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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. Welcome to the Daybreak

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Speaker 1: Asia podcast. I'm Doug Krisner. The hottest name right now

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Speaker 1: in the Chinese domestic AI industry is moonshot. His company's

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Speaker 1: AI model, known as Kimmy K three, was released just

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Speaker 1: last Friday, and it's a great illustration in how China

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Speaker 1: is closing the gap with companies American companies like Open

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Speaker 1: Ai and Anthropic more rapidly than anticipated, even with limited

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Speaker 1: access to the most advanced processors from Nvidia. For a

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Speaker 1: closer look, I'm joined now by Bloomberg strategist David Savage.

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Speaker 1: David joins from our studios in Hong Kong. Thank you

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Speaker 1: for being here. Can you give me your take on

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Speaker 1: how markets in the APAC are reacting to this news

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Speaker 1: on Kimmy K three.

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Speaker 2: What's interesting for me is the idea that we'd seen

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Speaker 2: a lot more fragility, a lot more ofvolatility in the

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Speaker 2: AI trade, particularly in Asia, really starting you know, a

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Speaker 2: few weeks back late June, and so I think the

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Speaker 2: question is, is you know, was that volatility was this?

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Speaker 2: You know, at this point, the cost be's off about

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Speaker 2: twenty five percent from its peak from late June. Is

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Speaker 2: that a correction that's been made a lot uglier and

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Speaker 2: a lot more difficult because of the the elevated volatility,

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Speaker 2: but also the embedded leverage in this market, or was

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Speaker 2: it price action that was front running, you know, a

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Speaker 2: fundamental catalyst that wasn't obvious because we saw ASML earnings

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Speaker 2: came in very strong, Samsung preliminary earnings came in very strong,

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Speaker 2: TSMC earnings all came in really strong, and the market

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Speaker 2: continued to slide. And so that's I think what the

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Speaker 2: market's wrestling with, right, Is this fundamental catalyst yet to appear,

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Speaker 2: or is it this Kimi K three model, which shows

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Speaker 2: for the first time we have an open source model

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Speaker 2: from China that isn't just competing on price, but was outperforming,

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Speaker 2: you know, by some benchmarks, some of the closed frontier

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Speaker 2: models in the US.

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Speaker 1: So from what I've read on Bloomberg, this Kimmy K

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Speaker 1: three requires far more memory capacity than earlier generations of

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Speaker 1: any AI model that has been produced in China. And

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Speaker 1: you would assume when you hear something like that that

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Speaker 1: demand for areas of memory within the semiconductor market areas

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Speaker 1: dominated by both s k Heinez and Samsung will continue

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Speaker 1: to remain fairly robust. But I think what the market

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Speaker 1: seems to be struggling with at the same time that

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Speaker 1: you've got the news on Moonshot is the fact that

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Speaker 1: China has been also developing memory products, right.

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Speaker 2: Yeah, so there's one of the largest memory chip makers

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Speaker 2: from China is looking to IPO soon. And you know, again,

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Speaker 2: I think I think some of the concerns around the

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Speaker 2: model launches that uh, you know, does it allow some

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Speaker 2: of the hardware plays in China to start to undercut

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Speaker 2: and and cut into the not just the margins, but

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Speaker 2: the market share that that currently Samsung, Micron and s

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Speaker 2: Khnix hold. I think it's all very much in flux.

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Speaker 2: But I think it's the first sort of tangible evidence

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Speaker 2: we have that there might be a fundamental catalyst that

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Speaker 2: could be driving some of this pullback rather than simply

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Speaker 2: the product of you know, an unwind that's certainly hit

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Speaker 2: some of these leverage gtfs, which has been you know,

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Speaker 2: really driving some of the momentum on the downside in

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Speaker 2: the last couple of weeks. Uh, and and some of

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Speaker 2: the margin boring that we saw on the retail side

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Speaker 2: as well.

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Speaker 3: Well.

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Speaker 1: I'm glad you brought up the leverage issue, because I

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Speaker 1: think that authorities in South Korea have really been a

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Speaker 1: little bit more proactive about trying to get that under control.

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Speaker 1: Are they being successful in that attempt or is there

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Speaker 1: still a lot of inherent risk in some of these

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Speaker 1: various products.

