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Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. This is the Bloomberg

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Speaker 1: Daybreak Asia podcast. I'm Doug Krisner. You can join Brian

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Speaker 1: Curtis and myself for the stories, making news and moving

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Speaker 1: markets in the APEC region. You can subscribe to the

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Speaker 1: show anywhere you get your podcast and always on Bloomberg Radio,

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Speaker 1: the Bloomberg Terminal, and the Bloomberg Business app.

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Speaker 2: Well, we've gotten a few surprises in terms of economic

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Speaker 2: data out of both the China and Japan over the

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Speaker 2: past couple of months. For instance, we had to pick

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Speaker 2: up in Japan's exports. We also had to pick up

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Speaker 2: in Chinese exports. Joining us now for some discussion about

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Speaker 2: what we're doing is Chen Wong, chief Asia Pacific Economists

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Speaker 2: at the Vanguard Group with us live here on the program.

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Speaker 2: So we looked at those export numbers from China and

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Speaker 2: we decided that maybe we shouldn't read too much in

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Speaker 2: At least Bloomberg Economics was saying that some c factors

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Speaker 2: at play there, and a few a few other reasons

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Speaker 2: to think that way. What about your take on the

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Speaker 2: latest with the Chinese economy.

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Speaker 3: Well, I think the exports actually has been did a

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Speaker 3: very key growth driver for China you know, over the

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Speaker 3: you know, past several months, right, you know. So one thing,

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Speaker 3: I definitely think there is a you know pickup in

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Speaker 3: terms of a global a global consumer demands, right you know,

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Speaker 3: or capital spending. You know, this is actually reflected not

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Speaker 3: just in China's export number, but also general export oriented

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Speaker 3: you know, Asian economies.

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Speaker 4: Right.

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Speaker 3: On the other hand, I also feel like there is

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Speaker 3: a push for China right to you know, export is

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Speaker 3: exacts a capacity right China's industry policy made in China

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Speaker 3: twenty twenty five, they made so much investment and production pickup,

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Speaker 3: but domestic demand is really weak, so they have to

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Speaker 3: rely more on the exports that right to, you know,

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Speaker 3: to absorb those excess capacity. So I think that's where

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Speaker 3: the exports is pretty strong, especially in volume terms. I

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Speaker 3: think it's growing like ten to fifteen percent in volume

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Speaker 3: terms about this year, even though the extra price actually

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Speaker 3: is you know, deep in deflation. I don't think this

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Speaker 3: is sustainable. There is no like unlimited demand for China products. Right.

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Speaker 3: And also there's going to be three tensions you know

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Speaker 3: down the road. US already impost tariff and then you know,

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Speaker 3: Europeans joined in suits and you know, we see that

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Speaker 3: Turkey is also imposing tariff on China's CV as well,

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Speaker 3: So I think this is not something that's going to

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Speaker 3: sustain down the road.

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Speaker 1: What about the deflation story. We'll get inflation data for

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Speaker 1: China in the week ahead. Factory gate inflation is expected

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Speaker 1: to do slow to one and a half percent. That

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Speaker 1: would be the smallest drop in prices since February twenty

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Speaker 1: twenty three. But it's deflation nonetheless. Is your sense that

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Speaker 1: we're beginning to find the bottom right now? Or is

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Speaker 1: there risk that this deflationary trend turns into doo a

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Speaker 1: deflationary trap?

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Speaker 2: Right?

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Speaker 3: I think it's an interesting story about China's you know,

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Speaker 3: inflation with deflation story. Right. So when you look at

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Speaker 3: China's growth, you know, at this moment when they have

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Speaker 3: such a big investment boom, production boom, right, it immediately

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Speaker 3: lived up is demand for you know, capital goods, commodity,

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Speaker 3: especially industry metals. So on that front is actually inflationary, right,

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Speaker 3: That's why China's commodity impults actually has been holding up

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Speaker 3: in spite of the property down tern But on the

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Speaker 3: other other hand, when you have so much production capacity

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Speaker 3: and domestic demand is pretty weak, then you know, this

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Speaker 3: kind of supply pressure is generating you know, a significant

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Speaker 3: deflationary pressure as well. Right, So I think the is

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Speaker 3: somewhat mixed. But you know, overall, if you look at

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Speaker 3: the CPI, you know you would have say, yes, you know,

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Speaker 3: the hat my CPI is probably likely to you know

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Speaker 3: who were around, you know, zero positive. But if you

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Speaker 3: look at the whole goods CPI, it's still likely to

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Speaker 3: be in the deflation of territory.

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Speaker 2: Well, in China, the policy is basically directed at the

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Speaker 2: state sector.

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Speaker 4: More than the consumer sector.

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Speaker 2: I mean, that's been what we've been seeing, and it

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Speaker 2: sort of raises a question about whether dungshall pings to

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Speaker 2: get rich is glorious still holds in China because the

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Speaker 2: policies don't. I mean, I think it's probably cynical to

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Speaker 2: say that Chijinping doesn't want people to get rich.

