KCM Trade：高收益率下美股或跑赢亚洲，科技股仍是核心支撑

[music] Bloomberg Audio Studios podcasts radio news. Welcome to the Daybreak Asia podcast. I'm Matt Piper. Doug Krner has the week off. Asian stocks dropped, tracking losses on Wall Street as weakness in US chipmakers dented sentiment ahead of the start of earning season. Enthusiasm for artificial intelligence eased as investors weighed the outlook for capital spending against rising borrowing costs. Also weighing on market sentiment is the widening conflict in the Middle East that's threatening to hamper a recovery in supply from the region.

That is where we begin our conversation with Tim Waterer. Tim is chief market analysts at KCM Trade. He spoke to Bloomberg TV hosts Heidi Strad Watts and Paul Allen. Tim, thanks so much for joining us. And I do want to start with some of those riskoriented themes. How do you approach that? Do you just look through it or uh are you becoming a little bit more cautious? Good to be with you. I think what we're learning is that the market is itself learning to live with this tandem of high yields and high oil, but I think to a point.

So I think what we're seeing is that the market can live with these levels say on the 10-year Treasury note sort of in 5 to 5 1/2%. I think if we did see that move beyond 5 1.5% if the Fed gets overtly more hawkish I think that would pose a few more questions to resentment moving forward. The one caveat I I would add there is that I think the US market probably better equipped to handle this high yields high [snorts] oil environment given it is a net exporter of energy if we contrast that to say European markets a lot of markets across Asia it's the opposite story where there's you know net energy importing going on so I think if we're sort of looking for winners and losers in the current environment still think US markets probably likely to outperform

when you look at elevated yields do you have like a threshold in or a ceiling where you know it starts to hurt the equity markets.

Yeah, that's a big question right now is that terminal rate. I think more so than whether the Fed does hike in October or December, how high are they going to go to? So, yeah, look, I think like I said in this current range we've got right now, markets probably don't love it, but they're living with it. I think 5.5% and beyond, that's when it gets a bit more tricky. I think that's when the bond market becomes a bit more attractive and that can take some momentum away from equities cuz there's a a more viable option there for traders to look at when those yields start getting in that 5 1/2 6% territory on the 10-year note.

How much of a taste is earning season going to be for AI in particular because there's obviously a renewed vulnerability. The proponents will still say that there's, you know, further to go. This doesn't necessarily have to be the piercing of the bubble.

That's right. I think that's just a key earning season coming up. We'll see whether the the tech trade continues to carry the day and provide that shock absorber to markets against this high yields, high oil environment. So we think looking at what we saw in Q2 earnings and the forward guidance, we still think tech stocks will be the outperformers once again. Will it be enough to satisfy the market? That remains to be seen, but I think we'll see some pretty healthy numbers.

And like I said, from here to year end, I think the the tech sector probably likely to keep the market in goodstead. Um, for the S&P 500, we think maybe a 8,200 looks like a potential, you know, legitimate target by year and that's about another 5% from here. Maybe if we get a Santa Claus rally as well, that adds a bit more momentum as well. So, but to answer your question, yes, I think tech sector that's really the backbone.

If that if that falls over this earning season, the market could be in some trouble. I wanted to ask you about firmness actually because do you see that as a litmus test of perhaps investors are demanding demanding greater scrutiny, greater due diligence, uh better value and perhaps not as much froth when it comes to these valuations because that was a a spectacular sort of exercise in everything that just went wrong.

That's right. It was really that valuation story I think that caught investors out. I think had it been uh valued closer to August levels, I think we would have seen a different result and I think markets could have tolerated that. But the maths just didn't add up at the end. But yes, it does show greater scrutiny. It's not just uh you know, you're in tech and you'll get a free pass from the market anymore. So look, there was a setback for the local market as well in terms of listings here as well.

I still think they'll find a home [snorts] somewhere. Um but I think probably yeah, maybe valuation levels a bit more attractive, a bit more defensible [snorts] given their current operating uh you know situation.

How do you approach the tech, the AI names, the semi stocks in the rest of Asia as well? You know, I mentioned the Cosby before having a a pretty nasty session yesterday, approaching that 200 day moving average. At what point does it start to look like a buy?

Well, that's yeah, that's right. What we're seeing now, I guess, is a bit of a the US market playing a little bit of catchup. We saw the the Asian markets really outperforming in the first half of the year. The Cosby, as you mentioned, up, you know, a significant amount. Certainly the uh the steam has come out of that market right now. But I think yeah that tech sector names the chip manufacturers we're still looking at them as a a buy on pullbacks given that the order books are still looking full through the end of next year and into 2028 as well.

I think 202930 becomes a little bit more murky but I think next 12 18 months full order books that's good for the operating profit and the uh I guess you know making a good case for buying tech on any pullbacks. So further downturns yes seeing it as buying opportunities. A lot of the angst of course is being generated by inflation and a lot of that's being generated by high energy prices as well. Let's try and be a little bit optimistic here and imagine a scenario where there is peace [music] in the Middle East.

How quickly would you anticipate those pricing pressures to recede a little?

Uh I think could take a little bit of time. I think uh if we do see price pullbacks on sub $100 in say the Brent contract for example, I think that a number of countries would be looking to stock up again uh refill their stock piles. So that could also alleviate the downside moves. I think what we're seeing now, the reason we are seeing better export numbers, but the costs are so much higher now to move oil out of the Gulf region.

That's why we're not seeing the price react to better export numbers at this point in time. But yes, if we put a bright spin on it, I think there is a scenario where we maybe do get Brent back in the 80 to $85 level. And obviously that would take some steam out of the Fed's hawkishness and maybe the terminal rate that they get to will be lower than the market is currently projecting. So, I think there is certainly a risk that the Fed may overshoot if we did get a U-turn in oil prices.

It's interesting because as dominant as the oil story is, it's only one part of what's driving inflation, right? And we see that in Australia, inflation's been a problem prior to the war starting. But in the US, they're also containing and really globally, massive amount of AI spending, obviously the capex there, fiscal looseness in a lot of these economies. Do you think if we took crude prices out of the equation that would remove the stickiness for inflation?

I think so. Yeah, I still see crude as the the heart of the problem. So yes, there are other factors as you say, you know, a crowd out factor from, you know, AI capital raising. That's certainly one element of it as well. But I think if we go back t