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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 Christner. Stateside,

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Speaker 2: the rotation out of tech shares gathered momentum on Wednesday.

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Speaker 2: Software firms were caught in another wave of selling. The

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Speaker 2: concern here is how AI may disrupt their traditional business models.

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Speaker 2: But today the bigger losses came among chip makers. As

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Speaker 2: one example, Advanced micro Devices down more than seventeen percent.

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Speaker 2: That came after an underwhelming outlook. Then after the bell

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Speaker 2: we heard from alphabet arm and Qualcom, to name a few,

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Speaker 2: and those shares were in various degrees of retreat in

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Speaker 2: late New York trading. Now in the Asia Pacific, it's

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Speaker 2: proving to be a kind of a rough start for

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Speaker 2: South Korean equities, and we want to take a closer look. Now,

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Speaker 2: let's bring in Bloomberg's Leon ting Iu. She is managing

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Speaker 2: editor for Asian Equities Leontam joining from our studios in Singapore.

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Speaker 2: Help me understand what you're seeing in the South Korean

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Speaker 2: equity market. In particular, I noted that there was a

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Speaker 2: lot of tech weakness over the last forty eight hours.

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Speaker 2: In the States. It seems like it's showing up in

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Speaker 2: a big way in South Korea.

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Speaker 3: Yeah, I just want to first to mention that suth

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Speaker 3: Korea was actually really resilient yesterday when the intensity in

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Speaker 3: the cell of in software shares was very severe, and

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Speaker 3: today we're seeing a bit of a pullback in Korean

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Speaker 3: chip makers. Part of reasons just overall sentiment around tech.

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Speaker 3: As you mentioned, NASTAC was down I think the biggest

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Speaker 3: two day routes since October, and a slew of earnings

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Speaker 3: you just mentioned, We're not looking too good. But I

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Speaker 3: guess for South Korea overall, the underlying tone of among

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Speaker 3: investors is still quite bullish. If you look at Quacomm,

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Speaker 3: it did miss estimates, but the highlight of the earnings

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Speaker 3: call was about memory chip shortage, right. It says especially

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Speaker 3: those handset makers in China couldn't get enough memory chips.

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Speaker 3: So that really adds to the bullishness about around these

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Speaker 3: two giant chip makers in South Korea, SAMSA and Skhex.

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Speaker 3: And so we also saw Nintendo yesterday shares plunged because

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Speaker 3: you know, the memory chip become a big issue again.

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Speaker 3: So I would say overall, yes, the techniques are not

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Speaker 3: doing too well. But the translation to the implication for

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Speaker 3: the two sous Korean chip makers is actually quite positive.

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Speaker 2: So help me understand this. If we're talking about potential

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Speaker 2: shortages of components like memory, that is obviously going to

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Speaker 2: drive up memory prices, and when you're a device maker,

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Speaker 2: you're going to have to try to make up for

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Speaker 2: that cost. Right, wouldn't that run the risk of hurting

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Speaker 2: consumer demand if device prices start to push higher.

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Speaker 3: Yeah, that's exactly the cut recalibration that is being done

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Speaker 3: by analysts, and they look at these companies like a Nintendo,

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Speaker 3: like Quacom, and like, you know, maybe shall me the

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Speaker 3: biggest cell phone maker in China. I think the overall

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Speaker 3: idea is, first of all, they may not make as

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Speaker 3: much to meet the demand just because they don't have

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Speaker 3: those memory chips. And second, yes, they will have to

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Speaker 3: pay a lot more to get these chips. For example,

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Speaker 3: for Nintendo, their current contract covers about one year of

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Speaker 3: memory chip sort of intake, but after that one year

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Speaker 3: they'll have to really pay up. That would eat into

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Speaker 3: their margins. So overall, that's why the shares were down

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Speaker 3: I believe nine percent or so for Nintendo yesterday.

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Speaker 2: So maybe we can change gears and talk a little

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Speaker 2: bit about Alphabet. Fourth quarter revenue was above forecast, but

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Speaker 2: the company did say that it plans to spend a

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Speaker 2: lot more than investors had expected this year. I think

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Speaker 2: capex is set to double now. That speaks a very

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Speaker 2: strong demand. And I understand we were just talking there

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Speaker 2: about the risk of higher prices for certain compononents like memory.

