WEBVTT - Asian Stocks Fall as Tech Selloff Gains Momentum

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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 Christner. Stateside,

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<v Speaker 2>the rotation out of tech shares gathered momentum on Wednesday.

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<v Speaker 2>Software firms were caught in another wave of selling. The

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<v Speaker 2>concern here is how AI may disrupt their traditional business models.

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<v Speaker 2>But today the bigger losses came among chip makers. As

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<v Speaker 2>one example, Advanced micro Devices down more than seventeen percent.

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<v Speaker 2>That came after an underwhelming outlook. Then after the bell

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<v Speaker 2>we heard from alphabet arm and Qualcom, to name a few,

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<v Speaker 2>and those shares were in various degrees of retreat in

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

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<v Speaker 2>proving to be a kind of a rough start for

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

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<v Speaker 2>let's bring in Bloomberg's Leon ting Iu. She is managing

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<v Speaker 2>editor for Asian Equities Leontam joining from our studios in Singapore.

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<v Speaker 2>Help me understand what you're seeing in the South Korean

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<v Speaker 2>equity market. In particular, I noted that there was a

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<v Speaker 2>lot of tech weakness over the last forty eight hours.

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<v Speaker 2>In the States. It seems like it's showing up in

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<v Speaker 2>a big way in South Korea.

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<v Speaker 3>Yeah, I just want to first to mention that suth

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<v Speaker 3>Korea was actually really resilient yesterday when the intensity in

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<v Speaker 3>the cell of in software shares was very severe, and

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<v Speaker 3>today we're seeing a bit of a pullback in Korean

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<v Speaker 3>chip makers. Part of reasons just overall sentiment around tech.

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<v Speaker 3>As you mentioned, NASTAC was down I think the biggest

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<v Speaker 3>two day routes since October, and a slew of earnings

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

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<v Speaker 3>guess for South Korea overall, the underlying tone of among

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<v Speaker 3>investors is still quite bullish. If you look at Quacomm,

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<v Speaker 3>it did miss estimates, but the highlight of the earnings

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<v Speaker 3>call was about memory chip shortage, right. It says especially

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<v Speaker 3>those handset makers in China couldn't get enough memory chips.

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<v Speaker 3>So that really adds to the bullishness about around these

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<v Speaker 3>two giant chip makers in South Korea, SAMSA and Skhex.

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<v Speaker 3>And so we also saw Nintendo yesterday shares plunged because

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<v Speaker 3>you know, the memory chip become a big issue again.

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<v Speaker 3>So I would say overall, yes, the techniques are not

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<v Speaker 3>doing too well. But the translation to the implication for

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<v Speaker 3>the two sous Korean chip makers is actually quite positive.

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<v Speaker 2>So help me understand this. If we're talking about potential

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<v Speaker 2>shortages of components like memory, that is obviously going to

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<v Speaker 2>drive up memory prices, and when you're a device maker,

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<v Speaker 2>you're going to have to try to make up for

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<v Speaker 2>that cost. Right, wouldn't that run the risk of hurting

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<v Speaker 2>consumer demand if device prices start to push higher.

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<v Speaker 3>Yeah, that's exactly the cut recalibration that is being done

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<v Speaker 3>by analysts, and they look at these companies like a Nintendo,

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<v Speaker 3>like Quacom, and like, you know, maybe shall me the

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<v Speaker 3>biggest cell phone maker in China. I think the overall

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<v Speaker 3>idea is, first of all, they may not make as

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<v Speaker 3>much to meet the demand just because they don't have

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<v Speaker 3>those memory chips. And second, yes, they will have to

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<v Speaker 3>pay a lot more to get these chips. For example,

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<v Speaker 3>for Nintendo, their current contract covers about one year of

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<v Speaker 3>memory chip sort of intake, but after that one year

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<v Speaker 3>they'll have to really pay up. That would eat into

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

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<v Speaker 3>I believe nine percent or so for Nintendo yesterday.

