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Welcome to the Daybreak Asia podcast.

I'm Doug Krner. Most Asian equity

markets are benefiting today from strong

tailwinds thanks to a rally in US

stocks. State side, we had some optimism

tied to the possibility of a peace deal

with Iran and positivity from a tame

reading on producer prices. We had the

S&P 500 rising nearly 1.2% finishing

just shy of a record high. And

importantly, crude oil prices were in

retreat with WTI dropping 7.9% in New

York, trading to around 9128.

For a closer look at the price action,

I'm joined by Steve Hawkman. He is

partner also managing director for the

Americas at Nagaro. Steve joins us from

Hood, Oregon. Thank you for being here.

Do you believe in what the market seems

to be telegraphing right now that the

war in Iran has essentially moved to the

rear view? Do you share that view?

>> We take a more balanced view of uh of

any short-term news cycle because as you

know from even an hour ago or two hours

ago the news was slightly different than

the two hours that preceded it. Right?

So um when we think about supply chains

and the companies that are having to

respond to these cycles um and how and

what we advise is to to take a range of

of uh time horizon views right so first

first off there's still there's still a

partial shutdown um in the straight of

hormuz right so while there are there's

all sorts of evidence of progress um we

need to understand that there has been

structural damage to uh not just the

straight uh to the uh the shipping lanes

and the opportunity to ship through the

straight of Hormuz but also uh some of

the oil production facilities in Qatar

and and so on. So there's a there's a

short mid-range view that needs to be

taken. Um certainly optimism is is

merited but um but we know we should

have learned and supply chain leaders

should have learned who are managing

global supply chains that whatever was

news today is going to shift tomorrow.

>> It's not just the oil story. It's also

about LNG. We can look at fertilizer,

aluminum and helium as well. So it's a

broader story beyond just the oil space,

right?

>> 100%. Yes. You know, energy is an input

to every aspect of the industrial

economy and so there's no sector that

hasn't that is going to be completely

spared from a disruption uh like this.

And uh but to your point um oil itself

is uh something that can be both used to

produce energy and as an input into

other products. So the way that the

impacts will show up of course will be

different by sector. Um but it really is

a systemic shock. Um it's not just an

oil story, it's an e economic story. One

of the interesting things in terms of

the equity market performance, tech has

been outperforming. In the last session

state side, we had the tech heavy NASDAQ

100 up about 1.8%. I think it was up for

a 10th straight session. And if I'm not

mistaken, we could be looking at fresh

records today in both South Korea and

Taiwan if that tech positivity

continues. What what is your view on

tech at this point?

>> Yeah. So we look at it again through an

operational lens and what we see is we

we look at the fundamentals which drive

those prices, right? And the the way

what we see is absolutely there's reason

for strong support for the the optimism

that's out there around the the

companies that are at play in in the in

the tech business whether that's on the

software side or on the technology side.

What what we also see though is a reason

for measured caution as a result of the

supply chain disruptions that are just

starting to make their way through the

supply chain. Um the so it's a it's it's

really again a good news bad news and

short-term long-term story. in the short

term um you what you would start what

you would expect to see as uh driving

those those stock prices up is happening

right these are well-run companies

whether you're talking about the you

know the Asia sector or uh or in in the

US which you referred to earlier across

across the board the the leading

semiconductor companies for example are

well-run and largely experiencing

healthy profits thanks to drive and

artificial intelligence and so on

however back to the sort of the the

subject of the moment. Um it takes by

virtue of the way supply chains work, it

takes weeks, sometimes months for the

full impact of a supply shock of the

type that we're experiencing to

percolate through supply chains. And so

companies are they they navigate these

these shocks by uh with with

increasingly sophisticated tools, things

like artificial intelligence and

simulation to be able to anticipate what

might happen. and they're getting better

and better at that which is again a

reason for economic optimism and

therefore the supporting of the price

story that you were just talking about.

Conversely, there's a certain physical

reality right if the input costs are

going up by 20 30% both in terms of

energy and in raw materials in certain

segments of say the semiconductor

business that will have an inflationary

impact and it will have a dilutive

impact on earnings for those who are

affected. Speaking of earnings, we heard

from three of the big banks today, JP

Morgan Chase, Wells Fargo, and Cityroup.

