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

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Speaker 2: Welcome to the Daybreak Asia podcast. I'm Doug Prisner. In

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Speaker 2: the APAC region, markets seem to be struggling a bit

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Speaker 2: today after some weakness in US equities. There's been a

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Speaker 2: fair amount of stress over how artificial intelligence will disrupt

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Speaker 2: various businesses. Software companies, as we know have been punished.

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Speaker 2: Add to that list publishers and financial services firms, even

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Speaker 2: commercial real estate. Now today we had logistics companies thinking

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Speaker 2: on concern over how AI could disintermediate trucking brokers. That said,

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Speaker 2: there still remains a little bit of bullishness in Asia

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Speaker 2: as it relates to the region's tech hardware suppliers. Obviously

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Speaker 2: that is a very much tied to the story on

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Speaker 2: artificial intelligence. For a bit more, let's bring in Bloomberg's

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Speaker 2: Winnie Sue. She is a member of the team covering

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Speaker 2: Asian equities and WHINNI joined from our studios in Hong Kong.

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Speaker 2: There's so much to talk about. I know, I you've

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Speaker 2: written a piece today that basically takes a closer look

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Speaker 2: at some of the points I just made, right, Yeah, exactly.

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Speaker 3: You know, because we were just looking at how the

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Speaker 3: US has been really disrupted by this whole AI story

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Speaker 3: from one sector to another. It seems like a lot

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Speaker 3: of fight going on within the market trying to find

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Speaker 3: out who the bigger, biggest losers are. But in Asia

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Speaker 3: it's actually the opposite. Many investors are saying that, you know,

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Speaker 3: the struggles in the downstream that we're seeing right now

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Speaker 3: in the US is actually good news for the upstream

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Speaker 3: exposure that we have in Asia, especially for the likes

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Speaker 3: of South Korea and also Taiwan. So when you look

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Speaker 3: at the week's performance, yes, a bit of weakness today,

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Speaker 3: but actually while the US is pretty much flat or

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Speaker 3: actually down a little bit, in Asia we have record

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Speaker 3: high every single session throughout the past four sessions. So

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Speaker 3: that speaks a lot to kind of just where we

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Speaker 3: are positioned for Asia. And speaking of some of the

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Speaker 3: factors one you mentioned how we are positioned upstream, we

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Speaker 3: have a lot of AI exposed, name especially the memory

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Speaker 3: ones right with Samsung and s k Heinix've also got TSMC,

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Speaker 3: which also came out with pretty strong sales number for

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Speaker 3: January a few days ago. And on top of that,

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Speaker 3: when you look at some of the sectors that really

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Speaker 3: struggle in the US, for example, you were talking about software,

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Speaker 3: and also real estate and interest even interestingly, for example,

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Speaker 3: in Japan, you're seeing these old school real estate companies.

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Speaker 3: They're just not as they haven't adopted as much AHI

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Speaker 3: in their systems just yet, and people say that it

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Speaker 3: takes them way longer to be able to adopt that.

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Speaker 3: So any disruption in the AI front actually is a

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Speaker 3: blessing for them at the moment, just because they actually

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Speaker 3: have been still very old fashioned and very traditional. So

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Speaker 3: some of these factors kind of helping them as well.

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Speaker 2: You mentioned the memory make I was struck today by

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Speaker 2: Lenovo Group saying it's expecting the crunch in the memory

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Speaker 2: chip market to affect the global hardware industry for the

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Speaker 2: rest of the year. So this sounds like it's kind

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Speaker 2: of a critical part of the story.

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Speaker 3: Yeah, exactly right now, that memory crunch story is something

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Speaker 3: that we're really chasing as we see impact felt across

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Speaker 3: markets and across sectors. Just now you mentioned the PC sector. Actually,

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Speaker 3: very interestingly, Lenovo had their earnings out yesterday. The results

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Speaker 3: were quite good because they're seeing buyers or users rushing

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Speaker 3: into the market to pile up their PCs ahead of

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Speaker 3: this memory price hike, and that's pretty much a front loading,

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Speaker 3: but they are expecting to be further struggling with this

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Speaker 3: with their gross margin when it comes to the memory

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Speaker 3: price hike, and it's not just the PCs, it's also

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Speaker 3: smartphonemakers and also the likes of evs. The other day

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Speaker 3: we also heard from Shelmi saying that they are expecting

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Speaker 3: the memory price hike to also affect their margins as well.