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<v Speaker 2>So maybe we can change gears and talk a little

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<v Speaker 2>bit about Alphabet. Fourth quarter revenue was above forecast, but

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<v Speaker 2>the company did say that it plans to spend a

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<v Speaker 2>lot more than investors had expected this year. I think

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<v Speaker 2>capex is set to double now. That speaks a very

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<v Speaker 2>strong demand. And I understand we were just talking there

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<v Speaker 2>about the risk of higher prices for certain compononents like memory.

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<v Speaker 2>But isn't this a positive sign when you have a

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<v Speaker 2>company like Alphabet saying, hey, our business in AI seems

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<v Speaker 2>to be working well and we're going to increase capex.

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<v Speaker 3>Yeah, I believe. So that's why you see, you know,

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<v Speaker 3>the initial share plunge was I believe seven eight percent

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<v Speaker 3>in the post market trading, but that really rebounded. I

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<v Speaker 3>think Alphabet, first of all, First of all, it has

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<v Speaker 3>a very good track record of really making things work.

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<v Speaker 3>A lot of it's initiatives in the end took off.

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<v Speaker 3>It's Gemini model caught up really quickly to you know,

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<v Speaker 3>to be embedded in all sorts of Google offerings, including

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<v Speaker 3>the search engine as well. But also I think for

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<v Speaker 3>for Asia suppliers, we are I would say Asia suppliers

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<v Speaker 3>are actually in the very good part of the supply

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<v Speaker 3>chain because a lot of them are in the hardware business.

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<v Speaker 3>You look at the Korean chip makers, you look at TSMC,

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<v Speaker 3>you look at a lot of equipment chip equipment makers,

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<v Speaker 3>that they are the ones receiving the capex money from

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<v Speaker 3>the likes of Google, Meta and other hyperscalers in the US.

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<v Speaker 3>So I think that's why we see a lot of

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<v Speaker 3>analysts actually issuing very bullish calls for Asia tech names

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<v Speaker 3>in the broader context of global sell off because of

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<v Speaker 3>AI losers sort of recalibration. The Asia chip makers and

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<v Speaker 3>Asia hat worry makers are actually quite resilient and will

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<v Speaker 3>continue to be resilient in the AI trade.

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<v Speaker 4>Well.

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<v Speaker 2>Staying with the chip space for a moment, profit for

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<v Speaker 2>the British chip designer Armholdings was down twelve percent. That's

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<v Speaker 2>pretty substantial, and the company sales forecast for the current

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<v Speaker 2>quarter was disappointing. This company is owned ARM by soft Bank,

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<v Speaker 2>and I'm looking at those shares down more than five

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<v Speaker 2>percent right now in the Tokyo session. So there's another

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

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<v Speaker 2>extends out to soft Bank, right.

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<v Speaker 3>Yeah, SoftBank is an interesting company, right It owns a

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<v Speaker 3>big stake in ARM, but it also is a big

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<v Speaker 3>investor in open ai and open ai. As we as

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<v Speaker 3>I saw in a in a nice story from Bloomberg yesterday,

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<v Speaker 3>it became a bit of a liability for a lot

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<v Speaker 3>of investors' early investors in the company, including Nvidia. The

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<v Speaker 3>idea is just, you know, questions about whether all these

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<v Speaker 3>spendings can actually turn into a return fast enough to

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<v Speaker 3>sustain the operation of this company. So for SoftBank, I

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<v Speaker 3>think it's increasingly been seen as a proxy to this

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<v Speaker 3>open AI or AI large language models. And these are

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<v Speaker 3>the companies that are sort of most in question about

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<v Speaker 3>the valuation, about the bubble concerns.

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<v Speaker 2>What about markets in Hong Kong and on Taiwan, I mean,

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<v Speaker 2>are they are the stories similar here in terms of

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<v Speaker 2>the tech narrative.

