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Welcome to the Daybreak Asia podcast. I'm Doug Chrisner. Energy markets are still a critical concern. After the close in New York Trading, President Trump warned Iran against charging tolls on vessels moving through the Strait of Horn Moves.
Now.
Trump went on to say that Iran is doing a very poor job of allowing oil to flow through. At the moment, I think it's fair to say that the strait remains largely blocked. Yes, there have been a handful of Iran linked ships passing through, and we know of three Chinese oil tankers at least with Saudi and Iraqi crew that have sailed to Horn Moves. Iran, meantime, as we know, has said that any vessel transitting the strait
will need army approval. And just to point out before we get into our conversation, today, in Japan, the government said it will release oil reserves equivalent to twenty days of consumption from inventories in the month of May. For a closer look at markets, particularly on how oil is impacting the story, I'm joined by Bloomberg's Leontin Iwo. She is managing editor for Asia Equities. Leonting joined from our
studios in Singapore. Thank you for being with us. One of the things that's really surprising to me is how well stock markets in the Asia Pacific are performing in the face of elevated crude prices. I think the MSCI Asia Pacific Index is on track for its first weekly gain since the war began.
Yeah, it's actually on track for its best weekly gain since twenty twenty four, that's when the PBOC wrote out the stimulus of stimulus blitz. I don't know if you remember, so yeah, I would say global stocks are actually already sort of looking past the war. I know, you know, there's still a lot of uncertainty. The street of homos hasn't really been opened. But market by its nature is very optimistic, right. Stock market people are looking at the
direction of travel, which has been positive. The escalation has been the direction. In the last week or so, people already talking about how to position for the end of this war. So, you know, stuff like renewable energy is really being mentioned, just because the war reminded all the governments that they need to diversify their sources of energy
away from the likes of oil and gas. So you know, people are looking at energy storage stocks, renewable like solar and wind and also ev This is all being sort of bought or being accumulated by fund managers right now.
What about the story in China as it relates to coal. You're talking about how the energy crisis is impacting the need for power. We know that many of the countries in the Asia Pacific are heavy oil and lerg importers. Is there much conversation around doing more with coal?
Yeah, I think coal in terms of STOCKMA performance, coal stocks are also being bought just because you know, with oil being sort of limited in terms of supply, investors just looking at all sorts of energy sources to get their hands on. But I think in the longer term, China is still very much determined to phase out heavy dirty coal usage and encourage power plants to use more renewable,
clean energy generated electricity. So in that sense, I think, you know, the likes of Cattle, which has the biggest business in energy storage, and even byd which has a very sizable business in energy storage, and all these kind of companies I would say are better positioned in terms of benefiting from a future sort of government.
Incentives speaking of the government in China. I was reading a piece on the Bloomberg Terminal indicating that the government is considering financial relief for some of the Chinese state run airlines. Obviously, the war has created much higher jet fuel prices. Give me a sense of what's happening with the airline industry in China right now as it relates to higher jet fuel.
Yeah, it's I would say they're in quite a dire situation just because state owned airlines in China typically don't hedge, so they are directly hit by any increase in jet fuel prices. And also domestically, consumption still hasn't been very strong, so they cannot easily pass on the increase in jet fuel to consumers. Therefore, they're really taking a hit on their margins. So this time the government is just you know, spending billions of yuan to support this industry, very much
similar to the support that we saw during COVID. So I would say, yes, the margins are really coming under pressure, and these stocks I would say, sold off the most among global airlines during this war.
So we have the official data on inflation for China, both CPI and PPI. When you look at the wholesale inflation number PPI was up behalf of one percent. That was slightly above the forecast consumer prices, however a bit below the one point one percent that the market has been expecting. Is this mostly a reflection of higher energy cost yeah, I.
Would say so. I would say it's a relief, right. We haven't seen the kind of one percent jump in CPI for quite a while. And of course, lots of people are talking about referation trade and there is a lot of argument about how this cost to driven inflation is not necessarily healthy. But we've also seen economists coming out to say, you know, inflation in China still a good even though it may be ugly inflation or not the most healthy form of inflation. And anecdotally we're seeing
some companies who are able to lift prices. Was a quato amount High, which is China's premium liquor maker. They were able to just really pass on some of the prices to consumers. So I would say generally it's taken as a positive. And whether this is going to spread to bigger cohort of companies in a sense that they're able to lift prices is yet to be seen. But at least we're seeing some examples so far.
We know that the inflation story in South Korea has been critical. The government was considering maybe a supplementary budget to deal with the result of rising inflation, and now we've got the Bank of Korea keeping its policy rate unchanged today. Give me a sense of what's happening in the bokse thinking as it relates to inflation right now.
Yeah, it's a tough decision, right, They need to balance the kind of immediate energy cost surging higher, but also the potential slowdown in its growth. I would say this. Of course, the move is widely expected, and this is also the last policy meeting for the outgoing governor, and obviously he doesn't really want to jot the situation for the incoming governor. So this is sort of all well expected by market participants. And the inflationary situation in Korea,
it does not look good. Korea, I would say, is probably the most vulnerable among Asia economies to any energy shocks because it does import so much energy from the Middle East, which has to go through the strait of horror moves. So Carea's economy is in a bit of a dire situation. Right now, but it is also compensated by the continued high export from the chip sector. I think the latest export number we saw again showed that chip exports were really robust and really dominating these numbers.
