Markets Gain on Hopes for US Funding Deal | Bloomberg: The Asia Trade 11/10/25

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Key Concepts

• AI Summit in Seoul: An event discussing the convergence of Artificial Intelligence and industry.
• AI Bubble Concerns: Doubts about the sustainability of the rally in AI and chip stocks.
• U.S. Government Shutdown: A prolonged shutdown impacting economic data, federal workers, and public services.
• China CPI Data: Unexpected rise in October consumer prices due to holiday spending, but deflationary pressures persist.
• Dealmaking and Investment Banking: Trends in global dealmaking, M&A, and capital raising.
• Rare Earths Market: Diversification efforts and China's dominant role.
• Private Markets: Growing attraction of private markets for capital.
• Economic Data and the Fed: The impact of the shutdown on economic data availability and the Federal Reserve's decision-making.
• Tariffs and Trade: The impact of tariffs on various sectors and potential solutions.
• AI Chip Development: Innovations in AI chip architecture for sustainability and efficiency.
• Corporate Earnings: Key earnings reports from companies like Sony, Softbank, Tencent, and JD.com.
• Deflationary Spiral in China: Persistent price declines impacting corporate profits and investment.
• Philippines Economic Growth: Slowdown in Q3, impacted by corruption scandals and structural challenges.
• Maynilad Water Services IPO: The company's listing and future capital expenditure plans.

AI Summit in Seoul and AI Bubble Concerns

The "Asia Trade" program is covering the AI Summit in Seoul, the eighth edition, which brings together AI experts to discuss the convergence of Artificial Intelligence and industry. This event follows a significant sell-off in tech stocks, with the MSCI Asia Pacific seeing tech companies lose the most ground intraday since April. This highlights concerns around a potential AI bubble, particularly in Asia, where tech companies form a high concentration in regional benchmarks. For instance, in South Korea, Samsung and SK Hynix constitute 30% of the KOSPI, and TSMC accounts for 40% of the Taiwanese benchmark. Conversations at the summit are expected to address the social and ethical impacts of AI, including job losses.

Economic Data and Market Outlook

Asian Markets: Asian markets are anticipated to start the week cautiously, with investors weighing pressure on tech stocks and uncertainty surrounding the U.S. economy.

China Data: A significant economic data release this week is China's data bonanza on Friday, including retail sales, industrial production, and investment data, all expected to point to cooling momentum. Over the weekend, China's CPI numbers unexpectedly rose in October, attributed to the long October holiday week, potentially indicating stabilizing demand. However, economists suggest that deflationary pressures remain.

U.S. Economy and Government Shutdown: The U.S. government shutdown is heading into its 39th day, creating significant uncertainty around trade and the tariff environment. This shutdown is having a tremendous economic impact, costing an estimated $15 billion per week. 40 million Americans rely on food aid, which is currently tied up. Thousands of federal workers are furloughed, working without pay, and air traffic controllers are affected, leading to flight delays and airport chaos. The lack of data due to the shutdown is making it difficult for the Federal Reserve and investors to gauge the U.S. economy's direction. A test vote is planned to end the shutdown.

Japan and Australia: This week will also see bond options out of Japan and jobs data out of South Korea and Australia.

Dealmaking and Investment Banking Landscape

Anthony Sweetman, Co-Head of Asia-Pacific Investment Banking at UBS, discussed the current environment, characterized by periods of uncertainty but with generally strong and constructive markets. He noted that globally, dealmaking is accelerating, with the outlook remaining constructive, though opportunities can be limited in some areas.

AI as a Hot Sector: Regarding AI, Sweetman believes there is no doubt about continued demand for AI products and services, with significant investment to meet this demand. However, the long-term profitability for market participants is yet to be determined and will likely take several years to become clear. UBS, as a financial services provider, is looking to utilize AI to improve client services and provide capital raising and M&A services to AI participants.

Fragile and Benefiting Sectors: Sweetman identified rare earths as a sector that has benefited most from global uncertainty recently, with increased prices and government capital for new projects to diversify supply. He questioned whether this volume would continue following U.S.-China discussions. He also anticipates diversification in rare earth supply, despite China's continued importance as a producer.

Private Markets: Private markets are attracting a huge amount of capital globally. UBS serves both private and public markets, focusing on providing services for capital raising and secondary trading. The growth of private markets is expected to continue, though liquidity can be a challenge compared to listed markets, presenting a trade-off for investors.

Deal Activity in 2020: Sweetman expects deal activity to be reasonably active across most sectors. In smaller markets like Australia, mining and resources, including gold, have been particularly active. India is also becoming busier, with renewed global appetite expected to grow, though it will take time to catch up with more established markets.

UBS Strategic Priorities: UBS's strategic priorities in the region include continued investment, with a long presence in Greater China, and a number one position in investment banking in Korea, Southeast Asia, and Australia. In Japan, the focus is on growing their position in an important and active market.

