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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.

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Speaker 2: Welcome to the Bloomberg Daybreak Asia podcast. I'm Dog Krisner.

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Speaker 2: So the US equity market rally today to records. That

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Speaker 2: was after a relatively tame reading on retail inflation, and

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Speaker 2: equities across the APAC region appear set to join in.

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Speaker 2: In a moment, we'll go to Sydney for a conversation

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Speaker 2: with June Bailu, co founder and lead portfolio manager at Tencap,

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Speaker 2: but we begin here in the States. Joining me now

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Speaker 2: is Jim Craig. He is co CIO and head of

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Speaker 2: Emerging Markets at Stone Harbor Investment Partners. Jim is on

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Speaker 2: the line from here in New York City. Jim, thank

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Speaker 2: you so much for making time to chat. Let's begin

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Speaker 2: with the inflation story, because that seems to be kind

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Speaker 2: of the predominant factor right now, I think for markets

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Speaker 2: as we look ahead to next week's FED meeting. What

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Speaker 2: did you make of the CPI print?

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Speaker 3: Yeah, I thought the CPI print was spot on a hit.

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Speaker 3: RS it's on target. You know, we really haven't seen

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Speaker 3: a significant pass through from tariff increases in the US.

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Speaker 3: It's starting to happen on the margin, but it hasn't

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Speaker 3: been significant, so we thought that print was in line

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Speaker 3: with our expectations. You know, we're calling for three cuts

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Speaker 3: over the next twelve months, so we're a little under

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Speaker 3: the market's forecast. But we thought the inflation data in

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Speaker 3: the US is actually coming in right in line.

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Speaker 2: So there were more signs of a cooling labor market.

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Speaker 2: As you know, I'm looking at weekly jobless claims rising

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Speaker 2: to the highest level since October twenty twenty one. Are

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Speaker 2: we looking at a real acceleration and the deterioration of

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Speaker 2: the employment picture?

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Speaker 3: Well, we might be, but you know, we think a

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Speaker 3: lot of that has to do with immigration in the US,

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Speaker 3: and I don't think enough focus has been put on this.

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Speaker 3: You know, what we're looking at is is negative immigration

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Speaker 3: in the United States, and that has it means labor

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Speaker 3: force demand is lower because population growth is less, which

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Speaker 3: means potential GDP is probably less. So you know, our

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Speaker 3: view that that's going to translate and that's going to

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Speaker 3: come through the next several months.

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Speaker 4: So you're where we used to run about.

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Speaker 3: Two hundred k a month, we're running at about we

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Speaker 3: expect forty to fifty thousand new employments a month, and

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Speaker 3: I think that's you know, that's going to flow through

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Speaker 3: the data, and that's not necessarily a negative. That's just

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Speaker 3: the reality of what is happening in the United States.

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Speaker 3: We're just we're not growing as fast and potential growth

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Speaker 3: is lower.

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Speaker 2: So I'm going to bring artificial intelligence into the conversation.

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Speaker 2: I want to get your views on whether or not

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Speaker 2: you think that's having an adverse impact on the employment picture. Tonight,

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Speaker 2: after the bell here in the US, we heard from

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Speaker 2: Adobe very strong outlook for quarterly revenue. Some of that

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Speaker 2: may be tied to the investments Adobe has been making

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Speaker 2: in AI. We know how powerful this theme has been.

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Speaker 2: Do you think we are beginning to see evidence now

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Speaker 2: that AI is a factor in a deterioration of the

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Speaker 2: labor picture.

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Speaker 4: I think you are.

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Speaker 3: I mean you're seeing it in a lot of little

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Speaker 3: a lot of little areas. I'll give you one point

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Speaker 3: so recent college graduates. If you're a female, your employer

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Speaker 3: rates your unemployment's about four and a half percent. If

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Speaker 3: you're a male, it's about seven and a half percent.

