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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 Beg Krisner. Equity markets in the Asia

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Speaker 1: Pacific are trading mixed today after a down day in

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Speaker 1: the States. We had JP Morgan leading a slide among

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Speaker 1: bank stocks. That was after reporting disappointing revenue from both

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Speaker 1: underwriting and advising on mergers. And the latest reading on

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Speaker 1: US retail inflation was a bit cooler than forecast, although

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Speaker 1: money markets are continuing to project the next rate cut

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Speaker 1: from the Fed mid twenty twenty six. And we are

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Speaker 1: waiting for a possible ruling on Wednesday from the US

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Speaker 1: Supreme Court when it comes to President Trump's global tariffs,

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Speaker 1: those that were announced back in April of last year.

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Speaker 1: Joining me now for a look at some of these issues.

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Speaker 1: Bloomberg's Abishek Vishnoi. Abishek joins from our studios in Singapore.

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Speaker 1: Thank you so much for being here. Happy New Year

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Speaker 1: to you. Can we talk about Japan first, because that's

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Speaker 1: where the big move is happening today. What's driving the

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Speaker 1: price section?

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Speaker 2: Hi, Doug, Yeah, happy to be here. Happy here. Japan

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Speaker 2: is actually leading the gainers today, and that's largely because

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Speaker 2: yen has become weaker, probably looking at a handle of

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Speaker 2: one sixty versus the US dollar, and you know why not.

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Speaker 2: Prime Minister Takachi is expected to announce a snap election

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Speaker 2: as per one of the most prominent news wires in Japan,

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Speaker 2: and it's said to be announced today. That has been

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Speaker 2: the initial driver. Then we also have a hawkish fed

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Speaker 2: stance and in around fuel increase in oil prices that

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Speaker 2: is threatening the Japanese currency. So there is a bit

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Speaker 2: of a triple wammy going on there. The outlook looks

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Speaker 2: pretty good and solid for stocks, but your currency is

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Speaker 2: expected to weaken, and it's not like an outlier. If

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Speaker 2: you look at what's happening with other Asian currencies recently,

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Speaker 2: they've also been weakening while equity markets, so local equity

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Speaker 2: markets tied to them, have been doing well. So yes,

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Speaker 2: yen's overnight retreat is helping Japanese stocks. And given the

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Speaker 2: focus on fiscal spending, given the focus on corporate reforms,

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Speaker 2: it looks like a good story for this year two.

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Speaker 1: So we're just beginning twenty twenty six. When you're having

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Speaker 1: conversations with market participants, what are they saying about the

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Speaker 1: year ahead for Asian equities, well.

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Speaker 2: If you look and talk about Asian equities, it does

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Speaker 2: look like a lot has happened so far. How it

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Speaker 2: happened in twenty twenty five. There is optimism around China,

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Speaker 2: there is optimism abound Japan, a lot of optimism around Korea, Taiwan,

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Speaker 2: and that's getting reflected in the stock price as well.

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Speaker 2: I think if you look at the YDA performance, these

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Speaker 2: markets are doing pretty well, leading with Korea and then

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Speaker 2: Tabanese benchmarks in Japan. Even China is positive. India meanwhile,

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Speaker 2: it is lagging. And it's largely something that we've seen

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Speaker 2: that AI backed stocks are something you know, pick and

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Speaker 2: shovel stocks tied to chips and other parts of semiconductor

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Speaker 2: chain are doing pretty well. And that's the same thing

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Speaker 2: you know, even on the earning estimate side, So keep

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Speaker 2: this in mind, Like prices are set largely by investors,

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Speaker 2: so investors are pretty much exhibiting similar trends or continuation

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Speaker 2: or twenty twenty five with AI markets leading China, inter

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Speaker 2: continuous are around probably you know, going with the earnings

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Speaker 2: expansion more this time than valuations. And along the similar lines,

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Speaker 2: we are also seeing analysts raising their earning estimates. You know,

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Speaker 2: Korea and again Taiwan are doing pretty well. They're leading

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Speaker 2: the pack with i think six to ten on person

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Speaker 2: increase in their twelve month forward earning estimates, followed by

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Speaker 2: a couple of other markets and even China you know,

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Speaker 2: going ahead of you know, India and Japan. So that's

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Speaker 2: that's largely the outlook pretty much how it happened. It's

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Speaker 2: it's gonna you know, give give similar returns. There were

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Speaker 2: expectations that India might outperform or you know, might see

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Speaker 2: a rebound, but that they those are getting dashed, you know,

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Speaker 2: given the macro problems and earning slowdown that we're seeing

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Speaker 2: in the large cap space there.

