  85                                                                  100
                                                                           70
                                                                                                                                         95
 50                                                                  80
                                                                           60                                                            90
     Mar-11        Sep-11         Mar-12          Sep-12     Mar-13
                                                                               Mar-11        Sep-11      Mar-12            Sep-12   Mar-13
               Absolute (LHS)                      3M MA                                Absolute (LHS)                      3M MA
               Rel to w orld (RHS)                 3M MA                                Rel to w orld (RHS)                 3M MA

 Source: MSCI, Thomson Reuters Datastream, HSBC                           Source: MSCI, Thomson Reuters Datastream, HSBC




 Japan                                                                    GEMs

 90                                                              105      105                                                            130
 85                                                              100
                                                                           95                                                            120
 80                                                              95
 75                                                              90        85                                                            110
 70                                                              85
                                                                           75                                                            100
 65                                                              80
 60                                                              75        65                                                            90
     Mar-11        Sep-11        Mar-12           Sep-12    Mar-13             Mar-11        Sep-11         Mar-12         Sep-12
               Absolute (LHS)                      3M MA                                Absolute (LHS)                      3M MA
               Rel to w orld (RHS)                 3M MA                                Rel to w orld (RHS)                 3M MA

 Source: MSCI, Thomson Reuters Datastream, HSBC                           Source: MSCI, Thomson Reuters Datastream, HSBC




34
    Equity Insights Quarterly
    Global                                                                                                    abc
    Second Quarter 2013




Total return (% in USD terms) – MSCI indices, priced at 29 Mar 2013
                                                 -1W     -1M           -1Q     -1Y    MTD     QTD     YTD
AC World                                          0.5     1.9           7.4    11.8     1.9     6.6     6.6
Developed World                                   0.3     2.4           8.8    13.1     2.4     7.9     7.9
Emerging World                                    1.9    -1.7          -1.6     3.2    -1.7    -1.6    -1.6
North America                                     0.9     3.5          11.6    13.5     3.5     9.8     9.8
Europe                                           -1.3    -0.1           2.9    12.7    -0.1     2.8     2.8
Eurozone                                         -2.9    -1.7          -0.3    10.0    -1.7    -0.3    -0.3
Europe ex UK                                     -1.9    -0.8           3.0    13.8    -0.8     3.0     3.0
Pacific ex Japan                                  0.5    -0.5           6.7    19.8    -0.5     7.0     7.0
Australia                                        -0.2    -0.5           8.6    22.7    -0.5     9.1     9.1
Austria                                          -4.2    -6.6          -4.9     5.2    -6.6    -4.6    -4.6
Belgium                                           0.1     2.4           8.7    31.1     2.4     8.9     8.9
Brazil                                            2.0    -1.1          -0.9   -12.3    -1.1    -0.8    -0.8
Canada                                            0.7     0.6           2.0     4.6     0.6     1.1     1.1
Chile                                            -0.3    -1.9           4.5    -3.0    -1.9     4.5     4.5
China                                             0.2    -4.6          -4.3     7.9    -4.6    -4.5    -4.5
Colombia                                          1.0    -3.2          -6.5     6.4    -3.2    -6.6    -6.6
Czech Republic                                    0.3    -4.8         -14.4   -18.9    -4.8   -14.1   -14.1
Denmark                                          -1.3    -3.3           4.1    18.2    -3.3     4.4     4.4
Egypt                                            -0.2    -6.4         -12.3    -7.0    -6.4   -10.8   -10.8
Finland                                          -1.7    -2.0           2.7     5.1    -2.0     3.0     3.0
France                                           -2.2    -1.4           0.9    11.8    -1.4     0.6     0.6
Germany                                          -2.5    -1.0          -0.0    11.0    -1.0     0.3     0.3
Greece                                           -6.2    -3.2          17.2     5.4    -3.2    14.0    14.0
Hong Kong                                         1.5    -1.6           3.5    15.0    -1.6     3.5     3.5
Hungary                                          -1.6   -10.3          -7.0    -5.9   -10.3    -6.6    -6.6
India                                             0.9     0.1          -2.5     5.4     0.1    -2.6    -2.6
Indonesia                                         5.5     0.8          13.4    15.5     0.8    13.4    13.4
Ireland                                          -0.2     4.3          13.4    11.1     4.3    12.9    12.9
Israel                                           -1.1     4.0           7.3    -4.6     4.0     7.1     7.1
Italy                                            -5.8    -5.2         -10.0    -5.3    -5.2    -9.8    -9.8
Japan                                             1.0     4.9          11.2     8.1     4.9    11.7    11.7
Korea                                             3.7    -4.3          -3.2     2.0    -4.3    -3.2    -3.2
Malaysia                                          3.3     2.4          -0.0     5.2     2.4    -0.9    -0.9
Mexico                                            3.8     3.7           6.1    20.0     3.7     6.1     6.1
Morocco                                           0.2    -0.9          -3.9   -16.8    -0.9    -3.0    -3.0
Netherlands                                      -1.5     1.5           2.6    15.4     1.5     2.4     2.4
New Zealand                                       3.6     2.4          10.9    25.0     2.4    10.9    10.9
Norway                                           -1.6    -1.8           0.8     7.1    -1.8     0.5     0.5
Peru                                              3.1     5.2          -2.0     5.7     5.2    -2.5    -2.5
Philippines                                       5.1     1.5          19.0    45.6     1.5    19.0    19.0
Poland                                           -0.8    -5.2         -11.8     7.3    -5.2   -11.5   -11.5
Portugal                                         -4.7    -1.5          -0.5     3.4    -1.5    -0.3    -0.3
Russia                                           -0.6    -3.5          -3.5    -5.1    -3.5    -3.2    -3.2
Singapore F                                       2.2     1.4           2.6    13.8     1.4     3.0     3.0
South Africa                                      1.8    -1.5          -9.1    -1.3    -1.5    -8.9    -8.9
Spain                                            -6.6    -5.9          -5.0     3.9    -5.9    -5.3    -5.3
Sweden                                            0.5     0.3           9.9    20.8     0.3     9.8     9.8
Switzerland                                       0.3     1.8          11.4    24.4     1.8    11.7    11.7
Taiwan                                            1.6    -0.8          -0.2     3.4    -0.8    -0.2    -0.2
Thailand                                          5.1     1.6          10.1    21.4     1.6    10.1    10.1
Turkey                                            4.7     8.1           7.7    42.7     8.1     8.2     8.2
UK                                               -0.0     1.2           2.6    10.8     1.2     2.5     2.5
US                                                0.9     3.8          12.5    14.3     3.8    10.7    10.7
Source: MSCI, Thomson Reuters Datastream, HSBC




                                                                                                                35
     Equity Insights Quarterly
     Global                                                                                                                                   abc
     Second Quarter 2013




Major indices
 MSCI All Country World                                              MSCI All Country World

 400                                                                                          Date       Level   % off    ____% change____
                                                                     Current           29-Mar-13         386.6           1D             0.0
 380
                                                                     Record high        12-Oct-07        453.7   -14.8   1W             0.5
 360                                                                 52W high          14-Mar-13         389.0    -0.6   3M             8.7
 340                                                                 52W low             4-Jun-12        311.8    24.0   6M            10.9
                                                                     Y-t-d high        14-Mar-13         389.0    -0.6   12M           10.9
 320                                                                 Y-t-d low           1-Jan-13        358.3     7.9   Q-t-d          7.9
 300                                                                 5Y high           19-May-08         413.8    -6.6   Y-t-d          7.9
                                                                     5Y low              9-Mar-09        200.3    93.0   2012          13.2
 280
                                                                     Source: Thomson Reuters Datastream, HSBC
     Mar-11         Sep-11          Mar-12        Sep-12    Mar-13
                  MSCI ACWI                           22d mav
 Source: MSCI, Thomson Reuters Datastream, HSBC




 S&P 500                                                             S&P 500

 1600                                                                                         Date       Level   % off    ____% change____
                                                                     Current            29-Mar-13      1569.2            1D             0.0
                                                                     Record high        28-Mar-13      1569.2      0.0   1W             0.8
 1400                                                                52W high           28-Mar-13      1569.2      0.0   3M            11.9
                                                                     52W low             1-Jun-12      1278.0     22.8   6M             8.9
                                                                     Y-t-d high         28-Mar-13      1569.2      0.0   12M           11.8
 1200
                                                                     Y-t-d low           1-Jan-13      1426.2     10.0   Q-t-d         10.0
                                                                     5Y high            28-Mar-13      1569.2      0.0   Y-t-d         10.0
 1000                                                                5Y low              9-Mar-09       676.5    131.9   2012          13.4
                                                                     Source: Thomson Reuters Datastream, HSBC
       Mar-11        Sep-11          Mar-12       Sep-12    Mar-13
                   S&P 500                           22d mav

 Source: Thomson Reuters Datastream, HSBC




 NASDAQ                                                              NASDAQ

 3400                                                                                         Date       Level   % off     ____% change____
                                                                     Current            29-Mar-13      3267.5            1D             0.0
 3000                                                                Record high        10-Mar-00      5048.6    -35.3   1W             0.7
                                                                     52W high           28-Mar-13      3267.5      0.0   3M            10.4
 2600                                                                52W low             1-Jun-12      2747.5     18.9   6M             4.9
                                                                     Y-t-d high         28-Mar-13      3267.5      0.0   12M            5.6
 2200                                                                Y-t-d low           1-Jan-13      3019.5      8.2   Q-t-d          8.2
                                                                     5Y high            28-Mar-13      3267.5      0.0   Y-t-d          8.2
 1800                                                                5Y low              9-Mar-09      1268.6    157.6   2012          15.9

       Mar-11        Sep-11          Mar-12       Sep-12    Mar-13   Source: Thomson Reuters Datastream, HSBC

                  NASDAQ                             22d mav

 Source: Thomson Reuters Datastream, HSBC




36
  Equity Insights Quarterly
  Global                                                                                                                                 abc
  Second Quarter 2013




Eurofirst                                                         Eurofirst

1300                                                                                       Date       Level   % off   ____% change____
                                                                  Current            29-Mar-13       1188.9         1D             0.0
1200                                                              Record high         4-Sep-00       1705.0   -30.3 1W            -0.0
1100                                                              52W high           14-Mar-13       1207.8    -1.6 3M             5.2
                                                                  52W low              4-Jun-12       949.9    25.2 6M             9.2
1000                                                              Y-t-d high         14-Mar-13       1207.8    -1.6 12M           12.3
 900                                                              Y-t-d low            1-Jan-13      1134.0     4.8 Q-t-d          4.9
                                                                  5Y high            19-May-08       1378.3   -13.7 Y-t-d          4.9
 800                                                              5Y low              9-Mar-09        657.3    80.9 2012          13.2
    Mar-11          Sep-11          Mar-12   Sep-12      Mar-13   Source: Thomson Reuters Datastream, HSBC

               FTSE Eurofirst300                  22d mav

Source: Thomson Reuters Datastream, HSBC




FTSE 100                                                          FTSE 100

7000                                                                                       Date       Level   % off   ____% change____
                                                                  Current            29-Mar-13       6411.7         1D             0.0
6500                                                              Record high        30-Dec-99       6930.2    -7.5 1W             0.3
6000                                                              52W high           14-Mar-13       6529.4    -1.8 3M             8.2
                                                                  52W low             1-Jun-12       5260.2    21.9 6M            11.7
5500                                                              Y-t-d high         14-Mar-13       6529.4    -1.8 12M           11.7
                                                                  Y-t-d low           1-Jan-13       5897.8     8.7 Q-t-d          8.7
5000
                                                                  5Y high            14-Mar-13       6529.4    -1.8 Y-t-d          8.7
4500                                                              5Y low              3-Mar-09       3512.1    82.6 2012           5.8
                                                                  Source: Thomson Reuters Datastream, HSBC
    Mar-11          Sep-11          Mar-12   Sep-12      Mar-13
                 FTSE 100                       22d mav

Source: Thomson Reuters Datastream, HSBC




TOPIX                                                             TOPIX

1050                                                                                       Date       Level   % off   ____% change____
                                                                  Current            29-Mar-13       1034.7         1D            -0.2
 950                                                              Record high        18-Dec-89       2884.8   -64.1 1W            -0.4
                                                                  52W high           21-Mar-13       1058.1    -2.2 3M            20.3
 850                                                              52W low             4-Jun-12        695.5    48.8 6M            40.3
                                                                  Y-t-d high         21-Mar-13       1058.1    -2.2 12M           20.6
 750                                                              Y-t-d low           1-Jan-13        859.8    20.3 Q-t-d         20.3
                                                                  5Y high             4-Jun-08       1430.5   -27.7 Y-t-d         20.3
 650                                                              5Y low              4-Jun-12        695.5    48.8 2012          18.0
                                                                  Source: Thomson Reuters Datastream, HSBC
    Mar-11          Sep-11          Mar-12   Sep-12      Mar-13
                   Topix                       22d mav
Source: Thomson Reuters Datastream, HSBC




                                                                                                                                           37
     Equity Insights Quarterly
     Global                                                                                                        abc
     Second Quarter 2013




Global sectors
Total return (% in USD terms) – MSCI AC world sectors, priced at 29 Mar 2013
                                                           -1W         -1M     -1Q     -1Y    MTD    QTD    YTD
Energy                                                     -0.1         0.7     4.9     2.6    0.7    3.8    3.8
Materials                                                  -0.6        -3.1    -4.1    -2.7   -3.1   -4.6   -4.6
Industrials                                                 0.1         1.3     8.6    12.5    1.3    7.8    7.8
Capital Goods                                              -0.2         0.6     6.9    10.6    0.6    6.0    6.0
Commercial Services & Suppliers                             0.7         2.6    11.4    16.3    2.6   10.8   10.8
Transportation                                              0.9         3.1    13.7    18.3    3.1   13.2   13.2
Consumer Discretionary                                      0.6         2.9     9.8    15.6    2.9    8.7    8.7
Automobiles & Components                                   -0.4        -0.5     5.1    10.4   -0.5    4.9    4.9
Consumer Durables & Apparel                                 0.6         3.4     8.6     7.3    3.4    7.7    7.7
Consumer Services                                           1.7         4.0    12.3     9.9    4.0   11.0   11.0
Media                                                       0.8         5.4    14.0    33.4    5.4   12.3   12.3
Retailing                                                   1.0         3.2    10.2    14.1    3.2    8.6    8.6
Consumer staples                                            1.2         3.9    12.2    20.8    3.9   11.6   11.6
Food & Staples Retailing                                    1.0         5.2    10.9    22.7    5.2   10.2   10.2
Food Beverage &Tobacco                                      1.3         3.7    12.0    19.6    3.7   11.4   11.4
Household & Personal Products                               0.9         3.0    15.1    22.7    3.0   14.2   14.2
Health Care                                                 1.8         5.6    15.0    26.3    5.6   14.3   14.3
Health Care Equipment & Servs                               1.8         3.8    11.3    13.6    3.8   10.2   10.2
Pharmaceuticals & Biotechnology                             1.7         6.2    16.4    30.9    6.2   15.7   15.7
Financials                                                  0.0         0.8     7.1    17.8    0.8    6.6    6.6
Banks                                                       0.1        -0.5     5.6    16.5   -0.5    5.5    5.5
Diversified Financials                                     -0.8         2.2     9.9    15.9    2.2    8.8    8.8
Insurance                                                  -0.2         1.8     8.6    20.3    1.8    8.0    8.0
Real Estate                                                 1.5         1.4     5.6    22.2    1.4    5.2    5.2
Information Technology                                      0.6         1.7     5.9     0.4    1.7    4.4    4.4
Software & Services                                         1.0         2.2     9.8    10.8    2.2    8.6    8.6
Technology Hardware & Equip                                -0.8         2.1     1.3   -11.6    2.1   -0.9   -0.9
Semiconductors & Semi Equip                                 2.7        -0.3     5.9     3.9   -0.3    5.1    5.1
Telecommunications                                          0.5         3.3     4.9    11.7    3.3    4.6    4.6
Utilities                                                   1.1         3.6     6.4     6.8    3.6    5.8    5.8
AC World                                                    0.5         1.9     7.4    11.8    1.9    6.6    6.6
Source: MSCI, Thomson Reuters Datastream, HSBC




