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Speaker 2: Well.
Speaker 3: South Korea's economic growth accelerated to a pace faster than
Speaker 3: most optimistic forecasts had been around. Good news to President
Speaker 3: Yun sukyul. A bit late though, given the election setback,
Speaker 3: but anyway, GDP advancing one point three percent in the
Speaker 3: three months through March versus the previous quarter. According to
Speaker 3: the Bank of Korea, the economy grew three point four
Speaker 3: percent year on year, beating the forecast of two and
Speaker 3: a half percent. Now in that environment, as k Heinez said,
Speaker 3: it expects full recovery in the memory market in chips,
Speaker 3: and also that AI demand was spurring the chip maker
Speaker 3: to its fastest revenue expansion since at least twenty ten.
Speaker 3: Joining us now for some discussion is Yu Kung Lee,
Speaker 3: Bloomberg Asia Stocks Reporter. On a closer look at heinez here.
Speaker 3: So I guess the best news here really for general
Speaker 3: investors would be that at least this company expects full
Speaker 3: recovery in the memory market.
Speaker 4: Yeah, that's right. Well, the best news is also might
Speaker 4: be the best opportunity to sell the news, and that's
Speaker 4: how the markets are seemed to be interpreting the latest
Speaker 4: positive string of announcement from eske Heinis. The company reported
Speaker 4: a blue out earnings, Yes, and that demonstrates that the
Speaker 4: chip industry is in full recovery after years of slump
Speaker 4: and downturn, and thanks to this strong demand coming from
Speaker 4: the AI and not just the AI. Some of the
Speaker 4: silver lining the eskehihneys highlighted also included us forecasting bullish
Speaker 4: demand for traditional membership, which means that the demand for
Speaker 4: smart phone and personal computer might be also finally recovery
Speaker 4: going toward the end of this year. So there's a there. Also,
Speaker 4: there are a lot of positive announcements from the company
Speaker 4: from today's earnings results.
Speaker 1: Yeah, you might talked about kind of buy the rumors,
Speaker 1: sell the news. Yesterday the stock was up my more
Speaker 1: than five percent. So when we look at the memory
Speaker 1: chip market, I mean, if the company says to you
Speaker 1: maybe we are entering a full recovery cycle. Are they
Speaker 1: taking into consideration what the competitors are dealing with right
Speaker 1: now or is this pretty much from the company's point
Speaker 1: of view.
Speaker 4: So when you talk about that in the memoryship, they
Speaker 4: are definitely taking into account what the competitors are doing.
Speaker 4: There's pretty much three memoryship supplier in the world when
Speaker 4: it comes to dram the maturity of the memboryship. There's
Speaker 4: SAMs and Electronics, there's ESK Heighnis that, there's the US
Speaker 4: company Micron Technology, and all three of them have been
Speaker 4: in a have been reporting pretty bad results last year,
Speaker 4: but all three of them are expected to report pretty
Speaker 4: solid earnings this year and thanks that's thanks to the
Speaker 4: industry wide recovery that's helping the membership demand for all
Speaker 4: these three companies.
Speaker 3: The announcement this week that Heinex would spend fifteen billion
Speaker 3: dollars in South Korea on a new plant, what does
Speaker 3: that actually mean for the company.
Speaker 4: Sure, so that displays strong confidence coming from SKA Heinix
Speaker 4: that is pretty confident there will be strong demand. Ford
Speaker 4: is a high end membership called HPM that is a
Speaker 4: crucial for AI accelerators such as the ones made by Nvidia.
Speaker 4: So that was a really kind of type of news.
Speaker 4: That is that may be seen as a positive, but
Speaker 4: also for some investors. Typically the membership industry is very
Speaker 4: vulnerable to the supply and demand situation, So therese upcoming
Speaker 4: increase in up could also be a negative news to
Speaker 4: some investor because that could raise concern about potential supply,
Speaker 4: although that may be a lot down on the road.
