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Welcome to the Daybreak Asia podcast.

I'm Charlie Pallet. Doug Krers got the

week off. Crude oil paired its gains.

Asian stocks rose after Axios reported

that Iran offered the US a new proposal

regarding the reopening of the Strait of

Hormuz. We spoke about the markets with

Jasmine Dwan, senior investment

strategist at RBC Wealth Management

Asia, and she spoke to Bloomberg TV

hosts Heidi Strad Watts and Sheron.

>> We are now heading into potentially a

third month of disruptions when it comes

to the straight of home moves. There's

now, of course, a lot of commentary

around what the the primary, but also

the secondary and tertiary impact of

this energy crisis will be. What are you

watching in terms of the major risks to

investors?

We think it's very reasonable to uh

assume the negotiations will be back and

forth and we will take several rounds

but we still expect a compromise deal

can be reached and um the major reason

is because both side uh wants to end the

war and both side lay out their

conditions for how peace look like and

both side have agreed to a ceasefire and

we think China plays a very important

role in bringing bringing Iran back to

the negotiation table. So Iran's

calculus is more than just how long the

regime will last uh a a prolonged war

and um China will be the largest

beneficiary with if the two parties

reach a deal. So uh we think China will

want to both side to have a rapid uh

resolution and of course uh the risks

will be to the uh impact to the economic

and to the broader inflation and we

think uh in general risk may be smaller

than we currently feared because um

right now uh the US inflation risk has

come down from the pig and uh later this

year if uh we are seeing a deal is being

reached we may see few months of

outright deflation. So inflation at the

end of the year is likely to be lower

than uh at the beginning of the year. So

fulyear inflation may be lower than we

currently feared.

Some of those reasons would be

contributing to why you're so overweight

when it comes to US stocks.

Are you seeing there to be a lot more

runway when it comes to these record

gains that we see being driven by big

tech?

Right now we are still c cautiously

optimistic in US equities. Of course in

the short term um the US equities may be

a little overbought but we are seeing

some positives mainly due to two

reasons. Uh first is the broad market

participation is still positive. If we

look at the advanced decline lines for

the S&P 500 is still at record high

level and uh typically uh econ uh equity

cycles doesn't end if uh the market

participation is at record high and also

if you look at the tax sector uh it

contributes to around 50% of the US

market cap and the tax sector is um

coming up uh delivering very solid

earnings growth and um

counterintuitively

um energy crisis or higher energy price

is a tailwind for the US corporate

earnings because uh since the start of

the war the S&P 500 earnings estimate

has been revised up by 2.3% and half of

that come from the tax sector and half

of that come from the energy sector. So

the an uh the earnings growth is still

very solid for the US equities that's

why we are still maintaining an

overweight position on the US equity

market.

How much of that will also be filtered

through into the Asian market given of

course how many of those tech suppliers

are across uh markets here in Asia?

Yeah, we think uh investors are trying

to look for very uh solid earnings

growth and uh solid uh sectors to buy

into and besides from the US AI and tech

companies investors are paying attention

to the Asia tax sectors especially we

have a very uh large amount of supplies

suppliers here. So if you look at the

earnings uh estimates by for example by

of the Korea tech companies the memory

chips companies they are expected to

deliver four to five times earnings

growth this year. So the earnings growth

is still extremely solid and that's why

we're seeing investors interest continue

to going into this sectors and for the

AI tech companies um the um also we are

seeing some positives coming out uh the

AI model capability continue to improve

and the valuation is relatively

attractive compared to their US peers.

So um investors may still turn turn

attention to their uh to the AI uh

Chinese AI companies.

Do you worry about uh the concentration

of some of these big names, the likes of

Samsung, TSMC

and and their role in terms of their

home markets,

right? to some extent um most of the

investors are looking at only looking at

the big uh tech names and in the short

term we do see some risk of um overboard

and we may see a period of uh

consolidation um in the near term but

overall it will all come back to to the

earnings growth. We are seeing the big

tech companies deliver very solid

earnings and that's why investors will

continue to uh put their money into this

big tech names. So we think the earnings

growth will digest um the concern on on

this uh u overcrowded trades and also

the short-term uh overboard in the

market

outside of tech and AI. How else are you

capturing the upside and also obviously

mitigating the downside risks of the war

as well?

