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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 Krisner. The

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Speaker 2: US is accusing China of engaging in unfair trade practices

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Speaker 2: in semiconductors. Now. This is the result of a year's

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Speaker 2: long inquiry. It focused on China's production of those older

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Speaker 2: model chips widely used in devices like smartphones, automobiles, home appliances, weaponry,

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Speaker 2: even telecom networks. Now, the USTR found China employed increasingly

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Speaker 2: aggressive and sweeping non market policies to bolster at semiconductor industry.

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Speaker 2: And on top of that, the USTR found the China

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Speaker 2: move to create foreign dependency on its products in a

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Speaker 2: way that disadvantaged US commerce. Even so, the US Trade

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Speaker 2: rep is declining to impose additional tariffs on Chinese imports

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Speaker 2: at least till mid twenty twenty seven, perhaps given the

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Speaker 2: trade truth between Washington and Beijing. For a closer look

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Speaker 2: now at US China relations Visa v Technology. I'm joined

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Speaker 2: by Tiffany Shao, portfolio manager at Matthew's International Capital Management.

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Speaker 2: Tiffany joins us from San Francisco. Thank you so much

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Speaker 2: for being here, so as I understand you just got

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Speaker 2: back from Asia. Can you lay out for me what

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Speaker 2: you see right now as the tension when it comes

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Speaker 2: to high tech between the US and China.

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Speaker 3: No, typically as you head into your end, people are

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Speaker 3: ready for vacation. This year, everyone is preparing for an

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Speaker 3: acceleration in the deployment of artificial intelligence heading into twenty

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Speaker 3: twenty six. And you know, in the risk management business

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Speaker 3: and investment management business, we always have to consider worst

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Speaker 3: case scenarios, and one of those scenarios that we map

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Speaker 3: out is, you know, a continued, you know, heightened tension

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Speaker 3: between US in China. And in that scenario, which is

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Speaker 3: what we actually see companies start to prepare for, is

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Speaker 3: that there will be a parallel universe built for AI.

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Speaker 3: So there will be one AI ecosystem within China where

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Speaker 3: they don't want to rely on foreign sources, and there

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Speaker 3: will be an ecosystem outside of China led by the

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Speaker 3: US where we're trying to build up our own capabilities

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Speaker 3: as well. So it's really interesting to see and it's

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Speaker 3: keeping both sides very, very busy into the end of

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Speaker 3: twenty twenty five.

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Speaker 2: So as I'm listening, I'm wondering whether China will be

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Speaker 2: less interested in those advanced chips from Nvidia and become

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Speaker 2: maybe a little bit more reliant when it comes to

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Speaker 2: training AI models on chips that are domestically produced in China,

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Speaker 2: maybe something from the likes of Huawei.

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Speaker 3: So the Chinese are very practical. As you may know,

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Speaker 3: they will still procure semiconductor based on their needs. So

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Speaker 3: there is from video chips in China and various AA applications,

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Speaker 3: but there is definitely a bigger emphasis for the domestic

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Speaker 3: ecosystem to develop and to support the domestic ecosystem, whether

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Speaker 3: it's the semiconductors itself or building of data centers, ramping

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Speaker 3: up their power infrastructure, which is incredibly robust. So those

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Speaker 3: are ongoing activities that we see on the ground.

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Speaker 2: That's interesting that you mentioned the power angle to the

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Speaker 2: AI story, because from what we know, China has really

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Speaker 2: done very well in ramping up capacity to produce electricity,

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Speaker 2: maybe more so than the US. And at the end

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Speaker 2: of the day, because those AI data centers are so

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Speaker 2: heavily reliant on electricity, I'm wondering whether China is in

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Speaker 2: a much more advantageous place.

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Speaker 3: You're absolutely right. AI is very power hungry and China

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Speaker 3: is very well equipped to handle the power crisis. They

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Speaker 3: have been fortifying their power infrastructure for decades now, so

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Speaker 3: that's also an opportunity for outside of China, for our

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Speaker 3: companies in Asia that actually are now helping the US

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Speaker 3: fortify its power infrastructure. So we see opportunities across Asia

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Speaker 3: that really help both sides of the AI race.