38
  Equity Insights Quarterly
  Global                                                                                                                           abc
  Second Quarter 2013




Analyst recommendations
Regions/countries
MSCI All country world                                           MSCI Developed world

2.0                                                               2.0
                                                  more bullish                                               more bullish
2.1                                                               2.1
2.2                                                               2.2
2.3                                                               2.3
2.4                                                               2.4
2.5                                                               2.5
2.6                                                               2.6
2.7                                              more bearish     2.7                                    more bearish
2.8                                                               2.8
      98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13                   98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
                  Recommendation consensus score (RCS)                             Recommendation consensus score (RCS)
                  Av erage                                                         Av erage
                  ±2SD                                                             ±2SD
Source: MSCI, Thomson Reuters Datastream, HSBC                   Source: MSCI, Thomson Reuters Datastream, HSBC




MSCI Emerging Markets                                            MSCI US

1.9                                                               1.8                                       more bullish
                                                  more bullish
2.1                                                               2.0
2.3
                                                                  2.2
2.5
2.7                                                               2.4
                                            more bearish
2.9                                                               2.6
                                                                                                            more bearish
3.1
                                                                  2.8
      98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
                                                                         98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
                  Recommendation consensus score (RCS)                           Recommendation consensus score (RCS)
                  Av erage                                                       Av erage
                  ±2SD                                                           ±2SD

Source: MSCI, Thomson Reuters Datastream, HSBC                   Source: MSCI, Thomson Reuters Datastream, HSBC




MSCI Europe                                                      MSCI Asia Pacific ex Japan

2.1                                                              2.0                                                more bullish
                                                  more bullish
2.3                                                              2.2
                                                                 2.4
2.5
                                                                 2.6
2.7
                                                 more bearish    2.8
                                                                                                                  more bearish
2.9                                                              3.0
      98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13                   98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
                   Recommendation consensus score (RCS)                            Recommendation consensus score (RCS)
                   Av erage                                                        Av erage
                   ±2SD                                                            ±2SD

Source: MSCI, Thomson Reuters Datastream, HSBC                   Source: MSCI, Thomson Reuters Datastream, HSBC




                                                                                                                                     39
      Equity Insights Quarterly
      Global                                                                                                                     abc
      Second Quarter 2013




 MSCI Canada                                                     MSCI Brazil

     1.8                                    more bullish          1.9                                      more bullish
     2.0                                                          2.1
     2.2                                                          2.3
     2.4                                                          2.5
     2.6                                   more bearish           2.7                                        more bearish
     2.8                                                          2.9

            98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13             98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
                   Recommendation consensus score (RCS)                            Recommendation consensus score (RCS)
                   Av erage                                                        Av erage
                   ±2SD                                                            ±2SD

 Source: MSCI, Thomson Reuters Datastream, HSBC                  Source: MSCI, Thomson Reuters Datastream, HSBC
 /




 MSCI Mexico                                                     MSCI UK

     1.5                                                          2.1
                                              more bullish                                                   more bullish
     1.7
     1.9                                                          2.3
     2.1
     2.3                                                          2.5
     2.5
     2.7                             more bearish                 2.7
     2.9                                                                                           more bearish
     3.1                                                          2.9
           98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13              98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
                  Recommendation consensus score (RCS)                           Recommendation consensus score (RCS)
                  Av erage                                                       Av erage
                  ±2SD                                                           ±2SD

 Source: MSCI, Thomson Reuters Datastream, HSBC                  Source: MSCI, Thomson Reuters Datastream, HSBC




 MSCI France                                                     MSCI Germany

 2.0                                                             2.1
                                                                                                                  more bullish
 2.2                                              more bullish   2.3

                                                                 2.5
 2.4
                                                                 2.7
 2.6                       more bearish
                                                                 2.9
                                                                                                                  more bearish
 2.8
           98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13             98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
                    Recommendation consensus score (RCS)                            Recommendation consensus score (RCS)
                    Av erage                                                        Av erage
                    ±2SD                                                            ±2SD

 Source: MSCI, Thomson Reuters Datastream, HSBC                  Source: MSCI, Thomson Reuters Datastream, HSBC




40
  Equity Insights Quarterly
  Global                                                                                                                            abc
  Second Quarter 2013




MSCI Switzerland                                                   MSCI Spain

2.2                                                                1.8
                                                   more bullish
2.3                                                                2.0
                                                                                                         more bullish
2.4                                                                2.2
2.5                                                                2.4
2.6                                                                2.6
2.7                                                                2.8                  more bearish
                                                  more bearish
2.8                                                                3.0
      98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13                    98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
                    Recommendation consensus score (RCS)                           Recommendation consensus score (RCS)
                    Av erage                                                       Av erage
                    ±2SD                                                           ±2SD

Source: MSCI, Thomson Reuters Datastream, HSBC                     Source: MSCI, Thomson Reuters Datastream, HSBC




MSCI Italy                                                         MSCI Netherlands

2.2                                                                1.8
                                                    more bullish                                                     more bullish
2.3                                                                2.0
2.4                                                                2.2
2.5                                                                2.4
2.6                                                                2.6
2.7                                                                2.8                                              more bearish
                                                 more bearish      3.0
2.8
      98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13                    98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
                    Recommendation consensus score (RCS)                              Recommendation consensus score (RCS)
                    Av erage                                                          Av erage
                    ±2SD                                                              ±2SD

Source: MSCI, Thomson Reuters Datastream, HSBC                     Source: MSCI, Thomson Reuters Datastream, HSBC




MSCI Sweden                                                        MSCI Russia

2.0                                                                1.4
                                                   more bullish                                                      more bullish
2.2
                                                                   1.9
2.4
2.6                                                                2.4
2.8                                                                2.9
                                                                                                                    more bearish
3.0                                          more bearish
                                                                   3.4
      98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13                    98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
                    Recommendation consensus score (RCS)                           Recommendation consensus score (RCS)
                    Av erage                                                       Av erage
                    ±2SD                                                           ±2SD

Source: MSCI, Thomson Reuters Datastream, HSBC                     Source: MSCI, Thomson Reuters Datastream, HSBC




                                                                                                                                      41
     Equity Insights Quarterly
     Global                                                                                                                         abc
     Second Quarter 2013




 MSCI EMU                                                           MSCI Australia

 2.0                                                                2.1
                                                     more bullish                                                more bullish
 2.2                                                                2.3
 2.4                                                                2.5
 2.6
                                                                    2.7
 2.8                                         more bearish                                           more bearish
                                                                    2.9
 3.0
       98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13                    98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
                  Recommendation consensus score (RCS)                                Recommendation consensus score (RCS)
                  Av erage                                                            Av erage
                  ±2SD                                                                ±2SD
 Source: MSCI, Thomson Reuters Datastream, HSBC                     Source: MSCI, Thomson Reuters Datastream, HSBC




 MSCI Japan                                                         MSCI China

 2.3                                                 more bullish   1.9
                                                                                                                     more bullish
 2.4                                                                2.1
 2.5                                                                2.3
                                                                    2.5
 2.6
                                                                    2.7
 2.7                                                                2.9
 2.8                                              more bearish      3.1                                        more bearish
 2.9                                                                3.3
       98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13                    98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
                 Recommendation consensus score (RCS)                                 Recommendation consensus score (RCS)
                 Av erage                                                             Av erage
                 ±2SD                                                                 ±2SD

 Source: MSCI, Thomson Reuters Datastream, HSBC                     Source: MSCI, Thomson Reuters Datastream, HSBC




 MSCI Hong Kong                                                     MSCI India

 1.8                                         more bullish           1.4                                     more bullish
 2.0                                                                1.6
 2.2                                                                1.8
                                                                    2.0
 2.4                                                                2.2
 2.6                                                                2.4
 2.8                                                                2.6
 3.0                                                                2.8                                 more bearish
                                           more bearish             3.0
 3.2
                                                                          98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
       98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
                 Recommendation consensus score (RCS)                               Recommendation consensus score (RCS)
                 Av erage                                                           Av erage
                 ±2SD                                                               ±2SD

 Source: MSCI, Thomson Reuters Datastream, HSBC                     Source: MSCI, Thomson Reuters Datastream, HSBC




42
   Equity Insights Quarterly
   Global                                                                                                                 abc
   Second Quarter 2013




Global sectors

 Energy                                                           Materials

 2.0                                                              2.1
 2.1                                      more bullish            2.2                                      more bullish
 2.2                                                              2.3
                                                                  2.4
 2.3
                                                                  2.5
 2.4                                                              2.6
 2.5                                              more bearish                                          more bearish
                                                                  2.7
 2.6                                                              2.8
       98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13                  98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
                   Recommendation consensus score                                   Recommendation consensus score
                   Av erage                                                         Av erage
                   ±2SD                                                             ±2SD

 Source: MSCI, Thomson Reuters Datastream, HSBC                   Source: MSCI, Thomson Reuters Datastream, HSBC




 Industrials                                                      Consumer Discretionary

 2.1                                                              2.0
                                         more bullish                                                      more bullish
 2.2
 2.3                                                              2.2
 2.4
                                                                  2.4
 2.5
 2.6                                                              2.6
                                       more bearish
 2.7                                                                                                    more bearish
 2.8                                                              2.8
       98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13                  98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
                   Recommendation consensus score                                   Recommendation consensus score
                   Av erage                                                         Av erage
                   ±2SD                                                             ±2SD

 Source: MSCI, Thomson Reuters Datastream, HSBC                   Source: MSCI, Thomson Reuters Datastream, HSBC




 Consumer Staples                                                 Healthcare

 2.1                                                              2.0                                      more bullish
                                                  more bullish
 2.2                                                              2.1
 2.3                                                              2.2
 2.4                                                              2.3
 2.5                                                              2.4
 2.6                                                              2.5
                                                   more bearish                                         more bearish
 2.7                                                              2.6
       98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13                  98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
                        Recommendation consensus score                               Recommendation consensus score
                        Av erage                                                     Av erage
                        ±1SD                                                         ±2SD

 Source: MSCI, Thomson Reuters Datastream, HSBC                   Source: MSCI, Thomson Reuters Datastream, HSBC




                                                                                                                            43
     Equity Insights Quarterly
     Global                                                                                                       abc
     Second Quarter 2013




 Financials                                              IT

 2.1                                      more bullish   1.8                                      more bullish
 2.2                                                     2.0
 2.3
                                                         2.2
 2.4
 2.5                                                     2.4
 2.6
                                       more bearish      2.6                                   more bearish
 2.7
       98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13         98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
                        Recommendation consensus score                           Recommendation consensus score
                        Av erage                                                 Av erage
                        ±2SD                                                     ±2SD

 Source: MSCI, Thomson Reuters Datastream, HSBC          Source: MSCI, Thomson Reuters Datastream, HSBC




 Telecoms                                                Utilities

 1.8                                      more bullish   2.2                                      more bullish
 2.0
                                                         2.4
 2.2
                                                         2.6
 2.4

 2.6                                                     2.8                                   more bearish
                                       more bearish
 2.8                                                     3.0
       98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13         98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
                        Recommendation consensus score                           Recommendation consensus score
                        Av erage                                                 Av erage
                        ±2SD                                                     ±2SD

 Source: MSCI, Thomson Reuters Datastream, HSBC          Source: MSCI, Thomson Reuters Datastream, HSBC




44
   Equity Insights Quarterly
   Global                                                                                                                                                                                         abc
   Second Quarter 2013




Institutional investor holdings
Active weights compared to history for regions                                                       Active weights for regions
                                                                             relativ e return
                                                                                                     Europe ex UK
                                                                        since data cut-off*
                                                                                             -5%               GEM
         Japan
                                                                                                1%
Europe ex UK                                                                                                 Japan
                                                                                                3%
          GEM
                                                                                                                 US
                                                                                                0%
               US
                                                                                                                 UK
                                                                                             -4%
               UK
                                                                                                0%    AP ex Japan
 AP ex Japan


                    -3         -2            -1            0             1                  2                             -2           -1             0               1          2            3
                                                                                                                                             Activ e Weights, pp
      global funds        all funds          z-score, Feb 13     *end Feb to 22 Mar
                                                                                                                               Range          Av erage             Nov -12       Feb-13

Source: Includes: all funds in our sample that provide country weights                               Source: Includes: all funds in our sample that provide country weights
Source: MSCI, Thomson Reuters Datastream, EPFR, HSBC                                                 Source: MSCI, Thomson Reuters Datastream, EPFR, HSBC




Active weights compared to history for global sectors                                                Active weights for global sectors
                                                                   relative return since              Cons Disc
                                                                            data cut-off*            Health Care
Financials                                                                                   -1%      Financials
Cons Disc                                                                                    1%
                                                                                                      Industrials
 Materials                                                                                   0%
                                                                                                      Telecoms
Industrials                                                                                  2%
                                                                                             -4%               IT
    Health
   Utilities                                                                                 1%        Cons Stp
 Cons Stp                                                                                    1%        Materials
Telecoms                                                                                     1%          Energy
          IT                                                                                 0%
                                                                                                         Utilities
   Energy                                                                                    -1%
                                                                                                                     -4        -3       -2       -1      0         1         2         3      4
               -3         -2            -1             0                1                2                                                      Active Weights, pp
     global funds        all funds        z-score, Feb 13         *end Feb to 22 Mar                              Range                 Average               Nov-12                 Feb-13

Source: Includes: all funds in our sample that provide sector weights                                Source: Includes: all funds in our sample that provide sector weights
Source: MSCI, Thomson Reuters Datastream, EPFR, HSBC                                                 Source: MSCI, Thomson Reuters Datastream, EPFR, HSBC




                                                                                                                                                                                                    45
     Equity Insights Quarterly
     Global                                                                                                                                     abc
     Second Quarter 2013




 Active weights compared to history for countries                         Active weights for countries

                                               relativ e return since     Korea (South)
                                                    data cut-off*                       UK
                                                                                 France
    Portugal                                                        -2%    Netherlands
    Sweden                                                          -5%            China
            UK                                                      -1%
                                                                                    Brazil
  Argentina                                                         -5%
                                                                              Germany
          Italy                                                      2%
                                                                                  Ireland
       Japan                                                         1%
                                                                    -6%         Norway
     Greece
      Ireland                                                       -5%    Switzerland
    Norway                                                           2%          Turkey
   Thailand                                                          3%              India
   Denmark                                                          -9%          Russia
     France                                                         -1%          Taiwan
     Finland                                                        -2%        Thailand
    Canada                                                          -2%           Austria
            US                                                      -1%        Argentina
      Austria                                                       16%       Indonesia
     Turkey                                                          2%        Denmark
  Indonesia                                                          3%               Italy
       Egy pt                                                       -6%      Singapore
       Korea                                                        -3%          Mexico
        Spain                                                       -4%         Portugal
 Switzerlan                                                         -2%            Egypt
     Mex ico                                                        -2%
                                                                              Malaysia
    Belgium                                                         -4%
                                                                                 Greece
     Russia                                                         -4%
                                                                             Hongkong
   Malay sia                                                        -2%
                                                                    -4%     Philippines
       China
        South                                                        0%    South Africa
        Brazil                                                       1%          Finland
 Netherland                                                         -1%         Sweden
   Australia                                                         0%         Belgium
  Germany                                                           -1%             Spain
         India                                                       0%         Canada
    Taiwan                                                          -4%            Japan
 Hongkong                                                            2%         Australia
 Singapore                                                          -2%                 US
 Philippines                                                         0%
                                                                                              -10          -8    -6 -4 -2          0   2    4
                  -4       -3      -2 -1      0     1    2     3                                                Active Weights, pp
              Feb-13              z-score      *end Feb to 22 Mar
                                                                                  Range                Average           Nov-12        Feb-13

 Source: Includes: global funds                                           Source: Includes: global funds
 Source: MSCI, Thomson Reuters Datastream, EPFR, HSBC                     Source: MSCI, Thomson Reuters Datastream, EPFR, HSBC




