Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg Daybreak Asia podcast. I'm Doug Krisner. You can join Brian Curtis and myself for the stories making news and moving markets in the Apec region. You can subscribe to the show anywhere you get your podcast and always on Bloomberg Radio, the Bloomberg Terminal, and the Bloomberg Business app.
Well.
Our Kago's Capital management founder Bill Huong has been found guilty of criminal charges stemming from his firm's collapse in.
Twenty twenty one.
Joining us now is our reporter on this story, Chris Dolmetz, who's a Bloomberg US legal reporter. So, Chris, what were the key factors here in the prosecution's case that led to this conviction? Do they go mainly by the name of William Tomita and Scott Becker?
Yeah, pretty much, And you can you can say that Tomito was pretty much the nail and the coffin for
Phil Uh. He testified over more than two weeks. He kind of laid out a real pattern and how they would manipulate the stocks and buying auctions before the before the market opening, and well that that you could buy before the market open and close to the clothes in order to douce the stocks and push the empire and you know, try to increase the valuation in stocks so that their their portfolio got bigger and bigger.
What about the counter parties, Chris firms like Credit Suite and and UBS Group.
Yeah, so those were you know, there were multiple witnesses from the counter party to laid out and kind of detail how you know, what they told them that final week and leading up to that final week, about their investments, about how much credit they had at other counterparties, and really you know, how spread thin they were during that time,
which really the government laid out. Their theory was that that Quong and these and the CFO lied to the bank to get more credit in order to trade more and that was kind of key to the marketing opulation because they wouldn't have been able to trade in those sides had they not told the banks Bibbs about you know, how much investments they had, where those investments were, how liquid those investments were, and how much credit they had at the other bank.
It's astonishing the demise of our Chagos ultimately fueling the demise of credit sueeze to think that one trader, one bad apple, whoever it is, could bring down a legendary Swiss bank. It really just seems to suggest that the regulators were asleep at the wheel or something like that.
Yeah, there is definitely that fun of that. I mean, obviously there are many other factors and we didn't mind in credit sweep, but this is kind of one of the big dominoes that that started to change, that led those down call and you know, it kind of probably led regulators to trying to take a boat to look at some of these family offices and you know how they were investing. Really the way that was investing through these block transactions kind of concealed what he was actually doing.
And that's kind of seemed to the whole scheam is that if he was training of you know many do by buying securities, and his defense alleged that, you know, they argued that he was you know, he was long in these because he believed in these companies. He wasn't just trading to get the places higher. He thought these
was a good investment. But in the end, you know, there were they were not that liquid and that was the problem because when when the margin call team during that last week he wasn't able to settle, and then that ultimately went denied. So if the regulators had been able to see that he was trading in regular styt of like a robo bog investor would do where they would, they would buy the shares and therefore have voting likes. Instead, the banks were the ones signing the shared All right.
Chris, we'll leave it there. Thank you so much here for joining us. Chris Dolmach Bloomberg US legal reporter on the line.
We're joined now by Eddie Lowe, chief investment officer of Maybank Group Wealth Management. Eddie, we can talk about j Powell and the Fed, but I wanted to talk about earnings for a moment.
We got the sales.
Numbers from TSMC yesterday, a second quarter of sales at the fastest pace since twenty twenty two. Now we will get the earnings next week, but at least this is an indication at some of the gains that we've seen in TSMC stock, you know, could be justified your thoughts on some of these leading players in the AI sphere.
All right, well, if you look at the global equities performances year. It has been a stellar first half, and a lot of this is actually driven by earnings growth from the tech and AI related stocks, so the likes of TSMC and Video for example, And for US coming quarter, we do expect earnings growth to accelerate, especially for the
SMP five hundred versus the first quarter. But we do highlight to our investors and clients that, hey, well, I think there are merits to focus on the tech sector, but let's not ignore the non tech sectors, because there are beneficiaries from the non tech sector from the progress and technology, and we are seeing signs of earnings growth
broadening out beyond the tech sector. So given the fact that SMP five hundred equal weighted in terms of valuation is much more lower than SMB five hundred on a market cap data basis, we think their merits to look beyond the tech sector into other sectors including financials, energy, and industrials.
