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Speaker 1: Good morning and welcome to the Bloomberg Daybreak Asia Podcast.

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Speaker 1: I'm Dorek Prisner. Here are the stories we're following today.

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Speaker 1: Joining us is e Katerina Bigos, Cio for Asia Ex

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Speaker 1: Japan Core Investments at AXA Investment Partners. E Katerina joins

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Speaker 1: us from our studios in Hong Kong. Thanks for making

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Speaker 1: time for us. Can we talk about the elephant in

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Speaker 1: the room, which is the re election of Donald Trump?

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Speaker 1: What do you think this means for markets across the

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Speaker 1: Asia Pacific?

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Speaker 2: Look, I think with the winning of Donald Trump, we

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Speaker 2: certainly moved from we switched from political uncertainty to policy uncertainty.

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Speaker 2: And we all know that part of his campaign he

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Speaker 2: was he reiterated multiple times that he would like to

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Speaker 2: change some of the more economic policies places like MiG migration,

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Speaker 2: tariff's fiscal easing under regulation. So suddenly, until he gets

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Speaker 2: into the office, the biggest question is what scale will

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Speaker 2: this measures take and certainly what are going to be implication.

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Speaker 2: So certainly market is pricing in some element of risk

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Speaker 2: and some en elemental benefits from those measure that potentially

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Speaker 2: will be implemented.

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Speaker 1: If you look at the price action of the bond market,

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Speaker 1: I think the long end of the curve is very

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Speaker 1: concerned about the inflationary impact of some of these policies

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Speaker 1: that may constrain the FED a little bit. What do

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Speaker 1: hire interest rates? Or let's assume for a moment that

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Speaker 1: the Fed can be less aggressive in lowering rates, What

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Speaker 1: does that mean for you?

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Speaker 2: Indeed, I think this is a key risk if you

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Speaker 2: look at the ability of FED to normalize monetary policies

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Speaker 2: anchored around inflation. So with Trump coming into again as

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Speaker 2: a president in twenty twenty five, with the measures that

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Speaker 2: he potentially will put in place primarily fiscally easying, and

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Speaker 2: the tariffs could be inflationary, and one doesn't mean for

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Speaker 2: the FED is the ability for them to normalize monetary

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Speaker 2: policy in twenty twenty five will probably be a lot

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Speaker 2: more gradual, if not at pause. I've seen some market

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Speaker 2: participants even voicing potential risks of even hiking in twenty

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Speaker 2: twenty five. Look, I think the hike will take a

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Speaker 2: lot of a shock on the kind of the supply

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Speaker 2: side for you to materialize, but it will depend again,

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Speaker 2: ultimately on the scale in which those measures are getting implemented.

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Speaker 1: Let's talk a little bit about the Asia Pacific specifically,

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Speaker 1: and I want to begin with China. We had some

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Speaker 1: very disappointing inflation data over the weekend, not really a

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Speaker 1: surprise if you've been tracking what's been going on with

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Speaker 1: the economy. We do have a rollout of a little

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Speaker 1: bit more of economic stimulus. Perhaps the focus is more

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Speaker 1: on what's happening with the refinancing of local government. It

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Speaker 1: doesn't seem to be a lot of clarity here when

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Speaker 1: you look at trying to directly boost domestic demand, and

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Speaker 1: I'm wondering whether or not markets are going to begin

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Speaker 1: to express a great deal of disappointment here.

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Speaker 2: The day is an element of that, and certainly the

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Speaker 2: markets have not taken the outcome of those policy measures

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Speaker 2: quite positively. And I would say the policy makers are

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Speaker 2: probably looking at the long good term rebalancing of the

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Speaker 2: economy rather than pleasing markets necessarily for short term. The

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Speaker 2: important what we need to observe is certainly there's a

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Speaker 2: policy pivot and desire for the policy makers to do

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Speaker 2: a lot more for the economy. We need to be

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Speaker 2: cognizant that rebalancing the economy, of course, correcting the economy

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Speaker 2: to being a lot more consumption driven and away from manufacturing.

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Speaker 2: It takes time, and I would say the policy makers

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Speaker 2: are probably applying a lot more gradualism than rushing in

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Speaker 2: with certain measures that you know, again they don't know

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Speaker 2: what the impact of. So I would say, take the measures,

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Speaker 2: see the impact, and then put in place additional measures.

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Speaker 1: Well, a moment ago, we were just talking about the

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Speaker 1: potential for new tariffs from the US. Is China at

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Speaker 1: a particularly vulnerable moment right now where new US tariffs

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Speaker 1: higher tariffs could potentially hit the export sector in a

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Speaker 1: very damaging way.