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Speaker 4: He wants the state owned enterprises to get rich. But

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Speaker 4: you know, that's some of the things that you hear

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Speaker 4: from people.

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Speaker 3: Well, I think over the past several years you do

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Speaker 3: see a shift right in terms of China's policy priority,

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Speaker 3: right in terms of their goals. So instead of saying, oh,

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Speaker 3: you know, we allow some people to get rich. First.

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Speaker 3: Now you do see more emphasis on you know, like

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Speaker 3: so called common prosperity, right, you know, you just want

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Speaker 3: to make you know, like there's more emphasis on income equality,

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Speaker 3: national security, you know, many other things. Right, So I

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Speaker 3: definitely see there is a shift in terms of the

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Speaker 3: policy goes, you know, instead of the growth rate itself,

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Speaker 3: but also on growth quality. So I do see that's changing.

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Speaker 3: And also I think on the other hand, from a

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Speaker 3: technical perspective, right, when the government want to support the

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Speaker 3: overall growth picture, then you know, pusting up investment is

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Speaker 3: actually much faster, much more effective than you you know,

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Speaker 3: trying to stimulate up the consumption when consumers are lacking

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Speaker 3: the confidence when they get the money, they would rather

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Speaker 3: just say rather than spend.

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Speaker 1: Yeah, that's particularly true where you young people are concerned.

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Speaker 1: I would imagine when you're dealing with an unemployment rate

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Speaker 1: that is so high in China.

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Speaker 3: Indeed, I think, you know, we see this new unemployment

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Speaker 3: new use unemployment rate number, right, fifteen percent, still high.

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Speaker 3: But even you know, I think we shouldn't just focus

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Speaker 3: on one indicator to gauge the overall labor market condition.

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Speaker 3: I think in China what is more concerning for the

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Speaker 3: young generation, it's actually the declining labor force participation participation rate. Right,

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Speaker 3: So when you see that they are not confident about

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Speaker 3: the future, about the labor market or you know, job prospect,

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Speaker 3: then they become discouraged and they stay home prepared for

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Speaker 3: civil servant exam or graduate program exam. Right, So they

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Speaker 3: literally just drop out from the labor market. So I

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Speaker 3: mean that just show you the sentiment in the labor

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Speaker 3: market is pretty weak.

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Speaker 2: So miss Wong, do you think that the government should

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Speaker 2: and could do more more on messaging to build up

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Speaker 2: hope in the Chinese dream?

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Speaker 3: Yeah, I mean, I think the key here is really

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Speaker 3: when you look at the economy right and look at

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Speaker 3: the labor market. I think ultimately the most important thing

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Speaker 3: is still about overall economic growth. Right, So when you

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Speaker 3: have a stronger economic economy, then obviously that's gonna you know,

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Speaker 3: create more jobs and bring more hope and income to consumers. Right,

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Speaker 3: So in that way, you can actually build a positive

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Speaker 3: self fulfilling cycle. But then you know, going back to

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Speaker 3: say what they can really do, Number one, I think

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Speaker 3: they can really they need to be more aggressive, right

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Speaker 3: in terms of the government intervention in the economy to

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Speaker 3: engineer a decisive turning point. And second, I think the

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Speaker 3: private sector bring the animal spirit back. Private sector is

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Speaker 3: really the key.

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Speaker 2: Yeah, that would be great, great to see for sure,

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Speaker 2: and thank you so much for joining us Chian Wong,

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Speaker 2: chief Asia specific economist at Vanguard Group with us. So

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Speaker 2: a very interesting picture, and we have James Abate, Managing

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Speaker 2: director and chief investment Officer at Center Asset Management to help.

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Speaker 4: Us clear up the picture a little bit.

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Speaker 2: James, thanks very much. So a sort of big reaction

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Speaker 2: to the jobs report in the treasury market, not so

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Speaker 2: much in the stock market. And I mentioned in our

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Speaker 2: in our papers review just a few moments ago that

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Speaker 2: Bloomberg Intelligence says rates, while important, are not actually factoring

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Speaker 2: in as much as artificial intelligence is.

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Speaker 4: Your thoughts on the overall environment, Well, let's.

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Speaker 5: Just look at the employment report. As you mentioned, two

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Speaker 5: hundred and seventy two thousand jobs were added, which was

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Speaker 5: way above expectations. I think more importantly to the FED

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Speaker 5: was the fact that wages were up four point one

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Speaker 5: percent from a year ago, and in reaction to that,

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Speaker 5: we saw the ten year yield move up to four

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Speaker 5: point four percent, and in essence, what this did is,

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Speaker 5: obviously the FED is meeting this week, there's no cut

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Speaker 5: on the table for this month. July's cut is off

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Speaker 5: the table. In terms of what the market is pricing

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Speaker 5: in September is now fifty to fifty in November seems

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Speaker 5: to be the only indicative cut. Obviously, the only wildcard

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Speaker 5: we have is the CPI released this Wednesday. But I

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Speaker 5: think you know, one of the key points that you

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Speaker 5: pointed out as well was the fact that it's very

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Speaker 5: difficult to reconcile the Payrolls report to the Employment Household Survey,

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Speaker 5: which indicated that yes, the unemployment rate rose to four

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Speaker 5: percent and the participation rate fell to sixty two point

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Speaker 5: five percent. So you know, the household survey showed four

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Speaker 5: hundred and eight thousand jobs lost, which is seven hundred

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Speaker 5: thousand jobs difference to the Establishment survey.

