WEBVTT - Stocks Decline as Traders Retreat from Tech, Micron Earnings

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<v Speaker 1>Bloomberg Audio Studios, Podcasts, radio News.

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<v Speaker 2>Welcome to the Daybreak Asia podcast. I'm Dog Krisner. US

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<v Speaker 2>markets were rattled just a bit by a hint of

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<v Speaker 2>trouble around the buildout of AI data centers. Oracle's longtime

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<v Speaker 2>financing partner, Blue Owl Capital, will no longer contribute equity

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<v Speaker 2>capital to a project in Michigan, and that news sent

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<v Speaker 2>shares an Oracle down by more than five percent today,

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<v Speaker 2>and it pushed the cost of insuring against default on

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<v Speaker 2>Oracle's debt to the highest level since two thousand and nine.

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<v Speaker 2>And then after the bell, we heard from Micron Technology.

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<v Speaker 2>This company is the largest US maker of computer memory chips.

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<v Speaker 2>Micron reported a blowout quarter and offered even stronger guidance,

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<v Speaker 2>and we got reaction from Jake Silverman, he is semiconductor

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<v Speaker 2>analyst at Bloomberg Intelligence.

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<v Speaker 3>If you look at the gross margin guidance as well,

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<v Speaker 3>which midpoint was sixty eight percent, or really just implies

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<v Speaker 3>such incredible pricing strength that they have right now, and

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<v Speaker 3>it really comes down to supply and demand, and for

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<v Speaker 3>the most part, there's just been a real supply limitation.

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<v Speaker 3>All of that for the most part, driven well for

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<v Speaker 3>the most part driven by AI. Also, there's been strong

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<v Speaker 3>demand for PCs smartphones.

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<v Speaker 2>That is Jake Silverman's semiconductor analyst at Bloomberg Intelligence. Micron

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<v Speaker 2>shares were up by nearly seven percent in late US trading. Now,

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<v Speaker 2>this company has been a key beneficiary of AI demand

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<v Speaker 2>because it's high bandwidth memory. Those HBM very critical to

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<v Speaker 2>the systems that develop artificial intelligence models. Micron has key

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<v Speaker 2>competitors in both Samsung and s K Heinez, so keep

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<v Speaker 2>your eye on those stocks during the South Korean session.

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<v Speaker 2>To help us understand the forces working on markets in

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<v Speaker 2>the eight pack, let's bring in Paul Dobson. He is

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<v Speaker 2>Bloomberg's executive editor for Asian Markets. Paul, thanks for being here.

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<v Speaker 2>Let's start with the AI trade. To what degree do

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<v Speaker 2>you expect the Micron news to impact markets in the APEC?

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<v Speaker 1>Yeah?

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<v Speaker 4>Hi, that Doug, so as you were saying, Micron may

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<v Speaker 4>have some reader cross for the South Korean chip makers

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<v Speaker 4>in particular, Potentially something positive there in terms of that

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<v Speaker 4>read across, given how glowing those results are. But it

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<v Speaker 4>feels like the start of the Asia trading session is

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<v Speaker 4>going to be more responsive to the down move that

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<v Speaker 4>we saw in US technology companies in the NASDAG. Pretty

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<v Speaker 4>hefty drop there, and that kind of nerve and anxiety

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<v Speaker 4>that we're seeing related to Oracle, to the affordability of

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<v Speaker 4>the data center build out and the appetite to continue

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<v Speaker 4>to put money into it when the payoffs are uncertain

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<v Speaker 4>and the risks arising is challenging the market view into

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<v Speaker 4>year ends.

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<v Speaker 2>So as long as we're talking about AI, there was

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<v Speaker 2>a chip maker in China that debuted yesterday, Metax Integrated

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<v Speaker 2>Circuits Shunghai. I can't believe this stock was up nearly

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<v Speaker 2>seven hundred percent on its first day of trading. What's

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<v Speaker 2>happening here.

