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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 Doug Chrisner.

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Speaker 2: The Fed cut its benchmark interest rate today by a

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Speaker 2: quarter point and policymakers in aggregate also penciled in two

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Speaker 2: more quarter point cuts this year.

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Speaker 3: Now.

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Speaker 2: The Fed statement points to growing signs of weakness in

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Speaker 2: the labor market as a justification. Here is Fedshair J. Powell.

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Speaker 4: You can think of this in a way as a

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Speaker 4: risk management cut because if you look at the SEP,

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Speaker 4: actually the projections for growth this year and next actually

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Speaker 4: ticked up just a little bit, and inflation and unemployment

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Speaker 4: didn't really move once. So what's different now. What's different

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Speaker 4: now is that you see a very different picture of

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Speaker 4: the risks to the labor market.

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Speaker 2: And at the same time, Powell reiterated the danger of

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Speaker 2: tariff hikes in creating a persistent uplift in inflationary pressure.

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Speaker 2: By the way, this vote was eleven to one, with

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Speaker 2: newly installed Fed Governor Steave Myron pushing for a larger

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Speaker 2: half point reduction. In a moment or two, we'll get

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Speaker 2: the market views of Stephanie Leung. She is the Chief

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Speaker 2: Investment Officer at Stashoway in Hong Kong, but we begin

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Speaker 2: here in the States. Joining me now is George Schultze.

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Speaker 2: He has founder CEO at Chultze Asset Management. Thanks for

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Speaker 2: making time to chat with me about this, George. A

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Speaker 2: lot going on in markets. Let's begin with the FED.

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Speaker 2: Not really a big surprise, right.

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Speaker 1: No, not a big surprise, although some people were perhaps

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Speaker 1: a little too optimistic and expecting a fifty basis point cut.

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Speaker 1: But you know, the market is certainly expected action today

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Speaker 1: and it got pretty much what the expectation was at

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Speaker 1: twenty five basis points.

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Speaker 2: So I was struck by the fact that here is

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Speaker 2: Powell kind of reinforcing the idea that merit maybe tariffs

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Speaker 2: begin to filter in to persistent inflation. Is that a

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Speaker 2: worry that you share?

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Speaker 1: So not really, I'm a little bit more of the

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Speaker 1: camp that the tariffs are helping our economy and you know,

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Speaker 1: hopefully bringing some capital back from overseas. But clearly there

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Speaker 1: was a lot of concern that taris would would cause

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Speaker 1: more inflation. And you know, it's really not you know,

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Speaker 1: as much of a problem here as as labor market

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Speaker 1: seems to be at this point. So you know, it's

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Speaker 1: a tough time for the FED. But but I think

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Speaker 1: they made the right decision here.

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Speaker 2: So help me understand then from your point of view,

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Speaker 2: while we saw a bit of a backup and yields

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Speaker 2: right across the curve, I think in the case of

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Speaker 2: both the two and the ten up a little bit

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Speaker 2: more than five basis points in each case.

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Speaker 1: Right right, Yeah, And if you looked at it yesterday anyway,

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Speaker 1: that you know, the yield curve continues to be a

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Speaker 1: little inverted. So it's a good thing that they lowered

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Speaker 1: this short term interest rate a little bit more. I

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Speaker 1: think that really helps banks, and I think it helps

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Speaker 1: the overall picture. You know, it takes away some of

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Speaker 1: the risk in the uh, you know, in the early

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Speaker 1: part of the curve, in terms of expecting you know,

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Speaker 1: potential future recession or stagflation. So this move I think

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Speaker 1: is preemptive and it helps address that risk and really

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Speaker 1: helps I think banks that that make money on the

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Speaker 1: spread going forward.

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Speaker 2: So Stephen Myron dissented in today's vote. He was pushing

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Speaker 2: for a half point great cut. One of the things

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Speaker 2: that Myron has done and being installed recently as a

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Speaker 2: FED governor, has created a lot of conversation around the

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Speaker 2: idea of FED independence. Is that something that you're concerned about.

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Speaker 2: Does the FED need to do more to demonstrate that

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Speaker 2: it is independent from the executive branch?

