I guess that the very popular song of
Tracy Chapman.
Similar name.
This market is moving quicker than a
fast car.
Uh, getting these triggered.
So another day, so I'm losing count
now,
The number of days this month that we've
seen either the Kosdaq or the
Kospi just get halted because of just
how volatile things have been.
But yes, that's where we are currently.
So we'll revisit, of course, what goes
on there in about 20 minutes when
things, of course, resume trade.
Uh, joining us here on set to help us
make sense of where exactly we are, uh,
on the Kospi story in the broader Asian
markets.
Joining us here is Frank Benzimra,
head of Asia equity strategy at the
SocGen.
Frank, very nice to see you.
And good morning.
Has Korea come up?
Benzimra: Uh, well, Korea is by far the most
volatile market.
And, uh, that's very interesting to see
that the company now, uh, the
semiconductor companies are publishing
record earnings.
But we are at top margin and the
market is remaining that, uh, this
market is cyclical.
And we have on top of that and maybe a
little bit unlike what we see in the US.
We have the leverage, which is super
concentrated on few names.
So when we put all this we have this
volatility, uh, on the on the market.
What to do now about what was the advice
to clients about Korea?
Benzimra: Well, there are two Koreas.
You have the semiconductor Korea where
you have some deleveraging which is
happening, which is not being done and
on which we need to be cautious.
And then you have the other Korea.
You remove the top two semiconductor
name,
then you have a price to book of 1.5
times, at the time when you have some
governance reform which are happening
and the pretty good level of earnings.
And I think this is this kind of Korea
that we need to focus on now.
Yvonne Man: Yeah, there's certainly a lot of cross
currents that you're talking about here.
Obviously this whole China DUV sort of
lithography, whatever innovation that
we've been seeing.
According to some reports from The
Information, that certainly is roiling
the chips trade here today, you add that
to the Nvidia story and these big,
massive frenzy of deals that they keep
making here with the likes of SK Hynix
and the like, is once again sparking
those concerns of circular deals.
Right.
So you're seeing that being reflected
across the bond market.
Credit market spreads are widening out
and the like.
So there's quite a bit of angst not just
in this equity market, but also when it
comes to bond markets as well.
Take a look when it comes.
They open in China and they are not
immune to the sell off here today.
You see the China specifically the tech
heavy benchmark that's already lower by
3% here.
Right now you are seeing some big names
like Cambricon Tech that's down by two,
CATL also seeing a bit of pressure on
the A-share market.
But interesting enough in terms of
bright spots.
It's the consumer space, right.
So maybe there is a bit of that rotation
out of those AI plays here this morning
to the likes of Midea,
Kweichow Moutai and the like.
When you take a look when it comes to
what we're seeing across the tech gauges
here, obviously yesterday it was about
CXMT.
We are seeing even that stock come off
just a bit here today, but this is what
the chips sector is seeing here.
So you are seeing like Hua Hong Semi,
SMIC is actually going the opposite
direction, but most of them are slightly
lower here on the back of this report.
Right.
You know this whole it also all happened
ASML shares.
Um, just one report itself uh, of what
China may be doing.
A state-backed company in China is mass
producing these deep ultraviolet
lithography, uh, tools.
So, you know, this adds to the whole kind
of text self-sufficiency sort of theme
that we've been seeing alongside CXMT
yesterday.
Uh, how true
and how much it delivers is certainly
one thing that the sell side is really
mapping out here today.
I think most of the sell side, uh, have
chimed in and said, look, when it comes
to that technological gap between China
and, uh, Western names right now, it's
still quite wide, right?
You know it, Masahiro, our BI analyst sayys
Uh, ah, ah, be able to say it's 7 to 10
years it would take to actually close it
at this point.
So maybe right now markets are going
ahead of it.
Kosdaq has now triggered the
circuit breaker, trading halted after
that index fell by 8% as well.
So trading in South Korea's Kosdaq now
also in a trading halt.
Let's get more details now on those
stories.
Fueling this I angst across Asia.
Our China correspondent Minmin Low joins
us from Hong Kong along with Asia
equities reporter Winnie Hsu.
Minmin, let's start with you.
What do we know about the scale at which
China can produce DUV machines?
Because this has been one of the
catalysts that's seeing the selloff
today.
That's right.
And this is according to The
Information's reporting.
And according to their sources, China is
planning to produce five of these
machines this year and 20 next year.
This is a particular company that is
based in Shanghai.
It has not been named by The
Information, but it's a homegrown
company that is gathering expertise from
other Chinese firms, including a state
backed startup as well.
Uh, and according to The Information,
most of the components of these DUV
machines are locally sourced, except for
some key components that are coming from
Japan.
So this is sparking the sell off because
we know that ASML has been a major
player, in fact very dominant, one of
the few monopolies out there in this
sector.
And uh, ASML has been prevented from
selling its most advanced machines to
China.
Now, mind you, these DUV machines are
not top of the range.
The most advanced machines that ASML can
sell are the EUV extreme ultraviolet
lithography machines.
The DUV is deep ultraviolet lithography
machines, so it's slightly less
advanced.
But still, the vast majority of chips
require only a DUV machine.
Only a small sliver of the most advanced
chips require EUV machines to make.
So this is why we are seeing the market
sell off here in Asia as well.
When it comes to the Kospi, the Taiex
and many of these tech names in Asia.
I want to get to Winnie Hsu for the
second one of those one two punches.
And when he.
It's all about circular financing.
I mean, Nvidia has announced a bunch
more deals, financing and taking stakes
in projects that are going to use its
chips.
I mean, you know, there's been worries
about circular financing for some time.
Why is it all come to a head today?
Yeah, exactly.
Paul, you just mentioned how actually
we've been hearing about this since last
year, but because of these concerns
around the hyperscalers, um, spending
recently, that is really raising further
concerns around this, uh, circulation
that we're looking at now.
Um, it is all about how companies like
Nvidia are financing the support for
its, um, key customers.
And these customers then have further,
um, money or funds to then buy more from
Nvidia.
And some of the examples we're hearing
recently is, for example, the one, um,
with SK Group committing about $500
billion between each other.
So it is circulation because it includes
SK Group buying, um, these
supercomputers from Nvidia and then
Nvidia also buying memory chips from SK
Hynix.
Now this is a little bit unclear in
terms of how this money is actually
going to be divided.
So that is why investors are a bit
concerned in terms of how it's a bit
less transparent now when it comes to
the deal or that talk that we heard from
yesterday about them potentially
stepping a backstop, stopping about $250
billion for an OpenAI to release that
$500 billion worth of data center being
built out by SoftBank in Ohio.
That is a bit more complicated with them
providing that $200 billion to support
the build out of SoftBank.
And SoftBank has a big stake in OpenAI,
and they really allows that data center
to OpenAI.
Then OpenAI, which is a key customer of
Nvidia, buys for their chips from
Nvidia.
So that kind of circulation is raising
concerns because it potentially skews
the demand and also raises the risk when
it comes to a potential fallout of this
whole AI demand story.