Markets Weigh Fresh US Strikes on Iran — The Asia Trade 7/13/2026

[00:00:00] Sherry-Anne: This is Asia Trade. I'm Sherry-Anne in Tokyo. The top stories this hour. Oil prices jumping at the open as the U.S. launches missile strikes on Iran for the fourth time in a week. Both sides issuing conflicting statements over the status of the Strait of Hormuz. The AI trading focus after SK Hynix's ADR's jump following the biggest U.S. listing by a foreign company. Investors also bracing for a pivotal earnings season. And the death of U.S. Senator Lindsey Graham sets up a succession drama less than four months before the midterm elections. [00:00:51] Avril Hong: I'm Avril Hong in Singapore. Here's the setup for trading across Asia, of course. This fourth U.S. strike on Iran in a matter of a week is causing investors to rethink how much geopolitical risk premium is appropriate at this stage. We did see stock futures out of the U.S. falling after a solid close on Friday, where, of course, we saw Meta and NVIDIA outperforming. We'll see how the memory trade fares today after SK Hynix soared on its first day at school in the U.S. We also have the yen reversing weaker after Friday's rally prompted by Katayama's comments, and that spurred some hopes of retirement funds being invested domestically. Take a look as well at where Brent is exactly, jumping back towards the AT handle, along with what we're seeing in U.S. crude futures, or WTI, that's putting pressure on the front-end treasuries and with gold as well. And all this coming in a week, where Kevin Walsh will testify in Congress. That will be his first time as Fed Chair, Sherry. [00:01:50] Sherry-Anne: Yeah, let's talk a little bit about our top story right now, because the U.S. has launched fresh missile attacks against Iran in the past few hours, with Tehran responding with drone and missile fire on American allies, including Kuwait, Jordan, and Qatar. The two sides have also issued conflicting claims over whether the Strait of Hormuz remains open to shipping. Bloomberg editor Michael Heath is following the latest developments for us. What do you know at this point, Mike? [00:02:18] Michael Heath: Yes, Sherry. I mean, as you outlined, we sort of return to this situation of tit-for-tat, whereby the U.S. is trying to sort of suppress fire along the coast, where Iran's been, the Iranian Revolutionary Guard, has been attacking commercial vessels going through the Strait. The U.S. has obviously hit them with missiles and strikes, and then Iran retaliating, targeting U.S. bases in Gulf states. And as you mentioned, Oman and Kuwait and Jordan as well. So we're sort of back in that situation of lower-level conflict, and Iran has said now that the Straits are closed. The U.S. has said that the Straits are not closed. And there does seem to be shipping still moving through that southern corridor as far away from Iran as possible, near the Omani coast. There was a report just recently that as many as 20 ships got through, some with their transponders off, some escorted by the U.S. So it's sort of still a murky picture. I mean, you know, we'd been recently, even when this hostility had been going on, there'd been talk that talks would continue. But we do seem to have gotten to a higher level now. [00:03:31] Avril Hong: Mike, you talked about that Axios report about the 20 ships that managed to do so with U.S. coordination. There were also apparently a number of ships that managed to cross the Straits without U.S. coordination. Talk to us about the role. Help us understand how important the U.S. coordination has been for traffic to the Straits. [00:03:50] Michael Heath: Look, I mean, it's significant because, I mean, on one hand, ships can slip through. You know, if they turn off their transporters, they sort of go dark through this area. But the U.S. obviously having naval escorts just gives you that extra element of protection in terms of being, you know, if you come under missile strike or drone attack. I mean, there was a case of a ship off the coast of Oman that was hit and the crew had to abandon ship. So that's sort of the worst case scenario. But that southern corridor through the, you know, next to Oman's coast is, it does seem to still be open. And International Maritime Organization was saying that, you know, with severe risk, it still is possible to get through there. So the U.S. support there is significant. And I guess it differs us a little bit from when we were at full scale conflict where nothing was getting through. And it perhaps emboldens the U.S. a little bit more that they can keep getting oil supplies and energy through there. They might not see quite the severe reaction in the in the energy markets as we first saw in the, you know, the conflict that began in late February. [00:04:57] Avril Hong: Mike, great to have you as always. Thanks for getting us up to speed. And also as we speak, the U.K., France, Germany, they've also been condemning these Iranian attacks on ships and Hormuz and urging a return, a resumption of the ceasefire. For more on what this means for markets, let's bring in Bloomberg MLive strategist Mark Cranfield. So, Mark, we've been seeing that reaction in oil prices, though there has been a dampener effect each time these strikes occur. Talk to us about how this affects the disinflation narrative. [00:05:26] Speaker 4: It certainly is very big for the disinflation. You can see it in the reaction of the Treasury futures and the way that Treasury yields have been gradually climbing over the past few weeks is that bond markets especially seem to be the most sensitive to the changes in the oil prices. Plus, they're almost taking on the life of their own because they are expecting the Federal Reserve to raise interest rates before the end of the year. So, you've got a couple of themes running there. And, of course, the flip side is the U.S. dollar. It's getting stronger as well. It's another good morning so far for the currency so far. In terms of the oil prices, as was being mentioned, the oil futures Brent in particular around the $80 mark, that seems to be the threshold at which the market will really take notice. It's failed a couple of times in recent weeks. It's gone up there, come back down again. We're a couple of dollars away this morning. So, it really depends on – and if you look at positioning in the market, it's relatively light at the moment. So, we could push through that $80 line if we get continued attacks here and uncertainty about where the whole moves is going. So, that's really what all asset markets will be watching that very closely. If we get a close this week above $80, it could be very negative right across the board for markets. [00:06:33] Avril Hong: So, that could also affect the memory trade, even after SK Hynix's debut? [00:06:37] Speaker 4: Well, the interesting thing there, if you think back to March when the U.S.-Iran war first started, tech was seen as being almost as a hedge against what's going on in the rest of the asset world because people were seeing that slightly higher interest rates, slightly higher oil is not that material to what's happening in terms of earnings for the tech picture. So, their AI story is somehow removed from that. So, again, the Hynix could be coming at just the right time from that point of view. They're listing their ADR. There's renewed interest in tech stocks in Asia and the memory story, building these storage facilities. That's all coming back at a time where maybe we're going to see disconnect in other asset classes, but people reverting back to the stories which they enjoyed so much in the March-April period. It may well end up being a good thing for Hynix. [00:07:25] Avril Hong: What about this week when we're watching for what Kevin Walsh says on the Hill? I mean, there's been so much repricing going on around the comments he's given as well. [00:07:36] Speaker 4: He's trying not to give things away. We know very well that he doesn't like forward guidance. He's going to have trouble keeping to that path. The Senate is usually pretty diligent. They want answers to their questions and they will be badgering him. Where do you see inflation going? How long until you raise interest rates? All of those things will be thrown at him and he will probably find it pretty tough not to answer those questions. So we are likely to understand a lot more about his thinking this week than we have previously. So, yes, a very, very important session in terms of U.S. markets, particularly for people that expect a Federal Reserve interest rate hike this year. We may well get more details about when the timing could be for such a move. [00:08:16] Avril Hong: So what does this mean for the yen? Because on Friday we did see a bit of a rally, a mini one, right, following Katayama's comments. [00:08:23] Speaker 4: It really tells you how significant this whole story around the pension funds in Japan is. It's almost their last roll of the dice. If they actually are serious about wanting to change the direction of the yen, it's clear Bank of Japan policy is not helping them. All the times that they intervene with various comments about the yen being weak, that's not helping either. But if they can persuade the Japanese, the major pension fund, to change its assets coming back to Japan, that would in turn probably trigger similar moves in other pension funds. We're talking about a couple of trillion dollars worth of assets which are held outside Japan. If we start to see that flow back into the country on a regular basis, you have a sustained buying of yen. FX traders who so far have been fairly immune to it, they will stand up and notice. When you tell them there's a consistent bid for the currency from a major source, they will start to change their behavior. It shows just how important that is. Without it, the yen stays a very weak currency. [00:09:19] Avril Hong: Mark, always great to chat. Thank you. We wait for potentially the return of Japanese funds. Bloomberg Amlight Strategist Mark Cranfield. Sherry? [00:09:29] Sherry-Anne: Return now to the United States. South Carolina Senator Lindsey Graham died unexpectedly over the weekend at the age of 71. It sets up a succession drama in the state less than four months before the midterm elections. For more, let's go to Washington and Bloomberg senior editor Wendy Benjaminson. Wendy, first of all, start us off with the legacy of Senator Graham. Of course, he was an icon in Congress with more than two decades of service. [00:09:56] Speaker 5: Yes. In fact, he was either a member of the House of Representatives or a senator for the last 30 years. He has always he is he is basically three segments to his legacy. He was a leader of the Judiciary Committee and was responsible for getting through nominations to the Supreme Court. He was a leader of the House of Representatives and the House of Representatives and the House of Representatives and the House of Representatives. He was on the budget committee where he created sort of the modern reconciliation process where the Senate doesn't need 60 votes. It only needs a simple majority to pass a president's spending