Speaker 1: Hello, and welcome to What Goes Up, a weekly markets podcast.
Speaker 1: My name is Mike Reagan. I'm a senior editor at Bloomberg.
Speaker 2: Numble Down, a hare across asset reporter with Bloomberg.
Speaker 1: And this week on the show, well, as China heads
Speaker 1: into its Golden Week holiday, there won't be much celebrating
Speaker 1: in the real estate sector. Chinese property stocks are trading
Speaker 1: near the lowest level since two thy and eleven, and
Speaker 1: concerns are growing about more defaults among developers. How did
Speaker 1: the housing market in the world's second largest economy get
Speaker 1: so out of whack and what will it take to
Speaker 1: fix it and help Chinese stocks catch a bit again.
Speaker 1: We'll get into it with a fund manager who focuses
Speaker 1: on China and emerging markets. But first a programming note, Well,
Speaker 1: we've been going strong for four and a half years,
Speaker 1: but What Goes Up will be going on hiatus after
Speaker 1: this episode, as the Bloomberg podcast team works on some
Speaker 1: exciting news shows, so keep an ear out for them,
Speaker 1: and as always, tweet to us at the handle at
Speaker 1: podcasts on x so let us know what you think
Speaker 1: of the shows. Well, Dona, is it still tweeting now
Speaker 1: that the thing's called.
Speaker 2: X does anybody? Does anybody even call it X?
Speaker 1: Elon?
Speaker 2: Does Elon? But who else?
Speaker 3: You know?
Speaker 2: I never say, like, let me check my ex app.
Speaker 1: But do you X a post? Do you X a post?
Speaker 3: Yeah?
Speaker 2: Huh, I haven't heard.
Speaker 1: You wouldn't have the answers. I thought you'd have the answer.
Speaker 2: I'm not a hip millennial, but our guests this week
Speaker 2: he might be active on X slash Twitter. I'm not sure,
Speaker 2: but he's definitely been on the podcast before and I'm
Speaker 2: happy to welcome him back. It's Jason Sue, chief investment
Speaker 2: officer at Rilliant Global Advisors. Jason, thank you so much
Speaker 2: for joining us, super glad. I wanted to start out
Speaker 2: with asking you to tell us a bit about yourself
Speaker 2: because you have a very interesting background having worked with
Speaker 2: Rob are Not in the past, and you guys have,
Speaker 2: as Mike said, we're going to be focusing on internationally
Speaker 2: in this episode, so you guys have a presence in
Speaker 2: a lot of places around the globe. So tell us
Speaker 2: a bit about yourself.
Speaker 3: Well, as you mentioned, you know, I started research affiliates
Speaker 3: with Rob or Not. That's nearly twenty years ago now.
Speaker 3: I spun out in twenty sixteen, to focus primarily on
Speaker 3: emerging markets, and of course, you know, when you think
Speaker 3: about emerging markets, you can't ignore China's a lot of
Speaker 3: my research, a lot of you know, our qual models
Speaker 3: are built to create alpha in China. You know, today
Speaker 3: we got ETFs in the US that gets your exposure
Speaker 3: to China, to EMX China and actually more broadly the
Speaker 3: global markets. Basically just tells you the power of the
Speaker 3: quantitative methods when it comes to alpha generation across the globe.
Speaker 3: You know, today I am talking to everyone from Dubai
Speaker 3: and that's because the Middle East has a almost opposite
Speaker 3: of the US as a meaningful fascination, and it's probably
Speaker 3: from a strategic allocation perspective, very overweight China.
Speaker 4: So that's why I'm out here.
Speaker 1: That might be our first guest tuning in from Dubai.
Speaker 1: That's a that's a first for us.
Speaker 2: Well, Donna, yeah, I've never been over there. So I
Speaker 2: was asking Jason before we started taping, like what's it like,
Speaker 2: and he said it's very humid, which I didn't expect.
Speaker 1: Well, Jason, let's get into this whole problems with the property,
Speaker 1: real estate sector in China. I mean, you know, my
Speaker 1: sort of Layman's understanding of it is that China's developers
Speaker 1: just built entirely, way too many apartments than what's really needed.
Speaker 1: You know, how did that happen? And how bad is it?
Speaker 1: Do you think the debt problems of the developers who
Speaker 1: are having trouble selling all these apartments?
Speaker 3: Yeah, So when you think about kind of apartments in China, right,
Speaker 3: if we think about it from kind of the US perspective,
Speaker 3: which is, well, you buy it to either live in
Speaker 3: it or you rent it out to collect the yield,
Speaker 3: then you're absolutely right that there is an overbuilding of
Speaker 3: apartments in China because there are lots and lots of
Speaker 3: apartments that are owned but not lived in and not rented,
Speaker 3: so it's very unproductive. But if you're a Chinese, and
Speaker 3: I'll give you kind of a funny anecdote, So I
Speaker 3: bought a few apartments in China very early on, so
Speaker 3: they're quite cheap at the time, and I go, oh,
Speaker 3: you know, they're kind of empty, so let me rent
Speaker 3: it out. When people realize that, they kind of look
Speaker 3: at me funny and go, Jason, are you in financial trouble?
Speaker 3: Why would you rent out your place to someone else
Speaker 3: for money. So Chinese don't think of apartment as like
Speaker 3: a fixing cume, right, that produces a income for you.
