Welcome to the first Newsletter for HSBC Global Research's 'Talking Points'

WHAT IS TALKING POINTS?

Talking Points is our bitesize roundup of the best Global Research reports covering our nine key themes.

Each month, we’ll discuss the biggest talking points for each theme – from automation and disruptive technology to demographics and future cities.

What’s new this month?

We explored Indonesia’s growth potential through the lens of all nine of our themes, while we also continued the expansion of our US equity coverage.

AI was also on the agenda, as we investigated new developments in China. And, looking ahead, our eyes turned to the upcoming COP28 climate talks.

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

Theme: All nine themes

Is Indonesia in the sweet spot?

From new technological developments and greener energy, to growing eCommerce levels and changing demographics, a significant amount of money is being invested in Indonesia right now. For that reason, the BIG question this month was a simple one: is Indonesia in the sweet spot?

To answer this question, Herald van der Linde and Prerna Garg took a closer look at Indonesia through each of HSBC’s nine themes. Here are just a few of their highlights:

• Demographics: Indonesia’s population is young and urbanising rapidly, suggesting it could become a bigger player in the global consumer market.
• Digital Finance: In a population of 278 million, around 100 million are unbanked, which could provide a large untapped market opportunity.?
• Future Consumer: Indonesia will have the fourth biggest consumer population on the planet by 2030.
• Future Transport: Indonesia accounts for the largest nickel reserves in the world, highlighting its potential importance to the global EV supply chain.

Our thoughts?

Indonesia may well offer one of the best growth stories in Asia. Still, there is a lot of catching up to do, with internet and smartphone penetration remaining relatively low. But ultimately, these nine themes are the bedrock of the Indonesian story – and will continue to be so in the years to come.

Clients of HSBC Global Research can find out where Indonesia’s next equity opportunities are by reading our SPOTLIGHT report from the following link:

FULL REPORT ?? HERE?

Theme: Digital Finance

Talking Point: Where do digital payments go from here?

The shift from paper to digital forms of payment has been profound, but will it continue?

This is the question that HSBC Global Research analysts Saul Martinez and Vikram Gandhi, CFA , CFA looked to answer in their report on ‘US Payments and Consumer Finance’. Some of the stats they found told a dramatic story:

• ?? USD 18.2 trillion - total global purchase volumes from the two biggest credit card companies
• ?? 2.3x - US card-based payment volumes growth vs the rate of personal consumption growth between 2016-2021
• ?? 11% - YoY growth (to USD 1tn!) in outstanding credit card loans (through September 27th 2023)

But still, the future pace of growth remains uncertain. There’s an argument to be made that the pandemic may have expedited the digitization of payments, which could lead to slower growth rates in card-based penetration ahead.

Our thoughts?

Share performance, and the direction of digital payments, will likely revolve around a few key debates. For payment networks, the question is whether strong volume and revenue growth and solid profitability can be sustained. For Payment Service Providers, it’s whether financial performance can be improved. And for consumer finance, it’s whether material downside risks from regulations and credit quality will be avoided.

We look at some of the biggest US-listed players and initiate coverage on eight payments and consumer finance companies in our dedicated report, clients of HSBC Research can read from the following link:

FULL REPORT ?? HERE

Theme: Future Consumer

Talking Point: Did the pandemic change the way we relax?

The pandemic accelerated shifts in lifestyle, technology, and behaviours that are shaping travel and leisure and fuelling growth. The result is that a new ecosystem is emerging within the travel and leisure space, with plenty of macro headwinds.

This new ecosystem brings new players, patterns and winners. To find out what it takes to master this complex sector ecosystem, Meredith Prichard Jensen has identified three key differentiators…

1. Experience and digital transformation. Providers are seeking to own the customer journey from end to end by enabling the customer’s vision of a connected trip with access to digital commerce.
2. Asset-light 2.0. The separation of assets and operations (asset-light) is a foundational business model strategy across the industry, but its application is evolving.?
3. Loyalty and rewards programmes. A digital strategy for brand and loyalty is becoming increasingly critical for customer acquisition and the ability to fund expansion.

Our thoughts?

New demand categories and innovative technologies will only enhance travel and leisure further. However, macro uncertainties persist, including higher interest rates, restrictive lending policies, labour challenges, stubborn inflation, and – in some areas – changing regulatory priorities.

We initiated coverage on 13 names in the US travel and leisure sector in our dedicated report, which clients of HSBC Global Research can read from the following link:

FULL REPORT ?? HERE

Theme: ESG

Talking Point: What should investors watch out for at COP28?

COP28 takes place in the UAE, from 30 November to 12 December, and key decisions are set to be taken that will shape the future of global climate pledges.

Against a backdrop of record extreme weather and geopolitical tensions, the need for resolutions is arguably more important than ever. So, what are the key issues to watch out for? Analysts Wai-Shin Chan , James Rydge , Linnet Cotterill and Anushua Chowdhury explain…

• Global stocktake - we’re not on track, so now what? The political messages for strengthening action and support will be one of the critical measures of success at COP28.
• Mitigation – old wording, new pledges? There will be a lot of debate over the wording that will go into the Cover decision text. An inclusive pledge to triple Renewables capacity by 2030 is also expected.
• Adaptation – recognition and contribution. There needs to be more focus on adaptation (preparing for the impacts of climate change) in general – with finance and support heavily skewed towards mitigation.

Our thoughts?

That we are ‘off track’ is a given. The question is whether we can get back on track to keep the 1.5°C goal (by 2100, with limited overshoot) alive. In general, COP28 needs to show that these global climate talks are fit for purpose and can deliver real change.

Our ESG team have put together a comprehensive guide to COP28, clients of HSBC Global Research can download from the following link:

FULL REPORT ?? HERE?

Theme: Disruptive Technology

Talking Point: Will China lead the way on AI?

With Generative AI expected to create significant revenue opportunities in China, we have created RAAM, a proprietary framework to help investors assess which companies can best monetise this emerging technology.

When it comes to China, there are a few key monetisation avenues to consider…

• Regulations: An obvious starting point as these set the boundaries for what is and is NOT allowed to be monetised as well as the rules that need to be followed.
• AI computing power: Supports and empowers AI applications, such as speeding up image generation processing in a photo editing app. Monetisation involves selling this computing power.
• AI generated content (AIGC): Refers to how content generated by AI is used and makes existing businesses more efficient by creating additional/new revenue opportunities.
• Model-as-a-service (Maas): Enables developers and enterprises to deploy AI models. They can also design, tweak, and customise these models if needed, and charge a fee to do so.

Our thoughts?

The good news is that regulators rolled out “Interim Measures for the Management of Generative AI services” in August, with clear guidelines on a range of topics. However, further regulatory tightening is always possible around specific AIGC applications or content-related topics.?

HSBC Research Analysts Charlene Liu , Ritchie Sun, CFA, FRM , Peishan Wang and Mark McDonald look at the major players, size up the market and explore the potential opportunities in their dedicated report, clients of HSBC Global Research can download from the following link:

FULL REPORT ?? HERE

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

FULL REPORT ?? HERE

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