新興市場洞察

Three things we’re thinking about today:

1. Artificial Intelligence (AI) is driving increased chip demand. Semiconductor chip design company NVIDIA announced earnings in its fiscal second quarter are expected to surge 52% to US$11 billion on demand for its chips which support AI algorithms and large language models similar to Chat-GPT. The announcement drove the Philadelphia Semiconductor Index up 10%.¹ NVIDIA is a “fabless” chip company, meaning it designs chips, but does not manufacture them. The fabrication plants that do the manufacturing for such companies are mostly based in Asia and are direct beneficiaries of the surge in demand for chips that can support the coming AI revolution. This is expected to have a positive impact on the semiconductor ecosystem throughout Asia, ranging from chip manufacturers in Taiwan and South Korea to chip packaging companies in Malaysia, as well as those companies producing the chemicals and precision parts used in the lithographic machines that produce the chips from silicon wafers.
2. China cuts deposit rates. Chinese banks recently cut deposit rates to support bank profitability and ensure that loan targets are met. Net interest income contributes c. 70% of Chinese bank revenue,² and prior cuts in lending rates without corresponding cuts in deposit rates have put downward pressure on revenue. Deposit rates were cut 30-50 basis points for corporate and retail depositors. The rate cuts are expected to stimulate household consumption as well as support bank loan growth and return on equity. Unofficial targets of 10% loan growth and a 30% payout ratio amongst the “Big Four” Chinese banks imply the need for a return on equity of 10%-12%, which was at risk from the downward pressure on net interest margins. Maintaining credit growth is important for the economy given its dependence on bank credit, as opposed to other channels for recycling the large pool of household savings.
3. Emerging market fund flows. Following a lackluster start to the year, foreign investor flows to emerging market (EM) equities surged in May. Data from Lipper indicates US$2 billion in inflows between May 3-24, a positive signal. Equity fund flows to India were notable, rising to a nine-month high in the month. The improved sentiment towards EMs may reflect the valuation gap relative to developed market equities as well as diverging growth expectations for the second half of 2023. Current consensus expectations call for the United States and Europe to enter a recession, but growth in emerging markets looks likely to remain resilient.