Stock Selloff Extends On Tech Oil Rises On Iran Bloomberg Daybreak Asia Edition

Bloomberg Audio Studios. Podcasts. Radio. News. Welcome to the Daybreak Asia podcast. I'm Doug Krisner. Equity markets across the Asia-Pacific are lower at this hour after a sell-off in U.S. stocks last Friday. You may recall in the States, tech shares led the decline. The Nasdaq 100 was down some 4.7 percent. And today in Seoul, shares in both Samsung and SK Hynix are down by at least 5 percent, helping to send the KOSPI weaker by more than 7 percent. For a closer look at market action, let's bring in Bloomberg's Leon Ting Tu. Leon Ting is Managing Editor for Asia Equities. Thank you. Thank you for being here on what I'm sure is a busy day for you. It seems like this negativity as it relates to tech goes back to last week with the Broadcom announcement about that disappointing forecast for AI chip revenue. Would you say that that is really what precipitated a lot of this? Yeah, I think so. It definitely spot on. I think at the beginning of last week, we actually saw AI euphoria with Jensen Huang taking the stage at Computex in Taiwan. And by midweek, we had Broadcom having a relatively robust set of earnings. But of course, guidance disappointed, which again showed that the expectations have been really lofty for these names. And then on Friday, as you mentioned, we've got jobs data, which was very robust. But then, of course, that means higher rate hikes, more rate hikes, I should say, which again led to some frost really coming out of this very momentous AI trade. And then, yeah, we're seeing that on Monday playing out in Korea. To what extent is there a lot of leverage applied in trading Korean equities? Is there a great deal? Are people concerned about the level of borrowing that takes place to buy to go long the equity market? Yeah, I think that is very concerning. Because overall, if you look at the Korean market, it's really propped up by earnings. So it isn't by no means expensive. But it is the market structure behind this rally that's making people quite nervous. If you look at two sides of things, one is the margin debt taken out by retail investors to buy stocks, and that level has hit historic high in Korea. So that's one thing that's worrying. And second thing is the leveraged ETFs that are listed in Hong Kong and more recently also listed in Korea. Those leverages are really accumulating a lot of fund flows and in a sense that they are becoming too big. And that has caused a rebalancing flows that could exacerbate the day's loss or gains. So all of these things combined are making this Korean market very technical because there would be a lot of forced buying or forced selling going on in any day. The other thing I think we have to touch upon is what we're seeing play out in the crude oil market this morning. Israel identified some incoming missiles earlier fired from Iran. The Israeli Air Force intercepted and then we heard from the Iranian side that these attacks were essentially a warning to Israel to cease hostile actions in Lebanon. And on top of that, Iran warned that it would respond with force against Israel and its allies should Israel choose to retaliate. Well, a short while ago, we learned that Israel in fact retaliated the Air Force struck military targets in Western and Central Iran and we see crude oil prices pushing higher. This is only going to add to the inflationary pressures right now that's very front of mind for many people across the APEC region, right? Yes, indeed. I think crude oil jump this morning definitely added pressure overall to this tech sell off. And again, it's not just playing out in Korea. We saw that's playing out in Taiwan and in Japan, especially the Nikkei. I think that's really complicating the central bank decisions. And if you look at the Asia effects area, they are also seeing a bit of a sell off going on. So I think if you go back to Korea, we are looking at the central bank potentially being quite behind the curve. And if you look at Japan, the BOJ can also be seen as being quite behind the curve. And that's really weighing on the currencies of these countries, the yen and the won in particular. Yeah, the yen right now at about 160 fluctuating around that level against the greenback. Do we have to be alert for the possibility of some type of intervention from the Ministry of Finance in Tokyo? Yeah, I think it's very likely and that's something that all of our journalists and market watchers are paying attention to. And also, of course, that also means there is a higher expectation for the next BOJ move to be a hike. But even with that, it seems because expectations are rising for the Fed to also have a hike in September, that interest rate differential is actually not really doing much to ease the pressure on the yen right now. So as you and I both know, the SpaceX IPO is going to be a major focus in the States in the coming week. And we have a report on the Bloomberg Terminal indicating that underwriters in this IPO have been told not to accept orders from investors in both Hong Kong and China. That is due to US restrictions around the export of critical technology. And I'm wondering how this message is being received where you are. For overall, the performance of that IPO, I think it already got