46
     Valuations




                                                                                                                                                                                                                              Second Quarter 2013
                                                                                                                                                                                                                              Global
                                                                                                                                                                                                                              Equity Insights Quarterly
     Regions/countries
     MSCI ACWI 12-month forward PE analysis (absolute and relative to the World index)
                                                 _____________________________________ Absolute ____________________________________ ______________________________________ Relative ____________________________________
                                                  29-Mar-13     ____ Average _____ Max           Min      _# std devs current from _    29-Mar-13  _______Average _______    Max        Min      # std devs current from
                                                              past 16Y        5Y                         avg past 16 Y           5Y avg           past 16Y on         5Y                       avg past 16Y          5Y avg
                                                                    on
     MSCI AC WORLD                                             12.9   15.9   12.0      24.4         8.9           -0.8            0.7       100.0        100.0       100.0     100.0     100.0           n/a           n/a
     MSCI Fmr THE WORLD INDEX                                  13.3   16.3   12.2      25.0         9.1           -0.7            0.9       103.5        102.3       101.9     110.1     100.0           0.8           2.0
     MSCI EMG                                                  10.3   11.6   10.6      19.8         7.1           -0.5           -0.2        80.1         74.9        88.4     100.3      48.0           0.4          -2.0
     MSCI AC AMERICAS INDEX                                    13.7   14.8   12.7      22.0         9.5           -0.4            0.9       106.5        105.2       106.2     110.6      99.0           0.4           0.1
     MSCI U.S.A                                                13.9   16.8   12.8      25.2         9.8           -0.7            1.0       107.6        105.7       107.2     115.2      94.0           0.5           0.1
     MSCI CANADA                                               13.3   15.5   12.9      25.8         8.0           -0.7            0.3       102.8         98.6       107.3     124.1      78.6           0.4          -0.6
     MSCI BRAZIL                                               10.5    8.2   10.0      13.5         4.2            1.0            0.3        81.2         56.4        82.6      98.4      21.3           1.1          -0.2
     MSCI MEXICO                                               16.7   12.6   13.8      17.9         8.0            2.1            1.3       129.3         84.7       116.0     149.2      37.5           1.6           0.7
     MSCI EUROPE                                               12.0   14.9   10.5      23.9         7.7           -0.7            1.2        93.2         92.6        87.8     108.2      79.8           0.1           1.7
     MSCI EUROPE ex UK                                         12.4   14.9   10.7      25.7         7.9           -0.6            1.3        96.0         92.8        89.4     116.5      79.1           0.6           1.7
     MSCI EMU                                                  11.5   14.8   10.2      26.9         7.4           -0.7            1.0        89.2         91.3        84.7     121.8      75.3          -0.3           1.2
     MSCI UNITED KINGDOM                                       11.4   14.8   10.1      24.4         7.3           -0.8            1.1        88.2         92.6        84.6     124.2      78.5          -0.3           1.3
     MSCI FRANCE                                               11.4   15.3   10.2      28.9         7.5           -0.7            0.9        88.7         93.7        85.2     131.0      79.4          -0.5           1.0
     MSCI GERMANY                                              11.3   15.3   10.5      31.0         7.8           -0.8            0.7        88.0         94.4        87.3     128.9      77.2          -0.6           0.2
     MSCI SWITZERLAND                                          14.8   15.4   12.3      23.4         9.9           -0.2            2.5       115.2         98.1       102.8     123.1      76.7           2.0           1.5
     MSCI SPAIN                                                10.9   13.7    9.3      25.2         7.0           -0.7            1.4        84.4         85.2        78.0     117.1      64.9          -0.1           1.1
     MSCI ITALY                                                 9.6   15.0    9.3      28.3         6.8           -1.0            0.2        74.1         91.7        76.8     127.7      61.9          -1.3          -0.4
     MSCI NETHERLANDS                                          12.3   14.0   10.3      22.8         7.4           -0.4            1.5        95.3         87.3        85.7     101.5      74.5           1.5           2.2
     MSCI SWEDEN                                               14.1   16.2   13.0      34.0         8.3           -0.5            0.4       109.5        102.0       107.7     154.3      80.2           0.6           0.2
     MSCI RUSSIA                                                4.9    7.7    6.0      22.8         2.5           -1.0           -0.7        38.3         50.5        49.9     109.3      13.8          -0.7          -1.2
     MSCI AC ASIA-PACIFIC                                      12.7   17.9   13.3      36.6        10.2           -0.8           -0.3        98.4        110.7       110.7     152.6      90.7          -0.9          -1.0
     I/B/E/S MSCI APXJ                                         11.2   12.1   12.0      16.6         8.9           -0.5           -0.5        86.9         87.8       100.1     116.1      60.3          -0.1          -2.4
     MSCI JAPAN                                                14.3   22.5   15.6      47.7        10.8           -0.8           -0.3       110.9        136.9       129.3     229.1      96.9          -0.8          -0.5
     MSCI AUSTRALIA                                            14.0   14.6   12.3      20.7         8.5           -0.3            1.0       108.9         93.9       102.3     115.7      73.9           1.5           1.3
     MSCI CHINA                                                 9.1   12.8   11.0      35.0         6.0           -0.8           -0.9        70.6         82.5        91.5     167.1      29.8          -0.5          -1.8
     MSCI KOREA                                                 8.5    9.9    9.6      20.3         5.5           -0.5           -0.9        65.9         64.7        80.7     103.4      26.4           0.1          -1.8
     MSCI TAIWAN                                               14.1   16.1   15.3      33.2         9.5           -0.4           -0.3       109.7        103.6       128.0     268.5      53.5           0.2          -0.5
     MSCI HONG KONG                                            14.9   15.4   14.9      21.9         7.5           -0.2           -0.0       115.5        101.4       124.3     152.9      36.9           0.6          -1.3
     MSCI INDIA                                                13.4   13.8   14.3      22.6         8.4           -0.1           -0.4       104.2         92.2       119.1     162.3      42.5           0.4          -1.3
     MSCI SINGAPORE                                            14.1   15.1   13.2      23.7         9.1           -0.3            0.6       109.7         97.4       110.4     118.7      56.5           0.8          -0.1
     Source: MSCI, Thomson Reuters Datastream, I/B/E/S, HSBC




                                                                                                                                                                                                                                     abc
47
48



     Valuations




                                                                                                                                                                                                                               Second Quarter 2013
                                                                                                                                                                                                                               Global
                                                                                                                                                                                                                               Equity Insights Quarterly
     Regions/countries
     MSCI ACWI Trailing PB analysis (absolute and relative to the World index)
                                                 _____________________________________ Absolute ____________________________________ ______________________________________ Relative ____________________________________
                                                  29-Mar-13     ____ Average _____ Max           Min      _# std devs current from _    29-Mar-12  _______ Average _______   Max        Min      _ # std devs current from
                                                               past 16Y        5Y                        avg past 16 Y           5Y avg           past 16Y on          5Y                       avg past 16Y          5Y avg
                                                                     on
     MSCI AC WORLD                                             1.9   2.4       1.8       4.0        1.2           -0.9            0.6       100.0        100.0        100.0     100.0     100.0           n/a           n/a
     MSCI Fmr THE WORLD INDEX                                  1.9   2.5       1.8       4.2        1.2           -0.9            0.9       102.2        102.0         99.5     107.7      98.0           0.1           2.5
     MSCI EMG                                                  1.6   1.8       1.8       3.0        0.9           -0.6           -0.7        86.7         80.1        103.9     116.5      33.4           0.3          -2.2
     MSCI AC AMERICAS INDEX                                    2.3   3.0       2.1       5.2        1.5           -0.8            0.9       122.9        120.6        120.1     135.2     108.5           0.4           0.8
     MSCI U.S.A                                                2.4   3.1       2.1       5.8        1.5           -0.7            1.2       127.7        127.0        121.8     158.7     109.0           0.1           1.2
     MSCI CANADA                                               1.8   2.2       1.9       3.3        1.4           -0.9           -0.3        98.0         93.3        109.5     128.3      59.2           0.3          -1.8
     MSCI BRAZIL                                               1.4   1.6       1.8       3.3        0.4           -0.2           -0.8        77.1         70.8        102.8     145.5      11.9           0.2          -1.5
     MSCI MEXICO                                               3.1   2.5       2.7       3.9        1.4            1.2            1.3       167.8        110.0        156.0     187.7      48.9           1.5           0.8
     MSCI EUROPE                                               1.6   2.3       1.5       4.3        1.1           -1.0            0.3        85.2         93.5         87.4     113.5      82.2          -1.1          -0.9
     MSCI EUROPE ex UK                                         1.5   2.3       1.5       4.4        1.1           -1.0            0.3        80.5         92.0         82.9     114.3      76.1          -1.2          -0.8
     MSCI EMU                                                  1.3   2.1       1.3       4.4        1.0           -1.0           -0.1        67.7         85.7         73.5     114.2      64.5          -1.5          -1.2
     MSCI UNITED KINGDOM                                       1.8   2.4       1.7       4.2        1.2           -0.8            0.4        96.0         97.7         97.9     122.7      76.8          -0.2          -0.5
     MSCI FRANCE                                               1.2   2.2       1.3       4.6        1.0           -1.1           -0.2        66.0         86.6         72.5     132.0      62.0          -1.4          -1.3
     MSCI GERMANY                                              1.5   2.1       1.4       4.5        1.0           -0.7            0.5        79.3         82.0         79.6     126.7      50.7          -0.2          -0.1
     MSCI SWITZERLAND                                          2.5   3.0       2.3       5.3        1.6           -0.6            1.2       134.9        123.6        128.7     165.4      99.5           1.1           0.8
     MSCI SPAIN                                                1.1   2.3       1.4       3.6        0.8           -1.6           -0.9        58.7         91.3         79.6     123.6      50.0          -2.1          -1.3
     MSCI ITALY                                                0.7   2.0       0.9       4.3        0.6           -1.3           -0.9        39.0         76.7         50.8     127.5      38.1          -1.8          -1.6
     MSCI NETHERLANDS                                          1.4   2.4       1.5       4.2        1.2           -1.2           -0.4        77.2         97.1         87.3     124.6      72.4          -1.7          -0.9
     MSCI SWEDEN                                               2.1   2.6       1.9       6.2        1.2           -0.5            1.1       114.3        106.2        105.9     159.6      68.3           0.5           0.9
     MSCI RUSSIA                                               0.8   1.4       1.1       3.0        0.2           -0.9           -0.9        42.1         57.3         61.7     114.4       7.4          -0.7          -1.4
     MSCI AC ASIA-PACIFIC                                      1.5   1.8       1.4       2.4        1.0           -0.8            0.3        80.3         73.5         82.1      89.5      48.4           0.6          -0.5
     I/B/E/S MSCI APXJ                                         1.6   1.8       1.8       2.9        0.9           -0.5           -0.6        86.6         77.8        101.5     115.1      33.6           0.4          -1.8
     MSCI JAPAN                                                1.3   1.6       1.1       2.5        0.9           -0.9            0.8        67.3         66.5         63.8      85.6      49.1           0.1           0.6
     MSCI AUSTRALIA                                            2.0   2.2       1.9       3.2        1.4           -0.6            0.3       106.8         94.6        109.4     119.8      62.9           0.7          -0.6
     MSCI CHINA                                                1.6   2.0       2.1       5.3        0.4           -0.5           -1.1        85.6         87.6        119.2     198.0      13.7          -0.1          -1.8
     MSCI KOREA                                                1.2   1.3       1.3       2.1        0.5           -0.4           -0.9        62.8         57.6         76.4      88.5      14.1           0.3          -2.3
     MSCI TAIWAN                                               1.8   2.2       1.8       4.5        1.1           -0.5            0.2        98.6         90.4        102.2     151.4      57.0           0.4          -0.4
     MSCI HONG KONG                                            1.4   1.6       1.4       2.5        0.8           -0.5           -0.2        73.1         66.2         80.6     102.0      27.5           0.4          -0.9
     MSCI INDIA                                                2.6   3.1       3.0       6.4        1.6           -0.5           -0.7       138.2        134.4        171.0     255.2      58.7           0.1          -1.6
     MSCI SINGAPORE                                            1.5   1.7       1.6       2.6        0.8           -0.5           -0.5        80.4         72.5         91.9     103.8      27.8           0.4          -1.7
     Source: MSCI, Thomson Reuters Datastream, I/B/E/S, HSBC




                                                                                                                                                                                                                                      abc
                                                                                                                                                                                                                             Second Quarter 2013
                                                                                                                                                                                                                             Global
                                                                                                                                                                                                                             Equity Insights Quarterly
     Global sectors
     MSCI AC World sectors: 12-month forward PE analysis (absolute and relative to the World index)
                                                _____________________________________ Absolute ____________________________________ ______________________________________ Relative ____________________________________
                                               29-Mar-13 _______ Average _______      Max         Min _ # std devs current from __    29-Mar-13 ________Average ________     Max         Min _ # std devs current from ___
                                                          past 16Y on         5Y                         avg past 16Y          5Y avg            past 16Y on         5Y                         avg past 16Y        5Y avg

     Energy                                           10.4      13.6         10.1      25.1        6.1           -0.8            0.2        80.9         85.0        84.5     107.7      66.4            -0.5        -0.8
     Materials                                        12.2      13.4         11.7      20.1        5.7           -0.5            0.2        94.3         86.2        96.4     126.5      50.1             0.6        -0.2
     Industrials                                      13.8      15.9         12.8      23.3        8.5           -0.7            0.5       107.3        101.3       106.8     119.1      70.5             0.6         0.1
     Capital Goods                                    13.1      15.7         12.2      24.9        7.9           -0.7            0.5       101.7         99.8       101.7     114.5      66.0             0.2         0.0
     Commercial Services & Suppliers                  17.8      18.1         15.1      24.8       10.9           -0.1            1.8       137.8        116.1       126.5     137.8      83.6             1.9         1.5
     Transportation                                   15.5      15.8         14.9      28.3       10.5           -0.1            0.3       120.3        103.2       123.7     144.0      65.3             0.9        -0.4
     Consumer Discretionary                           14.3      18.0         14.6      28.2       10.5           -0.9           -0.1       110.9        113.8       121.6     191.8      99.7            -0.2        -0.6
     Automobiles & Components                          9.6      14.0         16.4     189.0        7.4           -0.3           -0.3        74.4         91.0       131.8    1365.0      57.3            -0.2        -0.3
     Consumer Durables & Apparel                      16.1      17.9         16.6      28.9       10.8           -0.5           -0.1       124.8        115.0       137.6     208.2      88.4             0.5        -0.6
     Consumer Services                                18.3      17.4         15.6      23.2       11.3            0.4            1.8       141.8        113.8       130.7     153.2      75.3             1.4         0.8
     Media                                            16.0      26.0         13.1      62.5        9.6           -0.8            2.1       124.1        155.3       109.5     273.6      85.7            -0.7         1.5
     Retailing                                        18.0      19.1         15.5      36.0       10.6           -0.2            1.8       139.7        120.6       129.6     149.6     101.2             1.7         1.0
     Consumer staples                                 16.9      17.2         14.5      24.0       12.0           -0.1            2.4       130.8        111.2       122.0     144.1      71.4             1.3         0.7
     Food & Staples Retailing                         14.9      17.2         13.6      24.7       12.2           -0.7            1.7       115.7        110.4       114.3     139.3      81.4             0.4         0.2
     Food Beverage &Tobacco                           17.1      16.4         14.5      22.7       11.8            0.4            2.2       133.0        106.7       122.1     142.6      62.2             1.4         0.8
     Household & Personal Products                    18.8      20.6         15.9      32.3       12.6           -0.4            2.4       145.9        130.7       133.8     159.4      96.8             1.2         0.8
     Health Care                                      14.4      18.5         11.9      30.1       10.2           -0.7            2.5       111.9        114.4       100.0     143.5      77.7            -0.2         1.0
     Health Care Equipment & Servs                    14.0      17.1         12.9      26.4       10.0           -0.9            0.9       108.6        109.3       108.3     138.1      70.2            -0.0         0.0
     Pharmaceuticals & Biotechnology                  14.6      18.6         11.6      31.9       10.0           -0.6            2.8       113.1        114.5        97.6     151.1      76.6            -0.1         1.3
     Financials                                       11.4      13.0         10.6      19.7        7.8           -0.6            0.5        88.5         82.4        88.5     100.3      65.3             0.8        -0.0
     Banks                                            10.2      12.2         10.2      18.8        7.5           -0.8           -0.0        78.8         78.0        84.9     107.9      55.6             0.1        -0.7
     Diversified Financials                           11.4      13.1         10.8      19.9        7.4           -0.6            0.3        88.2         83.1        89.9     111.1      67.2             0.6        -0.2
     Insurance                                        11.2      13.7          9.4      25.0        6.2           -0.5            1.5        86.6         84.5        79.1     114.9      57.5             0.2         0.9
     Real Estate                                      20.5      18.6         17.7      28.4       10.8            0.6            1.3       159.3        123.6       148.0     190.5      56.1             1.0         0.8
     Information Technology                           12.9      22.4         13.7      49.9       10.9           -1.0           -0.4        99.7        136.2       114.4     226.1      99.4            -1.4        -1.3
     Software & Services                              15.0      25.7         14.2      67.4       11.1           -0.9            0.6       116.6        154.1       118.5     298.4      99.2            -1.0        -0.2
     Technology Hardware & Equip                      11.2      21.5         13.1      55.1       10.2           -1.1           -0.8        86.9        131.0       109.0     262.7      85.6            -1.5        -1.7
     Semiconductors & Semi Equip                      12.0      24.2         29.9     632.0        8.6           -0.2           -0.2        92.9        192.6       260.2    5891.0      58.5            -0.2        -0.2
     Telecommunications                               12.8      20.2         11.5      49.1        9.3           -0.8            1.7        99.4        124.0        96.9     268.4      75.6            -0.6         0.3
     Utilities                                        14.3      14.2         13.0      17.9       10.3            0.1            0.9       110.6         92.8       110.1     135.2      58.8             0.9         0.0
     AC World                                         12.9      15.9         12.0      24.4        8.9           -0.8            0.7
     Source: MSCI, Thomson Reuters Datastream, I/B/E/S, HSBC




