WEBVTT Kind: captions Language: en 00:00:00.030 --> 00:00:03.990 position:58% I guess that the very popular song of Tracy Chapman. 00:00:03.990 --> 00:00:07.020 position:56% Similar name. This market is moving quicker than a 00:00:07.020 --> 00:00:09.600 fast car. Uh, getting these triggered. 00:00:09.600 --> 00:00:11.730 So another day, so I'm losing count now, 00:00:11.730 --> 00:00:17.100 position:63% The number of days this month that we've seen either the Kosdaq or the 00:00:17.100 --> 00:00:21.420 position:58% Kospi just get halted because of just how volatile things have been. 00:00:21.420 --> 00:00:24.540 position:61% But yes, that's where we are currently. So we'll revisit, of course, what goes 00:00:24.540 --> 00:00:26.970 on there in about 20 minutes when things, of course, resume trade. 00:00:27.330 --> 00:00:31.740 position:61% Uh, joining us here on set to help us make sense of where exactly we are, uh, 00:00:31.740 --> 00:00:33.810 position:61% on the Kospi story in the broader Asian markets. 00:00:33.810 --> 00:00:37.680 Joining us here is Frank Benzimra, head of Asia equity strategy at the 00:00:37.800 --> 00:00:39.030 SocGen. Frank, very nice to see you. 00:00:39.030 --> 00:00:40.740 And good morning. Has Korea come up? 00:00:42.000 --> 00:00:47.360 position:69% Benzimra: Uh, well, Korea is by far the most volatile market. 00:00:47.370 --> 00:00:51.700 position:61% And, uh, that's very interesting to see that the company now, uh, the 00:00:51.720 --> 00:00:54.520 position:59% semiconductor companies are publishing record earnings. 00:00:54.690 --> 00:01:00.120 But we are at top margin and the market is remaining that, uh, this 00:01:00.120 --> 00:01:04.800 position:59% market is cyclical. And we have on top of that and maybe a 00:01:04.800 --> 00:01:09.900 position:63% little bit unlike what we see in the US. We have the leverage, which is super 00:01:09.900 --> 00:01:14.490 position:56% concentrated on few names. So when we put all this we have this 00:01:14.490 --> 00:01:21.090 position:63% volatility, uh, on the on the market. What to do now about what was the advice 00:01:21.090 --> 00:01:24.270 position:58% to clients about Korea? Benzimra: Well, there are two Koreas. 00:01:24.630 --> 00:01:30.180 position:59% You have the semiconductor Korea where you have some deleveraging which is 00:01:30.180 --> 00:01:34.950 position:59% happening, which is not being done and on which we need to be cautious. 00:01:35.250 --> 00:01:40.590 position:56% And then you have the other Korea. You remove the top two semiconductor 00:01:40.590 --> 00:01:43.620 position:56% name, then you have a price to book of 1.5 00:01:43.620 --> 00:01:48.390 position:58% times, at the time when you have some governance reform which are happening 00:01:48.690 --> 00:01:54.330 position:59% and the pretty good level of earnings. And I think this is this kind of Korea 00:01:54.850 --> 00:01:58.620 position:78% that we need to focus on now. Yvonne Man: Yeah, there's certainly a lot of cross 00:01:58.980 --> 00:02:03.330 position:63% currents that you're talking about here. Obviously this whole China DUV sort of 00:02:03.340 --> 00:02:06.070 position:58% lithography, whatever innovation that we've been seeing. 00:02:06.370 --> 00:02:09.160 position:59% According to some reports from The Information, that certainly is roiling 00:02:09.160 --> 00:02:12.820 position:63% the chips trade here today, you add that to the Nvidia story and these big, 00:02:12.820 --> 00:02:16.720 position:59% massive frenzy of deals that they keep making here with the likes of SK Hynix 00:02:16.720 --> 00:02:20.650 position:56% and the like, is once again sparking those concerns of circular deals. 00:02:20.650 --> 00:02:22.300 position:58% Right. So you're seeing that being reflected 00:02:22.300 --> 00:02:25.210 position:59% across the bond market. Credit market spreads are widening out 00:02:25.450 --> 00:02:27.910 position:63% and the like. So there's quite a bit of angst not just 00:02:27.910 --> 00:02:31.270 position:61% in this equity market, but also when it comes to bond markets as well. 00:02:31.270 --> 00:02:33.880 Take a look when it comes. They open in China and they are not 00:02:33.880 --> 00:02:38.140 position:61% immune to the sell off here today. You see the China specifically the tech 00:02:38.140 --> 00:02:41.230 position:61% heavy benchmark that's already lower by 3% here. 00:02:41.230 --> 00:02:46.510 position:61% Right now you are seeing some big names like Cambricon Tech that's down by two, 00:02:46.510 --> 00:02:49.510 position:58% CATL also seeing a bit of pressure on the A-share market. 