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Speaker 1: Bloomberg Audio Studios, podcasts, radio news.

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Speaker 2: This is the Bloomberg Daybreak Asia podcast. I'm Doug Krisner.

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Speaker 2: You can join Brian Curtis and myself for the stories,

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Speaker 2: making news and moving markets in the APAC region. You

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Speaker 2: can subscribe to the show anywhere you get your podcast

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Speaker 2: and always on Bloomberg Radio, the Bloomberg Terminal, and the

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Speaker 2: Bloomberg Business App.

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Speaker 3: We are joined in our studios by Stephanie Holtzten Asia

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Speaker 3: Pacific CIO of Deutsche Bank Private Bank for a closer

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Speaker 3: look at markets. So we mentioned at the top there Stephanie,

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Speaker 3: that Nvidia became the world's most valuable company, jumping ahead

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Speaker 3: of Apple and Microsoft. So a lot of people own

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Speaker 3: in Vidia. We've seen it run up forty three percent

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Speaker 3: in the past month alone. That's more than the five

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Speaker 3: percent we've seen from Microsoft. It begs the question, what's

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Speaker 3: a good way to basically hedge concentration risk?

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Speaker 4: Good morning, Brian. I would have been surprised not to

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Speaker 4: get a question on Nvidia, to be honest. So it

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Speaker 4: is mind boggling because if everybody would own the stock,

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Speaker 4: then it wouldn't have the capacity to make new highs.

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Speaker 4: Every day we speak so I think it's important to

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Speaker 4: diversify absolutely, because concentration risk is a huge issue. I

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Speaker 4: think you have a lot of ability to also diversify

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Speaker 4: looking into Asian proxies. So as we've already seen, you know,

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Speaker 4: the markets like Taiwan that are also being driven by

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Speaker 4: one of the largest semiconductor company, but also markets that

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Speaker 4: are also participating in the technology run like Malaysia, Singapore,

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Speaker 4: a little bit, China, Hong Kong, so all that tech

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Speaker 4: heavy indsease, they are all benefiting. So it's worthwhile to

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Speaker 4: look into this part of the world to also participate.

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Speaker 2: I would think, yeah, no doubt about that. I mean,

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Speaker 2: right now I'm looking at TSMC and Taiwan up about

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Speaker 2: two percent in the early going here. But let's talk

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Speaker 2: a little bit more broadly about artificial intelligence, the impact

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Speaker 2: that it may have. I'm curious about the conversations over

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Speaker 2: at Deutsche Bank, the private bank, and what clients are

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Speaker 2: asking you about this AI, the thesis here and the

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Speaker 2: fact that once it becomes kind of fully adopted, that

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Speaker 2: it's going to be so transformational that everything that we're

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Speaker 2: seeing now in terms of price action will be justified.

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Speaker 2: Is that the way you see it or is there

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Speaker 2: a little bit too much enthusiasm, may be a little

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Speaker 2: excessive enthusiasm.

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Speaker 4: Well, the conversations are definitely a double sided. So first

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Speaker 4: of all, they are not only happening today. We have

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Speaker 4: this as a long term investment theme. It's a second

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Speaker 4: generation technology that is coming our way, and artificial intelligence

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Speaker 4: and then the semiconduct I need on the back of

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Speaker 4: this is part of that story. But of course now

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Speaker 4: that we are coming into new highs, we have more

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Speaker 4: of the conversation, as you said, as it's becoming concentrated

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Speaker 4: lines portfolios. It's it's of course, you know, of great

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Speaker 4: urgency to have these dialogues. But I think there's a

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Speaker 4: at this point in time and understanding that this is

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Speaker 4: a transformational change and there's many different parts that may

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Speaker 4: even not be appreciated as to where it could apply.

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Speaker 4: So right now this is still fueling the story and

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Speaker 4: it's also something that has been driving us to upgrade

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Speaker 4: our equity forecasts across the board in the US but

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Speaker 4: also in Asia.