                                                                                                                                                                                                                                    abc
49
50




                                                                                                                                                                                                                             Second Quarter 2013
                                                                                                                                                                                                                             Global
                                                                                                                                                                                                                             Equity Insights Quarterly
     Global sectors
     MSCI AC World sectors: Trailing PB analysis (absolute and relative to the World index)
                                                _____________________________________ Absolute ____________________________________ ______________________________________ Relative ____________________________________
                                               29-Mar-13 _______ Average _______      Max         Min _ # std devs current from __    29-Mar-13 ________Average ________     Max         Min _ # std devs current from ___
                                                         past 16Y on         5Y                          avg past 16Y          5Y avg           past 16Y on         5Y                          avg past 16Y        5Y avg

     Energy                                             1.5      2.5          1.7       3.6        1.3           -1.6           -0.7        79.7        102.2        98.9     136.4      75.3            -2.0        -1.7
     Materials                                          1.7      2.0          1.9       3.0        1.1           -0.7           -0.4        91.2         85.0       105.6     130.5      43.5             0.3        -1.4
     Industrials                                        2.2      2.4          2.0       3.3        1.2           -0.5            1.0       117.9        102.1       110.9     119.7      79.6             1.6         1.2
     Capital Goods                                      2.1      2.5          2.0       3.6        1.2           -0.7            0.6       114.0        103.1       110.5     122.4      80.7             1.1         0.5
     Commercial Services & Suppliers                    3.2      3.4          2.5       5.3        1.8           -0.3            2.3       170.0        140.5       144.8     199.2     108.3             1.7         2.2
     Transportation                                     2.2      2.0          1.8       2.7        1.2            0.7            1.8       117.3         86.3       103.8     117.3      44.4             1.9         2.8
     Consumer Discretionary                             2.5      2.3          1.9       3.7        1.2            0.5            2.0       133.2         94.4       109.2     133.6      74.3             2.9         1.7
     Automobiles & Components                           1.4      1.6          1.3       2.5        0.8           -0.6            0.7        75.6         68.2        73.6      88.2      51.5             0.9         0.4
     Consumer Durables & Apparel                        2.4      1.9          1.7       2.8        0.9            1.6            2.3       130.0         81.9        98.5     131.0      52.8             3.1         2.3
     Consumer Services                                  4.0      3.0          3.2       4.2        1.7            2.0            2.1       215.4        129.3       183.3     223.0      72.0             2.0         1.4
     Media                                              3.0      2.4          2.0       5.3        1.0            0.7            2.2       161.5         98.1       112.7     161.5      48.1             2.5         1.9
     Retailing                                          4.0      3.4          2.8       6.5        1.7            0.6            2.0       211.9        143.6       161.5     214.9     106.6             2.6         1.6
     Consumer staples                                   3.6      3.9          3.0       5.3        2.4           -0.4            2.6       192.1        162.1       171.2     211.1     100.7             1.6         1.5
     Food & Staples Retailing                           2.4      3.2          2.1       5.0        1.7           -0.8            2.0       130.6        129.5       122.6     169.7      79.2             0.1         0.9
     Food Beverage &Tobacco                             4.1      3.9          3.4       4.8        2.6            0.6            2.6       218.9        164.1       191.7     223.4      86.4             2.0         1.6
     Household & Personal Products                      4.2      5.8          3.6       9.3        2.9           -0.8            2.4       225.6        235.7       208.6     357.0     134.4            -0.2         0.9
     Health Care                                        3.2      4.7          2.7       8.6        2.2           -0.7            2.3       173.2        186.9       153.0     310.8     132.1            -0.3         1.6
     Health Care Equipment & Servs                      2.8      3.1          2.5       4.5        1.9           -0.4            1.4       150.6        131.6       139.6     205.2      68.1             0.6         1.3
     Pharmaceuticals & Biotechnology                    3.4      5.2          2.8      10.3        2.4           -0.7            2.6       182.6        206.0       158.0     353.8     131.9            -0.4         1.6
     Financials                                         1.2      1.8          1.1       2.8        0.7           -1.2            0.4        61.9         73.3        62.0      89.2      52.4            -1.3        -0.0
     Banks                                              1.2      1.8          1.1       2.8        0.7           -1.2            0.3        62.3         74.2        63.7      87.1      53.6            -1.2        -0.3
     Diversified Financials                             1.0      2.0          1.0       3.5        0.5           -1.2            0.3        54.9         77.5        55.1     104.9      43.3            -1.4        -0.0
     Insurance                                          1.1      1.9          1.1       3.6        0.7           -1.0            0.2        58.5         74.3        61.2     108.8      56.3            -1.0        -0.8
     Real Estate                                        1.6      1.4          1.3       2.2        0.7            0.6            1.4        83.4         58.9        74.1      85.8      28.0             1.4         1.4
     Information Technology                             2.7      4.2          2.7      12.8        1.3           -0.7            0.1       146.5        164.0       154.5     319.7      53.2            -0.4        -1.1
     Software & Services                                4.3      7.0          4.0      22.9        1.3           -0.5            0.7       229.9        267.0       229.0     601.6      53.2            -0.3         0.1
     Technology Hardware & Equip                        2.1      3.6          2.3      10.9        1.5           -0.8           -0.7       109.4        142.1       129.1     271.8     103.4            -1.0        -2.0
     Semiconductors & Semi Equip                        2.2      3.8          2.2      12.6        1.5           -0.6            0.0       117.3        148.1       124.8     350.9     101.3            -0.6        -0.7
     Telecommunications                                 2.0      2.3          1.8       5.7        1.1           -0.3            1.9       108.5         93.8       101.1     153.7      50.0             0.7         1.2
     Utilities                                          1.3      1.7          1.4       2.3        1.2           -1.2           -0.3        70.8         70.9        79.7     107.6      46.2            -0.0        -0.9
     AC World                                           1.9      2.4          1.8       4.0        1.2           -0.9            0.6
     Source: MSCI, Thomson Reuters Datastream, I/B/E/S, HSBC




                                                                                                                                                                                                                                    abc
  Equity Insights Quarterly
  Global                                                                                                                          abc
  Second Quarter 2013




Earnings: Revisions ratios
US revisions ratio                                               Europe ex-UK revisions ratio

80                                                               80
70                                                               70
60                                                               60
50                                                               50
40
30                                                               40
20                                                               30
10                                                               20
 0                                                               10
     87 89 91 93 95 97 99 01 03 05 07 09 11 13                        87 89 91 93 95 97 99 01 03 05 07 09 11 13

              1M                3M                 Av g   1 SD                 1M                3M                 Av g   1 SD

Source: MSCI, Thomson Reuters Datastream, I/B/E/S, HSBC          Source: MSCI, Thomson Reuters Datastream, I/B/E/S, HSBC




UK revisions ratio                                               Asia Pacific ex-Japan revisions ratio

70                                                               70
60                                                               60
50                                                               50
40                                                               40
30                                                               30
20                                                               20
10                                                               10
     87 89 91 93 95 97 99 01 03 05 07 09 11 13                        87 89 91 93 95 97 99 01 03 05 07 09 11 13

              1M                3M                 Av g   1 SD                1M                 3M                 Av g   1 SD

Source: MSCI, Thomson Reuters Datastream, I/B/E/S, HSBC          Source: Thomson Reuters Datastream, I/B/E/S, FTSE, HSBC




Japan revisions ratio                                            Emerging Markets revisions ratio

80                                                               90
70                                                               80
60                                                               70
50                                                               60
40                                                               50
30                                                               40
20                                                               30
10                                                               20
 0                                                               10
     87 89 91 93 95 97 99 01 03 05 07 09 11 13                        87 89 91 93 95 97 99 01 03 05 07 09 11 13


              1M                3M                 Av g   1 SD                 1M                3M                 Av g   1 SD

Source: MSCI, Thomson Reuters Datastream, I/B/E/S, HSBC          Source: MSCI, Thomson Reuters Datastream, I/B/E/S, HSBC




                                                                                                                                    51
     Equity Insights Quarterly
     Global                                                                                                                                              abc
     Second Quarter 2013




MSCI ACWI sector earnings: Revisions ratios
 Energy revisions ratio                                                        Materials revisions ratio

 100                                                                           80

     80
                                                                               60
     60
                                                                               40
     40

     20                                                                        20

      0                                                                         0
           95 96    98        00   02 03       05    07    09 10          12        95    96     98     00    02     03     05     07    09    10   12
                         1M                                     3M                                    1M                                      3M
 Source: MSCI, Thomson Reuters Datastream, I/B/E/S, HSBC                       Source: MSCI, Thomson Reuters Datastream, I/B/E/S, HSBC




 Industrials revisions ratio                                                   Consumer Discretionary revisions ratio

 80                                                                            80
 70                                                                            70
 60                                                                            60
 50                                                                            50
 40                                                                            40
 30                                                                            30
 20                                                                            20
 10                                                                            10
  0                                                                             0
          95   96   98    00       02   03    05     07    09    10       12        95    96     98     00     02    03     05     07    09    10   12

                         1M                                     3M                                    1M                                  3M

 Source: MSCI, Thomson Reuters Datastream, I/B/E/S, HSBC                       Source: MSCI, Thomson Reuters Datastream, I/B/E/S, HSBC




 Consumer Staples revisions ratio                                              Health Care revisions ratio

 70                                                                            80

 60                                                                            70
                                                                               60
 50
                                                                               50
 40
                                                                               40
 30                                                                            30
 20                                                                            20
          95   96   98    00       02   03    05     07    09        10   12        95    96     98     00    02     03     05     07    09    10   12
                         1M                                 3M                                        1M                                  3M
 Source: MSCI, Thomson Reuters Datastream, I/B/E/S, HSBC                       Source: MSCI, Thomson Reuters Datastream, I/B/E/S, HSBC




52
  Equity Insights Quarterly
  Global                                                                                                                                            abc
  Second Quarter 2013




Financials revisions ratio                                                IT revisions ratio

80                                                                        80
70                                                                        70
60                                                                        60
50                                                                        50
40                                                                        40
30                                                                        30
20                                                                        20
10                                                                        10
 0                                                                         0
     95    96     98     00    02     03     05     07    09    10   12        95    96     98    00     02     03     05     07    09    10   12

                       1M                                  3M                                    1M                                  3M

Source: MSCI, Thomson Reuters Datastream, I/B/E/S, HSBC                   Source: MSCI, Thomson Reuters Datastream, I/B/E/S, HSBC




Telecom revisions ratio                                                   Utilities revisions ratio

80                                                                        80

70                                                                        70
                                                                          60
60
                                                                          50
50                                                                        40
40                                                                        30
                                                                          20
30
                                                                          10
20                                                                         0
     95    96     98     00     02    03     05     07    09    10   12        95    96     98     00    02     03     05     07    09    10   12
                       1M                                  3M                                    1M                                  3M
Source: MSCI, Thomson Reuters Datastream, I/B/E/S, HSBC                   Source: MSCI, Thomson Reuters Datastream, I/B/E/S, HSBC




                                                                                                                                                      53
     Equity Insights Quarterly
     Global                                                                                                                                          abc
     Second Quarter 2013




EPS vs peak and trend
Regions/countries
 MSCI All country World                                                    MSCI Developed World

 1.6                                                                       2.2
                                                                           2.1
 1.4                                                                       2.0
                                                                           1.9
 1.2                                                                       1.8
 1.0                                                                       1.7
                                                                           1.6
 0.8                                                                       1.5
                                                                           1.4
 0.6                                                                       1.3
       88 90 92 94 96 98 00 02 04 06 08 10 12 14                                 88 90 92 94 96 98 00 02 04 06 08 10 12 14

              12M trail                  Trend             I/B/E/S fcast                12M trail                  Trend             I/B/E/S fcast


 Source: MSCI, Thomson Reuters Datastream, I/B/E/S, HSBC                   Source: MSCI, Thomson Reuters Datastream, I/B/E/S, HSBC




 MSCI Emerging Markets                                                     MSCI US

 2.6                                                                       2.3
                                                                           2.1
 2.1
                                                                           1.9
 1.6                                                                       1.7
                                                                           1.5
 1.1
                                                                           1.3
 0.6                                                                       1.1
       88 90 92 94 96 98 00 02 04 06 08 10 12 14                                 88 90 92 94 96 98 00 02 04 06 08 10 12 14

              12M trail                  Trend             I/B/E/S fcast                12M trail                  Trend             I/B/E/S fcast


 Source: MSCI, Thomson Reuters Datastream, I/B/E/S, HSBC                   Source: MSCI, Thomson Reuters Datastream, I/B/E/S, HSBC




 MSCI Europe                                                               MSCI Asia Pacific ex Japan

 2.3                                                                       1.8
                                                                           1.7
 2.1                                                                       1.6
                                                                           1.5
 1.9
                                                                           1.4
 1.7                                                                       1.3
                                                                           1.2
 1.5                                                                       1.1
                                                                           1.0
 1.3                                                                       0.9
       88 90 92 94 96 98 00 02 04 06 08 10 12 14                                 88 90 92 94 96 98 00 02 04 06 08 10 12 14
              12M trail                  Trend             I/B/E/S fcast                12M trail                  Trend             I/B/E/S fcast

 Source: MSCI, Thomson Reuters Datastream, I/B/E/S, HSBC                   Source: MSCI, Thomson Reuters Datastream, I/B/E/S, HSBC




54
  Equity Insights Quarterly
  Global                                                                                                                                            abc
  Second Quarter 2013




MSCI Canada                                                               MSCI Brazil

2.3                                                                       10.6
2.1
1.9                                                                       10.2
1.7
1.5                                                                        9.8
1.3
1.1                                                                        9.4
      88 90 92 94 96 98 00 02 04 06 08 10 12 14                                  88 90 92 94 96 98 00 02 04 06 08 10 12 14
              12M trail                 Trend             I/B/E/S fcast                12M trail                  Trend             I/B/E/S fcast

