Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: Welcome to the Daybreak Asia podcast. I'm Doug Prisner. We
Speaker 2: saw a spike and crude oil prices during New York
Speaker 2: trading on signs the US and Iran appear to be
Speaker 2: far apart on any deal to end their war, and
Speaker 2: those higher oil prices, in turn rekindled concern over stubborn inflation.
Speaker 2: We know that inflation has been stuck well above the
Speaker 2: Fed's target for the past five years. It's fair to
Speaker 2: ask whether the FED will be raising interest rates before
Speaker 2: the end of the year to get those prices under control. Today,
Speaker 2: in the treasury market, if you look at the yield
Speaker 2: on the thirty year, it rose to five point three
Speaker 2: one percent. That's the highest in nearly two decades. So
Speaker 2: not surprisingly, the equity market retreated a bit. The S
Speaker 2: and P was down a half of one percent. We
Speaker 2: did have a rally though, among some of the chip makers,
Speaker 2: and the Philadelphia Semiconductor Index rising today by about one
Speaker 2: point six percent. For a closer look at what's happening
Speaker 2: in Asia, let's bring in Bloomberg's Paul Dobson. He is
Speaker 2: executive editor of Asia Markets, and he joins from our
Speaker 2: studios in Singapore. Thank you for being here. I want
Speaker 2: to pick up on the chip strength that we had
Speaker 2: in the States. It seems to be filtering through to
Speaker 2: South Korea, does it not.
Speaker 3: Yeah, Hi there, Doug. So it was a holiday yesterday
Speaker 3: as well for South Korea, so a little bit of
Speaker 3: a catch up trade going on. But people seem relatively
Speaker 3: excited by the ongoing deal announcements that we see from
Speaker 3: the Lakes of Aanthropy from the video. More investment, more
Speaker 3: confidence in the data center build out, and therefore more
Speaker 3: demand for the memory chips. So that's enough to keep
Speaker 3: career in the Asian tech sector looking pretty chipper. If
Speaker 3: you he's the bad pun, okay, you're allowed.
Speaker 2: Talk to me a little bit about what's happening with
Speaker 2: artificial intelligence as it relates to China. We've had some
Speaker 2: pretty dramatic developments over the last few days we.
Speaker 3: Have, and so the China tech stack is really starting
Speaker 3: to show its strength. We had the IPO of CXMT
Speaker 3: not too long ago. That company has immediately surged to
Speaker 3: become the most valuable company in China. And I think
Speaker 3: what's really telling here is that those sort of new
Speaker 3: new technology stocks are really surpassing the older darlings, the
Speaker 3: platform companies of yesteryear as it were. We saw JD
Speaker 3: dot Com reporting earnings not looking good, had a ten
Speaker 3: percent down day. Similar story for ten Cent when it
Speaker 3: reported Eddie Barber also not faring terribly well. And so
Speaker 3: you know, all of the companies that used to be
Speaker 3: kind of the go to names for China investment and
Speaker 3: now sort of falling by the wayside As, we have
Speaker 3: this new emphasis on AI, on chip makers and also
Speaker 3: on robotics, so we have more IPOs coming down the
Speaker 3: line in that space, and that's the next sort of
Speaker 3: big and exciting thing for investments in China.
Speaker 2: Paul, I'm glad you mentioned that, because if you look
Speaker 2: at the monthly Chinese activity data for July, the points
Speaker 2: you just made are supported by the numbers. The growth
Speaker 2: story seems to be more about the global buildout of AI, right.
Speaker 3: Yeah, it's really a case shaped economy of the moment
Speaker 3: where you have that chip sector, you have the experts
Speaker 3: are really thriving, but you have a lot of the
Speaker 3: rest of the economy looking pretty depressed. We had misses
Speaker 3: pretty much across the board on the data that we
Speaker 3: got yesterday, including retail sales, and that speaks to this
Speaker 3: idea that the consumer really isn't thriving in mainland China.
Speaker 3: At the moment, the economy is bobbling along towards the
Speaker 3: weekend of where the government's forecast or ambitions for the
Speaker 3: year are, and it sort of likes to run it
Speaker 3: that way in some ways. So if it feels that
Speaker 3: it's falling too far behind, it may do more stimulus
Speaker 3: to write the course towards the end of the year.
