Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: Welcome to the Daybreak Asia podcast. I'm Doug Chrisner. So
Speaker 2: the story on US tariffs has, as we know, dominated
Speaker 2: much of the conversation in markets. Statements from the Trump
Speaker 2: administration recently have been at times contradictory, especially in the
Speaker 2: run up to the new trade deal deadline of August. First,
Speaker 2: in a moment, we'll go to Hong Kong and get
Speaker 2: the perspective of Nadia Grant from BNP Pariba Asset Management.
Speaker 2: On Thursday, we heard from Jamie Diamond, the CEO of
Speaker 2: JP Morgan Chase. He was speaking in Dublin where he
Speaker 2: warned of complacency on tariffs. He also said it's important
Speaker 2: that an agreement is reached between the European Union and
Speaker 2: the US for a closer look now at how tariffs
Speaker 2: are impacting market psychology. I'm joined by Keith Buchanan. He
Speaker 2: is senior portfolio manager at Global Investments. Keith joining today
Speaker 2: from Chicago, Illinois. Keith, thank you so much for making
Speaker 2: time to chat with me on this tariff story. What
Speaker 2: is your sense of where we stand right now?
Speaker 3: Well, thanks Degan, it's a good thing to chat with you.
Speaker 4: Again, we've looked at the tariff story as having the
Speaker 4: potential to inject new, almost reinvigorated inflation to the economy.
Speaker 4: Now it depends on the whole picks of the toll.
Speaker 1: Is.
Speaker 3: We look at tariffs as like a.
Speaker 4: Traffic toll and someone has to pay it or pass along,
Speaker 4: whether it's the importer, the US corporation, or the end consumer,
Speaker 4: whether it's corporation or individual. So we've looked at this
Speaker 4: as you know, still a developing story, not one that's
Speaker 4: in the review myriad as corporations have as you mentioned
Speaker 4: in the in the break before that, there have been
Speaker 4: some corporations that made adjustments in order to make sure
Speaker 4: that they didn't have a full implementation of tariffs. Had
Speaker 4: to run through price increases that perhaps their consumers couldn't take,
Speaker 4: so they built up inventories and there are things that
Speaker 4: might affect the cash flow but didn't affect earnings so directly.
Speaker 4: So we're investigating how that really plays out, and it's
Speaker 4: really critical this earning season.
Speaker 2: I'm wondering how it's going to affect the Fed's thinking
Speaker 2: as well. Right now, if you look at futures pricing,
Speaker 2: the markets expecting two rate cuts before the end of
Speaker 2: the year. Do you think that's maybe a little too optimistic,
Speaker 2: But the.
Speaker 4: Minutes last week kind of painted a story of anticipation
Speaker 4: that kind of aligns with what we're thinking internally with
Speaker 4: the corporations really making sure that you know, the way
Speaker 4: that the tariffs have been implemented won't really throw them
Speaker 4: off from an annual earning.
Speaker 3: Standpoint, And I think that's what.
Speaker 4: Those of the Fed have also taken notice of, is
Speaker 4: it will take some time to really see the real
Speaker 4: effects that can either outweigh or justify temporary even call it,
Speaker 4: if you will, transitory change. The corporations are made in
Speaker 4: order to elude the most negative impacts of tariff.
Speaker 3: So I think there's a wait and.
Speaker 4: See approach that we are waiting for corporations to see
Speaker 4: what they have done how that impacts earnings, but also
Speaker 4: the Federal Reserve and those decision makers on monetary policy
Speaker 4: are also waiting to see who has those effects that
Speaker 4: we can't get around and when does that really hit
Speaker 4: the road as far as the data perspective, And we
Speaker 4: just haven't seen it just yet, but that doesn't mean
Speaker 4: we won't see it over the next couple of months.
Speaker 2: How difficult is it to try to assess which companies
Speaker 2: are best insulated from this tariff threat right now? Or
Speaker 2: is that simply impossible because in some way all companies
Speaker 2: are exposed.