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Speaker 2: I think at a colleague of ours at Bloomberg, Averrol said,

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Speaker 2: you know, the leverage GTF genie is out of the bottle.

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Speaker 2: I think that's a little bit of the case because

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Speaker 2: what they basically the authorities did was they said no

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Speaker 2: more additional UH temporarily, no more additional single stock leverage

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Speaker 2: DTF listings in Korea UH, and they OpEd the investor minimums.

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Speaker 2: As I understand it, those changes don't come into effect

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Speaker 2: for a couple of weeks. So that's that's one component.

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Speaker 2: But the other component is that, you know, a huge

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Speaker 2: amount of the leverage GTFS assets actually don't even sit

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Speaker 2: in the South Korean UH domestically listed ETFs. They sit

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Speaker 2: in Hong Kong listed ETFs or US listed dtfs. So

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Speaker 2: really what they're concerned about, one of course, is trying

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Speaker 2: to protect some of these retail investors, but also the

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Speaker 2: downstream impact on the market and market structure, and that

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Speaker 2: I think is going to be more difficult for them

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Speaker 2: to control because we still see implied volatility at really

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Speaker 2: really elevated levels, and that's what's driving some of the

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Speaker 2: really violent price action we've seen in Samsung Skhihnex and

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Speaker 2: therefore the overall market.

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Speaker 1: So let's move beyond South Korea talk a little bit

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Speaker 1: about Japan because markets there are back online after a

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Speaker 1: three day weekend. In what we're seeing today appears to

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Speaker 1: be a bit of positivity, maybe some recovery, and I'm

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Speaker 1: wondering whether or not it's all tech related. What's the

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Speaker 1: story in Japan right now? And so far as the

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Speaker 1: equity market is concerned.

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Speaker 2: Japan is really interesting because one it is we've had

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Speaker 2: this start of sort of a rotation, equity rotation to

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Speaker 2: more defensive factors. In the US, I think the S

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Speaker 2: and P five hundred is only off two or three

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Speaker 2: percent from its all time high, even though you've had

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Speaker 2: real correction in semiconductor space. Japan's topics index, for instance,

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Speaker 2: is more diversified than the likes of Taiwan or South

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Speaker 2: Korea's main benchmark. Uh so that should help you know

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Speaker 2: at an index level, But in terms of you know,

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Speaker 2: the tech space.

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Speaker 3: Uh.

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Speaker 2: You know, Japan really benefited from the AI trade that

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Speaker 2: really started to broaden out beyond the familiar players of

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Speaker 2: t s MC, Samsung and as Kahnix. You know, we

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Speaker 2: started to see you know, really strong returns in specialty

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Speaker 2: chemical makers and uh, chip making, chip packaging companies MLCCs

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Speaker 2: uh so some of these names that Japan you know,

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Speaker 2: really was kind of throughout the AI supply chain. Uh.

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Speaker 2: And on Friday, we certainly saw you know, really just

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Speaker 2: selling across the board. So I think what was somewhat

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Speaker 2: concerning was Japan markets were closed on Monday. Taiwan opened,

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Speaker 2: it had a somewhat of a you know, some modest gains,

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Speaker 2: but closed lower even though TSMC was up about one

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Speaker 2: and a half percent, And so that showed that there

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Speaker 2: was still selling really across the AI supply chain. So

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Speaker 2: I think investors traders are definitely still trying to digest

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Speaker 2: what does these developments out of these AI developments out

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Speaker 2: of China actually mean. And you know, I think at

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Speaker 2: this point there's still you know, some selling and profit taking,

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Speaker 2: you know, until we get better clarity on that.

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Speaker 1: So when it comes to the advancements in AI, whether

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Speaker 1: we're talking China or the US, I think we can

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Speaker 1: agree that the rate of change has been accelerating quite

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Speaker 1: a bit. And when considering various investment opportunities, talk to

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Speaker 1: me about where the risks lie, and whether we're talking

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Speaker 1: South Korea or Japan, what is the result of this

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Speaker 1: highly dynamic AI landscape.