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Speaker 2: I think there is definitely an expectation of that, but

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Speaker 2: I think we need to look at the broader picture

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Speaker 2: in terms of what are the tires that's been voiced

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Speaker 2: by the partially incoming administration. They've been talked. They talked

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Speaker 2: about ten percent broad TIFFs across different partners and sixty

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Speaker 2: percent of China. Yes, by kind of the magnitude or

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Speaker 2: by the scale of it, it seems that China will

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Speaker 2: be the one that to suffer the most. But if

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Speaker 2: you look at the biggest partners for US, Canada and

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Speaker 2: Mexico actually have a bigger share of exports into China,

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Speaker 2: and from twenty sixteen, when we're the first tyros are implemented.

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Speaker 2: To now the percentage of imports from China or US

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Speaker 2: importing from China has decreased from about nine percent about

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Speaker 2: three percent of GDP of Chinese GDP. So certainly, yes,

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Speaker 2: it's going to be impacted, but the scale and where

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Speaker 2: the China is in terms of the ability to deal

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Speaker 2: with that is probably changed to what it was in

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Speaker 2: twenty sixteen.

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Speaker 1: One of the consequences of the pandemic was a diversification

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Speaker 1: of supply chains away from China, So you have companies

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Speaker 1: setting up facilities in places like Vietnam, or Azion or India.

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Speaker 1: Is this something that's going to get renewed acceleration because

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Speaker 1: of the concern and about maybe a more aggressive trade

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Speaker 1: policy on the part of an incoming Trump administration.

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Speaker 2: Yes, and this is an observation that we made throughout

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Speaker 2: the last i'll say five years. But I think as

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Speaker 2: we go on, we've seen various reports to look at

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Speaker 2: what is the basket of import US import from China,

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Speaker 2: and I think the beneficiaries from that of redirecting some

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Speaker 2: of those trades places like Vietnam, places like Thailand, Poland

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Speaker 2: and Mexico Potentially it will be the potential beneficiaries because

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Speaker 2: they represent all the exports that they have to the

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Speaker 2: US as similar to what China kind of exports the US.

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Speaker 2: So certainly there are some exporters that are clearly identified

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Speaker 2: at the moment, but as I said, ultimately what comes

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Speaker 2: next will depend on how China reacts as well what

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Speaker 2: they do on the back of those trade measures.

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Speaker 1: So we've talked a little bit about the wins that

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Speaker 1: are taking place right now. How is that translating into

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Speaker 1: an investment strategy for you?

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Speaker 2: In terms of our investment strategy, I think broadly it

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Speaker 2: hasn't shifted a lot. What we have in corporated a

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Speaker 2: lot of bigger risk. As you said, on rates element

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Speaker 2: of it, we are constructive on carry assets or credit assets.

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Speaker 2: The yields are attractive and the credit as you've seen

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Speaker 2: as part of the winning outcome for the Trump administration,

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Speaker 2: credit spreads have tightened and they expected to do credit

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Speaker 2: expected to do well in this kind of pro growth

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Speaker 2: measures that Trump is looking to put in place. Now,

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Speaker 2: the biggest risk is still, as I said, rates, and

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Speaker 2: we need to look at diminishing that risk or hedging

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Speaker 2: that risk places In part of like equity. We stayed

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Speaker 2: constructed on themes technology automation, which we do think will

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Speaker 2: stay constructive during Trump administration, places that potentially newcomers and

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Speaker 2: reacted positively to that shift in narrative. We've seen financials

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Speaker 2: reacting positively because again the expectations of increased the regulation.

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Speaker 2: So there are some themes that stay and there are

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Speaker 2: some that we are monitoring increasingly.

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Speaker 1: Are you worried as well about how a weak Europe

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Speaker 1: will drag on Asia? I mean that's a very important

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Speaker 1: market for many Asian exporters, is it not.

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Speaker 2: The Europe? I would say it's subtly the challenge for

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Speaker 2: not so much for China. I mean I think percentage

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Speaker 2: percentage wide. I think if you look at Europe, the

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Speaker 2: sixty percent of companies revenues are derived from global So

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Speaker 2: the resilience of the US it's quite important for European

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Speaker 2: corporate sector. What does it mean is if US stay

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Speaker 2: is resilient and Eurozone is able to still conduct export

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Speaker 2: to the US. I think as a positive TIREFFS is

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Speaker 2: a consideration and we need to reassess that. Of course,

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Speaker 2: when those measures come in place again, the calibration of

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Speaker 2: that will come when the measures are exactly given to US.

