Chinese New Year Seminar

Global Liquidity What factors should you consider if you have excess cash in China? Jonathan Curry, Global CIO, Liquidity

Presentation only intended for professional investors as defined by MIFID. Non contractual document. 1

INTERNAL/INTERNE - (amend as appropriate) MMFs in China: illustration of asset growth (AUM* in RMB bn) Period: 2003 – 2015

Number of MMFs 30 51 110 194

RMBbn Redemptions Growth period Growth period 5 000 A share rally combined with China's stocks fell with the Some giant dot.com poor fund management CSI 300 Index dropping 28% companies such as Alibaba 4,580bn techniques for from 2011 to end of June started to promote MMFs. 4 500 managing liquidity 2013; investors again moved The asset of Yu’E Bao, a toward money markets retail client based MMF, 4 000 boosting assets surged to 574 billion on to a high of RMB726bn June 30 2014 3 500 at June 30 2013

3 000 Growth period Growth period Consolidation period Bearish equity market Global financial crisis and Volatile interbank market and 2 500 (A shares), regulatory sharp decline in A shares tight liquidity conditions** support, and aggressive 2 000 yield chasing 194 funds AUM RMB1685bn 1,685bn 1 500 2003 (USD273bn) 1st launch by 1 000 Hua’an Fund Management 726bn 250bn 389bn 500 30bn 294bn 361bn 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

“Volatility in MMF AUM’s is significant and presents a key challenge for liquidity management… …however, Fitch expects the growing share of institutional investors to stabilise the asset base over the long term” Fitch report 22/02/2012

Source: HSBC Global Asset Management. Data as at 31 Dec 2015. *AUM = Assets under Management. **The total assets of RMB MMFs shrank 40-50% in June to July 2013 as some investors shifted from MMFs into higher-yielding short-term instruments during the money squeeze in June 2013. Volatile interbank market conditions and tight liquidity have increased pressure on the net asset values of many Chinese MMFs, which are heavily exposed to the interbank markets and short-term bond markets. The overnight Shanghai interbank offered rate, an average of the rate at which large banks lend among themselves, rose to 5.5 percent on June 25 from 3 percent on May 20, down from a high of 13.4 percent on June 20. The assets under management of RMB MMFs stabilized after a sharp contraction in July.. For illustrative purposes only and does not constitute any investment recommendation. Any forecast, projection or target contained in this presentation is for information purpose only and is not guaranteed in any way. HSBC accepts no liability for any failure to meet such forecasts, projections or targets. Non contractual document 2

INTERNAL/INTERNE Yu'E Bao Investment Fund Growth of AUM, 30 May 2013 to 31 December 2015

Yu'E Bao AUM(RMB bn)

800

700 712 621 600 574

579 613 604

) 541 535

500 bn

400 RMB ( RMB

300

200 185

100 56 0 4

Jul-13 Jul-14 Jul-15

Oct-15 Oct-13 Apr-14 Oct-14 Apr-15

Jun-13 Jan-14 Jun-14 Jan-15 Jun-15

Feb-14 Mar-14 Feb-15 Mar-15

Sep-13 Aug-13 Nov-13 Dec-13 Aug-14 Sep-14 Nov-14 Dec-14 Aug-15 Sep-15 Nov-15 Dec-15

May-13 May-14 May-15 Yu'E Bao AUM(RMB bn)

Source: China Haitong Securities, date range May 13 – Dec 15. The Yu’E Bao investment fund launched on 13 June 2013. Non contractual document For illustrative purposes only 3

INTERNAL/INTERNE MMFs in China: who uses them?

