WEBVTT - Big Tech Earnings, BOJ Decision Preview

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<v Speaker 1>Good morning, and welcome to the Bloomberg Daybreak Asia podcast.

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<v Speaker 1>I'm Doug Prisner. Here are the stories we're following today.

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<v Speaker 2>I'm Charlie Pellett. Doug Chrisner has the week off. Asian

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<v Speaker 2>markets are locked in on big tech this morning, following

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<v Speaker 2>earnings from Microsoft, Meta and Samsung. For more, we heard

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<v Speaker 2>from Daniel You, head of Global Asset Allocation, that you

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<v Speaker 2>want to securities and he spoke with Sherry On and

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<v Speaker 2>Heidi Stroud Watts.

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<v Speaker 3>You know, obviously the global AI expansion theme is still

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<v Speaker 3>a key one for you. It's getting quite clear who

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<v Speaker 3>the winners, losers, those that are perhaps struggling to assert

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<v Speaker 3>dominance are. How do you view the opportunities, particularly when

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<v Speaker 3>it comes to the Asian names.

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<v Speaker 4>If you look at the global structure of this AI cycle,

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<v Speaker 4>we can see that it is clearly the winners are

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<v Speaker 4>the US companies. As you know, the AI cycle, the

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<v Speaker 4>infrastructure's build up is mostly based on the data centers,

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<v Speaker 4>and if you look at the level of data center capacities,

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<v Speaker 4>I think that globally, probably more than eighty percent is

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<v Speaker 4>all built in the US. So I think we've got

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<v Speaker 4>to think about that terms. So if you look at

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<v Speaker 4>Someson Electronics obviously having an association with NBDIA and trying

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<v Speaker 4>to ship out the chips. It's not really happening yet.

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<v Speaker 4>As you know, the Skihiinex is probably having a market

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<v Speaker 4>share more than eighty percent of that business. Now, as

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<v Speaker 4>you mentioned earlier, we look at the Micron and Micron's

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<v Speaker 4>competitiveness seems to be rising, so all that in terms

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<v Speaker 4>of the infrastructure wise, it's all related to the data

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<v Speaker 4>center I think more importantly though, however, we got to

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<v Speaker 4>look at the soap to our segment. In the past,

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<v Speaker 4>when there was an Internet cycle, you had a significant

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<v Speaker 4>amount of the capacity increase in the infrastructure for the

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<v Speaker 4>five years, and then a software expansion was happening over

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<v Speaker 4>the period of fifteen years. But it seems right now

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<v Speaker 4>the AI cycle wise, the hardware as well as software

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<v Speaker 4>is are all start to kick in. If you look

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<v Speaker 4>at the overall increase in the investment on the software side,

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<v Speaker 4>US is increasing by more than eleven percent this year.

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<v Speaker 4>Clearly the two digit growth numbers are happening. So I

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<v Speaker 4>think the speed of the penetration regarding the AI is

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<v Speaker 4>going to be extremely high. But it seems that the

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<v Speaker 4>speed of that is all focused in US rather than

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<v Speaker 4>any other countries. So in terms of the Asia names,

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<v Speaker 4>the relationship with the US is the most important thing.

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<v Speaker 4>So that's why if you look at the TSMC, they're

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<v Speaker 4>doing great. SKHI next, they're doing great, but some of

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<v Speaker 4>electrons are struggling. Some of the companies are also struggling.

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<v Speaker 3>It's interesting you use words like essential, like paramount when

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<v Speaker 3>it comes to these holdings, the big AI related holdings

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<v Speaker 3>in the US, right for mag seven and adjacent stocks.

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<v Speaker 3>Does that mean that view is sort of fed policy

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<v Speaker 3>the agnostic is it? You are selection agnostic too, Yeah.

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<v Speaker 5>I think that.

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<v Speaker 4>First of all, let's look at the interest rate front.