plan. And then lately he has been he has used his hawkish foreign policy positions to push the isolationist MAGA movement into a more interventionist stance around the world, particularly in Ukraine. [00:10:56] Sherry-Anne: Tell us a little bit more about that, because, of course, he was a big advocate for the U.S. staying in the war in Ukraine and supporting Ukraine as well as Iran. [00:11:08] Speaker 5: Exactly. Well, on Ukraine, he had just been in Ukraine on Friday before he died. And the preliminary finding for his cause of death was basically a heart attack. There's a long technical term for it. But that's the preliminary finding, I should should say. But he was in Ukraine Friday. It was his 10th visit to see Volodymyr Zelensky, the Ukrainian president, and try to assure him that the U.S. was behind him. Remember, Trump promised that he would end the war between Ukraine and Russia on day one of his presidency. So a year and a half into his presidency, with the war still raging, Lindsey Graham is committed to find it was committed to finding a way to peace. And we have reporting from my colleague Catherine Lucy today, who has said that European leaders and Ukraine are very worried about the absence that Graham causes in their effort, because Graham was unique in that he had Trump's ear. He was also able to work productively with Senate Democrats, which is increasingly rare in this Congress in this era. And he had the trust of European officials and Zelensky. So they are going to be feeling that vacuum very soon now. [00:12:28] Sherry-Anne: And, Wendy, when it comes to vacuums, I mean, we have seen Senator Mitch McConnell also being absent because of a long illness. With these changes in the Republican Party, how are we set up for the midterms? [00:12:42] Speaker 5: Well, Graham will certainly have to be replaced and the governor is going to name an interim successor who will then stand for a primary election to get the Republican nomination that Graham held. And then there will be an election in November. I mean, Senator Graham was up for reelection, so his replacement will now run against the Democratic nominee, who is a pediatrician from South Carolina. On the Mitch McConnell front, there was already – he had already announced his retirement. His term is up in January of 2027. So he will – there is a race for his seat, and it's not entirely clear, although more likely, that a Republican will hold on to that seat. So neither of these seats are really likely to change the balance of power, but it's a very unusual year, and we'll have to see how that turns out. [00:13:39] Sherry-Anne: Bloomberg Senior Editor Wendy Benjaminson there joining us from D.C. Still to come, key China data, India's inflation, and the potential Bank of Korea rate hike are all in focus for investors this week. HSBC's chief Asia economist joins us with his outlook next. This is Bloomberg. Here's a look at some of the events that we're watching this week. We get U.S. inflation numbers on Tuesday, potentially giving fresh clues on the Fed's next move, as Chairman Kevin Walsh makes his first appearance before Congress. A deluge of data on the way from China with trade figures on Tuesday and GDP and activity data on Wednesday. Second quarter growth may have slipped below the government's target range due to weak domestic demand. Every economist surveyed by Bloomberg thinks South Korea's central bank will raise interest rates on Thursday by 25 basis points. Accelerating inflation and growth supported by AI chip demand could make this the start of a new tightening cycle. And also on the chip theme, NVIDIA CEO Jensen Huang is expected to visit Japan later in the week. Let's discuss all of this. Joining us now is HSBC's chief Asia economist and co-head of Asia investment research, Frederick Newman. Fred, really good to have you in Tokyo. [00:15:10] Speaker 6: Well, wonderful to be in Tokyo, yes, with you in the studio. [00:15:13] Sherry-Anne: Yeah, with so much happening this week as well. What are you focused on that right now? [00:15:18] Speaker 6: So, look, two things. China data and Mr. Walsh is going to speak and we get U.S. inflation data and both of them are going to set the scene in two largest economies. Are we going to get more Fed hikes? Yes. When? And is China domestically ever going to catch a bit of momentum? Those are the two big questions we're looking at this week. [00:15:36] Sherry-Anne: And now that we're seeing the trend in U.S. oil perhaps also changing because of the Iran war, I mean, we're thinking a lot. Now we have tensions again. What are the implications for the U.S. and perhaps where we saw more resilient China in the past? [00:15:48] Speaker 6: Look, we're probably going to get inflation numbers this week out of the U.S. that show a bit of a pullback in inflation was gas prices were down. But of course, it's a bit of yesterday's story because oil has started to track up again. If that's sustained, then that means maybe the June CPI dip is just that, just a dip. And so we might see price pressures come back. But really watch it, Mr. Walsh, what Mr. Walsh has to say in front of Congress this week, because he might give away a little bit how worried he really is about underlying inflation, because it's not just about gas prices, but core services have started to increase. And that's maybe a more persistent price pressure coming through in the U.S. [00:16:26] Sherry-Anne: So we've heard a little bit from him. We're expecting to hear more from him in Congress. What are some of the signals that we're getting from him, especially at a time when we may not be getting a lot of signals from this Fed at least? [00:16:38] Speaker 6: Well, yeah, he said he wants to reduce the signal or the noise at least. So, yeah, we have less to go on perhaps with this Fed chair than with previous Fed chairs, potentially. But remember, when he came in, the first meeting, he came out with a press conference and said, look, I'm really going to focus on inflation. And the market took this as being hawkish. And so now that we have another opportunity to get a bit more nuance on how he thinks about monetary policy, but not just monetary policy, even financial stability issues, which remember, we have a very frothy kind of asset environment in the U.S. And is the Fed starting to be concerned about asset valuations, for example? That plays into the conversation as well this week. [00:17:20] Sherry-Anne: What are you seeing in terms of what the systemic risk could be from the financial sector? Because now perhaps we're seeing this tech sell-off, sell-off, sort of dip buying. There's a lot of momentum and volatility right now. [00:17:32] Speaker 6: There's a lot of volatility, of course. And that's always a bit worrying because you think, well, investors reassessing things fundamentally. The big question, though, from financial stability perspective is how much leverage is there? And there are signs, I think, that leverage is coming back in. If we look at how much borrowing that goes into the AI hardware sector, for example, the hyperscaler starting to borrow. Is there a private credit element that's feeding into this? So we could see potentially the Fed starting to say, well, look, guys, at the margin, you know, we're starting to see an increase in leverage. We need to monitor this, and that's why these remarks this week will be interesting. [00:18:12] Sherry-Anne: A lot of the hardware, of course, is coming from Northeast Asia right now. Let's talk a little bit about Japan because a lot of people like the Japanese markets play, especially equities that perhaps are broader than South Korea. Let's not get into the market so far with an economist. But when it comes to the Japanese economy, what is happening right now? Because we're seeing this big upside in investor sentiment, positivity, and yet the yen continues to weaken. [00:18:38] Speaker 6: Yeah, the yen is weaker, and that, you know, has something to do with high energy prices. It has to do with the fact that interest rates are possibly a little bit too low relative to where the economy is. [00:18:49] Sherry-Anne: Do you think the BOJ is behind the curve? [00:18:51] Speaker 6: A little bit, yeah. They're just hiked interest rates, of course, and they probably have to nudge rates higher as well. But look, the economy is actually doing quite well, and prices are going up, and we know consumers are telling us they're worried about inflation, and even businesses are worried about inflation. And so all of that suggests rising asset prices, not just equity, but real estate as well, economy that's doing well, inflation that's slightly, you know, underlying inflation, which is quite high. Well, that's an environment for the central bank to raise rates, and until they do, the yen will stay under pressure. [00:19:23] Sherry-Anne: A lot of debate right now whether or not that is political with the Takahashi administration really wanting to see looser policy. But finally, we're getting some indications that perhaps the government are not necessarily going to target the weakness in the yen just through intervention. Finance Minister Katayama talking about pension funds should invest or just investment funds should invest in Japan. Will that have implications for the global debt markets, for all of those assets that are outside of the country, this repatriation trade that a lot of people have feared? [00:19:52] Speaker 6: That's right. The repatriation trade, at some point it will come, and it will be a big story in global markets, because Japanese have been lenders to the world, have kept interest rates low, and if they bring money back, that means higher interest rates elsewhere, and money will just come back and strengthen the yen. But when will this happen is a big question. Just announcing the pension fund will do that might not be enough to trigger that. We need the private sector to start to move funds, and they'll probably only do that when interest rates are higher. They're still waiting for higher returns on money. So not just yet, not just yet for that big repatriation trade. [00:20:27] Sherry-Anne: Well, we might get higher interest rates in South Korea this week. [00:20:30] Speaker 6: Does that make sense? Yeah, because we are seeing some economies doing quite well. So Japan's hiking interest rates. We just saw the RBNZ in New Zealand raise interest rates. And BOK this week is clearly on the docket as well. Why? Because the entire economy is being lifted up by the AI hardware boom. Semiconductor prices are up. Exports are shooting up. And then you get this big fiscal windfall, which at some point they will turn around and spin as well. And so, and you get high equity prices. So that is all a recipe for ultimately tightening policy. [00:21:01] Sherry-Anne: Then what is happening with the Korean won? [00:21:04] Speaker 6: Well, that is very technical because, of course, if equity prices rise and foreigners have to sell because they have too much. Well, they have too much of equities. They hold too much of equity prices rise. They need to sell them. And so that depresses the yen, the Korean won. Fundamentally, it's