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Speaker 1: Bloomberg Audio Studios, podcasts, radio News. Welcome to the Daybreak

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Speaker 1: Asia podcast. I'm Doug Krisner. Let's start today with the

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Speaker 1: AI race between the US and China. Now we know

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Speaker 1: that in Nvidia is being allowed to sell its H

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Speaker 1: two hundred AI chips into the Chinese market, and we

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Speaker 1: are learning at the same time that the Trump administration

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Speaker 1: felt this move carried a lower security risk, and that

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Speaker 1: in the administration's view is because China Squahwei Technologies already

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Speaker 1: offers AI systems that are comparable to those from Nvidia.

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Speaker 1: Let's take a closer look at all things markets that.

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Speaker 1: We'll begin with the AI story in China with our

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Speaker 1: guest Chi Lo. He is global market strategist at B

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Speaker 1: and P Periba Asset Management. Chi, it's always a pleasure.

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Speaker 1: Thank you so very much. Give me your sense of

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Speaker 1: where we are right now when you look at the

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Speaker 1: domestic chip companies in China and how they are succeeding

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Speaker 1: and producing products that are comparable with those of Nvidia.

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Speaker 2: Well, if you look at the past three years development

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Speaker 2: of China's semi conductor chips production or manufacturing, the Chinese

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Speaker 2: companies have actually moved very fast and partly and ironically,

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Speaker 2: I would thank mister Trump's policy of export restriction of

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Speaker 2: high end chips to China because that actually produced a

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Speaker 2: force to push China to go faster than it actually

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Speaker 2: originally planned. So the China has managed to supply the

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Speaker 2: world a few times with the speed of production of

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Speaker 2: EI chips. Although at this point the quality of China's

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Speaker 2: semiconductors chips is still not as high as good as

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Speaker 2: those in the US and in Europe, they are moving

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Speaker 2: very fast. So yes, it's good news that mister Trump

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Speaker 2: is now allowing Nvidia to export the X two hundred

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Speaker 2: trips to China, which will help China to resolve the

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Speaker 2: need the short term need for high end chips, but

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Speaker 2: longer term, strategically, the Chinese government has decided to develop

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Speaker 2: their own without any reliance on any foreign producers in

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Speaker 2: the longer term. This is very clear from the new

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Speaker 2: circulation policy that Beijing announced in twenty twenty that in

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Speaker 2: particular it says that it wants to pursue import substitution

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Speaker 2: for the tech sector. I not really relying on foreign

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Speaker 2: technology anymore in the long term.

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Speaker 1: So to what extent do you believe the tech sector

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Speaker 1: whether it's AI in terms of software and some of

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Speaker 1: the models that are being created by developers in China,

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Speaker 1: or whether it's more focused on the chip industry in China.

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Speaker 1: To what extent is this going to drive economic growth

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Speaker 1: overall in the new year.

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Speaker 2: The manufacturing of the chips since the foundation for the

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Speaker 2: development of the tech sector, which in turn will go

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Speaker 2: a long way to affect or improve productivity, which in

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Speaker 2: turn will affect economic growth in the long term. So

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Speaker 2: China is going to go as fast as it can

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Speaker 2: to produce all those chips that it needs and doesn't

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Speaker 2: really want to rely on imports as I mentioned earlier.

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Speaker 2: But I think more importantly is the innovation of using

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Speaker 2: those chips. China has gone way faster than the US

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Speaker 2: than Europe in terms of innovation, the invention part. Chinese

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Speaker 2: is catching up innovation, but I think Chinese leading. So

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Speaker 2: from that perspective, I do believe that in the coming

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Speaker 2: years we will be seeing an increase in Chinese productivity

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Speaker 2: growth because of the tech development, which in turn will

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Speaker 2: go to bust economic growth in the longer term.

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Speaker 1: So we're in Q four now, do you believe that

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Speaker 1: China will achieve the five percent growth target? For this

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Speaker 1: year that it's set previously.

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Speaker 2: I think highly likely that China will get five percent

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Speaker 2: this year, because in even if the Q four growth

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Speaker 2: were around four five percent, which is what the market

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Speaker 2: consensus is, China will get five percent for fu. Yet

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Speaker 2: going into next year, I think we still are likely

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Speaker 2: to see between four and a half and five percent

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Speaker 2: growth for twenty twenty six.

