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>> Bloomberg Audio Studios. Podcasts,

radio, news.

>> Welcome to the Daybreak Asia podcast.

[music] I'm Doug Krizner.

So, the first session of high-level

talks between the US and Iran has

concluded in Switzerland and they will

continue this week. Now, the comments

from mediators seem to be reducing

anxiety in markets. Qatar and Pakistan

say there's been encouraging progress in

these talks and a high-level committee

has now been established. It's agreed on

a roadmap toward reaching a final deal

within 60 days. Now, at the same time, a

communication line has been formed with

the aim of creating safe passage for

commercial vessels through the Strait of

Hormuz. We also heard from Iran's

foreign minister Abbas Araghchi on X. He

said oil and petrochemical exports have

been waved, the blockade lifted, and

some frozen assets released. Araghchi

also said a major reconstruction and

development plan has been launched for

Iran. Now, oil prices at this hour are

drifting a bit lower, although to be

fair, there has been a fair amount of

volatility. On Saturday, the US Central

Command said vessels containing 17

million barrels had passed through the

Strait of Hormuz. And we got reaction

from Arsenio Dominguez. He is the

Secretary General of the International

Maritime Organization.

>> Most of them are using the traffic

separation scheme that temporarily has

been established by Iran. Some others

are going through the Omani waters. But

what I can tell you is that we've been

very heavily engaged with Oman and the

United States in particularly to set up

the notice to mariners in order to start

the process of evacuating the vessels.

We want to make this as safe and secure

as possible.

>> That is Arsenio Dominguez. He is the

Secretary General of the International

Maritime Organization speaking earlier

to Bloomberg this weekend.

For a closer look at how all of this is

playing out in markets, let's bring in

Bloomberg's Paul Dobson. Paul is

executive editor for Asia markets and he

joins from our studio in Singapore. To

be fair, I think we need to apply a

little bit of context here because US

markets were closed Friday for a

holiday. We also had market holidays in

China, Taiwan and Hong Kong. And as I

mentioned, there's been a lot of

volatility in oil trading given the news

flow surrounding negotiations in the

Iran war.

To be fair though, Paul, Bloomberg

tracking data shows that oil exports are

still flowing.

>> We're not only seeing oil flowing, but

we're seeing quite considerable amounts

of oil coming out of the Strait of

Hormuz. Um and that should be

encouraging, especially for Asia's

markets and for the buyers over here.

It's just that that picture is so muddy

and there's no uh I suppose that what

you can conclude after the weekend uh

talks started, stopped, started uh

um is that this is going to be quite a

fraught negotiation period over the next

60 days. It's not uh the case that the

market can completely relax right away

and so you do need to embed a slightly

higher risk premium into everything as a

result of that.

>> So, higher yields seem to be creating a

bit of anxiety in the tech space. Our

Nasdaq 100 futures are down about 7/10

of 1% at the moment off session lows. I

know we have Micron earnings in the

coming week.

>> Mhm.

>> How are you seeing the tech trade

displayed right now in Asia? I'm seeing

particularly in South Korea a fair

amount of weakness.

>> Yeah. Yeah, and and South Korea is

really becoming almost a global

bellwether in terms of uh people picking

direction. I think that uh there again

we've seen the emergence of more two-way

risk. Suddenly, it's not been uh such a

a straight run up higher uh in recent

weeks as as it had been a little earlier

in in the year and in the cycle.

Um I think that some of those leverage

plays seem to be getting quite extended,

and the cost of funding in the equity

market uh for various reasons is also um

been rising, so making it harder to take

on leverage. So, um

you know, it it it it's again it's a

difficult read because there's so much

money in South Korea now flowing into

these leveraged ETFs in both directions

um that's creating extreme amounts of

volatility. You know, the number of days

where we've seen the market up or down

5% this year has been extraordinary

compared to any any recent year that

we've seen.

>> So, I'd like to get your take on British

politics. We can do that in a moment,

but let's talk a little bit about the

announcement later today on Chinese

commercial bank lending rates. These are

the loan prime rates.

>> Mhm.

>> Bloomberg Economics uh basically

predicting that these rates will remain

unchanged. Is that the conventional

wisdom here?

>> Yeah, I think that the consensus is the

LPR won't move um today or anytime

particularly soon. But I do think that

uh we are hearing ever louder this sort

of narrative about uh the K-shaped

economy

uh

uh and and and growth in China. So, if

you look at the domestic front uh you

know, there's really signs of of pretty

uh lousy demand out there. We saw a

decline in retail sales in the data last

week. Uh the uh trade-in program that

China has been running for several years

to try to support growth seems to have

sort of run out of steam. Uh the housing

market, although picking up slightly,

isn't doing enough to turn around

um uh the domestic uh demand picture.

And uh in addition to that, the the

labor market doesn't seem to be picking

up particularly dramatically either. But

the flip side of that is of course that

exports look uh extremely strong and

that's really keeping the economy afloat

and sort of driving this sort of

divergence in terms of the narratives.

The the sense therefore is that China is

still on course to meet its growth

targets of, you know, below 5% but not

far below it for the year and so they

probably don't need to do that much more

in terms of offering support through uh

policy mechanisms at this moment in

time. Better to sit on their hands and

wait to see how things play out.