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Speaker 3: And that's a big change from a few years ago

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Speaker 3: when they were running a roughly four and a half percent. Now,

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Speaker 3: why is that It's because more males went into computer

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Speaker 3: science in college and they're graduating and there aren't the

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Speaker 3: jobs there, and most of those.

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Speaker 4: Have just been taken over by AI.

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Speaker 3: We can all program Python ourselves using Copilot or some

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Speaker 3: one of the other tools, and that's really diminished the

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Speaker 3: demand for unless you're an AI programmer for that type

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Speaker 3: of programming. So it is showing up, and I think

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Speaker 3: that will continue to show up in different ways that

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Speaker 3: we probably haven't figured out yet.

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Speaker 2: I'm curious to get your take on M and A.

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Speaker 2: We had news today perhaps Paramount Skuidance will bid for

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Speaker 2: rival Warner Brothers Discovery. Very unique situation in the media industry.

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Speaker 2: But broadly speaking, are we going to see a pickup

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Speaker 2: in overall M and A activity?

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Speaker 4: I think you will.

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Speaker 3: You'll certainly you'll continue to see it in our business

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Speaker 3: and the investment manager business, where brand and scale and

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Speaker 3: size are are and continue to be very important.

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Speaker 4: But I also think this AI.

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Speaker 3: Development that we're seeing right now really does have profound implications.

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Speaker 4: So you just need less less people doing the same.

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Speaker 3: Jobs, and you can you'll probably need some more consolidation

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Speaker 3: down the road just to just to just to reflect

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Speaker 3: that type of change.

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Speaker 2: To your point about kind of financial services. There was

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Speaker 2: news today that Bank of New York Mellon is teamed

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Speaker 2: up with Carnegie Mellon University in Pittsburgh to advance research

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Speaker 2: into AI. Do you think this is going to be

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Speaker 2: more predominant, that the banking industry is going to be

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Speaker 2: adopting AI and for that reason we may see payrolls

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Speaker 2: within the banking community start to tick lower.

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Speaker 3: I think so, you know, you don't want to you

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Speaker 3: want to say that in a mixed company in New

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Speaker 3: York City, but that's the that's likely the and to

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Speaker 3: give you give it a little some more anecdotal evidence,

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Speaker 3: it just takes me a lot less time to do

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Speaker 3: country research and emerging markets, which is what we do here.

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Speaker 3: We just have the ability to really speed up the

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Speaker 3: process and find more data much faster. And that's and

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Speaker 3: that changes every every couple of months, you get a

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Speaker 3: new way to do something, and that's you know, that's

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Speaker 3: that's surprising to be how fast it's happening. And my

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Speaker 3: guess is that's going to translate into less a less

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Speaker 3: demand for workers who are doing a lot of that

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Speaker 3: work that everybody grew up in doing the analyst side,

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Speaker 3: doing the spreadsheets, et cetera.

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Speaker 4: It's just much easier to do now, and you can

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Speaker 4: program it.

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Speaker 3: You don't have to be a Python expert, but you

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Speaker 3: can tell you can ask copilot on one of the

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Speaker 3: other one of your other tools to help you write

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Speaker 3: the programs and then it'll do.

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Speaker 4: It for you.

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Speaker 2: So, speaking of VM, where are you finding opportunity these phays?

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Speaker 3: Yeah, so we you know, we definitely think there's a

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Speaker 3: global rebalancing taking place out of out of the US dollar,

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Speaker 3: but also out of US Treasury bonds generally, and it's

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Speaker 3: being much more diversified across the globe. So we see

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Speaker 3: a lot of value in high yielding emerging markets debt.

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Speaker 4: The spreads are.

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Speaker 3: High and it's NASA class. It's really been underinvested now

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Speaker 3: for fifteen twenty years. We're seeing a lot of additionally

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Speaker 3: yield coming from high growth areas in Latin America and Africa.

