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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 Prisner. Market

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Speaker 2: c in the Asia Pacific will be affected by a

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Speaker 2: holiday shortened week in the States. No trading in cash

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Speaker 2: markets on Monday in the US in observance of Mlkday,

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Speaker 2: and as such, no trading today in US treasuries in

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Speaker 2: the Tokyo session. Do remember the Bank of Japan has

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Speaker 2: a rate decision on Friday. At the moment, Ustock index

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Speaker 2: futures are trading and the S and P five hundred

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Speaker 2: e minis contract is down about eight tens of one percent.

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Speaker 2: This as members of the European Union look at options

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Speaker 2: for how to respond to President Trump's use of tariffs

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Speaker 2: his punishment for EU support of Greenland, we are told

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Speaker 2: the European Union is considering retaliatory levies on about one

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Speaker 2: hundred and eight billion dollars worth of US goods. Treasury

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Speaker 2: Secretary Scott Besson spoke with NBC's Meet the Press and

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Speaker 2: he insisted the US move on Greenland is about national security.

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Speaker 3: We have seen the Europeans are unable to push back

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Speaker 3: against Russia. The US is this war that never would

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Speaker 3: have started in Ukraine, Kristen, we are going to settle it,

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Speaker 3: but it wouldn't have started. And what President Trump is

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Speaker 3: trying to do is prevent a taking or the Russian

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Speaker 3: Chinese action in Greenland in the future. So why not

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Speaker 3: be strategic?

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Speaker 2: That is Treasury Secretary Scott Besson speaking to NBC's Meet

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Speaker 2: the Press. We're seeing some weakness in equity markets right

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Speaker 2: now across the Asia Pacific. We'll get some perspective now

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Speaker 2: from Julia Wong North Asia CIO at Nomura. Julia spoke

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Speaker 2: earlier with Bloomberg TV host Sherry On and April Hong.

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Speaker 1: We have so much to contend with. Of course, we

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Speaker 1: talked about all of the risks around our geopolitics, not

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Speaker 1: to mention we do have Ecodata out of China today,

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Speaker 1: and of course we are also contending about what happens

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Speaker 1: to the chair and any comments that could come out

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Speaker 1: from President Trump in devils. I mean, all of this noise.

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Speaker 1: What are you focusing on to see sort of the

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Speaker 1: direction of Asian assets?

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Speaker 4: Sure, good morning everyone, Thanks for having me.

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Speaker 5: So, you know, when we look at markets for this year,

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Speaker 5: we really think that we're in a very different investment

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Speaker 5: environment compared with the last couple of years really now

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Speaker 5: this year we're starting to see some big structural shifts

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Speaker 5: really coming ahead in markets. So, you know, against all

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Speaker 5: the constant noise that you just mentioned, the one constant

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Speaker 5: everybody notice now is geopolitics and the globalization. And we

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Speaker 5: think that this year we'll see so many headlines around

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Speaker 5: geopolitics that will just become a new normal as we invest.

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Speaker 5: So we think that you know, hedges against geopolitical risk

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Speaker 5: becomes a necessity for investors this year. We do think

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Speaker 5: that the market generally, the global economy generally.

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Speaker 4: Are still looking quite good from a.

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Speaker 5: Fundamental perspective because we have long term growth drivers like

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Speaker 5: AI really accelerating in twenty twenty six. We have policy

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Speaker 5: makers that largely still have the speck of the market

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Speaker 5: b fiscal policy globally or monetary policy from select countries,

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Speaker 5: so the setups will looks good. But we do think

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Speaker 5: that this year diversification is really important because of all

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Speaker 5: the risks the headlines volatility will likely see. That means

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Speaker 5: that investors should not chase momentum, but instead they should look.

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Speaker 4: At value and compare that with growth.