>> Okay. So now to the UK, last week we had

the special election and the mayor of

Manchester, Andy Burnham, is uh going

back to Parliament now.

Uh looks as though he may end up leading

labor and uh threaten the leadership of

Keir Starmer. I mean, what do we have to

say about this and how are markets

responding?

>> Yeah, with with caution again. So we

have a slightly weaker pound today. It's

close to the lows for the year against

the US dollar. Um

the the latest reporting seems to

suggest that Keir Starmer is thinking

very seriously about the idea of

stepping down rather than contesting the

leadership. Um that could lead to a a

clearer transition uh for Andy Burnham,

which all things being equal might at

least remove some of the fog of it, but

I think that what we also heard over the

weekend was some of his allies talking

about the need for the UK to be bolder

in terms of spending, in terms of

investment. Um and this is the thing

that the market is really worried about,

the control of the UK finances. Um

everybody was so scorched by uh the

unfunded spending measures that were

announced in the very short-lived Liz

Truss regime that they're particularly

careful about the amount of volatility

that we could see again in the UK

government bond market as a result of

that. There was some uh uh selling on um

Friday and I think that's part of the

reason why we see those higher US

Treasury yields today. Um bond yields

were up right across the board in Europe

uh at the end of last week. Um, but it's

going to be up to Burnham to control

that narrative very carefully if he

doesn't want to have a nasty bruising

running with the market pretty early on

in uh what we assume could could be his

uh push for leadership and then uh

running of the country.

>> So, from what I understand, Burnham has

really made the case that he is the

better person to go up against Nigel

Farage. Is that also the conventional

wisdom here right now? I mean, or are

people really

doubting what what Burnham is saying to

to any degree?

>> No, I don't think people are doubting

Burnham because if you look at the

results of the by-election, he won by a

quite large majority even if you take

into account uh the two right-wing

parties uh com- combined

um

uh

a a vote there. And so, he definitely

did prevail there with a strong

narrative and a large amount of support

in an area which um had already been um

leaning in the other direction in the

more in the in the recent council

elections. So, I think that is the

credible narrative that that Burnham

does have to back him, and that's

probably why

um

uh the the reporting suggested Keir

Starmer may uh be considering stepping

aside. I think I think, you know,

Burnham can certainly claim that he's

the person that could keep um power for

the Labour Party in the face of the

rising sort of um further right um

uh nationalist parties. But, that

doesn't necessarily mean um

a a a a a market-friendly government. I

think, you know, never be surprised, I

like to say, never be surprised about

how right-wing the market is. And so, a

more left-leaning um leadership is not

necessarily something that the market is

going to welcome with open arms.

>> Is it too soon to talk about a successor

to Chancellor of the Exchequer, Rachel

Reeves?

>> No, it's not too soon and I think that

again some of the names that were

bandied around over the weekend may be

viewed with less enthusiasm by the

markets than Reeves herself. She's sort

of held everything together in the gilt

market for the last couple of years when

there were suggestions that she may be

moved aside or didn't have the support

of the Prime Minister the market let its

displeasure with that be known pretty

loudly and in terms of the selling of UK

government bonds.

So she at least by as far as the market

is concerned is viewed with a certain

amount of credibility. The idea that the

Burnham may appoint somebody who's going

to have to earn their chops at least

is is another worry for investors in UK

government bonds.

>> Okay, Paul, we'll leave it there. Always

a pleasure. Thank you so much.

Bloomberg's Paul Dobson who is our

executive editor for Asian markets. Paul

joining from our studio in Singapore

here on the Daybreak Asia podcast.

[music]

>> [music]

>> Welcome back to the Daybreak Asia

podcast. I'm Doug Krizner. The oil

market is navigating a rapidly shifting

narrative in peace negotiations between

the US and Iran and that's where we

begin our conversation with Kasan Leung.

Kasan is the CIO at KGI International

Wealth Management. He spoke with

Bloomberg TV host Avril Hong and Von

Man.

>> Take a look at what's been going on in

Iran.

I mean oil it seems to be continuing to

fade some of the the risk premium around

that. Can I continue to look at risk

assets without worrying about inflation

anymore or what do you think?

>> I think in the very very short term

potentially yes, but we all know that

even now we are in in

in

moving into the so-called MOU phases

>> Yeah.

>> over next 60 days. But anything

potentially could happen over next 60

days. There could be a deal or there

could be no deal.

So in the very short term, yes, there

would be positive sentiment to drive the

market still going higher or price

lower. But do expect some more

volatility to come back

to hold the market probably over next 60

days.

>> Um

I know you've been focusing on mainland

China and Hong Kong which

>> Yeah.

>> Um you could say they've been

outshined by the rest of Asia given just

the bifurcation we're seeing around the

AI story here right now. What's the

outlook for the the rest of the year?

>> No, I I think right now a lot of the

underperformance so called for Hong Kong

China market was driven by the

dispersion of the whole cos on the AI

supply chain where the rest of Asia for

example Taiwan, Korea, Japan a lot of

that was mainly focusing on the hardware

side on the upstream of the AI supply

chain. While in China a lot was driven

by the downstream more on the

application for the AI supply chain. And

as a result as market is is quite short

term for the time being.