Speaker 3: They think of it more like I would say how
Speaker 3: Indians think of gold, right. So it's more of a
Speaker 3: store of value. So they're perfectly happy holding an apartment,
Speaker 3: leaving it empty, believing it holds value. Does it always
Speaker 3: go up, frankly doesn't enter into their psyche. Now it's
Speaker 3: been lucky that's been going up. But they really see
Speaker 3: it as a store value, right, just something that's solid
Speaker 3: they can look at, they can point to, and oftentimes
Speaker 3: they brag about. From that perspective, there's an enormous demand
Speaker 3: when it comes to the Chinese appetite to buy property,
Speaker 3: and that demand is purely almost like collecting, right. It
Speaker 3: is not for consumption and it is not for investing.
Speaker 3: So I think that's just sort of useful to understand that.
Speaker 3: And I guess you know your question about well, you know,
Speaker 3: are the developers in trouble because maybe the Chinese are
Speaker 3: cooling off on their preference the whole you know, wealth
Speaker 3: in real estate. I would say the Chinese developers are
Speaker 3: mostly in trouble, not because somehow Chinese investors I think
Speaker 3: what's more an issue is a lot of them have
Speaker 3: simply geared up way too hot. Your country garden you're China,
Speaker 3: evergraam that that went.
Speaker 4: Under last year.
Speaker 3: They simply borrow way too much debt and they were
Speaker 3: hoarding land and hoarding apartments and not selling them fast
Speaker 3: enough to pay down the debt. They're just borrowing more
Speaker 3: to hoar more land. And I think they just irritated
Speaker 3: Beijing a little too much. And I would say these
Speaker 3: are not a real state related triggering a bankruptcy, but
Speaker 3: almost a policy engineered bankruptcy target at real state developers
Speaker 3: that have simply become two gear to liver it up. Yeah.
Speaker 1: I wanted to ask you about that because there's always
Speaker 1: sort of this assumption in the West that Beijing can
Speaker 1: come to the rescue anytime it wants for a problem
Speaker 1: like this. I don't know how true that is, but
Speaker 1: in this case, you know, they have done some things
Speaker 1: on the margin to try to show up the housing market,
Speaker 1: that eased some of the mortgage restrictions. They're lowering the
Speaker 1: reserve requirements for the banks. Is that all they can do?
Speaker 1: I mean, to your point, are they actually really holding
Speaker 1: off on sort of a Big bazooka fix for this
Speaker 1: because they do want to ring some of that excess
Speaker 1: leverage out of the market. Now, how do you view
Speaker 1: the policy response to this at what the goals of
Speaker 1: it are?
Speaker 3: Yeah, I was a In fact, I think the government
Speaker 3: doesn't think right now there is a meaningful problem in
Speaker 3: a real estate sector other than you know, consumers seem
Speaker 3: to be disappointed about how real estate is performing and
Speaker 3: therefore that lack of confidence maybe causing them to not consume.
Speaker 3: So the government realized, ah, you know, the most reliable
Speaker 3: channel for wealth effect, which is basically real estate appreciating
Speaker 3: that has coused household to be willing to increase consumption.
Speaker 3: That channel has temporarily gone away, So you know, they
Speaker 3: recognize that. But of course, the bigger problem they're trying
Speaker 3: to contain originally was they didn't want real estate price
Speaker 3: to get more expensive because it wasn't a social I mean,
Speaker 3: it wasn't becoming a financial problem. It's becoming a social problem. Right,
Speaker 3: homes are too expensive for you hen people to buy.
Speaker 3: But from a financial problem perspective, if you look at
Speaker 3: the household sector, right, Chinese household are not levered when
Speaker 3: it comes to real estate if the allo pers are
Speaker 3: very levered, but the household which is more important, right,
Speaker 3: they're not lever because they can buy their first home
Speaker 3: with money down and they paid quite a bit of
Speaker 3: money down and they generally have to sort of have
Speaker 3: enough income to cover the payment. If they want to
Speaker 3: buy a second house, it's got to be all cash, right,
Speaker 3: So most Chinese, and if you live next to the
Speaker 3: Chinese in your neighborhood, you realize they buy real estate
Speaker 3: all cash. And that's how they buy real estate in
Speaker 3: China as well, So you don't run into financial problem
Speaker 3: when you buy.
Speaker 4: Real estate all cash.
Speaker 3: It might be a bad investment, right, You might buy
Speaker 3: something it never goes up, right, It has no yield
Speaker 3: if you don't rent it, so it might not be
Speaker 3: a great investment, but doesn't become a financial crisis. So
Speaker 3: I think the government's okay with where real estate is today, right,
Speaker 3: price isn't going up that bankruptcy you're seeing a developer
Speaker 3: sector is very engineered. You know, on the household side,
Speaker 3: there's not a balance sheet crisis because they're not buying
Speaker 3: real estate on levers, so they really don't think there's
Speaker 3: a meaningful problem there.
Speaker 4: Now.
Speaker 3: Of course they wish the Chinese household would have found
Speaker 3: like another store of value or another asset that's more
Speaker 3: productive that the government could sort of help manage and
Speaker 3: create a wealth.
Speaker 4: They're hoping the stock market can be.