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Speaker 1: So with a slow China and perhaps the perception at

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Speaker 1: least in the oil market that an incoming Trump administration

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Speaker 1: will do more to allow the industry to put more

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Speaker 1: crude oil on the market, would you be concerned about

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Speaker 1: going along some of the big commodities right now?

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Speaker 2: I think for US, I think what we're looking at

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Speaker 2: as a house, we're very much looking at deploying investment

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Speaker 2: in places that allow for the carbonization of the world

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Speaker 2: right and I think this is the key and trajector

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Speaker 2: of the caribonization is going to continue whatever Trump administration

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Speaker 2: comes and changes or amends some elements of the Inflation

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Speaker 2: Reduction Act, which looked at energy independence and energy transition.

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Speaker 2: For US, that's a question that we need to assess

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Speaker 2: later on the trajectory for other countries, places like India,

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Speaker 2: places like China, Europe, that trajector doesn't change, so we

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Speaker 2: have to look and aggregate. Again, US is important, but

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Speaker 2: we have to look and aggregate what is the trajectory

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Speaker 2: of travel for renewal energy And this is where we

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Speaker 2: think this is going to be a growth theme that's

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Speaker 2: going to stay for the next decade.

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Speaker 1: So does an incoming Trump administration do more to elevate

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Speaker 1: geopolitical risk or does it take some of the tension

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Speaker 1: that has been unfolding recently. I'm thinking the Mid East,

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Speaker 1: I'm thinking Ukraine. Does it reduce some of that pressure?

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Speaker 2: We will have to see. I do think there is,

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Speaker 2: as we said, from the kind of the election, uncertainly,

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Speaker 2: we moved to a policy uncertainty until the cabinet comes

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Speaker 2: and into the seat unsees where we can see what

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Speaker 2: measures again to put in place. We don't know if

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Speaker 2: this is going to conduct to an escalation or the escalation.

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Speaker 2: I think we'll just have to wait and see you

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Speaker 2: on this one.

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Speaker 1: Katerina, thank you so much for making time to chat

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Speaker 1: with us. E Katerina Bigos from AXA Investment Managers joining

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Speaker 1: us here on the Daybreak Asia podcast. Joining us now

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Speaker 1: is Brad Bernstein. He is managing director at UBS Private

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Speaker 1: Wealth Management, joining us from Philadelphia. Thanks for making time

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Speaker 1: to chat with us, Brad. Can we start with the

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Speaker 1: results of the election and I'd like to get your

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Speaker 1: view on what you think Trump's win means for markets.

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Speaker 3: It means a lot. It means a lot because first

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Speaker 3: of all, just the fact that we don't have a

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Speaker 3: contested election. We remove that risk, and that was a

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Speaker 3: big concern for many, you know, many participants. We moved

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Speaker 3: the blue sweep risk, which would have meant risk off

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Speaker 3: for markets with the potential for increases of cap gains

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Speaker 3: next year, the potential for the very unpopular tax on

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Speaker 3: unrealized gains, and even the quadrupling of the stock buyback

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Speaker 3: tax from one to four percent. So by Trump having

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Speaker 3: a clear victory, we removed all these risks, which we've

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Speaker 3: seen markets really, you know, enjoy the last few days.

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Speaker 3: So we're so.

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Speaker 1: When I hear what you're saying, I'm thinking of the

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Speaker 1: equity trade and I'm wondering about the bond market, because

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Speaker 1: since the election, we've seen market rates kind of back

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Speaker 1: up just a bit. It seems like there's a lot

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Speaker 1: of concern among bond traders that a higher deficit is

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Speaker 1: a distinct possibility and we may end up getting a

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Speaker 1: lot more in the way of new supply as well.

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Speaker 1: Does that concern you at all?

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Speaker 3: Absolutely? So. What we've seen really in the last five

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Speaker 3: weeks leading up to the elect as we saw the

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Speaker 3: backup in yields, as it really appeared that there was

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Speaker 3: a pricing in of a red sweep in markets for

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Speaker 3: the last month, and we've seen it in not only

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Speaker 3: the bond market, but we've seen it across many, many

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Speaker 3: different industries. The tenure, which was the index most of

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Speaker 3: us like to use as a gauge, was as low

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Speaker 3: as three sixty five three seventy five about five weeks ago,

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Speaker 3: and as this truck trade on unfolded over the last

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Speaker 3: five weeks, it ran up to an inter day high

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Speaker 3: on Wednesday after the victory around four forty five. And

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Speaker 3: what we've seen since that day Thursday Friday, with the

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Speaker 3: Fed cutting Thursday, is that dropped back about fifteen BIPs.

