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Speaker 1: Bloomberg Audio Studios, podcasts, radio news. Welcome to the Daybreak

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Speaker 1: Asia podcast. I'm Doug Chrisner. Markets across the Asia Pacific

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Speaker 1: are reacting to weaker than expected US jobs data. The

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Speaker 1: delayed report showed the unemployment rate rose last month to

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Speaker 1: four point six percent. That's the highest level in more

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Speaker 1: than four years. Now, the story on payrolls was mixed.

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Speaker 1: The American economy added sixty four thousand jobs in November,

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Speaker 1: although in the month of October the economy lost one

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Speaker 1: hundred and five thousand. Here is the acting head of

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Speaker 1: the White House Council of Economic Advisors, Pierre R.

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Speaker 2: Ed.

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Speaker 3: If you look over the totality of those two months,

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Speaker 3: you have the US economy creating one hundred and twenty

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Speaker 3: one thousand private sector jobs and shedding one hundred and

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Speaker 3: sixty two thousand government jobs. Now, a lot of those

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Speaker 3: government jobs went away because of the fork in the

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Speaker 3: road efforts, the dose efforts. That meant that many people

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Speaker 3: who were retired from the federal government basically went off

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Speaker 3: of payroll in the month of October, and so that

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Speaker 3: explains what happened there.

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Speaker 1: That is Pierre jah Ed. He is the acting head

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Speaker 1: of the White House Council of Economic Advisors now analyst

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Speaker 1: as saying the more meaningful jobs report will be December

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Speaker 1: data for release in early January. For a closer look,

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Speaker 1: I'm joined by Christopher Zook. He is the chairman also

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Speaker 1: the CIO at KAZ Investments. Christopher's on the line from Houston, Texas.

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Speaker 1: Thank you for being here. Give me your sense of

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Speaker 1: what you learned from this job's data.

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Speaker 4: I think the economy is softer than the data would indicate.

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Speaker 4: The numbers themselves have a lot of noise in them

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Speaker 4: because of the shutdown and also because of the fact

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Speaker 4: that it is cloudy. In your previous segment, you talked

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Speaker 4: about how the gentleman from the White House Economic Council

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Speaker 4: talked about how you had a lot of private sector

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Speaker 4: jobs added, then you had a lot of government jobs

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Speaker 4: that were removed, and that certainly is an interesting dichotomy

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Speaker 4: of efficiency. But what we're seeing in the last couple

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Speaker 4: of months is a lot more of the private sector

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Speaker 4: jobs also being eliminated, primarily in the middle sector, and

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Speaker 4: what we refer to as the hollowing out of the

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Speaker 4: American workforce where it's not really the top tier jobs

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Speaker 4: and it's not really the bottom tier jobs that are

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Speaker 4: being eliminated, but the stuff in the middle, we're seeing

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Speaker 4: a lot of that as a result of AI and

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Speaker 4: other reasons as well.

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Speaker 1: So we know the labor market is one half of

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Speaker 1: the Fed's dual mandate. The other, of course, is inflation.

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Speaker 1: And today the head of the Atlanta Fed, Raphae Albostic,

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Speaker 1: was saying that the FED should remain focused on addressing inflation.

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Speaker 1: With elevated price pressures expected to persist through most of

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Speaker 1: next year. Does he have a point here?

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Speaker 4: I do think he has a point, because I think

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Speaker 4: we have sticky inflation that's being caused by a lot

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Speaker 4: of different factors related to the transition of power at

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Speaker 4: the White House and certainly in Congress, a lot of

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Speaker 4: the on shoring efforts, but just the reality is that

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Speaker 4: some things are not being produced at the same level

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Speaker 4: of price that they used to be, and then some

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Speaker 4: other things that are not related to really anything somebody

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Speaker 4: can control. When you look at counter prices and other things,

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Speaker 4: you know, it's just there's so much of a pressure

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Speaker 4: from a spending consumer. Whether they should or not, they're

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Speaker 4: still spending and as a result of that, you're seeing

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Speaker 4: these pressures. You do have some productivity gains because of

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Speaker 4: AI and other reasons, but we are seeing consistent and

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Speaker 4: constant inflation that doesn't appear to be going away anytime soon.