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Speaker 1: I don't think so. I think the FED has really

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Speaker 1: walked that uh you know that line well, and you know,

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Speaker 1: all the controversy with Cook and you know, attempts to

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Speaker 1: change things along the way, you know, and the reaction

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Speaker 1: of the FED has really shown as independence and shown

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Speaker 1: how it how it navigates the you know, choppy water

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Speaker 1: is when when times changed like they have recently. I

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Speaker 1: think going forward, the big change that we should all expect,

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Speaker 1: of course, is that Powell next year, his term will

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Speaker 1: be up, and at that point it appears more likely

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Speaker 1: that the next uh, the next leader will be you know,

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Speaker 1: more on the lower rates camp. But clearly there's been

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Speaker 1: a lot of a lot of pressure between the Trump

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Speaker 1: administration and the FED and independence. But I think this

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Speaker 1: this meeting specifically proves, you know, its independence. And despite

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Speaker 1: the fact that it's uh, you know, it's building project

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Speaker 1: was audited and reviewed and there's a lot of press

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Speaker 1: and focus on and then the whole thing with with

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Speaker 1: FED Governor Cook, you know, made a lot of headlines,

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Speaker 1: but still the FED acted very independently, I think.

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Speaker 2: Here so the Fed's decision and the Powell press conference

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Speaker 2: kind of failed to rattle the equity market beyond maybe

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Speaker 2: a minor blip. There was a little bit of volatility,

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Speaker 2: but the range of trading today was I would say,

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Speaker 2: fairly narrow. Are you constructive on the equity market going forward?

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Speaker 1: We are here at Shultzi Asset Management, but really, you know,

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Speaker 1: the key is here Doug finding companies that are cheap

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Speaker 1: in not just throwing money at the at the big

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Speaker 1: names or the Max seven for instance. You know, so

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Speaker 1: working strug if there are some companies that are particularly inexpensive,

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Speaker 1: and some of them have really interesting events that are

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Speaker 1: likely to drive them higher. One of them is a

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Speaker 1: regional bank, Flagstar, which should benefit from these lower rates.

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Speaker 1: Here it's spread business of generating net interest income will

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Speaker 1: clearly increase now with short term rates haven't dropped a

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Speaker 1: little bit. But yeah, we're generally constructive on the equity markets,

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Speaker 1: and I think that this was the right move that

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Speaker 1: the FED made.

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Speaker 2: Saw the Rustle two thousand getting a bit of a

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Speaker 2: lift today. Would you tend to say that the current

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Speaker 2: environment right now with declining yields lower rates that that

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Speaker 2: tends to favor some of the small cap MITCAB space.

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Speaker 1: I do think that's right, But you still have a

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Speaker 1: couple other risks in the market. You have higher inflation

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Speaker 1: that's been sticking around. Interest rates even though they've dropped

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Speaker 1: a little bit today and are likely to drop two

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Speaker 1: more times at least this year. It looks like based

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Speaker 1: on market experts right now, either way, there's still much

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Speaker 1: higher than they were just a couple of years ago

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Speaker 1: where we had zero interest rate policy. So that's a

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Speaker 1: big change for companies that are overlevered. And you also

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Speaker 1: have secular change and that includes you know, technology technological

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Speaker 1: change such as AI and so those big overhang risks.

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Speaker 1: Can you really impact companies that are overlevered, But for

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Speaker 1: smaller companies, sure, you know, lower interest rates should help

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Speaker 1: them and uh, you know, I think possibly ignite some

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Speaker 1: animal spirits in their stocks.

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Speaker 2: How do you assess the risk of stagflation right now?

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Speaker 1: Well, I think that's you know, one of the things

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Speaker 1: that the FED was concerned about, you know, having a

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Speaker 1: softening labor market along with inflationary pressures continuing to come through,

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Speaker 1: And that's exactly what you've been seeing. So that's the UH.

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Speaker 1: I think that's one of the main reasons they lowered

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Speaker 1: the rate today. And you've seen that because you know,

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Speaker 1: some companies are forcing higher costs through from tarifs to

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Speaker 1: their customers. You're seeing that with food appliance as automobiles,

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Speaker 1: and even the Bank of International Settlements recently suggested that,

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Speaker 1: you know, some of this UH, you know, might be

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Speaker 1: complicating the fed's dual mandate and and creating that kind

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Speaker 1: of that kind of risk.

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Speaker 2: Right now, President Trump is in the UK. We heard

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Speaker 2: from him earlier touting some of the high tech deals

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Speaker 2: that we're going to be or will be announced tomorrow,

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Speaker 2: with names like Microsoft and open Ai being involved. When

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Speaker 2: you look at the big tech story right now globally,

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Speaker 2: whether we're talking about South Korea, whether we're talking about

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Speaker 2: Hong Kong and by extension, China, whether we're talking about

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Speaker 2: the UK even and obviously here in the States, how

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Speaker 2: are you feeling about big tech in the current environment.

