Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: Welcome to the Bloomberg Daybreak Asia podcast. I'm Doug Krisner.
Speaker 2: We had about of euphoria gripping the US equity market
Speaker 2: in the last session. That came after President Trump paused
Speaker 2: new reciprocal tariffs for dozens of trading partners for ninety days.
Speaker 3: Now.
Speaker 2: These reciprocal duties from most nations will be taxed at
Speaker 2: a baseline rate of ten percent, with the exception of China.
Speaker 2: Trump did raise duties on Chinese goods all the way
Speaker 2: to one hundred and twenty five percent. In a moment,
Speaker 2: we'll be speaking with Rebecca Walzer. She is president of
Speaker 2: wallser Wealth Management. But we begin in Hong Kong. Joining
Speaker 2: me now is Chi Lo, senior market strategist at BNP
Speaker 2: Parabah Asset Management. Chi is on the line from Hong Kong.
Speaker 2: It's always a pleasure. Thank you for making time. Can
Speaker 2: I begin by getting your reaction to the price action
Speaker 2: that we have seen in the last twelve hours or so?
Speaker 3: By summary is in one word for volatility, which is
Speaker 3: what we've been seeing for quite some weeks now. The
Speaker 3: reaction last night, of course, is obviously due to President
Speaker 3: Trump's pausing of the RECIPI reciprocal tariffs on almost all
Speaker 3: other countries except China.
Speaker 4: That's understandable.
Speaker 1: Uh.
Speaker 3: The other reason for the big reaction last night was
Speaker 3: because of the cell of you a week ago, which
Speaker 3: to some extent was an overreaction, and now this is
Speaker 3: another overreaction, but to the upside. So on a net basis,
Speaker 3: we are still seeing the US stocks over all, the
Speaker 3: indices are down a little bit compared with a week ago.
Speaker 3: Going forward, nobody knows how long this rebound could last
Speaker 3: because mister Trump said the pause is about three months,
Speaker 3: but you never know what he will say tomorrow next week. Also,
Speaker 3: so volcidity is due the key thing, and risk management
Speaker 3: is keything could do in terms of investment.
Speaker 2: So it would seem as though the fifty six nations
Speaker 2: plus the European Union that are going to be kind
Speaker 2: of facing these baseline tariffs of ten percent, they are
Speaker 2: in the process of negotiating. China is not negotiating right now.
Speaker 2: And perhaps it was the view of the Trump administration
Speaker 2: that because China retaliated that the new tariff of one
Speaker 2: hundred and twenty five percent was put in place. Do
Speaker 2: you think this is a dangerous exercise. Are we looking
Speaker 2: at a full blown trade war? Forget the other trading
Speaker 2: partners for a moment, let's just talk about Washington Mai Jing.
Speaker 2: Are we dealing with the possibility that we're going to
Speaker 2: see a long protracted trade war between the US and China.
Speaker 3: Well, that possibility actually is always there, and this time
Speaker 3: when we see China's very stern reaction to the reciprocal
Speaker 3: tarrier's buyings from is another evidence that the two nations
Speaker 3: will continue to compete in the long term, long term
Speaker 3: meaning the next ten years, fifteen years, twenty years, in
Speaker 3: the form of trade wars, tag wars, and all these things.
Speaker 3: It is a dangerous game, a dangerous chickens game. As
Speaker 3: far as this game is concerned, this time is concerned,
Speaker 3: I think it depends on who flinches first. On the
Speaker 3: US side, they think that China will extinct significant losses
Speaker 3: and economic pains and they will blink first. But from
Speaker 3: the Chinese side, they think similarly that the US would
Speaker 3: be heard at least as much as China, if not
Speaker 3: more so. In a trade war situation like this, nobody wins,
Speaker 3: and it really depends on who gets hurt more. Now,
Speaker 3: when you look at the tray numbers. Of course, it
Speaker 3: seems that China would be hurt more because China exports
Speaker 3: much more to the than US exports to China, which
Speaker 3: means that the tarriest impact negative times impact on Chinese
Speaker 3: exports will be much big than the Chinese tarioft impact
Speaker 3: on US exports. But that's only half the equation. The
Speaker 3: other half of the equation is about foreign investment in
Speaker 3: each other's country. The foreign direct investment in China is
Speaker 3: significantly more than the Chinese foreign direct investment in the US,
Speaker 3: which means that Beijing can hit the American companies operating
Speaker 3: in China with significantly more negative impact than the US
Speaker 3: could hit Chinese companies or Chinese investment in the US.