Speaker 3: That, but you know, it remains to be seen if
Speaker 3: they can get all of that money, that unproductive money
Speaker 3: into in real estate into the more productive long term
Speaker 3: investment in stock market.
Speaker 2: So say more about the consumer and the state of
Speaker 2: the Chinese consumer, is that another facet that's under pressure
Speaker 2: right now in China.
Speaker 3: I think that is the biggest problem right the consumers
Speaker 3: China and Bay I guess Paging specifically has been hoping
Speaker 3: that China wouldn't just be explore oriented economy where everyone
Speaker 3: just works so really hard in the factory and shook
Speaker 3: everything overseas and then you know, never spend money. Right.
Speaker 3: That's been a bit of a sort of traditional, uh,
Speaker 3: you know, Chinese mentality when it comes to working excessively,
Speaker 3: saving excessively, and not consuming enough. So it's too dependent
Speaker 3: on our export. So gradually domestic consumptions has actually picked
Speaker 3: up quite a bit more, seeing GDP going from you know,
Speaker 3: thirty six percent export today only about sixteen percent export.
Speaker 3: So consumption has sort of picked up, but more recently
Speaker 3: consumption gone fairly flat. And part of that was COVID, Right.
Speaker 3: I mean, when Americans came out of COVID, we go, yes,
Speaker 3: we saved up money. We haven't been spending money, so
Speaker 3: let's go spend money. Right, the rebnge spending. When Chinese
Speaker 3: got at COVID, they go, my god, now that was horrible.
Speaker 3: So that's save more money so we can self ensure.
Speaker 4: Right.
Speaker 3: It was a complete different mentality, right, So Chinese after
Speaker 3: any major crisis and disaster, they just go and save
Speaker 3: more money. So part of was that, and of course
Speaker 3: part of was I think disappointment with how Beijing has
Speaker 3: both managed, you know, the COVID lockdown and opening up,
Speaker 3: and also disappointment with how poorly GDB has performed post COVID.
Speaker 3: So again, both of those has caused I think consumer
Speaker 3: to go into a weight and see mode. So you're
Speaker 3: not seeing people spending money. It's not because they don't
Speaker 3: have money. Right, there's about thirty trillion dollars not even
Speaker 3: renting BIA dollars equivalent of household savings and bank accounts
Speaker 3: and sort of quasi bank accounts in money markets. Trust products,
Speaker 3: but they're just not spending money.
Speaker 4: It's a confidence issue.
Speaker 2: Thirty trillion.
Speaker 3: Yeah, wow, they save a lot of money.
Speaker 1: You launched the Ralliant Quantinmental China ETF. I guess it
Speaker 1: was at the end of twenty twenty, and it's been
Speaker 1: a bit of a rocky launch. It's down about forty
Speaker 1: two percent from the launch. Talk to us a little
Speaker 1: bit about the strategy, you know, how you pick stocks
Speaker 1: for that ETF and and why you know why this
Speaker 1: early couple of years of it have been so rough.
Speaker 3: Yeah, So, you know, the beta has been a major
Speaker 3: major headway. You know, I think we launch a product
Speaker 3: at the time where we believe, oh, you know, as
Speaker 3: trying to gets incorporated more into the sort of MSCI basket,
Speaker 3: there's going to be sort of natural flow going into
Speaker 3: the ascid claus and people are going to start to
Speaker 3: get more curious about, oh, can you directly invest in
Speaker 3: China rather than just buying Ali Baba as an American
Speaker 3: ADR made me that's looking at the next Audibaba right,
Speaker 3: an unknown firm listed on shore. So you know, we
Speaker 3: launched an onshore product that focused on issuers, and of
Speaker 3: course we ran headlong into essentially three years of turbulence
Speaker 3: all the way from the COVID lockdown to really government
Speaker 3: uh you know, experimental experimenting with policies of you know,
Speaker 3: how to manage e commerce platform companies.
Speaker 4: H and I would say huge imping.
Speaker 3: As he's marching in this third term, there's just a
Speaker 3: lot of uncertainty with regard to what will that look like, right, well,
Speaker 3: Beijing after power consolidation, uh still kind of pursue the
Speaker 3: same kind of pro growth policy from the previous.
Speaker 4: Eras or would there be a majorship? Right So there's
Speaker 4: just a lot of uncertainty.
Speaker 3: And I think so early signs has not really you know,
Speaker 3: caused people to develop confidence. And certainly you got the
Speaker 3: China US tension that started with you know, President Trump
Speaker 3: and continued to present by them. So we ran into
Speaker 3: a lot of sort of beta headwinds, unexpected of course,
Speaker 3: but it is I would say, part for the core
Speaker 3: when it comes to investing in emerging markets. You know,
Speaker 3: this is China. Now, If it's not China, I'm sure
Speaker 3: there are many many other emerging countries that also run
Speaker 3: into such your political tensions you know with someone you know,
Speaker 3: beal with China, beal with the US and also their
Speaker 3: own domestic election cycle can can play heavily into sort
Speaker 3: of the betahead wind as well. But I would say
Speaker 3: part for the course for EM investing.