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<v Speaker 4>Yeah, pretty phenomenal. So it's the second Chinese chip related

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<v Speaker 4>company in the last few weeks that had a pretty

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<v Speaker 4>astonishing debut. We also saw that with more Threads, which

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<v Speaker 4>was up around five hundred percent on its debut. So

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<v Speaker 4>it seems that the domestic demand for these stocks is

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<v Speaker 4>incredibly strong because they seeing the same thing that we

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<v Speaker 4>saw in the US last year or the year before,

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<v Speaker 4>where there's that gigantic enthusiasm for the growth potential of

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<v Speaker 4>these companies. In China, of course wants to develop its

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<v Speaker 4>own stack away from the US system to use its

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<v Speaker 4>own technology as much as it possibly can, and so

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<v Speaker 4>that all goes particularly well for these kinds of companies.

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<v Speaker 4>It also talks to the idea that, you know, was

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<v Speaker 4>the IPO really priced at the right level of the

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<v Speaker 4>start when you've got this much demand. We saw, you know,

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<v Speaker 4>the allocation being very small for people that were trying

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<v Speaker 4>to get a hold of the shares because there was

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<v Speaker 4>just so much demand for it. And by the way,

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<v Speaker 4>there's five or six other chip makers coming down the

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<v Speaker 4>line that are also getting ready to IPO. So should

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<v Speaker 4>see more enthusiasm for this sector coming through from the

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<v Speaker 4>Chinese mainland in the coming weeks as well.

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<v Speaker 2>So will those IPOs happen on the mainland in Shanghai

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<v Speaker 2>or Shenzen as opposed to Hong Kong. Which market will

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<v Speaker 2>they choose?

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<v Speaker 4>It seems like for startups and for first time listings,

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<v Speaker 4>there's a renewed enthusiasm for listing on the mainland, so

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<v Speaker 4>that's what we've seen with the past two But for

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<v Speaker 4>more established companies, they want to get in on the

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<v Speaker 4>Hong Kong action as well, and you know, have exposure

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<v Speaker 4>to the international markets. So it seems like we'll see

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<v Speaker 4>a mix and Hong Kong has been really extremely busy

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<v Speaker 4>in terms of IPOs this year, so is the whole

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<v Speaker 4>of the Asia region for that matter, India too, but

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<v Speaker 4>it's mostly dominated by those Chinese. These companies that already

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<v Speaker 4>have listings on the main Dan now coming to Hong

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<v Speaker 4>Kong to sort of broaden their appeal and ownership structures.

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<v Speaker 2>So, as you know, when we look at the high

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<v Speaker 2>tech story in the US, particularly as it relates to

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<v Speaker 2>artificial intelligence, big question mark over valuations, is that something

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<v Speaker 2>that investors in the apecker are struggling with as well.

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<v Speaker 4>I think it depends what you look. So the more

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<v Speaker 4>established companies Japan, South Korea and of course Taiwan TSMC

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<v Speaker 4>are sort of bumbling along a little bit at the moment.

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<v Speaker 4>They're not going higher, but they're not coming dramatically lower either,

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<v Speaker 4>And it's that people are grappling with the same issues

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<v Speaker 4>that they are in the US, and you know, it

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<v Speaker 4>all becomes a little bit of a one one trade

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<v Speaker 4>in some ways, with that little bit of differentiation depending

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<v Speaker 4>on whether you'll open AI or Google or you know,

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<v Speaker 4>the different chains. I think one of the one of

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<v Speaker 4>the bellwethers that people will look to is soft Bank

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<v Speaker 4>in Japan, which is so heavily into the AI trade,

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<v Speaker 4>it's sold off, it's in n video stock, so it

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<v Speaker 4>could get more into some of the newer and more

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<v Speaker 4>innovative companies that are still building up their sort of profile.

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<v Speaker 4>But that company has had a pretty rocky stock performance

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<v Speaker 4>over the last few weeks because of that confidence that's

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<v Speaker 4>suddenly starting to drain a little bit.

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<v Speaker 1>Now.

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<v Speaker 4>It could all be year end stuff as well, right Doug.

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<v Speaker 4>It doesn't have to necessarily be all about confidence. It

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<v Speaker 4>could just be that it's been such a stead of

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<v Speaker 4>year that people want to take a little bit of

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<v Speaker 4>profit to flooden their books, to broaden their portfolios into

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<v Speaker 4>year end. So I think that the start of next

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<v Speaker 4>year and how we trade in January will be a

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<v Speaker 4>real clear tell for what enthusiasm lest it is for

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<v Speaker 4>the AI trade.

