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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 Charlie Palotin for

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Speaker 2: Doug Crismer. This week, South Korean President Yun suk Yo

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Speaker 2: declared surprise martial law and then reversed it hours after

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Speaker 2: the country's parliament voted to block it.

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Speaker 3: I will accept the parliament's request and lift marshal law

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Speaker 3: through a cabinet meeting. However, although I immediately convened a

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Speaker 3: cabinet meeting, the quorum for resolution has not been met

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Speaker 3: due to the early hour, so I will lift it

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Speaker 3: as soon as the quorum is reached.

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Speaker 2: Now. The surprise move led South Korean stocks to open

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Speaker 2: lower following the overnight political turmoil, and for more, we

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Speaker 2: heard from Rory Green, chief China economist and head of

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Speaker 2: Asia Research at TS Lombard. He spoke with Bloomberg, Scherryon

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Speaker 2: and Heidi Stroud Watts.

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Speaker 4: When it comes to how you use this and how

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Speaker 4: markets potentially views this, is this sort of a well

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Speaker 4: win sort of whipplash, one time jolt of volatility or

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Speaker 4: does it suggest that elevator volatility is something we need

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Speaker 4: to be careful of going forward?

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Speaker 5: Yeah, I think we need to be ready Hidi for

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Speaker 5: a period of extended volatility, with particularly the one likely

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Speaker 5: to be under pressure. I mean, already we have the

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Speaker 5: Trump factor and the China trade competition, some idiosyncratic career

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Speaker 5: Trump risk through the IRA which has been a massive

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Speaker 5: beneficiary for Korean companies, and then the domestic economy week

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Speaker 5: and the Bok on a rate cutting cycle. So the one,

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Speaker 5: I think it is in for a tough time for

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Speaker 5: at least a few weeks, while we see the domestic

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Speaker 5: political situation start to stabilize and perhaps move towards this

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Speaker 5: impeachment which I think is quite likely, and eventually some

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Speaker 5: clarity on the future of President.

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Speaker 4: Un Well, you know, as you sort of characterize it,

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Speaker 4: this might just be the spark of a cycle of

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Speaker 4: political uncertainty you read, with a potential impeachment then leading

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Speaker 4: of course to another election and perhaps changes within that

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Speaker 4: government as well. How critical is it for confidence to

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Speaker 4: be maintained here, given as Jerry mentioned, how externally vulnerable

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Speaker 4: the South Korelina economy is, but also how you know,

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Speaker 4: systemically key it is at a time when trade engines

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Speaker 4: are almost guaranteed going to next year.

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Speaker 5: Yeah, absolutely critical node within the globe of economy. Notably

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Speaker 5: that the semiconductor side, sk Hinex Samsung key providers of

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Speaker 5: AI related memory chips, which is very important at this

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Speaker 5: stage of the cycle. But you know, right down the

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Speaker 5: value chain through the steel ships career is a key

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Speaker 5: part of the global manufacturing cycle. So it's absolutely crucial

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Speaker 5: for stability to be maintained, and not only for the

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Speaker 5: manufacturing side, but also geopolitically with of course North Korea, China,

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Speaker 5: Russia and the spillovers potentially from North Korean troops in

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Speaker 5: Ukraine still as yet unknown for what it means within

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Speaker 5: the wider age of context. So it's political stability for

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Speaker 5: Korea absolutely.

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Speaker 6: Crucial, and it just comes to show how much these

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Speaker 6: political tussles can impact financial markets, right. I mean, we

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Speaker 6: have seen this swift move when it comes to Korea

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Speaker 6: related assets overnight, and we're also watching a similar sort

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Speaker 6: of collapse of government potentially unfold in France. We have

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Speaker 6: a no confidence fault there. The Philippines also struggling with

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Speaker 6: its only issues when it comes to political violence as well.

