1Q 2021 Investment Outlook 14 Jan 2021

EXECUTIVE SUMMARY
Investment Analysis Highlights
 With the launch of Covid vaccines, it is expected
Asset Market Analysis# that the global economy and corporate profits
will rebound significantly in 2021. We believe
DM Sovereign Debt
that some stock markets which previously have
European and US IG Corp underperformed are likely to catch up. Portfolio
Fixed Asia IG Corp strategy should focus on diversifying investment
Income European and US High Yield to global; value and growth, traditional and new
Asia High Yield economy sectors should be equally emphasized
Latin America & EMEA  DM fixed income valuations are quite expensive,
US given central banks have little room for further
Europe rate cuts. This highlights the attractiveness of
Asia stocks over bonds, and encouraging investors to
revisit emerging market bonds and stocks with
Equities Latin America & EMEA
potential dividend growth
China A Shares
HK Listed Chinese Enterprises  For Mainland and HK stock markets, the Sino-
HK Listed Local/Foreign Corp US trade dispute has not ceased, Investors
should focus on growth sector whose business
As of 31 Dec 2020. The views expressed were held at the time of is dominated by China's domestic demand.
preparation and are subject to change. Meanwhile, local traditional companies in HK
Source: Hang Seng Investment Services Limited has good potential for valuation recovery, and a
# Symbol representation:
string of leading companies from new economy
: The particular asset / market potentially may perform well sectors has scheduled listing in HK, which shore
relative to the relevant major global benchmark(s). up for HK turnover and capital inflows
: The particular asset class potentially may perform in line
relative to the relevant major global benchmark(s).  For FX, although the yield of US Treasury bonds
: The particular asset class may not perform well or in line has risen recently, supporting the rebound of the
relative to the relevant major global benchmark(s). US dollar from a low level, the US Democratic
Party regained control of the Senate and House
of Representatives and the market looks forward
to more new relief plans. The Fed is expected to
increase the quantitative easing in the market
and therefore not favorable to the dollar in the
long term. We are more bullish on EUR and
commodity currencies
Last year the pandemic caused significant selloffs in investment markets in 1Q, but the eventual rebounds
have also been stronger than market expected, thanks to the aggressive reductions in interest rates by global
central banks, as well as various fiscal stimulus carried out by governments. After the November US
presidential election, many good news regarding Covid-19 vaccines has come round and gave another boost
to equities markets, especially the cyclical sectors which suffered the most previously.
Fund flows favored fixed income markets in 2020 thanks to central banks efforts on QE. Looking ahead, there
is very little room left for further interest rate reduction and fund flows are likely back to equities backed by
economic and earnings recovery. This highlights the attractiveness of stocks over bonds, and encouraging
investors to revisit emerging market bonds and stocks with dividend growth potential. Last year, due to the
economic recession and lockdown, mega tech companies have become the major investment picks and
outperformers. For one thing while the vaccines are rolled out gradually in 2021, economic sensitive cyclical
stocks such as materials, industrial, and financial sectors are likely to gain attractions. For another, investors
should not ignore technology sector as the world is rapidly moving toward digital economies. Consumption
over ecommerce platforms, awareness of the environmental and sustainability investments are the major
trends and where the future growth will come from. Artificial intelligences (AI) equipped factories,
environmental friendly autos and smart city, internet of things, big data and fintech are the major themes. In

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 1Q 2021 Investment Outlook 14 Jan 2021
addition, efforts by various governments to develop environmental infrastructure such as solar / wind power,
energy storage, electronic vehicles along with recharging stations, will drive demands for industrial related
metals and materials. Therefore, Portfolio strategy should focus on diversifying investment to global markets
(ie both DM and EM), with both value and growth style, while traditional and new economy sectors should be
equally emphasized.
On Mainland and Hong Kong stock market, China should continue to show economic strength, as it has quickly
walked out from the impact of Covid since 2H2020. 2021 is the first year of the Fourteenth Five-Year Plan, we
expect the Internal Circulation policy and New Infrastructure investments will benefit consumption stocks and
technology stocks further. For local Hong Kong stocks, travel restriction among Mainland, Hong Kong and
Macau are likely to be gradually released after vaccines’ rollout, helping the tourism spending and cross border
business activities in HK. Traditional banking, property, and financial service sectors could see valuation
recovery. Moreover, many leading companies in new economy sector are planning to complete the listing in
Hong Kong in 2021, and this will benefit the fund inflows to HK and improve market turnover.
On FX, although the yield of US Treasury bonds has risen recently, supporting the latest rebound of the US
dollar from a low level, the US Democratic Party regained control of the Senate and House of Representatives
and the market looks forward to more new relief plans. Investors should be prepared for further weakness in
USD, if the US Democratic Party launches large scaled fiscal stimulus. The US dollar index has retreated to a
lower 88-92 trading range in recent months. In our view, among FX, EUR still has a good upside potential after
Brexit deal has finally been confirmed. China-EU have reached “Comprehensive Agreement on Investment”,
and it is expected to facilitate the corporate investment between both sides and strengthen longer term
prospect of European economy, in our view. Other than EUR, we expect the commodities currencies to trade
higher this year, supported by global industrial growth and better demand for base commodities. However,
keep in mind that the development of Sino-Australian trading relationships could pose some risk to AUD.
Lastly, we also see upside potential for gold price amid the heightened inflation, low rates environment, and
recovery of real gold demands from emerging markets.
Having discussing positive prospects of the markets in 2021, investors should also be aware of several risk
factors. Although the deployment of vaccines is encouraging, the pandemic is still worsening in many areas of
the world right now. In case of any disruptions of vaccines inoculation process, it would be necessary to further
restrict social activities by governments and the timetable for economic recoveries will be below expectation,
and appetite for risk assets investment would be affected as a result. In particular, cyclical names which are
sensitive to economic outlook will bear the most impact. In addition, investors should pay attention that mega
cap tech companies are being further scrutinized by the regulators in many countries and facing antitrust
investigations. Although there is no immediate impact to their earnings, short term negative sentiment and
price corrections cannot be ruled out. Finally, if the Sino-US trade tensions are further escalated, there could
be impacts on investment and capital flows, and we might face a more volatile HK stock market.

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 1Q 2021 Investment Outlook 14 Jan 2021

2021 Forecasts 4

Equities

US 5
Emerging Markets (EM) 7
CONTENTS

Europe 9
Japan 12
China / Hong Kong 13

Global Bond Market 16

Currencies

DXY 18
GBP/USD 19
USD/XAU 20

AUD/USD 21

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 1Q 2021 Investment Outlook 14 Jan 2021

2021 FORECASTS
2021Full Year
EQUITY INDICES Forecast*
US S&P 500 4,200
NASDAQ 14,000
Europe Stoxx Europe 600 435
EM MSCI Emerging Markets 1,360
HK Hang Seng Index 29,000
Mainland HS China Enterprise Index 11,500
Hang Seng TECH Index 8,800
CSI 300 Index 5,500
Japan Nikkei 225 28,500

RATES
US US 10 Year Treasury 1.4%
Germany German 10-Year Government Bond -0.45%
China China 10-Year Government Bond 3.5%

CURRENCY
AUD 0.80
CAD 1.25
EUR 1.30
GBP 1.40
JPY 102
NZD 0.76

COMMODITIES
Gold (USD/oz) 2,100
WTI Crude(USD/barrel) 55
*Full Year Forecast is the high-end estimate from current quarter till the end of the year

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 1Q 2021 Investment Outlook 14 Jan 2021

UNITED STATES
INVESTMENT SUMMARY
- US equity market is likely to break into higher territory despite acting volatile
- Market rally is expected to broaden other sectors
- Investors eye on 2021 earnings to recover
- Fiscal stimulus and vaccines will be the market catalysts

US equity market is likely to break into higher territory despite acting volatile. The US equity markets went
through a roller-coaster ride in 2020 but ended on positive note. The COVID-19 pandemic-related shutdowns
resulted in a sharp recession and record-fast bear market. The equally quick “V-shaped” rally from the market
lows in March 2020 led by strong mega-cap growth stocks made US equities the outperformer among global
equities. As we entered 2021, US economy will still face significant challenges, as economic data is still weak,
and surging COVID cases and localized shutdowns raised a concern. But the recovery is expected to be in
progress with the anticipated distribution of vaccines and expectations for more fiscal stimulus.