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Speaker 1: I think he's big tech companies their position pretty well

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Speaker 1: and have they certainly have Trump's ear He's getting deals

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Speaker 1: you know, to the table for him or for them,

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Speaker 1: you know, the TikTok announced from yesterday. It was big news,

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Speaker 1: and you know, there's some big US investors that look

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Speaker 1: like they'll benefit from that. But clearly part of negotiating

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Speaker 1: tariff deals includes helping some of the largest companies in

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Speaker 1: the US. I think some of these big companies will

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Speaker 1: really benefit from that as you keep seeing tariff deals

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Speaker 1: get made going forward. Having said all that, you know,

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Speaker 1: some of them have really appreciated to you know, unbelievable levels,

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Speaker 1: and you know, it really makes me wonder whether there's

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Speaker 1: still a lot more upside in their valuations. So we're

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Speaker 1: trying to pick our winners and you know, future gainers

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Speaker 1: in different places for now.

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Speaker 2: So you're rotating a little bit, I mean, taking money

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Speaker 2: off the table in certain names and redeploying that cash

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Speaker 2: in other areas of the equity market. Is that what

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Speaker 2: I hear you.

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Speaker 1: Saying a little bit?

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Speaker 5: Yeah.

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Speaker 1: I mean, we didn't have big exposure to the Max

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Speaker 1: seven for instance, to begin with, but we certainly think

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Speaker 1: there are some great opportunities with event driven stocks, companies

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Speaker 1: that are fundamentally cheap on a valuation basis, and specifically

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Speaker 1: these that happen to have an overhang of distress that

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Speaker 1: you know that has put a cloud over them from

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Speaker 1: you know, from distress or situations that they were enveloped

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Speaker 1: with in the past.

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Speaker 2: George will leave it there. Thank you so much. George Schultze.

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Speaker 2: He is founder and CEO of Schultze Asset Management. Joining

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Speaker 2: us here on the Daybreak Asia podcast. Welcome back to

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Speaker 2: the Daybreak Asia Podcast. I'm Doug Chrisner. Chinese focused ETFs

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Speaker 2: rose in the Wednesday session and provided a modest tailwind

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Speaker 2: for Asian peers. Let's take a look at markets across

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Speaker 2: the Asia Pacific more broadly. Now. Joining me is Stephanie

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Speaker 2: Liungshi is the chief investment officer at Stashaway. Stephanie joins

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Speaker 2: us from our studios in Hong Kong. Thank you so

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Speaker 2: much for making time to chat with me. If you

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Speaker 2: don't mind, I'd like to begin the conversation around this

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Speaker 2: rally that we have seen a powerful one at that

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Speaker 2: Ian markets like Hong Kong and South career. What do

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Speaker 2: you think is driving this?

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Speaker 5: Yeah, I think if you look at kind of emerging

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Speaker 5: markets as a whole, it's been actually rallying quite a

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Speaker 5: bit in recent months. So the restart of a interest

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Speaker 5: rate cycle cut cycle is actually typically quite good for

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Speaker 5: emerging markets, particularly given that US dollar now is actually

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Speaker 5: quite recently priced compared to let's say a year ago.

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Speaker 5: So a kind of weaker US dollar environment coupled with

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Speaker 5: interest rate further interest rate cuts from the Fed typically

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Speaker 5: creates a fairly good environment for emerging markets. Now if

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Speaker 5: we look at kind of the fundamental data, it's I mean,

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Speaker 5: of course, like China is still kind of the elephant

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Speaker 5: in the room. But even China it seems to be

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Speaker 5: slowly turning around a corner. Recent data suggests that the

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Speaker 5: Chinese economy is sort of stabilizing.

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Speaker 3: There are some pockets which are.

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Speaker 5: Picking up, but of course it's a it's a big economy,

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Speaker 5: so it'll take some time to turn around.

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Speaker 3: Uh.

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Speaker 5: If you look at some of the other Asian markets,

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Speaker 5: I mean, Japan market has been kind of boosted by

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Speaker 5: a return to inflation to inflation.

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Speaker 1: Uh.

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Speaker 3: And of course if you look at kind of the more.

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Speaker 5: Tech heavy markets like Korea and Taiwan, I mean, those

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Speaker 5: have been boosted by the investments in ai So I

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Speaker 5: think there are various stories going around in emerging markets. Uh,

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Speaker 5: it which supports kind of investor coming back to to

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Speaker 5: to re look at what are the opportunities there.