Australian Market: There is ongoing interest in acquiring Australian sector businesses due to underlying demand and a sector in transition, particularly on the wealth side. However, opportunities may be limited. Wealthy Australians continue to invest globally, with a high flow of capital from Australian investors seeking to deploy growing savings pools.

Key Risks: Sweetman identified market conditions as the biggest driver of the industry, noting that while they currently look positive, there is no guarantee.

U.S. Government Shutdown Developments

Senate Vote: U.S. Senate Republican Leader John Thune announced plans for a test vote on a spending package to end the government shutdown. A group of Senate Democrats may support the measure, with final details being worked out, including protecting government workers from layoffs. Democrats have slammed a Republican proposal for a one-year Affordable Care Act subsidy extension, calling it a non-starter that masks rising premiums and pads insurance company profits.

Potential Deal Structure: The proposed plan would fund the Veterans Affairs Administration, the Department of Agriculture, and Congress itself for a year. Other agencies would be funded through the end of January 2020, requiring renegotiation later. A promise of a vote to extend healthcare subsidies is included, which is a major sticking point, as Democrats need 8-10 senators to trust Republicans to vote on this promise.

Impact of Shutdown: The shutdown is impacting air travel, with thousands of flights affected. The upcoming Thanksgiving holiday, a major travel period, adds pressure to resolve the shutdown. Economically, the shutdown is costing $15 billion per week. The lack of data is making it difficult for the Federal Reserve to make decisions.

Catalyst for Reopening: Americans are reportedly fed up with the shutdown, and the movement seen in Congress is an indication that politicians are receiving this message.

Economic Impact on GDP and Inflation: President Trump's economic advisor stated that the shutdown will likely have a significant impact on economic growth, potentially causing GDP to turn negative. The shutdown might also necessitate delaying the release of the official CPI print. The advisor expressed comfort with 2% inflation, noting a downward trajectory from 4% in January.

Tariff Dividend: Scott Bessent suggested that President Trump's suggestion of a tariff dividend could come via tax cuts, such as tax decreases on tips, overtime, or Social Security, and deductibility of auto loans.

China's Economic Data and Deflationary Pressures

October CPI: China's consumer prices unexpectedly rose in October, driven by a holiday boost in travel and food spending. CPI came in at 0.1%, better than the estimated 0.1% decline. PPI declined by 2.1%, in line with estimates.

Deflationary Pressures: Despite the October CPI rise, economists believe deflationary pressures remain. PPI is expected to continue declining, and the anti-deflationary campaign has unfinished business. Analysts do not expect the government to aggressively tackle inflation, aiming to meet GDP targets by year-end.

Bloomberg Analysis of Price Data: A Bloomberg analysis of China's price data over the last two years revealed that 51 out of 67 tracked goods and services showed steep price discounts, far steeper than headline CPI suggests. Ordinary items like cucumbers and eggs saw double-digit declines, and BYD cars were down 27%. Household appliances also saw price declines. Price increases were mainly in services like attraction tickets and residential management fees.

Impact on Consumers and Companies: Persistent price declines can lead consumers to hold back spending, anticipating further price drops, especially for large ticket items. This affects industrial profits, with over 25% of Chinese listed firms reporting losses in the first half of the year, the highest in a quarter-century. This impacts capital expenditure, R&D spending, and wage increases, contributing to a difficult-to-break deflationary spiral.

Corporate News and Earnings

NVIDIA and TSMC: NVIDIA CEO Jensen Huang has asked TSMC for more chip supplies to meet booming AI demand. TSMC's CEO confirmed the request, with the chipmaker expecting record sales annually.

China's Chip Exports: China has confirmed steps to exempt compliance exports on chips intended for civilian use from experience, urging the Netherlands to correct its "erroneous practices" after China curbed exports in retaliation for Dutch controls on Nexperia.

Pfizer and Seagen: Pfizer has agreed to buy Seagen after a bidding war, raising its offer to match the revised bid. Seagen cited a call from the U.S. on potential risks from the proposed Novo deal structure.

ANZ Bank: The ANZ bank missed profit expectations, with current and former senior executives taking hits to variable compensation due to past risk management issues. The CEO is revamping the bank by reducing costs and simplifying operations.

Sony: Sony's gaming business is expected to remain solid, contributing to operating profit. A strong gaming title in late June should boost revenue. The December quarter is anticipated to be strong with a new game software release. Sony is coping well with increased tariff rates, with production sites shifting from China to other countries.

SoftBank: SoftBank is expected to have a robust quarter, with net income estimated at ¥180 billion and net sales at ¥1.7 trillion. Morgan Stanley expects consolidated operating profit to be up 6%. The Vision Fund's investments in public and private companies, including OpenAI, are key areas of focus.

Tencent and JD.com: Tencent is expected to have a strong quarter, with momentum in AI development. JD.com is also expected to show strong growth in new business segments, with potential improvements in operating margins in its retail segment due to scalability and supply chain capabilities.