Speaker 3: That's the moment thinking that if it can hold up,
Speaker 3: you know, a sort of just below that five percent
Speaker 3: run rate, then maybe is reasonably happy. But what we
Speaker 3: are seeing in terms of the market is the way
Speaker 3: that investors are expressing this as a couple of things. Yes,
Speaker 3: there's optimism in the tech space, inequities and some differentiation trades,
Speaker 3: but also in the government bond market in China our
Speaker 3: countrary to the rest of the world. Basically, we've got
Speaker 3: falling yield. So we've got the ten year gield the
Speaker 3: lowest in a couple of years, they think, and falling
Speaker 3: while everything yields all around the rest of the world arising.
Speaker 2: Talk to me a little bit about what's going on
Speaker 2: in Japan because we had the second quarter GDP figure
Speaker 2: that was released on Monday surprising weakness. I think it's
Speaker 2: fair to say, at a growth rate of just one
Speaker 2: point one percent, and I'm wondering about how this may
Speaker 2: influence the thinking of the Bank of Japan.
Speaker 3: Yeah, as true, and that sort of sets out a
Speaker 3: little bit the dilemma that's in front for the Bank
Speaker 3: of Japan because really the pressure is on them to
Speaker 3: start raising rates a little bit more aggressively at a
Speaker 3: faster place as well, so maybe bringing forwards the hike
Speaker 3: to September and then maybe signaling as well at some
Speaker 3: sort of a hawkish position. And the reason for that
Speaker 3: is that inflation is still high in the Japanese economy
Speaker 3: and people are worried that the Bank of Japan is
Speaker 3: letting the inflation run out a little bit out of control.
Speaker 3: So that's pushing up yields at the back end of
Speaker 3: the curve. The thirty year yield in particular continues to
Speaker 3: set new highs, the highest level since the nineteen nineties.
Speaker 3: And that's a little bit of a worry. And you know,
Speaker 3: that was part of the reason or that we sort
Speaker 3: of saw the US joining Japan and intervening in the
Speaker 3: currency space. You know, the idea that the people are
Speaker 3: worried generally about the currency and about the bond yields
Speaker 3: running out of control. But what I think the US
Speaker 3: would like to see would be a more proactive stance
Speaker 3: from the Bank of Japan. The problem for them is
Speaker 3: with the economy looking a little bit weak, they don't
Speaker 3: want to hike so aggressively that they end up tipping
Speaker 3: the economy into a recession and blow up all of
Speaker 3: the inflationary impulse there.
Speaker 2: So how much of that sluggish growth in Japan is
Speaker 2: tied to what we are seeing play out in the
Speaker 2: Middle East and elevated oil prices? Is that really capturing
Speaker 2: the lion's share of the blame.
Speaker 3: Is definitely a big element because Japan, being an importer,
Speaker 3: is very reliant on that. I mean, you know, I
Speaker 3: think over that reporting period for all that it was
Speaker 3: a period when perhaps there was a little bit less
Speaker 3: pressure in the oil market. So it's not unique uniquely
Speaker 3: the cause of the stresses in the economy. I think
Speaker 3: people in general are struggling to adapt to inflation. Some
Speaker 3: parts of the economy. The younger, vibrant sort of population
Speaker 3: that's seeing wage increases is doing very well. But older
Speaker 3: people's savers who've been used to, you know, kind of
Speaker 3: no increases in costs suddenly having to change the way
Speaker 3: they think. And part of what they're doing therefore is
Speaker 3: spending less. And so the government is addressing that to
Speaker 3: a certain extent by reducing some of the v eight
Speaker 3: like the you know, the taxes on sales for a
Speaker 3: couple of years to try to ease that burden on
Speaker 3: the consumer. But it's the whole adjustment process really getting
Speaker 3: used to the idea that things are getting more expensive
Speaker 3: because of inflation, and so therefore, you know, if you're
Speaker 3: an elderly person or something like that, you need to
Speaker 3: be putting your cash to work somehow as well, not
Speaker 3: just sitting on it and expecting that it will still
Speaker 3: be able to buy the same amount of stuff in
Speaker 3: five years that it can today.
Speaker 2: I mentioned a moment ago that in the US session
Speaker 2: we had that spike in US treasury yields. The thirty
Speaker 2: year jumped to a rate of five point three one
Speaker 2: percent that was the highest in nearly two decades. Now
Speaker 2: we know that there are many inputs when it comes
Speaker 2: to the pricing of bonds, and I'm wondering if you
Speaker 2: had to put your finger on what the big driver
Speaker 2: is of the price section that we have been seeing,
Speaker 2: what would.