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Speaker 1: So when we're talking about technology that's focused on AI,

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Speaker 1: is it does it come down to the chip makers primarily?

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Speaker 1: Is that the essential focus?

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Speaker 2: Absolutely? I mean for Asia chip makers, you know our

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Speaker 2: key and uh you know for Marcus like Korea and Taiwan,

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Speaker 2: that's uh, that's primary primarily the best. However, in case

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Speaker 2: of China, you know you're seeing a lot of market

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Speaker 2: CAAB actually getting created because of uh, you know, AI

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Speaker 2: related enablemental businesses. A lot of businesses trying to get

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Speaker 2: AI to boost their earnings operationally. So it's it's not

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Speaker 2: just about chips or you know, the pick and shovel

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Speaker 2: of the sector. It is moving in the direction you

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Speaker 2: know in case of China, as it has moved in

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Speaker 2: the US, so there is a lot more confidence. You

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Speaker 2: may have seen, you know, how many EA related listings

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Speaker 2: have happened in Hong Kong and Mainland this time and

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Speaker 2: almost everyone, each one of them have have have seen

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Speaker 2: a pretty good reception, and that's a trend that is

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Speaker 2: expected to continue. If you look, you know, Taiwan and Korea,

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Speaker 2: and there are some calls out there, some strategies are

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Speaker 2: wondering that if it's getting too crowded and maybe there

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Speaker 2: should be some rotation to less on sectors, but they

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Speaker 2: still very much want to stay in the theme. So

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Speaker 2: even if you know there's a there's a cooler on chips,

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Speaker 2: you know the money would rotate to you know names

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Speaker 2: in China and elsewhere where. AI is actually starting to

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Speaker 2: aid bottom lines.

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Speaker 1: So I mentioned the fact that the CPI report in

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Speaker 1: the States was a little cooler than forecast, and money

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Speaker 1: markets are continuing to project the next FED rate cut

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Speaker 1: in mid twenty twenty six and I think right now

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Speaker 1: swaps market is still holding with the idea that we're

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Speaker 1: going to get a total of two twenty five basis

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Speaker 1: point rate cuts. It seems like the market has already

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Speaker 1: had the ability or the opportunity to discount those moves

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Speaker 1: from the Fed, and that's being reflected in the dollar

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Speaker 1: at the moment. Or am I wrong? And could we

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Speaker 1: begin to anticipate a little bit more dollar weakness this year?

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Speaker 3: Yeah?

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Speaker 2: I mean markets are definitely pricing with swaps and you

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Speaker 2: know other processes are reflecting. But you know one thing

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Speaker 2: that's not been discounted to a great extent right now

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Speaker 2: is you know, President Donald Trump's pension for rate cuts.

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Speaker 2: Market sure pricing consensus, what the expectations are right now.

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Speaker 2: You know, from what we have reported and what we've

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Speaker 2: talked about after cpiit it looks like given his campaign

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Speaker 2: against Jerome Babbo and his pension for lower interest rates,

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Speaker 2: there can be a lot more weight cuts then what.

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Speaker 2: You know, swaps and you know, futures are reflecting right now.

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Speaker 2: So that's something that will continue to weigh on dollar.

