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

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Speaker 2: Welcome to the Daybreak Asia Podcast. I'm Doug Krisner. Semiconductor

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Speaker 2: shares rebounded in the US. We had the Philadelphia Semiconductor

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Speaker 2: Index jumping more than five percent on Tuesday.

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Speaker 3: Now.

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Speaker 2: Sentiment was supported by strong chip export data from both

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Speaker 2: South Korea and Taiwan. And then on top of that,

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Speaker 2: TSMC reportedly spoke with clients about price increases of as

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Speaker 2: much as ten percent in twenty twenty seven. The nie

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Speaker 2: K reports these increases would cover the cost of rising

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Speaker 2: manufacturing materials. The term chipflation comes to mind. So this

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Speaker 2: morning and Soul, you've got a rally in both sk

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Speaker 2: Heinez and Samsung helping to send the COSTPY higher, extending

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Speaker 2: Tuesday's rally. For a closer look at the price action,

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Speaker 2: let's bring in Bloomberg's Winnie Sue. Winnie is one of

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Speaker 2: our Asia equities reporters and she joined from our studios

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Speaker 2: in Hong Kong. Thank you for being here. It's always

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Speaker 2: a pleasure. I was struck when I was reading the

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Speaker 2: m Live blog today on the Bloomberg that strategist Garfield

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Speaker 2: Reynolds was talking about the volatility and the costp. He

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Speaker 2: was framing it in terms of gyrations in the South

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Speaker 2: Korean equity market, and he made the point by saying, basically,

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Speaker 2: they've become a feature rather than a bug. And I'm

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Speaker 2: wondering whether you feel that investors need to have a

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Speaker 2: sense of calm before they return to the market. It

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Speaker 2: wouldn't appear to be that way today because I mean,

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Speaker 2: we've got a pretty strong rally underway.

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Speaker 3: Yeah, on a day like this, you would think that

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Speaker 3: they would jump right back in because that's what the

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Speaker 3: price action is showing. And we even got another sidecar

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Speaker 3: today and guess what. This is the thirty ninth sidecar

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Speaker 3: we've had so far this year. So it really goes

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Speaker 3: to show how volatile this market has been. And actually,

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Speaker 3: when I've been talking to the long term investors, you

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Speaker 3: would think that these kinds of volatility don't really matter

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Speaker 3: to them too much because they look very long term.

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Speaker 3: But surprisingly, I'm really seeing and hearing investory's sentiment turning

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Speaker 3: quite a bit because of this extreme volatility. I was

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Speaker 3: just talking to East Spring yesterday. The fund manager there

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Speaker 3: told me that the one when you look at the one,

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Speaker 3: your return and this month has just been terrible in

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Speaker 3: terms of performance, and they don't want that volatility anymore

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Speaker 3: if they can just in fact get the chip exposure

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Speaker 3: through Taiwanese stocks. So that's what he's doing. He is

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Speaker 3: in fact trimming a bit more Korea and buying Taiwanese stocks,

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Speaker 3: and he just preferred to stay on the sidelines until

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Speaker 3: all these leveraged and these volatility is being washed out furthermore.

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Speaker 3: And when I talk to Fidelity as well, I was

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Speaker 3: asking them how they are kind of managing this type

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Speaker 3: of volatility right. They mentioned two things that was quite interesting.

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Speaker 3: One is that they have smaller sizes of their trades

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Speaker 3: because volatility has really spiked up about three times or

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Speaker 3: so since December. That means from the risk management perspective,

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Speaker 3: they actually have to trim their positions smaller to a

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Speaker 3: third to balance that risk exposure. And then they also

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Speaker 3: need to manage their margin of safety to have it bigger.

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Speaker 3: In the past, it might be fifteen percent drawdown than

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Speaker 3: you buy the dip, but because it swings so much,

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Speaker 3: the drawdown now is about maybe twenty five percent when

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Speaker 3: they actually see a good entry point to buy the dip.

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Speaker 3: So I find that quite interesting as sentiment kind of

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Speaker 3: sours about the overall outlook for South Korea.

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Speaker 2: So this story on the chips is basically a story

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Speaker 2: about artificial intelligence. We know that, and we've been talking

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Speaker 2: on the podcast here in the last few days about

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Speaker 2: moonshots Kimmy K three AI model and the impact that

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Speaker 2: it having on market psychology. One of the things that

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Speaker 2: I understand reading a bit about Kimmy K three is

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Speaker 2: that it requires a substantial capacity of high bandwidth memory.

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Speaker 2: Now we know that as k Heinex plays in that space,

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Speaker 2: primarily Samsung a little bit, not as much as sk Heinix.

