Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: Welcome to the Daybreak Asia podcast. I'm Doug Prisoner. We
Speaker 2: begin in Hong Kong, where rescue workers are trying to
Speaker 2: extinguish a major fire at a high rise apartment complex
Speaker 2: in the northern part of the city. At present, the
Speaker 2: death toll is forty four, although hundreds of people are
Speaker 2: still missing, and according to the Fire Department, blazes in
Speaker 2: four of the buildings are under control. However, three buildings
Speaker 2: are still burning. Bloomberg's midmen Low is on site.
Speaker 3: I just want to tell you what it's like to
Speaker 3: be here, because the first thing you notice is the
Speaker 3: smell of the portrait smoke, and when the wind blows,
Speaker 3: I could feel the sting in my eye because this
Speaker 3: the buildings behind me are still billowing the smoke. And
Speaker 3: we are sixteen hours into this fire, which started yesterday
Speaker 3: at three pm. It was a level three fire at
Speaker 3: the time. It has upgraded within hours to a Level five,
Speaker 3: the highest severity, by six thirty pm. And if you
Speaker 3: can see the buildings behind me, they are very close together,
Speaker 3: which is very typical of any know, Hong Kong apartment
Speaker 3: a residential estate, so that is one of the reasons
Speaker 3: why the fire was able to spread from one block
Speaker 3: to another. But another reason is because this entire estate
Speaker 3: is about forty years old or so. It is a
Speaker 3: government subsidized residential housing unit and it was going through
Speaker 3: heavy renovation and you can see remnants of those bamboo scarefolding. Again,
Speaker 3: very characteristic of Hong Kong as well. Now, typically the
Speaker 3: fire wouldn't be spreading as fast as it did today,
Speaker 3: and the authorities were saying it was spreading at an
Speaker 3: unusual speed, and they had found polystyrene boards on the windows,
Speaker 3: and they suspect that they have found materials that were
Speaker 3: substandard as well. So the green netting, some of the
Speaker 3: plastic shotings, if they were compliant with Hong Kong stendards,
Speaker 3: they would have to be fire resistant.
Speaker 2: That's Bloomberg's midmen Low. Now, Hong Kong police have arrested
Speaker 2: three people from an engineering firm on suspicion of manslaughter.
Speaker 2: At the same time, this fire has prompted renewed scrutiny
Speaker 2: of the city's use of bamboo scaffolding on major renovation projects.
Speaker 2: Let's turn to markets in the Asia Pacific, where equities
Speaker 2: for the most part are advancing after some gains on
Speaker 2: Wall Street, and we got perspective from Heartwood Issel. He
Speaker 2: is head of APAC Equities and Credit at UBS Wealth Management.
Speaker 2: Heartwood spoke with Bloomberg TV host Sherry On and April Hong.
Speaker 4: So Hartman talking fus about the most important central bank
Speaker 4: in the world, right, the FED and December being more
Speaker 4: or less baked and already. But we also have come
Speaker 4: quite far. Remember around the time of October, December seemed
Speaker 4: like a done deal. So what extent is there this
Speaker 4: certainty was that going to mean for Asia?
Speaker 1: Now?
Speaker 5: I think we have to assume and we have we
Speaker 5: had on our side assumed all along, also that December
Speaker 5: is coming when we think at least another one for
Speaker 5: also the first quarter for Asia, it's generally typically positive.
Speaker 5: Also when the dollar comes a bit softer, right, the
Speaker 5: US economy is doing okay, So yeah, we will have
Speaker 5: the entire Apec region on attractive with a couple of
Speaker 5: different markets that we highlight in particular.
Speaker 4: Which ones in particular.
Speaker 5: Yeah, I would mention three different drivers sort of speaking.
Speaker 5: They are all very different. That's why you know that
Speaker 5: that's also the beauty of the Apec region here, right,
Speaker 5: So you can diversify that pretty well. So you have
Speaker 5: the AI side, we would probably pick their China Tech
Speaker 5: right also come back a little bit.
Speaker 4: That looks very very interesting as supposed to say South Korea, Taiwan, Japan.