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Speaker 2: But isn't this a positive sign when you have a

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Speaker 2: company like Alphabet saying, hey, our business in AI seems

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Speaker 2: to be working well and we're going to increase capex.

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Speaker 3: Yeah, I believe. So that's why you see, you know,

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Speaker 3: the initial share plunge was I believe seven eight percent

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Speaker 3: in the post market trading, but that really rebounded. I

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Speaker 3: think Alphabet, first of all, First of all, it has

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Speaker 3: a very good track record of really making things work.

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Speaker 3: A lot of it's initiatives in the end took off.

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Speaker 3: It's Gemini model caught up really quickly to you know,

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Speaker 3: to be embedded in all sorts of Google offerings, including

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Speaker 3: the search engine as well. But also I think for

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Speaker 3: for Asia suppliers, we are I would say Asia suppliers

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Speaker 3: are actually in the very good part of the supply

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Speaker 3: chain because a lot of them are in the hardware business.

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Speaker 3: You look at the Korean chip makers, you look at TSMC,

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Speaker 3: you look at a lot of equipment chip equipment makers,

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Speaker 3: that they are the ones receiving the capex money from

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Speaker 3: the likes of Google, Meta and other hyperscalers in the US.

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Speaker 3: So I think that's why we see a lot of

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Speaker 3: analysts actually issuing very bullish calls for Asia tech names

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Speaker 3: in the broader context of global sell off because of

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Speaker 3: AI losers sort of recalibration. The Asia chip makers and

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Speaker 3: Asia hat worry makers are actually quite resilient and will

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Speaker 3: continue to be resilient in the AI trade.

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Speaker 4: Well.

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Speaker 2: Staying with the chip space for a moment, profit for

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Speaker 2: the British chip designer Armholdings was down twelve percent. That's

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Speaker 2: pretty substantial, and the company sales forecast for the current

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Speaker 2: quarter was disappointing. This company is owned ARM by soft Bank,

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Speaker 2: and I'm looking at those shares down more than five

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Speaker 2: percent right now in the Tokyo session. So there's another

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Speaker 2: level of exposure here. It's not just ARM, but it

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Speaker 2: extends out to soft Bank, right.

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Speaker 3: Yeah, SoftBank is an interesting company, right It owns a

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Speaker 3: big stake in ARM, but it also is a big

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Speaker 3: investor in open ai and open ai. As we as

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Speaker 3: I saw in a in a nice story from Bloomberg yesterday,

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Speaker 3: it became a bit of a liability for a lot

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Speaker 3: of investors' early investors in the company, including Nvidia. The

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Speaker 3: idea is just, you know, questions about whether all these

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Speaker 3: spendings can actually turn into a return fast enough to

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Speaker 3: sustain the operation of this company. So for SoftBank, I

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Speaker 3: think it's increasingly been seen as a proxy to this

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Speaker 3: open AI or AI large language models. And these are

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Speaker 3: the companies that are sort of most in question about

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Speaker 3: the valuation, about the bubble concerns.

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Speaker 2: What about markets in Hong Kong and on Taiwan, I mean,

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Speaker 2: are they are the stories similar here in terms of

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Speaker 2: the tech narrative.

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Speaker 3: Taiwan and Hong Kong, I would say quite different. Hong

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Speaker 3: Kong is very much centered around Chinese internet names, and

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Speaker 3: that sector has its own dynamics. Part of it is

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Speaker 3: the price war, especially in the e commerce and food

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Speaker 3: delivery space, that has really compressed profit margins despite government's

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Speaker 3: effort to prevent that. Second is the tax concerns. I'm

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Speaker 3: sure you sa a couple of days ago, a bunch

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Speaker 3: of these Internet or platform names dropped quite significantly because

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Speaker 3: of concerns that the tax man, the Chinese government, which

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Speaker 3: is facing a record budget deficit, is potentially adding value

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Speaker 3: added tax for these group of companies which are perceived

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Speaker 3: to be relatively more profitable than others. So that's the

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Speaker 3: latest headache for Chinese tech names in terms of Taiwan. Yes,

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Speaker 3: TSMC again is still very much well positioned in the

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Speaker 3: tech supply chain because you know, also of making with

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Speaker 3: need to go to TSMC to get that made. The

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Speaker 3: reason for TSMC to underperform these Korean chip makers is

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Speaker 3: because there is a bit of a cap for a

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Speaker 3: lot of funds to hold a single name, So TSMC

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Speaker 3: for a lot of em or Asia focused funds, they

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Speaker 3: have already maxed out the ten percent cap, so now

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Speaker 3: they're scrambling to find other ways to get exposure to TSMC,

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Speaker 3: including using some kind of esoteric swaps or going into

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Speaker 3: the structured products so it doesn't quite show up in

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Speaker 3: you know, the all sorts of disclosures. So that is

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Speaker 3: sort of the reason that is keeping a bit of

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Speaker 3: a lit on TSMC's share price.

