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

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Speaker 1: Asia podcast. I'm Doug Chrisner. President Trump is threatening to

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Speaker 1: hike tariffs on South Korean goods from fifteen percent to

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Speaker 1: twenty five percent. The President cited the failure of South

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Speaker 1: Korea's legislature to approve the US trade deal. Here is

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Speaker 1: Bloomberg's josh Win Grove.

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Speaker 2: He's essentially ripping up or at least for now, the

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Speaker 2: deal and saying that's because the Korean they're slow walking in.

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Speaker 2: I should note that there were a lot of question marks,

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Speaker 2: including from what the American position was about this deal.

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Speaker 2: You know, we still, for instance, don't know what what

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Speaker 2: the shipbuilding cooperation will look like. And so this is

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Speaker 2: another case for countries that are looking at this, including

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Speaker 2: the EU and the UK that had their deals and

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Speaker 2: that then saw the Greenland tariff threat come in. The

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Speaker 2: Trump's deals aren't necessarily you know, locked in.

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Speaker 1: That is Bloomberg's josh Win Grove. Needless to say, if

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Speaker 1: they are implemented, these tariffs could have a wide ranging

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Speaker 1: impact on major South Korean companies that export to the US,

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Speaker 1: such as Hondai Motor. In so far as the overall

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Speaker 1: South Korean equity market is concerned. This week, it's an

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Speaker 1: important week for earnings. We'll hear from Samsung and sk

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Speaker 1: Heinez for a closer look. I'm joined by Bloomberg's yuq

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Speaker 1: and Lee. She covers South Korean equities from our bureau

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Speaker 1: in Seoul. Thank you for being here. Can we start

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Speaker 1: with Samsung? Give me a sense of what the market

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Speaker 1: is expecting to hear.

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Speaker 3: The market is very intensely focused on Samsung's semiconductor business

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Speaker 3: and what they're going to say about the current demand

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Speaker 3: and the future demand forecast for the semiconductor, especially the

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Speaker 3: memory area. Earlier in January, Samsung already has a given

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Speaker 3: preliminary earning saying that the fourth quarter of twenty twenty

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Speaker 3: five will see record operating profit that's almost triple from

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Speaker 3: a year ago. And now investors are going to ask

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Speaker 3: Samsung about how they see the coming year. What they're

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Speaker 3: curious about is especially how much they're going to hike

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Speaker 3: the memory prices.

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Speaker 4: You probably have heard that the world.

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Speaker 3: Is experienced shortages in memorages because there's so much demand

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Speaker 3: coming from artificial intelligence applications and data centers, and these

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Speaker 3: memory chip sectors are dominated by these Korean companies.

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Speaker 4: Two of the.

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Speaker 3: World's three largest membership makers are located in South Korea,

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Speaker 3: and Samsung is the biggest among the three. So investors

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Speaker 3: are really really curious about what Samsung is going to

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Speaker 3: say about the outlook for the memory demand and how

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Speaker 3: much price premiums they're getting from their customers, and how

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Speaker 3: much memorage they have sold in advance. These kind of

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Speaker 3: stuff are going to be the key questions that the

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Speaker 3: anamals and investors are going to ask.

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Speaker 1: So where AI kind of intersects the memory market, that's

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Speaker 1: the high bandwidth memory chips that are used as a

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Speaker 1: part of the AI functions. You mentioned the competitors that

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Speaker 1: Samsung has in sold two companies I'm thinking of SK

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Speaker 1: Heinex in particular. Do you think the results from Heinex

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Speaker 1: will pretty much mirror what we hear from the chip

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Speaker 1: side of Samsung.

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Speaker 3: Yeah, I think it's going to mirror what people hear

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Speaker 3: from Samsung. And interestingly, this time, Samsung and ESK Highness

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Speaker 3: are releasing their earnings on the same day. On the day,

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Speaker 3: this is quite unusual, but when it comes to memory chips,

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Speaker 3: both of them are dominant memory ship maker.

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Speaker 4: But what they excel at are a little bit different.

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Speaker 3: Samsung is dominant supplier of the conventional memory ships that's

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Speaker 3: called DRAM that's currently seeing shortages and huge price hikes

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Speaker 3: because Memora makers have been reducing their supply to make

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Speaker 3: more advanced chips. So these type of conventional commodity DRAM

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Speaker 3: that used to be cyclical are now seeing huge price hikes.