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Speaker 2: You know, to come back to Japan in a second,

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Speaker 2: but just I mean South Korea. You've just had over

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Speaker 2: the last couple of weeks leading into you know, this,

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Speaker 2: this pretty dramatic pullback. You had all of these, you know,

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Speaker 2: multi billion dollar announcements from likes of Samsung, s Khaynix

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Speaker 2: about expanding memory capacity on the back of what's been

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Speaker 2: clearly a shortage in the market. And as you say, right,

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Speaker 2: you now have Kimmy K three at least on the surface,

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Speaker 2: seemingly you know, you know, achieving uh you know, frontier

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Speaker 2: model performance on the back of a lot of software innovation.

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Speaker 2: And so the question, yeah, as you say, comes back to,

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Speaker 2: you know, how can you make these you know, very

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Speaker 2: large investments, multi year investments when the pace of change, uh,

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Speaker 2: you know continues to accelerate. Uh, you know, it's very difficult,

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Speaker 2: particularly in North Asia, Taiwan, Japan, and South Korea because

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Speaker 2: they really sit at the nexus of of sort of

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Speaker 2: the hardware UH play in the AI supply chain. So

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Speaker 2: it's definitely a challenge, and we've seen it particularly in

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Speaker 2: Japan because again sort of those more downstream, more cyclical

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Speaker 2: names that benefited from the build out. You know, I

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Speaker 2: think there's a lot of profit taking there until, as

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Speaker 2: you say, we get better clarity on you know, what

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Speaker 2: does that pace of change look like.

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Speaker 1: I want to be fair and widen the lens, so

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Speaker 1: to speak, and look beyond Moonshot and consider some of

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Speaker 1: the other AI players in China, especially a company like

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Speaker 1: Ali Baba. I think it is releasing a preview of

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Speaker 1: its flagship model Quinn three point eight Max.

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Speaker 2: Right, that's right. And interestingly, Ali Baba actually has a

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Speaker 2: big stake in Moonshot, so it's it's sort of it's

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Speaker 2: certainly a big player on both of those names. And

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Speaker 2: then I think the market's already starting to look forward

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Speaker 2: to we are supposed to very shortly get the next

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Speaker 2: release of Deep Seeks Model, so and again kind of

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Speaker 2: missed in all the noises we had, you know, another

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Speaker 2: launch from Grock a model there so you had several

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Speaker 2: you know, according to you know, some of the benchmark

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Speaker 2: indices that you did start, you saw several additions to

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Speaker 2: sort of the frontier model space in just you know,

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Speaker 2: a couple of weeks. So, as you say, the pace

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Speaker 2: of change is pretty remarkable, and certainly, you know that

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Speaker 2: sort of six to eight month gap between the US

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Speaker 2: and China, your frontier models seems to be you know,

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Speaker 2: no longer that that that long, if there's a gap

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Speaker 2: at all.

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Speaker 1: So you were talking about the rotation earlier as it

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Speaker 1: related to the Japanese market, I'm wondering whether or not

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Speaker 1: you're seeing a similar rotation. Maybe it's more about repatriation

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Speaker 1: out of US markets and into markets in Asia. Is

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Speaker 1: that is there any evidence of that?

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Speaker 2: I think actually a big challenge that Asia has faced,

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Speaker 2: in particular Taiwan in South Korea, as we've seen actually

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Speaker 2: a lot of net foreign selling of shares here, and

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Speaker 2: I think that's where retail got really really stretched and

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Speaker 2: positionings started to get very stretched. Because what you've seen

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Speaker 2: here to date is you know, coming into this week,

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Speaker 2: you had over one hundred billion dollars net selling of

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Speaker 2: South Korean equities US dollar one hundred billion, and a

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Speaker 2: lot of that was concentrated in Samsung and Skehihnix, And

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Speaker 2: naturally it's because these stocks have gone so far so fast,

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Speaker 2: you run up against single stock constraints, portfolio constraints, even

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Speaker 2: index you know, ETFs, you'll run into some of these constraints,

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Speaker 2: and so you get some profit taking, you get some

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Speaker 2: trimming of those positions, and retail in Asia really stepped

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Speaker 2: into the void, and so that really I think caused

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Speaker 2: some some you know issues in Asia. Japan a little

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Speaker 2: bit less. So we've had some net buying there, but

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Speaker 2: I think it's actually been been the reverse where it's

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Speaker 2: actually put on you know, additional selling pressure.