a currency that should be appreciating if you look just at the trade surplus and so forth. But, of course, the dynamics around equity flows is so distortive right now that it's very hard to call the yen, to call the Korean won in the near future. [00:21:36] Sherry-Anne: How risky is a situation that so much depends in that economy on the semiconductor trade right now? [00:21:42] Speaker 6: A lot of it is semiconductors. And it's not just that the exports are going up, but it's also that the equity market is going up because of that. And that provides wealth to the economy. There's a wealth effect. But it's also important fiscally because the tax revenues from the surging in semiconductor sales is huge. [00:22:01] Sherry-Anne: Can they build a buffer enough, though, if you see this boom and bust cycle that we've seen before in the semiconductor world, that that could actually help in the future? [00:22:10] Speaker 6: Ideally, yes. You want to build a buffer. You want to build a buffer. Is there a temptation to spend it as quickly as you can? There always is. That's human nature. But build a buffer. Yes, that would help in times when it's, you know, less less sunshiny and more rainy. [00:22:24] Sherry-Anne: Yeah. The debate ongoing right now, whether or not this boom and bust cycle is different and we're in this mega cycle. But Fred Newman, good to have you in Tokyo. He's a chief Asia economist and co-head of global investment research for Asia at HSBC. This is Bloomberg. [00:22:42] Avril Hong: The latest from the corporate front, Apple is taking OpenAI to court, accusing the company of stealing trade secrets. The lawsuit names former Apple engineer Chang Liu, alleging he downloaded confidential files and continued accessing Apple systems after joining OpenAI. Apple is seeking damages and wants OpenAI to destroy any proprietary materials and redesign future products that include its technology. OpenAI has denied the allegations. A Bloomberg scoop has revealed that SoftBank and PayPay are considering buying a stake worth several hundred billion yen in 7NI. Meanwhile, Bloomberg has also learned that the operator of 7-11 stores is considering issuing new shares to be acquired by SoftBank and PayPay. It signals a willingness by 7NI to surrender some control over its future in return for the benefits of being allied with key strategic partners. More ahead on the Asia trade. This is Bloomberg. Let's take another look at what the geopolitical risk premium is looking like on a day where, as we've learned, the fourth round of strikes by the U.S. on Iran in a week. And taking a look at what you're seeing in Brent, as some of our colleagues have been highlighting earlier, Sherry, it's really about whether we see any sustained elevated levels at around the 80 mark. Of course, against this backdrop, we are seeing stock treasury futures, especially on the front end. They're coming under pressure, along with gold prices, by the way. And this is also coming on from as we look ahead to how SK Hynix's fares in South Korea following its 13% rally out of the U.S., Sherry. [00:24:47] Sherry-Anne: It's interesting, right, because when it comes to the global markets, we're seeing this two narratives, the macro being driven by the Iran war, oil prices. And, of course, you have the AI and the dispersion you're seeing in this tech rally and sometimes even sell off that we're seeing. SK Hynix, as you mentioned, has been the big one, right? I mean, this is a global AI trade sort of story. It priced its ADRs at 3% premium to sole shares. I had a very strong debut. But what's really interesting to me is how much demand, institutional demand, really there is for SK Hynix, which is, if you think about it, a pure AI infrastructure play. So you're thinking about this boom and bust cycle in the semiconductor space. So that is a big risk, not only for SK Hynix, of course, but also for the broader South Korean economy. We're expecting SK Hynix ADR flows to give a little bit of a boost to the Korean one, which has been at historic lows. But take a listen to the SK Group chairman, Che Taewon, who has more ambitious plans to invest money in the U.S. He's betting that demand for chips will continue to grow. Speaking to us after the landmark U.S. listing, Che also discussed the potential for additional ADR rounds. [00:26:06] Speaker 7: We'll try to expand our ADR size and also better. That actually requires a better return. So once we have a better return, then there is more demand. So first thing is that we have to keep the stock price stable. And, well, hopefully in the long run, then, well, we can have the upside potentials. And I see that, well, at this moment, so this is the AI era. So this AI era is actually spiked at a lot of demand for the memory. So this is the kind of time for us. [00:26:44] Speaker 8: A reason to do the ADRs is to raise capital, in part to boost capacity. Your industry peers, Micron, had said very recently they have line of sight to supply improving 2028, the other side of 2027, in part because of the capacity that is coming online. What does SK Hynix see? [00:27:08] Speaker 7: Well, we didn't talk to our customers. So we just announced that, yeah, a few months ago, we're going to double up our capacity within five years. So that means that we've been doing the business more than, what, 25 years. And then, well, with the next five years, we're going to double up our whole capacity. It's, well, people see that that's unrealistic and probably the oversupply and people worry about. But my customers said that that's not enough. We need it more. So I double up, it's not, it's not enough, actually. Well, they want us that we're close up in, whether, yeah, five times, six times, so the more is the better. Because that, well, demand will be exponentially grow in the future. [00:28:02] Speaker 8: Based on that customer demand, what do they see then? If they are the crystal ball, the lens to the future, they believe that their level of demand will stay where it is 2029, 2030. How long does supply tightness respond to that? [00:28:20] Speaker 7: Well, nobody expected, I don't know, well, what's going to happen in next years. But I'm saying that, well, I have some confidence then the demand will be grow. And our supply capacity is never going to catch up. So I don't know how long, but, well, if, I think it's going to be until that, well, people, our society, human society has set, well, some settlement with AGI. Then, well, I guess that the world does kind of normalize all the cycles. But anyhow, that, until then, well, we need that, a lot of memories. [00:29:04] Speaker 8: What about SK's commitments? Where are you going to prioritize your investment, you know, domestically versus here in America? Not just with the proceeds from this U.S. share sale, but generally with your balance sheet. [00:29:17] Speaker 7: Generally, outside of the Hynix and the world, most important matter is AI data center business. So we announced it almost at the $1 trillion investment in the next 10 years and to set up with AI data centers. My target is about 15 gigawatt in Korea, but I guess at the 5 gigawatt outside of Korea. So I'm looking for that, whatever area, including U.S. side, and, yeah, if there is a good chance. And the problem is that the main thing is the power. So, yeah, power and the price of the electric city is a, well, that's a very important matter with these AI data centers. But once we build that AI data centers, and then, well, it can actually synergy between the memory chip and this infrastructure matter. That's what I'm doing in the future. [00:30:15] Speaker 8: Chairman Che, it's a historic day. Right. Thank you. Literally, making history with the ADRs, but the focus on America, SK's relationship with America. What is your relationship like with the Trump administration, and how are you working with them to bring more of SK Hynix to this country? [00:30:37] Speaker 7: Well, not only just SK, Hynix, and we've been already, SK already investing at more than $35 billion in U.S. side. And not many people have noticed those things, but we do have bio business. We do have the battery business, and Hynix just announced that the new fab in the Indiana side, and also SK Telecom made a lot of investment in the AI startups. So, we already invested in the 35, but I see that, well, my plan is that the much bigger number, so. [00:31:13] Speaker 8: Bigger than 35 million. [00:31:14] Speaker 7: Yeah, well, much, much, much bigger than 35, so I'm planning to, and this is one milestone, and we access that the U.S. capital market, and we have a lot of options, and also we have that responsibility to keeping that share price. And, well, one good thing is that we made the right investment, and so we keep that at our own value. [00:31:44] Avril Hong: SK Group Chairman Che Taewon speaking with Bloomberg Tech co-anchor at Ludlow. And, of course, we're tracking how things are faring in next trade on a day where maybe the handover carries through from SK Hynix's U.S. listing, although you're looking at a bit of softness on next trade. Let's get a preview of the market open in Korea with Bloomberg and my strategist David Savage. So, David, after that successful U.S. trading debut for SK Hynix, how much are we expecting that momentum to carry through into today? [00:32:18] Speaker 9: Hi, Avril. Yeah, you know, it's this optimism, any sort of renewed optimism is coming at the right time because the KOSPI is now, the KOSPI index in South Korea has declined for three consecutive weeks. It's declined in five of the last six weeks. And so definitely this momentum trade that's really been anchored by the memory trade has really come under pressure in the last couple of weeks. So, you know, I think the problem this morning, of course, is we've seen, you know, an uptick again in geopolitical risk, and that's pushed up oil prices. We've also seen the dollar better bid. And what we saw later last week was we saw the dollar kind of cool off, and that allowed, you know, we saw the KOSPI and Asian equities start to move higher into the end of last week. So with the pickup in the dollar again today, that might pressure risk sentiment coming into this week. [00:33:12] Avril Hong: What are you seeing in valuations, though? Do they look cheap, I mean, these Korean stocks, and might that bring buyers back into the market? [00:33:22] Speaker 9: Yeah, by forward earnings, you know, based on earnings projections, these stocks look incredibly cheap. And they've looked very cheap for a while. But just given the sell-off we've seen in the last couple of weeks, you know, the valuations on the KOSPI index, for instance, is near, you know, near record lows. I don't think valuations is going to be the trigger that will bring, you know, buyers back into the market. We have seen, for instance, foreign investor start to creep back into the South Korean market. This has been a market that has had heavy selling from overseas investors. Part of that is because just the weight and how quickly they've gone up has forced a lot of, you know, active managers, for instance, to bring down that weight. But