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New horizons9 key themes to guide your outlook

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HSBC Global Research • 9 key themes to guide your outlook

Introducing our themesHSBC Global Research is taking a new approach to investing in today’s world of disruptive, complex and rapid change. We are applying our multi-asset and geographical reach to understand the big events unfolding today and their investment implications through nine big themes.

From Disruptive Technology and Future Cities to Demographics and the Energy Transition, this brochure explains our nine big themes and how to access them.

Got a question or want to know how to subscribe, just email us at [email protected]

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David May

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Our productsPositioned across our unique selling points and focusing on our key, current and topical themes

Global teams

Economics covering >50

countries worldwide

Equities 1,900 companies with 60% MSCI EM &

FM indices

EM investment themes across asset classes

Data Science analysing vast

amounts of data using Machine Learning

techniques

FX broad coverage of DM & EM FX with focus

on the RMB

Fixed Income covering Rates

and Credit across DM & EM

ESG insights to aid investment

decisions

Multi-Asset highlight key

ideas across asset classes

Big themes

Automation Disruptive Technology

Future Consumer

Demographics Future Transport Digital Finance Future Cities Lower for Longer

USPs

Data Science

Embedding Machine Learning techniques in

investment advisory

ESG

10+ years of integrating ESG with fundamental

investing

UK

Strong mid-cap coverage

China

IBCN JV with 300+ A-share coverage

Asia

Local expertise for global clients

Emerging Markets

Comprehensive analysis of EM across all asset

classes

Macro/Multi-Asset

Top rated EM and thematic coverage

Energy Transition


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Meet the themes

Automation

Helen Fang (Global)

Sean McLoughlin (Europe)

Disruptive Technology

Davey Jose (Global)

Frank Lee (Asia)

Future Consumer

Erwan Rambourg (Global)

Ravi Jain (Americas & EEMEA)

Karen Choi (Asia)

Jeremy Fialko (Europe)

Demographics

James Pomeroy (Global)

Herald van der Linde (Asia)

Edward Stanford (Europe)

Energy Transition

Sriharsha Pappu (Global)

Thomas C. Hilboldt (Asia)

Lilyanna Yang (Americas)

Jonathan Brandt (EEMEA)

Future Transport

Henning Cosman (Global)

Will Cho (Asia)

Digital Finance

Kailesh Mistry (Global)

Antonin Baudry (Europe)

Neha Agarwala (Americas & EEMEA)

Future Cities

Stephen Bramley-Jackson (Global)

James Pomeroy (Europe)

Lower for Longer

Steven Major (Global)

Lawrence Dyer (US)

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Watch list

® In logistics, we estimate only 5% of warehouses currently have incorporated automation

® Automation has advanced from early mechanisation of production lines to today’s data-driven industrial IoT investment

® Machine vision software is the high-value part of the industry and provides leaders with faster growth and superior returns

® 85% – share of industry taken by vision software, while the other 15% is taken by vision hardware such as cameras

® Vision-guided robotics and automated optical inspections are two of the major applications of machine vision in manufacturing industries

Automation

Robotics: Smarter robot riding on IoT tackles ageing workforce

Already well established in general manufacturing and process industries, automation has huge growth potential in sectors with lower penetration. The graph below shows the number of installed industrial robots per 10,000 employees in the manufacturing industry, 2018

Machine Vision: Secular growth and software driven

Machine vision offers higher precision and consistency than human labour on quality inspection tasks.

With increasingly complex, precise manufacturing demands, and rising focus on quality, machine vision offers better yields, higher efficiency and lower labour cost for manufacturing industries.

Driven by the potential to increase productivity, automation has advanced from early mechanisation of production lines to today’s data-driven industrial Internet of Things (IoT). Already well established in general manufacturing and process industries, automation has huge growth potential in sectors with lower penetration, such as logistics

Global average density: 99Asia average density: 91

Singapore

South Korea

Germany

Japan

Sweden

Denmark

Taiwan

US

Italy

Mainland China

831

774

338

327

247

240

221

217

200

140

China’s robot density is still below many industrial economies (2018)

Source: IFR, CRIA & HSBC Source: HSBC

Demand for Machine Vision

Pursuit of productivity

Rising labour costs

Ageing population


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Key insights

Prometheus unbound Global Industrials – Automation goes digital

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Disclaimer & Disclosures: This report must be read with the disclosures and the analyst certifi cations in the Disclosure appendix, and with the Disclaimer, which forms part of it

https://www.research.hsbc.com

Prometheus unboundGlobal Industrials – Automation goes digital

Industrial IoT will drive more than a third of IoT benefi ts of USD4trn to USD11trn (by 2025). The necessary capex requirements will amount to USD100bn to USD300bn pa

Rockwell Automation, Schneider Electric and Siemens have the most refi ned offerings today. Siemens’ approach is more revolutionary in nature

We prefer Siemens (Buy) and Schneider Electric (Buy)

EQUITIESINDUSTRIALSNovember 2017

By: Michael Hagmann, Debashis Chand and Helen Fang

Global Robotics Automation nation: Robots lead the charge in China

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Disclaimer & Disclosures: This report must be read with the disclosures and the analyst certifications in the Disclosure appendix, and with the Disclaimer, which forms part of it

https://www.research.hsbc.com

Global R

oboticsJanuary 2018

Equities // Industrials

Play interview withHelen Fang

Global RoboticsAutomation nation: Robots lead thecharge in China

Demand for robots in China is going into overdrive as more industries need higher levels of automation

We believe Japanese giant FANUC (Buy) has the best growth story and look at its expansion in the Chinese market

As production expands rapidly, China robot makers are trying to narrow the knowledge gap through acquisitions

EQUITIESINDUSTRIALSJanuary 2018

By: Helen Fang, Michael Hagmann, Richard Schramm and Anderson Chow

Global Machine Vision The eyes of robots: it’s all about algorithms

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Disclosures & Disclaimer: This report must be read with the disclosures and the analyst certifications inthe Disclosure appendix, and with the Disclaimer, which forms part of it.

Asset // S

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May 2020

Equities | Electronic Equipment &

Instruments

Global M

achine Vision

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Play video withHelen Fang

EquitiesElectronic Equipment & Instruments

May 2020By: Helen Fang

Global Machine VisionThe eyes of robots: it’s all about algorithms

Machine vision – which enables robots to see – has the most secular growth of any sector in the factory automation industry

We see software – especially algorithms – as the key differentiator for companies and it accounts for 85% of the industry value

The ongoing search by manufacturers for yield enhancement, cost savings and labour replacement is driving penetration especially in electronics, semiconductor, 5G and healthcare

S P O T L I G H T

China Automation Initiate coverage: Acing China’s automation ambition

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Equity Research Report

Title of rep

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onth 20

xxEq

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Industrials

February 2021By: Amy Hu (S1700520090001), Corey Chan (S1700518100001)

China AutomationInitiate coverage: Acing China’s automation ambition

The pandemic and China’s push to be more self-sufficient are pushing manufacturers to invest more in automation…

…with domestic automation leaders well-positioned to take market share from global peers

Initiate on automation leader Inovance at Buy (our top pick), relay-focused Hongfa at Buy, and more slowly growing Siasun at Hold

Automation

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New horizons for 2021: Our key themes from HSBC Global Research

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Head of Industrials Research, APAC and Global Coordinator for Automation

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Watch list

® By 2025e, India should overtake China as the most populous nation

® Mid-tier cities – this is where people flock to, more so than the larger metropoles. This creates a new group of consumers in lesser-known cities across Asia and Africa

® More women are working. This is especially the case in China and also Indonesia where more are completing higher education and getting managerial jobs

® Demand for healthcare will likely rise fastest not in ageing societies but in younger nations where more people are reaching 40

® Focus on the shrinking household. This is a particular trait in North Asia – as per Global Demographics, the number of single-person households is estimated to rise

The world’s population is seeing the fastest changes in history, with ageing populations, lower birth rates and smaller households set to play a key role in determining the pace and shape of global demand growth for a range of goods and services

Demographics

Ideas key to these long term shifts

The world’s population continues to rise with Africa overtaking Asia Most populous countries by 2030e (% proportion)

17.6%India

4.1%US

3.1%Nigeria

17.1%Mainland China

3.5%Indonesia

2.6%Brazil

1950 1970 1990 2010 2030 2050 2070 20900

5bn

10bn

15bn

AsiaEuropeAfricaNorth AmericaLatin AmericaOceania

infrastructure womenpopulation growthmid-tier cities urbanisationshrinking household Ed

ucat

ion

empt

y-ne

ster

s

ageing populationheal

thca

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Source: UN Population Prospects 2019, HSBC


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Key insights

Demographics

Global Demographics Mapping out a century of changes

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February 2021Equity S

trategy | Global

Global D

emographics

Play interview withHerald van der Linde, James Pomeroy and Barak Hurvitz

Equity Strategy & EconomicsGlobal

February 2021By: Herald van der Linde and James Pomeroy

Global DemographicsMapping out a century of changes

The epicentre of population growth will move to Africa later this century, while India is set to overtake China to become the world’s most populous nation by 2025

We show what these vast demographic changes mean, why ageing is the biggest social transformation globally…

…and how policymakers have a dilemma over how best to spend on education, healthcare, jobs and infrastructure

Europe’s demographics The edge of a precipice

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Asia Demographics Large shifts are coming soon

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Disclosures & Disclaimer This report must be read with the disclosures and the analyst certifications in the Disclosure appendix, and with the Disclaimer, which forms part of it.

