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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 Charlie Palatin for Doug Prisner. This week,

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Speaker 1: South Korean policy makers arch calm and financial markets a

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Speaker 1: day after a martial law row that's donned the nation,

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Speaker 1: renewing their pledge to take all possible steps to reign

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Speaker 1: in volatility that could still increase ahead of Donald Trump's

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Speaker 1: return to power next month. And for more, we heard

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Speaker 1: from JP Morgan, Chief Korea economist Park sock Gil. He

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Speaker 1: spoke to Bloomberg's Shayon in Seoul.

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Speaker 2: Okay, great to have you with us, and thank you

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Speaker 2: so much for coming out in this cold weather. We

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Speaker 2: were talking about some of the market risks. What are

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Speaker 2: the immediate economic risks for South Korea as this political

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Speaker 2: chaos could continue.

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Speaker 3: As you know, it's obviously the surprises to the financial

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Speaker 3: political noises. But same time, we do have our benchmark

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Speaker 3: cases back in eight years ago that similar political noise happened,

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Speaker 3: and at that time, the benchmark says that we do

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Speaker 3: have some buds the degree of slow down in domestic

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Speaker 3: consumption and the service industry service activities. So I think

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Speaker 3: it's the broadly similar drag may happen in the newseum.

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Speaker 2: I remember twenty sixteen, twenty seventeen. I mean it was

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Speaker 2: a really really cold winter as well, and that the

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Speaker 2: impeachment of parking happened. We saw people pulling back a

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Speaker 2: little bit when it came to consumer spending because confidence

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Speaker 2: was hit. What are we expecting in terms of the

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Speaker 2: South Korean economy now when it seems that it's a

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Speaker 2: relatively weaker position than it was back then.

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Speaker 3: You're exactly, You're right. Actually the shuck may be the same,

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Speaker 3: but economic backdround may be a bit different. Because in

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Speaker 3: twenty sixteen seventeen we had an off cycle of fixed investment.

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Speaker 3: Why do we do our We are going through some

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Speaker 3: slow cycle in the domaxic sense. So even in the

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Speaker 3: same sentiment, shot may happen some different impact than that

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Speaker 3: time and then now.

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Speaker 2: And I keep talking about deja vu because I mean,

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Speaker 2: even back in twenty sixteen, that was when the first

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Speaker 2: Trump administration came in in a weird turn of events.

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Speaker 2: Now eight years later, that's happening again next year. The

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Speaker 2: threat of tariffs, the threat of changes to the global

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Speaker 2: supply chains is not going to meaningfully have an impact

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Speaker 2: on South Korea.

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Speaker 3: Again, this is some good reference with the first Trump

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Speaker 3: administration and the second one. But the lesson we learnt

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Speaker 3: is that there is not only beast thing happened. There's

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Speaker 3: some positive thing as well. But in the immediate shot,

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Speaker 3: and we expect that the tariff shot, if happens, then

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Speaker 3: they do drag down a credit expert on the next year.

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Speaker 3: So that's why we expect the slower GDP grows next year,

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Speaker 3: but still at one point seven percent in our expectation.

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Speaker 3: It's not breaking down from the potential level. So it's

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Speaker 3: what it is. The drag which is expected from the

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Speaker 3: trade tension. One matter is the global backdrop, which whether

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Speaker 3: it is breaking down for more serious retreat or not

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Speaker 3: currently we don't expect.

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Speaker 2: So yeah, I mean the Bank of Korea governor was

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Speaker 2: talking about how the latest political events would not necessarily

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Speaker 2: lead to an increased likelihood of another rate cut. What

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Speaker 2: are your expectations for the rate path in twenty twenty five?

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Speaker 3: What do augumation matter is the assessment on output gap

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Speaker 3: and inflation and the financessability issue with the solely based

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Speaker 3: on the political noises. Yes, he may be right, but

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Speaker 3: looking through all things going together in our assessment, and

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Speaker 3: still the bulk is just being toward the modest. The

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Speaker 3: degree of the neutralization of the policy stands to neutral.

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Speaker 3: One matter is what is the neutral Whether it's a

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Speaker 3: two point five word lore than that, that would be

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Speaker 3: the key question.

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Speaker 2: This really seems to be a matter of prolonged political

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Speaker 2: chaos depending on how even the impeachment process goes. What

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Speaker 2: should investors and markets looking at South Korea be focused

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Speaker 2: on in the next few months.

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Speaker 3: This type of political noise is really hard to focust.

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Speaker 3: So I'll say, in terms of the economy focast and

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Speaker 3: a market implication, we need to focus more on the fundamentals.