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Speaker 3: Yeah, when you talk about diversification, it's tricky because the

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Speaker 3: the tentacles of AI stretching everywhere. We've seen already, you know,

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Speaker 3: the even utilities raally. We've seen you know, HVAM companies, rallies.

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Speaker 3: It's seen so many different types of companies rally that's

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Speaker 3: it's almost like, well, it's not if in video fails,

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Speaker 3: but what if AI fails? What if that theme doesn't

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Speaker 3: play out? So that's a big concern. So are there

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Speaker 3: some other themes that you really like that are very

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Speaker 3: much counter to that.

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Speaker 4: There's as you rightly point out, there's lots of themes there,

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Speaker 4: but some of them are relating to a technology advance

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Speaker 4: as well. So I think you look at a long

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Speaker 4: term theme that we also like is population support, which

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Speaker 4: comes in around the health tech. You know, we have

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Speaker 4: an aging population for instance, but of course there's a

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Speaker 4: tech element to also advancing in that spectrum. But there's

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Speaker 4: you know, an infrastructure build that is necessary around you

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Speaker 4: know a lot of these other themes. There's also infrastructure

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Speaker 4: that needs to build out in their old way of economy.

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Speaker 4: But you know, IV these are themes that are still

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Speaker 4: prevailing alongside ESG so resource transition, population support and the

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Speaker 4: next generation technology. These are the big three groups that

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Speaker 4: we're looking at.

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Speaker 2: You have a very unique perspective. You started your career

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Speaker 2: in Germany, obviously you went through Hong Kong. You're well,

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Speaker 2: maybe that's not obvious. You did go through Hong Kong.

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Speaker 2: You're in Singapore, now, that is obvious. Talk to me

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Speaker 2: about the way that you're viewing the trade tension right

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Speaker 2: now between China and the European Union and how do

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Speaker 2: you expect this to play out.

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Speaker 4: It's a sad thing when I listen to your program

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Speaker 4: just now that China is being put in the same

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Speaker 4: box as Iran, Russia, North Korea. So it's definitely a

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Speaker 4: show offhand that this is a cold war rhetoric. And

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Speaker 4: what we have not mentioned in terms of my past

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Speaker 4: is that I grew up in a cold war environment

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Speaker 4: in the eastern part of Germany. So it is it's

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Speaker 4: a very you know, tricky situation when you look at

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Speaker 4: it from a verbal perspective. But I can see that

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Speaker 4: Europe understands that there's a lot of you know, intertwined

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Speaker 4: relationships between China that are going even beyond the trade.

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Speaker 4: So I think Europe is also employing this rhetoric sadly,

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Speaker 4: but there is a pragmatic way of looking at the

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Speaker 4: trade relationship, that is, you know that will prevail. So

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Speaker 4: right now, I think Europe is really targeting the things

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Speaker 4: that relay back to the security element, and I think

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Speaker 4: that makes sense.

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Speaker 3: We'll just tick that box about excellent guests. She listens

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Speaker 3: to Bloomberg day Breakasia even before she comes on. So, Stephanie,

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Speaker 3: another big question is is the FED two patient is

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Speaker 3: the BOJ two patient. I mean it's the nature of

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Speaker 3: central banks sometimes think they're scared of their own shadow

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Speaker 3: in some ways. Should the FED be cutting here or no.

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Speaker 4: Well, we think the Fed will be cutting this year.

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Speaker 4: We've been holding onto this view when the market was

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Speaker 4: swinging wildly back from seven cuts to hiking rates. So

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Speaker 4: we still see three cuts on our forecasting period, which

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Speaker 4: is a one year head, and we see one live

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Speaker 4: meeting at a minimum for this next half year. Of course,

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Speaker 4: the FED is in a situation where we have an

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Speaker 4: election coming up and right now we really have a

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Speaker 4: bit of a data challenge going on. Yes, inflation is

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Speaker 4: coming down, but the employment side of things, the Household

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Speaker 4: Service Survey VISA VI, the non front pay rolls is

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Speaker 4: showing a bit of a discrepancy. So we need to

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Speaker 4: get to the bottom of this before understanding whether I

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Speaker 4: can make a judgment on whether the FED is too

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Speaker 4: cautious or not?

