Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News. Welcome to the Bloomberg
Speaker 1: Daybreak Asia podcast time Doug Chrisner. Following today's print on
Speaker 1: producer prices here in the US, markets in Asia are
Speaker 1: bracing for tomorrow's report on US consumer inflation. We'll be
Speaker 1: hearing from Rob Hayworth. He is with US Bank Wealth Management.
Speaker 1: We'll do that in a bit, but let's begin in
Speaker 1: Hong Kong. That's where we find Raoul Chatta, founder and
Speaker 1: CIO of Shikarra Investment Management. I think we can agree
Speaker 1: you and I that twenty twenty four was especially challenging
Speaker 1: for many em markets across the Asia Pacific. We know
Speaker 1: that China was very much a big part of that
Speaker 1: story as it continued to struggle, and whether or not
Speaker 1: the theme of US exceptionalism was a factor, we can
Speaker 1: debate that. But I'm wondering, if you look out this
Speaker 1: year twenty twenty five, how does the APAC and look
Speaker 1: to you?
Speaker 2: So, Doug, I'm more hopeful than what the markets are
Speaker 2: baking in today for the Asian region. And the reason
Speaker 2: for being more hopeful is I don't think the worst
Speaker 2: case scenario for tariffs plays out for Asia because look,
Speaker 2: the inflation is going to impact US those tariffs. Eventually
Speaker 2: the price is going to be worn by the US
Speaker 2: Conjua and I live in New York and trust me,
Speaker 2: it's the inflation is literally killing us. Over there, things
Speaker 2: are super super expensive, and when you travel around the
Speaker 2: world you realize how outrageously priced things in the US are.
Speaker 2: So clearly the worst case Ontaris doesn't play out. What
Speaker 2: we're seeing is x US. Some of this disinflation coming
Speaker 2: through that was coming in product prices until Q three
Speaker 2: of last year, is coming in services also, so somewhere
Speaker 2: that kind of comes through. Dollar strength is a form
Speaker 2: of tightening. Raids have moved up to nearly four point
Speaker 2: eight percent, so that slows down the economy. So I
Speaker 2: think clearly we've seen the worst for Asian markets.
Speaker 1: I'm wondering what you're hearing about this situation in China.
Speaker 1: We had credit data the other day that was a
Speaker 1: little disappointing. New loans in China for twenty twenty four
Speaker 1: declined for the first time in thirteen years. Now, we
Speaker 1: know that the government is taking steps. We can talk
Speaker 1: more about that in a moment, but I'm curious as
Speaker 1: to what you're hearing from people in Hong Kong about
Speaker 1: the situation on the mainland.
Speaker 2: So clearly what's going to get used to China growing
Speaker 2: at about slower levels. The numbers are going to be
Speaker 2: somewhere around three percent, and that's how we build our portfolio.
Speaker 2: Our portfolio for China is Chinese companies in the custotic
Speaker 2: sectors like Proya gaining share from the multinational corporations. Our
Speaker 2: portfolio China is Chinese companies who are extending their global footprints. So,
Speaker 2: whether it's Evy or the other parts of the change,
Speaker 2: I think that's the interesting proposition as investors. We've going
Speaker 2: to get used to this new world, which is China's slowing.
Speaker 2: What has changed at the margin is over the last
Speaker 2: twelve months, the Chinese governments become a lot more positive
Speaker 2: towards businesses. They want to get the animal spirits back
Speaker 2: from a business investment perspective, from a consumer confidence perspective.
Speaker 2: But all these things are going to take time. I mean,
Speaker 2: for those of us who've been in markets long enough
Speaker 2: know that exorcist take their own time to clear up,
Speaker 2: and we're going through one of those processes in China.
Speaker 1: Yeah, So the consumer confidence perspective I think is key
Speaker 1: where sentiment is concerned. Obviously, that's been one of the
Speaker 1: missing pieces, right And yesterday we had one of the
Speaker 1: security regulators in China pledging more support for the equity market,
Speaker 1: and we know that officials also reiterated support for both
Speaker 1: the currency and the Chinese bond markets as well. It
Speaker 1: seems like there have been very conscious steps taken to
Speaker 1: try to address this issue of sentiment weak sentiment at
Speaker 1: the retail level. Do you think it's been enough.
Speaker 2: See again, idly one would have wanted ten percent of
Speaker 2: GDP as a stimulus to take care of all these things.