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<v Speaker 4>If you think that the AI is going to accelerate

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<v Speaker 4>very quickly, that reduces the risk of inflation pressure because

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<v Speaker 4>the productivity goes up significantly. The inflation pressure comes from

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<v Speaker 4>the demand side, where the investment as well as the

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<v Speaker 4>demand on the consumer side accelerates due to the high

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<v Speaker 4>salary increase. That's I guess the inflation pressure. But if

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<v Speaker 4>the GDP is growing on the basis of productivity improvement,

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<v Speaker 4>the level of the inflation pressure goes down. That's what

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<v Speaker 4>we saw in the Internet cycle of early nineties to

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<v Speaker 4>the late nineties. I think that if ai cycle continues

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<v Speaker 4>to expand in the US, we think that the pressure

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<v Speaker 4>on the inflation will be reduced and therefore that will

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<v Speaker 4>be able to lower the interest rate as the plant.

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<v Speaker 4>So so far they are lowered by about fifty basis point.

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<v Speaker 4>They are expected to lower by another fifty based point

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<v Speaker 4>by end of the year. Next year, another fifty to

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<v Speaker 4>seventy five basis point. I think that that's a very

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<v Speaker 4>reasonable number to be expected. On top of that, I

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<v Speaker 4>think that, however, though, what we worry about is is

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<v Speaker 4>that who becomes the present changes the perspective of investment cycle.

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<v Speaker 4>If the Trump gets into power, then we do expect

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<v Speaker 4>he will raise the TARFT by one hundred percent and

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<v Speaker 4>also lower the corporate taxt rate by six percent point.

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<v Speaker 4>That changed the perspective of global market and it really

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<v Speaker 4>benefits the US companies. So I think that that will

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<v Speaker 4>probably accelerate the process of information pressure, and therefore the

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<v Speaker 4>lowering interest rate might be taking a bit slow pace

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<v Speaker 4>or may not even happen. So we need to look

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<v Speaker 4>at that and see what happens to Daniel.

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<v Speaker 6>What about the currency transmission, because if we do have

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<v Speaker 6>a stronger US dollar because of those calculations that you

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<v Speaker 6>talk about, that will also mean potentially a week or yen,

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<v Speaker 6>and we know the Japanese companies, for example, have really

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<v Speaker 6>benefited from.

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<v Speaker 4>That, right, I think that that's basically the Kibbon given

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<v Speaker 4>meaning that I think if you look at Korean one

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<v Speaker 4>as well as Japanese yen, we do think that currently

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<v Speaker 4>we have a lower interest or environment. So therefore we

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<v Speaker 4>do expect the currencies to probably gradually depreciate rather than appreciate.

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<v Speaker 4>So I think in terms of the price competitiveness, Japanese

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<v Speaker 4>companies as well as Crean companies would probably able to

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<v Speaker 4>increase that. However, though, if you look at the demand

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<v Speaker 4>regards to the AI cycle, it's not the price only,

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<v Speaker 4>it's the quality of things and how competitive are you

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<v Speaker 4>in terms of the technology basis. So if the someting

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<v Speaker 4>cannot be able to capture that market share because of

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<v Speaker 4>the heating problem, that is an issue.

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<v Speaker 5>Right.

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<v Speaker 4>So I think that we've got to look at how

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<v Speaker 4>things play out. But I think as interest rate will

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<v Speaker 4>remain fairly reasonably high in the US versus the Asian countries,

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<v Speaker 4>we do think that the currency would probably gradually depreciate

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<v Speaker 4>for the Korean one as well as Japanese end continuously

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<v Speaker 4>in the future.

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<v Speaker 6>What are the implications of that for central banks? We

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<v Speaker 6>do have the Bank of Japan decision today and what

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<v Speaker 6>will be the transmission when it comes to the stock market.

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<v Speaker 4>Well, I think that it would be tough for them

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<v Speaker 4>to lower interest rate in any case Japan or Korea,

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<v Speaker 4>but whereas maybe raising interest rate. Obviously Korea is at

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<v Speaker 4>two point seventy five percent, so they're not going to

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<v Speaker 4>raise it, but probably be tougher to lower interest rate,

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<v Speaker 4>whereas also if you look at Japan, interest rate still

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<v Speaker 4>remains to be below zero point five. So I think

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<v Speaker 4>that they will gradually raise interest rate, but I don't

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<v Speaker 4>think that they can raise it further to beyond one percent,

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<v Speaker 4>So that won't change too much in terms of the

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<v Speaker 4>currency perspective. So in terms of Japanese yend, it's already

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<v Speaker 4>depreciated from one hundred and forty to one hundred and

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<v Speaker 4>fifty three or so, I think that will probably remain

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<v Speaker 4>somewhere unbound, trading somewhere between one hundred and forty five

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<v Speaker 4>to one hundred and fifty five.

