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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.

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Speaker 2: Welcome to the Daybreak Asia podcast. I'm Doug Chrisner. South

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Speaker 2: Korea's equity market is back from a long weekend with

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Speaker 2: a bit of a shock similar to the so called

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Speaker 2: deep Seek moment. At the end of last week, China's

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Speaker 2: AI pioneer Moonshot introduced its Kimmi K three model. Now

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Speaker 2: this is an open weight model, meaning its parameters are

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Speaker 2: publicly available and can be customized by the user. Last Friday,

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Speaker 2: Moonshot said Kimmy K three rivals. Some of the best

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Speaker 2: offerings from US labs here is Bloomberg's Anthony Stevens.

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Speaker 1: So there's a lot of software innovation in there in

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Speaker 1: what is objectively a very large model. So the first

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Speaker 1: thing is the ambition, and the scale of the model

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Speaker 1: is a step further and that's probably why it has

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Speaker 1: caught the US models on the frontier front. But the

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Speaker 1: second most important aspect is the resource optimization around the model.

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Speaker 1: It is very memory efficient. In short, there are proprietary

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Speaker 1: innovations in there to also help with the usage of

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Speaker 1: HBM and GPUs where China is obviously constrained. And the

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Speaker 1: fact that this model was trained with those constraints in mind,

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Speaker 1: is the important aspect to markets here.

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Speaker 2: That is Bloomberg's Anthony Stevens. And now we are being

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Speaker 2: told that Moonshot is preparing for a public listing, perhaps

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Speaker 2: within six months. We're told Moonshot is in the process

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Speaker 2: of wrapping up a funding round that may value this

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Speaker 2: three year old startup at more than thirty billion dollars.

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Speaker 2: Demand for Kimmy K three was said to be so

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Speaker 2: great over the past forty eight hours that Moonshot temporarily

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Speaker 2: paused new subscriptions. It appears China is closing the AI

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Speaker 2: gap with the US, and that's where we begin our

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Speaker 2: conversation with home In Lee, senior macro strategist at Lombardo DA.

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Speaker 2: He spoke with Bloomberg TV host Avril Hong and weighed

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Speaker 2: in on the current market dynamics regarding AI.

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Speaker 3: So in the long run, the real threat to the

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Speaker 3: memory bubble like trade in South Korea comes from China,

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Speaker 3: And in the second half of the year, we're going

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Speaker 3: to get a bit of narrative shift in favor of

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Speaker 3: China's AI and semiconductor ecosystem. You know that leads due

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Speaker 3: to all the mega listings that are on the horizon,

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Speaker 3: which it now seems the authorities are quite supportive of.

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Speaker 3: So that's going to support the Chinese story relative to

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Speaker 3: South Korea. But for South Korea itself, we start to

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Speaker 3: feel that maybe this levered you know, retail leverage impact

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Speaker 3: is beginning to you know, progress quite substantially. And the

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Speaker 3: fact is that the bumble still remains in the near

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Speaker 3: term and these memory makers have locked up their prices

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Speaker 3: through long term agreements with the buyers and you know,

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Speaker 3: US export controls, et cetera still keep the dominant position

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Speaker 3: for these names. So it is true that this week

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Speaker 3: we have a confluence of a pretty negative e bench,

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Speaker 3: but you know, given the valuations and the unwind of

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Speaker 3: the leverage trade, maybe the trajectory for the rest of

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Speaker 3: the year keep it despite the volatility that we see

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Speaker 3: now is maybe a higher before the end of the year.

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Speaker 3: And that's one of the reason why we're still keeping

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Speaker 3: you know, constructive view on.

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Speaker 4: The medium and trajectory of the market.

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Speaker 3: But China story is definitely something that we're worth keeping

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Speaker 3: an eye on for the investors in the second half

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Speaker 3: the year.

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Speaker 5: How much does it exactly you think sap away from

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Speaker 5: the South Korean story.