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Speaker 2: And then we have this Chinese firm, chun Ching Memory Technologies,

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Speaker 2: which is a big memory producer on the mainland, and

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Speaker 2: I guess Chunctionin is ready to do an IPO here

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Speaker 2: before the end of the month, is that right, Yeah.

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Speaker 3: That's a really exciting one that we're watching, right. We're

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Speaker 3: expecting it to IPO on Monday in fact, And just

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Speaker 3: kind of to your point about the benefits to these companies.

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Speaker 3: So interestingly, when you look at the initial reaction when

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Speaker 3: we got this news on the moonshot AI development, markets

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Speaker 3: actually plunged because the concern back then was if we

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Speaker 3: have cheaper, more efficient Chinese AI models. What does that

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Speaker 3: mean for the massive spending of these US hyperscals and

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Speaker 3: if that's justified or not, if the demand for these

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Speaker 3: advanced chips will remain solid or not. But then as

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Speaker 3: people really digest that information, as you mentioned, and that's

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Speaker 3: probably also tied to the reason the past few days

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Speaker 3: how chip stocks are coming back, is that in the

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Speaker 3: end it benefits the overall demand. If we see that

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Speaker 3: these cheaper models are being implemented, that actually means more

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Speaker 3: adoption across the industry and that would require more chips.

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Speaker 3: So that's a good part. And CXMT is such an

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Speaker 3: interesting case because it is the world's fourth biggest dram

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Speaker 3: company and the IPO would actually make it China's second

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Speaker 3: biggest IPO ever and the biggest of Asia twenty twenty two.

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Speaker 3: So all eyes are on that because it really is

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Speaker 3: in the center of this tech rivalry between the US

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Speaker 3: and China. But interestingly, foreign investors, they don't have much

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Speaker 3: access to the IPO because it's listed on the mainland

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Speaker 3: and they won't be able to buy until this stock

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Speaker 3: is available through the stock connect. So we're seeing foreign

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Speaker 3: investors buying up these different proxies to get exposure to

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Speaker 3: this IPO, whether it's buying Chinese banks that are investors

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Speaker 3: of these IPOs, or even some of the hardware names,

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Speaker 3: names of CXMT suppliers for example. And we really saw

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Speaker 3: these stocks rallied in the past few months, so you

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Speaker 3: can already sense that excitement around this IPO that is

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Speaker 3: being very much overdy subscribed as well.

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Speaker 2: Before I let you go, I have to ask about

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Speaker 2: some news regarding potential expansion plans on the part of

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Speaker 2: sk Heinix. We know that since the Biden administration in

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Speaker 2: the US, there has been an effort to try to

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Speaker 2: reshore American semiconductor manufacturing or reshore semiconductor manufacturing. I guess

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Speaker 2: you have to go back a long time before American

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Speaker 2: firms were actually building chips in the US. We know

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Speaker 2: that there was the Chips Act. The Trump administration has

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Speaker 2: kind of leaned into that as well, requiring companies like

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Speaker 2: sk Heinex and Samsung commit to building US facilities. And

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Speaker 2: there was a report that sk Heinix was planning to

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Speaker 2: acquire a facility owned by Intel. Do you have any

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Speaker 2: information on that.

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Speaker 3: Yeah, that came out this morning, and you know it

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Speaker 3: was quite interesting the local report saying that Skhinis considering

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Speaker 3: acquiring the ohio plant of Intel, and in fact we

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Speaker 3: actually just heard that sk Heinis denied that their plan.

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Speaker 3: They have that plan to acquire. But what this potentially

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Speaker 3: mean is that it will do two things. First, it

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Speaker 3: will help ESK high Nex handle that pressure from the US,

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Speaker 3: as you just mentioned, to invest further in the country

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Speaker 3: and also help Khnis to expand capacity further given how

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Speaker 3: the markets are also expecting them to expand their supply.

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Speaker 3: Given the constraints that we are seeing right now, esk

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Speaker 3: Highnis did still have this plan of being able to

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Speaker 3: manufacture these memory chips in the US in the next

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Speaker 3: within the next five years, so we will still be

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Speaker 3: very closely monitoring to see how other plans they have

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Speaker 3: to expand further in the US. But this could actually

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Speaker 3: be interesting as well, just because the Intel Ohio plant

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Speaker 3: is actually one of the newest plans that Intel has

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Speaker 3: and it the operations were in fact postponed to twenty

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Speaker 3: thirty or so, just because Intel has been struggling to

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Speaker 3: secure its clients. So this big manufacturing plant could have

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Speaker 3: really brought a lot of capacity for Skhiinex and it's

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Speaker 3: planned to develop further in the US.

