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

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Speaker 2: This is the Bloomberg Daybreak Asia podcast. I'm Brian Curtis

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Speaker 2: along with Doug Krisner join us each day for the

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Speaker 2: stories making news and moving markets in the Asia Pacific.

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Speaker 2: You can subscribe to the show anywhere you get your

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Speaker 2: podcasts and always on Bloomberg Radio, the Bloomberg Terminal, and

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Speaker 2: the Bloomberg Business App. Yeah. Greg Cordy joins us now

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Speaker 2: on the program Bloomberg Senior White House and Politics Correspondent.

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Speaker 2: And you know that when the gaff s draw gasps,

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Speaker 2: you're in trouble. He had some stumbles. President Biden had

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Speaker 2: some stumbles there right at the outset, in particular when

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Speaker 2: he referred to Vice President Trump, and Trump has joked

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Speaker 2: about that. But there were plenty of moments, normal moments,

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Speaker 2: normal clarity as well. But you wonder whether it's enough

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Speaker 2: for the democratic.

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Speaker 3: You know people. So yeah, my sort of take on

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Speaker 3: this was that it was sort of a betwixt and

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Speaker 3: between right, it was not going to modify by all

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Speaker 3: the critics that have been, you know, amplifying this drumbeat

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Speaker 3: in recent days, you know, drip drip drip, one Democrat

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Speaker 3: after another, calling on the president to resign. It's still

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Speaker 3: a very small minority of his party. I should say

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Speaker 3: that they are calling on the president to step aside

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Speaker 3: and let somebody else run for office. He would presumably

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Speaker 3: remain as president. But then, you know, on the other side,

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Speaker 3: it wasn't so bad that there was nothing that happened

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Speaker 3: today that I think it would change President Biden's calculation

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Speaker 3: of the people around him to say that maybe it

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Speaker 3: is the time to sort of think about passing the torch.

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Speaker 3: So I don't know that this press conference helped him

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Speaker 3: all that much. I don't know that to hurt him

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Speaker 3: all that much either.

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Speaker 2: Yeah, when asked about you know what might make him

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Speaker 2: pass the torch, the only thing that he would cite

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Speaker 2: was if if his advisors told him that he could win.

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Speaker 2: You know, what sort of process would that be? And

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Speaker 2: how would you know what you even if you cited polls,

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Speaker 2: I mean, that's not going to convince the president that

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Speaker 2: the polls know all.

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Speaker 3: Yeah, especially since this particular president, and to be fair

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Speaker 3: to him, most politicians tend to take very rosy optimistic

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Speaker 3: views of the polls even when they're behind, and he

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Speaker 3: is behind in all the polls. He tends to cherry

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Speaker 3: pick the polls that he's doing better in. He is

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Speaker 3: doing better, we should say, in the Bloomberg News Morning

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Speaker 3: Console poll of seven swing states. He's only down by

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Speaker 3: two percentage points across those seven states, but he still

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Speaker 3: loses the electoral college even in that poll, which is

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Speaker 3: one of his better polls. So he's also correct though,

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Speaker 3: that we have four months to go until the election.

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Speaker 3: It's still summer, it's early July, we haven't had the conventions.

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Speaker 3: A lot of people aren't as focused on this race

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Speaker 3: as you and I are, and so he still thinks

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Speaker 3: that they're there's a lot of time to play catchup,

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Speaker 3: and historically he's probably right.

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Speaker 2: How rigorous is his schedule over the next two weeks.

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Speaker 3: Well, he has an interview with NBC's Lester Holt on Monday,

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Speaker 3: and he's going to be making some campaign visits to

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Speaker 3: a number of key swing states now. Next week, of course,

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Speaker 3: is the Republican National Convention in Milwaukee, and traditionally campaigns

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Speaker 3: tend to go dark when the other party is having

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Speaker 3: their convention. There's been historically a little bit of a

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Speaker 3: gentleman's agreement to let them have their say, given that

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Speaker 3: mostly the attention of the political world is going to

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Speaker 3: be on the Republican convention anyway. But maybe it looks

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Speaker 3: like Biden might be doing a little bit more aggressive

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Speaker 3: counter program and getting out on the road. And look,

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Speaker 3: I think he knows that he can't run the basement

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Speaker 3: campaign of twenty twenty that he ran during the coronavirus pandemic.

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Speaker 3: He's going to have to visit all these states and

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Speaker 3: he promised to do that today In the pres conference.

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Speaker 2: Earlier, Ed and I were having a discussion about the process.

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Speaker 2: What would come next if for some reason President Biden

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Speaker 2: decided that he did need to step aside. What do

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Speaker 2: we know about that process?

