WEBVTT - Energy Fuel Crunch Hits Asia

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>Welcome to the Daybreak Asia podcast. I'm Doug Prisner. Crude

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<v Speaker 2>oil prices surge during New York trading. That was after

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<v Speaker 2>the US and Iran struck defiant tones on the thirteenth

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<v Speaker 2>day of the war. President Trump said preventing Iran from

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<v Speaker 2>having nuclear weapons and threatening the Middle East is of

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<v Speaker 2>far greater interest and importance to him than the cost

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<v Speaker 2>of oil, and at the same time, most Deba Kamina

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<v Speaker 2>said the Islamic Republic would seek to ensure the Strait

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<v Speaker 2>of Horn Moves remains effectively closed. WTI jumped nearly ten

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<v Speaker 2>percent to ninety five seventy three, and in New York trading,

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<v Speaker 2>the Brent contract settled above one hundred dollars for the

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<v Speaker 2>first time since August twenty twenty two. For a closer

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<v Speaker 2>look at the mood in the Asia Pacific, I'm joined

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<v Speaker 2>by Bloomberg's Winnie. Sue Whinnie is Asia equities reporter. She

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<v Speaker 2>joins us from our studios in Hong Kong. Thank you

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<v Speaker 2>for being here. Talk to me about the impacts that

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<v Speaker 2>you have observed in Asian markets as the result of

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<v Speaker 2>what's going on in the oil patch.

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<v Speaker 3>So the typical playbook that we've been seeing and looking

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<v Speaker 3>at and hearing right now is that oil prices go

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<v Speaker 3>up and Asian stocks get hit harder than the US,

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<v Speaker 3>and for lots of different reasons here. The biggest reason

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<v Speaker 3>is that we are a big net oil importer. You're

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<v Speaker 3>talking about South Korea importing about seventy percent of its

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<v Speaker 3>oil from the Middle East and Japan relying about ninety percent,

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<v Speaker 3>So these are really big numbers versus the US is

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<v Speaker 3>actually a net exporter, so that put us on a

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<v Speaker 3>more vulnerable side of things. But beyond that, just because

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<v Speaker 3>of how much Korea Japan have really outperformed, including Taiwan

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<v Speaker 3>as well when it comes to the AI demand and

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<v Speaker 3>the semiconductor side of things, it also makes it more

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<v Speaker 3>subjective to any big pullback in when people want to

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

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<v Speaker 3>stronger dollar weighing on our local currencies, so that also

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<v Speaker 3>gives these local banks less room to cut further. So

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<v Speaker 3>these are some of kind of the factors weighing on

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<v Speaker 3>Asian markets, and that's why we are seeing really lots

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<v Speaker 3>of underperformance coming through and really volatile swings in these

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<v Speaker 3>markets as well.

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<v Speaker 2>So speaking of central bank meetings, we have a BOJ

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<v Speaker 2>meeting coming up soon. You were just in Tokyo, I know,

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<v Speaker 2>a short while ago. Before we talk about what the

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<v Speaker 2>BOJ may or may not do, talk to me about

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<v Speaker 2>your experience of being in Japan and listening to the

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<v Speaker 2>conversations around inflation.

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<v Speaker 4>What was it like.

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

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<v Speaker 3>is a big part of the daily conversations that we have.

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<v Speaker 3>I was, I went to Japan. I spent more than

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<v Speaker 3>a decade in Japan before I moved to Hong Kong.

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<v Speaker 3>But back then we were talking about a rise bowl

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<v Speaker 3>about one hundred yen and right now I remember going back,

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<v Speaker 3>the first thing I bought was a rise bowl and

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<v Speaker 3>that was like two hundred yen four the same rice bowl.

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<v Speaker 3>So prices have really gone up, and especially in the

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<v Speaker 3>past few years or even in the last year, but

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<v Speaker 3>obviously when it comes to wages, it has not kept

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<v Speaker 3>up with that increase. So there is that stress coming through.