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Speaker 3: So we have seen the shift from the hyperscalers and

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Speaker 3: the the AI A service story in North America, you know,

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Speaker 3: to meymakers in past a year or so.

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Speaker 4: And and you know, we're.

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Speaker 3: Not going to get a complete conclusion to this debate

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Speaker 3: or pendulum swing between the the AI suppliers and AI

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Speaker 3: themes for the force of the future, simply because no

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Speaker 3: one has an absolute clarity and who will emerge as

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Speaker 3: the winner in this ecosystem. But it's quite possible that

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Speaker 3: you could actually get again, putty, you know, once we

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Speaker 3: emerge from these headwinds related to HOMUS and the monetary

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Speaker 3: policy cycles and the capital flows, you're going to get

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Speaker 3: maybe a part of the market dynamic for both sauce

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Speaker 3: Korea and China for the investor's perspective, you know, because

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Speaker 3: simply because China has been a relatively neglected market, maybe it's.

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Speaker 4: Worth having that as a hedge.

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Speaker 3: You know, alongside you know, South Korea trade.

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Speaker 4: Uh, you know that will probably go.

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Speaker 3: Through a bit of turbulence, but ultimately still you know,

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Speaker 3: grind upward once these headwinds faked.

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Speaker 4: Might it not make sense now?

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Speaker 5: Though, I mean to your point about how far they've

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Speaker 5: run out to take profit on chips. I mean, we

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Speaker 5: are also seeing in the background there seems to be

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Speaker 5: rotation to financials.

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Speaker 3: So in fact, the financial sector is one of the

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Speaker 3: sectors that we like. The valuation is quite compelling, the

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Speaker 3: sector has been able to deliver a fairly substantial recovery

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Speaker 3: since last year, and the fees you know from the

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Speaker 3: M and A activities and trading, you know, continue to

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Speaker 3: be pretty strong, not just in North America but the

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Speaker 3: markets around the world. So relative to the other sectors

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Speaker 3: that have seen some froth and the you know, maybe

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Speaker 3: excessive momentum, this is the sector that probably delivers that

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Speaker 3: nice combination of slight defensiveness, evaluation appeal, and the earning

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Speaker 3: stability down the road.

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Speaker 4: So alongside the other.

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Speaker 3: Kind of a favorite batch that we have, including emerging markets,

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Speaker 3: a financial market, a financial sector is definitely the sector

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Speaker 3: that we like. As we head into the second half

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Speaker 3: the year.

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Speaker 5: For the big AI spenders, though it looks like it's

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Speaker 5: increasingly difficult to justify their valuations. How do you you know,

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Speaker 5: we've head into your investment thesis.

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Speaker 3: So when you talk about valuations, it's really you know,

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Speaker 3: when you talk about software or you know, the semiconductor segment,

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Speaker 3: actually the valuation has become quite compelling. I mean, if

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Speaker 3: you look at its hours career memory makers right now,

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Speaker 3: you know, for the entire silicon layer, due to the

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Speaker 3: cell of that has taken place in the past few weeks,

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Speaker 3: now we see you know, four P multiplese trading close

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Speaker 3: to six or seven for some names, and that's quite

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Speaker 3: compelling for the medium to long term, especially if you

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Speaker 3: believe in the the rerating story for some of the

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Speaker 3: regional markets where these you know, semiconductor stories are concentrated.

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Speaker 3: So we wouldn't say we see a lot of access

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Speaker 3: froth in the segment right now, especially because of the CELLO.

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Speaker 3: But you know, for the North American market, given the

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Speaker 3: mega IPOs that are on the horizon, maybe it's slightly

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Speaker 3: trickier to make a very very strong valuation back. But

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Speaker 3: for the tech hardware ecosystem elsewhere, especially in Asia Pacific,

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Speaker 3: we think it's quite compelling.

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Speaker 4: And that's one of the reasons why, you.