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Speaker 1: All right, David, we'll leave it there. Thank you so

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Speaker 1: very much. Bloomberg's strategist David Savage, joining from our studios

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Speaker 1: in Hong Kong here on the Daybreak Asia podcast. Welcome

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Speaker 1: back to the Debreak Asia podcast. I'm Doug Chrisner. Top

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Speaker 1: diplomats from across Southeast Asia are gathering at the Assion

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Speaker 1: Foreign Ministers meeting. US Secretary of State Marco Rubio will attend,

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Speaker 1: so will Chinese Foreign Minister Wang Yi, and that's where

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Speaker 1: we begin our conversation with Beck Stradding. Beck is the

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Speaker 1: director of the Latrobe Center for Global Security. She spoke

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Speaker 1: with Bloomberg TV host Avril Hong.

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Speaker 4: We see, you know, the ASION meeting as a sort

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Speaker 4: of platform sometimes for the US and China to either

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Speaker 4: underscore their commitment to the region or cement their influence here.

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Speaker 4: What is top of mind for you on what will

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Speaker 4: be discussed by these OIGN ministers.

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Speaker 3: Yeah, this is a very interesting and important time to

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Speaker 3: be holding the Asian Foreign Ministers meeting. And I think

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Speaker 3: the way that you framed that, I mean, part of

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Speaker 3: Asian's regional role and part of the norms of Asian

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Speaker 3: centrality is that it can it has this sort of

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Speaker 3: convening power to bring together senior leaders to discuss these

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Speaker 3: very significant geopolitical issues that are going on. And so

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Speaker 3: I think front of mind for the week in Manila

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Speaker 3: will be, of course, the regional issues, the South China

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Speaker 3: Sea tensions that were just reported on earlier will be

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Speaker 3: top of mind. Of course, it was only last week

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Speaker 3: that the Philippines celebrated the tenth anniversary of the South

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Speaker 3: China Sea Arbitral Tribunal ruling, which largely found in its favor.

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Speaker 3: There's also ongoing regional tensions. There's the crisis in Myanmar,

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Speaker 3: there's tensions between Cambodia and Highland. But then there are

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Speaker 3: also these global issues that have significant impacts on Southeast Asia,

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Speaker 3: and in particular the conflict in Iran and its spillover

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Speaker 3: effects in the Strait of Hamuz have had serious implications

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Speaker 3: for energy security for Southeast Asian countries.

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Speaker 4: Youre is the issue of the tensions between China and

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Speaker 4: the Philippines. We're increasingly seeing these clashes between either side

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Speaker 4: in the South China Seed. To what extent do you

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Speaker 4: think this perhaps undercuts the rule that China wants to

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Speaker 4: clear in the region, perhaps as an anger for stability.

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Speaker 3: Yeah, I think that's a really important question. You see

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Speaker 3: China using sort of strategic narratives about it being a

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Speaker 3: responsible party in the region and you know, talking about

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Speaker 3: peace and stability, But at the same time, are these

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Speaker 3: very assertive actions, hostile actions that it is taking against

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Speaker 3: other claimant states in the South China Sea that do

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Speaker 3: undercut that message. But the other issue here, of course,

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Speaker 3: is in the context of US China strategic competition, is

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Speaker 3: that there's a big question mark about what the US's

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Speaker 3: intentions are in the region, whether it even has an

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Speaker 3: Asia strategy, whether it is resolved and committed to be

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Speaker 3: an important partner for Southeast Asian countries, and so those

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Speaker 3: sorts of question marks about the United States can also

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Speaker 3: have the effect of allowing China to present itself as

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Speaker 3: a more reliable regional partner.

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Speaker 4: You talk about some of the commitments that perhaps Southeast

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Speaker 4: Asian leaders are hoping to hear from the US. This

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Speaker 4: is coming at the time where we are watching an

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Speaker 4: anticipation for this highly into Swede at Trumpsy needing to come.

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Speaker 4: What is your sense of the stability and relations between

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Speaker 4: the US and China and how important that is for

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Speaker 4: this region.