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Speaker 2: Leon Ting, thank you so very much, great stuff from

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Speaker 2: Bloomberg's Leon ting too. She is managing editor for Asian Equities.

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Speaker 2: Joining us here on the Daybreak Asia podcast. Welcome back

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Speaker 2: to the Daybreak Asia Podcast. I'm Doug Christner. As I

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Speaker 2: mentioned a moment ago, US tech shares added to their

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Speaker 2: recent weakness during the Wednesday session, and from some additional perspective,

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Speaker 2: we caught up with Heartwood Issel. He is the head

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Speaker 2: of APAC Equities and credit at UBS Wealth Management. Heartwood

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Speaker 2: spoke with Bloomberg TV host Sherry On and April Honk.

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Speaker 5: Really a lot to digest, but the narrative right now

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Speaker 5: seems to be a continuation of that tech rotation out

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Speaker 5: of those stocks and into perhaps more value, more small sectors,

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Speaker 5: more cyclicals. Can this be seen as a positive sign

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Speaker 5: of more broadening out of the market or is this

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Speaker 5: a fundamental problem.

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Speaker 4: I think it is a sign of a broadening market,

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Speaker 4: And we also have to bear in mind, especially if

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Speaker 4: you look at MAC seven for example, over almost three years,

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Speaker 4: right they were the key component of earnings growth in

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Speaker 4: the S and P. Theyse still are one of the components,

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Speaker 4: but not the only one anymore this year, so it's

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Speaker 4: probably not so surprised that we see other sectors. Maybe

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Speaker 4: I mentioned as in particular also in the US context

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Speaker 4: that are also coming up and might many investors also see, hey,

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Speaker 4: you know where else can I diversify things a bit?

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Speaker 4: So not an unhealthy environment in my view.

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Speaker 5: Yeah, especially at a time when we saw the cell

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Speaker 5: of the software stocks when they're actually generating solid earnings

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Speaker 5: in this side of the world in the Asia, are

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Speaker 5: there any concerns around the fact that AI could cannibalize

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Speaker 5: some of these companies that are in play as well.

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Speaker 4: On the Asia side. Actually, as long as there's demand

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Speaker 4: for a it doesn't matter from whom or if the

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Speaker 4: market shares shift or anything like the market seems to

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Speaker 4: believe to some extent, and software in the stock markets

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Speaker 4: here and APEX, we don't have that kind of phenomenon

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Speaker 4: or not not that kind of structure and set up.

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Speaker 4: And therefore, and we have seen also what you mentioned Alphabet,

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Speaker 4: but we have seen it before also Microsoft et cetera.

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Speaker 4: In terms of what I look at right is cloud

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Speaker 4: growth year on year, It's very very strong, and if

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Speaker 4: it disappoints to some extent, then it's only because the

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Speaker 4: capacity isn't there, right. The demand is not a demand issue, right,

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Speaker 4: So that I think also here for the for the

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Speaker 4: asient semi conductor space in particular. Right, as long as

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Speaker 4: that roles, I don't see so many issues there.

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Speaker 6: Are you also seeing how emerging markets are sort of

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Speaker 6: breaking away from these US market moves.

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Speaker 4: Yes, indeed we are seeing it, by the way, not

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Speaker 4: only in APEX, but also in APEX, I should say,

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Speaker 4: and yes, I will see you know, especially if we

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Speaker 4: stay here quickly in our region. Right, there's different drivers

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Speaker 4: I think quite interesting, right, so so I also one

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Speaker 4: of them also for APEC I just mentioned. But then

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Speaker 4: you have value ups, right, so markets that you know,

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Speaker 4: in terms of structure don't don't really that close to

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Speaker 4: to AI R, but they're going up like a Japan

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Speaker 4: like Singapore. And then we have markets that also look

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Speaker 4: interesting again a different driver which I call sort of

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Speaker 4: the leggards of last year, where actually your earnings growth

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Speaker 4: is accelerating. Two examples India, Indonesia. So yeah, you know,

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Speaker 4: different drivers. What could be better?