Market rally is expected to broaden to other sectors. Positive vaccine development and clarity of US
President-elect Joe Biden’s smooth transition to leadership have improved the recovery outlook and provided a
strong boost to investment sentiment. The rally in 2020 was mainly supported by technology and healthcare
sectors. With loosening monetary policies maintained by the Fed, and more fiscal stimulus by the new Biden
government, we believe the economic recovery will take place. The current market rally will broaden to other
sectors. Financial markets will focus on vaccine deployment, fiscal stimulus from new government under Biden,
and corporate earnings recovery. All in all, this supports US equity markets to continue its bull market into 2021.
Environmental protection will be a key theme for the year.

Investors eye on 2021 earnings to recover. The damage to profitability caused by the coronavirus and
widespread lockdown measures led to a record decline in US corporate earnings in 2020. According to Refinitiv’s
latest forecast up to 31st December 2020, average EPS dropped by -15.3% yoy on average in 2020, but is
expected to increase by 22.5% yoy in 2021. With the distribution of vaccine and improving economic momentum
over the coming months, the economic and earnings impact from the pandemic is expected to be less severe
heading to the first and second quarter of the year, which are the positives investors eye on. Recovery will be
found across the board in all sectors, but stronger earnings growth will be found in energy, materials, industrials,
and consumer discretionary.

Fiscal stimulus package will be the market catalysts. Despite a struggling economy (high unemployment and
weak GDP growth), investors chose to focus on US markets’ upside potentials. While the US equities are trading
at 21.7x of 2021 PE not in cheap valuations, a vaccine or effective treatments to minimize both the spread and
fear of the coronavirus along with a generous stimulus program implemented by the government remain to be the
US equities’ strong catalysts. On the other hand, another wave of pandemic outbreak not being able to contain,
or any delay by the government on fiscal stimulus could serve as headwinds to the markets.

Sector Outlook
Technology: Our sector preference for technology related companies is still intact. We believe the three key
themes in technology of positive earnings outlook, pick-up in technology spending, and sufficient liquidity
environment that traditionally benefit growth companies with strong fundamentals will continue in 2021. We expect
technology-related sectors with resilient earnings to hold up well. Adoption of technology by different sectors will
be at an accelerated pace with the still elevated COVID-19 cases across the globe. We favour technology sector’s
long term structural growth prospect, including the development of AI, 5G, healthcare and new technological
applications. However, high valuations, anti-trust regulations concentrated leadership among a few mega-cap tech
companies may become the reasons for a pullback in the overall market (led by technology and the other highly
concentrated growth sectors), we therefore suggest a balanced and buy-on-dip approach.

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 1Q 2021 Investment Outlook 14 Jan 2021
Materials: US Materials sector includes chemicals, construction materials (e.g., bricks, cement), containers and
packaging (e.g., metal, glass, plastic, cardboard), forest products (e.g., lumber, paper), and metals and mining
(e.g., aluminum, steel, copper, gold, silver). Mining companies should be beneficiaries during an early recovery
economic cycle. Among all commodities, we considered copper being backed by strong fundamentals. Copper
prices should have support as China’s new infrastructure plan will stimulates demand, and supply disruptions at
important copper mines in Latin America should reduce supply. One strong catalyst on strong secular growth in
copper will be on production of electric vehicles and the necessary charging infrastructure. According to the latest
forecast, copper demand on production of one electronic vehicle would take 3-4 times more copper than a normal
car. We anticipate robust secular growth in electronic vehicle and devices, and thus will drive demand for copper.

Industrials: The US industrials sector, includes aerospace and defense, building products, electrical components
and equipment, construction machinery, and transportation, suffered significantly from the global economic
recession due to COVID 19. Capital expenditures for these companies have slowed down during 2020 and airlines
are still struggling. Our preference for industrials is underpinned by three reasons: a laggard, stronger earnings
expectation in 2021, and a beneficiary of early economic recovery. According to Bloomberg data, earnings from
S&P500 Industrial Index are expected to recover, with earnings growth expected to drop by 32.5% yoy in 2020
and up by 55.1% yoy in 2021.

Risk considerations: 1) Further escalation of tensions between China and US; 2) slowdown of economic growth
from Coronavirus impact; 3) further slump in oil prices; 4) geopolitical risks in Europe and the Middle East; 5)
monetary policies of the Federal Reserve differ from market expectations; or the Fed sending unclear signals to
markets; and 6) the outbreak remains around the globe; 7) vaccine deployment not able to contain the virus; 8)
pullback risk from the largest mega cap stocks that could lead to a broader market decline.

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 1Q 2021 Investment Outlook 14 Jan 2021

EMERGING MARKETS (EM)

INVESTMENT SUMMARY
- Emerging Markets (EM) equities 4Q rally surpassed developed markets
- Economic recovery and environmental secular policy benefits EM assets
- Liquidity and weakened USD boosted EM equities
- Pandemic worsening is still critical to EM

Emerging Markets (EM) equities 4Q rally surpassed developed markets. After the US presidential results
became clear, along with the breakthrough in vaccines developments news and the heightened inflationary
expectations, the risk appetite of the markets has risen. Since last November, despite still severe pandemic in
certain EM, capital started flowing into economically sensitive EM equities. EM equities performed well in the 4Q
with the MSCI Emerging Markets Index outperforming the MSCI World and MSCI Global All World Markets Indexes.
It has even surpassed the US equities markets and the MSCI Asia ex Japan Index. Among the MSCI EM indexes,
MSCI Latin America Index and MSCI Eastern Europe Index have contributed quite a lot to the overall rallies in EM.

Economic recovery and environmental secular policy benefits EM assets. Based on the different
performances among the MSCI indexes, we can see that those EM economies sensitive to recoveries and
depending on commodities / resources are beginning to benefit from the recovering economic outlook. In fact, in
addition to the economic recovery expectations, certain secular trends are also beneficial to industrial metals, e.g.
the largest economies (US China, EU and UK) are carrying out environmental policies. All of them are supportive
in the development of environmental infrastructure such as solar / wind power, energy storage, electronic vehicles
along with recharging stations, which will drive demands for industrial related metals, with copper as the most
benefited one. The International Copper Association (ICA) forecasted in its latest report that demand for copper
can rise from 2,700,000 tons from 2019 to 4,800,000 tons in 2025, potentially a 70% increase, due to the excellent
electricity transmission which can boost efficiency being reusable as materials for environmental friendly autos and
smart city technology. This has been driving some of the Latin America markets to a certain extent. In contrast,
despite the strong rebounds in oil prices during recent months, oil prices still face obstacles such as the discussion
over production cuts by the oil producing nations and challenges from the shale gas and alternative energy
industries. Outlook is less clear thus making the Russian market heavily weighted Eastern European index trailing
behind the Latin America index.

Liquidity and the USD remaining in low level benefit EM assets. Expectations of further actions by the US Fed
rose during the 4Q. The President of the European Central Bank also committed to very monetary loosening. In
addition, as the US election results become clear, along with factors including the UK and the EU reached a Brexit
trade agreement, China and the EU reached an investment agreement, and the vaccines becoming available, the
uncertainties facing the markets diminish and becomes supportive to global trades, thus benefiting economies of
the EM. Coupled with the unprecedented monetary and fiscal stimulus weakening the USD over the mid to long
term horizon, capital is in search of investment opportunities in non USD assets, which also lightens up the burden
of external debt on EMs. Therefore, the risk appetite of the investors is rapidly rising and causing capital flows from
risk averse assets to risk assets. According to data from Bloomberg, inflows to EM Exchanged Traded Funds (ETF)
has increased to new high since January 2020. Amble liquidity is expected to favour EM assets.