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Speaker 2: In the early part of the trade tension story between

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Speaker 2: the US and China, the US was trying to limit

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Speaker 2: Chinese access to technology from other countries, whether it was

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Speaker 2: Japan or South Korea. I'm thinking of also ASML in

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Speaker 2: the Netherlands. Is this something that China has been able

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Speaker 2: to kind of work around or compensate for.

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Speaker 3: Absolutely, so they have figured out ways to do more

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Speaker 3: with less, and that means, you know, they are using

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Speaker 3: lagging edge technology, so typically around two nodes behind the

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Speaker 3: world leader, which is TSMC and Taiwan, but using more

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Speaker 3: creative ways of linking together these lagging edge chips. So

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Speaker 3: that's where we see opportunity. For example and optical communications.

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Speaker 3: So if your chips are slower, well you link them

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Speaker 3: up into a bigger chip and through optical communication it

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Speaker 3: would communicate faster than copper which is what Nvidia predominantly

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Speaker 3: uses at this.

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Speaker 2: Moment, I'm going to change gears and talk a little

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Speaker 2: bit about robotics. I'm curious to get your take on

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Speaker 2: what you saw when you were in Asia relative to

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Speaker 2: the robotics industry.

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Speaker 1: Yeah.

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Speaker 3: So robotics, what we often joke about is that in

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Speaker 3: China we call it a red sea industry, meaning it

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Speaker 3: has already gone through a cycle where now there's over competition,

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Speaker 3: there are thousands of suppliers and you know, you see

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Speaker 3: like it was in China earlier. This also just for

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Speaker 3: personal vacation and when you stay in a hotel room,

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Speaker 3: you just talk to the room to tell it you

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Speaker 3: need food, and robot actually shows up and delivers your food.

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Speaker 3: So they're at that level which is unimaginable here in

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Speaker 3: the US. So I would say in a lot of

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Speaker 3: areas within robotics, the US is lagging behind. But there's

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Speaker 3: an opportunity for the US to catch up. But it

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Speaker 3: has to go hand in hand with the re establishment

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Speaker 3: of the manufacturing base, because that's going to be a

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Speaker 3: more reliable way for US companies to trial and air

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Speaker 3: and fortify their product line.

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Speaker 2: Is there any concern in Asia about certain parts of

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Speaker 2: the AI trade being over extended. I hesitate to use

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Speaker 2: the term bubble, but that's been thrown around for the

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Speaker 2: last several months. Lately, it seems like it's no longer

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Speaker 2: really relevant because the market is continuing to move higher.

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Speaker 2: But is there concern here that some of these stock

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Speaker 2: prices are overextended?

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Speaker 3: Absolutely? I think, you know, in every stage of you know,

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Speaker 3: a large secular growth trend. As people always say, people

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Speaker 3: underestimate the long term, but overestimate the short term, and

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Speaker 3: I think in parts of the technology ecosystem you do

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Speaker 3: see that, right. And you know, I often tell investors

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Speaker 3: that we've never seen a brand new technology ramp up

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Speaker 3: at this scale with this speed. So, you know, the US,

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Speaker 3: just the US cloud service providers alone, in twenty twenty six,

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Speaker 3: we estimate they will spend about six hundred billion US dollars.

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Speaker 3: That's about the same size of the entire handset ecosystem,

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Speaker 3: which took decades to build up and now ships one

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Speaker 3: point three billion units a year. So you created a

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Speaker 3: brand new tech industry within two and a half years

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Speaker 3: that basically is the same size as the largest technology

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Speaker 3: product that we had known prior to AI. So at

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Speaker 3: that speed, you're going to create a lot of shortages,

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Speaker 3: a lot of artificial demand because people are trying to

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Speaker 3: double book. So I actually think that, you know, if

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Speaker 3: the whole industry just slows down and we actually do

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Speaker 3: things properly, that might be a healthier outcome. So from

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Speaker 3: that standpoint, I think, you know, slower is better, and

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Speaker 3: we'll eventually get to the type of AI that we

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Speaker 3: think will be very productive.