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Speaker 3: We happen to particularly like places like Argentina fourteen to

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Speaker 3: fifteen percent yield. Argentina is growing at five percent this year. Yes,

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Speaker 3: it has political volatility. It always will keeps me employed.

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Speaker 3: But they've done a huge fiscal adjustments and you want

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Speaker 3: to book that extra yield. We also like African credits

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Speaker 3: more broadly. Again, that doesn't light people's lamps and you

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Speaker 3: tell them about it, but you know, places like Egypt, Nigeria,

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Speaker 3: Ghana are all doing very well fiscally due to significant

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Speaker 3: structural adjustments and are building reserves and yields are eight

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Speaker 3: to ten percent. So we happen to like those stories.

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Speaker 3: We want to go where the growth is, where the

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Speaker 3: high yield is. We want to get in there before

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Speaker 3: others figure it out.

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Speaker 2: Em opportunities in Asia are any of these days?

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Speaker 3: You know, they're few and far between, I guess outside

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Speaker 3: of Pakistan, in Sri Lanka, and I'm happy to cover those.

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Speaker 3: But what we have seen has been huge demand for

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Speaker 3: investment great sovereign credits, and that's most of Asia, and

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Speaker 3: that's come from life insurance companies, domestic banks, and they're

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Speaker 3: looking for US dollar duration outside of the US Treasury. Again,

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Speaker 3: this is a global rebalancing that's taking place, and that's

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Speaker 3: really tightened spreads in a lot. So you get Chinese

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Speaker 3: spreads or single digits now over treasuries, Philippines at sixty

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Speaker 3: three basis points, Malaysias at forty two.

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Speaker 4: You know, even in the.

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Speaker 3: Gulf Saudi Arabia ninety basis points. These are very very

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Speaker 3: solid credits. But you've had this massive demand, which is

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Speaker 3: which has been You've dominated the market, and that's caused

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Speaker 3: spreads to be very tight, so we don't see a

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Speaker 3: lot of value there. But again, this is these our

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Speaker 3: very stable credits.

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Speaker 2: So when you look at the way in which trade

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Speaker 2: flows have been impacted by US tariff policy, how does

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Speaker 2: it affect your thinking when it comes time to look

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Speaker 2: for opportunity on the dead side.

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Speaker 3: Yeah, it's been it's been a great story for US,

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Speaker 3: interestingly in emerging markets because outside of China, Vietnam, India,

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Speaker 3: and I guess Brazil, and that's only four out of

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Speaker 3: seventy five countries to look at, the broad teriff right

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Speaker 3: in the emerging markets is just north of ten percent.

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Speaker 3: In fact, during the April volatility around tariff's emerging markets,

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Speaker 3: debt was up and most other things were not up.

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Speaker 3: So what is happening you're because of the tariffs in

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Speaker 3: the US. It's actually disinflationary for the rest of the world.

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Speaker 3: Country like China is going to sell their goods not

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Speaker 3: to the US, and those are exports are down a lot.

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Speaker 3: But they are going to sell them to the rest

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Speaker 3: of the world that discounted prices, and that means their

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Speaker 3: terms of trade increase and countries are benefiting from that.

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Speaker 3: So the disinflation story that's taking place taking place before

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Speaker 3: tariffs and are taking place in addition to the tariffs

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Speaker 3: is something that's very very real. And we would expect

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Speaker 3: that eight cuts are going to continue to come in

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Speaker 3: emerging markets and we want to we want to be

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Speaker 3: in front of that.

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Speaker 2: So is your bet then that we're going to see

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Speaker 2: a lot more in the way of dollar weakness if

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Speaker 2: we're right and the Fed becomes a little bit more

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Speaker 2: aggressive in its easing cycle, that the path for the

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Speaker 2: dollar is going to be to the downside.

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Speaker 3: We do on the margin, Yeah, I mean we've had

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Speaker 3: we've had a big you know, the dx y. You know,

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Speaker 3: the dollars down around ten percent this year. Euro is

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Speaker 3: up thirteen percent. You know, I think that trend continues,

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Speaker 3: maybe not to the magnitude that it has this year,

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Speaker 3: but now.