we have seen that selling start to stabilize. So I think valuations provide, you know, a decent support. I think on other measures, you know, they're perhaps not, you know, as cheap rather than on earnings, forward earnings. But it does provide a nice cushion. But ultimately, you know, these companies have to follow through on those earnings. And we're going to get that first test, you know, this week. We have some bank earnings. And then, of course, we have TSMC later this week. So that will provide a real test to whether those forward earnings are realistic. [00:34:42] Avril Hong: David, what about the dynamic on the ADRs? Are you expecting them to trade at the premium? What are we seeing there? [00:34:52] Speaker 9: Yeah, you know, it's theoretically they should not trade at a premium. The local shares should trade at a premium because, you know, ADRs don't come with political rights, with voting rights. And voting rights should have value. But, you know, typically we do see that, you know, particularly for a stock like SK Hynix, U.S. investors eager to get exposure to this trade, this memory trade to, you know, SK Hynix, you know, tend to bid up and we see a premium. And, you know, there could be a premium because of just, you know, currency and because of, you know, just again, just exposure differences. But I do think that this premium could start to, you know, come off a little bit just because there's a lot for retail investors. There's a lot of different ways to get exposure to SK Hynix. There's more and more concentrated ETF exposure, for instance. So perhaps, you know, the ADRs don't play the same role they do in the past. But, you know, I think it should be, we should expect that there'll be a premium for some time. [00:35:55] Avril Hong: Really interesting. David, good to have you. Thank you so much, Bloomberg and Life's Challenger's David Savage. We have more ahead on the Asia trade. This is Bloomberg. [00:36:26] Sherry-Anne: We're 17 minutes away from the market opens in Japan. Take a look at how we're setting up because we're seeing a little bit of weakness in the Japanese yen. Again, topping 162 per dollar. This is a really interesting trade because we have seen the spike on the Friday session, including when it came to JGBs. We have heard from the government urging more domestic investments. Finance Minister Katayama or Jun pension funds to increase investments in Japanese assets at a time when we have hedge funds most bearish on the yen since 2007. Let's discuss all of this and its implications for the stock markets as well. Hiromi Ishihara, head of equity investment at Amundi Japan joins me here in the Tokyo studio. Hiromi, good to have you back. So what does this mean in terms of the markets here in Tokyo? [00:37:07] Speaker 10: So if that happens, it's definitely the big move for Japan equity. It helps, you know, to improve the liquidity, but also it's certainly, you know, the diverse of Japanese yen, because if that happens, certainly the GPRF plan to sell the falling assets and then back to Japan asset. But it's still early stage, I think, you know, we still don't know the full picture of the plan and then that's including Japan equity or JGB. [00:37:35] Sherry-Anne: So, yeah, we're still trying to figure out if this is just rhetoric or we're actually going to see a review process and those changes. Right. If if in case this actually goes through in the long term, what are the implications for the equity space when it could also boost the Japanese yen? [00:37:53] Speaker 10: Yeah, so it's definitely the long term perspective. It's a big positive news for, you know, the Japanese asset overall. And then I think it's, you know, because of the size of the asset that they have, but also the long term for rising that they invest in, it really pushed up the Japan equity space. It's more stable in terms of volatility, of course, you know, because they're going to be sticky. So definitely the positive in long run. [00:38:21] Sherry-Anne: At a time when we've already seen the positivity in the Japanese equity space, is there more leeway to go from here after we've rallied already? What, like 30 percent in the first half or so? Right. [00:38:30] Speaker 10: So the rally that we have seen year to day basis has been very strong and dynamic. So we should expect to see some short term volatility. But I think, you know, still the Japan equity itself has a very, you know, unique opportunity, especially for non-Japanese investors. I mean, it brings a great diversification, for example, you know, single stock level risk, you know, relatively to U.S. or other Asian market, the Japan equity has really, you know, low. So it's great diversification. But also, you know, we still believe that a corporate governance story is, you know, intact. So I believe that, you know, we still are the way to go. [00:39:13] Sherry-Anne: We have seen, of course, the AI trade also give a huge rally to this market, especially in the equipment sector, semiconductor materials as well. Is that where you see the rally or is it more broad based? [00:39:25] Speaker 10: I would say it's more broader based because obviously what we have seen, the rally was driven by the AI, you know, as you mentioned, the semi equipment, etc. But because we think that air itself is, you know, still the structural, you know, theme that we can play. But then we are migrating the stage from, you know, it's like a tip to more like infrastructure application basis, especially more adaptation phase, which, you know, gives us more of the universe than before. And then certainly Japan, you know, corporates are really, you know, the beneficiary of that. [00:40:03] Sherry-Anne: Also, the Japanese economy feeling the effects of inflation now households when it comes to weak Japanese yen. Does that give you pause for consumer discretionary parts of the market? [00:40:15] Speaker 10: Yes. So, well, overall, I remain constructive in Japan equity, but I prefer to play it more like industrial side in terms of domestic oriented, rather than consumption based, as you mentioned, that the inflation, you know, weak yen and the placing power of the corporate, especially in consumer discretionary space, a little bit challenging and then it's going to stay, you know, the consumer outlook, I'm still a little bit weak on the perspective. So, yeah, I remain a little bit cautious on that sector. [00:40:45] Sherry-Anne: When it comes to companies in that sector, how many of them have also outside overseas exposure? Because we've seen those exporters do so well because of a cheap yen. [00:40:55] Speaker 10: So it's certainly there are winners within the sector. But, you know, the rest of the sector, which are more skewed to domestic, which is going to be really more competitive in terms of placing, etc. So I think it's going to be a challenging business outlook for them. Do we care about oil prices right now? Indeed, but because, you know, it fluctuates a lot and then also it's getting lower. And so I think, you know, what we expect that toward the end of the year, around 70, between 70 and 80, well, I mean, it should have limited impact. [00:41:29] Sherry-Anne: What are you seeing in terms of the earnings season? We're thickened right now in the middle of it. [00:41:38] Speaker 10: So it's the latest earnings outlook. I was a little bit surprised that it was very positive and very solid. [00:41:45] Sherry-Anne: So and especially despite given the fact that it includes the Iran war sort of a period, right? [00:41:51] Speaker 10: Exactly. So we still don't know the exact impact on the supply chain disruption or oil price hike, you know, etc. That could still come. I believe so. So we haven't seen that. But it's still, you know, the corporate earnings forecast have been very solid. And then, you know, looking at the earnings division actually going upward, you know, constantly. So I think it's the earnings fundamental perspective. Japan is also very strong right now. [00:42:17] Sherry-Anne: In your notes, you say the biggest risk right now could be a disorderly move in JGBs or the yen. What could trigger it? [00:42:25] Speaker 10: So I think that would definitely trigger the risk sentiment of the investors. You know, it's the more cautious stance on Japan, especially for non-Japanese investors. [00:42:33] Sherry-Anne: Where could that trigger come from? What could cause disorderly moves? [00:42:37] Speaker 10: That could be the government announcement because we're going to see that Honebuto is coming in a couple of weeks, but it might get delayed. [00:42:44] Sherry-Anne: And then the policies for the Japanese government. [00:42:47] Speaker 10: So if, you know, the government is more skewed to, you know, aggressive spending, rather than fiscal discipline, that definitely hurts the credibility of the investors. Yeah. [00:42:57] Sherry-Anne: We'll be waiting for those fiscal plans from the government. Hiromi Ishihara, really good to have you with us. She's the head of equity investment at Amundi, Japan. And, of course, you can catch Japan ahead every Monday at 8:40 a.m. If you're watching in Tokyo, we break down the markets, the Japanese economy for you. Subscribers can watch it live on TVGo. This is Bloomberg. [00:43:41] Avril Hong: Some headlines in the following. Yannick Sinner has defeated Alexander Zverev in four sets to win his second straight Wimbledon title. Sinner's German opponent appeared bothered by a knee issue following a slip on a key point in the third set. The Italian proving he still has the physical toughness to win a major after a debilitating second-round meltdown at the French Open amid a Paris heatwave. Meantime, heavy rain is forecast through Tuesday for parts of eastern and northeastern China after Typhoon Bawi hit over the weekend. China's National Meteorological Center says it's weakened to a severe tropical storm after making landfall in Zhejiang province. Forecasters warn the storm could disrupt shipping, offshore operations and aquaculture along the east coast. China has renewed its rejection of an arbitration ruling on the South China Sea and criticized a joint statement by the U.S. and its allies marking the 10th anniversary of the decision. Beijing's foreign ministry repeated that the ruling was illegal and carried no binding force. The U.S., the Philippines and Japan were among 14 countries which released a statement on Saturday to mark the anniversary. Let's take a look at how geopolitics is also playing out in markets today after the U.S. struck Iran. Yet again, we are on the cusp perhaps of markets here really reconsidering the extent in which the geopolitical risk premium needs to be built back in. As some of our analysts have been highlighting, we need to watch the 80 handle on Brent. We're sitting away from that for the moment. But that's not to say that the reaction is not already being seen in stock and bond futures. You're seeing a bit of pressure as well on the front end two years there after the, you know, challenging week that they had. But also looking ahead to this week where Kevin Wash will speak and make his congressional testimony. Aside