Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: Welcome to the Bloomberg Daybreak Asia podcast. I'm Doug Chrisner.
Speaker 2: We had some weakness and US equities in the last
Speaker 2: session as the market assessed the impact of the trade war.
Speaker 2: And later we'll be joined by Gene Goldman. He is
Speaker 2: the Chief Investment Officer at Satara Financial Group. But we
Speaker 2: begin in Hong Kong where HSBC's Global Investment Summit has
Speaker 2: just wrapped up. Joining me now is Villam Cells. He
Speaker 2: is the Global CIO at HSBC Global Private Banking and Wealth. Vilm,
Speaker 2: thank you so much for making time to chat with us.
Speaker 2: There is so much conversation around tariffs, the economic impact
Speaker 2: that they will likely have, principally whether or not these
Speaker 2: tariffs will contribute to a higher level of inflation. I'm
Speaker 2: going to imagine that you're trying to filter signal and
Speaker 2: noise here, with the tariff conversation really mounting to a
Speaker 2: lot of noise at this point. How are you able
Speaker 2: to kind of find the signal in markets these days?
Speaker 1: Well, it's what our clients try to do as well.
Speaker 1: You mentioned the Global Investment Summit. We actually did a
Speaker 1: poll of seven hundred of our clients across private and
Speaker 1: retail banking, and what came out is that they see
Speaker 1: you know, geopolitics as the number one driver of markets
Speaker 1: fifty percent of clients. Then after that comes you know,
Speaker 1: the fear of stackflation around twenty percent of clients. Then
Speaker 1: luckily there are two positive drivers AI and you know, China,
Speaker 1: and interestingly, very small percentage only that is concerned around
Speaker 1: the debt pile in the US. So that's potentially positive news.
Speaker 1: But I think, you know, just like clients, we don't
Speaker 1: know where the next step is going to be from
Speaker 1: the US administration. I do think the main impact of
Speaker 1: the uncertainty and the rapid changes in policy that uncertainty
Speaker 1: is leading to, you know, a likelihood of some businesses
Speaker 1: and consumers taking away and see approach and therefore premium
Speaker 1: go up, and you know, earning's growth and economic growth
Speaker 1: expectations probably come down a little bit. So we've cut,
Speaker 1: you know, two days ago, we cut our US equity
Speaker 1: allocation from an overweight to neutral, taking advantage of the
Speaker 1: bounds that we've seen over the last few days.
Speaker 2: So is that solely based on valuation.
Speaker 1: Not so much on valuation. I think the valuations obviously
Speaker 1: have fallen quite significantly. For the Magnificent seven, they're way
Speaker 1: below below the ten year average. For the for what
Speaker 1: we call the Forgotten four hundred and ninety three, they're
Speaker 1: about at the ten year average. So they're not yet
Speaker 1: at a level where in and of themselves, low valuations
Speaker 1: make people step in. But I do think the reason
Speaker 1: for our move was rather twofold Number one, that that
Speaker 1: lack of confidence can lead to revisions to growth and earnings,
Speaker 1: and number two that investors are generally also not yet
Speaker 1: underweight their confidence. Investor confidence is very low, but investor
Speaker 1: positioning is not yet very low.
Speaker 2: So are they favoring markets Let's say in Asia, I'm
Speaker 2: thinking of Japan, perhaps even South Korea, China, maybe there
Speaker 2: are opportunities now you mentioned kind of high technology. Where
Speaker 2: is the bias favoring.
Speaker 1: Exactly so, so the bias is towards Asia is also
Speaker 1: the only region that we are overweighted at this point
Speaker 1: in time. The enthusiasm is around China, in part because,
Speaker 1: of course, the deep seek news has triggered that realization
Speaker 1: that many people you know, didn't didn't seem to have them.
Speaker 1: You know, China has progressed quite rapidly in terms of
Speaker 1: technological you know, evolution and everything that is related to that.
Speaker 1: So that's into manufacturing, that's into internet, you know, consumer
Speaker 1: leaders and so on. So that's the first leg driven
Speaker 1: by people that added to their positioning and that enthusiasm
Speaker 1: around technology. Now the next leg is and the debate
Speaker 1: that we had at the conference was around how much
Speaker 1: is the new stimulus to the consumer going to lead
Speaker 1: to a broadening of that economic activity, because that is
Speaker 1: then going to lead to a second leg. I think,
Speaker 1: you know, website for the Chinese market.