MULTINATIONAL INTERNATIONAL AND LOCAL AND LOCAL CORPORATIONS FOUNDATIONS

TYPICAL INVESTO R

B C PUBLIC “QUALIFIED” SECTOR INSTITUTIONA NAMES L INVESTORS

with cash outside of China (QFII /RQFII status & quota)

Onshore MMFs are designed for companies with operations and cash surplus in mainland China… …the investing entity must have an onshore legal entity incorporated in China or an institutional investor with the relevant QFII/RQFII quota

Source: HSBC Global Asset Management. For illustrative purposes only. Non contractual document 4

INTERNAL/INTERNE MMFs in China: What does the current-international investor base look like? An illustration of typical investor breakdown by geography

Asia 8% DE 16%

US UK 57% 9% Europe ex DE & UK 10%

Source: HSBC Jintrust Fund Management Company as of 31 December 2015. For illustrative purposes only. Non contractual document 5

INTERNAL/INTERNE In China, a MMF is a viable investment option Offers diversification of counterparty risk, high liquidity and competitive yield

Highlights Liquidity  Invests in a basket of short-term money market instruments  T+1 settlement  Targets a liquid and low duration portfolio  Daily access in accordance to the following  Some funds will invest in corporate paper/notes; others won’t cut off times  Certain MMFs are rated. Aim to maintain a “triple A” rating from at least – RMB 3.00 pm (Beijing time) one recognised rating agency, currently:

– CCXI Aaa (Moody’s Chinese JV) – Fitch AAAmmf(chn)

Yield expectations Typical service standards  Yields competitive with typical overnight or one week short-term interest  Dedicated relationship manager rates (eg 7 day call deposit)  Global client service team  Yields on bank deposits are regulated, at certain times fund yields may be  e-Trading available for online higher than bank deposits reporting/trading for some funds Special notes

 Dividend income is free from corporate income tax in China¹ – compared to other investments subject to 25% income tax  Management fee (0.33%) + custodian fee (0.10%) + marketing fee (0.01%) = total fees  Rebates are not permitted in China and fees are regulated for all money market providers  Investing entity must have an onshore legal entity incorporated in China  The value of capital is not guaranteed

Source: HSBC Global Asset Management. Data is at 31 December 2014. 1 The above statement is by way of a general guide to prospective investors and do not constitute tax advice. Prospective investors are therefore advised to consult their professional advisers concerning possible taxation or other consequences of purchasing, holding, selling or otherwise disposing of the investment under the laws of their country of incorporation, establishment, citizenship, residence or domicile. For more information, please refer to “Notice of the Ministry of Finance and State Administration of Taxation on Several Preferential Policies in Respect of Corporate Income Tax”. Non contractual document 6

INTERNAL/INTERNE MMFs in China Sample portfolio breakdown

Asset type – typical composition

Cash 12%

Time Bonds Deposit 36% 14% CD

2% Reverse Repo

36%

Maturity breakdown – example <30 days 80.00% 30 to 60 days 7.00% 60 to 90 days 1.00% 90 to 180 days 4.00% 180 to 397 days 8.00% Total 100.00%

Source: HSBC Jintrust Fund Management Company. As of 31 December 2015. For illustrative purposes only. Non contractual document 7

INTERNAL/INTERNE Comparing rates: Chinese RMB MMF versus deposits over time

 Dividend income from MMFs is free from corporate income tax in China1 – This compares to a 25% income tax on bank deposits and other liquidity instruments

 The table compares investment returns between bank deposits and MMFs

 At the end of December 2015, the performance of a MMF was higher than the 1 year deposit rate For cash surpluses longer than 6 months, local treasuries also look at other bank products such as structured deposits, wealth management products or segregated account products

T+1 1 1 3 6 9 1 Data as at end of December 2015 (next day) week month month month month year Bank deposit (PBOC guidelines) (gross returns; before taking the 25% income tax) 0.75 % 1.35 % n/a² 1.10 % 1.30 % n/a² 1.50 %

Money Market Fund 2.33 % (average net returns of all Triple A rated RMB MMFs)³

Source: The People’s Bank of China, WIND. Data as of 31 December 2015. The above information refers to past performance and should not be seen as an indication of future returns. 1The above statement is by way of a general guide to prospective investors and do not constitute tax advice. Prospective investors are therefore advised to consult their professional advisers concerning possible taxation or other consequences of purchasing, holding, selling or otherwise disposing of the investment under the laws of their country of incorporation, establishment, citizenship, residence or domicile. For more information, please refer to “Notice of the Ministry of Finance and State Administration of Taxation on Several Preferential Policies in Respect of Corporate Income Tax”. 2 Currently Banks in China are not allowed to offer 1 month deposits and 9 month deposits. 3 Three Triple A rated RMB MMFs are used to calculate the average net returns of RMB MMFs (HSBC Jintrust (HSBC), CIFM (JPMorgan), and Harvest (Deutsche)); the above performance is annualised and reflective of the period from 1 October 2015 to 31 December 2015 based on Class B units. Investments in emerging markets may exhibit a more volatile performance and may be affected by reduced liquidity which makes them risky. Investments in emerging markets may exhibit political, settlement, liquidity and custodian risks, as opposed to those in developed markets.

