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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. Seems

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Speaker 2: to be an appetite for risk assets this morning across

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Speaker 2: the Asia Pacific. In Japan, bank shares are benefiting from

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Speaker 2: a steepening yield curve. Now, do remember we have a

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Speaker 2: boj meeting later in the week. At the same time,

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Speaker 2: Berkshire Hathaway has returned to increase at stakes in Japan's

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Speaker 2: biggest trading houses. Meantime, in Hong Kong, the story is

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Speaker 2: on the steps taken by the Chinese government to boost

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Speaker 2: consumption visa V increasing wages. And remember yesterday's activity data

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Speaker 2: for the month of February did top estimates. Let's take

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Speaker 2: a closer look now with our guest Mark Conan. He

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Speaker 2: is the chief investment officer at AIA Group. Joining us

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Speaker 2: from our studios in Hong Kong. Thank you for making

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Speaker 2: time to chat with us. How much of the moves

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Speaker 2: that we're seeing today the fundamentals, aside for a moment,

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Speaker 2: is based on valuation.

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Speaker 3: Well, there's clearly a rotation out of the US into

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Speaker 3: other global markets. We've seen an exceptional period of US outperformance,

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Speaker 3: strong dollar and a real focus as we know on

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Speaker 3: the MAC seven. I think with valuations stretching and opportunities

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Speaker 3: elsewhere globally and particularly policy initiatives, both in Japan and

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Speaker 3: in mainland China, we're now seeing that rotation take hold,

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Speaker 3: both in emerging market portfolios and in global equity portfolios.

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Speaker 2: So are these stories, the one in Japan the other

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Speaker 2: in Hong Kong? Are they durable? Are they kind of

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Speaker 2: providing for the foundation that you would need to see

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Speaker 2: further gains in markets?

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Speaker 3: They're not linked, they are different. I think the moves

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Speaker 3: in Japan, which has now seen inflation expectations anchored, particularly

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Speaker 3: now with the wage height negotiation well underway. As of

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Speaker 3: twelfth of March, we're looking at about a five point

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Speaker 3: three percent increase that really anchors the inflation expectations. So

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Speaker 3: with that and with rate rises forthcoming, we do expect

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Speaker 3: to see an improvement in the outlook for Japan, and

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Speaker 3: we expect to see a moderate to stronger yen through

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Speaker 3: the course of this year. So as a result, I

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Speaker 3: think that is more structural for China. The messaging we've

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Speaker 3: seen around the reports coming out both the NPC and

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Speaker 3: subsequently we've seen further initiatives out of Beijing with the

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Speaker 3: Works Report. Some of that is a bit more top

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Speaker 3: down signaling rather than substance in policy, so it remains

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Speaker 3: to be seen how that is implemented. But the early

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Speaker 3: signs are that we're moving away from the initiatives that

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Speaker 3: were announced in September, which were more about stabilization, and

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Speaker 3: now we're moving much more into focus points around consumption

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Speaker 3: and individuals and a long term program to try and

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Speaker 3: encourage people to be more positive and support the labor market.

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Speaker 2: That said, the story on deep Seek was an amazing

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Speaker 2: pivot point in the enthusiasm that it seemed to create

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Speaker 2: immediately for a lot of tech in China. Perhaps global

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Speaker 2: markets had been underestimating the degree to which that China

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Speaker 2: could make big strides in technology.

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Speaker 3: That is no doubt the case what we've seen. If

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Speaker 3: you look at the performance of companies reporting which are

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Speaker 3: reporting is underway in China at the moment, those companies

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Speaker 3: that are involved in sectors which have been focused on

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Speaker 3: and highlighted by the Central authorities for support are the

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Speaker 3: ones that are doing well. Technology, of course is one

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Speaker 3: of those sectors, and bringing back some of the tech

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Speaker 3: leaders in from the cold and allowing them the flexibility

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Speaker 3: to participate in this Ai revolution has really substantiated the catalyst,

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Speaker 3: if you liked, that was created by that Deep Seak announcement.