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Speaker 5: So we really think that diversification is important and Asia

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Speaker 5: really stand I think at a very unique juncture amongst

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Speaker 5: its mega forces, because it has strong growth, it has

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Speaker 5: secular growth such as AI, it has a relative stable

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Speaker 5: economic policy, and like some of the volatility and surprises

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Speaker 5: we can see from Western economies, Asia I think is

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Speaker 5: becoming a source.

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Speaker 4: Of stability from at least from.

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Speaker 5: An investor perception perspective, and that could benefit Asia assets.

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Speaker 4: Generally speaking, we do think that.

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Speaker 5: Valuation generally in this part of the world is still

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Speaker 5: pretty attractive as well.

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Speaker 1: Even when you see for example, Chinese tech companies and

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Speaker 1: the hands and tech and that is what thirteen percent

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Speaker 1: of this month already.

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Speaker 5: Yeah, I think that when look at China tech space,

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Speaker 5: we really think there are two things that are you know,

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Speaker 5: starting to improve right. One is, of course you mentioned

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Speaker 5: we mentioned earlier. Uh you know, AI now is going global,

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Speaker 5: and we know that increasingly China has its own strategic

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Speaker 5: path around AI that's you know, related to how AI

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Speaker 5: is developed in the West, but it's not completely on

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Speaker 5: the same path. So I think it's a very interesting

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Speaker 5: alternative exposure to AI development. And you know, the pace

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Speaker 5: of monetization is also faster, and it's part of the

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Speaker 5: world and Secondly, I think that you know, related to

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Speaker 5: the geopolitical angle that you mentioned earlier, China is somewhat

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Speaker 5: shielded from you know, all this volatility around tariff policies

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Speaker 5: or geopolitics, you know, US Europe relationship, things like that.

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Speaker 5: I don't think benefits as much, but it's I think,

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Speaker 5: you know, a source of stability from an investor perspective

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Speaker 5: that could benefit you know, this miss market because it

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Speaker 5: could attract some diversification flows. So I think the AI

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Speaker 5: angle and a diversification angle are still beneficial for Hong

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Speaker 5: Kong market and particularly the big large tech companies.

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Speaker 6: And yeah, Julia, not all AI related companies are created equal.

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Speaker 6: Do you have a preference plas for hardware versus software

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Speaker 6: when it comes to Chinese tech?

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Speaker 4: Yeah?

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Speaker 5: So I think that, you know, when it comes to

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Speaker 5: the broader way of playing AI, we have you know,

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Speaker 5: two or three favorite ways to do at the moment.

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Speaker 5: If we think about AI supply chains, we think that

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Speaker 5: that could be really interesting this year, being memory which

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Speaker 5: has already done so well out of South Korea, or

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Speaker 5: hardware generally in North Asia.

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Speaker 4: Uh, if you think about all these.

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Speaker 5: Components that are now seeing significant increase in demand which

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Speaker 5: are outpacing their supply. That could be North Asia, you know,

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Speaker 5: that could be North a greater China, It could be

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Speaker 5: in Korea. It could also to some degree within in

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Speaker 5: the future a spill over into Japan as well, because

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Speaker 5: they're more upstream at this point. So I think that

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Speaker 5: this segment out of AI, it's undervalued, is overlooked, and

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Speaker 5: it could benefit because AI capex spending is ramping up globally,

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Speaker 5: not just in the US and particularly I think for China.

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Speaker 5: We think about large tech companies, we think that they

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Speaker 5: are a different a broader angle to play AI because

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Speaker 5: they're not necessarily just the infrastructure or the hardware. Instead,

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Speaker 5: there are platforms towards which some degree of monetization could

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Speaker 5: also start to happen. If we look at user engagement

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Speaker 5: things for large tech companies, they're starting to monetize at

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Speaker 5: the same time as investing. So it's really the whole

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Speaker 5: life cycle really at play. We look at large tech

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Speaker 5: companies in China as well.

