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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.

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Speaker 2: Welcome to the Bloomberg Daybreak Asia Podcast. I'm deg Chrisner.

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Speaker 2: So President Trump says that he will meet with Chinese

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Speaker 2: President Chi Jinping next month on the sidelines of the

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Speaker 2: APEC summit in South Korea. Now, this follows a phone

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Speaker 2: call on Friday between the two leaders, and Trump said

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Speaker 2: it delivered progress toward finalizing a deal over TikTok. Here's

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Speaker 2: Bloomberg Stephen Engel in Hong Kong.

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Speaker 3: Well, they talked and that's a good thing. And then

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Speaker 3: they're going to meet in person for the first time

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Speaker 3: since Trump took his second term, so that is good

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Speaker 3: as well. And they've also come to basic agreement on

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Speaker 3: the TikTok deal that has been obviously up in the

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Speaker 3: air for quite some time.

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Speaker 2: Bloomberg Stephen Engeled there. Now we'll have more on what

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Speaker 2: this means for markets in Asia. Momentarily, we'll get the

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Speaker 2: views of Alithia Garcia Horrero, chief Apakikonomous for Natixis. But

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Speaker 2: we begin here in the States. Joining me now is

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Speaker 2: Patrick Kennedy. He is managing partner at All Source Investment Management. Pat,

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Speaker 2: thank you so much for making time to chat so stateside,

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Speaker 2: we had the equity market closing at fresh all time

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Speaker 2: highs Friday. That's for the S and P, NASDAT COMP,

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Speaker 2: Dow Industrial Average. Are you a little nervous at these levels?

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Speaker 4: At twenty four times next year's numbers, Doug, We're not

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Speaker 4: putting new money to work at the index level. We're

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Speaker 4: still taking shots underneath the index level right on certain

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Speaker 4: sectors and names, But at the index level, we feel

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Speaker 4: like things are a bit frothy. Whenever we're over twenty

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Speaker 4: two times forward, we feel like momentum has really taken

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Speaker 4: a hold of things and you need to be really

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Speaker 4: careful with new money. Therefore, at the index level in

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Speaker 4: public equities, we're not putting a lot of new money

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Speaker 4: to work.

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Speaker 2: So the FEDS message from last week was pretty clear.

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Speaker 2: It looks like we've got at least two more rate

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Speaker 2: cuts coming this year, and how many more in the

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Speaker 2: next next year We'll have to wait and see. But

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Speaker 2: has that been fully discounted by the market now? Fed policy?

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Speaker 4: You bring up a great point, Doug, And that's kind

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Speaker 4: of why we're trapped between a rock and a hard

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Speaker 4: place here, because the old adage is don't fight the FED, right,

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Speaker 4: So when the FED is cutting, you know, you're supposed

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Speaker 4: to put your pedal to the metal, so to speak,

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Speaker 4: and overweight equities and that sort of thing. But I

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Speaker 4: don't think we've seen the FED cut into you know,

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Speaker 4: a rate environment that's already producing call it, mid teens

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Speaker 4: earnings growth next year, a stroing economy, no cracks to

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Speaker 4: be seen, an AI now taking over the technology world,

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Speaker 4: which is supposed to have huge efficiency benefits for companies

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Speaker 4: across the board. So with the FED cutting at such

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Speaker 4: a time, we're kind of scratching our heads as to why.

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Speaker 5: Right.

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Speaker 4: You know, we do think that the market likes lower rates,

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Speaker 4: and we think a lot of that was baked in

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Speaker 4: over the last call it, sixty to ninety days, so

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Speaker 4: we wouldn't really be chasing anything here, and we'd be

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Speaker 4: more concerned with what the cutting will do down the

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Speaker 4: road when it comes to inflation and even stagflation at that.

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Speaker 4: You know, when you look twelve to eighteen months.

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Speaker 2: Out, I'm glad you brought up the long end of

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Speaker 2: the curve and the stagflation worry. We're at four to

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Speaker 2: twelve right now. In the ten year, I mean, could

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Speaker 2: we go to four and a quarter? Do you think.

