Kospi Jumps on Chipmakers, US Ends Hormuz Blockade | Bloomberg Daybreak: Asia Edition

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[00:00:11]>> Welcome to the Daybreak Asia podcast.

[00:00:13][music] I'm Doug Krizner. We saw a broad risk-on tone in US markets in front of the Juneteenth holiday on Friday. The equity session was defined by or some rotation into information tech, especially the chip makers. We had the Philadelphia Semiconductor Index up 6.4% to a record high. Importantly, shares in Intel were up more than 10%. That was after President Trump said the chip maker will be working with Apple to design and produce semiconductors domestically. For a closer look at market action in the APAC region, let's bring in Bloomberg's LeongTing Too.

[00:00:47]LeongTing is managing editor for Asia equities and she joins from our studios in Singapore. Thank you for being here and I want to point out that we have market holidays today in China and Hong Kong. So, we're not going to get a complete read on some of this tech rally or this tech strength, but the Kospi is on fire at the moment. I see a gain of around 3% and I'm going to imagine here that you're going to make the connection between what we're seeing now in South Korea and what we saw in the US session.

[00:01:19]Am I right?

[00:01:20]>> Yeah, exactly. It's all about capex. I think the latest positive news would include SpaceX, right? There was I was talking about how they were planning to raise $20 billion for capex after raising $85 billion in its IPO just recently. And that means again a lot of hardware AI-related companies are going to really benefit from that. And there was also a Goldman Sachs report talking about how they expect a super cycle for chip for the chip sector, which again was a hot topic for debate whether the memory, you know, uh companies are, you know, experiencing the kind of cyclicality or is the super cycle really going to last? So, the Goldman report really added a bit of fuel for that argument. And the third thing is I see some latest TV interviews from Japanese corporate executives talking about how they're seeing super strong demand for the chip equipment or chip components that their companies are producing. One executive was talking about that this morning with Sherry Ann saying that they see EPS revision upwards every day for their shares.

[00:02:36]>> I want to talk to you about the story that we're having that we're publishing now on the Bloomberg terminal, which is the US has told the Dutch semiconductor equipment maker ASML it's concerned that China may have the top tool for making highly advanced chips. ASML says it has never shipped its most cutting-edge technology to China. And the cutting-edge technology is the extreme ultraviolet lithography machines. Now, I know that they are a part of some export controls here. This is a very interesting story and difficult to get a read because as you said the market holidays that we have in Hong Kong and China and Taiwan too where TSMC is based and TSMC has several of these uh extreme ultraviolet lithography machines. What do you make of this story?

[00:03:29]>> Yeah, I mean it wouldn't be surprising if indeed there are some of these um machineries in China being, you know, maybe illegally shipped in. It's not surprising, but it would also be very difficult for, you know, school bus sized machinery to be smuggled into China and those machineries would need constant maintenance from ASML staff members and ASML should know that whether there is a presence of their most advanced machinery in China or not. And there is one more point I wanted to mention is that Huawei in the last few weeks talking about how it actually has a technology to make advanced chips without reliance on ASML's EUV machinery and it's it's considered a breakthrough.

[00:04:19]It was a surprise to a lot of market participants, but if that's really true, then that shakens the most fundamental assumption by the a lot of chip experts that you know, advanced chips can be made without the EUV machineries.

[00:04:34]>> It's kind of like what we had in the Deep Seek moment, right? Where no one expected China to be able to create an AI model as sophisticated as Deep Seek.

[00:04:44]>> Yeah, I mean, I think with all the restrictions related to exports, China did have to work with you know, less advanced technology and yeah, fewer resources as well. So, as you mentioned the Deep Seek, it definitely had a breakthrough and just you know, continue on in this large language model space. We see a bunch of Deep Seek similar to you know, companies similar to Deep Seek coming up to the market and their models are actually really good and really really cheap.

[00:05:18]We saw the likes of Deep Mind Minimax rallying pretty hard in Hong Kong in the last few sessions and Deep Mind's latest open source model which was sort of released after Anthropic's best models got banned by the US for the access of foreign nationals and that was ranking number two worldwide for front end coding. So, you know, as you can see, they're actually doing quite well.

[00:05:46]>> So, is there still a lot of enthusiasm or maybe said in a a different way, a lot of optimism that this AI-related trade on the hardware side can continue for a while longer?

[00:05:57]>> Yeah, that's I think that's a consensus, I believe, that it's really playing out today in Korea and Japan, as you mentioned. And Japan, we just saw JP Morgan coming out with upward revision for Nikkei's target price. And yesterday, we saw Daiwa, a a local Japanese broker, also coming out with with a target price upgrade. And I think they're talking about 80,000 for the Nikkei by the end of this year. And we just reported Nikkei broke through 70,000 a couple days ago.