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Speaker 2: Here, Well, let's ask you the same question at the

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Speaker 2: Bank of Japan, because we had minutes from the last

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Speaker 2: meeting a short while ago, and a couple of members

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Speaker 2: are sounding rather hawkish. Here is the BOJ at risk

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Speaker 2: of being behind the curve.

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Speaker 4: So on the BOJ, I would say they are cautious,

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Speaker 4: and it's not coming as a surprise to the market.

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Speaker 4: It's something that we have to expect. If you are

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Speaker 4: a central bank that has been managing through a lost decade,

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Speaker 4: a decade of deflation, then of course you want to

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Speaker 4: be on the absolute one hundred and fifty percent sure

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Speaker 4: side to be right in what you're doing. And again,

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Speaker 4: the Bank of Japan right now looks at the data

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Speaker 4: set that is inconclusive. So right now, if I look

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Speaker 4: at activity data, the leading indicators are looking at nicely,

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Speaker 4: but the rest is not really adding up to that

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Speaker 4: same tune to be too aggressive for you?

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Speaker 3: All right, Stephanie, thanks so much, Stephanie holtzchen Apak cio

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Speaker 3: at Deutsche Bank Private Bank. We take a closer look

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Speaker 3: now at the semiconductor industry. A couple of important and

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Speaker 3: interesting developments here a senior US official is sent to

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Speaker 3: visit Japan and the Netherlands to try to get those

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Speaker 3: countries to put new restrictions on China. The leaders will

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Speaker 3: be asked to put severe limits on ASML and Tokyo Electron.

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Speaker 3: In the meantime, US lawmakers have submitted a bill today

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Speaker 3: that states the companies such as Intel and TSMC would

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Speaker 3: be barred from buying chip making gear from entities owned

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Speaker 3: or controlled by a host of countries, including China, also

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Speaker 3: including Russia, North Korea and Iran. Joining US. Now in

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Speaker 3: our studios is Lad Savov, Bloomberg Tech editor for more

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Speaker 3: insights on this. Is this sort of par for the

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Speaker 3: course here of Vlad or is the US really stepping

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Speaker 3: up the pressure.

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Speaker 5: I would say it's very much in line with the

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Speaker 5: ongoing trend. I wouldn't say it's so much stepping up

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Speaker 5: the pressure. The perception from the US and in Washington

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Speaker 5: is more tightening the control and making sure that they're

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Speaker 5: plugging any holes. Because when you think about the most

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Speaker 5: important chips today, it's the most valuable company in the world,

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Speaker 5: it's in video, those AI chips. There have been reports

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Speaker 5: of Chinese companies being able to bring those into China

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Speaker 5: via in the mediay countries and companies who are doing

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Speaker 5: the purchases. So in Washington, they're seeing it as plugging

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Speaker 5: up the holes. And one of those is the fact

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Speaker 5: that it's not just the supply of machinery and equipment.

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Speaker 5: When we're talking about putting pressure in Japan and the

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Speaker 5: Netherlands to impose the same level of restriction that the

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Speaker 5: US has imposed on its own companies, it's also the maintenance.

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Speaker 5: So this is the key thing here. The Netherlands we're

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Speaker 5: talking about ASML, the indispensable supplier of advanced chip making machinery,

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Speaker 5: and then in Japan's Okyo Electron. Those are two key companies.

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Speaker 5: And what Washington wants to do is make sure that

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Speaker 5: they pull back even further from China, that they don't

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Speaker 5: even maintain equipment that they've put into the country, which

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Speaker 5: is a very high bar, and there's understandable resistance from

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Speaker 5: Japan and the Netherlands.

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Speaker 2: Is there a way to kind of get around what

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Speaker 2: the US is asking? And I'm wondering if China has

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Speaker 2: been able to do that with some of the other

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Speaker 2: export controls that have been placed, are they effective and

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Speaker 2: maybe to the point about you know, kind of cracks

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Speaker 2: being exposed. Whether it's ever ever going to happen that

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Speaker 2: these cracks can be completely sealed off.