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Speaker 2: And that because it weighs in dollar, you know, it

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Speaker 2: feeds into other risk assets because barring a few assets,

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Speaker 2: almost every other asset as a negative correlation to US

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Speaker 2: dollar and and therefore, you know, both on the US

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Speaker 2: equities EM equities, we're gonna we're going to see a

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Speaker 2: move higher. So and look, even if they look at

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Speaker 2: the backdrop, you know this this these rate cuts and

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Speaker 2: uh this uh you know, scenario of liquidity improving across

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Speaker 2: markets because of rate cuts and fiscal spending. That pretty

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Speaker 2: much remains the case for this year too. And markets

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Speaker 2: have sort of started looking ahead and you know, ignoring

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Speaker 2: geopolitical risk. That remains the setup for this time around

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Speaker 2: as well. Just that there may be more rate cuts

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Speaker 2: given what Trump wants uh fed to do and he

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Speaker 2: is in in in that position where he can influence

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Speaker 2: the pol a lot more. So let's see how it

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Speaker 2: plays out.

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Speaker 1: So I'm curious as to how what we're seeing coming

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Speaker 1: from the Trump administration, the dynamics that are play right now,

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Speaker 1: how that's impacting the thinking on asset allocation in parts

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Speaker 1: of the the Asia Pacific market.

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Speaker 2: Yeah, we've started reporting a lot more on that, and

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Speaker 2: you know, it goes back to the point that you know,

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Speaker 2: some of our reporters made last year where you know,

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Speaker 2: they were talks about peak US exposure. I think that's

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Speaker 2: sort of coming back given you know, Trump has started

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Speaker 2: focusing a lot more intervention in a variety of subjects,

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Speaker 2: and I mean it it's it's a different sort of globalization,

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Speaker 2: but it hurts you know, US. You know, the US

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Speaker 2: being a US position as a bellwether for global economy

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Speaker 2: is a I mean, given what the EFC swop that

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Speaker 2: Trump administration carried out in Argentina, given what they've done

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Speaker 2: in Venezuela, they're focusing a lot more on their hemisphere,

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Speaker 2: which means the rest of the world. You know, like

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Speaker 2: Europe may have influential players like Russia. You know, Asia

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Speaker 2: has China and India, so it's again becoming a multipolar world.

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Speaker 2: And therefore, you know, it just makes sense for long

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Speaker 2: term money to start looking at other revenues where there

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Speaker 2: is better growth prospect. Of course Max seven or you

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Speaker 2: know companies which are general like Microsoft, which are generating

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Speaker 2: so much more money and where you know, people's lives

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Speaker 2: are evolving around those companies. They they remain unscathed, but

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Speaker 2: a lot more money, you know, would start looking at

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Speaker 2: exposure outside the US, and in terms of major economies,

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Speaker 2: major fast growing economies. Uh, and with you know, similar

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Speaker 2: kind of capability as the US. China comes to come

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Speaker 2: to mind. So the the appeal of owning Chinese assets

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Speaker 2: you know, or stocks you on, and that increases a

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Speaker 2: lot more. So this, uh, this intervention is sort of

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Speaker 2: you know, moves by the US. This will marginally hurt

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Speaker 2: at least the non max seven part of you know,

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Speaker 2: US economy.

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Speaker 1: We're seeing a lot of interest in precious metals lately,

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Speaker 1: and I'm looking at a rally right now in both

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Speaker 1: silver and platinum today. Would you say that this is

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Speaker 1: a trade that is based on momentum or is it

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Speaker 1: more related to this idea that you know, we're looking

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Speaker 1: for opportunities to find haven's. Is that really what this

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Speaker 1: precious metals trade is about.

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Speaker 2: Oh no, absolutely, it's It's not momentum at all. I mean,

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Speaker 2: if you have been following the last year, you know,

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Speaker 2: the advances that these precious medals made last year, it's

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Speaker 2: largely happened, you know, not involved, but it has happened

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Speaker 2: in context of Russia's move in Ukraine and what US

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Speaker 2: did in terms of their exposure to US treasury. So suddenly,

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Speaker 2: you know, in central banks reserves US Treasury is not

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Speaker 2: a guarantee, as you know, said by one of the

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Speaker 2: researchers gave call recently in a note, And that meets banks.