So you know, it's just a investors need to go to look through the economic damage from the higher energy cost, but also the still robust memory hip demand.
Speaking of central banks in Asia and how they're responding to this higher inflation story, some of the PPI data for Japan I think was above forecast. Is there the sense that the boj is behind the curve now and trying to get inflation under control?
Yeah, I think there is a sense of that. As you mentioned, japan story is also quite similar to Korea. Right what matters to investors is still very much focused on these industries in Japan that have a competitive edge and right now and today's market reaction again reminds us that Japan is really strong in again chip related export, but also some consumer names fast retailing. Today, I think shares searched quite a bit more than six percent is
last night I saw because of the stronger guidance. So Japan does have a few national champions that are continuing to be popular with foreign investors.
So how was the market feeling about the AI trade these days? I think I saw a note from our colleague David and Glay saying that the market in Taiwan could be the first major equity market in the APEC region to recover all losses since the war broke out at the end of February.
Yeah, the AI trade. Just because there is the escalation in around tension, people are able to refocus some of their attention to the themes that markets were focused on before the war. So AI again is being talked about as a hot topic in terms of AI some arguments right.
We see, on the one hand, people are talking about software disruption and how Asia hardware names are still very much positioned favorably, that the AI spend is still very strong, so you know, TSMC and the two chip names in Korea again are now being talked about as you know, stocks to own by some of the buyers. But at the same time, we saw Jefferies that came out this morning talking about how they're expecting an AI capax peak this year. Part of the reason is because energy costs
will stay high even if the war ends. It's not gonna the whole oil shipping. Oil flow is not going to be resolved anytime soon, so we may see a structural change in energy costs and that does not bode well for AI data center running and all the related costs. So that is a negative argument, which means, uh, the kind of price search that we have you know, priced into these chip names maybe you know won't last very long.
Beyon Tan, thank you so very much for sharing your perspectives and insights. I hope you have a great weekend. Bloomberg's Leontink two, 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. The US and Iran are preparing for peace talks this weekend in Islamabad, Pakistan. Heading into the weekend, there are a lot of questions
as to whether the ceasefire will hold. Israeli strikes on Lebanon are certainly going to be a major issue in these talks, so too will be Iran's grip on the Strait of Horne Moves now. President Trump has already warned Iran against charging tolls on vessels moving through the Strait, and that's where we begin our conversation with Jonathan Pannicoff. Jonathan is the director of the Scrokoff Middle East Security
Initiative at the Atlantic Council's Middle East Program. Jonathan spoke with Bloomberg TV host Sherry On and Heidi Stroud Watts.
They seems to be fundamental misunderstand gaps in what the ceasefire or what these talks would even cover going into the talks in Islambad this weekend with jd Vance. When it comes to the issue of ranium proxies, was that pretty clear from the outset that there was going to be disagreement?
There look to be worth he as always, I don't think that it was clear at least it wasn't clear to all sides. This agreement as a whole has become a little bit of a Rorshach test. In other words, everybody's interpreting it as they want and seeing what they wanted to be.
I think, look.
If you ask the Iranians, if you ask even the Pakistanis also no, it was very clear that all proxies including Hesbala Lebanon.
They were not They were also off limits.
Phrase really strikes this wasn't just about US, was really strikes on Iran. I think you've seen some reporting that the US is trying to get Disula to make me pull back to ensure that the talks this week.
And still go ahead.
President Trump also talked about frustration this evening on True Social about how frustrated it is that the street doesn't open.
But right now there's.
Clearity that everybody does seem to want an offering, and so that points to the fact that talks probably will happen this weekend, But the context of them and whether or not they're going to really be able to dress all these issues is still very much up in the air.
Jonathan, to your point of seeing what you want to see in the issues that are going to be discussed over the weekend. The various versions floating around of the ten point plan, if you were to believe some of them, they really do include points that I would assume are absolutely off limits for the US right, things like removing military bases from the region, things like paying war reparations,
and the exclusion of around's proxies. How do you think there gets to be a point of compromise on this.
I think that's right.
Look the irrity though are all hands at this, This isn't you know? Theres go around here in these types of negotiations, and so as is typical in these types of international negotiations, it wouldn't be a surprise that there were things on the list that the Wereonians know they probably are not going to get, but it allows them to then sacrifice those as chits to say that they know have moved meaningfully away.
And what you're left with ultimately is their core demands.
And what I expect really to their core demands to be is a that they're not going to agree to stop production on ballistic missiles, that they see that as their fundamental long streak, long term strategic deterrence, that they're not going to give back the strait of hormots. And then the really hard one, I think is that Israel has to be guaranteed not to come and strike around again three six, twelve months from that. That's a hard
one for the US to guarantee fundamentally. So the question is do you even have confirmation from all of the parties, because this goes beyond Israel, Lisabella and Iran, it includes the golf. There's a lot of actors here just besides the US and Iran. Are all of them going to agree to the terms if they're not represented at the table.