from that, we also have a bit of data coming out of the U.S. at a time where maybe the underlying inflation, not just where energy prices are, might be something for Fed and speakers to mull over. Sherry. [00:45:54] Sherry-Anne: Yeah, I mean, we have CPI, we have PPI, we have retail sales out of the U.S. We'll be watching those, especially when it comes to that safe haven demand that we're seeing returning to the U.S. dollar. I mean, speculators now the longest on the dollar since 2015. Well, what does that mean for the Asian markets? It's just more pressure when it comes to currencies. The Japanese yen still sitting very close to that 162 level against the U.S. dollar. We're talking about 40-year lows against the greenback. What's been interesting, though, in the last few days on Friday when we had the government trying to address capital outflows rather than just try to defend the currency like it's been doing in the past through intervention. So finance minister Katayama urging pension funds to increase investments in Japanese assets. So this will be another narrative that we'll be watching as, of course, we're watching the A.I. trade as well. And the cost of futures right now pointing to some downside. But this, of course, after incredible gains that have actually made this market very, very cheap relative to earnings potential. This is Bloomberg. [00:46:55] Speaker ?: We're counting down to Asia's major market opens as we're watching the conflict escalating between the U.S. and Iran. [00:47:11] Sherry-Anne: Oil prices rising towards that $80 a barrel level. As, of course, April, we continue to focus on the A.I. trade. [00:47:31] Avril Hong: Yeah, following on from what SK Hynix did on its first day of school in the U.S., watching to see whether there are these cross currents in a day where maybe the geopolitics also matter a bit more for the memory trade. [00:47:46] Sherry-Anne: Yeah, especially when it comes to U.S. dollar, because we have seen those safe haven flows return to the greenback. What does that mean for the other side of the trade in Asian currencies? Geopolitics will be center stage. But take a look at how Japan is coming online, because we had seen a little bit of fluctuation in the equity space as we had the Japanese yen just spike in the previous session. We're talking about that 162 level against the U.S. dollar again renewing its weakness. But on Friday, when we had the government calling for more Japanese investments, we actually had JGBs, the Japanese yen, and the Nikkei also gain ground. This, of course, as the authorities here in Japan are trying to perhaps focus more on capital outflows rather than a direct intervention in the markets, which, of course, in the past, it hasn't really helped, right? We're talking about 70 billion-plus dollars of Japanese authorities spending trying to support the currency, which hasn't really done much. We're at 40-year lows against the greenback right now. We're seeing a little bit of divergence between the Nikkei and the topics. Tech-heavy Nikkei down three-tenths of one percent. Do watch out for JGBs. As I mentioned, we have a little bit more of a boost. We will be watching the AI trade within the tech sector here in Japan as well. South Korea, of course, is where we're watching the AI trade very closely as well, especially at a time when we're getting those export numbers for the first 10 days of this month. We're talking about 53.9 percent gain year-on-year. But what was really interesting to me on those numbers was the chip exports part of it, because we're talking about 193 percent gains from last year. Not surprising in this market, right? Very heavily concentrated on those semiconductor exports. We're seeing a little bit of downside for the cost, perhaps a little bit more strength past that 1500 level for the Korean won. Remember, we have seen those ADR flows from SK Hynix supporting the Korean won slightly. So we're seeing a little bit more strength. But, yes, it's about SK Hynix, right? The biggest U.S. listing by a foreign company. It debuted with a 3 percent premium to its sole shares. There's always a little bit of concern. Are we on this boom and bust cycle in semiconductors again? Well, SK Hynix Chairman, Group Chairman Chet Taewon doesn't necessarily seem to think so. Take a listen. [00:49:57] Speaker 7: I have some confidence that the demand will grow. And our supply capacity is never going to catch up. It's going to be until that our society, human society, has that there was some settlement with AGI. Then, well, I guess that the world, that's a kind of normalized at all the cycles. But anyhow, that until then, well, we need that a lot of memories. [00:50:27] Avril Hong: As we're in Rupaul Agarwal, Asia quantitative strategist at Bernstein. Rupaul, good to see you. So we have SK Hynix a bit on the back foot. Maybe, you know, part of this notorious volatility we see in the memory trade. Where do you see momentum? Do you think that's going to continue in the second half? [00:50:48] Speaker 11: Hi, good morning. So I think from our perspective, you know, we've been calling to trim momentum exposure since almost a month now. We are taking that call because momentum as a trade has done phenomenally well in the first half. Largely driven by earnings, which is where actually the comfort has been, you know, there. But now we are at a point where valuations are at record levels. Earnings expectations are actually at levels we've never seen before going back to 1999. And it is a very crowded trade. Does that mean that, you know, we end up, you know, reducing all AI exposure? Not necessarily. But the call here is, you know, that we start looking for opportunities in pockets, in sectors and markets which have been ignored because of everybody chasing largely the same kind of names. [00:51:39] Avril Hong: So what are these opportunities? [00:51:44] Speaker 11: So from our perspective, we think, you know, looking at say some of the value side of the market makes a lot more sense right now. One could potentially look for some such opportunities like in China internet, you know, very beaten down, fallen to record low levels in terms of valuations, in terms of earnings expectations. Similar on IT services, for example, in India, but that's more on the tech front. If I look at more broadly, I would say selectively, you know, we are finding more opportunities, you know, across India. You know, some on the consumer front, exo-photos, there seems to be some recovery on the earnings front. Materials in India, again, looks reasonably well positioned, you know, where earnings cycle is still ongoing. And again, similarly on China, I think industrial materials still looks well positioned. [00:52:38] Sherry-Anne: India has been very much exposed to the oil trade, much less so when it comes to China. So when we don't know where the price of oil is going from here with Iran tensions escalating, how do you position and what are you watching then? [00:52:53] Speaker 11: Absolutely right. So and hence, you know, we've it's been very uncomfortable to make a call to say, you know, trim Taiwan, Korea and add more India or China from a positioning standpoint. But I think the point here is that there are interesting opportunities. There are a lot of under-owned pockets within both these markets, which have been under pressure. You're like right from a geopolitical standpoint. I think, you know, India is in a much more vulnerable situation. And hence, you know, some parts of India have fallen extremely below trough levels. For example, India financials, again, is one sector which quality wise is phenomenal. But we are now looking at trough valuations. You know, we're back to basically corporate levels. So there are these pockets, I would say, which are quite ignored right now by investors. And I think this is an interesting time, you know, to start exploring some of these underappreciated part of the market. [00:53:49] Sherry-Anne: To a point that you continue to come back to this crowded AI trade. When does it become a systemic risk when you have so much concentration in markets like Taiwan, South Korea, 70 to 80 percent that really depend heavily on technology accounts? And what could trigger an unwind here? [00:54:11] Speaker 11: I think there could be a few triggers. One, I think the biggest in my view would be when we start seeing clear inflections in terms of the earnings expectations. So as I mentioned before, if you look at Korea tech, Taiwan tech, if you look at broader Korean and Taiwan markets, you know, the earnings expectations are now at record levels. However, we've not seen a clear peak, which means that the consensus has remained bullish and they keep on upgrading their numbers. Once we start seeing, you know, clear inflection there, I think that's going to be one key catalyst. The other could, of course, come from more external factors. You know, for example, the war escalating or, you know, the geopolitics again becoming a big, bigger driver because the other interesting aspect is that because of this extreme chasing of similar kind of themes or sectors or markets, what we are seeing is that the equity risk premium, for example, across Taiwan, Korea have fallen to record low levels. So some of these are at unsustainable level. It takes a little bit of time for, you know, for us to see that transition happening. And hence, we believe that this is the right time to start trimming and taking some profit on the trade, not going complete short yet, but start exploring, you know, the underappreciated part of the market. [00:55:32] Avril Hong: RuPaul, you alluded to some of this earlier, maybe Chinese names look a bit attractive, but how crowded do you see the AI hardware trade there? I mean, we've also been seeing eight shares trying to mount a bit of a comeback, but I think there are lingering concerns when it comes to perhaps the IPO boom and what that means for, you know, liquidity or whether the market can absorb everything that's coming online. [00:55:57] Speaker 11: I agree. I think some of the concerns in China this year has been largely because, you know, the IPO has been sucking out the liquidity from secondary market. Within the AI trade specifically, we have, of course, you know, a lot of interest on the China's Semi names. And we are seeing an extreme divergence within China tech as well. That's one of the reasons we think that, you know, it makes sense to, you know, look at some of the, you know, under owned and unloved part of the market, which is the internet and, you know, your entertainment names, for example, which have fallen to not just rough valuations, but also, you know, extreme bearish sentiment that we've seen in a really long period of time. So we're talking about, you know, below 2022, you know, kind of bearish levels. So it's, it is created a lot more, I would say, dispersion. Are we at a point where fundamentally China as a whole is looking, you know, very positive? Not yet. I think earnings has been the big drag across the market. Large caps are still looking, you know, okay. But on an average, a stock in China is still seeing increased