Speaker 2: So can you talk about how you're making sense of
Speaker 2: what else is happening in the emerging market space? Because
Speaker 2: emerging market stocks gave up their gains for the year,
Speaker 2: So any gains that we had had up until I
Speaker 2: think it was a couple of days ago, actually they
Speaker 2: gave up all of those gains. I'm wondering what the
Speaker 2: biggest pain point for emerging market stocks has been this year.
Speaker 2: Is it what's going on in the US in terms
Speaker 2: of rising interest rates? Is it China?
Speaker 1: Is it?
Speaker 2: You know, a multiple of those factors weighing on EM stocks.
Speaker 2: How are you making sense of what's going on?
Speaker 4: Yeah? You basically have the perfect storm.
Speaker 3: So you know, our quant data process looks all the
Speaker 3: way from kind of the micro bottoms up and then
Speaker 3: you know, taking into account kind of all the macro
Speaker 3: data and unfortunately you got everything going against you. Right
Speaker 3: kind of on a fundamental side, right, EM is still
Speaker 3: so dependent on DM consumption, right, So when.
Speaker 4: EM is performing poorly, oftentimes it's because EM is looking to.
Speaker 3: D M to drive consumption growth, so they can explore right,
Speaker 3: you know, EM is very much a raw resource exporting
Speaker 3: manufacturer good exporting. So Europe has clearly been weak and
Speaker 3: most of the manufacturer in EM has been sort of
Speaker 3: forecasting a US hard landing, so they weren't aggressively seeking
Speaker 3: to build capacity, and so you got you got that
Speaker 3: going against EM. And then of course you have the
Speaker 3: dollar at record high yield and so you know, EM
Speaker 3: have historically dependent on a lot of global capital and
Speaker 3: now you have this global capital flight away from EM
Speaker 3: back to the dollar because they're dollars, safety and yield
Speaker 3: there is just so much more attractive. So it's pulling
Speaker 3: Calta away from some of the capital poor economy. So
Speaker 3: that's a that's a that's a major headwind as well.
Speaker 3: So you kind of got a fundamental against you. Now
Speaker 3: you've got kind of the financing, the liquidity part against you.
Speaker 3: And from a sentiment perspective, you know, EM sentiment is
Speaker 3: more fragile by local stock markets are shallow.
Speaker 4: So when we you.
Speaker 3: Know, when our quant scores look at sort of sentiment scores,
Speaker 3: what we've seen is sort of you know, as floor
Speaker 3: of a sentiments score across the board for EM, not
Speaker 3: just for China, but really across the board for EM
Speaker 3: and not just domestic flows, but even you know, more
Speaker 3: long term institutional global folks are showing very poor sentiment.
Speaker 2: Where do you see opportunities in EM right now? Then
Speaker 2: how are you thinking about the broader landscape?
Speaker 4: So I would say, you know, short term versus long term.
Speaker 3: Short term, I would say the interesting and fun place
Speaker 3: are really all the French shoring themes, and then you
Speaker 3: know those could could last all the way from a
Speaker 3: few months path maybe you.
Speaker 4: Know a year or two.
Speaker 3: Uh, so you know, you have you know, Mexico now
Speaker 3: being I think front and center for a lot of
Speaker 3: people thinking, hey, you know, friend shorwing Mexico is an
Speaker 3: obvious candidate as an EM economy that's big enough and
Speaker 3: obviously close enough to to the US for that theme
Speaker 3: to really thrive investment in the in New Mexico, India obviously,
Speaker 3: you know, Vietnam, you know, being where a lot of
Speaker 3: Chinese entrepreneurs and the factories have moved production to. And
Speaker 3: so that friend showing exercise has sort of pushed a
Speaker 3: lot of foreign direct investments from China, you know, and
Speaker 3: from Chinese into Vietnam. So I would say there are
Speaker 3: a lot of opportunities around the French shoring concept. That's
Speaker 3: kind of the short term and obviously we saw a
Speaker 3: major rally for for India before it pulled back more
Speaker 3: recently as well. In the long run, I would say
Speaker 3: in the long run, where I think the opportunities are UH,
Speaker 3: it'll continue to be the explot oriented and high value
Speaker 3: add economies. You know, you're China, You're in the UH,
Speaker 3: and increasingly so your your Vietnam, your Indonesia is more
Speaker 3: foreign direct investments, you know, lead China to to go
Speaker 3: to these smaller economies They're going to follow kind of
Speaker 3: the Japan, South Korea, Taiwan, and of course the China
Speaker 3: model of exporting UH and then through exporting, improving corporate profits,
Speaker 3: improving GDD growth UH. And I'm probably a bit more
Speaker 3: mixed about purely resource based EM economy because they seem
Speaker 3: to go through these boom bus cycles are just driven
Speaker 3: by commodities prices and have commodity devices could sustain the
Speaker 3: current high level due to your political tension, but without
Speaker 3: really strong on value add I'm a little you know,
Speaker 3: less fond of a pure resource oriented em economy. So
Speaker 3: very fond of the the Asian EM because you can
Speaker 3: see all of them are climbing the productivity curve, and
Speaker 3: the French showing is certainly going to accelerate the process.
