Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: Welcome to the Daybreak Asia podcast. I'm Doug Krisner. There
Speaker 2: has been no shortage of volatility recently for Chinese tech shares.
Speaker 2: In the last session, as an example, the Hangsang Tech
Speaker 2: Index was down three point eight percent, and that's after
Speaker 2: climbing one point seven percent in the Monday session. And
Speaker 2: that gain came after losses last Thursday and Friday, when
Speaker 2: the Tech index was down three point four percent each day. Now,
Speaker 2: to be fair, despite the recent turbulence, the Hangsang Tech
Speaker 2: Index is still up more than twenty three percent so
Speaker 2: far this year. That said, there are some analysts saying
Speaker 2: any further selloff could undermine the narrative that Chinese markets
Speaker 2: have become an alternative investment ground. Let's take a closer
Speaker 2: look now with Bloomberg opinion columnist Shuley Ren Shuley, does
Speaker 2: this really come down in terms of the enthusiasm for
Speaker 2: Chinese tech? Is it all about the deep seek moment?
Speaker 3: I think so. I mean, like, it's true that the
Speaker 3: hands and tacking decks has corrected quite a bit, but
Speaker 3: I think a lot of it is just a portfolio
Speaker 3: flows right. There is a little bit of a zero
Speaker 3: sum game between the US star market and Chinese and
Speaker 3: European stock markets. As the US market seems to have
Speaker 3: a bottom out for the short term, like a lot
Speaker 3: of hot money will be pulling out of the hands
Speaker 3: and tacking decks because they have made quite a bit
Speaker 3: of money and it's good to take profit, and then
Speaker 3: they will perhaps go back to the US star market.
Speaker 2: On Monday, ten Cent unveiled and upgraded AI reasoning model,
Speaker 2: and this only adds to the enthusiasm for AI related
Speaker 2: companies in China and what they're doing. Is this going
Speaker 2: to continue for a while longer or is there a
Speaker 2: concern that is developing that maybe things have come too
Speaker 2: far too fast.
Speaker 3: I think it's both. Like people think that AI theme
Speaker 3: in China is not just like a three month thing,
Speaker 3: right It has been only just not not even three
Speaker 3: months in China. It will continue on, but the rally
Speaker 3: has been quite fast, so you will see some people
Speaker 3: taking profit. But one thing I would like to point
Speaker 3: out is that what you're seeing is every week we
Speaker 3: see like Chinese companies big and small coming out with
Speaker 3: the new AI models, large language and applications. And also
Speaker 3: there are like you know, hardware companies like BYD and
Speaker 3: they Shellby. They're also coming out with like new car
Speaker 3: models and technologies that while the investors. So I think
Speaker 3: as long as there is a continuous pace of a
Speaker 3: product innovation, people will still be interested.
Speaker 2: Jotsai, the chairman of Ali Baba, was saying yesterday, I
Speaker 2: believe that he's starting to see the beginning of a
Speaker 2: bubble in the buildout of AI data centers in China.
Speaker 2: That's got to be a concern, I would imagine, and
Speaker 2: maybe that contributed to some of the weakness that we
Speaker 2: had in the equity market yesterday.
Speaker 3: Yes, it's possible, but I will argue that I mean
Speaker 3: the US there could be some the start of a
Speaker 3: bubble in data centers as well, right Like I mean,
Speaker 3: at this point globally, we know AI is a technological
Speaker 3: leap and it's quite amazing, but how to make money
Speaker 3: off of and how to really mass market to consumers
Speaker 3: and get them to spend on AI products, it's still
Speaker 3: a question globally.
Speaker 2: So if we can use AI as a metaphor for
Speaker 2: some of the gains that we have seen in automation,
Speaker 2: in mechanized handling of certain processes, and in robotics as well.
Speaker 2: Is there a risk for the overall economy in China,
Speaker 2: particularly if you start to consider Chinese workers, Yes.
Speaker 3: There is. There's no question that the AI and the
Speaker 3: robotics they're talking about human like robots right will be
Speaker 3: taking away a lot of jobs, especially in the manufacturing sector.
Speaker 3: We have already seen that, like China is no doubt
Speaker 3: the world's biggest factory, but even the manufacturing sector, the
Speaker 3: number of employees has been shrinking because automation is already happening.