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<v Speaker 3>So you can imagine that with a round war and

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<v Speaker 3>pushing costs even further, that probably will also lead to

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<v Speaker 3>higher inflation and higher stress, and that the government then

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<v Speaker 3>probably will have to do more to kind of contain

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<v Speaker 3>that inflation.

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<v Speaker 2>We know Prime Minister Takichi has made that a priority

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<v Speaker 2>for her administration. Give me a sense of what the

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<v Speaker 2>BOJ may do. I mean, if everything kind of argues

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<v Speaker 2>in favor of higher interest rates, but there is so

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<v Speaker 2>much volatility that we've described Visa VI the oil market

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<v Speaker 2>and what it's the impact that it's had on equities

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<v Speaker 2>and bond markets as well. Is the BOJ in a

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<v Speaker 2>very very tough situation right now where there is obviously

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<v Speaker 2>a big argument to be made for raising interest rates,

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<v Speaker 2>but given the volatility, maybe the best thing to do,

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<v Speaker 2>the more prudent action to take, is just waiting it out,

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<v Speaker 2>taking to the sidelines for a moment.

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

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<v Speaker 3>be doing, at least for the upcoming decision meeting next week.

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<v Speaker 3>And as you mentioned, a tough thing here is to

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<v Speaker 3>find that fine balance. On one hand, you have the

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<v Speaker 3>weaker currency. We're talking about the yen trading now around

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<v Speaker 3>one hundred and fifty to nine level against a dollar,

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<v Speaker 3>and a one hundred and fifty nine point four five

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<v Speaker 3>will take us to the lowest or the weakest level

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<v Speaker 3>since twenty twenty four, and that comes with a stronger

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<v Speaker 3>yen and sorry, a stronger dollar pressuring the end. And

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<v Speaker 3>also we now have a higher bar when it comes

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<v Speaker 3>to the intervention level, So lots of stress around that front,

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<v Speaker 3>and the Bank of Japan definitely don't want the yend

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<v Speaker 3>to continue to weaken much further. But on the other hand,

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<v Speaker 3>Governor Uda actually warned a few days ago that the

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<v Speaker 3>uncertainty around the around war we're likely going to have

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<v Speaker 3>a major impact on Japanese economy. So the impact on

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<v Speaker 3>the economy, on the other hand, is another side of

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<v Speaker 3>things that they have to balance. Yes, when it comes

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<v Speaker 3>to the government side of things, we just had Prime

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<v Speaker 3>Minister Takaichi yesterday or the day before, say, announcing that

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<v Speaker 3>they're going to release eighty million barrels of oil from

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<v Speaker 3>their reserve as part of that effort to tackle inflation.

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<v Speaker 3>So that can potentially help east the burden from the

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<v Speaker 3>Bank of Japan, But really trying to find that balance

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<v Speaker 3>at this point is going to make them less kind

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<v Speaker 3>of incentivized to high rates anytime soon.

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<v Speaker 2>We know that the South Korean equity market was on

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<v Speaker 2>an amazing tear for the longest time. It seemed the

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<v Speaker 2>record high after record high, and as you and I

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<v Speaker 2>have spoken about in the past, a lot of that

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<v Speaker 2>had to do with semiconductors, particularly as kae Onix and Samsung.

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

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<v Speaker 3>Yeah, exactly, we were talking about South Korean market being

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<v Speaker 3>that top performing global market, but actually when you look

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<v Speaker 3>at its recent performance, especially since the war broke out,

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<v Speaker 3>which was the performance in the past two weeks, it's

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<v Speaker 3>actually one of the worst when it comes to golo performances.

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<v Speaker 3>So these big swings actually make investors more hesitant to

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<v Speaker 3>bet further on this stock market. And Bank of America

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<v Speaker 3>actually the other day had a note saying that this

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<v Speaker 3>is a textbook bubble basically because these swings, driven by

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<v Speaker 3>lots of retail investors quickly betting in and out and

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<v Speaker 3>having high leverages, actually create lots of volatility in the market.

