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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. Crude

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Speaker 2: oil prices surge during New York trading. That was after

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Speaker 2: the US and Iran struck defiant tones on the thirteenth

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Speaker 2: day of the war. President Trump said preventing Iran from

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Speaker 2: having nuclear weapons and threatening the Middle East is of

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Speaker 2: far greater interest and importance to him than the cost

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Speaker 2: of oil, and at the same time, most Deba Kamina

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Speaker 2: said the Islamic Republic would seek to ensure the Strait

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Speaker 2: of Horn Moves remains effectively closed. WTI jumped nearly ten

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Speaker 2: percent to ninety five seventy three, and in New York trading,

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Speaker 2: the Brent contract settled above one hundred dollars for the

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Speaker 2: first time since August twenty twenty two. For a closer

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Speaker 2: look at the mood in the Asia Pacific, I'm joined

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Speaker 2: by Bloomberg's Winnie. Sue Whinnie is Asia equities reporter. She

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Speaker 2: joins us from our studios in Hong Kong. Thank you

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Speaker 2: for being here. Talk to me about the impacts that

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Speaker 2: you have observed in Asian markets as the result of

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Speaker 2: what's going on in the oil patch.

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Speaker 3: So the typical playbook that we've been seeing and looking

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Speaker 3: at and hearing right now is that oil prices go

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Speaker 3: up and Asian stocks get hit harder than the US,

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Speaker 3: and for lots of different reasons here. The biggest reason

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Speaker 3: is that we are a big net oil importer. You're

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Speaker 3: talking about South Korea importing about seventy percent of its

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Speaker 3: oil from the Middle East and Japan relying about ninety percent,

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Speaker 3: So these are really big numbers versus the US is

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Speaker 3: actually a net exporter, so that put us on a

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Speaker 3: more vulnerable side of things. But beyond that, just because

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Speaker 3: of how much Korea Japan have really outperformed, including Taiwan

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Speaker 3: as well when it comes to the AI demand and

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Speaker 3: the semiconductor side of things, it also makes it more

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Speaker 3: subjective to any big pullback in when people want to

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Speaker 3: take profits. And then adding to that, you've got a

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Speaker 3: stronger dollar weighing on our local currencies, so that also

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Speaker 3: gives these local banks less room to cut further. So

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Speaker 3: these are some of kind of the factors weighing on

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Speaker 3: Asian markets, and that's why we are seeing really lots

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Speaker 3: of underperformance coming through and really volatile swings in these

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Speaker 3: markets as well.

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Speaker 2: So speaking of central bank meetings, we have a BOJ

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Speaker 2: meeting coming up soon. You were just in Tokyo, I know,

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Speaker 2: a short while ago. Before we talk about what the

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Speaker 2: BOJ may or may not do, talk to me about

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Speaker 2: your experience of being in Japan and listening to the

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Speaker 2: conversations around inflation.

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Speaker 4: What was it like.

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Speaker 3: Yeah, inflation definitely is on people's mind right now. That

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Speaker 3: is a big part of the daily conversations that we have.

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Speaker 3: I was, I went to Japan. I spent more than

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Speaker 3: a decade in Japan before I moved to Hong Kong.

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Speaker 3: But back then we were talking about a rise bowl

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Speaker 3: about one hundred yen and right now I remember going back,

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Speaker 3: the first thing I bought was a rise bowl and

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Speaker 3: that was like two hundred yen four the same rice bowl.

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Speaker 3: So prices have really gone up, and especially in the

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Speaker 3: past few years or even in the last year, but

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Speaker 3: obviously when it comes to wages, it has not kept

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Speaker 3: up with that increase. So there is that stress coming through.

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Speaker 3: So you can imagine that with a round war and

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Speaker 3: pushing costs even further, that probably will also lead to

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Speaker 3: higher inflation and higher stress, and that the government then

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Speaker 3: probably will have to do more to kind of contain

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Speaker 3: that inflation.

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Speaker 2: We know Prime Minister Takichi has made that a priority

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Speaker 2: for her administration. Give me a sense of what the

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Speaker 2: BOJ may do. I mean, if everything kind of argues

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Speaker 2: in favor of higher interest rates, but there is so

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Speaker 2: much volatility that we've described Visa VI the oil market

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Speaker 2: and what it's the impact that it's had on equities

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Speaker 2: and bond markets as well. Is the BOJ in a

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Speaker 2: very very tough situation right now where there is obviously

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Speaker 2: a big argument to be made for raising interest rates,

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Speaker 2: but given the volatility, maybe the best thing to do,

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Speaker 2: the more prudent action to take, is just waiting it out,

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Speaker 2: taking to the sidelines for a moment.