Pandemic worsening is still critical to EM. In addition to the ongoing pandemic situation in certain EM countries,
some also encountered the newly found Covid variant reported in some cases. Although the vaccines have been
ordered or approved in many EMs and huge dispatch exercise is expected to begin this year, concerns over the
severity of the pandemic and the priorities in distributions given to developed countries have raised doubts over the
sufficiency of supplies to EMs’ needs. We believe it will take some time for huge dispatch of vaccines and full
economic recoveries causing risks in markets amid the disappointed expectations.

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 1Q 2021 Investment Outlook 14 Jan 2021
Regional Outlook
North Asia: Although there are an increasing number of confirmed cases of Covid 19 in EMs, most Asian countries
have managed the pandemic to a certain extent and we believe their economies will recover soon. The ability to
manage the pandemic and the compositions of stock indices are the key differences among Asian markets last
year with China and South Korea standing out as winners. For this year, domestic demand from China, economic
recoveries and ongoing demands of technology will also benefit the exports of North Asia. Strong and recovering
demands of chips have driven the South Korean and Taiwan markets to historical highs recently.

ASEAN and South Asia: Other Asian regions are different. For example, in the cyclicals heavily weighted
Singaporean equities market, its major index has dropped 11% last year. The severe pandemic in the Philippines
also has dragged down its equity index by about 9%. The tourism industry is still far from recovering and countries
in the South East Asian region depending on tourism will benefit less than those depending more on exports in
Asia. Outlook for Indian equities, benefiting from inflows, is relatively better despite high inflations. Policies support
has been vital and is expected to continues this year. As revealed by its consecutively improving manufacturing
PMI over the last four months, economic recovery is expected amid the deployment of vaccines.

Latin America: Brazil equity market has the heaviest weighting among all countries in the regional market index
and is also one of the worst hit countries in the world during the pandemic. Amid the expectation of global economic
recoveries, Brazil equities performed strongly last quarter, but only managed to have close to break even for the
whole year, despite significant volatility of 55,000 points for its major index. The economy is still facing challenges
with unemployment rate close to the high level of 14% with consumer confidence dropping three months
consecutively since October last year. However, with the iron ore prices reaching a nine years high and Brazil
being one of the largest iron ore producing countries globally, it will benefit through related industries.

Risk Considerations: 1) Political, liquidity, and currency risks could increase rapidly; 2) Fluctuation in oil /
commodity / agricultural prices; 3) Escalations in global trade conflicts could dampen growth; 4) Another “U-turn”
on the policy stance of the US Federal Reserve, weighing on EM currencies; 5) The coronavirus outbreak continues
around the globe.

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 1Q 2021 Investment Outlook 14 Jan 2021

EUROPE
INVESTMENT SUMMARY
- Good news on COVID-19 vaccine research and development help Europe economy to get back on track
- Investors eye return to value stocks and cyclical stocks. European stocks may catch up this year
- Strong demand from China and the United States is expected to boost European exports and benefit the
performance of industrial, mining and exporters
- The development of the pandemic is still the biggest uncertainty facing investors

Good news on COVID-19 vaccine research and development help Europe economy to get back on track.
Affected by the second wave of the pandemic last summer, the pace of economic recovery in Europe was
interrupted, and the Eurozone Composite Purchasing Managers Index (PMI) fell from 54.9 in July to 45.3 in
November. Hit by the second wave of the pandemic, the Eurozone economy is expected to shrink significantly in
the fourth quarter of 2020. However, due to the decisive decision on the implementation of lockdown measures
by many European countries, the number of new confirmed cases in Europe has started to decline in the fourth
quarter. The Composite PMI also rebounded to 49.1 in December, which is close to the 50 mark that separates
growth from contraction. At the end of last year, many pharmaceutical companies have achieved promising results
in COVID-19 vaccine research and development. The European Medicines Agency had granted the vaccine
developed by Pfizer and German BioNTech a conditional marketing authorization. In fact, the European Union
has already made vaccine reservations with several pharmaceutical companies which enabled European
countries to obtain vaccines earlier and carry out large-scale vaccination plans, assisting European governments
to control the pandemic more effectively, and help Europe economy to get back on track.

Investors eye return to value stocks and cyclical stocks. European stocks may catch up this year.
Supported by the low base effect and the global economic recovery, corporate earnings are expected to record a
strong rebound this year. According to Bloomberg, analysts expect the Stoxx Europe 600 index 2021 earnings per
share to grow 36% yoy, which is higher than the 22% growth of S&P 500 index and 33% growth of the MSCI
Emerging Market Index. In addition to strong earnings growth, the valuation of European stocks is also cheaper
than that of US stocks. The forward 12-month P/E ratio of Stoxx Europe 600 index relative to the S&P 500 index
is now at 0.79. It is about minus two standard deviations from the average of the past 15 years. The rising
expectation in the global economic recovery has lifted the inflation expectation. The rise in bond yields has
prompted a renewed focus on value/cyclical stocks. With relatively cheap valuations, a heavier weighting towards
cyclical sector and higher expected earnings growth, European stocks may catch up this year. Major central
banks around the world are likely to maintain low interest rates this year to support economic growth. The Stoxx
Eurpe 600 index has a forward 12-month dividend yield of 3%. In the future, if the European Central Bank lift ban
on European bank dividends and share repurchase, it may boost the dividend yield to go higher. The dividend
yield offered by European stocks is attractive to income investors in current low interest rate environment.

Strong demand from China and the United States is expected to boost European exports and benefit the
performance of industrial, mining and exporters. After the interest rate meeting in December, the European
Central Bank announced that it would increase the scale of the " Pandemic emergency purchase programme"
(PEPP) to 1,850 billion Euros and extended PEPP by nine months to at least the end of March 2022. The low
interest rate environment and loose fiscal policy provide the foundation for the recovery of the European economy.
In terms of fiscal policy, the leaders of EU countries have passed the seven-year budget including the 750 billion
Euros recovery fund to provide funds for large-scale spending plans, and the consumer sector may benefit from
government economic stimulus measures. With the popularization of vaccinations, tourism demand may re-
emerge, driving a rebound of earnings in retail, tourism, and consumer sectors. In addition, the US Congress
finally passed a new stimulus package at the end of last year. President-elect Joe Biden promised to roll out more
economic stimulus packages after the presidential inauguration which will support the US consumer demand.
Also, Biden advocates multilateralism and US-Europe trade issues are expected to be eased. In addition, China
is one of the first countries to control the pandemic. Economic data shows that the Chinese economy is recovering
steadily. The United States and China are the EU's first and second largest exporters outside Europe. Strong

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 1Q 2021 Investment Outlook 14 Jan 2021
demand from China and the United States is expected to boost European exports. Favor the performance of
industry, mining and exporters.

The development of the pandemic is still the biggest uncertainty facing investors. Although many countries
have rolled out vaccination programs, the development of the pandemic is still the biggest uncertainty facing
investors. Recently, a virus variant with a higher transmission rate has appeared in the UK, and the pandemics in
the US and the UK are still not under control. The worsening of the pandemic will become the main obstacle to
the recovery of the European economy. The flow of news may cause the market to become volatile. In addition,
the appreciation of the euro should be monitored. Euro has risen nearly 15% against the US dollar since March
last year. The rapid currency gains may cut import prices and weaken inflation, increase the risk of continued
weakness in inflation, and making exports from the Euro area less competitive. However, historical data shows
that during the period of Euro appreciation, European stocks denominated in US dollars tend to outperform global
stocks.