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Speaker 2: Do you have a sense of the balance between institutional

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Speaker 2: participation right now and what may be happening from the

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Speaker 2: retail crowd. How is this balance do you think?

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Speaker 1: So?

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Speaker 5: I think it depends on the market obviously, I think

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Speaker 5: from it and also from kind of what investor base. Right,

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Speaker 5: we talk about international investor base or domestic. So I

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Speaker 5: think from an international kind of investor based perspective, most

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Speaker 5: of the flow is still kind of institutional. I think

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Speaker 5: it's a lot of that is sort of rebalancing out

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Speaker 5: of the US, uh, partly triggered by the the sort

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Speaker 5: of the trade tariff scares in the beginning of the year, right,

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Speaker 5: and also a kind of a relook at the overweight

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Speaker 5: in the US. So I think that's sort of that's

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Speaker 5: sort of the flow that we've been mostly seeing from

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Speaker 5: an international investor base. From the domestic side, I think

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Speaker 5: there are some signs that, uh, the the animal spirits

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Speaker 5: are returning a bit to the to the market. So

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Speaker 5: to take for example, UH in the hawkoal market, which

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Speaker 5: is kind of closest to our heart, UH, the IPO

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Speaker 5: market has.

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Speaker 3: Been actually quite hot.

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Speaker 5: Uh. And typically when you see kind of hot ipo

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Speaker 5: markets that's the sign that retail is coming back.

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Speaker 1: Uh.

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Speaker 5: Even if you look at China on shore, right Asia

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Speaker 5: market is typically not a I guess not an internationally

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Speaker 5: driven market. I mean that has been on a tear

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Speaker 5: and a lot significant part of that is because of

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Speaker 5: the excitement around kind of technology, around kind of some

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Speaker 5: of the themes that China is pushing through. So again,

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Speaker 5: I think there are from a domestic perspective, there is

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Speaker 5: increasing kind of retail participation, but I think from an

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Speaker 5: international kind of esset allocation point of view, most of

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Speaker 5: it is still institutional. Even within our platform at Stashway,

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Speaker 5: we don't see most of our investors are actually kind

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Speaker 5: of retail investors. Of course that includes a lot of

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Speaker 5: the kind of more premium retail investors, but still what

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Speaker 5: we're seeing is still not a not a lot of

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Speaker 5: kind of euphoria or a lot of emerging markets yet.

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Speaker 2: So you mentioned technology. Now we know since the deep

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Speaker 2: Seek moment that has certainly been a big driver for

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Speaker 2: equity markets in the APEC region. But I'm wondering about

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Speaker 2: betting on the strength of the consumer right now across

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Speaker 2: the Asia Pacific. Is that becoming a trend that you

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Speaker 2: think is durable, whether you're looking at e commerce names

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Speaker 2: like an Ali Baba or a by Doer or even

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Speaker 2: a young China whether people are betting on a return

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Speaker 2: of consumer strength.

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Speaker 5: I think it's it's actually been quite selective, I would say,

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Speaker 5: because if you look at China, for example, the I mean,

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Speaker 5: the economy is still stabilizing, but it's it's it's not

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Speaker 5: coming back in the visions right, it's not very very

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Speaker 5: strong recovery. So I think if you look at kind

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Speaker 5: of pockets of consumer names, I mean there are names

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Speaker 5: like Potmart or some of these Chinese IP names that

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Speaker 5: have been on a tear, and I mean that shows

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Speaker 5: strength in terms of I think not just kind of

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Speaker 5: the strength of the Chinese consumer, but more of the

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Speaker 5: strength of some of these newer Chinese brands which are

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Speaker 5: actually going international. So I mean PopMart is of course

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Speaker 5: the make of La Boobu, which has been kind of

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Speaker 5: a phenomenon in the last kind of twelve to eighteen months.

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Speaker 5: And apart from that, I think if you look at

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Speaker 5: some of these Chinese e commerce names, they are much

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Speaker 5: more affected by what's happening domestically, right and on shore.

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Speaker 5: Domestically they are in fact, I mean fighting a price war, right,

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Speaker 5: the likes of Maitwan, like JD even Ali Baba are

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Speaker 5: involved in heavily subsidizing the consumer in order to grab

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Speaker 5: market share. And that's where I guess the companies are

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Speaker 5: still in a heavy investment phase. And I mean those

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Speaker 5: areas are of course are not so great for equity investors.

