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>> Bloomberg audio studios podcasts radio

news.

>> Welcome to the Daybreak Asia podcast.

I'm Doug Krizner.

>> [music]

>> In the US stock market on Thursday, we

had a rotation away from semiconductor

stocks and into both financial and

healthcare issues. Now, the chip makers

struggled under the weight of Broadcom's

underwhelming outlook and that stock on

Thursday was down nearly 13% and if

you're wondering the Philadelphia

semiconductor index was down by more

than 2%. However, on the positive side,

UnitedHealth Group was up more than 5%.

Goldman Sachs also up by more than 5%.

Both of those are Dow components and

that helped to send the industrial

average to a record high 51,561.

To help us understand what's happening

in equity markets across the APAC

region, let's bring in Bloomberg's

Winnie Su. Winnie is our Asia equities

reporter. She joins us from Singapore.

Thank you for being here. Can we start

by talking about what you see happening

in South Korea, particularly the

pressure that some of the memory chip

makers are being hit with today?

>> Yeah, exactly. You can see that we're

looking at KOSPI here down about 5% and

as you just mentioned, it's a lot being

dragged by these

the two big chip makers because you

know, they account for half of the

overall KOSPI waiting. So, when things

move, it really moves big and as you as

you're looking at just how the market

has been, especially how far the rally

has run for AI chips just a bit of a

disappointment when it comes to the

Broadcom results can really prompt

people to start taking some more profit

from this rally.

>> So, there are chip makers in Japan, but

I don't see the Nikkei under the same

level of pressure and not to your point

that Samsung and SK Hynix make up a

large part of what we see reflected in

the Kospi. What's going on with some of

the chipmakers in Japan?

>> Yeah, so interestingly, we are seeing a

bit of a catch-up there, actually, as

this AI rally really broadens and

investors are looking for opportunities

outside of the mega caps ups outside of

Samsung, Hynix, and TSMC and

uh further down the supply chain that

can benefit. And this is where these

Japanese names come in because Japan

actually have a very good selection of

these AI names that are essential for

the supply chain and even dominating the

market. So, for example, you have the

likes of the makers of MLCCs, just the

Japanese names Taiyo Yuden and Murata.

They were both up some 100% in the past

month, and these two companies pretty

much dominate this market. So, Japan

actually has a lot of um essential

AI-related

um manufacturers, and that include, for

example, the makers of the MLCCs. You

have Taiyo Yuden and Murata, both seeing

stocks jumping 100% in the past month.

So, you can see that investors are

starting to notice uh these hidden names

or hidden gems in Japan. And beyond

that, you also have the non-AI names

that are also um really shining as well.

You have uh the banks that are rising on

the expectation for the Bank of Japan to

hike rates, and also still the trading

houses doing quite well because they

have been Warren Buffett's favorites.

So, a very diverse offerings from the

Japanese market.

>> I'm glad you mentioned the BOJ because

we had some very hot wage data for Japan

earlier today. Labor cash earnings up at

an annual rate of 3 and 1/2% which was

more than the market had been expecting

and real cash earnings up at a rate

annual rate of 1.9% also ahead of

forecast. So is it a foregone conclusion

that we're going to get a rate hike at

the next policy meeting from the BOJ?

>> Yeah, pretty much. I mean you just

mentioned the wage data actually being

quite supportive but just yesterday

we've also learned that the Bank of

Japan's officials are most likely going

to be discussing a quarter percentage

point hike um in this upcoming meeting

and even considering potentially another

one later down uh this year. So it

really are several factors that they are

considering but one that's being

highlighted is that they are seeing the

pressure from prices um the upside risks

for prices to raise to rise further um

really outweighing the potential uh

impact on the economy. And also we have

the yen still very weak um hovering

around just 160 level against the

dollar. Um people are also very closely

watching out for the intervention risks.

So you put that together with you know

the price pressure the weak yen um

pretty much supportive of a hike to come

but it's just how hawkish it could be.

>> So you were just in Japan last week

you're in Singapore you're normally in

Hong Kong so you travel quite a bit I

get that and we've been talking a lot

about these mega IPOs in the US whether

we're talking about SpaceX whether we're

talking about Anthropic or OpenAI and

I'm curious about the conversation that

you've been hearing

when it centers around the big IPOs in

the US particularly given the fact that

everything is a part of the AI

narrative. I mean are people feeling

that there is a little bit more room to

run in terms of what's been happening

with artificial intelligence or are

people thinking that maybe what's

happening in the US equity market is a

little bit overextended. What is the

perspective from the Asia Pacific?