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Speaker 3: Yeah, I mean, I think it's incredibly important, not just

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Speaker 3: for this region but globally. Trying to understand what the

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Speaker 3: temperature of the relationship between the United States and China

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Speaker 3: is at the moment. I think part of the problem

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Speaker 3: is actually just with analyzing US approach to foreign and

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Speaker 3: defense policy is quite difficult. You have Marco Rubio, who

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Speaker 3: will be attending the meetings this week in Manila, I

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Speaker 3: think talking very much more consistently on things like having

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Speaker 3: an Indo Pacific strategy and alliances and partners in the

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Speaker 3: region being really important to that. But then at the

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Speaker 3: same time you have the Secretary of War Pete Hegseth

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Speaker 3: talking in terms of not of the Indo Pacific, but

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Speaker 3: in terms of the Pacific at the Shangri La dialogue

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Speaker 3: not so long ago. And pay Com is now back renamed.

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Speaker 3: It's not Indo pay Coom anymore, it's Paycom. So there's

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Speaker 3: all of these sorts of different signals that are being

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Speaker 3: sent out of Washington. That makes it really difficult, I think,

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Speaker 3: to assess the trajectory of the US China relationship.

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Speaker 4: Talk to us as well about the specter of the

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Speaker 4: impact from the Iran war and how that will figure

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Speaker 4: into conversations you think here, Yeah, I think.

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Speaker 3: This is significant. I mean, you have countries in Southeast

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Speaker 3: Asia that are seriously affected by an energy security crisis.

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Speaker 3: You know, just the cost of fuel on the ground

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Speaker 3: for people creates issues for how people can live their livelihoods,

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Speaker 3: but also political issues for governments. So we can't really

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Speaker 3: talk about these issues as sort of isolated in regions anymore.

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Speaker 3: They are they have these consequences. They might be far away.

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Speaker 3: In the Middle East, the Strait of Musa is a

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Speaker 3: really important strategic chokepoint for the transit of crucial supplies,

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Speaker 3: particularly in energy to not just Southeast Asia, but Asia

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Speaker 3: more generally. So I think this is going to be

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Speaker 3: a significant topic of conversation, and I would expect that

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Speaker 3: regional countries are concerned by the fact that the conflict

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Speaker 3: in Iran seems to be escalating rather than de escalating,

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Speaker 3: and this presents long term challenges for supply chains and

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Speaker 3: resilience in the region.

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Speaker 4: This is also all coming at the time where you know,

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Speaker 4: countries in the indoor Pacific have been a bit rattled

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Speaker 4: by China's firing of an ICBM, you know, nuclear enabled

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Speaker 4: or capable weapon. How do you think that shifts or

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Speaker 4: de stabilizer things.

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Speaker 3: Yeah, I mean that that is another example of where

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Speaker 3: you know, you have China talking in one way, talking

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Speaker 3: about Asia as a region of peace, but then doing

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Speaker 3: things that sort of counteract what they're talking about by

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Speaker 3: testing ballistic missiles. You know, these are flying over the

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Speaker 3: South China Sea into the Pacific and raising real concerns

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Speaker 3: not just for Southeast Asian countries, but for countries in

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Speaker 3: the Pacific as well. I mean it's hard not I

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Speaker 3: think for analysts and for policymakers in these countries to

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Speaker 3: question what China's intentions are. Are these tests symbolic? Is

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Speaker 3: this China trying to say to other countries in the

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Speaker 3: region that we are expanding our military reach and our capabilities.

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Speaker 3: Is this or warning shot if you like? These are

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Speaker 3: really important questions. And so you have, as I said,

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Speaker 3: China saying one thing but doing another. And this creates

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Speaker 3: this environment of uncertainty, which is also not helped by

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Speaker 3: the fact that countries are uncertain about the United States

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Speaker 3: as well.

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Speaker 1: That was Beckstrading, director of the Latrobe Center for Global Security,

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Speaker 1: speaking with Bloomberg TV host April Hong, bringing you their

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Speaker 1: conversation here on the Daybreak Asia Podcast. Thanks for listening

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Speaker 1: to today's episode of the Bloomberg Daybreak Asia Edition podcast.

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Speaker 1: Each weekday, we look at the story shaping markets, finance,

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Speaker 1: and geopolitics in the Asia Pacific. You can find us

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Speaker 1: on Apple, Spotify, the Bloomberg Podcast YouTube channel, or anywhere

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Speaker 1: else you listen. Join us again tomorrow for insight on

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Speaker 1: the market moves from Hong Kong to Singapore and Australia.

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Speaker 1: I'm Doug Risner and this is Bloomberg four