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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 Chrisner. A

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Speaker 2: short while ago, President Trump unveiled a litany of new tariffs.

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Speaker 2: He said the US will impose a one hundred percent

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Speaker 2: tariff on any branded or patented pharmaceutical product unless a

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Speaker 2: company is building their pharmaceutical manufacturing plant in America. Trump

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Speaker 2: also announced a fifty percent tariff on kitchen cabinets, thirty

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Speaker 2: percent levies on upholstered furniture, and twenty five percent tariffs

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Speaker 2: on heavy trucks. Incidentally, these new tariffs will take effect

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Speaker 2: October first. Separately, the President formalized an agreement for a

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Speaker 2: group of American investors to take control of TikTok's US operations.

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Speaker 2: The President said the deal would protect the data of

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Speaker 2: US users and that Oracle will secure the algorithm on

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Speaker 2: the American version of this platform. Vice President JD Vance

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Speaker 2: played a critical role in crafting this deal.

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Speaker 3: The company will be valued around fourteen billion dollars. We

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Speaker 3: actually think this is a good deal for investors, but

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Speaker 3: ultimately the investors are going to make the determination about

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Speaker 3: what they want to invest in and what they think

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Speaker 3: is a.

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Speaker 2: Proper value, that is, Vice President jd. Vance. In a

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Speaker 2: moment or two, we'll get some perspective on this deal

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Speaker 2: from the Asia Pacific, but we begin here in the States,

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Speaker 2: where markets had to recalibrate the outlook for fed raitcuts.

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Speaker 2: Today after a strong reading on US economic activity, we

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Speaker 2: had the S and P five hundred down for a

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Speaker 2: third straight session, the longest slide in a month. For

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Speaker 2: a look at market action, now, I'm joined by Brian Krowez.

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Speaker 2: He is president also the chair of the investment committee

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Speaker 2: at Sharf Investments. Brian is on the line from Los Gatos, California. Brian,

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Speaker 2: thank you so much for making time to chat with me.

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Speaker 2: You want to weigh in on this TikTok deal. You

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Speaker 2: and I were talking offline a moment ago about you

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Speaker 2: being invested in Oracle. What does this mean for Oracle?

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Speaker 4: Yeah, I mean thanks for having me. Always enjoy being

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Speaker 4: on the store. It's good news for Oracle. I mean

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Speaker 4: that's extra extra business for them. And the TikTok price

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Speaker 4: seems actually pretty attractive. Would you consider how big of

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Speaker 4: a social media platform it is, so overall it should

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Speaker 4: be a good, good deal for Oracle shareholders and hopefully

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Speaker 4: a good deal for the American public if we can

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Speaker 4: ensure that Americans data is not somehow transferred over to China,

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Speaker 4: so overall should be a decent deal for investors and

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Speaker 4: hopefully for the country.

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Speaker 2: The tech story has been a big part of the

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Speaker 2: market's performance this year last as well. I guess artificial

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Speaker 2: intelligence has been one of the predominant themes. We were

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Speaker 2: down today for a third straight session, and there is

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Speaker 2: a lot of concern about lofty valuations. No matter how

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Speaker 2: you slice it, how are you feeling about the AI trade,

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Speaker 2: perhaps tech more broadly, You.

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Speaker 5: Know, we're a little cautious.

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Speaker 4: You know, it's it's an interesting market. I've been managing

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Speaker 4: money a long time, and I'm starting to get a

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Speaker 4: little bit of shades of ninety nine. You've got open

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Speaker 4: ai with something like a trillion dollars in commitments to

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Speaker 4: do data centers. They've raised about sixty three billion, and

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Speaker 4: I think last check they have something like thirteen billion

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Speaker 4: in revenue. So you're talking about, you know, a massive

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Speaker 4: investment for what is still a relatively small revenue base.

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Speaker 4: And so you're starting to see deals where in Vidia,

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Speaker 4: you know, invests in open Ai and then open EI

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Speaker 4: buys some video chips, a little bit of shades of

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Speaker 4: the financing back when Cisco, Nortel, and Lucent.

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Speaker 5: We're doing the same kind of thing.

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Speaker 4: I'm not saying it's exactly the same level of bubble,

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Speaker 4: because you know, clearly in Vidia has you know, much

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Speaker 4: better profitability than some of the internet.

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Speaker 5: Firms back then.