Speaker 5: Japan is for the for different reasons. I'd say Taiwan,
Speaker 5: South Korea, especially South Korea has has run up quite
Speaker 5: a bit, but if it comes down a little bit,
Speaker 5: we would also consider that. But probably right now, if
Speaker 5: we compare these, especially on the air side, probably the
Speaker 5: favorite right now is China Tech and the other ones
Speaker 5: we have is value A programs. So two I would
Speaker 5: like to mention here is certainly mentioned that Japan. If
Speaker 5: the other one is here, our home is Singapore. And
Speaker 5: then you have some sort of leggers also from the
Speaker 5: earning side, but also from the index sides to some
Speaker 5: extent laggards, and that's India and Indonesia. So again they
Speaker 5: have different drivers. Next to you is going to look
Speaker 5: a lot better on earnings like it normally does. So
Speaker 5: a three different drivers interesting region. Right now, I.
Speaker 1: Want to turn into Japan, but first let me stay
Speaker 1: with China, because is it still appealing to you when
Speaker 1: you continue to see the US China Trade engines, and
Speaker 1: you have the Pentagon continuing to add these companies to
Speaker 1: his blacklist.
Speaker 5: It's not the first time that we're seeing some noise
Speaker 5: happening around in China or the China.
Speaker 6: Stocks as well.
Speaker 5: Look, I always take a step back on fundamentals, right,
Speaker 5: I mean, how many of these Chinese companies are really
Speaker 5: exporting anything significant to the US? Right, So then you
Speaker 5: could argue they don't really right, So these sort of
Speaker 5: maybe it's also part of a negotiation. I'm not saying
Speaker 5: we'll stop it here, but we have seen it before.
Speaker 5: It has never stopped really the Chinese stocks also from
Speaker 5: doing well as long as the fundamentals are doing well,
Speaker 5: so I wouldn't over interpret that part of the game.
Speaker 1: Yeah, I mean you have a point, right. We are
Speaker 1: seeing this bifurcation when it comes to tech supply chains anyway,
Speaker 1: So what does it matter if the US continues to
Speaker 1: ban these companies at the same time for some of
Speaker 1: those Japanese names. If you see the bigger and sharper
Speaker 1: bifurcation of supply chains, what does it mean for the
Speaker 1: likes of Tokyo Electron that supply this equipment and cannot
Speaker 1: service their facilities in China for example, or even the
Speaker 1: South Korean chip makers that cannot sell to Beijing.
Speaker 5: That has been something that influenced a couple of companies,
Speaker 5: including of course also European ones, right, So it's a
Speaker 5: general it's a wide phenomenon oftentimes, what we see because
Speaker 5: the demand for certainly on the aside, but even beyond
Speaker 5: aid somewhat traditional semiconductors, that's very very strong right now.
Speaker 5: Also what you sometimes see is that if something really
Speaker 5: happens on the China side with some restrictions, right then
Speaker 5: you're baked maybe a few quarters in where that takes
Speaker 5: an effect. But as long as the demand globally is
Speaker 5: that strong, right, it never really has held back the
Speaker 5: stock prices of these companies, and I don't see why
Speaker 5: it would be different this time for.
Speaker 4: The drivers of Chinese tech in particular, what are you
Speaker 4: seeing in terms of valuations versus it's global peers and
Speaker 4: the prospects of growth, especially since we've just come through
Speaker 4: the earning season, we still have meet to one coming
Speaker 4: up of course.
Speaker 5: Yeah, that is interesting And one point I would pilot
Speaker 5: in particular, especially on the China side, is the cloud
Speaker 5: area of it, right, because you have a bit like
Speaker 5: you had in the US with some similar names, I
Speaker 5: would say, right, so investors watching also e commerce et cetera,
Speaker 5: and there's one thing you can do, but ultimately we
Speaker 5: know that everything eventually shifted towards cloud or later on.
Speaker 5: Also also AI, and again I wouldn't see why it
Speaker 5: would necessarily be different, right, So if I look at
Speaker 5: the China ones, especially those that have cloud business, that
Speaker 5: we see them only in recent quarters, maybe less about
Speaker 5: two quarters, the cloud growth really coming up. So why
Speaker 5: wouldn't I pay more than the sort of mid single
Speaker 5: digit multiples on the earning side that we're paying now
Speaker 5: that it's not difficult to make a case that should
Speaker 5: be quite a bit higher.
