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

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Speaker 2: Welcome to the Daybreak Asia podcast. I'm Doug Prisoner. We

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Speaker 2: begin in Hong Kong, where rescue workers are trying to

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Speaker 2: extinguish a major fire at a high rise apartment complex

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Speaker 2: in the northern part of the city. At present, the

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Speaker 2: death toll is forty four, although hundreds of people are

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Speaker 2: still missing, and according to the Fire Department, blazes in

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Speaker 2: four of the buildings are under control. However, three buildings

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Speaker 2: are still burning. Bloomberg's midmen Low is on site.

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Speaker 3: I just want to tell you what it's like to

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Speaker 3: be here, because the first thing you notice is the

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Speaker 3: smell of the portrait smoke, and when the wind blows,

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Speaker 3: I could feel the sting in my eye because this

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Speaker 3: the buildings behind me are still billowing the smoke. And

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Speaker 3: we are sixteen hours into this fire, which started yesterday

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Speaker 3: at three pm. It was a level three fire at

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Speaker 3: the time. It has upgraded within hours to a Level five,

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Speaker 3: the highest severity, by six thirty pm. And if you

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Speaker 3: can see the buildings behind me, they are very close together,

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Speaker 3: which is very typical of any know, Hong Kong apartment

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Speaker 3: a residential estate, so that is one of the reasons

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Speaker 3: why the fire was able to spread from one block

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Speaker 3: to another. But another reason is because this entire estate

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Speaker 3: is about forty years old or so. It is a

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Speaker 3: government subsidized residential housing unit and it was going through

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Speaker 3: heavy renovation and you can see remnants of those bamboo scarefolding. Again,

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Speaker 3: very characteristic of Hong Kong as well. Now, typically the

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Speaker 3: fire wouldn't be spreading as fast as it did today,

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Speaker 3: and the authorities were saying it was spreading at an

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Speaker 3: unusual speed, and they had found polystyrene boards on the windows,

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Speaker 3: and they suspect that they have found materials that were

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Speaker 3: substandard as well. So the green netting, some of the

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Speaker 3: plastic shotings, if they were compliant with Hong Kong stendards,

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Speaker 3: they would have to be fire resistant.

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Speaker 2: That's Bloomberg's midmen Low. Now, Hong Kong police have arrested

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Speaker 2: three people from an engineering firm on suspicion of manslaughter.

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Speaker 2: At the same time, this fire has prompted renewed scrutiny

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Speaker 2: of the city's use of bamboo scaffolding on major renovation projects.

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Speaker 2: Let's turn to markets in the Asia Pacific, where equities

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Speaker 2: for the most part are advancing after some gains on

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Speaker 2: Wall Street, and we got perspective from Heartwood Issel. He

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Speaker 2: is head of APAC Equities and Credit at UBS Wealth Management.

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Speaker 2: Heartwood spoke with Bloomberg TV host Sherry On and April Hong.

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Speaker 4: So Hartman talking fus about the most important central bank

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Speaker 4: in the world, right, the FED and December being more

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Speaker 4: or less baked and already. But we also have come

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Speaker 4: quite far. Remember around the time of October, December seemed

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Speaker 4: like a done deal. So what extent is there this

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Speaker 4: certainty was that going to mean for Asia?

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Speaker 1: Now?

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Speaker 5: I think we have to assume and we have we

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Speaker 5: had on our side assumed all along, also that December

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Speaker 5: is coming when we think at least another one for

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Speaker 5: also the first quarter for Asia, it's generally typically positive.

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Speaker 5: Also when the dollar comes a bit softer, right, the

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Speaker 5: US economy is doing okay, So yeah, we will have

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Speaker 5: the entire Apec region on attractive with a couple of

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Speaker 5: different markets that we highlight in particular.

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Speaker 4: Which ones in particular.

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Speaker 5: Yeah, I would mention three different drivers sort of speaking.

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Speaker 5: They are all very different. That's why you know that

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Speaker 5: that's also the beauty of the Apec region here, right,

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Speaker 5: So you can diversify that pretty well. So you have

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Speaker 5: the AI side, we would probably pick their China Tech

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Speaker 5: right also come back a little bit.

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Speaker 4: That looks very very interesting as supposed to say South Korea, Taiwan, Japan.