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Speaker 1: In terms of the export economy, one of the things

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Speaker 1: we learned from the recent trade data despite the tariffs,

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Speaker 1: that China's export economy is holding up very very well.

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Speaker 1: What other markets do you see China focused on, Let's

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Speaker 1: forget the US for a moment, to kind of make

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Speaker 1: up for the difficulties that the American market represents.

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Speaker 2: Well, obviously it is all these developing world markets, especially

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Speaker 2: those in the Beltian Rowle initiative framework, because when you

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Speaker 2: look at the data scene is about four or five

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Speaker 2: years ago, dal exports to the Built and row Initiative

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Speaker 2: countries as a region has overtaken has overtaken the US

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Speaker 2: and Europe combined as the largest export destination for Chinese goods.

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Speaker 2: So I think this trend will continue because China is

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Speaker 2: putting more efforts into developing new markets in the developing world.

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Speaker 2: There's still you know, Africa, there's still Central Asia, there's

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Speaker 2: still you know, the Middle East, that China World War

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Speaker 2: will continue to expand, and all these countries are joining

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Speaker 2: many of these countries are joining the BUILDI and Role

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Speaker 2: Initiative framework. So this, I think this strategic move of

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Speaker 2: the Chinese government to sort of manage the trade tension

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Speaker 2: with the developed world is to focus on the developing world,

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Speaker 2: which you know, there's there's there's a lot of room

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Speaker 2: to grow.

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Speaker 1: Let's look at another point of tension, that being between

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Speaker 1: Beijing and Tokyo. We know that the recent comments on

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Speaker 1: thai One from the Japanese Prime minister kind of rattled

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Speaker 1: the administration in China. How do you see this progressing

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Speaker 1: and what is the economic risk that kind of kind

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Speaker 1: of remains looming over this relationship.

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Speaker 2: Well, I'm hoping that the corel between Japan and China

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Speaker 2: over the new Japanese Prime minister's comment on Taiwan will

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Speaker 2: be resolved soon. But when you look at the policy development,

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Speaker 2: the statements in both governments, it doesn't seem to be

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Speaker 2: that the tension will go away anytime soon. Now, if

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Speaker 2: you look at what happened last time. In twenty twelve,

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Speaker 2: China Japan went into a similar kind of political tensions,

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Speaker 2: war of words over some you know, East South China Sea,

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Speaker 2: a territorial dispute. It took a few years to get

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Speaker 2: the two countries' relationship normalized, and Japan's economy with affect

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Speaker 2: negatively by that. This built because exports from Japan to

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Speaker 2: China fell, especially those consumer goods, especially the auto and

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Speaker 2: related goods, and also because of the decline in Chinese

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Speaker 2: tourists going to Japan, that actually reduced a lot of

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Speaker 2: the Japanese export tourism exports to China, so that hurt

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Speaker 2: Japan back then. Now this is happening again this time

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Speaker 2: that we are seeing China stopped buying many Japanese exports

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Speaker 2: this time, especially seafood and stuff. But also we are

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Speaker 2: seeing less and less Chinese tourists going into Japan. But

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Speaker 2: there is difference this time from last time because last

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Speaker 2: time the Japanese exports of intermediary and capital goods to

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Speaker 2: China weren't affected much China needed them. But this time,

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Speaker 2: you know, thirteen years after the lastest spilled China has

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Speaker 2: gone up. The letter China has gone up the technology ladder,

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Speaker 2: so that means many of the Japanese capital goods exports

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Speaker 2: to China will be hit this time because China doesn't

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Speaker 2: need to buy from Japan and replace them with domestic production.

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Speaker 2: So that's point number one that there's going to be

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Speaker 2: a bigger hit on Japan's export to China if this

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Speaker 2: quarrel continues to go on for a little while longer.

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Speaker 2: And then on tourism the impact is even bigger because

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Speaker 2: today Chinese tourist spending in Japan it's ten times more

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Speaker 2: than Chinese tourist spending in Japan thirteen years ago, So

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Speaker 2: that hit on Japan's tourism exports to China is going

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Speaker 2: to be bigger. So when you put all these economic

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Speaker 2: input together, impact together, I think if the quorl drags on,

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Speaker 2: there will be some material negative impact on Chinese on

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Speaker 2: Japan's GDP growth, which in turn could even affect the

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Speaker 2: boj's plan to normalized policy by increasing industry.