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<v Speaker 2>As long as we're talking about confidence, let's talk a

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<v Speaker 2>little bit about the lack of it as it relates

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<v Speaker 2>to the property market in China. And I was reading

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<v Speaker 2>on Bloomberg the China Van Kuh, once China's largest home builder,

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<v Speaker 2>is moving closer toward what could be one of China's

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<v Speaker 2>largest debt restructurings. What do we know about what's happening currently.

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<v Speaker 4>So it's getting worse, basically, would be a one line

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<v Speaker 4>answer to that question. So Venka was already, you know,

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<v Speaker 4>seeking to delay payments on some bonds, and the bondholders

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<v Speaker 4>weren't willing to accept the terms that it was offering

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<v Speaker 4>a first glance, and so they were demanding more credit

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<v Speaker 4>enhancements and more upfront payments on that one security, which

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<v Speaker 4>was for not a huge amount of money. Now, the

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<v Speaker 4>latest that we're hearing is the VANKA isn't just seeking

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<v Speaker 4>to delay payment on that one bond but other bonds,

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<v Speaker 4>and also talking to its banks about decurring payments on

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<v Speaker 4>some of its debts that are coming due with them

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<v Speaker 4>as well. So it's getting you know, kind of you

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<v Speaker 4>can feel the new kind of tightening in a way

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<v Speaker 4>around the company. People starting to talk openly about the

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<v Speaker 4>prospects for default and need to restructure the debt more holistically.

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<v Speaker 4>It's not quite at that point yet, but you know,

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<v Speaker 4>unless it manages to find some extra money from somewhere

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<v Speaker 4>or some sort of a stay of execution or the

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<v Speaker 4>bondholders get in line, then that does seem to be

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<v Speaker 4>the direction and that this company is headed in which

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<v Speaker 4>is really significant actually because it's sort of quasi state owned.

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<v Speaker 4>It has at least some ownership from a state backed company,

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<v Speaker 4>and that's the sort of that's what separates it from

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<v Speaker 4>all of the other property developers that we saw needing

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<v Speaker 4>to turn to restructuring like Evergrand and Country Garden over

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<v Speaker 4>recent years.

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<v Speaker 2>Does it have an outsize effect when it comes to

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<v Speaker 2>market psychology or because this company has been struggling for

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<v Speaker 2>such a long period of time many many years now,

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<v Speaker 2>is it pretty much accepted and kind of discounted by

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<v Speaker 2>the market.

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<v Speaker 4>I think it depends where you're looking, because the problem

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<v Speaker 4>is again that sort of what it talks to in

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<v Speaker 4>terms of consumer confidence and confidence in the property sector.

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<v Speaker 4>So each time another developer for into trouble, the people

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<v Speaker 4>wanting to buy homes in China will think, oh boy,

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<v Speaker 4>that we're not out of this yet. Prices are still

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<v Speaker 4>going to fall. So where should I buy a new

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<v Speaker 4>home yet? I'll wait until I can get it cheaper,

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<v Speaker 4>And so in terms of confidence in the economy, I

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<v Speaker 4>think that it has a quite significant impact. In terms

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<v Speaker 4>of impact on the broader market for sort of read

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<v Speaker 4>across from Vanka itself, probably as you were saying, since

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<v Speaker 4>we've known that the property sector has been in that

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<v Speaker 4>down wood slump and hasn't really managed to put itself

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<v Speaker 4>clear so far, I feel like perhaps not so much,

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<v Speaker 4>but it will be interesting to keep an eye on

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<v Speaker 4>other state owned property developers that have yet to default

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<v Speaker 4>on debts, just to check. So far, they seem to

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<v Speaker 4>be weathering the storm reasonably well. But you know the

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<v Speaker 4>in a bond market or a credit situation, often people

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<v Speaker 4>turn their attention to the next one in the chain

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<v Speaker 4>once a weeklink is found.

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<v Speaker 2>Paul, I want to get your take on this week's

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<v Speaker 2>rate decision from the Bank of Japan. We'll do that

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

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<v Speaker 2>the Daybreak Asia Podcast. I'm Doug Prisner. On Friday in Tokyo,

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<v Speaker 2>the Bank of Japan is widely expected to raise its

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<v Speaker 2>benchmark interest rate to the highest level in three decades.