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Speaker 1: What does that do in terms of the way you're

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Speaker 1: approaching markets right now? If you look at the bond market,

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Speaker 1: I mean, clearly it's kind of a very hawkish tone

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Speaker 1: in terms of the implication for FED policy. Maybe we're

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Speaker 1: lucky we get two rate cuts this year, but that

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Speaker 1: big spike and yield definitely sending a message but what

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Speaker 1: does it do you do your strategy? How are you

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Speaker 1: approaching markets?

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Speaker 6: Now?

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Speaker 5: Yeah, I think you know, we've got We went into

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Speaker 5: the year under the assumption that the FED was not

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Speaker 5: going to cut rates unless it was in reaction to

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Speaker 5: some type of financial or geopolitical crises. And we stick

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Speaker 5: by that, and you know, we survey, you know, all

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Speaker 5: the companies that we invest in and look at. I

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Speaker 5: think one of the key things for US is looking

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Speaker 5: at the consumer, because the manufacturing sector remains in slight

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Speaker 5: contraction or even stall speed if you want to call

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Speaker 5: it that no recession, but vulnerable to some type of

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Speaker 5: demand shock. And you could even argue on a positive

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Speaker 5: side that the cyclical economy's bottom but not yet entered

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Speaker 5: into an upturn. But more importantly, the consumer, which dominates

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Speaker 5: the US economy, we're starting to see, you know, stress,

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Speaker 5: and particularly when you're looking at a lot of value

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Speaker 5: seeking behavior in lower and middle income consumers at this

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Speaker 5: point in time. Deutsche Bank had their Global Consumer Conference

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Speaker 5: this week and you know, Spice Company McCormick used the

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Speaker 5: term that I'm going to continue to use, which said

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Speaker 5: financial anxiety in the last couple of months has really

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Speaker 5: spiked in the United States, and it's something that they're

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Speaker 5: paying a lot of attention to. And that was a

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Speaker 5: consistent theme that we saw with all the companies that

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Speaker 5: are consumer facing.

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Speaker 2: I'm curious what do they mean by financial anxiety? Is

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Speaker 2: do they mean just general economic people feeling comfortable about,

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Speaker 2: you know, their job and their money and that sort

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Speaker 2: of thing. Where do they mean actually tied to markets

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Speaker 2: and to for instance, their returns.

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Speaker 5: You know, when you look at antidotal information, right you

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Speaker 5: see IRA hardship withdrawal spiking higher. When you look at

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Speaker 5: adjustable rate mortgages, they're resetting now because many buyers who

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Speaker 5: use the justle rate mortgages and bought in twenty twenty

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Speaker 5: one or on that three year maturity schedule of resetting

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Speaker 5: what the rate is I think across the board what

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Speaker 5: you're starting to see, whether it's particularly in the lower

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Speaker 5: and middle income consumer some degree where the rise in

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Speaker 5: interest rates has created like this frog boiling in a

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Speaker 5: pot of water, and it's just starting now to get

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Speaker 5: to a temperature with the consumers starting to feel that

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Speaker 5: anxiety that we touched upon.

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Speaker 1: So if you're right, I mean we're going to get

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Speaker 1: the I think University of Michigan sentiment figures at the

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Speaker 1: end of this week. Say you're right, James, and the

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Speaker 1: FED is going to begin factoring that into its decision making.

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Speaker 1: They want to see a soft lending I would imagine,

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Speaker 1: is inflation at a point that is within the comfort

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Speaker 1: zone where the FED could justify cutting interest rates right now,

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Speaker 1: not yet.

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Speaker 5: I think they could only justify a rate cut with

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Speaker 5: inflation elevated above their two percent target. If you saw

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Speaker 5: let's say, another regional bank issue, a real estate issue

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Speaker 5: that manifested itself in the banking sector. Everything at the

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Speaker 5: end of the day always makes us way into the

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Speaker 5: financial services sector in terms of stress. So I think

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Speaker 5: the FED can only use that justification to actually cut

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Speaker 5: rates in the face of north of two percent inflation.

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Speaker 2: I mentioned Bloomberg Intelligence. I got to go back to

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Speaker 2: this because this is slightly different angle. They actually referred

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Speaker 2: to AI as kind of driving things, but they said

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Speaker 2: it's clearly now well extended and almost hinting that it

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Speaker 2: was overvalued. And so a lot of people seeing what

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Speaker 2: Nvidia has done, they're clearly worried about this. But you know,

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Speaker 2: if you kind of refer back to nineteen ninety nine,

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Speaker 2: we did get a warning from Cisco, but it still

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Speaker 2: took a while and we haven't had a warning yet

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Speaker 2: from Nvidia. Are you comfortable, at least if you're playing

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Speaker 2: tech to carry on until you get a warning.