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Speaker 4: The only thing that we could really forecast that would

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Speaker 4: cause investors to or the economy, I should say, to

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Speaker 4: really really stop being an inflationary spiral is a very

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Speaker 4: serious economic downturn, which we hope doesn't happen. But that

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Speaker 4: obviously is something that the FED is not anticipate, which

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Speaker 4: means they need to stay diligent against inflation.

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Speaker 1: So right now, if I'm not mistaken, the swaps market

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Speaker 1: indicates two rate cuts for twenty twenty six. Is that

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Speaker 1: your view?

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Speaker 4: So, you know, I think that's right. I mean, I'm

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Speaker 4: not going to argue with them. The Fed of course

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Speaker 4: has one, you know that they're showing, and whether or

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Speaker 4: not one happens right in the beginning of twenty seven

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Speaker 4: or in twenty six, that's going to be data driven.

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Speaker 4: What I can tell you is this, the FED is

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Speaker 4: in a box and has been in the box for

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Speaker 4: a long time. They overcorrected on the downside, they overcorrected

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Speaker 4: on the upside. They're trying to find that happy median.

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Speaker 4: I'm not sure that they're there, but they believe they're there,

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Speaker 4: and I don't think they have a lot of room

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Speaker 4: to cut more aggressively because of those inflationary pressures that

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Speaker 4: we just talked about. I think the FED is really

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Speaker 4: kind of stuck. And that's one of the reasons why

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Speaker 4: for several years now we've talked about stagflation and we

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Speaker 4: think that's where we're headed, and we've already been and

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Speaker 4: then we're headed there as well. In twenty six is

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Speaker 4: a relatively stagnant economy but with sticky inflation.

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Speaker 1: So one of the things that is influencing the level

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Speaker 1: of inflation accelerated level of inflation is rising electricity bills.

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Speaker 1: And today three Democratic senators basically indicated they will investigate

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Speaker 1: whether and how the operations of certain tech companies are

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Speaker 1: driving up these prices for electricity. Is this something that's

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Speaker 1: going to be with us now as we continue to

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Speaker 1: move more into this age of artificial intelligence.

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Speaker 5: Yes.

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Speaker 4: And I have to laugh because of the fact that

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Speaker 4: I'm literally chuckling out loud, because it is so much

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Speaker 4: like a politician to say, Okay, we haven't done all

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Speaker 4: the things that we should do to expand electricity capacity.

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Speaker 4: We have not invested in infrastructure and new lines and

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Speaker 4: new technologies to expand the ability to get more energy.

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Speaker 4: So now that somebody is using a lot of it,

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Speaker 4: let's go tax them somehow. So that's a very jaded view,

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Speaker 4: but it sure sounds like what you just stated those

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Speaker 4: senators did talk about. There's absolutely no question that the

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Speaker 4: AI demand on the grid is going to continue to

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Speaker 4: be higher, and it's going to accelerate at an accelerating rate.

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Speaker 4: But it's not just AI. It's just the fact that

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Speaker 4: you have so many people around the world that are

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Speaker 4: obviously moving from lower class into middle class, middle class

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Speaker 4: into upper class, and they just all demand more electricity.

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Speaker 4: When they get a new iPhone or I for the

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Speaker 4: first time they actually have heat or power in their home,

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Speaker 4: they're going to spend more. And so it's one of

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Speaker 4: the reasons why we are absolutely as bullish on energy

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Speaker 4: in the long run as we have been in my

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Speaker 4: nearly thirty five year career. And you know, being in Houston, Texas,

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Speaker 4: we're very very close to the energy world. In the

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Speaker 4: short run, be a lot of volatility, but in the

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Speaker 4: long run, the supply demand and balance is only going

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Speaker 4: to get worse. And we have to be investing in

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Speaker 4: all forms of energy, all kinds in order to be

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Speaker 4: able to meet the man that we're saying coming, because

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Speaker 4: it's just going to.

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Speaker 1: Accelerate so close to the energy world when it comes

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Speaker 1: to crude oil and natural gas. But doesn't Texas operate

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Speaker 1: its own grid, And isn't that a potential problem?

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Speaker 4: Oh it has been, And yes, a lot of people

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Speaker 4: don't know this, but in the United States there are

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Speaker 4: three grids. There's basically East West and then there's Texas.

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Speaker 4: We're pretty proud of that as a matter of fact.

