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Speaker 1: Bloomberg Audio Studios, podcasts, radio news.

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Speaker 2: This is the Bloomberg Daybreak Asia podcast. I'm Brian Curtis

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Speaker 2: along with Doug Krisner. Join us each day for the

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Speaker 2: stories making news and moving markets in the Asia Pacific.

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Speaker 2: You can subscribe to the show anywhere you get your

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Speaker 2: podcasts and always on Bloomberg Radio, the Bloomberg Terminal, and

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Speaker 2: the Bloomberg Business app. This Big Fund in China the

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Speaker 2: largest ever semiconductor fund which is meant to boost development

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Speaker 2: of the chip industry. This one is being referred to

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Speaker 2: as Big Fund three and it totals forty seven billion

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Speaker 2: dollars a little more than that. Joining us now for

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Speaker 2: some discussion is Lad Salvov, Bloomberg Tech Editor. So first

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Speaker 2: let's talk Lad about where this money comes from.

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Speaker 3: Well, it's the Chinese government itself. There's state oh banks,

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Speaker 3: state affiliated banks and other ventures. Shanghai Beijing authorities or

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Speaker 3: also putting money in. Bear in mind that Shanghai authorities

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Speaker 3: and changed ones they've already invested in the local companies.

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Speaker 3: There's a lot more willingness in China for national authorities

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Speaker 3: to put investment into promising companies. Especially in the text

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Speaker 3: fear so.

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Speaker 2: We understand the broad theme here of supporting the semiconductor industry.

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Speaker 2: We know that the challenges that China faces. Do we

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Speaker 2: know much about the specifics of what this money will

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Speaker 2: be spent on.

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Speaker 3: Well at the moment, no, but that's pretty reasonable. It is,

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Speaker 3: as you say, forty seven billion, forty seven and a

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Speaker 3: half billion dollars. This isn't something that's going to be

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Speaker 3: spent overnight. It's a multi year plan. When you look

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Speaker 3: at the previous couple of big funds, they were much smaller.

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Speaker 3: That speaks to the level of investment that's also necessary

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Speaker 3: with semi conductors nowadays. But also those funds ran over

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Speaker 3: several years, over the course of several year. Is so,

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Speaker 3: I mean you can guess, right, You can guess that

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Speaker 3: it's going to be about AI specifically, AI is the

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Speaker 3: predominant theme across tech and across business nowadays, and it's

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Speaker 3: going to be about chip development, especially because China cannot

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Speaker 3: access US chips for AI.

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Speaker 2: One wonder is whether or not it's targeted at research

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Speaker 2: and development or whether it might be subsidies for some

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Speaker 2: of the existing companies like Semiconductor Manufacturing International or Hua

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Speaker 2: Hong Semiconductor and I suppose it's just around forty seven

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Speaker 2: billions a lot of money. It can be spread right

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Speaker 2: across the board, can it?

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Speaker 3: Absolutely? It's well bariing in mind though that at the

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Speaker 3: moment the companies that make the greatest headway are the

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Speaker 3: ones that are not spreading the money. When you look

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Speaker 3: at TSMC, it spends up with a thirty billion dollars

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Speaker 3: a year on capex Samsung likewise, so it doesn't actually

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Speaker 3: make that much sense to spread it that widely. And

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Speaker 3: when you look at China specifically, Huawei has kind of

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Speaker 3: become quietly Chinese chip making and specifically chip development champion nowadays,

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Speaker 3: so you can look for Huawei to get a good

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Speaker 3: chunk of the benefit from this.

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Speaker 2: And might we expect some punitive measures by China against

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Speaker 2: foreign producers or is it just too tricky they want

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Speaker 2: to get as much product as they can from outside China?

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Speaker 2: You know, how do you weigh up those two if

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Speaker 2: you're Chinese policy makers, right?

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Speaker 3: I mean, all indications out of the Chinese government have

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Speaker 3: been that the positive if anything, towards collaboration with international partners.

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Speaker 3: We just had the meeting, the trilateral meeting between South Korea,

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Speaker 3: Japan and China, and they were talking specifically about this.