Speaker 2: Is there still a great deal of concern among your
Speaker 2: clients about the health of the Chinese consumer? Maybe they
Speaker 2: are healthy, but they are just the sentiment is so
Speaker 2: weak right now. Is that a primary concern still?
Speaker 1: So indeed, as I said, there is a debate around
Speaker 1: that we are seeing the first inklings of the consumer
Speaker 1: feeling that that a little bit better of retail spending
Speaker 1: being supported, of discounting being less. So less discounts mean
Speaker 1: a little bit more confidence from the part of the
Speaker 1: consumer related you know, companies and so on. But it's
Speaker 1: of course, you know, given the very low valuations, it
Speaker 1: is that when you see those first inklings that people
Speaker 1: want to get into it, and so we're seeing evidence
Speaker 1: of hedge funds, for example, being you know, quite actively
Speaker 1: looking for those opportunities as they expect that to be
Speaker 1: the next leg driving the Chinese market higher.
Speaker 2: Was there much in the way of conversation around money
Speaker 2: moving out of Asia to Europe, money.
Speaker 1: Moving out of the US into Europe, or US allocations right,
Speaker 1: US portfolio allocations into Europe and also into Asia. So
Speaker 1: you have that rotation continuing to take place, and I
Speaker 1: think there is still scope for that to that to
Speaker 1: take place, Asian investors do also want to allocate to Europe.
Speaker 1: When I was here two months ago, I saw some
Speaker 1: of the most pessimistic views on Europe, and now it's
Speaker 1: much you know, more positive, obviously because of the dram
Speaker 1: and package, but also the hope that even if it
Speaker 1: is mainly defense, this is going to lead to more
Speaker 1: R and D research and development that then can spill
Speaker 1: over into more competitiveness for Europe. From a longer term perspective,
Speaker 1: clearly people are underweight in Europe as well, squaring that position,
Speaker 1: getting closer to benchmark and adding to it there as well.
Speaker 1: In Europe, the question is going to be how much
Speaker 1: other reforms are there going to be as well, because
Speaker 1: obviously Europe needs to further integrate its capital markets and
Speaker 1: especially create one single market for services. The hope is
Speaker 1: that European leaders are going to use the collaboration on
Speaker 1: defense to also then take initiative on other areas. That
Speaker 1: is obviously we will need to see, but some people
Speaker 1: are taking that as a positive and at least squaring
Speaker 1: their positions, going back to neutral from an underway.
Speaker 2: So the markets are painfully aware of the trade tension
Speaker 2: between more Washington and Beijing, and we know that China
Speaker 2: has been looking for new markets. Europe has represented a
Speaker 2: key market for Chinese goods for some time, but I'm
Speaker 2: curious as to whether or not people in China are
Speaker 2: trying to fortify those relationships given the current tension between
Speaker 2: Washington and Beijing.
Speaker 1: So certainly what could could happen is that, you know,
Speaker 1: when you have trade tariffs in certain from certain countries,
Speaker 1: you can have trade diversion. So what that means is
Speaker 1: that some Chinese goods could end up in Europe. And
Speaker 1: this is one of the reasons why we expect, you know,
Speaker 1: inflation in Europe to continue to be reasonably low. It's
Speaker 1: one of the reasons as well. While we think there
Speaker 1: are opportunities in the European bond market, European bond yields
Speaker 1: have gone up significantly on the back of fears of
Speaker 1: more supply from Germany, but those are now attractive level.
Speaker 1: So German bonds and actually UK guilts as well, you
Speaker 1: know to us are are attractive because some of those
Speaker 1: goods can and end up in the UK in Europe,
Speaker 1: and therefore inflation should remain reasonably well behaved there.
Speaker 2: So I'm curious in terms of topics at the HSBC
Speaker 2: Global Investment Summit, how did artificial intelligence enter into the conversation,
Speaker 2: particularly given the recent news on deep seek.
Speaker 1: Well, it features everywhere, and we also obviously had a
Speaker 1: lot of companies presenting in from the services industries, from
Speaker 1: the manufacturing industries. All of them are saying that AI,
Speaker 1: they are basically users of AI, and there are so
Speaker 1: many different examples there they So the enthusiasm from our
Speaker 1: clients has shifted from the AI enablers to the AI adopters,
Speaker 1: and that is obviously leading to productivity grains across industries.