Issuer of report: The Hongkong and Shanghai Banking Corporation Limited

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Asiamoney Brokers Poll 2020

Tectonic shifts ahead in the next decade; India’s population

should grow bigger than China, while China’s is set to shrink Meanwhile, Asians are living longer, residing in smaller

households, flocking to mid-tier cities, and saving more We identify some big picture implications: empty-nesters

trading up, a female future, and rising spending on health

We build on our previous research on Asia’s demographics with a new series. This report focuses on long-term investment themes shaped by demographics, while in the accompanying notes we work with fundamental analysts to highlight stock opportunities, starting with the consumer sector: Asia Demographics – Tectonic shifts ahead for the consumer sector, 4 August 2020.

Big changes are not only around the corner... Before the end of this decade, India is expected to surpass China as the world’s most populous country, which should swiftly be followed by China’s population declining. Markets will start to consider the implications well before this happens. For instance, companies need to position themselves for slower volume growth, and instead work on their ability to raise prices – possibly by offering better quality products.

…they are also happening now: Asians are getting older, living longer, and flocking to mid-tier cities. They’re also residing in smaller households while women are having fewer children and working more. All this impacts consumer spending. While COVID-19 continues to cast a shadow over the region’s economy, it is also accelerating some long-term trends that were already underway like more online shopping.

An academic view: We also interviewed Dr. Stuart Gietel-Basten, Professor of Social Science and Public Policy at HKUST. He stated that it is possible for very low fertility rates to become more common in the region. Further, he suggested that it would be prudent to start planning for a time when families in Asia are not able or willing to care for their older members, and to start thinking about new types of insurance, care, and financial products to deal with this.

Opportunities: (1) We expect Chinese ‘empty-nesters’ to buy more premium products – better quality at higher prices – on almost everything from food and clothing to home furnishings. (2) More women in the workforce, which contributes to higher household income and how it is spent. (3) New forms of urbanisation are unfolding too with growth higher in mid-tier cities, especially in ASEAN and India. (4) Increased health awareness and rising risks from some diseases, particularly diabetes, mean more business for pharmaceutical companies, hospitals, and sellers of health equipment. (5) Asians are living and working longer, which allows for a greater accumulation of wealth to finance an extended period of retirement.

4 August 2020

Herald van der Linde*, CFA Head of Equity Strategy, Asia Pacific The Hongkong and Shanghai Banking Corporation Limited [email protected] +852 2996 6575

Barak Hurvitz* Associate, Equity Strategy The Hongkong and Shanghai Banking Corporation Limited [email protected] +852 2996 6941

Prerna Garg* Associate Bangalore * Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/ qualified pursuant to FINRA regulations.

Asia Demographics Equity Strategy Asia

Large shifts are coming soon

LatAm demographics Four investment angles as the region ages

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Herald van der Linde, CFA

Head of Equity Strategy, APAC and Global Coordinator of Demographics

[email protected]

James Pomeroy

Economist and Global Coordinator of Demographics

[email protected]

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Watch list

® CreditTech – borrowing and lending models developing new routes to market, effective and quick decision making through with financial services or ecommerce

® Digital banks and insurers – conducting all financial services activity online

® Digital currency – Central Bank digital currencies and cryptocurrencies that can replicate key functions of physical money

® Digital distribution and price comparison – independent or tied direct distribution and/or price comparison platforms

® Fintech infrastructure and software solution providers – B2B service providers supporting innovation and development

® InsureTech – insurance models that increase automation of underwriting, sales, claims management and settlement as well as attaching key services to insurance to avoid commoditisation

® InvestmentTech or WealthTech – Advisors and investment platforms

® Payments – infrastructure, e-wallet, payment acquiring, network providers services

Digital Finance

Examples of technology applicationsThe money flower shows the different qualities of types of money

We aim to understand and analyse how digital entrants and/or tech savvy business models across financial services disrupt, complement and/or enhance existing operations and key market participants. We also consider how such challenger models impact competitive positioning, customer acquisition, customer retention, efficiency, market share, profitability, risk management and underwriting as well as overall market dynamics

Source: BIS

Digital

Virtual currencyPoké coin

Bank deposits,mobile money

Venmo, M-Pesa CBDC(wholesale)

CBDC(retail)

Cash

CryptocurrencyBitcoin

Private digitaltokens

(wholesale)

Settlementor reserveaccounts

Central Bankaccounts

Type of productExample

Key:CBDC = Central Bank Digital Currency

Centralbank-issued

Widelyaccessible Token-based big datacloud

artificial intelligence

blockchain

collection, organisation, interpretation and analysis of data to support offers, product design and underwriting

increased capacity, agility and flexibility for data storage

along with machine learning, it can interpret and analyse data for risk assessment, investment and underwriting as well as improve services such as claims management, fraud detection

allows performance of tasks faster and cheaper, track data flow internally, holds digital assets


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Key insights

Digital currencies What are they and why do they matter?

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Issuer of report: HSBC Bank plc


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As cash usage declines, new forms of digital money are

emerging We look at cryptocurrencies and Central Bank Digital

Currencies… …and outline the impact they could have on the economy

and policy decisions

As cash usage plummets in many parts of the world, the role played by new forms of digital currencies in the payments chain is only going to grow. But what sort of currencies? Cryptocurrencies? Central Bank Digital Currencies (CBDCs)? Stablecoins? Perhaps a mix of them all? These forms of money are all solely digital – and are either issued via the central bank or privately.

Cryptocurrencies, in particular, have been getting a lot of attention recently because of Bitcoin’s spectacular price rise and the responses to it – with an increasing number of institutional investors showing an interest. Stablecoins, such as Diem, led by Facebook, have also gathered much more attention in recent years.

There is no doubt that the rise of cryptocurrencies and stablecoins has alerted governments and policymakers, and is one reason why a number of central banks are drawing up plans for their own digital currencies. Sweden and China are leading the way, but these central banks have other motives too, based on the rapid developments of digital payments in their economies.

This report will look at the differences between these forms of digital payments and the potential economic and monetary impacts.

At its heart this will be a battle over what best serves as a means of payment and/or store of value in the digital age. The current macro implications of both cryptocurrencies and stablecoins are limited – but this may change depending on how the underlying technology develops and the number of use cases grows. Tracking how both of these factors develop will be important in the coming years.

Central bank digital currencies will likely have a greater economic impact. But the leading pilots in China and Sweden are converging on a similar design in a way that may mean that, while payment networks could be more efficient and secure, most of us may not notice a difference day to day. How these pilots develop and how other central banks react will also be key to follow.

While there has been much excitement over cryptocurrencies and CBDCs, it is just as important to remember the implications of getting many of the millions of unbanked people across the world access to more traditional digital payments, which is likely to have a far greater near-term economic impact.

17 March 2021

James Pomeroy Global Economist HSBC Bank plc [email protected] +44 20 7991 6714

Paul Mackel Global Head of FX Research The Hongkong and Shanghai Banking Corporation Limited [email protected] +852 2996 6565

Digital currencies Economics & Currencies Global

What are they and why do they matter?

Spotlight: Insurance meets Healthcare From payer to payer, provider and risk influencer

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October 2020

Equities | InsuranceInsurance m

eets healthcare

EquitiesInsurance

October 2020By: Kailesh Mistry and Edwin Liu

Insurance meetsHealthcare From payer to payer, provider andrisk influencer

Insurers are increasingly evolving from simply writing and servicing health policies to putting themselves at the centre of health and wellness ecosystems

This transition encompasses insurance, telemedicine, wellness and more to enhance the competitiveness of offerings, facilitate customer acquisition and retention as well as influencing and pricing risks

Ping An has developed a comprehensive health ecosystem for mainland China mainly in-house, while AIA and Pru are doing much the same across Asia but through partnerships or JVs

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Brazil Fintech & Instant Payments Lessons for Brazil from India and the globe

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Issuer of report: HSBC Securities (USA) Inc


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2020 GEMs Forum – Going Virtual6th – 30th October 2020

To understand potential uptake and impact of PIX in Brazil, we

studied India’s UPI and other global instant payment platforms Expect strong uptake in P2P, estimate banks could lose 1-5%

of revenues but see risk to acquiring revenues as less imminent Select global experiences suggest cards will remain relevant

and new business models will emerge; watch for early adopters

This report is a deep dive into Brazil’s instant payment platform, PIX, which is scheduled to be launched in November (see PIX and Open Banking, 5 July 2020). To understand the potential uptake for the new system and its impact on financial system participants, we look at India’s well-known UPI platform in detail. We also take a quick look at the fast payment systems in Australia, the UK, Sweden, Malaysia, Singapore and Mexico.

PIX – riding on convenience and lower costs. We are optimistic on the uptake of PIX. With the benefit of learning from the experiences of other payment systems around the globe, we note that PIX will be an inclusive platform and have more advanced features than what UPI in India had at the beginning (pg11). The Brazilian regulator has been creating awareness and swiftly adding partners, which should facilitate usage (electricity bills, tax payments). Most importantly, Brazilian consumers have an incentive, at least for P2P (peer to peer) transactions, given the lower cost of PIX transactions. P2B (peer to business) could be trickier given the high card penetration rate and consumer’s significant preference for credit cards with features like instalment payments. However, the experiences in Australia (pg19) and Sweden (pg21) is encouraging for P2B.

Bank revenues likely be hit; acquirer revenues not imminently. While the experience in India has been somewhat positive for banks (pg8), we expect a loss of fee income for the banking sector in Brazil. As per our calculations, Brazilian banks earned about BRL36bn in current account services (including TED and DOC; c.5% of total revenue) and BRL9bn in collection services, which include boleto. Our scenario analysis suggests that the large listed banks could lose at least 3-5% of their earnings in the short term (pg15). For the payment acquirers, we expect a meaningful impact if and when P2B takes off; in such a scenario, companies in the micro-merchant segment, like PagSeguro, appear more at risk (pg16). The experiences so far in India and Sweden indicate that fast payment platforms have mostly displaced cash, not so much cards.

