00:00How would you describe sentiment right now across these markets?
00:03I would say the sentiment is cautiously optimistic.
00:08On the one hand, people have accumulated a huge amount of profit,
00:12and the fundamental trend in the industry that's driving the market, which is AI, is really strong.
00:20At the same time, people worry about a list of things, fat tightening, whether AI has a bubble, things like
00:27this.
00:27So any negative move, any negative news flow, even if it's small, will move the market quite a lot.
00:34And you see big up and downs in the market recently.
00:38It's quite volatile recently, especially given how the run-up in specific assets across the region.
00:45Let's talk about the macro.
00:47So the latest in the Middle East is certainly a flare-up.
00:51We're seeing oil prices obviously remaining elevated, not quite at the peak.
00:55And it's looking like the Fed might hike interest rates, to your point.
00:58What does the macro look like to you in the second half of the year?
01:02The macro looks, for me, the macro is, so for the first half of it, before the U.S. and
01:11Iran conflict,
01:14the macro was mild.
01:16Liquidity was loose.
01:17Fiscal policy was accommodative.
01:21After that, now, the macro environment might be tighter.
01:26But the fundamental strength, the fundamental of the industries are so strong, that take the leadership.
01:33So from here going forward, we will have a slightly tighter environment, macro environment.
01:38But that's not too tight to make people worry about asset pricing, valuation, relatively tighter, but not super tight environment.
01:52And that will allow fundamental technology sectors, fundamental drive the market from here.
01:58And how are you thinking about AI?
02:00I know that's a very broad term.
02:01That can mean many, many things.
02:03But, I mean, is there a bubble?
02:05Is there a valuation bubble?
02:06Is there a CapEx bubble?
02:08How are you looking at the entire space?
02:10Right.
02:11We look at it from a company perspective.
02:14Okay.
02:15We don't think this is a bubble yet.
02:18On a valuation perspective?
02:20On a valuation perspective.
02:21If we look at it, if we look at the leaders like NVIDIA and Chinese, you know, supply chain leaders
02:27in this environment, in this market, their valuation is still very reasonable.
02:33And we're talking about, you know, 10 times PE.
02:37I wouldn't call that a bubble kind of valuation.
02:40In fact, that's cheap, historically.
02:43That's actually cheap.
02:43The reason being, people worry about the sustainability of the fundamentals.
02:50So, that's why you wouldn't be able to give companies a long-duration valuation.
02:56But, in fact, the fundamentals could last much longer than people are willing to give price for.
03:03So, I wouldn't say this is a bubble.
03:05But, by looking at how the prices of certain assets, certain sectors move, I believe we could be in the
03:13early innings of a bubble forming.
03:16So, what's the advice?
03:17Where should investors pivot towards?
03:21So, what's the overweight within AI?
03:24And where do we need to be cautious?
03:26The overweight would be always with the supply chain, the point of the supply chain that's suffering from the most
03:34severe shortage.
03:35The scarcity trade.
03:36The scarcity trade.
03:37Okay.
03:38Exactly.
03:39So, from last year, we have gone from GPU to memories.
03:45Yes.
03:45But this year, CPU and to fiber communication, optics communication, etc.
03:51So, the scarcity will change, move around up and down the supply chain.
03:59But stay with that would usually be the most profitable trade.
04:03But the whole – I wouldn't worry about the whole fundamentals because last year, we were worried about return on
04:13equity, return on investment.
04:15Right.
04:15This year, this conversation has become much less because we see –
04:20Why do you think that is?
04:21Why has that changed?
04:22What has changed is empathy.
04:24You're seeing the leading model companies are generating a huge amount of growth.
04:30Okay.
04:30I mean, it's becoming – it's the fastest growing company in human history.
04:37And they're reasonably profitable.
04:40So, the ROI loop is already closed to many investors.
04:47So, people worry about return on investment, much less this year.
04:50So, this trade attracts pretty much all the capital from all over the world to this sector.