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Speaker 6: How closely are you watching all of these political wranglings

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Speaker 6: around the world and how big of a threat are

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Speaker 6: they going into twenty twenty five, when we're seeing more

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Speaker 6: real assaults on the democracy in a way, especially when

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Speaker 6: you have a more Vallett l Trump administration also coming in.

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Speaker 5: Absolutely, and this is a critical factor that some of

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Speaker 5: the markets find very hard to price.

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Speaker 7: Political risk is in many cases binary.

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Speaker 5: It's very difficult to price until it becomes in your face,

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Speaker 5: as it has done today in the career situation. Clearly

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Speaker 5: now with the inflation high, there is a very strong

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Speaker 5: anti incumbency bias globally. We've seen this in a number

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Speaker 5: of elections and that that is going to persist well

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Speaker 5: into the twenty twenty five I think Korea could see

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Speaker 5: a relatively quick resolution are compared to say, some of

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Speaker 5: the European issues that you mentioned Chryanne. So it's definitely

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Speaker 5: a key factor globally and not at least within China,

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Speaker 5: where these issues are less visible from a protest and

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Speaker 5: a vote standpoint, but perhaps a more important factor in

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Speaker 5: the policy makers a reaction function. You can track the

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Speaker 5: number of protests there, and this is one of the

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Speaker 5: factors we think that is pushing China towards an outside

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Speaker 5: fiscal response in twenty twenty five. So very important for

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Speaker 5: global markets across the world, particularly in Asia, with China

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Speaker 5: and Korea the top of our list.

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Speaker 6: Here we're looking at the I shares MSCI, South Korea

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Speaker 6: ETF trading in Australia right now, when we're seeing the

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Speaker 6: lowest numbers levels in a few weeks already, What will

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Speaker 6: be the key transmission mechanism and the fastest to unfold

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Speaker 6: given these political risks geopolitical risks around the world. Rory,

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Speaker 6: will it be through the currency mechanism? And how much

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Speaker 6: more difficult does that make the jobs of the central

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Speaker 6: banks around the world.

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Speaker 5: Yeah, I think it is mainly the currency and it

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Speaker 5: does pose a really challenging situation for these central banks.

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Speaker 7: If we take the bok and I've no Eu.

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Speaker 5: Chang Yong, for instance, the one already becoming a bit

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Speaker 5: of a political issue before today's incidents, the one under

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Speaker 5: pressure from domestic macro standpoint, higher rates, hitting property, hitting

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Speaker 5: consumption through variable mortgages, the Trump tariff factor as I

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Speaker 5: touched on, and then also this structural push through the NPS,

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Speaker 5: the National Pension Fund of career reallocating in quite a

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Speaker 5: significant way away from domestic assets to foreign assets, the

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Speaker 5: structural drive to one depreciation, so that the Bok was

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Speaker 5: already in a very difficult position managing the one trying

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Speaker 5: to prop up the domestic economy, and that's been complicated

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Speaker 5: to say the least by today's events. So the currency

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Speaker 5: clearly an issue for the Bok. I think this puts

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Speaker 5: them on course for probably another cut, maybe in early January,

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Speaker 5: as they try to key to regenerate a bit of

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Speaker 5: momentum back into the economy. China to similar issues with

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Speaker 5: a political directive to maintain a strong R and B

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Speaker 5: which is directed at odds with the monetary policy needed

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Speaker 5: to support growth within the economy and to counteract potential

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Speaker 5: Trump tariffs.

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Speaker 7: So within the region, the currency.

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Speaker 5: Dynamics at counter or countercurrens to the politics and that

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Speaker 5: is going to be a key dynamic to watch through

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Speaker 5: twenty twenty five.

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Speaker 4: So many cross currents for potential risk and volatility Internet year. Rory,

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Speaker 4: We really appreciate you joining us later as it is

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Speaker 4: for you. Rory Green from Global Data TS Lombard.

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Speaker 2: There, welcome back to the Daybreak Asia podcast. I'm Charlie Palette.