Source: MSCI, Thomson Reuters Datastream, I/B/E/S, HSBC                   Source: MSCI, Thomson Reuters Datastream, I/B/E/S, HSBC




MSCI Mexico                                                               MSCI UK

4.0                                                                       2.3
                                                                          2.2
3.5
                                                                          2.1
3.0                                                                       2.0
2.5                                                                       1.9
                                                                          1.8
2.0
                                                                          1.7
1.5                                                                       1.6
      88 90 92 94 96 98 00 02 04 06 08 10 12 14                                 88 90 92 94 96 98 00 02 04 06 08 10 12 14
             12M trail                  Trend             I/B/E/S fcast                12M trail                  Trend             I/B/E/S fcast


Source: MSCI, Thomson Reuters Datastream, I/B/E/S, HSBC                   Source: MSCI, Thomson Reuters Datastream, I/B/E/S, HSBC




MSCI Russia                                                               MSCI Sweden

3.0                                                                       3.5
2.5                                                                       3.0
                                                                          2.5
2.0
                                                                          2.0
1.5
                                                                          1.5
1.0
                                                                          1.0
0.5                                                                       0.5
0.0                                                                       0.0
      88 90 92 94 96 98 00 02 04 06 08 10 12 14                                 88 90 92 94 96 98 00 02 04 06 08 10 12 14

             12M trail                  Trend             I/B/E/S fcast                12M trail                  Trend             I/B/E/S fcast

Source: MSCI, Thomson Reuters Datastream, I/B/E/S, HSBC                   Source: MSCI, Thomson Reuters Datastream, I/B/E/S, HSBC




                                                                                                                                                      55
     Equity Insights Quarterly
     Global                                                                                                                                          abc
     Second Quarter 2013




 MSCI Switzerland                                                          MSCI EMU

 2.0                                                                       1.4
 1.8                                                                       1.2
 1.6                                                                       1.0
 1.4                                                                       0.8
 1.2                                                                       0.6
 1.0                                                                       0.4
 0.8                                                                       0.2

       88 90 92 94 96 98 00 02 04 06 08 10 12 14                                 88 90 92 94 96 98 00 02 04 06 08 10 12 14

              12M trail                  Trend             I/B/E/S fcast                 12M trail                 Trend             I/B/E/S fcast


 Source: MSCI, Thomson Reuters Datastream, I/B/E/S, HSBC                   Source: MSCI, Thomson Reuters Datastream, I/B/E/S, HSBC




 MSCI Germany                                                              MSCI France

 2.0                                                                       2.2
 1.8                                                                       2.0
 1.6
                                                                           1.8
 1.4
                                                                           1.6
 1.2
 1.0                                                                       1.4
 0.8                                                                       1.2
       88 90 92 94 96 98 00 02 04 06 08 10 12 14                                 88 90 92 94 96 98 00 02 04 06 08 10 12 14
              12M trail                  Trend             I/B/E/S fcast                12M trail                  Trend             I/B/E/S fcast

 Source: MSCI, Thomson Reuters Datastream, I/B/E/S, HSBC                   Source: MSCI, Thomson Reuters Datastream, I/B/E/S, HSBC




 MSCI Italy                                                                MSCI Netherlands

 2.2                                                                       2.2
 1.8                                                                       2.0
 1.4                                                                       1.8
 1.0                                                                       1.6

 0.6                                                                       1.4

 0.2                                                                       1.2
       88 90 92 94 96 98 00 02 04 06 08 10 12 14                                 88 90 92 94 96 98 00 02 04 06 08 10 12 14

               12M trail                 Trend             I/B/E/S fcast                12M trail                  Trend             I/B/E/S fcast


 Source: MSCI, Thomson Reuters Datastream, I/B/E/S, HSBC                   Source: MSCI, Thomson Reuters Datastream, I/B/E/S, HSBC




56
  Equity Insights Quarterly
  Global                                                                                                                                            abc
  Second Quarter 2013




MSCI Spain                                                                MSCI Japan

2.2                                                                       1.8
2.0                                                                       1.4
1.8
                                                                          1.0
1.6
                                                                          0.6
1.4
1.2                                                                       0.2
1.0                                                                       -0.2
      88 90 92 94 96 98 00 02 04 06 08 10 12 14                                  88 90 92 94 96 98 00 02 04 06 08 10 12 14
             12M trail                  Trend             I/B/E/S fcast                 12M trail                 Trend             I/B/E/S fcast

Source: MSCI, Thomson Reuters Datastream, I/B/E/S, HSBC                   Source: MSCI, Thomson Reuters Datastream, I/B/E/S, HSBC




MSCI Australia                                                            MSCI China

2.0                                                                       1.0

1.8                                                                       0.8
                                                                          0.6
1.6
                                                                          0.4
1.4
                                                                          0.2
1.2                                                                       0.0
1.0                                                                       -0.2
      88 90 92 94 96 98 00 02 04 06 08 10 12 14                                  00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
              12M trail                 Trend             I/B/E/S fcast                12M trail                  Trend             I/B/E/S fcast

Source: MSCI, Thomson Reuters Datastream, I/B/E/S, HSBC                   Source: MSCI, Thomson Reuters Datastream, I/B/E/S, HSBC




MSCI Hong Kong                                                            MSCI India

3.2                                                                       2.0
3.0                                                                       1.8
2.8                                                                       1.6
                                                                          1.4
2.6
                                                                          1.2
2.4                                                                       1.0
2.2                                                                       0.8
2.0                                                                       0.6
      88 90 92 94 96 98 00 02 04 06 08 10 12 14                                  88 90 92 94 96 98 00 02 04 06 08 10 12 14
             12M trail                 Trend              I/B/E/S fcast                12M trail                  Trend             I/B/E/S fcast

Source: MSCI, Thomson Reuters Datastream, I/B/E/S, HSBC                   Source: MSCI, Thomson Reuters Datastream, I/B/E/S, HSBC




                                                                                                                                                      57
     Equity Insights Quarterly
     Global                                                                                                                                            abc
     Second Quarter 2013




Global sectors
 Energy                                                                     Materials

 1.7                                                                        1.6
 1.5                                                                        1.4
 1.3
                                                                            1.2
 1.1
                                                                            1.0
 0.9
 0.7                                                                        0.8

 0.5                                                                        0.6
       95    97     99     01     03     05      07    09   11   13               95    97     99     01     03     05      07    09   11   13
               12M trail                 Trend              I/B/E/S fcast                12M trail                  Trend              I/B/E/S fcast

 Source: MSCI, Thomson Reuters Datastream, I/B/E/S, HSBC                    Source: MSCI, Thomson Reuters Datastream, I/B/E/S, HSBC




 Industrials                                                                Consumer Discretionary

 1.2                                                                        1.2
 1.1                                                                        1.1
                                                                            1.0
 1.0                                                                        0.9
 0.9                                                                        0.8
 0.8                                                                        0.7
 0.7                                                                        0.6
                                                                            0.5
 0.6                                                                        0.4
 0.5                                                                        0.3
       95    97     99     01     03     05      07    09   11   13               95    97     99     01     03     05      07    09   11   13
               12M trail                 Trend              I/B/E/S fcast                12M trail                  Trend              I/B/E/S fcast

 Source: MSCI, Thomson Reuters Datastream, I/B/E/S, HSBC                    Source: MSCI, Thomson Reuters Datastream, I/B/E/S, HSBC




 Consumer Staples                                                           Health Care

 1.1                                                                        1.2
 1.0
                                                                            1.0
 0.9
 0.8                                                                        0.8
 0.7                                                                        0.6
 0.6
                                                                            0.4
 0.5
 0.4                                                                        0.2
       95    97     99     01     03     05      07    09   11   13               95    97     99     01     03     05      07    09   11   13
               12M trail                 Trend              I/B/E/S fcast                12M trail                  Trend              I/B/E/S fcast

 Source: MSCI, Thomson Reuters Datastream, I/B/E/S, HSBC                    Source: MSCI, Thomson Reuters Datastream, I/B/E/S, HSBC




58
  Equity Insights Quarterly
  Global                                                                                                                                                      abc
  Second Quarter 2013




Financials                                                                     IT

1.2                                                                            1.2
                                                                               1.0
1.0                                                                            0.8
                                                                               0.6
0.8
                                                                               0.4
0.6                                                                            0.2
                                                                                0.0
0.4                                                                            -0.2
       95   97     99     01     03     05      07    09       11   13                95    97     99     01     03     05     07        09   11   13
             12M trail                  Trend                  I/B/E/S fcast                12M trail                  Trend                  I/B/E/S fcast

Source: MSCI, Thomson Reuters Datastream, I/B/E/S, HSBC                        Source: MSCI, Thomson Reuters Datastream, I/B/E/S, HSBC




Telecoms                                                                       Utilities

 1.0                                                                           1.1
 0.8                                                                           1.0
 0.6
 0.4                                                                           0.9
 0.2                                                                           0.8
 0.0                                                                           0.7
-0.2
-0.4                                                                           0.6
-0.6                                                                           0.5
       95    97     99     01     03     05     07        09   11   13                95   97     99     01     03     05      07    09       11   13
             12M trail                  Trend                  I/B/E/S fcast                12M trail                  Trend                  I/B/E/S fcast

Source: MSCI, Thomson Reuters Datastream, I/B/E/S, HSBC                        Source: MSCI, Thomson Reuters Datastream, I/B/E/S, HSBC




                                                                                                                                                                59
     Equity Insights Quarterly
     Global                                                                                                                                                  abc
     Second Quarter 2013




Growth indicators
 US Q4 2012 results season performance by sector – EPS

     100%

       80%

       60%

       40%

       20%

          0%
                Energy      Materials Industrials          Cons     Cons     Health Care Financials Technology Telecomms U tilities                S&P 500
                                                       Discret     Staples

                                                                  Abov e     In line       Below

 Source: Thomson Reuters Datastream, HSBC




 G3 Industrial Survey                                                                  Purchasing Managers Index – Inventories / New Orders

 2                                                                                     1.8
 1                                                                                     1.6
 0
                                                                                       1.4
                                                                                       1.2
 (1)
                                                                                       1.0
 (2)
                                                                                       0.8
 (3)                                                                                   0.6
 (4)                                                                                   0.4
          94   96   98    00      02        04   06   08     10   12                         05       06    07       08        09   10   11     12     13
                               G3 Industrial surv ey                                                       China                              US
 Source: Thomson Reuters Datastream, HSBC                                              Source: Thomson Reuters Datastream, HSBC




 Metal (index) and oil prices (USDpb)                                                  Baltic Exchange Dry Index

 120                                                               1000                12000
 110                                                                                   10000
                                                                   900
 100                                                                                    8000
     90                                                            800                  6000
     80                                                                                 4000
                                                                   700
     70                                                                                 2000

     60                                                            600                       0
      Mar-12 May -12 Jul-12 Sep-12 Nov -12 Jan-13 Mar-13                                         08         09            10        11        12        13
                    Oil                           Metals (RHS)                                    Baltic Freight index              3 mth mov ing av erage

 Source: Thomson Reuters Datastream, HSBC                                              Source: Thomson Reuters Datastream, HSBC




60
     Equity Insights Quarterly
     Global                                                                                                                                     abc
     Second Quarter 2013




Monetary conditions
US: implied 3M rates (%)                                                 Eurozone: implied 3M rates (%)

0.60                                                                     0.8
0.55                                                                     0.7
0.50                                                                     0.6
0.45                                                                     0.5
0.40
                                                                         0.4
0.35
                                                                         0.3
0.30
                                                                         0.2
0.25
                                                                         0.1
      May -13           Nov -13            May -14         Nov -14
                                                                               Mar-13         Sep-13            Mar-14        Sep-14
                29-Mar                  -1M               -3M                           13-Mar                      -1M                -3M

Source: Thomson Reuters Datastream, HSBC                                 Source: Thomson Reuters Datastream, HSBC




UK: implied 3M rates (%)                                                 Japan: implied 3M rates (%)

0.9                                                                      0.25

0.8                                                                      0.23
0.7
                                                                         0.21
0.6
                                                                         0.19
0.5

0.4                                                                      0.17
      Mar-13       Sep-13         Mar-14         Sep-14         Mar-15         May -13        Nov -13         May -14        Nov -14

                  13-Mar                   -1M             -3M                          29-Mar                      -1M                -3M

Source: Thomson Reuters Datastream, HSBC                                 Source: Thomson Reuters Datastream, HSBC




G3 yield curve (10Y–3M, %)                                               Implied inflation (%)

 5                                                                       3.7
 4                                                                       3.2
 3                                                                       2.7
                                                                         2.2
 2
                                                                         1.7
 1
                                                                         1.2
 0
                                                                         0.7
-1                                                                       0.2
 Mar-09         Feb-10         Jan-11         Dec-11      Nov -12          Mar-08        Mar-09      Mar-10         Mar-11   Mar-12    Mar-13
           Yield curv e              Bond y ield            Short rate                  Break-ev en inflation: w td av g US, UK, FR (%)
Source: Thomson Reuters Datastream, HSBC                                 Source: Thomson Reuters Datastream, HSBC




                                                                                                                                                  61
         Equity Insights Quarterly
         Global                                                                                                                                                              abc
         Second Quarter 2013




Sentiment
 AAII survey: % bullish and bearish                                                           CBOE put/call ratio

 70                                                                                           1.0

 60
                                                                                              0.8
 50
 40                                                                                           0.6
 30
                                                                                              0.4
 20
 10                                                                                           0.2
          08             09             10             11         12         13                     08          09           10             11             12         13
                   % bullish (1MMAV)                        % bearish (1MMAV)                                               Put-call ratio (1MMAV)

 Source: Thomson Reuters Datastream, HSBC                                                     Source: Thomson Reuters Datastream, HSBC




 VIX

 80

 70

 60

 50

 40

 30

 20

 10

     0
         96        97         98        99        00        01     02       03      04       05      06       07       08         09        10        11        12     13

                                                                                  Vix

 Source: Thomson Reuters Datastream, HSBC




 HSBC sentiment index and S&P 500

  2.0                                                                                                                                                                  7.4
  1.5
  1.0                                                                                                                                                                  7.2
  0.5
  0.0                                                                                                                                                                  7.0
 -0.5
                                                                                                                                                                       6.8
 -1.0
 -1.5                                                                                                                                                                  6.6
 -2.0
 -2.5                                                                                                                                                                  6.4
 -3.0
 -3.5                                                                                                                                                                  6.2
              97        98         99        00        01    02        03    04         05    06         07      08         09         10        11    12        13

                                             Sentiment index                                                            S&P 500 (log, RHS)

 Source: Thomson Reuters Datastream, HSBC




62
     Equity Insights Quarterly
     Global                                                                                                                               abc
     Second Quarter 2013