Speaker 4: We feel like all companies are exposed to a degree,
Speaker 4: and then that degree varies by the industry and by
Speaker 4: the approach to the latest from the administration. It's definitely
Speaker 4: too early to tell from an aggregate standpoint. We don't
Speaker 4: feel like there's a determination to be made just yet,
Speaker 4: and we'd like to wait and see them make sure
Speaker 4: that we're not premature and making a call, whether it's
Speaker 4: positible or negative on just what the lasting impact is
Speaker 4: of the most recent trade policy changes.
Speaker 3: We just don't think we're there yet.
Speaker 4: And frankly, this earning season could be, you know, the
Speaker 4: very first they have a full what corporations can really
Speaker 4: speak freely about it, but still could possibly be you know,
Speaker 4: several quarters a come before we really have a good
Speaker 4: grasp of what the impact is from the trade policy changes.
Speaker 2: The unofficial start to the season begins next week. We'll
Speaker 2: hear from the big banks today a pretty upbeat forecast
Speaker 2: from Delta Airlines that stock popped about twelve percent so
Speaker 2: if we can go back to kind of expectations for
Speaker 2: not only earnings, but what we may hear in terms
Speaker 2: of forecast from some of these companies, do you have
Speaker 2: a sense of.
Speaker 4: That, And look, Delta Airlines is a microcosm of exactly
Speaker 4: what we've been studying internally. Delta pulled their pull their
Speaker 4: earnings guidance earlier in the year from an annual standpoint,
Speaker 4: and they re implemented this quarter today when they had
Speaker 4: better color around the puts and takes as to what
Speaker 4: at this point, as much as they can graft the
Speaker 4: impact could be. So they were much less certain a
Speaker 4: quarter ago. Now they're more.
Speaker 3: Certain that we can have more clarity is what their earnings.
Speaker 4: And cash flow for cast could be, and we can,
Speaker 4: and we as onlookers and investors can have more confidence
Speaker 4: and some of the estimates that we've put.
Speaker 3: Around some corporations.
Speaker 4: So we feel like Delta really set the tone for
Speaker 4: us to really have more confidence in this earning season
Speaker 4: going in a way that it's not just a old
Speaker 4: pulling guidance.
Speaker 3: We're not adjusting guidance. We don't know what the next.
Speaker 4: Step could be, and a little more clarity to help
Speaker 4: us understand what this earnings growth this quarter could be,
Speaker 4: and also we understand and appreciate just how impactful that
Speaker 4: could be for evaluation of the SB five hundred going forward.
Speaker 4: So we feel like that this quarter is very critical
Speaker 4: in understanding the next steps market.
Speaker 2: As I'm speaking to you, I'm watching Bitcoin set a
Speaker 2: record high. We're trading around one hundred and sixteen thousand
Speaker 2: at the moment. Given everything that's going on in other
Speaker 2: markets right now, do you have to have a little
Speaker 2: exposure to the crypto space, and maybe it's through bitcoins.
Speaker 3: We don't.
Speaker 4: We don't have any in our in our in our
Speaker 4: strategies right now. We don't necessarily look at it as
Speaker 4: the ass as a as a real detractor. We feel
Speaker 4: like it's definitely a beta plus type of measure. We'd
Speaker 4: rather get that exposure through equities, frankly, and changing our
Speaker 4: exposed equities and even gaining more leverage if possible. But
Speaker 4: right now we just don't have that exposure. But we don't.
Speaker 4: We don't feel like that. It's it's something that we is,
Speaker 4: something that we actually discussed on a very active basis,
Speaker 4: is not yet.
Speaker 2: You know, right after the election, a lot of the
Speaker 2: conversation focused on merger and acquisition activity and deregulation. We
Speaker 2: haven't seen much in the way of deal flow and
Speaker 2: M and A activity. How are you feeling about that
Speaker 2: possibility moving forward, perhaps after the tariff story fades into
Speaker 2: the background.
