[music]

Bloomberg Audio Studios podcasts radio

news.

[music] Welcome to the Daybreak Asia

podcast. I'm Dan Schwarzman. Doug Krer

has the week off. Asian stocks open

lower after a techled selloff hit Wall

Street as concerns mounted over returns

from the billions spent on artificial

intelligence ahead of a slew of mega cap

company earnings. Elsewhere, the United

Arab Emirates will leave OPEC next month

in a significant blow to the group that

raises questions about its future. The

UAE's exit May 1st after six decades of

membership is the latest indication of

how the conflict is reshaping global

energy markets. That's where we begin

the conversation with Hartman Isle.

Hartman is the head of APAC equities and

credit at UBS Wealth Management. He

spoke to Bloomberg Sherion and Heidi

Shroud Watts. In a world of

unprecedented events, we can sort of

expect to see anything happen, right?

The dislocation that continues to happen

in energy markets, both structural with

this UAE announcement, how does it sort

of inform investing particularly in the

energy space?

>> I would actually agree. It's it's a bit

difficult to make a connection between

um what we just heard on the OPEC side

and that there [clears throat] is a

direct impact on the markets. So I

wouldn't go that far in terms of the the

stra will it be open will it not be open

or when it I think the question is more

when because I would still argue both

sides have an incentive to bring it to a

close I mean the US we all know is a

couple of months out yet but there's a

midterm election but also the Iranian

side where you could argue now yeah high

oil prices are good but you still have

to bring it out you have to get export

revenues so yeah ultimately and the

talks are going on so one should as a

base case assume that yes the also also

that that flow comes back um not in 6

months or 12 months but but much earlier

than that.

>> If you take a look at the broader

markets we're also seeing again

investors that have poured into tech and

AI that entire universe cycle back to

these concerns that the spending the

capex may not actually pay off. Where do

you sit in the broader scheme of things

as to how invested you want to be in the

AI story at the moment?

Um what we're saying is that you know

unlike maybe the last three years AI is

still one game in town but uh arguably

not longer the no longer the the only

game in town right so what do I mean by

that I would say since the third quarter

last year already we see other sectors

especially also in the S&P also

contributing much more than they have

over those three years um towards

earnings growth and so therefore we're

seeing not that the AI side goes goes

negative I think over the next couple of

days and especially to Tonight in fact

right we will see the big hyperscalers

um with very strong in our view very

strong numbers on on cloud demand right

so that tells you this is no no shortage

of of demand as such and that's the

important part but outside that things

like maybe even healthcare you know very

different sector very different beta but

if you mix these up together that's

probably a good strategy for investors

how much of the conversation is also

going to gear towards central bank week

I mean we do have the FOMC now expected

to hold. We have seen the Bank of Japan

hold given all of the uncertainty.

Yes, in our view maybe it's a bit

outside consensus I must say but we have

firm conviction that actually the market

is overpricing how aggressive the

central banks or let's say the two big

ones be at least they have come back in

terms of pricing for the for the Fed but

maybe slightly down. We say

not not unsurprising if they if they

show us two cuts uh for for the

remainder of this year. They wouldn't

surprise us. And also the ECB, yeah,

maybe they don't cut. We think they're

finished. But also what the market price

is in in terms of of upside on the on

the rates, we we don't think that's

actually very plausible. And [snorts]

that being the case, we say especially

also maybe a bit more on the short-term

bonds, there's good opportunities to to

enter at these relatively high levels of

yield. We think right now

Yeah, tell us a little bit more about

that. Because if central banks have uh

no other choice than be a little bit

more hawkish this time around given the

uncertainty from the Iran war, does that

mean more pressure on broader government

debt?

>> Yeah, look, I put myself in the shoes of

a central banker maybe for for a moment.

The way I would think about this is not

the usual scenario. We have a booming

economy. Everybody produces a lot and

then oil prices also go up. Therefore,

you have to cool things down a bit. This

is an oil shock. So when you have an oil

shock, you already have basically

something that that dampens the economic

growth. Do you want to put something

even more in the shape of of rate hikes?

Do you want to put that on top of it?

Um, you have to think twice. So yeah, we

our view stands especially for the Fed

probably going to go down later this

year.