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Speaker 4: But at the same time, our grid can be vulnerable

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Speaker 4: to things. In twenty twenty one, as an example, we

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Speaker 4: had the horrible freeze that literally took power down for

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Speaker 4: millions and millions of people because of the fact that

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Speaker 4: the power stations themselves shrows, and so like anything else,

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Speaker 4: if you don't have proper backup and contingency power in place,

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Speaker 4: bad planning is going to end up to bad results.

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Speaker 4: So one of the things that Texas has worked really

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Speaker 4: hard on the last couple of years is replacing that

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Speaker 4: excess capacity. And you know, we use a tremendous amount

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Speaker 4: of solar in the state, A tremendous amount of wind

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Speaker 4: in the state, but you can't always count on the

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Speaker 4: sun shining and the wind blowing, so we have to

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Speaker 4: have plenty of baseline power. That is something that we

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Speaker 4: are continuing to invest in, but certainly need to do

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Speaker 4: a better job, just like every other part of the

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Speaker 4: United States and around the world. But it's like anything else.

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Speaker 4: People don't spend money on something until they really realize, oh,

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Speaker 4: I need this, and it's a big problem if we

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Speaker 4: don't have it. Fortunately, Texas we're trying to get caught

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Speaker 4: back up after not probably spending enough. But other parts

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Speaker 4: of the country we've seen in California and other places

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Speaker 4: where they are really behind, and it is going to

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Speaker 4: be you know, I have a favorite saying, which is

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Speaker 4: people will stay the same until the pain and making

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Speaker 4: the change is less than the pain of making the

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Speaker 4: change itself. So people will stay the same until they

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Speaker 4: just they don't have a choice. And that's what we

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Speaker 4: think is going to be the case in many states,

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Speaker 4: and that's going to create a significant increase in spending.

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Speaker 4: But we have to find new energy sources, whether it

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Speaker 4: be nuclear or obviously traditional uses of energy fossil fuels,

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Speaker 4: but basically all of the aboves going to be required.

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Speaker 4: We're most excited about nuclear and small modular reactors in particular,

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Speaker 4: but we know there's going to be enormous demand for

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Speaker 4: traditional fossil fuels as we go, you know, for the

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Speaker 4: next several decades.

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Speaker 1: How are you feeling about the overall trade as it

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Speaker 1: relates to artificial intelligence and some of these big data

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Speaker 1: center owners that are having to take on a little

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Speaker 1: bit more debt to maintain their buildout.

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Speaker 4: I'm concerned about the amount of spend that is out there,

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Speaker 4: particularly when it's being serviced with debt. I do believe

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Speaker 4: that you're going to have significant demand for these data centers,

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Speaker 4: but if their pricing is high enough, people will find alternatives.

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Speaker 4: You know, we've seen a couple of headlines recently about

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Speaker 4: potentially putting significant amount of data center capability actually in space,

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Speaker 4: where if you have a satellite there that is a

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Speaker 4: data center, the sun is always shining, and with now

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Speaker 4: the technology of starlink and others, you have the ability

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Speaker 4: to get that information down to wherever it is needed

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Speaker 4: here on Earth. I don't know if that is plausible yet,

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Speaker 4: it sounds feasible, but I know there's going to be

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Speaker 4: billions of dollars investigating the possibility of it.

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Speaker 1: So as we look to the.

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Speaker 4: Data center world, there could be several of these very large,

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Speaker 4: expensive data centers that don't have near as much demand

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Speaker 4: for them as they originally thought, and that could bite

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Speaker 4: some people and make it painful for them. I'll put

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Speaker 4: it that way. We are looking very hard at what

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Speaker 4: can be done in space in other places. But it's

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Speaker 4: early days, but I am concerned about people spending too

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Speaker 4: much just based on what might possibly happen over the

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Speaker 4: next five to seven years.

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Speaker 1: Give me your best case scenario for twenty twenty six.

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Speaker 1: What does the outlook appear to be for the new year.

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Speaker 4: I think the best case scenario is that we could

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Speaker 4: see a pretty significant expansion of earnings that could lead

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Speaker 4: to better prices. However, however, prices are really really expensive.