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Speaker 2: A lot of central banks actually, you know, move towards

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Speaker 2: cold to diversify their reserves. Uh uh. And then you know,

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Speaker 2: this move started getting reflected in silver as well, because

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Speaker 2: in terms of precious metals, you know, one one thing

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Speaker 2: is there that you can hold a lot of that

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Speaker 2: the storage cost is not as much, uh and a

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Speaker 2: very little exposure means big amounts in dollar terms. So

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Speaker 2: that started getting reflected in silver, and now that's getting

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Speaker 2: reflected in platinum as well. The the way things are moving,

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Speaker 2: it's it's it's it's a bit of a hetch it's

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Speaker 2: a bit of a necessity and a natural consequence of

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Speaker 2: what we are seeing in the world. You need some

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Speaker 2: levers where you know there's geopolitical pressure. What Trump is

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Speaker 2: doing gets reflected rightly and and gold, silver, you know,

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Speaker 2: these kind of commodities go in that direction after central banks.

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Speaker 2: You know there there there is a lot more exposure,

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Speaker 2: and you know by portfolio investors as well, in terms

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Speaker 2: of folio construction, gold was supposed to be a single

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Speaker 2: digit exposure. I don't think a lot of investors are

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Speaker 2: feeling that way that there are. There are many out

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Speaker 2: there who have it in double digit terms, especially on

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Speaker 2: the multi asset side. And last year, Doug, you know,

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Speaker 2: gold was up as much as cost P which was

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Speaker 2: the best performing equity market. So you know, it has

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Speaker 2: become an asset, a macro acid class, not a h

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Speaker 2: but you know, macro asset class, but absolute returns you know,

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Speaker 2: in offering. So this this is expected to continue. And

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Speaker 2: now given it has run up so much more and

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Speaker 2: you know, the relative valuations versus other commodities and other

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Speaker 2: markets have gone for a toss, there is a case

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Speaker 2: building increasingly that the next thing that you know, investors

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Speaker 2: would look to diversify or own, you know, in context

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Speaker 2: of whatever is happening in the world, might be oil

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Speaker 2: and other commodities. We are looking to do more reporting there.

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Speaker 1: Abishek believe it there. Thanks so very much, Bloomberg's Abisk

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Speaker 1: Visnoy Joining from Singer 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: We go next to Japan where Prime Minister Sona A.

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Speaker 1: Taka Ichi is reportedly planning to call for a snap election.

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Speaker 1: We're seeing a rally in Japanese equities, yields on jgbs

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Speaker 1: are higher, and the end is weakening deeper into the

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Speaker 1: zone where intervention becomes a risk. That's where we begin

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Speaker 1: our conversation with Zurrhir Khan. He is senior portfolio manager

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Speaker 1: at UBP. Con spoke with Bloomberg TV host Paul Allen

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Speaker 1: and April Holm.

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Speaker 4: So zu here, great to see you and looking at

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Speaker 4: what the Japanese stock market outlook is, it looks quite bright,

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Speaker 4: I mean the pro growth expectations from Takaiji. What is

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Speaker 4: your sense of whether we have more upside on Japanese stocks.

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Speaker 3: So I think the japan market overall is fairly valued

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Speaker 3: if you exclude one thing, which is continued significant corporate

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Speaker 3: governance reform.

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Speaker 5: Excluding that, it's fully valued.

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Speaker 3: But there are a lot of Japanese companies which have

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Speaker 3: not yet benefited from corporate governance reform. I mean, sixty

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Speaker 3: percent of Japanese companies still have close to twenty percent

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Speaker 3: of their balance sheet in cash. A large majority of

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Speaker 3: Japanese companies still have loss making unprofitable business segments. And

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Speaker 3: then you have a significant need for consolidation in the

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Speaker 3: Japanese market. There are too many companies in the same industry,

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Speaker 3: each of which are subscale and not very profitable. So

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Speaker 3: consolidation would tremendously benefit the market. So if those things

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Speaker 3: continue to happen, there is upside without you know, sort

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Speaker 3: of let's say, an acceleration of those things. Because part

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Speaker 3: of it is priced in. I think the market is

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Speaker 3: fairly valued.

