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Welcome to the Daybreak Asia podcast. I'm Doug Krer. We have a market holiday in Japan, so no trading in US treasuries or Japanese equities. Stateside, it was a mixed day for the equity market. It was a day when value outperformed growth. The NASDAQ composite was down 1%, though it's now in a correction from its early October record high. A lot of tech shares facing pressure. That was after Anthropic highlighted rising cost for AI compute. And we should mention the midterms. We are less than 24 hours away from some of the results. Polling indicates the Democrats in Texas are gaining ground, and a stronger midterm outcome could bring tougher regulatory requirements for some of the buildouts where data centers are concerned. For a closer look at the market action, let's bring in Bloomberg's Leon Ting. Leon Ting is managing editor for Asian Equities, and she joins from our studio in Singapore. Thank you for being here.
If you don't mind, I'd like to start with the Apple news because one of the things that, well, a couple of things stand out here. One is the revenue miss for Greater China. I think the number was roughly a billion dollars below what the street was looking for. And then this gross margin issue is also a problem, I think, as a result of soaring memory prices. Apple was talking about how gross margins are going to be squeezed in the current quarter. Do you think this is going to change in the months ahead? Are we at a point right now where Apple has the opportunity to maybe reverse its fortunes slightly, or are some of the trends that we're talking about now firmly entrenched a bit?
Yeah, I think it's probably the latter. When it comes to Chinese consumers, there is no sign that the economy is getting any better, that people are getting any wage increases or getting better job opportunities. So that translates into a continued sluggish spending, and as you can see, even with Apple, that means the luxury side of Chinese spending remains very weak and no sign of improvement anytime soon. When it comes to memory chip prices, I think right now the trend is that, you know, prices are still going up. The bottleneck is still very much there. That's based on earnings calls from SK Hynix and Samsung. They're talking about, for SK Hynix, the whole, you know, the order book or backlog has been building into 2029. So all of that means memory prices will stay elevated, but maybe the pace of growth in that price gain may come down a little bit. So I guess what that means for Apple is, yeah, the two headwinds are still going to be very much there in the coming quarters, and for Apple, the big picture is that people treat this as a big anti-AI trade, and given today's post-market share move, as you can see, even the anti-AI trade is wobbling a little bit.
Well, I'm glad you brought up the weakness of the Chinese economy. I have two questions for you. One has to do with what the government may do to energize a lot of the activity that seems to be sorely lacking, and the other is that the internet space in China seems to be holding up on a relative basis somewhat well. Am I wrong in that?
Yeah, I think I'll start with internet. Overall, I think it's considered as more of a consumption play these days. If you look at the biggest Hong Kong-listed Chinese tech names, they are all internet e-commerce related names. And right now there is a massive rotation that's playing out globally, right? As you can see in the S&P, the consumer stocks are really doing much better than the AI stocks right now. So I think similar Chinese tech stocks are actually benefiting from that kind of rotation. So if you look at today's movements, the likes of dairy and other really like consumer staple names are the outperformers today, whereas Lenovo, which had been the best performer in Hong Kong for the first half of this year, now is getting sold. Last time I checked, it was down 6% or so.
So we know that the domestic economy in China is relatively weak still. Maybe there are some signs of optimism. I don't know. I do know that the export markets in China, or the manufacturing economy as it relates to the overall economy in China, is holding up very well. How much of that is tied to where the currency has been trading, and is there the risk that export growth could slow if the appreciation of the currency were to maybe become a little bit more robust?
Yeah. The export numbers have been good for the data that have been released, but the latest private sector survey actually showed a sudden, unexpected weakness among exporters in terms of their order book. That's according to our story, I believe, yesterday. So that, as you said, has been a strong pillar of China's growth, and if that indeed slows down, that really doesn't bode well for China. Maybe part of it is indeed related to the currency. As we were discussing prior to this segment, the Chinese yuan has been on a record-winning streak against the dollar recently, and that has somewhat prompted today's PBOC regulation, which is to increase the FX reserve ratio for commercial banks, which is effectively disincentivizing commercial banks from offloading the dollar to buy the yuan. So the idea is the PBOC or the Chinese regulators really want people to not consider yuan strength as a one-way bet. So, you know, the two things are maybe somewhat linked.
We were talking a moment ago about the fact that the US midterm elections are upon us Tuesday. The results will begin coming in. That's about 24 hours from now. How is this being viewed in the APAC region right now, of these US midterms?
Yeah, there are many, many sort of variations of outcomes and calibrations, but simplistically, as we pointed in our Asia stock traders guide, a few themes that are more sensitive to the results. One is obviously the AI trade, and if indeed there's a blue sweep, and that would potentially mean bigger or tighter AI regulation on data center buildout, power consumption, and who bears the massive costs of AI buildout, and all of that would have ramifications to Asia's big tech names, right? Especially markets in Korea and Taiwan that are more exposed to the theme. I also don't want to overstate the kind of risks because many people would agree that the computing demand is on a structural rising sort of trend. So, you know, midterm is one event, but if eventually it wouldn't actually impact the earnings power of these big Asia chip makers all that much. Some other sectors I want to mention: one is China renewable energy, because if there is indeed a blue sweep, and that, you know, the Democratic party is actually more of a supporter for renewable energy and clean energy transition, and so that obviously would bode well for that sector in China. One more thing I wanted to mention is Japan's defense sector, and that is in case the Republicans still retain control of the Congress, and the, you know, spending priorities will remain intact, and that would actually benefit some of the Japan defense names. So that would overall be sort of a quick summary of, you know, the election-sensitive sectors in Asia.
