Good morning, and welcome to the Bloomberg Daybreak Asia podcast. I'm Doug Prisner. Here are the stories we're following today.
I'm Charlie Pellett. Doug Chrisner has the week off. Asian markets are locked in on big tech this morning, following earnings from Microsoft, Meta and Samsung. For more, we heard from Daniel You, head of Global Asset Allocation, that you want to securities and he spoke with Sherry On and Heidi Stroud Watts.
You know, obviously the global AI expansion theme is still a key one for you. It's getting quite clear who the winners, losers, those that are perhaps struggling to assert dominance are. How do you view the opportunities, particularly when it comes to the Asian names.
If you look at the global structure of this AI cycle, we can see that it is clearly the winners are the US companies. As you know, the AI cycle, the infrastructure's build up is mostly based on the data centers, and if you look at the level of data center capacities, I think that globally, probably more than eighty percent is all built in the US. So I think we've got to think about that terms. So if you look at Someson Electronics obviously having an association with NBDIA and trying
to ship out the chips. It's not really happening yet. As you know, the Skihiinex is probably having a market share more than eighty percent of that business. Now, as you mentioned earlier, we look at the Micron and Micron's competitiveness seems to be rising, so all that in terms of the infrastructure wise, it's all related to the data center I think more importantly though, however, we got to
look at the soap to our segment. In the past, when there was an Internet cycle, you had a significant amount of the capacity increase in the infrastructure for the five years, and then a software expansion was happening over the period of fifteen years. But it seems right now the AI cycle wise, the hardware as well as software is are all start to kick in. If you look at the overall increase in the investment on the software side, US is increasing by more than eleven percent this year.
Clearly the two digit growth numbers are happening. So I think the speed of the penetration regarding the AI is going to be extremely high. But it seems that the speed of that is all focused in US rather than any other countries. So in terms of the Asia names, the relationship with the US is the most important thing. So that's why if you look at the TSMC, they're doing great. SKHI next, they're doing great, but some of electrons are struggling. Some of the companies are also struggling.
It's interesting you use words like essential, like paramount when it comes to these holdings, the big AI related holdings in the US, right for mag seven and adjacent stocks. Does that mean that view is sort of fed policy the agnostic is it? You are selection agnostic too, Yeah.
I think that.
First of all, let's look at the interest rate front. If you think that the AI is going to accelerate very quickly, that reduces the risk of inflation pressure because the productivity goes up significantly. The inflation pressure comes from the demand side, where the investment as well as the demand on the consumer side accelerates due to the high salary increase. That's I guess the inflation pressure. But if the GDP is growing on the basis of productivity improvement,
the level of the inflation pressure goes down. That's what we saw in the Internet cycle of early nineties to the late nineties. I think that if ai cycle continues to expand in the US, we think that the pressure on the inflation will be reduced and therefore that will be able to lower the interest rate as the plant. So so far they are lowered by about fifty basis point. They are expected to lower by another fifty based point by end of the year. Next year, another fifty to
seventy five basis point. I think that that's a very reasonable number to be expected. On top of that, I think that, however, though, what we worry about is is that who becomes the present changes the perspective of investment cycle. If the Trump gets into power, then we do expect he will raise the TARFT by one hundred percent and also lower the corporate taxt rate by six percent point. That changed the perspective of global market and it really
benefits the US companies. So I think that that will probably accelerate the process of information pressure, and therefore the lowering interest rate might be taking a bit slow pace or may not even happen. So we need to look at that and see what happens to Daniel.
What about the currency transmission, because if we do have a stronger US dollar because of those calculations that you talk about, that will also mean potentially a week or yen, and we know the Japanese companies, for example, have really benefited from.
That, right, I think that that's basically the Kibbon given meaning that I think if you look at Korean one as well as Japanese yen, we do think that currently we have a lower interest or environment. So therefore we do expect the currencies to probably gradually depreciate rather than appreciate. So I think in terms of the price competitiveness, Japanese companies as well as Crean companies would probably able to
increase that. However, though, if you look at the demand regards to the AI cycle, it's not the price only, it's the quality of things and how competitive are you in terms of the technology basis. So if the someting cannot be able to capture that market share because of the heating problem, that is an issue.
Right.
So I think that we've got to look at how things play out. But I think as interest rate will remain fairly reasonably high in the US versus the Asian countries, we do think that the currency would probably gradually depreciate for the Korean one as well as Japanese end continuously in the future.
What are the implications of that for central banks? We do have the Bank of Japan decision today and what will be the transmission when it comes to the stock market.
Well, I think that it would be tough for them to lower interest rate in any case Japan or Korea, but whereas maybe raising interest rate. Obviously Korea is at two point seventy five percent, so they're not going to raise it, but probably be tougher to lower interest rate, whereas also if you look at Japan, interest rate still
remains to be below zero point five. So I think that they will gradually raise interest rate, but I don't think that they can raise it further to beyond one percent, So that won't change too much in terms of the currency perspective. So in terms of Japanese yend, it's already depreciated from one hundred and forty to one hundred and fifty three or so, I think that will probably remain somewhere unbound, trading somewhere between one hundred and forty five to one hundred and fifty five.
Now, watching Asian markets over the years, we have realized that any North Korea provocation, whether it's ballistic missiles, they don't necessarily tend to have a lasting impact. Not even defense docs move these days. But in the broader geopolitical context, for example, what should it be on the watch out for in the coming months.
Well, clearly, if you remember, if the Trump comes into power, obviously he will start to talk again with Kim Jamil of North Korea because they had that kind of peace treaty, kind of thing he met twice right during his terms. I think things can happen in that front. Also, if you look at Joe political issues in terms of Israel, if you look at the Trump perspective is things is that he will probably end the war. That's what he's saying.