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Speaker 3: And this is the area that Samsung dominates, and also

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Speaker 3: ESK High provides and micro improvides. But when it comes

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Speaker 3: to ESK Heinex is the dominant supplier of the high

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Speaker 3: bandwidth memorage, investors are definitely going to more focus on

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Speaker 3: this HBM products like how advanced they are and how

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Speaker 3: the race is going to look like. Currently, ESK Heinis

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Speaker 3: has been having seen as having an edge over Samsung

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Speaker 3: in this race to supply the HPM to Nvidia and

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Speaker 3: other companies, but people think that Samsung is getting close.

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Speaker 4: To catch up with ESK Heighi.

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Speaker 3: So this rivalry between Samsung and ESK Heinis when it

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Speaker 3: comes to this type of HPM product that's really key

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Speaker 3: to this AI race is also going to be the

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Speaker 3: focus during the earnings conference call for ESK Heihis.

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Speaker 1: You can we know that the South Korean equity market

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Speaker 1: really is very much a reflection of tech industries, and

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Speaker 1: recently the benchmark COSPY was able to break above five

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Speaker 1: thousand for the very first time. This is something that

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Speaker 1: the South Korean President Lee jimung has set as a goal,

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Speaker 1: whether we're talking about chips or more broadly other types

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Speaker 1: of high tech technology. Is the President's office really trying

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Speaker 1: to support more growth.

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Speaker 4: Absolutely so.

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Speaker 3: When press current president came into office in June of

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Speaker 3: last year, there were expectations that he may not be

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Speaker 3: as pro growth because he was in as leftists, but

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Speaker 3: to the surprise of the market, he was a lot

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Speaker 3: more pro growth than most investors had expected. So President

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Speaker 3: Lee's office has been coming up with this idea of

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Speaker 3: one hundred and fifty trillion dollars worth AI fund that

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Speaker 3: would boost innovation and the future AI technology for South

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Speaker 3: Korean companies, and that has been received very positively by

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Speaker 3: investors and also by the local companies. So this type

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Speaker 3: of initiative show how President Lee's office is trying to

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Speaker 3: boost innovation and growth through the future technologies such as

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Speaker 3: AI and robotics. President Lee's office has definitely been very

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Speaker 3: pro growth and these has been one of the two

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Speaker 3: pillars along with corporate governance reform that his office has

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Speaker 3: been trying to promote.

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Speaker 1: So we were talking a moment ago about the supply

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Speaker 1: constraints of memory chips, and I'm wondering whether or not

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Speaker 1: that necessarily means that memory prices are headed higher, and

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Speaker 1: that for that reason, whether we're talking about Samsung or

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Speaker 1: sk Heinex, that their margins will likely improve going forward.

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Speaker 1: Is that a safe bet?

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Speaker 3: This is absolutely safe bet, and investors who have made

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Speaker 3: such wages from a few months ago have been making

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Speaker 3: a lot of money.

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Speaker 4: And I think the market is still catching.

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Speaker 3: Up with this narrative how much the memory prices are

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Speaker 3: in short supply and how much a price.

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Speaker 4: Hike is going to be.

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Speaker 3: Recently, a Samsung executive told Bloomber that this is going

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Speaker 3: to affect everyone from consumers and new body is going

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Speaker 3: to be saved from this memory upcoming memory price highs

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Speaker 3: because everybody uses all the devices that have memory in it.

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Speaker 3: And this is a huge change from the past when

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Speaker 3: memoryships were considered to be commodity, they were very very

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Speaker 3: sensitive to supply and demand balance, and this is type

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Speaker 3: of supply demand imbalance that we have not seen in

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Speaker 3: a few years, and that is because so many memory

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Speaker 3: makers have been using their production lines to produce the

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Speaker 3: higher end memberships that are for the AI, so they

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Speaker 3: have been running out a place to produce more conventional,

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Speaker 3: cheaper dram. Now those cheaper derams are not no longer

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Speaker 3: as cheap as before.

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Speaker 4: So during the fourth quarter.

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Speaker 3: Of last year, companies have been reporting a huge price

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Speaker 3: hikes in the memberships and I heard the clients are

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Speaker 3: willing to pay so much premiums to get the memory

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Speaker 3: because these memories are actually what they also need you

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Speaker 3: have the artificial intelligence related data centers and apps up

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Speaker 3: and running. So we've seen huge price hydering the fourth

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Speaker 3: quarter last year. But most people in the market expect

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Speaker 3: these memory price hikes to continue and possibly even at

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Speaker 3: the stronger rate that we've seen before. And this is

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Speaker 3: something that's really been exciting to the investors in Samsung

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Speaker 3: and Stay Highness because these companies used to be seen

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Speaker 3: as cyclical stocks, meaning they have cycles of ups and downs,

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Speaker 3: but a lot of these investors are now seeing that

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Speaker 3: this company would be less sensitive to these cycles of

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Speaker 3: the industry because of the memoryship price hikes.

