WEBVTT - Global Stocks React to US-Iran Agreement

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<v Speaker 1>Bloomberg Audio Studios, Podcasts, radio News.

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<v Speaker 2>Welcome to the Daybreak Asia podcast. I'm Doug Chrisner. Crude

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<v Speaker 2>oil price has declined during New York trading after President

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<v Speaker 2>Trump said the Straight of Horn moves will fully reopen

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<v Speaker 2>by Friday. That's after the US in Iran finalize their

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<v Speaker 2>piece deal. In Switzerland, we had WTI dropping four point

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<v Speaker 2>nine percent to eighty seventy five, and right now during

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<v Speaker 2>Asian trading, we're seeing a modest rise in West Texas Intermediate.

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<v Speaker 2>For a closer look at oil markets, let's bring in

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<v Speaker 2>Bloomberg Stephen Stepchinsky. Stephen is team leader for the Asia

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<v Speaker 2>Energy Unit and he joins from Roth Studio in Singapore.

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<v Speaker 2>I'm curious to get your take on this because, as

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<v Speaker 2>far as I understand, the US and Iran have yet

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<v Speaker 2>to release the text of this memorandum of understanding. Do

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<v Speaker 2>we really have a firm as as to what we're

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<v Speaker 2>going to be grappling with and so far as the

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<v Speaker 2>market is concerned, you.

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<v Speaker 3>Know, I think that's a really big unknown because when

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<v Speaker 3>you look at how the market is reacting, it does

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<v Speaker 3>seem to be that this is very sentiment driven, which

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<v Speaker 3>means that there isn't any change to the physical oil

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<v Speaker 3>supply right now. You're not seeing more ships going through

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<v Speaker 3>horror moves. In fact, it really won't open up, according

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<v Speaker 3>to Trump, until at least Friday, when they clear minds

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<v Speaker 3>and prepare safety measures. But for the fact of the

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<v Speaker 3>matter is, you've seen this big drop in prices primarily

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<v Speaker 3>because there is this expectation that we're not going to

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<v Speaker 3>see a wider conflict in the Middle East, that this

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<v Speaker 3>is one step towards a larger, more concrete piece deal

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<v Speaker 3>and perhaps the resumption of flows. But that being said,

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<v Speaker 3>you're right, we haven't seen the text, we haven't seen

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<v Speaker 3>the mechanisms that are needed for ships to go through.

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<v Speaker 3>While Iran's news agency says that there will be a

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<v Speaker 3>sixty day period during this ceasefire and peace period where

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<v Speaker 3>essentially ships won't have to pay a toll, you know,

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<v Speaker 3>maybe in the future you will be required to pay,

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<v Speaker 3>and that creates a huge complication because the Trump administration

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<v Speaker 3>has pushed against that idea for a long time. They

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<v Speaker 3>want free navigation and travel through the Strait. So there

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<v Speaker 3>are a lot of unknowns, but at least the knee

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<v Speaker 3>jerk reaction in the market is that this is a

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<v Speaker 3>step forward, and it is it is certainly representing itself

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<v Speaker 3>in that pretty big drop in oil and gas prices.

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<v Speaker 2>Do you have a sense of how elaborate this D

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<v Speaker 2>mining operation needs to be in the strait of form moves?

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<v Speaker 2>I know the G seven summit is underway and European

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<v Speaker 2>allies were expressing I don't want to say pessimism outright,

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<v Speaker 2>but certainly they were not as optimistic as President Trump

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<v Speaker 2>was in getting vessel traffic back to a relatively kind

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<v Speaker 2>of normal situation. One of the things that is a

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<v Speaker 2>big concern here on the part of these international shipping

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<v Speaker 2>companies is the situation with the mining. And I know

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<v Speaker 2>that European countries have placed some conditions on their willingness

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<v Speaker 2>to participate in the D mining. Talk to me a

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<v Speaker 2>little bit about how extensive this operation may need to be.

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<v Speaker 3>Well, I mean, according to Trump, he says, there, you know,

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<v Speaker 3>just get rid of a couple of mines. But it

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<v Speaker 3>is it is more complicated than that. You know, it

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<v Speaker 3>isn't immediately clear how many mines there are. Where the

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<v Speaker 3>mines are laid, it will take time to clear the mines.