pace of downgrade. So we really need earnings to start coming back for China to make, you know, a broad-based recovery. Rupal, we'll leave it there for [00:57:10] Avril Hong: today. Great to chat. Thank you so much. Rupal Agarwal. It's Asia quantitative strategist at Bernstein. Here's another look at how markets are faring, particularly when Brent is climbing back towards the AT handle. Of course, we are also watching out for how this plays out in treasuries on the day where you look at cash trading. You're about two basis points higher on the US two year. And in terms of what you're seeing in the stock markets in Australia, the energy [00:57:37] Sherry-Anne: index is outperforming, Sherry. And take a look at a few stocks that we're watching here in Japan, because Bloomberg now having this scoop and learning that perhaps SoftBank Corp, the telecom company and PayPay are considering buying a stake when it comes to 7NI. And remember, 7NI has faced a lot of challenges in the past, especially since the 2024 acquisition attempt by Kush Tard. Since then, we continue to follow the stock, especially since now SoftBank and PayPay may be attempting to try to fend off those companies that have payment alliances by increasing its cooperation and collaboration with 7NI. We're now hearing from sources talking to Bloomberg saying that 7NI could be issuing new shares to be acquired by SoftBank and 7NI. We'll get you more details when we get them. But do follow these stocks in today's trading session. This is Bloomberg. SK Hynix down for a second session in Seoul trading. This after it completed the largest ever U.S. listing by a foreign company, raising $26.5 billion. It prices ADRs at a 3% premium to Seoul shares. With a strong debut, the ADR really rallying that 13% from its offer price. We have heard from SK Group Chairman Che Taewon saying that he has an ambitious plan to invest more money in the U.S. as he bets that demand for chips will continue to grow. In an interview with Bloomberg after SK Hynix's landmark U.S. listing, Che also discussed the potential for additional ADR rounds. [00:59:39] Speaker 7: We have to expand our ideal size and also battery that actually requires a better return. So once we have the better return, then there is more demand. So first thing is that we have to keep the stock price stable. And well, hopefully in the long run that we can have that upside potentials. And I see that the world this moment. So this is the AI era. So this AI era, actually spiked at a lot of demand for the memory. So this is kind of time for us. [01:00:16] Speaker 8: The reason to do the ADRs is to raise capital in part to boost capacity. Your industry peers, Micron, had said very recently they had line of sight to supply improving 2028, the other side of 2027, in part because of the capacity that is coming online. What does SK Hynix see? [01:00:39] Speaker 7: Well, we didn't talk to our customers. So we just announced that a few months ago. So we're going to double up our capacity. Yes. Within five years. So that means that what we've been doing that the business is more than about 25 years. And then, well, with the next five years, we're going to double up our whole capacity. Well, people see that that's unrealistic and probably the oversupply and people worry about. But my customers say that that's not enough. We need it more. So I double up is not it's not enough, actually. Well, they want us that we're closing up in whether, you know, five times, six times. So the more is the better. Because that, well, demand will be exponentially grow in the future. [01:01:34] Speaker 8: Based on that customer demand, what do they see then? If they are the crystal ball, the lens to the future, they believe that their level of demand will stay where it is 2029, 2030. How long does supply tightness respond to that? Well, nobody expected. [01:01:56] Speaker 7: I don't know. Well, what's going to happen in next years. But I'm saying that, well, I have some confidence in the world that demand will be grow. And our supply capacity never going to catch up. So I don't know how long, but, well, if I think it's going to be until that people, our society, human society has said there was some settlement to the AGI. Then, well, I guess that the world that's a kind of normalised at the older, uh, the cycles. But anyhow, that, uh, until then, well, we, we need that a lot of memories. [01:02:39] Avril Hong: SK Group Chairman Che Taewon speaking with Bloomberg Tech co-anchor at Ludlow. And of course, SK Heinex has delivered the largest public listing by a foreign company in U.S. market history. Now everyone seems to want to shake this money tree. Bloomberg opinion columnist Shuli Ren joins us to discuss whether the chipmaker can satisfy competing demands from various stakeholders. Shuli, let's start with the Korean government. Walk us through some of these competing demands. [01:03:07] Speaker 12: So now there is worry that the SK Heinex is doubling its production capacity within the next five years, subject to political pressure. The SK Heinex has agreed to build a new semiconductor cluster in the southwestern region of South Korea, far away from the from the sole manufacturing hub. And that's some kind of concern. Also, you see that in the U.S., Commerce Secretary Howard Leibnick was pushing SK Heinex to invest a lot more than the thirty five billion dollars it has already agreed to put in. On the other side of the scale, you know, boosting capacity like this is not necessarily good for shareholders. Right. We have seen that some Korean retail investors, they have already been losing money because they bought into the leveraged ETFs in late May. And the U.S. investors are even later to the game so that the worry is that the SK Heinex will be pulled away by political demands on the one side and then thereby penalizing shareholders. [01:04:14] Avril Hong: Can these concerns be in a way offset by the memory boon because the CEO has been saying that, you know, the memory chip shortage may persist beyond 2030. Do you think this forecast is reasonable? [01:04:28] Speaker 12: I think it's kind of on the too bullish side. If we look at Micron's earnings, Micron actually has the most updated earnings all the way to the May quarter. Right. They actually guided only 20 percent increase in shipments in the volume. So far, what we are seeing mostly from all the outside profits is is because of the memory unit price increase, not from the volume increase. So when you have so much supply coming into market, actually customers, they love it. Right. They can they that the table will turn and then they will have the bargaining chip. So I think this whole demand lasting until 2030 thing is a little bit too optimistic. [01:05:08] Avril Hong: Surely. Thank you so much. Bloomberg Opinion columnist surely run. We have more head on the Asia trade. This is Bloomberg. The top global headlines we're following. South Carolina Senator Lindsey Graham died unexpectedly over the weekend at the age of 71. He sets up a succession drama in the state less than four months before the midterm elections. Meanwhile, Senator Mitch McConnell has given an update on his medical condition after public and political pressure. In a statement, he says he suffered a fall in June and contracted pneumonia that required hospital treatment. China has renewed its rejection of an arbitration ruling on the South China Sea and criticized a joint statement by the U.S. and its allies marking the 10th anniversary of the decision. Beijing's foreign ministry repeated that the ruling was illegal and carried no binding force. The U.S., Philippines and Japan were among 14 countries which released a statement on Saturday to mark the anniversary. [01:06:25] Sherry-Anne: And take a look at how risk assets are trading as we continue to digest the latest when it comes to the escalation of conflict between the U.S. and Iran. Of course, we have seen the big fluctuations when it comes to oil prices. We saw a drop of about 30 percent in the second quarter just to gain ground with rent down headed towards that $80 a barrel level. This, of course, as we've heard about the unraveling of the ceasefire with a fourth strike from the U.S. in one week against Iran. We're also following U.S. futures, which are now under pressure about a tenth of one percent. Iran seems to be driving the macro narrative. We're talking about oil, bonds, currencies, gold as well. AI seems to be driving the dispersion within equities. We are now seeing correlations within U.S. equities falling to their lowest level in more than 10 years. Barclays saying now that according to their data, cross asset correlations now are at about the 93rd percentile, which historically, of course, it's one of the lowest in more than 10 years. We continue to watch the Treasury space as well, as we're really setting up for the latest eco data out of the U.S. as well, with CPI, not to mention Chair Kevin Walsh now having his House and Senate testimony later in the week. But really what's driving the narrative, especially around inflation, is the U.S. launching fresh missile attacks against Iran in the past few hours, with Tehran responding with drones and missile fire on American allies, including Kuwait and Jordan and Qatar. Let's discuss all of this with John Herskovitz, who joins me here in the Tokyo studio. Here's our Bloomberg East Asia government editor. What's different this time around with the expansion of these strikes? Yeah, we saw some of the heaviest [01:08:09] Speaker 13: strikes from the U.S. over the weekend. Saturday, the U.S. said it hit about 140 targets. Iran is hitting more basic U.S. bases in the region as well in response. So things are getting a bit more intensified in that area. But the U.S. has tried to target this wave of looking at the freedom of navigation and Iran's ability to impede it. That has been the theme through these four days. We don't know what exactly has been attacked yet. U.S. Central Command hasn't put out its notice as to detect this wave has been completed and what has been hit. But this is what they've been focused on [01:08:48] Sherry-Anne: through the week. When it comes to the freedom of navigation in Hormuz, conflicting reports coming [01:08:54] Speaker 13: from both sides. Yeah, exactly. We have Iran saying that they've shut the strait. The U.S. saying that the strait is open. But the basics really haven't changed. Iran wants shipping to go near its coast. It doesn't like to see shipping going near Oman, which sometimes gets the assistance of the U.S. So for Iran, the long term consideration is keeping control of Hormuz. By keeping shipping close to itself, it can better it has better access to it. When it gets closer to Oman, it's more difficult for it to do. [01:09:26] Sherry-Anne: So that hasn't changed. Yeah, which is why we're now seeing this again in crude prices. But this is interesting, right? This is a new thing. They now have precedent, which they didn't have before the U.S. struck Iran. What are some of the other sticking points that are still on the table? And are they [01:09:45] Speaker 13: being negotiated