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Speaker 5: Japan is for the for different reasons. I'd say Taiwan,

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Speaker 5: South Korea, especially South Korea has has run up quite

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Speaker 5: a bit, but if it comes down a little bit,

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Speaker 5: we would also consider that. But probably right now, if

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Speaker 5: we compare these, especially on the air side, probably the

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Speaker 5: favorite right now is China Tech and the other ones

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Speaker 5: we have is value A programs. So two I would

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Speaker 5: like to mention here is certainly mentioned that Japan. If

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Speaker 5: the other one is here, our home is Singapore. And

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Speaker 5: then you have some sort of leggers also from the

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Speaker 5: earning side, but also from the index sides to some

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Speaker 5: extent laggards, and that's India and Indonesia. So again they

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Speaker 5: have different drivers. Next to you is going to look

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Speaker 5: a lot better on earnings like it normally does. So

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Speaker 5: a three different drivers interesting region. Right now, I.

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Speaker 1: Want to turn into Japan, but first let me stay

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Speaker 1: with China, because is it still appealing to you when

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Speaker 1: you continue to see the US China Trade engines, and

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Speaker 1: you have the Pentagon continuing to add these companies to

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Speaker 1: his blacklist.

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Speaker 5: It's not the first time that we're seeing some noise

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Speaker 5: happening around in China or the China.

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Speaker 6: Stocks as well.

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Speaker 5: Look, I always take a step back on fundamentals, right,

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Speaker 5: I mean, how many of these Chinese companies are really

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Speaker 5: exporting anything significant to the US? Right, So then you

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Speaker 5: could argue they don't really right, So these sort of

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Speaker 5: maybe it's also part of a negotiation. I'm not saying

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Speaker 5: we'll stop it here, but we have seen it before.

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Speaker 5: It has never stopped really the Chinese stocks also from

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Speaker 5: doing well as long as the fundamentals are doing well,

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Speaker 5: so I wouldn't over interpret that part of the game.

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Speaker 1: Yeah, I mean you have a point, right. We are

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Speaker 1: seeing this bifurcation when it comes to tech supply chains anyway,

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Speaker 1: So what does it matter if the US continues to

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Speaker 1: ban these companies at the same time for some of

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Speaker 1: those Japanese names. If you see the bigger and sharper

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Speaker 1: bifurcation of supply chains, what does it mean for the

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Speaker 1: likes of Tokyo Electron that supply this equipment and cannot

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Speaker 1: service their facilities in China for example, or even the

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Speaker 1: South Korean chip makers that cannot sell to Beijing.

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Speaker 5: That has been something that influenced a couple of companies,

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Speaker 5: including of course also European ones, right, So it's a

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Speaker 5: general it's a wide phenomenon oftentimes, what we see because

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Speaker 5: the demand for certainly on the aside, but even beyond

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Speaker 5: aid somewhat traditional semiconductors, that's very very strong right now.

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Speaker 5: Also what you sometimes see is that if something really

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Speaker 5: happens on the China side with some restrictions, right then

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Speaker 5: you're baked maybe a few quarters in where that takes

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Speaker 5: an effect. But as long as the demand globally is

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Speaker 5: that strong, right, it never really has held back the

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Speaker 5: stock prices of these companies, and I don't see why

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Speaker 5: it would be different this time for.

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Speaker 4: The drivers of Chinese tech in particular, what are you

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Speaker 4: seeing in terms of valuations versus it's global peers and

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Speaker 4: the prospects of growth, especially since we've just come through

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Speaker 4: the earning season, we still have meet to one coming

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Speaker 4: up of course.

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Speaker 5: Yeah, that is interesting And one point I would pilot

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Speaker 5: in particular, especially on the China side, is the cloud

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Speaker 5: area of it, right, because you have a bit like

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Speaker 5: you had in the US with some similar names, I

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Speaker 5: would say, right, so investors watching also e commerce et cetera,

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Speaker 5: and there's one thing you can do, but ultimately we

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Speaker 5: know that everything eventually shifted towards cloud or later on.

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Speaker 5: Also also AI, and again I wouldn't see why it

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Speaker 5: would necessarily be different, right, So if I look at

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Speaker 5: the China ones, especially those that have cloud business, that

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Speaker 5: we see them only in recent quarters, maybe less about

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Speaker 5: two quarters, the cloud growth really coming up. So why

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Speaker 5: wouldn't I pay more than the sort of mid single

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Speaker 5: digit multiples on the earning side that we're paying now

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Speaker 5: that it's not difficult to make a case that should

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Speaker 5: be quite a bit higher.