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Speaker 5: I'm not sure that anybody, even in the US, necessarily

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Speaker 5: wants that to be one hundred percent, because I've said

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Speaker 5: this in Toko with Brian previously. If you cut off

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Speaker 5: all the legal or market means for China to obtain

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Speaker 5: chips and machinery, they will do it in entirely illegal ways.

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Speaker 5: This is not an optional piece of equipment that we're

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Speaker 5: talking about. Again, I have to return to the fact

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Speaker 5: I was just looking at it this morning. We're talking

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Speaker 5: about Microsoft, Apple and the three most valuable companies in

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Speaker 5: the world. They eat it chip makers or chip users,

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Speaker 5: and that goes for the top ten most valuable companies.

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Speaker 5: If China wants to have a thriving, vibrant economy, which

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Speaker 5: has been the theme, if I recall correctly, the two

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Speaker 5: sessions in China this year, was all about high quality

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Speaker 5: growth and about how science and technology are going to

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Speaker 5: be essential to that. It needs all of this machinery.

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Speaker 5: So ultimately, US policy is to try and title controls

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Speaker 5: as much as possible, but if there's just enough to

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Speaker 5: allow Chinese companies to do that, development. They might be

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Speaker 5: okay with that.

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Speaker 3: You wonder whether or not there's a little overreach here

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Speaker 3: though from the United States. I mean, countries like Japan

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Speaker 3: and Holland have extensive business with China on their own,

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Speaker 3: and I wonder whether or not we're hearing through back

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Speaker 3: channels maybe even about being frustrated by this pressure coming.

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Speaker 3: I mean, they could easily say, look, you know, we

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Speaker 3: have to make policy that is for the best of

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Speaker 3: our citizens, not yours.

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Speaker 5: That's right, Brian, And you just mentioned Japanese exports going

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Speaker 5: to increasing to China. That business is absolutely important to

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Speaker 5: Japanese companies. They've made the case. The reporting that we

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Speaker 5: have on this particular topic is that both the Japanese

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Speaker 5: and Dutch governments are probably trying to wade it out

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Speaker 5: until invent elections so they know exactly the US administration

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Speaker 5: that they'll be dealing with over the long term.

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Speaker 2: I guess when we were talking about semiconductor production, you

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Speaker 2: got to talk about Taiwan. I mean, where are we

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Speaker 2: right now and trying to diversify away from what is

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Speaker 2: a heavily concentrated center of chip manufacturing.

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Speaker 5: The answer is we're nowhere near it. I keep reserting

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Speaker 5: to these companies Nvidia and Apple, the two most valuable companies.

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Speaker 5: Without Taiwan and TSMC, and specifically TSMC's production within Taiwan,

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Speaker 5: they don't exist. You cannot speak about iPhones without the

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Speaker 5: chips made in Taiwan. You cannot speak about Nvidia's AI chips.

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Speaker 5: All of those are made in Taiwan. Now, everyone is

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Speaker 5: putting in the effort to try and diversify, like you say,

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Speaker 5: and Vidia is really hoping that Samsung and Intel are

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Speaker 5: going to be able to pick up some of that

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Speaker 5: chip making over the long term. Apple would love to,

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Speaker 5: but it cannot have anybody out than TSMC, at least

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Speaker 5: for the current moment. And TSMC is building those fabs

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Speaker 5: in the US despite the fact that there have been

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Speaker 5: some delays and some issues in doing things in the

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Speaker 5: US that are much easier to do in Taiwan. So

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Speaker 5: things are on the way, There are processes on the way,

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Speaker 5: but it's going to take a long.

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Speaker 3: Time, Vlad. So we have Nvidia now the biggest company

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Speaker 3: in the world. Planet Earth next up, I guess the universe, right,

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Speaker 3: But I'm curious because we've talked a lot about the politics.

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Speaker 3: I want to talk more about the business side. So

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Speaker 3: it's a clumsy segue to it is the runway still

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Speaker 3: wide open here for in Nvidia or is it getting

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Speaker 3: close to And I'm not talking about the stock price.

