1. Hong Kong Baptist University 1998 Superannuation Fund
Investment review
HSBC Investments (Hong Kong) Limited
Level 22, HSBC Main Building, 1 Queen’s Road Central, Hong Kong
Telephone: Facsimile:
Web site:
March 2006

2. Agenda Market performance Investment choice Fund performance
Peers review
Asset allocation
Investment strategy
Factors for consideration before switching

3. Market performance

4. Market statistics: 3 months to December 2005 (in HKD terms)
Currencies
Bonds *
Equities **
* Bonds: Citigroup World Government Bond Indices, HSBC HKD Bond Index (Overall)
** Equities: USA (S&P 500), UK (FTSE-100), Germany (DAX), Japan (Nikkei 225), Hong Kong (HSI), Australia (All Ordinaries), Taiwan (WPI), Korea (KOSPI)
Source: Thomson Financial Datastream, Bloomberg

5. Market statistics: 1 year to December 2005 (in HKD terms)
Currencies
Bonds *
Equities **
* Bonds: Citigroup World Government Bond Indices, HSBC HKD Bond Index (Overall)
** Equities: USA (S&P 500), UK (FTSE-100), Germany (DAX), Japan (Nikkei 225), Hong Kong (HSI), Australia (All Ordinaries), Taiwan (WPI), Korea (KOSPI)
Source: Thomson Financial Datastream, Bloomberg

6. Market statistics: 3 months to January 2006 (in HKD terms)
Currencies
Bonds *
Equities **
* Bonds: Citigroup World Government Bond Indices, HSBC HKD Bond Index (Overall)
** Equities: USA (S&P 500), UK (FTSE-100), Germany (DAX), Japan (Nikkei 225), Hong Kong (HSI), Australia (All Ordinaries), Taiwan (WPI), Korea (KOSPI)
Source: Thomson Financial Datastream, Bloomberg

7. Market statistics: 1 year to January 2006 (in HKD terms)
Currencies
Bonds *
Equities **
* Bonds: Citigroup World Government Bond Indices, HSBC HKD Bond Index (Overall)
** Equities: USA (S&P 500), UK (FTSE-100), Germany (DAX), Japan (Nikkei 225), Hong Kong (HSI), Australia (All Ordinaries), Taiwan (WPI), Korea (KOSPI)
Source: Thomson Financial Datastream, Bloomberg

8. Investment choice

9. Risk profile of various investment options
More suitable for
risk tolerant staff
Balanced Fund
risk averse staff
High Growth Fund
Growth Fund
Risk (short-term volatility)
Global Money Funds (HKD/USD)
High
Low
Stable Fund
Long-term potential return

10. Fund performance

11. Investment performance: HKBU 1998 – High Growth Fund Cumulative return to 31 Jan 2006
Source: HSBC Investments
Performance is net of fees return in HKD.
Past performance is not necessarily a guide to future performance

12. Investment performance: HKBU 1998 –Growth Fund Cumulative return to 31 Jan 2006
Source: HSBC Investments
Performance is net of fees return in HKD.
Past performance is not necessarily a guide to future performance

13. Investment performance: HKBU 1998 –Balanced Fund Cumulative return to 31 Jan 2006
Source: HSBC Investments
Performance is net of fees return in HKD.
Past performance is not necessarily a guide to future performance

14. Investment performance: HKBU 1998 – Stable Fund Cumulative return to 31 Jan 2006
Source: HSBC Investments
Performance is net of fees return in HKD.
Past performance is not necessarily a guide to future performance

15. Investment performance: HKBU 1998 – Money Market Fund Cumulative return to 31 Jan 2006
Source: HSBC Investments
Performance is net of fees return in HKD.
Past performance is not necessarily a guide to future performance

16. Investment performance: HKBU 1998 – USD Money Market Fund Cumulative return to 31 Jan 2006
Source: HSBC Investments
Performance is net of fees return in HKD.
Past performance is not necessarily a guide to future performance

17. Peers review

18. Investment performance: Year 2005
Source: HSBC Investments, Watson Wyatt Managed Fund Report, December 2005.
Portfolio net of fees performance in HKD term.
Past performance is not necessarily a guide to future performance

19. Asset allocation

20. Asset allocation as at 31 January 2006
Hong Kong Baptist University 1998 Superannuation Fund
High Growth Growth Balanced Stable
Benchmark Fund Benchmark Fund Benchmark Fund Benchmark Fund
Equities
Hong Kong
Japan
Other Asia Pacific
N. America
Europe inc. UK
Others
Sub-total
Bonds US
Non-USD
Sub-total
Cash