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Speaker 4: But there is a sense of a double standard, right

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Speaker 4: if you look at some of the US players, Okay,

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Speaker 4: strong cash flow, cap backs looks great, and when they

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Speaker 4: spend more, they tend to get rewarded by investors. Sometimes

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Speaker 4: that's not the case with the Chinese tech names. So

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Speaker 4: what is your sense of what might shift the needle

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Speaker 4: when it comes to global investors looking at Chinese tech

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Speaker 4: stocks in particular.

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Speaker 5: I think one thing that is interesting if you also

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Speaker 5: look at how long you know the period of you know,

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Speaker 5: AI investments, thinking about AI has lasted right in US

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Speaker 5: you could say easily maybe given takes three years, right,

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Speaker 5: China probably more like like one year. Right, So that

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Speaker 5: alone means that China right in every thing that that

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Speaker 5: should follow is a bit early, and it's and it's

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Speaker 5: stays here than the US already is. So that alone,

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Speaker 5: in my view, is something that investors should keep in mind.

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Speaker 1: It's been really interesting Hartmouth, how sentiment has turned in

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Speaker 1: recent days after the textile of earlier in the month, right,

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Speaker 1: and now it seems that the driver's seat is also

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Speaker 1: molnetary policy with more Dubvish FED speak. What does it

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Speaker 1: mean for Asian markets?

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Speaker 5: If I look a bit further out for the landscape,

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Speaker 5: let's say we will get a bit softer next year

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Speaker 5: GDP growth, et cetera. Then perhaps is expected right now

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Speaker 5: that gives a lot of the Asian Central Bank a

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Speaker 5: lot more also room to come even further than we

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Speaker 5: already think they would still go to some extent, so

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Speaker 5: it buffers the downside on the equity side.

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Speaker 4: What does this mean for Asia local credit next year?

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Speaker 4: If growth to your point about it being quite resilient,

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Speaker 4: but we also have maybe some of these central banks

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Speaker 4: have run up into the limits of how chazing they

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Speaker 4: can do.

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Speaker 5: We see also the bit longer term with bond deals

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Speaker 5: coming from certainly the US also going a bit lower

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Speaker 5: from here right and then with a dollar especially maybe

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Speaker 5: over the next six months, so also being a bit softer.

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Speaker 5: That means here for apex, we prefer the IG side,

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Speaker 5: but we also prefer naturally, I would almost say the

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Speaker 5: local fax site on the bond site. These two are

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Speaker 5: the ones we really like.

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Speaker 2: That was hartwood Issel, head of a pack equities and

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Speaker 2: credit at UBS Wealth Management. He was speaking with Bloomberg

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Speaker 2: TV host Sherry On and April Hong here on the

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Speaker 2: Daybreak Asia podcast. Welcome back to the Daybreak Asia podcast.

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Speaker 2: I'm Doug Chrisner. The US equity market advanced in the

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Speaker 2: last session on rising expectations for FED rate cuts. We

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Speaker 2: had the S and P gaining ground for a fourth

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Speaker 2: straight session with a gain of seven tens of one percent. Unsurprisingly,

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Speaker 2: trading was light in front of the thanks thank Giving

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Speaker 2: Day holiday. Volume in the S and P was about

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Speaker 2: twenty three percent below the thirty day average, and volatility

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Speaker 2: seemed to take a breather. We had the Vicks falling

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Speaker 2: more than seven percent, closing just above seventeen. For a

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Speaker 2: closer look at the price action, I'm joined by Patrick Kennedy.

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Speaker 2: He is founding partner at All Source Investment Management. Patrick,

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Speaker 2: thanks for being here. What is your sense of what

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Speaker 2: the market is trying to understand at present?

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Speaker 7: I think there's two big risks that the market is

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Speaker 7: focused on right now. One is obviously valuation, So valuation

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Speaker 7: is very frothy when you look at history. Things like

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Speaker 7: the buffet indicator are hitting an all time high too,

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Speaker 7: standard deviations above where they usually are. So the buffet

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Speaker 7: indicator is just GDP versus what this stock market value is, right,

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Speaker 7: very simple indicator, but a powerful one.

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Speaker 6: And then the other is rates.

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Speaker 7: So I think we're getting more clarity that there'll be

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Speaker 7: cuts coming.

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Speaker 6: After the last meeting, we had.

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Speaker 7: A lot of fed chairs saying that, you know, we

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Speaker 7: wasn't necessarily a certainty that we would be getting a

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Speaker 7: cut in December. I think the odds are now favoring

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Speaker 7: a cut and potentially a couple more in the second

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Speaker 7: half of next year. But if that story falls apart,

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Speaker 7: if all of a sudden, you know we're pausing for

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Speaker 7: longer we view that as a pretty big risk to market,

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Speaker 7: especially with where valuations currently are.