Speaker 1: I like that expression, friendshuring. It's a lot more UH
Speaker 1: friendly expression than the rest of the world is at
Speaker 1: each other throats, you know, friendsuring is the positive side
Speaker 1: of that, I guess. But Jason, I'm glad you brought
Speaker 1: up the dollar because one of the things I wanted
Speaker 1: to ask you about is, you know, the really severe
Speaker 1: weakness in the Chinese currency lately. Uh it's even been
Speaker 1: sort of testing that two percent trading band that the
Speaker 1: People's Bank of China sets every day. I mean, is
Speaker 1: there a risk of the PBOC sort of losing control
Speaker 1: of the exchange rate? Where do they always have enough
Speaker 1: sort of firepower to keep it in that you know
Speaker 1: range that they wanted in.
Speaker 3: Yes, I would say the PBOC is pretty mixed when
Speaker 3: it comes to managing the remming bet. You know, part
Speaker 3: of the PBOC clearly understands that it is still an
Speaker 3: export oriented economy and for you know, stimulating the export sector,
Speaker 3: which is really great for domestic employment. And obviously the
Speaker 3: key cities that have thrived because of manufacturing, like a
Speaker 3: weaker remming Bee helped, right, So I understand. And now,
Speaker 3: of course it doesn't like to be labeled as a
Speaker 3: currency manipulator, doesn't want sanctioned that.
Speaker 4: Comes with that.
Speaker 3: So this is sort of perfect time as the dollar
Speaker 3: increased rates and then have strengthen, you know, for rending
Speaker 3: be too weakend it's really it's certainly weakening at the
Speaker 3: perfect time when China is experiencing sort of deflation, right,
Speaker 3: And so I don't think the PBOC minds it now.
Speaker 3: Of course, the PBOC is sort of you know, constantly
Speaker 3: watching to see if intervention is necessary. Again, I mean
Speaker 3: from an intervention perspective, given that person of China has
Speaker 3: a sort of massive dollar reserve and you know, other
Speaker 3: currency reserve, and given that increasingly, you know, China has
Speaker 3: been successful in marketing renming b as a viable reserve
Speaker 3: certainly for for clearing, uh for for some of the
Speaker 3: energy related resource.
Speaker 4: Remming Bee in the position it is in right now,
Speaker 4: it doesn't.
Speaker 3: Really have a an issue much like you know, the
Speaker 3: Latin currency when they're trying to defend a peg, right,
Speaker 3: you don't you just don't have that issue because of
Speaker 3: the reserve they have, and also the reserve status that
Speaker 3: rending be is increasingly achieving.
Speaker 2: Jason, I'm curious how you think investors are thinking about
Speaker 2: EM opportunities right now, because we've had, barring the last
Speaker 2: couple of weeks, maybe we've had really strong performances from
Speaker 2: US large cap tech companies so far this year, and
Speaker 2: so I'm just wondering how you think people in general
Speaker 2: are thinking about investing in EM versus investing in large
Speaker 2: cap US tech companies, or even to make it maybe
Speaker 2: more relevant to the last couple of weeks, investing in
Speaker 2: shorter dated bonds or cash like instruments where you can
Speaker 2: maybe get you know, north of five percent. Some of
Speaker 2: the yields are like five and a half percent currently.
Speaker 3: I mean historically people bought EM because they say, hey,
Speaker 3: I'm happy you take some risks if this allows me
Speaker 3: to buy kind of foundational components for growth. You look
Speaker 3: at EM, I go, yes, a young, hungry workforce, and
Speaker 3: that's got a drive growth. Right.
Speaker 4: Hey, it's an indefficient market, so you.
Speaker 3: Know that's got to provide lots of opportunity, uh for
Speaker 3: for growth because you know, capital is dearth in those markets.
Speaker 3: So if you can go supply capital, you can return
Speaker 3: you know, a fantastic return. But I would say more recently, uh,
Speaker 3: you kind of have you know, those thesis going against
Speaker 3: you a little bit in that of people are now
Speaker 3: looking at US and say, oh, you know, if the
Speaker 3: US is going to be at ground zero of the
Speaker 3: AI innovation, right, I mean, maybe that's where I go
Speaker 3: buy growth. Right, Maybe growth is not about buying you know, young,
Speaker 3: lesser skilled labor cheap, but it might be buying AI
Speaker 3: technology that.
Speaker 4: Will replace you know that that that that labor.
Speaker 3: Now, I think that thesis is wrong because you know,
Speaker 3: most of our AI is replacing American white color worker
Speaker 3: rather than factory workers, right, because we don't actually have
Speaker 3: very functioning robots, right, we just have chat GPT that
Speaker 3: can write law bries. You know, that's not what we're
Speaker 3: getting the Chinese factory workers do. But be as I may,
Speaker 3: I think there's just a lot of now believe that, oh,
Speaker 3: if I want to buy growth, maybe I should just
Speaker 3: dump a lot of money into video and that I'll
Speaker 3: by growth that way. I don't need to take the
Speaker 3: risk of em And certainly historically there's a lot on
Speaker 3: fixed incomes are right, you also have a lot of
Speaker 3: people going to uh EM fixed income for the higher
Speaker 3: you knowing that they're taking currency risks, they're taking a
Speaker 3: lot of these government mismanagement risks. But today you look
Speaker 3: at how much the dollars yielding at, it's harder to
Speaker 3: make that case. So you kind of got a bit
Speaker 3: of a double m against EM right now. The two
Speaker 3: key pieces, you know, growth uh and that additional yield
Speaker 3: US seems to be making that available through the large
Speaker 3: cap tech and then just the dollar treasury yielding at
Speaker 3: the you know, five five and a half percent, So
Speaker 3: rather tough as a headwind for EM in the short run.