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<v Speaker 6>Now, watching Asian markets over the years, we have realized

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<v Speaker 6>that any North Korea provocation, whether it's ballistic missiles, they

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<v Speaker 6>don't necessarily tend to have a lasting impact. Not even

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<v Speaker 6>defense docs move these days. But in the broader geopolitical context,

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<v Speaker 6>for example, what should it be on the watch out

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<v Speaker 6>for in the coming months.

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<v Speaker 4>Well, clearly, if you remember, if the Trump comes into power,

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<v Speaker 4>obviously he will start to talk again with Kim Jamil

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<v Speaker 4>of North Korea because they had that kind of peace treaty,

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<v Speaker 4>kind of thing he met twice right during his terms.

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<v Speaker 4>I think things can happen in that front. Also, if

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<v Speaker 4>you look at Joe political issues in terms of Israel,

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<v Speaker 4>if you look at the Trump perspective is things is

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<v Speaker 4>that he will probably end the war. That's what he's saying.

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<v Speaker 4>But clearly we are seeing that in terms of the

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<v Speaker 4>oil price implication, we're not seeing the prices going up.

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<v Speaker 4>Rather it's actually settling down. So jee political risk, which

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<v Speaker 4>affects the oil prices and inflamation and pressure seems to

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<v Speaker 4>be kind of dueling down. So we think that the

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<v Speaker 4>right now the biggest tension is the Joe political issues,

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<v Speaker 4>but it's at level of about thirty three percent terror risk.

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<v Speaker 4>We think that that percentage is expected to go down

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<v Speaker 4>as the present election finishes and going into the future,

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<v Speaker 4>So I think that that's not going to be a

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<v Speaker 4>major issue per se, rather than rather than an issue,

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<v Speaker 4>but I think it will probably gradually come down to

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<v Speaker 4>affect positively on the equity market.

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<v Speaker 6>Daniel, you always get to have you with us, head

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<v Speaker 6>of Global Asset Allocation at you on the securities.

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<v Speaker 2>I'm Charlie Palotte filling in for Doug Christmer. This week

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<v Speaker 2>we move next to Japan, where we'll get a decision

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<v Speaker 2>later today from the Bank of Japan. For more, we

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<v Speaker 2>heard from say Yuri Sharai, former BOG board member and

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<v Speaker 2>professor of economics at Kyo University, and she spoke with Bloomberg,

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<v Speaker 2>Sharry On and Heidi Stroud Watts.

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<v Speaker 6>So if we're not expecting any change on the benchmark rate,

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<v Speaker 6>what will you be watching?

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<v Speaker 7>I like to hear debut from governors how he thinks

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<v Speaker 7>about this excessively cheap PN and we started to have

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<v Speaker 7>another cheap in again. So he said, you know there

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<v Speaker 7>is no you know, there's a time before they can

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<v Speaker 7>consider another hike, but still one fifty three is excessively CHEAPN.

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<v Speaker 7>So it's much cheaper than you know, in August we

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<v Speaker 7>had like three, So this is a really having advass

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<v Speaker 7>impact on the inforation, right, so.

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<v Speaker 6>Which will really push up inflation. We should push our podcasts.

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<v Speaker 5>Right, So there's a contradiction.

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<v Speaker 6>Here, especially since the July rate hike also happened because

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<v Speaker 6>partly of a week or yen.

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<v Speaker 5>I think mainly because of that.

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<v Speaker 7>Of course Viogo will not say that, but because they

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<v Speaker 7>admit it, the yen's deplication is creating kind of bad

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<v Speaker 7>cost pushing information and the.

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<v Speaker 6>Political picture right now with the Rule and Coalition losing

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<v Speaker 6>its majority, that's actually weekend the yend even more, will

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<v Speaker 6>that happens.