Speaker 3: So when you put that into the equation, it really
Speaker 3: it is going to be very messy that we could
Speaker 3: see both sides mm c's Chinese SI USI TRADESI or
Speaker 3: get heart.
Speaker 2: So I'm wondering about the response that Beijing may have
Speaker 2: domestically right now. Put stimulus aside for the moment. We
Speaker 2: can talk about that in a sec but I'm getting
Speaker 2: indications that Beijing has launched a coordinated government effort to
Speaker 2: support the stock market. That's one thing that can happen
Speaker 2: in a near term here. The other is that the
Speaker 2: currency can be allowed to weaken a little bit more
Speaker 2: so could those two options provide a little bit of
Speaker 2: support at least in the near term.
Speaker 4: The two options through currency depreciation.
Speaker 3: And also stock market support, will provide some short term
Speaker 3: support to the Chinese stock market. The policy signal is
Speaker 3: more important that China is sending the world a policy
Speaker 3: signal that yeah, you may like.
Speaker 4: You may argue that the.
Speaker 3: Chinese goes in with the national team buying up Chinese
Speaker 3: stocks and supporting the market.
Speaker 4: But the point here is.
Speaker 3: That among all these volcidity and geopolitical tensions, the Chinese
Speaker 3: are telling the world that they have its mechanism.
Speaker 4: To protect investors investments. So I think that that's important
Speaker 4: for those people who.
Speaker 3: Are assessing volatility risk in markets like China that will
Speaker 3: get government support and in markets like the others who will.
Speaker 4: Not get government support. But these are only short term measures.
Speaker 3: A longer term, we still need to see aggressive and
Speaker 3: assertive Chinese easing to push the message sector to fight
Speaker 3: the tariff war.
Speaker 2: What about more stimulus chie how much more can Beijing
Speaker 2: afford to unleash at this moment before it becomes problematic,
Speaker 2: before we talk about an even larger debt bubble in China.
Speaker 4: At this point, I.
Speaker 3: Think the risk freshold probably is another two position points
Speaker 3: of GDP on the downside, which means that if the
Speaker 3: tariff impact shaves of between two and three percentage points
Speaker 3: of GDP in China, Beijing will have to increase fiscal
Speaker 3: stimulus by a similar amount a similar amount to offset
Speaker 3: that impact.
Speaker 4: And I believe China.
Speaker 3: Still has the room to do it because government borrowing
Speaker 3: is still reasonably level and the reception to Chinese boring
Speaker 3: internationally and locally in China are.
Speaker 4: Still very high. So, assuming there is no disaster.
Speaker 3: Earthquake hitting the Chinese economy, I think the tariff impact
Speaker 3: it's going to be painful, but it's still manageable at.
Speaker 4: This point by the Chinese with more aggressive fiscal stabilism.
Speaker 2: Gee, we've talked about the macro. I'm interested now in
Speaker 2: a practical investment strategy, and I'm curious as to whether
Speaker 2: that would include what has been up until this point
Speaker 2: a bright spot for the Chinese equity market, which is
Speaker 2: high technology. What is going to work in the next
Speaker 2: six to nine, let's say even twelve months right now,
Speaker 2: if I had to put money to work in China.
Speaker 3: For the sick, next six months probably is too early
Speaker 3: to really go or eat into China beyond six months,
Speaker 3: assuming the tariff does get settled one way or the other. UH,
Speaker 3: the Chinese tax sector, Chinese stocks actually are reasonably positioned
Speaker 3: to recover assuming that Beijing comes up with more aggressive easing.
Speaker 4: That's the key point.
