Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2: Welcome to the Daybreak Asia podcast. I'm Dan Schwartzman. Doug
Speaker 2: Christner has the week off oil extended its games on
Speaker 2: reports that Iran a tacked quote hostile targets in the
Speaker 2: Strait of Hormuz, reviving inflation concerns. We also see this
Speaker 2: real bifurcation of expectations with this deal with Oman as well.
Speaker 2: Under a proposed Iran and Oman agreement, Tehran intends to
Speaker 2: ban US and Israeli ships from the Strait and require
Speaker 2: compensation from hostile countries to use it. In the States,
Speaker 2: attention now turns to the US employment report on Friday for
Speaker 2: clues on the federal reserves policy path. For more in
Speaker 2: the markets, Bloomberg's Heidi Stroud Watts spoke to Lori Calvacina,
Speaker 2: head of US Equity Strategy at RBC Capital Markets.
Speaker 3: It has felt like an exceptionally exhausting number of factors.
Speaker 4: What's type of mind for you at the moment, So look.
Speaker 5: In as I've been here this week talking to Australian Investment,
Speaker 5: We've been talking about the FED, We've been talking about tech,
Speaker 5: we've been talking about the midterm elections, and I think
Speaker 5: against the backdrop of all that, right, it's just where
Speaker 5: valuations are. And we actually think if you look at
Speaker 5: like US versus non US, you've gotten to a really
Speaker 5: interesting place again. Basically, you know, after this burst of
Speaker 5: geographical leadership or broadening, we saw the US is actually
Speaker 5: looking cheap on a five year basis versus rest of world.
Speaker 5: So we do think that helps dampen, you know, some
Speaker 5: of the challenges we're dealing with on a day to
Speaker 5: day basis.
Speaker 3: Yeah, you can take a look at the chart that
Speaker 3: is looking at as sort of quality factors, right, even
Speaker 3: if you still have to deal with the momentum the gyrations.
Speaker 3: When it comes to the chip trade in particular, we
Speaker 3: are seeing kind of a lid being kept on volatility
Speaker 3: measures as we've seen the quality of value factors actually
Speaker 3: improve of the US. Where do you see that because
Speaker 3: tech actually, if you guess go by the lofty earnings expectations,
Speaker 3: looks pretty cheap in DM.
Speaker 5: Yeah, so you know, look, I would just say on
Speaker 5: the quality factor, I cover both large cap and small
Speaker 5: cap in the US, and we've been seeing high earnings
Speaker 5: quality outperform for a bit now, and we're starting to
Speaker 5: see in the large cap space as well. We've been
Speaker 5: highlighting that to investors this week, saying this is a
Speaker 5: time to be more selective and you can think about quality,
Speaker 5: you know, not just as a quant factor, right, but
Speaker 5: in selection of management teams and just being more discriminating
Speaker 5: within whatever sector you're in. And your point on technology,
Speaker 5: I mean, you know, I think in the financial community
Speaker 5: we often say tech tech is hiding in a bunch
Speaker 5: of different sectors. Communication services, consumer discretion is where most
Speaker 5: of the Internet names are. We're having a little bit
Speaker 5: more challenges on free cash flow. But if you look
Speaker 5: at the tech sector itself, which is largely Semis hardware software,
Speaker 5: it's a cheap sector now, I mean that's not something
Speaker 5: we could say even you know, a month or two ago,
Speaker 5: and so we've actually been pointing people to that sector
Speaker 5: and we've said, look, you know, the Semis SMP Semis
Speaker 5: have come back down to five and thirty year averages.
Speaker 5: Software is getting close to historical lows. That doesn't mean
Speaker 5: every stock within that sector is going to be a winner,
Speaker 5: but it is a place where value has been unlocked.
Speaker 5: And at the end of the day, if you're a
Speaker 5: longer term investor, you want to look at these volatility,
Speaker 5: you know, sort of situations in the market and and
Speaker 5: look where value has been unlocked and try to find opportunity.
Speaker 3: When invite you know, in software there's now been talked
Speaker 3: about you start seeing some of the software names taking
Speaker 3: up AI in more of an efficient way. And that's
Speaker 3: obviously a little bit more of a ball signal. But
Speaker 3: the specifics of this is really interesting. Right. I think
Speaker 3: I ready note that he said, you know, you need
Speaker 3: to look for the picks and shovels of the pigs
Speaker 3: and shove rights trade.
Speaker 4: Right, what about the trickle down trade? Is that happening
Speaker 4: across it? The broadening when you're saying that you need
Speaker 4: to be more selective.
Speaker 5: You know, we have you know, our view on the
Speaker 5: broadening trade has been a little bit different than most strategists.
Speaker 5: You know, I think a lot of strategists came into
Speaker 5: this year saying it's time for the market to broaden,
Speaker 5: and we said, you know, we think this is more
Speaker 5: of a tug of war and you're going to see
Speaker 5: a back and forth between kind of the old leadership
Speaker 5: and kind of you know, the rest of the market.