Speaker 3: So there is this concern. But what the government is
Speaker 3: trying to do is to say, Okay, China's services sector
Speaker 3: is still underdeveloped. What China is doing is that it's
Speaker 3: producing too many goods but not enough services, and it's
Speaker 3: trying to push people to become small business owners. For instance,
Speaker 3: they can open little restaurants, little like I don't know,
Speaker 3: pat shops and then perhaps become like uber drivers, you know,
Speaker 3: or like they can take franchises and the open little
Speaker 3: milk shops, et cetera. Like they're trying to push these
Speaker 3: people into the services sector.
Speaker 2: Does the government need to reconsider how it's educating the
Speaker 2: younger generations?
Speaker 3: I think so, because what we are seeing the last
Speaker 3: few years, and I think it's a glob trend, is
Speaker 3: that the young people going into universities and they're taking
Speaker 3: out certain majors. By the time they graduate, their majors
Speaker 3: are no longer hot. Like in twenty twenty, like a
Speaker 3: lot of people did the management and the finance, and
Speaker 3: then when they graduated they realized, oh, you know, it's
Speaker 3: actually engineering these days that are hot. So the government
Speaker 3: does need to, you know, give people a sense of
Speaker 3: the long term plan of the economy rather than you know,
Speaker 3: abruptly changing policies.
Speaker 2: I'm curious to get your take because we've been talking
Speaker 2: so much about tariffs here in the States and the
Speaker 2: trade tension between Washington and Beijing. What is your sense
Speaker 2: of where we are going and how this is going
Speaker 2: to impact the economy in China.
Speaker 3: I think the sentiment is not good, but the Chinese like.
Speaker 3: The sense that I got is that the Chinese have
Speaker 3: pretty much given up and they have decided that the
Speaker 3: tariffs are coming and it is what it is. And
Speaker 3: of course it affects certain sectors of the economy. For instance,
Speaker 3: like the biggest Chinese exports into US smartphones, Apple, etcetera. Right,
Speaker 3: but the second biggest would be apparels and houseware, and
Speaker 3: that does affect the very small businesses in the East
Speaker 3: and the south coast of China, and there's just nothing
Speaker 3: the government can do about this.
Speaker 2: Surely, you and I have talked in the past about
Speaker 2: the impact of the export controls that were put in
Speaker 2: place under the Biden administration, particularly as semiconductors were concerned.
Speaker 2: You could make the argument that the deep Seek moment
Speaker 2: was tied to the controls on semiconductor technology insofar as
Speaker 2: China being forced to innovate its way around them. And
Speaker 2: I'm wondering what your senses on that trajectory. Are we
Speaker 2: going to see continued advancement and innovation in China.
Speaker 3: I think what China is doing is it's looking inward.
Speaker 3: Like we have seen news reports that China is considering
Speaker 3: even like installing its own export controls so that Chinese
Speaker 3: companies are not flooding cheap goods into the rest of
Speaker 3: the world, because the government does recognize that it's a
Speaker 3: bit of a shock to the rest of the globe. Right, So,
Speaker 3: like what we are hearing recently is that the goods
Speaker 3: that are meant to be exported, they're trying to get
Speaker 3: them consumed at home, and that's why we see a
Speaker 3: lot of that. That's in part why we see a
Speaker 3: lot of the so called training programs. If you have
Speaker 3: a car that's like three year old, you can trade
Speaker 3: in and then get some subsidy and get a brand
Speaker 3: new car. They're trying to basically consume the access capacity
Speaker 3: and the goods at home.
Speaker 2: Are you seeing signs that domestic demand is improving?
Speaker 3: I think so, like the last couple of months, especially
Speaker 3: since the beginning of Deep. I mean when we entered
Speaker 3: twenty twenty five, everybody was pretty pessimistic, right, and suddenly
Speaker 3: Deep seek about and that the government is now talking
Speaker 3: the right things. They're not necessarily doing that much like
Speaker 3: if you look at the fiscal stimulus, it's bigger, but
Speaker 3: it's not that big, right, But they are saying the
Speaker 3: right things and people feel a little bit well, a
Speaker 3: lot of it is just sentiment. People feel a little
Speaker 3: bitter safer in this economic environment, and that you do
Speaker 3: see the sentiment improving.