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Speaker 4: But you're starting to get a little bit of shades

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Speaker 4: of it, and it is a little bit concerning.

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Speaker 2: I'm wondering whether you were surprised at all. Want to

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Speaker 2: change gears here and talk a little bit about the

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Speaker 2: macro surprised by this very strong rating that we had

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Speaker 2: on second quarter GDP, the final revision with a growth

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Speaker 2: rate of three point eight percent. That seems stunning when

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Speaker 2: we've talked about weakness in the labor market and expectations

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Speaker 2: that the FED is going to lean in here and

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Speaker 2: be a little more accommodative. That was called into question today.

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Speaker 2: How do you feel about that?

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Speaker 5: It's definitely a conundrum.

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Speaker 4: I mean, you've seen a three point eight percent GDP revision,

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Speaker 4: as you just mentioned, up from three point two, so

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Speaker 4: you know, three point eight is a pretty good you know,

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Speaker 4: you called it stunning. I mean, it's definitely very good,

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Speaker 4: healthy growth. On top of that, you've had some other

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Speaker 4: data where you know, continuing claims wasn't as bad as expected.

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Speaker 4: So you've had a little bit of different crosswinds. And

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Speaker 4: you haven't seen the inflation really starting to pick up

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Speaker 4: yet from tariffs, but you know, we think that's probably coming.

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Speaker 4: And then the other thing i'd say about the strong

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Speaker 4: GDP is a big help to GDP is all of

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Speaker 4: this investment that's happening, and a lot of it's related

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Speaker 4: to AI, as we.

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Speaker 5: Just talked about.

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Speaker 4: So there's been massive commitments in AI, and so there's

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Speaker 4: a lot of investment that goes into the GDP equation

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Speaker 4: and that's definitely playing a part. The other thing is

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Speaker 4: there's just general optimism around some of the changes that

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Speaker 4: President Trump has done, and so you're getting even investment

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Speaker 4: in just general manufacturing. You've gotten just sort of the

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Speaker 4: hammer coming down where they're saying you need to build

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Speaker 4: more in America. So you're seeing a lot of GP

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Speaker 4: being very much helped by investment. The question is is

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Speaker 4: that investment going to be worth it?

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Speaker 5: Is it gonna be malinvestment?

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Speaker 4: Are we going to build tons of data centers and

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Speaker 4: not really have revenue from that. That's the open question,

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Speaker 4: And some of the other reads is that parts of

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Speaker 4: the GDP are actually not as strong, and so it's

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Speaker 4: a little bit too early to tell, but certainly it's

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Speaker 4: an odd environment for people to be called for the

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Speaker 4: FED to make massive rate cuts at the same time

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Speaker 4: you're having GDP revised up.

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Speaker 2: So you made the point about the possibility that tariffs

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Speaker 2: will be inflationary, maybe that is down the road a bit.

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Speaker 2: Do we need to talk about the potential inflationary impact

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Speaker 2: of energy? As these AI data centers begin to demand

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Speaker 2: a lot more in the way of electricity and providers,

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Speaker 2: utilities or private companies just race to be able to

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Speaker 2: produce the amount of electricity that's required. Is there the

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Speaker 2: risk here that prices begin to creep up and that

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Speaker 2: that begins to spill over into inflation in a way

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Speaker 2: that becomes damaging.

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Speaker 4: Yeah, no, that's an astutent observation. I mean, you've probably

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Speaker 4: seen the charts. Energy prices are zooming higher at a

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Speaker 4: rate we haven't seen in decades, and that definitely is

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Speaker 4: going to transfer through in terms of inflation. Although energy

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Speaker 4: is a percentage of GDP is a relatively small component now.

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Speaker 4: I mean, it's not like in the seventies, and so

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Speaker 4: it's probably less of an impact that would have in

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Speaker 4: the past.

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Speaker 5: I'll also point out that healthcare.

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Speaker 4: You know, we don't know what's gonna happen with the

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Speaker 4: ACA tax credit, and you know, you've got wrangling in Congress,

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Speaker 4: and you know in Washington about a potential work stoppage.

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Speaker 4: But one of the issues that I think isn't getting

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Speaker 4: talked about enough is ACA marketplace, which is sort of

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Speaker 4: Obamacare health insurance. You're talking about twenty percent type premium

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Speaker 4: increases in a lot of those markets, and overall, health

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Speaker 4: care inflation should be a lot higher than people are

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Speaker 4: talking about, even in the private sector, So that will

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Speaker 4: definitely transfer through the economy, as healthcare is a pretty

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Speaker 4: big component of people's expenditures.

