Moonshot AI Tells Investors IPO Plans, Oil Outlook Amid Continued US Strikes on Iran | Bloomberg...

[music] >> Bloomberg Audio Studios. Podcasts, radio news. >> [music] >> Welcome to the Daybreak Asia podcast. I'm Doug Krizner. [music] South Korea's equity market is back from a long weekend with a bit of a shock similar to the so-called deep seek moment. At the end of last week, China's AI pioneer Moonshot introduced its Kimi K3 model. Now, this is an open-weight model, meaning its parameters are publicly available and can be customized by the user. Last Friday, Moonshot said Kimi K3 rivals some of the best offerings from US labs. Here is Bloomberg's Anthony Stevens. >> So, there's a lot of software innovation in there in what is objectively a very large model. So, the first thing is the ambition and the scale of the model is a step further, and that's probably why it has caught the US models on the frontier front. But, the second most important aspect is the resource optimization around the model. It is very memory-efficient. In short, there are proprietary innovations in there to also help with the usage of of HBM and GPUs, where China is obviously constrained. And the fact that this model was trained with those constraints in mind is the important aspect to markets here. >> That is Bloomberg's Anthony Stevens. And now we're being told that Moonshot is preparing for a public listing perhaps within 6 months. We're told Moonshot is in the process of wrapping up a funding round that may value this 3-year-old startup at more than $30 billion. Demand for Kimi K3 was said to be so great over the past 48 hours that Moonshot temporarily paused new subscriptions. It appears China is closing the AI gap with the US, and that's where we begin our conversation with Homin Lee, senior macro strategist at Lombard Odier. He spoke with Bloomberg TV host Avril Hong and weighed in on the current market dynamics regarding AI. >> So, in the long run, the real threat to the memory bottleneck trade in South Korea comes from China. And uh in the second half of the year, we're going to get a bit of narrative shift in favor of China's AI and semiconductor ecosystem. Uh you know, that leads due to all the mega listings uh that are on the horizon and uh which uh it now seems the authorities are quite supportive of. So, that's going to support uh the Chinese story relative to South Korea. But for South Korea itself, uh we start to feel that maybe this uh leveraged uh you know, retail leverage uh impact is beginning to uh you know, progress uh quite substantially. And uh uh at the fact is uh that the bottleneck still remains in the near term. And these memory makers have locked up their uh prices through long-term agreements with the the buyers. And uh you know, US export controls and etc. still keep the dominant position for these names. So, uh it is true that this week uh we have a confluence of a pretty uh negative events, uh but um uh you know, given the valuations and the unwind of the leverage trade, maybe the uh the trajectory for the rest of the year, given despite the volatility that we see now, uh is maybe uh higher uh before the end of the year. And that's one of the reason why we're still keeping uh you know, constructive view on the medium-term trajectory of the market. Um uh but China story is definitely something that worth keeping an eye on for the investors in the second half of the year. >> How much does it exactly you think sap away from the South Korean story? >> So, um we have seen the shift uh from the hyperscalers and the the AI as a service story in North America, you know, to memory makers in in past a year or so, and and you know, we're not going to get a complete a conclusion to this debate or pendulum swing between the the AI suppliers and AI themes for the foreseeable future simply because no one has an absolute clarity and who will emerge as the winner in this ecosystem, but it's quite possible that you could actually get again, put it, you know, once we emerge from these headwinds related to home moves and the the monetary policy cycles and the capital flows, you're going to get maybe a parity market dynamic where both South Korea and China for for for the investors perspective, you know, because simply because China has been a relatively neglected market. Maybe it's worth having that as a hedge, you know, alongside you know, South Korea trade, you know, that will probably go through a bit of turbulence, but ultimately still you know, grind upward once these headwinds fade. >> Why did it not make sense now though? I mean, to your point about how far they've run up to take profit on chips. I mean, we are also seeing in the background this used to be a rotation to financials. >> So, in fact, the financial sector is one of the sectors that we like. The valuation is quite compelling. The sector has been able to deliver fairly substantial recovery since last year and the fees, you know, from the M&A activities and trading you know, continue to be pretty strong not just in North America, but the the markets around the world. So, relative to the other sectors that have seen some froth and the you know, maybe excessive momentum. This is the sector that probably delivers that nice combination of slight defensiveness, evaluation appeal, and the earnings stability uh down the road. So, alongside the other kind of a favorite bets that we have, including emerging markets, uh financial markets uh financial sector is definitely the sector that we like as we head into the second half of the year. >> For the big AI spenders, though, it looks like