Speaker 2: We'll leave it there. Surely it's always a pleasure. Thank
Speaker 2: you so much. Bloomberg Opinion columnist Shuly Wren joining from
Speaker 2: Hong Kong here on the Daybreak Asia podcast. Welcome back
Speaker 2: to the Daybreak Asia Podcast. I'm dek Krisner. So we
Speaker 2: had a bit of churn in the US equity market
Speaker 2: through most of the session on Tuesday, a little bit
Speaker 2: of assessment of risk associated with the trade war. I
Speaker 2: think that's a fair way of describing it. Chief among
Speaker 2: those risk stagflation and with it the rising odds of recession.
Speaker 2: Now for a look at the price action as Bill Campbell,
Speaker 2: he is Global bond portfolio manager at Double Line. Bill
Speaker 2: joining from Los Angeles. Thanks for making time to chat
Speaker 2: with us. How do you evaluate the economy right now?
Speaker 2: Bill vis a vi the threat of a lot more
Speaker 2: tariffs on the way.
Speaker 1: Well, thanks for having me, Doug. The way we're looking
Speaker 1: at things in the near term is until we remove
Speaker 1: this cloud of uncertainty, markets and the economic outlook is
Speaker 1: it's going to be challenged at best. I think the
Speaker 1: place where we invest in our most active across the
Speaker 1: bond markets. They're telling you that there is a lot
Speaker 1: of concern not only with the upcoming April second date,
Speaker 1: but what we haven't had clarity on and what there
Speaker 1: still is a lot of confusion about, is April second
Speaker 1: going to be the final date where we get a
Speaker 1: framework for what the tariffs in the tariff package and
Speaker 1: the goals will look like, or do we have this
Speaker 1: risk of continued layering that potentially sectoral tariffs targeting the
Speaker 1: auto sector, pharmaceuticals and other industries may then follow a
Speaker 1: reciprocal tariff package. And until we get those answers, the
Speaker 1: uncertainty is likely to keep risk assets at least it's
Speaker 1: going to be a headwind to risk assets moving higher.
Speaker 1: And you know, from our outlook, what we're trying to
Speaker 1: do is get a little bit more defensive. But we're
Speaker 1: finding some more interesting plays in the bond market and
Speaker 1: also in markets in the US treasury market, specifically the
Speaker 1: frunt end of the US Treasury curve, and interestingly enough,
Speaker 1: a couple of international plays, with some focus on Europe.
Speaker 2: Do you see the risk of stagflation as being significant
Speaker 2: right now.
Speaker 1: Well, that depends on what you mean by stagflation if
Speaker 1: you are talking, you know, about a recession. I think
Speaker 1: we're still uh, you know, looking at the odds of recession,
Speaker 1: still about a third, but those probabilities have come up
Speaker 1: over the past month, you know, maybe almost doubled from
Speaker 1: where you know, our initial expectations were when the Trump
Speaker 1: administration initially came into office. So I think that the
Speaker 1: the questions that we need to answer to, you know,
Speaker 1: get you know, the question that we need to answer
Speaker 1: about stagflation really are how long are tariff's going to
Speaker 1: be in place, how high are the tariff rates going
Speaker 1: to be? And is there a risk that as I
Speaker 1: mentioned before, there's going to be layering now that if
Speaker 1: we don't have layering and we turn out to have
Speaker 1: a one and done type tariff package on April seconds.
Speaker 1: I think the scenario that Jay Powell articulated in the
Speaker 1: you know, in its press conference, you know, at the
Speaker 1: last fo MC meeting, you know, that that is plausible.