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<v Speaker 2>Let's bring back Paul Dobson. He is Bloomberg Executive Editor

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<v Speaker 2>for Asian Markets. So we know, Paul that a key

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<v Speaker 2>focus will not be just on the idea of a

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<v Speaker 2>rate hike, which I think right now the market is

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<v Speaker 2>clearly expecting. I think the probability is well above ninety percent,

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<v Speaker 2>But the focal point seems to be on how Governor

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<v Speaker 2>Uweita will present the path forward. Is that a fair statement?

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<v Speaker 1>Yeah?

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<v Speaker 4>Absolutely, I think that the a pretty much consensus view

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<v Speaker 4>among analysts and economists is that they're going to be

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<v Speaker 4>hiking interest rates. They've been pretty clear in communication about

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<v Speaker 4>that for this meeting. So it's that future path that

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<v Speaker 4>will be of interest and the idea that they'll be

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<v Speaker 4>communicating they can go beyond zero point seventy five percent

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<v Speaker 4>carry on hiking through next year. So what people will

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<v Speaker 4>want to know is, well, what does that look like

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<v Speaker 4>in terms of pace, and what does that look like

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<v Speaker 4>in terms of endpoint? You know, how high can interest

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<v Speaker 4>rates go and how quickly are we going to get there.

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<v Speaker 4>The Bank of Japan has been incredibly slow and cautious

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<v Speaker 4>about the way that it's been raising rates so far,

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<v Speaker 4>and you can understand that, right They've been through twenty

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<v Speaker 4>years and more of very low inflation. They don't want

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<v Speaker 4>to raise rates too quickly and snuff that out. But

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<v Speaker 4>at the same time, they do want what they would

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<v Speaker 4>say refer to as normalize interest rates. How you get

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<v Speaker 4>them to levels more comparable with other economies around the

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<v Speaker 4>world and lower and a lot higher than they are

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<v Speaker 4>right now, so they will probably not want to rock

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<v Speaker 4>the boat too much, but also make it clear that

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<v Speaker 4>the path that we're on is still for higher interest

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<v Speaker 4>rates over time.

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<v Speaker 2>Could you make a case that the move up and

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<v Speaker 2>yields that we have seen across the curve in Japan

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<v Speaker 2>the tightening has done some of the work that the

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<v Speaker 2>BOJ intends to do. Is that plausible?

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<v Speaker 4>It is a bit at the same time that it

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<v Speaker 4>hasn't really worked in terms of the currency space, because

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<v Speaker 4>we've still seen the yen continue to weaken. So I

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<v Speaker 4>don't think that you will characterize financial conditions as tight

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<v Speaker 4>by any means in Japan. I think that what people

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<v Speaker 4>are more worried about when you look at the BUN

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<v Speaker 4>yield curve is whether the government is going to be

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<v Speaker 4>able to continue to finance its debts, and how worried

0:12:34.559 --> 0:12:36.400
<v Speaker 4>people get about that. At the moment, we seem to

0:12:36.400 --> 0:12:39.040
<v Speaker 4>have sort of stabilized in terms of longer term yields.

0:12:39.240 --> 0:12:43.120
<v Speaker 4>We've got the tenure just below two percent. It hasn't

0:12:43.120 --> 0:12:45.240
<v Speaker 4>breached above that level yet. We may well get there

0:12:45.280 --> 0:12:47.079
<v Speaker 4>if the BOJ does give us a sense that it's

0:12:47.120 --> 0:12:50.920
<v Speaker 4>going to be on a more determined hiking cycle. I

0:12:50.920 --> 0:12:53.200
<v Speaker 4>think that that will be really interesting because it matters

0:12:53.200 --> 0:12:55.200
<v Speaker 4>not just for the Japanese government bond market, but for

0:12:55.240 --> 0:12:59.040
<v Speaker 4>global markets as well, because remember, Japan's supposed to be

0:12:59.040 --> 0:13:02.040
<v Speaker 4>the anchor for global rates, and if those yields get

0:13:02.120 --> 0:13:04.800
<v Speaker 4>high enough, then they will start to tempt Japanese money

0:13:05.360 --> 0:13:08.920
<v Speaker 4>into jgb's in you know, as an alternative to investing

0:13:08.960 --> 0:13:12.120
<v Speaker 4>in say US treasuries or UK or French government bonds.