Speaker 4: So there is this is not all all the all
Speaker 4: the positive good news. There's also some some source of worry.
Speaker 1: Brian was talking about that positive print on GDP walk
Speaker 1: about economics time. How is the South Korean economy performing?
Speaker 1: You're in the capital, right, you have kind of a
Speaker 1: viewpoint on what's happening in a major urban center, but
Speaker 1: you're very much wired into other pockets of the country
Speaker 1: and where manufacturing sites are set up for things like
Speaker 1: not only semiconductors, but automobiles as well. How is the
Speaker 1: economy performing in South Korea?
Speaker 4: So, the South Korea economy is very sensitive to global
Speaker 4: trades and global demand, especially the global demand for the
Speaker 4: tech and consumer electronics because chips count for the huge
Speaker 4: part of the South Korea exports and to today's growth
Speaker 4: results also show pretty strong exports growth from the chip
Speaker 4: makers that is helping the growth for the for the
Speaker 4: entire nation. However, this may not be entirely a great
Speaker 4: news for the stock investors, because we are also seeing
Speaker 4: speculations that the central bank in South Korea Bank of
Speaker 4: Korea may be considering delaying its own rate cuts because
Speaker 4: the economy is doing well. This is just like what's
Speaker 4: happening in the US, and the FED made postpone as
Speaker 4: raycut to the later this year, and that may also
Speaker 4: widen the interest rate gap between the US and South Korea.
Speaker 4: So the South Korea Central Bank may not be reducing
Speaker 4: interest rate as soon as investors expected. So the GDP
Speaker 4: is not all good news.
Speaker 3: That may not be a bad thing. I mean, there
Speaker 3: are some of us who believe that no rate cuts
Speaker 3: at all is actually the most bullish move for central
Speaker 3: banks this year, just in that once you start getting
Speaker 3: the cut, it's usually because growth is turned down or
Speaker 3: unemployment has started to move up. This is a pretty
Speaker 3: good environment that we're in. If you look at these
Speaker 3: stock chart of Heinez, it's amazing from the lower left
Speaker 3: to the upper right. Noting though that it did sell
Speaker 3: off ten percent before yesterday's big bounce on the Capex
Speaker 3: move And like you said at the very beginning, and
Speaker 3: I'd like to hear more thoughts on this, maybe the
Speaker 3: best is already in.
Speaker 4: Sure. So if you look at the earnings outlook and
Speaker 4: the fundamentals of Esquhiinis, there are may be more legs
Speaker 4: for the rally in the share prices which is hovering
Speaker 4: near the highest level in twenty four years. And you
Speaker 4: see the similar movements for the in the share prices
Speaker 4: of other chip makers Nvidia, TSMC, Samsung, they are either
Speaker 4: near their peaks or breaking their peaks, and then in
Speaker 4: recent weeks they've been falling more than ten percent into.
Speaker 2: The correction level.
Speaker 3: So that's why this season is going to be really
Speaker 3: interesting to see whether or not the earnings is strong
Speaker 3: enough to get everybody powered higher. YUKIONG Lee joins us
Speaker 3: Bloomberg Asia Stocks reporter from Seoul. We're joined by fanchuk
Speaker 3: One Asia CIO of HSBC Global Private Banking and Wealth
Speaker 3: to take a closer look at markets, and we have
Speaker 3: had a lot of up and down here of late.
Speaker 3: We talked about the big drop in Meta shares today,
Speaker 3: but we also had Texas instruments surging, Tesla surging. We
Speaker 3: also had gains in Visa. So it's very much day
Speaker 3: in and day out a different picture on how the
Speaker 3: equity market might be performing. I suppose a lot of
Speaker 3: that is tied up into the individual companies and what
Speaker 3: they're doing, and also the forecast on interest rates. I
Speaker 3: note that you believe that the big central banks are
Speaker 3: on track to start cutting interest rates this year. You're
Speaker 3: sticking by that.
