Monthly GEMs Equity Flows

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.  GEM fund managers, on an average, are neutral on Russia  Within GEM funds, dividend funds and high beta funds have sizable overweight positions on Russia; but most medium to large sized funds are underweight to neutral  We recommend an overweight position on Russia as we see the risk reward balance more favourable now In this edition, as a special feature, we analyse the pattern in holdings of Russian equities by GEM funds. The regular charts/tables on flows and allocations can be found starting page 5 of the report. Our sample contains 155 GEM funds with the AuM totalling USD204bn. Our analysis suggests that GEM funds are on an average, neutral on Russia. However, there are a few funds that have sizable allocations to the market. We find that dividend/income funds and high beta funds have significant overweight positions in the market. It is not surprising given that the IBES consensus expects a dividend yield of 5.5% for Russia (vs. 3.2% for EM overall) in 2016. Most medium to large sized funds are underweight to neutral on Russia. The charts on page 3 show that allocations to Russia by various fund groups are quite depressed and have significant scope to rise in the future. We recommend an overweight position on Russia for GEM investors as we now see risk-reward balance turning more favourable (for details see our note Russian equities: more rewards than risks, 27 November 2015). Monthly GEMs Equity Flows EQUITY STRATEGY GLOBAL EMERGING MARKETS John Lomax* Head of Global Emerging Market Equity Strategy HSBC Bank plc (UK) john.lomax@hsbcib.com +44 20 7992 3712 Kishore Muktinutalapati* Equity Strategist HSBC Bank plc kishoremuktinutalapati@hsbc.co.in +91 80 3001 2983 Andrew Apampa* Analyst HSBC Bank plc andrew.apampa@hsbcib.com +44 20 7992 0802 Issuer of report:HSBC Bank plc Published: 30 November 2015 *Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/ qualified pursuant to FINRA regulations View HSBC Global Research at: https://www.research.hsbc.com Allocation to Russia by GEM funds in our sample: by type of funds (LHS chart) and by size of funds (RHS chart) Source: MSCI, EPFR Global, HSBC calculations Source: MSCI, EPFR Global, HSBC calculations 0%2%4%6%8%10%12%14%16%18%20%1101001,00010,000100,000Alloc ation to R us s iaAuM of GEM funds in our sample (log scale)All GEM funds in our sampleDividend fundsHigh beta fundsWeight of Russia Patterns in ownership of Russian equities EQUITY STRATEGYGLOBAL EMERGING MARKETS 30 November 2015 2ABC Allocations (% of the AuM) to Russia 3 Fund flows 4 Cross-sectional comparison of Flow of Funds (% of AuM) 5 Monthly Flow (% of AuM) 6 Cumulative flows to EM and DM equity funds (% of AuM) 7 Cumulative flows to EM and DM equity funds split by ETFs and non-ETFs (% of AuM) 7 Cumulative flows into EM regional equity funds (% of AuM) 8 Cumulative flows into EM regional equity funds split by ETFs and non-ETFs (% of AuM) 8 AuM of EM regional equity funds 9 AuM of EM regional equity funds split by ETFs and non-ETFs 9 GEM fund positioning 11 GEM Equity Fund Allocations 13 EEMEA 14 LatAm 20 EM Asia 24 GEM Sectors 29 Disclosure appendix 34 Disclaimer 36 In this monthly note, we analyse the liquidity flow trends and fund manager positioning around the Emerging market (EM) equities. Data was obtained from EPFR Global and latest data point pertains to October 2015. Contents EQUITY STRATEGYGLOBAL EMERGING MARKETS 30 November 2015 3ABC Allocations (% of the AuM) to Russia Global equity funds Europe equity funds (data in bps) EMEA equity funds Source: EPFR Global, HSBC Source: EPFR Global, HSBC Source: EPFR Global, HSBC GEM equity funds BRIC equity funds Emerging Europe equity funds Source: EPFR Global, HSBC Source: EPFR Global, HSBC Source: EPFR Global, HSBC 0.2%0.3%0.4%0.5%0.6%0.7%0.8%Jan-10Jan-11Jan-12Jan-13Jan-14Jan-15Mean - 2 StdevMean + 2 StdevMean0.0%1.0%2.0%3.0%4.0%5.0%6.0%7.0%8.0%9.0%Jan-10Jan-11Jan-12Jan-13Jan-14Jan-15bpsMean + 2 StdevMean2.0%4.0%6.0%8.0%10.0%12.0%14.0%16.0%18.0%Jan-10Jan-11Jan-12Jan-13Jan-14Jan-15MeanMean + 2 StdevMean - 2 Stdev3.0%3.5%4.0%4.5%5.0%5.5%6.0%6.5%7.0%7.5%8.0%Jan-10Jan-11Jan-12Jan-13Jan-14Jan-15MeanMean + 2 StdevMean - 2 Stdev7.0%9.0%11.0%13.0%15.0%17.0%19.0%21.0%23.0%Jan-10Jan-11Jan-12Jan-13Jan-14Jan-15MeanMean + 2 StdevMean - 2 Stdev35.0%40.0%45.0%50.0%55.0%60.0%65.0%70.0%Jan-10Jan-11Jan-12Jan-13Jan-14Jan-15Mean + 2 StdevMeanMean - 2 Stdev EQUITY STRATEGYGLOBAL EMERGING MARKETS 30 November 2015 4ABC Fund flows EQUITY STRATEGYGLOBAL