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Speaker 4: The S and P five hundred is one of the

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Speaker 4: most expensive environments we've seen ever. You got to go

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Speaker 4: back to nineteen ninety nine. A lot of people don't

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Speaker 4: even realize that twenty five percent of the S and

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Speaker 4: P five hundred is now trading at more than ten

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Speaker 4: times sales, not ten times earnings, ten times revenue. That's

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Speaker 4: the only time we've ever seen it was twenty twenty

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Speaker 4: one in the middle of the spac bubble and nineteen

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Speaker 4: ninety nine when we obviously had the tech bubble. So

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Speaker 4: we are very concerned about the overall valuation. So we

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Speaker 4: could make you a much stronger bear case. But your

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Speaker 4: question was the bull case. The bull case is the

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Speaker 4: earnings continue to expand at a decent clip, call it

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Speaker 4: ten percent or so next year, and that valuations stay

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Speaker 4: strong simply because of the fact that the Federal Reserve

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Speaker 4: is lowering rates and we do not have too much

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Speaker 4: of a spike in long rates, and so therefore valuations

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Speaker 4: stay okay, and that we see earnings, you know, decent

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Speaker 4: growth as we as we look at the new year.

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Speaker 4: That's our best case. I can make you a lot

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Speaker 4: of bare cases that are much worse than that. So

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Speaker 4: it's very important for people to be in a position

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Speaker 4: to feel comfortable with the valuations and their portfolio. You know,

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Speaker 4: we have an old adage. You know, stocks always go

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Speaker 4: down faster than they go up, so sell when you can,

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Speaker 4: not when you have to.

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Speaker 1: So Christopher, you seem inclined to make the bear case.

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Speaker 1: I can give you maybe a minute or so to

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Speaker 1: do so.

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Speaker 4: The bare case is that you see reasonable earnings growth

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Speaker 4: or flattening earnings growth, and then you see a significant

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Speaker 4: pullback invaluations. We could build you a case that's down

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Speaker 4: twenty percent in the s and P five hundred simply

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Speaker 4: because of the fact that those wildly expensive companies that

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Speaker 4: make twenty five percent, they just pull back twenty percent

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Speaker 4: in evaluation or thirty percent valuation. With ten percent growth,

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Speaker 4: you can get a down twenty market. The over under,

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Speaker 4: I think you have a flatish market next year to

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Speaker 4: down ten with a lot of volatility in between.

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Speaker 1: All right, well leave it there, Christopher, Thank you so

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Speaker 1: very much. Christopher Zuokez, chair and also the CIO at

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Speaker 1: Kaz Investments. Joining from Houston, Texas. Here on the Daybreak

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Speaker 1: Asia podcast. Welcome back to the Daybreak Asia podcast. I'm

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Speaker 1: deg Chrisner. China will have another major chip debut on Wednesday.

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Speaker 1: This is Mega X Integrated Circuits shun Hi company. It's

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Speaker 1: set to begin trading today in its home city. Meta

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Speaker 1: X makes graphic processing units for artificial intelligence developers. Now,

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Speaker 1: this company raised five hundred and eighty five point eight

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Speaker 1: million dollars in an IPO that was nearly Are you

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Speaker 1: ready for this? Three thousand times oversubscribed in the retail portion.

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Speaker 1: We took a closer look at the AI trade with

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Speaker 1: Daniel Lamb. He is head of equity strategy at Standard

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Speaker 1: Chartered Wealth Solutions. Daniel spoke earlier with Bloomberg TV host

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Speaker 1: Avril Hong.

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Speaker 5: So, Daniel, there are a couple of things to watch

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Speaker 5: in the market. What is top of mind for you

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Speaker 5: because it looks like a bit of a struggle into

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Speaker 5: the end of the year. Is this just repositioning traders

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Speaker 5: have just clocked off for twenty twenty five or is

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Speaker 5: this more worrying signs that we need to pay attention.

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Speaker 1: To right now?

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Speaker 2: I believe the market number one concern is about the

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Speaker 2: AI stocks. Are they going to get back, you know,

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Speaker 2: the returns that they have projected after such big investments.

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Speaker 2: How are they going to finance for this kind of

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Speaker 2: investment because many of these companies are tapping for the

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Speaker 2: dead market right now instead of using the free cash flow.