So, as I understand what you're saying, I mean these other industries would be big beneficiaries of the adoption of AI in their business models.
Is that right, Well, we've believed that the adoption of AI could actually benefit a range of industries. Yes, so I think some of the sectors that mentioned just now, financial industrials, they are definitely prime beneficiaries.
So financial is about the only sector really that has kind of matched tech in the S and P five hundred so far this year. The rest of the area's materials and industrials we've had some rallies, particularly in the first quarter, but it sort of died in the second quarter.
Do you expect that to pick up anytime soon?
Well, we are actually seeing a very interesting phenomenon acting in the first half performance of S and B five hundred, where no doubt, you know, the tech and air related sectors are the UH performers, But if you actually apply sector types from a month to month basics, we actually see variation in monthly leadership. For example, I think sometime in the earlier part of us QB we were actually advocating overweight in materials and energy sectors and that played
out well. So at this juncture we thought that energy socks could be an interesting option because of the fact that it has actually somewhat like recently, plus the fact that it could serve as an interesting hatchickens lingering geoe political risks being in the Middle East or in Russia, Ukraine.
How much of your thesis is predicated on the notion that we're going to get two FED rate cuts this year.
We are actually off the view that we are going to get two weight cuts from the FAT this year. That is our base view. If you look at what Powell has said, he acknowledged progress and inflation, although still waiting for more evidence, but he did say that the FAT does not need to wait for CPI to hit two percent before the FAT will start cutting rates. And I think one thing to notice is that there are
mountain signs of calling jobs market. Employment is taken higher to four point one percent, while due nonvoune pay rolls were slightly better than expected, but may pay rolls were actually significantly revised lower. So barring any significant upside surprises and inflation, we think that, you know, the soft job market could actually give FAT another reason to start cutting rates this year.
So it seems like there are a couple of reasons why you see huge out performance of some of those top tech names that you say, you know, we should we should acknowledge, but we should look elsewhere as well. The two areas would be that until you get rate cuts, you're probably not going to see small caps and some of the mid caps perform. Well, you probably need to see growth, you know, which is trending lower now stabilized, and then start to kick back up.
That's when you'd see those rally. And then you know, if you look at.
The earnings from you just can't compare the earnings from average companies with what you see in tech. So you know they don't give trophies to everyone for a reason. The winners and get the trophies.
Well, indeed, I think that is actually I would say I wouldn't. I hesitate that used to work hut mentality, But indeed there is actually a chase after the trophy companies because they have been delivering, That's no doubt about it. But I totally agree with you in the sense that mid cap space is actually looking increasingly attractive, especially if the big cup do materialize, which will help to stabilized the economy and also then helped to propel the earnings of such companies.
Eddie, what are you hearing from clients right now, particularly those in Singapore about the risk that may be overhanging markets in the Asia Pacific right now?
Well, we are, apart from you inflation, corporate earnings. One question we are getting quite faded is what happens if Trump were to win the election, the president election this time around? What happens if there's Trump two point zero? So because we did actually we certainly publish a note to talk about the potential implications of a Trump presidential win, especially when we's talking about imposing sixty percent terrorists on China and ten percent terrorists on the rest of the world.
So I think that increased uncertainty could actually tenpen sentiment on Asia really assets. Now, having said that, this time round could be different, and we must note that Trump this is the second election. I mean, if Trumble the windows will be the second term, that would be a next election. So maybe perhaps he will be more willing to cut deals as a businessman with China and the other countries if it does serve the interest of the US.
Eddie we talked about an opinion piece by Mentioning Pay, one of our columnists about how the US China relationship is probably worse than the Cold War. Never mind what he's getting at, but I'm curious, in your mind, do you see it as a competition If I'm in a race with someone or playing golf against somebody. You know, I don't think it's life and death. I just want to win. Is that what's happening between the US and China or is it sort of deadly survival type of stuff.
Well, I would describe it as a strategic competition between the two superpowers on several fronts. I mean, on the military front, I think that's that's really something they are actually walking a lot on. But on the technology front, especially if you can see what the US has done in terms of trying to block the export of technology or semiconductor equipment to China to impede the progress in terms of semiconductor for China.