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Speaker 3: And the fundamentals suggests there's some what there's the drag

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Speaker 3: going on, as you say, but still it means the

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Speaker 3: Korea has some resiliency in terms of the portfolio of

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Speaker 3: this export and the size of the domestic demand. And

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Speaker 3: actually the record will help the beeping of the consumption

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Speaker 3: going forward. So I think we need to take a

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Speaker 3: balance to view on that.

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Speaker 2: Right now, Handoun the leader of the ruling party saying

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Speaker 2: that he will prevent the impeachment bill from passing. But

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Speaker 2: the whole reason that we're at this stage in the

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Speaker 2: political scene here in South Korea is that there was

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Speaker 2: this wrangling over the budget for twenty twenty five, right,

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Speaker 2: and a lot of components of that budget include funding

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Speaker 2: for key parts of the South Korean economy like tech

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Speaker 2: and semiconductors. Long term economic fundamentals for South Korea in

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Speaker 2: terms of its competitiveness against other economies, what is JP

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Speaker 2: Morgan's assessment.

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Speaker 3: Still there's some diversification across the sectors, including the export

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Speaker 3: itself is quite good. But among the export that there

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Speaker 3: is a rising sector versus the falling factor, so on

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Speaker 3: that we need to be mindful about the falling sectors

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Speaker 3: as well. But on that I think it's on the

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Speaker 3: trend for still the robots the export sector. In terms

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Speaker 3: of the policies and the physical policy, probably yeah, but

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Speaker 3: it would be pastive ultimately, but it may be a

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Speaker 3: neo term direct but in the longer term for the

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Speaker 3: actually the next year anyhow, I expect that about that

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Speaker 3: will be less constrained than before Octy.

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Speaker 2: Chief Economists JP Morgan here with me outside of the

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Speaker 2: National Assembly.

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Speaker 1: On Welcome Back to the Daybreak Asia podcast. I'm Charlie Pellett,

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Speaker 1: Doug Chrisner, has the week off. South Korea's political turmoil

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Speaker 1: is adding to investor uncertainty as they are taking a

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Speaker 1: cautious approach, with some downgrading the nation shares and preferring

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Speaker 1: to invest in other countries. However, Jeff grills, Agon's head

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Speaker 1: of US Cross Markets and Emerging Market Stats, says, despite

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Speaker 1: what's going on in South Korea, he sees a buying

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Speaker 1: opportunity in the country, and he spoke with Bloomberg's shrry

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Speaker 1: On and Heidi Strau Watts.

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Speaker 2: Where does this volatility go from here? We heard from

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Speaker 2: the Bok governor saying that this would be short lived,

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Speaker 2: given that it's only a political event and not necessarily

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Speaker 2: affecting economic fundamentals.

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Speaker 4: Yeah, hi, thank you. So I think that there'd be

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Speaker 4: a lot of focus on what will be the next

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Speaker 4: steps with regard to the resident. It seems like his

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Speaker 4: term as president is likely to come cut short. But

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Speaker 4: if it's a pretty quick resolution to go to next elections,

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Speaker 4: there'll be some uncertainty. But I think what you're seeing

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Speaker 4: in the markets is really a testament to how strong

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Speaker 4: the Korean economy is, the fundamentals that underpin and so

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Speaker 4: the reason there's been a muted reaction is that any

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Speaker 4: type of weakness is seen as a buying opportunity, and

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Speaker 4: I think that makes sense. In fixed income assets, we

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Speaker 4: saw spreads wide and ten to twenty basis points. Today

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Speaker 4: we saw more stability. I think if we get past this,

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Speaker 4: we can start to see them recover back to where

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Speaker 4: they were prior to this event happening on Tuesday.

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Speaker 2: And long term, we're also really watching the developments around

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Speaker 2: the President Trump now taking office in the United States

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Speaker 2: as well. Right, what does that mean for South Korean markets,

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Speaker 2: especially in the broader context of em bonds as well.

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Speaker 4: Well, there's gonna be a lot of uncertainty, I think

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Speaker 4: with regard to China and to Korea. Now, I mean,

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Speaker 4: the Korean president had done a lot to try to

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Speaker 4: strengthen tize with the US with Japan. This is probably

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Speaker 4: a little bit of a benefit to China with regard

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Speaker 4: to how they want to be positioned against the US.

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Speaker 4: But I do think that what's going to happen is

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Speaker 4: that when Trump comes in, he is you know, he's

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Speaker 4: maybe's tariff threats. I think he's going to enact some

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Speaker 4: of them. I think China is definitely one we will

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Speaker 4: see that. But you saw the quick reaction in Mexico

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Speaker 4: and Canada. I think he'll want to see who the

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Speaker 4: next leader is in Korea and try to re establish

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Speaker 4: that relationship. So I think that that all bodes pretty well.