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Speaker 2: So it's not as clear pictures say, you know, this

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Speaker 2: year or a few years before. So that's what you know,

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Speaker 2: we see as a number one key risk in the

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Speaker 2: market right now, and that's the that's the reason why

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Speaker 2: you're seeing the correction.

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Speaker 5: So you're expecting this to continue for the next couple

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Speaker 5: of months, or is there something that could turn this

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Speaker 5: dismal sentiment towards AI related stocks around in terms of

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Speaker 5: perhaps earnings growth as a driver.

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Speaker 2: Well, earnings growth has been strong. It is more about

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Speaker 2: the guidance of the company. So towards the end of

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Speaker 2: the last you know, the Q three earning season, basically,

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Speaker 2: you know, there were a couple of companies that have

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Speaker 2: demonstrated some weakness, right at least, markets feel that the

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Speaker 2: guidance was not as good as what they're expecting. And

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Speaker 2: you know, it's fair to ask because as such variations,

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Speaker 2: people would be asking a lot, you know, for them

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Speaker 2: to perform, both in terms of results and also in

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Speaker 2: ford guidance. So that's fair ask. But at the same

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Speaker 2: time you have to understand that, you know, over the

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Speaker 2: last few years, we've had a number of foal stars

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Speaker 2: for the value stocks, and these kind of value rotation

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Speaker 2: never lasted for a prolonged period of time, so actually

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Speaker 2: we're not expecting this time to be any different. We

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Speaker 2: believe that investors should still be adding to the AI

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Speaker 2: stocks on the dips, because if you look at how

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Speaker 2: much they're dominating the US economic growth this year, basically

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Speaker 2: two thirds of the US economic growth comes from AI

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Speaker 2: or AI related investments. That's a lot. And the KAPIX

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Speaker 2: is projected to be growing at forty percent again next year,

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Speaker 2: So that's hefty numbers and they're still going to carry

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Speaker 2: the flag for the US economic growth.

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Speaker 5: Given your point though about how concerned investors are about

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Speaker 5: this AI payoff, and that seems to be lingering, might

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Speaker 5: it not make sense to perhaps pick up value.

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Speaker 2: Tactically tactically, but how much tactically if you are four

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Speaker 2: or the medium to the longer term, the growth area

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Speaker 2: is still on the technology stocks, So you know, our

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Speaker 2: stands would rather than trying to catch that value bunds,

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Speaker 2: it is probably wiser to be looking for levels that

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Speaker 2: you like and be adding on dips for the AI

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Speaker 2: and technology stocks in general.

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Speaker 5: Does that mean that next year, in terms of the

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Speaker 5: markets that can outperform, is it still going to be

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Speaker 5: the likes of Japan, South Korea, Taiwan? In your mind,

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Speaker 5: because we have been seeing this narrative emerging about the

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Speaker 5: likes of India, for example, that they might benefit because

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Speaker 5: they don't have an outright way into the AI trade

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Speaker 5: per se.

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Speaker 2: Well, India is a little bit different because it's a

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Speaker 2: very domestically oriented market and actually their latest GDP growth

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Speaker 2: number was very encouraging. It's at eight point two percent

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Speaker 2: versus projected seven point four, so that means that the

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Speaker 2: government tax reform has been working into the real economy

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Speaker 2: and also the monetary policy has been easy as well,

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Speaker 2: so that's good to see, and earning seems to have

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Speaker 2: bought them out. So actually the market that we like,

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Speaker 2: we overweight India next year.

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Speaker 5: On top of that, what are you saying in terms

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Speaker 5: of perhaps the raupeat weakness feeding into the appeal of

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Speaker 5: Indian stocks.

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Speaker 2: As well well? Basically that is helps the Indian companies

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Speaker 2: to be you know, for the exporting companies, it actually

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Speaker 2: helps them. So that's a good signed to see because

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Speaker 2: they do export their services as well. And in general,

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Speaker 2: you know, the market this year has underperformed, so the

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Speaker 2: valuation is you know, people are always saying that India

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Speaker 2: is expensive, but it's gotten to a more reasonable variation now,

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Speaker 2: so that's another plus that we see in the markets.

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Speaker 5: We've also been seeing going the other direction from the

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Speaker 5: rupee is the Chinese yun. I wonder how do you

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Speaker 5: see that figuring into the equation when you look at

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Speaker 5: Chinese stocks.