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Speaker 2: Doug Chrisner has the week off. Stocks in Asia declined

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Speaker 2: after self career's political turmoil, triggered by a brief imposition

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Speaker 2: of martial law caught global investors off guard. For a

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Speaker 2: macro outlook, we heard from Alfred er Junker, Alfinity Investment

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Speaker 2: Management client portfolio manager, and she spoke with Bloomberg Sharry

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Speaker 2: On and Heidi Stroud Whites.

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Speaker 4: This, of course at a time we're also seeing a

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Speaker 4: politic book called Upheaval in France to a degree in

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Speaker 4: Germany as well. What is the sort of best prison

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Speaker 4: for investors to be looking at this?

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Speaker 1: Yes, I think we have been dealing with a lot

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Speaker 1: of geo political risks over the last year already with

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Speaker 1: the Middle East and Ukraine, Russia and now this. I

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Speaker 1: think basically what it means for investors is just more volatility,

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Speaker 1: more uncertainty, and something that you need to bear in

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Speaker 1: mind when you look at investments to say how much

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Speaker 1: of these sort of broader risks impact the companies that

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Speaker 1: I invest in and should I adjust the valuation that

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Speaker 1: I'm willing to pay for it or willing to keep

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Speaker 1: it until a certain point. But so far it's been interesting.

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Speaker 1: We haven't actually seen the markets reacting very aggressively to this.

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Speaker 1: It's probably still early days for both.

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Speaker 4: Should visitors stare ourselves for potentially a longer term new

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Speaker 4: normal of politic concidenty, particularly as we know next year

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Speaker 4: when it comes to US foreign policy, trade policy, fiscal policy,

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Speaker 4: it could all be quite different.

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Speaker 1: Yes, I think that probably is one of the biggest

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Speaker 1: risks for next year in our view, is that we've

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Speaker 1: already seen the Trump trade happening, So the market's pricing

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Speaker 1: in a lot of sort of blue sky, we believe

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Speaker 1: at this point in time, with tax cuts, obviously Tarr's

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Speaker 1: still coming through, there's a lot of uncertainty. We don't

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Speaker 1: know how it's going to play out. So what Trump

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Speaker 1: was saying, it's really just the starting point of his negotiations.

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Speaker 1: So I think throughout the whole year and probably throughout

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Speaker 1: the next four years, we will have to deal with

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Speaker 1: a lot of Trump uh, a lot of commentary from

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Speaker 1: him and changing his mind potentially through throughout as well.

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Speaker 6: Given the external risks with the Trump trained, the potential tariffs,

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Speaker 6: given the risks coming from the FED easing next year,

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Speaker 6: how would you assess South Korean assets today? As we

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Speaker 6: might see the impeachment proceedings of President Junisagyon unfold. If

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Speaker 6: the opposition actually pushes this through.

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Speaker 1: Yes, I think these sort of things can definitely have

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Speaker 1: a recal effect through the broader sort of Asian economies

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Speaker 1: and the world economies. It is at this point in

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Speaker 1: time probably the thirteenth largest economy in the world, so

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Speaker 1: it's not small. It will definitely, I think, cause a

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Speaker 1: lot of sort of pause for concern to say, how

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Speaker 1: will this evolve? I think if you look back at

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Speaker 1: South Korea and the history of the previous sort of presidents,

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Speaker 1: they have a history of a lot of uncertainty and

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Speaker 1: political upheaval as well. I think from an investors point

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Speaker 1: of view and our exposure specifically, we don't currently have

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Speaker 1: any positions directly in South Korea, but if you think

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Speaker 1: about the semiconductor supply chain, companies like Eskahinis and Samsung

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Speaker 1: do account for the majority of high bandwidth memory, so

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Speaker 1: that is something we need to bear in mind. If

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Speaker 1: you think about bigger investments like an Nvidia and also

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Speaker 1: the broader semi conductor supply chain, where will you be impacted?