Speaker 3: If we don't see aggressive easing by Beijing, then you
Speaker 3: can forget about Chinese assets for a while longer. But
Speaker 3: if we do see that, which I think there's a
Speaker 3: reasonable chance that Mayjing will be more aggressive in easing
Speaker 3: beyond six months. Once when the does steffled, we could
Speaker 3: see we we could see a reasonable recovery in Chinese
Speaker 3: asset prices and also UH the economy for the simple
Speaker 3: fact that exports, or net exports to be more precise,
Speaker 3: it's not a key driver.
Speaker 4: For Chinese growth and earnings growth.
Speaker 3: You know, there's going to be pains with net expots down,
Speaker 3: but they are not the key driver for Chinese growth.
Speaker 3: Scenes GFC more than ten years ago, the domestic sector
Speaker 3: is the primary drive growth for growth, so that's why
Speaker 3: it's so important that Beijing will have to push the
Speaker 3: domestic sector with more aggressive easing in order to turn
Speaker 3: things around.
Speaker 2: Gee, what about the high tech sector. We've seen the
Speaker 2: enthusiasm post Deep Seek. I'm wondering whether or not that
Speaker 2: still has legs. What do you think it has legs?
Speaker 4: But it's in the longer term.
Speaker 3: A short term forget about it, because the near term
Speaker 3: factors are still the macro volatility, political risk, tariff war
Speaker 3: and so on. But beyond this short term, you know,
Speaker 3: as I said that it doesn't settle. The Chinese tech sector,
Speaker 3: especially companies and industries that serve domestic markead still has
Speaker 3: a positive future because it is a national policy that
Speaker 3: China has to develop itself into a high tech economy
Speaker 3: to compete in the US. And this is not a
Speaker 3: short term policy. This is a long term policy direction.
Speaker 3: So domestic oriented tech companies, industries, sectors are going to
Speaker 3: be positive in the long term, while those rely more
Speaker 3: on the on the external market for revenues and stuff
Speaker 3: will not be as positive as the domestic oriented companies.
Speaker 2: She will leave it there. Thank you so much for
Speaker 2: joining us. It's always a pleasure to chat with you
Speaker 2: Chi Lo, their senior market strategist at BNP PAABO Asset Management,
Speaker 2: on the line from Hong Kong. Here on the Daybreak
Speaker 2: Asia podcast. Welcome back to the Debreak Asia Podcast. I'm
Speaker 2: Doug Chrisner. So President Trump ignited an explosive rally in
Speaker 2: the equity market today when he paused new reciprocal tariffs
Speaker 2: for dozens of trading partners for ninety days, and we
Speaker 2: saw the biggest burst of buying for US stocks since
Speaker 2: two thousand and eight. The S and P five hundred
Speaker 2: surge ninety and to a half percent, while the next
Speaker 2: DAK composit rallied more than twelve percent today. Joining me
Speaker 2: now for a closer look is Rebecca Waalzer. She is
Speaker 2: the president of wallser Wealth Management. She is on the
Speaker 2: line from Tampa, Florida. Rebecca, it's always a pleasure to
Speaker 2: visit with you. What did you make of today's price section?
Speaker 4: Wow?
Speaker 1: What can I say, Doug? I mean, this is a
Speaker 1: day for the record books. You know, we this is
Speaker 1: this is unprecedented. I mean, you know, we haven't seen
Speaker 1: the gains on the Dow since, like you know, before
Speaker 1: dot Com basically now as DAK twenty four year record
Speaker 1: here that we're talking about. Obviously the S and P
Speaker 1: had was more affected with the global financial crisis two
Speaker 1: thousand and eight, but literally it's for the record books, Doug.
Speaker 1: And it just shows you that, you know, and an administration
Speaker 1: can really come in and leverage there might economically and
Speaker 1: have reverberations geopolitically globally across the world. So it's it's unbelievable.
Speaker 4: Wow.
Speaker 2: When when you look at the tariff story, we know
Speaker 2: that President Trump paused those new reciprocal tariffs on a
Speaker 2: dozen trading hardness for ninety days. That was only thirteen
Speaker 2: hours after they went into effect. But I'm wondering whether
Speaker 2: the markets guided him. Was this a little bit of
Speaker 2: a capitulation on the part of the president?