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Speaker 2: So we had the Beige Book today from the FED,

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Speaker 2: and as a part of this report, multiple districts including

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Speaker 2: New York, Atlanta, Minneapolis on the list. They all reported

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Speaker 2: spending among higher income consumers was resilient. However, low and

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Speaker 2: middle income households are tightening the belt. This goes to

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Speaker 2: this ke shaped economy that we've been talking about. It

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Speaker 2: doesn't seem to be changing at all, does it.

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Speaker 6: It doesn't. It's the story of two economies.

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Speaker 7: And to your point, I think the folks on the

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Speaker 7: lower half of the income spectrum are getting hit harder

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Speaker 7: from things like tariffs, right and inflation. So you got

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Speaker 7: to think about what that consumer has been through over

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Speaker 7: the past five years. They've seen rates go from two

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Speaker 7: percent to you know, well above five and now.

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Speaker 6: Back down to around four, right.

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Speaker 7: But they've also seen skyrocketing prices and fuel, food, you

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Speaker 7: name it. So they've been through quite a lot when

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Speaker 7: you just look at their wallet right now, the top

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Speaker 7: half of the income spectrum can weather things like that,

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Speaker 7: it's not as big of a blow to them, but

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Speaker 7: that's not the case for lower income households, so we

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Speaker 7: have to see how that plays out for more cyclical names,

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Speaker 7: things like retailers and such.

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Speaker 2: So if expectations are calling for a FED rate cut

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Speaker 2: in December and many more in the year ahead, maybe

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Speaker 2: as many as three for twenty twenty six, I'm curious

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Speaker 2: just to get your take on the effectiveness of lower

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Speaker 2: rates and helping to address this ke shaped economy.

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Speaker 6: That's that's a very tough question.

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Speaker 7: I think that you know, if you have lower rates,

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Speaker 7: there's a reverberation across markets. I don't think that that's

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Speaker 7: the only thing that we need to do in order

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Speaker 7: to correct that. It's a much more difficult problem to solve,

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Speaker 7: in my opinion. One, you need strong earnings to come

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Speaker 7: through so you can continue to have job growth, income growth,

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Speaker 7: and that sort of thing. And I think the S

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Speaker 7: and P is now pricing in around fourteen percent on

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Speaker 7: earnings growth next year, which is largely due to AI.

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Speaker 6: I think the big story.

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Speaker 7: Around earnings growth next year is that the bottom four

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Speaker 7: ninety three need to deliver. Right, so everyone knows that

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Speaker 7: the Max seven is doing very well. They're profiting from AI.

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Speaker 7: You're already seeing the underlying impact of their balance sheet,

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Speaker 7: cash flow, so on and so forth. Where we haven't

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Speaker 7: seen that is the four hundred ninety three, the bottom

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Speaker 7: four ninety three, right, And the expectation is that in

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Speaker 7: twenty six we see a broadening throughout those names which

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Speaker 7: will help those lower income households.

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Speaker 6: Right.

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Speaker 7: If we don't see a broadening within those four ninety three,

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Speaker 7: that's a big risk for markets. And in fact our

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Speaker 7: view is ironically, if we don't see a broadening within

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Speaker 7: the four ninety three, what's even more at risk than

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Speaker 7: those names decreasing in value as the MAG seven themselves

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Speaker 7: because of the concentration within those names. So in the

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Speaker 7: S and p as, I think it's over thirty percent

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Speaker 7: now within the MAG seven. If all of a sudden

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Speaker 7: that thesis doesn't come to play where we see this

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Speaker 7: broadening within the market and the market is sold off,

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Speaker 7: it's going to hit the heavy concentrated names, which is

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Speaker 7: the MAG seven.

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Speaker 2: So we know that the equity market has been challenged

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Speaker 2: recently with a fair amount of skepticism when it comes

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Speaker 2: to the AI trade, especially where megacap Tech is concerned.

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Speaker 2: Trading has been pretty choppy over the last couple of weeks,

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Speaker 2: although now it seems as if the market has found

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Speaker 2: some solid footing, does that necessarily mean all questions have

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Speaker 2: been answered, particularly as we look ahead to the new year.

