Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: Welcome to the Daybreak Asia podcast. I'm dog prisner. US
Speaker 2: equities advanced to record highs in the last session in
Speaker 2: what was described as a resurgence of dip buyers. Even so,
Speaker 2: there's still this robust debate over weather stocks have more
Speaker 2: room to run given elevated valuations, and on Wednesday, the
Speaker 2: Bank of England weighed in. The BOE said stretched valuations
Speaker 2: for AI companies, along with challenges related to the fed's independence,
Speaker 2: have fueled the risk of a sharp market correction. Well. Nonetheless,
Speaker 2: in video rowse more than two percent. That was after
Speaker 2: CEO Jensen wongtold CNBC demand for those Blackwell chips is
Speaker 2: really really high. And at the same time, Cisco Systems
Speaker 2: said it's releasing a new chip and networking system meant
Speaker 2: to connect AI data centers across huns of miles. Later
Speaker 2: today in Taiwan, TSMC will be releasing sales figures for
Speaker 2: the latest quarter. For more on TSMC, let's bring in
Speaker 2: Bloomberg's Debbie Wu, team leader for North Asia Tech. Debbie
Speaker 2: is in Taipei. Thank you for making time to chat
Speaker 2: with me so we get the sales figures today, Debbie.
Speaker 2: TSMC will report earnings next week. Help me understand where
Speaker 2: the focus will be.
Speaker 1: I think investors and analyst they will be looking for
Speaker 1: comments on AI demand. Bloomberg News just pushed out a
Speaker 1: story trying to figure out whether all these recent investments
Speaker 1: mostly on led by Nvidia, whether it's for real, or
Speaker 1: whether it's really a big AI bubble after all. And
Speaker 1: I'm hoping and I do believe that comments for not
Speaker 1: TSMC management should be able to give investors some insight
Speaker 1: into how while the demand for air chips really is.
Speaker 1: And in conjunction with that, I think investors analyst they
Speaker 1: will be keen to hear whether a TSMC is playing
Speaker 1: even more capital expenditure this year in the coming year,
Speaker 1: although they are unlikely to offer guidance on spending next
Speaker 1: year yet. But who knows.
Speaker 2: What about the competition from chip makers in China? I
Speaker 2: know that Huawei has been making a lot of inroads,
Speaker 2: particularly in terms of being able to compete with some
Speaker 2: of the advanced chips from Nvidia. Is there any concern
Speaker 2: here that what's happening on the mainland would represent any
Speaker 2: type of threat to TSMC?
Speaker 1: Right No, our sense is not really yet China is
Speaker 1: still up at least a few years behind. That's our sense.
Speaker 1: And then based on our our latest reporting on Huawei's
Speaker 1: our latest AI chip, it is actually made with a
Speaker 1: due or what we called an unpackaged chip from TSMC.
Speaker 1: So this is the o stockpile or some of the
Speaker 1: recent TSMC chips that Huawei obtained via show companies. And yeah,
Speaker 1: so that kind of shows that Huawei is still need
Speaker 1: foreign technology to make it them a chips happen.
Speaker 2: So one of the things that's very interesting, I'm imagining
Speaker 2: that TSMC is still abiding by some of the export
Speaker 2: controls that the US and its partners like the Netherlands
Speaker 2: and Japan have placed on some of the advanced chip
Speaker 2: making equipment. Has there been any concern that perhaps that
Speaker 2: relationship is beginning to break down at all, or is
Speaker 2: TSMC still playing by the same rules.
Speaker 1: It is definitely not in TSMC's interest not to abide
Speaker 1: by the global export control rules, so the company has
Speaker 1: been abiding by that. But at the same time, last
Speaker 1: year we did report that Huawei was able to obtain
Speaker 1: some of tsmcs advanced chips through intermediaries, but TSMC has
Speaker 1: cut off from these are show companys, since in TSMC's case,
Speaker 1: it is abiding via US and Taiwansa rules and to
Speaker 1: make sure that none of its advanced chips is still
Speaker 1: going to China, and let's particularly for Huawei for some
Speaker 1: of the consumer electronics stuff, TSMC can still provide the
Speaker 1: advanced chips as long as the rules allowed lot. So
Speaker 1: I think we should understand that the US has not
Speaker 1: totally put a blanket ban on all of TSMC's advanced chips.
Speaker 1: Mostly the restriction is targeted at AIS SAR raiders.