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Speaker 4: I think we could when news first came out. We

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Speaker 4: shouldn't say it first came out, but when it was

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Speaker 4: understood that we're going to have a rate cut in September,

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Speaker 4: you saw the back half of the curve actually steep it, right,

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Speaker 4: So you saw rates go up, the ten year yield

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Speaker 4: go up, which tells you that investors are saying, hey,

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Speaker 4: there's going to be an inflation problem because of this.

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Speaker 4: That's our take at least, right, So when you see

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Speaker 4: the yield curve actually steep in when the Fed is

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Speaker 4: saying they're going to start cutting, that's cost for concern

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Speaker 4: when you look down the road. So when you have

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Speaker 4: as much debt on the balance sheet as the US

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Speaker 4: government does and you're now cutting and making money more loose,

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Speaker 4: we think that that can create an even bigger problem

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Speaker 4: because it basically gives you the go ahead to take

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Speaker 4: on more liability, more debt. Right, So we think it's

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Speaker 4: like pouring gas on a fire at this point. And

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Speaker 4: we'd be really careful when it comes to any company

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Speaker 4: or any asset class that's tied to interest rates going

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Speaker 4: down to benefit.

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Speaker 2: So where are you finding opportunity?

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Speaker 4: Yeah, it's a great question. So three sectors. We like cybersecurity,

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Speaker 4: software and biotech. No secret that we've liked software and

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Speaker 4: cybersecurity for a while. Cybersecurity, we think, is just the

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Speaker 4: secular growth story plays right into the hands of AI.

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Speaker 4: The better AI gets, the more cybersecurity we're going to need.

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Speaker 4: Software is actually just the next step in the evolution

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Speaker 4: of AI. First you had hardware such as in videos,

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Speaker 4: so on and so forth, and then you had the

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Speaker 4: infrastructure plays, the big hayperscalers, and now we think software

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Speaker 4: is really going to take it, take the baton and

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Speaker 4: start to run with it. So when it comes to biotech,

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Speaker 4: that's US not fighting the FED, right, it's US saying, okay, well,

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Speaker 4: if rates are going to come down the near term

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Speaker 4: and we want a quick trade, biotech would be rates sensitive. However,

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Speaker 4: that would be a short term play for US, right,

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Speaker 4: we'd look to get out of that within the next

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Speaker 4: six months.

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Speaker 2: So we've got this deal now between the US and China.

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Speaker 2: Apparently the US operations of TikTok will be majority owned

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Speaker 2: and controlled by Americans. This calls to mind the level

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Speaker 2: of activity that we have seen in private markets versus

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Speaker 2: public markets. How are you understanding this landscape? Right now.

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Speaker 2: Are you more inclined to become involved in private deals

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Speaker 2: than you are let's say, playing in the public.

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Speaker 4: Space, absolutely, Doc, Yeah, you know, our firm is heavily

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Speaker 4: involved in private markets. We feel like the valuations on

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Speaker 4: the private side are much more attractive than on the

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Speaker 4: public side. So we haven't seen much activity since twenty

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Speaker 4: twenty two on the private side shot through the roof.

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Speaker 4: You know, when inflation was at nine you saw the

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Speaker 4: public markets really recover from that. Over the last two years,

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Speaker 4: you have not seen such a recovery in private equity.

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Speaker 4: In factor now just starting to see IPOs come back

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Speaker 4: to the market like Figma, Bullish and a few others.

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Speaker 4: So we're now just starting to see that recovery take

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Speaker 4: place within private equity. And I think it's just because

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Speaker 4: it's more of an institutional stance in private equity where

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Speaker 4: they actually want to make sure the path is clear

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Speaker 4: before they put new money to work, so they're a

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Speaker 4: little slower to grab onto the recovery. With that being said,

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Speaker 4: we feel like it's a spring coiled recovery because we

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Speaker 4: haven't seen much activity over the last two years. So

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Speaker 4: when rates do start to drop a bit, that's where

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Speaker 4: we'd want to be. We're not saying that the market

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Speaker 4: is going to fall off a cliff or anything like that.

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Speaker 4: We're just saying that with rates coming down, yeah, the

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Speaker 4: natural instinct is to step in and be bullish. But

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Speaker 4: with valuations this high in the public market, that's not

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Speaker 4: the asset class that we would to ride that fed wave.

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Speaker 4: It would be the private equity markets and private markets

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Speaker 4: in general.