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Speaker 2: So we're approaching the end of both the month and

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Speaker 2: the quarter. For the month, I think so far the

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Speaker 2: S and P is still up around one point nine percent,

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Speaker 2: and for the quarter so far, I think the S

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Speaker 2: and P is up around six percent. I'm curious about

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Speaker 2: the extent to which you're rebalancing right now as we

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Speaker 2: close out the quarter, and and any pivot that you're making.

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Speaker 2: What does that look like right now?

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Speaker 4: You know, we're you know, so we talked a little

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Speaker 4: bit about being worried about AI. And also I would

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Speaker 4: say evaluations are very very high right now. But what's interesting,

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Speaker 4: and this was sort of similar to you know, back

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Speaker 4: twenty five years ago, when you had an opportunity to

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Speaker 4: buy sort of value names at just historically low valuations,

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Speaker 4: and yet the overall market was extremely high. If you

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Speaker 4: bought those low valuation stocks, you actually did very well

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Speaker 4: over the next decade. Similarly, right now, there are some

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Speaker 4: very high quality companies that are trading at valuations you've

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Speaker 4: never seen before. I mean, just to throw out a

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Speaker 4: couple of them. You know, Zoetis is a company that's

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Speaker 4: really big and animal health. It is trading at evaluation

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Speaker 4: relatively s and P it's never it's never seen before

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Speaker 4: and actually, you know, fairly reasonable valuation of a company

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Speaker 4: that's is high quality and dominant in its market space

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Speaker 4: and probably will benefit from AI because ultimately they come

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Speaker 4: up with drugs for animals, and AI will undoubtedly make

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Speaker 4: it easier and cheaper to come up with new drugs,

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Speaker 4: and because they are dominant in their sector, they'll probably

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Speaker 4: be able to hold on to some of the pricing,

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Speaker 4: so it'll be good for people's pets and it'll be

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Speaker 4: good for the company.

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Speaker 3: You know.

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Speaker 4: Another one would be a name like UNP, which is potentially.

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Speaker 5: Going to do a merger. You know, rails have dominant

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Speaker 5: market space.

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Speaker 4: It's only around eighteen times, you know, in a market

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Speaker 4: that's twenty two times. And yet if they are able

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Speaker 4: to pull off that deal, they'll be you know, one

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Speaker 4: of only a few companies that can compete. And they

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Speaker 4: also similarly can benefit from AI as they can reduce labor.

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Speaker 4: So there's a lot of these companies out there that

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Speaker 4: will probably benefit from AI, be able to get their

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Speaker 4: margins up potentially enhance revenue. The market is sort of

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Speaker 4: ignoring them for the most part, as people are piling

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Speaker 4: into names that are really AI beneficiaries or direct I

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Speaker 4: should say, directly involved in the AI ecosystem, such as

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Speaker 4: Nvidia and all the semis and names like that.

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Speaker 2: I'm curious as to whether or not you're looking for

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Speaker 2: opportunities in certain areas of technology offshore, whether in Asia

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Speaker 2: or perhaps Europe. Is that something that you're leaning into

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Speaker 2: a little bit at the moment.

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Speaker 4: Yeah, we own Samsung, which is a name that I think,

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Speaker 4: you know, has that we could do a whole segment

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Speaker 4: just on SAG Samsung and they're missing. They actually created HBM,

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Speaker 4: which is the memory that's very important in AI, and

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Speaker 4: then they didn't know what to do with it, so

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Speaker 4: they got passed up by s K Hynks. But they

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Speaker 4: are one of the largest world's largest tech companies by revenue,

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Speaker 4: very important to the ecosystem.

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Speaker 5: And you know, have had some missteps.

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Speaker 4: But recently, you know, we're approved for HBM three for Nvidia,

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Speaker 4: and there's talk of them being approved for HM four

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Speaker 4: and that could be a very big help.

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Speaker 5: To their revenues.

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Speaker 4: And ultimately they're ting, you know, something like twenty five

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Speaker 4: percent over book value and you know kind of teams

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Speaker 4: multiple so you've got to if they were a US company,

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Speaker 4: they probably have a much higher valuation. Because they trade

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Speaker 4: in Korea, they're somewhat forgotten.