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<v Speaker 3>There are, of course safe routes to go through horror moves,

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<v Speaker 3>but it's either through Iranian waters or hugging the coast

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<v Speaker 3>of Oman, which at some points can get quite shallow.

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<v Speaker 3>So the removing the mines is a technical process. It

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<v Speaker 3>will take time. But that being said, there are you know,

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<v Speaker 3>it isn't impossible and it is absolutely you know, there

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<v Speaker 3>are routes that you can take through the strait to

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<v Speaker 3>avoid the mining area. So I think, you know, you

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<v Speaker 3>could see an increase in traffic from Friday. But again,

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<v Speaker 3>like you said, is it does go down to how

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<v Speaker 3>comfortable are the ship owners, how comfortable are the captains,

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<v Speaker 3>how comfortable are the crews, what's the insurance situation. There

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<v Speaker 3>are a lot of questions and it's actually quite complicated

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<v Speaker 3>for a single ship to make the decision to go through,

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<v Speaker 3>So for hundreds of ships to do it, it is

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<v Speaker 3>not something like opening a floodgate and then they go.

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<v Speaker 3>There are people all have to make individual decisions to

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<v Speaker 3>make that happen.

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<v Speaker 2>So this conflict has been going on since the end

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<v Speaker 2>of February, and in that time there have been a

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<v Speaker 2>number of nations that have had to tap into their

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<v Speaker 2>strategic petroleum reserves in order to meet demand. And now

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<v Speaker 2>we're getting indications that crewed stockpiles are at a new

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<v Speaker 2>five year seasonal low. How critical a point are we

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<v Speaker 2>at right now in terms of oil supply?

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<v Speaker 3>You know, I think this is one of the important

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<v Speaker 3>aspects of the market because oil prices. The reason why

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<v Speaker 3>we haven't seen one of the reasons why we haven't

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<v Speaker 3>seen a giant surge in prices like we saw in

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<v Speaker 3>twenty twenty two, for example, after Russia's invasion of Ukraine

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<v Speaker 3>has been due in Part two, larger and higher exports

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<v Speaker 3>of oil and products from the United States. And that

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<v Speaker 3>not only did that come from you know, the enormous

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<v Speaker 3>shale production that's happening in the US, but also the

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<v Speaker 3>US tapping their strategic reserves. And you've seen the US

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<v Speaker 3>spr the strategic petrolum reserve fall to the lowest level

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<v Speaker 3>in decades. And now we're at a point where if

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<v Speaker 3>you continue to fall at the current rate, you will

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<v Speaker 3>get very close to the bare minimum operational level. So

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<v Speaker 3>you need to have about one hundred and fifty million

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<v Speaker 3>to two hundred million barrels of oil within your tanks

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<v Speaker 3>to keep them kind of operating. You can't really go

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<v Speaker 3>below that point or the facilities begin to degrade, and

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<v Speaker 3>we're below four hundred now, and if the SPR releases

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<v Speaker 3>continue as the US had planned, we're going to get

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<v Speaker 3>to about two fifty. So we're starting to get to

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<v Speaker 3>that danger level where you really don't want to go

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<v Speaker 3>much lower. So I think that's really key perhaps to

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<v Speaker 3>the decision making by the Trump administration. They do realize

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<v Speaker 3>that the longer this goes on, the mort drains reserves

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<v Speaker 3>and it becomes challenging to continue to balance the market

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<v Speaker 3>if demand doesn't start to give up.

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<v Speaker 2>So today's price action notwithstanding, there is a little bit

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<v Speaker 2>of skepticism here about the durability of any type of

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<v Speaker 2>deal between the US and Iran. We've got WTI holding

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<v Speaker 2>around eighty one dollars, the brand contract is around eighty three.

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<v Speaker 2>And you, in particular, Stephen, have witnessed firsthand a lot

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<v Speaker 2>of the volatility over the last two months that we

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<v Speaker 2>have seen in these enormous swings in prices. Is it

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<v Speaker 2>fair to say that we are still at risk for

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<v Speaker 2>a return of the same type of volatility that we

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<v Speaker 2>have seen recently.

