Bloomberg Audio Studios, podcasts, radio news.
Welcome to the Daybreak Asia podcast. I'm dog prisner. US equities advanced to record highs in the last session in what was described as a resurgence of dip buyers. Even so, there's still this robust debate over weather stocks have more room to run given elevated valuations, and on Wednesday, the Bank of England weighed in. The BOE said stretched valuations for AI companies, along with challenges related to the fed's independence,
have fueled the risk of a sharp market correction. Well. Nonetheless, in video rowse more than two percent. That was after CEO Jensen wongtold CNBC demand for those Blackwell chips is really really high. And at the same time, Cisco Systems said it's releasing a new chip and networking system meant to connect AI data centers across huns of miles. Later today in Taiwan, TSMC will be releasing sales figures for the latest quarter. For more on TSMC, let's bring in
Bloomberg's Debbie Wu, team leader for North Asia Tech. Debbie is in Taipei. Thank you for making time to chat with me so we get the sales figures today, Debbie. TSMC will report earnings next week. Help me understand where the focus will be.
I think investors and analyst they will be looking for comments on AI demand. Bloomberg News just pushed out a story trying to figure out whether all these recent investments mostly on led by Nvidia, whether it's for real, or whether it's really a big AI bubble after all. And I'm hoping and I do believe that comments for not TSMC management should be able to give investors some insight into how while the demand for air chips really is.
And in conjunction with that, I think investors analyst they will be keen to hear whether a TSMC is playing even more capital expenditure this year in the coming year, although they are unlikely to offer guidance on spending next year yet. But who knows.
What about the competition from chip makers in China? I know that Huawei has been making a lot of inroads, particularly in terms of being able to compete with some of the advanced chips from Nvidia. Is there any concern here that what's happening on the mainland would represent any type of threat to TSMC?
Right No, our sense is not really yet China is still up at least a few years behind. That's our sense. And then based on our our latest reporting on Huawei's our latest AI chip, it is actually made with a due or what we called an unpackaged chip from TSMC. So this is the o stockpile or some of the recent TSMC chips that Huawei obtained via show companies. And yeah, so that kind of shows that Huawei is still need foreign technology to make it them a chips happen.
So one of the things that's very interesting, I'm imagining that TSMC is still abiding by some of the export controls that the US and its partners like the Netherlands and Japan have placed on some of the advanced chip making equipment. Has there been any concern that perhaps that relationship is beginning to break down at all, or is TSMC still playing by the same rules.
It is definitely not in TSMC's interest not to abide by the global export control rules, so the company has
been abiding by that. But at the same time, last year we did report that Huawei was able to obtain some of tsmcs advanced chips through intermediaries, but TSMC has cut off from these are show companys, since in TSMC's case, it is abiding via US and Taiwansa rules and to make sure that none of its advanced chips is still going to China, and let's particularly for Huawei for some of the consumer electronics stuff, TSMC can still provide the
advanced chips as long as the rules allowed lot. So I think we should understand that the US has not totally put a blanket ban on all of TSMC's advanced chips. Mostly the restriction is targeted at AIS SAR raiders.
We know that TSMC is a major customer of ASML, the Dutch company that manufactures chip making equipment. You mentioned earlier about the fact that we don't really know whether or not TSMC is still going to reveal a level of CAPAC spending. Do you think it's likely the TSMC is going to be needing a lot more of this advanced chip making equipment from a company like ASML in order to meet demand for these high end AI chips.
So there's a little bit of nuances here. So of course analyst investors, they will treat TSMC suspending level, say, leading indicator on how the global demand for AI chips is. But at the same time, TSMC is also thinking about its profit margins. And then sml does over the most cutting edge machines, but at the same time it's some most SMLS premium offering, what we call the high na
V machines. It costs about three hundred million dollars or euros per unit, so that's quite a bit pricey, and TSMC executives have previously said that Dala and SMLS latest machines a bit expensive. So what the TSMC may do is not purchasing less machines quite as aggressively as before. They can still rely on an older generation of SMO machines to make them. There are most advanced chips, so it really depends on how TSMC is thinking about the expending.