Well, at RBC wealth management, we are

trying to build a diversified and

resilient portfolio so that we can

mitigate uh the risk and capture the

upside both from the war and peace

scenarios. And that's why right now we

are holding both energy, chemicals and

technology stocks. And uh we are also

trying to capture the short-term market

volatilities taking advantage of the

market movements uh to do some

short-term tactical trades. And we think

in this kind of market environment,

investors have to be super nimble and

flexible. And um that's why uh we are we

need to be more um we need to uh be more

flexible and trade on the uh focus on

some short-term opportunities.

>> Jasmine Dwan, senior investment

strategist at RBC Wealth Management

Asia, speaking to Bloomberg TV hosts

Sherion [music] and Heidi Strad Watts.

>> [music]

>> Welcome back to the Bloomberg Daybreak

Asia podcast. I'm Charlie Pallet. Doug

Krer's got the week off. The artificial

intelligence boom has triggered a

seismic reshuffleling of global equity

markets with Taiwan and South Korea

musling past European nations one by

one. It is a pivotal moment in the South

Korean economy as that AIdriven export

boom is also tested by rising

protectionism, energy supply

disruptions, and of course the need to

diversify markets and supply chains.

Johan Co is South Korea's trade minister

and he spoke to Bloomberg's Sherion.

>> I wanted to start asking you about this

immense optimism and solid trade

numbers, export numbers that we're

seeing from South Korea. How much of

that story do you expect to be derailed

by the ongoing war in Iran?

>> I think overall the Korea's export has

been really robust. Uh for example, for

the last 10 consecutive consecutive

month Korean export has uh been growing

and uh the last month which is the March

um our export uh hit a record level of

68 billion for the first time. I think

it's a really driven by kind of strong

demand for semiconductors around the

world. So despite uh some concern

related to all the tariffs and the

uncertainty in the m middle east, I

think the Korean export has been really

showing u you know robust performance so

far.

Is there a risk that a lot of the

materials, NAFTA, uh, rubber, resin, a

lot of the things that could potentially

go into the supply chains, especially

around tech exports, will be hit given

the ongoing conflict in the Middle East.

>> Yes. Uh, in fact um this the supplies of

the NAFTA and uh you know the are being

squeeed. So we are taking um you know

domestic measures to kind of restrain uh

the export of this NAFTA. At the same

time uh we really make all our efforts

to secure more NAFTA from um you know

other region uh than the Middle East. Uh

previously 80% of our NAFTA came from uh

the Middle East. So uh we are exposed to

uh this kind of potential risk in the

region and now I think uh diversifying

uh is a really a way to go. So now we

are making all these efforts to find new

uh alternative uh sources uh and

partners for this.

Have you made have you gotten any

commitments from Asian partners? I know

that you've been to India, you've been

here in Japan, you're in Singapore right

now.

right now.

>> Uh yes. Um the last week the Korean

president made a state visit to India

and actually the Korea and India signed

MOOU on this uh cooperation uh in energy

uh and uh you know this uh this sector

uh and uh yeah I mean I think all these

other countries are also struggling uh

with this shortage of NAFTA and other uh

the petrol uh you know chemical products

but we are making efforts

Um I know that you've had

[clears throat] perhaps some concerns

coming from Indian authorities as well

about the sepa trade deal and how

balanced it is. Will that have any

implications to how much cooperation you

can get from them?

>> Yeah, I think uh we had a really uh this

great uh agreement uh last week in India

to really accelerate uh this upgrade

negotiation for Korea, India, SEPA. I

think we have really this great

potential. I mean our economies are

complimentary. A lot of Korean

businesses in automobile uh electronics

and ship building they are they have

invested India and they are considering

investing in India. So I think uh

upgrading this almost uh you know 17

year old the framework of trade and

investment will actually really boost to

further trade and investment between our

two countries.

And one of the trade deals that we're

watching the most is the one between

South Korea and the United States,

right? Can you give us an update on the

implementation of the $350 billion US

investment package? Have you chosen your

first project? We're hearing that it

could be the Louisiana LG export

project.

>> Uh not yet. Uh but I think we are on the

right track. Um the last March, Korea's

National Assembly passed a special law

to uh the operationalize uh this $350

billion uh investment fund. So now we

are in the process of uh you know the

creating new government agency to

execute uh this investment uh the

project. So now we are in a preparatory

mode u exploring you know this what kind

of project could be really mutually

beneficial. I think what is important to

Korea is to really make sure that those

project are commercially viable and

mutually beneficial. If that happen if

if that's the case, I think this could

be turned into really new opportunities

for many Korean companies to invest and

forge stronger partnership in

manufacturing sector with the United

States.

