Rotation Trade Has More to Play Out: 3-Minutes MLIV
Speakers
Mark Cudmore
— Executive Editor, Bloomberg Live / Macro Strategist
Summary
Mark Cudmore discusses near-term weakness in Korean equities as low liquidity and regulatory changes threaten an overreaction, persistent softness in global semiconductors, an oil market being structurally repriced higher by geopolitics, and an AI capex bubble that continues to inflate but remains vulnerable to future capex cuts.
- South Korean leverage ETF regulatory announcements are expected before a holiday, risking an illiquid and oversized downside reaction in KOSPI.
- Global semiconductor and chip stock price action remains extremely poor, adding to the bearish technical picture.
- Oil prices are seen as structurally higher than previously thought due to Russia-Ukraine and Middle East supply disruptions that will not normalise this year.
- The Fed is expected to stay on hold as long as possible, with a September hike contingent on continued market strength despite underlying fragility.
- An AI capex bubble is acknowledged, but the painful unwind is not yet imminent; it would likely begin after a clear slowdown in hyperscaler capex.
Ideas
More near-term pain for Korean equities
Korean regulatory announcements on leverage ETFs are unlikely to be game-changing but, combined with a holiday closure and low liquidity, could cause an outsized negative reaction. The KOSPI is closing the week near its lows with poor technicals and the price action in chip stocks remains extremely poor, suggesting more pain next week.
Global semis price action remains poor
The price action in semiconductors and chip stocks globally is extremely poor, pointing to ongoing weakness.
Oil prices to stay structurally higher
Geopolitical disruptions in Russia-Ukraine and the Middle East are causing a structural repricing of oil. Normalisation of flows is not expected this year, meaning oil prices will be slightly higher than previously anticipated.
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Speakers: Mark Cudmore · Tickers: EWY, SOX, WTI