Speaker 4: From a deregulatory standpoint, the initial thought was after deregulation
Speaker 4: and some anti trust concerns were abated, then you'd see
Speaker 4: this influx and flurry of eminet. We feel like the
Speaker 4: main driver and the data supports this is more brilliant
Speaker 4: economic exportations and we just haven't had that because the
Speaker 4: traff conversation has been in a way so as that
Speaker 4: starts to not necessarily that the terrorfs go away, but
Speaker 4: is there more certainty and clarity around the direction and
Speaker 4: the drivers of the psychology of our trade positive changes,
Speaker 4: specifically when it comes to TERRAFK. We feel like some
Speaker 4: of that imminate can unlocked because the anti trust levers
Speaker 4: are have been loosen some and so we appreciate that
Speaker 4: part of it, but we just still have to have
Speaker 4: some economic clarity in order for those conversations to really
Speaker 4: gain momentum and we get paying the pad on though,
Speaker 4: so we feel like economic inspectation to wait more. Even
Speaker 4: we're selling this environment than some of the anti trust
Speaker 4: concerns being alleviated. You have to have optimism about economic
Speaker 4: developments over the next five, ten, fifteen years, and that
Speaker 4: picture's just been very, very unclear. And as that clarity
Speaker 4: comes to the marketplace, we feel like em and they
Speaker 4: could pick up in a substantial way.
Speaker 2: So away from the US keith, I'm wondering whether you're
Speaker 2: forced to find opportunity offshore right now. Maybe it's in Europe.
Speaker 2: How are you thinking about foreign markets?
Speaker 4: We've we've we've had a underway when it comes in
Speaker 4: the national compared to domestic here for some time.
Speaker 3: Now.
Speaker 4: That's that's a that's a marketplace that we've paid more
Speaker 4: attention to it. It's a little more exciting and more
Speaker 4: you know, our ears are perking up a little more,
Speaker 4: but not necessarily where we feel like we change that
Speaker 4: position that we're in as far as going from underweight
Speaker 4: to overweight, we feel like you have. Politically, there's still
Speaker 4: a lot of concerns in the world. You know, we
Speaker 4: can go down the list and it's you know, very
Speaker 4: well known issues that kind of take some of the
Speaker 4: headlines here in the past several months, we don't really
Speaker 4: feel like that changes, and the prospects here in the
Speaker 4: US we feel like, even with our monetary fiscal concerns,
Speaker 4: still a little more exciting than what we see in nationally.
Speaker 4: So we're comf fable in the position we've been in. And
Speaker 4: that's that goes from Margie and the Bella markets as well.
Speaker 2: Keith will leave it there, Thank you so very much.
Speaker 2: He is Keith Buchanan, Senior portfolio manager at Globalt Investments,
Speaker 2: joining from Chicago here on the Daybreak Asia podcast. Welcome
Speaker 2: back to the Daybreak Asia Podcast. I'm Doug Chrisner. I
Speaker 2: think we can agree the major challenge for markets right
Speaker 2: now is determining the effect of those US tariffs. For
Speaker 2: a closer look now, I am joined by Nadia Grant.
Speaker 2: She is head of Global Equity at Bnpperabat Asset Management,
Speaker 2: and Nadia is joining from our studios in Hong Kong.
Speaker 2: Thank you so much for making time to chat with me.
Speaker 3: I know the.
Speaker 2: Tariff story is a still evolving one right now, although
Speaker 2: I think we may be able to say there are
Speaker 2: several highly probable scenarios. Let me begin with the growth outlook.
Speaker 2: How are you feeling about growth going forward.