Speaker 2: We know that TSMC is a major customer of ASML,
Speaker 2: the Dutch company that manufactures chip making equipment. You mentioned
Speaker 2: earlier about the fact that we don't really know whether
Speaker 2: or not TSMC is still going to reveal a level
Speaker 2: of CAPAC spending. Do you think it's likely the TSMC
Speaker 2: is going to be needing a lot more of this
Speaker 2: advanced chip making equipment from a company like ASML in
Speaker 2: order to meet demand for these high end AI chips.
Speaker 1: So there's a little bit of nuances here. So of
Speaker 1: course analyst investors, they will treat TSMC suspending level, say,
Speaker 1: leading indicator on how the global demand for AI chips is.
Speaker 1: But at the same time, TSMC is also thinking about
Speaker 1: its profit margins. And then sml does over the most
Speaker 1: cutting edge machines, but at the same time it's some
Speaker 1: most SMLS premium offering, what we call the high na
Speaker 1: V machines. It costs about three hundred million dollars or
Speaker 1: euros per unit, so that's quite a bit pricey, and
Speaker 1: TSMC executives have previously said that Dala and SMLS latest
Speaker 1: machines a bit expensive. So what the TSMC may do
Speaker 1: is not purchasing less machines quite as aggressively as before.
Speaker 1: They can still rely on an older generation of SMO
Speaker 1: machines to make them. There are most advanced chips, so
Speaker 1: it really depends on how TSMC is thinking about the expending.
Speaker 1: It's a profit margins and so sometimes we can we
Speaker 1: have seen them in the past earnings that when TSMC
Speaker 1: delivers really are performing of results. Sometimes when TSMC delivers
Speaker 1: better than expected results, SMLS results can be a little
Speaker 1: bit diverging from TSMC's performance. And the reason for lot
Speaker 1: is not necessarily a global demand is not good, but
Speaker 1: it's more like TSMC is being more prudent about its
Speaker 1: profitability and then maybe the speed that it is buying
Speaker 1: the most cutting edge machines. So yes, SMOs are earnings
Speaker 1: is coming up. So I think it will be interesting
Speaker 1: to see what the two companies say about the demand
Speaker 1: for the most cutting edge chips.
Speaker 2: Before I let you go, Debbie, give me a sense
Speaker 2: of how TSMC fits into the economy of Taiwan.
Speaker 1: So TSMC is Taiwan's largest company by market cap, and
Speaker 1: it is sort of leading this comprehensive chip making ecosystem
Speaker 1: in Taiwan. Hundreds of companies in Taiwan are they exist
Speaker 1: to support TSMC and other smaller chip makers in Taiwan.
Speaker 1: So Taiwan's colony is really heavily dependent on the chip
Speaker 1: exports and this ecosystem. They really are sort of have
Speaker 1: TSMC sitting the center.
Speaker 2: Debbie will leave it there. Thank you so very much.
Speaker 2: Bloomberg's Wi Wu, who is team leader for North Asia Tech,
Speaker 2: joining us on the Daybreak Asia podcast. Welcome back to
Speaker 2: the Daybreak Asia Podcast. I'm Doug Chrisner. There certainly has
Speaker 2: been a lot of talk in the US around a
Speaker 2: bubble in tech stocks, especially those exposed to the ai trade.
Speaker 2: Even the Bank of England is worried about stretched valuations
Speaker 2: and the risk of a sharp correction in US equities
Speaker 2: in the States. We heard from Michael Sheldon, he is
Speaker 2: senior portfolio manager at Washington Trust Advisors.
Speaker 3: Evaluation in the market is historically on the high side,
Speaker 3: but if you take out the MAC seven stocks, for example,
Speaker 3: things are a little more even so. For example, the
Speaker 3: S and P five hundred is currently trading at about
Speaker 3: twenty two point eight times, but the average stock in
Speaker 3: the market is trading at about seventeen point three times.
Speaker 2: Michael Sheldon there from Washing and Trust Advisors for a
Speaker 2: closer look. I'm joined now by Charles Lieberman. He is
Speaker 2: co founder and chief investment officer at Advisor's Capital Management. Chuck,
Speaker 2: thank you so much for making time. Where do you
Speaker 2: come down in this debate about valuations in US equities.