>> I wanted to ask you about some of the

opportunities you prefer in Asia.

Interestingly, Australia is one of them.

It's often seen as quite a defensive

market. Having said that, we're seeing

the biggest losing run for stock since

2022. I think we're on set for a seventh

uh session of losses today. Where do you

find the opportunities here?

>> Yeah. I thought in general, let's say

ape region, I'm thinking about for this

year, I'm thinking about three drivers,

right? One one is AI, then you look at

the north, and you look in terms of

applications, you maybe look at China.

So, so there's some some interesting

pockets there. Um, then there is um

maybe call it value ups, right? So, so

your your Singapore and also your your

Japan and then is what I call sort of

previous earnings leggers that are

coming back and next to maybe India

maybe especially also Indonesia. I would

say Australia is also one of these

markets where we see very clearly for

this calendar year, right? You you

you're talking about much higher

earnings growth than you have in the

past. So that's one one of that

category. um leggers coming back.

Australia belongs into that.

>> Tell us a little bit more about your

calls on China. Obviously being seen as

one relatively ring fenced from the

broader energy crisis and two much more

accelerated when it comes to the green

transition, right? Are those the spaces

where you'd be looking at or are you

looking at sort of the broader economic

recovery story with the consumer story

as well?

Yes, certainly as an equity analyst I

look at the the Msei China or I look at

the the the equity index for example

where it can make money and we have to

remember uh China's index has about 50%

um on on the on the tech side so even

more than the US if you will so so what

I'm looking at pretty much like we're

also looking for the for the

hyperscalers how is the end demand for

for for AI so so as expressed by by

cloud revenue growth right and Here we

have seen in the last 15 months we have

seen an extreme ex I have to call it

extreme acceleration especially on the

on the big names right they're giving

you double digits in some some cases

over 30% growth that's not not going to

go away so I think the market is pricing

different things right now but as that

part grows over the next maybe 12 months

or so it will come back and say this is

actually how I want to value these

stocks they're not expensive um that is

a key driver for the Chinese market

>> that was Hartman is head of APAC

equities credit at UBS Wealth Management

speaking to Bloomberg's Heidi Shroud

Watson Sherion.

[music]

Welcome back to the Daybreak Asia

podcast. I'm Dan Schwarzman. Doug Krer

has a week off. We go to earnings.

Japanese electronic components maker TDK

posted fourth quarter sales and

operating profit that beat consensus,

but the fullear outlook fell short of

the average analyst estimate. We heard

from the CEO Nouto and he spoke to

Bloomberg Sherion following the

company's results.

>> How much of the growth in the quarter

was driven by the components around

artificial intelligence?

>> Yeah, actually as you just mentioned

that uh you know major contributor you

know was kind of hard drive you know for

data center for example and also like

smartphone like production part of their

smartphone is getting into the like AI

smartphone. So our key components for

for hard this drive and also like

smartphone contributed to major extent

to our result last fiscal term.

>> We have mega cap tech earnings like a

quarter of the S&P 500 market capab

reporting this week. Do you expect all

of that capex spending to continue? I

mean that would have a make a big

difference in your uh results as well.

>> Right. Right. I think this uptrend you

know will will continue you know not

only shortterm also mid and long term

however the degree degree may you know

change but what I want to emphasize is

that upward trend is going to continue

that's for sure

>> why the degree

>> uh why the degree yeah that's right

>> I mean why the degree will vary and how

>> uh it depends on the uh you know the the

investment you know from each all the

companies right that uh you total you

know uh uh total of this investment

against the actual you know possible

kind of growth

>> there may be a kind of some some gap

>> that's what I'm pointing out that that

degree may change however this trend is

going to continue that's

>> we are seeing also a little bit of a of

an issue in the smartphone side of

things especially with memory chip

prices continue to go up a lot of it

because those investments were geared

towards advanced Exactly. Chips, right?

Exactly. Exactly.

>> Will that affect your business?

>> Yeah, to some extent. And we have

reflected that kind of memory chip

shortage like especially in the ICT

products like smartphone. And uh we are

kind of estimating that the smartphone

like a production of this fiscal term

our fiscal term will be 10%.

>> Less.