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Speaker 3: They were talking to Samsung and it's leader Jy Lee,

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Speaker 3: and they were talking about a mutually beneficial relationship and

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Speaker 3: wanting to encourage and to facilitate more investment from the

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Speaker 3: likes of Samsung in the country. And that also reminds me.

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Speaker 3: One of the areas of AI chip development that is

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Speaker 3: subject to the most hot competition right now is HBM

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Speaker 3: high BOUNDID memory, which is where Samsung is trying to

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Speaker 3: catch up with compatriot sk Heinix. And that's one of

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Speaker 3: the areas we saw one of the Chinese news outlets

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Speaker 3: mention that HBM is going to be an area of

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Speaker 3: investment for this big fon three for domestic HBM development.

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Speaker 2: Does Huawei make those types of memory chips?

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Speaker 3: No, Huawei is not ultra powerful, omnipotent. The one thing

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Speaker 3: Huawei has achieved is it has developed its own smartphone

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Speaker 3: advanced smallphone processor without the use of any US technology.

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Speaker 3: That's a big achievement. But Huawei doesn't really have the

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Speaker 3: pedigree of developing memory technology. You'll be looking at the

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Speaker 3: likes of YMTC CXMT in China.

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Speaker 2: Tell us a little bit more about what Huawei did

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Speaker 2: in building a seven nanimeter chip that sort of spooked

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Speaker 2: US regulars. That's right.

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Speaker 3: Well, the thing with smophone processes is they've kind of

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Speaker 3: leveled off, So having a seven nanimeter chip is not

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Speaker 3: the latest. It's maybe a couple of generations behind the

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Speaker 3: latest and most advanced, but you don't really notice the difference.

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Speaker 3: The real thing that Huawei achieved with the May sixty

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Speaker 3: Pro last year is to deliver a five G smartphone

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Speaker 3: with the battery life, the smoothness of performance, and everything

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Speaker 3: else that you get from any other smartphone, and that

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Speaker 3: was something that US sanctions on Huawei specifically was supposed

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Speaker 3: to prevent.

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Speaker 2: I hate to put you on this spot, but I

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Speaker 2: think for a lot of listeners, you know, they're not

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Speaker 2: so familiar with a lot of these Chinese chip makers.

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Speaker 2: I mentioned Huawei earlier, and we also mentioned Smick and

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Speaker 2: also Hua Hoong Semiconductor. For these three companies in particular,

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Speaker 2: and any other names you'd like to drop, let us

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Speaker 2: know what they're you know, what they're quite good at,

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Speaker 2: I mean, what their specialities are.

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Speaker 3: Well, let's focus on AI again, because that really is

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Speaker 3: the competition that everybody wants to win. In China. There's

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Speaker 3: a couple of names. More Threads is one Beijing based

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Speaker 3: company and another one is Barrin Technology. Both of them,

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Speaker 3: alongside along with Huawei, are subject to US trade restrictions.

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Speaker 3: And Beran is an amuse in case because a couple

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Speaker 3: of years ago the advertis on their website that their

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Speaker 3: AI ECCE rates as were supposedly better than in videos,

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Speaker 3: and shortly thereafter they got sanctioned by the US. So

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Speaker 3: it's a very tricky thing for these companies because the

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Speaker 3: more did they market themselves, the more did they put

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Speaker 3: forward that dead technology is great or competitively the US,

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Speaker 3: the more likely to out to get sanctions.

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Speaker 2: Yeah, all right, Flad, thanks very much. Just mentioned to

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Speaker 2: our audience that these companies, many of them sanctioned, so

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Speaker 2: we don't really talk about their share prices in any

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Speaker 2: of that activity. But Flad, thanks so much for shedding

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Speaker 2: some light on this. A big fund, the Big Fund

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Speaker 2: three forty seven billion dollars, Lad Salvov, Bloomberg Tech Editor.

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Speaker 2: Our guest is raw Shana Meta, co head Regional fixed

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Speaker 2: Income at Maybank Asset Management. Rashana thanks very much for

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Speaker 2: coming in and talking to us here on the show.

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Speaker 2: Thereious about your overall market views. It seems like we

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Speaker 2: could be getting close to a kind of cresting or

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Speaker 2: peaking of the US dollar, and one would think that

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Speaker 2: that might usher in some opportunities here in fixed income

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Speaker 2: in Asia. If currencies then are well supported, what are

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Speaker 2: you looking at?