Speaker 1: But one of the industries that really benefits from it
Speaker 1: is the software industries rather than the hardware where that
Speaker 1: has been hit because people feel that there is going
Speaker 1: to be and fewer semiconductors needed to do the same tasks.
Speaker 1: The software industry really is gearing up to develop all
Speaker 1: of those applications for those different industries to really allow
Speaker 1: them to use AI to develop new products, to develop
Speaker 1: their customer services and so on.
Speaker 2: We'll leave it there, Villain, thank you so much for
Speaker 2: joining us. Villam sells there. He is the Global CIO
Speaker 2: at HSBC Global Private Banking and Wealth. Joining us here
Speaker 2: on the Daybreak Asia podcast. Welcome back to the Daybreak
Speaker 2: Asia Podcast. I'm Doug Chrisner. So we had some weakness
Speaker 2: for US equities as the market considered the impacts of
Speaker 2: the trade war. The consensus view on tariff seems to
Speaker 2: be that they will lead to higher prices, fewer options
Speaker 2: for consumers, and and fewer manufacturing jobs in the US.
Speaker 2: For a closer look, now, I'm joined by Gene Goldman.
Speaker 2: He is the CIO at Satara Financial Group. Gen's on
Speaker 2: the line from El Segundo, California. Thanks for making time
Speaker 2: to chat with us. Gene, Thanks so much. Doug, give
Speaker 2: me your sense of where things stand right now in
Speaker 2: terms of the tariffs having an impact on equity market
Speaker 2: price section.
Speaker 3: Yeah, First of all, it's a great question because clearly
Speaker 3: the tariffs is the news de jore, basically the news
Speaker 3: of the year. So for us, we're more optimistic than
Speaker 3: I think the markets. You know, I do think tariffs
Speaker 3: are going to create a lot of market volatility, and
Speaker 3: we're seeing this already. But if we look at tariffs
Speaker 3: and we say three things why, it won't be as
Speaker 3: bad as the markets are worried about. Number one, I
Speaker 3: do think, you know, President Trump of the administration continues
Speaker 3: to talk about tariffs being retaliatory, not universal. That's a
Speaker 3: very important point. I think. Second of all is that if
Speaker 3: you look at other countries and their exposure to US
Speaker 3: imports to their imports to the United States, it's a
Speaker 3: greater percentage of those countries GDP than our country. Of course,
Speaker 3: that leads room for negotiation. And third of all, if
Speaker 3: we just use use twenty eighteen as a base case,
Speaker 3: during the tariffs, then stocks fell from peak to trough
Speaker 3: by about sixteen percent. But keep in mind we were
Speaker 3: back to pre tariff levels by May of twenty nineteen,
Speaker 3: So yes, there's gonna be uncertainty. Es. Yes, there's gonna
Speaker 3: be lots of market volatility, but we do think it's
Speaker 3: gonna be a little bit less expected. In today's announcement
Speaker 3: about tariffs, it's just more rhetoric really focusing on the
Speaker 3: fact that it's going to be retaliatory and less universal. Yes,
Speaker 3: there are going to be ratifications. I do think that
Speaker 3: you know, consumers may not spend as much on car
Speaker 3: or may maybe you know, they're still going to buy cars,
Speaker 3: but maybe just not buy as many cars. But I
Speaker 3: do think, you know, there's very lack of response from
Speaker 3: so far from the EU, you suggesting maybe potentially more negotiations.
Speaker 3: And you know, if you think about the ratifications, US
Speaker 3: auto exports to the United States are not going to
Speaker 3: be wiped out because it's going to take some time
Speaker 3: for US production to ramp up. Also, demand performed auto
Speaker 3: is fairly priced in elastic and then really a twenty
Speaker 3: five percent tariff doesn't necessarily wipe out the cost advantage
Speaker 3: of lower cost exporters. And what we're seeing, especially we
Speaker 3: saw from Mexico today, we could see a weakening of
Speaker 3: foreign currencies versus the dollar. So I know that the
Speaker 3: tariff uncertainty creates volatility, But I think the good news
Speaker 3: is that we think will be less than the markets
Speaker 3: have anticipated.
Speaker 2: But when you consider where the FED is in all
Speaker 2: of this, I mean there are policy ramifications as well.