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Speaker 4: I do think this global rebalancing is very real. Real.

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Speaker 3: Our international clients we manage money for talk to us

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Speaker 3: about this. They just have a lot of dollars and

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Speaker 3: they've and it's the stock market in the US has

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Speaker 3: been been on a tear now for a number of years,

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Speaker 3: and they're doing this rebalancing, and these things go in cycles.

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Speaker 3: You know, We've been in a bull market for the

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Speaker 3: dollar up until roughly February of this year for about

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Speaker 3: twelve years, and now we're kind of on the other

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Speaker 3: side of that. So we do think that that continues,

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Speaker 3: maybe not to the level that it has in the

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Speaker 3: magnitude that it has, but yeah, no, we've been allocating

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Speaker 3: more to local currency, emerging markets debt because we do

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Speaker 3: think the weaker dollar story is the trend.

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Speaker 2: Okay, we'll leave it there, Jim, great stuff, Thank you

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Speaker 2: so very much. Jim Craig there, he is co cio,

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Speaker 2: also head of Emerging Markets at Stone Harbor Investment Partners.

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Speaker 2: Joining us here in New York City on the Daybreak

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Speaker 2: Asia podcast. Welcome back to the Debreak Asia Podcast. I'm

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Speaker 2: Doug Krisner. Equity markets across the Asia Pacific have joined

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Speaker 2: a rally in global equities after a relatively tame reading

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Speaker 2: on US inflation, along with cooler job numbers here in

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Speaker 2: the States, markets are sensing a FED rate cut next week.

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Speaker 2: Let's get more on how the FEDS road ahead will

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Speaker 2: reverberate across the Asia Pacific. We heard from Junebailu. She

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Speaker 2: is co founder also lead portfolio manager at Tencap. Junebay

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Speaker 2: spoke with Bloomberg TV host Sherry On and April Hang

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Speaker 2: on the Asia trade.

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Speaker 5: Jim By, great to see you. We're focused on the

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Speaker 5: FED for now. There are a lot of other things

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Speaker 5: in the background as well, but talk to us first

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Speaker 5: about what the data the FED path is going to

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Speaker 5: mean for Asia.

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Speaker 6: Yeah, look, thank you so much for having me.

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Speaker 7: So in terms of FED, we expect or the market

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Speaker 7: is absolutely expecting a cut mixer. Uh, well that's coming

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Speaker 7: up and you know RU is about twenty five basis

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Speaker 7: point and uh, and that's positive for the market and

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Speaker 7: for the Asian market in particular as well. Look, we

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Speaker 7: think for the rest of the year and potentially into

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Speaker 7: next year. Uh, there's something up to six rate cuts

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Speaker 7: there in the US. You know, so that will continue

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Speaker 7: to drive you know, my confidence boots for the market,

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Speaker 7: valuation support and then you'll see continuation of more allocation,

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Speaker 7: more capital flow into Asia.

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Speaker 6: You know, it's all very very positive.

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Speaker 5: Where in Asia are you particularly positive about gen Dae.

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Speaker 7: Look, actually there are lots of places actually to be

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Speaker 7: positive about.

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Speaker 6: Well. First of all, we look at my home you

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Speaker 6: know city Australia.

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Speaker 7: We do think that with the ray cars here in

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Speaker 7: Australia were actually in the middle of the ray car

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Speaker 7: and then we've got more to go as well.

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Speaker 6: Towards the end of the year.

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Speaker 7: We're already seeing their cyclical improvement in many of the

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Speaker 7: sectors already such as a housing related, consumer related, and

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Speaker 7: then we're seeing the rape beneficiaries of you know, property

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Speaker 7: sector doing very well and we think that will continue.