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Speaker 4: Yeah? Absolutely, I think that at least one thing clear

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Speaker 4: is we know that higher for longer rates are there,

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Speaker 4: so we don't expect any rate hikes going forward. Yes,

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Speaker 4: rate cuts maybe are pushdown, so definitely we've seen over

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Speaker 4: the last couple of them these actually dollar tries to rally,

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Speaker 4: but then it comes and so despite the geopolitics between

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Speaker 4: US and China and US put some tariffs in China,

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Speaker 4: so we believe that it's almost kind of peaking dollar

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Speaker 4: over the next three for months before just the election

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Speaker 4: risk comes into picture. So we at least we know

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Speaker 4: that hopefully the rates are not going higher anymore. Of course,

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Speaker 4: there are no rate cuts, so from that perspective, I

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Speaker 4: think people are looking at picking in dollars. So we

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Speaker 4: continue to like Issian local curvecy bonds like India and

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Speaker 4: Indonesian Rootia, which offers an attractive carry and recurrencies they

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Speaker 4: weaken substantially, but I think now they are pretty stable,

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Speaker 4: and if you believe the dollar is speak, it's good

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Speaker 4: time to go a long Indian roopee bonds and idea

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Speaker 4: government bond.

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Speaker 2: It seems like you're reasonably positive on taking on risk

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Speaker 2: because you like short dated high yield in Asia.

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Speaker 4: Absolutely, because of course the spreads are all time tight.

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Speaker 4: I've never seen such kind of stress. But if you

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Speaker 4: look at the absolute level of need, it's pretty high. Correct.

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Speaker 4: If you look at two years back, the absolute level

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Speaker 4: of beed for high el verse five percent. Today the

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Speaker 4: absolute level of ind in highly is about seventy and

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Speaker 4: half percent. So it's all because of US strategy which

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Speaker 4: have sold off so much. So for US, even if

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Speaker 4: say this hypothetically FED hikes hundred basis point, your carry

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Speaker 4: is about say six percent. So even if FED hgs

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Speaker 4: hundred business point. In terms of duration, if you are

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Speaker 4: holding a five your duration you lose five percent, but

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Speaker 4: you're making six percent on your carry for one years,

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Speaker 4: So as long as you're willing to hold for one year,

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Speaker 4: will still be positive. Unlike two years back, where you're

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Speaker 4: ill was only five percent. So I think from a

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Speaker 4: highly perspective, the absolute level of looks attractive, though the

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Speaker 4: spreads are a time all time.

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Speaker 2: Tied, so even if one is reasonably positive, as you say,

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Speaker 2: it's prudent to have some hedges in place, and particularly

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Speaker 2: I would think that you might still have to be

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Speaker 2: thinking about the possibility of some sort of hard landing

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Speaker 2: coming next year, right or perhaps early twenty twenty six.

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Speaker 4: Yes, absolutely, because I feel that the longer the FED

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Speaker 4: continues to keep the rates higher for longer, I feel

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Speaker 4: the underlying in US economy it's slowing down. I know

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Speaker 4: the employment numbers are holding well, but if you look

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Speaker 4: at retail sales recently in the US, even the P

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Speaker 4: and I, the consumer confidence is slowing down. And depending

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Speaker 4: on the election outcome, with the higher physical deficit, higher

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Speaker 4: even interest cost, I think it's some point viewers will

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Speaker 4: decide to have to cut threats. So I do feel

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Speaker 4: that underlying economy cannot hold for so long with such

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Speaker 4: high rates, and especially if the Trump comes to power

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Speaker 4: and he puts a lot of tariffs on China other

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Speaker 4: countries no matter what, at the end of the day,

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Speaker 4: to create slow down the youth economy because everything will

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Speaker 4: become expensive. So I do believe that the higher the

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Speaker 4: rates are for longer, I feel there is a chance

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Speaker 4: that you may please perversion in twenty twenty five. So

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Speaker 4: from that perspective, I think buying a tail head job

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Speaker 4: like going long treasury duration on ten years for twenty

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Speaker 4: twenty five, I think it's an attractive idea.