Yeah, Eddie, thank you very much for taking the time to be with us. Eddie Low, CIO of Maybank Group Wealth Management. John Davey, founder and CEO and CIO a lot of hats there, had his story of portfolio advisors, So John, you better be good. That sounds like you've got a lot of responsibility there. Great to have you on the program, by the way. So look, people are still looking at this market for a broadening out of gains to kind of of declare it to be healthy,
the rally healthy. So let's consider where we are. The S and P five hundred is up eighteen percent year to date. The equal weight is now up five percent. Now five percent halfway through the year is a pretty good gain. The eighteen percent is great, but that's mainly because of a secular growth story.
AI. So is the market doing what it should be doing well?
I mean, that's a good question. I mean everyone's trying to decipher, you know, what that you know, if that, if that is you know, the correct path for both those different sectors. I think the reality is that the economy is normalize and after pretty strong, you know, a couple of quarters. So we had a pretty good earning season here in Q you know, earlier this past quarter,
earning's work up about nine percent. You know, I think what the market is looking for is a rate cut or two and here in the US at the end of the day, I think that's what it's going to enable, like the S and P four to eighty three, which is the non magt the non magnet seven stocks, in order for a to rally because as you mentioned, you know, the equoid S ANDP just hasn't really moved as much as the produ market, so you know, the markets are employing,
you know, rate cut and step in December north of seventy percent probabilities. I think that's what we're going to need for the market to prod now because after last quarter strong earning season, that really didn't provide any sort of tailwind to the market.
So the rate cut obviously would be predicated on the notion that there is a slower growth going on. Earning start tomorrow will hear from pepsi UH one of the names, Delta Airlines another, and then the big banks on Friday. Obviously that will be key. Is there the risk as these companies begin to report and then offer guidance on the future, that the street is going to have to adjust expectations of future earnings growth given a slower growth rate for the overall onomy.
Yeah, I think the bar was set pretty low. So if you beat you know, last quarter, I think you were rewarded. So the expected you know, growth rate of this SMP, you know, per Bloomberg, you know your firm is you know eight and a half percent, So that's the highest since you know twenty twenty one. I think, look, I I you know, I'm in the States, and there's two things that really kind of kept the economy together. One you had a pretty good labor market and you
had a very strong US consumer. The labor market is starting to, you know, weaken on the margin, and the consumer, I think after like four years of above elevated inflation is starting to get tapped out. So those two I think held the economy together, and those two things weakened on the margin is what you know, in the end of the day, is going to cause the FED. I think the cut rates. We have some pretty decent commercial real estate issues here in the US. You know, regional
banks have lunt that a lot of money. So I wouldn't say even though the Max seven keeps going up and drives S and P, that isn't represent of the broader economy. So I do think that a lot of these indicties we look at are showing signs of softening, and you know, we're at the point in the cycle where the FED you know, needs to cut and would have cut in pro cycles.
It's really hard to get a good strong read on this because you have a number of companies, a lot of companies that have vastly underperformed, and these are big name companies like Home Depot and PepsiCo and McDonald's. They're down here today some you know, either flat to down sixteen eighteen, twenty percent. Then you have other consumer facing companies like Apple, like Walmart, like Costco that are at
all time highs. So I guess in the way there are some idiosyncratic stories and it's a stock pickers market.
Yeah, I think that's that's all, you know, very valid point. You know, our point at a story advisors. You know, we're global investors, will multi asset. You know, we think there's a lot of opportunities. You know, emerging markets. Nobody talks about it. It's like people forgot about you know, China, India, you know em the MSAI Emerging market ETF is at a fifty two week high. It's up ten percent.
Year to date.
You know, you get that valuation buffer, right because these things traded much lower multiple compared to the SMP, which is at you know, twenty and a half forward earnings. So you know, we're just telling investors like look abroad, you know, there's a lot of interesting opportunities in Japan. Nobody you know, again, everyone wants to be infactuated at the max seven, but there's a lot of opportunities even in the you know, commodities market. You know, we're big
proponents of real assets. If you look at silver, it's up twenty nine percent year to date, gold is up fourteen percent. You wouldn't think that precious metals would be doing good, you know, when the SMP is up so much. But I think you know, investors see that there is a week in an economy and that's typically when you know, precious metals would do well, along with the fact that they're inflation hedges.