it's increasingly difficult to justify their valuations. How do you, you know, weave that into your investment thesis? >> So, though, when you talk about valuations, it's really um you know, when you talk about software or, you know, the semiconductor segment, actually the valuation has become quite compelling. Uh I mean, if you look at these South Korean memory makers right now, you know, for the entire silicon layer, due to the sell-off that has taken place in past weeks, now we see, you know, forward P multiples trading close to six or seven for some names, and that's quite compelling for the medium to long term, especially if you believe in the the re-rating story for some of the regional markets where uh these uh you know, semiconductor stories are concentrated. So, um we wouldn't say um we see a lot of excess froth uh in the segment right now, especially because of the sell-off. Uh but um you know, for the North American market, uh given the mega IPOs that are on the horizon, maybe it's slightly trickier to make a very, very strong valuation bet. But, for the tech hardware ecosystem elsewhere, especially in Asia Pacific, we think it's quite compelling, and uh that's one of the reasons why, you know, especially for the diversified portfolios, it's worth having some of these exposures, uh and trying to look through some of these volatilities that are highly technical in nature will likely fade Uh in due time. >> I guess to your point also, I mean we've been seeing the chip makers in South Korea in terms of the stock action. They've been, you know, pairing some of the early losses. So, maybe there's that dip buying that is emerging. You talk about exports. Talk to us about the risk in the back of because this week as well, in terms of tariffs, you know, we're seeing the 122 expiration. Do you think there is, you know, something on there that we need to be paying more attention to? >> So, you're right. You know, over the course of the week we could likely get the expiration of the Section 122 tariff and Trump administration will try to replace that with sector specific and country specific tariffs. Now, our assumption is that the overall effective tariff rate will remain close to the pre-Supreme Court ruling level and that's manageable for the market but simply because the mechanics of replacing the universal tariff with these sector and country tariff is quite complicated and potentially has, you know, some disproportionate negative impact for significant sectors in different countries. We think we'll definitely have to deal with some volatilities down the road due to this dynamic but it's important to understand that, you know, from our perspective it's not going to be easy for the Trump administration to replace, you know, or actually raise the effective tariff rates significantly from what we had before the Supreme Court ruling. But meanwhile, for the market, you know, this week we could potentially get another positive development in China AI space and also more pro-growth and, you know, constructive signals from the Politburo meeting in China. So, there will also be some positive offsetting events and ultimately we simply have to wait for the uncertainties to clear in the Strait of Hormuz. That's another factor that we need to keep an eye on. >> That is Homan Lee, senior macro strategist at Lombard Odier, speaking with Bloomberg TV host Avril Hong, bringing you their conversation here on the Daybreak Asia podcast. [music] >> [music] >> Welcome back to the Daybreak Asia podcast. I'm Doug Krizner. Crude oil prices are higher in Asian trading after the US and Iran engaged in a series of tit-for-tat attacks. And for the American military, it was the ninth consecutive night of strikes. At the same time, we know that more US warplanes are being sent to the Middle East. Now, Tehran is vowing not to allow oil or gas to pass through the Strait of Hormuz without coordination and permission. So, as geopolitics continues to buffet markets, we checked in with Iliana Jain, international economist at Westpac Banking Corporation. Iliana spoke with Bloomberg TV host Paul Allen about how the oil story is impacting the Asia Pacific. >> Look, the situation in the Middle East seems to be changing every single week, but one thing we can be certain of is that any sort of geopolitical calmness, if you can call it that, or or any sort of indication that oil supply and energy supply will be normalized, will be well received by policy makers. When it comes to countries like Indonesia, they are massive energy um they they consume a lot of energy when they're producing all of the goods that they're producing. And for them, energy costs are absolutely central to how the economy is going. And so, if we start to see a bit more energy stabilization, it's going to be good news for most of Southeast Asia and South Asia, because we'll see that income squeeze created by those energy costs start to come down. And again, that also helps support domestic demand at a time where industrial policy needs to catch up a little bit. >> So hard to predict though because you know at the start of this month the oil was sort of settling around the $70 mark. I think perhaps a sense of complacency had set in. No more of course. Um in Japan's case I mean we'll get the June CPI numbers but what are the implications for the Bank of Japan and the yen as well? I mean have we seen a floor for the yen yet? >> Look when it comes to the Bank of Japan they're focusing on a broader set of indicators beyond just the CPI. For them it's about coming to a place where they consider is neutral