Speaker 5: Yeah, we still expect Divado Macas central banks will start
Speaker 5: with the Montreal easing cycle later this year, but of
Speaker 5: course market reprising for slower fed rate cuts have gone
Speaker 5: quite far. Uh and now to the points that now
Speaker 5: market actually push out the rate cut expectations in the
Speaker 5: US towards the Q four this year, and in some
Speaker 5: forecasts project no rate cut. We think these have gone
Speaker 5: too far. So at XSBC, we currently still expect free
Speaker 5: US interest rate cut this year, but the risks are
Speaker 5: clearly skewed towards a later start, so we may see
Speaker 5: the fat cuts to come in the second half of
Speaker 5: the year. It's compared with our current projection of a
Speaker 5: June start, so we think the reprising have already taken place,
Speaker 5: and importantly, we think there's very high probability that the
Speaker 5: European Central Bank will kick start with monetary yeasing in June,
Speaker 5: and there's also debate whether there would be another July
Speaker 5: rate cut.
Speaker 2: So with.
Speaker 5: Interest rate sign code turning, we still thinks that is
Speaker 5: important for investor to put in cash to work because
Speaker 5: investment risky asset should deliver better total return compared with cash.
Speaker 5: When central bank now reversing the monetary cycle.
Speaker 1: Fun I want to ask about you. Yeah, well, I
Speaker 1: want to There's a couple of things there. One, I mean,
Speaker 1: if the ECB begins to ease, then maybe risk assets
Speaker 1: in Europe are a bye. But I'm also, as long
Speaker 1: as we're talking about central bank action, curious on the
Speaker 1: Bank of Japan's decision, which is happening Friday. What's your
Speaker 1: sense of what's going on not only with the economy
Speaker 1: in Japan and the rate of inflation, but whether or
Speaker 1: not it's an opportune time to put more money to
Speaker 1: work in Japanese equities.
Speaker 5: Yeah, we are bullish on Japanese equity, so we stay
Speaker 5: overweight on Japanese dog We don't think the BOJ will
Speaker 5: for the increase interest rate in this week's meeting. But
Speaker 5: given the growing expectations for slower fat rate cuts, and
Speaker 5: this also created room for the BOJ to raise interest
Speaker 5: rate earlier than expected. So currently we expect the BILJ
Speaker 5: will likely raise interest rate again in the third quarter
Speaker 5: of this year and we project two more rate hike
Speaker 5: in twenty twenty five. And given the significant weakness in
Speaker 5: the end and now yen hits more than three decades low,
Speaker 5: so the BILJ would also have the incentive to raise
Speaker 5: policy rates before the end of this year. Uh and
Speaker 5: this would also help to curb the extreme weakness in
Speaker 5: the end.
Speaker 3: What do you like most about what Japanese companies bring
Speaker 3: to the table at the moment.
Speaker 5: I think this more sustainable refras trend in Japan would
Speaker 5: both well for corporate earnings outlook and the Japanese equity
Speaker 5: market is substantially exposed to the tech cycle. Given the
Speaker 5: global AI investment boom is also driving strong capital expenditure
Speaker 5: spending in Japan on digitalization, automation and AI technology to
Speaker 5: mitigate the structure had went from aging demographic so Japan
Speaker 5: is also a very attractive play on the AI investment boom.
Speaker 5: And on the other hand, the accelerating corporate government reforms
Speaker 5: also so prompt more listed companies to introduce corporate actions
Speaker 5: to enhance shareholders value, including increase in diffidend payout and
Speaker 5: share buyback. So this will well for our OE enhancement
Speaker 5: in the medium term. So there are actually a multiple
Speaker 5: driver upon equity market in Japan misfund.
Speaker 1: So much of what happens in the APEC region is
Speaker 1: driven by economic activity. In China. We know that and
Speaker 1: clearly the economy is struggling. We're waiting for some type
Speaker 1: of turn. Maybe it's happened, and we won't know that
Speaker 1: clearly for a few months. Now, what's your sense on
Speaker 1: China and whether or not there are opportunities to put
Speaker 1: capital to work there.