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Speaker 5: Well, having been in one of the very few people

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Speaker 5: who are still managing money today and managing money back

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Speaker 5: in the nineties, not only managing US equities, but also

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Speaker 5: I was head of global sector funds, including running three

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Speaker 5: different technology funds at that point in time. You know,

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Speaker 5: for now in Vidia has a monopoly on semiconductor chips

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Speaker 5: that's needed for the computational power for AI. I think

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Speaker 5: what contrasts today versus back in the late nineteen nineties

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Speaker 5: is that all the presentations I recall anyway that you know,

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Speaker 5: we're industrial in their nature, they stress return on investment.

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Speaker 5: You looked at enterprise resource planning ERP systems like SAP Oracle.

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Speaker 5: You know, all the presentations back then were justifying what

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Speaker 5: the return on investment would be for companies who undertook this.

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Speaker 5: I think Silicon Valley feels like it's in this fake

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Speaker 5: it till you make it. You know, mantra that's still

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Speaker 5: in place, and you know, one of the key things

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Speaker 5: for us that when we talked about AI in our

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Speaker 5: insight piece Spring and Summer, is that we wanted to

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Speaker 5: really try to understand what the efficacy of these investments

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Speaker 5: being made today and what are we going to start

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Speaker 5: to see chief financial officers you know, exert more and

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Speaker 5: more influence on budgeting in a way from you know,

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Speaker 5: this field of dreams, build it and they will come

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Speaker 5: kind of mindset. And that's the thing that we're really

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Speaker 5: focused in on in terms of, you know, looking at

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Speaker 5: AI systems that are using proprietary data versus open source

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Speaker 5: and trying to understand at what point will people you know,

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Speaker 5: genuinely start to look at this and say, hey, where

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Speaker 5: what is the return on investment that we're getting from

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Speaker 5: all this money that we're plowing out. And unfortunately for

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Speaker 5: other tech companies like Salesforce and Accenture, the consulting guys,

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Speaker 5: AI is hoovering up all the IT budgets for almost

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Speaker 5: every company out there, and it's it's causing a lot

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Speaker 5: of segmental stress within the technology sector.

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Speaker 2: Yeah, for sure, I mean software in particular, are a

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Speaker 2: lot of those companies are down quite significantly twenty five percent.

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Speaker 4: Even so it's.

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Speaker 2: It's you say, it's hoovering up a lot of business. James,

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Speaker 2: thanks for joining us again. James Abote, Managing Director, Chief

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Speaker 2: investment Officer, Center Asset Management. Joining us now on the

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Speaker 2: program is Redmond Wong, chief China strategist at Saxo, with

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Speaker 2: us to take a closer look at well China in particular.

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Speaker 2: So Redmond, thank you for being with us. We know

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Speaker 2: that China is relying on exports and manufacturing and sales

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Speaker 2: abroad to offset some of the weak consumer spending. So

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Speaker 2: far it seems to be working to a small degree.

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Speaker 2: Is this the right policy in your view?

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Speaker 6: Hi, fans by doctor and I think, yeah, expot seems

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Speaker 6: just have been, uh you know, doing pretty all relative

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Speaker 6: well with us to pick up in the domestic consumption.

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Speaker 6: So yes, I thank you. This continue to be one

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Speaker 6: of the we had the government we'd like to push.

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Speaker 6: Of course, there's some pushback from the outside on all

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Speaker 6: those allegations of access capacity and so on. But I think,

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Speaker 6: but one major thing I need to pinpoin is, uh

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Speaker 6: the reconfiguration of the training pattern. I mean, you have

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Speaker 6: been seeing the growth example in May you see the

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Speaker 6: growth export growth in China and the seventh poor and

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Speaker 6: six percent year on year growth. Actually half of it

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Speaker 6: is actually of growth growth is actually accounted for by

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Speaker 6: the growth to export to Arzian country and in some

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Speaker 6: of the Yeah, I think that's the one key things

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Speaker 6: they change power of training, Parlor and and and the

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Speaker 6: and and and the pattern of trade.

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Speaker 4: Redmond.

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Speaker 1: I think we can agree that domestic demand in China

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Speaker 1: remains weak. Is there a policy prescription that the government

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Speaker 1: can use to try to revitalize domestic demand? Do you

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Speaker 1: think other than lowering interest rates?