Speaker 3: Right in the short run, I mean we expect, we
Speaker 3: fully expect, you know, the US interest rate is going
Speaker 3: to get cut because we owe you know, thirty four
Speaker 3: trillon dollars, so we prefer to owe thirty four trillion dollars.
Speaker 4: At zero interest rate than six percent.
Speaker 3: So you imagine that's going to get cut, and the
Speaker 3: attractiveness of the EM currency and yield is going to
Speaker 3: come back. You also expect that we'll quickly realize, you know,
Speaker 3: there's tech growth, but then there's a lot of manufacturing
Speaker 3: that's needed to produce that tech. So EM is still
Speaker 3: going to be important driver. So in the long run,
Speaker 3: I think those thesis are true. But short run, you know,
Speaker 3: past perform and tends to draw a lot of flow,
Speaker 3: so you as is that the best performance?
Speaker 1: You know, Jase, I know you've done some work looking
Speaker 1: at whether it would make sense to sort of carve
Speaker 1: China out of the emerging market stock indexes, you know,
Speaker 1: as China decoupling from the US and maybe even the
Speaker 1: other emerging markets. Talk to us a little bit about
Speaker 1: your thinking around that. You know, where we going to
Speaker 1: hear more and more about sort of E M X
Speaker 1: China type of funds. What's your take on, you know,
Speaker 1: the notion of EM indexes that exclude China.
Speaker 3: You know, Mike, when I originally did the research, you know,
Speaker 3: my my rationale for exiting out China was more about, well,
Speaker 3: China is so big inside EM, right, so if you
Speaker 3: don't exil China, then China has a bad year. EM
Speaker 3: as a bad year, so you're not getting a lot
Speaker 3: of diversication benefit.
Speaker 4: Take out China.
Speaker 3: Chinnea's not very correlated with the rest of EM, so
Speaker 3: you got more flexibility correlation benefit is better, and then
Speaker 3: it just seems to make sense. It's like, how we
Speaker 3: took us out of global acuity, so people did us
Speaker 3: and global us, right, that makes sense.
Speaker 1: China is what close to half of the like the
Speaker 1: MSCI em indux stuff like that.
Speaker 3: You know, when before it declined forty percent, it was
Speaker 3: about and so you know that I thought was like
Speaker 3: a very academically uh defensible reason, but you know, no
Speaker 3: one paid attention to that. But today people are liking
Speaker 3: that concept because they sort of have a sort of
Speaker 3: bad taste in their mouth. It's like, ah, you know,
Speaker 3: China's fallen too much. If I've taken China out of
Speaker 3: my EM, I EM would have done better. Right, So
Speaker 3: there's a little exposed regret. And there's also I think
Speaker 3: a lot of value judgments. And again you know I'm I'm,
Speaker 3: I'm you know, perfectly happy or people both invest and
Speaker 3: impost some kind of ESG.
Speaker 4: Value judgment in their portfolio.
Speaker 3: So it makes sense, right, like take China l It
Speaker 3: gives you that flexibility, right, you can be you can
Speaker 3: be an e investors and say, oh, China doesn't come
Speaker 3: you know, you know the fact that government is communists,
Speaker 3: so that's not consistently.
Speaker 4: Yeah, okay, that's fine.
Speaker 3: You could be like a contrarian investor and say, wow,
Speaker 3: you know everyone hates China, so I'm good buy China,
Speaker 3: and that could work as well.
Speaker 4: So you take China out of EM.
Speaker 3: It allows people to sort of ask allocate whether because
Speaker 3: you know, they really like China or they really hate China,
Speaker 3: and they don't just have to do it within the
Speaker 3: context on EM basket.
Speaker 2: Jis and I can't even imagine all of the things
Speaker 2: you have to be keeping up with in the world
Speaker 2: to be able to formulate some of these thoughts. Like
Speaker 2: I'm thinking about some of the elections that are coming
Speaker 2: up in major EM countries, lots of stuff happening in Argentina,
Speaker 2: et cetera. I'm wondering how you're thinking about the remainder
Speaker 2: of this year and whether or not you see more
Speaker 2: volatility if there are some opportunities to be buying, you know,
Speaker 2: different EM stocks.
Speaker 3: So we really like EM again, the short term is
Speaker 3: it's hard to predict, and my guess is for the
Speaker 3: rest of the year, sentiment will remain negative. The volatility
Speaker 3: will be there, but you know, you know, most of
Speaker 3: our clients are large institutions. So at least I can
Speaker 3: tell you for institutions to build a position too. You know,
Speaker 3: the dollar cost averaging into a position is a great
Speaker 3: way to invest.
Speaker 4: For the long run and form a valuation perspective. EM
Speaker 4: is cheap.
Speaker 3: You know, you can't expect to go into EM and
Speaker 3: immediately see it sort of turn around and start recovering.
Speaker 3: But you can probably bet on in ten years if
Speaker 3: you buy at such a cheap level, if your willingness
Speaker 3: is like no short term fluctuation, you're gonna do plenty well.
Speaker 4: Right.