00:02:49.960 --> 00:02:52.030 But interesting enough in terms of bright spots. 00:02:52.030 --> 00:02:54.880 position:63% It's the consumer space, right. So maybe there is a bit of that rotation 00:02:55.120 --> 00:02:58.390 position:61% out of those AI plays here this morning to the likes of Midea, 00:02:58.390 --> 00:03:01.570 position:58% Kweichow Moutai and the like. When you take a look when it comes to 00:03:01.570 --> 00:03:05.500 position:63% what we're seeing across the tech gauges here, obviously yesterday it was about 00:03:05.500 --> 00:03:08.320 position:59% CXMT. We are seeing even that stock come off 00:03:08.680 --> 00:03:12.580 position:61% just a bit here today, but this is what the chips sector is seeing here. 00:03:12.580 --> 00:03:16.630 position:58% So you are seeing like Hua Hong Semi, SMIC is actually going the opposite 00:03:16.630 --> 00:03:21.310 position:63% direction, but most of them are slightly lower here on the back of this report. 00:03:21.310 --> 00:03:23.710 position:63% Right. You know this whole it also all happened 00:03:23.710 --> 00:03:28.240 position:59% ASML shares. Um, just one report itself uh, of what 00:03:28.240 --> 00:03:32.200 position:61% China may be doing. A state-backed company in China is mass 00:03:32.200 --> 00:03:37.090 producing these deep ultraviolet lithography, uh, tools. 00:03:37.090 --> 00:03:40.990 position:64% So, you know, this adds to the whole kind of text self-sufficiency sort of theme 00:03:40.990 --> 00:03:43.450 position:58% that we've been seeing alongside CXMT yesterday. 00:03:43.720 --> 00:03:46.330 position:58% Uh, how true and how much it delivers is certainly 00:03:46.330 --> 00:03:49.660 position:59% one thing that the sell side is really mapping out here today. 00:03:49.660 --> 00:03:53.110 position:61% I think most of the sell side, uh, have chimed in and said, look, when it comes 00:03:53.110 --> 00:03:58.570 position:61% to that technological gap between China and, uh, Western names right now, it's 00:03:58.570 --> 00:04:00.820 position:67% still quite wide, right? You know it, Masahiro, our BI analyst sayys 00:04:01.030 --> 00:04:05.980 position:63% Uh, ah, ah, be able to say it's 7 to 10 years it would take to actually close it 00:04:05.980 --> 00:04:08.210 position:56% at this point. So maybe right now markets are going 00:04:08.210 --> 00:04:10.820 ahead of it. Kosdaq has now triggered the 00:04:10.820 --> 00:04:15.680 position:58% circuit breaker, trading halted after that index fell by 8% as well. 00:04:15.680 --> 00:04:20.120 position:59% So trading in South Korea's Kosdaq now also in a trading halt. 00:04:20.709 --> 00:04:23.150 Let's get more details now on those stories. 00:04:23.150 --> 00:04:28.010 position:63% Fueling this I angst across Asia. Our China correspondent Minmin Low joins 00:04:28.010 --> 00:04:32.050 us from Hong Kong along with Asia equities reporter Winnie Hsu. 00:04:32.090 --> 00:04:33.380 line:92% Minmin, let's start with you. 00:04:33.650 --> 00:04:38.120 position:63% What do we know about the scale at which China can produce DUV machines? 00:04:38.120 --> 00:04:40.730 Because this has been one of the catalysts that's seeing the selloff 00:04:40.730 --> 00:04:43.430 today. That's right. 00:04:43.430 --> 00:04:46.040 And this is according to The Information's reporting. 00:04:46.040 --> 00:04:50.540 position:63% And according to their sources, China is planning to produce five of these 00:04:50.540 --> 00:04:55.130 position:56% machines this year and 20 next year. This is a particular company that is 00:04:55.130 --> 00:04:57.440 based in Shanghai. It has not been named by The 00:04:57.440 --> 00:05:00.980 position:63% Information, but it's a homegrown company that is gathering expertise from 00:05:00.980 --> 00:05:04.370 position:59% other Chinese firms, including a state backed startup as well. 00:05:04.650 --> 00:05:08.840 position:58% Uh, and according to The Information, most of the components of these DUV 00:05:08.840 --> 00:05:13.310 position:63% machines are locally sourced, except for some key components that are coming from 00:05:13.310 --> 00:05:16.250 position:63% Japan. So this is sparking the sell off because 00:05:16.430 --> 00:05:20.960 position:58% we know that ASML has been a major player, in fact very dominant, one of 00:05:20.960 --> 00:05:23.600 position:56% the few monopolies out there in this sector. 