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Speaker 4: That we don't know when it's going to end.

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Speaker 3: A lot of the animals have been saying that such

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Speaker 3: memory imbalance could continue through twenty twenty six and possibly

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Speaker 3: twenty seven. So there are expectations that such memory price

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Speaker 3: hikes will go on for a while, and it's going

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Speaker 3: to affect consumers around the world who's going to buy

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Speaker 3: the phones or PC's or other mobile devices.

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Speaker 1: Yu Kyung will leave it there. Thank you so very

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Speaker 1: much helping us understand what's at play in the memory

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Speaker 1: chip market. As we look forward to earnings in the

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Speaker 1: week ahead from both Samsung and s k Heinez Bloomberg'syuk

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Speaker 1: King Lee. She covers South Korean equities from our bureau

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Speaker 1: in Seoul. Joining us here on the Daybreak Asia podcast.

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Speaker 1: Welcome back to the Daybreak Asia Podcast. I'm Doug Krisner.

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Speaker 1: This week we'll get earnings from four of the Magnificent Seven.

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Speaker 1: We'll hear from Microsoft along with Meta Platforms and Tesla.

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Speaker 1: Those numbers will hit the tape on Wednesday. Thursday, we

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Speaker 1: will hear from Apple now. These results will offer a

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Speaker 1: glimpse into business from cloud computing and electronic devices to

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Speaker 1: software and digital advertising. For a closer look I'm joined

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Speaker 1: by Zachary Hill. Zaki is head of portfolio management at

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Speaker 1: Horizon and he is on the line from Charlotte, North Carolina.

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Speaker 1: Thank you for being here at zach What are your

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Speaker 1: expectations in terms of the earnings that we're going to

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Speaker 1: be getting this week.

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Speaker 4: Great to be with you, Doug.

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Speaker 5: I mean, I think in terms of the mag seven

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Speaker 5: what we're going to be watching, one is capex plans.

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Speaker 5: You know, obviously that's been on again, off again subject

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Speaker 5: for the market, and we do think that's going to

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Speaker 5: be scrutinized by investors, especially given some of the lack

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Speaker 5: of momentum that we saw kicked off by you know,

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Speaker 5: last earning season in October. So that's one area of focus.

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Speaker 5: And the second one is going to be around margins.

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Speaker 5: You know, as these companies are investing, investors are going

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Speaker 5: to want to see that they have revenue growth and

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Speaker 5: they can maintain their margins in the face of that.

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Speaker 5: So those are the two things for the top of

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Speaker 5: the market that we're going to be watching this week.

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Speaker 1: Yeah, it's interesting you make the point about margins. Apples

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Speaker 1: numbers on Thursday probably will tell a lot about the

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Speaker 1: pressure that this company may be facing when it comes

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Speaker 1: to memory. There seems to be a shortage right now

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Speaker 1: of memory chips globe.

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Speaker 5: Yeah, I mean that's definitely been moving some of the

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Speaker 5: sort of AI adjacent names not in the mag seven

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Speaker 5: you know, more recently, but I think more broadly as

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Speaker 5: we zoom out, you know, the fact that this cohort

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Speaker 5: of stocks that has really led the market for the

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Speaker 5: last few years is not moving as a monolithic group

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Speaker 5: is really you know, the most important development for investors.

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Speaker 5: And so we're going to be picking through you know,

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Speaker 5: these reports this week just like everybody else. But I

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Speaker 5: think we've gone from the stage of you know, the

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Speaker 5: AI trade being a sort of a beta trade a

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Speaker 5: blanket by to a little bit more of an alpha

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Speaker 5: stock picking type environment.

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Speaker 1: What do you make of the trade in precious metals today?

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Speaker 1: As an example, we had silver rallying to a record

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Speaker 1: high at one point, I think we were at one

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Speaker 1: hundred and seventeen dollars announce.

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Speaker 5: Yeah, I mean it's really been something, you know, to

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Speaker 5: take any of your expectations and blow them out of

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Speaker 5: the water. I mean, just you know, silver today, I

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Speaker 5: think we pulled back fourteen percent from the highs or

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Speaker 5: something like that. I mean, volatility is extraordinarily elevated. I mean,

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Speaker 5: you know, generally speak King Doug. Look, we completely sympathize

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Speaker 5: with this idea. There are fewer safe assets in the

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Speaker 5: world today than there were in the last five, ten

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Speaker 5: or twenty years, and so that does kind of force

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Speaker 5: long term holders that are looking to preserve purchasing power

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Speaker 5: into real assets, and certainly precious metals are part of

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Speaker 5: that have been for you know, a long long time.

