Iran blockade bites, China's AI rally implodes.

Transcript

Tom The tankers are turning around, the China tech giants are tumbling, and Japan's banks are finally having their moment in the sun.

Marie It is Sunday, May twenty-fourth, twenty-six. I am Marie, joined by Tom and Gerald for the Weekend Edition of Investment Flash. We are looking at a market that is fundamentally fragmenting right before our eyes.

Tom Fragmenting is one way to put it, Marie, but honestly, look at the energy move! U-S Central Command is saying they have redirected a hundred commercial vessels from Iranian ports. That is a massive chunk of supply just... gone.

Gerald Yeah look, it is a significant disruption, Tom, but let us keep our heads here. The U-S Oil Fund E-T-F is already up a hundred and four percent year to date. At some point, you have to ask who is left to buy the top of this blockade.

Tom Buddy, the blockade is the whole story! If the oil is not moving, the price is not coming down. The Energy Select Sector S-P-D-R Fund is still six percent below its fifty-two-week high. There is room to run.

Marie Wait — wait a second, Tom. Did you see the Bloomberg report about the liquefied natural gas tanker? It just exited the Strait of Hormuz for India. That is the first one since the war started.

Gerald Exactly.

Tom Right —

Marie That is the whole story.

Gerald Honestly, that one ship might be a bigger signal than the hundred turned away. If L-N-G starts flowing, the scarcity premium for companies like Cheniere Energy starts to evaporate. It is a pinprick in the bull case.

Tom Okay, fair enough, maybe the L-N-G trade is cooling, but you cannot tell me the Japan story is not red hot. The trading value on the Tokyo Stock Exchange Prime market literally doubled over the last year. Doubled!

Gerald Look mate, I have been banging the drum on Japanese financials for months, so I am not going to argue. M-U-F-G is leading the global league tables for infrastructure project financing. That is not just speculation; that is real, structural earnings.

Marie And the valuation actually makes sense for once. Gerald, you usually hate anything with a pulse, but M-U-F-G has a price-to-book ratio of about one point five. That is still very reasonable for a bank near its fifty-two-week high.

Gerald Ha — yeah, look, even a broken value-investing clock is right twice a decade. But seriously, seeing Nomura and Sumitomo Mitsui benefit from this massive influx of foreign retail flows... it feels sustainable.

Tom For real! I mean, Nomura is only up about one percent in the last week. It is still fifteen percent below its high. If you want a way to play the increasing liquidity in Asia without the China headache, that is it.

Marie Speaking of the China headache, did you guys see the carnage in the cross-border brokers? Tiger Brokers and Futu Holdings both cratered more than twenty-five percent in Friday's session.

Gerald That was brutal. The regulator basically gave them a two-year eviction notice. They are calling them 'unauthorized' and vowing to eliminate them. It is an existential threat, plain and simple.

Tom No way, I am going to push back there. Tiger is already sixty-eight percent below its fifty-two-week high. Is the 'extinction' not already priced in at those levels?

Marie No, Tom, because the floor can always go lower when the government says your business model is illegal. This is not a valuation adjustment; it is a liquidation event in slow motion.

Gerald It is funny, really. Analysts are probably busy revising their price targets to zero right now — it is the ultimate free retirement plan for a researcher. Just wait for the stock to fall ninety percent and then issue a sell rating.

Tom pff, okay, that's fair. I'll take the hit on that one.

Marie Look, as we pivot through these markets, just a quick reminder for everyone: we are discussing market trends and news. None of this is investment advice. Do your own research or talk to a professional.

Tom So, if the brokers are toast, what about the actual tech giants? Nikkei is reporting that the 'Seven Titans' in China have basically erased all their A-I gains because of deflation. Alibaba and Tencent are just sliding.

Marie See, THIS is what I mean about the substitution narrative. While the headlines focus on the slump, Hong Kong is actively replacing Western software with Chinese domestic cloud services. There is a floor there.

Gerald The thing is, Marie, the substitution is happening, but it is happening in a deflationary environment. You can win all the market share you want, but if you are cutting prices to survive, your margins are still going to look like a disaster.