>> Yeah, so first of all, these are really

big IPOs that we're talking about and

can potentially be the next tailwind for

the suppliers in

Asia. So that is the positive side. You

know, when I talk to strategist, for

example, other strategist at IG

International was estimating that this

can potentially translate to

about $60 billion of

what is already being estimated from all

these big hyperscalers.

So if we have these funds raised by the

IPOs translating into further spending

in AI, that can of course trickle down

further to benefit the likes of

you know, the the suppliers, the supply

chains in Asia and we're hearing a bit

more tie-up whether it's between SpaceX

and Taiwan's MediaTek. So these also

come through to support these names.

However, interestingly, on the flip

side, when you just look from the flow

perspective instead of the supply chain,

we're hearing actually a bit more

concern for how the money might actually

leave the likes of South Korean market

and to be poured into

investing into these IPOs or these

listed stocks to come. So that was

actually an interesting concern that

we're hearing for the Asian market. We

just mentioned how people are paying

more attention on their AI names, but

there are also other factors to consider

whether it's how less concentrated the

market is or how um have still these

structural tailwinds when it comes to

the corporate governance and just

overall how less volatile they are.

>> Winne, it is always a pleasure. I hope

the next time you and I catch up you're

in Hong Kong. Safe travels. Bloomberg's

Winne Seu who covers Asian equities for

us today joining from Singapore

>> [music]

>> here on the Daybreak Asia podcast.

>> [music]

>> Welcome back to the Daybreak Asia

podcast. I'm Doug Krizner. Asian

equities are drifting lower as these

markets grapple with a pullback in

semiconductor shares in the US session.

And that's where we begin our

conversation with George Boubouras.

George is head of research. He's also a

managing director at K2 Asset

Management. He spoke with Bloomberg TV

host Heidi Stroud Watts and Sherry Ann.

>> There's There's so many sort of

crosscurrents as to what's going on at

the moment. But let me get you started

on the tech view. Is this a true

sustainable rotation that you think

we're starting to see given so many

questions have been asked about the

concentration of this rally and the

loftiness of valuations?

>> Yes, good morning. Good to be with you.

Yes, we believe the

the broadening out is the trade. We like

many active managers last year earlier

this year broadening out looking for

that opportunity from AI and tech sector

with the benefits of productivity and

utilities, health care, broadly

financials, and other parts of the

economy. So we are looking at that

mid-cap broadening out and uh obviously

the other key sectors. Now with the

concentration um

the thing to reinforce here, this is an

extraordinary time I think in uh

financial market history, but uh these

earnings have been so significant and uh

historical. The The E is coming through

the denominator and the P is just

matching it. So just to reinforce is

that it is extraordinary what's

happened, but these earnings are

extraordinary. There is uh while you

can't say there's crowding out within

the private sector, it's really a public

private sector debate. But within the

private sector, there is this

concentrated concentration of finite

capital going in the equity part of that

investment. And obviously, all parts of

the capital structure debt issuance is

dominated again by chip making and AI

and obviously equity returns. But the

earnings are coming through. They are

historically high. It is matching the

pace. So, the multiples are justified on

this extraordinary earnings.

Therefore, having said all of that, it

seems logical and consistent that that

broadening out has got some benefits for

the broader economy and that

productivity gain that you're looking

for in the US and other parts of the

world. So, hopefully that narrative

makes a bit of sense from an investment

point of view.

>> Josh, what are your thoughts when it

comes to this pipeline of mega tech and

largely AI centered IPOs? Right,

obviously SpaceX,

Open AI, Anthropic before that. We also

have the massive fundraising by Google.

Do you think

it's meaningful for markets in terms of

being a test of liquidity and of

investor commitment to the theme?

>> Yes, in short. And just reinforcing the

following.

The upcoming IPOs is going to continue

the trend that is quite historical and

that is equity participation is

increasing. The the whole globe is all

in on US equities and US AI and US chip

making and that and those earnings that

are coming through.