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<v Speaker 3>Yeah, I mean, I think this volatility is certainly going

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<v Speaker 3>to continue, according to the traders and analysts that that

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<v Speaker 3>we've spoken to. I think there is an expectation that

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<v Speaker 3>if there is a flare up, you know it isn't

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<v Speaker 3>you know, we've been here a few times, perhaps not

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<v Speaker 3>you know, there wasn't a deal, kind of like this sign.

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<v Speaker 3>But there have been several times where the US and

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<v Speaker 3>Iran we're close to something and there will be a

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<v Speaker 3>flare up of attacks. There have been drone attacks within

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<v Speaker 3>within the straight There there is that risk going forward,

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<v Speaker 3>and I think the market is trying to deal with

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<v Speaker 3>that and also compensate how how they manage that risk.

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<v Speaker 3>So there is also the matter of China in demand.

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<v Speaker 3>So it's not just a horror moves issue when it

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<v Speaker 3>comes to volatility, it's also Chinese demand because one of

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<v Speaker 3>the things I was balancing the market beyond the spr

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<v Speaker 3>releases was also an enormous drop in Chinese oil imports.

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<v Speaker 3>And if you start to see China kind of come

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<v Speaker 3>back and buy cargoes and buy shipments and their imports rise,

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<v Speaker 3>that tightens the market and then add more volatility potentially

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<v Speaker 3>going forward. So instead of a straight line down perhaps

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<v Speaker 3>to the pre war levels of maybe Brent in the

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<v Speaker 3>sixty or seventy dollars range, you're likely going to be

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<v Speaker 3>seeing spikes and valleys. That being said that the endless

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<v Speaker 3>I think, aren't really expecting a return to one hundred

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<v Speaker 3>and twenty dollars brent. Instead, you could see in this

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<v Speaker 3>range of the eighty dollars, maybe even touch one hundred

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<v Speaker 3>if these peace talks were to break down. But we

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<v Speaker 3>are likely on a downward trend.

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<v Speaker 2>So what is the story with Russian crude oil right now?

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<v Speaker 2>For a while it was critical, particularly for a country

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<v Speaker 2>like India that was very reliant on or still is

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<v Speaker 2>on crude imports.

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<v Speaker 3>I mean, Russian oil exports have been still quite robust

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<v Speaker 3>throughout this entire time. One interesting thing that's happened, it's

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<v Speaker 3>quite technical, is there been Ukrainian attacks on their oil

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<v Speaker 3>refining capacity, and so because they weren't able to refine

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<v Speaker 3>some of that oil, they're actually exporting it. And oil

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<v Speaker 3>exports out of Russia had been very strong. You know,

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<v Speaker 3>there was a period where the oil on the water,

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<v Speaker 3>which was sanctioned by the US, did get waivers and

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<v Speaker 3>India was able to take some of it. But but

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<v Speaker 3>at India's found other workarounds, either through reducing demand, either

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<v Speaker 3>through finding other suppliers. You know, you've you've seen, actually,

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<v Speaker 3>despite everything that's happening with the straight of horror moves,

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<v Speaker 3>you've seen the oil producers in the Gulf get a

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<v Speaker 3>bit creative with how they're getting that oil out. Not

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<v Speaker 3>only do you have the East West Pipeline for Saudi

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<v Speaker 3>Arabia that reroutes their oil from from the Persian Gulf

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<v Speaker 3>into the Red Sea so they can get it out

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<v Speaker 3>through the Bab al Mandab straight to Asian buyers. You're

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<v Speaker 3>also seeing companies like Adnoc which have been ferrying oil

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<v Speaker 3>out on ships that have literally gone dark. They turn

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<v Speaker 3>their lights off, they turn off their ais ship tracking

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<v Speaker 3>and they go through the Strait of Hormones to ferry

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<v Speaker 3>out some oil. And this dark activity is also you know,

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<v Speaker 3>been about two or three million barrels per day. Of

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<v Speaker 3>course that's nothing compared to the twenty million barrels per day,

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<v Speaker 3>but some oil is still finding their way out. The

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<v Speaker 3>US has also been exporting quite a bit and an