Speaker 1: You know, I think that there's going to be a
Speaker 1: lot of dissection of exactly that question, Doug. You're hitting
Speaker 1: the nail on the head there, because the question is
Speaker 1: does he all along realize that what he's doing is
Speaker 1: so evasive and we'll have such a deep and important
Speaker 1: impact to every corner of trade and the globe that
Speaker 1: he expects it to be met with total, you know,
Speaker 1: consternation and immediate like let's fix this. I mean, he
Speaker 1: did say in the press release on True Social that
Speaker 1: seventy five countries had called to basically negotiate what they
Speaker 1: could do to have a more equal in his and
Speaker 1: his learning I'm summarizing now, but you know, to do
Speaker 1: negotiate a more balanced tariff arrangement between between trade and
Speaker 1: you know, to Secretary Treasury Secretary best point to his
Speaker 1: point is we need ninety days to actually work through
Speaker 1: these trade deals, and there's going to be a lot
Speaker 1: of negotiation that happens over the next ninety days. I
Speaker 1: think the biggest issue that the market is sort of
Speaker 1: ignoring and discounting right now is what you said earlier
Speaker 1: in the open, which is trade war with China is
Speaker 1: squarely the peg that is in front of us. Now,
Speaker 1: what has happened is all of these superfluous noise of
Speaker 1: all of the other countries has now dissipated and fallen
Speaker 1: away really exponentially immediately today with this pause, and now
Speaker 1: we're literally looking at a tit for tat with China directly,
Speaker 1: and so obviously the policy that he had put in place.
Speaker 1: China counter acted and raised their thirty four percent average
Speaker 1: tariffs across US imports to eighty four percent, which then
Speaker 1: obviously prompted Trump to respond again and raise again from
Speaker 1: over one hundred percent tariff to one hundred and twenty
Speaker 1: five percent. So, Doug, this is a setup, complete setup
Speaker 1: to one for one have a direct trade war with China.
Speaker 1: And although that is a very uncomfortable thing for me
Speaker 1: to say, it is about time because you know, one
Speaker 1: thing that I can just say universally that I think
Speaker 1: most economists would agree on is that China is the
Speaker 1: number two largest economy in the world, in some cases
Speaker 1: larger than America in some certain instances. And from that perspective,
Speaker 1: they shouldn't have what we call most Favored Nation status
Speaker 1: at the World Trade Organization as if they were a
Speaker 1: disadvantaged country, and them having that status, as you know, Doug,
Speaker 1: allows them to do and to circumvent a lot of
Speaker 1: protections that other countries like America, industrialized countries have to
Speaker 1: live within. So I think that there's at least a
Speaker 1: fairness conversation that this is going to make happen now,
Speaker 1: and it's going to alert the players of the world
Speaker 1: to the unfairness potentially of some of our interactions with China.
Speaker 2: So about twenty hours ago, we had a bit of
Speaker 2: a meltdown in the treasury market and yield spiked, particularly
Speaker 2: on the ten year. That may have been a catalyst
Speaker 2: for a bit of rethink on the part of the administration.
Speaker 2: We don't know exactly, but clearly China holds a trillion
Speaker 2: dollars worth of US treasuries. This has to be considered
Speaker 2: as part of the story too, right.
Speaker 1: I mean, there is a rumor, and we won't discuss rumors,
Speaker 1: but there's a there's a title of it and everything.
Speaker 1: It's Operation Sandman, where we could literally see, you know,
Speaker 1: a coordinated effort of multiple nations across the globe dumping
Speaker 1: selling US treasuries simultaneously, which would be a disaster for
Speaker 1: the US dollar. And so I can't say that I
Speaker 1: have direct confirmation, but I think that it's very obvious
Speaker 1: dead that there is no doubt that the pressure on
Speaker 1: the ten year is absolutely problematic. It was problematic for
Speaker 1: the auctions that are happening this week. And I also
Speaker 1: will recognize that we have nine trillion dollars of US
Speaker 1: federal debt that has to be refinanced in twenty twenty five.
Speaker 1: Of the thirty six trillion that we have, and we
Speaker 1: can't afford to finance that, you know, in the four
Speaker 1: percent range. We just can't because you know, that's debt
Speaker 1: that was written, you know, from the two thousand and
Speaker 1: eight to the twenty twenty two timeframe, when our cost
Speaker 1: you know, our FED funds rate was twenty five basis points, Doug.