Expect new opportunities to be created but mindful of risks. Instant is not the end-game here. Indeed, instant or fast payment systems should allow the development of value-added services, stimulating competition and innovation (pg17). As in India, Australia and Singapore, we expect new business models to emerge. And the early-movers will likely be in advantageous positions. We could also see some increased participation from telecom and e-commerce companies. However, we believe customer awareness and trust will be the key to adoption (pg18). Although merchants have significant cost incentives to use real-time payment systems, customers do not care much how they make a transaction as long as it adds convenience, is economical and safe to use.

Neha Agarwala, CFA Analyst, LatAm Financials & Fintech HSBC Securities (USA) Inc. [email protected] +1 212 525 5418

Carlos Gomez-Lopez, CFA Head of EM and LatAm Financials HSBC Securities (USA) Inc. [email protected] +1 212 525 5253

Ravi Singh* Senior Banks Analyst HSBC Securities and Capital Markets (India) Private Limited [email protected] +91 22 2268 1238

Umang Shah* Analyst, Financials HSBC Securities and Capital Markets (India) Private Limited [email protected] +91 22 2268 1243

Rahil Shah* Analyst, Banks, Cement and Metals & Mining HSBC Securities and Capital Markets (India) Private Limited [email protected] +91 22 6628 3719

* Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/ qualified pursuant to FINRA regulations

18 September 2020

Brazil Fintech & Instant Payments Equities Financials

Brazil Lessons for Brazil from India and the globe

European Payments Post COVID-19 outlook supportive on all key drivers

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Issuer of report: HSBC France, S.A.


Cash use declining faster in favour of digital payments should

offset weak consumption recovery and drive strong recovery M&A catalyst set to remain centre stage: European market

still fragmented and banks face major challenges Retain Buy on Worldline and Ingenico, Hold on Nexi and

Wirecard. Raise TPs for all on lower WACC, except Wirecard

Post COVID-19 recovery should support payment companies: The Q1 2020 results give us better visibility on the potential impact of the lockdowns on revenue in Q2 and the likely recovery during H2. We include extracts of recent reports by HSBC economist James Pomeroy. In Lifting lockdowns (1 May) he highlights there is no guarantee of a V-shaped recovery for consumption in H2 2020 but a quicker shift from cash to contactless and digital payments (No cash, please, 29 April) could be a strong catalyst for a revenue rebound in 2021, in our view.

P&L impact: We are more conservative than before for 2020. We now expect Q2 to be hit more heavily and there remains uncertainty around the potential recovery in H2, due to likely consumption weakness. However, the temporary slowdown seen so far in 2020 due to COVID-19 creates a favourable basis of comparison for 2021. Combined with our expectation of a quicker switch from cash to digital payments, this would offset the potential impact of a macro slowdown on consumption in 2021, implying a strong recovery for the payments companies.

M&A catalyst to remain centre stage: We expect an acceleration of consolidation. Nexi-SIA talks in Italy are gaining momentum and we update our view on a possible merger (potential accretive impact 10-15% on EPS 2020-21e on leverage 4x vs 3.5x before). Ingenico’s acquisition by Worldline is ongoing. The disposal of Ingenico’s point of sales business by Worldline would accelerate its capacity for further M&A. Wirecard’s share price remains vulnerable to short-term sentiment with a lack of a solid and stable shareholder base. We analyse similarities with Iliad and Gemalto.

Ratings: Since the 19 March lows, share prices have rebounded by c60% on average, outperforming the Eurostoxx 50’s 13% (except Wirecard -7%). We favour exposure to online payment, geographical spread in strong economies, capacity to capture the consumption recovery and the shift from cash to electronic payment thanks to high exposure to transaction volume and potential for M&A or accretive disposals. We remain Buy on Worldline-Ingenico (preferred stocks) and Hold on Nexi and Wirecard. We raise our TPs for all on lower WACCs, except Wirecard.

Rating and target price summary Current ______ TP______ __ Rating __ Upside/ Market cap _____ EV/EBITDA ______ ________ PE __________ Company Ticker Currency price Old New downside (EURm) 2020e 2021e 2020e 2021e Ingenico ING FP EUR 119.5 132 141 Buy 18% 7,457 16.6 13.9 25.7 21.5 Nexi * NEXI IT EUR 14.8 12.5 14.5 Hold -2% 9,291 19.4 16.6 35.1 29.4 Wirecard WDI GR EUR 83.2 105 95 Hold 14% 10,284 9.6 6.4 15.5 11.2 Worldline ** WLN FP EUR 63.0 70 75 Buy 19% 11,494 19.3 15.6 31.6 25.0 Source: HSBC estimates. Priced as of close at 21 May 2020 * Includes ISP pro forma 2020e ** Includes Ingenico pro forma 2020e

26 May 2020

Antonin Baudry* Analyst HSBC France, S.A. [email protected] +33 1 56 52 43 25


European Payments Equities Software

Europe Post COVID-19 outlook supportive on all key drivers

Digital Finance

Kailesh Mistry

Head of Financials Research, APAC and Global Coordinator of Digital Finance

[email protected]

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Watch list

® Forecast AI chip demand CAGR of 28% out to 2027 – key for Asia manufacturers

® Cloud’ is still growing, with some 70% of software yet to migrate

® IoT connected devices to double by 2025, supporting over USD1trn of related revenue

® 60% of people to have mobile internet by 2025, up from ca.49% now

® Data growth, with 5G likely to make up 20% of mobile connections by 2025

® Digital health/telemedicine worth up to USD250bn annually in the US alone by 2025; see a need for 60,000 medical robots globally by 2025, 4x that in 2018

® Hardware/software market for drone-related businesses to reach USD120bn by 2030


Disruptive technology can be considered as a ‘super dot joiner’; it connects numerous themes, sectors and assets classes.

2020 was likely to be a tipping point in the adoption of digitalisation. We can see this in the way people are behaving as employees (working from home), as students (online education), as consumers (e-commerce), when seeking entertainment (virtual events, e-sports), and when needing medical advice (e-medicine). We also see this in business, especially with asset-heavy industries seeking efficiencies and

HSBC Disruption Framework

disruptive new business models through HSBC Disruption Framework artificial intelligence and automation. In our view these are likely to be long-lasting changes in behaviour which could lead to the next phase of technology-led growth around remote access. Through our disruption framework, we examine an array of technologies and related infrastructure that we think are key to these shifts, and hence well-placed to drive long-term outperformance in an already growing technology sector – these include connectivity, automation, experiential, and digital health.

Expectationsbegin

Gra

dien

t of e

stim

ated

expe

ctat

ion

vs. r

ealit

y

Expectation > reality

Expectation = reality

Expectation < reality

Backlashwindow

Realapplication New normal

Expectations fall asexperiments deemed ‘failure’

Expectationsmeet reality

Expectationsexceed reality

Earlydisruption

Hypemania

Expectationscatch reality

Technology is disrupting business models around the world, helping companies to make huge leaps forward. We help investors understand what to watch out for and how to view tech changes and their impact using our HSBC Disruption Framework

Source: HSBC Source: The Edge of Disruption -- Finding engines of growth for tomorrow

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PUBLIC


Key insights

The Edge of Disruption Finding growth engines of tomorrow

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Novem

ber 2020Them

atic | Global

The Edge of Disruption

Play video

ThematicGlobal

November 2020By: Davey Jose, David Phillips and Edward Stanford

The Edge of DisruptionFinding engines of growth for tomorrow

With 2020 seeing accelerated digital adoption, we identify four key technology themes for further growth

Our analysts across Global Equity Research look at the potential impact on 20 sectors and their ESG implications…

…and distil our thematic views to around 30 investible ideas that are exposed to the likely disruption

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Beyond Reality Is the race to VR in 2020s about to begin?

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THIS CONTENT MAY NOT BE DISTRIBUTED TO MAINLAND CHINA

The pandemic is accelerating the use of virtual reality Competition is needed to take VR to the next level, in our view Could Apple help the market in the 2020s?

Is VR on the edge of disruption…? Last year, we published our thematic report The Edge of Disruption – finding engines of growth for tomorrow (22 November 2020). In that report, we broke down disruption into four key themes: connectivity, automation, digital health and experiential. In this short update, we give you our latest thoughts on virtual reality and augmented reality, which we believe sits within our experiential theme in the ‘real applications’ stage in our HSBC Disruption Framework (see Chart 3).

If VR is to climb beyond the ‘real applications’ stage of our framework and move into the ‘new normal’ in the 2020s, then the space needs to become more competitive, in our view. This would include more hardware companies facing more price competition and more VR content.

In a previous update, Beyond Reality: The show must go on – can VR content make money today? (20 July 2020), we focused on the development of digital content, such as concerts, conferences, education, games, etc, in VR. In this update, we outline why we think recent reports of Apple entering VR could be a shot in the arm for the VR landscape and public visibility.

Chart 1: Mobile is competitive … – mobile phone market shares, 2Q20

Chart 2: … VR is not competitive yet – VR headset market share, 2Q20

Source: IDC Source: IDC

Huawei20%

Samsung19%

Apple14%

Xiaomi10%

Vivo9%

Others28%

Facebook39%

Sony22%

HTC5%

Pico9%

DPVR9%

Others16%

26 January 2021

Davey Jose* Thematic Analyst, Disruptive Technologies HSBC Bank plc [email protected] +44 20 7991 1489

Frank Lee* Head of Technology Research, Asia The Hongkong and Shanghai Banking Corporation Limited [email protected] +852 2996 6916

Nicolas Cote-Colisson* Senior Analyst, TMT HSBC Bank plc [email protected] +44 20 7991 6826

Amy Tyler* Analyst HSBC Bank plc [email protected]


Beyond Reality Thematic Global

Is the race to VR in 2020s about to begin?