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Speaker 3: So we've seen that pair back a little bit as

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Speaker 3: treasuries came back on Thursday and Friday. So it is

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Speaker 3: concerning and you know, obviously we can get into why

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Speaker 3: that's happened, and you know the move and the volatility

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Speaker 3: in the.

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Speaker 1: Bond market, so let's unpack that. How much of that

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Speaker 1: do you think is due to this idea that tariffs

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Speaker 1: are in the pipeline.

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Speaker 3: I think that's part of it. I think there's that aspect.

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Speaker 3: I think there's the you know, the aspect that the

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Speaker 3: markets have been pricing in more of a pro growth agenda.

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Speaker 3: And obviously we still don't know the outcome of the House,

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Speaker 3: but it appears to be going red and with the

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Speaker 3: pickup of the House, there'll be a Republican sweep, as

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Speaker 3: the market had been predicting apparently for the last five weeks,

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Speaker 3: with way it's been pricing in. And what does that mean.

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Speaker 3: That means is that the Trump that the Trump administration

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Speaker 3: in the first year will probably try to extend the

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Speaker 3: Trump tax cuts that expire, you know, at the end

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Speaker 3: of twenty twenty five. That being said, that adds potentially

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Speaker 3: a lot more debt to pay for the Trump tax cuts,

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Speaker 3: which is part of the thinking why we've seen a

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Speaker 3: real backup in yields. So it's tariffs, it's the extension

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Speaker 3: of the Trump tax cuts, which adds more debt, which

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Speaker 3: means more issuance, which means more higher yields as well

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Speaker 3: as more pro growth.

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Speaker 1: Well, how can we have pro growth in the face

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Speaker 1: of higher yields? Wouldn't those higher rates restrain growth to

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Speaker 1: some extent?

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Speaker 3: It certainly may, I mean, but the one aspect of

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Speaker 3: higher yields is that the Fed you know, wants to

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Speaker 3: continue to cut the short end, which is where a

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Speaker 3: lot of companies borrow. So a lot of companies are

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Speaker 3: borrowing on floating rates, specifically smaller middle you know, smaller

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Speaker 3: sized companies, or about half their debt is floating rates.

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Speaker 3: So that's actually very very surgically beneficial to those companies. So, yes,

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Speaker 3: market rates have backed up. That hurts aspects of the

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Speaker 3: lending markets such as mortgages, but there's aspects that are

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Speaker 3: still improving as the Fed's cutting, you know, where as

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Speaker 3: opposed to the floating rate type debt.

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Speaker 1: So I want to go back to where we started,

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Speaker 1: which seemed to be your optimism around the equity trade. Here,

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Speaker 1: are there pockets of the equity market given everything that

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Speaker 1: you know about what the Trump administration may end up doing,

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Speaker 1: are there pockets of the stock markets that you favor

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Speaker 1: right now?

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Speaker 3: There are we actually like areas that actually were the

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Speaker 3: best place to be. This week, what did we see?

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Speaker 3: We saw small caps perform. The Russell two thousand was

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Speaker 3: up about nine percent this week this past week compared

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Speaker 3: to the SMP which is four and a half. We

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Speaker 3: really like small cap because from evaluation perspective, it's less

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Speaker 3: than half that of large cap, which is not cheap.

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Speaker 3: It's more sensitive to the FED cutting rates because as

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Speaker 3: I just mentioned, about half the debt on the balance

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Speaker 3: sheets of small cap companies is floating ray. And it

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Speaker 3: also benefits from the Trump administration's protection of trade policies

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Speaker 3: because most companies that are smaller are more domestically oriented,

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Speaker 3: as well as beneficiaries from deregulation, which is inevitably going

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Speaker 3: to be part of his administration. When you look at

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Speaker 3: the composition of small cap about forty percent our regional

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Speaker 3: banks of very large exposure, and they're very impacted deregulation

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Speaker 3: as well as steepening Yolker. Also in terms of pure sectors,

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Speaker 3: we love technology, specifically beneficiaries of AI. We just upped

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Speaker 3: our growth forecast for technology for this year and next year.

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Speaker 3: We love semis and large cap tech. As I just

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Speaker 3: mentioned about regionals, We like financials a lot because I

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Speaker 3: think they're a big winner with the regulation, and we're

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Speaker 3: going to see a big comeback of M and A

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Speaker 3: next year. There's a huge pent up demand. So those

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Speaker 3: are areas we really like. And actually we think fixed

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Speaker 3: income here is attractive. We've had this huge, re very

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Speaker 3: large backup of yields that we were just talking about

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Speaker 3: and we think it's still a great opportunity to be

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Speaker 3: locking in some of these yields within fixed income.

