Demographics, AI chipmakers, and guide to the Gulf

Just how “old” is Asia? Plus three other key talking points from June 2024

WHAT’S NEW THIS MONTH?

This month, demographics were in full focus, as we explored their impact on bond markets alongside Asia’s ageing population.

Elsewhere, we looked at how Asian chipmakers are navigating the artificial intelligence boom and assessed the Gulf region’s structural strengths. We also identified opportunities in the US cruise sector, European telecoms, and India’s beauty and personal care market, as well as looking at trade.?

So, what were the key talking points? Read on to find out…

Talking Point: How old is Asia?

Theme: Demographics

Asia is ageing more rapidly than any other region in the world. Fertility rates are staggeringly low, and the population of North Asia is already shrinking.?

But, most importantly, it’s ageing while remaining a largely low-income region.?

With this in mind, Ines Lam and Frederic Neumann set out to find out just “how old” Asia actually is. In the process, they explained three reasons why it matters so much:

??? Asia’s ageing is problematic because it could lead to a fall in the supply of labour, a key input for economic growth?

?? Longer lives change saving behaviour, and lower saving rates mean lower capital formation?

?? Public spending on pensions and healthcare is set to grow rapidly?

Our thoughts?

According to the UN’s projections, Asia’s working-age population will peak in 2033 and will decline at an average annual rate of 0.4% between 2034 and 2040. The projections suggest that, by 2040, Asian economies under our coverage will have 2.67bn workers — 62.5m fewer than in 2030.

Clients of HSBC Global Research can find out what can be done to help Asia overcome this “double-whammy” by reading the full report from the following link.

FULL REPORT ?? https://www.research.hsbc.com/R/84/wllzCwm7Bzwh6G

Talking Point: Do demographics matter for bond markets?

Theme: Demographics

Time for the biggest long-term question in Fixed Income: do demographics matter for bond markets?

Demographic trends are arguably responsible for much of the reduction in rates since the mid1980s. However, while elevated bond yields imply there may be other factors pulling longer-run equilibrium rates higher, we think the aggregate impact of demographics might still be pushing downwards.

As populations age, healthcare costs are set to rise, which could have tremendous implications for public finances and debt stocks. In their latest report, Jamie Stuttard , Steven Major and Guy Baverstock explain the process in more detail:

?? A rising population share of retirees and subdued secular demand for household credit creation…

?? Combined with beneficial demographic trends in several low-cost goods producing economies…

? Could contribute to keeping longer-run equilibrium rates low over a secular horizon

Our thoughts?

The academic literature overlooks the role of credit creation, in our view. Analysis of savings and dissavings is an important component of the debate. However, a focus solely on the asset side of household balance sheets misses key developments on the liability side.

Clients of HSBC Global Research can read our full thoughts on this fascinating debate from the link below:

FULL REPORT ?? https://www.research.hsbc.com/R/84/kqhnJX67Bzwh6G

Talking Point: Can Asian chipmakers build on the AI boom?

Theme: Disruptive Technology

In recent years, semiconductors have gained greater prominence due to shortages during the COVID-19 pandemic, as well as ongoing geopolitical frictions and advancements in AI applications.?

Arguably, no region is more critical to chip production today than Asia. But will it last?

In their latest report, Justin Feng and Frederic Neumann explored the three macro trends which Asian chipmakers must grapple with to capitalise on the AI boom.

?? Geo-fragmentation: Tensions could see the global semiconductor industry subject to rising tariffs, export controls and mineral restrictions

?? Overcapacity risks: China’s large investment programme and limitations in advanced chipmaking could elevate the risk of foundational chip oversupply

?? AI applications: Industry estimates suggest that 10-32 new fabs, mostly in Asia, will be needed to meet generative AI (GenAI) chip demand

Our thoughts?

Amid geopolitics and overcapacity risks, Asia remains integral to almost every stage of the chip supply chain. We forecast USD800bn may be needed to build enough foundries (mostly in Asia) to meet demand for generative artificial intelligence chips.

Clients of HSBC Global Research can take a deep dive into Asian semiconductors by reading the full report.

FULL REPORT ?? https://www.research.hsbc.com/R/84/n6gvndn7Bzwh6G

Talking Point: Will the Gulf outpace other emerging markets?

Theme: Future Cities

Strong structural drivers, favourable demographics and growth ambitions make the Gulf Cooperation Council (GCC) unique. But will this be enough to see the region outperform its developed and emerging market peers?

In their flagship ‘Guide to the GCC’, Raj Sinha and Simon Williams identified a number of supportive factors for the region’s six economies:

?? Balance sheet strength

?? Robust public finances

??? An evolving reform agenda

?? The drive to diversify through a focus on non-oil growth

Our thoughts?

Recent geopolitical tensions and increased uncertainty about the global macro environment have taken a toll. But GCC countries have remained steadfast in their commitment to long-term development and investment. This has made the GCC a focus for many investors.

Clients of HSBC Global Research can read complete macro, strategy, ESG and sector overviews in our full ‘Guide to the GCC’.

FULL REPORT ?? https://www.research.hsbc.com/R/84/cgcgBjT7Bzwh6G

So, there you have it, the main thematic talking points for this month. But there’s still plenty more to discuss. Clients can see the rest of our talking points in our full report below.

FULL REPORT ?? https://www.research.hsbc.com/R/95/7Bzwh6GtaoMg

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