Speaker 4: I think they're just trying to discourage the government, the
Speaker 4: US government from intervening or trying to continue to push
Speaker 4: pale in a particular direction. The fact of the matter is,
Speaker 4: if that is independent, they behave that way. They do
Speaker 4: what they think is right for the most part, and
Speaker 4: I think that's going to continue to be the case
Speaker 4: with regard to valuation. One weakness that the Bank of
Speaker 4: England has is that its companies are not among the
Speaker 4: mag seven. Those companies are really almost unique in Vidia
Speaker 4: for trillion dollar market cap but growing it well in
Speaker 4: excess of fifty percent a year, which is just astonishing.
Speaker 4: So it deserves to trade at a very high multiple.
Speaker 4: The right multiple is hard to discern, and two different
Speaker 4: people can look at it. One can say it's expensive
Speaker 4: and another can say it's cheap. But it really depends
Speaker 4: on how quickly and video continues to grow over the
Speaker 4: next three to five years, and obviously we don't know that.
Speaker 2: So record today for the S and P, for the
Speaker 2: Nasdaq comp and the Nasdaq one hundred and gold rising
Speaker 2: to another record. We're trading about four thousand dollars an ounce,
Speaker 2: a big milestone. There's been a three year bull run
Speaker 2: in gold. Some skeptics have kind of been looking at
Speaker 2: this and shrugging, Are you one of them?
Speaker 4: Well, I think gold is being driven by a couple
Speaker 4: of things, one of which is, oddly enough, the behavior
Speaker 4: of China. China had a huge amount of money invested
Speaker 4: in it's foreign exchange reserves in US treasuries, and after
Speaker 4: the US sort of attack or expropriated Russias for an
Speaker 4: exchange reserves. China does not want to be in the
Speaker 4: same position if something if there were a conflict between
Speaker 4: China and the United States, and there could be over Taiwan.
Speaker 4: So China has been systematically reducing its holdings of US
Speaker 4: treasuries and it's got to go somewhere else. The question
Speaker 4: is where else can it go? There aren't too many options.
Speaker 4: Gold is one of the few, and so they've been
Speaker 4: consistently buying gold, and that presents a very strong tailwind
Speaker 4: for gold prices. And then, of course the environment in
Speaker 4: general is very positive for financial assets and that helps
Speaker 4: gold as well.
Speaker 2: It's great that you bring up that point because in
Speaker 2: terms of financial assets, we had the minutes from the
Speaker 2: last FED meeting. Today they show a willingness to lower
Speaker 2: rates further this year. And back in September after the
Speaker 2: last meeting, we learned that generally speaking, the FED expects
Speaker 2: two more quarter point cuts by the end of the year.
Speaker 2: The other thing that becomes very clear and looking at
Speaker 2: these minutes, many at the FED are very cautious about
Speaker 2: where inflation may be headed. And let's talk about the
Speaker 2: possibility that there is a little bit of asset inflation
Speaker 2: happening right now. We talked about the AI trade, we
Speaker 2: talked about what the Bank of England had to say.
Speaker 2: We also talked just a moment ago about what's going
Speaker 2: on with gold. Is there the possibility that we are
Speaker 2: seeing evidence of inflation reflected in asset prices.
Speaker 4: That is definitely a possibility. But also consider that if
Speaker 4: interest rates remain relatively low, and I think of them
Speaker 4: as low, with the possibility that the FED could cut
Speaker 4: a bit more. And then you throw in the fact
Speaker 4: that the US economy continues to grow at a pretty
Speaker 4: good clip, Corporate earnings are doing very well. We should
Speaker 4: start getting the next quarters round of earnings reports beginning
Speaker 4: next week, and I think that's going to get and
Speaker 4: be good news for the market. So when you put
Speaker 4: all of that together, there is every reason for stock
Speaker 4: prices to perform quite well. And so we remain positive
Speaker 4: on the outlook for the US markets.
Speaker 2: So we know that the economic data from the government
Speaker 2: has been essentially non existent given the shutdown. How are
Speaker 2: you going about reading what's been happening in the macro
Speaker 2: without having access to what the government provides.
Speaker 4: Well, there are some numbers that you get outside of
Speaker 4: the government, there are various private sources that produce numbers,
Speaker 4: so that's available, and then we will get a lot
Speaker 4: of insight from listening to corporate leaders that when they
Speaker 4: do their earnings releases and talk about what they're seeing
Speaker 4: in their businesses. You sort of get a steady flow
Speaker 4: of that anyway through interviews people like you talking to
Speaker 4: the leaders of various companies. So you just have to
Speaker 4: pay more attention to that kind of information.