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Speaker 3: So when it comes to the memory crunch story, we

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Speaker 3: are also seeing a divergence in markets. On one hand,

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Speaker 3: you're seeing these memory chip users being hit and we're

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Speaker 3: talking about the global consumer electronics sectors down about thirteen

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Speaker 3: percent or so in the past few months. But on

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Speaker 3: the other hand, the memory makers are really taking off

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Speaker 3: from this. We were looking at Kiyokxia for example, I

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Speaker 3: believe one thousand percent in the past year due to

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Speaker 3: this factor. And also some of the smaller names in Taiwan,

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Speaker 3: power chip, machronics, you name it up like tripling or

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Speaker 3: even quadrupling their share prices.

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Speaker 2: So here in the States after the bill, maybe you

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Speaker 2: saw Applied Materials with that surprisingly upbeat sales forecast. This

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Speaker 2: seems to indicate to me that there is still healthy

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Speaker 2: demand for the equipment that's needed to produce AI chips

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Speaker 2: and memory semiconductors. So this is also a story I

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Speaker 2: would think that links to what we heard recently from

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Speaker 2: TSMC and their plans to continue to build out capacity.

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Speaker 3: Right, yeah, exactly, So the demand site seems to be

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Speaker 3: still quite strong, especially like you mentioned, there's also Jensen

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Speaker 3: Wang from Nvidia coming out and saying that this whole

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Speaker 3: HEAYPAX building is still very sustainable and actually very feasible.

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Speaker 3: Also Micron yesterday, I believe also their CFO was saying

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Speaker 3: that they still expect this memory crunch to continue, and

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Speaker 3: hence you're seeing all these KPEX spending to continue to

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Speaker 3: pour into AI. Although you know, the question is how

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Speaker 3: much of an economic benefit it's going to come out

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Speaker 3: from this, But at least so far for Asia, because

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Speaker 3: we make so many of these equipments that's necessary for

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Speaker 3: the KPEX spending and for the AI built out, so far,

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Speaker 3: we're still kind of that beneficiary of these big spendings.

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Speaker 2: Before I let you go, I want to talk about

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Speaker 2: the Lunar New Year holiday, which I know begins next week.

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Speaker 2: China will be closed for the entire week. I think

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Speaker 2: Hong Kong has a few days of holiday, give me

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Speaker 2: your sense, Winny, of what we are likely to see

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Speaker 2: in terms of spending from consumers.

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Speaker 3: Well, so far, there seems to be some optimism when

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Speaker 3: it comes to the holiday, just because lunariear is such

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Speaker 3: a big wine in both Men and China and for

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Speaker 3: Hong Kong. So definitely some expectation for spending to pick up,

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Speaker 3: and that's why you're seeing that rotation from tech into

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Speaker 3: consumers ahead of Lunar New Year, with the likes of

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Speaker 3: retail and restaurants, airlines all picking up. So that definitely

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Speaker 3: is the highlight of the year when it comes to

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Speaker 3: consumer spending. But when you look at the broader picture

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Speaker 3: overall that we demand still remains quite weak. We saw

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Speaker 3: that from this week's CPI numbers as well, actually believe

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Speaker 3: zero point two percent versus an estimate of point four

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Speaker 3: percent increase. So that goes to show how while this

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Speaker 3: holiday might show quite a pickup, overall, the demand is

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Speaker 3: still weak. But when you talk about Lunar near another

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Speaker 3: thing that I want to kind of bring into attention

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Speaker 3: is this red packet war that's going on among these

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Speaker 3: Chinese internet companies. So the likes of Tencent bands. They

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Speaker 3: are really trying to give out these coupons and subsidies

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Speaker 3: to their users to ask them to use their AI apps.

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Speaker 3: So basically they want to secure more customers for these

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Speaker 3: AI apps that goes really across a range of services

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Speaker 3: including a food delivery, ticket buying, or even if you

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Speaker 3: just ask a question on their AI bod. So you

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Speaker 3: can see that these internet companies really trying to pivot

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Speaker 3: and to invest further in AI. So that's also what

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Speaker 3: we're going to be watching out closely, as some expect

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Speaker 3: that there might be a deep Seek next model coming

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Speaker 3: out during the Chinese New Year.

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Speaker 2: Thank you so much, Can I say Happy New Year?

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Speaker 4: Yes, Happy New Year, Happy New Year.

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Speaker 2: Winnie Sue a member of the team covering Asian equities,

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Speaker 2: joining from Hong Kong. Here on the Daybreak Asia podcast.

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Speaker 2: Welcome back to the Daybreak Asia podcast. I'm Doug Prisner.

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Speaker 2: The US and Taiwan have finalized a trade agreement. It

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Speaker 2: will reduce tariffs on goods from Taiwan. It will also

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Speaker 2: boost access for American goods in Taiwan's market. This will

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Speaker 2: include liquefied natural gas and crude oil. Here is Bloomberg's

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Speaker 2: Laura Davison in Hong Kong.