Speaker 1: Yeah, it's a pleasure to be with you. The growth
Speaker 1: outlook is definitely uncertain and most definitely as well, most
Speaker 1: likely on a downward trajectory. And so when we think
Speaker 1: about the tariff and how the market is looking at them,
Speaker 1: it seems that the market is now completely pricing an
Speaker 1: outcome whereby their view as a negotiating tool, and that
Speaker 1: they will be evolving. And when we listen to what
Speaker 1: has been said more recently by the administration, and I'm
Speaker 1: thinking about a Treasury Secretary as cop essant when he
Speaker 1: was actually talking about using tariff as a source of
Speaker 1: revenues and to finance that the tax cuts and the
Speaker 1: provisions from the big beautiful Bill. And so there may
Speaker 1: be a bit of complacency in the part of the
Speaker 1: market when it comes to tariff because of that ever
Speaker 1: changing nature of it.
Speaker 2: When it comes to the impact of tariff's I'm curious
Speaker 2: as to how you see the economic risk distributed across Asia.
Speaker 2: So many of those countries we know are exporters, and
Speaker 2: obviously they have exposure, but I'm wondering about jurisdictions that
Speaker 2: may have a slight advantage.
Speaker 1: So I'm a Stockpiaker. So I look at companies and
Speaker 1: sectors and so and obviously at countries as well, and
Speaker 1: so I would say, you know that we initially when
Speaker 1: we heard about the potential of tariff, those that had
Speaker 1: big exposure to US exports were obviously the most at risk.
Speaker 1: And so I'm thinking the like Vietnam, for example, But
Speaker 1: Vietnam has been really quick to get to negotiate, and
Speaker 1: actually what the end did up negotiating is a pretty
Speaker 1: positive outcome versus what was feared. And so the knee
Speaker 1: jerk reaction of the market was really to sell this
Speaker 1: market first. And now we're seeing really that we've passed
Speaker 1: that big overhang and you can start investing and looking
Speaker 1: at companies again. So you have a big of a
Speaker 1: big relief rally there, and then you have obviously others
Speaker 1: where you still have a very uncertain outcome because we
Speaker 1: just don't know where the tariff will land. Definitely, we
Speaker 1: know that the auto sector has been very penalized for Japan,
Speaker 1: it's been quite impactful. So although we like some of
Speaker 1: our exposure in Japan, we prefer exposure in Japan to
Speaker 1: the financials, to the banks that are exposed to more
Speaker 1: of the CPI strands and the wage growth and the
Speaker 1: fact that the rates are well underpend and so benefit
Speaker 1: from that outlook as opposed to the exporters on the
Speaker 1: auto side that are really feeling the blunt of the
Speaker 1: pressure on the tariff.
Speaker 2: So you're normally based in London, I understand you or
Speaker 2: in China recently, and I'm very curious about your observations
Speaker 2: there and whether or not you're finding opportunity in China
Speaker 2: right now.
Speaker 1: We are absolutely so. We were really excited by China
Speaker 1: Tech after Deep Sick. We thought that there was a
Speaker 1: big realization that actually really China was closing in on
Speaker 1: the AI race and find opportunities there earlier on the year.
Speaker 1: But we also really like the fact that on the
Speaker 1: consumer side on there's not The service sector and particularly
Speaker 1: the financial service sector has got so much greenfield that's
Speaker 1: got so much room to grow, and so we have
Speaker 1: exposure to a life insurance company there. And what has
Speaker 1: really captured our attention this week in particular has been
Speaker 1: the talks on supply side reform, the talks of anti involution,
Speaker 1: because that's been one of the area where we were
Speaker 1: did in terms of sectors where we've been sort of
Speaker 1: more shy and haven't really wanted to get exposure. Have
Speaker 1: been those where we've seen obviously oversupply, fierce competition, because
Speaker 1: that is very negative for margins for returns, and so
Speaker 1: if the government is really a key to tackle the
Speaker 1: issue and to instill more supply discipline, we think that
Speaker 1: would be a really strong catalyst for Chinese equity, in
Speaker 1: particular in the sector of ev so on the auto surrey,
Speaker 1: on the battery, on the solar side, where you've seen
Speaker 1: that fierce competition.