Speaker 2: We heard from the head of the Boston FED this afternoon,
Speaker 2: Susan Collins. She was saying, it looks inevitable that tariffs
Speaker 2: will boost inflation, and for that reason, it's likely appropriate
Speaker 2: to keep rate steady for longer. So when you consider
Speaker 2: the fact that we may be in a new regulatory
Speaker 2: regime on monetary policy, is not going to impact the
Speaker 2: equity market at all.
Speaker 3: Yeah, so we go to the FED. Okay, So if
Speaker 3: you think about the FED first and foremost, one of
Speaker 3: our key themes coming into twenty twenty five was that
Speaker 3: the FED would not be a good friend. The FED
Speaker 3: would not cut rates as much as the Marcus anticipated.
Speaker 3: And if you look at the FED, you know the
Speaker 3: FED is seeing fairly pretty good economic growth, stocks somewhat
Speaker 3: close to all time highs, a pretty good labor market,
Speaker 3: but they're seeing above target inflation. So even regardless of
Speaker 3: the tariff uncertainty, I still think they're going to be
Speaker 3: on the sideline for some time. We think the FED,
Speaker 3: regardless of what happens, cuts rates only once or maybe
Speaker 3: not at all for this year. But the good news,
Speaker 3: going back to the market's sort of ramifications, we do
Speaker 3: think that returns this year are going to be good
Speaker 3: but not great. And what I look at is the
Speaker 3: fact that the economy is, you know, we have modest
Speaker 3: economic growth, we have moderating inflation, we have a pretty
Speaker 3: okay labor market, and we also have double digit earnings
Speaker 3: growth expected for the markets. And the other bonus point
Speaker 3: is that the FED is not going to be raising rates.
Speaker 3: So in that type of environment, the market historically does
Speaker 3: good but not great. That's why our target for the
Speaker 3: SMP is still about six to eight percent for the year,
Speaker 3: or about sixty three hundred from where it is right now.
Speaker 2: So beyond just kind of giving me the technicals and
Speaker 2: where the overall market is going to be in your view,
Speaker 2: what are the themes underneath that forecast? I mean, are
Speaker 2: you buying specific industries or sectors of the market right
Speaker 2: now and selling others?
Speaker 3: Sure so coming in So keep in mind, coming into
Speaker 3: the correction, we weren't surprised by the correction. We've been
Speaker 3: saying we expected the correction for some time. We were
Speaker 3: just surprised it took so long for the market to
Speaker 3: actually have a crection. So with that in mind, we
Speaker 3: had sort of a I guess I call it. I
Speaker 3: know it's opening day for baseball, but really using a
Speaker 3: basketball analogy, we were investing, like Shack SAJAQ, a little
Speaker 3: bit biased towards small and midcaps, bias towards healthcare, bias
Speaker 3: towards alternatives, and bias towards quality names. What we're doing now,
Speaker 3: especially with this market pullback we're around, we're looking to
Speaker 3: boost some of our beta within our portfolio. So broadly speaking,
Speaker 3: we're reducing our liquid alternatus exposure in favor of global equity.
Speaker 3: We're also from a positioning standpoint, we continue to be
Speaker 3: overweight value versus growth, continue to be avoid SmallCap in MidCap.
Speaker 3: We do think that market breath will continue to widen.
Speaker 3: And then from a sector standpoint, our favorite sector is
Speaker 3: continue to be healthcare. You know healthcare, you have so
Speaker 3: much advances in biotech and personalized medicine and telehealth solutions
Speaker 3: really revolutionizes patient care. And we also like financial services
Speaker 3: higher yields, somewhat of a steepening yield curve sort of
Speaker 3: the economy not being as bad as the markets think.
Speaker 3: We think take that into consideration. Healthcare and financials will
Speaker 3: be a great opportunity in this environment. The sector that
Speaker 3: we would avoid that we are really scared about energy.
Speaker 3: We think energy it's one of the best performing sectors
Speaker 3: this year. But energy worry worries us because significance supply
Speaker 3: where a record levels of exports, record levels of drilling
Speaker 3: and all of a sudden, you know, Joe baby drill
Speaker 3: puts more pressure where's the oil going to go? And
Speaker 3: you have Sali Arabia the UAE both have come out
Speaker 3: recently and said, hey, if oil prices served, we will
Speaker 3: be ready to put more supply on the market. Not
Speaker 3: a good sector for us to be in.