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Speaker 2: So give me a sense of how a retail player

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Speaker 2: would participate into the private space.

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Speaker 4: Yeah, yeah, that's a that's a great point. So retail

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Speaker 4: can do this simply by buying some of the private

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Speaker 4: equity names like Blackstone, Blue Loowel, Apollo. Now we're buying,

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Speaker 4: you know, directly into these funds. For our clients, we want,

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Speaker 4: you know, either a GP or an LP steake direct participation.

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Speaker 4: But if you want to get exposure to this within

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Speaker 4: the public markets, a great way to do it is

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Speaker 4: buying the companies out right, Right, So Blackstone is going

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Speaker 4: to participate with all of their investors within their fund,

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Speaker 4: Same with Buile, same with Apollo, Carlisle, so on and

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Speaker 4: so forth. Now we're not saying that they're all equal, right,

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Speaker 4: you know, we would just blindly buy that bucket of names.

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Speaker 4: But we would say, you know, for a retail investor

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Speaker 4: that wants to take advantage of all of this pent

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Speaker 4: up demand within private equity, take a look at that

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Speaker 4: sector and pick a couple names you like.

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Speaker 6: Pat.

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Speaker 2: Before I let you go, I want to get you

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Speaker 2: take on what you're seeing offshore these days. Over the weekend,

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Speaker 2: a group of senior members of the US House arrived

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Speaker 2: in China. This is the first of visual visit we

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Speaker 2: have seen at this level in about six years. Premier

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Speaker 2: Lee Cheung was at the Great Hall for kind of

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Speaker 2: an official kickoff, and he called this an ice breaking trip.

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Speaker 2: Now we know the US in Beijing are trying to

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Speaker 2: work out a new trade deal. Mentioned the TikTok story

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Speaker 2: a moment ago. That's obviously a part of it. How

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Speaker 2: are you feeling about markets in Asia right now?

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Speaker 4: Yeah, Unfortunately, our stance really hasn't changed much right so China,

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Speaker 4: you know, we'll definitely trade it, but we won't stay

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Speaker 4: as a secular investor, a long term investor, just because

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Speaker 4: we've seen so many investors get kind of fooled out

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Speaker 4: in the past where it looks like this secular growth

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Speaker 4: story is poining together within China, you see a lot

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Speaker 4: of bullish demand and pent up demand start to flow

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Speaker 4: that way, and then all of a sudden something happens

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Speaker 4: within the government that changes all of that. So as

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Speaker 4: an investor in China, you don't have the same sort

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Speaker 4: of control as you do here in the US, and

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Speaker 4: therefore you don't have a stable foundation. You can say, hey,

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Speaker 4: I can put my money where my mouth is and

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Speaker 4: go purchase a few good Chinese names for the next

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Speaker 4: ten years. With that being said, you know, we do

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Speaker 4: think that there's a lot of momentum within some of

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Speaker 4: those China names. You're seeing it right now, within Baba, JD,

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Speaker 4: the k Web, you know, so on and so forth.

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Speaker 4: So we wouldn't fight that momentum. We would just treat

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Speaker 4: it as a trade rather than a long term investment.

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Speaker 4: When we are looking at longer term themes overseas, our

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Speaker 4: answer still hasn't changed. We like India a lot. We

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Speaker 4: feel like that's a growing economy, it's a more maturing economy.

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Speaker 4: And then Japan has just been doing phenomenal across the

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Speaker 4: board for the same reasons that well, a little bit

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Speaker 4: different than India. We do feel like it's becoming a

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Speaker 4: more mature economy in Japan, but it has been for

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Speaker 4: a while. The Japan story is really about inflation and

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Speaker 4: coming out of a twenty year deflationary period that was

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Speaker 4: really set on fire by the most recent inflation kick and.