>> Does the Louisiana energy export project

count as one of those feasible ones?

I think that um I mean we are not at

this stage to really reveal uh what kind

of project are being explored and then

discussed but uh I think we we are

openminded about uh this mutually

beneficial and the strategically

important uh those project um in energy

and many other sectors.

What's difficult for South Korea and

other partners is that the US has also

opened a new 301 uh probe right into

excess capacity. Um any more updates on

what's going on there and how you plan

to mitigate the benefits that you've

gotten from the trade deal so far and

the commitments?

Yeah, last November uh our two leaders

uh have agreed on this trade deal uh in

uh Apex summit in Kongju and uh we are

in the process of you know the

faithfully fulfilling uh this imple

implementation uh but with this um uh

the Supreme Court ruling on IPA. I think

uh right now what US is trying to do is

to uh restore the previous level of

tariff uh you know with the 301

investigation. So now we are in a really

productive and uh you know close

consultation with the US to really make

sure that uh our trade deals are being

will be honored and uh the stabil

stability will brought back will be

brought back uh to our mutual you know

the bilateral trade

>> and of course minister a key issue is

also what's happening between the

relationship between China and the

United States. What do you hope to see

or expect to see from the President

Trump, President Xiinping meeting in May

that could help potentially the global

trade environment and what's happening

between South Korea and these two uh

partners as well?

>> Yeah, right now uh the China is our

number one trading partner and the US is

number two, but it's a really kind of

neck and neck. So I think it is in our

uh interest to see that stabilization uh

of this US China uh trade relations um

being you know the realized. So uh we

hope to see that uh some more

predictability and more stability uh

could be um secured uh through this kind

of uh the the high level talks

and of course minister given of course

uh the tensions between the US and China

the geopolitical tensions of course in

the Middle East the war in Ukraine we

have seen incredible focus on the

defense industry here in Japan the

government has lifted restrictions on

lethal weapons exports. Do you expect to

have that meaningful uh impact on the

competitive edge of South Korea's

defense industry which was also huge?

I think that Korea's uh the the defense

industry is actually one of the

strongest because we have a really

strong manufacturing base and uh I mean

for the last uh because of unique the

the security environment in the Korean

peninsula I think this uh the Korean the

defense industrial sector has continued

to develop their supply chain. So now I

think this uh the the the defense

industrial sector sector could emerge as

one of the strong uh engines for you

know export from Korea's point of view

and I think uh we we

know the exploring all these possible

multilateral as well as bilateral

cooperation uh to uh in this defense

industrial sector with key partners

around the world.

Uh we had the news of course last week

of the Japanese government rejecting for

example uh the buyout of one of the

companies Machino by MBK for example.

Will that alter the relationship between

Japan and South Korea and what would

that mean for future cooperation?

>> Uh we also learned of this case and but

I think this is a kind of specific uh

business case. So uh we are looking into

this case right now but uh I think it's

too early for for me to make any kind of

comment on this.

Uh Minister, then before I let you go,

how long do you expect this uh what some

are calling the super cycle in tech uh

in the tech industry, especially with

semiconductors to last? And will it get

derailed or is there the risk of getting

derailed by not only the geopolitics

around the Iran war and the supply

chains, but just the cyclicality of this

sector in general given how much the

Korean economy depends on this industry?

>> Um yeah, indeed. uh right now I think

the one of the strong uh the driver for

for our growth in in terms of GDP and uh

exports seems to be coming from the

semiconductor industry and as you

mentioned this is highly cyclical but I

think what is important uh to Korea is

to also diversify our source of uh uh

industrial growth as well as export. So

if you look at uh this our you know

export uh performance not just uh this

the semiconductor sector but also these

newly emerging sectors for example this

K culture related uh you know beauty

products and food and also cultural

content they are also emerging as a new

engine for uh the growth and export. So

uh I talk about the diversification uh

in terms of energy sources but not just

that diversification but in terms of our

own industrial and export strategy. I

think diversification seems to be the

key and the core strategy for us.

>> That was Johan co South Korea's trade

minister speaking to Bloomberg TV host

Sheran and we bring you their

conversation right here on the Daybreak

Asia podcast.

Thanks for listening to today's [music]

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. 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 [music] and Australia.

I'm Doug Krishnner and this is

Bloomberg.

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