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Speaker 2: So how do you assess geopolitics right now as it

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Speaker 2: relates to the tariff story, what the Trump administration is

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Speaker 2: endeavoring to do to try to reshore manufacturing, going about

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Speaker 2: what seems to be a draconian kind of strategy all

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Speaker 2: or nothing. I know we've taught a little bit and

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Speaker 2: recently about the tariffs on steel and aluminum. There are

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Speaker 2: also tariffs on Chinese imports, all Chinese imports to the

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Speaker 2: tune of about twenty percent, and April second is the

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Speaker 2: date when these reciprocal tariffs will be unveiled. It talked

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Speaker 2: to me about the degree to which this really has

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Speaker 2: the potential for material negative impact in the region.

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Speaker 3: Well, no doubt. And we've seen the reports either the

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Speaker 3: World Bank or other supernatural bodies have come out and

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Speaker 3: reported extensively on the impact that teriffs can have, and

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Speaker 3: I think the general consensus is it suppresses growth and potentially,

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Speaker 3: depending how inflation expectations react, it could be inflationary. So

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Speaker 3: overall not positive for the global economy and will diminish

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Speaker 3: and reduce the amount of trade flow. But there are

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Speaker 3: some structural aspects at play here as well, and markets

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Speaker 3: are finding it quite difficult to differentiate between the sort

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Speaker 3: of knee jerk short term reaction to uncertainty around TIS

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Speaker 3: the size who and when compared to some of the

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Speaker 3: structural aspects. And those structural aspects in this part of

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Speaker 3: the world are already firmly underway. China has been looking

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Speaker 3: to move up the value chain, create more higher end

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Speaker 3: value added manufacturing domestically and to offshore the sort of

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Speaker 3: lower value added out across the region, and that is

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Speaker 3: well underway. Of course, China in the meantime is vulnerable.

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Speaker 3: The trade surplus is at a record level and taris

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Speaker 3: have a potential to set that back. But the gears

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Speaker 3: are already in motion for a much more focused attempt

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Speaker 3: to try and build the domestic economy based on domestic consumption.

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Speaker 3: So we're going through a transition phase here. If we

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Speaker 3: compare it to Trump one point zero, where China was

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Speaker 3: able to offset the effects of taris through depreciating the currency,

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Speaker 3: that is limited this time, given that the currency is

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Speaker 3: already starting from a weaker base so it will have

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Speaker 3: an impact. Will it will affect overall growth, but we

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Speaker 3: expect more stimulus domestically in China as the fiscal breaks

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Speaker 3: are taken off. We've already seen in the first two

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Speaker 3: months of this year something almost three times the amount

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Speaker 3: of new bond issuants government bond issuance compared to last year,

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Speaker 3: and it's an indication of the rate at which credit

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Speaker 3: is being created, borrowing is being created in the Chinese economy.

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Speaker 3: So there is clearly a near term of impact and

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Speaker 3: markets are finding it very difficult to assess, but structurally,

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Speaker 3: in longer term, the path is already set.

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Speaker 2: It's interesting because already here in the US we have

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Speaker 2: seen a negative impact on US consumer sentiment. There is

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Speaker 2: a conversation around whether or not the American economy will

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Speaker 2: slip into recession. This is certainly going to complicate what

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Speaker 2: the FED is trying to achieve, no doubt about that.

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Speaker 2: But for the moment, if you can imagine a world

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Speaker 2: where the Fed's easing is perhaps accelerated a bit because

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Speaker 2: of this financial stress, I'm wondering whether or not you

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Speaker 2: would bet that the dollar weekends from here, and that

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Speaker 2: perversely takes a great deal of pressure off of economies

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Speaker 2: and markets in the Asia Pacific.