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Speaker 3: Know, especially for the diversified portfolio, it's worth having some

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Speaker 3: of these exposures and trying to look through some of

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Speaker 3: these polatilities that are highly technical in nature will likely fade.

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Speaker 4: In due time.

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Speaker 5: Well, I mean, I guess to your point also, I

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Speaker 5: mean we've been seeing the ship makers in South Korea

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Speaker 5: in terms of the stock action, they've been you know,

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Speaker 5: pairing some of the early losses, so maybe there's a

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Speaker 5: dip buying that is emerging. We talk about exports, talk

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Speaker 5: to us about the recent the back coup, because this

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Speaker 5: week as well, in terms of tariffs, you know, we're

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Speaker 5: seeing the one to two expiration. Do you think there

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Speaker 5: is you know, something on there that we need to

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Speaker 5: be paying more attention to.

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Speaker 3: So you're right, you know, over the course of the week,

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Speaker 3: we could likely get the expiration of the section one

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Speaker 3: to to tariff and Trump administration will try to replace

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Speaker 3: that with sector specific and country specific tariffs. Now, our

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Speaker 3: assumption is that the over effective tariff rate will remain

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Speaker 3: close to the pre Spring Court ruling level, and that's

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Speaker 3: manageable for the market. But simply because the mechanics of

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Speaker 3: replacing the universal tariff with this sector and country tariff

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Speaker 3: is quite complicated and potentially has you know, some disproportionate

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Speaker 3: negative impact for significant sectors in different countries, we think

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Speaker 3: we'll definitely have to deal with some volatilities down the

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Speaker 3: road due to this dynamic. But it's important to understand that,

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Speaker 3: you know, from our perspective, it's not going to be

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Speaker 3: easy for the Trump and illustration to replace, you know,

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Speaker 3: or actually raise the effective tariff RaSE significantly from what

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Speaker 3: we had before the Supreme Court ruling. But meanwhile, for

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Speaker 3: the market, you know, this week we could potentially get

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Speaker 3: another positive development in China AI space and also more

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Speaker 3: pro growth and you know, constructive signals from the Polyberal

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Speaker 3: meeting in China. So there will also be some positive

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Speaker 3: upsetting e bench and ultimately we simply have to wait

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Speaker 3: for the uncertainties to clear industry of HUMUSA.

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Speaker 4: That's another factor that we need to keep an eye on.

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Speaker 2: That is home And Lee, senior macro strategist at Lombard Oda,

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Speaker 2: speaking with Bloomberg TV host April Hong, bringing you their

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Speaker 2: conversation here on the Daybreak Asia podcast. Welcome back to

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Speaker 2: the Daybreak Asia Podcast. I'm Doug Prisner. Crude oil prices

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Speaker 2: are higher in Asian trading after the US and Iran

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Speaker 2: engaged in a series of tit for tat attacks and

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Speaker 2: for the American military, it was the ninth consecutive night

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Speaker 2: of strikes at the same time, we know that more

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Speaker 2: US warplanes are being sent to the Middle East. Now

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Speaker 2: Tehran is vowing not to allow oil or gas to

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Speaker 2: pass through the Strait of Horror moves without coordination and permission.

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Speaker 2: So as geopolitics continues to buffet markets, we checked in

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Speaker 2: with Ileana Jaane, international economist at Westpac Banking Corporation. Ileana

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Speaker 2: spoke with Bloomberg TV host Paul Allen about how the

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Speaker 2: oil story is impacting the Asia Pacific look.

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Speaker 6: The situation the Middle East seems to be changing every

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Speaker 6: single week. But one thing we can be certain of

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Speaker 6: is that any sort of geopolitical calmness, if you can

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Speaker 6: call it that, or or any sort of indication that

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Speaker 6: oil supply and energy supply will be normalized, will be

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Speaker 6: well received by policy neckmakers. Comes to countries like Indonesia,

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Speaker 6: they are massive energy that they consume a lot of

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Speaker 6: energy when they're producing a lot of the goods that

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Speaker 6: they're producing, and for them, energy costs are absolutely central

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Speaker 6: to how the economy is going. And so if we

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Speaker 6: start to see a bit more energy stabilization, it's going

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Speaker 6: to be good news for most of Southeast Asia and

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Speaker 6: South Asia because we'll see that income squeeze created by

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Speaker 6: those energy costs start to come down, and again that'll

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Speaker 6: help support domestic demand at a time where industrial policy

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Speaker 6: needs to catch up a little bit.