Regional Outlook
Germany: Germany is managing the second wave of Covid-19 better than its European rivals. In addition, its
economy is relatively less dependent on industries affected by the pandemic, such as tourism and China's
economic recovery stimulate German export demand. The progress of the German economic recovery and even
the performance of stocks outperformed Europe. Germany’s Purchasing Managers Index is now higher than that
of Europe as a whole. Apart from the recovery of the manufacturing industry and the support gained from the
exports to China, the German government’s debt-to-GDP ratio is relatively low, giving fiscal flexibility to launch
fiscal stimulus to offset the negative impact of the lockdown. The Federal Republic of Germany - Finance Agency
plans to sell as much as 471 billion Euros ($576 billion) in bonds and bills exceeding a previous high of 407 billion
Euros sold last year. The debt issuance includes funding for two special vehicles -- the Economic Stabilization
Fund to counter the fallout from the pandemic and the Financial Market Stabilization Fund, set up during the
financial crisis in 2008. The government is actively implementing economic stimulus programs which give support
to the German Purchasing Managers Index to continue to lead its Europe rivals. It is expected that the performance
of the German equities can also maintain its leading position. However, after the vaccination, the service industry
is expected to record a stronger rebound than the manufacturing industry, and the leading edge of German equities
may reduce in the future.

UK: The UK finally clinched a historic trade deal with the European Union at the end of last year. In the future,
there will be zero-tariff, zero-quota trade in goods between Britain and the EU -- but very limited provisions for
services firms, which account for 80% of the U.K. economy. However, the agreement relief the main concern of
UK's "hard Brexit" which is favorable for the fund inflow to the UK equities. The pandemic remains the biggest
challenge to the UK’s economic recovery. New variant of virus in UK cause surge of COVID-19 cases. However,
as more and more vaccines are approved for use by UK regulators, economic activities are expected to gradually
return to normal, and the heavy weight of service industry of UK economy has the potential to rebound. The UK
equities has a higher exposure on cyclical sectors, such as energy, financial and industrial sectors, which are
expected to benefit from the economy recovery after the pandemic. In addition, the forward 12-mont P/E of UK
FTSE 100 index relative to the MSCI world is at 0.72 which is close to a 15-year low. The valuation of UK equities
is more attractive than global equities. The UK equity market, which underperformed last year, is expected to so
some catch up.

Italy: Italy is one of the European countries hit hardest by COVID-19. Bank of Italy governor Ignazio Visco predicts
that Italy's GDP will not recover the level it had before the pandemic until the second half of 2023. Tourism
accounts for about 20% of Italy’s GDP. With the start of the vaccination program, the tourism industry is expected
to gradually recover in the second half of this year, accelerating the pace of Italy’s economic recovery. Coupled
with the approval of the EU Recovery Fund, it will provide the Italian government with funds to continue and is
expected to increase existing economic stimulus measures. According to Bloomberg, Italy will be the top
beneficiary of EU recovery fund. Recovery fund brings EU one step closer to fiscal union, investor optimism toward
the Italian bonds debt is seen as a vote of confidence for the Euro area. In addition, Italian government bonds also
received support from the European Central Bank's " Pandemic emergency purchase programme ", making Italy
the best-performing bond market in the Eurozone last year. In fact, Italian bonds have the highest yield among

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 1Q 2021 Investment Outlook 14 Jan 2021
investment-grade bonds in the Eurozone, and as global interest rates remain low, forcing fixed income investors
to seek better prospects in other assets. It is expected that the interest rate spread between Italy and Germany
will continue to tighten this year.

Risk Considerations: 1) The worsening of the pandemic in Europe; 2) rapid appreciation of Euro affects
Eurozone exports; 3) Rising tension in the trade negotiations between Europe and the United States; 4) Scottish
independence back in spotlight.

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 1Q 2021 Investment Outlook 14 Jan 2021

Japan
INVESTMENT SUMMARY
- Japan stock market had a strong fourth quarter and throughout 2020 were supported by fund flows
- The Bank of Japan (BoJ) keeps monetary policy loose, but economic growth in Japan remains mixed
- Strengthened Yen continues to hurt exports; outlook for Japan remains unclear in 2021
- The most recent wave of the pandemic might jeopardize the Tokyo Olympics of Japan

Japan stock market had a strong fourth quarter and throughout 2020, supported by fund flows. The Nikkei
225 Average was very volatile due to the pandemic, fluctuating between 16,200-24,000 during the first three
quarters of last year. However, the fourth quarter started to be strong as the index surged by more than 4,500
points to its highest level in more than 30 years, on the back of good news from vaccines and the prospect of
economic recovery. The Topix index rose 4.8%, but the Topix Second Section Index, which represents small and
mid-cap local stocks, fell 9.6%. We continued to see inflows into Japanese stocks in the fourth quarter of last
year, with overall inflows of more than US$30 billion so far throughout last year, up from US$500 million in 2019.
The Bank of Japan (BoJ) keeps monetary policy loose, but economic growth in Japan remains mixed. In
The Bank of Japan (BOJ), as expected, kept its target for 10-year Treasury bond yields near 0%, and maintained
its purchases of ETFs and real estate investment trusts (J-REITs) in the last meeting. The special financing aid
for pandemic was extended to the end of September 2021. If necessary, BOJ will consider further expanding the
pandemic policy to assist local SMEs. Although the assessment on business sentiment has been upgraded, the
bank is still cautious on the overall Japanese corporate outlook. The BoJ’s Tankan survey also showed that
sentiment in Japan's large manufacturing sector had rebounded sharply from -27 in the third quarter to -10 in the
fourth quarter, the second straight quarter of improvement and the strongest rebound in nearly two decades. In
the same period, sentiment in Japan's large non-manufacturing sector also recovered to -5 in the fourth quarter
from -11 in the third quarter. The report said that Japan's economy may be gradually recovering from COVID-19.
But the outbreak caused people to stay at home, and consumer confidence is still being affected. Thus
consumption is believed to remain weak in the first half of this year and there will probably be no quick recovery.
Strengthened Yen continues to hurt exports; outlook for Japan remains unclear in 2021. The dollar
weakened last year, with USDJPY rising to around 104 from 112. While Yen’s strength could have an impact on
export companies, Japan's exports fell 4.2% year-on-year to 6.11 trillion yen in November, the 24th straight month
of declines since December 2018.Vaccinations could begin as early as March, and Japanese officials have said
they expect to vaccinate all their citizens in the first half. If the pandemic abates, Japan is expected to host the
Olympics, which is expected to boost the economy. In December 2020, Japanese Prime Minister Yoshihide Suga
unveiled a new round of stimulus package worth 73.6 trillion yen to protect jobs, support businesses and boost
the economy. However, a number of research organizations, such as the IMF and OECD, are forecasting growth
in Japan of only 2.3% by 2021, which falls short from the latest Japanese official’s optimistic forecast at 4%.

The most recent wave of the pandemic might jeopardize the Tokyo Olympics of Japan. In general, the
current economic forecasts have factored in the 2021 Tokyo Olympics to be held this year. However, the most
recent wave of the pandemic has increased the chance that the Olympics be cancelled or postponed again. This
would certainly have significant negative effect on the Japanese economy and further drag down the economic
growth of Japan. In addition, the consumer confidence has deteriorated for the first time in 4 months in December
and the assessment by the government of the consumer confidence index has been revised lower, with the service
sector activity continues to go downhill remaining in contracting zone for 11 months consecutively. Local activity
of consumer in the hospitality and restaurants industries have all started to contract. Previously established “Go
to Travel” programmes for lifting the tourism have been suspended across the nation. Investors should watch out
the pandemic development.

Risk Considerations: 1) Another wave of pandemic; 2) delay of vaccination schedule; 3) another delay of Olympic
Games ; 4) slow economic recovery in Japan; 5) the pandemic adds to the country’s already huge debt; 6) strong
yen weakens competitiveness in exports; 7) aging population; 8) rising unemployment rate; 9) stagnant trend in
tourism.