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Speaker 6: I think they have tried CLI many front and many policies,

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Speaker 6: like for example in the octose and the EV and

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Speaker 6: so on, and uh they just you know, roll out

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Speaker 6: in late April under one in the training uh subsidies

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Speaker 6: and so on. But and also they also encouraging a

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Speaker 6: lot of those guys a household home, opliances purchased in

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Speaker 6: the in the rural area and all those things. But

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Speaker 6: I think the key thing for China, I think pretty

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Speaker 6: much is really bringing back the confidence of the product

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Speaker 6: sector and also the household expectation of the future income

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Speaker 6: and the stability. So I think a lot depends on

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Speaker 6: uh more stability especcively on the expectation of the regulatory

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Speaker 6: frameword war than on any individual policy or or any

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Speaker 6: uh so, I think I think we have I mean,

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Speaker 6: I know, I mean, we cannot really hope on any

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Speaker 6: one of those is a meeting. But but but it's

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Speaker 6: still the July Panety section is still carrying something orton

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Speaker 6: uh sec low and I think the market should pay

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Speaker 6: attention to it well than just on individual policies.

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Speaker 2: Redmond, if you look at artificial intelligence, it has really

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Speaker 2: juiced up the US economy more so than Europe and

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Speaker 2: more so than Asia. If China were looking for some

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Speaker 2: sort of killer app or something to get the animal

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Speaker 2: spirits going. This kind of rides on the back of

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Speaker 2: Doug's question about policy. But is there something out there

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Speaker 2: that might get people excited to start spending again, and

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Speaker 2: if so, what would it be.

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Speaker 6: I think it's once again, it's really having from the household.

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Speaker 6: It's really on the outlook on employment and also on income,

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Speaker 6: and so that is I think the key questions really

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Speaker 6: for employment and income, what then any subsidies or and

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Speaker 6: the policy just for the sake of a boosting consumption.

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Speaker 6: So I think I think you know it's in China.

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Speaker 6: The close you make it always had those cut traffic

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Speaker 6: lights of things. I mean, it's the good thing, but

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Speaker 6: there's has been the case for for for for years,

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Speaker 6: and uh, when the economy doing not that well, they

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Speaker 6: we elect we lack a lot of baculatory film world

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Speaker 6: and give some green light even to the part sector

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Speaker 6: or as you mentioned, to the technology sector and so on.

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Speaker 6: So that probably can help as well.

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Speaker 1: One of the criticisms UH levied against China and its

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Speaker 1: current situation on the part of both the US and

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Speaker 1: Europe has been this issue of overcapacity. How how serious

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Speaker 1: a problem is over capacity in China and what will

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Speaker 1: it take to kind of bring things into balance To

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Speaker 1: the extent that the US and Europe are not outraged

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Speaker 1: by what China is trying to.

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Speaker 6: Do, I think really really need to look at the

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Speaker 6: whole things. Is more in the context of dis cover

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Speaker 6: global de risking, resawing.

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Speaker 1: The soring.

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Speaker 6: You know, it's it's basically is what we call is

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Speaker 6: a geo economic I mataation trend that has been going

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Speaker 6: on since over the last few years. So and so yeah,

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Speaker 6: I mean I think China that's certainly because it's in

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Speaker 6: industrial policies. I mean, it's one of the focus has

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Speaker 6: been over the last few years the industrial policy there definitely,

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Speaker 6: of course there might be some misallocation resources. You build

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Speaker 6: up capacities in a way that may not be the uh,

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Speaker 6: you know, it's what the economy wand needs, but at

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Speaker 6: the same time you may also lacking something in other sectors.

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Speaker 6: So I would call it's more like a misallocation resources

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Speaker 6: more than really access capacity. And so but going back

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Speaker 6: to your question external and one, I think this pushback

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Speaker 6: would be actually will continue because that's not just in

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Speaker 6: the US, but in Europe is actually elevated to not

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Speaker 6: just on economic consideration, but it's actually on the national

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Speaker 6: security and consideration. So that's why it's the duo economic trend.

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Speaker 6: It's not just an economic trend.

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Speaker 2: Well, something that would be safe on the national security

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Speaker 2: front would just be domestic travel. Could domestic travel get

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Speaker 2: things moving a little bit? And if so, how do

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Speaker 2: we play that in the markets?

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Speaker 7: Uh?

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Speaker 6: I mean it's when people have more inc I mean

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Speaker 6: it's a domestic trophic Defini is a positive and it's

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Speaker 6: but at the same type, I think the boss fundamental

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Speaker 6: is still on income and also on expectation. Uh. Then

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Speaker 6: you know, just as you know, one or two order

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Speaker 6: cover consumption. I mean, but back to the basic I mean,

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Speaker 6: the growth uh for economy by the end of the

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Speaker 6: day is the capitol accummindation and also more production and

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Speaker 6: not just consumption.

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Speaker 2: All right, Redmond, thanks so much for joining us here

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Speaker 2: live on the program. Redmond Wong, chief China Strategistic saxone

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Speaker 2: joining us now to define this complicated picture that we

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Speaker 2: have mentioned is Brian Krai as president of Sharp Investment.

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Speaker 4: Brian, thank you very much for joining.

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Speaker 2: Is so big reaction in the treasury market to the

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Speaker 2: jobs report, with yields popping in the mid teens, not

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Speaker 2: so much in the equity arena stocks taking it kind

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Speaker 2: of in stride.

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Speaker 4: Why the difference, Yeah.