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Speaker 5: This deal has a lot of details when it comes

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Speaker 5: to the purchasing of energy goods or agricultural products, but

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Speaker 5: there aren't a lot of specifics here about the chip

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Speaker 5: pledges that were discussed last month when this deal was

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Speaker 5: initially announced. Those aren't really enumerated here in the in

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Speaker 5: the paper that was signed today. This is, you know,

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Speaker 5: suggests that there could be a risk and that the

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Speaker 5: understanding of two sides of both the Taiwanese government and

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Speaker 5: the US government aren't exactly on the same page here.

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Speaker 5: And we've seen President Johnald Trump get particularly perturbed when

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Speaker 5: some of these things, you know, aren't moving to his understanding,

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Speaker 5: even if that isn't necessarily the broader global understanding of

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Speaker 5: how these deals work. We saw just a couple of

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Speaker 5: weeks ago with the South Korean trade deal that was cut,

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Speaker 5: you know, not too long ago, that Trump felt like

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Speaker 5: that the implementation of the investments weren't coming quick enough,

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Speaker 5: and he threatened to increase tariffs on South Korean. We

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Speaker 5: also saw also this week with the US NCAA, the

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Speaker 5: North American Trade pack that Trump actually cut himself in

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Speaker 5: his first term.

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Speaker 4: Now that there's a deadline.

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Speaker 5: For renegotiation, he says he might want to pull out

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Speaker 5: of those packed altogether. So there's risks both in the

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Speaker 5: short term and in the long term that these that

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Speaker 5: these deals may not be durable.

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Speaker 2: That was Bloomberg's Laura Davidson, as I mentioned a moment ago.

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Speaker 2: Asian equities are struggling a bit after weakness and US

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Speaker 2: equities given some fears about more AI disruption, and that's

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Speaker 2: where we begin our conversation with Julia Wong. Julia is

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Speaker 2: North Asia CIO at Nomura International Wealth Management, and she

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

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Speaker 6: So we did see US markets really hard hit overnight,

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Speaker 6: maybe a semblance of calm is returning. Now, what do

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Speaker 6: you make of this and the extent in which this

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Speaker 6: could inform the moves for Asia at a time where

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Speaker 6: we have been seeing the correlation between Asia and US

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Speaker 6: stock markets perhaps a bit different from what it used

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Speaker 6: to be.

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Speaker 7: Being sure, good morning, thanks for having me, so, yeah,

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Speaker 7: of course, I think just picking up on the AI,

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Speaker 7: we definitely think that you know, look, you know, there

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Speaker 7: is a contradiction, you know, when it comes to what

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Speaker 7: investors our word about when it comes to AI. On

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Speaker 7: the one hand, there's a fear that AI is not

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Speaker 7: monetizing quite quickly enough. On the other hand, there is

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Speaker 7: massive evidence that investors are word about sectors that are

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Speaker 7: disrupted too quickly for comfort. So those two things come

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Speaker 7: both be true at the same time. So I think

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Speaker 7: that just goes to show that there is a lot

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Speaker 7: of sense that we're in uncharged territory when it comes

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Speaker 7: to how this technology will develop and investors are you know,

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Speaker 7: to borrow one of your phrase earlier there should should

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Speaker 7: first and ask questions later. That I think means a

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Speaker 7: lot of volativity probably is still on the way for us.

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Speaker 7: It also means that for a longer term investors, it's

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Speaker 7: time to really go to the fundamentals of companies because

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Speaker 7: a lot of opportunities could actually start to emerge when

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Speaker 7: the market sell off in a.

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Speaker 4: Panic like this.

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Speaker 7: So when it comes to Asia, I think that you know,

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Speaker 7: Asia actually does not really necessarily share the same type

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Speaker 7: of issue that maybe you know, US investors when it

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Speaker 7: comes to AI are fearing at the moment valuation is

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Speaker 7: not too high and this is not overly concentrated broadly,

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Speaker 7: for Asia, there's a lot of other sectors to play for,

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Speaker 7: and you know, it's the spending is not excessive. In fact,

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Speaker 7: I think spending could probably still ramp up in the

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Speaker 7: coming years. So I think that, And we're also in

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Speaker 7: a different part of the supply chain when it comes

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Speaker 7: to AI, not so exposed to sectors that are sitting

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Speaker 7: on to some extent very high profit margin post COVID.

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Speaker 4: So I do think that, you know, AI is.