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Speaker 1: So that is a perfect segue into our next topic,

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Speaker 1: which is the BOJ meeting next week. The market right

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Speaker 1: now seems convinced that we could see a raid hike

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Speaker 1: after a period of inflation in Japan. That's been going

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Speaker 1: on for many, many years right now, and we know

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Speaker 1: that the weakness in the currency is persistent. If you

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Speaker 1: talk to people who live in Japan, they very much

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Speaker 1: feel the effects of higher inflation. What do you expect

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Speaker 1: the BOJ to do next week?

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Speaker 2: I think it's likely that the BOG will do another

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Speaker 2: quarter point hike as the market expected, which will take

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Speaker 2: I think to take the BOJ policy to a policy

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Speaker 2: rate to zero point seventy five. But what I doubt

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Speaker 2: the BOJ can do is next year. The market is

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Speaker 2: pricing in I don't know two hikes by the BOG

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Speaker 2: and next I am not quite certain about that because

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Speaker 2: partly because of the economic impact on GDP growth that

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Speaker 2: we talk about earlier, due to the Japan China disbuilt UH,

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Speaker 2: and also when you look at Japanese JTB YUS, they've

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Speaker 2: gone up a lot on the concerns about the new

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Speaker 2: Prime Minister's physical expansion UH and on on top of

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Speaker 2: the United that burden that Japan has already built. So

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Speaker 2: that high bond news is to some extent doing a

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Speaker 2: tightening for the people, for the for the bo J,

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Speaker 2: which means that if you know, higher use with uh.

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Speaker 2: And in also political tensions do hurt Japanese growth and

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Speaker 2: and you know uh uh uh reduced GDB growth rate uh,

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Speaker 2: and inflation comes down a bit. I don't think next

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Speaker 2: year there will be very strong reasons for the bo

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Speaker 2: J to keep hiking rates, but time will tell. This

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Speaker 2: is my concern at this point that next year the

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Speaker 2: bo j's policy path is not as clear as the

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Speaker 2: market now expecting.

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Speaker 1: She will leave it there. Thank you so very much.

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Speaker 1: Chi Lo is global market strategist at BNP Peraba Asset Management,

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Speaker 1: joining us here on the Daybreak Asia podcast. Welcome back

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Speaker 1: to the Daybreak Asia Podcast. Time Doug Chrisner. So, the

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Speaker 1: Fed's rate decision is Wednesday, and money markets are pricing

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Speaker 1: a likely quarter point cut, with around two rate cuts

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Speaker 1: in the new year. Now this is a bit of

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Speaker 1: a retreat from more optimistic forecast for rate cuts that

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Speaker 1: have been delivered in recent weeks. Now, at the same time,

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Speaker 1: President Trump will reportedly launch the last round of interviews

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Speaker 1: for FED share this week. The Financial Times is reporting

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Speaker 1: this will pit White House economic advisor Kevin Hassett against

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Speaker 1: a trio of other candidates. Now, President Trump was asked

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Speaker 1: to comment on the ft report.

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Speaker 2: We're going to be looking at a couple of different people,

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Speaker 2: but I have a pretty good idea who I wanted.

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Speaker 1: That was President Trump, speaking earlier to reporters board Air

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Speaker 1: Force One. Now, Hassett is considered to be the front runner,

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Speaker 1: and today he said that he sees plenty of room

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Speaker 1: for the FED to substantially lower rates, even more than

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Speaker 1: a quarter point. Hassett told a Wall Street Journal event

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Speaker 1: he would rely on his own judgment and not bow

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Speaker 1: a political pressure to decide on whether or not to

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Speaker 1: cut rates should he become the next FED chair.

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Speaker 3: If the data suggests thing we could do it, then,

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Speaker 3: like right now, I think there's plenty.

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Speaker 2: Of room to do it. Plenty of room, which plenty

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Speaker 2: is more than twenty five points correct?