Thank you for that. And before I let you go, as long as we're talking about energy, or you just mentioned it, I have to ask about what's happening with crude oil in New York trading. We had a big drop in WTI. I think we were down nearly 7 and 12%. Iran's president was saying on Monday that his government has been granted a bit more authority from the Iranian supreme leader to pursue peace talks with the US. The hope here is some sort of diplomatic solution to ending the war. How is this being considered right now? I know that there's been so much volatility in the oil price. Maybe we've been here in the past where people begin to become optimistic that we're at some sort of turning point, only to have those hopes dashed. Is that why we're seeing a little bit of hesitancy in the APAC region to get more behind this pullback in crude oil today?
Yeah, I think part of it is that, like, we were there before, as you mentioned. The other part is the AI jitters, right? There's a big, there was a big drop in the crude oil, but that didn't quite translate into any positive sentiment for the NASDAQ, for example, or for the Asia benchmark as we see this morning, which, according to some analysts, really means people are just really worried about this whole, you know, AI spending, AI debt, rising costs, and all that. Plus there is also midterm election, as you said, you know, it's going to happen within 24 hours. So all of these things are actually making this oil drop less meaningful for the market because they have more urgent factors to contend with right now.
Okay, we'll leave it there. Leon Ting, it's always a pleasure. Thank you so very much. Bloomberg's Leon Ting, she is managing editor for Asia Stocks, joining from Singapore here on the Daybreak Asia podcast.
Welcome back to the Daybreak Asia podcast. I'm Doug Krer. The Hong Kong Monetary Authority is currently holding its fifth Global Financial Leaders Investment Summit. Topics under discussion include shifts in the economy, markets, and technology, and whether they're creating new opportunities or risks. It was there we had the chance to catch up with David Solomon, the CEO of Goldman Sachs. He spoke with Bloomberg TV host Ivon Man and David Inglace.
David, good morning and very nice to see you.
Good to see you guys, and it's nice to be back with you again here at the HKMA Summit.
Yeah, it's been busy. You guys have been extremely busy, you and your team, underwriting all these deals. Give us a sense of momentum. What can we glean from what we've heard into the next couple of months?
Sure. You know, certainly activity levels have been very, very high. And you guys highlighted that last week. We had a very, very busy week. You know, combination of a handful of very significant financings coming together at the same time, both for SpaceX, for Meta, obviously announcements around the upcoming Anthropic IPO. You know, I'd say the capital markets remain very active while there's been a little bit more volatility in the short run and recalibration in certain parts of the market. I'd say investors are still very focused on the trajectory of AI demand, compute demand. And, you know, the capital markets are open and receiving, and so we found, you know, very robust demand for these transactions.
I think when you were on stage with Ted Pick from Morgan Stanley, he had a line about 10 to 15 trillion, right, sort of the spending that they expect maybe. I mean, how long do you think this sort of investment cycle can last still?
Yeah, I think we're early in the build out of the infrastructure to support this technology, but I'd also be the first to caution us all that, you know, at the moment there's an expectation that it's going to be constant in a straight line. And if you look at any other technology super cycle, you know, it's never constant. There'll be calibrations, there are stops and starts. You know, I think it's very hard to know how much will ultimately be spent to build up this infrastructure all over the world. I think one of the things people don't talk about enough is that there are going to be new technologies and evolutions in technologies that'll change the trajectory of all this. But I think one thing that's pretty clear is the demand for compute right now far exceeds the supply, and certainly in the next 12 to 24 months there's going to be robust financing, you know, to meet some of that demand. I think it's a super exciting time. I can't tell you that it'll go without bumps in the coming years, but I can say when you step back and you look kind of 5, 10 years from now, I'm very excited about how this technology can get deployed in the economy and really drive productivity gains that can be really, really fruitful. So investors see that, they're looking to participate. I think one of the things investors are trying to do is run broad, diversified portfolios. Debt investors are obviously paid to not make mistakes. And so if they think the market's getting a little bit more challenging, they ask for higher returns because debt investors don't get to make mistakes. Equity investors take more risk because they look for upside. And I think there's still a lot of upside available as this technology gets built and deployed and the application layer gets built over the next decade or two.
The size of the deals has grown substantially, exponentially. Is there a theoretical ceiling, or do you see the size of the deals being able to just continue to become larger and larger from someone who puts these things together?
Yeah, I think the constraint is not the amount of capital in the world and the size of these deals on a relative basis. Yes, there's no question these deals are bigger, and, you know, the capitalization of these companies is larger than what we've seen in other tech super cycles. But we also operate in a market that's much, much larger, where equity market cap has grown very substantially. Public equity market cap in the world is about 160 trillion. And so there's a lot of capital out there to support this growth. You know, I think sometimes investors or the dialogue around this, you know, gets confused between risk-reward and what's the appropriate pricing for certain kinds of risk and how that pricing parameter can change in the short run as the market moves around versus whether capital's available. But there's no question, you know, these numbers are big. And also, capital is competitive to some degree. Rates are higher. Governments around the world are issuing more debt. You know, that's a competitive factor in all this. But I don't think it affects availability. I think it affects cost. And if cost goes up too much, it changes, you know, the returns in some of these projects. And that will change the way some of this happens and the way it's financed.
