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Welcome to the Daybreak Asia podcast. I'm Doug Prisner. Crude oil prices surge during New York trading. That was after the US and Iran struck defiant tones on the thirteenth day of the war. President Trump said preventing Iran from having nuclear weapons and threatening the Middle East is of far greater interest and importance to him than the cost of oil, and at the same time, most Deba Kamina said the Islamic Republic would seek to ensure the Strait
of Horn Moves remains effectively closed. WTI jumped nearly ten percent to ninety five seventy three, and in New York trading, the Brent contract settled above one hundred dollars for the first time since August twenty twenty two. For a closer look at the mood in the Asia Pacific, I'm joined by Bloomberg's Winnie. Sue Whinnie is Asia equities reporter. She joins us from our studios in Hong Kong. Thank you
for being here. Talk to me about the impacts that you have observed in Asian markets as the result of what's going on in the oil patch.
So the typical playbook that we've been seeing and looking at and hearing right now is that oil prices go up and Asian stocks get hit harder than the US, and for lots of different reasons here. The biggest reason is that we are a big net oil importer. You're talking about South Korea importing about seventy percent of its oil from the Middle East and Japan relying about ninety percent, So these are really big numbers versus the US is actually a net exporter, so that put us on a
more vulnerable side of things. But beyond that, just because of how much Korea Japan have really outperformed, including Taiwan as well when it comes to the AI demand and the semiconductor side of things, it also makes it more subjective to any big pullback in when people want to take profits. And then adding to that, you've got a stronger dollar weighing on our local currencies, so that also
gives these local banks less room to cut further. So these are some of kind of the factors weighing on Asian markets, and that's why we are seeing really lots of underperformance coming through and really volatile swings in these markets as well.
So speaking of central bank meetings, we have a BOJ meeting coming up soon. You were just in Tokyo, I know, a short while ago. Before we talk about what the BOJ may or may not do, talk to me about your experience of being in Japan and listening to the conversations around inflation.
What was it like.
Yeah, inflation definitely is on people's mind right now. That is a big part of the daily conversations that we have. I was, I went to Japan. I spent more than a decade in Japan before I moved to Hong Kong. But back then we were talking about a rise bowl about one hundred yen and right now I remember going back, the first thing I bought was a rise bowl and that was like two hundred yen four the same rice bowl.
So prices have really gone up, and especially in the past few years or even in the last year, but obviously when it comes to wages, it has not kept up with that increase. So there is that stress coming through. So you can imagine that with a round war and pushing costs even further, that probably will also lead to higher inflation and higher stress, and that the government then probably will have to do more to kind of contain that inflation.
We know Prime Minister Takichi has made that a priority for her administration. Give me a sense of what the BOJ may do. I mean, if everything kind of argues in favor of higher interest rates, but there is so much volatility that we've described Visa VI the oil market and what it's the impact that it's had on equities
and bond markets as well. Is the BOJ in a very very tough situation right now where there is obviously a big argument to be made for raising interest rates, but given the volatility, maybe the best thing to do, the more prudent action to take, is just waiting it out, taking to the sidelines for a moment.
Yeah, exactly. That's most likely exactly what they're going to be doing, at least for the upcoming decision meeting next week. And as you mentioned, a tough thing here is to find that fine balance. On one hand, you have the weaker currency. We're talking about the yen trading now around one hundred and fifty to nine level against a dollar, and a one hundred and fifty nine point four five will take us to the lowest or the weakest level since twenty twenty four, and that comes with a stronger
yen and sorry, a stronger dollar pressuring the end. And also we now have a higher bar when it comes to the intervention level, So lots of stress around that front, and the Bank of Japan definitely don't want the yend to continue to weaken much further. But on the other hand, Governor Uda actually warned a few days ago that the uncertainty around the around war we're likely going to have a major impact on Japanese economy. So the impact on the economy, on the other hand, is another side of
things that they have to balance. Yes, when it comes to the government side of things, we just had Prime Minister Takaichi yesterday or the day before, say, announcing that they're going to release eighty million barrels of oil from their reserve as part of that effort to tackle inflation. So that can potentially help east the burden from the Bank of Japan, But really trying to find that balance at this point is going to make them less kind of incentivized to high rates anytime soon.