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Speaker 2: One of the things you mentioned was that you like

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Speaker 2: investment grade bonds in the Middle East. We don't talk

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Speaker 2: on this show as much about the Middle East because

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Speaker 2: our focus is Asia, but if you could take a minute,

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Speaker 2: just tell us what you like there.

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Speaker 4: Yeah. Actually, if you look at the Middle East correct,

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Speaker 4: despite whatever is especially in GCC, the Golt Corporation Council, UH,

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Speaker 4: like Saudi Arabia, they've all been upgraded. So if you

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Speaker 4: look at the sovereign rating, it's very similar. Most of

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Speaker 4: them are now US is double A plus. All these

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Speaker 4: countries are double A. So recently Sadi Area got Upbride

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Speaker 4: to double A Minorskata got upgraded, Abudhabi so against US

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Speaker 4: Treasury to at least getting fifty to sixty basis points spread.

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Speaker 4: So I think from that perspective, forget about sovereigns, even

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Speaker 4: quasi sovereigns, which are saying rating is sovereigns in the

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Speaker 4: Middle East space are reading seventy to at BCIs point

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Speaker 4: about treasury, so we believe that those are attracted and

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Speaker 4: I think Middle East is going through a big seat change.

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Speaker 4: There's a lot of I think the growth is taking place.

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Speaker 4: They're giving golden visas, they've introduced rads, so the dependence

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Speaker 4: on all is slowly coming off. So I feel that

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Speaker 4: over the next ten years that will be a growth

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Speaker 4: economy like what was the nineteen nineties. So personally, I'm very,

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Speaker 4: very bullist in the GCC countries. So in the Middle

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Speaker 4: East are including Saudi Arabia and Qatar. I think they

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Speaker 4: offer a lot of alpha from and IG perspective. Names

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Speaker 4: and given the solid ratings and a tremendous amount of resolves.

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Speaker 2: Okay, you mentioned earlier if the dollar were a week

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Speaker 2: and you like the Indonesian rupea among a few other

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Speaker 2: currencies in Asia, what would be another one perhaps that

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Speaker 2: looks pretty solid and you know in thirty seconds or.

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Speaker 4: So, Yeah, Indian rupee. I think I know everybody likes

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Speaker 4: Indian rupee. But I'm hoping the elections are an outcome

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Speaker 4: will be out on fourth from June or everybody's expecting

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Speaker 4: money to win. Maybe he may not win with an

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Speaker 4: absolute majority, which a lot of people are talking about.

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Speaker 4: But I think from a long term condemnental percipally, as

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Speaker 4: long as the election goes okay and more busy if

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Speaker 4: it comes to power, I think that has been interructive

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Speaker 4: risk of hot to go longer Indian routine.

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Speaker 2: Okay, Chhana, thank you so much for joining us for

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Speaker 2: Shaana Metta, their co ed regional fixed income at May

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Speaker 2: Bank Asset Management. Let's turn to Mary Nicola Bloomberg m

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Speaker 2: Live strategists. Reasonably positive look to things this morning, although

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Speaker 2: with US valuations reasonably high, you wonder what the catalyst

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Speaker 2: to the upside might be. Whereas in terms of on

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Speaker 2: the downside, there's a number of catalysts that are out there,

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Speaker 2: some of which we just discussed in our A block

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Speaker 2: with wars and such. Your take on a Tuesday morning

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Speaker 2: looking at the markets, Yeah.

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Speaker 1: You might get a little bit of a pullback, especially

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Speaker 1: because we don't have any real big major earnings companies

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Speaker 1: coming through or earnings outlooks coming through. And of course

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Speaker 1: now especially with a lot of the beats that we've

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Speaker 1: seen from Nvidia and some of the big the Magnificent seven,

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Speaker 1: you could see that expectations are going to continue to rise.

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Speaker 1: So every time you're going to have this bigger hurdle

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Speaker 1: to get markets excited. So I think in the meantime

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Speaker 1: you get a little bit of a pullback, especially if

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Speaker 1: we see some hawkish rhetoric from the Fed.