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<v Speaker 3>Taiwan and Hong Kong, I would say quite different. Hong

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<v Speaker 3>Kong is very much centered around Chinese internet names, and

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<v Speaker 3>that sector has its own dynamics. Part of it is

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<v Speaker 3>the price war, especially in the e commerce and food

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<v Speaker 3>delivery space, that has really compressed profit margins despite government's

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<v Speaker 3>effort to prevent that. Second is the tax concerns. I'm

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<v Speaker 3>sure you sa a couple of days ago, a bunch

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<v Speaker 3>of these Internet or platform names dropped quite significantly because

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<v Speaker 3>of concerns that the tax man, the Chinese government, which

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<v Speaker 3>is facing a record budget deficit, is potentially adding value

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<v Speaker 3>added tax for these group of companies which are perceived

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<v Speaker 3>to be relatively more profitable than others. So that's the

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<v Speaker 3>latest headache for Chinese tech names in terms of Taiwan. Yes,

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<v Speaker 3>TSMC again is still very much well positioned in the

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<v Speaker 3>tech supply chain because you know, also of making with

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<v Speaker 3>need to go to TSMC to get that made. The

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<v Speaker 3>reason for TSMC to underperform these Korean chip makers is

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<v Speaker 3>because there is a bit of a cap for a

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<v Speaker 3>lot of funds to hold a single name, So TSMC

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<v Speaker 3>for a lot of em or Asia focused funds, they

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<v Speaker 3>have already maxed out the ten percent cap, so now

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<v Speaker 3>they're scrambling to find other ways to get exposure to TSMC,

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<v Speaker 3>including using some kind of esoteric swaps or going into

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<v Speaker 3>the structured products so it doesn't quite show up in

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<v Speaker 3>you know, the all sorts of disclosures. So that is

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<v Speaker 3>sort of the reason that is keeping a bit of

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<v Speaker 3>a lit on TSMC's share price.

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<v Speaker 2>Leon Ting, thank you so very much, great stuff from

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

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<v Speaker 2>Joining us here on the Daybreak Asia podcast. Welcome back

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<v Speaker 2>to the Daybreak Asia Podcast. I'm Doug Christner. As I

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<v Speaker 2>mentioned a moment ago, US tech shares added to their

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<v Speaker 2>recent weakness during the Wednesday session, and from some additional perspective,

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<v Speaker 2>we caught up with Heartwood Issel. He is the head

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<v Speaker 2>of APAC Equities and credit at UBS Wealth Management. Heartwood

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<v Speaker 2>spoke with Bloomberg TV host Sherry On and April Honk.

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<v Speaker 5>Really a lot to digest, but the narrative right now

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<v Speaker 5>seems to be a continuation of that tech rotation out

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<v Speaker 5>of those stocks and into perhaps more value, more small sectors,

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<v Speaker 5>more cyclicals. Can this be seen as a positive sign

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<v Speaker 5>of more broadening out of the market or is this

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<v Speaker 5>a fundamental problem.

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<v Speaker 4>I think it is a sign of a broadening market,

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<v Speaker 4>And we also have to bear in mind, especially if

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<v Speaker 4>you look at MAC seven for example, over almost three years,

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<v Speaker 4>right they were the key component of earnings growth in

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<v Speaker 4>the S and P. Theyse still are one of the components,

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<v Speaker 4>but not the only one anymore this year, so it's

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<v Speaker 4>probably not so surprised that we see other sectors. Maybe

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<v Speaker 4>I mentioned as in particular also in the US context

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<v Speaker 4>that are also coming up and might many investors also see, hey,

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<v Speaker 4>you know where else can I diversify things a bit?

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<v Speaker 4>So not an unhealthy environment in my view.

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<v Speaker 5>Yeah, especially at a time when we saw the cell

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<v Speaker 5>of the software stocks when they're actually generating solid earnings

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<v Speaker 5>in this side of the world in the Asia, are

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<v Speaker 5>there any concerns around the fact that AI could cannibalize

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<v Speaker 5>some of these companies that are in play as well.