Exactly? So, Jonathan, what are the low hanging fruits that can be achieved in this negotiation? And are we looking at a big deal that encompasses all of those actors that you talk about, or are we going to see a long drawn out war where we're seeing small, small details and small changes, and perhaps even the US, especially President Trump's losing interest in actually finding a sweeping resolution.
My guess is what you're probably going to end up with is an overarching framework agreement without the details filled in.
And now we've seen this happen before.
It allows President Trump to be able to say we have a deal even though we really don't have brinkly
the meaningful context all the details including it. But then the hope would be that I think the details follow on from that order to get there, It gets to your first point of what is the low heating fruit To even get there, I would expect that there will be some discussion, frankly, about the uron's nuclear program and about the four hundred and forty kilograms of highly enriched uranium still buried in Iran under four doh or at least some of it under four dough.
There's rumors that some of it has been moved.
I expect that you'll also have some discussion frankly, about what reprocessing looks like. You'll have some discussion as well,
I would expect about the straits. But I think really it's going to be challenging to expect that the US is going to end up in a better position than when the war began, and that I think is what's frustrating a lot of people and what's scaring a lot of partners in the Gulf frankly that are watching as they started the war with the street completely free from navigation, and they may end with having to pay a toll.
Yeah, that's the thing, right, I mean, freedom of navigation has been given for hundreds of years, and you're telling me that they're trying to put the systemic tolls in the straight of horror moves as a dangerous precedent to set What does this mean for the rest of the world and can other mediators like we're hearing that China perhaps played a big role. They've been credited by Iranian
officials as trying to really achieve that ceasefire. What does it mean for third parties that also have a little bit more influence with a run.
So if we go back a little bit right in terms of precedent, it's really important to look at that, especially effects obviously East Asia and South Asia. The UN resolution that was put out by the Baharin needs to try to ensure freedom of navigation and to try to ensure.
The choke points in the streets.
The reason that the Russians and Chinese at least in part vetoed it earlier this week was fundamentally because they're very very terrified about how that will be then used against them as precedent setting Visa VI Taiwan, visa VI other places in East Asia for the Russians the same thing.
That is a part of the challenge here.
I do think that the Chinese have played a meaningful role in that they're the only ones with enough influence over the Iranians to really serve as.
A guaranteur for them. The Iranians need the Chinese.
The Chinese are the only ones with sufficient capacity large enough to buy the oil to for Urn to start to generate some meaningful revenue again. But again there are huge challenges here and right now from a US perspective, it's a struggle to see out how the US comes out further ahead, whereas they're frankly winners of this may end up being Russia and China.
Jonathan, I think we're having similar conversations in the last military operations halfway through last year, right, And I do wonder have the objectives the US and Israeli objectives been achieved in these operations and what are the risks that we're going to see just for the volatility flare up in the region as a result.
I think, Look, I think some of the tactical and operational objectives have certainly been achieved.
Right. It is true.
Iran's military is significantly diminished, especially its naval assets.
It is true that Aroun's.
Ballistic missile capabilities are very much degraded from where we were. The problem is from a strategic perspective, even if Iran has tactically lost strategically, if it ends up if not controlling the Straits, fundamentally demonstrating ultimate leverage over the Straits and putting a toll in or having to ask even permission from the Iranians, every time a ship goes through. Then really it's created a situation where strategically Iran comes out ahead, and I think there's no way about that.
And what that's going to mean long term is that the Iranians are going to have frankly greater leverage in the region and for their asks, and that is going to really be a challenge for Special League golf allies.
We're going to walk away from this incredibly.
Concerned, Jonathan. And before we let you go, where are the Uranium people in all of this? I mean, President Trump keeps oscillating from whether or not there has been a regime change in Iran, And at the beginning of this conflict, there was a lot of talk to potentially we could see a popular uprising as well, Why hasn't this happened, and could we expect it?
I think it'd be very, very unlikely to expect it. Now that there's two problems. One, I think there's been a failure by the US administration to sufficiently distinguish between how the Iranian people view what is Iranian and what is the regime. When you start talking about knocking as civilization back to the stoneager to completely destroying it, whatever the exact wording of that true social posts was before
the ceasefire, that really hit. I think a lot of Iranian people you heard this, that they took that personal lit They may load the regime, but bridges and infrastructure and power plans and desalinization plans, I think a lot of.
Iranian's view as Iranian not regime.
Any regime change is going to have to come from with in Iran, and it's still going to fundamentally require that at the end of the day, will somebody with guns switch asides or stands aside.
That's what happened in the nineteen seventy nine revolution. We haven't seen that yet. There's sufficient regime cohesion, at least so far.
Now.
The economics of Iran are.
Quite terrible, and governing is going to be a very very hard challenge for what is going to be a harder line, more conservative, frankly new regime leadership. So maybe you could get there eventually, but I think we've still got a ways to go before you see significant challenges in Iran.
That was Jonathan Panakoff of the Atlantic Council speaking with Bloomberg TV host Heidi Stroud Watts and Cherry on 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 Prisner, and this is Bloomberg