The second frontier Towards low carbon shipping

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February 2021Them

atic | Global

The second frontier

Play the video

ThematicGlobal

February 2021By: Davey Jose, Sean McLoughlin, Ashim Paun, Sriharsha Pappu, Parash Jain and Amy Tyler

The second frontier Towards low carbon shipping

Shipping represents 13% of global transport CO2 emissions and has lagged other transport sectors in the drive to decarbonise

With global sea freight demand potentially tripling by 2050, policy and technological innovation are key to hitting emissions targets

The solutions will include greater use of batteries and LNG/LPG, and, longer term, ammonia and green hydrogen could play important roles

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Powering the data revolution The strains facing global electricity

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Play interview withSean McLoughlin and Davey Jose

EquitiesGlobal

May 2019By: Davey Jose, Sean McLoughlin, and Michael Hagmann

Powering the datarevolutionThe strains facing global electricity

Exponential growth of data usage could drive an acceleration in global power consumption by 2030 – investors and industry participants should be alert to potential risks

Efficiency gains have offset higher data consumption, but we think take off in VR, AV or blockchain may change this; electrification of transport may further strain power systems

We flag 26 stocks with exposure to the theme, highlighting 4 Buy-rated ideas

S p o t l i G H t

Age of Cybersecurity Spend to defend

Read report ›


Watch on LinkedIn

Live Insights: Disruptive Technologies, 28th April 2021

Attend ›

Davey Jose

Thematic Analyst and Global Coordinator of Disruptive Technology

[email protected]

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PUBLIC


Watch list

® Clean power generation: Coal and natural gas to be phased out by 2035 in developed markets, and mostly by 2050 globally

® Cleaner transport: Diesel and gasoline make way for batteries and fuel cells in road transport by 2040, with global regulation limiting shipping and aviation emissions

® Green buildings: Retrofitting in existing buildings and green new builds increase energy efficiency, as oil and gas are replaced by electricity and hydrogen as energy sources

® Low-carbon Industry: A disparate sector requiring diverse solutions, such as materials efficiency and recycling, electrification, carbon capture and hydrogen reduce emissions from metals & mining, chemicals, cement, oil & gas and Fluorinated gases

We see a mix of renewable energy sources, efficiency gains, design changes, new storage solutions and continued progress on innovation, adoption, scale and costs as central to the energy transition case for moving away from carbon intensive energy sources

Energy Transition

Snapshot: global Green House Gas emissions flows (2017)

Carbon dioxide (CO2):74.0%

Methane (CH4):16.8%

Nitrous oxide (N2O):6.2%

F-gases:3.0%

Coal: 30.4%

Waste: 4.1%

Land use, change & forestry: 6.2%

Industrial processes: 9.1%

Oil: 24.4%

Gas: 14.4%

Agriculture: 11.4

Crop & grassland: 1.4%

Waste incineration & other: 0.4%Wastewater handling: 1.9%Solid waste disposal: 1.7%

Manure management: 2.7%Rice cultivation: 1.2%Enteric fermentation: 4.8%

Other agri emissions: 2.6%

Metals & chemicals: 2.2%Other industrial processes: 3.4%

Calcination & lime production: 3.4%

Burning biomass: 2.8%

Forest: 2.1%

Buildings: 5.8%

Fugitive & other: 9.5%

Transport: 15.9

Electricity: 26.2%

Industry: 11.8%

Cars

Vans

TrucksBuses

6.2%

2.1%

2.9%0.7%

Rail & otherPipeline transport

AviationShipping

Road

Other industryCement production

Iron & steelChemical & petrochem

FugitiveOwn use & other

Residential buildingsCommercial buildings

0.2%0.3%

1.9%1.6%

11.9%

6.4%2.2%

3.1%0.1%

5.6%3.9%

4.1%1.7%

Source of emissions Human activities responsible Greenhouse gases (GHGs) Sinks

~50 GTCO2e

18.7%24% CO2 to land

17.8%23% CO2 to oceans

41.3%53% CO2 to atmosphere

0.9%5% CH4 to land16.2%95% CH4 to atmosphere

1.6%27% N2O to pyrolysisin stratosphere7.2%73% N2O & 100% ofF-gases to atmosphere

Source: HSBC, IEA, EDGAR, Global Carbon Project. Please see our report ‘Future Frontiers -- The pathway towards net-zero’ for more details


PUBLIC


Key insights

Energy Transition

Future Frontiers The pathway towards net-zero

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March 2021

ESG

& C

limate C

hange | Global

Future Frontiers

Play interview withAshim Paun

ESG & Climate ChangeGlobal

March 2021By: Ashim Paun, Sriharsha Pappu, Wai-Shin Chan, Tarek Soliman and the Global Research team

Future FrontiersThe pathway towards net-zero

To achieve the global warming targets agreed in the Paris Agreement…

…the world needs to cut emissions rapidly

Our global decarbonisation scenario looks at how cleaner power, transport, buildings and industry can reduce the emissions gap to net-zero by 81% by 2050

Spotlight: Carbon Capture & Sequestration Back in the debate, but no silver bullet

Read report ›



Asset // S

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ryM

arch 2021Equities | G

lobalC

arbon Capture &

Sequestration

Play video withTarek Soliman

Equities Global

March 2021By: Tarek Soliman

Carbon Capture & SequestrationBack in the debate, but no silver bullet

Carbon capture has re-emerged as a key decarbonisation option, but does not represent a ‘silver bullet’ or a substitute for deep emissions cuts

After a decade of losing ground to wind and solar, the 2020s are likely ‘make or break’ for the technology to play a key role in reaching global net zero emissions

Corporate appetite to invest in CCS is growing but remains sensitive to policy support. In this report we list 51 companies exposed to the carbon capture value chain

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Spotlight: Hydrogen electrolysers The rock star of clean energy or just a case of FOMO?

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January 2021Equities | Energy Equipm

ent & Services

Hydrogen electrolysers

Play video withTarek Soliman

EquitiesEnergy Equipment & Services

January 2021By: Tarek Soliman and Sean McLoughlin

Hydrogen electrolysersThe rock star of clean energy or just a case of FOMO?

Green hydrogen is forcing its way up the energy transition agenda; electrolysers occupy a crucial part of the supply chain

We see unparalleled growth prospects of ~200x to 2030, backed by rising political and corporate commitment to green hydrogen

We initiate on ITM Power (Hold, TP 550p) and NEL (Hold, TP NOK33), both set to be key players but where valuations have risen sharply. We maintain a Buy rating on Siemens Energy (new TP EUR41) which has an emerging electrolyser business

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Energy Transition Our best ideas

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Sriharsha Pappu

Head of Chemicals Research and Global Coordinator of Energy Transition

[email protected]

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PUBLIC


Watch list

® Today, roughly 4.2bn people live in cities across the world, and this is set to rise to 5.2bn by 2030 and 6.7bn by 2050, says the UN

® With cities responsible for between 40% to 70% of Green House Gas (GHG) emissions, we expect cities to prioritise air pollution from transport congestion as air pollution is also responsible for over 3m deaths a year globally

® Green, Social and Sustainability Bonds are increasingly being issued to fund green and social projects in urban areas. In 2020, green, social and sustainability bond issuance reached USD 400bn, up 24% vs 2019, and is expected to rise to USD650bn in 2021, a 60%+ increase on issuance in 2020

® Although economies are expected to open up throughout 2021, will people travel to cities for work and entertainment?

The pandemic has changed the way we think about urbanisation, raising challenges in well-being, mobility, infrastructure, housing and work practices all of which require careful consideration, planning and embodiment in our future cities

Future Cities

Ideas key to these long-term shifts

fewer carsautonomous vehicleswomencongestionclimate change and pollution

smar

t ci

ties

credit riskpublic service green bonds

qual

ity

of li

fe

few

er

jour

neys

housingsocial and sustainability bond private sector bond

crim

e an

d sa

fety

How cities can be smarter

Faster mobile and broadband

networks

Bigger public transport networks

Smarter buildings using less energy

Faster emergency response

Predictive policing

Online education

More working from home

Paying fines or taxes via app

Prefab ‘flatpack’ housing

More cycle lanes

Global urban population

2030

5.2bn

2050

6.7bn

Source: UN, HSBC


PUBLIC


Key insights

Future cities Cut congestion, lift growth

Read report ›



Play interview withJames Pomeroy

Economics & ESGGlobal

October 2019By: James Pomeroy and Ashim Paun

Future citiesCut congestion, lift growth

Urban congestion creates huge costs for the global economy

This will only rise without investment in public transport and new city layouts

We outline what could and should be done across the world

Future Cities A different type of urbanisation – ways to play our theme

Read report ›

Future Cities The changing shape of urbanisation

Read report ›

Cities and the pandemic What is the impact from re-opening?

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The pandemic has made urban living less popular… …which is weighing on rental prices… …that may not recover fully until cities regain their allure

Urbanisation trends may not be something that many investors spend too much time worrying about. They are typically seen as slow-moving, longer-term issues that don’t affect asset prices or the economy in the short term.

But, as a result of the pandemic, that may have changed. The nature of the pandemic has at least temporarily made living in large cities less attractive, particularly in apartments with limited access to outside space. In the developed world, where remote working jobs are more common, we can see that fewer people are moving to cities (and young people are staying with parents more), meaning that while house prices are surging, rental demand in cities remains soft. This is weighing on rental prices, a key component of inflation.

While timely data aren’t available everywhere, information from private apartment listings providers are showing this trend in big cities. In the US, according to Apartment List, three of the largest metropolitan areas – Los Angeles, New York, and Chicago – have seen y-o-y declines ranging from -4% to -9% recently. Rental demand outside big cities has held up, but not enough to keep the national indices up: average rental prices on Apartment List were down 1.2% y-o-y in January.