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<v Speaker 4>On the Asia side. Actually, as long as there's demand

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<v Speaker 4>for a it doesn't matter from whom or if the

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<v Speaker 4>market shares shift or anything like the market seems to

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<v Speaker 4>believe to some extent, and software in the stock markets

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<v Speaker 4>here and APEX, we don't have that kind of phenomenon

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<v Speaker 4>or not not that kind of structure and set up.

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<v Speaker 4>And therefore, and we have seen also what you mentioned Alphabet,

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<v Speaker 4>but we have seen it before also Microsoft et cetera.

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<v Speaker 4>In terms of what I look at right is cloud

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<v Speaker 4>growth year on year, It's very very strong, and if

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<v Speaker 4>it disappoints to some extent, then it's only because the

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

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<v Speaker 4>So that I think also here for the for the

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<v Speaker 4>asient semi conductor space in particular. Right, as long as

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<v Speaker 4>that roles, I don't see so many issues there.

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<v Speaker 6>Are you also seeing how emerging markets are sort of

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<v Speaker 6>breaking away from these US market moves.

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<v Speaker 4>Yes, indeed we are seeing it, by the way, not

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<v Speaker 4>only in APEX, but also in APEX, I should say,

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<v Speaker 4>and yes, I will see you know, especially if we

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

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<v Speaker 4>I think quite interesting, right, so so I also one

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<v Speaker 4>of them also for APEC I just mentioned. But then

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<v Speaker 4>you have value ups, right, so markets that you know,

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<v Speaker 4>in terms of structure don't don't really that close to

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<v Speaker 4>to AI R, but they're going up like a Japan

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<v Speaker 4>like Singapore. And then we have markets that also look

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<v Speaker 4>interesting again a different driver which I call sort of

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<v Speaker 4>the leggards of last year, where actually your earnings growth

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<v Speaker 4>is accelerating. Two examples India, Indonesia. So yeah, you know,

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<v Speaker 4>different drivers. What could be better?

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<v Speaker 6>Talk to us also about what you see in credit

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<v Speaker 6>that is related to the AI boom, because there also

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<v Speaker 6>seem to be some lingering concerns about the payoff in

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<v Speaker 6>that part of investment space. Is that something that you're

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<v Speaker 6>also seeing.

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<v Speaker 4>Yeah, we have looked at it, especially also on the

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<v Speaker 4>non listed side. The conclusion that we came up with

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<v Speaker 4>is probably where we have more flex potentially is more

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<v Speaker 4>like the low quality areas, which at least as far

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<v Speaker 4>as our investors go, right, we have several times so

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<v Speaker 4>I told them and recommended, right, so you know you

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<v Speaker 4>can go in that space. You should be in that space.

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<v Speaker 4>But more on the high quality side, is that as

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

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<v Speaker 6>Okay.

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<v Speaker 5>You mentioned Japan earlier, and of course we have seen

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<v Speaker 5>an amazing rally given some of the structural changes in

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<v Speaker 5>this market. We are headed towards the election this weekend,

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<v Speaker 5>and that's really raising more fiscal concerns about this country.

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<v Speaker 5>Is there anything that you're watching in particular this weekend

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<v Speaker 5>that could make a meaningful difference towards the direction of

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<v Speaker 5>the equities are here in Japan?

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<v Speaker 1>Yeah?

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<v Speaker 4>I think generally for the market, I mean, given we

0:13:36.920 --> 0:13:39.079
<v Speaker 4>probably know what the outcome or the most most likely

0:13:39.160 --> 0:13:41.559
<v Speaker 4>outcome is that we need to watch certainly right that

0:13:41.720 --> 0:13:44.120
<v Speaker 4>also the government, right, they do the stimulation that they

0:13:44.120 --> 0:13:48.719
<v Speaker 4>do positive structural measures, but not overdo it necessarily on

0:13:48.840 --> 0:13:49.720
<v Speaker 4>the dead side.

0:13:49.760 --> 0:13:49.880
<v Speaker 5>Right.