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Speaker 6: Aside from AI, how else can investors DIVERSIFI at a

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Speaker 6: time where as you mentioned there, you know your geo

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Speaker 6: politics and the backdrop is the attension supposed to be

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Speaker 6: a bit more on these resource rich markets and how

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Speaker 6: do you think we should.

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Speaker 4: Go about it?

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Speaker 5: Yeah, so I think that's a very interesting point because

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Speaker 5: you know, there's clearly uh a rush you know this

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Speaker 5: earlier this year, since the beginning of this year towards commodities.

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Speaker 4: Uh. And that's maybe on the back.

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Speaker 5: Of the geopolitical uh shadow that's being cast around the

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Speaker 5: world now investors are noticing that there's a graph of resources.

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Speaker 5: There's not a you know, bit a rat materials a

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Speaker 5: bit and just normal commodities in general.

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Speaker 4: So that is I think creating a bit.

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Speaker 5: Of a push for for for the commodity complex. I

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Speaker 5: do think from an economic cycle perspective, we do think

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Speaker 5: that you still have to be quite careful to think

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Speaker 5: about uh this as a baseline uh uh uh sort

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Speaker 5: of uh as a allocation, because we do think that,

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Speaker 5: you know, there's a small risk the US economy goes

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Speaker 5: into overheating or inflation goes out of control, in which

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Speaker 5: case these assets could benefit like they did.

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Speaker 4: In twenty twenty one.

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Speaker 5: We're not quite there yet in terms of our economic forecast.

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Speaker 5: We think that you know, chances are that we're still

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Speaker 5: going to have relatively robust global growth, but we don't

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Speaker 5: think inflation will necessarily fly, you know, as a base case.

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Speaker 5: So I think that, yes, there's a dual political angle

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Speaker 5: that supports commodity in general, but I do think you

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Speaker 5: have to be quite tactical around it because a lot

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Speaker 5: still depends on that inflation risk when it comes roaring back.

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Speaker 4: It's not our base case that it does.

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Speaker 5: So I think that, you know, one part of the

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Speaker 5: commodity complex that we do like is actually precious metal

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Speaker 5: because it has a more tried and tested relationship with

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Speaker 5: dual politics. Increasingly there's a consensus that precious metal is

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Speaker 5: where you use what you use to hate politics, and

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Speaker 5: we just mentioned it's a constant in markets now, so

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Speaker 5: we think that does deserve a strategic allocation in of itself.

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Speaker 1: Yeah, you can see gold right there training at recground

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Speaker 1: highs again. But Julia, just before we let you go,

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Speaker 1: how will you be factoring in the currency mechanism? Of course,

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Speaker 1: when we talk about geopolitics, when we talk about central

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Speaker 1: bank policy, the US dollar and what happens on the

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Speaker 1: other side of the trade with all of these Asian

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Speaker 1: currencies have also ramifications.

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Speaker 4: That's a great point.

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Speaker 5: I think, you know, obviously on the back of what

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Speaker 5: happened overnight in terms of the newsflow, you could see

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Speaker 5: a bit of a dollar strengths just because bilateral terror

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Speaker 5: threats are always in favor of US dollar it's being

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Speaker 5: the largest consumer in the world. But I do think

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Speaker 5: that if we see an escalation another round of terraff

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Speaker 5: war and escalation on the back of these threats. Going

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Speaker 5: back to what happened in April last year, you know,

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Speaker 5: the dollar weekend.

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Speaker 4: Continuously going into liberation date.