0:13:12.160 --> 0:13:14.959
<v Speaker 2>So with higher JGB yields, isn't that a positive for

0:13:15.040 --> 0:13:16.319
<v Speaker 2>some of the big banks in Japan?

0:13:17.400 --> 0:13:19.560
<v Speaker 4>It is, well, it is some finance socks all around

0:13:19.559 --> 0:13:22.160
<v Speaker 4>the world have had a really brilliant second half of

0:13:22.200 --> 0:13:25.640
<v Speaker 4>the year, And yes, definitely a steeper yield curve and

0:13:25.679 --> 0:13:30.640
<v Speaker 4>higher higher rates is good news for Japanese banks, you know,

0:13:30.679 --> 0:13:33.400
<v Speaker 4>which which which are already pretty flushed with cash I think,

0:13:33.400 --> 0:13:36.040
<v Speaker 4>and having a reasonable time of it. The question is

0:13:36.080 --> 0:13:39.600
<v Speaker 4>can they get cash flowing through the economy more and

0:13:39.640 --> 0:13:44.120
<v Speaker 4>continue to fuel growth, because what you don't want is

0:13:43.120 --> 0:13:47.040
<v Speaker 4>a situation where you still have reasonably high inflation. You

0:13:47.080 --> 0:13:49.800
<v Speaker 4>have the central bank raising interest rates, but that kind

0:13:49.840 --> 0:13:53.400
<v Speaker 4>of squishing the economy as well. So there is that balance,

0:13:53.440 --> 0:13:54.959
<v Speaker 4>and I think that the you know, if you look

0:13:55.000 --> 0:13:58.040
<v Speaker 4>at what the new leader Takahi has been saying, she's

0:13:58.160 --> 0:14:01.320
<v Speaker 4>very hot on the need to kind of keep inflation

0:14:01.440 --> 0:14:03.559
<v Speaker 4>under wraps from a fiscal points of view as well,

0:14:03.559 --> 0:14:06.760
<v Speaker 4>and try to keep on stimulating the economy and keeping

0:14:06.760 --> 0:14:08.000
<v Speaker 4>growth going at the same time.

0:14:08.320 --> 0:14:11.280
<v Speaker 2>So away from the financials and the banks in Japan,

0:14:11.440 --> 0:14:14.080
<v Speaker 2>what is the outlook for the overall equity market? Would

0:14:14.400 --> 0:14:17.120
<v Speaker 2>stronger yen necessarily be a negative for the n K

0:14:17.280 --> 0:14:17.880
<v Speaker 2>Let's say.

0:14:18.040 --> 0:14:19.680
<v Speaker 4>What you want to think about is would a week

0:14:19.720 --> 0:14:22.480
<v Speaker 4>a yen be helpful? Probably not with much stronger yen,

0:14:22.560 --> 0:14:26.640
<v Speaker 4>as you said, the beneficial maybe it can be in

0:14:27.040 --> 0:14:30.880
<v Speaker 4>the sense that although Japan is still quite a big exporter,

0:14:31.160 --> 0:14:35.720
<v Speaker 4>at the same time, if you have more of a

0:14:35.880 --> 0:14:38.960
<v Speaker 4>sort of sense of confidence flowing back into the economy

0:14:39.280 --> 0:14:41.800
<v Speaker 4>and reflective through a stronger exchange rate, that can be

0:14:42.360 --> 0:14:45.600
<v Speaker 4>beneficial both for sort of confidence and growth and also

0:14:46.280 --> 0:14:48.960
<v Speaker 4>for the outlook for the companies and so bring in

0:14:49.040 --> 0:14:51.680
<v Speaker 4>more money, you know, and we've seen overseas investors have

0:14:51.760 --> 0:14:54.760
<v Speaker 4>been interested in Japanese stocks and bonds this year and

0:14:54.760 --> 0:14:58.760
<v Speaker 4>putting money to work there. You know, the stocks are

0:14:58.800 --> 0:15:02.640
<v Speaker 4>still quite close to record highs too. It doesn't take

0:15:02.680 --> 0:15:04.560
<v Speaker 4>an awful lot to keep their momentum going.