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<v Speaker 3>interesting thing liquefied natural gas. Qatar was a major supplier

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<v Speaker 3>of energy to India before the war, but when the

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<v Speaker 3>war started, Qatar had to essentially halt their exports in

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<v Speaker 3>India had to find alternatives and the alternative that they

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<v Speaker 3>found was the United States. The US became essentially the

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<v Speaker 3>biggest LNG supplier last month to India, and that shows

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<v Speaker 3>that the not only is the US, you know, able

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<v Speaker 3>to provide oil to the market, but as the world's

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<v Speaker 3>biggest LNG exporter, they've been able to balance it as well,

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<v Speaker 3>all thanks to the shale revolution.

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<v Speaker 2>So, for the sake of argument, let's say that indeed,

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<v Speaker 2>we have reached some sort of inflection point and this

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<v Speaker 2>piece deal between the US in Iran is once it

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<v Speaker 2>is finalized on Friday, will remain in place and the

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<v Speaker 2>market can begin to rebuild and recover. One senior US

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<v Speaker 2>official was quoted in Bloomberg News story is saying it

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<v Speaker 2>could still take as many as two weeks for shipping

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<v Speaker 2>to significantly increase. Do you think that's an accurate assessment

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<v Speaker 2>or maybe maybe a little understated.

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<v Speaker 3>You know, according to the analysts that we spoke to,

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<v Speaker 3>that could be a bit understated. I think, you know,

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<v Speaker 3>we're hearing not so much weeks, we're hearing more months.

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<v Speaker 3>And there are a few reasons for that. Of course,

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<v Speaker 3>you have to get all the crews and the exporters,

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<v Speaker 3>you have to get the facilities up back to their

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<v Speaker 3>normal capacity. Some of them were damaged, they have to

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<v Speaker 3>get repaired. But at the same time, a lot of

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<v Speaker 3>the ships have been sub leased, They've been sub chartered.

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<v Speaker 3>So these ships are there are many ships that are

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<v Speaker 3>used in the Persian Gulf, but when the war began

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<v Speaker 3>and they were stuck outside of the straight of horror

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<v Speaker 3>moves add Knack, Qatar Energy, Saudi Aramco, they subleased their

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<v Speaker 3>ships to be used elsewhere because I still want to,

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<v Speaker 3>you know, make some money on these vessels that were

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<v Speaker 3>essentially not servicing the Persian Gulf, and those ships are

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<v Speaker 3>all over the world, you know, being used for different purposes.

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<v Speaker 3>Getting all of those vessels back to the Persian Gulf

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<v Speaker 3>also take time, So it's not just a matter of safety,

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<v Speaker 3>it's a logistical bottlenecks problem that needs to be solved

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<v Speaker 3>as well.

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<v Speaker 2>Okay, Steven, good stuff. We'll leave it there. Thank you

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<v Speaker 2>so very much, Bloomberg. Steven Stepchinski. He is team leader

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<v Speaker 2>for the Asia Energy Unit, joining from Singapore. Here on

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<v Speaker 2>the Daybreak Asia podcast. Welcome back to the Daybreak Asia Podcast.

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<v Speaker 2>I'm Doug Prisner. Markets across Asia are reacting to what

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<v Speaker 2>appears to be a deal between the US and Iran

0:12:35.840 --> 0:12:39.200
<v Speaker 2>to fully open the straight off moos on Friday. And

0:12:39.320 --> 0:12:43.280
<v Speaker 2>that's where we begin our conversation with Tykwai. Ty is

0:12:43.360 --> 0:12:47.199
<v Speaker 2>APAC chief strategist at JP Morgan Asset Management. He spoke

0:12:47.240 --> 0:12:50.439
<v Speaker 2>with Bloomberg TV host David I. Glase and Ivon Mann.

0:12:50.640 --> 0:12:52.920
<v Speaker 4>We're just getting some lines coming through here, taiway on

0:12:53.400 --> 0:12:58.199
<v Speaker 4>this negotiations going into Friday. YEP, assuming things do reopen

0:12:58.240 --> 0:12:59.800
<v Speaker 4>on a straitor firm moves in Friday, what does it

0:12:59.800 --> 0:13:00.560
<v Speaker 4>mean for marketing?