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Speaker 2: The basically, yes, the un is looking relatively strong versus

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Speaker 2: you know the reason past. But at the same time,

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Speaker 2: I would say that China's economic data has not been

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Speaker 2: stellar right last set of data, so the government would

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Speaker 2: probably be having a bias towards an easier monetary policy

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Speaker 2: rather than a stronger one. So the yuan is probably

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Speaker 2: going to be staying around the current level, unlikely to

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Speaker 2: be appreciating significantly from here.

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Speaker 5: And how might that feed into what you're seeing in

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Speaker 5: Chinese stocks? I mean, where do you see the momentum coming?

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Speaker 5: Are the specific sectors that you are especially optimistic on.

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Speaker 2: Well, we have just got a truth between China and

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Speaker 2: the US. Mean, going back to October, you're seeing that

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Speaker 2: basically Trump was saying that he once slapped a high

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Speaker 2: tariff from China, never came to fruition, and it is

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Speaker 2: basically the truth out of convenience, as I term it,

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Speaker 2: because of the fact that they have leverage on each other.

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Speaker 2: So China has the rare earth card and US has

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Speaker 2: the lead in technology, so both sides believe that it

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Speaker 2: is best to have a truth out of convenience so

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Speaker 2: that you know they can work to lessen the leverage

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Speaker 2: that the other side has on them. So for China,

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Speaker 2: it is about catching up further on the technology side

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Speaker 2: of things, and that's where we believe the opportunities lie

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Speaker 2: in Chinese stocks.

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Speaker 5: How else are you positioning as well? Because we're all

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Speaker 5: hearing about that consumption push the authorities are trying to engineer,

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Speaker 5: how might that also affect positioning?

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Speaker 2: Well, basically, there's the anti involution campaign, but I believe

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Speaker 2: that is still going to take some time. If you

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Speaker 2: look at the earnings for the consumer stocks that are

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Speaker 2: under heavy price competition, they're not there yet at this

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Speaker 2: moment in time. So for the first half of the year,

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Speaker 2: the positioning is about going for the stocks where there's

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Speaker 2: AI technology and self efficiency theme, and after that perhaps

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Speaker 2: revisiting the stocks that can benefit from the anti involution

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Speaker 2: because the end game is going to be that you'll

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Speaker 2: be left with a few big players right such that

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Speaker 2: you know they have finally the pricing power, and the

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Speaker 2: smaller players will be you know, push aside.

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Speaker 5: When it comes to policy, Daniel, I got to ask

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Speaker 5: you about the policy mix out of the US and

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Speaker 5: how that is going to affect the overall trajectory for

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Speaker 5: Asian stocks in the first half of next year.

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Speaker 2: Well, the FAT is saying that next year they will

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Speaker 2: be cutting once more, but with a FAT new chairperson,

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Speaker 2: perhaps that will be tilting towards the Delfish side. So

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Speaker 2: our stance is that next year there's probably going to

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Speaker 2: be two to three rate cuts from the US rather

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Speaker 2: than the one that the FAT has mentioned in the

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Speaker 2: last FMC. So if that's the case, that the dollar

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Speaker 2: is going to weaken more and that is probably going

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Speaker 2: to be helping the EMS, okay, because they usually do

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Speaker 2: well when dollar weakens. So that's the reason and why

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Speaker 2: we overweight Asian stocks, and also in terms of the

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Speaker 2: EM local currency bonds, we do like them as well.

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Speaker 1: That's Daniel Lamb, head of Equity strategy at Standard Chartered

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Speaker 1: Wealth Solutions, speaking with Bloomberg TV host April home Here

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Speaker 1: on the Daybreak Asia podcast. Thanks for listening to today's

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Speaker 1: episode of the Bloomberg Daybreak Asia Edition podcast. Each weekday,

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Speaker 1: we look at the story shaping markets, finance, and geopolitics

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Speaker 1: in the Asia Pacific. You can find us on Apple, Spotify,

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Speaker 1: The Bloomberg Podcast, YouTube channel, or anywhere else you listen.

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Speaker 1: Join us again tomorrow for insight on the market moves

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Speaker 1: from Hong Kong to Singapore and Australia. I'm Doug Chrisner,

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Speaker 1: and this is Bloomberg