It's a profit margins and so sometimes we can we have seen them in the past earnings that when TSMC delivers really are performing of results. Sometimes when TSMC delivers better than expected results, SMLS results can be a little bit diverging from TSMC's performance. And the reason for lot is not necessarily a global demand is not good, but it's more like TSMC is being more prudent about its profitability and then maybe the speed that it is buying
the most cutting edge machines. So yes, SMOs are earnings is coming up. So I think it will be interesting to see what the two companies say about the demand for the most cutting edge chips.
Before I let you go, Debbie, give me a sense of how TSMC fits into the economy of Taiwan.
So TSMC is Taiwan's largest company by market cap, and it is sort of leading this comprehensive chip making ecosystem in Taiwan. Hundreds of companies in Taiwan are they exist to support TSMC and other smaller chip makers in Taiwan. So Taiwan's colony is really heavily dependent on the chip exports and this ecosystem. They really are sort of have TSMC sitting the center.
Debbie will leave it there. Thank you so very much. Bloomberg's Wi Wu, who is team leader for North Asia Tech, joining us on the Daybreak Asia podcast. Welcome back to the Daybreak Asia Podcast. I'm Doug Chrisner. There certainly has been a lot of talk in the US around a bubble in tech stocks, especially those exposed to the ai trade. Even the Bank of England is worried about stretched valuations and the risk of a sharp correction in US equities
in the States. We heard from Michael Sheldon, he is senior portfolio manager at Washington Trust Advisors.
Evaluation in the market is historically on the high side, but if you take out the MAC seven stocks, for example, things are a little more even so. For example, the S and P five hundred is currently trading at about twenty two point eight times, but the average stock in the market is trading at about seventeen point three times.
Michael Sheldon there from Washing and Trust Advisors for a closer look. I'm joined now by Charles Lieberman. He is co founder and chief investment officer at Advisor's Capital Management. Chuck, thank you so much for making time. Where do you come down in this debate about valuations in US equities.
I think they're just trying to discourage the government, the US government from intervening or trying to continue to push pale in a particular direction. The fact of the matter is, if that is independent, they behave that way. They do what they think is right for the most part, and I think that's going to continue to be the case with regard to valuation. One weakness that the Bank of England has is that its companies are not among the
mag seven. Those companies are really almost unique in Vidia for trillion dollar market cap but growing it well in excess of fifty percent a year, which is just astonishing. So it deserves to trade at a very high multiple. The right multiple is hard to discern, and two different people can look at it. One can say it's expensive and another can say it's cheap. But it really depends on how quickly and video continues to grow over the next three to five years, and obviously we don't know that.
So record today for the S and P, for the Nasdaq comp and the Nasdaq one hundred and gold rising to another record. We're trading about four thousand dollars an ounce, a big milestone. There's been a three year bull run in gold. Some skeptics have kind of been looking at this and shrugging, Are you one of them?
Well, I think gold is being driven by a couple of things, one of which is, oddly enough, the behavior of China. China had a huge amount of money invested in it's foreign exchange reserves in US treasuries, and after the US sort of attack or expropriated Russias for an exchange reserves. China does not want to be in the same position if something if there were a conflict between China and the United States, and there could be over Taiwan.
So China has been systematically reducing its holdings of US treasuries and it's got to go somewhere else. The question is where else can it go? There aren't too many options. Gold is one of the few, and so they've been consistently buying gold, and that presents a very strong tailwind for gold prices. And then, of course the environment in general is very positive for financial assets and that helps gold as well.
It's great that you bring up that point because in terms of financial assets, we had the minutes from the last FED meeting. Today they show a willingness to lower rates further this year. And back in September after the last meeting, we learned that generally speaking, the FED expects two more quarter point cuts by the end of the year. The other thing that becomes very clear and looking at these minutes, many at the FED are very cautious about
where inflation may be headed. And let's talk about the possibility that there is a little bit of asset inflation happening right now. We talked about the AI trade, we talked about what the Bank of England had to say. We also talked just a moment ago about what's going on with gold. Is there the possibility that we are seeing evidence of inflation reflected in asset prices.