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Speaker 2: So you have an interesting perspective, vast experience in Asia

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Speaker 2: and your home base is San Francisco. Can you quickly

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Speaker 2: compare and contrast what you're seeing in Silicon Valley versus

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Speaker 2: China as it relates to some of these advanced technologies.

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Speaker 3: Yeah, I think, you know, the most interesting part is

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Speaker 3: an AI that we've been discussing. So the US companies

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Speaker 3: have a very grandiose goal of creating artificial general intelligence,

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Speaker 3: whereas in and across most of Asia, they're just trying

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Speaker 3: to infuse AI and using AI as a way to

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Speaker 3: boost productivity and solve one problem at a time. So

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Speaker 3: I often describe it as, you know, the Americans are

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Speaker 3: trying to build a spacecraft here to Mars, whereas in

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Speaker 3: Asia we're just trying to build planes to go from

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Speaker 3: one city to another. So in the very near term,

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Speaker 3: the result is that you're probably going to see the

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Speaker 3: Asian AI companies make money first because they're taking a

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Speaker 3: more pragmatic commercial approach. But over the long run, if

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Speaker 3: the US can really get to AGI, I think, yeah,

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Speaker 3: there's just so much more opportunities ahead. So it's a

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Speaker 3: very different approach, but it's really interesting to see the contrast.

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Speaker 2: And interesting to talk to you, Tiffany. Thank you so

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Speaker 2: very much. Tiffany Shao, portfolio manager at Matthew's International Capital Management,

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Speaker 2: joining from San Francisco here on the Daybreak Asia podcast.

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Speaker 2: Welcome back to the Daybreak Asia Podcast. I'm Dog Krisner.

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Speaker 2: The American economy expanded in the third quarter at the

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Speaker 2: fastest pace in two years. We're talking about GDP at

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Speaker 2: an annual growth rate of four point three percent. Now,

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Speaker 2: this reading seems to have dampened some bets on further

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Speaker 2: rate cuts, at least in the near term. Right now,

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Speaker 2: money markets see less than a twenty percent chance of

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Speaker 2: a FED rate cut in January. For a closer look,

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Speaker 2: I'm joined now by Chris Campitsis. He is managing partner

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Speaker 2: at Barnum Financial Group. Chris thank you for joining us.

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Speaker 2: How do you make a case for FED rate cuts

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Speaker 2: when you have a GDP print of four point three percent.

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Speaker 1: It's a challenge to make such a case. I don't

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Speaker 1: see it realistically being on the table. As you mentioned,

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Speaker 1: predictions are saying a less than twenty percent chance. It

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Speaker 1: would be extremely accommodative and potentially inflationary to cut further

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Speaker 1: with that type of unexpected GDP growth.

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Speaker 2: And yet at the same time, today we have President

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Speaker 2: Trump in a post on social media saying that he

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Speaker 2: expects his FED share to lower rates even if the

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Speaker 2: economy and the markets are doing well, and anyone who

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Speaker 2: disagrees with the President will never be FED chairman. Does

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Speaker 2: that create a bit of risk going forward? Just the

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Speaker 2: way in which the President is framing the discussion.

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Speaker 1: The FED needs to maintain its independence, and I think

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Speaker 1: most FED officials will will tell you that that's job one.

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Speaker 1: And definitely any influence from any presidents on either side

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Speaker 1: of the aisle, and we do have a long history

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Speaker 1: of presidents who do try to influence the FED. It

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Speaker 1: doesn't it doesn't make for great outcome. So you know,

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Speaker 1: to your point, if I'm applying for the job, I

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Speaker 1: don't want to be disagreeing with the president right now,

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Speaker 1: but it's a risky proposition to be cutting rates further.