Speaker 3: And then, like I said early in a program like
Speaker 3: the world's always like the twin engine, right, like kind
Speaker 3: of you us as the head of DM really innovating.
Speaker 3: So it's driving growth through innovation, and EM is achieving
Speaker 3: growth through imitation. Right, So you got innovation and imitation.
Speaker 3: Those are two amazing engines that keep the world going.
Speaker 3: And then you should you know, have both.
Speaker 1: You know, Jason, you touched briefly on the trade tensions
Speaker 1: between the US and China. I'm wondering how you're thinking
Speaker 1: about that going forward. I mean, what is sort of
Speaker 1: the status there? It seems to me like kind of
Speaker 1: a stalemate, a standoff, but is there a path towards reconciliation?
Speaker 1: You know, where does this relationship go?
Speaker 3: So, yeah, there's a lot of you know, bickering back
Speaker 3: and forth. I tend to see the US China relationship
Speaker 3: as a abusive code dependent marriage, right, Like if you
Speaker 3: think about it, right, Like, the US is the world's
Speaker 3: biggest consumer, right, and we run a massive trade deficit,
Speaker 3: and that just means someone must be a big producer.
Speaker 3: We can't all be consuming, right, Someone's got to make stuff,
Speaker 3: and we can't all be borrowing. Someone's got to let, right,
Speaker 3: Like US consumes and we borrow from foreign countries, and
Speaker 3: China needs to be the willing partner to produce and
Speaker 3: lend us money to consume, So we can't break away
Speaker 3: from each other, right, and then we're both too big. Right.
Speaker 4: It's not like US can.
Speaker 3: Go replace China with Vietnam and say, hey, we'll give
Speaker 3: you the Chinese deal, right where you do all of
Speaker 3: our manufacturing and lend money to us. Because Vietnam's got
Speaker 3: what a population of sixty million, right, China's got you
Speaker 3: one point three billion people. So just the math of
Speaker 3: the two conage being so large, and they almost are
Speaker 3: like the perfect fit for each other well.
Speaker 1: Jason Sue. He is the chairman and chief investment Officer
Speaker 1: at Ralliant Global Advisors. Always great to catch up with you, Jason,
Speaker 1: and hear how you're thinking about the world. You've got
Speaker 1: such a great way of explaining everything, and as Wodanna said,
Speaker 1: you've got your eye all over the world, which we
Speaker 1: really appreciate. But we can't let you go quite yet.
Speaker 1: We do have a tradition on the podcast of sharing
Speaker 1: the craziest things we've seen in markets this week, Pildatta,
Speaker 1: let's start with you.
Speaker 2: I have a good one that I found on X
Speaker 2: Mine is about Taylor Swift and Travis Kelcey. Okay, yeah,
Speaker 2: I know you. You prefer the Swift a separate Swift
Speaker 2: Kelsey pairing on the Eagles, probably this one. This one's
Speaker 2: more important to the world of pop culture and swifties
Speaker 2: like me. But just to show you the Taylor Swift effect,
Speaker 2: this is This is a tweet from Joe Panpliano. Taylor,
Speaker 2: as we as the entire world knows now, was at
Speaker 2: the Kansas City Chiefs game over the weekend. She was
Speaker 2: in a box with Travis Kelcey's mom and a bunch
Speaker 2: of friends and they were having a really great time
Speaker 2: x slash. Twitter went wild and people everywhere went wild
Speaker 2: for this. Anyway, after you know, Taylor Swift visited him
Speaker 2: at this game, he gained more than three hundred thousand
Speaker 2: social media followers. Wow, he saw They saw a four
Speaker 2: hundred percent increase in merchandise sales, and his jersey became
Speaker 2: one of the top five selling jerseys in the NFL.
Speaker 2: The NFL changed their Twitter X well, I can't say
Speaker 2: X honestly, their their X description to say, like Taylor
Speaker 2: Swift was here, like it just the impact was mind
Speaker 2: blowing to me.
Speaker 1: My wife has a conspiracy theory that ratings were going
Speaker 1: down for the NFL games and they needed they needed
Speaker 1: to bring it in.
Speaker 2: And I've heard this conspiracy theory before. I'm not in.
Speaker 2: I don't buy into it, but I like it.
Speaker 1: I like it. That's a good as far as conspiracy
Speaker 1: theories go. That's it. That's a good.
Speaker 2: One four hundred percent increase in merchandise sales.
Speaker 1: That's that's your market angle.
Speaker 3: I guess, yeah, exactly, I need to hire Taylor Swift
Speaker 3: to sell my et.
Speaker 1: You got to make a friendship bracelet with the checker
Speaker 1: symbol on it. Jason, that's what That's what Kelsey did.
Speaker 1: You made a friendship bracelet with her number. Who would
Speaker 1: have thought that would work?
Speaker 2: Well?
Speaker 1: How about you, Jason, you see anything crazy in the
Speaker 1: last week or so.
Speaker 3: I mean, it's a long running theme for me. And
Speaker 3: because I have such a grudge against Nvidia.
Speaker 4: I saw this on X. I saw this on X
Speaker 4: but it.
Speaker 3: May have been on there for a while. I'm in
Speaker 3: the Middle East. I'm a little out of touch, right.