Consensus aggregations
US
Earnings consensus: PE, dividend and dividend yield
                                                     Weight             __ EPS growth (%) ___    _____ PE (x) ______   __ DPS growth (%) ___    Dividend yield (%)
                                                        (%)             2012e 2013e 2014e       2012e 2013e 2014e      2012e 2013e 2014e       2012e 2013e 2014e
O     Energy                                               11                  -10    5   10     13.3   12.7    11.5      17      9        8     2.0    2.2    2.3
C     Materials                                             3                  -11   18   16     16.3   13.8    11.9      34     -8        6     2.5    2.3    2.4
C     Industrials                                          10                    7   10   13     15.9   14.4    12.8      17      6        8     2.1    2.2    2.4
C     Capital Goods                                         7                    8    8   12     15.2   14.1    12.6      14      9        7     2.2    2.4    2.5
C     Commercial Services & Suppliers                       1                   -9   11   12     20.8   18.8    16.8      39    -17        7     2.4    2.0    2.1
C     Transportation                                        2                    6   20   17     17.1   14.3    12.2      18      7        8     1.7    1.8    1.9
C     Consumer Discretionary                               12                   14    7   18     18.9   17.6    15.0      33      5       11     1.4    1.4    1.6
C     Automobiles & Components                              1                   -5    3   21     10.4   10.1     8.3      42     87       32     0.6    1.1    1.5
C     Consumer Durables & Apparel                           1                   41    2   15     18.0   17.7    15.4      21     11        8     1.4    1.6    1.7
C     Consumer Services                                     2                    3   13   16     22.7   20.1    17.3      80    -22        9     3.0    2.4    2.6
C     Media                                                 3                   32    1   17     17.5   17.3    14.8      34      8        8     1.1    1.2    1.3
C     Retailing                                             4                    8   15   19     23.5   20.4    17.1      -7     29       12     0.9    1.1    1.3
D     Consumer staples                                     11                    4    9   10     18.3   16.8    15.3      12     13        3     2.5    2.9    3.0
D     Food & Staples Retailing                              3                   13   10   11     16.4   14.9    13.5       7     52      -11     1.7    2.7    2.4
D     Food Beverage &Tobacco                                6                    0    9   10     18.6   17.0    15.5      14      4        8     2.9    3.1    3.3
D     Household & Personal Products                         2                    0    7    9     20.5   19.1    17.5       8      6        8     2.5    2.7    2.9
D     Health Care                                          12                    4    1    9     15.0   14.8    13.7      13      5        5     1.8    1.9    2.0
D     Health Care Equipment & Servs                         4                   10   -5   10     13.0   13.7    12.4       8    -13        7     1.3    1.2    1.3
D     Pharmaceuticals & Biotechnology                       8                    0    5    8     16.4   15.5    14.4      15     11        5     2.1    2.3    2.4
F     Financials                                           16                   23   15   11     14.9   12.9    11.6      23      8       15     2.0    2.1    2.4
F     Banks                                                 3                   27   10    6     11.7   10.7    10.0      50     16       14     2.3    2.6    3.0
F     Diversified Financials                                7                   14   27   13     14.6   11.5    10.1      34     13       27     1.5    1.7    2.1
F     Insurance                                             4                   42    5    9     12.3   11.7    10.7      16      1        8     1.4    1.4    1.5
F     Real Estate                                           3                    2    0   14     35.7   35.5    31.1       5      2        5     3.6    3.7    3.8
T     Information Technology                               19                   12    4   13     14.2   13.6    12.1      38     38        6     1.1    1.5    1.6
T     Software & Services                                  11                   11    8   13     16.9   15.6    13.8      24      9        6     1.0    1.1    1.1
T     Technology Hardware & Equip                           6                   25    1   10     10.8   10.6     9.7     117    115        8     0.9    2.0    2.1
T     Semiconductors & Semi Equip                           2                  -21   -5   24     15.1   16.0    12.9      17     12        3     2.6    2.9    3.0
D     Telecommunications                                    3                    2   25   21     25.0   19.9    16.5       0      1        1     4.3    4.3    4.3
D     Utilities                                             3                   -4    0    5     16.3   16.2    15.5       6     -0        3     3.8    3.8    3.9
      MSCI US                                             100                    7    8   12     15.7   14.5    13.0      18     10        7     1.9    2.1    2.3
      MSCI US ex-Financials                                84                    4    6   12     15.8   14.9    13.3      18     10        6     1.9    2.1    2.2
      MSCI US ex-Energy                                    89                    9    8   12     16.0   14.8    13.2      19     10        7     1.9    2.1    2.3
C     Cyclicals                                            26                    7   10   15     17.2   15.7    13.6      25      3        9     1.8    1.9    2.0
O     Oil & gas                                            11                  -10    5   10     13.3   12.7    11.5      17      9        8     2.0    2.2    2.3
D     Defensives                                           29                    3    5   10     17.0   16.1    14.7       9      7        4     2.6    2.7    2.8
T     Technology                                           19                   12    4   13     14.2   13.6    12.1      38     38        6     1.1    1.5    1.6
F     Financials                                           16                   23   15   11     14.9   12.9    11.6      23      8       15     2.0    2.1    2.4
Source: MSCI, Thomson Reuters Datastream, I/B/E/S, HSBC; as at 29 March 2013




                                                                                                                                                               63
     Equity Insights Quarterly
     Global                                                                                                                                 abc
     Second Quarter 2013




Pan Europe
Earnings consensus: PE, dividend and dividend yield
                                               Weight               ____ EPS growth (%) _____   ______ PE (x) _______     DPS growth (%)    _ Dividend yield (%) __
                                                  (%)               2012e     2013e    2014e    2012e 2013e 2014e       2012e 2013e 2014e   2012e 2013e 2014e
O    Energy                                          10                  -7     -2        7       8.9     9.0     8.4       2     7    5      4.5      4.9     5.1
C    Materials                                        8                 -29     13       19      13.8    12.3    10.3       6    -0   11      3.1      3.1     3.4
C    Industrials                                     11                   3     10       16      15.8    14.4    12.5       2     6   10      3.1      3.2     3.6
C    Capital Goods                                    9                   5      8       15      15.0    14.0    12.1       6     6   10      3.1      3.3     3.7
C    Commercial Services & Suppliers                  1                   3     11       12      19.7    17.8    15.9       6     5   12      2.5      2.6     2.9
C    Transportation                                   2                  -9     28       21      18.1    14.6    12.1     -15     1   12      3.2      3.2     3.6
C    Consumer Discretionary                          11                  36    -16       15      10.6    12.6    11.0      18     6   13      2.8      3.0     3.4
C    Automobiles & Components                         3                  56    -31       17       5.4     7.9     6.8      12     7   16      3.2      3.4     4.0
C    Consumer Durables & Apparel                      3                  19     12       14      18.5    16.6    14.6      35    12   12      2.0      2.2     2.5
C    Consumer Services                                1                  10     -5       14      16.7    17.5    15.4       2    -5   12      2.9      2.7     3.1
C    Media                                            2                  10      5        9      15.5    14.8    13.5      31    -2    9      3.5      3.5     3.8
C    Retailing                                        2                  12      9       13      20.9    19.3    17.1       9     9   11      2.9      3.1     3.4
D    Consumer staples                                16                   9      7       11      19.1    17.9    16.1       4    10   10      2.5      2.8     3.0
D    Food & Staples Retailing                         2                  -6      6       16      13.5    13.6    11.7      -8     8   15      3.3      3.5     4.0
D    Food Beverage &Tobacco                          12                  12      8       10      19.6    18.1    16.4       5    11    9      2.5      2.8     3.0
D    Household & Personal Products                    2                  12      3        9      22.2    21.6    19.9      11     6    9      2.0      2.1     2.3
D    Health Care                                     11                   0      1        9      14.6    14.5    13.3       8     5    8      3.1      3.3     3.5
D    Health Care Equipment & Servs                    1                  10     11       12      21.0    19.0    17.0       6    17   11      1.2      1.4     1.6
D    Pharmaceuticals & Biotechnology                 10                  -1      0        9      14.1    14.1    12.9       8     4    8      3.4      3.5     3.8
F    Financials                                      19                 -24     45       16      14.7    10.1     8.7      -7    27   15      3.3      4.2     4.9
F    Banks                                           10                 -51     95       21      19.3    10.0     8.3     -19    52   17      2.8      4.3     5.0
F    Diversified Financials                           3                   1     21       17      12.9    10.6     9.1      -0    15   39      2.3      2.7     3.8
F    Insurance                                        5                  30     11        7      10.4     9.4     8.8      10     6    5      4.7      5.0     5.2
F    Real Estate                                      1                   9      3        6      17.3    16.8    15.8       3     3    4      4.9      5.0     5.2
T    Information Technology                           3                 -28     25       30      25.1    20.1    15.5     -44    63   12      1.1      1.9     2.1
T    Software & Services                              2                   7     12       13      19.5    17.4    15.4     -68   211   13      0.5      1.7     1.9
T    Technology Hardware & Equip                      1                 -62    114       45      41.5    19.4    13.4     -35    16   13      2.2      2.5     2.8
T    Semiconductors & Semi Equip                      1                 -54      2       79      34.4    33.6    18.7      -2     5    8      1.4      1.5     1.6
D    Telecommunications                               6                  -5     -5        5      10.5    10.6    10.1     -25    -4    5      6.3      6.0     6.3
D    Utilities                                        5                   5    -11        5       9.6    10.8    10.2      -5    -0    1      6.6      6.5     6.6
     MSCI Europe                                    100                  -6      8       13      13.3    12.4    11.0      -3     9    9      3.4      3.7     4.1
     MSCI Europe ex-Financials                       81                  -1     -0       12      13.0    13.1    11.7      -2     5    8      3.5      3.6     3.9
     MSCI Europe ex-Energy                           90                  -5      9       13      14.1    12.9    11.4      -3     9   10      3.3      3.6     4.0
C    Cyclicals                                       31                   2     -0       16      13.0    13.1    11.3       8     4   11      3.0      3.1     3.5
O    Oil & gas                                       10                  -7     -2        7       8.9     9.0     8.4       2     7    5      4.5      4.9     5.1
D    Defensives                                      37                   3     -1        8      14.2    14.2    13.2      -6     3    6      3.8      3.9     4.1
T    Technology                                       3                 -28     25       30      25.1    20.1    15.5     -44    63   12      1.1      1.9     2.1
F    Financials                                      19                 -24     45       16      14.7    10.1     8.7      -7    27   15      3.3      4.2     4.9
Source: MSCI, Thomson Reuters Datastream, I/B/E/S, HSBC; as at 29 March 2013




64
     Equity Insights Quarterly
     Global                                                                                                                                       abc
     Second Quarter 2013




Europe ex UK
Earnings consensus: PE, dividend and dividend yield
                                                      Weight           ____ EPS growth (%) _____    _____ PE (x) ______   __ DPS growth (%) ___   _ Dividend yield (%) _
                                                         (%)             2012e     2013e 2014e     2012e 2013e 2014e      2012e 2013e 2014e       2012e 2013e 2014e
O     Energy                                                 7                  10    -2      7      9.0     9.2    8.6      -3      8       5      4.7     5.1      5.4
C     Materials                                              7                 -16    15     20     16.6    14.6   12.1       5      2      11      2.9     2.9      3.2
C     Industrials                                           14                   2    11     17     15.9    14.4   12.3       1      5      11      3.2     3.4      3.7
C     Capital Goods                                         10                   5     8     17     15.1    14.0   12.0       5      6      10      3.2     3.4      3.8
C     Commercial Services & Suppliers                        1                  -1    13     14     21.4    19.0   16.6       4      2      13      2.9     3.0      3.3
C     Transportation                                         2                  -9    28     21     18.1    14.6   12.1     -15      1      12      3.2     3.2      3.6
C     Consumer Discretionary                                13                  41   -19     15      9.9    12.2   10.6      19      5      14      2.8     3.0      3.4
C     Automobiles & Components                               5                  56   -32     17      5.4     7.9    6.7      12      7      16      3.2     3.4      4.0
C     Consumer Durables & Apparel                            4                  20    12     14     18.4    16.5   14.5      36     12      12      2.0     2.2      2.5
C     Consumer Services                                      0                  22   -28     16     14.0    19.4   16.7     -16    -17      18      3.1     2.6      3.0
C     Media                                                  1                  10     2     10     15.7    15.4   13.9      47    -11      10      4.1     3.7      4.0
C     Retailing                                              3                  18     9     14     23.4    21.5   19.0       9      9      11      2.8     3.0      3.4
D     Consumer staples                                      15                  12     6     12     20.2    19.0   17.0       2     12      10      2.3     2.5      2.8
D     Food & Staples Retailing                               1                  -2    10     25     15.8    15.9   12.7     -16     11      24      2.7     3.0      3.7
D     Food Beverage &Tobacco                                11                  14     6     11     20.0    18.8   17.0       4     13       8      2.3     2.6      2.8
D     Household & Personal Products                          2                  14     4     10     24.1    23.2   21.1      13      7      10      1.7     1.9      2.0
D     Health Care                                           13                   3     3     11     15.8    15.4   13.9       9      5       9      2.8     2.9      3.2
D     Health Care Equipment & Servs                          2                  11    12     12     21.8    19.5   17.4       0     20      12      1.1     1.3      1.5
D     Pharmaceuticals & Biotechnology                       11                   2     2     11     15.2    14.9   13.5      10      5       9      3.0     3.1      3.4
F     Financials                                            18                 -35    71     16     16.5     9.7    8.4     -14     38      14      3.3     4.5      5.2
F     Banks                                                  8                 -80   346     23     42.3     9.7    7.9     -34     85      15      2.7     4.9      5.7
F     Diversified Financials                                 4                  -7    20     18     12.4    10.3    8.8      -2     16      45      2.2     2.6      3.8
F     Insurance                                              5                  38    15      6     10.2     8.9    8.4       7     10       4      4.7     5.2      5.4
F     Real Estate                                            1                  14     4      6     16.1    15.6   14.7       3      3       5      5.2     5.3      5.6
T     Information Technology                                 4                 -29    25     31     24.3    19.4   14.8     -47     68      12      1.1     1.9      2.1
T     Software & Services                                    2                   8    12     13     19.6    17.5   15.5     -73    269      14      0.4     1.6      1.9
T     Technology Hardware & Equip                            1                 -62   114     45     41.5    19.4   13.4     -35     16      13      2.2     2.5      2.8
T     Semiconductors & Semi Equip                            1                 -59    -3     94     28.6    29.5   15.2      -4      3       6      1.9     1.9      2.0
D     Telecommunications                                     5                  -8   -10      4      9.7    10.2    9.8     -27     -8       6      6.9     6.3      6.7
D     Utilities                                              5                   5   -14      5      8.6    10.0    9.5      -8     -1       0      7.1     7.0      7.0
      MSCI Europe ex-UK                                    100                  -2     8     14     13.8    12.7   11.2      -6     11      10      3.4     3.7      4.1
      MSCI Europe ex-UK ex-Financials                       82                   7    -2     13     13.3    13.6   12.0      -4      5       8      3.4     3.5      3.8
      MSCI Europe ex-UK ex-Energy                           93                  -4    10     14     14.4    13.0   11.4      -6     11      10      3.3     3.6      4.0
C     Cyclicals                                             33                  14    -3     17     13.0    13.5   11.5       8      4      12      3.0     3.1      3.5
O     Oil & gas                                              7                  10    -2      7      9.0     9.2    8.6      -3      8       5      4.7     5.1      5.4
D     Defensives                                            38                   3    -2      9     14.2    14.4   13.3      -9      2       7      3.7     3.8      4.0
T     Technology                                             4                 -29    25     31     24.3    19.4   14.8     -47     68      12      1.1     1.9      2.1
F     Financials                                            18                 -35    71     16     16.5     9.7    8.4     -14     38      14      3.3     4.5      5.2
Source: MSCI, Thomson Reuters Datastream, I/B/E/S, HSBC; as at 29 March 2013




                                                                                                                                                                     65
     Equity Insights Quarterly
     Global                                                                                                                                  abc
     Second Quarter 2013