0:13:00.800 --> 0:13:03.080
<v Speaker 5>Well, I think obviously the natural reaction you saw yesterday

0:13:03.080 --> 0:13:07.200
<v Speaker 5>already is a risk on sentiment because ultimately we've just

0:13:07.320 --> 0:13:09.839
<v Speaker 5>managed to avoid the worst case scenario when it comes

0:13:09.880 --> 0:13:15.200
<v Speaker 5>to the macroeconomy on oil, gas and petroleum or petrochemical disruptions.

0:13:15.640 --> 0:13:18.160
<v Speaker 5>So I think from that perspective, it will still take

0:13:18.200 --> 0:13:21.120
<v Speaker 5>a number of weeks, if months, for normality to be

0:13:21.160 --> 0:13:24.000
<v Speaker 5>fully restored in terms of flows, in terms of event

0:13:24.000 --> 0:13:27.200
<v Speaker 5>triggering back to a more comfortable level. Oil price will

0:13:27.240 --> 0:13:29.880
<v Speaker 5>probably stay at above eighty bucks for quite a long time.

0:13:30.440 --> 0:13:33.520
<v Speaker 5>But nonetheless, I think the shortages that's been hitting a

0:13:33.559 --> 0:13:36.800
<v Speaker 5>lot of economies, especially in Asia, that is likely to

0:13:36.840 --> 0:13:40.559
<v Speaker 5>be averted and that's why you've seen a strong positive reaction.

0:13:40.760 --> 0:13:44.360
<v Speaker 5>For example, in Indonesia, you saw the repeat rebound quite

0:13:44.360 --> 0:13:47.360
<v Speaker 5>a bit yesterday. So I think the good news is

0:13:47.960 --> 0:13:50.560
<v Speaker 5>from an investment perspective, it's no longer just about AI

0:13:50.720 --> 0:13:54.040
<v Speaker 5>and tech. There could be a cycical factor now coming

0:13:54.120 --> 0:13:57.000
<v Speaker 5>back into play to help investors to generate returns.

0:13:57.040 --> 0:13:59.520
<v Speaker 1>Yeah, now that you see the risk receding a bit,

0:14:00.200 --> 0:14:02.320
<v Speaker 1>how do you bring back those pre war playbooks? Do

0:14:02.360 --> 0:14:05.880
<v Speaker 1>you go back to what worked in January in February

0:14:06.000 --> 0:14:08.360
<v Speaker 1>or you know, as you mentioned, there are some really

0:14:08.400 --> 0:14:10.760
<v Speaker 1>unloved markets out there. Is that where the value is now?

0:14:10.840 --> 0:14:12.960
<v Speaker 5>Well? I think for some of these markets, for example

0:14:13.000 --> 0:14:15.760
<v Speaker 5>in Southeast Asia, we have to be still originally selective

0:14:15.760 --> 0:14:18.319
<v Speaker 5>because it's not just oil prices. Domestic policies also play

0:14:18.360 --> 0:14:20.720
<v Speaker 5>a role as well. But at the same time, you know,

0:14:20.800 --> 0:14:25.520
<v Speaker 5>we've seen a lots of enthusiasm on tech, on semiconductors. Look,

0:14:25.520 --> 0:14:28.240
<v Speaker 5>the truth is for markets like Taiwan and South Korea,

0:14:28.560 --> 0:14:31.880
<v Speaker 5>the shortages in memory ships and CPUs, they're not going

0:14:31.880 --> 0:14:36.600
<v Speaker 5>over anytime soon. But could we still see a sustained

0:14:36.680 --> 0:14:38.640
<v Speaker 5>earnings growth that we've seen in the last couple of

0:14:38.720 --> 0:14:40.920
<v Speaker 5>quarters that is a bit more questionable, So I think

0:14:40.960 --> 0:14:44.280
<v Speaker 5>that provide maybe similar paper in the way that you

0:14:44.320 --> 0:14:47.480
<v Speaker 5>could look at banks, look at industrials. And the other

0:14:47.560 --> 0:14:51.080
<v Speaker 5>question is after this war, hopefully again we keep this

0:14:51.160 --> 0:14:53.360
<v Speaker 5>at bay for a form of sustain period, what does

0:14:53.360 --> 0:14:56.800
<v Speaker 5>that mean for global energy supply? Our companies or governments

0:14:57.000 --> 0:15:00.560
<v Speaker 5>going to diversify the energy sources both geographically and by type.