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Speaker 7: I mean, I think you know, US stock investors are

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Speaker 7: still really focused on AI and earnings, and his growth

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Speaker 7: has come in pretty well, whereas obviously, as you said,

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Speaker 7: rates have ticked up a bit, although if you look historically,

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Speaker 7: you know, a ten year round four and a half percent,

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Speaker 7: that's actually, you know, still historically very low compared to

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Speaker 7: the average over the last fifty sixty years.

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Speaker 1: You mentioned the AI trade there in Vidia will begin

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Speaker 1: trading on Monday on that split adjusted basis. So when

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Speaker 1: the company reported quarterly earnings, they announced that ten for

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Speaker 1: one split. Are you still enthusiastic? Maybe you never were.

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Speaker 1: I'm going to just go out on a limb here.

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Speaker 1: Are you still enthusiastic on the AI trade in anything

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Speaker 1: related to it?

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Speaker 7: I mean, AI is going to be a very interesting technology,

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Speaker 7: but from an investor perspective, obviously these stocks are very expensive.

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Speaker 7: You mentioned Apple will have an important day on Monday

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Speaker 7: for them. We're looking at Oracle coming out next week,

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Speaker 7: and we think that's a cheaper way to play AI.

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Speaker 7: It's roughly in line with the S and P multiple,

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Speaker 7: but you're really seeing their growth accelerate as they're also

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Speaker 7: taking advantage of AA growth in their services.

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Speaker 2: I can tell from your notes though, that you're sort

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Speaker 2: of you're sort of feeling like nineteen ninety nine ish

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Speaker 2: a little bit here, and that we're kind of getting

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Speaker 2: to that moment. The one thing I would I would

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Speaker 2: counter that argument with is that we did get a

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Speaker 2: warning a Cisco warned in December of nineteen ninety nine,

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Speaker 2: and the stock continue to go up until March. We

439
00:24:55,200 --> 00:24:57,640
Speaker 2: haven't had a warning from Nvidia yet. Do you think

440
00:24:57,680 --> 00:25:00,440
Speaker 2: it's at least safe to wait until we get some

441
00:25:00,560 --> 00:25:04,760
Speaker 2: warning from one of the big practitioners.

442
00:25:05,080 --> 00:25:08,480
Speaker 7: You know, for sure, it's likely that fundamentals on the

443
00:25:08,520 --> 00:25:11,240
Speaker 7: AI trade, particularly names like in Video, are going to

444
00:25:11,440 --> 00:25:15,760
Speaker 7: post very strong earnings for a while. I would point out,

445
00:25:15,800 --> 00:25:18,560
Speaker 7: for in Video holders that twenty four percent of the

446
00:25:18,600 --> 00:25:23,200
Speaker 7: revenue are coming from two companies, one of which is Microsoft,

447
00:25:24,320 --> 00:25:27,679
Speaker 7: and Microsoft and others are aggressively looking for alternatives. So

448
00:25:28,000 --> 00:25:30,760
Speaker 7: it's really hard to say when you know the fever

449
00:25:30,840 --> 00:25:32,680
Speaker 7: will break in terms of the AH trade. I mean

450
00:25:32,720 --> 00:25:35,680
Speaker 7: your kind of implication as well, maybe investors can wait

451
00:25:35,760 --> 00:25:38,720
Speaker 7: until they get a warning, and that may or may

452
00:25:38,760 --> 00:25:42,240
Speaker 7: not work. But you know, if you look at sort

453
00:25:42,240 --> 00:25:44,399
Speaker 7: of what we're looking at more is the average stock,

454
00:25:44,440 --> 00:25:47,240
Speaker 7: and if you look at the average stock over time,

455
00:25:47,280 --> 00:25:49,240
Speaker 7: and that is the average TK, the SP five hundred,

456
00:25:49,680 --> 00:25:52,960
Speaker 7: typically you've gotten out performance. But last year and this

457
00:25:53,080 --> 00:25:55,520
Speaker 7: year you've seen the S and P, which is a

458
00:25:55,560 --> 00:25:57,960
Speaker 7: market cab weight of really outperforming the average stock. So

459
00:25:58,000 --> 00:26:01,520
Speaker 7: we think there's better opportunities outside some of those big

460
00:26:01,600 --> 00:26:03,719
Speaker 7: AI leaders that everyone's talking about right now.

461
00:26:03,800 --> 00:26:06,879
Speaker 1: So Brian mentioned that very strong employment report and the

462
00:26:06,920 --> 00:26:10,280
Speaker 1: push higher in yield across the curve in the Friday

463
00:26:10,320 --> 00:26:12,320
Speaker 1: session where are you right now in terms of the

464
00:26:12,359 --> 00:26:15,840
Speaker 1: FED cutting interest rates and how important is that in

465
00:26:15,920 --> 00:26:17,240
Speaker 1: driving this market higher.