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<v Speaker 3>And now when long term investors think about South Korea,

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<v Speaker 3>they don't just think about kind of the upside when

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<v Speaker 3>it comes to the AI demand. They have to think

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<v Speaker 3>about doing more hedges to protect any further downside swings,

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<v Speaker 3>and that has actually burned quite a few investors. When

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<v Speaker 3>we talk to them in the past week, just because

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<v Speaker 3>how little they have hedged so far for this market,

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<v Speaker 3>and lots of them have also trimmed ex bosure when

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<v Speaker 3>it comes to equities and especially Asian equities, and say

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<v Speaker 3>that this likely is going to be just textical in

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<v Speaker 3>the short term, but won't go away until we see

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<v Speaker 3>the dust really settles around the around warfront.

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<v Speaker 2>So when I think about the second and third order

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<v Speaker 2>effects in the oil market, I don't think about cooking

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<v Speaker 2>gas primarily. And you and I were speaking a short

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<v Speaker 2>while ago and you said that that was really one

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<v Speaker 2>of the big problems going on in the Indian economy, right.

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<v Speaker 3>Yeah, exactly, as you mentioned, we have been covering quite

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

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<v Speaker 3>now as the war continues to drag and people expecting

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<v Speaker 3>further supply chain disruption in the Middle East, that is

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<v Speaker 3>really starting to show ripple effects into areas that have

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<v Speaker 3>so far been a bit more insulated. And the one

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<v Speaker 3>you just mentioned just now is what we're seeing in

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<v Speaker 3>India right now with the shortage of cooking gas, and

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<v Speaker 3>they have relied so much on these cooking gas at

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<v Speaker 3>the restaurants, so right, now we are hearing restaurants, for example,

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<v Speaker 3>having to make their operating time shorter or to limit

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<v Speaker 3>what they offer on the menu, and that is hurting

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<v Speaker 3>stocks specifically in the food delivery sector and also fast

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

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<v Speaker 3>about the shortage of hedium potentially hurting semiconductors and that's

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

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<v Speaker 3>So we're really right now trying to examine what are

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<v Speaker 3>some of the secondary impact that we can look at

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<v Speaker 3>when it comes to the supply chain disruptions. And with that,

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<v Speaker 3>you've also got retail retail sector getting hit fertilizers for example,

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<v Speaker 3>and we're really right now trying to document that and

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<v Speaker 3>potentially push out a weekend trader's guide on all these

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<v Speaker 3>sectors getting impacted. So stay tuned in for that.

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

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<v Speaker 2>you so very much. It's great to spend time with you.

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<v Speaker 2>Bloomberg's Winnie Sue is Asia Equities reporter joining from Hong

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<v Speaker 2>Kong here on the Daybreak Asia podcast. Welcome back to

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<v Speaker 2>the Daybreak Asia Podcast. I'm Doug Chrisner. The US will

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<v Speaker 2>temporarily allow some countries to purchase Russian oil already at sea.

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<v Speaker 2>US Treasury Secretary Scott Besson said authorization permits will be

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<v Speaker 2>issued as a narrowly tailored short term measure now. Besson

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<v Speaker 2>said it will not provide significant financial benefit to the

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<v Speaker 2>Russian government. Obviously, this move is intended to ease growing

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<v Speaker 2>pressure in the oil market, and that was the focus

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<v Speaker 2>of our conversation with Gary Evans. He has set of

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<v Speaker 2>research solutions at BCA Research. With Bloomberg TV host Heidi

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<v Speaker 2>Stroud Watts and April hom talk.

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<v Speaker 5>To us first about what you're seeing in terms of

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<v Speaker 5>the risk for the markets after what's been a really

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<v Speaker 5>crazy two weeks.

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<v Speaker 6>A crazy two weeks, but the S and P five

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<v Speaker 6>hundred in the US is only down if I calculate

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<v Speaker 6>it right, four percent from the peak. So I think

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<v Speaker 6>there's a lot of risk that's not priced in. Oil

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<v Speaker 6>price is up sixty percent since the beginning of the year.