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Speaker 5: You know right here, as we said, we think that

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Speaker 5: the risk reward of chasing some of this action in

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Speaker 5: the volatility we're seeing in markets is not very favorable

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Speaker 5: right now, and so we would rather you know, position

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Speaker 5: portfolios to benefit from a weeker dollar and have some

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Speaker 5: exposure to commodity producers, but you know, not direct within

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Speaker 5: the commodities themselves, given the overall volatility we've seen.

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Speaker 1: To what extent is this about politics? I mean, if

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Speaker 1: you see investors moving out of things like sovereign bonds

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Speaker 1: or even currencies and into haven's like the precious metals,

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Speaker 1: is this really a statement about uneasiness with the current

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Speaker 1: trajectory of the political landscape.

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Speaker 5: I think it's a reflection of certainly a realization that

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Speaker 5: that people are coming to that it's a little bit

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Speaker 5: of a different environment where there are more things on

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Speaker 5: the table than there had been in the past. And so,

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Speaker 5: you know, over the last year, I think we were

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Speaker 5: really blindsided by a lot of that. But you know,

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Speaker 5: the cats out of the bag at this point, and so,

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Speaker 5: you know, on the margin, we do see some changes

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Speaker 5: in behavior that are starting to occur. It's not a

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Speaker 5: wholesale you know, shun all us assets or or completely

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Speaker 5: reorient your portfolio, but it does, you know, sort of

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Speaker 5: tilt the balance of risk in favor of you know,

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Speaker 5: some parts of the market and some exposures that have

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Speaker 5: been under performers for you know, not just the last

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Speaker 5: three years, but really for the last decade. And so

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Speaker 5: we do think that's a notable development that we're watching

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Speaker 5: quite closely.

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Speaker 1: So, staying with this theme of politics, we have President

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Speaker 1: Trump and Senate Democrats. They appear to be headed towards

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Speaker 1: some type of government shutdown. Maybe there's been a lot

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Speaker 1: of revolt on the part of Democrats, particularly in the Senate,

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Speaker 1: against funding the Department of Homeland Security without new safeguards. Obviously,

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Speaker 1: that's after the killing of a US citizen in Minneapolis

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Speaker 1: by federal agents. Is there a real risk in your

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Speaker 1: mind that we could get another government shutdown?

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Speaker 5: I think if we do, it's going to be partial,

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Speaker 5: you know. Right now the talk is about splitting the

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Speaker 5: continuing resolutions apart and doing them in pieces, and so

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Speaker 5: I think that I think the market does expect to

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Speaker 5: have a shutdown this weekend, but I think belief is

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Speaker 5: is going to be you know, short and shallow, not

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Speaker 5: like the one that we just had. And certainly, you know,

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Speaker 5: as macro investors that are trying to parse the data

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Speaker 5: like everybody else, you know, we hope that's the case.

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Speaker 5: You know, generally speaking, you know, investors have looked through

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Speaker 5: this type of volatility and we do expect that to

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Speaker 5: be the case. But look, we've been flying blind on

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Speaker 5: you know, how the economy is orienting itself for quite

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Speaker 5: some time. We were just starting to catch back up.

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Speaker 5: So even a little disruption there could be you know,

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Speaker 5: pretty difficult.

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Speaker 1: I think the same could be said for the FED

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Speaker 1: in terms of flying blind right, And we've got a

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Speaker 1: rate decision this week. The FED is widely expected to

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Speaker 1: keep rates unchanged in the face of calls from President

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Speaker 1: Trump to lower rates. How do you view the Fed's

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Speaker 1: role in what what we're seeing unfold these days.

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Speaker 5: I mean, I think they want to be as out

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Speaker 5: of the headlines as they possibly can be. That's hard

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Speaker 5: to do these days. But you know, we do think

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Speaker 5: the FED is on pause. You know, they've cut one

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Speaker 5: hundred and seventy five basis points from the high. We

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Speaker 5: don't know where neutral rates are. Nobody really knows where

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Speaker 5: neutral rates are until after the fact, but it is

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Speaker 5: categorically true that we are closer to them today than

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Speaker 5: we were a year or two years ago. And so

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Speaker 5: you know, there's been a lot of insurance taken out,

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Speaker 5: and so we think the FED is going to try

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Speaker 5: to fly under the radar, you know, for as long

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Speaker 5: as possible. You know, everyone likes to watch the FED,

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Speaker 5: so that switches the drama to you know, the FED

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Speaker 5: share and that race as opposed to what they're doing

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Speaker 5: with short term interest rates.