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Speaker 2: We did get the comments from the ECB's Francois Villroy

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Speaker 2: de Galhau about how the ECB might cut in June

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Speaker 2: and July, and that seemed to lift the European markets little.

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Speaker 2: All those gains were around half a percent or so.

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Speaker 2: Is that something that investors may target Europe?

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Speaker 1: Absolutely, especially because if we're seeing some signs of improvement

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Speaker 1: on the economic front, So you're getting an improvement on

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Speaker 1: economic front and then you're getting some looser monetary policy.

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Speaker 1: That's a really good mixture for positive growth and for

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Speaker 1: better growth momentum in the Eurozone if you have that combination.

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Speaker 1: So if in fact they do follow through when we

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Speaker 1: get cuts in June and July, it gives the European

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Speaker 1: markets a bit more momentum. However, the key thing here

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Speaker 1: is that Leguard has always emphasized about how the trajectory

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Speaker 1: after June has been a bit unclear, and so I

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Speaker 1: think the June meeting will be quite crucial in terms

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Speaker 1: of outlining where we go. And of course every CPI

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Speaker 1: number will be absolutely critical in terms of guiding the

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Speaker 1: ECB on its trajectory.

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Speaker 2: And if the ECB is cutting, whether it's once or

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Speaker 2: twice or even more, before the Fed gets moving, you

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Speaker 2: would think that the dollar would strengthen against the euro,

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Speaker 2: and that might not bode too well for other countries' currencies. Yeah.

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Speaker 1: Absolutely, So you get a nice you'll get a boost

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Speaker 1: from of the dollar as a result of the Euro,

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Speaker 1: and then you see the dollar strength being even more amplified.

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Speaker 1: And if you get dollar strength more amplified, obviously the

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Speaker 1: regional currencies in this part of the world are going

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Speaker 1: to be very much affected, especially since the rates are

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Speaker 1: so low.

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Speaker 2: That said, this morning, it looks like Hong Kong and

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Speaker 2: China stocks might outperform. And it's a little curious because

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Speaker 2: although we did see another move on the property front

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Speaker 2: with Shanghai cutting down payment ratios and lowering the minimum

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Speaker 2: mortgage threshold for buyers, we have seen actually a little

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Speaker 2: cooling in the activity of developers in the Hong Kong

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Speaker 2: market of late, pulling back around ten or twelve percent

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Speaker 2: from a pretty sharp rally before. How's you looking on

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Speaker 2: that front.

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Speaker 1: Yeah, there's been a lot of positive momentum for China

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Speaker 1: and Hong Kong stocks, largely from what is coming out

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Speaker 1: of the rhetoric from policymakers, and that should continue to help.

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Speaker 1: It was interesting to see that the markets shrugged off

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Speaker 1: some of the G seven communicate that came through in

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Speaker 1: terms of about highlighting about trade tensions, and that was

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Speaker 1: really maybe compensated by the fact that the policymakers seem

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Speaker 1: more committed to growth into that five percent target and

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Speaker 1: to really re energizing and managing the risks in the economy,

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Speaker 1: and that should help boost sentiment overall.

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Speaker 2: And are we still at reasonably low valuations for Hong

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Speaker 2: Kong and China stocks visa the other markets?

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Speaker 1: We are, Yeah, So if we compare it to a

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Speaker 1: lot of a lot of the regional markets, whether it's Korea, Taiwan, India,

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Speaker 1: we're still pretty inexpensive valuations for China and Hong Kong.

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Speaker 2: So let's go back to one of the big drivers

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Speaker 2: Wall Street. You mentioned that you could see a little

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Speaker 2: pullback in the short term. One of the issues will

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Speaker 2: be what we get on the inflation front this week,

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Speaker 2: and maybe what we hear from FED speakers like John

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Speaker 2: Williams and Lisa Cook and Neil Kashkari and Lori Logan.

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Speaker 2: They'll be speaking this week, so there's something to sink

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Speaker 2: your teeth into. In terms of the inflation numbers, it

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Speaker 2: does seem that the PCE numbers are expected to be

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Speaker 2: fairly moderate this week. Tell us what you think the

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Speaker 2: impact might be with those numbers.