UK
Earnings consensus: PE, dividend and dividend yields
                                                       Weight             ____ EPS growth (%) _____    ____ PE (x) ______     DPS growth (%)__    Dividend yield (%)
                                                          (%)              2012e 2013e 2014e          2012e 2013e 2014e     2012e 2013e 2014e     2012e 2013e 2014e
O          Energy                                            16                -20      -1       7      8.7    8.8    8.2        8      6     5     4.3   4.6    4.8
C          Materials                                         12                -37     10       18     11.2   10.2    8.6        8     -3    12     3.3   3.2    3.6
C          Industrials                                        6                   5      6       8     15.7   14.7   13.6        9      8     8     2.4   2.6    2.9
C          Capital Goods                                      4                   4      5       7     14.6   13.9   13.0        9      7     7     2.7   2.9    3.1
C          Commercial Services & Suppliers                    2                   7      9      10     18.2   16.6   15.1      10     11     11     2.0   2.2    2.5
C          Transportation                                     0                n/m    n/m      n/m                            n/m    n/m    n/m
C          Consumer Discretionary                             6                   6      9      10     15.6   14.3   13.0      13       8     9     2.9   3.1    3.4
C          Automobiles & Components                           0                 26       2      14     10.1    9.9    8.7      20     12     12     2.7   3.1    3.4
C          Consumer Durables & Apparel                        0                   8    15       14     19.9   17.3   15.2      11     14     15     2.1   2.4    2.7
C          Consumer Services                                  2                   3    11       12     18.5   16.7   14.9      16       2     9     2.8   2.8    3.1
C          Media                                              3                   9      8       8     15.4   14.2   13.2      12     12      9     2.9   3.3    3.6
C          Retailing                                          1                  -1      8      10     13.3   12.3   11.2      11       6     9     3.3   3.5    3.8
D          Consumer staples                                  19                   5      8       9     17.4   16.1   14.8        6      8     9     3.0   3.2    3.5
D          Food & Staples Retailing                           2                  -9      4       7     11.9   11.4   10.7        2      5     6     4.0   4.2    4.5
D          Food Beverage &Tobacco                            14                   9    10       10     18.8   17.1   15.5        7      9    10     2.8   3.1    3.4
D          Household & Personal Products                      2                   7     -0       6     17.8   17.9   16.9        7      3     7     2.8   2.9    3.1
D          Health Care                                        8                  -6     -4       4     11.3   11.8   11.3        4      3     4     4.6   4.7    4.9
D          Health Care Equipment & Servs                      0                   2      3      10     15.3   14.9   13.5      54       2     9     2.3   2.3    2.5
D          Pharmaceuticals & Biotechnology                    7                  -7     -5       4     11.2   11.7   11.2        4      3     4     4.7   4.8    5.0
F          Financials                                        22                  -1    10       15     12.2   11.0    9.6      11       7    16     3.4   3.6    4.2
F          Banks                                             15                  -8    13       18     11.8   10.4    8.9      10     13     21     2.9   3.3    4.0
F          Diversified Financials                             1                207     31       11     17.4   13.3   12.0        9    11     11     2.9   3.3    3.6
F          Insurance                                          4                   9     -1       9     11.1   11.2   10.3      17      -7     6     4.8   4.4    4.7
F          Real Estate                                        1                  -1      2       6     20.0   19.6   18.4        2      3     4     4.3   4.4    4.5
T          Information Technology                             1                   3    19       18     38.5   32.3   27.5      11     14     13     1.1   1.2    1.4
T          Software & Services                                0                  -8    10        9     17.3   15.7   14.4        4    11      4     2.9   3.3    3.4
T          Technology Hardware & Equip                        0                n/m    n/m      n/m                            n/m    n/m    n/m
T          Semiconductors & Semi Equip                        1                 19     29       26     62.7   48.5   38.5      29     20     28     0.5   0.6    0.7
D          Telecommunications                                 7                   3      6       6     12.1   11.4   10.7     -17       5     4     5.2   5.5    5.7
D          Utilities                                          4                   5      3       6     14.1   13.8   13.0        7      4     4     5.1   5.3    5.5
           MSCI UK                                          100                -11       5      11     12.4   11.8   10.6        5      5     9     3.6   3.8    4.1
           MSCI UK ex-Financials                             78                -14       4       9     12.5   12.0   10.9        4      5     7     3.7   3.9    4.1
           MSCI UK ex-Energy                                 84                  -9      7      12     13.5   12.5   11.2        4      5     9     3.5   3.7    4.0
C          Cyclicals                                         25                -24       9      14     13.1   12.1   10.6        9      2    10     3.0   3.1    3.4
O          Oil & gas                                         16                -20      -1       7      8.7    8.8    8.2        8      6     5     4.3   4.6    4.8
D          Defensives                                        37                   1      4       7     14.3   13.8   12.9       -1      5     6     3.9   4.2    4.4
T          Technology                                         1                   3    19       18     38.5   32.3   27.5      11     14     13     1.1   1.2    1.4
F          Financials                                        22                  -1    10       15     12.2   11.0    9.6      11       7    16     3.4   3.6    4.2
Source: MSCI, Thomson Reuters Datastream, I/B/E/S, HSBC; as at 29 March 2013




66
     Equity Insights Quarterly
     Global                                                                                                                                  abc
     Second Quarter 2013




Asia ex Japan
Earnings consensus: PE, dividend and dividend yield
                                                                 Weight        __ EPS growth (%) ___    _____ PE (x) ______     DPS growth (%)     Dividend yield (%)
                                                                    (%)        2012e 2013e 2014e       2012e 2013e 2014e      2012e 2013e 2014e   2012e 2013e 2014e
O     Energy                                                            8         -8     10       9     11.6   10.4    9.6       -7    12    7      2.9    3.2    3.4
C     Materials                                                         8        -25     10      20     14.2   12.9   10.7      -24    31   15      2.1    2.7    3.1
C     Industrials                                                       9        -17     16      18     16.2   14.1   12.0       -6    22    9      2.1    2.5    2.8
C     Capital Goods                                                     6        -21      9      15     13.6   12.5   11.0      -10    19    7      2.0    2.4    2.5
C     Commercial Services & Suppliers                                   0         10      5      12     19.5   18.5   16.5       -7    12    7      3.0    3.3    3.6
C     Transportation                                                    3          4     49      29     28.0   18.9   14.6        2    28   14      2.2    2.8    3.2
C     Consumer Discretionary                                            8          7     13      13     13.8   12.1   10.7      -30    64   11      1.4    2.3    2.6
C     Automobiles & Components                                          3          8     11      12      9.8    8.8    7.9      -36    92   11      0.9    1.6    1.8
C     Consumer Durables & Apparel                                       1         46     56      16     19.9   13.0   11.1       -9    49    8      1.6    2.5    2.7
C     Consumer Services                                                 3          7      8      15     19.4   17.9   15.7      -35    74    9      1.6    2.9    3.1
C     Media                                                             0         17     19      17     24.8   20.8   17.8       10    15    9      2.4    2.8    3.1
C     Retailing                                                         1         -9     13      16     15.9   14.1   12.1      -28    38   18      1.9    2.6    3.0
D     Consumer staples                                                  7         -1     14      13     23.4   20.7   18.2        6    33   13      1.9    2.6    2.9
D     Food & Staples Retailing                                          2         10      7      11     21.1   19.8   17.8       47    26   10      2.7    3.4    3.8
D     Food Beverage &Tobacco                                            4        -10     18      15     23.2   19.9   17.3      -13    36   14      1.7    2.2    2.6
D     Household & Personal Products                                     1         18     16      14     30.8   26.6   23.4      -11    54   14      1.3    2.0    2.3
D     Health Care                                                       2         14     15      19     27.0   23.6   19.9      -13    34   13      1.1    1.4    1.6
D     Health Care Equipment & Servs                                     1         12      7      16     27.8   25.9   22.4       -7    29   13      1.4    1.8    2.0
D     Pharmaceuticals & Biotechnology                                   1         15     18      20     26.6   22.6   18.9      -17    37   13      0.9    1.3    1.5
F     Financials                                                       34          6      7      10     11.7   11.0   10.0       -3    17    8      3.1    3.7    4.0
F     Banks                                                            21          9      5       9     10.2    9.8    9.0       -1    17    7      3.6    4.2    4.4
F     Diversified Financials                                            2          3     17      15     15.9   13.7   11.9       -7    31   11      2.2    2.8    3.2
F     Insurance                                                         4          4     33      11     19.4   14.4   13.0      -10    31    9      1.9    2.4    2.7
F     Real Estate                                                       8         -1      5      13     13.9   13.2   11.7       -6    12    9      2.8    3.2    3.4
T     Information Technology                                           11         37     35      15     16.1   12.0   10.4      -32    59    9      1.1    1.8    2.0
T     Software & Services                                               3         19     17      16     21.5   18.3   15.8        7     9   13      1.1    1.2    1.4
T     Technology Hardware & Equip                                       2         55     55      18     19.3   12.5   10.5      -60   145    9      1.2    3.0    3.3
T     Semiconductors & Semi Equip                                       5         39     34      13     13.3    9.9    8.7      -22    45    8      1.1    1.6    1.7
D     Telecommunications                                                9          0      8       6     14.6   13.5   12.7       -2    12    5      3.9    4.4    4.7
D     Utilities                                                         4         34     38      13     19.6   14.2   12.6        2    32    9      2.2    2.9    3.1
      MSCI Asia ex-Japan                                              100          1     13      12     14.0   12.4   11.0       -8    23    9      2.5    3.1    3.3
      MSCI Asia ex-Japan ex-Financials                                 66         -2     16      13     15.5   13.3   11.7      -12    27    9      2.1    2.7    3.0
      MSCI Asia ex-Japan ex-Energy                                     92          2     13      12     14.2   12.6   11.2       -8    24    9      2.4    3.0    3.3
C     Cyclicals                                                        25        -14     13      17     14.7   13.0   11.1      -20    35   12      1.9    2.5    2.8
O     Oil & gas                                                         8         -8     10       9     11.6   10.4    9.6       -7    12    7      2.9    3.2    3.4
D     Defensives                                                       22          5     15      10     18.4   16.0   14.5       -0    21    8      2.7    3.3    3.5
T     Technology                                                       11         37     35      15     16.1   12.0   10.4      -32    59    9      1.1    1.8    2.0
F     Financials                                                       34          6      7      10     11.7   11.0   10.0       -3    17    8      3.1    3.7    4.0
Source: MSCI, Thomson Reuters Datastream, I/B/E/S, HSBC; as at 29 March 2013




                                                                                                                                                                  67
     Equity Insights Quarterly
     Global                                                                                                                                    abc
     Second Quarter 2013




Japan
Earnings consensus: PE dividend and dividend yield
                                                         Weight                ___EPS growth (%) ____    _____ PE (x) ______     DPS growth (%) _    Dividend yield (%)
                                                            (%)                2012e 2013e 2014e        2012e 2013e 2014e      2012e 2013e 2014e    2012e 2013e 2014e
O     Energy                                                    2                 -29      19       4    11.0    9.2     8.9     -5      5     3      2.3    2.4    2.5
C     Materials                                                 6                 -40    185      17     40.0   14.0    11.8     -5     19     7      1.6    1.9    2.1
C     Industrials                                              18                  -0      24       8    15.3   12.3    11.4      1      8     6      1.9    2.1    2.2
C     Capital Goods                                            12                  -7      21     10     13.5   11.2    10.2     -4      8     6      2.1    2.3    2.4
C     Commercial Services & Suppliers                           1                263       16       5    22.7   19.6    18.6      5      2     2      2.5    2.6    2.6
C     Transportation                                            5                  20      37       4    20.5   14.9    14.3     19      9     7      1.4    1.5    1.6
C     Consumer Discretionary                                   22                371     116      13     28.1   13.0    11.6     20     24    17      1.5    1.8    2.1
C     Automobiles & Components                                 15                  90      40     13     15.7   11.2     9.9     30     28    20      1.6    2.1    2.5
C     Consumer Durables & Apparel                               3                n/m     n/m      17      n/m   17.5    14.9    -18     19     9      1.3    1.6    1.7
C     Consumer Services                                         1                  36       9      -2    24.0   22.0    22.5     10      4     3      1.2    1.2    1.3
C     Media                                                     1                  19       6       5    21.5   20.2    19.2     23      8     7      1.5    1.6    1.7
C     Retailing                                                 3                  -1      21       9    26.2   21.6    19.8     19      6     7      1.0    1.1    1.1
D     Consumer staples                                          7                  16      18       6    20.1   17.3    16.3     23     17    11      1.9    2.2    2.4
D     Food & Staples Retailing                                  2                  15      10       8    17.6   16.0    14.7      6      7     7      2.2    2.3    2.5
D     Food Beverage &Tobacco                                    4                  16      21       5    20.1   16.6    15.8     18     25    14      1.8    2.2    2.5
D     Household & Personal Products                             1                   7      30     12     35.2   24.5    21.8    125      2     5      1.8    1.8    1.9
D     Health Care                                               7                  41      14       6    23.2   20.3    19.2      5      6     3      2.3    2.5    2.5
D     Health Care Equipment & Servs                             1                408       26     18     27.8   22.0    18.7      7     15    11      0.9    1.1    1.2
D     Pharmaceuticals & Biotechnology                           6                  25      12       4    22.4   20.0    19.3      4      5     2      2.6    2.8    2.8
F     Financials                                               19                  28      -2       5    14.2   14.9    14.1      3     12     3      1.7    1.9    2.0
F     Banks                                                     9                  -2     -11       4    10.2   11.5    11.0      2      3     1      2.3    2.3    2.4
F     Diversified Financials                                    2                149       33       9    20.1   15.1    13.8     15     21    13      1.0    1.2    1.4
F     Insurance                                                 2                n/m       25     10     23.0   18.5    16.9     -1      4     4      2.1    2.2    2.3
F     Real Estate                                               5                104       13       6    30.6   28.3    26.8      8     68     3      0.8    1.3    1.4
T     Information Technology                                   11                   2      54     13     23.1   15.0    13.3      5      7     7      1.9    2.0    2.1
T     Software & Services                                       3                  37      21     11     20.0   16.6    14.9      6     19    13      1.4    1.7    1.9
T     Technology Hardware & Equip                               7                  -6      64     12     22.9   14.0    12.5      7      4     4      2.1    2.2    2.3
T     Semiconductors & Semi Equip                               1                n/m     n/m      75      n/m   33.0    18.9    -34      0    44      1.0    1.0    1.4
D     Telecommunications                                        7                  12      10       8    11.5   10.5     9.8      9      5     6      2.9    3.1    3.3
D     Utilities                                                 2                n/m     n/m     n/m     n/m    n/m     14.8    -48      3    31      1.7    1.8    2.3
      MSCI Japan                                              100                  30      44     12     20.2   14.1    12.6      4     12     8      1.9    2.1    2.2
      MSCI Japan ex-Financials                                 81                  31      60     13     22.3   14.0    12.3      5     12     9      1.9    2.1    2.3
      MSCI Japan ex-Energy                                     98                  34      45     12     20.5   14.2    12.7      5     12     8      1.9    2.1    2.2
C     Cyclicals                                                46                  33      69     11     21.8   12.9    11.5      7     16    11      1.7    1.9    2.2
O     Oil & gas                                                 2                 -29      19       4    11.0    9.2     8.9     -5      5     3      2.3    2.4    2.5
D     Defensives                                               23                  76      49     20     24.8   16.8    14.0      2      8     8      2.3    2.5    2.7
T     Technology                                               11                   2      54     13     23.1   15.0    13.3      5      7     7      1.9    2.0    2.1
F     Financials                                               19                  28      -2       5    14.2   14.9    14.1      3     12     3      1.7    1.9    2.0
Source: MSCI, Thomson Reuters Datastream, I/B/E/S, HSBC; as at 29 March 2013




68
     Equity Insights Quarterly
     Global                                                                                                                                     abc
     Second Quarter 2013




