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Welcome to the Daybreak Asia podcast. I'm Dog Krisner. US markets were rattled just a bit by a hint of trouble around the buildout of AI data centers. Oracle's longtime financing partner, Blue Owl Capital, will no longer contribute equity capital to a project in Michigan, and that news sent shares an Oracle down by more than five percent today, and it pushed the cost of insuring against default on Oracle's debt to the highest level since two thousand and nine.
And then after the bell, we heard from Micron Technology. This company is the largest US maker of computer memory chips. Micron reported a blowout quarter and offered even stronger guidance, and we got reaction from Jake Silverman, he is semiconductor analyst at Bloomberg Intelligence.
If you look at the gross margin guidance as well, which midpoint was sixty eight percent, or really just implies such incredible pricing strength that they have right now, and it really comes down to supply and demand, and for the most part, there's just been a real supply limitation. All of that for the most part, driven well for the most part driven by AI. Also, there's been strong demand for PCs smartphones.
That is Jake Silverman's semiconductor analyst at Bloomberg Intelligence. Micron shares were up by nearly seven percent in late US trading. Now, this company has been a key beneficiary of AI demand because it's high bandwidth memory. Those HBM very critical to the systems that develop artificial intelligence models. Micron has key competitors in both Samsung and s K Heinez, so keep your eye on those stocks during the South Korean session. To help us understand the forces working on markets in
the eight pack, let's bring in Paul Dobson. He is Bloomberg's executive editor for Asian Markets. Paul, thanks for being here. Let's start with the AI trade. To what degree do you expect the Micron news to impact markets in the APEC?
Yeah?
Hi, that Doug, so as you were saying, Micron may have some reader cross for the South Korean chip makers in particular, Potentially something positive there in terms of that read across, given how glowing those results are. But it feels like the start of the Asia trading session is going to be more responsive to the down move that
we saw in US technology companies in the NASDAG. Pretty hefty drop there, and that kind of nerve and anxiety that we're seeing related to Oracle, to the affordability of the data center build out and the appetite to continue to put money into it when the payoffs are uncertain and the risks arising is challenging the market view into year ends.
So as long as we're talking about AI, there was a chip maker in China that debuted yesterday, Metax Integrated Circuits Shunghai. I can't believe this stock was up nearly seven hundred percent on its first day of trading. What's happening here.
Yeah, pretty phenomenal. So it's the second Chinese chip related company in the last few weeks that had a pretty astonishing debut. We also saw that with more Threads, which was up around five hundred percent on its debut. So it seems that the domestic demand for these stocks is incredibly strong because they seeing the same thing that we saw in the US last year or the year before, where there's that gigantic enthusiasm for the growth potential of
these companies. In China, of course wants to develop its own stack away from the US system to use its own technology as much as it possibly can, and so that all goes particularly well for these kinds of companies. It also talks to the idea that, you know, was the IPO really priced at the right level of the start when you've got this much demand. We saw, you know, the allocation being very small for people that were trying to get a hold of the shares because there was
just so much demand for it. And by the way, there's five or six other chip makers coming down the line that are also getting ready to IPO. So should see more enthusiasm for this sector coming through from the Chinese mainland in the coming weeks as well.
So will those IPOs happen on the mainland in Shanghai or Shenzen as opposed to Hong Kong. Which market will they choose?
It seems like for startups and for first time listings, there's a renewed enthusiasm for listing on the mainland, so that's what we've seen with the past two But for more established companies, they want to get in on the Hong Kong action as well, and you know, have exposure to the international markets. So it seems like we'll see a mix and Hong Kong has been really extremely busy in terms of IPOs this year, so is the whole of the Asia region for that matter, India too, but
it's mostly dominated by those Chinese. These companies that already have listings on the main Dan now coming to Hong Kong to sort of broaden their appeal and ownership structures.
So, as you know, when we look at the high tech story in the US, particularly as it relates to artificial intelligence, big question mark over valuations, is that something that investors in the apecker are struggling with as well.