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Speaker 6: Talk to us also about what you see in credit

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Speaker 6: that is related to the AI boom, because there also

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Speaker 6: seem to be some lingering concerns about the payoff in

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Speaker 6: that part of investment space. Is that something that you're

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Speaker 6: also seeing.

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Speaker 4: Yeah, we have looked at it, especially also on the

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Speaker 4: non listed side. The conclusion that we came up with

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Speaker 4: is probably where we have more flex potentially is more

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Speaker 4: like the low quality areas, which at least as far

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Speaker 4: as our investors go, right, we have several times so

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Speaker 4: I told them and recommended, right, so you know you

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Speaker 4: can go in that space. You should be in that space.

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Speaker 4: But more on the high quality side, is that as

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Speaker 4: long as that's the place where you position, that should be.

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Speaker 6: Okay.

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Speaker 5: You mentioned Japan earlier, and of course we have seen

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Speaker 5: an amazing rally given some of the structural changes in

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Speaker 5: this market. We are headed towards the election this weekend,

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Speaker 5: and that's really raising more fiscal concerns about this country.

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Speaker 5: Is there anything that you're watching in particular this weekend

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Speaker 5: that could make a meaningful difference towards the direction of

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Speaker 5: the equities are here in Japan?

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Speaker 1: Yeah?

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Speaker 4: I think generally for the market, I mean, given we

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Speaker 4: probably know what the outcome or the most most likely

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Speaker 4: outcome is that we need to watch certainly right that

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Speaker 4: also the government, right, they do the stimulation that they

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Speaker 4: do positive structural measures, but not overdo it necessarily on

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Speaker 4: the dead side.

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Speaker 5: Right.

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Speaker 4: As long as that's the case, I think it's okay,

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Speaker 4: because that, in my view is sort of you know,

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Speaker 4: something short term that could help the market. But if

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Speaker 4: I look back a bit, right, this return on equity

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Speaker 4: measures in Japan, they have started to increase. I think

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Speaker 4: that is a key reason also why why many also

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Speaker 4: foreigners go back right, these value are measures. They are

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Speaker 4: beginning to work. We see it in the data, and

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Speaker 4: it will not stop here. So, yeah, Japan is interesting.

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Speaker 6: What about Chinese tag which hasn't accently been immune to

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Speaker 6: the route in the sector that we've been seeing.

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Speaker 2: This week.

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Speaker 4: On Chinese TEG And of course in about say a

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Speaker 4: month's time or a half a month, I say we

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Speaker 4: will see more and more data also results. The ones

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Speaker 4: that I would most critically look at is a bit

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Speaker 4: like in the US with hyperscalers is the heur and

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Speaker 4: near cloud growth. So and we have seen, if I

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Speaker 4: compared to twelve eighteen months ago, we have seen a

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Speaker 4: significant increase of some of the leaders. Right, We're talking

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Speaker 4: in some cases now about thirty percent give and take right,

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Speaker 4: or even thirty plus percent here on near cloud growth

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Speaker 4: that has only come in recently and nobody has to

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Speaker 4: hide between us hyperscalers anymore. Right, it's virtually on par

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Speaker 4: and I think we're going to see also from here

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Speaker 4: several quarters of this repeating, So I would struggle to

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Speaker 4: see why the market wouldn't sort of buy into this idea.

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Speaker 2: That was hartmood Issel, head of a pack Equities and

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Speaker 2: credit at UBS Wealth Management, speaking to Bloomberg TV host

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Speaker 2: Sherry On and April Hong bringing you the conversation here

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Speaker 2: on the Daybreak Asia Podcast. Thanks for listening to today's

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Speaker 2: episode of the Bloomberg Daybreak Asia Edition podcast. Each weekday,

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Speaker 2: we look at the story shaping markets, finance, and geopolitics

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Speaker 2: in the Asia Pacific. You can find us on Apple, Spotify,

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Speaker 2: the Bloomberg Podcast YouTube channel, or anywhere else you listen.

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Speaker 2: Join us again tomorrow for insight on the market moves

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Speaker 2: from Hong Kong to Singapore and Australia. I'm Doug Prisner,

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Speaker 2: and this is Bloomberg