Speaker 1: So we just are in a much different place and
Speaker 1: that debt has to be refinanced, and of course we
Speaker 1: need our auctions to continue to be seen throughout the
Speaker 1: world as stable and ongoing.
Speaker 2: So the President raised duties today on Chinese goods all
Speaker 2: the way to one hundred and twenty five percent, and
Speaker 2: he did say later in the day that he can't
Speaker 2: imagine increasing them further. But he did say that sectoral
Speaker 2: tariffs are still coming and pharmaceutical companies will be facing
Speaker 2: tariffs as well. So the dust, i think we can agree,
Speaker 2: has not completely settled. So when you look at the
Speaker 2: potential here for more volatility in the equity market, would
Speaker 2: you expect there to be maybe not the level that
Speaker 2: we saw over the last three trading days, but a
Speaker 2: lot more volatility.
Speaker 1: Nonetheless, absolutely, Doug, and I think that is the best
Speaker 1: message that if anyone walks away from this conversation and
Speaker 1: has one takeaway. It has to be that this has
Speaker 1: just begun, and I don't think that, you know, one
Speaker 1: of the best trading days that we've had to the
Speaker 1: upside today should give anybody super confident footing because the
Speaker 1: ground is still moving beneath us. And it is uncomfortable
Speaker 1: when the ground is shifting and you don't feel like
Speaker 1: you have your footing. But that is what this president
Speaker 1: basically ran on, changing the global dynamic with the world
Speaker 1: on the economic side, and he is determined to do that.
Speaker 1: And if you have read the Art of the Deal,
Speaker 1: you know that he leverages the power that he has
Speaker 1: to negotiate the absolute best deal, and some of his
Speaker 1: negotiations sometime is very uncomfortable. So he's doing this on
Speaker 1: a very public scale that we have to live through
Speaker 1: through our four to one k's in our iras, which
Speaker 1: makes it very uncomfortable for a lot of people. But
Speaker 1: the point of Trump and the Art of the Deal
Speaker 1: is to be the last one standing with the negotiation.
Speaker 1: So the pharmaceutical industry being as as it's become, and
Speaker 1: even China into China doug Interestingly enough, if you look
Speaker 1: at the percentage. Somewhere eighty plus percent of our pharmaceutical
Speaker 1: ingredients come from China directly, and that is a huge
Speaker 1: problem if you look at like the global pandemic of
Speaker 1: twenty twenty coronavirus. If we have another thing like that
Speaker 1: and we're in some kind of trade war with China
Speaker 1: and they decide to just cut off our ingredients, we
Speaker 1: could literally have a situation where we can't even take
Speaker 1: care of our health and our own country autonomously. So
Speaker 1: I don't think that the pharmaceuticals being so intertwined into
Speaker 1: China is not it's not a coincidence. It's tied together
Speaker 1: to his almost to me, and I'm not suggesting that
Speaker 1: he's anti China or he's against China, but I do
Speaker 1: see that he is very His policies are antagonistic because
Speaker 1: he thinks that China is so unfair, and we know
Speaker 1: their ip stealing is unfair, we know they're doing a
Speaker 1: lot of unfair trade practices. But he's really directly head
Speaker 1: on with the fact that we are so beholden to
Speaker 1: them as a country. We are not autonomous in a
Speaker 1: lot of ways.
Speaker 2: So after the tweak to tariff policy today, Goldman Sachs,
Speaker 2: the economist at the firm, withdrew their forecast for a
Speaker 2: US recession. Although if you listen to what some corporate
Speaker 2: leaders are saying, whether they're at Delta Airlines or Walmart,
Speaker 2: they're warning of a wave of pessimism. Are you confident
Speaker 2: that we can avoid recession here?
Speaker 1: No, not at all, doug As you know, I've been
Speaker 1: more on the bearish side for a while, and the
Speaker 1: reason is it's a metro macroeconomic reason. The reason is
Speaker 1: we simply globally printed way too much Fiat currency after coronavirus,
Speaker 1: after twenty twenty, between the years of twenty twenty to
Speaker 1: twenty twenty three, the world has to absorb that currency.