Speaker 5: We currently have neutral allocation to China equities, but we
Speaker 5: adop a most selective positioning given that the recovery out
Speaker 5: of remain divergence. So the property market stress remain a
Speaker 5: key on the economy. But looking at the Q one
Speaker 5: China GDP report, infrastructure spending actually came in better than expected.
Speaker 5: On the other hand, industrial protection growth and retail sales
Speaker 5: actually came in weaker than consensus estimate. So this is
Speaker 5: clearly a mixed picture in terms of the recovery outlook,
Speaker 5: So this would imply divergent corporate earnings performance. So we
Speaker 5: see more resilient financial performance from the surface consumption sector.
Speaker 3: So you have to be a stock picker, yes.
Speaker 5: And focus on the resilient sector.
Speaker 3: Yeah. I want to go back to a comment you
Speaker 3: made at the beginning of our conversation, which I think
Speaker 3: a lot of people would take heart from. I mean,
Speaker 3: they would say, you're right that right now there's the
Speaker 3: risk of fewer interest rate cuts than more, and so
Speaker 3: as a money manager, you have to be very cognizant
Speaker 3: of that. So that would augur for being pretty careful here.
Speaker 3: You said that you think it's a great time to
Speaker 3: take advantage put money to work in the stock market.
Speaker 3: How do you reconcile those two thoughts.
Speaker 5: Yeah, we actually don't think a lower start of the
Speaker 5: FED rate cut is a negative development because the key
Speaker 5: reason accounting for this trend is stronger than expected US
Speaker 5: growth and this has been reflected in earnings expectation. We
Speaker 5: expect our market projection for US earnings growth to further improve,
Speaker 5: so this will actually support further broadening of the US
Speaker 5: equity rati in our opinion.
Speaker 3: All right, thanks very much, Ms Vanchukwan there Asacio of
Speaker 3: HSBC Global Private Banking and Wealth. Us A Takeda, portfolio
Speaker 3: manager of the Hennessey Japan Fund. We talked about a
Speaker 3: number of issues that we would raise with you. Massa Takaida,
Speaker 3: thank you very much for being with us. Let's start
Speaker 3: off with possible intervention. Would it be a little weird
Speaker 3: for the Ministry of Finance to intervene in these two
Speaker 3: days when the BOJ is meeting.
Speaker 6: Well, it's hard to say what and when the bog
Speaker 6: might do something, but I do think that chief Jpy
Speaker 6: Japanese yen is here to stay because of several reasons
Speaker 6: such as real interest rates still negative for Japanese in
Speaker 6: I think, what's one of the few currencies, if not
Speaker 6: the only one.
Speaker 2: With negative interest rates.
Speaker 6: And also trade balance that has structurally changed in the
Speaker 6: last twenty years, so there's a very there's so much
Speaker 6: less purchase nowadays.
Speaker 1: So tomorrow it's not just the BOJ meeting, although that's
Speaker 1: clearly center stage. Tokyo April CPI data and I'm curious,
Speaker 1: can you help me understand what the inflation story is
Speaker 1: right now in Japan?
Speaker 6: Well, so it's been trending above two percent for I
Speaker 6: think the last two years now, And initially in twenty
Speaker 6: twenty two.
Speaker 2: I thought that Japanese inflation would be transient.
Speaker 6: But as time went by, I came to realize that
Speaker 6: there's a little much structural element to it. So at
Speaker 6: first it was the you know, the Fed raising rates
Speaker 6: and appreciated Japanese yen and increased import prices.
Speaker 2: But now it seems like the botton is being.
Speaker 6: Passed to more structural reasons, like you know, labor shortage
Speaker 6: arising from shrinking population. So our feeling is that Japan's
Speaker 6: inflation will stay higher for longer.