0:15:00.920 --> 0:15:04.080
<v Speaker 5>What does that mean for defense? We've seen in this

0:15:04.160 --> 0:15:08.800
<v Speaker 5>war high volume logan that costs, weapons like drones really

0:15:08.840 --> 0:15:11.640
<v Speaker 5>play a huge role. Does that change how governments are

0:15:11.640 --> 0:15:14.600
<v Speaker 5>going to spend their defense spend It's not about spending more,

0:15:14.800 --> 0:15:17.120
<v Speaker 5>It's about spending in the right places that will be

0:15:17.120 --> 0:15:22.640
<v Speaker 5>effective in both defense and also deterrens to potential attacks.

0:15:23.280 --> 0:15:26.360
<v Speaker 4>The last eighteen months have been dominated by either terrists

0:15:26.440 --> 0:15:29.360
<v Speaker 4>or the war. Assuming the war is over, assuming that's

0:15:29.360 --> 0:15:32.120
<v Speaker 4>a big if. Is there anything on the horizon that

0:15:32.160 --> 0:15:35.960
<v Speaker 4>looms large over the macro picture? Does that seem the

0:15:36.000 --> 0:15:37.880
<v Speaker 4>clearest in the last two years.

0:15:37.920 --> 0:15:40.160
<v Speaker 5>I think two things. One is, obviously you still have

0:15:40.280 --> 0:15:42.960
<v Speaker 5>the lingering inflationary impact. The good news is we have

0:15:43.000 --> 0:15:46.840
<v Speaker 5>not yet really seen a picked up in inflation expectation.

0:15:47.000 --> 0:15:49.800
<v Speaker 5>So this week the Fed I think they rightfully stay put.

0:15:50.200 --> 0:15:53.560
<v Speaker 5>The question is do they expect inflation to stay or

0:15:53.920 --> 0:15:55.840
<v Speaker 5>do they see this as only a blip or just

0:15:55.880 --> 0:15:58.360
<v Speaker 5>a one off event. I think that's absolutely critical to

0:15:58.440 --> 0:16:00.680
<v Speaker 5>observe this week. The second thing is really there could

0:16:00.680 --> 0:16:03.560
<v Speaker 5>still be quite a lot of political changes. We have

0:16:04.240 --> 0:16:07.160
<v Speaker 5>a local election in the UK this coming week. We

0:16:07.280 --> 0:16:10.600
<v Speaker 5>could see more challenges for the Prime minister. And of

0:16:10.640 --> 0:16:13.160
<v Speaker 5>course we've got the midterm elections coming up later in

0:16:13.240 --> 0:16:16.520
<v Speaker 5>November in the US, and then again could change the

0:16:16.520 --> 0:16:20.560
<v Speaker 5>calculus of the Trump administration. How they apply policies if

0:16:20.600 --> 0:16:23.200
<v Speaker 5>they don't have the fulls upon the Congress anymore, how

0:16:23.360 --> 0:16:26.800
<v Speaker 5>they execute their agenda, for example, do they rely still

0:16:27.040 --> 0:16:30.640
<v Speaker 5>more on executive decisions or executive orders. We've seen tariffs

0:16:30.680 --> 0:16:32.840
<v Speaker 5>now coming back into play with the section three oh one,

0:16:33.120 --> 0:16:36.000
<v Speaker 5>section two three two, the investigations, So I think, you know,

0:16:36.240 --> 0:16:38.360
<v Speaker 5>the politics I think will come back into play, but

0:16:38.400 --> 0:16:40.800
<v Speaker 5>maybe more domestic rather than foreign policies.