So it seems as though a story of portfolio advisors uses a lot of quantitative rest. Can we get away from that for a moment and talk about the election and whether this, with all the uncertainty that we've been dealing with as a part of the current news cycle, that there is a risk of a lot more in the way of volatility between now and November.
Yeah, Elections, you know typically result in higher volatility. You know, I would say that, you know, the kind of the Republican winners stocks, right, there's baskets of stocks that kind of benefit from you know, Republican victory. You know, they've been rallying, you know significantly. You know, if you look at Mexico, how Mexico's doing. I think our conclusion, our story is regardless of who wins, I think we're going to still be having like deficit issues. So we do
like owning real assets. We do like continue to own gold because I don't see that I see higher inflation regardless of who wins. But you certainly expect higher volatility. You know that's going to start to pick up in September October. I think there's some you know, lower volatility here in the States because of like the Gamma profiles, which is keeping realized volatility low. So implied volatility has
to track realized volatility. So you know, that's kind of you know, a technical issue, but no doubt if you start seeing you know, if there's a change in a republic, the Democratic Party, that will lead to more and certanty. More in Certanty will lead to higher volatility.
I'm hearing from a lot of guests that you know, doesn't really matter too much that money is chasing equities here because of earnings, upward revisions and such. Are there some themes somewhere in there other than the ones you mentioned, particularly in the high tech area, that you like, where you're seeing companies raise their earnings projections.
Well, that's the funny thing is that if you look, I mean, we've had a pretty strong broaden out of this earnings recovery. And usually when you've got an earnings recovery, that usually leads to you know, investors kind of rotating away from defensives. So I look at like the MAC seven as a very defense to play. You know, these are like high cash flow producing companies, but if you have more earnings growth, you know, there's a lot more opportunities.
There's something like one hundred and sixty companies in SMP that have had twenty five percent earnings growth, so you should be brought in out of your portfolio. You know, the ECO way to SMP is you know, fifteen sixteen p racial seventeen p racial, so you get a little bit of like a discount compared to like the broader SMP. And then if you go into like you know, things like Japan emerge market, so you can lower it pretty significantly. But you know, I would definitely be rotating out of
you know, those heavy Max seven stocks. They've had a tremendous run, and you know, these things never stay at the top of the dux forever John.
Thank you.
John Davey, founder CEO CIO at Estorio Portfolio Advisories. Joining us in our studio is far some discussion of tech is Lad Savov, Bloomberg Tech Editor to field questions from dug and myself. Lad, thank you very much for coming in. So a couple of stories here, definitely getting some attention. Apple looking to ship some ninety million iPhone sixteen devices in the latter half of this year, that said to be a ten percent pickup on some of the previous models.
And then TSMC's second quarter sales up forty percent. Forty percent, Lad, that was the fastest patience twenty twenty two. Now a lot of investors are worried that we might see a slowdown. Here you have an example from TSMC that sales are actually going up. Still, what do you make of it?
Well, that's right, Brian, for TSMC is kind of the bottom of the funnel when it comes to ODAI excitement and AI boom. When you think about Nvidia and is skyrocketing shape price, Well, Nvidio only has one supplier and that's TSMC. Nobody makes the Nvidia AI accelerates. Is that are the vang god of the aiboom other than TSMC.
That's a great position to be in. And when you look at people signally some quotion about Nvidia and about its future growth prospects, Well, I don't see the same thing with TSMC, because whoever succeeds in Vidia is most likely to go and be TSMC's customer. Again, so it's just an ongoing thing. And to the point with Apple and it's rising prospects for an next generation of iPhone. Guess who makes Apple chips?
I guess that's TSMC, same company. Yeah, So the commonality here is the AI trade and Apple has been very ambitious in designing a program that would be compatible with only Apple devices. Do you think Apple is going to really stand apart? One of the things about this company that may be late to the game when certain trends establish themselves, but they have a real good track record at perfecting technology, especially for the consumer. Do you think that will hold up with the iPhone six?