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<v Speaker 6>The rule of farm is historically, when you've had a

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<v Speaker 6>one hundred percent rise of doubling of oil prices, that is,

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<v Speaker 6>without exception, led to a recession. So I think the

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<v Speaker 6>probability now of a recession globally has risen significantly unless

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<v Speaker 6>we see an end to the Iran crisis within the

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<v Speaker 6>next few weeks.

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<v Speaker 5>So for US stocks in particular, you see more to

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<v Speaker 5>come in this repricing. Is that going to be led

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<v Speaker 5>by tech lower or are there other sectors that you

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<v Speaker 5>think we should pay more attention to.

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<v Speaker 4>I think that's a whole separate issue.

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<v Speaker 6>That the AI bubble in our view, has been in

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<v Speaker 6>the process of bursting for a couple of months, and

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<v Speaker 6>those valuations are still looks really expensive, so they probably

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<v Speaker 6>continue to come off. But the recession would be worldwide,

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<v Speaker 6>and of course the US is a relatively low beta market,

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<v Speaker 6>it has quite a high proportion of defensive stocks, and

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<v Speaker 6>the US of course is a net oil exporter. So frankly,

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<v Speaker 6>the East Asian markets in Europe are going to be

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<v Speaker 6>much more heavily hit, I think, partly because of the

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<v Speaker 6>dependence of those economies on imported oil and gas and

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<v Speaker 6>other petrochemical products. So probably for the short term at least,

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<v Speaker 6>the US market would actually end up being a relative

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<v Speaker 6>safe haven.

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<v Speaker 5>Talk to US as well about what you're see in

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<v Speaker 5>the Asia Pacific. If the US is seen as a

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<v Speaker 5>sort of safe haven. How much under pressure are you

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<v Speaker 5>expecting on Asian assets?

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<v Speaker 6>So a lot of it really comes down to the

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<v Speaker 6>dependence on oil. If you look, for example, so the

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<v Speaker 6>US is a net oil exporter, China imports about forty

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<v Speaker 6>percent of its oil from the Middle East. Japan imports

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<v Speaker 6>more than ninety percent from the Middle East. China is

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<v Speaker 6>obviously a very manufacturing dependent economy. It's much more energy

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

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<v Speaker 6>got a market like Korea, which ran up dramatically in

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<v Speaker 6>the first couple of months of this year. And not

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<v Speaker 6>only is Korea very dependent on imported oil, but it's

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<v Speaker 6>also quite expensive market relative to its history as well.

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<v Speaker 6>So I think in this sort of world, at least

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<v Speaker 6>for the next few weeks, the US looks like a

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<v Speaker 6>relative safe haven, and the Asian markets probably are much

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<v Speaker 6>more at risk.

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<v Speaker 4>So where would you look for hedges?

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<v Speaker 6>If you like, you probably want to look for economies

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<v Speaker 6>and markets that have quite a lot of energy companies

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<v Speaker 6>in their indexes, So that would be Australia, for example, Canada,

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<v Speaker 6>amongst emerging markets, Brazil and Mexico, that those should end

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<v Speaker 6>up relatively safe compared to countries that depend on all imports.

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<v Speaker 1>Do you bind the thesis that China remains a good

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<v Speaker 1>hedge in terms of decrrelation from global geopolitics, the fact

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<v Speaker 1>that the economy is more advanced in electrification than others.

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<v Speaker 6>So I was in China and Beijing the first three

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

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<v Speaker 6>Chinese investors, they are very sanguine about the risk. They

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<v Speaker 6>do know China's fine, so that worries me and I

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<v Speaker 6>think in the short term therefore, China is actually probably

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<v Speaker 6>more vulnerable than most people believe. The positive story though

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<v Speaker 6>for China and at BCA we're overweight on the Chinese

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<v Speaker 6>offshore stocks, is that because the economy is already pretty weak,

0:14:37.360 --> 0:14:40.760
<v Speaker 6>the property market is still in a terrible state. The

0:14:41.000 --> 0:14:43.800
<v Speaker 6>NPC last week didn't really produce any new measures. I

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<v Speaker 6>think by midyear, the Chinese authorities will understand that they'll

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<v Speaker 6>have to roll out more stimulus measures. So it might

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<v Speaker 6>be like a mini two thousand and eight when China

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<v Speaker 6>did its usual playbook of infrastructure spending.