0:16:41.840 --> 0:16:44.680
<v Speaker 1>We were talking about all these IPOs that are happening

0:16:44.720 --> 0:16:47.800
<v Speaker 1>in the US when it comes to frontier tech or AI,

0:16:48.800 --> 0:16:50.200
<v Speaker 1>and then there's a lot of in the bond markets

0:16:50.240 --> 0:16:52.400
<v Speaker 1>as well. I mean, some would say this is the

0:16:52.400 --> 0:16:55.960
<v Speaker 1>sagle of a peak in this whole sort of trade.

0:16:56.000 --> 0:16:57.640
<v Speaker 1>I mean, do you see it that way?

0:16:57.800 --> 0:17:00.120
<v Speaker 5>Well, there's no doubt that in terms of momentum, in

0:17:00.200 --> 0:17:03.800
<v Speaker 5>terms of tech enthusiasm, there's a very high level of

0:17:03.840 --> 0:17:06.720
<v Speaker 5>which and some of it's being reflected in valuations. But

0:17:06.800 --> 0:17:10.520
<v Speaker 5>at the same time, are we irrational state in general?

0:17:10.600 --> 0:17:13.160
<v Speaker 5>Probably not. If you look for example, Max seven year

0:17:13.200 --> 0:17:16.440
<v Speaker 5>to date, three MAX seven stocks is down year to date,

0:17:16.840 --> 0:17:19.240
<v Speaker 5>four is up, and the best performing one is only

0:17:19.280 --> 0:17:21.679
<v Speaker 5>about fifteen percent. So I think what you've seen is

0:17:21.920 --> 0:17:29.000
<v Speaker 5>a rotation of tech stocks from AI model generators or

0:17:29.080 --> 0:17:33.520
<v Speaker 5>AI model companies to this year more semiconductors. So I

0:17:33.520 --> 0:17:37.040
<v Speaker 5>think investors are rotating. It does not necessarily mean there's

0:17:37.040 --> 0:17:39.639
<v Speaker 5>a peak, but I do have a question of whether

0:17:39.920 --> 0:17:43.119
<v Speaker 5>we can still see that strong level of return generation

0:17:43.560 --> 0:17:45.120
<v Speaker 5>in the second half of the year. And that's why

0:17:45.240 --> 0:17:48.400
<v Speaker 5>you know, in the midia of advocate less broaden our

0:17:48.440 --> 0:17:51.440
<v Speaker 5>investment horizon a little bit more, both geographically and also

0:17:51.480 --> 0:17:53.960
<v Speaker 5>by sectors not just relying on technology. I think that

0:17:54.000 --> 0:17:56.920
<v Speaker 5>is still an attractive place, but some of the most

0:17:56.920 --> 0:18:01.680
<v Speaker 5>cyclically sensitive sectors like financials, in industrials, maybe even consumer

0:18:01.720 --> 0:18:03.479
<v Speaker 5>discretionaries could come back into fashion.

0:18:04.200 --> 0:18:05.679
<v Speaker 4>How do you feel about Korea and Taiwan?

0:18:05.760 --> 0:18:10.040
<v Speaker 5>Now, I think the fundamental are still really robust. If

0:18:10.040 --> 0:18:14.000
<v Speaker 5>you look at, for example, cost b priced earning ratio

0:18:14.080 --> 0:18:16.640
<v Speaker 5>is still single digit at this point. So the fact

0:18:16.640 --> 0:18:19.200
<v Speaker 5>that we've seen massive performance in the markets has been

0:18:19.240 --> 0:18:22.320
<v Speaker 5>matched by massive performance in earnings growth. Now, I don't

0:18:22.359 --> 0:18:26.800
<v Speaker 5>think anyone realistically expecting fifty hundred percent earnings growth in

0:18:26.840 --> 0:18:33.040
<v Speaker 5>twenty twenty seven, but the shortage in manufacturing, the pricing

0:18:33.200 --> 0:18:36.280
<v Speaker 5>power of a particular of companies, those are still likely

0:18:36.320 --> 0:18:38.400
<v Speaker 5>to be sustained. So you may not get one hundred

0:18:38.400 --> 0:18:41.200
<v Speaker 5>percent earnings growth, but it's not going to collapse right

0:18:41.200 --> 0:18:44.800
<v Speaker 5>away either, as long as companies are still investing in

0:18:44.840 --> 0:18:48.120
<v Speaker 5>ai So I think, you know, again, I'm not expecting

0:18:48.119 --> 0:18:50.879
<v Speaker 5>the same degree of performance in the second half, but

0:18:51.000 --> 0:18:53.119
<v Speaker 5>I think the fundamental supports and what we've seen so

0:18:53.200 --> 0:18:55.240
<v Speaker 5>far is still reasonably robust.