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Speaker 3: Yeah, exactly. That's most likely exactly what they're going to

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Speaker 3: be doing, at least for the upcoming decision meeting next week.

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Speaker 3: And as you mentioned, a tough thing here is to

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Speaker 3: find that fine balance. On one hand, you have the

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Speaker 3: weaker currency. We're talking about the yen trading now around

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Speaker 3: one hundred and fifty to nine level against a dollar,

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Speaker 3: and a one hundred and fifty nine point four five

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Speaker 3: will take us to the lowest or the weakest level

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Speaker 3: since twenty twenty four, and that comes with a stronger

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Speaker 3: yen and sorry, a stronger dollar pressuring the end. And

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Speaker 3: also we now have a higher bar when it comes

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Speaker 3: to the intervention level, So lots of stress around that front,

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Speaker 3: and the Bank of Japan definitely don't want the yend

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Speaker 3: to continue to weaken much further. But on the other hand,

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Speaker 3: Governor Uda actually warned a few days ago that the

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Speaker 3: uncertainty around the around war we're likely going to have

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Speaker 3: a major impact on Japanese economy. So the impact on

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Speaker 3: the economy, on the other hand, is another side of

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Speaker 3: things that they have to balance. Yes, when it comes

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Speaker 3: to the government side of things, we just had Prime

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Speaker 3: Minister Takaichi yesterday or the day before, say, announcing that

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Speaker 3: they're going to release eighty million barrels of oil from

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Speaker 3: their reserve as part of that effort to tackle inflation.

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Speaker 3: So that can potentially help east the burden from the

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Speaker 3: Bank of Japan, But really trying to find that balance

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Speaker 3: at this point is going to make them less kind

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Speaker 3: of incentivized to high rates anytime soon.

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Speaker 2: We know that the South Korean equity market was on

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Speaker 2: an amazing tear for the longest time. It seemed the

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Speaker 2: record high after record high, and as you and I

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Speaker 2: have spoken about in the past, a lot of that

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Speaker 2: had to do with semiconductors, particularly as kae Onix and Samsung.

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Speaker 2: We've seen quite a reversal, haven't we as of late?

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Speaker 3: Yeah, exactly, we were talking about South Korean market being

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Speaker 3: that top performing global market, but actually when you look

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Speaker 3: at its recent performance, especially since the war broke out,

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Speaker 3: which was the performance in the past two weeks, it's

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Speaker 3: actually one of the worst when it comes to golo performances.

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Speaker 3: So these big swings actually make investors more hesitant to

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Speaker 3: bet further on this stock market. And Bank of America

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Speaker 3: actually the other day had a note saying that this

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Speaker 3: is a textbook bubble basically because these swings, driven by

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Speaker 3: lots of retail investors quickly betting in and out and

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Speaker 3: having high leverages, actually create lots of volatility in the market.

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Speaker 3: And now when long term investors think about South Korea,

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Speaker 3: they don't just think about kind of the upside when

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Speaker 3: it comes to the AI demand. They have to think

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Speaker 3: about doing more hedges to protect any further downside swings,

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Speaker 3: and that has actually burned quite a few investors. When

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Speaker 3: we talk to them in the past week, just because

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Speaker 3: how little they have hedged so far for this market,

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Speaker 3: and lots of them have also trimmed ex bosure when

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Speaker 3: it comes to equities and especially Asian equities, and say

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Speaker 3: that this likely is going to be just textical in

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Speaker 3: the short term, but won't go away until we see

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Speaker 3: the dust really settles around the around warfront.

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Speaker 2: So when I think about the second and third order

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Speaker 2: effects in the oil market, I don't think about cooking

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Speaker 2: gas primarily. And you and I were speaking a short

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Speaker 2: while ago and you said that that was really one

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Speaker 2: of the big problems going on in the Indian economy, right.

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Speaker 3: Yeah, exactly, as you mentioned, we have been covering quite

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Speaker 3: obvious sectors, whether it's defense, airlines, or shipping companies. But

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Speaker 3: now as the war continues to drag and people expecting

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Speaker 3: further supply chain disruption in the Middle East, that is

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Speaker 3: really starting to show ripple effects into areas that have

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Speaker 3: so far been a bit more insulated. And the one

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Speaker 3: you just mentioned just now is what we're seeing in

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Speaker 3: India right now with the shortage of cooking gas, and

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Speaker 3: they have relied so much on these cooking gas at

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Speaker 3: the restaurants, so right, now we are hearing restaurants, for example,

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Speaker 3: having to make their operating time shorter or to limit

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Speaker 3: what they offer on the menu, and that is hurting

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Speaker 3: stocks specifically in the food delivery sector and also fast

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Speaker 3: food restaurants in India. And beyond that, today we're talking

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Speaker 3: about the shortage of hedium potentially hurting semiconductors and that's

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Speaker 3: why you're seeing chip stocks, Semsung Heenex, and TSMC falling further.