In the case of JPM and Wells, a little

bit of concern here about uh compression

of net interest income. How do you feel

about the banks right now?

>> Operationally, we don't uh we we see the

banks as being extremely healthy. Um and

you know, there's again, it's banking is

a very is a diversified sector, right?

Um there's many branches within what we

might call banking but what we what we u

we actually see is a number of banks and

you know JP Morgan being one of them um

profiting from the transaction uh the

increase in transaction intensity

attached to the volatility in the market

right so volatility is actually good

news for a lot of banks

>> um and um and so if we just look at the

under the underlying fundamentals

there's reason to support uh the the

positive story that you're hearing about

banks like JP Morgan,

>> one of the other things that became

apparent if you look at some of the bank

results, little cause for alarm when it

comes to the issue of private credit.

And yes, there have been some concerns

about the quality of loans, especially

those made to firms that may be a little

vulnerable to AI disruption. I'm

thinking of software firms in

particular. How are you feeling about

the private credit story? We see it as

part of a broader uh secular story

around uh not so much private credit per

se but around how companies are managing

volatility broadly uh both through the

lens of investment so investors in those

companies um and consumers of the of in

this case private credit and what we're

seeing is on the one hand uh companies

that are uh exposed to the the risks

attached to private credit for example

um are are facing real uncertainty that

they didn't face even maybe 18 months

ago. Um, and you start to see hints and

echoes of uh the 2008 financial crisis.

Different different factors at play, but

some similar dynamics in terms of opaque

investment vehicles that are hard to

hard to trace and therefore risky in

their own right. But what's new and

what's evolving and this is true uh with

within private the private credit realm

but also more broadly in industry is

companies are leveraging technologies

like AI in particular to get smarter

about uh diagnosing those risks and even

anticipating and neutralizing those. So,

a lot of the companies that we advise

that are either again consumers of that

um of private credit or those who are

exposed to it from an investment

perspective um are just um have have far

more resilience in their portfolios as a

result of the underlying tool sets

they're applying to some of these

questions. So, so we're we're um we're

thinking that resilience is going to win

the day there. Steve, I'd like to get

your take on the inflation story,

particularly since last week's reading

on CPI showed that surge in

month-on-month headline inflation of

around 9/10 of 1%. Yeah, a lot of that

can be tied to skyrocketing prices for

gasoline, but today's reading on PPI

showed a gain that was far less than

expected. I think the headline increase

was only a half of 1% and core PPI up

just a tenth of 1%. How are you viewing

the inflation story right now?

>> Of course, you know, it's a crystal ball

question uh that has a lot of

uncertainty attached to it, but um

through the lens of the global supply

chain discussion that we started with

today, um our general take is it's too

early. Um not that it's you know there

it's always helpful to have a read of um

indicators as as they issued from uh in

a you know from a real-time basis but uh

think back to uh what we were just

talking about in terms of the physical

supply chains and how long it takes for

the pricing signal to propagate through

the chain. Right? So um you know if

you're talking about for example uh

chemicals right the the possibility of

uh of a price increase as a as a result

of uh feed stock the cost increase of

feed stocks attached to increase in oil

prices flat oil prices that you may not

see that for weeks or even months uh

showing up in say the cost of fertilizer

or um or worst case even a supply

disruption that prevents volume from uh

making it to through to the market and

then maybe uh months more before you

start to see that show up in food prices

because fertilizer gets planted and

attached to the soil and then eventually

food grows. But that that can take half

a year, right? So whether you're talking

about that industry or you're talking

about uh consumer electronics or

automotive, there's a physical lead time

attached to when you have these shocks

and when it actually shows the cost

increases show up uh across those

different sectors. And so uh we think

it's a little early to start declaring

victory as a result of what happened yes

in yesterday's news. We need to take a

forward-looking view and that's what

again technology helps with. So you seem

to be pretty cautious and I'm curious

about the strategy that you've adopted

right now. Is it defensive at all?

