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Welcome to the Daybreak Asia podcast.

I'm Dan Schwarzman. Doug Krishnner has

the week off. Oil extended its gains on

reports that Iran attacked quote hostile

targets in the straight of Hormuz

reviving inflation concerns. We also see

this real bifurcation of expectations

with this deal with Oman as well. Under

a proposed Iran and Oman agreement,

Thran intends to ban US and Israeli

ships from the strait and require

compensation from hostile countries to

use it. In the states, attention now

turns to the US employment report on

Friday for clues on the Federal

Reserve's policy path. For more on the

markets, Bloomberg's Heidi Shroud Watts

spoke to Lorie Calviscina, head of US

equity strategy at RBC Capital Markets.

it has felt like an exceptionally

exhausting uh number of factors. What's

top of mind for you at the moment?

>> So, look, you know, as I've been here

this week talking to Australian

investors, we've been talking about the

Fed, we've been talking about tech,

we've been talking about the midterm

elections. Um, and I think against the

backdrop of all that, right, is just

where valuations are. And we actually

think if you look at like US versus non

US, you've gotten to a really

interesting place again. um basically

you know after this burst of

geographical leadership or broadening we

saw the US is actually looking cheap on

a five-year basis versus rest of world.

So we do think that helps dampen you

know some of the challenges we're

dealing with on a day-to-day basis.

Yeah, you can take a look at the chart

that is looking at that sort of quality

factors, right? Even if you still have

to deal with the momentum, the

girrations when it comes to the chip

trade in particular. Uh we are seeing a

kind of a lid being kept on volatility

measures as we've seen the quality and

value factors actually improve for the

US. Where do you see that? Because tech

actually if you I guess go by the lofty

earnings expectations looks pretty cheap

in DM.

>> Yeah. So, you know, look, I would just

say on the quality factor, I I cover

both large cap and small cap in the US

and we've been seeing high earnings

quality outperform for a bit now and

we're starting to see it in the large

cap space as well. We've been

highlighting that to investors this week

saying this is a time to be more

selective and you can think about

quality, you know, not just as a quant

factor, right, but in selection of

management teams and just being more

discriminating within whatever sector

you're in. Um, and your point on

technology, I mean, you know, I think in

in the financial community, we often say

tech, tech is hiding in a bunch of

different sectors, communication

services, consumer discretionaries,

where most of the internet names are.

We're having a little bit more

challenges on free cash flow. Um, but if

you look at the tech sector itself,

which is largely semis, hardware,

software, it's a cheap sector now. I

mean, that's not something we could say

even, you know, a month or two ago. Um

and so we've actually been pointing

people to that that sector and we've

said look you know the semis S&P semis

have come back down to five and 30-year

averages. Software is getting close to

historical lows. That doesn't mean every

stock within that sector is going to be

a winner but it is a place where value

has been unlocked. And at the end of the

day if you're a longerterm investor you

want to look at these volatility uh you

know sort of situations in the market

and and look where value has been

unlocked and try to find opportunities.

when in fact you know on software

there's now been talk about you you

start seeing some of the software names

taking up AI in more of a efficient way

and that's obviously a little bit more

of a bull signal but the specifics of

this is really interesting right I think

I read a note that said you know you

need to look for the picks and shuffles

of the picks and shuffles trade um what

about the trickle down trade is that

happening across sort of the broadening

when you're saying that you need to be

more selective

>> you know we have you know our view on

the broadening trade has been a little

bit different than most strategists you

know I think a a lot of strategists came

into this year saying it's time for the

market to broaden and we said you know

we think this is more of a tugof-war and

you're going to see a back and forth

between kind of the old leadership and

kind of you know the rest of the market

and we've had a few twists and turns in

that already and I think that to be

honest we got to a situation a couple

months ago where kind of the old AI tech

meggaap growth leadership got overvalued

I think that valuation problem has been

largely solved and one of the things

we're seeing on our data as we go

through earnings is that if you look at

a broader basket of AI stocks

the the you've seen a tremendous kind of

upside surprise in the earnings growth

for 2026 and it's still showing a lot of

superiority versus the rest of the

market. And so one of the things we've

said is that until the rest of the

market can give you a better earnings

story, we think you're just going to

flip-flop back and forth between the

two. And when you get the valuation

problem on one, you'll go into the other

and then when you solve that, you'll go

back again. And I think that's what

we're in the middle of right now,

frankly. How much of the views on US

tech uh quality value you know

forecasting [music]

is that being challenged by the China AI

story? Look, I think you know as we kind

of go back and look at some of the

things we've heard from the

administration in the US, they've made

it clear that they're sort of fusing

economic security and national security

and they want the US to win the AI race.

Um so that's something that's been

coming up a bit this week as well when

we're talking about US tech. Um but I

think it is also, you know, a source of

volatility, right? when we get some of

these news developments that sort of

challenge that idea of, you know, the US

doing well on that front.

>> Um, we touched a little bit on the on

the Fed.

How how many questions are you being

asked about the Fed outlook? Because

obviously we had, you know, another sort

of uh instance to be concerned about Fed

independence. Chair Walsh is obviously

in a difficult situation, right? Do you

feel like the market is underestimating

the inflation and the energy impact? So

look, I'll say um our rate strategist

Blake Gwyn does not have any hikes in

his forecast over the next 12 months.

Now, he will also tell you that the bar

is low for hikes. So, you know, he

recognizes that it's a fluid situation

and we have to keep an eye on the data.