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 1Q 2021 Investment Outlook 14 Jan 2021

CHINA / HONG KONG

INVESTMENT SUMMARY
- HK & China stock markets are expected to benefit from the further recovery of corporate earnings
- Traditional sectors are bottoming out and outlook is improving
- With vaccines becoming available, the pandemic in Hong Kong has a better chance to be under control and
HK economy could rebound
- Tech and biotech companies will continue to seek listing in Hong Kong and more capital is likely to be drawn
into the HK stock market
- PBOC monetary policy might tend to be neutral or slightly tightened

China’s economic recovery and corporate earnings improvement would drive the market. Entering 2021,
the Chinese economy is recovering steadily, the manufacturing industry continues to pick up, and the consumer
market is booming. China has signed two major trade agreements with Europe and Southeast Asia, which will help
establish a new order for foreign trades and further consolidate investors confidency in the recovery of the Chinese
economy. According to the latest forecast by the International Monetary Fund (IMF), China's GDP is expected to
grow by 7.9% yoy in 2021, which is the fastest-growing country among the major economies. It will thus continue
to be a focus for international investors. In fact, back in 3Q20, A-shares corporate earnings have turned back to
positive growth and recorded ~10% yoy earnings rebound. It is expected that the earnings recovery trend would
extend into 1H2021, which will support Hong Kong and A-share market.

Fundamentals of traditional economy stocks are improving, while earnings of technology stocks are still
strong. Technology stocks and traditional stocks have rebounded in 2020. In June, technology stocks took
advantage of the return of US-listed Chinese concept stocks to Hong Kong and outperformed many sectors.
However, near the end of 2020, vaccine research and development made significant progress, attracting liquidity
back to these traditional sectors. Earnings recovery for the traditional stocks is expected to remain for some time
into 2021. Currently, market estimates earnings of financial, consumption discretionary, industrial and resource
stocks in both HSI and CSI300 Index would experience significant rebound in 2021. The relatively low valuation,
together with earnings rebound, are likely to attract more market attention in 2021. For technology sector, despite
rising policy risks, earnings growth remains strong. It is no doubt that technology sector continues to be market
focus.

Vaccine will be available to HK in February. Market eyes on the HK economy reopening. Adversely affected
by the virus, HK visitors fell 93.2% yoy to 3.56mn in the first 11 months of 2020. Consumption related industries,
such as tourism, catering, hotel and retail, are suffering. Social distancing measures further dampen the recovery
of HK economy. Even so, HKSAR government estimates that vaccine will be available in February 2021. If vaccine
is injected in large scale, the pandemic might gradually stabilize. China, HK and Macau governments might further
ease the cross border restrictions. HK visitors’ arrival is likely to rebound, speeding up HK economic recovery.
Local stocks might enjoy market’s revaluation, especially HK property, leasing landlord and REITs, transportation
and HK financials.

More technology and biotech IPOs would attract liquidity in HK stock market. US passed legislation that
could force Chinese companies to delist from US exchange if not able to meet US audit requirements. The
uncertainty of China and US dispute is likely to trigger more ADRs to return to HK stock market. On the other hand,
it is expected more technology Unicorn companies, biotech companies and technology giants’ spin-offs will
become publicly listed in HK. The increasing exposure to new economy stocks and potential expanding coverage
of Stock Connect Scheme would attract more capital inflow to HK, boosting the liquidity.

Consumption will be economic growth driver in 14th Five Year Plan. Internal Circulation is included in 14th
Five Year Plan, and China government initiated “demand-side reform”, which targets to reduce the influence by
overseas supply and demand, and optimize income distribution structure of the Chinese. Expanding the number
of middle class could enhance overall purchasing power and demand, which in turn could drive domestic
consumption as well as the Chinese economy. In late-2020, State Council indicated it would launch new round of

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 1Q 2021 Investment Outlook 14 Jan 2021
consumption stimulus measures in early 2021, including “Automobile Go to Countryside” policy and subsidies on
purchasing smart home appliances. Although State Council hasn’t announced the details, market expects the
stimulus to sustain sales growth of auto and home appliances in 2021. At the same time, the Chinese government
emphasizes sector transformation and upgrade. New energy, high-end equipment, biotech, etc become
strategically important industries to support the long-term and sustainable economic growth in China. This would
be long term positive to China stocks.

PBOC monetary policy might tend to neutral or slightly tightened. For monetary policy, PBOC adopted
relatively loose easing measures, including lowering RRR and loan prime rate. Yet, China’s economic recovery is
on track and Central Economic Work Conference in December 2020 did not mention “economic downside
pressure” anymore, hinting that PBOC is unlikely to further loosen monetary policy in 2021. Central Economic
Work Conference confirmed the stable monetary policy and emphasized policies not to have sharp turns.
Therefore, under the global pandemic and uncertainties from China-US dispute, it is believed that PBOC would
not easily tighten the liquidity. Market expects monetary policy in 2021 to be largely stable or just marginally tight.
More targeted monetary policy is expected to be introduced to guide liquidity flowing into economy.

Risk Considerations: 1) Pandemic persists; 2) speed of vaccines rollout; 3) Sino-US tension escalation; 4)
slower-than-expected HK economic recovery; and 5) unexpected tightening in PBOC monetary policy, negatively
impacting on asset prices.

Sector outlook
Hong Kong Property: Despite the 4th wave of pandemic and social distance measures, the contract value of first
hand residential property was up 18.4% to HK$23.4bn. Some developers launched high quality new projects in
2H20, and resulted in oversubscription and price hike, which indicated that shortage still prevails. More importantly,
global low interest rate environment and abundant liquidity also helped stabilize HK property market. When it
comes to HK property sector, family business dominates. Yet, most of them have already completed their
succession planning, and new management brings about reform, which will help expand new businesses and drive
earnings growth. HK property sector is well-known for low gearing ratio, and abundant financial resources will help
deal with this appalling conditions. The Big Four trades at ~56.5% discount to NAV, with dividend yield ~5.3%,
which is undemanding, Consensus believes the situation will be under control once vaccine becomes available,
and earnings visibility will thus improve.

Hong Kong leasing landlord and REITs: At present, HK leasing landlords focus on the operation of high end
shopping malls and office, which are deeply affected by the coronavirus. Yet, vaccine will be available in HK, and
market believes the worst is already over. Meanwhile, with the ramp up of Stock Connect, home-coming of ADRs
to HK, and Bond Connect, and that more financial institutions will set up branches in HK, demand for high quality
offices will grow stronger. For the REIT sector, policy address indicated the potential relaxation of the investment
restrictions of REITs, and consensus believe it will improve the flexibility to invest and raise gearing ratio. Over the
past few years, some REITs actively participated in China and overseas M&A with decent results, which indicated
strong execution capabilities, and M&A will become another growth driver.

Macau gaming sector: Gross gaming revenue (GGR) fell 65.8% yoy in December 2020 but rose 15.9% mom.
For full-year 2020, GGR declined 79.3% but market forecasts to rebound in 2021. Vaccines will be soon available,
and the existing travel restrictions among Mainland, HK and Macau is expected to gradually relaxed. Moreover,
the resumption of self-service kiosk at border control will boost tourist arrival, and the sector will show strong
growth due to the low base effect in 2021. Better still, new projects will be launched this year. Thanks to the
upcoming opening of several new transportation infrastructures. Operating 24 hours a day, Hong Kong-Zhuhai-
Macao Bridge make the transportation time between HK to Macau shortened to 45 minutes, and major cities in
the Pearl River Delta within a three hours' commute. Macau has competitive advantages in terms of accessibility.
At present, Macau gaming sector trades at FY21E EV/EBITDA ~16.8x, compared with past 3-year ~20.8x, the
valuation is undemanding.