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Speaker 7: We see markets like Asian China markets, you know, certainly

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Speaker 7: confidence has been quite strong and we do think even

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Speaker 7: though we don't have a significant stimulus and the others

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Speaker 7: to you know, to pull through, but we do think

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Speaker 7: the targeted stimulus and also the economy self is holding

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Speaker 7: up pretty well, so we think that market will continue

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Speaker 7: to be well supported.

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Speaker 6: And then that flows on to the rest of.

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Speaker 7: The you know, the Asian markets, you know, particularly some

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Speaker 7: of the you know, tech heavy sector uh the country

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Speaker 7: as well because of the AI thematic and continue to

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Speaker 7: be very strong. There is of course, you know, you

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Speaker 7: have your tail risk of what's going to happen to

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Speaker 7: the trade tariff and all that that is going to

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Speaker 7: continue to play in the background. You know, the market

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Speaker 7: may become a motile with the headline buttne I think

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Speaker 7: for the time being, it looks pretty positive for the markets.

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Speaker 1: And you talked about the AI theme, and in today's

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Speaker 1: session we're seeing that blow up when it comes to

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Speaker 1: the likes of Soundsong s k Henis as well. In

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Speaker 1: the overnight session we have that positive sentiment over Micron

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Speaker 1: and also speculation that we might be seeing more demand

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Speaker 1: when it comes to nand and d RAM from the

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Speaker 1: hyper scaler. So is this narrative over infrastructure buildout still

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Speaker 1: strong enough to continue to leave these games because we

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Speaker 1: have already seen a massive rally this year.

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Speaker 7: Absolutely, I absolutely believe the thematic is going to continue,

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Speaker 7: and in particular the infrastructure that you talk to that's

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Speaker 7: necessary for the further expansion of AI, and these infrastructure

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Speaker 7: will have already continued to receive a lot of investment

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Speaker 7: and more and more tech companies that we heard from

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Speaker 7: in the last few months are investing more, you know,

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Speaker 7: accelerating their space, their spent in that space. So we

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Speaker 7: don't think that thematic is turning away. And also what's

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Speaker 7: interesting is between you know, the the tech infrastructure between

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Speaker 7: the developed world and also Asia. If China centric, you know,

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Speaker 7: we almost perhaps will have a race two uh to

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Speaker 7: you know, who's going to have more of the investment

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Speaker 7: and then a lot of those infrastructure actually has to

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Speaker 7: be duplicated they could, you know, because the crossover between

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Speaker 7: the will be quite difficult. So we do think there's

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Speaker 7: a lot of opportunity in that space. But aside from that,

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Speaker 7: we also seeing a lot of opportunities now that with

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Speaker 7: the application of the AI, right, so all these software

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Speaker 7: businesses that's kind of you know, play into that thematic.

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Speaker 7: We do feel quite excited. You know, every portfolio should

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Speaker 7: have some of those companies, you know, with the within

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Speaker 7: the within the portfolio.

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Speaker 1: Yeah, I'm not really trying to get ahead in that

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Speaker 1: race when it comes to those applications over AI as well.

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Speaker 1: Where do you see the most compelling names across the

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Speaker 1: Chinese markets?

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Speaker 7: Look, I think across the Chinese market certainly there's the

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Speaker 7: tech side is very very exciting, and there's a lot

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Speaker 7: of investment heading into it.

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Speaker 4: You know.

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Speaker 7: One of the old saying is that as an investor

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Speaker 7: into the Chinese market you kind of want to follow

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Speaker 7: where the government is putting their money. So that's a

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Speaker 7: very key thematic. However, on the other side, however, another

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Speaker 7: exciting sort of key development in the last six months

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Speaker 7: or so is that we are seeing the improvement in

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Speaker 7: the Chinese consumer after many, many, many targeted sort of

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Speaker 7: stimulus and they have turned around. Chinese market is actually

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Speaker 7: a very clear indicator how that confidence is improving. So

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Speaker 7: we do think you do want to buy into the

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Speaker 7: consumer stocks next few years, it will be that, you know,

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Speaker 7: significant catch up in what you know, what the consumer

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Speaker 7: would have spent in the last few years, you know,

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Speaker 7: So I think that sector will do incredibly well. Travel consumer,

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Speaker 7: you know, a retail is all going to.