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Speaker 1: Coming Yeah, Bloomberg Economics pointed out made a good point

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Speaker 1: in saying that there could be a moderation, but the

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Speaker 1: moderation is actually due to something as volatile airfares, so

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Speaker 1: that doesn't tell you that the underlying is actually making progress.

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Speaker 1: And we've heard from the likes of Christopher Waller who

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Speaker 1: said that he would need at least three more pretty

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Speaker 1: good CPI numbers to come through to get more convinced,

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Speaker 1: because last time he rated this, he rated the most

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Speaker 1: recent CPI numbers as a C plus. It's passing, but

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Speaker 1: it's hardly passing, So I think you'll still need to

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Speaker 1: see some further progress on the inflation front, and especially

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Speaker 1: the core stuff, anything from the underlying core inflation, some

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Speaker 1: of the sticky components. If they're showing some progress and

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Speaker 1: some headway, then the FED can gain further confidence. But

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Speaker 1: if you have a lot of these volatile underlying factors

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Speaker 1: that are contributing to the to the to the deceleration,

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Speaker 1: that really doesn't help the FED with.

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Speaker 2: Earnings pretty strong. Mary if you get inflation kind of

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Speaker 2: muddling through, which is not particularly good news, but it's

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Speaker 2: not significantly bad news. Is the market not showing you

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Speaker 2: that it has responded well to the earnings and it's

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Speaker 2: not really ready to sell off on higher for longer.

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Speaker 2: It might sell off in the face of higher interest

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Speaker 2: rates full stop, but since we're not getting that, the

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Speaker 2: market can make its way forward. That seems to be

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Speaker 2: kind of the thinking. Does that not resonate with you?

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Speaker 1: It does, but in many other ways, the fact that

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Speaker 1: earnings still has to outperform, and all the expectations continue

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Speaker 1: to run high and are going to continue to run

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Speaker 1: high because the fact is we're beating them. So any

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Speaker 1: sort of shortcoming on earnings is going to have a

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Speaker 1: real drag, especially because you don't have that momentum from

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Speaker 1: the FED supporting you and you do have reates higher

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Speaker 1: for longer. We know from the FED that the next

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Speaker 1: move is likely to be a cut, but we just

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Speaker 1: we know that it's not going to be a hike.

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Speaker 1: So that's one thing that's keeping the markets. But at

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Speaker 1: the same time, if earnings don't continuously beat and show

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Speaker 1: that they're going to continue to outperform, that's going to

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Speaker 1: weigh on sentiment, especially when you have some of the

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Speaker 1: key activity indicators showing a slowdown in the economy.

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Speaker 2: What are we seeing from earnings that should be part

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Speaker 2: of this broadening out story, because you know, it's tempting

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Speaker 2: to say that if you don't want so much exposure

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Speaker 2: to Nvidia and Broadcom and AMD and some of these,

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Speaker 2: that you can buy into some of the other areas

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Speaker 2: that are also benefiting from second, third, and fourth derivative

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Speaker 2: plays on AI. But are we seeing it in the earnings.

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Speaker 1: You know, earnings have come up quite considerably, especially even

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Speaker 1: if you take X magnificent seven, so they have come up,

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Speaker 1: they have come off from their lows, so that's been

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Speaker 1: a positive momentum as well. There has been some discussion

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Speaker 1: over you know, should we look at value versus growth

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Speaker 1: as well, and so there's there's still opportunity out there.

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Speaker 1: It's just a matter of you know, obviously, choosing the

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Speaker 1: right time and looking at where the earnings are going

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Speaker 1: to continue to perform. And of course AI seems to

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Speaker 1: be the focus right now, but there are pockets, especially

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Speaker 1: if you look at SNPX Magnificent seven, that are showing

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Speaker 1: that earnings are in fact improving.

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Speaker 2: All right, Mary, thanks very much. I wanted to spend

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Speaker 2: just a moment talking about this chip fund, so we'll

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Speaker 2: let you go and we'll talk again soon. Mary Nicola, There,

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Speaker 2: Bloomberg m Live Strategist. This is the Bloomberg Daybreak Asia podcast,

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Speaker 2: the Asia Pacific. Visit the Bloomberg Podcast channel on YouTube

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Speaker 3: Two