I think it depends what you look. So the more established companies Japan, South Korea and of course Taiwan TSMC are sort of bumbling along a little bit at the moment. They're not going higher, but they're not coming dramatically lower either, And it's that people are grappling with the same issues that they are in the US, and you know, it all becomes a little bit of a one one trade in some ways, with that little bit of differentiation depending on whether you'll open AI or Google or you know,
the different chains. I think one of the one of the bellwethers that people will look to is soft Bank in Japan, which is so heavily into the AI trade, it's sold off, it's in n video stock, so it could get more into some of the newer and more innovative companies that are still building up their sort of profile. But that company has had a pretty rocky stock performance over the last few weeks because of that confidence that's suddenly starting to drain a little bit.
Now.
It could all be year end stuff as well, right Doug. It doesn't have to necessarily be all about confidence. It could just be that it's been such a stead of year that people want to take a little bit of profit to flooden their books, to broaden their portfolios into year end. So I think that the start of next year and how we trade in January will be a real clear tell for what enthusiasm lest it is for the AI trade.
As long as we're talking about confidence, let's talk a little bit about the lack of it as it relates to the property market in China. And I was reading on Bloomberg the China Van Kuh, once China's largest home builder, is moving closer toward what could be one of China's largest debt restructurings. What do we know about what's happening currently.
So it's getting worse, basically, would be a one line answer to that question. So Venka was already, you know, seeking to delay payments on some bonds, and the bondholders weren't willing to accept the terms that it was offering a first glance, and so they were demanding more credit enhancements and more upfront payments on that one security, which
was for not a huge amount of money. Now, the latest that we're hearing is the VANKA isn't just seeking to delay payment on that one bond but other bonds, and also talking to its banks about decurring payments on some of its debts that are coming due with them as well. So it's getting you know, kind of you can feel the new kind of tightening in a way around the company. People starting to talk openly about the prospects for default and need to restructure the debt more holistically.
It's not quite at that point yet, but you know, unless it manages to find some extra money from somewhere or some sort of a stay of execution or the bondholders get in line, then that does seem to be the direction and that this company is headed in which is really significant actually because it's sort of quasi state owned.
It has at least some ownership from a state backed company, and that's the sort of that's what separates it from all of the other property developers that we saw needing to turn to restructuring like Evergrand and Country Garden over recent years.
Does it have an outsize effect when it comes to market psychology or because this company has been struggling for such a long period of time many many years now, is it pretty much accepted and kind of discounted by the market.
I think it depends where you're looking, because the problem is again that sort of what it talks to in terms of consumer confidence and confidence in the property sector. So each time another developer for into trouble, the people wanting to buy homes in China will think, oh boy, that we're not out of this yet. Prices are still going to fall. So where should I buy a new home yet? I'll wait until I can get it cheaper, And so in terms of confidence in the economy, I
think that it has a quite significant impact. In terms of impact on the broader market for sort of read across from Vanka itself, probably as you were saying, since we've known that the property sector has been in that down wood slump and hasn't really managed to put itself clear so far, I feel like perhaps not so much, but it will be interesting to keep an eye on other state owned property developers that have yet to default on debts, just to check. So far, they seem to
be weathering the storm reasonably well. But you know the in a bond market or a credit situation, often people turn their attention to the next one in the chain once a weeklink is found.
Paul, I want to get your take on this week's rate decision from the Bank of Japan. We'll do that next here on the Daybreak Asia podcast. Welcome back to the Daybreak Asia Podcast. I'm Doug Prisner. On Friday in Tokyo, the Bank of Japan is widely expected to raise its benchmark interest rate to the highest level in three decades. Let's bring back Paul Dobson. He is Bloomberg Executive Editor
for Asian Markets. So we know, Paul that a key focus will not be just on the idea of a rate hike, which I think right now the market is clearly expecting. I think the probability is well above ninety percent, But the focal point seems to be on how Governor Uweita will present the path forward. Is that a fair statement?
Yeah?