0:15:05.280 --> 0:15:07.240
<v Speaker 2>So, Paul, before I let you go, what else is

0:15:07.440 --> 0:15:10.320
<v Speaker 2>top of mind as you look at markets today?

0:15:11.440 --> 0:15:13.240
<v Speaker 4>It's very dynamic of the moment. I think that we've

0:15:13.240 --> 0:15:15.520
<v Speaker 4>got a lot of interesting things going on in currencies

0:15:15.600 --> 0:15:18.320
<v Speaker 4>right across Asia. We've got the koreem one where the

0:15:18.360 --> 0:15:21.000
<v Speaker 4>authorities are really battling to try to support it at

0:15:21.040 --> 0:15:24.440
<v Speaker 4>the moment, but it comes on too continuing pressure. Likewise,

0:15:24.440 --> 0:15:26.800
<v Speaker 4>we've seen quite a lot of weakness in Taiwan's currency

0:15:26.840 --> 0:15:30.200
<v Speaker 4>we recently and in some of the Southeast Asian nations,

0:15:30.360 --> 0:15:31.920
<v Speaker 4>and on the flip side of that, we've seen quite

0:15:31.920 --> 0:15:34.680
<v Speaker 4>a lot of undesired strength in some of the markets

0:15:34.680 --> 0:15:36.720
<v Speaker 4>as well. The type bart just keeps on going up

0:15:36.760 --> 0:15:38.920
<v Speaker 4>and the authorities don't really want that. We had a

0:15:38.960 --> 0:15:41.200
<v Speaker 4>cut by the Central Bank yesterday to see if they

0:15:41.200 --> 0:15:43.600
<v Speaker 4>can control it a little bit more. And the Chinese

0:15:43.720 --> 0:15:46.880
<v Speaker 4>un just continues to steadily strengthen day by day as well.

0:15:46.880 --> 0:15:49.560
<v Speaker 4>So I think those are interesting things. Those tensions in

0:15:49.600 --> 0:15:54.360
<v Speaker 4>the Chinese equity market, despite the excitement over the AI space,

0:15:54.520 --> 0:15:58.280
<v Speaker 4>also are pretty interesting. And then over in India. You know,

0:15:58.320 --> 0:16:01.960
<v Speaker 4>the rupee as well has been under seedge recently, weakening

0:16:02.080 --> 0:16:04.360
<v Speaker 4>to record lows on a mid daily basis. Yesterday we

0:16:04.400 --> 0:16:07.840
<v Speaker 4>saw really strong and aggressive pushback from the central Bank

0:16:07.920 --> 0:16:10.680
<v Speaker 4>to try to stop the market from getting too one

0:16:10.720 --> 0:16:13.800
<v Speaker 4>sided in those bets. So lots of strength, tensions, and stresses,

0:16:13.840 --> 0:16:16.320
<v Speaker 4>I think in the FX market is what I'm particularly

0:16:16.320 --> 0:16:18.000
<v Speaker 4>interested in as we head into your ends.

0:16:18.040 --> 0:16:19.720
<v Speaker 2>All right, Paul, we'll leave it there. Thank you so

0:16:19.800 --> 0:16:22.840
<v Speaker 2>much for being here. Paul Dobson, Bloomberg's Executive editor for

0:16:22.880 --> 0:16:25.720
<v Speaker 2>Asian Markets, joining us here on the Daybreak Asia podcast.

0:16:27.240 --> 0:16:30.600
<v Speaker 2>Thanks for listening to today's episode of the Bloomberg Daybreak

0:16:30.760 --> 0:16:34.120
<v Speaker 2>Asia Edition podcast. Each weekday, we look at the story

0:16:34.200 --> 0:16:38.560
<v Speaker 2>shaping markets, finance, and geopolitics in the Asia Pacific. You

0:16:38.600 --> 0:16:42.680
<v Speaker 2>can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel,

0:16:42.800 --> 0:16:45.840
<v Speaker 2>or anywhere else you listen. Join us again tomorrow for

0:16:45.960 --> 0:16:49.440
<v Speaker 2>insight on the market moves from Hong Kong to Singapore

0:16:49.840 --> 0:16:53.640
<v Speaker 2>and Australia. I'm Doug Chrisner, and this is Bloomberg