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Speaker 3: So we're really right now trying to examine what are

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Speaker 3: some of the secondary impact that we can look at

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Speaker 3: when it comes to the supply chain disruptions. And with that,

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Speaker 3: you've also got retail retail sector getting hit fertilizers for example,

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Speaker 3: and we're really right now trying to document that and

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Speaker 3: potentially push out a weekend trader's guide on all these

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Speaker 3: sectors getting impacted. So stay tuned in for that.

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Speaker 2: I'll be looking for that on Bloomberg Weekend. Winnie, thank

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Speaker 2: you so very much. It's great to spend time with you.

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Speaker 2: Bloomberg's Winnie Sue is Asia Equities reporter joining from Hong

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Speaker 2: Kong here on the Daybreak Asia podcast. Welcome back to

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Speaker 2: the Daybreak Asia Podcast. I'm Doug Chrisner. The US will

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Speaker 2: temporarily allow some countries to purchase Russian oil already at sea.

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Speaker 2: US Treasury Secretary Scott Besson said authorization permits will be

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Speaker 2: issued as a narrowly tailored short term measure now. Besson

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Speaker 2: said it will not provide significant financial benefit to the

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Speaker 2: Russian government. Obviously, this move is intended to ease growing

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Speaker 2: pressure in the oil market, and that was the focus

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Speaker 2: of our conversation with Gary Evans. He has set of

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Speaker 2: research solutions at BCA Research. With Bloomberg TV host Heidi

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Speaker 2: Stroud Watts and April hom talk.

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Speaker 5: To us first about what you're seeing in terms of

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Speaker 5: the risk for the markets after what's been a really

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Speaker 5: crazy two weeks.

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Speaker 6: A crazy two weeks, but the S and P five

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Speaker 6: hundred in the US is only down if I calculate

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Speaker 6: it right, four percent from the peak. So I think

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Speaker 6: there's a lot of risk that's not priced in. Oil

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Speaker 6: price is up sixty percent since the beginning of the year.

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Speaker 6: The rule of farm is historically, when you've had a

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Speaker 6: one hundred percent rise of doubling of oil prices, that is,

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Speaker 6: without exception, led to a recession. So I think the

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Speaker 6: probability now of a recession globally has risen significantly unless

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Speaker 6: we see an end to the Iran crisis within the

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Speaker 6: next few weeks.

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Speaker 5: So for US stocks in particular, you see more to

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Speaker 5: come in this repricing. Is that going to be led

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Speaker 5: by tech lower or are there other sectors that you

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Speaker 5: think we should pay more attention to.

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Speaker 4: I think that's a whole separate issue.

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Speaker 6: That the AI bubble in our view, has been in

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Speaker 6: the process of bursting for a couple of months, and

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Speaker 6: those valuations are still looks really expensive, so they probably

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Speaker 6: continue to come off. But the recession would be worldwide,

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Speaker 6: and of course the US is a relatively low beta market,

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Speaker 6: it has quite a high proportion of defensive stocks, and

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Speaker 6: the US of course is a net oil exporter. So frankly,

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Speaker 6: the East Asian markets in Europe are going to be

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Speaker 6: much more heavily hit, I think, partly because of the

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Speaker 6: dependence of those economies on imported oil and gas and

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Speaker 6: other petrochemical products. So probably for the short term at least,

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Speaker 6: the US market would actually end up being a relative

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Speaker 6: safe haven.

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Speaker 5: Talk to US as well about what you're see in

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Speaker 5: the Asia Pacific. If the US is seen as a

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Speaker 5: sort of safe haven. How much under pressure are you

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Speaker 5: expecting on Asian assets?

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Speaker 6: So a lot of it really comes down to the

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Speaker 6: dependence on oil. If you look, for example, so the

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Speaker 6: US is a net oil exporter, China imports about forty

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Speaker 6: percent of its oil from the Middle East. Japan imports

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Speaker 6: more than ninety percent from the Middle East. China is

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Speaker 6: obviously a very manufacturing dependent economy. It's much more energy

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Speaker 6: intensive than, for example, the US is. And then you've

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Speaker 6: got a market like Korea, which ran up dramatically in

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Speaker 6: the first couple of months of this year. And not

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Speaker 6: only is Korea very dependent on imported oil, but it's

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Speaker 6: also quite expensive market relative to its history as well.