Speaker 4: But there is a sense of a double standard, right
Speaker 4: if you look at some of the US players, Okay,
Speaker 4: strong cash flow, cap backs looks great, and when they
Speaker 4: spend more, they tend to get rewarded by investors. Sometimes
Speaker 4: that's not the case with the Chinese tech names. So
Speaker 4: what is your sense of what might shift the needle
Speaker 4: when it comes to global investors looking at Chinese tech
Speaker 4: stocks in particular.
Speaker 5: I think one thing that is interesting if you also
Speaker 5: look at how long you know the period of you know,
Speaker 5: AI investments, thinking about AI has lasted right in US
Speaker 5: you could say easily maybe given takes three years, right,
Speaker 5: China probably more like like one year. Right, So that
Speaker 5: alone means that China right in every thing that that
Speaker 5: should follow is a bit early, and it's and it's
Speaker 5: stays here than the US already is. So that alone,
Speaker 5: in my view, is something that investors should keep in mind.
Speaker 1: It's been really interesting Hartmouth, how sentiment has turned in
Speaker 1: recent days after the textile of earlier in the month, right,
Speaker 1: and now it seems that the driver's seat is also
Speaker 1: molnetary policy with more Dubvish FED speak. What does it
Speaker 1: mean for Asian markets?
Speaker 5: If I look a bit further out for the landscape,
Speaker 5: let's say we will get a bit softer next year
Speaker 5: GDP growth, et cetera. Then perhaps is expected right now
Speaker 5: that gives a lot of the Asian Central Bank a
Speaker 5: lot more also room to come even further than we
Speaker 5: already think they would still go to some extent, so
Speaker 5: it buffers the downside on the equity side.
Speaker 4: What does this mean for Asia local credit next year?
Speaker 4: If growth to your point about it being quite resilient,
Speaker 4: but we also have maybe some of these central banks
Speaker 4: have run up into the limits of how chazing they
Speaker 4: can do.
Speaker 5: We see also the bit longer term with bond deals
Speaker 5: coming from certainly the US also going a bit lower
Speaker 5: from here right and then with a dollar especially maybe
Speaker 5: over the next six months, so also being a bit softer.
Speaker 5: That means here for apex, we prefer the IG side,
Speaker 5: but we also prefer naturally, I would almost say the
Speaker 5: local fax site on the bond site. These two are
Speaker 5: the ones we really like.
Speaker 2: That was hartwood Issel, head of a pack equities and
Speaker 2: credit at UBS Wealth Management. He was speaking with Bloomberg
Speaker 2: TV host Sherry On and April Hong here on the
Speaker 2: Daybreak Asia podcast. Welcome back to the Daybreak Asia podcast.
Speaker 2: I'm Doug Chrisner. The US equity market advanced in the
Speaker 2: last session on rising expectations for FED rate cuts. We
Speaker 2: had the S and P gaining ground for a fourth
Speaker 2: straight session with a gain of seven tens of one percent. Unsurprisingly,
Speaker 2: trading was light in front of the thanks thank Giving
Speaker 2: Day holiday. Volume in the S and P was about
Speaker 2: twenty three percent below the thirty day average, and volatility
Speaker 2: seemed to take a breather. We had the Vicks falling
Speaker 2: more than seven percent, closing just above seventeen. For a
Speaker 2: closer look at the price action, I'm joined by Patrick Kennedy.
Speaker 2: He is founding partner at All Source Investment Management. Patrick,
Speaker 2: thanks for being here. What is your sense of what
Speaker 2: the market is trying to understand at present?
Speaker 7: I think there's two big risks that the market is
Speaker 7: focused on right now. One is obviously valuation, So valuation
Speaker 7: is very frothy when you look at history. Things like
Speaker 7: the buffet indicator are hitting an all time high too,
Speaker 7: standard deviations above where they usually are. So the buffet
Speaker 7: indicator is just GDP versus what this stock market value is, right,
Speaker 7: very simple indicator, but a powerful one.
Speaker 6: And then the other is rates.
Speaker 7: So I think we're getting more clarity that there'll be
Speaker 7: cuts coming.
Speaker 6: After the last meeting, we had.
Speaker 7: A lot of fed chairs saying that, you know, we
Speaker 7: wasn't necessarily a certainty that we would be getting a
Speaker 7: cut in December. I think the odds are now favoring
Speaker 7: a cut and potentially a couple more in the second
Speaker 7: half of next year. But if that story falls apart,
Speaker 7: if all of a sudden, you know we're pausing for
Speaker 7: longer we view that as a pretty big risk to market,
Speaker 7: especially with where valuations currently are.