In the UK, according to HomeLet, rental prices in Greater London were down 3.9% y-o-y in January, despite rising 5.8% y-o-y elsewhere. In Australia, CoreLogic data cited by the RBA shows that rental inflation for apartments is negative in Melbourne and Sydney, while rental vacancy rates have spiked.

While prospective renters are being offered lower prices, CPI data on rents more closely reflect the prices paid by all tenants, including those that have not moved. In most metro areas in the US where we have data, the CPI data on rents have cooled off but have stayed in positive y-o-y territory. A key question is how long any downward pressure on rental inflation will persist, and this will likely depend on how quickly the appetite to move into major cities revives. This could matter a lot for inflation developments in the coming years, particularly in the US where rents account for 30% of the CPI basket.

As a result, the movement of people in and out of cities will be a key indicator to follow. If the end of the pandemic is met with a robust economic recovery and a return to urban living, particularly for young renters, then we could see rental demand and prices pick back up.

But, if remote work holds these flows back as people don’t need to move to cities to be close to offices, then lower rental prices in large cities may weigh on headline inflation rates for some time.

24 February 2021

James Pomeroy Economist HSBC Bank plc [email protected] +44 20 7991 6714

Ryan Wang US Economist HSBC Securities (USA) Inc. [email protected] +1 212 525 3181

Cities and inflation Economics Global

Global Why urban migration is worth watching

Future Cities

Stephen Bramley-Jackson

Global Head of Real Estate Research and Global Coordinator of Future Cities

[email protected]

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PUBLIC


Watch list

® The global beauty market has seen huge demand shifts during 2020 as parts of the industry have proved resilient but others have suffered, most notably make-up. Skincare, fragrance, makeup and hair care sectors are collectively worth USD320bn

® Fragmented, female and retail-heavy jewelry segment likely to outperform the luxury sector, outside a handful of brands we are less optimistic about the watch trade

® The European Consumer Staples and Beverages sector had a resilient 2020 given massive dislocation caused by COVID-19. Not only did the covered companies generally do a good job at coping with swings in demand but the big brands came into their own after a number of years of pressure from smaller-start-ups

Future Consumer

As such, we focus consumer research on the “4Cs”: Population (mn) 40-64 years with household income >USD50,000

Stickiness of online behaviour post vaccine (Brazil)

The future of consumption will be driven by Asian consumers and women in terms of both spending volumes and influence on other consumer clusters

Chinesedominating many subsectors

ConsolidationCOVID-induced M&A and scale advantages

Channelswhat place for brick and mortar versus online surge

Consciencebuy less, buy better, health concerns, buy purpose not just products, circularity and second hand

0

60

40

20

80

100

120

USChina

JapanUK

2010 2015 2025 2035 20452020 2030 2040

Pre-COVID-19

During 2020

Expect to buypost vaccine

0% 20% 40% 60% 80% 100%

More thanonce a week

Once aweek

2-3 timesa month

Once amonth

Once in 2-4months

Once ayear

Source: Global Demographics, HSBC

Source: HSBC, Toluna; number of respondents: 1,671


PUBLIC


Key insights

European Staples in 2021 Ready for the next stage

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onsumer

European Staples in 2021

EquitiesConsumer

January 2021By: Jeremy Fialko and Robert Price

European Staples in 2021Ready for the next stage

Despite the extraordinary swings of 2020 most staples demonstrated the resilience of their business models

Yet much of the sector’s H1 outperformance was given back in H2 and valuations have returned towards historical averages

The sector offers several attractive opportunities. We remain Buy on Henkel, Nestlé, Reckitt, Diageo and Danone

Time to shine Bullish outlook for luxury jewelry, watches more mixed

Read report ›



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Equities | Global Luxury G

oodsTim

e to shine

Play video withErwan Rambourg

EquitiesGlobal Luxury Goods

February 2021 By: Erwan Rambourg and Anne-Laure Bismuth

Time to shineBullish outlook for luxury jewelry,watches more mixed

Fragmented, female and retail-heavy jewelry segment likely to outperform the luxury sector. Outside of Rolex and a handful of other brands, we are less optimistic about the watch trade

Tiffany to shine at LVMH (Buy) though not a transformational deal; Richemont (Buy) more of a pure play on jewelry

Retain Hold rating on Swatch despite valuation gap

Global Beauty Onwards and upwards

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Decem

ber 2020Equities | C

onsumer

Global B

eauty

Play video withJeremy Fialko

EquitiesConsumer

December 2020By: Jeremy Fialko, Erwan Rambourg, Karen Choi, Antoine Belge and Robert Price

Global BeautyOnwards and upwards

Dislocation caused by coronavirus has raised important questions over the beauty industry’s direction

Our proprietary survey of 4,700 consumers seeks answers – they are reassuring with appetite for the category undimmed

Raise our L’Oréal target price to EUR305 from EUR246, rated Hold, and change three more target prices. Upgrade Henkel to Buy from Hold. LVMH, Amorepacific and LG H&H remain Buy

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Brazil: anatomy of the digital consumer Prepare for a new normal post vaccine

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March 2021

Equities | Future Consum

erB

razil: Anatom

y of the digital consumer

Play video withRavi Jain

EquitiesFuture Consumer

March 2021By: Ravi Jain and Felipe Cassimiro

Brazil: Anatomy of thedigital consumerPrepare for a new normal post vaccine

In our third proprietary Brazil survey, we focus on the rise of the digital consumer and the lasting impact of COVID-19 on consumer behavior

We offer insights into brand preferences across e-commerce, mobile wallets, apparel, footwear, sporting goods, food retail, restaurants, cosmetics, and travel/leisure

Weekends post vaccine will likely include restaurants, theaters, and malls, but there are enough datapoints in the survey to reinforce stickiness in online purchase frequency

Erwan Rambourg

Global Head of Consumer and Retail Research and Global Coordinator of Future Consumer

[email protected]

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PUBLIC


Watch list

® Full-EV penetration in Germany was around 11% in H1 2021, up from 4% one year earlier and plug-in Hybrid electric vehicles (PHEV) penetration was around 12% up from 4% one year earlier

® We see total cost of ownership parity of battery electric vehicle (BEV) and internal combustion engine (ICE) vehicles from around 2025 depending on region and segment, while VW’s crossover sport utility vehicle (SUV BEV) is already near margin parity with its ICE counterpart

® HSBC views transport as the “second frontier” of decarbonisation and suggests pathways across cars, trucks, shipping and aviation can reduce transport emissions 81% by 2050

Future Transport

Global BEV volumes to increase more than 5x by 2025 according to IHS Markit – with additional upside risk if OEMs achieve their own BEV targets and from EV-friendly policy changes under the new US administration…

Market capitalization of selected incumbent has increased by +34% YTD vs YE2020 while disruptors have only increased by +6% (mainly driven by Tesla)

... while besides EVs, the real disruption is Software/Digitalisation, with Volkswagen tripling its investment (EURbn)

2020 2021e 2022e 2023e 2024e 2025e

Automaker targets by 2025Battery electric vehicle (BEV) sales, million units

MainlandChina

Europe

USRoW

5.4m

1.0m

Others (based on IHS)

Nissan0.4m BMW0.6m Mercedes

3.0m VW Group0.5m Toyota

1.0m Hyundai0.65m Great Wall2.0m Tesla1.0m GM

0

4

8

12

16

202020192018

4

8

32

12

14

33

11

27

35 Electrification

Hybridpowertrains

Digitaltechnology

VW+BMW+Ford+GM = EUR275bn Tesla+NIO+LG Chem = EUR690bn

Market capitalisation in EURbn

23 Aug2021

YE 2020

VW+BMW+Ford+GM = EUR205bn Tesla+NIO+LG Chem = EUR653bn

Traditional car manufacturers, new electric vehicle (EV) players, technology companies and mobility providers are all competing for future transport and mobility revenue streams, while also negotiating complex regulation and decarbonisation. Our Future Transport theme allows investors to monitor and navigate important trends as value flows into, out of and across the mobility value chain

Source: FactSet, HSBC Research

Source: IHS Markit, Company announcements Source: VW, HSBC *annual planning rounds for the investment budget


PUBLIC


Key insights

Global Autos Chipageddon or catch-up trade?

Read report ›





FTSE Autos back to pre-crisis levels at 7.1x 24M-fwd PE, but

discount to FTSE EU and Industrials very high now, due to lockdown and chip shortage concerns – a catch-up opportunity

We remain constructive, with strong Q4’20e earnings, robust 2021e demand and sticky cost savings – with Buys on BMW, Daimler, Stellantis and VW – although all for different reasons

We update our global EV forecast in this note and include a mini case study on EV/software/tech as Auto valuation drivers

2021e global car sales (LVS) +11% after -15% in 2020a – with strong Q4’20e results and supply/demand fears temporary, we remain constructive: Based on our conversations with EU Auto OEMs and suppliers before the Q4’20 quiet period, as usual, OEMs are more vague on market outlooks than suppliers, but overall our +10% 2021e LVS forecast is well supported by bottom-up views at this point – and VW and Valeo pre-releases bode well. The top-down view is more uncertain, with lockdowns and chip shortages (see pg 09) impacting Q1/H1 2020 volumes. On balance, however, underlying demand seems strong enough to allow a robust 2021e volume recovery on easy 2020 comps in the EU, US and China (see pg 11) – with our +11% 2021e LVS growth above IHS (see pg 17). We see upside risks to 2021e/22e consensus earnings, if sticky cost savings continue to meet robust demand (see pg 04). And while share prices will likely remain volatile following the strong recovery, we are constructive on Autos into 2021.