Financials: The Chinese insurance industry continued to recover in the second half of 2020 but the progress was
slow, and sales activities are gradually returning to normal in recent months. In addition, in December, the 10-year

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 1Q 2021 Investment Outlook 14 Jan 2021
China government bond yield was at 3.2% and its performance was stable. This will help support the increase in
the reinvestment rate of the insurers' bond portfolio and the reduction of reserve charges, both of which are good
for earnings performance. As for the Hong Kong insurance business, which is dominated by Mainland customers,
its performance has lagged due to the pandemic situation and border restrictions. If travel restrictions are loosened
between Mainland and Hong Kong, the HK insurance industry will benefit from the pent-up demand for financial
services from Mainland customers. In addition, the upcoming Cross-border Wealth Management Investment
Scheme will help Hong Kong financial institutions to participate in the opening up of the financial sector in China,
which will benefit the development of the cross-border financial industry in the long run.

For China banking sector, most bank loans were already shifted to loan prime rate (LPR) pricing, thus the negative
impact on changing loan rate pricing is diminishing. Also, LPR as well as RRR have not been cut in recent months,
showing that PBOC might not further ease monetary policy in 2021. In contrast, PBOC might exit the currently
loose policy stance and marginally tighten the liquidity. This potential move could ease China banks’ net interest
margin pressure. Moreover, the Chinese government is strengthening the regulation on internet financing platform
which would alleviate the competition against traditional banks. Market expects the worst to be over for China
banking sector and estimates earnings to resume positive growth in 2021.

Healthcare: The new National Reimbursement Drug List negotiation was completed in end-2020. Media reported
that the price of PD-1 mAB is higher than market expectation, boosting sector sentiment. We believe drug price
reduction would be the long-term trend and drug makers have to speed up transformation into first-to-market
generic drugs and innovative drugs. Therefore, share price performance of pharmaceuticals will diverge and drug
makers with rich R&D pipeline are expected to outperform. On the other hand, drug makers will spend more on
R&D which is positive on contract research organization (CRO) which is forecasted to have robust earnings growth.
For internet healthcare sector, government confirmed to strengthen the sector development. More detailed
regulatory guideline is likely to be introduced to help the development of internet healthcare industry.

Consumption: Recently, the central government announced the strengthening of anti-monopoly task, which
greatly affected the investment sentiment of the e-commerce sector. However, the sector’s overall expansion pace
has not slowed down. In particular, e-commerce companies invested heavily in logistics facilities in the early years,
and their profitability has improved in recent months. More importantly, the delivery capacity of its logistics system
has been expanded to third- and fourth-tier cities and also remote rural areas. These areas are collectively known
as the sinking market, which currently enjoys the greatest growth potential in the China consumer space. One of
the focuses of the upcoming 14th Five-Year Plan is to promote rural employment and stimulate rural consumption.
The market predicts that the value of the entire industry will increase significantly in the next few years. As for
retailers that adopt the product premiumization strategy, such as sportswear, beer and dairy companies, they
continue to increase research and development and expand their scale advantages. The industry profit margin is
expected to gradually improve as the Chinese economy recovers.

Technology: In terms of mobile games, large game developers are ready for 2021 and will launch a wide range
of new games. For example, turn-based strategy games have become popular recently, and their themes are
mostly based on the scene of two battles of simulated wars, which has become the focus of game development.
For overseas, penetration rate of domestic games is increasing, and the European and American countries are
still at the peak of the pandemic. Therefore, demand for online games remains high. It is expected that more
mature game developers with overseas exposure will benefit more. In terms of hardware, 5G handset replacement
is just beginning in China. In recent months, 5G handsets accounted for more than 60% of China's mobile phone
shipments, reflecting that mobile phone manufacturers are active in seizing the opportunity. The current 5G
handset replacement cycle is expected to continue into 2021. The market expects that mobile phone
manufacturers with advantages in 5G functions, pricing and market positioning would gain more market share.

HK Utilities: HK electricity sector is protected by Scheme of Control and their earnings are based on net fixed
asset. Their CAPEX plan would drive their long-term earnings growth. However, under global low-interest rate
environment, overseas utility assets are facing re-pricing pressure at price reset. For HK and China water sector,
Guangdong and HK government are planning to sign the new 3-year water supply agreement. Water price
increment is higher than market expectation and the new agreement also introduced the new water price deduction
mechanism which will largely reduce the long-term political uncertainty.

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 1Q 2021 Investment Outlook 14 Jan 2021
BONDS
INVESTMENT SUMMARY
- Accommodative monetary environment maintained in US, Treasury yields will follow the pace of economic
recovery
- Asian USD bonds offer better risk-adjusted return which attracts funds inflow
- The European Central Bank increases QE scale, accommodative environment is expected to last longer
- Market risk appetite rises, causing inflow of funds into emerging markets

Accommodative monetary environment maintained in US, Treasury yields will follow the pace of economic
recovery. Some of the market uncertainties were eliminated after the US presidential election came to an end
and some vaccines against coronavirus were approved in Dec 2020 which leads to a rapid increase in investors’
risk appetite. Moreover, in mid-Dec 2020, the US Congress approved a USD900 billion plan to help the US
economy weather the coronavirus pandemic, along with USD 1,400 billion of new regular government funding,
which further boosted the investment sentiment and supported the uptrend of long-term treasury yields. In the
latest FOMC meeting, the Fed kept the Fed Fund rate unchanged and reiterated that it will continue to buy at least
USD80 billion of Treasuries and USD40 billion of mortgage-backed securities a month until substantial further
progress has been made toward the Fed’s goals of maximum employment and stable inflation rate. The Fed also
revised down their previous estimates on unemployment rate which was expected to end 2020 and 2021 at 6.7%
and 5% (down from 7.6% and 5.5% previously) respectively due to better prospect in the US economy. The Fed
may reduce their bond purchasing scale if the economy is growing at a faster pace than expected and this may
pull up the long-term yields and increase volatility of long-term bonds. Looking forward, investors will focus on the
pace of economic recovery. If vaccines against coronavirus function well, US treasury yields may extend its
uptrend and lead to further steepening of yield curve.

Asian USD bonds offer better risk-adjusted return which attracts funds inflow. Asia has a better containment
of coronavirus than Europe and US which leads to a quick recovery in industrial activities and provides momentum
to economic growth in Asia. The major central banks in the world maintain policy rates at very low levels, giving
international investors more incentive to seek income outside developed markets. Currently, Asian dollar bonds
offer relatively higher yields than bonds in the US and Europe with shorter duration on average which help driving
capital inflows due to better risk-adjusted return. On the other hand, tightening of China’s regulations and
alternative USD refinancing channels from banks, market expects that the net issuance of new bonds by Asian
companies this year will not increase significantly, which technically supports the performance of Asian credits.

In mainland China, the market sentiment was adversely affected by a series of corporate defaults recently.
Investors are currently demanding a higher risk premium towards onshore state-owned investment grade bonds
and results in a rise of yield of relevant bonds. As the scale of China’s onshore bond market is getting larger, the
government may allow more companies which are in trouble to default or restructure. Therefore, it is expected
that the number of default in onshore bond market will increase this year, but the situation is still manageable. On
the other hand, in order to maintain investors' confidence in the credit market, PBOC has recently injected a large
amount of liquidity into the credit market and resulted in a decline in bond yields. In addition, the government
emphasized the need to maintain support for economic recovery, and that there is no rapid change in policy, which
is a positive sign for the bond market. In terms of industry, the fundamentals of Chinese property sector are still
relatively stable. This industry is transparent as well since most of the property developers are listed companies
which publish sales figures on a monthly basis. It is expected that the Chinese property high-yield USD bond
market will attract inflow of funds given their decent yield spreads.

The European Central Bank increases QE scale, accommodative environment is expected to last longer.
The European Central Bank kept the policy rates unchanged in the latest rate decision meeting, and at the same
time increased the Pandemic Emergency Purchase Program to EUR1.85 trillion and extended by nine months to
at least the end of March 2022. Reinvestments will be made until at least the end of 2023 and the current bond-
buying program will continue to run at a monthly pace of EUR20 billion. ECB will keep current low interest rate or
even lower level until inflation approaching to its target. Before raising interest rate, ECB will stay monetary easing
policy, further increase long-term loan and monitor currency movement. The rate decision made by ECB has
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 1Q 2021 Investment Outlook 14 Jan 2021
compressed the yields of government bonds in Eurozone down to record lows with yields of Portugal’s 10-year
government bond and Italy’s 5-year government bond fell below zero for the first time. Investors worry about the
spread of coronavirus and more stringent lockdown in major cities may affect the pace of economic recovery.
Market speculates larger scale of QE, pushing yield down. Amount of negative-yielding bonds has reached the
record high of over US$18trillion. It is expected that the emerging market and Asian bond market that carry a
decent yield spread will attract inflow of funds amid low rate environment.