Speaker 3: Someone actually said, like, Nvidia maybe a bit of a
Speaker 3: Ponzi scheme because apparently they bought a company who's like
Speaker 3: the biggest buyer of their chips, and like, if you
Speaker 3: work out the accounting, all of their sales growth was
Speaker 3: driven by you know this other company. So there there
Speaker 3: may be some funky, weird thing going on. But in
Speaker 3: full disclosure, right, my big, big grudge against Nvidia is
Speaker 3: not because I got a short position in it.
Speaker 4: And got my clocks clean, none of that.
Speaker 3: It's because my mom bought Nvidia and one hundred bucks
Speaker 3: a share it went up to two point fifty on
Speaker 3: that crazy upgrade, and I.
Speaker 4: Said, Mom, this this makes no sense.
Speaker 3: You could sell it, right, It reminds me of Cisco
Speaker 3: during a tech bubble where everyone says, oh, of course
Speaker 3: everyone would need to buy a router, and you know,
Speaker 3: Cisco will own the world. And so you know, that's
Speaker 3: kind of seemed narrative. I hear about video, So I
Speaker 3: told my mom son video he makes us a good game,
Speaker 3: and of course then it goes to.
Speaker 4: Like four hundred and fifty. So every time my mom sees.
Speaker 3: Me, right, he's like, I have an idiot for a son.
Speaker 3: Untold in video falls below two fifty, I'm going to
Speaker 3: be like putting a X curse.
Speaker 4: On that stock.
Speaker 1: That's hilarious. Well that's kind of I think very indicative
Speaker 1: of uh, the mania that takes over. That just doesn't
Speaker 1: seem to make sense. Now, I credit in video has
Speaker 1: got a decent a very good book case. But uh,
Speaker 1: you know what are your mom's not performing you you know,
Speaker 1: you know, you know something, something's out of whack with markets.
Speaker 1: I love that story. That's hilarious. Uh, all right, your mine,
Speaker 1: vil donna. Do you know what the highest denomination Federal
Speaker 1: Reserve Bill is? In other words, the highest denomination currency
Speaker 1: paper currency is right.
Speaker 2: Now, one hundred bucks.
Speaker 1: Did you know during the Great depression, and prior to that,
Speaker 1: I assume too, there were bills denominated in ten thousand.
Speaker 1: There were ten thousand dollars banknotes available. They never circulated publicly.
Speaker 1: They were basically just used to transfer funds between various
Speaker 1: Federal Reserve banks. But this is according to a story
Speaker 1: in the New York Post, one of them that was
Speaker 1: printed in nineteen thirty four just came up for auction,
Speaker 1: and the picture on it is President Abe Lincoln's Treasury
Speaker 1: Secretary Salmon P. Chase. The question for you to game
Speaker 1: show consstants right now is what do you think this
Speaker 1: ten thousand dollars bill from night teen thirty four, pristine condition,
Speaker 1: sold for at the Long Beach Currency Expo.
Speaker 2: You can't use it, right, you know?
Speaker 1: That's a third good question.
Speaker 2: You would just have it like to hang on your wall.
Speaker 1: That's a very good question. I assume I'd have to
Speaker 1: zoom in on the picture and see if it says
Speaker 1: legal tender for all debts, blah blah blah. That's a
Speaker 1: good question. I don't know. I will tell you this,
Speaker 1: for what it's sold for, you would not want to
Speaker 1: spend it. That's one hint to the value that I
Speaker 1: have for.
Speaker 3: I'm going to guess it's below two point three million,
Speaker 3: which is I think what the Tom Brady baseball car fetch.
Speaker 4: It can't be more valuable than that.
Speaker 3: I'm gonna I'm for a crazy number out there.
Speaker 4: Half a million dollars.
Speaker 1: Half a million dollars? All right, vill Donna, what's your
Speaker 1: bid for a ten thousand dollars Salmon p Chase bill
Speaker 1: from nineteen thirty four?
Speaker 2: I literally have no guess what like at all, So
Speaker 2: I'm just gonna go with ten thousand.
Speaker 1: Ten thousand. You think it's just sold.
Speaker 2: For part Yeah, I'm just going with that.
Speaker 1: Yeah, all right. Jason. It's a shame your mom's not
Speaker 1: here because you just got some redemption here. You're very
Speaker 1: close four hundred and eighty thousand. Wow, yeah, Wow. Apparently
Speaker 1: it's a big This is a huge collector's market is
Speaker 1: old bills of high denominations like this. Who knew you
Speaker 1: learned something new?
Speaker 2: Usually I have like at least a little bit of
Speaker 2: like a feeling toward what something might be, you know,
Speaker 2: even if I'm wildly off. But on this one, I
Speaker 2: had absolutely nothing. I just would not even know. Your
Speaker 2: hint didn't help at all for what it sold for
Speaker 2: you wouldn't want to spend it.
Speaker 3: Yeah, you know, because there's no there's no NFC options now,
Speaker 3: so people need something to collect.
Speaker 1: Yeah, all right. Jason Seu of Ralliant Global Advisors, thank
Speaker 1: you so much for your friend.
Speaker 4: Thanks Mike, Thanks Madonna, thank you, Jason.
Speaker 1: Well, thank you for listening to What goes Up. While
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Speaker 1: is Sage Bauman. Thanks for listening.