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Speaker 5: So if we see that a severe escalation of trade,

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Speaker 5: tensions for tech are really starting to happen, becoming more

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Speaker 5: of a reality, I think the dollar actually could there

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Speaker 5: be a limit to how much a dollar can really

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Speaker 5: benefit from that. Instead, as an investor, we'll start to

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Speaker 5: think about more about diversification into assets, uh where there

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Speaker 5: may be a short term hit. Yes, so they are

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Speaker 5: top lie from a you know, a revenue perspective, but

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Speaker 5: their assets are cheaper and they have independent source of growth,

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Speaker 5: be their domestic fiscal policy, a monetary policy, or you

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Speaker 5: know technology development. And Asia, I think you know, fiscal

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Speaker 5: policy is being ramped up in Japan and being China,

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Speaker 5: Asia has as an AI angle to it as well,

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Speaker 5: So we think that that over the medium term should

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Speaker 5: support Asian currencies generally speaking, maybe to the exception of

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Speaker 5: the yen, where we do think they continued to stay

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Speaker 5: weak for a little bit longer.

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Speaker 2: That is Julia Wong North Asia CIO at Nomura speaking

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Speaker 2: with Bloomberg TV host Sherry On and April Hong, and

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Speaker 2: we're bringing it to you here on the Daybreak Asia podcast.

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Speaker 2: Welcome back to the Daybreak Asia Podcast time Doug Krisner.

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Speaker 2: President Trump is intending to announce his nominee for FED

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Speaker 2: share within the next few weeks. It was last Friday

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Speaker 2: the President said he wants to keep Kevin Hassett, the

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Speaker 2: director of the National Economic Council, in his current role.

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Speaker 2: Well Hassett had once been seen as the front runner. Today,

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Speaker 2: Hassett told Fox News the President may be right to

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Speaker 2: pass him over.

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Speaker 7: From the beginning, he and I have talked about whether

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Speaker 7: it's better for me to be here in the West

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Speaker 7: Wing or over at the FED. I don't think he's

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Speaker 7: made a final call on that, but I got to

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Speaker 7: say that I'm even humbled still perhaps to be in

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Speaker 7: the running with the other people, that.

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Speaker 2: Is, ANYC director Kevin Hassett for a closer look at

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Speaker 2: what may be next for FED leadership. I'm joined by

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Speaker 2: Bill Campbell. He is global bond portfolio manager at Double Line. Bill,

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Speaker 2: thanks for being here. We both know that Powell's term

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Speaker 2: expires in May. Perhaps this is no longer for man race.

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Speaker 2: Maybe we've come down to three candidates. I mentioned Hassett.

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Speaker 2: This list also includes FED Governor Chris Waller, former FED

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Speaker 2: Governor Kevin Walsh, and then there's Rick Reader, the CIO

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Speaker 2: a fixed income at Blackrock. We're being told right now

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Speaker 2: that Reader's candidacy has gained a fair amount of momentum.

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Speaker 2: Do you think the administration got feedback from some influential

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Speaker 2: market players and maybe they voiced some concern about putting

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Speaker 2: into this position a person that maybe overly dubbish or

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Speaker 2: perhaps more problematically seen as carrying water for the administration

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Speaker 2: a bit.

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Speaker 8: When we look at the fact that the President hasn't

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Speaker 8: made the announcement yet, clearly, you know, I think that

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Speaker 8: this list, you know, nobody has you know, really has

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Speaker 8: caught his attention or has you know, caught the spark

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Speaker 8: in his eye just yet. I like the idea that

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Speaker 8: Rick Reader's candidacy is starting to, you know, gain a

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Speaker 8: little bit more momentum. When we looked at the poly

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Speaker 8: markets last week, he was down at the bottom. It

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Speaker 8: was Kevin Worsh that jumped up to the top. And

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Speaker 8: I feel that you know, Kevin Worsh and you know

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Speaker 8: Chris Waller for that matter. You know, although more orthodox candidates,

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Speaker 8: you know, may not be willing to as you stated

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Speaker 8: Carrie Water as much, you know, for the White House

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Speaker 8: and for this administration. I think that Kevin Hassett, you know,

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Speaker 8: the concerns around Kevin Hassett, maybe it was more concerns

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Speaker 8: about you know, FED credibility or being able to get

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Speaker 8: you know, the board to vote in line with what

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Speaker 8: the chair wants. We've seen a lot of discussion about