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Speaker 2: And as long as we're talking about Intel, the stock

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Speaker 2: rallied by more than eight and a half percent in

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Speaker 2: the US session on Tuesday on plans to cut more jobs. Curiously, Winnie,

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Speaker 2: thank you so very much. It's always a pleasure. Bloomberg's

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Speaker 2: Winnie Sue, who is one of our Asia equities reporters,

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Speaker 2: joining from Hong Kong here on the Daybreak Asia podcast.

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Speaker 2: Welcome back to the Daybreak Asia Podcast. I'm deg Krisner.

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Speaker 2: Stocks in both Tokyo and Sold are higher thanks to

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Speaker 2: a rebound among chip makers. The positivity on the outlook

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Speaker 2: for AI is offsetting concern over rising oil prices due

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Speaker 2: to an escalation in the conflict between the US and Iran.

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Speaker 2: And that is where we begin our conversation with Kyle Rada.

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Speaker 2: Kyle is senior market analyst at Capital dot Com and

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Speaker 2: he spoke with Bloomberg TV host Sherry On and Heidistraud Watts.

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Speaker 4: What's more compelling to investors are really led to sort

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Speaker 4: of try and ignore the geopolitics for the situation. But

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Speaker 4: does that come into play when these fed expectations really

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Speaker 4: start to change.

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Speaker 5: I think so. I mean it's a matter of urgency

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Speaker 5: and rate of change when it comes to rates. I

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Speaker 5: think this sort of energy story, I think the underlying

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Speaker 5: inflats and pressures are still strong, and the combination of

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Speaker 5: fairly loose fiscal settings as well as this AI investment

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Speaker 5: boom and the sort of pressure that's putting on physical

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Speaker 5: resources right around the global economy is going to mean

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Speaker 5: that underlying inflation pressures are going to persist and that

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Speaker 5: the FED will eventually have to tweak rates somewhere down

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Speaker 5: the line, probably more calibration hikes. But like I said,

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Speaker 5: this situation from the Middle East and the rapid rise

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Speaker 5: we've seen once again in oil suggests that there are

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Speaker 5: going to be those supply side factors coming through from

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Speaker 5: a higher energy energy prices across the globe, which will

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Speaker 5: sort of create that urgency for the FED to tweak

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Speaker 5: a little bit sooner rather than later. And of course

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Speaker 5: this comes with a high degree of uncertainty too, because

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Speaker 5: we are obviously well aware that with the push of

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Speaker 5: a truth you know, social posts, you know, the oil

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Speaker 5: price could conceiptably go back down to sort of seventy

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Speaker 5: dollars and in the space of you know, fairly quick

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Speaker 5: succession or you know, in the space for a few weeks,

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Speaker 5: you know, whereas if things escalate, things can get much worse,

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Speaker 5: and again that kind of rate volatility will pick up

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Speaker 5: even further. So you know, effectively, like I said, you know,

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Speaker 5: this is kind of mar in the markets. Obviously it

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Speaker 5: hasn't manifested too much in equity volatility recently, but if

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Speaker 5: things continue to grind high here for oil, the story

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Speaker 5: for the feed will be that it will have to

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Speaker 5: high interest rates soon it rather than later, and that

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Speaker 5: won't be obviously a positive thing for equities.

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Speaker 4: The volatility is firmly in the AI chipmeker space, right,

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Speaker 4: Is this just the way it is going forward? Because

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Speaker 4: even if we are kind of set for our high

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Speaker 4: day to day, those gains have not been so readily

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Speaker 4: translated over the last few weeks.

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Speaker 5: I think everyone's waiting for earning season and basically tech earnings,

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Speaker 5: which we're going to start to get. And I think,

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Speaker 5: you know, maybe the rally that we've seen in the

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Speaker 5: last twenty four hours or so on Wall Street has

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Speaker 5: been very much the market's front running that I do

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Speaker 5: see a lot of similarities to where we were at

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Speaker 5: this point in the last quarter which is to say

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Speaker 5: that we were sort of marred by geopolitical risk and

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Speaker 5: interest rate uncertainty. But then it was these extraordinary profits

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Speaker 5: from the hyperscalers in particular that really fed this narrative

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Speaker 5: that monetization was happening, that the investment boom would continue

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Speaker 5: because it'd be sort of greater free crash flows to

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Speaker 5: sort of pump back into capital expenditure. And we saw

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Speaker 5: everything rise from you know, semis because obviously that expectation

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Speaker 5: that floated into sort of chip demands amongst other things

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Speaker 5: as well, along with of course, you know, those hyperscalers,

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Speaker 5: those who were sort of at the front line of