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Speaker 7: So I see a definite split on the street when

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Speaker 7: it comes to your viewpoint for next year. Right, I mean,

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Speaker 7: at the beginning of twenty twenty five, there's a lot

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Speaker 7: of bullishness out there that has very much changed at

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Speaker 7: the end of twenty five, where you see almost an

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Speaker 7: equal amount of bears. I think the big inflection point

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Speaker 7: for next year is does AI monetize in the way

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Speaker 7: we think it will?

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Speaker 4: Right.

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Speaker 6: If it does, great, you.

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Speaker 7: Know, the bulls win that argument, and the bull market

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Speaker 7: can continue as long as rate cuts come along with that.

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Speaker 7: If we don't see monetization next year, I think that's

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Speaker 7: when the chickens come home to roosts, so to speak.

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Speaker 7: I think that next year is that inflection point the

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Speaker 7: show me market, so to speak, where AI truly needs

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Speaker 7: to show its benefits.

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Speaker 6: Because now we've.

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Speaker 7: Been rallying on what three years of this news, So

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Speaker 7: if we don't see the underlying impacts hit to earnings,

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Speaker 7: I think that investors aren't going to start aren't going

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Speaker 7: to give as much rope as they gave this year, right,

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Speaker 7: and we'll sell that news. So because of that, we're

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Speaker 7: a little more cautious next year on that story, and

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Speaker 7: we want to see how it plays out.

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Speaker 2: How are you feeling about markets offshore right now? Foreign markets,

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Speaker 2: particularly those in Asia.

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Speaker 7: EM has had a phenomenal year, right, a banner year.

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Speaker 7: We see momentum going into next year. I think obviously,

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Speaker 7: if the US market gets hit, you know, if the

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Speaker 7: US market sneezes, everyone else catches the cold, so to speak. Right,

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Speaker 7: But I do think the story can continue in EM

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Speaker 7: next year as long as rates come down. I think

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Speaker 7: a lot of that has to do with the story

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Speaker 7: of Hey, rates of peaks. We're now seeing rates come

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Speaker 7: down or at least the expectation of rate cuts coming,

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Speaker 7: and therefore EM stocks should continue to do well.

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Speaker 6: So a lot of momentum.

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Speaker 7: Has been built up over there, and I think it's

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Speaker 7: going to be tough to kill that within the next

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Speaker 7: six months.

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Speaker 2: So we've seen the dollar hold up pretty well recently,

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Speaker 2: even though there's been a lot of conversation about impending

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Speaker 2: FED rate cuts, and if the dollar continues to remain firm, yes,

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Speaker 2: markets in Asia may benefit. But I'm wondering about the

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Speaker 2: point where the dollar's fortunes begin to change. Is that

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Speaker 2: something you've thought about.

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Speaker 7: It's been a strange macro story, Doug.

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Speaker 6: I mean, look at gold.

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Speaker 7: For example, gold has rallied with stocks, so I think

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Speaker 7: you know, one of the things that investors were concerned

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Speaker 7: about is usually the gold market will sniff something out

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Speaker 7: prior to the equity markets, and all of a sudden

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Speaker 7: you see the gold markets rep higher. It's definitely cause

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Speaker 7: for I won't say a concern, but pause. Right, So,

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Speaker 7: all year we've seen gold rally with stocks. I think

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Speaker 7: a lot of that has to do with concern around valuations,

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Speaker 7: concern around debt, central banks, so on and so forth.

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Speaker 7: But typically you don't see as HI have a correlation

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Speaker 7: between gold and the stock market. But we're really interested

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Speaker 7: in seeing is next time there's a big pullback in stocks,

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Speaker 7: if there's also a pullback within gold.

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Speaker 6: Right, So we own.

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Speaker 7: It as a hedge one and then two obviously capital appreciation,

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Speaker 7: But if all of a sudden that head story falls apart,

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Speaker 7: we're really going to have to rethink our thesis on that.

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Speaker 2: Okay, Patrick, we'll leave it there. Always a pleasure, happy

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Speaker 2: thanksgiving to you, Patrick Kennedy, as founding partner at All

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Speaker 2: Source Investment Management, joining us here on the Daybreak as

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Speaker 2: your podcast. Thanks for listening to today's episode of the

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Speaker 2: Bloomberg Daybreak Asia Edition podcast. Each weekday, we look at

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

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

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Speaker 2: YouTube channel, or anywhere else you listen. Join us again

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Speaker 2: tomorrow for insight on the market moves from Hong Kong

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Speaker 2: to Singapore and Australia. I'm Doug Chrisner, and this is

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Speaker 2: Bloomberg