Speaker 3: That be excellent question? And the cop out answer is
Speaker 3: there's so there's no single driver. But I do think
Speaker 3: that this is really an important narrative to focus on
Speaker 3: right now because there's slight risk at the back end
Speaker 3: of the yield curve gets out of control, and I
Speaker 3: think the key focuses are worries about inflation and worries
Speaker 3: that central banks aren't being proactive enough to address that.
Speaker 3: So the idea that the FED isn't going to be
Speaker 3: hiking anytime soon is a worry for those investors who
Speaker 3: have long duration exposure because of the impact that inflation
Speaker 3: has on that. I think people are worried about government
Speaker 3: spending plans all around the world as well, and the
Speaker 3: amount of supply that's coming to the market, which in
Speaker 3: addition to that, we also have the amount of fundraising
Speaker 3: that's being done for that AI build out and in
Speaker 3: the AI space as well, and that's another concern for people.
Speaker 3: But I think the other thing, you know, like the
Speaker 3: long term dynamic is and when you look at the
Speaker 3: way that markets are at the moment and the way
Speaker 3: they've been performing. We talked about the chip boom, we
Speaker 3: talked about equities. Equities just look much more appealing to
Speaker 3: all sorts of investors than bonds do at the moment.
Speaker 3: Bonds are losing money at the moment this year. You've
Speaker 3: got to get them to a point where that long
Speaker 3: term yield becomes irrefutably or irresistible to investors in order
Speaker 3: to bring money back in that direction. The only other
Speaker 3: thing that would change the course would be a big
Speaker 3: economic slowdown. Now, one thing that could cause the economic
Speaker 3: slow down could be high enough bond yield, So that's
Speaker 3: something to watch out for. But people will need to
Speaker 3: see them higher before they really start to have concerns
Speaker 3: about funding in the economy and therefore about their equity market.
Speaker 2: So before I let you go, I'm going to see
Speaker 2: if we can tie some things together. Because we touched
Speaker 2: on the weakness in the Japanese yen a moment ago,
Speaker 2: and there was that coordinated intervention that took place between
Speaker 2: Japan and the US, and I think from the US perspective,
Speaker 2: one of the things that Scott Bess at the US
Speaker 2: Treasury Secretary may have been a little concerned about if
Speaker 2: Japanese officials had to raise funds in order to defend
Speaker 2: their currency, they may have been put in a position
Speaker 2: to reduce their holdings of US treasuries. That would have
Speaker 2: been a negative for the treasury market and had upward
Speaker 2: pressure on yields. Do you think that's a factor at all,
Speaker 2: that somewhere in the background there is concern that Japan
Speaker 2: may have to lighten its inventory of US treasuries or
Speaker 2: do you think the relationship between Washington and Tokyo will
Speaker 2: prevent that from occurring.
Speaker 1: No.
Speaker 3: I do think that that's a concern, and I think
Speaker 3: that there's two reasons to worry about that. First of all,
Speaker 3: as you identified that sort of direct link where Japan,
Speaker 3: if it needs to continue to raise dollars, it will
Speaker 3: need to sell some of it overseas assets. I think
Speaker 3: in the latest TICK data, we saw overseas investors curb
Speaker 3: their holdings of US treasuries even after valuation effects. With
Speaker 3: Japan that's showing the biggest drop. So that's one thing
Speaker 3: that people are worried about. But I think the other
Speaker 3: thing that people starting to whisper or murmur about is
Speaker 3: the idea that if the US really doesn't want you
Speaker 3: to sell US treasuries then, and you're holding them as
Speaker 3: that sort of reserve asset, that sort of store of
Speaker 3: value that you can tap when you need it. If
Speaker 3: it's not actually going to be able to serve that purpose,
Speaker 3: then is it that much of a useful reserve asset
Speaker 3: for people to be holding after all?
Speaker 1: You know?
Speaker 3: And so I think that the recovery that we've seen
Speaker 3: in gold recently speaks a little bit of that idea
Speaker 3: as well, and so that I think puts a little
Speaker 3: bit more of a question marker overthinks it's another concern
Speaker 3: for our long term debt managers.
Speaker 2: Paul will leave it there, Thank you so very much.
Speaker 2: Bloomberg's Paul Dobson, Executive editor for Asia Markets, joining from
Speaker 2: Singapore here on the Daybreak Asia podcast. Welcome back to
Speaker 2: the Daybreak Asia Podcast. I'm Doug Christner. We moved to
Speaker 2: some earnings news next from the Australian mining giant BHP Group.