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Speaker 8: the FED moving more towards a Bank of England model

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Speaker 8: where everybody has a vote, and that would be a

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Speaker 8: move away from what we've currently seen of the Chair

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Speaker 8: being able to pretty much gain consensus. And then where

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Speaker 8: there our descents. It's to signal to the market, you

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Speaker 8: know what the committee is, you know, trying to signal

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Speaker 8: that maybe they plan in the future to move in

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Speaker 8: a direction. With Hassett, I think the concern was it

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Speaker 8: would be a bunch of independent votes, and you know

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Speaker 8: that I think for the Trump administration, less the concern,

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Speaker 8: like you said, that he wouldn't carry water, but more

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Speaker 8: the concern that he couldn't affect the outcome that the

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Speaker 8: Trump administration would want. So maybe Reader would have a

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Speaker 8: little bit more of that gravitas. And I think there

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Speaker 8: are concerns about Kevin Walsh and you know, especially Chris Waller,

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Speaker 8: that they might be too independent and may decide that,

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Speaker 8: you know, aggressive cuts may not be warranted and not

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Speaker 8: pushed for that.

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Speaker 2: Also, on Thursday, the Supreme Court will be hearing oral

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Speaker 2: arguments in the case Trump v. Cook. This has very

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Speaker 2: important in terms of deciding whether the President has the

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Speaker 2: power to fire FED Governor Lisa Cook, and it's being

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Speaker 2: viewed as a critical case because it's going to essentially

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Speaker 2: address this removal protection that's been afforded members of the

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Speaker 2: Board of Governors. And obviously it's coming at a time

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Speaker 2: when the issue of FED independence is right at the

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Speaker 2: top of the list for markets. They are very keen,

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Speaker 2: as you just kind of alluded to, to any form

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Speaker 2: of political pressure. A week ago, we were talking about

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Speaker 2: the DOJ issuing subpoenas to the FED over statements by Powell.

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Speaker 2: Obviously that's related to the renovation project of the fed's headquarters.

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Speaker 2: But this criminal probe just looming over markets right now.

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Speaker 2: The Wall Street Journal had a survey of economists talking

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Speaker 2: about the criminal investigation running the risk of damaging not

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Speaker 2: only investor confidence, but weakening the dollar at a time

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Speaker 2: when China is expanding the use of its own currency

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Speaker 2: around the world. Are we at a situation situation here

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Speaker 2: that could be maybe a little bit more precarious and

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Speaker 2: the market believes right now? Or is this noise and

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Speaker 2: we really need to kind of focus on the signal.

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Speaker 8: You asked a lot of great questions, and I'm going to,

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Speaker 8: you know, try to tackle them, you know, one by one.

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Speaker 8: I do think, you know, the leasa oral arguments. Let's

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Speaker 8: see exactly what's presented, you know, to the Supreme Court,

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Speaker 8: the type of questioning that comes out to see, uh,

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Speaker 8: you know, the Court has been taking somewhat of a

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Speaker 8: favorable attitude towards this administration. So I think that would

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Speaker 8: give us a hint as to a potential hint as

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Speaker 8: to you know, the the latitude that they might provide

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Speaker 8: this administration as far as you know, being able to remove,

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Speaker 8: you know, governors, I think the Powell investigation is something

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Speaker 8: that needs to be taken very seriously. I question the

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Speaker 8: merits of you know, these underlying subpoenas that have gone

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Speaker 8: out and the intention for it. It was too but

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Speaker 8: two quarters ago that we really dealt with this, and uh,

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Speaker 8: you know, I do think that Powell and my understanding,

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Speaker 8: kept Congress surprised of all of you know, uh, the

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Speaker 8: budget changes that we're happening, with the additions uh you know,

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Speaker 8: at with the renovations at the FED, and if we

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Speaker 8: are you know, using a justice system to affect economic outcomes,

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Speaker 8: I think there needs to be separation, uh you know,

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Speaker 8: in our our you know, the way that our government

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Speaker 8: was set up was a separation of powers and they

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Speaker 8: I think that, you know, that is a core tenant

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Speaker 8: of uh you know, confidence that underlies uh, you know,

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Speaker 8: investment in the US. So I think we have to

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Speaker 8: keep a very close eye on Powell. But I do

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Speaker 8: think now the outcome of you know, the the subpoenas

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Speaker 8: needs to be watched closely. And then you mentioned China.