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<v Speaker 4>Our expectation would be that perhaps.

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<v Speaker 6>By mid this year you're going to see that, which

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<v Speaker 6>which could mean actually that the Chinese markets do end

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<v Speaker 6>up being a little safer than some other markets around

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<v Speaker 6>the world.

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<v Speaker 1>That's really interesting, Gary, because I think most people have

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<v Speaker 1>fallen into the position that Beijing is now pretty comfortable

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<v Speaker 1>with that slower pace of growth, that it is a

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<v Speaker 1>new normal, that they're really prioritizing tech frontier tech as

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<v Speaker 1>the next area of growth. Are you saying that they're

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<v Speaker 1>going to get increasingly uncomfortable to go back to that

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<v Speaker 1>old playbook of investment.

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<v Speaker 6>So if you look at the Chinese economy last year,

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<v Speaker 6>it was.

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<v Speaker 4>Very dependent on exports.

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<v Speaker 6>Despite the fact that exports to the US fel by

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<v Speaker 6>thirty percent, a lot of it was just diverted via

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<v Speaker 6>Asian etc. That last year caused a boom and manufacturing investment,

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<v Speaker 6>you know, as you said, it's the government's focusing on this,

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<v Speaker 6>but that is now coming off. The credit impulse in

0:15:48.520 --> 0:15:51.800
<v Speaker 6>China is also slowing. There's not a lot of local

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<v Speaker 6>government special bondishments in the first half. So all of

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<v Speaker 6>our indicators say that the economy is continuing to slow.

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<v Speaker 6>And therefore this new four and a half to five

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<v Speaker 6>percent eup target that they announced last week, that's going

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<v Speaker 6>to be pretty hard to achieve.

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<v Speaker 4>And when they see that by midyear.

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<v Speaker 6>If, as we'd expect, the economy slows in the first half,

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<v Speaker 6>the government will have to do something. And also remember that,

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<v Speaker 6>of course, ultimately a lot of Chinese exports go to

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<v Speaker 6>the US with higher gasoline prices in the US with

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<v Speaker 6>a fall in stocks, which will cause a negative wealth effect.

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<v Speaker 6>US consumers are going to be under real pressure as well.

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<v Speaker 6>They're not going to be buying the sort of consumer

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<v Speaker 6>goods that China has been selling them, so China will

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<v Speaker 6>be under a lot of pressure I think to react

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<v Speaker 6>to that with stimula at some point this year.

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<v Speaker 2>That was Gary Evans, head of Research Solutions at BCA Research,

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<v Speaker 2>speaking with Bloomberg TV host Heidi Stroud Watts and April Hong,

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<v Speaker 2>bringing you their conversation here on the Daybreak Asia Podcast.

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<v Speaker 2>Thanks for listening to today's episode of the Bloomberg Daybreak

0:16:49.760 --> 0:16:53.160
<v Speaker 2>Asia Edition podcast. Each weekday, we look at the story

0:16:53.200 --> 0:16:57.560
<v Speaker 2>shaping markets, finance, and geopolitics in the Asia Pacific. You

0:16:57.600 --> 0:17:01.680
<v Speaker 2>can find us on Apple, Spotify, the bloom Podcast YouTube channel,

0:17:01.800 --> 0:17:04.840
<v Speaker 2>or anywhere else you listen. Join us again tomorrow for

0:17:04.960 --> 0:17:08.439
<v Speaker 2>insight on the market moves from Hong Kong to Singapore

0:17:08.840 --> 0:17:12.639
<v Speaker 2>and Australia. I'm Doug prisoner and this is Bloomberg