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Speaker 6: So I think in this sort of world, at least

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Speaker 6: for the next few weeks, the US looks like a

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Speaker 6: relative safe haven, and the Asian markets probably are much

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Speaker 6: more at risk.

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Speaker 4: So where would you look for hedges?

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Speaker 6: If you like, you probably want to look for economies

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Speaker 6: and markets that have quite a lot of energy companies

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Speaker 6: in their indexes, So that would be Australia, for example, Canada,

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Speaker 6: amongst emerging markets, Brazil and Mexico, that those should end

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Speaker 6: up relatively safe compared to countries that depend on all imports.

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Speaker 1: Do you bind the thesis that China remains a good

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Speaker 1: hedge in terms of decrrelation from global geopolitics, the fact

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Speaker 1: that the economy is more advanced in electrification than others.

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Speaker 6: So I was in China and Beijing the first three

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Speaker 6: days of this week, and it's certainly true. Talking to

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Speaker 6: Chinese investors, they are very sanguine about the risk. They

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Speaker 6: do know China's fine, so that worries me and I

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Speaker 6: think in the short term therefore, China is actually probably

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Speaker 6: more vulnerable than most people believe. The positive story though

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Speaker 6: for China and at BCA we're overweight on the Chinese

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Speaker 6: offshore stocks, is that because the economy is already pretty weak,

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Speaker 6: the property market is still in a terrible state. The

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Speaker 6: NPC last week didn't really produce any new measures. I

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Speaker 6: think by midyear, the Chinese authorities will understand that they'll

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Speaker 6: have to roll out more stimulus measures. So it might

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Speaker 6: be like a mini two thousand and eight when China

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Speaker 6: did its usual playbook of infrastructure spending.

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Speaker 4: Our expectation would be that perhaps.

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Speaker 6: By mid this year you're going to see that, which

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Speaker 6: which could mean actually that the Chinese markets do end

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Speaker 6: up being a little safer than some other markets around

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Speaker 6: the world.

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Speaker 1: That's really interesting, Gary, because I think most people have

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Speaker 1: fallen into the position that Beijing is now pretty comfortable

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Speaker 1: with that slower pace of growth, that it is a

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Speaker 1: new normal, that they're really prioritizing tech frontier tech as

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Speaker 1: the next area of growth. Are you saying that they're

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Speaker 1: going to get increasingly uncomfortable to go back to that

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Speaker 1: old playbook of investment.

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Speaker 6: So if you look at the Chinese economy last year,

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Speaker 6: it was.

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Speaker 4: Very dependent on exports.

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Speaker 6: Despite the fact that exports to the US fel by

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Speaker 6: thirty percent, a lot of it was just diverted via

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Speaker 6: Asian etc. That last year caused a boom and manufacturing investment,

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Speaker 6: you know, as you said, it's the government's focusing on this,

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Speaker 6: but that is now coming off. The credit impulse in

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Speaker 6: China is also slowing. There's not a lot of local

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Speaker 6: government special bondishments in the first half. So all of

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Speaker 6: our indicators say that the economy is continuing to slow.

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Speaker 6: And therefore this new four and a half to five

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Speaker 6: percent eup target that they announced last week, that's going

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Speaker 6: to be pretty hard to achieve.

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Speaker 4: And when they see that by midyear.

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Speaker 6: If, as we'd expect, the economy slows in the first half,

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Speaker 6: the government will have to do something. And also remember that,

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Speaker 6: of course, ultimately a lot of Chinese exports go to

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Speaker 6: the US with higher gasoline prices in the US with

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Speaker 6: a fall in stocks, which will cause a negative wealth effect.

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Speaker 6: US consumers are going to be under real pressure as well.

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Speaker 6: They're not going to be buying the sort of consumer

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Speaker 6: goods that China has been selling them, so China will

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Speaker 6: be under a lot of pressure I think to react

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Speaker 6: to that with stimula at some point this year.

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Speaker 2: That was Gary Evans, head of Research Solutions at BCA Research,

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Speaker 2: speaking with Bloomberg TV host Heidi Stroud Watts and April Hong,

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Speaker 2: bringing you their conversation here on the Daybreak Asia Podcast.

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

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

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

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

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

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

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