Tom But look at Hong Kong retail! One in five new retail entrants in the city are mainland Chinese brands. Fashion, beauty, food... they are filling the vacancies that the Western brands left behind. That has to be good for the iShares M-S-C-I Hong Kong E-T-F.

Marie It is a rotation, Tom. The capital is staying in the region; it is just changing its passport. I actually like the Hong Kong equity play here because it is up about seven percent year to date but still has a massive cushion from its lows.

Gerald Fair enough, but we need to talk about this Nikkei piece on Southeast Asian biodiesel. This is the most original take I have seen all week. Indonesia and Thailand are basically turning food into fuel because of the Iran war.

Tom Wait, you mean the palm oil thing? They are testing a fifty-percent biodiesel blend now?

Gerald Exactly. They are so worried about energy security that they are diverting palm oil from the kitchen to the gas station. Now Thailand is limiting how much cooking oil people can buy.

Marie One hundred percent.

Tom That's the whole story.

Marie It is energy nationalism. We always talk about oil and gas, but this is hitting the M-S-C-I Malaysia E-T-F because they are a huge palm oil producer. The tension between fuel and food is a massive second-order effect of the conflict in the Middle East.

Gerald It is a classic Gerald trade — things getting more expensive and people getting more miserable. I should be bullish on Crude Palm Oil futures just on principle.

Tom Hah — yeah, yeah. Only you could find the silver lining in a cooking oil shortage.

Marie Not so fast, Tom. We also have an Ebola outbreak in the Congo. Flights are halted, and that is the world's top copper producer. If the supply chain there breaks, copper prices are going to see a massive spike.

Gerald And it is already showing up in the price action. The Copper Index Fund is up eleven percent year to date. But I would be careful with Freeport-McMoRan. If their logistics in the Congo get snarled, they might not be able to capitalize on those higher prices.

Tom Wait, what about Gilead Sciences? Their antiviral, remdesivir, is usually the go-to for these types of outbreaks. The stock was up nearly three percent in the last session.

Marie Right, and it is still fifteen percent below its fifty-two-week high. It is a defensive play with a massive catalyst. I think that is a smarter way to play the health risk than trying to time a copper squeeze.

Gerald Speaking of squeezes, did you see the coal mine blast in China? It is the deadliest in years. Every time this happens, Beijing goes on a safety crusade and shuts down production. The Coal E-T-F has surged seventy-six percent from its low — it is begging for a pullback.

Tom I mean, Gerald, remember when you said semiconductors were cooked in Q-two? You are calling for pullbacks on everything lately!

Gerald Alright, alright — I was wrong on the chips. But coal mines and safety crackdowns are a different beast. When energy security meets worker safety in China, safety usually wins for a few months, and supply drops.

Marie Honestly, the most interesting thing to me is what is NOT in the news today. We have all this movement in India and Malaysia, but the central banks are silent. No word from the Reserve Bank of India on that L-N-G tanker, nothing from Bank Negara on the ringgit.

Tom Maybe they are just as confused as we are! But look, if we are synthesizing this for the weekend, it is long Japan financials against short Chinese brokers. That feels like the trade of the month.

Gerald It is the perfect divergence. You are buying the infrastructure boom in Tokyo and selling the regulatory bonfire in Shenzhen. I can get behind that.

Marie I agree. The Japan story has the structural legs that China tech just lacks right now until that deflationary pressure clears up. Keep an eye on the Producer Price Index for any sign of a turn.

Tom Well, I am still holding my oil position. One hundred vessels redirected is not a headline you ignore. Buddy, this blockade is just getting started.

Gerald Fair point, Tom, but just remember that the first ship through the strait is often the one that breaks the dam. If more L-N-G follows that tanker to India, your oil trade might get a lot less crowded, very quickly.

Tom We will see! If you are just finding us, hit follow on Spotify or check out investmentflash.com for the full digest with all the charts and sources we talked about.

Marie Great stuff today, guys. We are back on Monday. We're back at Monday's London Edition at seven-thirty a.m. London time.

Gerald Have a great rest of the weekend, everyone.

Tom See you Monday!