Speaker 5: And we've had a few twists and turns in that already,
Speaker 5: and I think that, to be honest, we got to
Speaker 5: a situation a couple months ago where kind of the
Speaker 5: old AI tech megacat growth leadership got overvalued. I think
Speaker 5: that valuation problem has been largely solved. And one of
Speaker 5: the things we're seeing on our data as we go
Speaker 5: through earnings is that if you look at a broader
Speaker 5: basket of AI stocks, that you've seen a tremendous kind
Speaker 5: of upside surprise and the earning's growth for twenty twenty six,
Speaker 5: and it's still showing a lot of superiority versus the rest.
Speaker 4: Of the market.
Speaker 5: And so one of the things we've said is that
Speaker 5: until the rest of the market can give you a
Speaker 5: better earning story, we think you're just going to flip
Speaker 5: flap back and forth between the two. And when you
Speaker 5: get the valuation problem on one, you'll go into the other,
Speaker 5: and then when you solve that, you'll go back again.
Speaker 5: And I think that's what we're in the middle of
Speaker 5: right now. Frankly, how much of the views.
Speaker 3: On US tech quality value full costing is that being
Speaker 3: challenged by the China Ai story.
Speaker 5: Look, I think you know, as we kind of go
Speaker 5: back and look at some of the things we've heard
Speaker 5: from the administration in the US. They've made it clear
Speaker 5: that they're sort of fusing economic security and national security
Speaker 5: and they want the US to win the AI race.
Speaker 5: So that's something that's been coming up a bit this
Speaker 5: week as well when we're talking about US tech. But
Speaker 5: I think it is also, you know, a source of volatility,
Speaker 5: right when we get some of these news developments that
Speaker 5: sort of challenge that idea of the US doing well
Speaker 5: on that front.
Speaker 4: And we touched a little bit on the.
Speaker 3: How many questions are you being offed about the FED
Speaker 3: outlook because obviously we had another sort of instance to
Speaker 3: be concerned about FED independence. Joe Walsh is obviously in
Speaker 3: a difficult situation, right, do you feel like the market
Speaker 3: is underestimating the inflation and the energy impact?
Speaker 5: So look, I'll say our rate strategist, Blake Gwenn does
Speaker 5: not have any hikes in his forecast over the next
Speaker 5: twelve months.
Speaker 6: Now.
Speaker 5: He will also tell you that the bar is Lofer hikes,
Speaker 5: so you know, he recognizes that it's a fluid situation
Speaker 5: and we have to keep an eye on the data,
Speaker 5: We have to keep an eye on additional FED speak
Speaker 5: in the future. But look, I think the reality is that,
Speaker 5: you know, the bond market is expressing some worry and
Speaker 5: frankly worries that I'm not necessarily seeing expressed in the
Speaker 5: equity market. I think the press conference last week, you know,
Speaker 5: that has come up in meeting after meeting this week,
Speaker 5: and I've been pointing people to a chart that basically
Speaker 5: looks at how the stock market performed in the US
Speaker 5: after Bernank, Yell, and Powell took over. And guess what,
Speaker 5: just like Warsh, they had a rough first couple of
Speaker 5: months on the job from a stock market perspective, But
Speaker 5: with all three of those, the market was hire a
Speaker 5: year after they stepped into the job. So you know,
Speaker 5: we've looked at the facts that the market has essentially
Speaker 5: been trading sideways at least until this week when it's popped,
Speaker 5: But it had been short of trading sideways ever since
Speaker 5: Warsh took over.
Speaker 4: By historical standards, that is not unusual.
Speaker 5: It does take financial markets time to get used to
Speaker 5: a new way of doing things.
Speaker 2: That was Lori Calvacina, head of US Equity strategy at
Speaker 2: RBC Capital Markets, speaking of Bloomberg's Heidi Shroud, Watts and
Speaker 2: we're bringing their conversation to you here on the Daybreak
Speaker 2: Asia podcast. Welcome back to the Daybreak Asia Podcast. I'm
Speaker 2: Dan Schwarzman. Doug Chrisner has a week off. Over the
Speaker 2: last several days, Japan had several companies report earnings. Da Nishihada,
Speaker 2: chief Japan equity strategists for JP Morgan Securities, spoke to
Speaker 2: Bloomberg's cherry On about her outlook on the Japanese earning season.
Speaker 6: Cool fourth earnings are very very strong, as you said
Speaker 6: about more than half of the major companies have reported.
Speaker 4: And sales growth in.
Speaker 6: Ear is fifteen percent and NETT income gross is fifty percent.
Speaker 6: They are stronger than the pier in US and Europe.
Speaker 6: And we have to remember that the strong growth earnings
Speaker 6: growth was realized under high oil prices. Japan is all
Speaker 6: important company, which means corporate pricing power is you know,
Speaker 6: has become very strong structurally in my view, and the
Speaker 6: driver of earnings grows, as you say, is broadening beyond
Speaker 6: the AI, semi banks, trading companies, wholesale companies and the machinery.