Speaker 1: They you know, the Fed seas inflation on a core
Speaker 1: on for the PCE core to you know, remain pretty sticky,
Speaker 1: tick up to two point eight percent before ticking down
Speaker 1: to two percent, So inflation would be a one year
Speaker 1: issue before prices start to normalize. But the risk to
Speaker 1: that outlook is the layering risk and the more that
Speaker 1: we have additional tariffs placed on for any reason, whether
Speaker 1: it's trying to bring manufacturing back to the US or
Speaker 1: like we saw today with the Venezuela tariffs, trying to
Speaker 1: achieve geopolitical outcomes using tariffs. All of that weighs on
Speaker 1: the economic outlook, both for persistently higher inflation and you know,
Speaker 1: downside risks to growth. And we again with that outlook,
Speaker 1: I think right now our positioning, one of the things
Speaker 1: we're trying to do is, you know, take more of
Speaker 1: a barbelled position, where we're layering a little bit more
Speaker 1: into the front end of the treasury curve, where we
Speaker 1: think that you know, with j. Powell's current rhetoric, he's
Speaker 1: kind of capped how much yields on the front end
Speaker 1: of the treasury curve could back up, given the fact
Speaker 1: that he's willing to look through the potential for higher
Speaker 1: inflation rates in the near term. But if there is
Speaker 1: a growth accident, if too many tariffs do cause a
Speaker 1: growth accident, we think that then there's plenty of room
Speaker 1: for those treasury bonds to rally, creating a decent convexity profile.
Speaker 2: So I'm curious as to how you wait consumer confidence
Speaker 2: in everything that we're describing right now or everything that
Speaker 2: you've kind of laid out. Today the Conference Board published
Speaker 2: its index. We saw a fourth straight monthly decline. It
Speaker 2: kind of mirrors echoes perhaps what we had recently from
Speaker 2: the University of Michigan, those data indicating that consumer sentiment
Speaker 2: fell to something that was greater than a two year low.
Speaker 2: I believe is there in your work a strong correlation
Speaker 2: between how consumers are feeling that sentiment reading and how
Speaker 2: they go about their spending.
Speaker 1: Well, yes, when we're looking at the you know, the
Speaker 1: the confidence numbers, both from the University of Michigan and
Speaker 1: also the Conference Board today, they're showing clearly that you know,
Speaker 1: the consumer in the US, uh, you know, is becoming
Speaker 1: more cautious at the margin.
Speaker 4: Uh.
Speaker 1: You know, we also are watching credit card delinquencies and
Speaker 1: you know, at the lower end of the income bracket,
Speaker 1: we're starting to see some you know, there have been
Speaker 1: stresses you know on the consumer there as well. Not
Speaker 1: only is it you know, concerns that inflation will remain
Speaker 1: higher and higher prices you know, are denting consumer confidence.
Speaker 1: But you know, with the with the tariff risk, what
Speaker 1: we're seeing is the potential for more margin squeeze across
Speaker 1: many sectors. And when margins get squeezed and companies need
Speaker 1: to start managing the bottom line, that puts jobs at risk,
Speaker 1: and that further can crimp both consumer spending and consumer confidence.
Speaker 1: I think the Trump administration is clearly making the bet
Speaker 1: that with all of the upcoming government layoffs, they're anticipating
Speaker 1: that there's going to be a handoff of those jobs
Speaker 1: from the government sector to the private sector. And this
Speaker 1: is where one of the risks that we've been highlighting
Speaker 1: about the Trump administration and all of the changes that
Speaker 1: they're putting in place so quickly is there's a high
Speaker 1: level of execution risk, and this is an example of
Speaker 1: that that they're hoping that the private sector is going
Speaker 1: to be able to take a lot of the government
Speaker 1: jobs that are going to be shed over the coming quarters.
Speaker 1: But with increased prices, potentially tighter margins, and the subdued
Speaker 1: outlook for near term growth, as was highlighted, you know,
Speaker 1: most notably by the Fed marking down twenty five growth expectations,
Speaker 1: there's an execution risk that the private sector may not
Speaker 1: be able to handle that.
Speaker 2: So tonight in the States, we are learning that GOP
Speaker 2: congressional leaders are close to agreeing on a plan to
Speaker 2: pass an extension of those twenty seventeen tax cuts, and
Speaker 2: this plan we were told would also increase the debt ceiling.
Speaker 2: What are the fiscal ramifications of this and how do
Speaker 2: you think the market will treat it well?
Speaker 1: So there's fiscal ramifications and there's also a liquidity ramification
Speaker 1: that you know, I'd like to highlight.