Speaker 1: It's certainly inflated pockets. We can in America export a
Speaker 1: lot of our ination because we are the world's reserve currency,
Speaker 1: but we still felt it and we still do feel it,
Speaker 1: and there is the market has been priced i would
Speaker 1: say the last at least twenty thirty months. I'll say
Speaker 1: the last thirty months, we've been almost priced for perfection,
Speaker 1: so that anything that went wrong is going to cause
Speaker 1: a problem. If the job markets comes in during the
Speaker 1: Biden administration, it looks like the FED might ease rates
Speaker 1: again after raising rates, then the market's positive with bad
Speaker 1: jobs number because the Fed's going to intervene. So we've
Speaker 1: had a lot of monetary policy, modern monetary theory, print print, print, print,
Speaker 1: and that has got to be dealt with. And the
Speaker 1: fact that we are refinancing and we are dealing with
Speaker 1: the trade war with China. This is going to be disruptive.
Speaker 1: And we already had weak global demand and global growth
Speaker 1: forecast for twenty twenty five, a separate apart from all
Speaker 1: of this teriff situation. So the weakness of the growth
Speaker 1: of the twenty twenty five year for the globe was
Speaker 1: already felt it felt in the United States. So with
Speaker 1: the trade war continuing and not being fully resolved and
Speaker 1: for us to have to go through something before it
Speaker 1: gets resolved, I do think that a recession is very
Speaker 1: much in the cards because there's just not a lot
Speaker 1: of positive to bring us away from problems.
Speaker 2: I'm so glad you brought up the FED because we
Speaker 2: had the minutes of the last FED meeting release today
Speaker 2: and they seem to challenge this notion of aggressive easing.
Speaker 2: They clearly show that officials view the risk to inflation
Speaker 2: is being tilted to the upside, and at the same time,
Speaker 2: the risk to employment tilted to the downside. Last question,
Speaker 2: to kind of put a bow on everything we're talking about,
Speaker 2: where does this leave the FED.
Speaker 1: It's really difficult because pow Is really wants to be independent,
Speaker 1: and Trump is already obviously publicly calling for him to,
Speaker 1: you know, lower rates because obviously the terror policy, you know,
Speaker 1: you know his I believe I'm speaking and I'm summarizing
Speaker 1: what my opinion is for Trump. I believe that he
Speaker 1: is going to try to offset any kind of tariff
Speaker 1: impact two ways. One, he wants the FED to lower
Speaker 1: rate so that the cost of capital is less so
Speaker 1: that the credit card debt is lower and you feel
Speaker 1: like you're paying less for your car and your credit card.
Speaker 1: He also wants to make energy more abundant, so that
Speaker 1: the cost of energy goes down, so that it feels
Speaker 1: like it's cheaper at the gas station and we can
Speaker 1: all go on our summer holidays. So I feel like
Speaker 1: he's attacking these things two waste, but he absolutely does
Speaker 1: need the FED to be accommodative. And I'm of a
Speaker 1: different mindset than that. I think that modern monetary theory
Speaker 1: and US printing printing, printing the printing press of the
Speaker 1: FED will only cause us more problems at this stage.
Speaker 1: Jug And it's really a matter of the fact that
Speaker 1: we are accumulating debt now too fast. Every one hundred
Speaker 1: days is another trillion dollars.
Speaker 2: Rebecca, thank you so much for taking the time to
Speaker 2: chat with us. Rebecca Wallser there, she is president at
Speaker 2: Wallser Wealth Management. On the line from Tampa, Florida. Here
Speaker 2: on the Daybreak Asia podcast. Thanks for listening to today's
Speaker 2: episode of the Bloomberg Daybreak Asia Edition podcast. Each weekday,
Speaker 2: we look at the story shaping markets, finance, and geopolitics
Speaker 2: in the Asia Pacific. You can find us on Apple, Spotify,
Speaker 2: the Bloomberg Podcast YouTube channel, or anywhere else. You listen
Speaker 2: again tomorrow for insight on the market moves from Hong
Speaker 2: Kong to Singapore and Australia. I'm Doug Prisoner and this
Speaker 2: is Bloomberg