and normal for the economy that they are inheriting right now. We know the Japanese economy is a vastly different place to where it was prior to the pandemic and it needs an interest rate that is higher than where it was prior to the pandemic. And the Bank of Japan's coming to that end point that terminal rate. And so while inflation is important it's about other things like how much domestic demand is going to lift and how much of these inflationary pressures are domestically driven. When it comes to that CPI rate the one thing I'll be paying very close attention to is that services component. Is it staying around that 1% mark that it has been over the last couple years? That tells us that there's a lot of domestic pressures within Japan as well. Aside from that they'll also be watching closely to see how wages are responding to the changes in the economy thus far. And if we see that continued pressure on wages we see that structural tightening in the labor market continuing to feed through to wages we're likely to see the Bank of Japan hike twice more um coming to a terminal rate of 1.5% by the end of next year. >> In terms of the energy side of things uh are you willing to predict and it is so hard to predict where we might be with this conflict later on this year because certainly there'd be a political case for Iran uh to push this through to the US midterms. Can you see this uncertainty lasting until then? >> Look it's hard to say, you know, I'm not a geopolitical analyst, but for the economy, I think the sooner this resolution comes into place, the sooner we start seeing more stabilization in oil prices, the sooner we start seeing that closing of the gap between Northeast Asia, which has benefited from the tech sector and has been able to buffer against those energy implications for the economy, and South and Southeast Asia, that's been more exposed because of their higher um their higher share of the economy contributing to agriculture as well as um a greater energy reliance on imported energy. >> And just to underscore what we're talking about, we're just getting news from CENTCOM, it's begun conducting a new wave of strikes against Iran as of 7:00 Eastern time today. This is the ninth consecutive day that we've seen attacks. Now, look, another country in the region that's obviously very dependent on energy in South Korea. We're going to get those second quarter GDP numbers later on this week as well in anticipation that we might see some slowing growth here, but is it a more nuanced and difficult case for South Korea? Not only is it energy dependent, but we have this AI story, the enormous volatility we've seen around that ecosystem. What risks do you see ahead for South Korea? >> Look, I just talked about how the region's really bifurcated between that Northeast tech very heavy sector versus the South and Southeast. Within Korea, it's the same sort of trend that's playing out. So, the Korean economy has been powered by this tech sector, powered by the strength in tech exports, and that's really lifted all predominantly the tech industry. But if you look outside of the tech sector, Korea's economy is starting to show signs of weakness. Domestic demand is pretty weak if you compare it to pre-COVID. The labor market outside of the tech sector has been quite weak as well. And so, right now, we've seen that policy makers, particularly the Bank of Korea, are willing to lean on that strength in that Korean uh sector to hike rates and help ward off some of those inflationary risks. But, they're also very cognizant about the rest of the economy that's not functioning as well. So, that risk is definitely there. And if we start to see the tech boom start to slow down both within Korea and outside of Korea, those weaknesses are start going to start show up even more. >> Can we throw another wild card in there, too? Over the last 3 days, you know, we've seen new models from China, you know, the Moonshot uh Kimi 3, uh Q U Q N from Alibaba, as well. What are the broader implications for the that big ecosystem that's growing up around the AI story? >> Yeah, certainly. And look, there are many players, and China's one of them. And we've seen that when China decides to do something, it does a lot of it. We've seen that excess capacity play out in China. We've seen that overproduction occur in China. And I don't think that tech side will be any different. But, the one thing to note here is that the advantage of buying Korean technology is that for a lot of countries, particularly in the West, it comes with a geopolitical security lens. So, that's one place where Korea can benefit immensely. They are a more secure partner to deal with than China, particularly when it comes to technology. And so, when we're thinking about those risks for Korea, at least in the near term, they have that playing for them. Over the medium term, as China builds its confidence with with the West, this might deteriorate a little bit. >> That is Iliana Jain, international economist at Westpac Banking Corporation, speaking with Bloomberg TV host Paul Allen, bringing you their conversation here on the Daybreak [music] Asia podcast. Thanks for listening to today's episode of the Bloomberg Daybreak Asia edition podcast. Each weekday, we look at the stories [music] shaping markets, finance, and geopolitics in the Asia-Pacific. You can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel, or anywhere else you listen. Join us again tomorrow for insight on the market moves from Hong Kong to Singapore [music] and Australia. I'm Doug Krizner and this is Bloomberg. >> [music]