Absolutely, I think that the a pretty much consensus view among analysts and economists is that they're going to be hiking interest rates. They've been pretty clear in communication about that for this meeting. So it's that future path that will be of interest and the idea that they'll be communicating they can go beyond zero point seventy five percent
carry on hiking through next year. So what people will want to know is, well, what does that look like in terms of pace, and what does that look like in terms of endpoint? You know, how high can interest rates go and how quickly are we going to get there. The Bank of Japan has been incredibly slow and cautious about the way that it's been raising rates so far, and you can understand that, right They've been through twenty years and more of very low inflation. They don't want
to raise rates too quickly and snuff that out. But at the same time, they do want what they would say refer to as normalize interest rates. How you get them to levels more comparable with other economies around the world and lower and a lot higher than they are right now, so they will probably not want to rock the boat too much, but also make it clear that the path that we're on is still for higher interest rates over time.
Could you make a case that the move up and yields that we have seen across the curve in Japan the tightening has done some of the work that the BOJ intends to do. Is that plausible?
It is a bit at the same time that it hasn't really worked in terms of the currency space, because we've still seen the yen continue to weaken. So I don't think that you will characterize financial conditions as tight by any means in Japan. I think that what people are more worried about when you look at the BUN yield curve is whether the government is going to be able to continue to finance its debts, and how worried
people get about that. At the moment, we seem to have sort of stabilized in terms of longer term yields. We've got the tenure just below two percent. It hasn't breached above that level yet. We may well get there if the BOJ does give us a sense that it's
going to be on a more determined hiking cycle. I think that that will be really interesting because it matters not just for the Japanese government bond market, but for global markets as well, because remember, Japan's supposed to be the anchor for global rates, and if those yields get high enough, then they will start to tempt Japanese money into jgb's in you know, as an alternative to investing in say US treasuries or UK or French government bonds.
So with higher JGB yields, isn't that a positive for some of the big banks in Japan?
It is, well, it is some finance socks all around the world have had a really brilliant second half of the year, And yes, definitely a steeper yield curve and higher higher rates is good news for Japanese banks, you know, which which which are already pretty flushed with cash I think, and having a reasonable time of it. The question is can they get cash flowing through the economy more and continue to fuel growth, because what you don't want is
a situation where you still have reasonably high inflation. You have the central bank raising interest rates, but that kind of squishing the economy as well. So there is that balance, and I think that the you know, if you look at what the new leader Takahi has been saying, she's very hot on the need to kind of keep inflation under wraps from a fiscal points of view as well, and try to keep on stimulating the economy and keeping growth going at the same time.
So away from the financials and the banks in Japan, what is the outlook for the overall equity market? Would stronger yen necessarily be a negative for the n K Let's say.
What you want to think about is would a week
a yen be helpful? Probably not with much stronger yen, as you said, the beneficial maybe it can be in the sense that although Japan is still quite a big exporter, at the same time, if you have more of a sort of sense of confidence flowing back into the economy and reflective through a stronger exchange rate, that can be beneficial both for sort of confidence and growth and also for the outlook for the companies and so bring in more money, you know, and we've seen overseas investors have
been interested in Japanese stocks and bonds this year and putting money to work there. You know, the stocks are still quite close to record highs too. It doesn't take an awful lot to keep their momentum going.
So, Paul, before I let you go, what else is top of mind as you look at markets today?
It's very dynamic of the moment. I think that we've got a lot of interesting things going on in currencies right across Asia. We've got the koreem one where the authorities are really battling to try to support it at the moment, but it comes on too continuing pressure. Likewise, we've seen quite a lot of weakness in Taiwan's currency we recently and in some of the Southeast Asian nations, and on the flip side of that, we've seen quite a lot of undesired strength in some of the markets
as well. The type bart just keeps on going up and the authorities don't really want that. We had a cut by the Central Bank yesterday to see if they can control it a little bit more. And the Chinese un just continues to steadily strengthen day by day as well. So I think those are interesting things. Those tensions in the Chinese equity market, despite the excitement over the AI space,
also are pretty interesting. And then over in India. You know, the rupee as well has been under seedge recently, weakening to record lows on a mid daily basis. Yesterday we saw really strong and aggressive pushback from the central Bank to try to stop the market from getting too one sided in those bets. So lots of strength, tensions, and stresses, I think in the FX market is what I'm particularly interested in as we head into your ends.
All right, Paul, we'll leave it there. Thank you so much for being here. Paul Dobson, Bloomberg's Executive editor for Asian Markets, joining us 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 Chrisner, and this is Bloomberg