Speaker 2: So we had the Beige Book today from the FED,
Speaker 2: and as a part of this report, multiple districts including
Speaker 2: New York, Atlanta, Minneapolis on the list. They all reported
Speaker 2: spending among higher income consumers was resilient. However, low and
Speaker 2: middle income households are tightening the belt. This goes to
Speaker 2: this ke shaped economy that we've been talking about. It
Speaker 2: doesn't seem to be changing at all, does it.
Speaker 6: It doesn't. It's the story of two economies.
Speaker 7: And to your point, I think the folks on the
Speaker 7: lower half of the income spectrum are getting hit harder
Speaker 7: from things like tariffs, right and inflation. So you got
Speaker 7: to think about what that consumer has been through over
Speaker 7: the past five years. They've seen rates go from two
Speaker 7: percent to you know, well above five and now.
Speaker 6: Back down to around four, right.
Speaker 7: But they've also seen skyrocketing prices and fuel, food, you
Speaker 7: name it. So they've been through quite a lot when
Speaker 7: you just look at their wallet right now, the top
Speaker 7: half of the income spectrum can weather things like that,
Speaker 7: it's not as big of a blow to them, but
Speaker 7: that's not the case for lower income households, so we
Speaker 7: have to see how that plays out for more cyclical names,
Speaker 7: things like retailers and such.
Speaker 2: So if expectations are calling for a FED rate cut
Speaker 2: in December and many more in the year ahead, maybe
Speaker 2: as many as three for twenty twenty six, I'm curious
Speaker 2: just to get your take on the effectiveness of lower
Speaker 2: rates and helping to address this ke shaped economy.
Speaker 6: That's that's a very tough question.
Speaker 7: I think that you know, if you have lower rates,
Speaker 7: there's a reverberation across markets. I don't think that that's
Speaker 7: the only thing that we need to do in order
Speaker 7: to correct that. It's a much more difficult problem to solve,
Speaker 7: in my opinion. One, you need strong earnings to come
Speaker 7: through so you can continue to have job growth, income growth,
Speaker 7: and that sort of thing. And I think the S
Speaker 7: and P is now pricing in around fourteen percent on
Speaker 7: earnings growth next year, which is largely due to AI.
Speaker 6: I think the big story.
Speaker 7: Around earnings growth next year is that the bottom four
Speaker 7: ninety three need to deliver. Right, so everyone knows that
Speaker 7: the Max seven is doing very well. They're profiting from AI.
Speaker 7: You're already seeing the underlying impact of their balance sheet,
Speaker 7: cash flow, so on and so forth. Where we haven't
Speaker 7: seen that is the four hundred ninety three, the bottom
Speaker 7: four ninety three, right, And the expectation is that in
Speaker 7: twenty six we see a broadening throughout those names which
Speaker 7: will help those lower income households.
Speaker 6: Right.
Speaker 7: If we don't see a broadening within those four ninety three,
Speaker 7: that's a big risk for markets. And in fact our
Speaker 7: view is ironically, if we don't see a broadening within
Speaker 7: the four ninety three, what's even more at risk than
Speaker 7: those names decreasing in value as the MAG seven themselves
Speaker 7: because of the concentration within those names. So in the
Speaker 7: S and p as, I think it's over thirty percent
Speaker 7: now within the MAG seven. If all of a sudden
Speaker 7: that thesis doesn't come to play where we see this
Speaker 7: broadening within the market and the market is sold off,
Speaker 7: it's going to hit the heavy concentrated names, which is
Speaker 7: the MAG seven.
Speaker 2: So we know that the equity market has been challenged
Speaker 2: recently with a fair amount of skepticism when it comes
Speaker 2: to the AI trade, especially where megacap Tech is concerned.
Speaker 2: Trading has been pretty choppy over the last couple of weeks,
Speaker 2: although now it seems as if the market has found
Speaker 2: some solid footing, does that necessarily mean all questions have
Speaker 2: been answered, particularly as we look ahead to the new year.
Speaker 7: So I see a definite split on the street when
Speaker 7: it comes to your viewpoint for next year. Right, I mean,
Speaker 7: at the beginning of twenty twenty five, there's a lot
Speaker 7: of bullishness out there that has very much changed at
Speaker 7: the end of twenty five, where you see almost an
Speaker 7: equal amount of bears. I think the big inflection point
Speaker 7: for next year is does AI monetize in the way
Speaker 7: we think it will?