Speaker 2: I think the number which one is hitting from China
Speaker 2: is somewhere around three to four percent, so that's much lower.
Speaker 2: That's their different style. They don't want to do what
Speaker 2: was done in two thousand and eight and a repeat
Speaker 2: of that. Their mindful of the dead GDPI ratios, which
Speaker 2: I hear. But clearly, if you put all these events
Speaker 2: over last twelve bunths, whether it's asking the local governments
Speaker 2: not to change the entrepreneurs for unnecessary tax liabilities, et cetera,
Speaker 2: whether it is kind of an trying to have an
Speaker 2: amakable relationship with the US, So yesterday they were news
Speaker 2: of China looking to say the TikTok us business. To
Speaker 2: Elon muss, I think that should be positive. Earlier China
Speaker 2: was like that business cannot be sold. So I think
Speaker 2: a lot of these positive ref sprints are coming through.
Speaker 2: You see a lot of countries getting visa free access
Speaker 2: to China. So what happened around COVID was China's contact
Speaker 2: for the rest of the world almost went to negligible.
Speaker 2: So I think that is now getting resumed. So all
Speaker 2: these are little positives to to add up. I mean funding,
Speaker 2: the funding the local governments so that they can pay
Speaker 2: their employees and so that they do not kind of
Speaker 2: miss on the salary payments is clearly big postive.
Speaker 1: What other markets right now look attractive to you? In
Speaker 1: the Asia Pacific, I'm curious about Indonesia. I'm also curious
Speaker 1: about your take on Vietnam.
Speaker 2: So I think Azen is clearly attractive. Though Azen gets
Speaker 2: impacted all the more Vietnam from these tariffs coming through,
Speaker 2: which is why if you see Vietnam's not gone anywhere.
Speaker 2: But look that market has been littlely flatlined for last
Speaker 2: five years. Valuations are super attractive, so once some of
Speaker 2: these tariffs are biked in two. In terms of the
Speaker 2: market participlaate, s centible, et cetera, that is a market
Speaker 2: one would like to add. India is a market we've
Speaker 2: liked for a while. It's structurally a strong story in
Speaker 2: this world of slow growth. India will continue to show
Speaker 2: five to six percent growth and last three four months
Speaker 2: because of the cyclical downtown we are having in India
Speaker 2: is providing a good entry opportunity, particularly for small medcaps
Speaker 2: et cetera. So right now, what we're doing in India
Speaker 2: is adding to our large caps. But I think another
Speaker 2: fifteen percent down for small medcaps they become attractive again.
Speaker 1: So Rao, Well, you're having meetings with clients Nasia right now.
Speaker 1: I'm curious about the one question that you're being asked
Speaker 1: most frequently. What is it?
Speaker 2: So I think the tariffs are on minds of everybody.
Speaker 2: What happens in terms of rates is the question commonly asked,
Speaker 2: and which is which is where our point is? Incoming months,
Speaker 2: we'll get clarity on both and we are lot most sanguine.
Speaker 2: Then the markets on this and a view is a
Speaker 2: lot of negatives up priced in them, so almost everybody
Speaker 2: is positioned in US, whereas what we believe is things
Speaker 2: should improve, particularly in the Asian part of EAMs, and
Speaker 2: that should be positive for investors who are positioned for that.
Speaker 1: Raoul, We'll leave it there, thank you so much? Or
Speaker 1: who will chat? A founder and CIO of Chikara Investment
Speaker 1: Management joining us from Hong Kong here on the Daybreak
Speaker 1: Asia podcast. Welcome back to the Daybreak Asia Podcast. I'm
Speaker 1: Doug Prisoner. State side markets seem to be unwilling to
Speaker 1: make any big bets in front of tomorrow's report on
Speaker 1: US retail inflation. Today's report on wholesale inflation was a
Speaker 1: bit cooler than forecast. The Producer Price Index up two
Speaker 1: tents of one percent from the month before. That was
Speaker 1: half expectations. Perhaps more importantly, the core PPI was unchanged.
Speaker 1: Big question now, how will these data play into the
Speaker 1: FED and it's thinking on the path forward with radcuts.
Speaker 1: To answer that question, I'm joined by Rob Hayworth. He
Speaker 1: is senior investment strategist at US Bank Wealth Management. Rob
Speaker 1: joins us from Seattle. Thanks for making time to chat
Speaker 1: with us. What's your sense of where we stand right
Speaker 1: now in the fight against inflation? Here in the US.
