An equity portfolio reflecting our best ideas in Asia
Asian equities will need to absorb the spill-over effect from EM weakness and expected higher interest rates in the US We are overweight on Indonesia equities, China and India; by sectors, we are overweight on utilities, financials and energy Asia Super Ten portfolio: adding Ayala Land and Huaneng Renewables; keeping ASE, Baidu, Cathay Pacific, E-Mart, HDFC Bank, ICBC, Kepco and Tata Motors For full coverage of our Asian equity strategy views, see Asia Equity Insights Quarterly – Scattered showers and sunny spells (6 January 2015). Asian equity valuations are inexpensive relative to developed markets, trading well below historical averages on a range of metrics, and the region is also out of favour with investors. We believe this will offer opportunities. Two key factors to watch here: 1) a potential US rate hike this year, and 2) the impact of a declining oil price on equities. The themes we look at in 2015 are: 1) structural growth stories; 2) a recovery in profit margins; 3) quality of life (travel, healthcare, tackling pollution); and 4) the rise of the Asian domestic investor. We are overweight on Indonesia equities, China and India. Sector-wise, we are overweight on utilities, financials and energy. To reflect our country sector weightings, we present a portfolio of 10 stocks. Methodology. The Asia Super Ten portfolio is constructed as an equally weighted portfolio of ten stocks with the principal objective of reflecting the convictions of both our strategists and our stock analysts. Performance. As of 2 January 2015, the portfolio outperformed the MSCI All Country Asia ex Japan Index by 22.1% in US dollar terms since inception on 5 January 2010. Equity Strategy Asia Asia Super Ten An equity portfolio reflecting our best ideas in Asia HSBC Asia Super Ten – Model portfolio of ten equally weighted stocks Company Bloomberg Rating Target priceASE 2311 TT OW 46 (TWD)Ayala Land ALI PM OW43.25 (PHP)Baidu.com Inc. BIDU US OW275 (USD)Cathay Pacific 293 HK OW19 (HKD)E-Mart 139480 KS OW300,000 (KRW)HDFC Bank HDFCB IN OW1,036 (INR)Huaneng Renewables 958 HK OW(V) 3.6 (HKD)ICBC 1398 HK OW(V) 8.3 (HKD)Kepco 015760 KS OW60,000 (KRW)Tata Motors TTMT IN OW 615 (INR)Source: Bloomberg, HSBC estimates. 7 January 2015 Asia Super Ten Committee Herald van der Linde* Head of Equity Strategy, Asia Pacific The Hongkong and Shanghai Banking Corporation Limited +852 2996 6575 heraldvanderlinde@hsbc.com.hk Devendra Joshi* Equity Strategist, Asia Pacific The Hongkong and Shanghai Banking Corporation Limited +852 2996 6592 devendrajoshi@hsbc.com.hk View HSBC Global Research at: http://www.research.hsbc.com *Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations Issuer of report: The Hongkong and Shanghai Banking Corporation Limited Disclaimer & Disclosures This report must be read with the disclosures and the analyst certifications in the Disclosure appendix, and with the Disclaimer, which forms part of it Equity Strategy Asia 7 January 2015 abc HSBC strategy weightings 1. Market weightings Market New HSBC weighting* Old HSBC weighting Rel 3M performance End-2015 target Current indexChange from current level China overweight overweight 3.4%74 6318.0%Korea neutral neutral -5.3%2,060 1,9048.2%Taiwan underweight neutral 1.5%9,350 8,9514.5%Hong Kong neutral underweight 1.5%26,000 22,67114.7%India overweight overweight 1.7%30,000 26,78112.0%Singapore neutral neutral 1.7%3,500 3,2158.9%Malaysia underweight underweight -10.5%1,740 1,6743.9%Indonesia overweight overweight -0.3%5,600 5,02611.4%Thailand underweight underweight -2.5%1,480 1,4621.2%Philippines neutral underweight 5.6%7,800 7,1608.9%Source: Thomson Reuters Datastream, HSBC. Note: Current Index and Rel 3M performance as of 16 December 2014 *These weightings were made in Asia Equity Insights Quarterly – Scattered showers and sunny spells, published 6 January 2015 2. Sector weightings Sector New HSBC weighting* Old HSBC weighting Rel 3M performance Financials