Speaker 4: Right.
Speaker 6: If it does, great, you.
Speaker 7: Know, the bulls win that argument, and the bull market
Speaker 7: can continue as long as rate cuts come along with that.
Speaker 7: If we don't see monetization next year, I think that's
Speaker 7: when the chickens come home to roosts, so to speak.
Speaker 7: I think that next year is that inflection point the
Speaker 7: show me market, so to speak, where AI truly needs
Speaker 7: to show its benefits.
Speaker 6: Because now we've.
Speaker 7: Been rallying on what three years of this news, So
Speaker 7: if we don't see the underlying impacts hit to earnings,
Speaker 7: I think that investors aren't going to start aren't going
Speaker 7: to give as much rope as they gave this year, right,
Speaker 7: and we'll sell that news. So because of that, we're
Speaker 7: a little more cautious next year on that story, and
Speaker 7: we want to see how it plays out.
Speaker 2: How are you feeling about markets offshore right now? Foreign markets,
Speaker 2: particularly those in Asia.
Speaker 7: EM has had a phenomenal year, right, a banner year.
Speaker 7: We see momentum going into next year. I think obviously,
Speaker 7: if the US market gets hit, you know, if the
Speaker 7: US market sneezes, everyone else catches the cold, so to speak. Right,
Speaker 7: But I do think the story can continue in EM
Speaker 7: next year as long as rates come down. I think
Speaker 7: a lot of that has to do with the story
Speaker 7: of Hey, rates of peaks. We're now seeing rates come
Speaker 7: down or at least the expectation of rate cuts coming,
Speaker 7: and therefore EM stocks should continue to do well.
Speaker 6: So a lot of momentum.
Speaker 7: Has been built up over there, and I think it's
Speaker 7: going to be tough to kill that within the next
Speaker 7: six months.
Speaker 2: So we've seen the dollar hold up pretty well recently,
Speaker 2: even though there's been a lot of conversation about impending
Speaker 2: FED rate cuts, and if the dollar continues to remain firm, yes,
Speaker 2: markets in Asia may benefit. But I'm wondering about the
Speaker 2: point where the dollar's fortunes begin to change. Is that
Speaker 2: something you've thought about.
Speaker 7: It's been a strange macro story, Doug.
Speaker 6: I mean, look at gold.
Speaker 7: For example, gold has rallied with stocks, so I think
Speaker 7: you know, one of the things that investors were concerned
Speaker 7: about is usually the gold market will sniff something out
Speaker 7: prior to the equity markets, and all of a sudden
Speaker 7: you see the gold markets rep higher. It's definitely cause
Speaker 7: for I won't say a concern, but pause. Right, So,
Speaker 7: all year we've seen gold rally with stocks. I think
Speaker 7: a lot of that has to do with concern around valuations,
Speaker 7: concern around debt, central banks, so on and so forth.
Speaker 7: But typically you don't see as HI have a correlation
Speaker 7: between gold and the stock market. But we're really interested
Speaker 7: in seeing is next time there's a big pullback in stocks,
Speaker 7: if there's also a pullback within gold.
Speaker 6: Right, So we own.
Speaker 7: It as a hedge one and then two obviously capital appreciation,
Speaker 7: But if all of a sudden that head story falls apart,
Speaker 7: we're really going to have to rethink our thesis on that.
Speaker 2: Okay, Patrick, we'll leave it there. Always a pleasure, happy
Speaker 2: thanksgiving to you, Patrick Kennedy, as founding partner at All
Speaker 2: Source Investment Management, joining us here on the Daybreak as
Speaker 2: your podcast. Thanks for listening to today's episode of the
Speaker 2: Bloomberg Daybreak Asia Edition podcast. Each weekday, we look at
Speaker 2: the story shaping markets, finance, and geopolitics in the Asia Pacific.
Speaker 2: You can find us on Apple, Spotify, the Bloomberg Podcast
Speaker 2: YouTube channel, or anywhere else you listen. Join us again
Speaker 2: tomorrow for insight on the market moves from Hong Kong
Speaker 2: to Singapore and Australia. I'm Doug Chrisner, and this is
Speaker 2: Bloomberg