Non contractual document 8

INTERNAL/INTERNE Major macro trends Disinflationary pressure continues

 Spot oil prices have fallen over 70% since September 2014

 A recent IMF simulation suggests that a 20% fall in the oil price will boost world GDP by about 0.5%

 Each USD10 fall in the oil price takes 0.4% of US CPI, 0.2% off Eurozone CPI and 0.1% off UK CPI

Goldman Sachs Commodity Index 1000 900 800 700 600 500 400 300 200 100

01/10/2010 01/07/2013 01/01/2007 01/04/2007 01/07/2007 01/10/2007 01/01/2008 01/04/2008 01/07/2008 01/10/2008 01/01/2009 01/04/2009 01/07/2009 01/10/2009 01/01/2010 01/04/2010 01/07/2010 01/01/2011 01/04/2011 01/07/2011 01/10/2011 01/01/2012 01/04/2012 01/07/2012 01/10/2012 01/01/2013 01/04/2013 01/10/2013 01/01/2014 01/04/2014 01/07/2014 01/10/2014 01/01/2015 01/04/2015 01/07/2015 01/10/2015 01/01/2016

Source: Bloomberg, Goldman Sachs as of January 2016, Past performance is no reliable indicator for future performance. Any forecast, projection or target where provided is indicative only and is not guaranteed in any way. HSBC Global Asset Management (France) accepts no liability for any failure to meet such forecast, projection or target. Non contractual document 9 INTERNAL/INTERNE Major macro trends Disinflationary pressure continues

Consumer Price Index Caixin China Manufacturing Survey 10 52

8 51

6 50

4 49

2 48

0 47

-2 46

-4

01/12/2013 01/02/2013 01/04/2013 01/06/2013 01/08/2013 01/10/2013 01/02/2014 01/04/2014 01/06/2014 01/08/2014 01/10/2014 01/12/2014 01/02/2015 01/04/2015 01/06/2015 01/08/2015 01/10/2015 01/12/2015

01/06/2010 01/11/2015 01/02/2007 01/07/2007 01/12/2007 01/05/2008 01/10/2008 01/03/2009 01/08/2009 01/01/2010 01/11/2010 01/04/2011 01/09/2011 01/02/2012 01/07/2012 01/12/2012 01/05/2013 01/10/2013 01/03/2014 01/08/2014 01/01/2015 01/06/2015

Source: National Bureau of Statistics, Markit and Bloomberg. As of January 2016.

Non contractual document 10

INTERNAL/INTERNE Major macro trends Property market cooling but not collapsing

China Housing Sentiment Index

115

110

105

100

1996 2015 1995 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Source: National Bureau of Statistics and Bloomberg. As of January 2016

Non contractual document 11

INTERNAL/INTERNE Major macro trends RMB slow and gradual appreciation

CNY Weighted Index

130

125

120

115

110

105

100

90 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15

Source: Morgan Stanley and Bloomberg. As of January 2016. The above information refers to past performance and should not be seen as an indication of future ret

Non contractual document 12

INTERNAL/INTERNE Major macro trends Monetary policy easing

PBOC 3-month treasury bill Deposit Reserve Ratio 4 25

3.5 20

3 15

2.5 10

2 5

1.5 0

01/02/2005 01/07/2005 01/12/2005 01/05/2006 01/10/2006 01/03/2007 01/08/2007 01/01/2008 01/06/2008 01/11/2008 01/04/2009 01/09/2009 01/02/2010 01/07/2010 01/12/2010 01/05/2011 01/10/2011 01/03/2012 01/08/2012 01/01/2013 01/06/2013 01/11/2013 01/04/2014 01/09/2014 01/02/2015 01/07/2015 01/12/2015