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Speaker 7: So hard to predict, though, because at the start of

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Speaker 7: this month the oil was sort of settling around the

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Speaker 7: seventy dollar mark. I think perhaps a sense of complacency

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Speaker 7: had set and no more of course in Japan's case,

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Speaker 7: I mean, we'll get the June CPI numbers, but a

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Speaker 7: lot are the implications for the Bank of Japan and

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Speaker 7: the yen as well.

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Speaker 4: I mean, have we seen a flaw for.

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Speaker 2: The end yet?

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Speaker 6: Look when it comes to the Bank of Japan, they're

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Speaker 6: focusing on a border set of indicators beyond just the CPI.

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Speaker 6: For them, it's about coming to a place where they

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Speaker 6: consider is neutral and normal for the economy that they

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Speaker 6: are inheriting. Right now, we know the Japanese economy is

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Speaker 6: a vastly different place to where it was prior to

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Speaker 6: them pandemic, and it needs an interest rate that is

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Speaker 6: higher than where it was prior to the pandemic and

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Speaker 6: the baggag. Japan's coming to that end point, that terminal rate,

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Speaker 6: and so while inflation is important, it's about other things

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Speaker 6: like how much domestic demand is going to lift and

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Speaker 6: how much of these inflationary pressures are domestically driven. When

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Speaker 6: it comes to that CPI preate. The one thing are

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Speaker 6: we paying very close attention to is that services component?

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Speaker 6: Is it staying around that one percent mark that it

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Speaker 6: has been over the last couple of years. That tells

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Speaker 6: us that there's a lot of domestic pressures within Japan

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Speaker 6: as well. Aside from that, they'll also be watching closely

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Speaker 6: to see how wages are responding to the changes in

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Speaker 6: the economy thus far. And if we see that continued

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Speaker 6: pressure on wages, if we see that structural tightening in

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Speaker 6: the labor market ting to feed through two wages, we're

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Speaker 6: likely to see the Bank Japan height twice more, coming

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Speaker 6: to a terminal rate of one point five percent by

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Speaker 6: the end of next year.

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Speaker 7: In terms of the energy side of things, are you

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Speaker 7: willing to predict? And it is so hard to predict where

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Speaker 7: we might be with this conflict later on this year,

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Speaker 7: because certainly there'd be a political case for Aram to

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Speaker 7: push this through to the US midterms. Can you see

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Speaker 7: this uncertainty lasting until then?

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Speaker 6: Look, it's hard to say, you know, I'm not a

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Speaker 6: geopolitical analyst, but for the economy, I think sooner this

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Speaker 6: resolution comes into place, the sooner we start seeing more

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Speaker 6: stabilization and oil prices, the sooner we start seeing that

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Speaker 6: closing off the gap between Northeast Asia, which has benefited

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Speaker 6: from the tech sector and has been able to buffer

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Speaker 6: against those energy implications for the economy, and South and

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Speaker 6: Southeast Asia that's been more exposed because of their higher

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Speaker 6: their higher share of the economy attributing to agriculture as

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Speaker 6: well as a greater energy It relies on imported energy.

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Speaker 7: And just to underscore we're talking about, we're just getting

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Speaker 7: news from Scentcom it's begun conducting a new wave of

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Speaker 7: strikes against Iran. As of seven o'clock Eastern time today,

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Speaker 7: this is the ninth consecutive day that we've seen attacks. Now,

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Speaker 7: look another country in the region that's obviously very dependent

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Speaker 7: on energy, South Korea, And we're going to get those

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Speaker 7: second quarter GDP numbers later on this week as well,

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Speaker 7: in anticipation that we might see some slowing growth here.