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Speaker 5: So I think it really depends on what segments and

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Speaker 5: what kind of sub themes we're looking at. Instead of

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Speaker 5: like a broad stroke saying, oh, these companies are all

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Speaker 5: going to benefit from the Chinese consumption story.

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Speaker 2: I'm wondering about, for as much experience as you have

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Speaker 2: in markets, whether you've seen in the past big moves

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Speaker 2: like this that have happened over a short period of time,

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Speaker 2: and whether that has created in your mind a great

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Speaker 2: deal of concern and as a result, you may be

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Speaker 2: beginning to put in some hedging strategies in place.

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Speaker 3: I think if you look at.

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Speaker 5: The US market, for example, it is of course like

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Speaker 5: pretty expensive on a valuation basis, but I think that's

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Speaker 5: sort of also quite heavily skew towards the big caps,

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Speaker 5: and just I mean perhaps the tech sector. If you

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Speaker 5: look at kind of outside of the tech sector, for example,

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Speaker 5: in the most cyclical parts of the of the market,

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Speaker 5: and also into like even make caps of smaller caps,

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Speaker 5: those are relatively actually quite cheap still, so I think

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Speaker 5: it's I wouldn't say it's sort of like a bubble

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Speaker 5: right now in the sense that, oh, the risk of

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Speaker 5: a kind of thirty percent plus straw down is significant

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Speaker 5: because of two things. Number one, as I mentioned, I mean,

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Speaker 5: evaluation kind of premium is much more focused on this

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Speaker 5: in the big caps. And secondly, I think if you

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Speaker 5: look at the fundamentals of the US economy, yes, there

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Speaker 5: has been some slow down in labor market, but I

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Speaker 5: think if you look at things like liquidity, look at

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Speaker 5: things like credit spreads, or even if you look at

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Speaker 5: some real time kind of consumer data, those are still

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Speaker 5: going very very strong. So I think in the next

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Speaker 5: kind of sex to twelve months, so risk of a

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Speaker 5: recession is pretty low. So I think that from that angle,

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Speaker 5: I don't see a significant risk of a big drawdown.

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Speaker 5: So I think, I guess I mean, could we see

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Speaker 5: like a five cent percent correction, yeah, absolutely, I mean

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Speaker 5: that these are things that happen like every few months,

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Speaker 5: but anything much more sinister than that, I think that

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Speaker 5: that's fairly unlikely for now.

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Speaker 2: I'm wondering about whether you feel that way about equity

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Speaker 2: markets in the Asia Pacific, where we could see a

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Speaker 2: bit of an interruption, maybe in a move lower.

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Speaker 5: I mean, of course, like Asia Pacific markets like sort

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Speaker 5: of tends to be more volatile than the US market.

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Speaker 5: So from a beta just that perspective, yes, I mean

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Speaker 5: there could be kind of if the US corrects ten percent,

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Speaker 5: I mean Asia Pacientic markets could correct kind of ten

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Speaker 5: to fifteen percent, right, But I also think that there's

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Speaker 5: a cushion in terms of valuation and also a cushion

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Speaker 5: in terms of investor possessioning. So I mentioned that there

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Speaker 5: has been a kind of a rotation trade out of

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Speaker 5: the US into Asia Pacific or emerging markets from an

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Speaker 5: insitutional level, I.

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Speaker 3: Don't think that's happening on resale level yet.

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Speaker 5: So from a kind of possisioning perspective, I think there's

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Speaker 5: still room for investors, particularly international investors, that add to

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Speaker 5: emerging markets, and I think that's starting to happen, particularly

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Speaker 5: with the easier kind of liquidity environment. So I think

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Speaker 5: the risk of that correction is I guess it is

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Speaker 5: not that high.

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Speaker 3: In my view.

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Speaker 2: Okay, we'll leave it there, Stephanie, It's always a pleasure.

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Speaker 2: Thank you so very much. Stephanie Leung, their chief and

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Speaker 2: Vestment officer at Stashuay, joining from Hong Kong here on

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Speaker 2: the Daybreak Asia Podcast. Thanks for listening to today's episode

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Speaker 2: of the Bloomberg Daybreak Asia Edition podcast. Each weekday, we

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Speaker 2: look at the story shaping markets, finance, and geopolitics in

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Speaker 2: the Asia Pacific. You can find us on Apple, Spotify,

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Speaker 2: the Bloomberg Podcast YouTube channel, or anywhere else you listen.

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Speaker 2: Join us again tomorrow for insight on the market moves

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Speaker 2: from Hong Kong to Singapore and Australia. I'm Doug Chrisner,

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Speaker 2: and this is Bloomberg