466
00:26:18,480 --> 00:26:20,439
Speaker 7: Well, this is kind of a two part question. In

467
00:26:20,560 --> 00:26:24,119
Speaker 7: terms of the Fed, we actually believe rates are going

468
00:26:24,119 --> 00:26:26,560
Speaker 7: to stay higher for longer. It's going to take a

469
00:26:26,600 --> 00:26:29,960
Speaker 7: little while to sort of break the fever pitch. You've

470
00:26:29,960 --> 00:26:33,120
Speaker 7: gotten mixed reports, but generally speaking, things having come off

471
00:26:33,160 --> 00:26:36,360
Speaker 7: as fast as the Fed would like, so we think

472
00:26:36,440 --> 00:26:39,159
Speaker 7: rates will probably stay higher for longer. The reality is,

473
00:26:39,119 --> 00:26:41,800
Speaker 7: if you look at rates, as I mentioned earlier, four

474
00:26:41,800 --> 00:26:43,680
Speaker 7: and a half percent on the tenure is not actually

475
00:26:43,920 --> 00:26:47,960
Speaker 7: very high in historical context, and so we think rates

476
00:26:47,960 --> 00:26:51,080
Speaker 7: will be higher for longer. In terms of stocks, we

477
00:26:51,119 --> 00:26:54,159
Speaker 7: actually think higher rates longer term will be good for value.

478
00:26:54,920 --> 00:26:58,680
Speaker 7: If you look at historically when rates are above four percent,

479
00:26:58,800 --> 00:27:01,520
Speaker 7: value tends to out reform growth. So we actually think

480
00:27:01,560 --> 00:27:04,400
Speaker 7: that even though there's a big AI trade going on,

481
00:27:04,560 --> 00:27:08,440
Speaker 7: longer term investors should be thinking about value stocks, which

482
00:27:08,440 --> 00:27:10,800
Speaker 7: have been sort of left for dead the last ten years.

483
00:27:11,480 --> 00:27:14,520
Speaker 2: You know, a few economists have kind of waded into

484
00:27:15,160 --> 00:27:19,359
Speaker 2: sort of controversial areas by saying that high interest rate's

485
00:27:19,400 --> 00:27:22,080
Speaker 2: actually good for the economy. A lot of people that

486
00:27:22,200 --> 00:27:24,800
Speaker 2: never got any yield on any of their savings for

487
00:27:24,840 --> 00:27:27,560
Speaker 2: such a long time, going back to two thousand and

488
00:27:27,680 --> 00:27:30,800
Speaker 2: seven or so, are finally getting some and it's helping

489
00:27:30,840 --> 00:27:33,960
Speaker 2: with spending. I'm curious about your take on it. I

490
00:27:34,000 --> 00:27:36,280
Speaker 2: don't want to sound glib and saying deep buy that,

491
00:27:36,440 --> 00:27:38,480
Speaker 2: but I mean, is there some sense in that?

492
00:27:39,520 --> 00:27:39,800
Speaker 4: Yeah?

493
00:27:39,920 --> 00:27:43,280
Speaker 7: No, I think there is. There's an interesting book that

494
00:27:43,359 --> 00:27:45,960
Speaker 7: came out just recently called The Price of Time that

495
00:27:46,040 --> 00:27:48,639
Speaker 7: goes into historical rates over the last three thousand years,

496
00:27:49,160 --> 00:27:51,399
Speaker 7: and I think if you really look at the data,

497
00:27:52,720 --> 00:27:55,960
Speaker 7: there is definitely some argument to be made that lower

498
00:27:56,080 --> 00:28:01,520
Speaker 7: rates just in some ways sort of distort the economy,

499
00:28:02,200 --> 00:28:05,360
Speaker 7: and ultimately higher rates will be good for savers, will

500
00:28:05,400 --> 00:28:08,080
Speaker 7: be good for certain types of businesses. It might actually

501
00:28:08,080 --> 00:28:12,879
Speaker 7: help to make sure that people are making good capital

502
00:28:12,920 --> 00:28:15,320
Speaker 7: investments as opposed to just speculating when you can basically

503
00:28:15,320 --> 00:28:18,000
Speaker 7: get money for free. So I would say that that's

504
00:28:18,480 --> 00:28:21,440
Speaker 7: a very plausible type of argument that some economists are making.

505
00:28:21,880 --> 00:28:25,520
Speaker 1: So what's the house view over at Sharf on markets offshore?

506
00:28:25,640 --> 00:28:25,800
Speaker 4: Right?

507
00:28:25,840 --> 00:28:26,040
Speaker 5: Now?

508
00:28:26,640 --> 00:28:29,600
Speaker 1: Move away from the United States and let me know

509
00:28:29,640 --> 00:28:32,280
Speaker 1: what you're thinking, particularly as it relates to Asia.

