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INVESTORS ARE YET TO NOTICE AI EFFICIENCY IN EMERGING MARKETS, SAYS HSBC

The EM AI adoption trade is overlooked and underpriced according to HSBC, adding that the AI story in emerging markets is entering a new phase.

Until now, returns have been led by companies with direct AI-linked revenues—mainly in semiconductors, AI infrastructure and digital applications, the brokerage said, adding that nearly 20% of EM revenues are exposed to AI, with Taiwan and Korea at the center.

What’s emerging next, and still underestimated, is AI adoption, according to the brokerage. As companies embed AI into everyday operations, the focus is likely to shift from headline revenue growth to margins and productivity.

As the earnings season gets underway, results from AI bellwethers TSMC 2330.TW last week showed demand for AI‑related semiconductors is high, in the face of Middle East tensions. Korea's SK Hynix 000660.KS is also expected to report first-quarter results later this week.

HSBC estimates that around 40% of labour costs across EM equities—about 5% of total operating costs—are exposed to potential AI automation. The opportunity is greatest in software & services and financials, while sectors such as materials and food & beverages are far less exposed.

However, "potential does not equal realisation", HSBC said. Adoption across EM remains uneven. The UAE stands out, with nearly 65% of the working-age population already using generative AI, with Qatar, and parts of Central and Eastern Europe.

In contrast, adoption remains below 15% in markets including Thailand, Indonesia, Egypt, Türkiye and India. Moreover, the U.S. continues to lead globally, with AI adoption above 80% in technology and communication services versus roughly 50% in EM.

HSBC says markets remain too focused on companies with direct AI revenues, overlooking the still‑underpriced margin gains that broader AI adoption can deliver.

(Kanishka Ajmera)

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