Mark LaMonica: Welcome to another edition of Market Minute here with Dennis today to take us through everything happening in markets. Now, we’ve had some common themes that we’ve been discussing over the past several months and even years, and a lot of that seemed to come into question last week. And we’ll start with China. A new AI model was released. So maybe walk through that and the impact on markets.

Dennis Li: That’s right Mark. So last week the global equity market solved by over 1%. And we saw a bit of rotations that investor rotating from the growth sector like it into the more traditional value sectors like financials energy and consumer staples. And heading into this sort of thing the semis, the valuations was very stretched. And the investors are started on why some of those positions, the market are pricing the AI cycle very aggressively.

So for the AI spending to become a circular trend, someone has to pay for it. At the moment it’s the hyperscalers. They are funding it by their cash flows from their existing business, and some of them even tapping into the corporate bond market. So but in the end, someone has to pay them, which makes the AI model monetization is very important.

However, as you mentioned last week, there’s a Chinese startup, moonshot, which is backed by Alibaba, and they announced that their new AI model, Kimi K3, which is the the elite open source model, has a better performance than anthropic outputs. And just behind the fabled five and ChatGPT 5.6. So that reminds everyone the deep sick moment from last year, and people will start to question about the monetization and competition of these AI models.

And that leaves another important thing to remember. Most of the Chinese AI model, they’re open source. So that leaves a big question mark on the ecosystem.

Mark: And so some of these reversals were quite significant. So obviously you talked about the hyperscalers. Some of the people they’re paying of course are the semiconductor stocks. The Korean stock market has done very well because of their semis. So what’s kind of happening with Korea and semiconductors.

Dennis: So the Korean market has continued to slide last week. And I think they have lost about a quarter of their market value from its peak. And there’s two reasons driving it. One of course is the use of the leverage single stock ETF. Another reason I think it’s important is a discount rate. So for the career AI memory manufacturers the demand is definitely exceeds the supply.

And everybody knows that. And but even if the future earnings are reasonably visible there’s only half of the equation. And because of some of these giant manufacturers that become so profitable these days, they start to getting attention from the blue House in Korea and also increasingly exposed to the geopolitical risk. So at some point, I think the market will start to bring something back called career discount, which will cause the valuation to fall.

Even the projected earning trajectory stay the same.

Mark: And then another part of tech that hasn’t done well is software shares. So talk a little bit about software shares I guess valuation levels, how you guys are seeing them right now.

Dennis: Software and software like companies in the professional services, in financial payment industries, I think valuations are getting better. So they used to command very high multiples for the quality growth. But at the moment, because the disruption of AI, people are thinking that AI agent could replace them. So they are priced as if they are going out of business.

And we think there’s some of them. There’s the opportunities that can coexist with AI, but they are trading a very good price that present asymmetric upside and downside for our investors.