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Speaker 2: Here we did have one data. I guess you could

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Speaker 2: make the case that would argue for a cut in

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Speaker 2: interest rates. Consumer confidence in the month of December dropping

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Speaker 2: for a fifth consecutive month. We've talked a lot about

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Speaker 2: this case shaped economy. Is that really what we're trying

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Speaker 2: to kind of wrap our arms around that we essentially

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Speaker 2: have a bifurcated situation.

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Speaker 1: It most certainly is you know, the economy and effect

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Speaker 1: becomes a tale of two cities, and you have what's

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Speaker 1: very interesting is increased with the latest labor numbers, increased

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Speaker 1: participation in the labor market, which it caused the unemployment

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Speaker 1: rate to go up. However, I think that is actually

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Speaker 1: a good sign. We're seeing more people looking to return

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Speaker 1: to work, looking to get employed, and I think that's

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Speaker 1: really important. Consumer confidence historically has bit of a has

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Speaker 1: been a bit of a contrarian indicator. When it goes low,

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Speaker 1: you tend to see strong economic numbers in the months

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Speaker 1: to follow. So I'm actually not completely concerned about that reading.

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Speaker 2: If you look at what happened today in the precious

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Speaker 2: metals market, we had gold and silver prices rising to

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Speaker 2: fresh all time highs. A lot of this seems to

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Speaker 2: be tied to the narrative on more rate cuts from

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Speaker 2: the Fed. It looks as though the precious metals market

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Speaker 2: is a little concerned about inflation. Is that one way

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Speaker 2: in which to read this.

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Speaker 1: I think you can view precious metals as in essence

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Speaker 1: of potential Canarian the coal mine. It's telling you that, yes,

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Speaker 1: there's concern around inflation, and there's concern around the economy

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Speaker 1: that is starting to build in the months and quarters ahead.

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Speaker 2: Give me some specifics. What are you looking at right now?

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Speaker 2: In order to make that conclusion.

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Speaker 1: We have a situation where the consumer has been extremely resilient.

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Speaker 1: It's spending. I think consumer spending was up three point

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Speaker 1: five percent, Business investment relatively strong, up about two point

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Speaker 1: eight percent, and corporate profits have been strong. So that's

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Speaker 1: the book case. That's the thinking that despite tariffs, despite

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Speaker 1: concerns around stock valuations, despite concerns around unemployment, the market

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Speaker 1: and the underlying economy are healthy. On the flip side

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Speaker 1: of that coin, you're seeing a situation where unemployment is

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Speaker 1: ticking up. We're seeing that bifurcation starting to occur in

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Speaker 1: the economy. I think the retail data that comes out

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Speaker 1: this holiday season is going to be very, very critical

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Speaker 1: as to just how resilient the consumer is on a

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Speaker 1: go forward basis as we enter into twenty twenty six,

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Speaker 1: and then ultimately we have to pay close attention to

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Speaker 1: what's happening with inflation, because on the bottom end of

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Speaker 1: that bifurcated economy, what you're seeing is, you know, consumers

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Speaker 1: are telling us things are just getting two expensive. Debt

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Speaker 1: levels are increasing, and there's a lot of concern around

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Speaker 1: that as well.

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Speaker 2: So everything that you believe right now in terms of

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Speaker 2: what you've just kind of captured there, how is that

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Speaker 2: leading you to create a strategy for markets in twenty

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Speaker 2: twenty six.

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Speaker 1: We're taking a Barbelle approach because we understand that ultimately

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Speaker 1: technology artificial intelligence that's going to be tremendously expansive, but

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Speaker 1: most certainly not in a straight line. We anticipate that sector,

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Speaker 1: which is obviously driving the top of the market, to

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Speaker 1: be more volatile than ever as more and more investors

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Speaker 1: are looking for a reason to sell rather than a

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Speaker 1: reason to buy. And you see that with the last

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Speaker 1: couple set of earnings on the you know each where

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Speaker 1: stocks have reacted really negatively despite really positive earnings reports

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Speaker 1: out of these tech companies. On the flip side of

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Speaker 1: the coin, you're seeing some increase to the breadth of

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Speaker 1: the overall market where sectors that have been out of

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Speaker 1: favor for a really long time, healthcare, consumer staples, they're

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Speaker 1: starting to show signs of strength and begin to show

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Speaker 1: some momentum. So we want to play both value, still

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Speaker 1: participate in growth, but not quite as much in terms

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Speaker 1: of the overall portfolio allocation as in twenty twenty five,

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Speaker 1: and we want to have some dry powder to be

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Speaker 1: able to buy those dips because there will certainly be dips.