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Speaker 1: So are you inclined to avoid offshore markets right now?

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Speaker 1: And if that answer is yes, then I'm wondering whether

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Speaker 1: or not your focus on the US expands a little

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Speaker 1: bit and it's more North America. Maybe you get a

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Speaker 1: little bit of Canada in there, maybe you get a

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Speaker 1: little bit of Mexico in there as well.

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Speaker 3: Sure, I think we prefer in our own client's portfolios

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Speaker 3: to be globally diversified, but with a big, you know,

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Speaker 3: a big overweight within the US market. You know, there

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Speaker 3: are areas around the world that look attractive. India is

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Speaker 3: doing extremely well. There's, you know, the hope that there's

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Speaker 3: a lot of potential because if you look at valuations,

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Speaker 3: internationals much cheaper as well than the US. But US

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Speaker 3: has been the best place to be for the last

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Speaker 3: i'd say five years or so. You know, we definitely

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Speaker 3: think long term you've got to have that international exposure,

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Speaker 3: but right now I think US is the best place

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Speaker 3: to be.

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Speaker 1: How are you feeling about crypto assets? It was Friday

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Speaker 1: of last week that bitcoin cracked above eighty grand for

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Speaker 1: the first time. The perception here is that President elect

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Speaker 1: Trump will give a lot of support for digital assets.

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Speaker 1: Is Bitcoin, let's say, or any other cryptocurrency a place

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Speaker 1: there that you have to have some exposure to at

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Speaker 1: this point, so we're.

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Speaker 3: Not allowed to speak specifically to at crypto assets, but

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Speaker 3: it's been certainly part of the Trump trade that we've

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Speaker 3: seen in the last few weeks. If you look at

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Speaker 3: the you know what the prices have done, and there's

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Speaker 3: been enormous speculation in a lot of areas in the market,

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Speaker 3: and that has been an area that's gotten some of

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Speaker 3: the best performance. But we're unfortunately not allowed to speak

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Speaker 3: to the crypto market at this point.

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Speaker 1: Maybe you can speak a little bit to volatility. Is

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Speaker 1: this going to be kind of a straight move up

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Speaker 1: and to the right in terms of the equity trade?

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Speaker 1: Is that your expectation or is there going to be

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Speaker 1: a little chopp in the water here as we try

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Speaker 1: to extend record highs.

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Speaker 3: I think into the end of the year, it's going

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Speaker 3: to be pretty much a straight move up. I definitely

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Speaker 3: expect to see a lot more volatility in twenty five

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Speaker 3: as the administration comes into office, and you know, there'll

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Speaker 3: be volatility or around tariff policy and the ability for

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Speaker 3: him to do what he's wanted to do in what

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Speaker 3: markets have been pricing. In that being said, I think

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Speaker 3: into the end of the year things look really good

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Speaker 3: because we have removed a lot of risks off the table.

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Speaker 3: End of the end of the year, there's there's an

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Speaker 3: enormous amount of cash. There's a lot of reasons to

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Speaker 3: be in the market. And what you know investors are

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Speaker 3: seeing is that the FED is going to continue to

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Speaker 3: cut rates and their return on their cash is going

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Speaker 3: to keep dropping. And we've never had more cash than

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Speaker 3: we do today in money markets with over seven trillion.

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Speaker 1: Yeah, you anticipated My next question, So to clients private

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Speaker 1: wealth clients over at ubs fully invested, whether it's equities

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Speaker 1: or fixed income. You don't want anything that is in

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Speaker 1: kind of a cash like instrument.

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Speaker 3: Well, you've got to have cash for your liquidity, but

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Speaker 3: you don't want to have excess cash because it's not

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Speaker 3: you know, cash has never been an investment. It's been

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Speaker 3: you have to have it and you have to have

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Speaker 3: a certain amount in it. But what we've been doing,

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Speaker 3: especially last week, was we've had many clients that have

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Speaker 3: been layering in the markets, and we've decided, you know,

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Speaker 3: there's no for the next few months, there's really we'd

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Speaker 3: rather be invested. We wouldn't. We want to be layering

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Speaker 3: in the markets right now. We want to get our

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Speaker 3: capital invested. I think the odds are stacked very favorably

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Speaker 3: for equity markets into the end of the year. So

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Speaker 3: money that you're layering in, get it.

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Speaker 1: In, Brad. We'll leave it there. Thanks so much for

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Speaker 1: making time to chat with us. Brad Bernstein, Managing director

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Speaker 1: at UBS Private Wealth Management, Joining us here on the

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Speaker 1: Daybreak Asia podcast. This is Bloomberg day Break Asia. You're

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