I guess the very popular song of Tracy Chapman, similar name, this market is moving quicker
than a fast car, getting these triggered.
So another day, so I'm losing count now of the number of days this month that we've seen
either the COSDAQ or the COSPI 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.
Joining us here on set to help us make sense of where exactly we are on the COSPI story
in the broader Asian markets, joining us here is Frank Benzimra, head of Asia Equity Strategy
at Sokjun.
Frank, very nice to see you and good morning.
Has Korea come up?
Well, Korea is by far the most volatile market.
That's very interesting to see that the company now, the semiconductor companies are publishing
record earnings, but we are at top margin and the market is reminding that 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 on the market.
What to do now about, what's the advice to clients about Korea?
Well, that to Korea, 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 a time when you have some governance reform,
which are happening, and a pretty good level of earnings.
And I think this is this kind of Korea that we need to focus on now.
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 Esky 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 markets, spreads are winding 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 to the open in China, and they are not immune to this sell-off here today.
You see the ChinaX, specifically the tech-heavy benchmark, that's already lowered by 3% here right now.
You are seeing some big names like Capricorn Tech.
That's down by 2.
CATL also seeing a bit of pressure in 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 Medea Group,
Kuei Chao, Mao Tai, and the like.
We 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 the likes of 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, you know, it all happened to ASML shares.
Just one report itself of what China may be doing.
A state-backed company in China is mass-producing these deep ultraviolet lithography tools.
So, you know, this adds to the whole kind of tech self-sufficiency sort of theme that we've been seeing alongside CXMT yesterday.
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 have chimed in and said, look, when it comes to that technological gap between China and Western names right now, it's still quite wide, right?
You know, Masahiro, our BI analyst, is it's seven to ten years it would take to actually close it at this point.
So maybe right now markets are going ahead of it.
COSDAC has now triggered the circuit breaker trading halted after that index fell by 8% as well.
So trading in South Korea's COSDAC now also in a trading halt.
Well, let's get more details now on those stories fueling this AI angst across Asia.
Our China correspondent Min Min Lo joins us from Hong Kong along with Asia Equities reporter Winnie Su.
So Min Min, 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 seen the sell-off 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.
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 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.
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 Cosby, the Tyaxe, and many of these tech names in Asia.
I want to get to Winnie Su for the second one of those one-two punches.
And Winnie, it's all about circular financing.
I mean, NVIDIA's announced a bunch more deals, financing and taking stakes in projects that are going to use its chips.
So there's been worries about circular financing for some time.
Why has 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 spending recently,
that is really raising further concerns around this circulation that we're looking at.
Now, it is all about how companies like NVIDIA are financing the support for its key customers.
And these customers then have further money or funds to then buy more from NVIDIA.
And some of the examples we're hearing recently is, for example,
the one with SK Group committing about $500 billion between each other.
So it is circulation because it includes SK Group buying 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 backstopping about $250 billion for OpenAI to lease 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 lease that data center to OpenAI.
Then OpenAI, which is a key customer of NVIDIA, buys further 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.