on right now? Yeah. And we had some reports last week that the technical talks were still continuing. We really don't know what that means. But it's really difficult for like the nuclear agreement during the Obama administration. It took nearly two years to get that nuclear accord. It had more than a hundred pages of detailed appendices as to how to carry it out. And they're trying to do this type of nuclear deal in a 60 day time frame with a lot of other things. Navigation in Hormuz, sanctions relief, Iran's ability to sell oil. That waiver is now off the table. So a lot going on. But right now, the focus is on getting ships through Hormuz, if that can happen again. What are we seeing in terms of navigation right now? We're seeing OCS reported about 20 have passed through. It's just a trickle. And it's you have transponders that are turned off when ships go through. So it takes a little while to figure out exactly what's going on. We're not anywhere near where we were before the war, about 130 transits a day. I think we got up to about half that, more than half of that before the latest round of conflict. [01:10:57] Sherry-Anne: Which was interesting, right? I mean, we were worrying about a supply glut before, then a shortage, then again a glut. And I think right now we're back to trying to figure out what is happening in the waterway. In the meantime, how are Gulf neighbors reacting to all of this? Yeah, [01:11:12] Speaker 13: it's just the worry of the escalation as happened in the early stages of the war. This is the big risk. If it goes beyond what we're seeing now, beyond the U.S. bases, if the Gulf neighbors see their infrastructure attacked, their economic livelihoods attacked, this is of concern to them. So far, Iran has constrained it to the bases. But the risks are there. We saw it early on. And it can be huge for the neighbors. And they want to see a lid being placed on this. Qatar has been working, trying to get the talks back on track. Yeah, we'll watch Pakistan as well. I mean, [01:11:47] Sherry-Anne: the mediators when it comes to these ongoing negotiations. John Herskovitz, our Bloomberg East Asia government editor, as we continue to watch The Price of Oil. This is Bloomberg. Take a look at how markets are trading at the moment. The Nikkei now gaining half a percent. We had seen already gains for the Japanese market, especially after we saw the government calling out for more domestic investments. That was a Friday session where we had a little bit of upside for the Japanese yen. We are seeing some downside when it comes to the cost be down, four tenths of one percent. This, of course, as we had seen the SK listing in the U.S., the biggest by a foreign company. We're seeing a little bit of a tech sell off. The ASX 200 not doing much at the moment, April. [01:12:52] Avril Hong: Yep. Sherry, let's also talk about the bad weather, right? Because heavy rain is forecast through Tuesday for parts of eastern, northeastern China. And that's after Typhoon Bawi hit over the weekend. China's National Meteorological Center says it's weakened to a severe tropical storm after making landfall in Zhejiang province. Let's reign our China correspondent, Min Min Lo. So, Min Min, from this typhoon, I mean, some of these pictures, images out of social media are really startling. Talk to us about how bad the damage has been so far. Yes, this has been a giant typhoon, [01:13:25] Speaker 14: right? At one point as wide as 600 over miles, which is as big as the size of France. But it made two landfalls in Zhejiang province. The government was prepared. They had evacuated some 1.7 million people. And you can see the images here of trees falling down on social media. There was there were waves that there was as high as a few meters slamming into people's windows. And there was a key river in southern Zhejiang that overflowed into farmlands. We had seen cars as well as first floor. There you go. The waves really slamming into those windows there. The first floor of villages are also being inundated as villages escape to higher floors. This typhoon is expected to weaken today as it travels to other parts of China to Anhui province today, but still expected to bring some heavy rainfalls. It had skirted the south of Japan. It passed through Taiwan, bringing heavy strong winds and heavy rainfall to Taiwan as well. And this after it already left some 18 people dead in the Philippines as it intensified those monsoon rains in the Philippines as it left Manila heading towards north of the Philippines. [01:14:41] Avril Hong: Maybe that's the second typhoon in a month in China. To what extent is it worsening the floods that we're seeing in other parts of China recently? [01:14:50] Speaker 14: Yeah, well meteorologists have been warning that it would worsen the floods and it could bring rainfall far beyond the path of typhoon Bavi itself just because of the scale and the power of this typhoon as it interacts with the physical terrain. It could potentially bring rainfall to other parts of China. And this, as you said, after we saw those heavy floods in Guangxi province after another typhoon hit China earlier this month that led to the breach of a major reservoir. 39 people have already died. And the Chinese government has allocated some 100 million yuan for typhoon recovery both in Zhejiang as well as in Guangxi province. So 200 million yuan in total for recovery efforts to rebuild build roads, hospitals and the like. So it's been a month of a lot of natural disasters for China as well as well as some manmade one because we also had this shoe factory that burst into fire killing 28 people as well. President Xi urging for relevant departments to really learn from the lessons there and of course investing a lot to work on those typhoon recovery efforts in the mid and eastern China. [01:16:01] Sherry-Anne: Bloomberg China correspondent may mean though there as we'll also be watching very closely TSMC because it had postponed its monthly sales announcement to today. So do watch out for that in the market. Take a look at how futures are setting up as Tyx futures now pointing to some upside. We were watching the offshore yuan very closely as well a two week high the PBOC fixing the yuan below that 680 for the first time since 2023 perhaps sending the signal that they have a higher tolerance for currency strength. When it comes to eco data this week we'll also be watching trade data out of China GDP numbers as well. When it comes to the stock markets in China investors now rotating beyond a handful of AI winners in emerging markets. This comes as traders look ahead to that economic data that I mentioned especially the GDP report for any signs of improvement to weak domestic demand. Let's bring in our Asia equities reporter Winnie Su. Winnie so just a handful of winners right whether it's markets wise in northeast Asia or just company wise as well. [01:17:06] Speaker 15: Yeah exactly we are seeing this rotation really continuing because when it comes to Chinese stocks we are really seeing how the China hardware names have been really outperforming lately and also some of these H shares the internet names also turning more positive. So the question is if this broadening out of the AI trade or so-called the hardware the tech trade will continue or not. So we'll be closely watching out for on one hand Chinese internet names last week a pretty positive sentiment when it comes to Alibaba's upcoming earnings stable profit for profitability and that has really boosted the stocks and we're seeing these HS tech and HSI outperforming the broader Asia stocks so far this month and when it comes to the hardware space also seeing the small cap gauge star 50 really outperforming in the past month as well and that's coming as we are seeing more optimism ahead of CXMT launching its IPO this week. So Changxin technology, it's China's memory giant and the IPO is expected to be mainland China's biggest IPO so far this year. So lots of excitement around that space as well. And what about for today's trading session because I [01:18:23] Sherry-Anne: just mentioned the offshore yuan and perhaps really authorities tolerating a stronger yuan. Is there anything specific to watch in today's session which starts in less than an hour? [01:18:32] Speaker 15: Yeah, so as you mentioned the currency space is what we will be closely watching out for but just in terms of if that rotation trade is going to continue or not and when it comes to the greater China market we will also be closely watching out for TSMC. You just mentioned how we will have that June sales data expected today and that's coming after it got postponed due to that typhoon. But also this week we will have TSMC's earnings as well so those will likely give us a sense of where this AI trade is going to go forward and how strong the demand is. So kind of this whole when we actually took a look at the sales note from JP Morgan this morning they did mention they are closely watching out for that trade when it comes to Chinese internet names because of the cheap valuation they're seeing right now as well as how positioning remaining quite light especially when you contrast that to what we're seeing in the South Korean market these days. [01:19:32] Sherry-Anne: Yeah, let's talk a little bit about the South Korean market that cost me under a little bit of pressure but what's really interesting is despite the fact that we're talking about this skyrocketing benchmark market valuations are still low because of these earnings expectations. What's happening? [01:19:47] Speaker 15: Yeah, exactly. You just mentioned the valuation really comes down to how the earnings expectations are very strong and that is also showing in what we heard from SK Hynix when they had their ADR listing on Friday. But overall we are actually seeing investors turning a bit more cautious when it comes to Korean stocks. Today it's under a bit of pressure also because of oil. But when you look at how ADR is traded on Friday. Yes, it was up 13% at the close but actually around an intraday low. And we are also seeing sentiment turning a little bit when it comes to retail investors. On Friday, in fact, we saw a net selling from retail investors. So that also made things look a little bit more cautious. And today what we're also closely watching out for is that expected meeting between the SEC and also these asset managers. So we're hearing from hedge funds that they are a bit cautious in terms of how further SEC is going to tighten rules when it comes to the leverage products. [01:20:54] Sherry-Anne: Bloomberg Asia Equities reporter Winnie Su with the latest on what to expect from the mainland markets. Take a look now at how Muji is trading. We're talking about Yohin Keikaku, which is the operator of the retailer Muji Rushi. Shares are gaining 15 percent. They have just boosted the full year view. Their operating income forecast, they beat estimates. They're really looking at the strength in their overseas business. So their third quarter net income coming in at high higher than expectations of 24 billion yen. Of course, this is a very popular brand when it