FTSE Autos & Parts now at pre-COVID-19 levels at 7.1x 24M-fwd PE, but gap to other sectors much larger: EU Autos have only performed in line with EU Industrials and the broader market despite sharp positive earnings revisions. The FTSE EU Autos & Parts index is at pre-crisis levels, while 2022e forecast volumes and EPS are still c10-15% below pre-crisis forecasts. But with the discount to the broader market at 7.1x – and OEMs and suppliers performing better than expected on right-sizing costs – there may be room for positive earnings estimate revisions and a relative re-rating and catch-up trade.

EV, Mobility and China remain valuation drivers. We have Buys on BMW, Daimler, Stellantis and VW. Besides the usual data tables, we update our global EV forecast in this report (see pg 19) and perform a mini case study on Software/Mobility driving valuations in the global Autos space (see pg 24). Our OEM stock calls also reflect our constructive view – although all motivated by company specific reasons (see pg 07).

Henning Cosman* European Head of Automotive Equity Research HSBC Bank plc [email protected] +44 20 7991 0369

Edoardo Spina* Analyst, Automotive Research HSBC Bank plc [email protected] +44 20 3359 2239

Pushkar Tendolkar* Analyst, Global Autos HSBC Securities and Capital Markets (India) Private Limited [email protected] +91 80 4555 2752


28 January 2021

Global Autos Equities Autos

Global

Company BBG Ticker Currency CMP Target price Rating Upside Market Cap (m) BMW BMW GR EUR 72.08 85.00 Buy 17.9% 43,392 Daimler DAI GR EUR 58.89 66.00 Buy 12.1% 63,001 Volkswagen VOW3 GR EUR 163.00 195.00 Buy 19.6% 85,724 Stellantis STLA IM EUR 12.87 18.50 Buy 43.7% 40,160 Source: HSBC estimates, Bloomberg for closing prices as on 26 January 2021

Chipageddon or catch-up trade?

Asia EV Battery Hard to ignore accelerating electrification momentum

Read report ›

Auto Suppliers LVP turns the corner, #FutureTransport more foe than friend?

Read report ›

Future frontiers Climate solutions to net-zero emissions

Read report ›




Click here to vote




Decarbonisation targets are increasing in ambition Reducing emissions to ‘net zero’ levels requires radical action

across a range of human activities We use our proprietary Climate Database to create five screens

of 88 companies earning a majority of revenue in relevant areas

Atmospheric carbon continues to rise, as we emit more greenhouse gases each year. We have already experienced 1.2°C warming since pre-industrial times, and the impacts of this are worsening. And so, in Future frontiers – The pathway to net-zero, March 2021, as governments, companies and investors around the world begin to target net-zero emissions, we look across sectors and ask the question:

How can the deep, economy-wide transition necessary for this level of decarbonisation be achieved?

A four-sector focus: The focus so far has been on replacing fossil fuels in power generation. As we have argued, the transport sector follows this – the second major step is to replace the internal combustion engine. In our recent report, we go much further, and look at future frontiers for decarbonisation, moving beyond power and cars to consider other clean transport modes, greener buildings and low-carbon industry. We see these as necessary to put the world on a pathway towards achieving the stronger Paris Agreement target of limiting warming to 1.5C (aligned with net-zero emissions by 2050).

Climate solutions to net-zero emissions: In this note, we offer five stock screens that comprise companies earning a majority (>50%) of their revenues in relevant climate activities:

Clean power – incorporating pure-play climate companies earning revenues from our Bio-energy, Hydro/Geothermal/Marine, Solar, Wind, Diversified renewables, Integrated Power and Nuclear climate themes

Clean transport – incorporating companies from our Energy Storage, Fuel Cell and Transport Efficiency climate themes

Green buildings – incorporating companies in our Buildings Efficiency climate theme

Industrial efficiency - incorporating companies in our Industrial Efficiency climate theme

Triple filter – companies earning climate revenues in the above four areas, rated Buy or Hold by HSBC equity research analysts, and with improving emissions intensity of revenues earned

24 March 2021

Ashim Paun Co-Head, ESG Research; Climate Change Strategist HSBC Bank plc [email protected] +44 20 7992 3591

Amit Shrivastava* Climate Database Lead, European Equity Strategist HSBC Securities and Capital Markets (India) Private Limited [email protected] +91 80 4555 2759

Wai-Shin Chan, CFA Head, Climate Change Centre; Co-Head, ESG Research The Hongkong and Shanghai Banking Corporation Limited [email protected] +852 2822 4870

Anushua Chowdhury Associate Bangalore * Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/ qualified pursuant to FINRA regulations

Future frontiers Climate Change Global

Climate solutions to net-zero emissions

Future Transport

Henning Cosman

European Head of Automotive Equity Research and Global Coordinator of Future Transport

[email protected]

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PUBLIC


Lower for Longer

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1990 1995 2000 2005 2010 2015 2020

Yiel

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UST 10-year

Declining yield trend has been in placefor more than three decades

Source: HSBC, Bloomberg. Quarterly data, 120-day moving average in dark red.

The global lower-for-longer rates theme withstood many challenges because short-term cyclical and reflationary impulses failed to overcome structural headwinds. Our view takes account of key determinants of low real rates, including debt overhangs, demographics, globalisation and technology. The footprint of this decade-long theme can be seen from the publications on the next page


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Lower for Longer

Steven Major

Global Head of Fixed Income Research

[email protected]

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Steven Major, CFA

Global Head of Fixed Income Research and Global Coordinator of Lower for Longer

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Fiscal fallacies Bonds are not potatoes

20 JAN 2020




Wednesday, 22January 2020 | LondonRegister now

HSBC Investment Seminar

Sterling Markets in 2020

For those calling for 2020 to be the “year of fiscal policy” we have some bad news

Supply does not matter to our long-term bond yield forecasts Government bonds appear to exhibit the micro-economic

characteristics of goods that have an elastic demand curve

Bonds are not potatoes Unlike potatoes, government bonds are unlikely to go bad (default) over time. So the value of a bond today is defined by the expected path of short rates and a term premium. The overly simplistic view that increased supply of bonds means prices will fall (i.e. yields will rise) has been popularised with renewed calls for fiscal loosening. But this is analogous to estimating the price impact of an increase in the supply of potatoes without reference to demand. We examine demand through a micro-economic prism and do some empirical tests that find support in the literature.

The “supply matters” approach misses what actually matters Bonds are not potatoes, but if they were the market stall analogy would be like ignoring their value versus alternative foods (relative value). And it would be odd to make forecasts that exclude the demand – especially from large price-insensitive buyers. For the bond market, these include central banks (in QE operations), as well as the vast set of investors, who see their liabilities rise when yields fall.

The demand curve for bonds can be relatively elastic We believe the demand curve for government bonds can be relatively elastic compared with the supply curve, so that even a big move in supply does not have to result in a meaningful shift lower in the price. This view is supported by the long-term relationship between real yields and shifts in the deficit. Together, it suggests factors aside from supply play a more important role in determining the level of bond yields.

The short rate matters most to the bond yield The government bond markets efficiently discount all available information so that bigger deficits and higher debt/GDP ratios are factored-in. If a loosening of fiscal policy is expected to boost future growth potential, then the central bank may respond by changing its forecasts and signalling higher policy rates. This happened in the US in 2017, when in anticipation of higher policy rates the front-end of the curve adjusted more quickly than the long-end. The curve flattened.

Steven Major, CFA Global Head of Fixed Income Research HSBC Bank plc [email protected] +44 20 7991 5980

Daniela Russell Head of UK Rates Strategy HSBC Bank plc [email protected] +44 20 7991 1352

Duncan Toms Fixed Income & Multi-Asset Strategist HSBC Bank plc [email protected] +44 20 7991 3025

Lawrence Dyer Head of US Rates Strategy HSBC Securities (USA) Inc. [email protected] +1 212 525 0924

20 January 2020

Fiscal fallacies Fixed Income Rates

Bonds are not potatoes

Down, down, deeper and down US rates – an alternative scenario

4 JUN 2020




To maintain the diversification properties of owning US

Treasuries, rates might need to be free of the zero bound Down, down, deeper and down is a low probability alternative

scenario which would have a big impact… …so it is worth considering alongside the maintenance of the

status quo, which informs the base case scenario

Markets underweight scenarios that can have a big impact It is just maths. When rates have been at 2.0%, with the Fed in easing mode and the market implying 50bp of rate cuts, we could say it was equivalent to a 25% probability of a move to zero and 75% probability of unchanged. Now we are at zero and we wonder whether implying 10bp of rate cuts means there is a 10% probability of minus 1%. Extending the process further implies -1% becomes a 10% probability of -10%. It’s not our forecast but this number is close to what the Taylor rule implies.

Down, down, deeper and down Rather than incremental shifts below the zero bound we look at the seemingly implausible -10% generated by the Taylor rule. Unencumbered by the zero bound, yield curves would experience a huge bull-steepening, perhaps going beyond previous extremes, and the insurance value of Treasuries would be maintained because long-duration positions would still work to effectively hedge risky asset positions. There would likely be an extended rally across financial assets too.

Status quo brings new challenges Yield curves will continue to evolve into a ‘hockey stick’ shape whilst the zero bound holds; these convex curves have relatively flat front-ends and steep long segments. Lower bond volatility would likely continue with tight trading ranges but bonds could lose diversification appeal as they no longer serve as ‘insurance’ against risky asset positions. This potentially challenges the view for risky assets described above.

Deeply negative interest rates are not the base case Much has been written about negative interest rates and there is a debate as to whether they ‘work’ as intended and on whether the costs outweigh the rewards. Evidence for and against is based on the experience of moderately negative interest rates that appear to have hit constraints. Deeply negative rates would be different and the measurement of success or failure would presumably be based on the different objectives to those of slightly negative rates.