Speaker 2: The company reported full year underlying profit above expectations. These
Speaker 2: results were fueled in part by higher copper prices, and
Speaker 2: we got reaction from Julia Lee. Julia is investment director
Speaker 2: at Shaw and partner's asset management. She spoke with Bloomberg
Speaker 2: TV host Paul Allen.
Speaker 4: Copper a great story for them today, but is it
Speaker 4: as great as it could have been?
Speaker 5: I think first of all, we have to applaud the
Speaker 5: results today. It's on the back of a very strong
Speaker 5: operational performance together with rising prices and that dividend. You know,
Speaker 5: the market was expecting to see eighty three usns coming
Speaker 5: in that ninety nine us sense I still remember, you know,
Speaker 5: when BHP was a growth stock, reinvesting a lot of
Speaker 5: its profits into its business, and as the business has matured,
Speaker 5: you've really seen that very strong cash generation coming through.
Speaker 5: So as an income investor in the Australian market, you know,
Speaker 5: it's very hard to dismiss those type of returns coming through.
Speaker 5: But you're absolutely right on the growth picture. When you're
Speaker 5: looking sort of five to seven years out, well, where's
Speaker 5: the growth going to come from? We know with iron
Speaker 5: ore that we've seen a declining picture there. Copper is fantastic,
Speaker 5: but M and A is very difficult, So how do
Speaker 5: you grow the copper business from here? And podcash is
Speaker 5: very long dated, so you're looking a lot further out.
Speaker 1: So I guess A big question for BHP is.
Speaker 5: You know, it's running at full steam at the moment,
Speaker 5: it's generating these great results, but the next leg of
Speaker 5: investment and the next leg of growth.
Speaker 4: It takes a long time to bring a copper mind online.
Speaker 4: So M and A the only option. What are you
Speaker 4: expecting to see in that space in the coming from months.
Speaker 5: I mean, compon is a stranger, and we have seen
Speaker 5: copper prices at these very high levels and a lot
Speaker 5: of that is trying to get in before some of
Speaker 5: the tariff potential tariff actions. But copper can also be
Speaker 5: substituted for aluminum. So do we start to see a
Speaker 5: substitution effect coming through and are you bringing sort of
Speaker 5: future demand into the present and then do you see
Speaker 5: pull back a little bit later on.
Speaker 1: So, yes, copper is great because of.
Speaker 5: The AI the growing of the data center story as well,
Speaker 5: But in terms of just copper, I think it's going
Speaker 5: to be a bit harder for BHP to gain more exposure.
Speaker 5: But for both BHP and RIO tinto very strong copper,
Speaker 5: making more than half of their earnings now from copper.
Speaker 4: When you look at the copper space, is there any
Speaker 4: miner that you favor in particular, and I mean we
Speaker 4: mentioned vhprio tinto, but four to Skew Metals finally as
Speaker 4: diversified into copper with an acquisition of its own, very
Speaker 4: good timing. But which of those miners and the gunior
Speaker 4: miners do you think the best place to take advantage
Speaker 4: of the sperm.
Speaker 5: Yeah, I think when we look at our portfolios, we're
Speaker 5: most highly exposed to BHP bulletin in that space, we've
Speaker 5: got very little for to Skew exposure.
Speaker 1: But of course, you know, the.
Speaker 5: Copper story is fantastic for now, but still looking for
Speaker 5: that extra leg of growth. And one of the areas
Speaker 5: that we have like is the lithium space where we
Speaker 5: have been adding our stuffs like Pilber minerals where you know,
Speaker 5: lithium was another area where we saw very strong demand
Speaker 5: coming through a very strong supplier response and then prices
Speaker 5: are collapsing. But just over the last few months we've
Speaker 5: really seen prices coming back and we still think that
Speaker 5: story has a bit to run. So diversifying into other
Speaker 5: areas because we know coppers had a very strong run
Speaker 5: and looking at things like lithium and uranium as well.
Speaker 4: We do need to talk about CSL as well, because
Speaker 4: today's price pump has been quite spectacular. I think we're
Speaker 4: above seventeen percent now. Revenue was a narrow beat. It
Speaker 4: made a huge loss two and a half billion dollars.
Speaker 4: But looking forward for CSL, what do you see in
Speaker 4: that stock's future? Would you be a.
Speaker 2: Buyer of it?
Speaker 1: I mean, we have been adding CSL.
