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Welcome to the Daybreak Asia podcast.

I'm Doug Krer. In the US session, we had

dip buyers giving the market a bit of a

boost on the equity side. That was after

Friday's sell-off. Chip makers led the

rebound with the Philadelphia

semiconductor index up by more than 5

1.5%. And right now, South Korean

chipmakers are leading a recovery in the

Cosby. At the same time, during New York

trading, oil prices edged higher. That

was after Israel and Iran exchanged fire

in the early hours of Monday. However,

the two sides have now signaled they

will refrain from further escalation and

crude oil prices are drifting just a bit

lower. For a closer look at what's

happening in the oil space, let's bring

in Bloomberg Steven Stchinsky. He is

team leader for the Asia Energy Unit and

he joins us from Singapore. So much of

what we're seeing these days and I think

you'll agree with this is headline

driven, is it not?

Absolutely. And not only is it headline

driven, it's almost Trump driven. Uh it

really does seem like the market is

looking at how Trump reacts to different

things and and you can take yesterday

and really from Sunday onward um as as a

key example of this. Um, you know, we

had uh a a bit of um a tit fortat

strikes between uh Iran and Israel. Um

and there were fears in the oil market

here in Asia that this would kind of

unwind into a larger conflict and risk

the the US Iran peace negotiations. But

Trump was very quick to speak with media

to go on social media and also speak

with um it seems at least uh Netanyahu

himself in Israel to stop this from

continuing. he did not want this to

happen anymore. And you saw every time

he would say something. Um the oil

market would kind of deescalate. The

prices would fall a little bit because

there was an expectation that Trump

would kind of cool the temperature. And

in the end, he ultimately did. Um the

the escalation uh has stopped. Um there

has been a halt to hostilities between

Israel and Iran, at least for now. And

you've really seen the oil prices come

off. Brent is holding near about $94 a

barrel um after rising to about $97

yesterday. Um so it it it is quite an an

an interesting deescalation in how the

market really tracks not only what's

happening there but what comes out of

Trump's mouth.

>> One of the strategists on the Bloomberg

M live blog was making this point. Crude

oil is elevated in terms of price

because supply risk is real. So here's

the question. Do prices still need to be

firmly in triple digits to account for

the level of depletion that we have seen

right now in crude oil stock piles?

>> Yeah, that's that's a really good

question. I think that's the magic

question because if you were looking at

this market uh 3 months ago when the war

was beginning, I think there would have

been a clear expectation from all the

analysts that you would see oil prices

well into the triple digits um for for

for as long as this conflict continued.

But as you can see, we're now below

$100. And while it is elevated compared

to um where we were pre-war, um it is

still uh below I think the worst case

scenario some of the analysts had been

saying. And I think part of that has

been because of how the market has been

able to go through its its stock piles.

Um, not only have there been strategic

petroleum releases between the United

States, Japan, and other allies, you

also have China um, reducing their

imports and most likely eating into

their reserves as well. Um, you see

because the US has such large reserves,

they were able to export uh, more oil

and oil products to customers that

needed to replace Middle Eastern

supplies. Um but as these inventories

fall uh you are getting in a situation

where uh you can't continue doing this.

Um and and there will have to be a time

where either you know you stop this

rapid withdrawal of oil uh from from

either strategic reserves or just

regular um uh storage facilities. or um

you know, you you you need to have

prices uh rise enough to incentivize

lower demand um and and potentially a

restocking of supply in in storage. Um

because, you know, it the market is

likely now uh even if the war were to

end in a in a in a tighter situation

because you do have um storage levels so

much lower. Um so that's something that

I think you know you're going to have to

clearly monitor if you're if you're in

this market and uh you know there have

been some researchers at endless saying

that you know we will firmly be in

triple digits to account for those

depleted stock levels. So, as we both

know, it is now summer in the northern

hemisphere. And at some point, in the

near term, there's going to be a lot

more pain felt with higher energy prices

when winter begins to become a

consideration and there's going to be a

lot more in the way of energy that needs

to be utilized. Do you have a sense of

when that is really going to show up in

the market? when when the consideration

of depleted stockpiles as we look ahead

to the winter months and we talk about

heating and other forms of energy that

are going to be derived from

hydrocarbons whether that's going to

really kind of show up in the market in

a way that we're not seeing it right

now.

>> Yeah, I mean I think that's also uh the

the big question and and what some

analysts have been trying to figure out.

Um because again when the war began um I

think there was an expectation that by

June uh you would maybe be in that that

period of a much tighter market for

profits for for for products for natural

gas um and as well as crude oil itself

but prices have actually come down a

little bit. I think now the expectation

is if this continues, if the near

closure of Hormuz were to continue uh

into uh July and August, that's when you

start to see uh again uh pain where

where customers who need to replace

Middle Eastern supply, they have fewer

and fewer options. The stockpiles aren't

there. The floating storage on the water

isn't there. Um you know looking at

natural gas um for example LG um 1/5if

of LG supply uh is essentially uh halted

because Hormuz is closed and because of

that um you know there has been a

rebalancing in the market. Um at the

beginning uh China and India reduce

their imports of LG quite significantly.