Speaker 1: Also the driver I was going to say, I mean,
Speaker 1: how much of the strength are you seeing across the
Speaker 1: board at a time when we've discussed the supply chain disruptions,
Speaker 1: rising costs, and of course not to mention on the
Speaker 1: backge of everything is also tariff costs still in play
Speaker 1: at the moment, right, So, I.
Speaker 6: Mean Japan's price transfer ratio has under the differational economy
Speaker 6: has been fifty percent compared to eighty nine to ninety
Speaker 6: percent in US so and now start of the twenty
Speaker 6: twenty three it's jumped up to seventy percent, and even
Speaker 6: under the difficult phases in a US tariff in two
Speaker 6: susan twenty five or higher old prices this year, actually
Speaker 6: this price transfer ratio down just a bit like sixty
Speaker 6: eight or so, so still higher than you know, fifty
Speaker 6: percent in the differational economy. So that makes corporate earnings
Speaker 6: it's still strong. We compute it as impact by higher
Speaker 6: old prices this time is will be something like six
Speaker 6: percent point down. But actually, I mean market consensus is
Speaker 6: continued to upward the division even after this much.
Speaker 1: Do businesses themselves understand the strength of their business right now?
Speaker 1: The issue with Japan has always been cashwoarding, right business
Speaker 1: is not spending on the future and not paying there's
Speaker 1: the salaries of employees, so you can see a virtual
Speaker 1: cycle of wage growth as well. We've seeing that change
Speaker 1: in mindset.
Speaker 6: Yes, long growth is now six percent, which is recorded
Speaker 6: high these days.
Speaker 4: So which is this is because.
Speaker 6: Of the growth of the corporate appetite to growth investment
Speaker 6: It has just started. This is I think in related
Speaker 6: with a government promotion of growth investment. Corporate governance now
Speaker 6: focus on how corporates use excess catch in the balance sheet.
Speaker 6: So one way is to use for growth investment. Another
Speaker 6: way is to increase which you know, both of which
Speaker 6: should lead to a better economy, that circular circle of
Speaker 6: good economy.
Speaker 1: How are they viewing the length the strength of the
Speaker 1: end right now?
Speaker 4: One fifty eight.
Speaker 6: Yeah, but from a ReSpectacle of equity markets, actually dollar
Speaker 6: ym beilau one sixty is okay, you know, I mean manageable.
Speaker 4: A corporate assumption.
Speaker 6: For twenty six f y dollar yen is one fifty
Speaker 6: two with conservative bias, and one fifty is the last
Speaker 6: year's average. So our break given dollar M for households
Speaker 6: real income gross is one sixty. So of course Takaha
Speaker 6: administration's physical expansion continue yen weakening pleasure. But we also
Speaker 6: heard last last month that government hint a potential GPIF
Speaker 6: investment shift and we saw japan US joined the EXXS intervention.
Speaker 6: So such through funds policy would be some supportive factor
Speaker 6: to reduce a father yen weakening.
Speaker 1: Appreci shaping morgancy in the yen year end.
Speaker 4: Yeah, one sixty four year.
Speaker 1: Okay, despite everything that has happened.
Speaker 6: There from now still you know, four months from now.
Speaker 6: So but there is also you know, risks in a
Speaker 6: short term, and such a government address should keep in
Speaker 6: a bit strong strong.
Speaker 1: Yeah, not to mention, of course, bog decisions as right
Speaker 1: when it comes to these businesses. We talked about the
Speaker 1: strength of the semiconductor side of things, and we talked
Speaker 1: about the broadening of the machinery other sectors like banks
Speaker 1: as well. Are there any outstanding to you that you
Speaker 1: think have more potential going forward?
Speaker 6: Yes, I overweight bunks from structured perspective, life, from medium term,
Speaker 6: you know, time horizon. Some investors see the banks evaluation
Speaker 6: current PB one point five times, PE fifteen times already
Speaker 6: pricing to.
Speaker 4: Bog rate hikes. So what else?
Speaker 6: But my view is, you know, long growth is one thing.
Speaker 6: This is the start of this call of strong growth investment.
Speaker 6: Another thing is potential deposit shift. Deposit shift makes the
Speaker 6: banks who has resilience to deposit beta longtime rates rising
Speaker 6: or upgraded cyber attack can be winner. Through this process,
Speaker 6: I think deposit yield rong ill will be normalized from
Speaker 6: a level under theferational economy. That is categorist that has
Speaker 6: not been in EPs or ALOE.
Speaker 7: That was Rija Nichi had a chief japan equity strategist
Speaker 7: at JP Morgan Securities, speaking of Bloomberg Sharry On and
Speaker 7: we're bringing their conversation to you here on the Daybreak
Speaker 7: Asia podcast.
Speaker 8: Thanks for listening to today's episode of the Bloomberg Daybreak
Speaker 8: Asia Edition podcast. Each weekday, we look at the story
Speaker 8: shaping markets, finance, and geopolitics in the Asia Pacific. You
Speaker 8: can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel,
Speaker 8: or anywhere else you listen. Join us again tomorrow for
Speaker 8: insight on the market moves from Hong Kong to Singapore
Speaker 8: and Australia. I'm Doug Prisoner and this is Bloomberg