oversubscribed. And in Asia, the main market that are investing into that IPO is actually Japan because, you know, Korea, you know, a lot of retail investors would like to invest, but they're not part of the list that are open to subscription. So Japan, because Mizuho got the mandate, so Mizuho is tapping into a lot of retail investors. And SpaceX has already boosted the allocation to Japan retail investors to $2.5 billion from $2 billion. But that doesn't mean, you know, investors in Korea are not going to find other channels to buy into that IPO, that potential sort of rotation into SpaceX IPO. Also, the upcoming ones like OpenAI and Anthropic could also mean that some money is actually flowing out from the world's hottest market, which is Korea right now. So what does the IPO picture look like where you are in the Asia Pacific? Yeah, I mean, the most exciting market I would say is actually mainland China. We've got two mega IPOs lining up to debut in the next couple of months. One is called Changxin Memory, the other is called Yangtze Memory. Basically, both are gigantic memory makers that are actually little known to the world. Everybody's fascinated by SK Hanix and Samsung. But in China, actually, these two companies are very, very big and industry leading. And the debut of these two companies could also mean, you know, of course, it's good for mainland investors to have their hands on some kind of high-flying sector. But for global investors, you know, higher profile of these companies could also show that these companies are actually supporting or supplying, I should say, a lot to global companies, you know, the likes of Intel, for example. We are under the impression that China is overall sort of isolated as an AI market. But the isolation is really about restrictions by the U.S. government to ship chips into China. But China can actually ship a lot of chips abroad, and that actually is boosting really well for China's overall GDP as well. Well, maybe we'll have to see whether we get the dip buyers that come in today and move markets in the opposite direction after the weakness that we are seeing today. Lian Ting, thank you so very much. Bloomberg's Lian Ting Tu, Managing Editor for Asia Equities, joining from Singapore here on the Daybreak Asia podcast. Welcome back to the Daybreak Asia podcast. I'm Doug Krisner. And as I mentioned earlier, we're seeing a sell-off in tech shares, dragging down the big chip-making names in South Korea, like Samsung and SK Hynix. And that's where we begin our conversation with Sean Taylor. Sean is CIO, also Portfolio Manager at Matthews Asia. He spoke with Bloomberg TV host Stephen Engel and Yvonne Mann. Sean, how do I look at this right now? Is this the big unwind and the big correction? Yvonne, in our opinion, no. It's a technical correction. And it could be extended depending on two factors. One is the other news around it that's coming out, like what Stephen was saying in terms of the oil price. And two, how the retail investors in places like Korea act, because a lot of people have not got this trade from the beginning. They have been going in with leverage in the last few weeks, and that caused a huge rise in markets. So for professional investors, this is an opportunity, whether it's a day or a week away, to be increasing exposure to these areas where we know the earnings are continuing to go up. You don't think this is akin to the dot-com bubble bursting. Obviously, it's too early to say that, because it was a one-day bloodbath, essentially, in the U.S., and it's followed through in Asia. But again, I just came back from Taiwan and Computex. The amount of optimism is backed by full order books by many of these different parts suppliers, whether it's Delta, Advantech, and others. So they are continuing to be bullish, even though TAIX, I understand, the futures are down significantly. Is this a much more fundamental story this time around than it was dot-com bubble? We think so. So both in Korea and Taiwan, you've got a demand-supply gap. You're having the order books being incredibly strong. We've got earnings that are going towards 27, looking very strong. But markets have run hard. I mean, the difference, I think, with an AI, this AI bubble or pickup relative to the dot-com is that dot-com was not based on earnings. It was based on elevated PE. And so when you look at the AI now, the PEs are still low. So you've got to ask your question, is it structural? How many years is this growth going to come through or is it cyclical? And if it's structural, well, then some of these areas are worth double or triple because the earnings will come through. If it's cyclical, then we should be selling soon. And I think it's probably going to be somewhere in the middle. How do you stay invested then? You talk about these leveraged ETFs. You talk about the options market where people are now shifting more about finding downside protection. How do you stay invested in this market like Korea without giving back a portion of your gains? Well, I think in some stocks you will give back some gains because you've had such a big run. Diversification is the only way. So for Korea, we've been quite positive on Korea for a couple of years. But we've had a balance. We like some of the value-up stocks, the financials. We like