Speaker 4: At the end of this.
Speaker 1: First of all, I think the extension of the tax
Speaker 1: cuts is needed for you know, the current economic environment
Speaker 1: of a cooling consumer or a more consumer that's growing
Speaker 1: ever more stretched. Our concern and double line has been that,
Speaker 1: you know, the outlook or our fiscal deficit currently standing
Speaker 1: you know around seven percent deficit to GDP is really
Speaker 1: on an unsustainable path. The more that we're unable to
Speaker 1: correct the deficit in the near term, if we do
Speaker 1: have a growth slowdown, all the automatic stabilizers such as
Speaker 1: unemployment insurance are just going to automatically, uh, you know,
Speaker 1: increase the demands on the government to basically print money
Speaker 1: or sell treasury more treasury bonds into the market. Uh
Speaker 1: need to pay for those expenditures. And what that's going
Speaker 1: to do is put upward pressure on back end yields.
Speaker 1: So what I had highlighted earlier that we like to
Speaker 1: you know, right now we're uh, we're waiting more heavily
Speaker 1: in our portfolios the front end of the treasury curve.
Speaker 1: What we're doing that at the expense of is we're
Speaker 1: underweighting the back end of the treasury curve, you know,
Speaker 1: due to these increased fiscal risks. Now on the liquidity side,
Speaker 1: when the debt ceiling gets extended, perversely, there is a
Speaker 1: tightening of market liquidity in the background. So when we
Speaker 1: started into the excessive deficit procedures, the Treasury started drawing
Speaker 1: down their cash account that they keep at the FED
Speaker 1: called the Treasury General Account, in order to pay for
Speaker 1: all of their bills instead of issuing new debt. But
Speaker 1: what that does is it puts money into the banking system.
Speaker 4: When the debt.
Speaker 1: Ceiling is passed, then the Treasury can issue new Treasury
Speaker 1: bonds and they refill that bank account sitting at the FED,
Speaker 1: the Treasury General Account. But what that does is it
Speaker 1: pulls money out of the banking system, or liquidity out
Speaker 1: of the banking system. So if this bill does pass,
Speaker 1: what initially may look like a good headline, you could
Speaker 1: have some tightening effects in the market and be another
Speaker 1: headwind for overall all risk assets and it's something that
Speaker 1: we should keep it close eye on in the coming months.
Speaker 2: Bill. Before I let you go, you were talking there
Speaker 2: about the FED today. Governor Adriana Kougeler was offering some
Speaker 2: support for this idea that the FED would keep rate
Speaker 2: steady for some time given rising inflation expectations and this
Speaker 2: uptick that we have seen in goods inflation. Very quickly,
Speaker 2: give me your outlook for FED rate cuts this year.
Speaker 2: How many are you forecasting?
Speaker 4: Well, that's a great question. I think for now.
Speaker 1: One to two potentially this year, because we think that
Speaker 1: there is the potential that growth could slow a little
Speaker 1: bit more than maybe other.
Speaker 4: Market participants are expecting, but that.
Speaker 1: Would come at the end of the year, because we
Speaker 1: do think that near term April second will cause a
Speaker 1: temporary spike in inflation.
Speaker 4: But we have to see, as you pointed.
Speaker 1: Out, what is that growth and inflation profile after we
Speaker 1: get through whatever these Trump tariff policies will be both
Speaker 1: the April twid and the potential for sectoral tariffs and
Speaker 1: additional tariffs afterwards.
Speaker 2: Bill will leave it there, Thank you so much. A
Speaker 2: great conversation with Bill Campbell. He is Global bond portfolio
Speaker 2: manager at Double Line joining us from Los Angeles here
Speaker 2: on the Daybreak Asia Podcast. Thanks for listening to today's
Speaker 2: episode of the Bloomberg Daybreak Asia Edition podcast. Each weekday,
Speaker 2: we look at the story shaping markets, finance, and geopolitics
Speaker 2: in the Asia Pacific. You can find us on Apple, Spotify,
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Speaker 2: Join us again tomorrow for insight on the market moves
Speaker 2: from Hong Kong to Singapore and Australia. I'm Doug Chrisner,
Speaker 2: and this is Bloomberg