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Speaker 1: That said, there's still policy risk when it comes to

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Speaker 1: US insurance companies. I mean, after the bell today we

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Speaker 1: had word from the government that they intend or it intends,

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Speaker 1: to hold payments to private medicare plans flat next year.

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Speaker 1: Many of the analysts that we spoke with were expecting

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Speaker 1: an increase in payments by as much as six percent.

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Speaker 1: So I'm looking at shares in many of the major

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Speaker 1: US health insurance companies down quite a bit in late

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Speaker 1: New York trading. What are the other areas where the

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Speaker 1: administration represents a bit of policy risk to publicly traded companies?

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Speaker 1: Is it something beyond healthcare in your mind?

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Speaker 5: Yeah, I mean, I think we've seen a willingness to

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Speaker 5: be more muscular in terms of intervention in markets across

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Speaker 5: a lot of sectors. I mean, just you know, if

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Speaker 5: we were having this conversation a week or two ago,

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Speaker 5: we would have been talking about the cap on credit

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Speaker 5: card rates and what that's done to some credit card issuers.

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Speaker 5: And certainly we're going to be listening to what Visa

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Speaker 5: MasterCard have to say, you know, as they report earnings

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Speaker 5: this week. But I think, you know, broadly, it's just

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Speaker 5: kind of getting back to that idea of the range

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Speaker 5: of possibilities is broader than it was in the past,

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Speaker 5: and so you know, investors need to, you know, think

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Speaker 5: about reallocating their portfolios, be more diversified, you know, look

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Speaker 5: for opportunities that are kind of out of the news

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Speaker 5: in position that way, as opposed to trying to chase

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Speaker 5: these headlines, which can be a really challenging thing as

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Speaker 5: we saw last year.

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Speaker 1: Are small cap stocks part of that strategy? I mean,

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Speaker 1: if you think that the economy is going to do

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Speaker 1: reasonably well, valuations in the small cap arena may be attractive,

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Speaker 1: and certainly they haven't been headlined grabbing necessarily. Would the

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Speaker 1: small caps space be something that you're looking at right now?

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Speaker 5: You know, that's an area that we have been looking at.

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Speaker 5: You know, we've quite frankly been a little skeptical on

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Speaker 5: this rally. We've been more optimistic about you know, growth

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Speaker 5: in twenty twenty six, and as we think about the

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Speaker 5: different ways to express that, small caps were certainly on

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Speaker 5: the menu, but given the amount of head fakes that

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Speaker 5: we've seen in that part of the market and just

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Speaker 5: how low quality they are on an index basis, we

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Speaker 5: prefer to have our exposure across the cap spectrum in

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Speaker 5: the banks in the US and then also looking internationally

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Speaker 5: for some natural resources and some smaller cap companies there

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Speaker 5: that have that you know, commodity gearing. You know, we're

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Speaker 5: we're watching the move in small caps and certainly if

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Speaker 5: we see a big pullback that that looks attractive to us,

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Speaker 5: we may change our stands, but right now we're a

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Speaker 5: little bit cautious on that very hot sector of the market.

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Speaker 1: What about opportunities offshore? Are you finding any?

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Speaker 3: Oh?

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Speaker 1: For sure?

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Speaker 5: I mean I do think that you know, flat to

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Speaker 5: lower dollar is something that we're going to be that

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Speaker 5: regime is going to is going to persist for some time.

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Speaker 5: That's not something that investors are really used to. And

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Speaker 5: so we do like international stocks for that reason. And

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Speaker 5: if you and if you like you know, if you

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Speaker 5: think that we're going to have a higher global growth

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Speaker 5: environment in twenty twenty six, and certainly we do, you

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Speaker 5: have a lot more cyclically in value oriented companies that

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Speaker 5: trade a lot cheaper than they in the US, And

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Speaker 5: so that's been a core way we've tilted portfolios over

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Speaker 5: the last year and we're continuing to do that into

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Speaker 5: the first month of this year.

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Speaker 1: Zach believe it there, It's always a pleasure. Zachary Hill

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Speaker 1: is head of portfolio management at Horizon, joining from Charlotte,

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Speaker 1: North Carolina here on the Daybreak Asia podcast. Thanks for

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

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

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

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

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

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

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Speaker 1: I'm Doug Prisoner and this is Bloomberg