21. Investment strategy

22. Equity market outlook Low returns during Fed tightening cycle
Strong returns expected if economy soft lands
Equity market valuation remains attractive against other asset classes
Favour Asia & Emerging markets on growth & valuation basis
Monetary pause favours equities
US Equity Market
Return
During FED Tightening Cycle
First half 3%
Second Half -1%
12 Months After FED Stops Tightening
Soft Landing 15%
Hard Landing -14%
Emerging markets remain cheap
Europe
Hong Kong

23. Bond and currency outlook
Record US deficit fully financed by portfolio flows
Bonds are becoming less expensive
Dollar supported by higher rates
(%)
21/11/05 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05
1.50
2.00
2.50
3.00
3.50
4.00
4.50
5.00
5.50
US real bond yield
Average real bond yield
Attractive
Expensive
(%)
(%)
1999
2000
2001
2002
2003
2004
2005 1 2 3 4 5 6 7 8 85 90 95
100
105
110
115
120
125
US FED Funds
USD Trade weighted index (RHS)
Source: Thomson Financial Datastream
Source: Thomson Financial Datastream
Source: Morgan Stanley Research. Trailing four- quarter average as of 2Q05
Bond market
Valuations improved but real yields still low
Bonds offer cash-like returns
Range trading expected
Currency market
US dollar rally in 2005 driven by higher US rates
Interest rates differential narrowing coupled with record twin deficits, US dollar expected to resume longer term weakening

24. Summary
Global growth to moderate with gradual increase in inflation in US Fed to raise rates 50 basis points in 1Q and pause thereafter. China remains the key driver.
Equity markets remain favourable as profit growth is sound, valuations supportive and rate cycle likely to pause.
Asian and emerging market equities remain attractively priced and domestic fundamentals in Asia strong.
Bond yields are expected to range trade.
US dollar expected to weaken in 2006.

25. Asset Class Outlook Regional Outlook
Equities Fundamental conditions are positive for financial markets, particularly equities
Cash We moderately underweight cash
Bonds Bond returns to be around cash levels
Asia Expect domestic consumption and asset reflation as prominent themes
Japan Positive earnings revision compensate for market appreciation
Eurozone Low macro risk with low inflation and modest increases in short term interest rates
UK Mining sector strength and takeover activity continue to drive market performance
Hong Kong Could be due for short-term consolidation
US Investor sentiment is becoming stretched, consolidation could happen in the near term
Regional Outlook
Data as of February 2006
Overweight
Neutral
Underweight

26. Factors for consideration before switching

27. Dangers of market timing
Average annualized return ( )
HSI full period return
HSI full period less 10 best performing days
HSI full period less 20 best performing days
HSI full period less 30 best performing days
Data as at 31 December 2005
Source：Thomson Financial Datastream
Investment involves risk. Investment value can rise as well as fall.
For internal use only。 The opinions expressed herein should not be considered to be a recommendation to any reader of this material to buy or sell securities, commodities, currencies or other investments referred to herein.

28. Reference table for suggested investment choices
HKBU - High Growth Fund üüü üü ü û û
HKBU - Growth Fund üü üüü üü û û
HKBU - Balanced Fund ü üü üüü üü ü
HKBU - Stable Fund ü ü üü üüü üü
HKBU - Money Market Funds û û ü üü üüü
Investment horizon (e.g. years to retirement)
Fund type > > Very short years years years years (< 5 years)
Note: Please note that the above table is designed for an average member. The final choice for any member may be based on a variety of factors.
üüü – Most appropriate
üü – Appropriate
ü – Acceptable
û – Not appropriate

29. Contact details

30. How to contact us ? Members Choice Investment Hotline : 2284 1281
Investment Service
Web site :

31. Explanatory notes and disclaimers
The document is confidential and is supplied to you solely for your information. This document should not be reproduced or further distributed to any person or entities, whether in whole or in part, for any purpose.
Please also note that investment involves risk and past performance is not indicative of future performance.
The opinions expressed herein should not be considered to be a recommendation by HSBC Investments (Hong Kong) Limited to any reader of this material to buy or sell securities, commodities, currencies or other investments referred to herein. HSBC Investments (Hong Kong) Limited, its ultimate and intermediate holding companies, subsidiaries, affiliates, clients, directors and/or staff may, at any time, have a position in the markets referred to herein, and may buy or sell securities, currencies, or any other financial instruments in such markets.
HSBC Investments (Hong Kong) Limited has based this document on information obtained from sources it believes to be reliable but which it has not independently verified. HSBC Investments (Hong Kong) Limited and the HSBC Group make no guarantees, representations or warranties and accept no responsibility or liability as to its accuracy or completeness. Information in this report is subject to change without notice.

32. HSBC Investments (Hong Kong) Limited