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

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Speaker 2: Brian Crowez is president. He's also the chair of the

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Speaker 2: investment committee at Scharf Investments. Joining us on the line

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Speaker 2: from Los Gatos, California here on the Daybreak Asia Podcast.

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Speaker 2: Welcome back to the Daybreak Asia Podcast. I'm Derek Prisoner.

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Speaker 2: President Trump formalized an agreement today for a group of

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Speaker 2: American investors to take control of the US operations of TikTok.

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Speaker 2: The President said the deal will protect the data of

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Speaker 2: US users and Oracle will secure the algorithm on the

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Speaker 2: American version of this platform. Vice President JD. Vans played

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Speaker 2: a central role in crafting this deal, and today he

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Speaker 2: said the new company will be valued at around fourteen

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Speaker 2: billion dollars. Here is Bloomberg's Annabelle Jewelers.

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Speaker 6: In the executive order, it essentially acknowledged or stated that

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Speaker 6: there is a plan in place that meets the conditions

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Speaker 6: for TikTok to continue operating in the US.

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Speaker 7: So it says that there's a framework.

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Speaker 6: Agreement in place where where the app is going to

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Speaker 6: be essentially operated in a joint venture structure that will

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Speaker 6: be majority owned and controlled by Americans. So you can

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Speaker 6: see here President Trump signing that executive order just earlier

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Speaker 6: today ByteDance as well. It's contained in the order it

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Speaker 6: says it's going to take less than a twenty percent stake,

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Speaker 6: and also that there's going to be a new board

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Speaker 6: of directors that will be established to run TikTok's US operations.

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Speaker 6: Just who the eventual buyers are that part is still

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Speaker 6: not exactly clear, but what we heard from sources is

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Speaker 6: Oracle and silver Ake. They continue to be the names

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Speaker 6: that are coming up. MGX is actually another one that's

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Speaker 6: come up. This one's new, but it's an interesting one

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Speaker 6: because it's an Abu Dhabi based sovereigns or state owned

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Speaker 6: investment firm rather that does have a big focus on

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Speaker 6: AI and advanced tech knowledgies. The framework of the deal

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Speaker 6: does seem to at least meet what would have been

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Speaker 6: one of the key conditions for China, which is that

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Speaker 6: the technology, the actual algorithm will stay in Chinese hands,

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Speaker 6: just a copy of it is going to be licensed

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Speaker 6: to the operations in the US. But China, as you said,

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Speaker 6: is yet to say publicly whether it's actually granted approval

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Speaker 6: for this, even though you heard from President Trump, they're

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Speaker 6: saying that the President she had given the go ahead.

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Speaker 7: When they spoke last week.

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Speaker 6: The Chinese embassy as well didn't respond to our request

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Speaker 6: for comment. But we are coming up against another deadline

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Speaker 6: to this one, so the deal does need to close

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Speaker 6: within one hundred and twenty days. That takes us until

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Speaker 6: the end of January. We've already seen a number of

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Speaker 6: deadlines for this or deadlines being extended, in fact five extensions.

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Speaker 7: But it is something that will have to get past China.

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Speaker 6: It's also saying that it's going to have to get

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Speaker 6: past US lawmakers who are still promising to very closely

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Speaker 6: scrutinize the contents of that deal as well.

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Speaker 2: That is Bloomberg's Annabelle Droolers. At the same time, today,

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Speaker 2: President Trump and anounced a one hundred percent tariff on

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Speaker 2: any branded or patented pharmaceutical product unless a company is

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Speaker 2: building their pharmaceutical manufacturing plant in the United States. Trump

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Speaker 2: also announced a fifty percent tariff on kitchen cabinets, thirty

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Speaker 2: percent levies on upholstered furniture, and twenty five percent tariffs

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Speaker 2: on heavy trucks. These new tariffs, by the way, will

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Speaker 2: take effect October first. For some insight, we spoke with

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Speaker 2: Deborah Elms of the Heinrich Foundation. She is head of

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Speaker 2: policy there, and she spoke with Bloomberg TV host Sherry

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Speaker 2: On and April Hong on the Asia trade.