510
00:28:34,200 --> 00:28:37,680
Speaker 7: Yeah, I mean offshore markets are very interesting in that

511
00:28:37,920 --> 00:28:41,960
Speaker 7: they traded a much lower multiple than the US, so

512
00:28:42,000 --> 00:28:44,760
Speaker 7: that you've got to valuation support there. The problem has

513
00:28:44,800 --> 00:28:50,360
Speaker 7: been earning's growth, and then you've also had situations like

514
00:28:50,520 --> 00:28:53,880
Speaker 7: China where the government has really turned sort of unfriendly

515
00:28:53,920 --> 00:28:56,760
Speaker 7: for investors. So it's been really not a good place

516
00:28:56,800 --> 00:29:00,640
Speaker 7: to be the last several years. However, we do think

517
00:29:00,640 --> 00:29:05,240
Speaker 7: there's some opportunities in the rest of the world. We

518
00:29:05,280 --> 00:29:07,520
Speaker 7: own a number of stocks outside of the US. One

519
00:29:07,520 --> 00:29:10,560
Speaker 7: that I would note in particular is Samsung. It's the

520
00:29:10,640 --> 00:29:12,880
Speaker 7: largest tech company, one of the largest tech companies in

521
00:29:12,920 --> 00:29:15,480
Speaker 7: the world by revenue. That's really a stealth way to

522
00:29:15,480 --> 00:29:19,520
Speaker 7: play AI because of their memory and you know, if

523
00:29:19,560 --> 00:29:21,640
Speaker 7: you look at demand for AI servers is supposed to

524
00:29:21,680 --> 00:29:24,160
Speaker 7: grow thirty to thirty five percent a year. That's definitely

525
00:29:24,200 --> 00:29:28,160
Speaker 7: going to help samsung semi connector division. And yet it's

526
00:29:28,160 --> 00:29:32,160
Speaker 7: trading just over book value around eleven twelve times earnings.

527
00:29:33,560 --> 00:29:35,760
Speaker 7: So you know, if this was a US company would

528
00:29:35,760 --> 00:29:38,000
Speaker 7: probably be trading it, you know, three times where it

529
00:29:38,080 --> 00:29:41,000
Speaker 7: is today. So we think that's an opportunity investors big

530
00:29:41,000 --> 00:29:41,480
Speaker 7: advantage of.

531
00:29:42,160 --> 00:29:44,920
Speaker 2: We did have a dollar pop in addition to yields

532
00:29:45,120 --> 00:29:47,960
Speaker 2: and that that's a little worrisome for some markets out here.

533
00:29:48,000 --> 00:29:50,240
Speaker 4: Hong Kong almost certainly will trade lower.

534
00:29:50,080 --> 00:29:55,200
Speaker 2: Today because of the exchange link. So it's important to

535
00:29:55,200 --> 00:29:57,280
Speaker 2: look at the data that we got and see what's real.

536
00:29:57,360 --> 00:29:59,120
Speaker 4: You had the establishment.

537
00:29:58,560 --> 00:30:01,000
Speaker 2: Survey with that big number two in seventy two thousand,

538
00:30:01,400 --> 00:30:05,320
Speaker 2: but the household survey has had unemployment rising up to

539
00:30:05,360 --> 00:30:05,920
Speaker 2: four percent.

540
00:30:06,040 --> 00:30:06,760
Speaker 4: Which one is right.

541
00:30:08,120 --> 00:30:11,520
Speaker 7: Well, time will tell they're probably both somewhat right. But

542
00:30:11,760 --> 00:30:16,560
Speaker 7: you know, we think that economy is still reasonably strong.

543
00:30:17,160 --> 00:30:19,320
Speaker 7: But you know, from our companies that we're listening to,

544
00:30:19,440 --> 00:30:21,000
Speaker 7: it seems like there is a little bit of a

545
00:30:21,000 --> 00:30:24,680
Speaker 7: slowdown starting to prop late up. That doesn't mean necessarily

546
00:30:24,680 --> 00:30:27,040
Speaker 7: if I'll be able to cut rates in the short

547
00:30:27,120 --> 00:30:30,280
Speaker 7: term though, but you know, eventually the economy will roll

548
00:30:30,320 --> 00:30:32,560
Speaker 7: over and you'll get a cut and rates. I would

549
00:30:32,600 --> 00:30:35,400
Speaker 7: say probably later in the year.

550
00:30:35,880 --> 00:30:36,200
Speaker 4: Yeah.

551
00:30:36,360 --> 00:30:36,560
Speaker 5: Yeah.

552
00:30:36,560 --> 00:30:40,080
Speaker 2: Bloomberg Economics looked at the data and came away and said,

553
00:30:40,520 --> 00:30:43,560
Speaker 2: we still think the US labor market is cooling, so

554
00:30:43,840 --> 00:30:47,520
Speaker 2: it is interesting. Thank you Brian for joining us. Brian Krawez,

555
00:30:47,920 --> 00:30:49,880
Speaker 2: President of Sharp Investment.

556
00:30:51,960 --> 00:30:54,880
Speaker 1: This has been the Bloomberg Daybreak Asia podcast, bringing you

557
00:30:54,960 --> 00:30:58,080
Speaker 1: the stories making news and moving markets in the Asia Pacific.

558
00:30:58,600 --> 00:31:01,720
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559
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560
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561
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