4 June 2020



Down, down, deeper and down

Fixed Income Rates

US rates – an alternative scenario

US bonds – the QE quandary Three common misconceptions

29 JUN 2020




We use event studies to show that US Treasury yields are

where they are because of rates not QE Applying long-end yields to infer shadow rates exaggerates

the true policy accommodation for the real economy The larger Fed balance sheet and increase in money supply

do not mean inflation is about to rise

Client questions centre on these misconceptions Whilst defending our US Treasury forecasts we realised that the pushback to our view has a common thread leading to the QE quandary. So we were motivated to write this paper to provide a better understanding about the three main misconceptions: 1) yields are lower because of QE, 2) that by extension QE is a substitute for rate cuts, and 3) the bigger balance sheet will feed through to higher inflation and yields.

Our forecast is still 50bp for US 10-year Treasuries Long-term structural themes justify policy rates staying low for a very long time. One of these themes is the level of debt that just got a lot larger, making it even more difficult for rates to rise. QE ‘rules of thumb’ that suggest yields are too low, and views on the balance sheet expansion being inflationary, are distractions from what really matters to the longer-run equilibrium policy rate.

Treasury market looks through the noise For most of April, May and June the 10-year Treasury range has been just 10bp. In the volatility of March the range for daily closes was 66bp and this belies the true intra-day volatility. When we consider the size of the stimulus and the ‘lumpiness’ of net bond supply, the market’s smooth transition has been impressive.

Our view means we prefer to use periods of volatility to position for lower yields. In the longer maturities we look for curve flattening opportunities.

We address each of the three misconceptions After a brief executive summary this paper is divided into three sections:

1. Bond purchases and yields

2. Substituting QE for rate cuts

3. Balance sheet, money supply and the return of inflation

29 June 2020



Shrey Singhal, CFA Fixed Income Strategist HSBC Securities (USA) Inc. [email protected] +1 212 525 5126

US bonds – the QE quandary Fixed Income Rates

United States Three common misconceptions

View insights

It’s not about the money Fed’s trillions are bullish for bonds

27 SEP 2012

abcGlobal Research

Our non-consensus view is that QE3

will drive US Treasury yields to new lows

The impact of the Fed’s trillions is passed onto assets in five ways, which we identify and use to create a QE Scorecard

Our QE Scorecard implies that QE3 is bullish for Treasuries, credit, EM debt and equities, but bearish for mortgage and inflation-linked bonds

The Fed’s QE trillions are not ‘printing’ money The Federal Reserve’s new wave of quantitative easing (QE3) follows similar large-scale asset purchase policies adopted in November 2008 (QE1) and November 2010 (QE2). Each step of the Fed’s unconventional policy response – which will soon add up to close to USD2 trillion – has been met with controversy. Opposition comes from those who think QE has no real economic impact, to those who believe the policy will be inflationary. But it’s not about the money, rather about where it goes and how it is used.

We assess the impact of the Fed’s trillions by tracing where the money went, and where the cash received by investors selling assets to the Fed was invested. By following the money, we identify five ways Fed purchases are felt by markets and the wider economy: 1) yields on assets targeted by the Fed; 2) use of cash by investors selling to the Fed; 3) bank reserves; 4) economic expectations; and 5) policy expectations. There is no printing of money analogous to 1920s Germany: the Fed is effectively funding its purchase of assets by steering reserves in the banking system in certain directions.

We used these insights to create a QE Scorecard to assess the potential impact of QE3 on Treasuries, mortgage bonds, inflation-linked debt, credit, EM debt and equities. Our conclusion is the opposite of the consensus view that QE3 will be inflationary and push US Treasury yields higher, and our target is for 10-year Treasury yields to test the 1.4% low point in the coming months.

Global Fixed Income Strategy

Special

It’s not about the money Fed’s trillions are bullish for bonds

27 September 2012 Steven Major, CFA

Strategist

HSBC Bank plc +44 20 7991 5980 [email protected]

Lawrence Dyer Strategist

HSBC Securities (USA) Inc.

+1 212 525 0924 [email protected]

View HSBC Global Research at: http://www.research.hsbc.com


Disclaimer & Disclosures This report must be read with the disclosures and the analyst certifications in the Disclosure appendix, and with the Disclaimer, which forms part of it

Japan’s trillion dollar bond rotation Where are the bond flows going?

19 MAR 2013

abcGlobal Research

We think Japanese buying of overseas

bonds could be close to a trillion dollars this year

This private sector outflow is being driven by anticipation of the Bank of Japan’s huge monetary stimulus

German Bunds and French OATs are the biggest winners so far, but emerging markets are also benefiting

Tracking bond flows after the BoJ shift The aggressive monetary easing that Japan is planning to boost its economy and kill deflation is already having a big impact in international bond markets. Money is flowing out of Japan in anticipation of further yen weakness and because of the incredibly low JGB yields. The biggest beneficiaries are core European bond markets as Japanese investors seek additional yield and the prospect of currency gains. Over the past six months, 20% of the gross issuance of core Eurozone debt has effectively been bought by Japanese investors.

With more stimulus likely, we think this trend will continue, driving down yields in core Eurozone markets, particularly Germany and France. We think the yield on 10-year German Bunds could fall close to 1.0% later this year, reflecting the extensive new demand for a relatively scarce product. This goes against the consensus view that Bund yields will rise.

USD1 trillion outflow In total, we estimate USD700bn-USD1trn could flow out of Japan over the next year, reflecting both higher historical levels of Japanese investor ownership and an extrapolation of recent evidence of flows from the mutual fund sector. The beneficiaries include other core markets, supranationals and agencies. We think Indonesia, Mexico, Brazil, Poland, Turkey and South Africa will be among the emerging markets affected.

BoJ QE will contain JGB yields These private sector purchases of foreign bonds will not lead to higher JGB yields if the BoJ launches earlier quantitative easing, including buying longer maturities, under Haruhiko Kuroda, the new Bank governor.

Global Fixed Income Strategy

Special

Japan's trillion dollar bond rotation Where are the bond flows going?

19 March 2013 Steven Major, CFA Global Head of Fixed Income Research HSBC Bank plc +44 20 7991 5980 [email protected]

André de Silva, CFA Head of Asia-Pacific Rates Research The Hongkong and Shanghai Banking Corporation Limited +852 2822 2217 [email protected]

View HSBC Global Research at: http://www.research.hsbc.com


Disclaimer & Disclosures This report must be read with the disclosures and the analyst certifications in the Disclosure appendix, and with the Disclaimer, which forms part of it

Vote for HSBC Fixed Income research in the Euromoney investor survey 2013:

http://www.euromoney.com/fixedincome2013 The deadline for voting is 12th April 2013

The Trump Premium Changes to our US yield forecasts

11 NOV 2016




Trump premium - how much is enough? President-elect Donald Trump made plenty of promises during the US election campaign but gave very little detail. There are now widespread expectations of tax cuts and increased spending, particularly on infrastructure, but little clarity on how such programmes will be financed. We cannot afford to wait for more detail before changing our bond yield forecasts. We are cautious about how many of Mr. Trump’s pledges can be delivered, including on trade and tariffs. What we do have is analysis of the term premium, inflation expectations, and forward yields, which gives us some insight into how far the Treasury curve could reprice.

Approximately 100bp increase in term premium We think the 10-year US Treasury yield could rise to 2.5% in Q1 17. This increase may hurt economic growth, and given the structural factors at play and the large number of unknowns, we are keeping our end-2017 forecast at 1.35%. Our view recognizes the cyclical pressure pushing yields upwards but also that longer-term structural drivers, such as the debt overhang, will weigh on growth and yields (Bonds in 2021).

Rationale for near-term increase in yield forecast Normalization of term premium towards the average level of the last four years would represent an approximate increase of 100bp in yield from the low point. The term premium rise reflects the potential shift in the level of bond supply versus demand, in line with projections of an increased budget deficit. The 2.5% 10-year Treasury forecast for Q1 17 is 110bp above the low point for nominal yields reached in the summer.

Why is the end-2017 forecast not higher? We believe that if yields increase too much in the short-term then financial conditions will tighten, resulting in less growth and a constrained Fed. Our analysis shows that, historically, shifts in supply have not changed the relationship between longer-run economic growth and interest rates. Therefore, we expect yields to fall again on the basis that Trump’s policy proposals, which combine tax cuts and spending cuts, may not boost growth by enough to support higher yields.

11 November 2016


Lawrence Dyer Chief US Rates Strategist HSBC Securities (USA) Inc. [email protected] +1 212 525 0924

The Trump Premium FIXED INCOME RATES

US

The US is seeing a reflation trade based on expectations of a big fiscal boost following Donald Trump’s election victory

Hence, we increase our forecast for the 10-year Treasury yield to 2.5% (up 100bp) for Q1 2017

But we keep our end-2017 forecast unchanged at 1.35% because we think the economy will slow if yields rise

Changes to our US yield forecasts

Lower for longer Challenges to our bond view

1 SEP 2017




MiFID II – ResearchIs your access agreed?CONTACT us today

We are frequently faced with challenges to the low-for-longer

bond yield view

It is five years since we cut our forecasts and we probe our below-consensus US yield call by considering five topical risks

We explain why we think those risks are contained and why the structural drivers supporting low yields remain in place

Possible risks to our view that bond yields will remain at low levels, and those most often cited by investors, include:

Central bank balance sheets

Framework changes at central banks

Whether or not inflation can stay low

Tax reform and other supply-side reform impact on growth

The economic cycle and the yield curve

In this report, we highlight the trends that have supported our views over the last five years. These include:

Central bank QE spills across borders

There is too much debt, the servicing of which is deductive from growth

QE is not inflationary, in fact it can be the opposite

Term premium drives the large bond sell-offs

Forward yields above nominal GDP projections are a bullish signal

Central bank forward guidance contributes to lower volatility

Higher yields are not sustainable if debt is not reduced

Common misconceptions inform mainstream bond yield forecasts

Table 1 on page 11 shows the full history of forecasts and how they compared to consensus and spot rates, along with a list of the relevant publications.