But now as China is is heading into

summer and as they look to you know

increase their their inventories, you've

seen LG imports into China increase and

that's coming at the expense of Europe.

Europe is taking less LG. Now the issue

is Europe needs LG and gas uh in storage

for for winter and they need to restock

and that restocking period actually

happens as you mentioned during the

summer. It happens in July and into

August. So for LNG at least, there is

this fear that if China is still buying

and then Europe needs to increase their

purchases because they have to replace

Russian pipeline gas that have been

halted um in the fallout from the the

war in Ukraine in 2022, then suddenly

you have this global fight for spare LG

supply. And unlike oil where Saudi

Arabia can use the East West pipeline to

reroute some of their Persian Gulf oil

into the Red Sea and through the um uh

to customers in in Asia. uh there are no

alternative routes uh for LNG. Qatar

doesn't have an alternative route. Adno

in the UAE doesn't have an alternative

route. So if those supplies are

essentially shut in, the Persian Gulf,

it is really challenging uh to find

replacements. And then that means that

maybe Europe and Asia will have a a

price war um to to get that spare

supply. That's a worst case scenario. Um

it all depends on how demand holds up in

Asia. And if if there's large demand

destruction, then things could be uh

considerably better. Stephen, I'm

wondering even if the straight is

reopened here in the near term, there

are a number of hurdles that the market

has to grapple with, there's the

possibility that there are still mines

in the straight of Hormuz that have to

be removed. There are a number of shutin

fields that may take some time to

restart. And you know better than I the

level of damage that has occurred to

parts of the energy infrastructure

around uh the Gulf region. I mean so

even if we get a reopening of the

straight there may be a period of

several months before we're returning to

some level of let's call it normaly

>> absolutely I mean I think for oil it is

a story of of months um you know you do

have um uh facilities that need to ramp

back production you need to as you said

clear the mines you have to make sure

that the ship owners are fine with going

through the straight you have to make

sure that um you're also okay with um uh

potentially the crews on the ship going

through because they they have a say in

this as well. So this be and you have to

reroute all these vessels. Now um LNG it

will take much longer. Um the world's

biggest LG plant in Raslafon about uh uh

you know 17% of its capacity was damaged

by a missile strike and that will take 3

to 5 years to repair. So while a lot of

that facility can come back online and

those LG shipments can begin flowing, it

won't be back to normal capacity for

years um because they have to do that uh

they have to do maintenance and and

repair on the facility. Now I do want to

note though there is a big difference

between physical supply and also

sentiment and you see that this market

you know if there is a peace deal if you

do see uh more ships going through

hormuz you will likely see the paper

market I'm talking Brent futures and WTI

futures fall pretty significantly. Um

Bloomberg opinion columnist uh Javier

Bloss had a really great um column about

this um earlier this week about how if

there is a peace deal if this were to

end, you know, you would see a a major

drop in prices. Um, and even if that if

even if we don't see a an immediate um

increase in in oil flows, even if we

don't see us getting back to the pre-war

levels, I think the sentiment and the

headlines uh would likely be enough to

see quite a deescalation in in oil

prices.

>> Stephen, great information. Always a

pleasure. Thank you so very much. That

is Bloomberg. Steven Stchchinsky, team

leader for the Asia Energy Unit, joining

[music] from Singapore here on the

Daybreak Asia podcast.

Welcome [music] back to the Daybreak

Asia podcast. I'm Doug Krner. In the

states, the big story in the equity

market was the recovery of the chip

makers. One example, Intel surged 11%.

That was after the information reported

that Google will rely on Intel for more

than 3 million specialized AI chips in

2028. Now in South Korea, the equity

market is rebounding thanks to gains in

Samsung and SKH Heinix. Now the story on

Asia Tech is where we begin our

conversation with Mark Franklin. Mark is

head of multiasset solutions at Manulife

Investment Management. He spoke to

Bloomberg TV host Heidi Strad Watts and

Cherry An.

>> Today might be uh a bit of respite and

some opportunity for dip buyers to come

back in. But do you think the Monday

session is a reminder of what could

perhaps be a new normal at a time when

all of the uncertainties that you point

to are still in play?

>> Good morning. After a very very sharp

rally over the last two months, it's

inevitable that there will be a period

of digestion which is also characterized

by a pick up in volatility. And as you

mentioned as well, we've got a number of

central bank meetings coming up and

inflation data points which could coales

around that that pick up in volatility

as a result of the momentum that we've

seen thus far. One thing to call out is

that if you see the major central banks

either collectively raise rates or

signal that rate hikes are potentially

on the table in the case of the Fed,

that will ultimately lead to a

tightening of financial conditions and

and investors will be forced to sort of

revert back to fundamentals and try to

ascertain which uh parts of the equity

market still have potential upside even

if policy is no longer overall

supportive.