01/12/2014 01/02/2014 01/03/2014 01/04/2014 01/05/2014 01/06/2014 01/07/2014 01/08/2014 01/09/2014 01/10/2014 01/11/2014 01/01/2015 01/02/2015 01/03/2015 01/04/2015 01/05/2015 01/06/2015 01/07/2015 01/08/2015 01/09/2015 01/10/2015 01/11/2015 01/12/2015 01/01/2016 Source: Peoples Bank of China (PBOC) and Bloomberg. As of January 2016

Non contractual document 13

INTERNAL/INTERNE Important Information

This presentation is distributed by HSBC Global Asset Management (France) and is only intended for professional investors as defined by MiFID. It is incomplete without the oral briefing provided by the representatives of HSBC Global Asset Management (France). The information contained herein is subject to change without notice. All non-authorised reproduction or use of this commentary and analysis will be the responsibility of the user and will be likely to lead to legal proceedings. This document has no contractual value and is not by any means intended as a solicitation, nor a recommendation for the purchase or sale of any financial instrument in any jurisdiction in which such an offer is not lawful. The commentary and analysis presented in this document reflect the opinion of HSBC Global Asset Management on the markets, according to the information available to date. They do not constitute any kind of commitment from HSBC Global Asset Management (France). Consequently, HSBC Global Asset Management (France) will not be held responsible for any investment or disinvestment decision taken on the basis of the commentary and/or analysis in this document. All data come from HSBC Global Asset Management unless otherwise specified. Any third party information has been obtained from sources we believe to be reliable, but which we have not independently verified. Any forecast, projection or target where provided is indicative only and is not guaranteed in any way. HSBC Global Asset Management (France) accepts no liability for any failure to meet such forecast, projection or target.

The value of investments and any income from them can go down as well as up and investors may not get back the amount originally invested. Where overseas investments are held the rate of currency exchange may also cause the value of such investments to fluctuate. Investments in emerging markets are by their nature higher risk and potentially more volatile than those inherent in some established markets. Any performance information shown refers to the past and should not be seen as an indication of future returns.

Important information for Luxembourg investors: HSBC entities in Luxembourg are regulated and authorised by the Commission de Surveillance du Secteur Financier (CSSF). Important information for Swiss investors: This document may be distributed in Switzerland only to qualified investors according to Art. 10 para 3, 3bis and 3ter of the Federal Collective Investment Schemes Act (CISA). The presented fund is authorised for public distribution in Switzerland in the meaning of Art. 120 of the Federal Collective Investment Schemes Act. (Potential) investors are kindly asked to consult the latest issued Key Investor Information Document (KIID), prospectus, articles of incorporation and the (semi- )annual report of the fund which may be obtained free of charge at the head office of the representative: HSBC Global Asset Management (Switzerland) Ltd., Bederstrasse 49, P.O. Box, CH-8002 Zurich. Paying agent: HSBC Private Bank (Suisse) S.A., Quai des Bergues 9-17, P. O. Box 2888, CH-1211 Geneva 1. Investors and potential investors should read and note the risk warnings in the prospectus and relevant KIID. Before subscription, investors should refer to the prospectus for general risk factors and to the KIID for specific risk factors associated with this fund. Issue and redemption expenses are not taken into consideration in the calculation of performance data. The fund presented in this document is a sub-fund of HSBC Global Investment Funds, an investment company constituted as a société à capital variable domiciled in Luxemburg.

HSBC Global Asset Management is the brand name for the asset management business of HSBC Group. The above document has been approved for distribution/issue by the following entity: HSBC Global Asset Management (France) - 421 345 489 RCS Nanterre. Portfolio management company authorised by the French regulatory authority AMF (no. GP99026) with capital of 8.050.320 euros. Postal address: 75419 Paris cedex 08, France. Offices: HSBC Global Asset Management (France) - Immeuble Coeur Défense - 110, esplanade du Général Charles de Gaulle - 92400 Courbevoie - La Défense 4 – France. (Website: www.assetmanagement.hsbc.com/fr).

HSBC Global Asset Management (Switzerland) Limited Bederstrasse 49, P.O. Box, CH-8027 Zurich, Switzerland (Website: www.assetmanagement.hsbc.com/ch)

Non contractual document 14

INTERNAL/INTERNE