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<v Speaker 7>Implications looks like it because no political parties talked about this,

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<v Speaker 7>you know, excessively accessibly cheap pen and it's impacting on information. Also,

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<v Speaker 7>everybody talked about price hike and so they have to

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<v Speaker 7>give some sublicidy to the physical policy, but nobody really

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<v Speaker 7>touched on this excessively cheap pn, right, so meaning that

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<v Speaker 7>maybe VIOG to maintain this policy. So that's why that

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<v Speaker 7>leads to the deprication a en at this stage because

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<v Speaker 7>the BOG cannot take accountdamage at this moment.

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<v Speaker 3>When it comes to wage growth. Wages are growing, but

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<v Speaker 3>real wage growth is starting to weaken. Right, do you

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<v Speaker 3>think that we've gotten to a point where perhaps that

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<v Speaker 3>could really start nate and where we are with the

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<v Speaker 3>virtual cycle, is there a big risk there?

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<v Speaker 7>So wages are growing at two point eight percent and

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<v Speaker 7>it's not very bad, but because the inflation is higher

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<v Speaker 7>and again getting higher because of the another years depliciation,

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<v Speaker 7>so important prices are coming up. So in that sense,

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<v Speaker 7>nobody really feel the real wages are growing. So that

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<v Speaker 7>kind of you know, situation is likely to continue. So

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<v Speaker 7>people do not really see our wages are going up

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<v Speaker 7>so they can consume more.

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<v Speaker 5>That kind of a.

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<v Speaker 7>Budger cycle is not evident existence at this stage.

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<v Speaker 3>And you don't think increasing the minimum wage, which of

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<v Speaker 3>course is being discussed from many sides politically, that that's

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<v Speaker 3>going to help. Is that just going to potentially force

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<v Speaker 3>out a lot of the companies that are really struggling

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<v Speaker 3>with inflationary pressures.

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<v Speaker 7>So all the political party talk about increasing minimum minimum

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<v Speaker 7>wage as if it can be a solution for raising consumption,

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<v Speaker 7>but a minimum wage is a legal, legal wage cent payment,

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<v Speaker 7>and then you know a lot of companies are struggling

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<v Speaker 7>from a cost push information and the additional uh you know,

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<v Speaker 7>legally binding a wage grows mainly many companies may not survive.

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<v Speaker 7>So I just wander, you know, all this political party

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<v Speaker 7>was as a really sought, you know, the very sluggish

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<v Speaker 7>REVA productivity growth.

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<v Speaker 5>How can they increase minimum wage?

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<v Speaker 7>And I don't think that will be a solution to

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<v Speaker 7>increase consumption.

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<v Speaker 6>There's two arguments, it seems right now, with what's happening

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<v Speaker 6>in the political instability here in Japan. One, if you

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<v Speaker 6>have the en weekending more the bog, it might have

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<v Speaker 6>to fasten the faster time and policy. But at the

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<v Speaker 6>same time, on the other side, if you have too

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<v Speaker 6>many cooks in the kitchen, will be able to actually

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<v Speaker 6>allow the bog to do its job.

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<v Speaker 7>So the difficulty is Ishibasan already said, Japan is still

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<v Speaker 7>not out of deferation. This is a repetition since the

0:13:02.200 --> 0:13:04.760
<v Speaker 7>economics right, And actually.

0:13:04.800 --> 0:13:07.160
<v Speaker 6>He has sort of changed his tune after he was elected.

0:13:07.360 --> 0:13:08.360
<v Speaker 5>Yeah, he changed.

0:13:08.600 --> 0:13:11.400
<v Speaker 7>So he said, okay, consumption is so weak and so

0:13:11.520 --> 0:13:14.480
<v Speaker 7>and he said the stage, you know, maintaining the interstrate

0:13:14.640 --> 0:13:17.319
<v Speaker 7>should be But if he said that, he keeps saying

0:13:17.600 --> 0:13:20.040
<v Speaker 7>that they are consumption is so weak. I mean, how

0:13:20.040 --> 0:13:23.400
<v Speaker 7>can he justify about this relating interest rate? So that

0:13:23.559 --> 0:13:26.040
<v Speaker 7>makes Bidog's decision very difficult.