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Speaker 3: The business is there's still plenty of business to be done.

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Speaker 5: Absolutely. This was a theme of the competext trade show

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Speaker 5: earlier this month. Brian I spoke with a bunch of

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Speaker 5: analysts and a bunch of people very much invested literally

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Speaker 5: and generally invested in the industry, and the way that

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Speaker 5: they see things is that over the next eighteen months

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Speaker 5: and VideA is larger without competitor, the likes of INT

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Speaker 5: and AMD are going to make the case that their

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Speaker 5: chips are maybe more affordable, easier to implement, they have

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Speaker 5: more open run and proprietary infrastructure. But in Vida's secret

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Speaker 5: source is in that proprietary technology. It's not just we

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Speaker 5: have the fastest chip, we have the fastest interconnects that

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Speaker 5: make a thousand chips act like one and all of

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Speaker 5: that stuff is I analogize it to Nvidia being the

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Speaker 5: apple of the data center. What that means is you're

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Speaker 5: not going to buy stuff from anybody else. You're going

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Speaker 5: to get everything from us. But it's going to be

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Speaker 5: so good that you're not going to regret it.

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Speaker 2: That's why the market cap is three point three trillion.

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Speaker 2: I guess I've lad thank you so much always the

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Speaker 2: pleasure that is Vlad Savov, Bloomberg Tech Editor in Hong Kong,

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Speaker 2: joining us here on daybreak gasing.

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Speaker 3: Russian President Vladimir Putin has arrived in North Korea for

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Speaker 3: his first visit there in some twenty four years. Were

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Speaker 3: joined by John Herskovitz, Sloomberg East Asia Government Editor for

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Speaker 3: a little bit more insight into this trip. So I

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Speaker 3: saw from your story that when Kim Jong un was

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Speaker 3: in Russia last September that satellite imagery showed a big

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Speaker 3: increase in the transfer of arms. Is that what this

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Speaker 3: trip is all about? To the extent we know, John,

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Speaker 3: that Putin is looking for more arms from North Korea.

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Speaker 1: I think we were seeing first Putin maybe showing his

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Speaker 1: gratitude to North Korea for the ammusion set it's supplied

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Speaker 1: to Russia for its assault on Ukraine. And Bloomberg spoke

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Speaker 1: with South Korea's defense minister last week, who sees Putin

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Speaker 1: as wanting even more. He's probably going to ask Kim

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Speaker 1: Jong mun for more artillery shell more ballistic missiles, more

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Speaker 1: material to fight the war in Ukraine. Now, the thing

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Speaker 1: is like, North Korea has huge stores of weapons that

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Speaker 1: are interoperable with Soviet era systems that have been dragged

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Speaker 1: out to the front lines of Ukraine. It's one of

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Speaker 1: the places that has the most of the stuff that

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Speaker 1: put In needs to fight a grinding war and continue

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Speaker 1: his bombardment of his neighbor.

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Speaker 2: Is there a bit of a quid pro quo here?

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Speaker 2: Is Kim Jong un looking for something more than just

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Speaker 2: compensation for the armaments.

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Speaker 1: He's looking for anything he can get. North Korea is

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Speaker 1: one of the world's poorest states. It's South Korea and

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Speaker 1: estimated it's economy at twenty four point five billion a

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Speaker 1: couple of years ago, So if North Korea gets about

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Speaker 1: one billion in AID, that's about four percent of its economy.

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Speaker 1: Anything it can get, from food to building materials to

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Speaker 1: technology to help with weapons to fighter jets are things

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Speaker 1: it needs. It's a country that really doesn't have a

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Speaker 1: lot anything what Russia has sent over has likely been

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Speaker 1: things of this sort, and this could be one of

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Speaker 1: the biggest jolts to North Korea's economy since Kim Jong

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Speaker 1: un took power about a dozen years ago.

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Speaker 3: So we saw in the comments from Anthony Blink and

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Speaker 3: he said that this is a sort of act of

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Speaker 3: desperation by Russia. If we're neutral observers and we look

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Speaker 3: at this, is this a sign of weakness by Putin

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Speaker 3: being there and looking for more or is it a

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Speaker 3: sign of strength strengthening his alliance.