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Speaker 3: Well, Doug, that's certainly a view that's out there, it's

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Speaker 3: not a view we agree with. Our view today is

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Speaker 3: that the US will avoid a recession. I know that

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Speaker 3: was not taken off the table in recent interviews with

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Speaker 3: President Trump, But our view is the US will avoid

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Speaker 3: a recession this year. That some of that anecdotal data

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Speaker 3: that we saw for January and February on consumption in

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Speaker 3: the US, it's purely that anecdotal and we wouldn't read

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Speaker 3: too much into that or over emphasize it. The more

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Speaker 3: formalized data reporting would suggest that the consumption is still

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Speaker 3: reasonably robust in the US. In terms of the currency,

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Speaker 3: clearly the dollar has been moving in reverse and we've

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Speaker 3: seen appreciation, particularly in the Euro because we've seen a

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Speaker 3: significant shift in policy stance there. We're now talking in

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Speaker 3: Germany about removing defense spending from the restrictions, the restrictions

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Speaker 3: that are in place, and for the first time Germany

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Speaker 3: taking a full blown approach to re arming, and that's

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Speaker 3: going to have a massive impact on the defense industry

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Speaker 3: across Europe, and it's going to be reflationary. We know

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Speaker 3: that in industrials. Certain industrials are going to benefit from that,

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Speaker 3: so that's had a bit of a tail wind so far.

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Speaker 3: But we would expect the ex why to settle back

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Speaker 3: as we go through the course of this year and

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Speaker 3: to retrace the more recent weakness for the dollar.

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Speaker 2: Mark will leave it there. It's always a pleasure. Thank

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Speaker 2: you so much for joining us, Mark Conn and their

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Speaker 2: chief investment officer at AIA Group joining us from our

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Speaker 2: studios in Hong Kong here on the Daybreak Asia podcast.

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

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Speaker 2: So the equity market finished hire in the Monday session,

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Speaker 2: despite weakness in some tech megacap names. We had the

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Speaker 2: S and P picking up around six tens to one

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Speaker 2: percent as the benchmark extended last Friday's post correction rebound.

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Speaker 2: More than ninety percent of the companies in the S

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Speaker 2: and P were higher in the last session. However, the

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Speaker 2: market's most influential members were left behind. I'm thinking of

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Speaker 2: Tesla down today by four point eight percent, and chairs

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Speaker 2: in Nvidia we're off one point eight percent. Let's take

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Speaker 2: a closer look at the price section with our guest

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Speaker 2: Eric Stirner. He is the chief investment officer at Apollen

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Speaker 2: Wealth Management. Eric, thank you for taking the time to

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Speaker 2: chat with us. What does it mean to you when

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Speaker 2: names like Tesla or in Nvidia don't participate in the

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Speaker 2: move higher?

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Speaker 1: Well, thanks for having me. It's always great to be

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Speaker 1: back on the show. And I think what that shows

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Speaker 1: is just the strength of the market. I mean, I know,

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Speaker 1: we just fell into correction. Territory of in the market

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Speaker 1: is bouncing back. But you know, for the last two years,

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Speaker 1: we've seen the market's risen involved with the mega techs,

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Speaker 1: and now it's coming back without the mega text and

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Speaker 1: I think that's what we are expecting this year, to

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Speaker 1: see a rounding of the market or rotation in the

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Speaker 1: market into some of these other sectors that really haven't

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Speaker 1: produced the earnings in the last two years. But we

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Speaker 1: expect higher earnings growth this year. So I think that's

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Speaker 1: a good sign from the market going forward.

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Speaker 2: The elephant in the room, obviously, is the situation with tariffs.

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Speaker 2: On April second, we're expecting the Trump administration to announce

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Speaker 2: those reciprocal tariffs. To what extent do you believe this

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Speaker 2: has been discounted by the market right now, or is

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Speaker 2: there still some risk if we get details that maybe

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Speaker 2: the market is not even suspecting.