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Speaker 3: Yeah, so the easiest way for this to happen is

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Speaker 3: for him to step aside and tap a successor. That

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Speaker 3: successor would have to be ratified at the Democratic National

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Speaker 3: Convention in Chicago next month. And as it is right now,

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Speaker 3: Biden has ninety nine percent of delegates of the pledge delegates,

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Speaker 3: I should say to that convention. He said tonight that

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Speaker 3: all of those delegates, regardless of whether he drops out

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Speaker 3: or stays in, are free to vote their conscience. That's

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Speaker 3: just a restatement of the rules as they exist anyway,

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Speaker 3: But it would take then six hundred of those delegates

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Speaker 3: out of four thousand and five thousand or so to

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Speaker 3: place other names into nomination and have the party decide

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Speaker 3: zumptive person who would take over in that case would

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Speaker 3: be Kamala Harris. He's the vice president, she's been his

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Speaker 3: understudy for the past three and a half years, and

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Speaker 3: she would inherit their campaign war chest that they have together.

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Speaker 3: But there's always the possibility there could be other names

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Speaker 3: as well. But still we're still talking in the realm

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Speaker 3: of hypotheticals here, because what we saw tonight, what we've

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Speaker 3: seen in the two weeks CINCEUS debate, is that President

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Speaker 3: Biden has shown no sign that he's considering doing that.

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Speaker 2: Well, let's say he's weakened, but he's not weakened enough

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Speaker 2: to step aside and he runs. Are we entering a

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Speaker 2: period here where voters will vote for him even though

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Speaker 2: he knows he's not quite his old self in that

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Speaker 2: they just like the brand of the Democratic Party more

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Speaker 2: than let's say, the Republican Party and the same thing

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Speaker 2: on the other side.

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Speaker 3: Oh, I think that's absolutely true. And I think we

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Speaker 3: in this very sort of polarized political age that we

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Speaker 3: are in. People are voting for those brand names to

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Speaker 3: a large extent. We haven't seen for all of the

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Speaker 3: talk about this terrible debate that the president had and

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Speaker 3: nobody thinks he had a good debate, right, the polls

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Speaker 3: have not shown considerable slippage that people are locked in

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Speaker 3: and this campaign is going to be fought on those

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Speaker 3: last two yards of the field.

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Speaker 2: Yeah, and we haven't seen a huge impact on markets either, Gregory,

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Speaker 2: thank you very much for being with us. Gregory Corti,

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Speaker 2: Bloomberg Senior White House and Politics correspondent, joining us for

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Speaker 2: some discussion of Marcus Is Jitania Kandari, PM, multi asset

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Speaker 2: strategist at Morgan Stanley Investment Management. Well, it's very good

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Speaker 2: to have you on the program.

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Speaker 3: Here.

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Speaker 2: We are seeing a lot of churn with strengthen the end,

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Speaker 2: weakness in Japanese equities, weakness in SOEUL, and we had

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Speaker 2: a churn on Wall Street as well, where there was

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Speaker 2: this huge rotation. Interested in your thoughts whether this is

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Speaker 2: kind of one day development, why this continues.

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Speaker 1: Hi, Thanks for having me on the show. Well, I

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Speaker 1: think you know, the concentration in the US market specifically

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Speaker 1: was very extended and as you know, the top ten stocks,

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Speaker 1: if you look at just a contribution to overall returns,

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Speaker 1: their contribution to overall returns was as high as fifty descent,

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Speaker 1: and the US if you compare that to say, in

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Speaker 1: Emerging Market Index, a third of that return comes from

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Speaker 1: the top ten. So I think with the interest rate

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Speaker 1: expectations getting reset, uh, the other parts of the economy

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Speaker 1: that have been that haven't been performing because, for example,

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Speaker 1: the small caps, more floating rate debt, both in the

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Speaker 1: US and even globally, they should see a catalyst here

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Speaker 1: given that if interest rates would to come down or

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Speaker 1: not increase further, uh, then you know that provides a

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Speaker 1: nice buffer for these these earnings. And specifically on the currency,

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Speaker 1: Zen shows up as the most competitive and very very

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Speaker 1: cheap based on historical measures. So I would expect the

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Speaker 1: interest rate differentials and the growth differentials that worked for

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Speaker 1: the dollars so far should now turn in favor of

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Speaker 1: the non US and non dollar kind of currencies and

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Speaker 1: countries as well.

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Speaker 2: Since we had the long news conference and delayed start

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Speaker 2: the program, we didn't get a chance to talk too

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Speaker 2: much about the United States and the market there, So

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Speaker 2: I just maybe pop in one more question. We can

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Speaker 2: take close to look at emerging markets, which I know

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Speaker 2: is one of your specialties. In terms of this rotation

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Speaker 2: that we did see today, I would imagine that the

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Speaker 2: bulls are not too happy by it. They'd like to

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Speaker 2: see not rotation, but a broadening. In other words, they'd

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Speaker 2: probably like to see those stocks, those cyclical and value

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Speaker 2: names that have lagged catch up a little bit rather

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Speaker 2: than selling from one and moving into the other. Is

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Speaker 2: that something that the ship might get right once we

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Speaker 2: start getting the tech earnings or again, you know it

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Speaker 2: is it really just something that we have to watch closely.

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Speaker 1: You know. I think what's really interesting, as we saw today,

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Speaker 1: the equal cap weighted index really had a nice run

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Speaker 1: even you know, not just the small cap. So I

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Speaker 1: think this even within the Mega seven, if you see,

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Speaker 1: it's basically been the three out of the Mega four

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Speaker 1: that have driven US. So US has for the first

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Speaker 1: half till June thirtieth, the first half of the year

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Speaker 1: or is up fifteen percent twenty three percent Mega seven

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Speaker 1: out of which only three actually really outperformed, but the

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Speaker 1: rest of the US was up only sixty six percent.