Speaker 3: Yeah, and with inflation high and the currency week, they
Speaker 3: kind of feed off each other, I suppose, and it's
Speaker 3: not good for people. I mean you probably heard me
Speaker 3: say Japan Airlines CEO's who go to Tori said, it's
Speaker 3: a big problem. Who is it the most big the problem?
Speaker 3: Who is it the biggest for?
Speaker 6: Well, definitely how sports are feeling the pinch and also
Speaker 6: you know importers. But I think, you know, as Japan
Speaker 6: is now finally coming out of decades long deflation, I
Speaker 6: think this should start virtual cycle where you have higher
Speaker 6: inflation which leads to higher interest rate nominal interest rate,
Speaker 6: while the overall monitor policy is still being accommodated, and
Speaker 6: that should change the consumer's mindset and that should produce
Speaker 6: a positive feedback loops.
Speaker 2: So I think the trend we're generally moving in the
Speaker 2: right direction.
Speaker 1: So what does it mean massive for the equity market
Speaker 1: in Japan.
Speaker 6: Well, obviously, if you have negative interest rates, that's good
Speaker 6: for equities. Although as an investor, we were also focus
Speaker 6: We always focus on, you know, companies with durable economic modes,
Speaker 6: with strong pricing power, and so we are macroagnostic and
Speaker 6: benchmark agnostic.
Speaker 3: So some of the governess changes that people speak so
Speaker 3: highly of for Japan, things like being able to offer
Speaker 3: dividends and and allowing more buybacks and and making better
Speaker 3: governance decisions, is that something that you see can be sustainable.
Speaker 2: Yeah, I think so.
Speaker 6: I mean, I think the key thing is not the
Speaker 6: shareholder shareholder return policies. I think that it's about raising
Speaker 6: awareness around you know, returns on capital, cost.
Speaker 2: Of equity and so on.
Speaker 6: Because they had they hadn't, there was there was no
Speaker 6: capitalism in a Western sense, you know, ten, fifteen, twenty
Speaker 6: years ago, and now with the government initiatives and activists
Speaker 6: and even mister Buffett or Bookshire halfway. I think companies
Speaker 6: are becoming more and more conscious about, you know, improving
Speaker 6: capital efficiency, and I think that's sustainable thanks to all
Speaker 6: these external pressures.
Speaker 3: Masa.
Speaker 1: We have talked on this show a great deal about
Speaker 1: how companies are diversifying manufacturing and supply chain operations away
Speaker 1: from China, resharing of semiconductor manufacturing, let's say here in
Speaker 1: the United States. How is Japan benefiting from this drive
Speaker 1: if at all?
Speaker 6: Oh, yeah, definitely. So first of all, it may create
Speaker 6: extra demand coming from other parts of the world, you know,
Speaker 6: by moving away from China, although that might create supply
Speaker 6: glood at some distant point in time. But Japan and
Speaker 6: Japan is definitely benefiting from being in a geopolitically neutral position.
Speaker 2: And then also, you know, Japan is.
Speaker 6: Now cheap country, so you know, it's smcs of the world.
Speaker 6: They can hire high quolitic engineers, are very affordable cost
Speaker 6: and also the cost of construction is everything is is
Speaker 6: becoming quite quite attractive in terms of the cheapness.
Speaker 3: Mars, you're a PM for the Hennessy Japan Fund. You
Speaker 3: mentioned a number of companies in your list, companies like
Speaker 3: Mitsubishi Electric and Hitachi. What's your best pick at the moment?
Speaker 6: Why, well, right now, I think that some of the financials.
Speaker 6: And by the way, it's not Mitsubishi Electric. We have
Speaker 6: our Mitsubishi Corporation and MITTSBECI EFH Financial Group. But we
Speaker 6: like insurance companies in Japan because it's polygopolistic, three players
Speaker 6: controlling only not only three player s contry in ninety
Speaker 6: percent of the market.
Speaker 3: Yeah, all right, well we'll put that as as a
Speaker 3: jumping off point for our next discussion. Masticated their portfolio
Speaker 3: manager at Hennessey Japan Fund.
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