But clearly we are seeing that in terms of the oil price implication, we're not seeing the prices going up. Rather it's actually settling down. So jee political risk, which affects the oil prices and inflamation and pressure seems to be kind of dueling down. So we think that the right now the biggest tension is the Joe political issues, but it's at level of about thirty three percent terror risk.
We think that that percentage is expected to go down as the present election finishes and going into the future, So I think that that's not going to be a major issue per se, rather than rather than an issue, but I think it will probably gradually come down to affect positively on the equity market.
Daniel, you always get to have you with us, head of Global Asset Allocation at you on the securities.
I'm Charlie Palotte filling in for Doug Christmer. This week we move next to Japan, where we'll get a decision later today from the Bank of Japan. For more, we heard from say Yuri Sharai, former BOG board member and professor of economics at Kyo University, and she spoke with Bloomberg, Sharry On and Heidi Stroud Watts.
So if we're not expecting any change on the benchmark rate, what will you be watching?
I like to hear debut from governors how he thinks about this excessively cheap PN and we started to have another cheap in again. So he said, you know there is no you know, there's a time before they can consider another hike, but still one fifty three is excessively CHEAPN. So it's much cheaper than you know, in August we had like three, So this is a really having advass impact on the inforation, right, so.
Which will really push up inflation. We should push our podcasts.
Right, So there's a contradiction.
Here, especially since the July rate hike also happened because partly of a week or yen.
I think mainly because of that.
Of course Viogo will not say that, but because they admit it, the yen's deplication is creating kind of bad cost pushing information and the.
Political picture right now with the Rule and Coalition losing its majority, that's actually weekend the yend even more, will that happens.
Implications looks like it because no political parties talked about this, you know, excessively accessibly cheap pen and it's impacting on information. Also, everybody talked about price hike and so they have to give some sublicidy to the physical policy, but nobody really touched on this excessively cheap pn, right, so meaning that maybe VIOG to maintain this policy. So that's why that leads to the deprication a en at this stage because the BOG cannot take accountdamage at this moment.
When it comes to wage growth. Wages are growing, but real wage growth is starting to weaken. Right, do you think that we've gotten to a point where perhaps that could really start nate and where we are with the virtual cycle, is there a big risk there?
So wages are growing at two point eight percent and it's not very bad, but because the inflation is higher and again getting higher because of the another years depliciation, so important prices are coming up. So in that sense, nobody really feel the real wages are growing. So that kind of you know, situation is likely to continue. So people do not really see our wages are going up so they can consume more.
That kind of a.
Budger cycle is not evident existence at this stage.
And you don't think increasing the minimum wage, which of course is being discussed from many sides politically, that that's going to help. Is that just going to potentially force out a lot of the companies that are really struggling with inflationary pressures.
So all the political party talk about increasing minimum minimum wage as if it can be a solution for raising consumption, but a minimum wage is a legal, legal wage cent payment, and then you know a lot of companies are struggling from a cost push information and the additional uh you know, legally binding a wage grows mainly many companies may not survive. So I just wander, you know, all this political party was as a really sought, you know, the very sluggish REVA productivity growth.
How can they increase minimum wage?
And I don't think that will be a solution to increase consumption.
There's two arguments, it seems right now, with what's happening in the political instability here in Japan. One, if you have the en weekending more the bog, it might have to fasten the faster time and policy. But at the same time, on the other side, if you have too many cooks in the kitchen, will be able to actually allow the bog to do its job.
So the difficulty is Ishibasan already said, Japan is still not out of deferation. This is a repetition since the economics right, And actually.
He has sort of changed his tune after he was elected.
Yeah, he changed.
So he said, okay, consumption is so weak and so and he said the stage, you know, maintaining the interstrate should be But if he said that, he keeps saying that they are consumption is so weak. I mean, how can he justify about this relating interest rate? So that makes Bidog's decision very difficult.
How much is it also about the US elections. There's a lot of arguments right now that are Trump victory would mean more yen weakness.
Yeah, I think a boj it's very much worried about the case of the mister Trump is winning because it made it to the data strends higher interest rate, so it makes the Japanese and much cheaper. So that makes that they have a policy decision very very difficult. So Dynama is getting bigger.
Do you expect to see more wage growth next year? The Labor Federation here has said they will ask for five percent. What is sort of the level that we need in order to get us a stayable growth.
So if we want to achieve two percent, the information and the real wage wage growth should be positive, saying nominal wage growth should be three percent. Right, but like now April to August, average information is at two point nine percent. Right, it's good, but everybody really worked hard two days the two days wages, and then if you talk to the a lot of small medium enterprises, a lot of companies, it's very difficult to continue simply because the economy.
Is stuck not right.
So after the shows, I'm actually headed to the BOG and we have investors trying to go through the statement what should I be watching?
So yeah, I really want to see as a maybe especially press conference, what mister governor where that is going to talk about just excessively cheap Japanese en resurgence of Japanese cheap en? You know, you know, I'm sure everybody asks. And then what that implication is a cost push information? So is a boj is going to so deal with start like they did in the past.
Say you rich and I good to have you with us, professor of Economics at Kou University, with a preview of that BOG decision to come later today.
This is Bloomberg day Break Asia, your morning brief on the stories making news from Hong Kong to Singapore and Wall Street. Look for us on your podcast feed every day, on Apple, Spotify, and anywhere else you get your podcast. Our flagship New York station is also available on your Amazon Alexa devices. Just say Alexa play Bloomberg eleven thirty plus. Listen coast to coast on the Bloomberg business app, siriusxmptheiheartradio app,
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