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Speaker 4: Okay, what about one things I would like to highlight?

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Speaker 5: Is that soorry?

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Speaker 3: I just want to say one last comment, which is

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Speaker 3: that relative to global markets, the Japanese market, even though

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Speaker 3: I think on an absolute level it's fairly valued, on

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Speaker 3: a relative level, it remains very attractive among other major

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Speaker 3: global markets.

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Speaker 5: Sorry, you had a question on gen how much?

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Speaker 4: Yeah, how much are you expecting foreign investors to then,

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Speaker 4: you know, turn their attention to Japan? And given the

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Speaker 4: yen volatility, does that figure into the attractiveness of the market.

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Speaker 3: So I think, given how weak again is currently, I

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Speaker 3: think for foreign investors that's an added attractiveness of the

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Speaker 3: Japanese market because I think again is undervalued and over

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Speaker 3: time it should recover.

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Speaker 5: The pace and timing of that is difficult.

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Speaker 3: It will depend more on uh PED loosening policy rather

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Speaker 3: than the BOJ titan, because the BOJ is going to

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Speaker 3: tighten at a very slow pace, and then it's also

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Speaker 3: going to depend a bit on sentiment. So a lot

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Speaker 3: of Japanese continue to invest overseas, very significant amounts to

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Speaker 3: the New Investment Savings ACCOUNTANISA, A.

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Speaker 5: Lot of that money is going overseas.

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Speaker 3: Japanese companies, because the yen has continued to remain weak,

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Speaker 3: have not been repatriating their profits back into Japan. So

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Speaker 3: if you start to see a strengthening, I think those

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Speaker 3: factors may start to reverse and then add to the

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Speaker 3: trend of end strengthening, but I think it will depend

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Speaker 3: more on FED moves rather than you know, BOJ moves

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Speaker 3: in the near term.

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Speaker 6: So we've got this environment of very weaky end closing

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Speaker 6: in on one sixty weekest since July twenty twenty four,

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Speaker 6: and at the same time we've got yields climbing as well.

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Speaker 6: Now we've got some commentary from Calisle saying, look, this

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Speaker 6: is a good sign the economy is exiting deflation, but

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Speaker 6: is that really a sign of economic health when you

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Speaker 6: look at that sort of trend, any reason to be concerned,

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Speaker 6: and no.

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Speaker 5: I completely agree with them.

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Speaker 3: If you look at the ten year Japanese inflation index bonds,

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Speaker 3: the real return on those is only zo point two

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Speaker 3: percent currently, it's less than point three percent. If you

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Speaker 3: compare that, for example, to the German interest rates, the

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Speaker 3: real inflation protected interest rates, it's about one percent, just

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Speaker 3: under one percent. If you look at the US, UK, France,

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Speaker 3: it's between one and a half to two percent. So

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Speaker 3: Japanese real interest rates inflation protected remain very low. So

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Speaker 3: I don't think that's an issue, and impact Japanese inflation

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Speaker 3: is actually helping the government currently on the debt to

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Speaker 3: GDP rate issue, right, so nominal GDP is growing faster

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Speaker 3: than the debt is growing, and so the nominal debt

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Speaker 3: to GDP is actually declining, and I think that remains

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Speaker 3: well under control.

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Speaker 5: I think what happened until.

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Speaker 3: This past year and the later half of last year

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Speaker 3: was that as global inflation was declining, people expect that

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Speaker 3: Japan's inflation, which was running at around three percent, would

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Speaker 3: decline in Japan would go back towards zero inflation, and

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Speaker 3: hence the Japanese longer term bond yields were not going up.

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Speaker 3: But what they've seen is that ja Japanese inflation has

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Speaker 3: remained quite sticky and strong despite global inflation declining, and

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Speaker 3: so that's given people confidence that Japan is truly out

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Speaker 3: of the inflation and that's why.

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Speaker 5: The longer term bond yields in Japan have been going up.