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Speaker 5: benefiting from the artificially intelligence technology themselves. So my view

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Speaker 5: is that you know, we're likely to see another earnings

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Speaker 5: period where we're going to get some solid results from

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Speaker 5: the tech giants, that what we've seen in the SEMIS

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Speaker 5: and what we've seen in the tech space will probably

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Speaker 5: is just a little bit of con validation and a

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Speaker 5: little bit of churn. But you know, obviously what will

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Speaker 5: be critical will be actually reacting to the results. My

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Speaker 5: bias is that there's results to be solid and you know,

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Speaker 5: set this sort of trends higher once again, but you know,

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Speaker 5: we'll just sort of have to wait and see. Fortunately,

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Speaker 5: you know, we've got that sort of data now, that

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Speaker 5: the earning data that the markets have been looking for

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Speaker 5: over the last few weeks, which is meant that you know,

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Speaker 5: effectively we've been waiting for that catalyst to either to

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Speaker 5: push higher or move lower, if you know, earthing's happened

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Speaker 5: to disappoint.

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Speaker 1: Especially given the more than ninety percent of S and

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Speaker 1: P five hundred companies have been in profits so far, right,

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Speaker 1: but at the same time that the ones that miss

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Speaker 1: actually were heavily punished.

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Speaker 2: What are the.

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Speaker 1: Ramifications and implications for the Asian markets when we're seeing

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Speaker 1: already so much volatility right now, the career exchange activating

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Speaker 1: the sidecar to hold the costly program buying. I mean,

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Speaker 1: it's been up and down, up and down for this market.

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Speaker 5: Yeah, I mean, you know, clearly there's been some knock

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Speaker 5: on effects I think from some of the interventions that

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Speaker 5: policy makes in South have made to try and control

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Speaker 5: what has been pretty much a wild and unruly market

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Speaker 5: in South Korea. And of course, you know, a part

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Speaker 5: of that is, you know, to do with chip demands

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Speaker 5: and the kind of choppiness that we've seen bleed through

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Speaker 5: from Wall Street trade where some you know, semi conductive

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Speaker 5: stocks have basically sort of pulled back and blown off

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Speaker 5: some froth. And that's you know, hit s k Hens,

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Speaker 5: that's H's Samsung and all those sort of big names,

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Speaker 5: you know, the other side of this, though, with obviously

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Speaker 5: South Korea, is there's just such a heavy retail griven market.

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Speaker 5: Now policymakers are realizing the systemic risk associated with having

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Speaker 5: such a highly leveraged, highly retail dominated market, not just

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Speaker 5: to it's equity markets and financial system, but also obviously

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Speaker 5: financial markets around the world because they were sort of

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Speaker 5: you know, potentially dictating even some force selling in some

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Speaker 5: of that in assets in other markets to obviously couple

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Speaker 5: losses in the in the in the in the stocks

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Speaker 5: that were sustaining losses in the South Korean market. So

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Speaker 5: I think, if anything, what we can say about the

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Speaker 5: Asian region if we do get some of these solid

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Speaker 5: if we do get solid results from some of these

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Speaker 5: tech companies, that boost that AI narrative once again starts

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Speaker 5: taking that fear away of basically you know, peaking the

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Speaker 5: AI investment and sort of peak monetization peak profits is

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Speaker 5: it will take some of the pressure of policy makers,

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Speaker 5: It takes some pressure off the market and eat some

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Speaker 5: of those technical pressures as well, so that you know,

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Speaker 5: things can basically take balance again. Stability can return to

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Speaker 5: obviously that very volatile pocket of global markets.

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Speaker 3: Kyle.

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Speaker 1: At least some relief could be the fact that pharmasauts

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Speaker 1: are really not doing much despite the fact that this

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Speaker 1: morning we got President Trump talking about generic drugs and

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Speaker 1: taxing them what one hundred percent or so from August

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Speaker 1: twenty twenty eight. It seems that the markets have already

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Speaker 1: priced in any trade volatility, right. I mean, we'll continue

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Speaker 1: to get these headlines around new tariffs, But at the

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Speaker 1: same time, what are the implications if we actually do

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Speaker 1: get supply chain disruptions because of these tariffs, and there

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Speaker 1: are implications with higher oil from the iron war for

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Speaker 1: the Federal Reserve.

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Speaker 5: I think there is the possibility that the markets have

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Speaker 5: taken their eyes off the ball, because there's only so much,

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Speaker 5: at least from anarity point of view, that traders can

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Speaker 5: focus on at any given point in time. And I

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Speaker 5: think there has been instances over the last couple of

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Speaker 5: years where you know, it might issue might be on

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Speaker 5: the other foot, we've been sort of dominated by you know,

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Speaker 5: trade uncertainty and fears about tariffs and things of that nature,

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Speaker 5: and then being blindsided by geopolitical risk or vice versa.