That is definitely a possibility. But also consider that if interest rates remain relatively low, and I think of them as low, with the possibility that the FED could cut a bit more. And then you throw in the fact that the US economy continues to grow at a pretty good clip, Corporate earnings are doing very well. We should start getting the next quarters round of earnings reports beginning next week, and I think that's going to get and
be good news for the market. So when you put all of that together, there is every reason for stock prices to perform quite well. And so we remain positive on the outlook for the US markets.
So we know that the economic data from the government has been essentially non existent given the shutdown. How are you going about reading what's been happening in the macro without having access to what the government provides.
Well, there are some numbers that you get outside of the government, there are various private sources that produce numbers, so that's available, and then we will get a lot of insight from listening to corporate leaders that when they do their earnings releases and talk about what they're seeing in their businesses. You sort of get a steady flow of that anyway through interviews people like you talking to
the leaders of various companies. So you just have to pay more attention to that kind of information.
When you look at what the government had to say today in terms of the budget deficit one point eight trillion for fiscal twenty twenty five, little changed from twenty four, even though the Trump administration has been touting this big surge in tariff revenues. Is the fact that we're at one point eight trillion dollars now in the budget deficit of a concern to you.
Absolutely. The budget deficit is running at a pace that any outside any objective observer would say is unsupportable and cannot be continued. The problem with my statement is that there's no time associated with it. The market at some point will gag on the volume of treasury debt that has to be issued to finance the government, but that gagging may not occur in twenty twenty five. In fact, it's unlikely to occur in twenty five. I would say
it's unlikely in twenty six, twenty seven. Somewhere out there the market will be unable to absorb all of that debt. But it's not on the visible horizon as of yet, so it's better to address the problem early. You know, there's this old expression, A stitch in time saves nine. Much better to address it now than five or ten years from now, but eventually it's got to be addressed.
I want to turn our attention quickly to what's going on in Japan. The country's on the verge of electing its first female prime minister, so now a Takeiichi may be able to kind of move a lot of policy forward in terms of trying to stimulate the economy at a time when the Bank of Japan is trying to deal with an inflation rate that's been above target now for over three years, and before the election of Takeiichi is head of the LDP, the expectation was that the
boj would be raising interest rates this month. Is that still your expectation.
Yeah, that's likely, but obviously less likely there's no doubt that she would like to stimulate the Japanese economy. In one area that she may be spending more money on is defense. So there's some reasons to expect some more spending. But the BOJ has its own areas of responsibility and focusing on inflation is clearly one of them. And then there are other issues that Japan has. The population is aging, the labor force is shrinking. Those are also constraints, and it's a lot to juggle.
Before I let you go, Chuck, can you give me a sense of where you're finding opportunity in markets these days?
Well, Golden, back to the US market, if you exclude the mag seven or the top ten, the average p multiple in the market is much lower. It's at least three percentage points lower. And then the whole industries, where very good companies traded multiples of ten to twelve. The banking sector is a perfect example, and I'm very positive there because the administration is likely to be a lot
more favorable or to permit more bank mergers. We saw a big one announced less than a week ago, so I think more of that is coming, and I really like the banking sector. The energy sector is another area that I think is relatively cheap, especially the pipelines, where you're taking less commodity risk and just basing the earnings outlook on volumes. That's going to continue to be positive.
The healthcare sector has gotten quite cheap. It's been a laggard in terms of its performance, so I think there are a lot of opportunities there. There's an old joke you can find a lot if you look.
Okay, we'll leave it there, Chuck, It's always a pleasure. Thanks so much. Charles Lieberman, co founder and chief investment office at Advisors Capital Management, 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 Risner, and this is Bloomberg