comes to their retail and wholesale stores. We are now seeing the stock beating the gains of the topics this past year. This is Bloomberg. Take a look at how emerging assets are trading because we have seen, of course, that safe haven demand return to the U.S. dollar. We continue to see speculators remaining the longest on the dollar since 2015. That has pressured emerging market currencies. But we have seen resilience throughout the Iran war. You can see right now the currency space unchanged. Goldman Sachs now saying the carry trades have the best backdrop in more than two decades. So we'll continue to watch some of the volatility in this space, especially given that we're also dealing with political news idiosyncratic for every country. The impeachment trial of Philippine Vice President Sara Duterte entering its second week with a focus on her alleged threat to have President Ferdinand Marcos Jr. assassinated. Let's go to Manila and our reporter Cliff Benson. Cliff, so the vice president's impeachment trial started last week. What's been tackled so far and what do we expect to happen this week? [01:22:57] Speaker 16: Okay. Yes. So the the trial this week is still expected to focus on the alleged assassination threat against President Ferdinand Marcos Jr. So last week, the prosecution zeroed in on a video in 2024, where in the vice president said that if she gets killed, she she had talked to someone to kill the president, the first lady and the former House Speaker. But the the vice president's defense team argued that there was no in fact proof that the vice president, Sara Duterte actually contracted an assassin to kill the president. They also said that the vice president's life was also under threat. And she was facing harassment after she quit the Marcos cabinet. So yeah, this week, the trial will still focus on on that charge. One of the four impeachment charges, which is the allegation that the vice president threatened the life of President Marcos. [01:24:08] Sherry-Anne: And this really puts her political career on the line, right? How long are we expecting this trial to last? And what could be the political consequences for her? [01:24:19] Speaker 16: Yes. So we expect this impeachment trial to last for months. So we're only starting there. There are three other allegations that include misusing public funds, committing bribery, as well as amassing unexplained wealth. As you pointed out, this is very significant for Philippine politics because vice president Sara Duterte is the leading contender for president in the 2028 election. And if the Senate decides to convict her, she will be facing a perpetual disqualification from public office. [01:25:02] Avril Hong: Bloomberg News Manila reporter Cliff Venzen for us. Thank you so much. Now, Indian Prime Minister Narendra Modi has concluded a three nation Indo-Pacific tour using a series of defense, energy, critical minerals agreements to deepen ties with key regional partners. Let's get more with Swati Pandey, who leads our South Asia economics and government coverage. So, Swati Modi has been busy. What's the outcome of his visits so far? [01:25:29] Speaker 17: Good morning, April. Yes, Modi has been quite busy. He's been traveling around the Indo-Pacific. And before he began this trip, he was in Seychelles. And then Japanese Prime Minister, at sanayi taka achievers in the country as well uh the broad message from uh the all of these visits have been about bringing the middle powers together uh there have been a lot of talks about building mutual trust between all these nations and uh growing friendships we saw a lot of warm hugs uh which was kind of absent when modi was in france for g7 as an observer so we saw him uh hugging the indonesian president prabaho um and albanese as well uh christopher luxon in new zealand so kind of saw their warmth uh saw the chat about friendships about deepening ties and they signed a lot of deals as well so it was not just rhetoric there was actual action [01:26:32] Avril Hong: yeah i was gonna ask you aside from these good vibes between the world leaders talk to us about the extent in which modi has managed to perhaps reduce some of the strategic vulnerabilities for india as [01:26:44] Speaker 17: well yes uh look one of the landmark deals have been the uranium export contract that india has signed with australia uh this negotiation was on for almost a decade and the biggest sticking issue was uh that india uh should not be using the uranium for its defense programs uh finally they were able to resolve those differences so that is a big deal for india which is a very energy hungry country so it's going to be used for civilian energy generation program the other big one was the supply agreement for brahmo supersonic cruise missiles with india uh so this is part of india's efforts to grow its indigenous defense industry um indonesia is the third country uh with which uh india has signed a contract for its indigenous weapons in southeast asia uh vietnam and philippines were the other two countries so and there have been other a lot of other contracts around science and technology around critical minerals uh further deepening defense relationships as well uh so yes this went beyond rhetoric and good vibes and [01:28:02] Avril Hong: there were some concrete steps that were taken here swati thank you so much bloomberg swati panday who leads our south asia economics and government coverage the top corporate stories we're tracking apple is taking open ai to court accusing the startup of stealing trade secrets the lawsuit names former apple engineer chang liu alleging he downloaded confidential files and continued accessing apple systems after joining open ai apple is seeking damages and wants open ai to destroy any proprietary materials and redesign future products that include its technology open ai denies the allegations bloomberg has learned that nippon paint has made multiple offers for akzo nobel's decorative paints business in the last month sources tell us the latest bid values the unit at about 8.6 billion dollars and would reunify the deluxe brand globally while expanding nippon paints footprint in europe we're told akzo nobel has yet to engage with the proposal chinese ai startup chipu is pushing back against efforts to restrict access to advanced ai models founder tang jia says frontier ai should remain open and widely accessible arguing that security comes through broad participation and oversight rather than technological barriers his comments come as regulators in both china and the us weigh limits on access to powerful ai [01:29:40] Sherry-Anne: system sherry avril bloomberg has learned that south bank and pay pay are considering buying a stake worth several hundred billion yen in seven and i sources say the 7-eleven owner may issue new shares to be acquired by south bank and pay pay for more bloomberg senior editor reed stevenson joins us now with the latest i mean it was only a couple years back where seven and i was dealing with kush tard uh what's going on [01:30:05] Speaker 18: now and what does it signal about it going forward yeah i mean essentially this seems like a defensive move uh you know by issuing shares having a soft bank group this is the telecom's on by the way as well as pay pay its payments partner come into the company with an equity stake essentially you know you're i mean the the on the face of it it's about sort of building a payments network really to go up against other sort of payments and convenience store networks in japan but it's also about protecting your flank right if seven and i were to get another unsolicited you know buyout offer now they've got a very deep pocketed partner that you know hopefully is going to look out for their best interests is this sort of [01:30:47] Sherry-Anne: a different approach to what we've seen them do before especially when we had kushtar yeah so when [01:30:52] Speaker 18: the kushtar uh you know approach was sort of in full swing we did see an attempt before this was by the founding ito family which was trying to uh essentially cobble together a management buyout that ultimately failed because of the lack of financing now the lack of financing is not a problem with the softbank group and so therefore um on the face of it um you know this is this sort of makes sense um but look there are a lot of uh questions around it where the viability for one whether it's really um going to help or not um you know if there are any meaningful synergies as well but um look what's driving this is essentially underperformance in softbank stock right they uh fell after kushtar you know withdrew last year i'm sorry i'm sorry yes uh the the languishing seven and i stock uh you know the shares fell after kushtar withdrew last year they've also been down this year which i mean keeps them vulnerable essentially so this really does seem like a defensive play uh with obviously elements of an offensive play in in [01:32:04] Sherry-Anne: in setting up a payments network and we discussed how they uh did in earning season right last week tell us a little bit about some of the weaknesses that perhaps this deal could help with yeah so soft [01:32:16] Speaker 18: seven and i right now when you look at it is a pure convenience store business and the two main places are japan and the u.s uh the u.s of course they wanted to do an ipo by the end of this year they've had to push that back in order to sort of just get more time to turn that business around it's a really tough struggle uh you know prices in the u.s are still high oil prices are high which means uh consumers aren't likely to be you know spending a lot of money at convenience stores so that's really a huge concern in japan it's a slightly different story uh 7-eleven is the market leader but they've got very tough competition uh but look um you know they define the sector so they're probably going to have a better chance of turning around in japan before turning around in the u.s yeah i mean we all love their [01:33:07] Sherry-Anne: sandwiches and the chicken in seven and i here in japan uh reed stevenson good to have you with us with this story a bloomberg scoop he's our bloomberg senior editor and reed was talking about oil prices as well and how that's been affecting seven and i uh take a look at how we're training when it comes to the treasury space as well because i made that connection because oil now continues to gain ground and then you have treasury two-year yields now rising to the highest level since february of 2025 so you have this inflation concern this fed rate hike risk coming in back into the markets and you can see of course right there it doesn't help that a lot of these asian economies markets are very susceptible to the price of oil and you can see the nikki losing six tenths of one percent the tech trade also perhaps seeing a little bit of pressure today the likes of sk hynix after the biggest u.s listing by a foreign company we're seeing it falling today's session taking the cost be down more than two percent that's it from the asia trade our markets coverage continues the china show is next this is bloomberg