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Speaker 2: The news last week on Friday when the boj said

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Speaker 2: it's going to begin offloading some of the massive holdings

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Speaker 2: it has in exchange traded funds. I think that number

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Speaker 2: is a little north of five hundred billion US pat

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Speaker 2: Thank you so much. Patrick Kennedy there, managing partner at

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Speaker 2: All Source Investment Management, joining us here on the Daybreak

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Speaker 2: Asia podcast. Welcome back to the Daybreak Asia Podcast. I'm

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Speaker 2: Doug Chrisner. As we have been discussing, President Trump announced

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Speaker 2: that he has reached a deal Friday to spin off

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Speaker 2: the US operations of TikTok from its Chinese owner ByteDance,

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Speaker 2: and in addition, Trump said he would be meeting with

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Speaker 2: Chinese President Chi Jinping next month on the sidelines of

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Speaker 2: the APEC summit in South Korea. For more on the

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Speaker 2: potential impact, we heard from Alithia Garcia Herrero, chief APAC

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Speaker 2: economist for Natixis. She spoke with Bloomberg TV host Sherry

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Speaker 2: on and April hon on the Asia trade So.

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Speaker 5: Alicia, we just heard Sherry mentioning how the hopes is

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Speaker 5: that this paves the way for a US China trade deal.

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Speaker 5: To what extent do you think this helps to mitigate

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Speaker 5: the risk of the global economy as we wait to

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Speaker 5: see the tariff pass through.

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Speaker 6: Well, partially because a lot of tarists have already been

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Speaker 6: imposed on.

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Speaker 7: Other countries and that's not going to be lifted.

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Speaker 6: The only thing that we could see coming down, in

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Speaker 6: my view, is probably India and Taiwan. Taiwan is on

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Speaker 6: a temporary twenty percent tariff and there's good chances that

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Speaker 6: will be lowered, but other than that, you know, the

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Speaker 6: rest of the tariffs will remain. So in other words,

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Speaker 6: even if we have a deal with China, we are

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Speaker 6: in a tariff world, and we're going to remain in

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Speaker 6: a tariff world.

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Speaker 7: So companies have to realize this.

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Speaker 5: And as we wait for perhaps companies to realize this,

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Speaker 5: we're watching out for data as well, including from South

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Speaker 5: Korea trade data for the first twenty days. Hopefully it

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Speaker 5: gives us a glimpse on global demand chips exports as well.

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Speaker 5: What are you seeing as the trajectory for the rest

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Speaker 5: of the year.

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Speaker 6: I think we already have some signs, and you're right.

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Speaker 6: This Korea has the best kind of forward looking data.

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Speaker 6: It's very quick to see what's going on, you know,

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Speaker 6: in the shortest space of time. Back we already have Singapore.

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Speaker 6: I mean, past data has been horrible, and I think

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Speaker 6: this is what we're getting. The exception is actually again Taiwan,

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Speaker 6: because the chip cycle is different, especially high end chips,

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Speaker 6: GPU related chips.

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Speaker 7: There, we still see a lot of demand.

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Speaker 6: But you know, we could be surprised by South Korea,

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Speaker 6: as you mentioned, because we already have the ban on

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Speaker 6: NBDIA GPUs from China, so we could start seeing that

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Speaker 6: even for this very demanded high end chips, we may

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Speaker 6: see a different trend, and not because of tarists, but

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Speaker 6: because of a right prohibition this time around from China.

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Speaker 6: This is this is also affecting trade, so you know,

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Speaker 6: everything we hear actually is negative, even if we get

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Speaker 6: a trade deal between the US and China, negative on trade,

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Speaker 6: negative on global value chains.

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Speaker 7: That's where we are now.

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Speaker 1: Alicia, we often talk about a two track economy when

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Speaker 1: it comes to China. Could that two track economy also

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Speaker 1: be sort of understood as this exuberance over it tech,

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Speaker 1: the semiconductors, and really Beijing investing in these sectors as

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Speaker 1: opposed to the real estate market that continues to drag

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Speaker 1: the broader economy.

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Speaker 6: Yes, absolutely, and I would put even more sectors in

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Speaker 6: this second pack bucket. I would argue that China is

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Speaker 6: in a dual economy as you said so, but it

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Speaker 6: is a government driven. It is not so much that

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Speaker 6: that that on its own China can actually use this

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Speaker 6: first part of the economy as you mentioned it, semiconductors,

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Speaker 6: just to run the whole economy. We know that because

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Speaker 6: times have been absolutely wonderful in terms of exports of

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Speaker 6: all of these IT related or if you want green

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Speaker 6: tech related also sectors, but.

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Speaker 7: It hasn't been enough.