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Speaker 1: I think at this point in time it's really just

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Speaker 1: too early to tell if this will have a bigger

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Speaker 1: impact on the companies itself rather than just political uncertainty.

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Speaker 1: And implications for the government and the currency and so forth.

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Speaker 6: You mentioned semiconductors, and of course attech has been a

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Speaker 6: huge trade in twenty twenty four, but even when it

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Speaker 6: comes to the broader global space, we are seeing this

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Speaker 6: continued tit tat between Washington and Beijing. Beijing now retaliating

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Speaker 6: on that increased AT band. When it comes to Chinese

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Speaker 6: access to advanced technologies, how would you rate this environment

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Speaker 6: right now going into twenty twenty five. Can you still

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Speaker 6: see some upside in these techniques, especially around chips.

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Speaker 1: Yes, I think we have been invested in that space

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Speaker 1: for quite some time, and in video we previously had

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Speaker 1: escahein as we solved it quite a while ago. But

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Speaker 1: I think the broader theme for us is that if

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Speaker 1: you look at the Max seven and particularly big tech

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Speaker 1: and the semiconductors, it's really been on the front end

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Speaker 1: of the AI sort of evolution, and what we are

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Speaker 1: seeing now is sort of moving towards that second stage,

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Speaker 1: which is more infrastructure companies like Apple benefiting. And then

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Speaker 1: also of late we have been adding onto the third stage,

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Speaker 1: which is the services and software that's sit on top

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Speaker 1: like a service now for example, So we have been

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Speaker 1: taking profits and some of those big semiconductor names over

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Speaker 1: the last while. I think we need to bear in

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Speaker 1: mind that yes, the evaluations have run as well, and

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Speaker 1: if you look at the expectations, they're still delivering a

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Speaker 1: lot of earnings growth. But we just feel that it's

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Speaker 1: probably time to be a bit more cautious and try

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Speaker 1: and see if you can't broaden your portfolio out to

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Speaker 1: other areas within that AI supply chain. And also then

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Speaker 1: the broader economy in sectors into next year.

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Speaker 6: And political fighting over budgets really about to potentially double

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Speaker 6: the French government as well, right, which is priced during

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Speaker 6: the broader euro area. Any opportunities and this point that

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Speaker 6: could pay off in the long run.

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Speaker 1: Okay, So we recently one of our investment team members

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Speaker 1: went to Europe and I think he came back and

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Speaker 1: really felt that there were quite slim pickings across the board.

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Speaker 1: If you look at the major drivers of those economies

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Speaker 1: France as well as Germany. You know, a lot of

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Speaker 1: the vehicle makers have been in a bit of a session.

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Speaker 1: They are really getting hammered on the luxury side, with

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Speaker 1: China not doing very well. So we continue to do

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Speaker 1: more work on opportunities within Europe, but the political uncertainty,

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Speaker 1: particularly for a large economy like France, really does keep

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Speaker 1: us a little bit on the sidelines. We want to

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Speaker 1: see how this play out and how this will impact

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Speaker 1: the equity market there. So we have Snarti Electrics for example,

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Speaker 1: in our portfolios, but for the way is pretty limited

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Speaker 1: at this point.

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Speaker 4: A Bretta. Always great to have you with us if

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Speaker 4: ready on Goo as a client por Folo, Manager and

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Speaker 4: investment specialist at Affinity Investment Management.

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Speaker 2: Thanks for listening to today's episode of the Bloomberg Daybreak

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Speaker 2: Asia Edition podcast. Each weekday, we look at the story

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Speaker 2: shaping markets, finance, and geopolitics in the Asia Pacific. You

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Speaker 2: can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel,

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Speaker 2: or anywhere else you listen. Join us again tomorrow for

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Speaker 2: insight on the market moves from Hong Kong to Singapore

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Speaker 2: and Australia. I'm Doug Prisoner and this is Bloomberg