>> If you think about it through the lens

of portfolio, um it's a portfolio

strategy. So diversifying risk is the

name of the game. Um and having applying

advanced analytics uh to make sure that

the portfolio is balanced for the risk

profile that we have. So uh balance is

better the way better way to describe it

than defensive or offensive. Um we what

that looks like in the realm of

operations is it's kind of it's

analogous to buying picking stocks but

in this case if you're say Marisk right

in the shipping industry or your BMW in

the automotive industry regardless of

where you have physical supply chain

what you're doing is you're taking

you're diversifying your supply base.

>> Mhm. you're diversif you're you're

hedging with additional inventory. You

are potentially choosing amongst a

broader set of routes that you ship uh

through. So not just maybe the uh the

Hormoo Straight but also around the Cape

of Good Horn despite increasing costs.

So companies are taking this more sort

of diversified portfolio approach to

their physical supply chains and that's

what we're recommending and advising. uh

even if there's maybe a small increase

in direct cost, the benefits in terms of

flexibility and resilience is well worth

the investment given the volatility that

we're experiencing.

>> So what are you measuring? I mean or

what are you looking to to capture in

your data analysis?

>> Yes. Um so at the end of the day it's

still if you're talking about

enterprises profit and loss um a

forward-looking view of earnings. Um

it's also the ability to with in in

extreme shocks to sustain uh operations

right so it's business continuity some

mix of financial indicators as well as

operational uh that we advise our

clients to to to use and it's also what

we see the leaders amongst those names I

just mentioned doing.

>> Steve will leave it there. Thank you so

very much. Steve Hawkman there he is

partner also managing director for the

Americas at Nagaro. Steve joining from

Hood, Oregon here on the Daybreak Asia

podcast.

Welcome back to the Daybreak Asia

podcast. I'm Doug Krner. So, the US and

Iran are looking to arrange a second

round of peace talks in the coming days.

We are told the objective is to hold

more discussions before the current

ceasefire expires next week. Now, one

proposal is to return to Pakistan where

those initial negotiations were held

last weekend, although some other venues

are being considered as well. That's

where we begin our conversation with

Mara Rdman. Mara is a practitioner

senior fellow at the Miller Center at

the University of Virginia. She spoke

with Bloomberg TV host Heidi Strad Watts

and Averil Hong. We are hearing from an

interview uh with Fox News, President

Trump saying that he sees the view as

very close to being over. Um we would

hope that he's right, but do you think

that the two sides are any closer given

that the fail talks in Islamabad seem to

hinge on some pretty big gaps in terms

of what Tyrron and what Washington want?

>> So I hope he is right. I hope we are

closer. It would not be surprising that

one marathon 21-hour session that did

not have a lot of prep time leading up

to it uh was not successful. It could be

a building block for further

conversation and that appears to be

what's going on. That's certainly what's

been leaked out in various ways. For

example, the gap between a commitment on

3 to 5 years of no uh nuclear program

versus what the United States was

supposedly asking for, which was 20

years. Uh so there there's room there to

get to agreement. Uh also the talks that

Israel is having with Lebanon uh not

enough but a start uh looks to be an

attempt to get us closer to reaching

agreement but uh we've been here before

and not been able to close the deal.

>> Do you see the potential for major

compromises on either side? We know that

for Iran's side, the naval blockade is

obviously going to have significant

economic consequences if it continues,

but we also have talked about in the

past about this being a regime that's

built and now doubled down for survival.

Are they likely to let go of these

nuclear ambitions?

>> No, they're not likely to let go of them

entirely. It seems, again, if the

reporting is correct, that what the

Trump team was asking for was not a

forever commitment. uh it was a

generational commitment of 20 years but

they Iran might well see that as a

negotiating position in terms of

compromise to get to any kind of deal in

every negotiation both sides need to

give uh and both sides need to feel like

they've gotten um something from the the

deal the agreement in the end and I

would expect that that dynamic is at

play as you noted Iran has already

showed that they really uh they've had a

lot of experience in asymmetric warfare

and they're continuing to use that to

their advantage and even what's

happening in the straight of Hormuz is

not entirely clear uh in terms of what

the United States is able to stop um

what Iran is doing there and the risk of

greater confrontation is high.

>> What about if any third parties can spur

a bit of compromise for either the US or

the Iran side for the Saudis for

example? Do you think they play a role

in some ways given how they also want

the US to perhaps end this blockade?