00:05:23.900 --> 00:05:29.360 position:58% And uh, ASML has been prevented from selling its most advanced machines to 00:05:29.360 --> 00:05:32.000 position:58% China. Now, mind you, these DUV machines are 00:05:32.000 --> 00:05:35.330 position:63% not top of the range. The most advanced machines that ASML can 00:05:35.330 --> 00:05:39.200 position:56% sell are the EUV extreme ultraviolet lithography machines. 00:05:39.200 --> 00:05:43.730 position:61% The DUV is deep ultraviolet lithography machines, so it's slightly less 00:05:43.730 --> 00:05:46.280 position:58% advanced. But still, the vast majority of chips 00:05:46.400 --> 00:05:50.450 position:63% require only a DUV machine. Only a small sliver of the most advanced 00:05:50.450 --> 00:05:55.310 position:61% chips require EUV machines to make. So this is why we are seeing the market 00:05:55.310 --> 00:05:58.460 position:58% sell off here in Asia as well. When it comes to the Kospi, the Taiex 00:05:58.460 --> 00:06:01.850 position:58% and many of these tech names in Asia. I want to get to Winnie Hsu for the 00:06:01.850 --> 00:06:03.710 position:56% second one of those one two punches. And when he. 00:06:03.710 --> 00:06:07.190 position:56% It's all about circular financing. I mean, Nvidia has announced a bunch 00:06:07.190 --> 00:06:11.700 position:61% more deals, financing and taking stakes in projects that are going to use its 00:06:11.700 --> 00:06:13.470 position:59% chips. I mean, you know, there's been worries 00:06:13.470 --> 00:06:17.910 position:61% about circular financing for some time. Why is it all come to a head today? 00:06:19.680 --> 00:06:21.960 position:58% Yeah, exactly. Paul, you just mentioned how actually 00:06:21.960 --> 00:06:25.920 position:63% we've been hearing about this since last year, but because of these concerns 00:06:25.920 --> 00:06:30.930 position:63% around the hyperscalers, um, spending recently, that is really raising further 00:06:30.930 --> 00:06:34.530 position:58% concerns around this, uh, circulation that we're looking at now. 00:06:34.530 --> 00:06:40.170 position:59% Um, it is all about how companies like Nvidia are financing the support for 00:06:40.170 --> 00:06:44.610 position:59% its, um, key customers. And these customers then have further, 00:06:44.850 --> 00:06:48.390 position:63% um, money or funds to then buy more from Nvidia. 00:06:48.540 --> 00:06:52.740 position:59% And some of the examples we're hearing recently is, for example, the one, um, 00:06:52.740 --> 00:06:58.230 with SK Group committing about $500 billion between each other. 00:06:58.230 --> 00:07:03.420 position:63% So it is circulation because it includes SK Group buying, um, these 00:07:03.420 --> 00:07:07.920 position:61% supercomputers from Nvidia and then Nvidia also buying memory chips from SK 00:07:07.950 --> 00:07:10.680 Hynix. Now this is a little bit unclear in 00:07:10.680 --> 00:07:13.980 terms of how this money is actually going to be divided. 00:07:14.100 --> 00:07:18.210 position:56% So that is why investors are a bit concerned in terms of how it's a bit 00:07:18.210 --> 00:07:23.130 position:63% less transparent now when it comes to the deal or that talk that we heard from 00:07:23.130 --> 00:07:28.870 position:63% yesterday about them potentially stepping a backstop, stopping about $250 00:07:28.870 --> 00:07:37.620 position:61% billion for an OpenAI to release that $500 billion worth of data center being 00:07:37.620 --> 00:07:43.980 position:63% built out by SoftBank in Ohio. That is a bit more complicated with them 00:07:43.980 --> 00:07:48.420 position:59% providing that $200 billion to support the build out of SoftBank. 00:07:48.480 --> 00:07:53.730 position:61% And SoftBank has a big stake in OpenAI, and they really allows that data center 00:07:53.730 --> 00:07:57.420 position:61% to OpenAI. Then OpenAI, which is a key customer of 00:07:57.420 --> 00:07:59.790 Nvidia, buys for their chips from Nvidia. 00:07:59.970 --> 00:08:04.980 position:59% So that kind of circulation is raising concerns because it potentially skews 00:08:05.070 --> 00:08:10.620 position:63% the demand and also raises the risk when it comes to a potential fallout of this 00:08:10.620 --> 00:08:12.360 line:92% whole AI demand story.