[00:06:29]>> Yeah. So, it's good that we're talking about Japan because the yen is now trading on the weak side of 161 against the dollar, and the finance minister Katayama was delivering a sharp reminder to the market that intervention is still in the toolbox. Is there much in the way of conversation right now? I know you're in Singapore and I'm wondering whether maybe you're hearing echoes of concern that maybe the Ministry of Finance in Japan would intervene to support the currency, or is it really up to what the BOJ does more on the monetary side? I mean, that this probably wouldn't have material impact. Maybe it would trigger a a short squeeze of sorts, but fundamentally, I mean, the the yen is is as weak as it is because of what the BOJ has been doing.

[00:07:16]>> Yeah, exactly. It's really the interest rate differential that has fundamentally drove driven the yen weaker. Yes, the intervention, as you mentioned, it is on top of everyone's watch list, I think, right now for even traders based in Singapore.

[00:07:32]Today, with the loss of markets on holiday, liquidity overall would be thin for the yen. So, if they really want to intervene, it's also a good opportunity to, you know, use limited amount of money to actually have a bigger market impact. But for the impact to to really have um a sustained impact sustained sustainability in supporting the yen, I think that's uh the question that, you know, if the BOJ doesn't act in um catching up uh with the reality of the inflationary pressure in Japan and narrowing the interest rate gap with the US, the yen will continue to weaken. I think the next point of the yen that we're watching out for is for it to be uh the weakest since 1986 against the dollar.

[00:08:14]>> So, I'm curious. It's Friday where you are um and you're going to be I'm sure talking to members of your team. You're going to be making assignments uh for people to kind of sit with over the weekend. What are some of the topics uh top of mind for you these days as you kind of consider the some of the enterprise reporting that your team is going to be working on in the days ahead?

[00:08:36]>> Yeah, the main thing would be MSCI uh decision next Wednesday morning Asia time and uh that is definitely something a lot of Asia traders are watching out for. Indonesia, uh again, very hot topic, whether it's going to be downgraded to frontier market or not.

[00:08:52]Korea, whether it's going to be added to DM market watch list or not. And also Vietnam becomes interesting as well, whether it's going to be added to the review list for emerging markets from frontier market. So, a lot to watch out for next week.

[00:09:05]>> Okay, Leong Teng, it's always a pleasure. Thank you so very much for making time. Bloomberg's Leong Teng, two managing editor for Asia equities, joining from Singapore here [music] on the Daybreak Asia podcast.

[00:09:23]>> [music] >> Welcome back to the Daybreak Asia podcast. I'm Doug Krizner. So, the US-Iran interim peace deal is now in effect and today we had a flurry of oil tanker traffic returning to the Strait of Hormuz. At the same time, the US declared an end of its naval blockade on vessels transiting to and from Iranian ports and coastal areas. At the same time today, Vice President J.D. Vance skirted questions about whether Iran will one day be able to charge fees for vessels crossing the Strait. And that's where we begin our conversation with Jesse Moritz. Jesse is a senior lecturer at the Australian National University's Center for Arab and Islamic Studies. She spoke to Bloomberg TV host Heidi Stroud Watson Cherry on.

[00:10:07]>> We heard from Vice President J.D. Vance not necessarily being very clear about what happens to these tolls around the Strait of Hormuz. What are the risks that this might actually just transform into service charges or other types of fees for the waterway?

[00:10:26]>> Yeah, I'd assess that risk as as relatively high, actually, because the deal only only allows for 6 months or so of toll-free or fee-free passage. And the Iranians have already been very clear that they intend to continue negotiating with Oman over control of the Strait of Hormuz, not necessarily not to allow ships in and out, but to try to charge They're calling it sort of a service fee, if you like.

[00:10:50]And so, they're trying to navigate around international maritime law and to find a way in which they can continue to exert authority over the Strait. And that would be a major strategic win for Iran out of this conflict.

[00:11:04]>> Exactly. I was going to say, what exactly has Washington gotten out of it if we are seeing, of course, potential losses on the Strait of Hormuz side of things, not to mention, of course, no real clarity on a nuclear deal or even what's happening with Lebanon at this point?

[00:11:20]>> Yeah, so it's very clear that this is a deal to avert immediate economic crisis.

[00:11:27]Trump was very clear about that in some comments recently that this was something he felt was necessary to deal with the fact that our strategic petroleum reserves have been declining at a very rapid pace and that when they do hit a sort of minimum operating floor, for example, that's a a serious issue for the global economy. And so he was trying to avert that. And the Iranians, of course, they know that the US is always going to be more responsive due to its power as the largest economy in the world and sort of the world's superpower, it's going to be more responsive to the concerns of the global economy. Whereas Iran could withhold a little bit longer. Um the Trump, of course, is also a democratically elected president and he's looking uh down the line at midterms and he's looking at the impacts on the Republican Party and his personal popularity. And then there's internal factionalism [clears throat] between when within the MAGA movement between himself and potentially JD Vance around this conflict. So for various reasons, um largely to do with the fact that the US is a democracy, they were more likely to be under pressure to end this conflict even if this deal is not particularly durable and you've raised Lebanon um and the nuclear issue as two uh issues that could still yet see this ceasefire deal deal collapse.

[00:12:41]>> It's interesting we heard from President Trump speaking to Axios earlier saying refuting the idea that these negotiations, the way that the war has been carried out has kind of shown him the limitations of his power, right?