That's right, and honestly, we're going to have to wait and see. One of the ways that I think about this is whether Apple would be introducing a features today if it wasn't for chat GPT and the entire wave that chat GPT kickstarted. Frankly, if you're Apple, just as a business, you don't have the option to come up to the tail end of this year. And think about it, the fhlone sixteen means all of twenty twenty five. Essentially, you don't have the option to go into twenty twenty
five without AI features. So think about this question, which I don't have a clear answer to. Would Apple be introducing all these AF features this year if it had its own way, Probably not, because when you look across the spectrum of what services are actually being released and unveiled under this AI label, they're very disparate. There isn't a clear through line of what consumers really want and demand as far as AI goes.
And also Samsung is another key story today that we've talked about a little bit. Samsung is raising prices, so that's one thing, and then also betting more on artificial intelligence, particularly on you know, advancing its foldable phone. So what do you make of those developments?
That's right well sitting here and just waiting for our conversation, Brian, I thought of this. There is no plan B. They just plan AI. As far as the entire tech industry.
That's a good one. Okay, we'll give you credit.
I was inspired by you, Bran Sitting.
I'm sure you wrote that because you don't steal.
Well, think about it. Microsoft is making a huge push with its co Pilot software for Windows in the autumn and into the winter, into the holiday season. Apple with Apple Intelligence with the iPhone sixteen we just discussed, and then Samsung likewise. Because when it comes to hardware, these devices, whether it's laptops or smartphones, even photo smartphones, are largely mature or you can do is make them a little
bit thinner, a little bit lighter. And the way that you can really spark more interest from consumers is to say we have these unique new features, these AI features that you're really going to want, your friends are going to have, and you are really going.
To talk quickly. Is a smart ring going too far?
Well?
Smart rings have been around for a while. And the interesting thing with Samson is because of its scale and it's rich, it can popularize it. It can make them a genuine category. And again, much like the AI features, that kind of needs to prove itself over the course of time.
I think that the wearable market, particularly where telemedicine is involved, is in the early stages here. I think there's a lot to be gleaned as we look at what Apple is doing in terms of medtech.
Sure, and Samsung's advantage is the fact that Apple doesn't have a product there. Samsung wants to be in these spaces that Apple doesn't yet occupy.
Well, you could make the case that the watch, I mean it is basically a wearable device. I mean, whether it's a ring or a watch, you're monitoring, you know, skin temperature, You're you're monitoring a person's sleep cycle, You're monitoring. It's a sensor basically on the human body. In what form we can debate, but I think that Apple re the potency of the watch as something that could be a bridge to telemedicine.
Absolutely, And I think the big test with samsung new products, whether it's the Galaxy Ring or is new six hundred and fifty dollars Galaxy Watch Ultra, which goes up against the eight hundred dollars Apple Watch Ultra, is to test how much consumers are going to be willing to spend for these things. We know that people like health tracking, we know that they like health metrics, But how far is that budget going to stretch for those devices.
We started off by talking about TSMC, and you correctly pointed out that it's really at the center of a lot of things, particularly with semiconductors, and that's fast becoming, if it isn't already the most important industry in the world. The tricky part is it's in Taiwan, very close a stone's throw from China. Have you been monitoring that relationship. We just had ed talking about how some ships and planes have entered the airspace of Taiwan.
What do you make of that?
Well, that's been an open question. The really striking thing to me, I like to think of Taiwan as like a seven trillion dollar island, because I just mentioned it. Without Taiwan and without CSMC specifically and its production in Taiwan, there is no Nvidia Ai chips, there is no iPhone, so there's a lot of stake. But all these companies seem to be investing both their businesses and money and faith in Taiwan going forward.
Excellent, Glad, Thank you so much for joining us here in our studios.
It's always interesting. Glad Salvov bloom Chech.
Editor This has been the Bloomberg Daybreak Asia podcast, bringing you the stories making news and moving markets in the Asia Pacific. Visit the Bloomberg Podcast channel on YouTube to get more episodes of this and other shows from Bloomberg. Subscribe to the podcast on Apple, Spotify, or anywhere else you listen and always on Bloomberg Radio, the Bloomberg Terminal, and the Bloomberg Business app.