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Speaker 1: So if you excelt these megacap performance so I think

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Speaker 1: that our clearly earnings are going to be critical and

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Speaker 1: there will be a lot of discerning in the numbers

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Speaker 1: that is required, even for the men US seven, and

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Speaker 1: we're already beginning to see that. But I do expect

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Speaker 1: breadth to improve. But we are also seeing, you know,

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Speaker 1: some of the technical indicators for the US reaching levels

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Speaker 1: that suggest a draw down. An annual draw down of

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Speaker 1: ten to fifteen percent is very normal in any past year.

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Speaker 1: So something to keep in mind as well.

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Speaker 2: If we get that, if we get a ten to

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Speaker 2: fifteen percent pullback in US, doocs, will emerging markets benefit

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Speaker 2: from that or will they fall in sympathy?

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Speaker 1: So it's you know, if you look at past corrections

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Speaker 1: in the US, it's been mixed. Emerging markets have sometimes

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Speaker 1: outperformed as well. Even in the two thousand correction. Initially

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Speaker 1: emerging markets underperform, but towards the second half of the

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Speaker 1: US draw down they had started out performing the US.

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Speaker 1: So I do think I mean emerging markets is heterogeneous

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Speaker 1: acid class. China is the eight hundred pound gorilla, and

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Speaker 1: I'm not very bullish there on the market. So some

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Speaker 1: markets may do well even year to date, markets like

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Speaker 1: India Taiwan and some of the frontier markets have done

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Speaker 1: even better than the US, So I would think that

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Speaker 1: some could do well. But as an acid class, initially

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Speaker 1: you could see a Nijuk reaction, but over time I

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Speaker 1: do expect our performance in select countries.

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Speaker 2: Yeah, we saw yields down in the US and the

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Speaker 2: dollar down. That's led to strength in Asian currencies. So

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Speaker 2: I'm curious some where you see that as working in

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Speaker 2: tandem and benefiting risk assets versus a place like Tokyo,

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Speaker 2: or at least in the short term, we see strength

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Speaker 2: in the end means a lot of weakness in the

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Speaker 2: topics and the nick.

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Speaker 1: If you go by past relationships, Emerging Europe and Latin

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Speaker 1: tend to have the highest beta to the dollar. So

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Speaker 1: if the dollar were to finally weaken, some of these currencies,

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Speaker 1: whether it's Eastern Europe or the Latin American commodity kind

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Speaker 1: of currencies see a higher beta.

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Speaker 2: UH.

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Speaker 1: Asia is less UH beta driven with respect to the US,

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Speaker 1: but more recently, given the yend depreciation UH which has

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Speaker 1: been so significant, the countries like the one have seen

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Speaker 1: a high correlation because of the exports similarity with Japan.

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Speaker 1: So I would think that some of those currencies get

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Speaker 1: some respite if the yen were to find a bid here.

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Speaker 1: Our positioning is also pretty short in the end, so

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Speaker 1: it would be an interesting uh move here.

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Speaker 2: You touched on India briefly earlier. Is India the most

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Speaker 2: interesting idiosyncratic story and perhaps would run a little out

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Speaker 2: of sync with some of the Western markets.

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Speaker 1: Yeah, it has been displaying its own characteristics given the

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Speaker 1: economic reform momentum and just the interesting geopolitical position it's

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Speaker 1: carved out for itself in this multipolar world. I do

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Speaker 1: think that the Indian currencypers particularly also looks stable and

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Speaker 1: it's been pretty resilient despite the run the correction down

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Speaker 1: in some of the emerging markets recently. Given the service

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Speaker 1: side of the economy, which is driven by consulting services,

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Speaker 1: and those exports have held up pretty well. I do

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Speaker 1: think as under five thousand g peoper capita, it is

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Speaker 1: one country with low hanging fruit as it evolves into

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Speaker 1: its next phase of growth, given all the momentum behind it.

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Speaker 2: And finally from China, we've got the Third Plan coming up.

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Speaker 2: A lot of people are kind of waiting with bated

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Speaker 2: breath on what we might get out of it. Are

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Speaker 2: you expecting shakanawe or steady as she goes.

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Speaker 1: I'm not expecting shokan aw I think China the government

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Speaker 1: was meant to be stimulating consumption, but it has been

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Speaker 1: stimulating industrial production. And because I think there are limitations

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Speaker 1: to what the government can do and stimulate, so I

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Speaker 1: think it will be a lot of localization, a lot

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Speaker 1: of indigenization of technology, of the overall local sourcing of

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Speaker 1: all the all the economic actors. So I don't really

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Speaker 1: expect a whole lot.

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Speaker 2: Yeah, I think that that seems to be what we're hearing. Jaitanya,

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Speaker 2: thank you so much for joining us. Tanya Kandhari there

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Speaker 2: portfolio manager for multi asset Strategists at Morgan Stanley Investment Management.

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