HSBC GIF Frontier Markets
Frontier markets present an opportunity to invest in domestic companies in economies benefitting from improving fundamentals. Strategic equity allocation could add diversification given low correlation with other asset classes.
Our philosophy
We believe that frontier markets are inefficient due to factors such as lack of information, and that fundamental research along with an understanding of local markets is essential for success.
Why HSBC GIF Frontier Markets fund?
- A global investment approach that invests across frontier markets and smaller emerging markets that exhibit ‘frontier’ features
- An active investment approach aiming to add value through proprietary, on-the-ground fundamental research
Our process
Our disciplined investment process is focused on fundamental research to identify attractive investment opportunities based on company profitability and valuation, among other factors. Risk management is fully integrated into the investment process.
HSBC strengths
- HSBC has pioneered investing in Frontier Markets, with an almost 10-year track record having launched our strategy in February 2008
- Our experienced investment team has global perspective and local expertise, with access to the intellectual capital of our global network of investment professionals
Key Risks
- Exchange rate risk: Investing in assets denominated in a currency other than that of the investor’s own currency perspective exposes the value of the investment to exchange rate fluctuations
- Derivative risk: The value of derivative contracts is dependent upon the performance of an underlying asset. A small movement in the value of the underlying can cause a large movement in the value of the derivative. Unlike exchange traded derivatives, over-the-counter (OTC) derivatives have credit risk associated with the counterparty or institution facilitating the trade
- Emerging market risk: Emerging economies typically exhibit higher levels of investment risk. Markets are not always well regulated or efficient and investments can be affected by reduced liquidity
- Liquidity risk: Liquidity is a measure of how easily an investment can be converted to cash without a loss of capital and/or income in the process. The value of assets may be significantly impacted by liquidity risk during adverse market conditions
- Operational risk: The main risks are related to systems and process failures. Investment processes are overseen by independent risk functions which are subject to independent audit and supervised by regulators
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.