Speaker 2: But you're not concerned about the overcapacity issue, or you're
Speaker 2: not concerned at all when you look at the wholesale
Speaker 2: level of deflation in China, these are not concerns that
Speaker 2: you have.
Speaker 1: Oh absolutely. That's why at the moment we're on the sideline.
Speaker 1: We want to see whether these measures will come to fruition.
Speaker 1: But historically, when you've seen more supply discipline, when you've
Speaker 1: seen closure of capacity that has been that's very market positive.
Speaker 1: So we're really keen to see whether these measures are
Speaker 1: going to come through, whether you will see supply side
Speaker 1: reform to tackle these issues.
Speaker 2: Do you feel confident in Beijing's ability to strike some
Speaker 2: sort of deal with Washington so that the pressure that
Speaker 2: this trade war represents will be alleviated.
Speaker 1: I think we've already seen a big degree of de
Speaker 1: escalation because if you recall earlier on a year we
Speaker 1: had really outlandish tariff levels that were completely punitive and prohibitive.
Speaker 1: We were in one hundred percent range if memory serves
Speaker 1: me well, So you've already had a great degree of
Speaker 1: de escalation. I think in the case of China, I
Speaker 1: think that they can really tackle the tariff in many ways.
Speaker 1: So there's the negotiation route, absolutely, but there's also been
Speaker 1: a high degree of trying to offset some of the
Speaker 1: impact of the tariff by stimulating the economy so to
Speaker 1: really try to compensate. And then there's also the opportunity.
Speaker 1: What we've observed the first time we had tariff back
Speaker 1: in twenty eighteen is a degree as well of re
Speaker 1: routing and recycling, and so really seeing some of the
Speaker 1: exports that were meant for the US market perhaps being
Speaker 1: rerouted such that it would not go directly to the
Speaker 1: US but find its way there eventually, and recycling meaning
Speaker 1: that some of the exports that were initially meant for
Speaker 1: the US actually finding their way elsewhere, and I'm thinking
Speaker 1: in Europe or elsewhere in the world, and so there's
Speaker 1: many ways in which we've seen companies being agile and
Speaker 1: adapting to the circumstances. But to go back to your
Speaker 1: first question of growth, obviously this is a gross reduction.
Speaker 1: This is a handicap that we're putting on global trade
Speaker 1: and on global growth.
Speaker 2: So, Nadia, when you are on the mainland and you
Speaker 2: were engaged in conversation around technology, particularly the focus on AI,
Speaker 2: I'm curious as to whether or not people really feel
Speaker 2: that the US has a potential, through these export controls
Speaker 2: and the limits that have already been put into effect
Speaker 2: when it comes to certain aspects of the technology, whether
Speaker 2: that still has the ability to hold back further growth
Speaker 2: in the tech sector in China, or is there a
Speaker 2: growing sense of confidence that China, through its own means,
Speaker 2: has the ability to kind of compensate and maybe work
Speaker 2: this out on its own.
Speaker 3: Yeah.
Speaker 1: I think it's very interesting because I've been really amazed
Speaker 1: by the agility really of China tech in terms of
Speaker 1: that ability to adapt and find efficiencies in the face
Speaker 1: of challenge, in the face of restriction. And so when
Speaker 1: you listen to some of the big tech CEO in
Speaker 1: the US, they would tell you that they actually think
Speaker 1: that China is really catching up and he is really
Speaker 1: able to manage with those constraints. So yeah, I would
Speaker 1: think so. And in the case of on the US side,
Speaker 1: I mean, you know, the CEO of the largest chip
Speaker 1: company or the largest company has really been quite vocal
Speaker 1: about the fact that it would be a lot more
Speaker 1: productive to not have this restrictions because in the end
Speaker 1: they don't achieve the objective that they set out to achieve.
Speaker 2: Give me your sense of the pharmaceutical industry. I know
Speaker 2: that China and the US are somewhat entwined at that level.
Speaker 2: Are you optimistic that we can avoid much more in
Speaker 2: the way of tension on that front? And I'm curious
Speaker 2: to get your take on the farmer business on the mainland.