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Speaker 1: Yeah, well, I mean that's Trump two point zero. I

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Speaker 1: mean we knew with Trump taking the office, just as

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Speaker 1: we saw in the first urn, volatility was going to

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Speaker 1: be hot because he is unorthodox and it's very hard

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Speaker 1: to predict what he'll do. But I do you know,

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Speaker 1: there's been a lot of pressing. He came out and said,

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Speaker 1: you know, he'd be willing to take a recession to

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Speaker 1: to you know, to reset these trade agreements and a

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Speaker 1: trade bounce. I think this is just more part of

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Speaker 1: his negotiations, and I think Trump his legacy is very

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Speaker 1: important to him. He considered himself a businessman and a

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Speaker 1: big part of that's what the stock market did. I mean,

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Speaker 1: stock market did great when it was up fourteen percent

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Speaker 1: when in his first term. And so I'm of the

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Speaker 1: belief that there's more bark than bites these tariffs. So

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Speaker 1: he's playing hard negotiations right now and that's freaking out

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Speaker 1: the market. Hence the market is drawn back ten percent.

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Speaker 1: But I think we'll have better days ahead of us.

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Speaker 1: I think it's just a big negotiation here, and he

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Speaker 1: hasked to as part of that negotiation play. Say, you know,

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Speaker 1: he's willing to go into recession, but deep downside, I

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Speaker 1: just I'm not sure if I believe that.

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Speaker 2: Do you think that we can avoid recession or at

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Speaker 2: some point will this become perhaps a little bit of

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Speaker 2: a self fulfilling prophecy where negative sentiment actually causes the

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Speaker 2: economy to contract.

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Speaker 1: Well, yeah, I mean, in any given year, the chances

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Speaker 1: of a recession are fifteen percent, and I would say,

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Speaker 1: you know, right now, based upon the high uncertainty with

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Speaker 1: policy coming out of the White House, is probably a

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Speaker 1: little bit elevated in maybe twenty twenty five percent, But

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Speaker 1: that's not my base case. I do think I don't

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Speaker 1: think we're going to have a recession for a number

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Speaker 1: of reasons. One, corporate profits are very healthy. We just

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Speaker 1: came off a great last quarter, fourth quarter where corporate

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Speaker 1: profits the SP five hundred were up nearly eighteen percent.

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Speaker 1: Their profit margins are at about twelve and a half percent,

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Speaker 1: which is above the five year average eleven and a

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Speaker 1: half percent. The unemployment rate is near historic lows, and

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Speaker 1: the consumer is at an aggregate level, is doing very well.

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Speaker 1: So I do think, you know, because of that, we're

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Speaker 1: not the experience of recession. However, if this uncertainty can

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Speaker 1: teaingues to drag out and going into the spring, potentially

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Speaker 1: maybe even into the summer, then yes, I see businesses

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Speaker 1: less willing to commit to hiring needs or maybe capital expenditures,

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Speaker 1: Consumers maybe holding back on spending or seeing some moderating

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Speaker 1: on all those fronts right now, but not enough that

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Speaker 1: pushes me to believe we will experience a recession. But

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Speaker 1: I think we need to get pass some of this

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Speaker 1: uncertainty in the next hopefully a few weeks with Trump

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Speaker 1: knowing that you know, tariffs will be a major weapon

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Speaker 1: that he uses as part of these negotiations. But the

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Speaker 1: other things that make me optimistic is we still have

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Speaker 1: tax cuts coming, we still have deregulation coming, and on

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Speaker 1: shoring initiatives, and those shall all provide boosts the economy

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Speaker 1: probably in the second half of this year. So for

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Speaker 1: those reasons, while I do have some slight concerns, I

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Speaker 1: remain optimistic on the markets and then the economy in general.

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Speaker 2: So we have the FED this week. Basically, the market's

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Speaker 2: view here is that officials will hold rate steady. The

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Speaker 2: focus I think is going to be on the update

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Speaker 2: to economic projections, and then obviously Chared J. Powell's press conference,

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Speaker 2: what is your sense of the path ahead for the Fed?

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Speaker 2: Are we on hold for the foreseeable future? Are you

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Speaker 2: holding on to the possibility that we will get maybe one, two,

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Speaker 2: or maybe even three rate cuts this year?