Market risk appetite rises, causing inflow of funds into emerging markets. Market uncertainties eliminated
as US election results revealed, the UK and the EU reached a Brexit trade agreement, China and the EU reached
an investment agreement, as well as the vaccine against coronavirus was approved. Investors’ risk appetite rose
rapidly, causing inflow of funds into risky assets, among which emerging market bonds are one of the beneficiaries.
According to the latest report of the Institute of International Finance, foreign capital inflows into emerging markets
in November 2020 reached USD76.5 billion, which was a record high in a single month, of which USD36.7 billion
are of emerging market bonds. Nowadays the yields of 10-year government bonds in developed markets generally
hover between 0% and 1%, while German’s 10-year government bond yield stayed below 0%. In contrast, China’s
10-year government bond yield is above 3%, which is much more compelling than those of the developed markets.

Risk considerations: 1) Another wave of pandemic may cause economic downturn; 2) volatility in FX markets;
3) rise of default rate; 4) sharp movement of oil price.

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 1Q 2021 Investment Outlook 14 Jan 2021
DXY
INVESTMENT SUMMARY
- Adequate supply of US dollar may cause dollar weakness
- EURO payments surpass US dollars
- RMB is another challenger to the dollar

Adequate supply of US dollar may cause dollar weakness

In its last rate meeting of 2020, the Fed promised to keep funneling cash into financial markets to fight the
recession, including to buy 120 billion dollars a month in Treasuries and agency-backed securities, even its
economic outlook for next year improved following initial rollout of a coronavirus vaccine. Besides, the Fed also
extends temporary US dollar liquidity swaps and temporary repurchase agreement facility for foreign and
international monetary authorities through September 30 2021. Although the yield of US Treasury bonds has
risen recently, supporting the rebound of the US dollar from a low level, the US Democratic Party regained control
of the Senate and House of Representatives and the market looks forward to more new relief plans. The Fed is
expected to increase the quantitative easing in the market and therefore not favorable to the dollar in the long
term. In the US dollar index, EURO accounts for around 60%. When the dollar is expected to fall, EURO is likely
to be most benefited.

EURO payments surpass US dollars

In addition to the above, there are other reasons for the dollar’s decline. The bearish view is not based on
economic fundamentals, which ebb and flow and have only a fairly transient effect on a currency’s value. What
is being given more weight by market watchers who bet on the secular downtrend of the greenback, are potential
challenges from the EUR and the RMB to the USD’s position as the leading international currency, which are
prompting major movements in global funds. The launch of Common Bonds in July has completely changed the
structure of the European Union (‘EU’) to make it even more powerful than before, which, in turn, has beefed up
the EUR as a direct contender to the USD as the leading global currency. Based on data for October published
by the Society for Worldwide Interbank Financial Telecommunication (‘SWIFT’), the EUR has already surpassed
the greenback as the most-used currency for global payments.

RMB is another challenger to the USD

As for the RMB, the official launch of its digital version is in the pipeline. With the recently established Regional
Comprehensive Economic Partnership (‘PCEP’) providing additional momentum, the digital RMB could soon be
widely circulated at the international level. If this happens, the Chinese currency will become another challenger
that could oust the USD from its top spot. As such, the long-term bearish outlook for the greenback is plain to see
in light of the challenge from the EUR on the traditional front of SWIFT, as well as the threat from the RMB on a
whole new battle ground.

The DXY Index closed below 90 index points in 2020. In the first half of this year, the DXY still has a
chance to test lower. As to whether the DXY will appear in a lower position, it depends on a number of
factors, such as how the DXY is challenged in the future, the effectiveness of the vaccine and the extent
to which the Biden administration’s economic rescue plan can further push up the US financial market.
In short, the stronger the US financial market, the less demand for safe-haven dollars and lower the value
of DXY.

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 1Q 2021 Investment Outlook 14 Jan 2021
GBP/USD
INVESTMENT SUMMARY
- Brexit is finally confirmed
- Whether London financial hub can continue to serve EU is now questionable and likely to dampen sterling in
the long term
- Hard-Brexit is no longer happening remains a positive factor for GBP in the short term

Brexit is finally confirmed

Britain clinched a narrow Brexit trade deal with the European Union on Christmas Eve. Under the deal, some
goods, including most cars, are still to be subject to tariffs, and the remaining goods will be covered by the zero-
tariff and zero-quota agreement. Yet customs rules, regulatory standards and border checks that the EU requires
of third countries will apply to Britain, making trade slower and more expensive. Most importantly, financial
services were not part of the trade talks, so blanket access for Britain's vast banking and financial sector to the
bloc's single market will end on January 1.

Whether London financial hub can continue to serve EU is now questionable and likely to dampen
sterling in the long term
Whether this deal is considered to be good or bad for sterling will depend very much on whether it is from a short-
term or long-term perspective. In the long term, Britain’s huge services sector (approximately accounts for 80%
of its GDP), including the financial hub of the city of London, will lose privileges to operate inside the EU. This
will have serious consequences for the British economy and for sterling, because it raises the question whether
London will remain the financial center of Europe in the future.

Hard-Brexit is no longer happening remains a positive factor for GBP

However, in the short term this deal is expected to benefit the exchange value of sterling for three reasons. With
the “Hard-Brexit” worries now no longer exist, the downward pressure on sterling has been reduced. Secondly,
no one really expects that the EU will actually grant Britain zero tariffs and zero quotas to return to the EU market.
That has brought surprises to the market and can be seen as a positive factor for sterling. Finally, in the long
term, the financial hub of the city of London may be at risk, but in the short term it is impossible for any EU cities
to replica London and surpass its status as a financial center of Europe.

Technically, the pound is already above the major moving averages, and there is still a chance for an
upward breakthrough in the market outlook.

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 1Q 2021 Investment Outlook 14 Jan 2021

USD/XAU
INVESTMENT SUMMARY
- Market uncertainties have gradually subsided
- The weakness of the US dollar is hard to reverse
- More stimulus will support gold demand

Market uncertainties have gradually subsided

In November 2020, the price of gold softened significantly, mainly due to the breakthrough in the research and
development of the COVID-19 vaccine. In addition, the US presidential election was ended and the Director of
General Services of the United States stated that he is preparing for a presidential handover. Market uncertainties
have gradually subsided. The improving risk sentiment has attracted funds flowing to risky assets, and investment
demand for gold drops. Moreover, as gold prices have significantly increased this year, profit-taking put further
downward pressure on gold prices.

The weakness of the US dollar is hard to reverse

However, it is worth noting that the price of gold earlier broke the US$2,000 mark. One of the important factors
is the low bond yield. The real interest rate is getting lower and lower, making the opportunity cost of holding gold
continue to decline. The latest data show that the US economy is still recovering slowly. However, inflation has
rebounded, the Fed’s ultra-low interest rates, and the expectation of buying debt and easing remain unchanged
or even overweight, which has reduced the real purchasing power of the US dollar. Therefore, the weakness of
the US dollar is unlikely to be reversed.

More stimulus will support gold demand

Yellen, the former chairman of the Federal Reserve, is expected to become the new treasurer. Yellen advocated
a more proactive fiscal policy. The market expects that the Biden administration will successively launch more
economic relief, while the Fed will continue to conducting its quantitative easing operation. The flood of global
funds will help gold regain the favor of the market and support the rise of gold prices. On the other hand, if the
vaccine can effectively control the pandemic, and the Federal Reserve has difficulty in tightening monetary policy
in a short period of time, inflation may be pushed up, which will also support gold demand.