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Speaker 7: A much different Asia is a much more different place

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Speaker 7: when it comes to when it comes to some of

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Speaker 7: these fears in AI, and actually from that angle could

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Speaker 7: be an even better diversification a play for investors who

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Speaker 7: want to invest in this long term thing.

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Speaker 1: Perhaps Also, the fears about disruption are different because the

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Speaker 1: concerns that are plaguing in some of these tech companies

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Speaker 1: are different, the likes of Baydo Ali Baba for example,

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Speaker 1: in Chinese tech. Not necessarily cannibalization being a problem there,

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Speaker 1: but the fact that monetization is still an issue, could

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Speaker 1: that be a risk.

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Speaker 7: Well, I think that you know, China is to some

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Speaker 7: degree of you know, at earlier at the earlier stage

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Speaker 7: when it comes with AI Capex rampop because they have constraints, right,

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Speaker 7: So they have constraint on chips, they have constrained on talent,

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Speaker 7: so I think their pace of development is lower. That

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Speaker 7: also means that the rampop is still a way ahead

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Speaker 7: of us. We have I think a couple of years

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Speaker 7: where AI rampop will steadily increase for the big tech

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Speaker 7: companies in China. And they're so laser focused on monetization.

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Speaker 7: You're right, they can't afford to really throw money at

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Speaker 7: the problem. They have to really make sure every step

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Speaker 7: on the way is generating an ROE for investors.

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Speaker 4: That's actually a good thing.

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Speaker 7: It means that it's a steady, long term play on AI.

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Speaker 4: And also, I think when it comes to China.

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Speaker 7: Tech, don't forget that the opportunity for China tech is

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Speaker 7: really in the automation, industrial robotic space. It's whole industry,

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Speaker 7: whole economy approach rather than just focus on end consumers

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Speaker 7: or you know, advertising.

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Speaker 4: So I think that is a.

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Speaker 7: Much broader, maybe slower moving path because the whole manufacturing

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Speaker 7: sector has to move with it. But I think that

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Speaker 7: it has the possibility of creating more longer lasting lift

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Speaker 7: for productivity. So I think that you know, at the

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Speaker 7: moment these companies are maybe selling off you know, getting

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Speaker 7: a compass is broad fear about AI, but really their

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Speaker 7: business model are quite different. They're much more early stage

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Speaker 7: earning hasn't really started to show up these AI benefits.

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Speaker 7: So I think that actually for long term investors, these

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Speaker 7: companies are pretty interesting.

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Speaker 6: How exactly are you positioning them for these Chinese techniques

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Speaker 6: and the time where we are seeing sort of bifurcation

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Speaker 6: between the US and China in terms of AI models

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Speaker 6: as well. Right they we're hearing about how open AI

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Speaker 6: is accusing Deep Sea of distilling from these US models.

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Speaker 4: Yeah, so I.

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Speaker 7: Think, you know, it's the way we approach them is

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Speaker 7: that we look at what the market I worried about.

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Speaker 4: The market is worried.

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Speaker 7: About some of the near term headway when it comes

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Speaker 7: to the spillover from a very slow economic recovery, maybe

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Speaker 7: some political policy changes that worry about geopolitics trips. They're

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Speaker 7: also worried about this spillover from AI, all of from

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Speaker 7: the US trade. So all of these are negative headwinds

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Speaker 7: for China take in the short term, and that's why

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Speaker 7: the index is done pretty badly since the beginning of

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Speaker 7: the years. Really lacks among the other peers in Asia.

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Speaker 7: But I think that the longer term media, the longer

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Speaker 7: term fundamentals are actually pretty good.

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Speaker 4: The index have the decent.

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Speaker 7: Companies have sold out to even more attractive values. As

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Speaker 7: long as you think that AI is the longer term

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Speaker 7: growth trajectory, we think that there's no question that China

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Speaker 7: has to go all in on AI. And there's no

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Speaker 7: question of these companies sits at the critical point between

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Speaker 7: the technology and the end users, be it businesses or consumers.

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Speaker 4: They control the distribution channel.

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Speaker 7: All of the large language model value creation eventually will

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Speaker 7: have to accrue to these platform companies. It's the competition

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Speaker 7: landscape is entirely different from the US, so I think

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Speaker 7: they start to benefit significantly from AI, and that's yet

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Speaker 7: to come.

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Speaker 1: Julia, we've alluded slightly to the geopolitical risks around tech,

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Speaker 1: and we of course continue to watch the latest headlines

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Speaker 1: around trade, whether it's President Trump threatening all of these

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Speaker 1: tariffs on the likes of South Korea, Canada, Europe. Right

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Speaker 1: now we're hearing that when it comes to conversations with Japan.