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Speaker 1: That is NEC director Kevin Hassett. For a closer look

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Speaker 1: at the outlook for rates, I am joined by Joanne Bianco.

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Speaker 1: She is partner also the senior investment strategist at Bond

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Speaker 1: Blocks Investment Management. Joanne, thank you for making time to chat.

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Speaker 1: Are you on board with this consensus call for a

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Speaker 1: quarter point cut?

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Speaker 3: Yes, definitely, definitely expecting the quarter point cut it tomorrow's meeting.

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Speaker 3: You know, again, this is something that could be continued

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Speaker 3: to be one of their precautionary or risk management type

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Speaker 3: of cuts.

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Speaker 1: So you would call it a hawk ish cut, then.

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Speaker 3: Yeah, I mean I think that you know, to me,

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Speaker 3: it doesn't seem like I mean, first of all, there's

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Speaker 3: been a lack of data, but we need the data

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Speaker 3: to actually show that more rate cuts are warranted, to have,

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Speaker 3: you know, an environment where you see multiple rate cuts

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Speaker 3: next year. We're just we're really just not there yet

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Speaker 3: thinking that that's something that's going to be happening or warranted.

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Speaker 1: So in the absence of the government data that obviously

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Speaker 1: as a result of the government shutdown, you've been forced

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Speaker 1: to look at a lot of the private surveys. What

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Speaker 1: is your takeaway when you look at those numbers.

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Speaker 3: I mean, it still seems like they're softening trends overall

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Speaker 3: in the labor markets, but it's not dramatic. I think

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Speaker 3: the thing that we have found support of, you know,

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Speaker 3: just the resilient US economy is just how strong US

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Speaker 3: corporate earnings came in. And I'm I'm looking specifically at

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Speaker 3: high held corporate bond isshoers. We have a lot of

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Speaker 3: ETFs in the US high yield market, and earnings have

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Speaker 3: held up really well in the third quarter, and guidance

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Speaker 3: was increased for you know a number of companies. So

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Speaker 3: those are the kinds that things that make me think

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Speaker 3: that you know, this is this is not a US

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Speaker 3: economy headed towards a recession or headed towards an environment

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Speaker 3: where you would require where rate cuts would really be

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Speaker 3: something that could help prop up an economy.

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Speaker 1: So how do you feel about inflation? We know, whether

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Speaker 1: you're looking at the PCE or even the CPI, the

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Speaker 1: core rate of the consumer price index, we're still above

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Speaker 1: the feds two percent target. Things appear to be on

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Speaker 1: the price side a little sticky here. What's your outlook

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Speaker 1: for inflation, Yeah.

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Speaker 3: That's that's a wild card. That's a wildcard for next year.

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Speaker 3: You know. The thing there is that if we did

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Speaker 3: see some overeasing by the FED, that is something that

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Speaker 3: could cause inflation to re accelerate. So like all the

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Speaker 3: good work done to bring inflation down, it could come

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Speaker 3: back up. It's still above target, sticky around the three

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Speaker 3: percent level. And it's something that I think that that's

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Speaker 3: part of the reason why we've seen bond yields go

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Speaker 3: up in US treasuries, especially over the past week. You know,

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Speaker 3: we're up like ten or eleven basis points in the

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Speaker 3: ten year and I think that's because the traders are nervous.

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Speaker 3: They're jittery about like the potential for overeasing and reaccelerating inflation.

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Speaker 1: What is your sense about the volatility that we're going

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Speaker 1: to see ahead for the bond market. I think there

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Speaker 1: was a little bit of chop certainly in the bond

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Speaker 1: market in twenty twenty five.

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Speaker 3: Yeah, it depends on what you're talking about. You know,

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Speaker 3: the corporate credit markets have held up very well. Fundamentals

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Speaker 3: have held up really well. The returns for triple B

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Speaker 3: corporates here in the US and double B corporates and

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Speaker 3: a number of industries have been, you know, really strong

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Speaker 3: this year, supported by the strong fundamentals that we're seeing.

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Speaker 3: You know, where you see more volatility is in the

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Speaker 3: long end of US treasuries, and that's an area that

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Speaker 3: we still recommend to our investors to be underweight because

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Speaker 3: you know, there's just too many factors going on in

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Speaker 3: terms of fiscal spending, inflation, all that that makes the

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Speaker 3: long end or long duration sectors a lot more risky.