We know that the South Korean equity market was on an amazing tear for the longest time. It seemed the record high after record high, and as you and I have spoken about in the past, a lot of that had to do with semiconductors, particularly as kae Onix and Samsung. We've seen quite a reversal, haven't we as of late?
Yeah, exactly, we were talking about South Korean market being that top performing global market, but actually when you look at its recent performance, especially since the war broke out, which was the performance in the past two weeks, it's actually one of the worst when it comes to golo performances. So these big swings actually make investors more hesitant to
bet further on this stock market. And Bank of America actually the other day had a note saying that this is a textbook bubble basically because these swings, driven by lots of retail investors quickly betting in and out and having high leverages, actually create lots of volatility in the market. And now when long term investors think about South Korea, they don't just think about kind of the upside when
it comes to the AI demand. They have to think about doing more hedges to protect any further downside swings,
and that has actually burned quite a few investors. When we talk to them in the past week, just because how little they have hedged so far for this market, and lots of them have also trimmed ex bosure when it comes to equities and especially Asian equities, and say that this likely is going to be just textical in the short term, but won't go away until we see the dust really settles around the around warfront.
So when I think about the second and third order effects in the oil market, I don't think about cooking gas primarily. And you and I were speaking a short while ago and you said that that was really one of the big problems going on in the Indian economy, right.
Yeah, exactly, as you mentioned, we have been covering quite obvious sectors, whether it's defense, airlines, or shipping companies. But now as the war continues to drag and people expecting further supply chain disruption in the Middle East, that is really starting to show ripple effects into areas that have
so far been a bit more insulated. And the one you just mentioned just now is what we're seeing in India right now with the shortage of cooking gas, and they have relied so much on these cooking gas at the restaurants, so right, now we are hearing restaurants, for example, having to make their operating time shorter or to limit what they offer on the menu, and that is hurting stocks specifically in the food delivery sector and also fast
food restaurants in India. And beyond that, today we're talking about the shortage of hedium potentially hurting semiconductors and that's why you're seeing chip stocks, Semsung Heenex, and TSMC falling further. So we're really right now trying to examine what are some of the secondary impact that we can look at
when it comes to the supply chain disruptions. And with that, you've also got retail retail sector getting hit fertilizers for example, and we're really right now trying to document that and potentially push out a weekend trader's guide on all these sectors getting impacted. So stay tuned in for that.
I'll be looking for that on Bloomberg Weekend. Winnie, thank you so very much. It's great to spend time with you. Bloomberg's Winnie Sue is Asia Equities reporter joining from Hong Kong here on the Daybreak Asia podcast. Welcome back to the Daybreak Asia Podcast. I'm Doug Chrisner. The US will temporarily allow some countries to purchase Russian oil already at sea. US Treasury Secretary Scott Besson said authorization permits will be
issued as a narrowly tailored short term measure now. Besson said it will not provide significant financial benefit to the Russian government. Obviously, this move is intended to ease growing pressure in the oil market, and that was the focus of our conversation with Gary Evans. He has set of research solutions at BCA Research. With Bloomberg TV host Heidi Stroud Watts and April hom talk.
To us first about what you're seeing in terms of the risk for the markets after what's been a really crazy two weeks.
A crazy two weeks, but the S and P five hundred in the US is only down if I calculate it right, four percent from the peak. So I think there's a lot of risk that's not priced in. Oil price is up sixty percent since the beginning of the year. The rule of farm is historically, when you've had a one hundred percent rise of doubling of oil prices, that is,
without exception, led to a recession. So I think the probability now of a recession globally has risen significantly unless we see an end to the Iran crisis within the next few weeks.