Speaker 2: Some of the recent sentiment data that we have seen
Speaker 2: on the US consumer has been very weak, and I'm interested, Jean,
Speaker 2: to get your take on how you see the health
Speaker 2: of the American consumer right now.
Speaker 3: We definitely know. One of our other themes was that
Speaker 3: the economy was moderating, we called the Great Moderation, and
Speaker 3: definitely the economy is definitely slowing down. We just don't
Speaker 3: see a recession. We think recession warriors are very overblown.
Speaker 3: Keep in mind, in January it was the coldest January
Speaker 3: since nineteen eighty eight. We also had a very extended
Speaker 3: flu season, so a lot of the weakness that we
Speaker 3: saw in January really affected weather related industries like construction,
Speaker 3: like services like hospitality, And keep in mind it's also
Speaker 3: January and February. Consumers tend to spend a little less
Speaker 3: money after the post holiday season. We are seeing February
Speaker 3: data and March data come in a little bit better
Speaker 3: than expected, and that's a good good sign for us.
Speaker 3: We saw some p andis come out earlier this week
Speaker 3: on the services side, well above expectations. So you take
Speaker 3: this into consideration, just don't see a recession anytime soon,
Speaker 3: at least for this year. And I think that's an
Speaker 3: important connection because if you think about that, a correction
Speaker 3: is a normal part of investing once every thirteen months
Speaker 3: or so. We just don't see a bear market because
Speaker 3: corrections are when markets are worried about a recession. Bear
Speaker 3: markets occur when we actually have a recession. And we've
Speaker 3: only had three bear markets with out a recession nineteen
Speaker 3: sixty two, nineteen eighty seven, and then twenty twenty two.
Speaker 3: So we just don't see a recession. We just don't
Speaker 3: see a bear market.
Speaker 2: So your investment ideas seem focused primarily on the equity side,
Speaker 2: at least that's what I've heard so far. I'm curious
Speaker 2: as to whether you're finding opportunity in the fixed income
Speaker 2: space at all.
Speaker 3: Sure, fix inc them. Broadly speaking, we like fixing them,
Speaker 3: especially high quality, especially treasuries. You know, you think with
Speaker 3: yields about you know, one and a half to two
Speaker 3: percent over inflation, they're pretty attractive. We continue to see
Speaker 3: strong foreign ownership with treasuries. You know, they're driven by
Speaker 3: better yields, by the stronger dollar, and there's a huge
Speaker 3: retail demand for bonds, and so for our perspective, and
Speaker 3: we do think the tenure treasury is pretty close to
Speaker 3: the max I mean, the tenure Treasury tends and max
Speaker 3: out around sort of that year over year us GDP
Speaker 3: nominal rate. It's about five percent, So we're pretty close
Speaker 3: to that upper end range on our end. The area
Speaker 3: that within fixing them that we do worry about though,
Speaker 3: would be high yield, high yielding. Again, we don't see
Speaker 3: a recession, but we'll worries about high yield is that
Speaker 3: high yield spreads are so narrow right now, pricing in
Speaker 3: everything being exactly perfect, and we don't think everything will perfect.
Speaker 3: We think there'll be some bumps. And you know, you
Speaker 3: saw corporate bankruptcies increase a little bit lately. But at
Speaker 3: the end of the day, we don't see a recession.
Speaker 3: But high yield spreads are pricing and everything being super blissful,
Speaker 3: like a perfect game on opening day, and we just
Speaker 3: don't see that.
Speaker 2: All right, We'll leave it there, Gene. It's always a pleasure.
Speaker 2: Thank you so much. Gene Goldman.
Speaker 3: There.
Speaker 2: He is the CIO at Satara Financial Group, joining from
Speaker 2: El Segundo, California. Here on the Daybreakasia Podcast. Thanks for
Speaker 2: listening to today's episode of the Bloomberg Daybreak Asia Edition podcast.
Speaker 2: Each weekday, we look at the story shaping markets, finance,
Speaker 2: and geopolitics in the Asia Pacific. You can find us
Speaker 2: on Apple, Spotify, the Bloomberg Podcast YouTube channel, or anywhere
Speaker 2: else you listen. Join us again tomorrow for insight on
Speaker 2: the market moves from Hong Kong to Singapore and Australia.
Speaker 2: I'm Doug Prisoner and this is Bloomberg