Speaker 2: When you look at what the government had to say
Speaker 2: today in terms of the budget deficit one point eight
Speaker 2: trillion for fiscal twenty twenty five, little changed from twenty four,
Speaker 2: even though the Trump administration has been touting this big
Speaker 2: surge in tariff revenues. Is the fact that we're at
Speaker 2: one point eight trillion dollars now in the budget deficit
Speaker 2: of a concern to you.
Speaker 4: Absolutely. The budget deficit is running at a pace that
Speaker 4: any outside any objective observer would say is unsupportable and
Speaker 4: cannot be continued. The problem with my statement is that
Speaker 4: there's no time associated with it. The market at some
Speaker 4: point will gag on the volume of treasury debt that
Speaker 4: has to be issued to finance the government, but that
Speaker 4: gagging may not occur in twenty twenty five. In fact,
Speaker 4: it's unlikely to occur in twenty five. I would say
Speaker 4: it's unlikely in twenty six, twenty seven. Somewhere out there
Speaker 4: the market will be unable to absorb all of that debt.
Speaker 4: But it's not on the visible horizon as of yet,
Speaker 4: so it's better to address the problem early. You know,
Speaker 4: there's this old expression, A stitch in time saves nine.
Speaker 4: Much better to address it now than five or ten
Speaker 4: years from now, but eventually it's got to be addressed.
Speaker 2: I want to turn our attention quickly to what's going
Speaker 2: on in Japan. The country's on the verge of electing
Speaker 2: its first female prime minister, so now a Takeiichi may
Speaker 2: be able to kind of move a lot of policy
Speaker 2: forward in terms of trying to stimulate the economy at
Speaker 2: a time when the Bank of Japan is trying to
Speaker 2: deal with an inflation rate that's been above target now
Speaker 2: for over three years, and before the election of Takeiichi
Speaker 2: is head of the LDP, the expectation was that the
Speaker 2: boj would be raising interest rates this month. Is that
Speaker 2: still your expectation.
Speaker 4: Yeah, that's likely, but obviously less likely there's no doubt
Speaker 4: that she would like to stimulate the Japanese economy. In
Speaker 4: one area that she may be spending more money on
Speaker 4: is defense. So there's some reasons to expect some more spending.
Speaker 4: But the BOJ has its own areas of responsibility and
Speaker 4: focusing on inflation is clearly one of them. And then
Speaker 4: there are other issues that Japan has. The population is aging,
Speaker 4: the labor force is shrinking. Those are also constraints, and
Speaker 4: it's a lot to juggle.
Speaker 2: Before I let you go, Chuck, can you give me
Speaker 2: a sense of where you're finding opportunity in markets these days?
Speaker 4: Well, Golden, back to the US market, if you exclude
Speaker 4: the mag seven or the top ten, the average p
Speaker 4: multiple in the market is much lower. It's at least
Speaker 4: three percentage points lower. And then the whole industries, where
Speaker 4: very good companies traded multiples of ten to twelve. The
Speaker 4: banking sector is a perfect example, and I'm very positive
Speaker 4: there because the administration is likely to be a lot
Speaker 4: more favorable or to permit more bank mergers. We saw
Speaker 4: a big one announced less than a week ago, so
Speaker 4: I think more of that is coming, and I really
Speaker 4: like the banking sector. The energy sector is another area
Speaker 4: that I think is relatively cheap, especially the pipelines, where
Speaker 4: you're taking less commodity risk and just basing the earnings
Speaker 4: outlook on volumes. That's going to continue to be positive.
Speaker 4: The healthcare sector has gotten quite cheap. It's been a
Speaker 4: laggard in terms of its performance, so I think there
Speaker 4: are a lot of opportunities there. There's an old joke
Speaker 4: you can find a lot if you look.
Speaker 2: Okay, we'll leave it there, Chuck, It's always a pleasure.
Speaker 2: Thanks so much. Charles Lieberman, co founder and chief investment
Speaker 2: office at Advisors Capital Management, joining us here on the
Speaker 2: Daybreak Asia Podcast. Thanks for listening to today's episode of
Speaker 2: the Bloomberg Daybreak Asia Edition podcast. Each weekday, we look
Speaker 2: at the story shaping markets, finance, and geopolitics in the
Speaker 2: Asia Pacific. You can find us on Apple, Spotify, the
Speaker 2: Bloomberg Podcast YouTube channel, or anywhere else you listen. Join
Speaker 2: us again tomorrow for insight on the market moves from
Speaker 2: Hong Kong to Singapore and Australia. I'm Doug Risner, and
Speaker 2: this is Bloomberg