We have to keep an eye on additional Fed

speak in the future. Um but look, I

think the reality is that, you know, the

bond market is expressing some worry and

frankly worries that I'm not necessarily

seeing expressed in the equity market.

Um I think the press conference last

week, you know, that has come up in

meeting after meeting this week and I've

been pointing people to a chart. um that

basically looks at how the stock market

performed in the US after Berneni,

Yellen, and Powell took over. And guess

what? Just like Worsh, uh they had a

rough first couple of months on the job

uh from a stock market perspective. But

with all three of those, the market was

higher a year after they stepped into

the job. So, you know, we've looked at

the fact that the market has essentially

been trading sideways, at least until

this week when it's popped. Um but it

had been sort of trading sideways ever

since Worsh took over. By historical

standards, that is not unusual. It does

take financial markets time to get used

to a new way of doing things.

>> That was Lorie Calvacina, head of US

equity strategy at RBC Capital Markets,

speaking to Bloomberg's Heidi Shroud

Watts. And we're bringing their

conversation to you here on the Daybreak

Asia podcast. [music]

Welcome back to the Daybreak Asia

podcast. I'm Dan Schwarzman. Doug Krer

has a week off. Over the last several

days, Japan had several companies report

earnings. Ria Nishihara, chief Japan

equity strategist for JP Morgan

Securities, spoke to Bloomberg's

Sherriion about her outlook on the

Japanese earnings season.

>> Corporate earnings are very very strong.

Uh as you say about more than half of

the major companies have reported and

sales growth year on year is 15% and net

income growth is 50%. They are stronger

than the peer in US and Europe. And we

have to remember that this strong growth

earnings growth was realized under high

oil prices. Japanese oil importing

company which means corporate pricing

power is you know has become very strong

structurally in my view and the driver

of earnings growth as you say is

broadening beyond the AI semi uh banks,

trading companies um um wholesale uh

companies and uh machinery those were

also the driver of

I mean

>> how much of this strength are you seeing

across the board at a time when we've

discussed the supply chain disruptions

rising cost and of course not to mention

on the backdrop of everything is also

tariff costs still in play at the moment

>> right so I [clears throat] mean Japan's

price transfer ratio has under the uh

depressional economy has been 50%

compared to 89 to 90% in US so and now

uh start of the 2023 it's jumped up to

70%. And even under the I mean difficult

uh phases in uh US tariff um in 2025 or

higher oil prices this year um actually

this price transfer ratio down just a

bit like 68 or so. So still uh higher

than you know 50% in the depressional

economy. So that makes uh corporate

earnings is still strong. We computed

EBS impact by higher oil prices this

time is will be something like 6% point

down but actually I mean market

consensus is I mean continue to upward

the division even after this much

>> do businesses themselves understand the

strength of their business right now the

issue with Japan has always been cash

hoarding right businesses not spending

on the future and not paying their the

salaries of employees So you can see a

virtuous cycle of wage growth as well.

Are we seeing that change in mindset?

>> Yes. Um loan growth is now 6% which is

record high these days. So which is um

this is because of the growth of the

corporate appetite to growth investment.

It has just started. This is I think in

related with uh government promotion of

gross investment. corporate governance

now focus on how corporates use excess

cash in their balance sheet. So one way

is to use for growth investment another

way is to increase which you know both

of which should lead to a better economy

the circular circle of good economy. How

are they viewing the lang the strength

of the yen right now?

>> Uh 158. Yeah. But from a perspective of

equity markets actually dollar yen below

160 is okay you know I mean manageable

uh corporates assumption for 26 FY

dollar yen is 152 with conservative um

bias um and 150 is last year's average.

So our break even dollar for households

real income growth is 160.

>> So of course um takad administration's

physical expansion uh continue weakening

pressure but um we also heard last last

month that government hint a potential

GPIF investment shift and we saw Japan

US joint FX intervention. So such fro

funds policy uh would be some supportive

factor to reduce the further yen

weakening pressure.

>> JP Morgan seeing the yen uh year end.

>> Yeah. 164 no change year end.

>> Okay. Despite everything that has

happened with joint intervention.

>> Yeah. From now uh still you know four

months from from now. So um but u there

is also uh you know risks in a short

term. Such a government address should

keep in a bit strong.

>> Yeah. Not to mention of course BJ

decisions as well. Um when it comes to

these businesses, we talked about the

strength of the semiconductor side of

things and we talked about the

broadening of it machinery uh other

sectors like banks as well. Are there

any outstanding to you that you think

have more potential uh going forward?

>> Yes. Um I overweight banks uh from

structural uh perspective like for

medium-term you know um time horizon uh

some investors see the bank's valuation

current PB 1.5 times PE 15 times already

pricing to BOJ rate hike so what else uh

but my view is um you know long growth

is one thing this is the start of the

cycle of strong growth investment

another thing is potential deposit shift

Deposit shift makes banks who has

resilience to uh deposit beta long-term

rates rising or upgraded cyber attack um

can be winner through this process. I

think deposit yield long yield will be

normalized from a level and depressional

economy that is catalyst that has not

been in EPS or LOE. That was Ria

Nishihara, chief Japan equity strategist

at JP Morgan Securities, speaking of

Bloomberg Sherion, and we're bringing

their conversation to you here on the

Daybreak Asia podcast.

Thanks for listening to today's episode

of the Bloomberg Daybreak Asia edition

podcast. Each weekday, we look [music]

at 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 Krer, and this is Bloomberg.