>> Oh

>> right. Right. Yeah. Yeah. That's what we

we we are you know estimating the kind

of trend. However, the impact you know

in the smartphone area mainly be in the

lower kind of end smartphone the

high-end smartphone we don't see a kind

of a huge impact that's how we see the

trend of this fiscal term

>> like Apple for example to whom you

supply we are expecting an incoming CEO

John turn do you have any views as

having a hardware head really leading

Apple into the new era does this signal

perhaps more focus on hardware. Does

that sort of help with your vision of

what sort of parts you could supply as

well?

>> Yeah, actually Apple is the company who

you know which has been driving always

technology innovation and so on and that

trend I believe is going to continue.

>> We've seen of course the supply chain

disruptions already by the war in Iran.

Is that having an impact in your

business?

>> Uh yeah to some extent. However, in

short term, we don't we don't see a kind

of significant impact, but we are

carefully watching or paying our high

attention to that like uh you know the

material from NAFTA NAFTA kind of

solvents for example is a kind of you

know we are we are we are you know

sourcing so that's what we are paying

our highest attention to this and uh due

to this supply of course price to some

extent that we have also reflected into

the our this new fiscal term kind of

earning

Are you going to have to change pricing

as well?

>> Uh our price uh our price is a slightly

different topic that we have many other

cost of structure,

>> right? But our you know direction is

that to provide a kind of appropriate

price to our customers.

>> When you're seeing these um supply

disruptions, does that mean that you're

using the stock piles that you already

have or are you trying to diversify?

What does your timeline look like from

here on out?

>> Yeah, not only you know kind of oil

related kind of materials. So we have se

several other materials layout and etc

etc that we have already started kind of

diversifying sources right that's what

we are we are paying our highest

attention to mitigate our risk

>> especially

>> not only short term but also long term

>> because China's export restrictions for

example on rare earths continue right

what's the pace of approvals at this

point

>> approval

>> yes for the rare earth materials to be

sent to suppliers

>> uh actually you know we are we keep

communicating of course but at the same

time that as I mentioned that we we keep

kind of diversifying to mitigate such

kind of risk

>> kind of parallel action we are taking

>> at what point does it start hurting

>> uh in short term we don't see any you

know significant impact but we are

always looking that from long-term point

of view that's why we have started

already taking action

>> like what

>> uh diversifying

>> diversifying the sources to towards

where

>> from

depend on the material depending

[laughter] yeah several [clears throat]

several materials you know

>> you know we we are taking care therefore

>> let's talk a little bit about your

batteries business as well of course uh

we have seen a little bit of a slowdown

on that market do you expect that to

pick up especially given seasonality

issues

>> uh not actually seasonality as I

mentioned that throughout this fiscal

term we have to estimate kind of you

know uh uh demand down because of the

you know memory shortage right

>> oh Yeah, like the smartphone as I told

you like we are expecting 10% down right

that to some extent impacting right that

our our business however

>> that we are also you know keep

developing our new high-end kind of

batteries

>> to try to you know compensate such kind

of the downturn

>> so we keep investing on the you know R&D

research and development and also you

know capex etc etc and I see that this

memory shortage will not be kind of a

years and years issue

>> will not be

>> will not be

>> how long do you think you can

>> it's it's very difficult to say you know

precisely but uh you know I I don't see

that it's a kind of long years or you

know many years of issue that

>> you have a joint venture with CL as well

right how do you see the Chinese market

>> yeah I think Chinese for for for us

China is one of our most you know

important market

>> the biggest you a big demand, you know,

will continue to be there.

>> Therefore, I see that, you know, China

is and will be one of our most important

markets.

>> That was TDK CEO Nouto speaking of

Bloomberg Sherion and we're bringing

their conversation to you here on the

Daybreak Asia podcast.

Thanks for listening [music] to today's

episode of the Bloomberg Daybreak Asia

edition podcast. Each weekday we look at

the [music] stories shaping markets,

finance, and geopolitics in the

Asia-Pacific. [music] You can find us on

Apple, Spotify, the Bloomberg Podcast

YouTube channel, or anywhere else you

listen. Join us again tomorrow for

insight on the market moves from Hong

Kong to Singapore and Australia. I'm

Doug Krer, and this is Bloomberg.