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Speaker 4: I mean, our view is that while the tear threats

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Speaker 4: are out there, they are unlikely to disrupt too much

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Speaker 4: aside from China, although China's dealing with its own problem.

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Speaker 4: So I think this will provide the opportunity that once

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Speaker 4: we can get past the negotiation and see more positive

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Speaker 4: settlement and not something as egregious as the numbers that

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Speaker 4: were originally floated, this will be a positive, although it's

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Speaker 4: likely probably affect to benefit places like Latin America and

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Speaker 4: Africa a little bit more than Asia, where valuations are tighter.

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Speaker 5: I do wonder when it comes to going back to

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Speaker 5: your point on China, one of the questions that have

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Speaker 5: been ongoing is how much do you see China as

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Speaker 5: still being that anchor in the EM space. Right, We've

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Speaker 5: kind of seen over the past few years with this

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Speaker 5: domestic property market and other economic issues, it's almost been

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Speaker 5: a little bit more decorrelated from the rest of the basket.

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Speaker 4: Well, it has, I mean, it was a lot more

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Speaker 4: correlated in the first stages of the property downturn, so

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Speaker 4: you saw a lot of bond prices drop in some

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Speaker 4: sort of contagent and that effected in twenty twenty two.

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Speaker 4: China is still important though, right I mean, it is

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Speaker 4: still one of the largest economies. It will be important

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Speaker 4: for how they respond. The benefit that China has is

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Speaker 4: they've shown a very strong wliness to support through stimulus,

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Speaker 4: even if the next administration here in the US does

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Speaker 4: enact some sorts of roists that potentially negatively impact China.

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Speaker 4: I think China is ready to go with stimulus efforts.

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Speaker 4: So we do think that the Asia X China is

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Speaker 4: probably more likely to benefit. We're much more optimistic on Indonesia,

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Speaker 4: Philippines in India, so they will they will probably be

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Speaker 4: very well supported. There's been very strong appetite for investments.

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Speaker 4: Flows continue being strong in emerging markets. So I think

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Speaker 4: that to your point, China can decouple. But you know,

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Speaker 4: as long as it doesn't go into any type of

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Speaker 4: a recession, I think we'll be fine.

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Speaker 5: Is that decoupling perhaps also advantageous if you're wanting to

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Speaker 5: you know, hedge away from perhaps the more thematic training

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Speaker 5: environment across the rest of Asia. If you take a

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Speaker 5: look at I guess some of the warnings about global

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Speaker 5: debt and the challenges of fiscal policy and trade policy.

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Speaker 5: Who do you see as being most affected across Emerging Asia?

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Speaker 4: Well, I mean, I think the good news is that

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Speaker 4: Asia from a debt perspective is in reasonably strong shape.

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Speaker 4: I mean, you've had Sri Lanka which is going through

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Speaker 4: its structuring now, so that'll be cleaned up and moving forward. Otherwise, Indonesia,

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Speaker 4: Philippines are all investment grade rated credits, so the opportunities

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Speaker 4: there are primarily usually in the corporate space. So that's

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Speaker 4: where we've had a stronger theme. I mean, one of

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Speaker 4: the big themes for the last three years, four years

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Speaker 4: really since COVID hit was that all the governments have

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Speaker 4: done a lot of stimulus to help support their companies,

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Speaker 4: and corporates have been the beneficiaries. And so I think

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Speaker 4: that's the main theme that will continue in Asia. And

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Speaker 4: I think that's again why Korea is probably really more

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Speaker 4: of a corporate investment play, at least on the fixed

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Speaker 4: income side, and it's why you've seen a pretty quick

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Speaker 4: stability to those markets where investors view any type of

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Speaker 4: winding as an opportunity to put cash to work into

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Speaker 4: assets that have appropriate spreads and attractive vials.

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Speaker 2: Jeff Grills, heead of Me, Marjorr market zet of Egan

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Speaker 2: Auncid much Ran. Great to have you with us.

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Speaker 1: Thanks for listening to today's episode of the Bloomberg Daybreak

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Speaker 1: Asia Edition podcast. Each weekday, we look at the story

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Speaker 1: shaping markets, finance, and geopolitics in the Asia Pacific. You

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Speaker 1: can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel,

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Speaker 1: or anywhere else you listen. Join us again tomorrow for

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Speaker 1: insight on the market moves from Hong Kong to Singapore

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Speaker 1: and Australia. I'm Doug Chrisner, and this is Bloomberg