HSBC Amanah Takaful’s Asia Pacific Islamic Equity Fund Fact Sheet – November 2015

Investment Objective HSBC Amanah Takaful’s Asia Pacific Islamic Equity seeks to achieve capital growth and income by investing in the CIMB Islamic Asia Pacific Equity Fund ("Target Fund"), a Shariah-compliant collective investment scheme.The Target Fund is predominantly an equity fund which invests through shares listed on the stock exchanges in the emerging and developed markets of Asia Pacific ex Japan.

Asset Allocation Shariah-Based Collective Investment Scheme 90.34%

Islamic Money Market Instruments 9.66% Performance Table HSBC Amanah Asia Pacific Islamic Equity

Dow Jones Islamic Market Asia/Pacific ex Japan Index

Since investing 31/05/12

42.22%

15.21%

6 Months 01/06/2015 to 30/11/2015

0.82%

-11.51%

Performance

 Source: CIMB-Principal Asset Management Berhad  Basis of calculation: Time-weighted rate of return

Equity Market Review, Outlook & Strategy 







Post the recovery in October, most equity markets were in a consolidation mode in November as investors braced themselves for an impending Federal Reserve lift-off: Hong Kong (-2.8%), Korea (-1.9%), Singapore (-4.8%), Taiwan (-2.7%), Shanghai (+1.9%), Japan (+3.5%), US (+0.3%), Philippines (2.9%), Thailand (-2.6%), Indonesia (-0.2%), Australia (-1.4%) and Malaysia (+0.4%). Markets started the month on a cautious note, weighed upon by the hawkish FOMC statement on 29 October and the decline in China’s factory activities for the eighth consecutive month. Subsequently, some lift to markets were provided by the positive data from the Euro zone, a spike in oil prices and a reaffirmed pledge from the European Central Bank to examine the degree of monetary accommodation at its December policy meeting. However, another round of hawkish comments from the US Federal Reserve Chairwoman led to a retreat in markets again. Driving in more pessimism for emerging markets especially, was a much stronger-than-expected US October jobs report. Equity markets were also under pressure from a renewed sell-off in commodities. A knee-jerk sell-off in markets in reaction to the brutal terrorist attacks in Paris tapered off amid expectations that any fallout from the attacks would have a muted global economic impact. Meanwhile, the increase in US consumer prices for the first month in three during October bolstered the case for higher interest rates. In US, stocks had a brief rally after the FOMC October minutes showed that a majority of policy makers were open to a December rate hike, but that the pace of rate hikes thereafter should be gradual. According to the minutes, the US economy was strong enough to withstand continued volatility across global markets as a result of geopolitical issues, dampened commodity prices and the slowing Chinese economy. Meanwhile, the wild swings in China’s markets were somewhat concerning for the region. The SHCOMP slumped amid sinking industrial profits and investigations by the China Securities Regulatory Commission on two major Chinese brokerages over suspected violation of securities rules. The index subsequently rallied, boosted by the news of the likely inclusion of the Yuan into the International Monetary Fund’s Special Drawing Rights basket of currencies. Locally, the bourse was boosted by the Ringgit strengthening on news that government-linked companies were expected to repatriate current assets worth RM627 million by December. It gained further on news of the sale of 1MDB’s power assets to China Nuclear Power Corp for RM9.83 billion and also China committing to the purchase of Malaysian government bonds. Post the reporting season earnings revisions, Malaysia’s 2015 EPS is expected to contract, which would be the second consecutive year of contraction. Local macroeconomic data during the month were lacklustre. Malaysia’s real GDP growth eased for the second straight quarter to 4.7% year-on-year in third quarter 2015 (second quarter 2015: +4.9% year-on-year) on the back of the lingering GST impact, stock market rout and declining consumer sentiment. Domestic demand moderated further to +4.0% year-on-year in third quarter 2015 (second quarter 2015: +4.6% year-on-year) on continued post-GST slowdown in private consumption (third quarter 2015: +4.1% year-on-year; second quarter 2015: +6.4% year-on-year); while government consumption eased (third quarter 2015: +3.5% year-on-year; second quarter 2015: +6.8% year-on-year) amid control on government operating expenditure. More positively, net external demand turned around to +3.3% year-on-year in third quarter 2015 from -10.5% year-on-year in second quarter 2015. Performance by sector was mixed, however, with the services sector being the key culprit of slower GDP growth. Meanwhile, the annual growth rate for Malaysia’s index of leading economic indicators was negative for the third month in a row, suggesting continued slowdown in the country’s real GDP growth in fourth quarter 2015. The latest reading of the Nikkei Malaysia Manufacturing Purchasing Managers’ Index also showed continued deterioration in operating conditions for the manufacturing sector as it stood at 48.1 in October. This was the seventh consecutive month that the index had been under the 50.0 level. Broad money supply (M3) growth slowed in October to 4.0% year-on-year from 5.2% year-on-year in September amid declining deposit growth in the banking system. Separately, headline inflation eased further to 2.5% year-on-year in October from 2.6% year-on-year in September, but food price inflation picked up to a 45-month high of 4.7% year-on-year, triggered by costlier import cost due to a weaker Ringgit. On another note, Petronas is slashing its 2016 dividend to the government by almost 40%, after its quarterly profit fell 91% on weak global crude oil prices.