>> Go uh again reporting on where the

Saudis are on any given

point uh since this conflict began has

has not been entirely clear. So I'm not

sure on that. I would expect that there

are a number of different inter

international actors and actors in the

region including the Saudis who are

talking to President Trump and the

people around him. Right now we're in

the very odd dynamic though of Pakistan

and China being the two countries that

seem to be in the position of uh

maximizing work toward getting to an

agreement which uh for the United States

uh has got to be or ought to be a fairly

uncomfortable position to be in.

>> How do you think Trump is viewing this

at this stage? I mean at the time where

he's meeting as well the US ambassador

to China, how do you think he's going to

be framing this? Perhaps also not just

in the context of the war, but as the

tariff ructions royal on in the

background.

>> Yeah. Well, it's a good question, but I

think trying to anticipate uh what is

going on in President Trump's mind at

any given moment is uh something of a

fool's errand. So, I'm not going to try

to do that. Um but I think what he may

try to say is he he's going to paint

wherever we are when he is going into

the meeting with Xi uh as a win as a

victory for the United States. By we, I

mean the United States. Um, and he will

wrap whatever set of facts he has or

he'll reshape facts uh to where they can

support an argument that the United

States uh has has done well um in terms

of starting this conflict and whether or

not it's brought to an end by the time

he's meeting with Xi

>> Mara. One of the other sticking points

is the inclusion or exclusion of Iranian

proxies. Right. Pakistan certainly

thought that they were included. Uh Iran

would be arguing otherwise. We're also

seeing that talks are starting to get

underway between Israel and Lebanon on

Hezbollah. Hezbollah are not actually

invited to those meetings. How fruitful

do you think those discussions will be?

And I guess by extension, how closely

aligned uh are Israel and the US right

now in terms of their their peace

objectives?

So I I

as I have seen it from the beginning of

this conflict um while the United States

and Israel have worked together

militarily very clearly I'm not sure

that the ultimate goals were ever

completely aligned and so that um that

tension has probably increased uh but I

don't think we were perfectly aligned uh

from the beginning in terms of uh Israel

talking to Lebanon. Listen, I think

almost any time when two parties who

have not had diplomatic relations with

each other are in conversation, that is

a good thing. Um, when tension and and

particularly so when when there's the

kind of conflict going on that there is

now. The problem is if you as you've

noted that the government of Lebanon

does not have control over Hezbollah,

has not for some time or Hezbollah's

actions. and uh so at some point

uh dealing with what it will take to uh

shut down Hezbollah's actions against

Israel in a way that Israel is

comfortable with to then um also scale

back Israel's actions in Lebanon is

going to be critical and that's not

something that the government of Lebanon

itself can do

>> as uh one of our other guests Joseph Dar

said starting negotiations getting to a

peace deal very different things. If the

regime stays intact in intact in in its

current form and leadership in Iran, can

you see a a region where these proxies

where Hezbollah give up arms?

>> Yes. Yes.

>> With the regime intact, they're going to

continue the regime in Iran. Uh they

will continue to look for every

opportunity they have to have an

asymmetric advantage. and the use of

proxies whether it's the Houthis Houthus

in Yemen or Hezbollah in Lebanon is part

of that one question would be whether

you can significantly degrade and I

believe that has happened to a large

extent the strength of those proxies

that certainly happened with in terms of

Hezblah I think with the Houthus some

but it's less clear um so in the same in

a similar way to you know if you can get

them to freeze uh and no longer uh for a

period of time uh their use of any kind

of nuclear program in Iran, that's a

plus. Um if you with the the degrading

of um the ability to use militias like

Hezbollah, that's a plus for the rest of

the world. Uh the question is what the

period of time is and and uh the what

happens next which is also honestly with

Hezbollah part of the argument for

trying to do things that would

strengthen the government of Lebanon the

current government of Lebanon and

strengthen their ability to ultimately

work to to sideline to shut down

Hezbollah. That was Mara Rdman,

practitioner, senior fellow at the

Miller Center at the University of

Virginia, speaking with Bloomberg TV

host Heidi Strad Watts and Averil Hong,

bringing you their conversation here on

the Daybreak Asia podcast.

Thanks for listening to today's episode

of the Bloomberg Daybreak Asia Edition

podcast. Each weekday, we look at 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. 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.