Disclaimer: The following content is an archive of Substantive Research Discovery Trending Themes, as delivered as weekly insights to our paid subscribers. Links to gated content have been removed.
Bank of America: Tech goes metals; your guide to metals demand in the energy transition (October 6)
The energy transition is complex with different technologies competing for market share; new technologies are also emerging, according to Michael Widmer at Bank of America Global Research. He says differentiation matters for metals: changes in technologies and their market shares can have profound implications for balances. In turn, innovation may also be necessary to prevent raw material constraints, says Widmer. In this primer, he explores the themes of 1) generation, 2) transmission/distribution, storage and 3) consumption, starting each section with a material content summary, followed by a discussion of the technologies. Click here if you would like to speak to the analyst.
Capital Economics: AI boost will not offset drag from demographics (October 9)
The Asian Tiger economies of Korea, Singapore, Hong Kong and Taiwan are likely to be among the biggest beneficiaries of new AI technologies, but the boost will not be enough to offset the drag from worsening demographics, according to Gareth Leather at Capital Economics. Indeed, he expects growth in all four to slow over the coming decades. One of the key conclusions of Capital Economics’ recent spotlight report, which you can read here, was that AI has the potential to transform the growth outlook, and that while the US will lead the AI revolution, the Asian Tigers also stand to benefit. However, Leather maintains working age populations in all four Tiger economies will contract sharply over the coming decades. So, although AI will boost prospects in these economies, growth is still likely to slow, he says. Click here for the full report. Click here if you would like to speak to the analyst.
Bank of America: Bank of America – AI Evolution: Reality justifies the hype (October 11)
This extensive report isn’t Asia focussed, but we include it for its broad thematic appeal on how BofA view the potential application across its coverage universe. They surveyed 114 fundamental equity analysts and found that 94% of 3,500 covered companies globally have articulated an AI strategy. Their conclusion from this is that GenAI will catalyze a corporate efficiency evolution that will boost S&P operating margins by 250bps ($65bn) over the next 5 yrs. As a result we should expect disruption to occur and beneficiaries may emerge far more rapidly than past technologies and investors anticipate. BofA argue that the upside potential of AI implementation is not yet fully priced in and could lead to significant cost savings and economic impact.
Gavekal Research: Securing the auto-chip supply chain (October 6)
The success of China’s makers of electric vehicles has a lot to do with their access to a world-leading domestic supply chain, says Tilly Zhang at Gavekal Economics. Chinese companies dominate the manufacture of EV batteries and their components, supplying about 80% of the global market, she says. Zhang says one critical element of the EV supply chain, however, is still dominated by foreign companies: the semiconductors that control many systems within cars. According to IC Insights, less than 5% of China’s automotive chip demand was met by domestic production in 2021, she notes, and that exception will not survive forever. Chinese carmakers were spooked by the worldwide auto-chip shortage of 2020-21, and are worried by escalating US sanctions on semiconductor technology, according to Zhang. They are now working to obtain greater control over their chip supply, either by developing their own in-house chips or funding new domestic suppliers, she says. Click here for the full report. Click here if you would like to speak to the analyst.
CMB: China auto sector – Sep discounts widened again (October 9)
In this report, CMB summarises the Sep 2023 price discounts at dealers for major Chinese automakers. The firm finds discounts at dealers for most brands widened MoM in Sep 2023, as the price war persists with more and more competitive product rollouts and raw material price declines. Nevertheless, CMB says investors may pay less attention towards the widening discounts during the so-called “golden Sep and silver Oct”, as the new model effect and sales performance could be more important for automakers amid the replacement of ICE vehicles by NEVs. Click here for the full report. Click here if you would like to speak to the analyst.
ROK Advisory: SK Innovation – why it hasn’t worked (October 7)
SK Innovation is an oil/gas and chemical company owned by SK Inc, according to this report from ROK Advisory on the SmartKarma platform. The firm notes its subsidiary, SK On, settled with LG Energy Solution over battery secret theft for $1.8 billion in 2021. Despite the booming EV sector, SK Innovation’s stock has underperformed, down 2% year-to-date, says ROK. Concerns over trade secrets and oversupply in the supply chain, as well as high debt levels and off-balance sheet guarantees, have contributed to the lack of investor interest, says the firm. The recent fundraising includes a promise that SK On will IPO by 2026, but more dilutive fundraising will be needed before then, according to ROK. With the current financial status and spending plans, existing shareholders could potentially be diluted up to 100%, says the firm. The financing burden until the IPO is expected to weigh down SK Innovation’s stock significantly, adds ROK. Click here for the full report. Click here if you would like to speak to the analyst.
Clocktower Group: China Macro Watch – No Concrete Signs Yet of a Fundamental Shift in Approach (October 11)
This report by Clocktower Group provides an analysis of the current macroeconomic situation in China. The report highlights the risks posed to the “long dollar” trades by the Chinese policy response and the decline in the China-US yield spread. It also discusses rumors of a potential shift in President Xi’s economic approach and the upcoming Third Plenum and Xi-Biden meeting as events to watch. The report expresses skepticism about a fundamental shift in China’s approach to stimulating the domestic economy and suggests that the ongoing macro and market malaise is likely to continue. The report concludes by emphasizing the importance of the upcoming events and the need for concrete evidence of a major policy pivot. Click here for the full note.