Speaker 3: Yeah, Doug, great to be with you. The fighting against
Speaker 3: inflation is going okay, but it certainly could be better.
Speaker 3: We were certainly seeing that inflation probably remains elevated somewhat
Speaker 3: this year, even though we don't foresee an acceleration. We
Speaker 3: think it's going to be hard to get that last
Speaker 3: smile down to the federal reserve. But certainly what we're
Speaker 3: seeing in the short term is higher fuel costs, higher
Speaker 3: energy costs, higher food costs because we're seeing shortages right
Speaker 3: We're seeing some supply challenges when it comes to eggs,
Speaker 3: for example, due to the ABM flu. We're seeing low
Speaker 3: inventories in the US for energy, so we're seeing some
Speaker 3: pressure there. And then we'll have to see if the
Speaker 3: labor market can loosen up and let wages keep creeping
Speaker 3: lower to help push down on those core inflation prints
Speaker 3: later in the year. But for now, it looks like
Speaker 3: it's going to be kind of stubbornly elevated.
Speaker 1: How big unknown is whether some of those economic policies
Speaker 1: from the incoming Trump administration will be inflation arey. And
Speaker 1: I'm thinking primarily of the tariff story. What's your sense
Speaker 1: of that.
Speaker 3: Well, we're certainly seeing the market react a bit to
Speaker 3: that every day as news comes out. First and foremost,
Speaker 3: it's coming down to tariffs and how much, how quickly,
Speaker 3: how soon. The good news it seemed like this morning
Speaker 3: was that it's going to be a more extended implementation
Speaker 3: rather than a rapid implementation of tariffs, which I think
Speaker 3: would be helpful to the market so that they're not
Speaker 3: seeing that inflationary pressure right away. It's just hard for
Speaker 3: us to handicap what the policies are going to be
Speaker 3: as they come out fairly quickly, but that's certainly a
Speaker 3: risk to the market that could push prices higher if
Speaker 3: we see significant tariffs, especially early on. I think the
Speaker 3: other challenge remains the labor market. If we see a
Speaker 3: significant trinkage in the labor market because of deportations, that's
Speaker 3: also inflationary from a wage perspective, that could be a
Speaker 3: challenge too, And I think we're all just kind of
Speaker 3: waiting to see what's really enacted. As we get into
Speaker 3: the first couple of weeks of President Electrump's new term.
Speaker 1: Very little movement in the bond market today. We've got
Speaker 1: a tenure with a yield that is sub for eighty.
Speaker 1: Do you think it's likely that we could test five
Speaker 1: percent this year in twenty twenty five.
Speaker 3: I think that's absolutely a risk, and that's a risk
Speaker 3: that would be concerning to the equity market from a
Speaker 3: valuation perspective. We saw this earlier last year when we
Speaker 3: tested five percent on the tenure and we had a
Speaker 3: pretty decent decline in the equity market. I think it's
Speaker 3: a concern when it comes to borrowing costs and the
Speaker 3: ability of especially smaller companies to refinance. And I think
Speaker 3: it's a concern for valuation multiples as you're really getting
Speaker 3: into some attractive levels where investors may start to think
Speaker 3: they're better off in bonds than stocks at that point.
Speaker 3: So that's certainly an area we're watching closely. We think
Speaker 3: it remains a risk to the equity market if we
Speaker 3: start to see those levels.
Speaker 1: And I'm wondering about whether any shift in the yield
Speaker 1: curve could either help or hurt some of the big banks.
Speaker 1: We're going to hear tomorrow from a City Group along
Speaker 1: with Goldman, Wells, Fargo and JP Morgan in terms of
Speaker 1: their latest earnings. Do you have a sense of what
Speaker 1: we're going to get in terms of guidance going forward.
Speaker 3: We don't have a great sense of what we're going
Speaker 3: to get in terms of guidance, but what we're certainly
Speaker 3: looking for, Doug is what's going on with the consumer
Speaker 3: and business spending and loan trends. Our banks still easing
Speaker 3: up on lending terms. That's something we heard from the
Speaker 3: Senior Loan Officer survey that that would be helpful for
Speaker 3: the economy and what's happening with net interest income, and
Speaker 3: certainly a steeper yield curve is often helpful when it
Speaker 3: comes to these companies. So that's certainly something we're looking
Speaker 3: very closely at over the next couple of days as
Speaker 3: we get an awful lot of financial firms reporting very quickly.