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Speaker 3: Well, first, Trump is never going to be done with tariffs,

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Speaker 3: So anyone who thinks that this is the end, or

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Speaker 3: at any point that that would be the end of

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Speaker 3: his tariff game is delusional. The man loves tariffs. He'll

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Speaker 3: continue to use them. So that's the first point. The

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Speaker 3: second is that these negotiations have been largely about what

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Speaker 3: were called the reciprocal tariffs, that is, those tariffs imposed

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Speaker 3: under emergency powers originally on April second, had been revised

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Speaker 3: since then. That's where the focus has been, and what

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Speaker 3: the Trump administration has been doing is moving more and

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Speaker 3: more tariff coverage to these sector specific tariffs on increasingly

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Speaker 3: now everything as you can see, including now the kitchen,

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Speaker 3: cabinet and the couch in the living room. I mean,

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Speaker 3: this is an incredible, breathtaking expansion of tariff coverage that

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Speaker 3: will affect everyone, including those countries that thought that they

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Speaker 3: had a deal in place under those reciprocal tariffs that

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Speaker 3: are not covered by these sector specific new applications.

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Speaker 1: Picking and choosing which sectors the president protects among the

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Speaker 1: American industries, how big of a problem is this when

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Speaker 1: you have different levees contending with different ones still and

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Speaker 1: aluminum in place, and now trying to perhaps help those

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Speaker 1: carmakers that are dealing with higher prices when it comes

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Speaker 1: to metals.

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Speaker 3: Yeah, the complexity is honestly driving companies, supply chain managers,

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Speaker 3: customs brokers right on off the edge because every day

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Speaker 3: is a new set of tariffs. We've had twenty eight

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Speaker 3: revisions to US tariff codes since the beginning of this year,

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Speaker 3: twenty eight separate revisions, plus all of these sector specific tariffs,

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Speaker 3: and the order and the stacking of tariffs want sometimes stacked,

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Speaker 3: sometimes doesn't. This product might that product might not. I mean,

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Speaker 3: is it is mind bogglingly complicated to trade with the

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Speaker 3: United States?

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Speaker 8: Now, that is a good number to keep in mind,

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Speaker 8: the number of revisions that have already been pushed through

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Speaker 8: from the US President, Debra. But when it comes to

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Speaker 8: perhaps how this is being received by the base, how

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Speaker 8: much cognizance is there between the vetoric and the tariff

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Speaker 8: policy that actual impact on these industries that Trump is

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Speaker 8: saying he's supporting.

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Speaker 3: I think that's it's unclear right now. I suspect you're

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Speaker 3: going to get a lot of very disgruntled Americans, regardless

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Speaker 3: of their political base, when they try to go replace

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Speaker 3: a worn out kitchen cabinet, when they try to replace

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Speaker 3: the sofa that's sagging when they go out and they

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Speaker 3: look for purchases, especially of their pharmaceutical products. One hundred

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Speaker 3: percent tariff on imported products for pharma is going to

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Speaker 3: hit an awful lot of people literally in their bodies.

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Speaker 3: So I think there will be deep unhappiness by consumers

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Speaker 3: in particular in the United States, whether or not they

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Speaker 3: work for these particular companies. So we'll have to see

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Speaker 3: how this plays out. Clearly, he thinks it's an important

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Speaker 3: way to drive manufacturing back to the United States. I

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Speaker 3: think consumers who are sometimes in manufacturing, but most Americans

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Speaker 3: are not in manufacturing, So most consumers who are not

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Speaker 3: in manufacturing will say, why am I having to pay

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Speaker 3: this enormous price for a few jobs for somebody else.

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Speaker 8: The countries that we are watching in terms of how

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Speaker 8: their industries might be particularly affected include India because of

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Speaker 8: its pharmaceutical trade with the US, and then the auto

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Speaker 8: industry in Japan and South Korea. All this happening as

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Speaker 8: these trade negotiations are still ongoing. What is the best

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Speaker 8: course of action for them at this stage?

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Speaker 3: Well, the counterparties are in real trouble here because you know,

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Speaker 3: on the one hand, there are instinct I'm sure is

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Speaker 3: to just say forget it, just like we're done. You

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Speaker 3: let us know what the number is and we'll deal

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Speaker 3: with it then. But obviously that has incredible complications for

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Speaker 3: their domestic economy. So they're going to have to have

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Speaker 3: a negotiation with the United States. But the complexity is bewildering.

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Speaker 3: The changes are complicated. A lot of those reciprocal tariff

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Speaker 3: deals again are based on this IEPA statute, which is

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Speaker 3: going to be reviewed by the Supreme Court starting November fifth.