[00:12:54]He is getting a lot of pressure domestically. How much pressure do you think he's also getting from allies, particularly when it comes to the collateral damage that's been suffered by Gulf states in a war that they didn't have any part of and didn't start?

[00:13:08]>> Absolutely enormous pressure and not just from the Gulf states, but from every state that's dependent on transiting supply, whether it's oil and gas or it's aluminum or fertilizers or anything else coming through that straight. They were pushing for Trump to find a way out of this conflict. You know, the the strategic challenge of this conflict was always going to be that Iran did have the capacity to hold straight. And it has caused economic challenges for Iran. It's not great for them to not be able to get their own oil and gas out at least through the straight putting aside Central Asia sort of land routes.

[00:13:41]But it they were always in this position to be able to hold the straight for longer than the US was going to be able to tolerate the straight being closed.

[00:13:50]So the fact that Trump in number of comments admitted that they didn't have a plan or that they didn't have a strategy for dealing with the closure of the Strait of Hormuz is a is a major strategic error, I would say.

[00:14:02]And the interesting thing that's happened with the GCC states in particular has been some disunity within them around how to respond to this conflict. So the UAE for example has been hit with some of the largest drone and missile barrages during this conflict and they have wanted and have pushed for a more aggressive response from both the US and from international partners to sort of retake and reseize the Strait of Hormuz. Whereas states like Saudi Arabia and Qatar and Oman and others have been looking for a negotiated end to the conflict. And so you're starting to see that negotiation particularly through the Qataris and and Omanis as well bear some fruit with this ceasefire deal, but we're going to we should expect to see some disunity amongst the Gulf states in the next couple of years out of this conflict.

[00:14:53]>> What happens from the Iranian >> But obviously there's been damage particularly when it comes to the upper echelons of its leadership. Does this take us actually further away from the prospect of regime change and of Iran becoming a more responsible international player particularly if the sort of initial maximalist demands on the nuclear program are now watered down to the point where the stockpiles are still buried, their nuclear enrichment knowledge is still intact and arguably perhaps they have have reason than ever to believe that they do need to hold on to their nuclear program.

[00:15:25]>> Yeah, I mean much we're in the early days of this deal and much will depend on what the actual action we see from Iran in order to get more of their cash released and sanctions lifted in the longer term.

[00:15:38]We will see this going to longer term negotiations depending on what happens in Lebanon.

[00:15:43]But internally within Iran unfortunately much of this conflict has empowered hardliners rather than cause the type of destabilization that you might expect to see ahead of regime collapse. And both Israel and the US were very clear at least in early stages that they did want to see the Iranian regime collapse. One of the challenges when you take country to war like this and it doesn't the regime survives is that the regime is then very incentivized to crack down in a very violent and repressive way on domestic political opponents. They'll use the excuse of the conflict to do that and I'm I'm very concerned that that's what we might see in Iran in the next coming months is a crackdown on domestic opposition which is the exact opposite of what the US interest in this conflict would be.

[00:16:31]>> How big of a shift was it that Iran's supreme leader accepted direct talks with Washington and does this give us any indication of how the negotiations could go from here?

[00:16:44]>> There is of course this new disunity that's been created within the Iranian regime between sort of not just the traditional hardliner and reformist camps but also between those who are more connected to the IRGC and have been directing the military response to this conflict and those who lead the civilian political apparatus that the including those who are directly involved in the negotiations.

[00:17:08]So to see the supreme leader more directly involved suggests that they are attempting to bridge that disunity and ensure that everyone's on the same page because the previous ceasefire deal that we had, of course, was so fragile, largely because immediately there had been protests within Iran from hardliners and those aligned with the sort of IRGC factions against the ceasefire deal.

[00:17:32]That disunity seems to be a little bit reduced this time. It's still there.

[00:17:37]It's still very present, but there seem to be some attempts from inside the Iranian regime to bridge those divides and ensure that they have one clear negotiating position with the US, especially because their best outcome here is to get as much of their own oil and gas out of out through the straight while the straight is open, in case, for example, the ceasefire deal collapses again over Lebanon, particularly as the Israeli government and Ben Gvir and Smotrich in particular have been very clear that they don't see why Israel should be held to the terms of this deal, and they've continued firing in Lebanon.

[00:18:14]>> That was Jessie Moritz, senior lecturer at the ANU Center for Arab and Islamic Studies, speaking with Bloomberg TV host Heidi Straw Watson Sherry Ann, bringing you their conversation here on the Daybreak Asia podcast.

[00:18:30]Thanks for listening to today's episode of the Bloomberg [music] Daybreak Asia edition podcast. Each weekday we look at the stories shaping markets, [music] finance, and geopolitics in the Asia Pacific. You can find us on Apple, Spotify, the Bloomberg podcast YouTube channel, or anywhere else you listen.

[00:18:47]Join us again tomorrow for insight on the market moves from Hong Kong to Singapore and Australia. [music] I'm Doug Krizner, and this is Bloomberg.