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Speaker 6: Do you see the upside risk to inflation from the

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Speaker 6: end pushing up prices of impulse?

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Speaker 5: Yes?

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Speaker 3: Yes, And this is a big political problem for Takaichi.

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Speaker 3: I mean, this is why her predecessor, Ishiba basically had

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Speaker 3: to step down, was because people were unhappy with inflation

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Speaker 3: and the cost of living in Japan. So it's something

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Speaker 3: that she needs to tackle. She has other political issues

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Speaker 3: as well, but it also there's an opportunity. There's recently,

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Speaker 3: you know, rumors about she may call for an early election.

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Speaker 3: That may be a positive for her, but there are

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Speaker 3: of course risks whenever you go into an election.

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Speaker 4: So we he talk to us about the sectors that

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Speaker 4: you are perhaps a bit more cautious on, given the

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Speaker 4: valuations tech financials for example.

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Speaker 3: Yeah, so I think the rising interest rates are more

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Speaker 3: than priced in into financials, especially insurance companies and banks

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Speaker 3: and regional banks, not.

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Speaker 5: As much as the megabank.

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Speaker 3: Megabanks are maybe a bit better, but regional banks, insurance companies,

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Speaker 3: I think rising interest rates are more than priced in

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Speaker 3: a lot of let's say, inbound thematic names like restaurants,

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Speaker 3: department stores I think are overvalued. The tech names I

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Speaker 3: think are overvalued. Defense related names has been a big

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Speaker 3: thematic this past.

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Speaker 5: Year in Japan. That's overvalued.

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Speaker 3: There's been a bit of an AI mania in Japan.

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Speaker 3: And I'll give you one sort of an example of

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Speaker 3: an AI mania. So until earlier, that's in the middle of

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Speaker 3: last year. Late last year, Japanese factory automation names were

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Speaker 3: considered sort of a bit negatively because there wasn't strong

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Speaker 3: rebound in demand in it from China because of the

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Speaker 3: evolution policies of the Chinese government to reduce capacity. But

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Speaker 3: then suddenly it became, you know, robotics is the next AI.

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Speaker 3: Factory automation is the next AI name, and those just

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Speaker 3: bounced up like crazy. And then what you see is

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Speaker 3: as the reporting earnings and outlook, there's no improvement. It

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Speaker 3: was just that you know, robotics is the next AI,

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Speaker 3: and the evaluation ran up. So there are those sort

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Speaker 3: of thematic sectors that we need to be quite cautious.

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Speaker 4: About do you see that caution also part of the

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Speaker 4: function of the way in which South Korean markets I mean,

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Speaker 4: we've been seeing that robotics team also playing out there.

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Speaker 4: Does it set some of the investor appetite the time

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Speaker 4: when memory prices are trending at these levels that seems

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Speaker 4: to be supportive more of South Korea big chip makers

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Speaker 4: rather than the other electronics makers across the region.

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Speaker 3: Yeah, so I think, you know, this theme has become

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Speaker 3: rather I mean, when we look at, let's say, even

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Speaker 3: the more bullish forecast, for example, from any of the

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Speaker 3: Japanese component makers or companies in the semiconductor supply chain,

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Speaker 3: and we look at the more bullish forecasts, and then

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Speaker 3: then we price those in, you know, using a discount

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Speaker 3: cash flow model, we still can't explain current valuation, right, So,

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Speaker 3: even using the most bullish forecasts. So I think there's

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Speaker 3: a bit too much priced into the market currently.

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Speaker 1: That was Zoomhair Khan, senior portfolio manager at UBP, speaking

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Speaker 1: with Bloomberg TV host Paul Allen and April hon And

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Speaker 1: we're bringing it to you here on the Daybreak Asia podcast.

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Speaker 1: Thanks for listening to today's episode of the bloomber Our

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

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

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

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Speaker 1: YouTube channel, or anywhere else you listen. Join us again

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Speaker 1: tomorrow for insight on the market moves from Hong Kong

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Speaker 1: to Singapore and Australia. I'm Doug Prisoner and this is

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Speaker 1: Bloomberg