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Speaker 3: That might change altogether. So again for governments, they have

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Speaker 3: to engage, they have to negotiate, but it's unclear for

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Speaker 3: them what are we negotiat. And if I get a

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Speaker 3: fantastic deal on autos in this case and then heavy

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Speaker 3: trucks come into effect, does that cover heavy trucks as well?

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Speaker 3: For me? Probably not. But does that mean that I

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Speaker 3: need to make a new negotiation to deal with heavy trucks.

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Speaker 3: I think this is completely uncertain, and you can imagine

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Speaker 3: that trade partners are waking up every morning, you know,

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Speaker 3: very nervously reaching for their phone to see what is

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Speaker 3: the new information that has come in overnight from the

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Speaker 3: United States.

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Speaker 7: What about the messic businesses.

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Speaker 1: Are we going to see more legal challenges against the

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Speaker 1: President Trump's new tariffs.

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Speaker 3: I think it's possible. I think the real challenge though,

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Speaker 3: for these newest tariffs, these sector specific Section two three

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Speaker 3: two tariffs, is that they're offecially done for national security purposes.

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Speaker 3: So now, how exactly your sofa in your living room

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Speaker 3: is a national security threat is unclear, But nonetheless that's

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Speaker 3: the justification that is very hard to overturn because the

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Speaker 3: court gives very widely way for national security. Congress, which

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Speaker 3: has done nothing anyways, is going to say that's not

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Speaker 3: our prerogative, that is the President's prerogative. So I think

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Speaker 3: these national security tariffs will be very hard to argue about.

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Speaker 8: Debra talk to us about how there has been already

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Speaker 8: that bypassing of trade right, given how economies such as

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Speaker 8: China potentially you know, they're seeing that they can export

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Speaker 8: to the US anymore. We talk about the China Shop

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Speaker 8: two point oh three point zero. Their are dual risk

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Speaker 8: at place here, including for Southeast Asian economies. What have

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Speaker 8: you been seeing in the realignment in the past couple of.

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Speaker 3: Months on the corporate level, it's starting to accelerate, So

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Speaker 3: companies at the beginning of a lot of this sort

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Speaker 3: of froze in place and said, well, let me just

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Speaker 3: see how this evolves. Will push as much inventory into

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Speaker 3: the US as we can, and then we'll wait and see.

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Speaker 3: At this point, it seems quite clear to companies that

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Speaker 3: you're going to be dealing with a high tariff environment

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Speaker 3: and an uncertain environment for a very long time. So

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Speaker 3: firms are increasingly looking to pivot. Now. That doesn't mean

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Speaker 3: that they're pivoting overnight. Some are many of them don't

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Speaker 3: have that option, but they're certainly exploring whatever possibilities they have.

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Speaker 3: Now we will see, and we are seeing in the

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Speaker 3: supply chain space increasing rerouting of trade and that will,

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Speaker 3: I think continue and it will accelerate. On the government level,

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Speaker 3: it has been more challenging than perhaps people would anticipate

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Speaker 3: to create coalitions to deal with trade and other venues,

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Speaker 3: in other words, to like how can we create new

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Speaker 3: trade opportunities for our businesses outside the United States. But

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Speaker 3: I think that is also accelerating. I mean, this is

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Speaker 3: the week in which Acion is having its Economic ministers meeting,

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Speaker 3: and there was a lot of discussion in Asion about

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Speaker 3: how do we beef up our internal Accion Trade. How

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Speaker 3: do we do so with our partners in Asia who

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Speaker 3: are all part of the Regional Capprehensive Economic Partnership. How

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Speaker 3: do we accelerate progress on this four year old agreement

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Speaker 3: that I think is going to continue as well?

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Speaker 8: And this could also figure into the conversations that are

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Speaker 8: coming up at the APEX event next month and the

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Speaker 8: ASCION summit as well. Deborah agreed to get your insights.

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Speaker 8: Thank you so much for coming on our show on

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Speaker 8: what I'm sure as a very busy morning for you.

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Speaker 8: Heinrich Foundation Head of Trade Policy, Debra Elms.

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Speaker 2: Thanks for listening to today's episode of the Bloomberg Daybreak

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Speaker 2: Asia Edition podcast. Each weekday, we look at the story

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

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

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Speaker 2: or anywhere else you listen. Join us again tomorrow for

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Speaker 2: insight on the market moves from Hong Kong to Singapore

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