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Speaker 8: Obviously we are starting to see uh you know, uh

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Speaker 8: slowly the questioning of US and institutional strength, whether it

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Speaker 8: comes to FED, whether it's around FED independence. We also

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Speaker 8: now have questions about data veracity. You know, yes we

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Speaker 8: have the government shutdown, but there's questions about as I

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Speaker 8: discussed on the housing side, how we're statistically calculating things.

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Speaker 8: There are other elements that are popping up as well.

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Speaker 8: And we have a large foreign investment in the United

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Speaker 8: States that has built up over the past two decades.

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Speaker 8: And the concern there is as the questions rise around

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Speaker 8: you know, institutional credibility and independence not only of the FED,

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Speaker 8: you know, but really of all institutions in the US

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Speaker 8: that has the ability, you know, to shake investor confidence internationally,

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Speaker 8: and it could cause a rotation how to view US

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Speaker 8: investment internationally. And one final point that I just you know,

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Speaker 8: I've been mulling over, and you know, maybe just since

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Speaker 8: we're talking, it's worth bringing up. In this context. You

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Speaker 8: were talking about China, and although China has been expanding

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Speaker 8: their trade and their currency use across the globe, quietly

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Speaker 8: if you look at the Treasury, the TIC data, the

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Speaker 8: Treasury International holdings data that they have in custody at

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Speaker 8: the FED, there's been a reduction of US treasuries held

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Speaker 8: you know, in custody for China and we have in

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Speaker 8: it's been a meaningful reduction over the past you know,

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Speaker 8: several quarters and actually over the past several years. The

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Speaker 8: most recent TIC data shows that, you know, despite a

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Speaker 8: little bit of treasury volatility, we've seen you know, treasury

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Speaker 8: raids that generally hang in there because there's other buyers

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Speaker 8: that have stepped in. It's been the UK, the EU,

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Speaker 8: in Japan, and I have to believe that a lot

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Speaker 8: of this is around negotiations that we had around trade.

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Speaker 8: Now going forward, if we are you know, going to

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Speaker 8: Davos and starting to really question the underpinning of the

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Speaker 8: relationship between the US and the nation and the European,

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Speaker 8: the UK and you know, the Asian nations, I think

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Speaker 8: that also could present a risk of who's going to

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Speaker 8: fund you know, the treasury issuance that's going to be

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Speaker 8: coming to fund our large deficits over the course of

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Speaker 8: you know, the next several years as well. So it's

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Speaker 8: not just a concern on the currency. I think we

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Speaker 8: just we need you know, to take it careful. We

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Speaker 8: need to be very careful about the perception and the

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Speaker 8: reality of institutional erosion you know, in the US, because

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Speaker 8: the large foreign investment. Over sixty trillion of foreign investments

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Speaker 8: sitting in the US easily could start to be allocated away,

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Speaker 8: and that would put a lot of volatility back into markets.

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

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Speaker 2: Campbell is Global bond portfolio manager at Double Line, joining

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

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

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

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Speaker 2: geopolitics in the Asia Pacific. You can find us on Apple, Spotify,

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Speaker 2: the Bloomberg Podcast YouTube channel, or anywhere else you listen.

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Speaker 2: Join us again tomorrow for insight on the market moves

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Speaker 2: from Hong Kong to Singapore and Australia. I'm Doug Chrisner,

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Speaker 2: and this is Bloomberg