Emerging Markets
Earnings consensus: PE, dividend and dividend yield
                                                             Weight             _ EPS growth (%) __   ______ PE (x) ______    _ DPS growth (%) __    Dividend yield (%) _
                                                                (%)            2012e 2013e 2014e      2012e 2013e 2014e      2012e 2013e 2014e      2012e 2013e 2014e
O          Energy                                                  15            -15      9      3      8.0    7.3     7.1       -2    62      5      2.3     3.7    3.9
C          Materials                                               10            -33     28     16     16.2   12.7    10.9     -52     67     15      1.6     2.7    3.1
C          Industrials                                              7             -3     19     19     16.8   14.4    12.2     -24     70     12      1.3     2.3    2.5
C          Capital Goods                                            5            -10     11     16     14.1   12.7    11.1     -22     62      8      1.3     2.1    2.3
C          Commercial Services & Suppliers                          0            -19     30     16     21.4   16.5    14.3     n/m    n/m     13      0.0     4.1    4.7
C          Transportation                                           3             41     53     26     28.3   19.0    15.1     -24     77     18      1.4     2.5    2.9
C          Consumer Discretionary                                   7              8     15     14     13.5   11.9    10.5     -28     72     16      1.1     1.9    2.2
C          Automobiles & Components                                 3              7     11     12      9.9    9.0     8.0     -39    120     12      0.8     1.8    2.0
C          Consumer Durables & Apparel                              1             29     41     16     16.4   12.0    10.3        3    42     23      1.8     2.5    3.1
C          Consumer Services                                        1              6     -5     14     15.4   18.4    16.1       -6    19     12      1.4     1.6    1.8
C          Media                                                    1             25     20     19     24.0   20.1    16.8     -27     65     24      0.8     1.2    1.6
C          Retailing                                                2             -4     21     17     20.2   16.7    14.3     -34     56     18      1.3     2.0    2.4
D          Consumer staples                                        10              8     18     16     26.8   22.8    19.7     -40    137     14      0.9     2.2    2.4
D          Food & Staples Retailing                                 3             14     13     17     28.1   24.6    21.0     -49    237     13      0.5     1.7    1.9
D          Food Beverage &Tobacco                                   6              4     20     16     25.6   21.5    18.6     -43    141     14      1.0     2.3    2.7
D          Household & Personal Products                            1             21     19     15     30.6   25.8    22.5     -16     54     13      1.5     2.2    2.5
D          Health Care                                              1             16     18     21     27.5   23.4    19.3     -15     69     15      0.7     1.3    1.5
D          Health Care Equipment & Servs                            1              7     23     21     32.0   26.0    21.6       -2   104     14      0.8     1.6    1.8
D          Pharmaceuticals & Biotechnology                          1             20     15     22     25.2   22.0    18.1     -23     44     17      0.7     1.0    1.2
F          Financials                                              26              8      7     12     10.1    9.4     8.4     -12     48     13      2.2     3.2    3.6
F          Banks                                                   19              8      5     11      9.2    8.7     7.9     -14     50     12      2.3     3.5    3.9
F          Diversified Financials                                   2              5     18     15     14.3   12.3    10.7       -9    59     14      1.5     2.4    2.8
F          Insurance                                                2              6     23     11     16.6   13.4    12.1       -7    49     10      1.7     2.5    2.7
F          Real Estate                                              2             15     13     18     12.1   10.6     9.0        9    20     18      2.3     2.8    3.3
T          Information Technology                                  10             37     33     14     16.0   12.0    10.5     -29     56      9      1.2     1.9    2.0
T          Software & Services                                      3             17     17     15     20.9   17.9    15.6      13     12     13      1.4     1.5    1.7
T          Technology Hardware & Equip                              2             58     52     18     19.0   12.4    10.5     -60    144      9      1.2     3.0    3.3
T          Semiconductors & Semi Equip                              5             41     34     13     13.2    9.8     8.7     -21     44      7      1.1     1.6    1.7
D          Telecommunications                                      10              0     10      7     13.4   12.3    11.5     -21     45      8      3.2     4.7    5.0
D          Utilities                                                5              7     24      9     15.1   11.7    10.7     -42     65      9      2.0     3.3    3.5
           MSCI Emerging world                                    100             -2     14     11     12.4   10.9     9.9     -23     59     11      1.9     3.0    3.3
           MSCI Emerging world ex-Financials                       74             -6     17     10     13.5   11.6    10.5     -28     64     10      1.8     2.9    3.2
           MSCI Emerging world ex-Energy                           85              3     15     13     13.8   12.0    10.6     -27     59     12      1.8     2.8    3.2
C          Cyclicals                                               24            -15     21     16     15.5   12.9    11.2     -41     69     14      1.4     2.3    2.7
O          Oil & gas                                               15            -15      9      3      8.0    7.3     7.1       -2    62      5      2.3     3.7    3.9
D          Defensives                                              25              4     15     10     17.5   15.2    13.8     -30     65      9      2.0     3.3    3.6
T          Technology                                              10             37     33     14     16.0   12.0    10.5     -29     56      9      1.2     1.9    2.0
F          Financials                                              26              8      7     12     10.1    9.4     8.4     -12     48     13      2.2     3.2    3.6
Source: MSCI, Thomson Reuters Datastream, I/B/E/S, HSBC; as at 29 March 2013




                                                                                                                                                                      69
     Equity Insights Quarterly
     Global                      abc
     Second Quarter 2013




Notes




70
Equity Insights Quarterly
Global                      abc
Second Quarter 2013




Notes




                              71
     Equity Insights Quarterly
     Global                      abc
     Second Quarter 2013




Notes




72
   Equity Insights Quarterly
   Global                                                                                                         abc
   Second Quarter 2013




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: Garry Evans and Daniel Grosvenor

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 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 0- to 3-month 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 5ppt over the next 12 months (or 10ppt 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 5ppt
over the next 12 months (or 10ppt for a stock classified as Volatile*). Stocks between these bands are classified as Neutral.

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 40%, 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 2.5ppt past the 40% benchmark in either direction for a stock’s status to change.


                                                                                                                                      73
     Equity Insights Quarterly
     Global                                                                                                 abc
     Second Quarter 2013




Rating distribution for long-term investment opportunities
As of 8 April 2013, the distribution of all ratings published is as follows:
Overweight (Buy)                  44%       (30% of these provided with Investment Banking Services)
Neutral (Hold)                     38%      (29% of these provided with Investment Banking Services)
Underweight (Sell)                 18%      (23% of these provided with Investment Banking Services)


Analysts, economists, and strategists are paid in part by reference to the profitability of HSBC which includes investment
banking revenue.

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.

HSBC Legal Entities are listed in the Disclaimer below*.

Additional disclosures
1     This report is dated as at 9 April 2013.
2     All market data included in this report are dated as at close 4 April 2013, 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.

MSCI Disclaimer
The MSCI sourced information is the exclusive property of Morgan Stanley Capital International Inc. (MSCI). Without prior
written permission of MSCI, this information and any other MSCI intellectual property may not be reproduced, redisseminated
or used to create any financial products, including any indices. This information is provided on an 'as is' basis. The user
assumes the entire risk of any use made of this information. MSCI, its affiliates and any third party involved in, or related to,
computing or compiling the information hereby expressly disclaim all warranties of originality, accuracy, completeness,
merchantability or fitness for a particular purpose with respect to any of this information. Without limiting any of the
foregoing, in no event shall MSCI, any of its affiliates or any third party involved in, or related to, computing or compiling the
information have any liability for any damages of any kind. MSCI, Morgan Stanley Capital International and the MSCI
indexes are services marks of MSCI and its affiliates.




74
   Equity Insights Quarterly
   Global                                                                                                                                abc
   Second Quarter 2013




Disclaimer
*Legal entities as at 8 August 2012                                                                                     Issuer of report
‘UAE’ HSBC Bank Middle East Limited, Dubai; ‘HK’ The Hongkong and Shanghai Banking Corporation
                                                                                                                        The Hongkong and Shanghai Banking
Limited, Hong Kong; ‘TW’ HSBC Securities (Taiwan) Corporation Limited; ‘CA’ HSBC Bank Canada,
                                                                                                                        Corporation Limited
Toronto; HSBC Bank, Paris Branch; HSBC France; ‘DE’ HSBC Trinkaus & Burkhardt AG, Düsseldorf; 000
HSBC Bank (RR), Moscow; ‘IN’ HSBC Securities and Capital Markets (India) Private Limited, Mumbai;                       Level 19, 1 Queen’s Road Central
‘JP’ HSBC Securities (Japan) Limited, Tokyo; ‘EG’ HSBC Securities Egypt SAE, Cairo; ‘CN’ HSBC                           Hong Kong SAR
Investment Bank Asia Limited, Beijing Representative Office; The Hongkong and Shanghai Banking                          Telephone: +852 2843 9111
Corporation Limited, Singapore Branch; The Hongkong and Shanghai Banking Corporation Limited, Seoul                     Telex: 75100 CAPEL HX
Securities Branch; The Hongkong and Shanghai Banking Corporation Limited, Seoul Branch; HSBC
                                                                                                                        Fax: +852 2596 0200
Securities (South Africa) (Pty) Ltd, Johannesburg; HSBC Bank plc, London, Madrid, Milan, Stockholm, Tel
Aviv; ‘US’ HSBC Securities (USA) Inc, New York; HSBC Yatirim Menkul Degerler AS, Istanbul; HSBC                         Website: www.research.hsbc.com
México, SA, Institución de Banca Múltiple, Grupo Financiero HSBC; HSBC Bank Brasil SA – Banco
Múltiplo; HSBC Bank Australia Limited; HSBC Bank Argentina SA; HSBC Saudi Arabia Limited; The
Hongkong and Shanghai Banking Corporation Limited, New Zealand Branch incorporated in Hong Kong
SAR
This document has been issued by The Hongkong and Shanghai Banking Corporation Limited (“HSBC”) in the conduct of its Hong Kong regulated business
for the information of its institutional and professional investor (as defined by Securities and Future Ordinance (Chapter 571)) customers; it is not intended for
and should not be distributed to retail customers in Hong Kong. The Hongkong and Shanghai Banking Corporation Limited is regulated by the Hong Kong
Monetary Authority. All enquires by recipients in Hong Kong must be directed to your HSBC contact in Hong Kong. If it is received by a customer of an
affiliate of HSBC, its provision to the recipient is subject to the terms of business in place between the recipient and such affiliate. This document is not and
should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. HSBC has based this document on
information obtained from sources it believes to be reliable but which it has not independently verified; HSBC makes no guarantee, representation or warranty
and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of the Research Division of HSBC only and are
subject to change without notice. HSBC and its affiliates and/or their officers, directors and employees may have positions in any securities mentioned in this
document (or in any related investment) and may from time to time add to or dispose of any such securities (or investment). HSBC and its affiliates may act as
market maker or have assumed an underwriting commitment in the securities of companies discussed in this document (or in related investments), may sell
them to or buy them from customers on a principal basis and may also perform or seek to perform investment banking or underwriting services for or relating
to those companies.
HSBC Securities (USA) Inc. accepts responsibility for the content of this research report prepared by its non-US foreign affiliate. All U.S. persons receiving
and/or accessing this report and wishing to effect transactions in any security discussed herein should do so with HSBC Securities (USA) Inc. in the United
States and not with its non-US foreign affiliate, the issuer of this report.
In the UK this report may only be distributed to persons of a kind described in Article 19(5) of the Financial Services and Markets Act 2000 (Financial
Promotion) Order 2001. The protections afforded by the UK regulatory regime are available only to those dealing with a representative of HSBC Bank plc in
the UK. In Singapore, this publication is distributed by The Hongkong and Shanghai Banking Corporation Limited, Singapore Branch for the general
information of institutional investors or other persons specified in Sections 274 and 304 of the Securities and Futures Act (Chapter 289) (“SFA”) and
accredited investors and other persons in accordance with the conditions specified in Sections 275 and 305 of the SFA. This publication is not a prospectus as
defined in the SFA. It may not be further distributed in whole or in part for any purpose. The Hongkong and Shanghai Banking Corporation Limited
Singapore Branch is regulated by the Monetary Authority of Singapore. Recipients in Singapore should contact a “Hongkong and Shanghai Banking
Corporation Limited, Singapore Branch” representative in respect of any matters arising from, or in connection with this report. In Australia, this publication
has been distributed by The Hongkong and Shanghai Banking Corporation Limited (ABN 65 117 925 970, AFSL 301737) for the general information of its
“wholesale” customers (as defined in the Corporations Act 2001). Where distributed to retail customers, this research is distributed by HSBC Bank Australia
Limited (AFSL No. 232595). These respective entities make no representations that the products or services mentioned in this document are available to
persons in Australia or are necessarily suitable for any particular person or appropriate in accordance with local law. No consideration has been given to the
particular investment objectives, financial situation or particular needs of any recipient. This publication is distributed in New Zealand by The Hongkong and
Shanghai Banking Corporation Limited, New Zealand Branch incorporated in Hong Kong SAR.
In Japan, this publication has been distributed by HSBC Securities (Japan) Limited. It may not be further distributed in whole or in part for any purpose. In
Korea, this publication is distributed by The Hongkong and Shanghai Banking Corporation Limited, Seoul Securities Branch (“HBAP SLS”) for the general
information of professional investors specified in Article 9 of the Financial Investment Services and Capital Markets Act (“FSCMA”). This publication is not
a prospectus as defined in the FSCMA. It may not be further distributed in whole or in part for any purpose. HBAP SLS is regulated by the Financial Services
Commission and the Financial Supervisory Service of Korea.
In Canada, this document has been distributed by HSBC Bank Canada and/or its affiliates. Where this document contains market updates/overviews, or
similar materials (collectively deemed “Commentary” in Canada although other affiliate jurisdictions may term “Commentary” as either “macro-research” or
“research”), the Commentary is not an offer to sell, or a solicitation of an offer to sell or subscribe for, any financial product or instrument (including, without
limitation, any currencies, securities, commodities or other financial instruments).
© Copyright 2013, The Hongkong and Shanghai Banking Corporation Limited, ALL RIGHTS RESERVED. No part of this publication may be reproduced,
stored in a retrieval system, or transmitted, on any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior
written permission of The Hongkong and Shanghai Banking Corporation Limited. MICA (P) 038/04/2012, MICA (P) 063/04/2012 and MICA (P)
110/01/2013
                                                                                                                                                        [366570]




                                                                                                                                                                 75
                                                                                                              abc


Global Equity Strategy Research Team
Global                                                       South East Asia

Garry Evans                                                  Neel Sinha
Global Head of Equity Strategy                               Head of Equity Research, South East Asia
+852 2996 6916       garryevans@hsbc.com.hk                  +65 6658 0606       neelsinha@hsbc.com.sg

Daniel Grosvenor                                             India
+44 20 7991 4246     daniel.grosvenor@hsbcib.com             Jitendra Sriram
EU and US                                                    Head of Research, India
                                                             +91 22 2268 1271    jitendrasriram@hsbc.co.in
Peter Sullivan
Head of Equity Strategy, EU and US                           Korea
+44 20 7991 6702     peter.sullivan@hsbcib.com               Brian Cho
Europe                                                       Head of Research, Korea
                                                             +822 3706 8750      briancho@kr.hsbc.com
Robert Parkes
+44 20 7991 6716     robert.parkes@hsbcib.com                Latin America

CEEMEA                                                       Ben Laidler
                                                             LatAm Equity Strategist and Head of Research, Americas
John Lomax                                                   +1 212 5253460      ben.m.laidler@us.hsbc.com
+44 20 7992 3712     john.lomax@hsbcib.com
                                                             Francisco Schumacher, CFA
Wietse Nijenhuis                                             Southern Cone & Andean Equity Strategist
+44 20 7992 3680     wietse.nijenhuis@hsbcib.com             +1 212 525 4430    francisco.j.schumacher@us.hsbc.com
Asia                                                         Alexandre Gartner
                                                             Brazil Equity Strategist and Head of Equity Research, Brazil
Herald van der Linde                                         +55 11 3371-8181      alexandre.gartner@hsbc.com.br
Deputy Head of Research and Head of Equity Strategy, Asia-
Pacific                                                      Francisco Machado
+852 2996 6575       heraldvanderlinde@hsbc.com.hk           Equity Strategist
                                                             +55 11 3371 8191  francisco.v.machado@hsbc.com.br
Devendra Joshi
+852 2996 6592       devendrajoshi@hsbc.com.hk               Juan Carlos Mateos, CFA
                                                             Mexico Equity Strategist and Head of Equity Research, Mexico
Steven Sun                                                   +52 55 5721 3607    juan.mateos@hsbc.com.mx
+852 2822 4298       stevensun@hsbc.com.hk
                                                             Jaime Aguilera
Roger Xie                                                    Equity Strategist
+852 2822 4297       rogerpxie@hsbc.com.hk                   +52 55 5721 2379     jaime.aguilera@hsbc.com.mx
Taiwan
Jenny Lai
Head of Taiwan Research
+8862 6631 2860    jennylai@hsbc.com.tw

								
To top