Speaker 1: Here, what about fewer regulations? Would that be helpful as well?
Speaker 3: Generally it would be well, I know, there's a lot
Speaker 3: of talk about easing regulations across a number of industries,
Speaker 3: including the financial services industry. That could certainly be helpful
Speaker 3: to companies as we move forward, but that's probably a
Speaker 3: longer term issue compared to what we're seeing. What we'd
Speaker 3: like to see right now in terms of loan growth
Speaker 3: and how is the consumer progressing after such a such
Speaker 3: a strong expansion Already, we've.
Speaker 1: Got crude oil and this is New York Crew WTI
Speaker 1: just under eighty dollars a barrel. We know that the
Speaker 1: president elect is committed to increasing domestic production. Is the
Speaker 1: energy space something that you want to be exposed to
Speaker 1: this year in a major way?
Speaker 3: No, we're probably We're probably a little mixed on that
Speaker 3: in that one. Yes, we may be able to get
Speaker 3: more output, but these companies have been very adept at
Speaker 3: managing their balance sheet over the past year and figuring
Speaker 3: out how to return capital to shareholders without overinvesting, and
Speaker 3: so we haven't had the boom bust cycles of oil
Speaker 3: output that we've had in the past. And I think
Speaker 3: that companies are still on that path of strong financial management,
Speaker 3: which we as shareholders certainly applaud. But I think it's
Speaker 3: tough to say that oil prices are going to break
Speaker 3: out and really cause a big run here in oil prices,
Speaker 3: and I think it's tough to see them fall apart here.
Speaker 2: One.
Speaker 3: US inventories are quite low too. OPEC still has a
Speaker 3: couple of million barrels a day it would like to
Speaker 3: add to the global market, so that kind of puts
Speaker 3: aus ceiling on prices, and then from a floor perspective,
Speaker 3: we're still refilling the strategic petroleum reserve, so this is
Speaker 3: probably more of a range bound price market as we
Speaker 3: look into the rest of the year.
Speaker 1: So you're talking about returning capital to shareholders, I'm wondering
Speaker 1: about dividend plays. Is there a lot of attraction right
Speaker 1: now in the dividend space for you?
Speaker 3: We really probably have a two pronged approach to this,
Speaker 3: where where one we'd say for the longer term, technology
Speaker 3: is vital to own from the growth perspective and the
Speaker 3: portfolio and the revenue growth perspective. It is garnering a
Speaker 3: lot of investment by companies and that should continue and too,
Speaker 3: You're right we are looking at income plays. Energy would
Speaker 3: be a part of that, but utilities really as well,
Speaker 3: particularly because we're seeing utilities needing to invest more money
Speaker 3: to develop facilities, to create more electricity to support this
Speaker 3: artificial intelligence investment boom. So we think there's room for
Speaker 3: both those in your portfolio.
Speaker 1: Before I let you go, Rob, I got to get
Speaker 1: your take as to whether or not you're seeing opportunities
Speaker 1: offshore right now, particularly in emerging markets. Is there value
Speaker 1: there still.
Speaker 3: Yeah, We certainly think there is value in global markets,
Speaker 3: and part of that is driven by the elevated valuations
Speaker 3: we have here in the US. Really US growth, the
Speaker 3: US performance over the rest of this year we think
Speaker 3: requires significant earnings growth rather than multiple expansion again this year,
Speaker 3: and that means we're seeing that it's somewhat attractive to
Speaker 3: look offshore, particularly given the recent strength in the US
Speaker 3: dollar that may not be replicated. So you know, it's
Speaker 3: not the same growth story outside the US that it
Speaker 3: is inside the US, but we think there is reason
Speaker 3: to consider some of those value plays outside the US.
Speaker 1: Rob, thanks for being with us. Great insights from Rob
Speaker 1: Hayworth there. He is the senior investment strategist at US
Speaker 1: Bank Wealth Management. Joining us here on the Daybreak Asia Podcast.
Speaker 1: Thanks for listening to today's episode of the Bloomberg Daybreak
Speaker 1: Asia Edition podcast. Each weekday, we look at the story
Speaker 1: shaping markets, finance, and geopolitics in the Asia Pacific. You
Speaker 1: can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel,
Speaker 1: or anywhere else you listen. Join us again tomorrow for
Speaker 1: insight on the market moves from Hong Kong to Singapore
Speaker 1: and Australia. I'm Doug Prisner, and this is Bloomberg.