Speaker 1: Oh, farmer business on the mainland. So we don't have
Speaker 1: much exposure to the farmer business there. I must admit.
Speaker 1: We have exposure to European pharmaceutical company, but the way
Speaker 1: they are set up, so the one in particular, we
Speaker 1: have exposure to one leader on oncology because we really
Speaker 1: think that from a demographic standpoint, oncology is not only
Speaker 1: the largest therapeutics, but it's the one that's growing the
Speaker 1: most because of aging population. But that specific company has
Speaker 1: having its manufacturing footprint, is answering US demand with the
Speaker 1: US manufacturing and supply chain and so pretty much insulated
Speaker 1: from from the impact on the tariff. It's so, it
Speaker 1: seems so we really want to make sure that when
Speaker 1: we think about tariff and specific companies that we understand
Speaker 1: the makeup of their supply chain, of their manufacturing footprint,
Speaker 1: because if the if the if a company in the
Speaker 1: same sector would export its drugs to the US, then
Speaker 1: obviously would feel the full blunt of the tariff. So
Speaker 1: it's really important to understand case by case how the
Speaker 1: companies are organized. And we've seen actually a florry of
Speaker 1: announcement for on shoring of farmer companies from Europe in particular,
Speaker 1: but not only back to the US, and the tariff
Speaker 1: that have just been announced on the farmer sector by
Speaker 1: the administration this week, they really allow for a year
Speaker 1: or two before coming into effect, because they acknowledged that
Speaker 1: if you want to bring bring manufacturing back to the
Speaker 1: U S you really need to allow some time for
Speaker 1: this to occur.
Speaker 2: So you mentioned European pharma how are you feeling about
Speaker 2: European markets more broadly.
Speaker 1: Well, for the first time in a long time, I'm
Speaker 1: actually pretty sanguine in that I really think we've had
Speaker 1: we've had a wake up call in Europe that you've
Speaker 1: had that bazooka in the German Infrastructure Plan. Germany was
Speaker 1: the only country that had fiscal room to ease, and
Speaker 1: it's doing so in a very material way. And so
Speaker 1: we think that the plan that has been announced, I mean,
Speaker 1: Germany is the largest European economy, he's going to add
Speaker 1: point three two point six percent growth to European GDP,
Speaker 1: which is very material when Europe was so desperately in
Speaker 1: need of growth and so and so we really added
Speaker 1: exposure to what we thought was some of the main
Speaker 1: beneficiaries of that plan, so namely in the construction sector,
Speaker 1: MidCap names that would set to benefit from a lot
Speaker 1: of the stimulus happening there. And you know, monetary policy
Speaker 1: is also loose in Europe, so we think the combination
Speaker 1: of those two ise is quite supportive. Obviously, the European
Speaker 1: market started the year really strongly, and then I sort
Speaker 1: of gave some back because of the fear of tariff
Speaker 1: and we'll have to We'll have to see what happens there.
Speaker 1: But in so far as our exposure, we can really
Speaker 1: sort of get exposure mainly through MidCap that are more
Speaker 1: insulated and more focused on the German infrastructure plan.
Speaker 2: Nadia will leave it there. Thank you so very much
Speaker 2: for making time to chat with me. She is Nadi
Speaker 2: a Grant, Head of Global Equity at BNP. Payabout asset management.
Speaker 2: Joining us here on the Daybreak Asia Podcast. Thanks for
Speaker 2: listening to today's episode of the Bloomberg Daybreak Asia Edition podcast.
Speaker 2: Each weekday, we look at the story shaping markets, finance,
Speaker 2: and geopolitics in the Asia.
Speaker 3: Pason it.
Speaker 2: You can find us on Apple, Spotify, the Bloomberg Podcast
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Speaker 2: tomorrow for insight on the market moves from Hong Kong
Speaker 2: to Singapore and Australia. I'm Doug Chrisner, and this is
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