0:13:26.160 --> 0:13:28.400
<v Speaker 6>How much is it also about the US elections. There's

0:13:28.440 --> 0:13:31.720
<v Speaker 6>a lot of arguments right now that are Trump victory

0:13:31.760 --> 0:13:33.359
<v Speaker 6>would mean more yen weakness.

0:13:33.520 --> 0:13:36.960
<v Speaker 7>Yeah, I think a boj it's very much worried about

0:13:37.000 --> 0:13:40.640
<v Speaker 7>the case of the mister Trump is winning because it

0:13:40.720 --> 0:13:43.560
<v Speaker 7>made it to the data strends higher interest rate, so

0:13:43.600 --> 0:13:46.360
<v Speaker 7>it makes the Japanese and much cheaper. So that makes

0:13:46.400 --> 0:13:48.960
<v Speaker 7>that they have a policy decision very very difficult. So

0:13:49.080 --> 0:13:50.400
<v Speaker 7>Dynama is getting bigger.

0:13:50.559 --> 0:13:53.680
<v Speaker 6>Do you expect to see more wage growth next year?

0:13:53.760 --> 0:13:56.280
<v Speaker 6>The Labor Federation here has said they will ask for

0:13:56.400 --> 0:13:58.640
<v Speaker 6>five percent. What is sort of the level that we

0:13:58.679 --> 0:14:00.760
<v Speaker 6>need in order to get us a stayable growth.

0:14:00.880 --> 0:14:03.320
<v Speaker 7>So if we want to achieve two percent, the information

0:14:03.559 --> 0:14:07.240
<v Speaker 7>and the real wage wage growth should be positive, saying

0:14:07.360 --> 0:14:10.280
<v Speaker 7>nominal wage growth should be three percent. Right, but like

0:14:10.440 --> 0:14:14.839
<v Speaker 7>now April to August, average information is at two point

0:14:15.440 --> 0:14:19.640
<v Speaker 7>nine percent. Right, it's good, but everybody really worked hard

0:14:19.960 --> 0:14:22.800
<v Speaker 7>two days the two days wages, and then if you

0:14:23.120 --> 0:14:25.400
<v Speaker 7>talk to the a lot of small medium enterprises, a

0:14:25.400 --> 0:14:29.040
<v Speaker 7>lot of companies, it's very difficult to continue simply because

0:14:29.040 --> 0:14:30.000
<v Speaker 7>the economy.

0:14:29.600 --> 0:14:31.000
<v Speaker 5>Is stuck not right.

0:14:31.480 --> 0:14:34.800
<v Speaker 6>So after the shows, I'm actually headed to the BOG

0:14:34.960 --> 0:14:37.840
<v Speaker 6>and we have investors trying to go through the statement

0:14:38.080 --> 0:14:39.200
<v Speaker 6>what should I be watching?

0:14:39.960 --> 0:14:42.720
<v Speaker 7>So yeah, I really want to see as a maybe

0:14:42.840 --> 0:14:47.680
<v Speaker 7>especially press conference, what mister governor where that is going

0:14:47.720 --> 0:14:51.280
<v Speaker 7>to talk about just excessively cheap Japanese en resurgence of

0:14:51.440 --> 0:14:55.640
<v Speaker 7>Japanese cheap en? You know, you know, I'm sure everybody asks.

0:14:55.680 --> 0:14:58.240
<v Speaker 7>And then what that implication is a cost push information?

0:14:58.400 --> 0:15:00.400
<v Speaker 7>So is a boj is going to so deal with

0:15:00.480 --> 0:15:02.200
<v Speaker 7>start like they did in the past.

0:15:02.880 --> 0:15:04.640
<v Speaker 6>Say you rich and I good to have you with us,

0:15:04.720 --> 0:15:08.080
<v Speaker 6>professor of Economics at Kou University, with a preview of

0:15:08.120 --> 0:15:12.520
<v Speaker 6>that BOG decision to come later today.

0:15:12.680 --> 0:15:15.280
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