The whole debt issuance platform is

dominated by that sector

at the cost of possibly sovereigns and

some municipals, but definitely other

senior unsecured debt issuance. So,

there is again reinforcing finite

capital in in the top part of the

capital structure to the bottom has been

allocated to the sector. It the

diversification is happening. It's been

happening for 6 months or so, and some

even longer for some, but it's going to

attract more new capital to the chasing

this or the beta component. So, this

trend seems to continue for now, and

many active managers will continue to

take some profit where they can, and

again, do the broadening out trade to

the mid-cap, broadening out trade to the

other sectors, or other asset classes

for that matter.

>> We of course have these markets across

Asia that are very heavily concentrated

on

big tech names, and then at the same

time we have the ones that don't have

that much tech exposure that have lagged

behind this incredible rally that we're

seeing globally. Could we see any more

diversification or broadening out in

terms of different market regions?

Because we have seen the likes of say

Indonesia, the likes of India for

example, being some of the worst market

performers right now.

>> Yeah, no, good to highlight those. So,

from our perspective, on retracement, we

like Nikkei, we like Kospi. It's been a

a real volatile run with the Kospi, and

that rally's been historical year to

date. We like Singapore, it's that hub,

and Australia because it's got that

large oligopolistic earnings coming

through with the high payout ratios and

the dividends coming through.

Specifically on Indonesia, that it

continues to be a short for Indonesia,

that currency weakening, flight of

capital. They just need to get reform

consistently. They need to go on top of

the reform from an economic perspective

for the long term. It's just not

happening. They keep disappointing

investors, and they're obviously exiting

onto the sovereign market into it from

Indonesia. So, that short Indonesia will

be maintained until they can get on top

of some meaningful economic reform in

there. Having said all that, it's a

great country, of course, and with that

weakening currency, the the tourism

sector will be the big beneficiary of

it. But from an economic point of view,

and an investment point of view, from a

debt or equity, Indonesia not the place

to be.

Similar to India, it's it's just not the

place to be searching for that those

returns. They they just need that more

broad-based economic reform and or

access to some key tech sectors of those

earnings. And on the debt side, can't

find a positive story to be going

overweight India. But nevertheless,

Southeast Asia, there's there is

opportunity and North Asia, but just to

reinforce, we prefer where you can,

Nikkei, Singapore, Kospi on retracement

and and Australia as an index waiting.

>> Uh uh George, you're talking about a

great time, good country to go to. Well,

that's been the play here in Japan as

well. We have so many tourists and a lot

to do with a weak Japanese yen. In fact,

the finance minister Katayama speaking

right now saying that they're looking at

the oil-related impact on currencies,

that it's large. She keeps reiterating

that, but at the same time, of course,

we're watching for potential

intervention given that we're at that

160 zone. Is the future of most Asian

currencies just more downside at this

point given just the fundamentals with

positive surprises coming from US

economic data, safe-haven plays, even

South Korea, such a strong market right

now, and you have the Korean won way

past 1,500.

>> Yeah, very sympathetic to to the same of

that question. Let's put Korea aside

because of the capital controls and KFT

status, but let's just go straight into

Japan. They've both been very clear that

that 160 they intervene. So so the the

framework I'd like to

roll out is that the structural weakness

will continue with pockets of

intervention to prevent that being just

a one-way. So intervene at that, you

know, 159, 160 level, get it towards

that 156, intervene again until it

structurally gets weaker over time.

Given that they remember the BOJ would

still like to somehow can continue to

maintain the narrative and to deliver

higher nominal rates from the cash all

the way out to that two, three a So we

So on that framework, which should be

supportive of it, but there's many other

moving parts. A structural weakness for

yen with more yen intervention to

prevent that being just a one-way play.

And And but but you know, this time next

year, still see a weaker yen about to

rallying, you know, lots of periods of

that going forward. And that's a theme

for all parts of capital structure, all

asset classes. More pockets of

volatility are the norm for active

managers right across the place. Right

across the

geography, by capital structure, by

asset class, etc. More pockets of

volatility, but structurally weaker

Asian currencies with rallying and small

pockets of that in the short term.

>> That was George Boubouras, head of

research, also a managing director at K2

Asset Management, speaking with

Bloomberg TV host Heidi Stroud-Watts and

Shery Ahn, bringing you their

conversation 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 [music] the stories shaping markets,

finance, and geopolitics in the

Asia-Pacific. You can find us on Apple,

Spotify, the Bloomberg podcast [music]

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 Krizner, and this is Bloomberg.

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