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Speaker 6: Be the key sector.

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Speaker 7: Housing is still pretty tough, looko, but it seems to

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Speaker 7: be finding the bottom. But it's really it's the tech.

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Speaker 7: It's the consumer that we think will drive a lot

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Speaker 7: of return.

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Speaker 5: And speaking of tech the consumer, we're also seeing in

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Speaker 5: video supply s k Heinex jumping five percent in trade

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Speaker 5: after it announced this high bandwidth memory for development completion.

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Speaker 5: So to your point about how this has all been along,

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Speaker 5: there's a lot more to go. But I wonder given

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Speaker 5: some of the tail risks that you've been highlighting. How

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Speaker 5: do you hedge the tech trade that has already been

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Speaker 5: doing so well.

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Speaker 7: I think that's the challenging part of it. So I

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Speaker 7: think they've done incredibly well. Every portfolio should have some

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Speaker 7: of those tech businesses. However, I do believe in the

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Speaker 7: next twelve month your return will come from some of

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Speaker 7: the cyclical.

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Speaker 6: Sort of areas.

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Speaker 7: Cyclical area as in, you know, businesses that will benefit

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Speaker 7: from and upswinging economic activities, you know, the beneficiary to

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Speaker 7: falling rates and the like. So these companies will benefit more.

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Speaker 7: And then these will be smaller businesses rather than larger

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Speaker 7: cap companies, so you will see a broadening of the

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Speaker 7: bull market and then you know, more money following probably

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Speaker 7: out of some of those tech winners into those cyclical

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Speaker 7: cyclical winners.

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Speaker 6: But it doesn't mean the tech names is going to

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Speaker 6: be sold off.

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Speaker 7: It just simply perhaps won't go up as much as

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Speaker 7: the other the rest of them.

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Speaker 5: Okay, that's fair talk to us as well about as

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Speaker 5: we try to pick out the winners and losers in

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Speaker 5: AI sectors that potentially have been overlooked. Right, We've been

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Speaker 5: seeing nan this week. It's captured a lot of attention.

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Speaker 5: You know, how do you play that?

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Speaker 7: I think it is quite tricky in that space, especially

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Speaker 7: some of the softwarees we talk to, you know, because

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Speaker 7: they're developing so fast at the moment, and to find

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Speaker 7: the winner itself. Right now, we still deployed, will have

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Speaker 7: a lot of most a lot of investment sitting within

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Speaker 7: the hardware or sitting within the infrastructure's place because we

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Speaker 7: see real demand and then you know, essentially acceleration in

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Speaker 7: demand and then the sort of a supply just not

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Speaker 7: enough and just couldn't catch up with the demand. And however,

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Speaker 7: the software side, it is a little bit more tricky.

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Speaker 7: It's almost your find a winner, and you do want

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Speaker 7: to stay with them, you know, while keeping a breasted

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Speaker 7: to see what else is happening in the space.

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Speaker 1: Jimbeview, co founder and need portfolio manager at Tencap, Really

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Speaker 1: good to have you with us.

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Speaker 2: Thanks for listening to today's episode of the Bloomberg Daybreak

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Speaker 2: Asia Edition podcast. Each weekday, we look at the story

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Speaker 2: shaping markets, finance, and geopolitics in the Asia Pacific. You

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Speaker 2: can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel,

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Speaker 2: or anywhere else you listen join us again tomorrow for

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Speaker 2: insight on the market moves from Hong Kong to Singapore

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Speaker 2: and Australia. I'm Doug Prisoner and this is Bloomberg

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Speaker 3: Fo