Speaker 5: The big question for investors is not so what has happened,
Speaker 5: but is most of the bad news behind us? Have
Speaker 5: we seen a peak in terms of the bad news
Speaker 5: coming through? And I think these results show that, yes,
Speaker 5: there is some still, you know on the headline numbers
Speaker 5: because of the right downs, we are seeing some bad news,
Speaker 5: but in some of the key underlying areas we've seen stabilization.
Speaker 5: I think the reason for the pop in the share
Speaker 5: price today though.
Speaker 1: Is its outlook.
Speaker 5: The market had been forecasting no growth, and it looks
Speaker 5: like the market believes what the company is saying, which
Speaker 5: is forecasting five percent growth now. So great to see
Speaker 5: CSL having a strong run. We're overweighting the portfolio given
Speaker 5: the depressed valuations that it's been at, and it's been
Speaker 5: a pretty bumpy ride for healthcare stocks.
Speaker 1: I mean, we've seen CSL as well as co Clear
Speaker 1: up about.
Speaker 5: Thirty percent over the last three months, but still down
Speaker 5: in the year to date, So that tells a big
Speaker 5: story on the volatility in the sector.
Speaker 4: Is there a story here as well about rotation out
Speaker 4: of AI, which Australia doesn't have a great deal of
Speaker 4: exposure to, into Australian healthcare stocks.
Speaker 5: We certainly have seen healthcare in focus, and I think
Speaker 5: the story with Australia has been very much that it
Speaker 5: is less expensive than the rest of the world. There
Speaker 5: is a value component to it and you can see
Speaker 5: that in the M and A activity that's.
Speaker 1: Happening at the moment.
Speaker 5: We're seeing a lot of offshore companies hunting for companies
Speaker 5: here in Australia because of our lower valuations. We've seen
Speaker 5: clean away Insignia, I mean today we also saw equity
Speaker 5: trustees coming through, so a number of takeovers and M
Speaker 5: and A and I think that's because of the value component,
Speaker 5: and healthcare has benefited from that rotation into some of
Speaker 5: those value areas. But if you want tech, I guess
Speaker 5: you're going to have to look at either the fixed
Speaker 5: income area. Talk of that Kangaroo bond coming through from
Speaker 5: Google with exposure to the AI through the credit area.
Speaker 5: Otherwise it's off shore markets that have that greater exposure.
Speaker 5: The Australian share market only has a two percent technology sector.
Speaker 5: That's compared to South Korea, where Samsung and sk Heinis
Speaker 5: make up fifty percent of their market.
Speaker 4: Go if you want to heade, I guess this is
Speaker 4: the place to come before we let you go. Look,
Speaker 4: we're at a chunk through Australian earning season so far.
Speaker 4: What's your report card so far and what are you
Speaker 4: looking out for in the next couple of weeks.
Speaker 5: We went into earning season with very high expectations. Twelve
Speaker 5: percent growth was expected and that's the highest growth rate
Speaker 5: that we've seen in around about four years.
Speaker 1: Typically we expect earnings.
Speaker 5: To be about four to four and a half percent growth,
Speaker 5: and I think that's been reflected in the Australian share
Speaker 5: market where we did see record highs being reached earlier.
Speaker 1: On in the month.
Speaker 5: But as earning this season has continued, we've seen a
Speaker 5: bit of from loss of earning's momentum growth now expected
Speaker 5: at eleven point seven percent, and that's not devastatingly low, it's.
Speaker 1: Still very high.
Speaker 5: But the fact is We are starting to see a
Speaker 5: bit of moderation in terms of earning's momentum, and that's
Speaker 5: across eleven sectors.
Speaker 1: It's being worse in some like consumer discretionary. We know
Speaker 1: that's been hit hot, but.
Speaker 5: Other sectors have started to shine, into healthcare, energy in
Speaker 5: the material space.
Speaker 2: That was Julia Lee, investment director at Shaw and Partner's
Speaker 2: Asset Management, speaking with Bloomberg TV host Paul Allen, bringing
Speaker 2: you their conversation here on the Daybreak Asia Podcast. Thanks
Speaker 2: for listening to today's episode of the Bloomberg Daybreak Asia
Speaker 2: Edition podcast. Each weekday, we look at the story shaping markets, finance,
Speaker 2: and geopolitics in the Asia Pacific. You can find us
Speaker 2: on Apple, Spotify, the Bloomberg Podcast YouTube channel, or anywhere
Speaker 2: else you listen. Join us again tomorrow for insight on
Speaker 2: the market moves from Hong Kong to a poor and Australia.
Speaker 2: I'm Doug Prisoner and this is Bloomberg
Speaker 5: M