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Speaker 5: What we're seeing now where you know, there is clearly

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Speaker 5: still the intention from the Trump administration to try and

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Speaker 5: push forward with its trade agenda, even though obviously pretty

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Speaker 5: much you know, President's Trump's whole second term now has

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Speaker 5: been dominated or a lease or I should say, the last

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Speaker 5: six months of Trump's second term now has basically been

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Speaker 5: dominated by foreign policy, in particular this war that's been

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Speaker 5: started in the Middle East. So I think in fact,

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Speaker 5: the markets aren't discounting this fully that you know, perhaps

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Speaker 5: the Trump administration will try and you know, more or

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Speaker 5: less you know, fighter war on two fronts, a trade

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Speaker 5: war and a hot war, and you know, when it

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Speaker 5: comes to the former, that could mean high tariff's, more

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Speaker 5: trade uncertainty, another sort of miniature supply shock, which has

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Speaker 5: been characteristic of Trump's you know, the economic philosophy for

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Speaker 5: a long time. Certainly is his second term and could

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Speaker 5: be something that is you know, maybe a bit of

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Speaker 5: a grace one for the market. So something definitely to

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Speaker 5: watch out for because again I don't think the markets

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Speaker 5: are really paying much attention to it. Perhaps you could

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Speaker 5: again argue a little bit complacent when it comes to

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Speaker 5: trade US trade policy.

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Speaker 4: Kyle, when it comes to China markets, A national team

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Speaker 4: is back, it seems, given the view on China stocks

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Speaker 4: was becoming more constructive in recent weeks and months. Anyway,

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Speaker 4: does this just add to that support?

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Speaker 5: I think it does. I mean, and it shows you,

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Speaker 5: you know, two things, that we're in an era of

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Speaker 5: huge economic competition because of what's going on with artificial intelligence,

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Speaker 5: when there's the commercial imperatives to try and make sure

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Speaker 5: that you know, every entity and every business is moving

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Speaker 5: forward to try and find ways to monetize this particular

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Speaker 5: technology and grow. And that is an interest aligned from

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Speaker 5: business interests as well as political interests in pretty much

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Speaker 5: every economy around the world. But the flip side of

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Speaker 5: it is the strategic interests obviously in trying to protect

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Speaker 5: these industries and make sure that effectively financial markets and

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Speaker 5: financial conditions and asset well enough support to make sure

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Speaker 5: that firms do remain in a position where they can

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Speaker 5: sort of, you know, try and achieve their economic objectives.

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Speaker 5: Again because they more or less aligned with those sort

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Speaker 5: of strategic comparitives of trying to make sure that you

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Speaker 5: don't get left behind in these artificial intelligence arms race.

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Speaker 5: So the fact that you know, we've had over the

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Speaker 5: last couple of days Chinese authority stepping into try and

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Speaker 5: support asset prices more broadly financial conditions as a way

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Speaker 5: of boosting sentiment, you know, boosting economic activity, you know,

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Speaker 5: boosting you know, the asset values of some of these

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Speaker 5: companies that are going to be important to you know,

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Speaker 5: the Chinese economy in the future as well as you know.

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Speaker 5: Obviously the sort of Kinney breakthrough is this sort of

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Speaker 5: deep seek moment means that I think there's the potential

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Speaker 5: we could see this sort of valuation gap that has

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Speaker 5: been pretty persistent for a little while in US markets

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Speaker 5: compared to certainly Chinese markets and those sensitive to China

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Speaker 5: close up a little bit. So I think it's a

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Speaker 5: fairly positive signal signal, especially considering, you know, valuations in

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Speaker 5: China again relative to US peers have been so depressed.

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Speaker 2: That was Kyle Rada, senior market analyst at Capital dot Com,

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Speaker 2: speaking with Bloomberg TV host Heidi Stroudwatts and Sherry on

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Speaker 2: bringing you their conversation here on the Daybreak Asia Podcast.

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Speaker 2: Thanks for listening to today's episode of the Bloomberg Daybreak

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Speaker 2: Asia Edition podcast. Each weekday, we look at the story

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Speaker 2: shaping markets, finance, and geopolitics in the Asia Pacific. You

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Speaker 2: can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel,

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Speaker 2: or anywhere else you listen. Join us again tomorrow for

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Speaker 2: insight on the market moves from Hong Kong to Singapore

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Speaker 2: and Australia. I'm Doug Prisner, and this is Bloomberg