04:57When you came in earlier on, during the break, you mentioned about China.
05:01Yeah.
05:02And the shift you think that is underappreciated from cost leadership to tech leadership.
05:09What does that mean in simple English?
05:11And how do I express that in the markets?
05:15China used to have a very simple narrative.
05:19Cost leadership.
05:20We produce things cheaper than anyone else.
05:22Including the models.
05:23Including the models.
05:24Which are free, I guess, in some cases, right?
05:26But now China is becoming – the competitor, the advantage for China is increasingly innovation-driven.
05:36The second largest economy has become the largest engineering ecosystem.
05:42That means we can – the key capabilities is to innovate, commercialize, and scale up in the lightning speed.
05:53And if you look at industries like electric vehicles, robotics, biotechnology, batteries – now, you just mentioned AI.
06:04And these industries, China, are no longer followers.
06:08They are, in many cases, global leaders.
06:11So, we're seeing more and more companies moving up the complexity curve in the global supply chain.
06:18And that's what I mean by taking from cost leadership to technology leadership.
06:23When does that show up in earnings expectations?
06:26Because on a broad basis, when I look at the index, for example, and in terms of, let's say, projected
06:32EPS 12 months down the road, that doesn't seem to be showing up yet.
06:36It's still a very cost-focused, competitive-focused dynamic that we're seeing across most sectors.
06:42Not all, but most sectors.
06:44If you group everything together at the index level, yes, that's what you see.
06:48But if you look underneath, there's a huge divergence between companies that can innovate and a company that's more of
06:57a traditional macroeconomic-driven business model.
07:02The technology-driven companies are doing extremely well.
07:05And this is reflected in the divergence between the sector performances.
07:10Right.
07:11If you look at the index, it didn't go anywhere.
07:15But a certain sector has gone up significantly over the last two years.
07:19And if you find the common factor for those companies, they are either innovations or companies who can export, which
07:28is driven by innovation.
07:29I mean, that's a good nuance to make there, because I think it also depends on which index you look
07:34at.
07:35That's right.
07:35If it's the Hang Seng Tech against the Star 50, for example, which is very, very different.
07:40We're seeing this massive build-out in fundraising, whether that's in the US.
07:45You have SpaceX, you have Anthropic, you have OpenAI.
07:48When do we see that wave of fundraising across the Chinese markets for their own build-up?
07:55Right.
07:58You mean the IPO impact?
08:00Whether that's IPO, debt fundraising, that seems to be the missing piece so far.
08:07The point I was raising earlier, which is the strong ROI in this space is attracting all the global capital
08:16to here.
08:17I mean, it's a rational choices for all sorts of investors.
08:22When you look at what you invest, everywhere, everywhere else, other sectors, you find much less competitive returns potential.
08:32And you look at this space, whether SpaceX or Anthropic, anything related to AI, you see a lot of return
08:42potential.
08:43So from your capital allocation perspective, you would be willing to allocate more to this space, even by moving capital
08:51out of the rest of the economy.
08:53And it attracts the global capital, too.
08:56It's not just US capital.
08:57So capital from all over the world will come and support the IPO.
09:03So people worry about the SpaceX IPO and the three big companies.
09:08They will raise something like $200 billion, which is something totally digestible by the market.
09:13Okay.
09:14So I wouldn't worry about the funding just yet.
09:17It's a rational choice by capital seeking for yield.
09:20And just here, very quickly, your broad sense of capital from onshore China.
09:25Does it remain in China?
09:26Do you think that comes to Hong Kong?
09:27Where do you see flows going very quickly?
09:33The demand for diversification is always there.
09:36Okay.
09:37And there's a legitimate channel, which is to invest through the QDII scheme.
09:42Right.
09:43And that will see continuous growth there.
09:45We manage some QDI funds and they continue to have inflows.
09:48Fantastic.
09:49And that will not change.
09:51And, you know, the IPOs and all the capital activities will not change the sentiment,
09:56the need for capital investing globally.
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