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Speaker 1: I believe that we should get at least two. I'm

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Speaker 1: hopefully got three because while I'd say the labor market

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Speaker 1: is healthy, and if you look at the unemployment rate

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Speaker 1: it's near historic Lewis, we know weekly continued claims aren't

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Speaker 1: somewhat elevated. So if you have a job right now,

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Speaker 1: you're okay. But if you don't have a job, it's

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Speaker 1: a tough situation to be in right now. So we

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Speaker 1: see that moderation and consumer spending, moderation, labor markets still

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Speaker 1: very healthy. But I don't want to see the FED

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Speaker 1: hold rates too high for too long just because they

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Speaker 1: don't know what Trump's going to do it just because

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Speaker 1: of the uncertainty. I mean, if you're waiting for you

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Speaker 1: know when, we'll know what, when we will know what

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Speaker 1: Trump's going to do next, you're waiting for four years.

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Speaker 1: That's just Trump being Trump. And elevation is still above

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Speaker 1: the FED rate target of two percent, but it's trending

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Speaker 1: in the right direction, stubborn, and it's going to take

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Speaker 1: a while. I mean, some of the things that are

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Speaker 1: causing inflation to be a bit higher right now, or

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Speaker 1: you know, we all know the price of eggs, and

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Speaker 1: that's that's as a result of the birth love, so

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Speaker 1: that has nothing to do with interest rates. And then

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Speaker 1: there's housing, and housing is always the long pull or

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Speaker 1: an a tent of you know, inflation, and a lot

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Speaker 1: of that's the housing shortage, and pal is acknowledged. It's

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Speaker 1: going to take years to address that. So with all

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Speaker 1: that said, I'm hopeful that the uncertainty doesn't cause the

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Speaker 1: FED to wait. And we've hurt mixed signals from the FED.

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Speaker 1: Some like some have said Michelle Bowman seems that want

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Speaker 1: to hear more seclear some of that uncertainty yet before

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Speaker 1: we start cutting. Well, Christopher Waller has said some things

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Speaker 1: are the opposite that if inflation continues to come down,

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Speaker 1: that we should be able to cut even with that uncertainty.

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Speaker 1: So it seems to be some mixed messages within the FED.

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Speaker 1: But I'm hopeful that we'll get at least two cuts

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Speaker 1: in maybe even three, so the FED doesn't make a

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Speaker 1: mistake and you know, cause unnecessary economic pain just because

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Speaker 1: we don't know what Trump's going to do at any

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Speaker 1: point in time, which is just Trump being Trump.

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Speaker 2: I'm glad you mentioned Michelle Bowman there, the FED governor

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Speaker 2: late today was tapped by President Trump to serve as

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Speaker 2: the Fed's Vice chair for supervision. Now we know she's

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Speaker 2: been kind of a sharp critic of a plan to

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Speaker 2: require banks to hold more capital, and I think it's

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Speaker 2: fair to say that she would support a lighter touch

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Speaker 2: to bank regulation, certainly than her predecessor, Michael Barr. How

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Speaker 2: do you view the overall environment for bank regulation right

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Speaker 2: now and would you be a buyer of some of

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Speaker 2: the big bank stocks.

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Speaker 1: Yeah. I really like the financial stocks and big bank

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Speaker 1: stocks this year. I mean, just in the first quarter alone,

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Speaker 1: they had very strong earnings. There were eighty four percent

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Speaker 1: financials speak their estimates and earnings on a year over

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Speaker 1: year basis, we're up fifty six percent. I think there's

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Speaker 1: still some more legs to run there because you have

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Speaker 1: more m and a activity most likely to happen as

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Speaker 1: interest rates come down and deregulations should provide tailwinds. So

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Speaker 1: I think the big banks and financials are one of

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Speaker 1: the sectors that I really like for the remainder.

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Speaker 2: Of the year, Eric will leave it. They're always a pleasure.

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Speaker 2: Thank you so much for making time to chat with us.

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Speaker 2: Eric Stirner is the chief investment officer at a Pollen

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Speaker 2: Wealth Management, joining us here on the Daybreak Asia Podcast.

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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