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Speaker 1: I think it's just a matter of convenience. North Korea

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Speaker 1: has a lot of what Russia needs. It's not providing

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Speaker 1: high technology. It's providing one of the biggest things. It's

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Speaker 1: providing artillery shells one hundred and fifty two millimeters artillery shells.

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Speaker 1: These are yeah, this is technology from thee from more

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Speaker 1: than a century ago. It's North Korea has a lot

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Speaker 1: of stuff that Russia can't find anywhere else. And the

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Speaker 1: thing is it's convenient. The two share a border and

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Speaker 1: a train link where they can do trade. The Far East.

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Speaker 1: Russian ports are near North Korean ports. The satellite imagery

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Speaker 1: that we've seen others have seen that the US has

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Speaker 1: shown to the world show Russian cargo ships at North

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Speaker 1: Korean ports. They shuttle back and forth. They can stay

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Speaker 1: within territorial waters of the two countries to avoid interdiction,

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Speaker 1: so they have a lot there nearby. Kim and Putin

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Speaker 1: are both isolated, and in their isolation, they found that

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Speaker 1: they have a lot that they can share.

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Speaker 2: So that gives kind of a nice segue into the

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Speaker 2: question about Beijing's view on this. I mean, let's bring

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Speaker 2: China into the story. How do you think President she

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Speaker 2: is viewing this visit.

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Speaker 1: Yeah, I think for the first time in a while,

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Speaker 1: China is a little bit on the outside looking in China.

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Speaker 1: With the follow of the Soviet Union and Russia establishing

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Speaker 1: diplomatic ties with South Korea, Russia's influence over North Korea

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Speaker 1: has waned. In that time. China became an economic power

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Speaker 1: and it became North Korea's biggest benefactor. Now, the cooperation

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Speaker 1: between Russia and China, I'm sorry, between Russia and North

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Speaker 1: Korea is providing a lot of help for Kim Jong

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Speaker 1: un and it's helping Putin. So China is probably trying

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Speaker 1: to evaluate where things stand now. So there may be

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Speaker 1: a little bit of re alignment coming in the short term,

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Speaker 1: but the worry is in a bit more in the

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Speaker 1: long term. The relationship this trying your relationship between China,

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Speaker 1: Russia and North Korea maybe adjust it, but it still

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Speaker 1: stands firm against a US led system. So well, we'll

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Speaker 1: have a strengthening of the Russia North Korea side, and

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Speaker 1: this eventually will be to the detriment of the US

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Speaker 1: and China. Russia and North Korea will work their way out,

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Speaker 1: but they're all of the same mind. They are looking

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Speaker 1: at ways to antagonize the US and its systems.

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Speaker 3: But Russia is clearly Paria in the West. Now China

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Speaker 3: maybe not yet but sort of getting there. So it's

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Speaker 3: still a little bit sensitive to what's said about China.

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Speaker 1: In the West exactly. And the thing is like China

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Speaker 1: is may look at the cooperation and keep its distance

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Speaker 1: between the two because there's no benefit for Beijing to

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Speaker 1: step in and try to slow down the trade between

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Speaker 1: Russia and North Korea, especially with the armaments.

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Speaker 3: John, great stuff, thanks so much for joining us. Jean Herskovitz,

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Speaker 3: Bloomberg East Asia Government Editor, on Houtin's trip.

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Speaker 1: To North Korea.

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Speaker 2: This has been the Bloomberg Daybreak Asia podcast, bringing you

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Speaker 2: the stories making news and moving markets in the Asia Pacific.

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Speaker 2: Visit the Bloomberg Podcast channel on YouTube to get more

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Speaker 2: episodes of this and other shows from Bloomberg. Subscribe to

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Speaker 2: the podcast on Apple, Spotify, or anywhere else you listen,

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Speaker 2: and always on Bloomberg Radio, the Bloomberg Terminal, and the

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Speaker 2: Bloomberg Business app.