the industrials that have actually lagged behind, the defense stocks, et cetera. And then the semis, obviously. And within that, you've had rotation in the market. So everyone's been buying two stocks. But there are a number of – we actually spoke before, Stephen – there are a number of companies that are seeing incredible order books. And those haven't been gone up as much. So it's about spreading it. A little bit of space, a little bit of power. Some AIPCs have only just started to be reflected in prices. So it's really looking along the chain and making sure you're diversified. The biggest worry I have as a CIO and a PM is that emerging markets was, oh, it's the diversification trade. Hey, US isn't doing as well. Let's buy Asia. But actually now this recent run has been a leveraged trade on AI. And that's why we've always had to, particularly in our core strategies, have some balance, keep some financials in China, keep some industrials, have some stocks in other areas. Because you know this is going to happen. We're going to have weeks like this that start off fairly ugly. Well, when you saw the Philadelphia Semiconductor Index, the stock's down about 10% on Friday. I mean, there's a lot of indications that perhaps this is just profit taking right now after an incredible run up and also kind of adding to the cash war jets ahead of some pretty big IPOs, including one at the end of this week. Absolutely. And I think the problem is that a lot of people have really leveraged into a very, very narrow area. I mean, actually EM, when people look at it, is even narrower than the NASDAQ now. And the earnings, if you take the sort of equivalent to the MAG-7, the earnings in Asia, they've come through. It's only really been four or five stocks. And so the rest has been left behind. So you have to have some sort of balance. But if the rest of the world is – if people are worried about rates in the US, if the oil price is going to go up and we start to see that becomes growth sensitive, and we become – the forecast starts – I mean, I've seen a number of investment banks have changed their forecast all next year for a rate cut. We start worrying about the growth, then people start looking for those areas that we know where the growth is. And we know the growth is in AI and the supply chain. So at some stage, people will buy them back. When you look at it from a CIO perspective, what is the right hedge? I look at the US 30-year yield at 5%. Does that put gold aside in terms of being a good hedge? The duration certainly is still in question in the bond market now too. So it's really interesting. Gold is probably taking a pause over the next few months. But the other commodities, I mean, are slightly out of sync with – and the share prices of commodity stocks – with what's happening in AI. Because if we really do have – and we do believe it, our analysts believe it – that we have this demand-supply gap, these commodities like copper and aluminium, et cetera, are going to go up a lot, and the stocks haven't gone up as much. And then particularly in China, where you've got some, I think, some fairly world-class commodity companies, they are being priced for really quite badly. They're down 15% on the year. They've got like 9% yields. At some stage, they're going to be very good protection. The trouble is, with the commodity side, you also have the growth angle. So you have the macro, which is like, well, if global growth is going to be a bit slower, then commodities get hit. And then you have the micro angle, where the demand and supply is very strong. So I would hedge a little bit there, but you might have to be patient. The obvious area in Asia is to hedge with financials, whether it's Japanese financials, Chinese financials. I mean, China is going through a bit of a regulation issue, so I'd be more based on the more boring stocks. What about ASEAN and also India? You and I, before this, we talked a little bit about Indonesia. It's not part of the AI play, obviously. There's a new regulation on stemming or nationalising, if you will, their key commodity exports. So very briefly. We're very nervous on Philippines with the politics and the oil price, very nervous on Indonesia. We like Singapore. So in Asian portfolios, Singapore is doing very well. And also Vietnam, which not many people have been investing. And there's some good opportunities in industrials. India, we're still nervous because India is still expensive and the earnings are still coming down. And unfortunately for India, there's no real growth driver to change that. And that means that you're not going to just go and hide in India. And the oil price is against India, and so is software. That is Sean Taylor, CIO and Portfolio Manager at Matthews Asia, speaking to Bloomberg TV host Stephen Engel and Yvonne Mann, bringing you their conversation here on the Daybreak Asia podcast. Thanks for listening to today's episode of the Bloomberg Daybreak Asia edition podcast. Each weekday, we look at the story shaping markets, finance and geopolitics in the Asia-Pacific. You can find us on Apple, Spotify, the Bloomberg podcast, YouTube channel or anywhere else you listen. Join us again tomorrow for insight on the market moves from Hong Kong to Singapore and Australia. I'm Doug Krisner and this is Bloomberg.