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Speaker 1: The chief trade negotiator A Kazawa, speaking in Washington about

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Speaker 1: this five hundred and fifty billion dollar fund that of

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Speaker 1: course they have committed into the US that they're talking

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Speaker 1: about those first projects. The conversation with the Common Secretary

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Speaker 1: of Lutnik at more than eighty minutes or so.

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Speaker 4: Japan has a new mandate.

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Speaker 1: With the prime ministers sweeping election victory, the yen seems

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Speaker 1: pretty stable. How big are these geopolitical concerns for the

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Speaker 1: country and the broader markets at a time when we

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Speaker 1: have seen an incredible rally in the Japanese stock market

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Speaker 1: given the improvements over governance and so forth.

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Speaker 7: I think that japan fundamental case has gotten way stronger

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Speaker 7: since the election because political stability was one big issue

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Speaker 7: for overseas investors the last twelve months and that just

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Speaker 7: got solved. So Takaichi Prime Minister has a mandate for growth,

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Speaker 7: and that's very clear from her election victory.

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Speaker 4: So we think she will go for growth.

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Speaker 7: She will go for growth, and she has many tools

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Speaker 7: to manage all the other spillovers or risks and marketing

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Speaker 7: a word about be it f facts or JGB yield.

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Speaker 7: You know, when you have a political stability, when you

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Speaker 7: have a strong leadership, you can manage these risks because

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Speaker 7: now you have credibility from the election, so we think

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Speaker 7: she has a clear mandate now to go for fiscal policy,

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Speaker 7: to go for industualization, to go for some of the

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Speaker 7: things I really want to spend down to increase the

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Speaker 7: pet productivity growth for the future.

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Speaker 4: So she can go for.

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Speaker 7: That, and we don't think that necessarily trade risk per se,

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Speaker 7: it's so much of a problem. But I do think

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Speaker 7: that the currency volatility always play into the Japan market,

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Speaker 7: and a dollar n has decoupled somewhat from nick last

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Speaker 7: few last few days, so that's something we're watching, maybe

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Speaker 7: at a short term risk to market.

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Speaker 4: Dah.

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Speaker 6: I suppose Japan isn't the only country that is going

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Speaker 6: pro growth and spurring things along with some fiscal policy.

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Speaker 6: What is the risk of spurring inflation, and do we

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Speaker 6: have to this year perhaps reassess our assumptions of re cuts.

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Speaker 4: I think that's a very good question.

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Speaker 7: To some degrees already start to happen, right because you

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Speaker 7: see the RBA has high rate, You see that the

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Speaker 7: US is clearly at the tail end of the easing cycle.

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Speaker 4: That's the consensus.

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Speaker 7: More economies are central bankers are saying they're not in

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Speaker 7: a comfortable place.

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Speaker 4: They don't have to do anything. They can just watch.

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Speaker 4: So clearly I.

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Speaker 7: Think that that's already come into play, and that's because

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Speaker 7: the reaction, the policy reaction function is different for different

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Speaker 7: central banks. Some of them are just watching for inflation,

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Speaker 7: so they are more hawkash, right like the RBA, like

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Speaker 7: you know, maybe they aren't that as well, are being

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Speaker 7: there as well. Some of them are have a mandate

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Speaker 7: for the labor market. In the case of the US,

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Speaker 7: job growth is you know, if after revision is close

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Speaker 7: to zero the last couple of last couple of quarters,

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Speaker 7: which means that it's an expansion without job growth. And

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Speaker 7: if you're the fact and your mandate is inflation and

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Speaker 7: job growth, job growth has downside risks, something you have

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Speaker 7: to watch and take into consideration. So I don't think

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Speaker 7: it necessarily means that races are going to go higher

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Speaker 7: across the board. I think divergence is the way we

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Speaker 7: would play it, and that means that you know, for

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Speaker 7: economies where you know they are economies where cyclical factors

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Speaker 7: are good and policy rate are being hyped. Actually that

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Speaker 7: means that effects and race angle is actually a diversification

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Speaker 7: play for many investors. Australia, for example, is a diversification,

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Speaker 7: A very good diversification play because of the rape policy,

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Speaker 7: rate divergence versus the US.

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Speaker 2: That was Julia Wan North Asia CIO at No More

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Speaker 2: International Wealth Management speaking with Bloomberg TV host Sherryon and

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Speaker 2: April Hong, bringing you that conversation right here on the

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Speaker 2: Daybreak Asia Podcast. Thanks for listening to today's episode of

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Speaker 2: the Bloomberg Daybreak Asia Edition podcast. Each weekday, we look

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

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

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

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

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

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Speaker 2: this is Bloomberg