It is worth noting that the recent rise in UST yields has benefited the US dollar, coupled with the continued
boom in global stock markets, attracted funds from the gold market to the stock market in hopes of
obtaining higher returns, and dragging down the gold price. However, the current US epidemic has not
yet bottomed out, and the economy may fall into recession at any time. In addition, if the US government
takes action to revive the economy, the fiscal deficit will worsen, and the downtrend of the US dollar may
continue in the medium term. This is expected to support the gold price.

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 1Q 2021 Investment Outlook 14 Jan 2021

AUD/USD
INVESTMENT SUMMARY
- High iron ore price supports Australia's terms of trade
- The end of the interest rate reduction cycle of the RBA
- The Australian dollar is following the rise of global commodity prices

High iron ore price supports Australia's terms of trade

In the fourth quarter of last year, the price of iron ore rose at an alarming rate, climbing to over $150 / ton level,
nearly doubling from the low level of February last year. The surge of iron ore price was mainly due to the report
of Vale, the Brazilian mining giant, which lowered its iron ore production forecast to about 300 million tons and
315-335 million tons in the year of 2020 and 2021, respectively, with a decrease of about 10 to 25 million tons,
the second reduction in this year. From the end of 2019, the total reduction is nearly 50 million tons. Mainly affected
by the impact of the pandemic and the Brumadinho dam disaster last year. In addition, Vale also predicts that in
the first half of 2021, heavy rain will further affect iron ore production. The situation in Brazil coincides with the
hurricane season in Australia, the largest iron ore exporting country, which is aggravating the worries of the market
about the future supply. As for the demand for iron ore, with the advent of the Covin-19 vaccine and the prospect
of global economic recovery, the demand for iron ore from infrastructure construction has increased in China. This
has greatly increased China's demand for iron ore. Given that the imbalance between supply and demand is
difficult to solve in the short term, the market generally expects iron ore prices to continue to rise in 2021. Australia,
being the world's largest exporter of iron ore, is expected to be the beneficiary of high iron ore prices.

The end of the interest rate reduction cycle of the RBA

As expected, the RBA cut interest rates to an all-time low of 0.1% in November last year, and plans to buy AUD100
billion 5-year to 10-year long-term government bonds. This action dragged down the performance of Australia's
10-year bond yield and Australian dollar. However, the interest rate of Australia's 10-year bond and Australian
dollar rose to 1% and 76 US cents at the end of the year, respectively. We believe that it was mainly driven by the
launch of the new vaccine and the rise of China’s manufacturing PMI to a three-year high. As Australia's priority
is reducing the unemployment rate, the unemployment rate continued to drop to 6.8% in November last year,
among which 90,0000 jobs were created and most of them were full-time jobs. All these factors are deepening the
market's vision for the end of the RBA’s interest rate reduction cycle.

The Australian dollar is following the rise of global commodity prices.

With China imposing tariffs and bans on a series of Australian imports, including wine, barley, mutton, beef, coal,
lobster and wood, as well as copper ore and copper concentrate used by smelters to refine copper, trade disputes
between China and Australia have got more market attention. Australia is one of the few countries in the world
that exports more than imports to China. In the year of 2019, China accounted for more than 30% of Australia's
total exports, of which iron ore was the largest. In fact, Australia's trade surplus dropped sharply to a AUD1.9
billion in November last year, which exacerbated the market's concern about trade disputes between two
countries. However, Australia's exports still rose by 1% in November month on month, while its imports rose by
11%. The data may reflect that the sharp decline in the trade surplus was mainly due to the increase in imports
rather than the decline in exports. At present, the market is concerned about whether the trade dispute between
the two sides will be extended to iron ore. Until this happens, we believe the impact on Australia's foreign trade
can still be controlled. In the meantime, thanks to the high price of iron ore, it should continue to benefit the
Australian dollar.

We believe that the trade disputes between China and Australia and the monetary policy of the RBA bring
variables to the performance of the Australian dollar. However, with the weakening of the US dollar, the
prospect of global economic recovery and the improvement of the Australia's terms of trade, it is expected
to help drive the performance of the Australian dollar.

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 1Q 2021 Investment Outlook 14 Jan 2021
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This document has been produced and issued by Hang Seng Investment Services Limited (“HSIS”) for reference and information
purposes only. This document does not constitute, nor is it intended to be, nor should it be construed as any investment advice,
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The information contained in this document is based on sources which HSIS believes to be reliable but has not independently
verified. Any projections and opinions expressed herein are expressed solely as general market commentary and do not
constitute investment advice or guaranteed return. They represent the views of HSIS or the investment advisor(s) who wrote
this document at the time of publication and are subject to change without notice. No guarantee, representation, warranty or
undertaking, express or implied, is made as to the fairness, accuracy, timeliness, completeness or correctness of any
information, projections and/or opinions contained in this document and the basis upon which any such projections and/or
opinions have been made, HSIS and the relevant information providers accept no liability or responsibility in relation to the use
of or reliance on any such information, projections and/or opinions whatsoever contained in this document. Investors must make
their own assessment of the relevance, accuracy and adequacy of the information, projections and/or opinions contained in this
document and make such independent investigations as they may consider necessary or appropriate for the purpose of such
assessment.
HSIS is a subsidiary of Hang Seng Bank Limited which is part of the HSBC Group. Except as otherwise disclosed, HSIS has
no interest in the securities of the companies discussed in this document or member companies within the same group of such
companies as at the date of issuance of this document. Companies within the HSBC Group and/or their officers, directors and
employees may have positions in and may trade for their own account in all or any of the securities or investments mentioned
in this document. Companies within the HSBC Group may have provided investment services (whether investment banking or
non-investment banking related), may have underwritten, or may act as market maker in relation to these securities. Commission
or other fees may be earned by the HSBC Group in respect of the services provided by them relating to these securities or
investments.
The securities or investments referred to in this document may not be suitable for all investors. No consideration has been given
to any particular investment objectives or experience, financial situation or other needs of any recipient. Accordingly, no
representation is made with regard to the appropriateness of any of the securities and/or investments referred to herein for any
particular person’s circumstances. Investors must make investment decisions in light of their own investment objectives,
financial position and particular needs and where necessary consult their own professional advisers before making any
investment. This document is not intended to provide any investment advice and should not be relied upon in that regard.
Investment involves risks. Investors should note that value of securities and investments can go down as well as up and past
performance is not necessarily indicative of future performance. Foreign investments carry additional risks not generally
associated with investments in the domestic market, including but not limited to adverse changes in currency rate, foreign laws
and regulations. This document does not and is not intended to identify any or all of the risks that may be involved in the securities
or investments referred to herein. Investors should read and fully understand all the offering documents relating to such securities
or investments and all the risk disclosure statements and risk warnings therein before making any investment decisions.
The investment advisor(s) who prepared this document certifies(y) that the views expressed herein accurately reflect the
investment advisor’s(s’) personal views about the company(ies) or products covered therein and that no part of his/her/their
compensation was, is or will be directly or indirectly related to the specific views contained in this document.
© Copyright. Hang Seng Investment Services Limited. ALL RIGHTS RESERVED.
No part of this document may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic,
mechanical, photocopying, recording or otherwise, without the prior written permission of Hang Seng Investment Services
Limited.
(HSIS 03/18)

Disclosures
HSIS has in place procedures to identify and manage any potential conflicts of interest that arise in connection with the advisory
operations. HSIS’s investment advisors and its staff who are involved in the preparation and dissemination of advisory studies
operate and have a management reporting line independent of HSBC Global Markets and Global Research business. Chinese
wall procedures are in place between the advisory business operations and other banking operations to ensure that any
confidential and price sensitive information is handled in an appropriate manner.
Investment advisor(s) is (are) paid in part by reference to the profitability of Hang Seng Bank Limited which includes brokerage
commission revenues.

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