AI Chip Development and Startups

FuriosaAI: This South Korean startup recently launched its second chip, the Renegade, focusing on data centers and inference AI applications. They are planning a fundraising campaign early next year, with an eventual IPO in mind. FuriosaAI believes AI chips need to be more sustainable and energy-efficient while delivering high performance, with innovation in fundamental architecture. They see the AI bubble as an opportunity to highlight the need for sustainable and cost-effective solutions. South Korea's strong semiconductor ecosystem and talent pool are seen as crucial for AI infrastructure development.

CGI Group: The AI Officer at CGI Group views AI as a game-changer for industrializing value chains, particularly in sectors like food, entertainment, and retail. They aim to enhance creativity, operations, and provide personalized content. AI is seen as a strategic growth engine, not just a tool. They are developing AI platforms to democratize content creation and distribution, emphasizing collaboration rather than job replacement. AI's potential to connect consumers to the right products and understand consumer intent is a key ecosystem development.

Philippines Economy and Infrastructure

Q3 Economic Growth: The Philippines' economic growth slowed dramatically in the third quarter, missing estimates due to a government corruption scandal denting consumer confidence. The country's stock market is currently the world's worst performer.

Maynilad Water Services IPO: The listing of Maynilad Water Services, the nation's largest in four years, closed flat on its debut. The IPO proceeds will fund their ₱163 billion CAPEX commitment, focusing on water sources, wastewater coverage, increasing capabilities, customer engagement in AI, and automation. Future expansion plans include servicing reclamation projects in Manila Bay and partnering with LGUs and water districts adjacent to their concession area. The company is also focused on Vietnam for overseas strategy.

Challenges and Risks: Maynilad has faced challenges, including political risk leading to contract renegotiations. However, the renegotiated concession agreement and an extended franchise to 2037 provide a more stable framework. Water is a small portion of household expenses in the Philippines, and tariffs remain comparable to Asian neighbors. Investors like ADB and IFC are expected to bring global standards in sustainability, governance, and operational excellence.

Typhoon Impact: A typhoon made landfall in the northeastern Philippines, causing widespread damage, flooding, and power outages, with two deaths reported and over a million evacuated. The President ordered the suspension of government work.

Market Performance and Outlook

Asia-Pacific Markets: Asian markets are showing a rebound, with tech stocks leading the way. The KOSPI is leading gains, supported by SK Hynix and Samsung.

U.S. Futures: U.S. stock futures are pointing to gains at the open, reflecting optimism around the potential end of the U.S. government shutdown.

Dollar-Yen: The dollar-yen is hovering around the 154 level.

U.S. Treasuries: Selling off in U.S. Treasuries, with the 10-year holding around 4.09% and edging towards 4.12%.

AI Stock Sustainability: The sustainability of the AI stock rally is a key question. While NVIDIA's strong performance and upcoming earnings report may reassure investors, the long-term outlook for next year remains uncertain. Valuations in AI stocks are considered high, with some analysts suggesting they should be closer to 15 times earnings rather than 30 times.

U.S. Government Shutdown Impact on Data: The shutdown's impact on data availability is a significant concern for the Federal Reserve and investors. The September employment report is expected to be released quickly after the government reopens, but the October household survey might be delayed.

Inflation and Asset Bubbles: Concerns exist about both jobs and the stickiness of inflation. However, some believe the next impulse for inflation is downwards, with falling rents, ample oil supply, and unit labor costs running at 2%. The greater concern might be an asset bubble rather than a recession.

Productivity and Job Losses: The potential for AI to surge productivity could lead to job losses, posing a challenge for policymakers. Companies are reportedly cutting back on entry-level hiring, anticipating that AI might reduce the need for human workers in the future.

BOJ Summary of Opinions: One BOJ member suggested a re-hike now would be a step to normalize rates, and another indicated the timing of a rate hike is nearing. The summary of opinions is being watched for any indication of members leaning less dovish.

Olympus: The stock surged 14% as the new CEO revamps the medical device maker, cutting costs and planning workforce reductions.

Maynilad Water Services IPO Debut: The IPO debut was relatively muted, affected by the broader Asian market environment, but the company is looking forward to better performance as Asian markets rise. The IPO proceeds will fund their CAPEX commitment for water source, wastewater coverage, capability increases, customer engagement in AI, and automation.

Conclusion: The "Asia Trade" program highlights a complex global economic landscape. The AI summit in Seoul underscores the rapid advancements and investment in artificial intelligence, alongside growing concerns about a potential bubble. The prolonged U.S. government shutdown continues to cast a shadow over economic data and market sentiment. China's economy faces persistent deflationary pressures despite a recent uptick in consumer prices. Corporate earnings reports from major Asian tech companies will be crucial in determining the sustainability of current market trends. Meanwhile, infrastructure development and economic growth in regions like the Philippines present both opportunities and challenges. The interplay of technological innovation, geopolitical factors, and economic policy will continue to shape market movements in the coming weeks.