Everyone just focusing on on is the

immediate earnings impact.

Uh we know that AI the upstream of AI

supply chain will be much more immediate

in terms of reflecting the earnings in

the upcoming quarterly earnings.

Uh for downstream that could potentially

take more long to long term. Therefore I

think that indirectly is reflecting the

market that the willingness to look more

long term

is not really there.

>> Cos as we speak we're hearing how MSCI

China has fallen what 1 and 1/2% so it's

on track to enter a bear market. You

talked about the maybe short term lens

that investors might be viewing AI in

terms of, you know, maybe focusing more

on how they can monetize things. But,

what do you think is the end game here?

And the extent in which maybe there

needs to be more of a focus on how maybe

the adoption of AI is a bit different

from at the end of the day the AI

advancement

as a goal per se.

>> I think the the overall direction of

China AI development will not be

derailed by the short-term

underperformance of the market. I think

fundamentally the difference between the

Western AI development model and the

China development model is very

different.

I think on the West a lot of that was

focusing on the hardware side, on the

model side, on the technology side.

Um

I think

a very good example of that development,

the cap of that will not be mainly on

hardware or the model. The cap of the

Western development of AI will mainly be

on the social contract.

For big tech company, they can fire

their entire workforce or majority of

the workforce overnight.

But, they won't do that.

Mainly because of the social contract

and potential government intervention.

Now, if you look into the East, in

China, I think right from the very

beginning the involvement of the

government in the AI development

direction is very early.

I think in China the model is to how to

integrate the AI model into the

ecosystem. How to help the existing

business to improve margin and improve

efficiency. And therefore, the social

impact will be much less. So, you can

argue that the visibility and the

certainty of the China AI development

model is actually much higher. And just

because of the short-term market

underperformance, I don't think the

Chinese will be changing this business

model.

>> So, in terms of the beneficiaries then,

I mean, you said you still favor some of

these downstream AI names right now.

What what are going to be those

potential winners?

>> No, I think I think

we're similar to the last

boom of the internet bubble.

Who developed internet?

Some may know, some forget, but the

company is not there. Who make most of

the money from internet?

Those who use the best use of internet

make the most money out of that.

I think similar in China. A lot of big

internet giant

they have a huge ecosystem and they are

incorporating the AI model into the

existing business. That will prove them

to develop to be the ultimate winner in

this AI race.

>> Cuz aside from AI, I wonder what is your

assessment of risk per se in the back

half of the year. I mean,

we're watching and trying to decipher

what the Fed is going to do. So, rate

trajectory is on the cards. But aside

from that, also trade negotiations

between the US and China. How that might

pick up. How are you positioning or

advising clients?

>> Yeah, I think I think I can I would like

to divide that question into two part. I

think in terms of the short-term risk,

the one and the largest risk is that

because of the underperformance of the

Hong Kong China market,

uh and that potentially and together on

the backdrop that the rest of Asia is

doing quite well.

What we're afraid would be a vicious

cycle where capital start to flow out of

Hong Kong China and then that vicious

cycle just keep the market moving down.

Uh just like post COVID,

we have couple of years where investors

try to avoid the market. But I think

this time there could be two main

difference. One is on the development

side. Ever since China

launched the

deep sea model, I think the development

of the technology and the model just

keep going on.

I think that is one

main catalyst for the market. We don't

know when, but as far as there is a

announcement of that new technology

breakthrough,

that will be a big catalyst for the

market. And therefore, I think that will

be prevent money from shorting long term

on the market. Secondly, I think very

different from a couple of years back,

there is huge amount of IPO into the

market. And that will cap the global

investor focus into the Hong Kong China

market. Although short term there's lack

of catalyst.

>> I want you to put your your old property

hat on.

>> Yeah.

>> And talk Tell me about Hong Kong

property. I mean, part of that whole

IPOs and you know, it's really kind of

driving a lot of the real estate market

to come back. How How real is it this

recovery you think this time around?

>> I think this is much realer than

the last 15 years when I look at the

Hong Kong property market. I think this

time around,

this is not driven by liquidity. That

was not driven by speculation. That was

purely driven by

population in Hong Kong increasing and

there is demand for housing and that

drive the rental yield to increase to

surpass the mortgage rate. I think that

looks to be much more

solid than all the past up cycle I have

seen.

>> That was Kasaun Leung, CIO at KGI

International Wealth Management,

speaking with Bloomberg TV host Yvonne

Man and Avril Hong bringing you their

conversation here on the Daybreak Asia

podcast. [music]

Thanks for listening to today's episode

of the Bloomberg Daybreak Asia edition

podcast. Each weekday we look at [music]

the stories shaping markets, finance,

and geopolitics in the Asia Pacific. You

can find us on Apple, Spotify, the

Bloomberg podcast YouTube channel, or

anywhere else you listen. [music] Join

us again tomorrow for insight on the

market moves from Hong Kong to Singapore

and Australia. I'm Doug Krizner, and

this is Bloomberg.