You make a very good point about, you

know, even if sort of sentiment shifts

on AI, the geopolitical situation

remains fluid. The fundamentals when it

comes to the US economy and and what the

Fed will do seem fairly set at this

point. If you add on to that the sort of

vacuuming effect of these big mega tech

IPOs, do you think the market is going

to be challenged in the months to come?

Well, with respect to the the large

IPOs, they've been well telegraphed and

and one potential aspect to the

requirements to raise liquidity in order

to fund participation is the extent to

which they will go into indices quickly

because then passive money will have to

rotate and recycle. We saw last week

that there would be no fast tracking of

the SpaceX IPO. And so in that sense,

the the pressure on passive exposures to

markets to find room for inclusion in

indices straight away subside somewhat.

But clearly institutional investors, but

also retail investors will be taking a

very close look at those IPOs and may

look to some of their year-to- date

winners as a source of funding if indeed

they're able to get allocations.

We heard that in South Korea SpaceX IPO

was uh the retail is already

overallocated at this point. When it

comes to the volatility that we're

seeing in South Korean assets for

example, will this just add to more

given also the fact that we have now

single stock uh leveraged ETFs to to

contend with in that market where the

concentration on Samsung and SKH is so

huge.

One of the things which the regulators

probably missed an opportunity on was to

um head off and anticipate the very

significant pickup in retail

participation in call options, short

data call options to try to ride the the

rally particularly in the semiconductor

names. Now that retail have taken on a

significant amount of margin exposure

and leverage, it almost guarantees a

pick up in volatility going forward. But

again, reverting back to fundamentals,

not just the Korean uh semiconductor

names, but also other tech companies

within the broader semiconductor complex

are signaling that 2027 does not

necessarily mark the conclusion in terms

of the supply constraints of the wide

industry. And assuming that demand

continues to grow at a very fast clip,

you're going to have a supply demand

mismatch and an elongation of this super

cycle that we're seeing. So fundamentals

still look very much intact, but from a

market participation perspective, there

are definitely signs of animal spirits

kicking in here, which means that you're

going to get two-way price action in

large order as a regular feature in the

coming weeks.

>> What stood out in the South Korean

economy has also been the pressure on

the Korean one despite the fact that we

are seeing these rallies elsewhere.

Is this going to be a common trend

across markets in Asia? For the likes of

Japan, for example, the yen still under

pressure despite the fact that we are

expecting the BOJ to continue

normalizing and tightening policy. When

you have strong US economic data and

potentially more hawkish turns also

coming from the ECB, the Fed as well. Is

this just the way the new normal for a

lot of uh currencies across the region?

There are some cyclical as well as

secular explanations. On the cyclical

side, you're seeing foreign investors

that are sitting on triple digit gains

in Korean equities exposure looking to

take some profit, which means they're

effectively selling Korean one and

they're repatriating that capital back

into their base currency, typically US

dollar. So that's putting some pressure

on on the currency. But the more secular

theme really is we are in a global

competition for capital flows and that

is an unspoken policy feature of the

Trump administration is to drive capital

into US capital markets and in some

cases at the expense of overseas capital

markets and that is something that we

expect to persist certainly for the

remainder of the current presidential

term.

>> Mark, does China and Chinese assets

remain a compelling alternative? The

yuan is unusually strong at the moment

and authorities seem fairly comfortable

with that and there's also a a parallel

universe of AI uh companies and

opportunities there.

>> We would distinguish between the

mainland equity markets and the offshore

Hong Kong equity markets. The market

composition is quite different. I think

on the mainland side, you're right to

point out that the the AI thematic is

quite well expressed by the gem index in

Shenzhen and you've got a number of nent

companies there which are making very

significant technological strides. So

from a thematic point of view, the

mainland equity markets do offer that

expression for investors. The other

thing as well is we are seeing mainland

retail investors engage more and more

with local equity markets as well. And

whilst we're not seeing elevated degrees

of of margin financing and and volumes,

the volumes are somewhat healthy than

they have been over the last few years.

So that's a sign that there is domestic

interest in capital markets. With

respect to Hong Kong, one of the issues

there really is the the concentration in

real estate and banks and of course with

interest rates or at least um the

pricing of interest rates um tightening

somewhat that that creates a bit of a

cost of capital pressure for those

sectors in the economy. I mean I think

the other thing as well is that in the

case of Hong Kong equities they've

somewhat suffered like a number of other

Asian equity markets by the sheer

enthusiasm and interest in certain

markets in Asia which have done

extremely well such as Korea and Taiwan

and India's been in the same boat as

well. It's seen investors take exposure

down in those markets in order to make

room to build allocations in those

markets that have got the strongest

momentum. So Hong Kong in that sense is

a bit more sensitive to that dynamic.

That was Mark Franklin, head of

multiasset solutions at Manul Life

Investment Management, speaking with

Bloomberg TV host Heidi Strad Watts and

Sher on, bringing you their conversation

here on the Daybreak Asia podcast.

Thanks for listening to today's episode

of the Bloomberg [music] Daybreak Asia

Edition podcast. Each weekday, we look

at the stories shaping markets, [music]

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 Krer, [music] and this is

Bloomberg.