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Speaker 7: But is it a more nuanced and difficult case for

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Speaker 7: South Korea. Not only is it energy dependent, but we

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Speaker 7: have this AI story, the enormous volatility we've seen around

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Speaker 7: that ecosystem. What risks do you see ahead for South Korea?

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Speaker 6: Look, I just talked about how the region's really bifurcated

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Speaker 6: between that Northeast tech very heavy sector versus the South

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Speaker 6: and southeast. Within Korea, it's the same sort of trend

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Speaker 6: that's playing out. So the Korean economy has been powered

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Speaker 6: by this tech sector, powered by this strength in tech exports,

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Speaker 6: and that's really lifted all predominantly the tech industry. But

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Speaker 6: if you look outside of the tech sector, Korea's economy

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Speaker 6: is starting to show signs of weakness. Domestic demand is

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Speaker 6: pretty weak if you compare it to pre COVID. The

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Speaker 6: labor market outside of the tech sector has been quite

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Speaker 6: weak as well. And so right now we've seen the

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Speaker 6: policy makers, particularly the Bank of Korea, are willing to

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Speaker 6: lean on that strength in that Korean tech sector to

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Speaker 6: hike rates and help ward off some of those inflationary risks,

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Speaker 6: but they're also very cognizant about the rest of the

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Speaker 6: economy that's not functioning as well. So that risk is

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Speaker 6: definitely there, And if we start to see the tech

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Speaker 6: brooms start to slow down, both within Korea and outside

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Speaker 6: of Korea, those weaknesses are going to start show off

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Speaker 6: even more.

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Speaker 7: Can we throw another wildcat in there too. Over the

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Speaker 7: last three days, you know, we've seen new models from China,

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Speaker 7: you know, the Moonshot Kimmi three QN from Elie Barber

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Speaker 7: as well. What are the broader implications for that big

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Speaker 7: ecosystem is growing up around the AI story.

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Speaker 4: Yeah, certainly.

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Speaker 6: And look, there are many players and China's one of them.

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Speaker 6: And we've seen that when China decides to do something,

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Speaker 6: it does a lot of it. We've seen that excess

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Speaker 6: capacity play out in China. We've seen that over production

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Speaker 6: occur in China, and I don't think that tech side

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Speaker 6: will be any different. But the one thing to note

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Speaker 6: here is that the advantage of buying Korean technology is

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Speaker 6: that for a lot of countries, particularly in the West,

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Speaker 6: it comes with a geopolitical security lens. So that's one

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Speaker 6: place where career can benefit immensely. They are a more

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Speaker 6: secure partner to deal with than China, particularly when it

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Speaker 6: comes to technology, and so when we're thinking about those

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Speaker 6: risks for career, at least in the near term, they

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Speaker 6: have that playing for them over the medium term, as

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Speaker 6: China builds its confidence with the West, this might deteriorate

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Speaker 6: a little bit.

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Speaker 2: That is Eleana Jain, international economist at Westpac Banking Corporation,

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Speaker 2: speaking with Bloomberg TV host Paul Allen, bringing you their

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Speaker 2: conversation here on the Daybreak Asia Podcast. Thanks for listening

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Speaker 2: to today's episode of the Bloomberg Daybreak Asia Edition podcast.

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Speaker 2: Each weekday, we look at the story shaping markets, finance,

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Speaker 2: and geopolitics in the Asia Pacific. You can find us

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Speaker 2: on Apple, Spotify, the Bloomberg Podcast YouTube channel, or anywhere

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Speaker 2: else you listen. Join us again tomorrow for insight on

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Speaker 2: the market moves from Hong Kong to Singapore and Australia.

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Speaker 2: I'm Doug Prisner, and this is Bloomberg