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Speaker 1: We know that going in There's never been a year

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Speaker 1: where there hasn't been ups and downs, and so cash

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Speaker 1: on the sidelines is critical, and we're seeing that a lot.

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Speaker 1: Over these last couple days. There's been an increase in

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Speaker 1: tax us harvesting in stocks that have underperformed this year

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Speaker 1: being sold and and we're seeing cash on the sidelines

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Speaker 1: increasing a little bit. I think that's a wise move

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Speaker 1: as we head into the new year.

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Speaker 2: What about increasing your exposure to markets offshore, particularly in Asia.

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Speaker 2: Does that seem to make sense at this point?

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Speaker 1: I like Asia absolutely. I also think there's a lot

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Speaker 1: to like with Europe. You know, when we think about Europe,

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Speaker 1: the valuations of their equity markets stocks are cheaper. Also,

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Speaker 1: they're more aggressively cutting rates. The governments there are spending

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Speaker 1: more as they feel like they can rely less on

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Speaker 1: the other global superpowers and the dollars weeker. So there's

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Speaker 1: a lot to like about international markets in general. In particular,

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Speaker 1: we like Europe quite a bit.

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Speaker 2: I'm wondering about opportunities in the bond market. If you're

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Speaker 2: somewhat defensive and you want to be part in some way,

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Speaker 2: is the bond market a good option right now?

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Speaker 1: If you believe ultimately that in twenty twenty six interest

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Speaker 1: rates are going to ultimately be lower rather than higher.

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Speaker 1: It tends to lead to say, hey, well, maybe parking

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Speaker 1: some money and bonds make sense. You want high credit,

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Speaker 1: quality government bonds. I don't think you want to be

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Speaker 1: taking tremendous amount of credit exposure here. We're starting to

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Speaker 1: see cracks in the private credit story as an example

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Speaker 1: of that, So high yield it is going to be

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Speaker 1: a little bit riskier, but quality, quality credit quality bonds

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Speaker 1: a potential increase to the allocation. That being said, the

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Speaker 1: idea of when stocks go down, bonds go up, that

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Speaker 1: equation is not quite as true as it used to

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Speaker 1: be historically, at least it hasn't been over the last decade.

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Speaker 1: So I'm not so sure that one is a certainty

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Speaker 1: when the other happens going forward.

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Speaker 2: Can you give me a call that you would make

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Speaker 2: for the new year that may be a little counterintuitive.

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Speaker 1: A call that I would make for the new year

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Speaker 1: that would be a little counterintuitive would be number one,

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Speaker 1: gold and precious metals may be a little bit overpriced here.

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Speaker 1: And number two, you might want to really consider taking

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Speaker 1: some of those tech profits off of the table, but

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Speaker 1: not being afraid to go back in when you see

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Speaker 1: prices adjust.

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Speaker 2: Chris will leave it there. Thank you so very much.

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Speaker 2: Chris Campittsis is managing partner at Barnum Financial Group. Joining

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Speaker 2: us here on the Daybreak Asia Podcast. Thanks for listening

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Speaker 2: to today's episode of the Bloomberg Daybreak Asia Edition podcast.

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Speaker 2: Each weekday, we look at the story shaping markets, finance,

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Speaker 2: and geopolitics in the Asia Pacific. You can find us

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Speaker 2: on Apple, Spotify, The Bloomberg Podcast YouTube channel or anywhere

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Speaker 2: else you listen. Join us again tomorrow for insight on

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Speaker 2: the market moves from Hong Kong to Singapore and Australia.

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Speaker 2: I'm Doug Prisoner and this is Bloomberg