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Speaker 6: We know that companies are making any money because they

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Speaker 6: are in this evolution situation. They need to basically fight

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Speaker 6: to get market shared by cutting prices and cutting their

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Speaker 6: markup on top of everything, meaning the actual room to increase.

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Speaker 7: Prices is also shelved.

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Speaker 6: So because of that, I think you cannot just run

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Speaker 6: an economy of the size of China with one part

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Speaker 6: of the economy.

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Speaker 7: It's just too small.

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Speaker 6: We need to remember said sector was actually much bigger

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Speaker 6: than the IT and semic on that sector in China,

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Speaker 6: So it's just not enough.

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Speaker 7: And that's why I.

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Speaker 6: Think that these efforts eventually we have to shift to

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Speaker 6: the rest of the economy.

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Speaker 1: When are we going to get a monetary boost? I mean,

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Speaker 1: we get long prim arates, nothing expected for today, but

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Speaker 1: then could we see something later in the year.

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Speaker 6: We're expecting two cuts ten bps each. I realized this

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Speaker 6: sounds little compared to what the fact might be doing.

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Speaker 6: So in terms of you know, the interest rate differential,

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Speaker 6: actually China will hold ground. But we do expect some

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Speaker 6: cuts because, as you said, the rest of the economy

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Speaker 6: and increasingly even the export sector to be frank, is

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Speaker 6: showing that it isn't as resilient as it used to

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Speaker 6: be in the first half of the year. So yes,

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Speaker 6: we do expect cuts, not too many, because again China

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Speaker 6: has to make sure that it is not extreme capt

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Speaker 6: that outflow coming from a very large integrate different flow

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Speaker 6: within us, so they have to keep it there and

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Speaker 6: that's why we have to ten b cuts up to

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Speaker 6: twenty six, twenty twenty six.

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Speaker 5: Even as we talk about cuts for the FED, for China,

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Speaker 5: for the BOJ it's about hikes, and we've been seeing

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Speaker 5: how the markets look relatively resilient despite what the BOG

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Speaker 5: signaled last Friday. To what extent do you think is

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Speaker 5: that providing some form of cover for quantitative tightening or

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Speaker 5: rate hikes from the BOJ.

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Speaker 6: Well, you're right, the BOJ somehow is going against the

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Speaker 6: tide because we see Bank Indonesia cutting I mean many,

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Speaker 6: not only the Fed. Yeah, it's like everybody's saying, oh

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Speaker 6: the Fed is cutting. There you go, I have some

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Speaker 6: room and everybody everybody is worried about Paris. So everybody

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Speaker 6: is kind of in that easy mode except the BOJ.

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Speaker 6: But we need to remember the BOJ is already in

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Speaker 6: an exuberantly, you know, excessively. In a way, it lacks

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Speaker 6: mode because of its humongous balance sheet beyond the very

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Speaker 6: low level of rates.

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Speaker 7: So in a way it goes without saying.

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Speaker 6: They need to tighten a little bit because they have

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Speaker 6: no room if anything happens in Japan, the BOJ has

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Speaker 6: no room. This is why I think the bo J

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Speaker 6: will need to hike this year, maybe just twenty five babps.

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Speaker 7: This is what we have. But it's a.

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Speaker 6: Signal that the BOJ is back, is back, to play

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Speaker 6: the game of a central bank that has some room.

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Speaker 6: And this brings us, of course to quantit that if tightened,

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Speaker 6: there's no better case for the bo j to start

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Speaker 6: disposing a little bit of those stocks that it bought.

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Speaker 7: And there's no better.

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Speaker 6: Time because the market is that it's as it stopped,

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Speaker 6: you know, and the nick is it's just expensive enough

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Speaker 6: for them to stop without a concept, we'll.

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Speaker 1: Be watching those sales. Alicia, good to have you with us.

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Speaker 1: Alysia Garciarero of Natixis.

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Speaker 2: Thanks for listening to today's episode of the Bloomberg Daybreak

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Speaker 2: Asia Edition podcast. Each weekday, we look at the story

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Speaker 2: shaping markets, finance, and geopolitics in the Asia Pacific. You

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Speaker 2: can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel,

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Speaker 2: or anywhere else you listen. Join us again tomorrow for

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Speaker 2: insight on the market moves from Hong Kong to Singapore

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Speaker 2: and Australia. I'm Doug Chrisner and this is Bloomberg