1 September 2017


Lower for longer FIXED INCOME GLOBAL

Challenges to our bond view

US yields & leverage How more debt and slow growth reduce rates

15 JUL 2018


Issuer of report: HSBC Securities (USA) Inc.


US debt levels have increased and growth slowed compared to

past tightening cycles, upping the impact of rate hikes

Our short-term borrowing stress measure suggests that the FOMC’s hike projections (dots) will restrict growth

This supports our view that higher leverage and slower growth are reasons to forecast lower-for-longer Treasury yields

The Fed is tightening, but we still expect yields to stay low. The forces that have kept yields low since the great recession have not changed (Bonds in 2021: Why we expect yields to stay low, 4 October 2016) and the 5y5y forward is near its expected peak (Peak Rates: A new era for US Treasuries, 5 February 2014). We estimate that USD12trn of non-federal US debt is sensitive to short-term rate changes today. At 64% of GDP, this is near its 50-year peak (Figure 5). Higher debt levels and slower nominal growth means each 25bp rate hike has a bigger dampening effect than before. The Fed could hike by less than it projects and/or growth could slow more than it expects, in our view.

Quantifying these effects requires answering the question: How does a 100bp increase in the Fed funds rate affect the cost of servicing debt and future spending? We have asked this question in many meetings with investors in recent months. No one had a quantitative answer. The Federal Reserve website’s section on monetary policy reflects the conventional discussion (see Debt Cost Measure section). It highlights the importance of long-term rates as well as how changes in equity and home prices affect wealth and consumption. The effects of change in short-term interest rates receives little attention.

This may reflect the view that higher debt servicing costs for a borrower results in higher income for the lender. If both had the same marginal propensity to consume, then rate hikes would simply shift consumption from borrowers to savers -- total consumption would not change. However, it is more likely that many borrowers have limited financial resilience and will spend any savings (Forbes) and have difficulty paying higher bills (Pew Charitable Trust) while wealthier savers will not change their consumption.

To understand the effect of shifting short-term rates, we construct a borrowing stress measure: the nominal growth trend minus the cost of the debt sensitive to short-term rates. We then compare historical levels of this stress measure to what would happen based on the FOMC’s median economic and funds rate guidance.

We estimate tightening to the 2020 median FOMC dot, 3.375%, would have the same effect on consumption as a 30% drop in US equity prices. Interestingly, today’s fed funds rate is already moderately restrictive based on our analysis (Figure 1).

15 July 2018



US yields & leverage FIXED INCOME RATES

United States How more debt and slow growth reduce rates

Bonds in 2025 Lessons from Japan

6 AUG 2019




We revisit our view from ‘Bonds in 2021’ and see five key

reasons why bond yields should remain low for even longer Our views should be seen in the context of Japan’s 30-year

battle with excessive debt and the policy responses We cut our end-2019 US 10-year Treasury and Bund yield

forecasts to 1.50% and -80bp, respectively

Lower… for even longer In essence, we expect bond yields to remain low for the following reasons: 1) those central banks with negative rates are already preparing to further experiment with life below zero, 2) inflation is likely to stay low, 3) QE is not working to reverse disinflation, 4) debt levels remain excessively high, and 5) growing interdependence between fiscal and monetary policy.

Turning Japanese: lower and flatter Our analysis is underpinned by Japan’s experience over the last 30 years as it has struggled with high debt levels, extremely low inflation, and (more recently) negative interest rates. For bonds, Japanification means permanently low yields and curve flattening that extends up the curve from shorter maturities. It also means lower yields elsewhere as trillions of dollars flow to places that offer better returns.

Taking the hatchet to our bond yield forecasts Informed by the powerful Japan effect and the projections out to 2025, we have cut our bond yield forecasts from already low levels. For 10-year US Treasury and Bund yields, the new forecasts are 1.50% (from 2.1%) and -80bp (-20bp), respectively, for both end-2019 and end-2020.

Our 2025 view is that the central tendency for US bond yields is approximately 2.0%, reflecting longer-term real rates close to zero and inflation continuing to average no more than 2.0%. This is consistent with our long-held view. HSBC’s year-ahead US Treasury forecast has been in the 1.5-2.5% range for the last seven years.

We have considered how we could be wrong In our scenario analysis we consider bond-bearish outcomes, the most commonly cited being higher inflation. For this to have more influence on our thinking we would need to see sustained wage increases and a reversal of globalisation effects. We also consider radical policy proposals like MMT (Modern Monetary Theory) and believe that some of the ideas already exist in the interdependence between monetary and fiscal policies.

6 August 2019

Bonds in 2025 Fixed Income Rates

Global



Daniela Russell Head of UK Rates Strategy HSBC Bank plc [email protected] +44 20 7991 1352

Lessons from Japan

Decade of denial Fixed Income Asset Allocation

9 JAN 2020




There is nothing that changes our long-term view of low-for-

longer rates. Perennial expectations of cyclical recovery fuel the market’s short duration position

We are bullish Bunds given the weak economic backdrop and relative valuations. Long-dated US TIPS offer value

Yields are still above our end-2020 forecasts, which include 1.5% for US Treasuries and minus 60bp for Bunds

Valuations stretched but low-for-longer prevails Page 4 The decade of denial saw expectations of cyclical recovery often disappointed and a similarly misplaced belief in the view that bond yields would rise. Whilst most market participants have accepted that low-for-longer rates is now a base case, we wonder whether investor positioning and psychology has sufficiently adjusted.

We like ultra-long US TIPS Page 8 An alternative source of duration to the conventional market, long-dated TIPS also provide protection against a rise in inflation, at a time when the Fed is openly pursuing catch-up strategies. We prefer the 30-year segment based on our analysis of prospective total return1.

Bullish Bunds on fundamentals and relative valuations Page 13 Bizarre as it may seem when the yield on the 10-year is minus 24bp, we think Bunds are cheap. The economic backdrop remains sluggish, the possibility of further easing has been priced-out and then there is the comparison with Treasuries. When shopping for high quality, core rates duration, we think this is the place to go.

UK 10-year gilts: Global factors have contributed to the re-pricing Page 15 The recent rise in front-end UK rates came alongside a similar re-pricing in the Euro area and US, and can explain much of the back-up in 10-year gilt yields. It has left valuations at odds with where we think the balance of risks lies. As the BoE moves from laggard to leader of the central bank doves in 2020, this is bullish for UK gilts.

Mildly bullish on credit markets globally Page 11 and Page 18 Policy support in China and from major Western central banks should keep credit spreads tight in the near term. Although we are mildly bullish across credit markets globally, our risk appetite is kept in check by the prospect of modest spread compression ahead.

______________________________________ 1 Total return measures price appreciation, accrual and coupon payment

9 January 2020

Fixed Income Asset Allocation

Fixed Income Rates

Global


Decade of denial

What really matters Fixed Income Asset Allocation

9 JUN 2021

Back to the future Lower-for-longer and regime shifts

25 MAR 2021


Issuer of report: The Hongkong and Shanghai Banking Corporation Limited


Click here to vote



To qualify as a market regime shift there has to be a large

and abrupt upward move in the longer-run real rate... ...which persists for many years, supported by positive

feedback loops. We set the bar high for a change of view The cyclical impulse informing the current narrative is unlikely

to reverse the secular drivers causing low rates

Thought experiments on what constitutes a regime shift We went back to the 1960s and the period of above-trend growth that sowed the seeds of the 1970s inflation. If that’s what investors think is coming next then they better prepare for an additional 150bp increase in longer-run real rates, and that’s on top of what’s already occurred. For perspective, a further increase that takes forward bond yields towards 4.0% would represent a reversal of all the declines since the Global Financial Crisis (GFC). It is not our view, just a description of what regime shift in the FOMC’s and bond market’s long-run rate outlook might look like.

The evolution of our view – checking back This is not the first time the low rate regime has been challenged, and it will probably not be the last. Cyclically driven yield forecasts and market moves have oscillated between recession and reflation expectations. Some forecasters forever look for higher inflation but we don’t see what would change the multi-decade trend of lower yields and inflation. Lower-for-longer started with the QE that came after the GFC in 2008-09. The regime withstood the test of ‘taper tantrum’ (2013) and the ‘Trump bump’ (2017). It is now grappling with the ‘Biden bazooka’.

Central banks can only watch falling longer-run real rates HSBC’s economics team sees a 6% 2021 US GDP (The great experiment, 24 March 2021), reflecting the challenge of the 2021 growth surge. Unlike the economy, the Fed has had its own regime change: it now looks to a longer-run average of realised inflation, and the policy review is not scheduled for five years. Applying a long-run average to growth and inflation forecasts for the coming years finds a return toward trend, not a new regime. By definition, the structural and secular forces that gave us low rates are not likely to reverse quickly. Central banks cannot do much about the birth rate, or make old people young again, neither can they make the debt overhangs vanish.

No change to our longer-run forecasts Our longer-run 1.0% US 10-year Treasury forecast is unchanged, because we believe the lower-for-longer framework remains intact. Fundamentally driven, long-term investors, may require an event or a trigger that changes the narrative before they can step-in to buy bonds. For our near-term forecasts, neutral means neutral; we regularly update our tactical view in our Fixed Income Asset Allocation publication, the latest of which was published on 10 March 2021.

25 March 2021

Steven Major, CFA Global Head of Fixed Income Research The Hongkong and Shanghai Banking Corporation Limited [email protected] +852 2996 6590


Shrey Singhal, CFA Fixed Income Strategist HSBC Securities (USA) Inc. [email protected] +1 212 525 5126

Back to the future Fixed Income Rates

United States Lower-for-longer and regime shifts

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