So for US stocks in particular, you see more to come in this repricing. Is that going to be led by tech lower or are there other sectors that you think we should pay more attention to.
I think that's a whole separate issue.
That the AI bubble in our view, has been in the process of bursting for a couple of months, and those valuations are still looks really expensive, so they probably continue to come off. But the recession would be worldwide, and of course the US is a relatively low beta market, it has quite a high proportion of defensive stocks, and
the US of course is a net oil exporter. So frankly, the East Asian markets in Europe are going to be much more heavily hit, I think, partly because of the dependence of those economies on imported oil and gas and other petrochemical products. So probably for the short term at least, the US market would actually end up being a relative safe haven.
Talk to US as well about what you're see in the Asia Pacific. If the US is seen as a sort of safe haven. How much under pressure are you expecting on Asian assets?
So a lot of it really comes down to the dependence on oil. If you look, for example, so the US is a net oil exporter, China imports about forty percent of its oil from the Middle East. Japan imports more than ninety percent from the Middle East. China is obviously a very manufacturing dependent economy. It's much more energy intensive than, for example, the US is. And then you've got a market like Korea, which ran up dramatically in
the first couple of months of this year. And not only is Korea very dependent on imported oil, but it's also quite expensive market relative to its history as well. So I think in this sort of world, at least for the next few weeks, the US looks like a relative safe haven, and the Asian markets probably are much more at risk.
So where would you look for hedges?
If you like, you probably want to look for economies and markets that have quite a lot of energy companies in their indexes, So that would be Australia, for example, Canada, amongst emerging markets, Brazil and Mexico, that those should end up relatively safe compared to countries that depend on all imports.
Do you bind the thesis that China remains a good hedge in terms of decrrelation from global geopolitics, the fact that the economy is more advanced in electrification than others.
So I was in China and Beijing the first three days of this week, and it's certainly true. Talking to Chinese investors, they are very sanguine about the risk. They do know China's fine, so that worries me and I think in the short term therefore, China is actually probably more vulnerable than most people believe. The positive story though for China and at BCA we're overweight on the Chinese offshore stocks, is that because the economy is already pretty weak,
the property market is still in a terrible state. The NPC last week didn't really produce any new measures. I think by midyear, the Chinese authorities will understand that they'll have to roll out more stimulus measures. So it might be like a mini two thousand and eight when China did its usual playbook of infrastructure spending.
Our expectation would be that perhaps.
By mid this year you're going to see that, which which could mean actually that the Chinese markets do end up being a little safer than some other markets around the world.
That's really interesting, Gary, because I think most people have fallen into the position that Beijing is now pretty comfortable with that slower pace of growth, that it is a new normal, that they're really prioritizing tech frontier tech as the next area of growth. Are you saying that they're going to get increasingly uncomfortable to go back to that old playbook of investment.
So if you look at the Chinese economy last year, it was.
Very dependent on exports.
Despite the fact that exports to the US fel by thirty percent, a lot of it was just diverted via Asian etc. That last year caused a boom and manufacturing investment, you know, as you said, it's the government's focusing on this, but that is now coming off. The credit impulse in China is also slowing. There's not a lot of local government special bondishments in the first half. So all of our indicators say that the economy is continuing to slow.
And therefore this new four and a half to five percent eup target that they announced last week, that's going to be pretty hard to achieve.
And when they see that by midyear.
If, as we'd expect, the economy slows in the first half, the government will have to do something. And also remember that, of course, ultimately a lot of Chinese exports go to the US with higher gasoline prices in the US with a fall in stocks, which will cause a negative wealth effect. US consumers are going to be under real pressure as well.
They're not going to be buying the sort of consumer goods that China has been selling them, so China will be under a lot of pressure I think to react to that with stimula at some point this year.
That was Gary Evans, head of Research Solutions at BCA Research, speaking with Bloomberg TV host Heidi Stroud Watts and April Hong, 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 bloom 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 prisoner and this is Bloomberg