0:18:55.880 --> 0:18:59.320
<v Speaker 1>For China, though you're saying that sector level catalysts are

0:18:59.320 --> 0:19:01.359
<v Speaker 1>are emerging, what are those catalysts now and.

0:19:01.320 --> 0:19:01.880
<v Speaker 4>What does that mean?

0:19:02.080 --> 0:19:06.719
<v Speaker 5>So look, I think the challenge here is the index

0:19:06.760 --> 0:19:09.280
<v Speaker 5>performance been quite disappointing, especially relative to the rest of

0:19:09.280 --> 0:19:11.720
<v Speaker 5>the region. But if you think back to the index,

0:19:12.119 --> 0:19:14.800
<v Speaker 5>it does not have a lot of the sexy stuff

0:19:15.000 --> 0:19:17.720
<v Speaker 5>that's been driving the US and the rest of Northeast Asia.

0:19:17.800 --> 0:19:22.480
<v Speaker 5>Semiconductors ar hyperscalors. So from that perspective, you know, those

0:19:22.480 --> 0:19:24.840
<v Speaker 5>companies in China have actually done quite well both on

0:19:24.840 --> 0:19:27.480
<v Speaker 5>shore in China and also in Hong Kong, but because

0:19:27.520 --> 0:19:30.000
<v Speaker 5>they are only a very small part of the index,

0:19:30.200 --> 0:19:33.120
<v Speaker 5>is not big enough to drive the index performance relative

0:19:33.160 --> 0:19:35.920
<v Speaker 5>to Taiwan or South Korea. So I think that's where

0:19:35.960 --> 0:19:38.399
<v Speaker 5>we need to focus more on. And that's the clearly

0:19:38.480 --> 0:19:42.160
<v Speaker 5>China as the policy to become more independent on semiconductors,

0:19:42.200 --> 0:19:46.159
<v Speaker 5>on models, on inference, and you will see more public

0:19:46.160 --> 0:19:51.040
<v Speaker 5>resources and business demand going into these areas. So you know,

0:19:51.119 --> 0:19:54.200
<v Speaker 5>rather than just thinking about where the CSI three hundred

0:19:54.240 --> 0:19:56.760
<v Speaker 5>is going to be or hang San Tech index is

0:19:56.800 --> 0:19:59.920
<v Speaker 5>going to be, you really have to focus on space

0:20:00.119 --> 0:20:03.200
<v Speaker 5>et sectors such as AI as well as semiconductors.

0:20:03.840 --> 0:20:07.920
<v Speaker 2>That's tiquay Apac, chief strategist at JP Morgan Asset Management,

0:20:08.000 --> 0:20:11.920
<v Speaker 2>speaking with Bloomberg TV host David Inglase and Devon Mann,

0:20:12.000 --> 0:20:15.200
<v Speaker 2>bringing you their conversation here on the Daybreak Asia Podcast.

0:20:17.760 --> 0:20:21.120
<v Speaker 2>Thanks for listening to today's episode of the Bloomberg Daybreak

0:20:21.280 --> 0:20:24.679
<v Speaker 2>Asia Edition podcast. Each weekday, we look at the story

0:20:24.760 --> 0:20:29.080
<v Speaker 2>shaping markets, finance, and geopolitics in the Asia Pacific. You

0:20:29.119 --> 0:20:33.240
<v Speaker 2>can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel,

0:20:33.359 --> 0:20:36.359
<v Speaker 2>or anywhere else you listen. Join us again tomorrow for

0:20:36.480 --> 0:20:40.000
<v Speaker 2>insight on the market moves from Hong Kong to Singapore

0:20:40.400 --> 0:20:44.159
<v Speaker 2>and Australia. I'm Doug Prisner, and this is Bloomberg