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<v Speaker 4>As long as that's the case, I think it's okay,

0:13:52.120 --> 0:13:54.240
<v Speaker 4>because that, in my view is sort of you know,

0:13:54.280 --> 0:13:56.400
<v Speaker 4>something short term that could help the market. But if

0:13:56.400 --> 0:13:59.479
<v Speaker 4>I look back a bit, right, this return on equity

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<v Speaker 4>measures in Japan, they have started to increase. I think

0:14:03.559 --> 0:14:05.560
<v Speaker 4>that is a key reason also why why many also

0:14:05.600 --> 0:14:08.840
<v Speaker 4>foreigners go back right, these value are measures. They are

0:14:08.880 --> 0:14:10.760
<v Speaker 4>beginning to work. We see it in the data, and

0:14:10.760 --> 0:14:13.200
<v Speaker 4>it will not stop here. So, yeah, Japan is interesting.

0:14:16.200 --> 0:14:19.480
<v Speaker 6>What about Chinese tag which hasn't accently been immune to

0:14:19.720 --> 0:14:22.400
<v Speaker 6>the route in the sector that we've been seeing.

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<v Speaker 2>This week.

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<v Speaker 4>On Chinese TEG And of course in about say a

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<v Speaker 4>month's time or a half a month, I say we

0:14:32.880 --> 0:14:36.480
<v Speaker 4>will see more and more data also results. The ones

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<v Speaker 4>that I would most critically look at is a bit

0:14:39.000 --> 0:14:42.000
<v Speaker 4>like in the US with hyperscalers is the heur and

0:14:42.080 --> 0:14:46.760
<v Speaker 4>near cloud growth. So and we have seen, if I

0:14:46.880 --> 0:14:49.560
<v Speaker 4>compared to twelve eighteen months ago, we have seen a

0:14:49.640 --> 0:14:52.200
<v Speaker 4>significant increase of some of the leaders. Right, We're talking

0:14:52.240 --> 0:14:55.320
<v Speaker 4>in some cases now about thirty percent give and take right,

0:14:55.400 --> 0:14:58.400
<v Speaker 4>or even thirty plus percent here on near cloud growth

0:14:58.640 --> 0:15:02.280
<v Speaker 4>that has only come in recently and nobody has to

0:15:02.360 --> 0:15:06.280
<v Speaker 4>hide between us hyperscalers anymore. Right, it's virtually on par

0:15:06.720 --> 0:15:09.160
<v Speaker 4>and I think we're going to see also from here

0:15:09.400 --> 0:15:12.320
<v Speaker 4>several quarters of this repeating, So I would struggle to

0:15:12.360 --> 0:15:14.720
<v Speaker 4>see why the market wouldn't sort of buy into this idea.

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<v Speaker 2>That was hartmood Issel, head of a pack Equities and

0:15:17.640 --> 0:15:21.240
<v Speaker 2>credit at UBS Wealth Management, speaking to Bloomberg TV host

0:15:21.360 --> 0:15:25.040
<v Speaker 2>Sherry On and April Hong bringing you the conversation here

0:15:25.080 --> 0:15:30.120
<v Speaker 2>on the Daybreak Asia Podcast. Thanks for listening to today's

0:15:30.160 --> 0:15:34.640
<v Speaker 2>episode of the Bloomberg Daybreak Asia Edition podcast. Each weekday,

0:15:34.680 --> 0:15:38.600
<v Speaker 2>we look at the story shaping markets, finance, and geopolitics

0:15:38.600 --> 0:15:41.880
<v Speaker 2>in the Asia Pacific. You can find us on Apple, Spotify,

0:15:42.040 --> 0:15:45.520
<v Speaker 2>the Bloomberg Podcast YouTube channel, or anywhere else you listen.

0:15:45.960 --> 0:15:48.840
<v Speaker 2>Join us again tomorrow for insight on the market moves

0:15:48.920 --> 0:15:53.440
<v Speaker 2>from Hong Kong to Singapore and Australia. I'm Doug Prisner,

0:15:53.600 --> 0:15:55.000
<v Speaker 2>and this is Bloomberg