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Speaker 1: What do you think about the level of debt issuance

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Speaker 1: that we're going to see going forward, particularly as it

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Speaker 1: relates to what appears to be an AI winner takes

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Speaker 1: all arms race.

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Speaker 3: They're all coming to market, and they're very long term

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Speaker 3: projects and there's a lot of financing needed. There's definitely

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Speaker 3: this is something that can change the complexion of you know,

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Speaker 3: the credit markets in terms of a lot of these

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Speaker 3: deals as they come to market. So time is really

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Speaker 3: going to tell on that. You know, we just we

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Speaker 3: hope that there isn't a situation where there's massive overbuilding

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Speaker 3: because that you know, anytime there's real access that develops

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Speaker 3: in the markets, in credit sectors specifically, it doesn't seem

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Speaker 3: to end well.

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Speaker 1: But these companies have very good balance sheets. I mean,

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Speaker 1: isn't that worth the risk?

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Speaker 3: Well, I mean right now, you know they're definitely they're

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Speaker 3: investment great type of credits for sure. So it's just

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Speaker 3: really a factor of just making you know, at some

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Speaker 3: point the demand, the demand side of the equation really

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Speaker 3: catching up with what will be the supply.

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Speaker 1: Where are you finding opportunities these days in the bond market.

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Speaker 1: You mentioned how certain areas of the corporate credit market

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Speaker 1: to interest you.

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Speaker 3: Yeah, we still really like corporate credit sectors because of

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Speaker 3: the strong fundamentals that we're seeing and so you're getting

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Speaker 3: nice yields, not a lot of volatility, not we're not

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Speaker 3: expecting that we're headed into the next credit down cycle.

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Speaker 3: The faults have been lower than average, the level of

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Speaker 3: distress securities have been lower than lower than average. There's

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Speaker 3: been very healthy new issuance that's been focused on refinancing

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Speaker 3: debt as opposed to really speculative sources of new capital

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Speaker 3: in the high yield market. So we still really we

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Speaker 3: specifically really like triple B corporate's, double B corporate's private credit.

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Speaker 3: We also like emerging markets as well. So you know,

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Speaker 3: we've seen that's actually been our best performing fund in

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Speaker 3: twenty twenty five, a US dollar denominated sovereign debt fund,

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Speaker 3: and you know it's up over thirty and so it

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Speaker 3: has a nice yield. There's been price appreciation, still has

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Speaker 3: a nice yield, and we're seeing improvement and emerging economies

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Speaker 3: that warrants this.

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Speaker 1: So as you look out, I mean, if we're right

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Speaker 1: in expecting multiple rate cuts in the new year, is

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Speaker 1: the strategy here to kind of lock in some capital

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Speaker 1: gains When you look at these positions that you're building

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Speaker 1: right now or do you hold to maturity.

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Speaker 3: I think that we're not necessarily expecting multiple rate cuts. Okay,

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Speaker 3: so we expect December and maybe one or two rate

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Speaker 3: cuts next year. So at the you know, it's still

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Speaker 3: going to be it's elevated yields plus some price appreciation,

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Speaker 3: but it's not necessarily where we think we're going back

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Speaker 3: to the rates we saw before all the increases in

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Speaker 3: bad policy rates.

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Speaker 1: Joanne, thank you so much. We'll leave it there. Johann

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Speaker 1: Bianco as partner also senior investment strategist at Bondblocks Investment Management,

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Speaker 1: joining us here on the Daybreak Asia Podcast. Thanks for

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Speaker 1: listening to today's episode of the Bloomberg Daybreak Asia Edition podcast.

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Speaker 1: Each weekday, we look at the story shaping markets, finance,

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Speaker 1: and geopolitics in the Asia Pacific. You can find us

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Speaker 1: on Apple, Spotify, the Bloomberg Podcast YouTube channel, or anywhere

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Speaker 1: else you listen. Join us again tomorrow for insight on

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Speaker 1: the market moves from Hong Kong to Singapore and Australia.

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Speaker 1: I'm Doug Prisner, and this is Bloomberg