Equity Market Review, Outlook & Strategy 





On the external front, macro data were mixed. In the US, real GDP growth was revised higher in third quarter 2015 from 1.5% to 2.1%, led by higher stockpiles and a smaller decline in business investment. US new home sales rebounded to expand by 10.7% month-on-month from a 14-month low of 12.9% in September and compared with 2.6% in August. However, consumer spending made a slow start in fourth quarter as US personal consumption expenditure grew by 0.1% month-on-month in October, similar to September’s pace but lower than the +0.3% recorded in June to August. In the Euro zone, third quarter 2015 GDP growth slowed to 0.3% quarter-on-quarter on a seasonally adjusted basis from 0.4% in second quarter, underlining the tepid nature of the Euro zone’s economic recovery. Weak international trade weighed on Germany and Italy while the Greek economy contracted 0.5%. Nevertheless, Euro zone services and composite PMI for November continued to rise, driven by business activity and putting the region on course for one of its best quarterly performances over the past four-and-a-half years. In China, the November manufacturing PMI missed expectations and recorded a 39-month low, showing continued decline in industrial growth momentum despite ongoing stimulus. The government had set a 6.5% target for annual economic growth from 2016 to 2020. Separately, the IMF officially approved renminbi inclusion into the SDR, effective from 1 October 2016. This was an important milestone for the Renminbi internationalisation process and was also a catalyst for the authorities to further speed up financial reforms. In Japan, the economy contracted 0.8% on a quarter-on-quarter basis in third quarter 2015, matching the fall of 0.7% in second quarter 2015 and marking a second technical recession in two years for the economy. A drop in inventories in warehouses was the biggest contributor to the contraction, made worse by a drop in business spending. In the near term, markets will be subdued ahead of the US interest rate decision on 16 December 2015. However, a rate hike has largely been priced in, with market participants assigning a probability of more than 70%. Hence, a rate hike of 25 basis points or below in December could be a trigger for market bullishness and greater risk-taking especially if the Federal Reserve reiterates that it will raise interest gradually. Locally, market sentiment has improved following the progress on 1MDB’s debt restructuring and a better-than-expected reporting season. We expect a bullish bias in the near term as we may see increased foreign participation in Malaysia given the likely resolution of 1MDB debt and the sharp underweight position in Malaysia of most foreign funds. This is especially since high cash positions of local funds should limit market downside.

Manager’s Comments  In November 2015, the Fund was down 3.22%, outperforming the benchmark by 0.41%. We are overweight in Hong Kong, India and Philippines, and underweight in Korea, China and Malaysia. Sector-wise, we are overweight in telecommunications and consumer services and underweight in oil & gas, technology, basic materials and utilities.  Asian equities fell 2.7% in November 2015 as investors de-risked on concerns over disinflationary pressures and a slowdown in global growth. Topical issues were: is growth in the United States turning down and could the United States Federal Reserve delay raising rates beyond first half of 2015 ("1H2016")? Can China manage slowing growth and persistent capital outflows? Could Emerging Market currencies & equities stabilize and prompt a re-look by global funds who are underweight? The risk-reward outlook for Asian equities is balanced with initial signs of improving liquidity (stabilizing Emerging Market currencies, equity fund inflows) and underweight investor positioning in Emerging Markets balanced against earnings risks. Markets will be increasingly narrow as growth becomes scarcer.  We are neutral on Asian equities as the recent round of competitive easing from major central banks is stabilizing exchange rates and confidence. We have optimized our portfolios so that the core holdings of the portfolio will be of stocks with quality growth, earnings visibility and improving cash flow. In a low inflation environment, commodity users and companies with pricing power will benefit. We are looking for companies which may see earnings bottoming in 2015 or 2016 as well as those that grow earnings per share by buying back shares or saving cost (via restructuring or merger & acquisitions). Risk  The investment risks associated to the investment are described in Product Disclosure Sheet. If you have any queries, you are advised to consult your professional adviser before making a commitment to invest. In the event that you choose not to seek advice from a professional investment adviser, you should consider whether this investment is suitable based on your risk appetite, investment experience and objectives. Other Information  You may refer to the Product Disclosure Sheet for the basis and frequency of valuing assets underlying of the fund, Annual Fund Management Fee and other charges related to the fund. The HSBC Amanah Takaful’s Asia Pacific Islamic Equity Fund is underwritten by HSBC Amanah Takaful (Malaysia) Berhad. and is managed by CIMB-Principal Asset Management Berhad. This material is prepared strictly for information only. Information provided herein including any expression of opinion or forecast has been obtained from or is based on sources believed by us to be reliable, but is not guaranteed as to accuracy or completeness. The information is given without obligation and on understanding that any person who acts upon it or changes his/her position in reliance thereon does so entirely at his/her own risk. Past performance figures shown are not indicative of future performance.