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Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News. Welcome to the Daybreak

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Speaker 1: Asia podcast. I'm Doug Chrisner. The US equity market rally today.

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Speaker 1: That was after the US and the European Union sped

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Speaker 1: up trade talks. The market also got a bit of

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Speaker 1: a boost from a sharp rebound in consumer confidence. We

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Speaker 1: had the S and P jumping two percent today, but

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Speaker 1: to be fair, trading volume in the S ANDP was

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Speaker 1: more than ten percent below the ten day average, and

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Speaker 1: sometimes light volume can exaggerate some of the price action.

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Speaker 1: For a closer look at market action, I'm joined by

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Speaker 1: Clark Garnon. He is the chief market strategist at Calba Investments.

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Speaker 1: He joins from the Bay Area in California. Clark, thank

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Speaker 1: you so much. Give me your sense of what the

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Speaker 1: market was telling you today on the equity side.

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Speaker 2: Well, we saw that delay, the push off in the

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Speaker 2: tariffs on the EU, and like you said, with the

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Speaker 2: new numbers coming out on the consumer confidence index, we

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Speaker 2: clearly saw some bullish signals. But that being said, you

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Speaker 2: know we weren't necessarily surprised. We've seen this headline risk

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Speaker 2: go both ways, and like you mentioned, the low volume,

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Speaker 2: I think there is some investor fatigue out there.

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Speaker 1: It was kind of interesting to look at the bond

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Speaker 1: market today because overnight Japanese authorities seem to suggest a

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Speaker 1: possible reduction in the amount of debt issuance. The Finance

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Speaker 1: Ministry in Japan has been working to stabilize the bond

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Speaker 1: market after last week's soft sale in those twenty year jgbs,

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Speaker 1: where demand I think was the weakest in more than

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Speaker 1: a decade. So maybe we have a little bit of stability,

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Speaker 1: But I think overhanging global debt markets right now, there

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Speaker 1: is the growing concern about these the large size of

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Speaker 1: these government deficits. Is that going to be something that

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Speaker 1: you think will persist in of casting a pall over

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Speaker 1: global bond markets going forward?

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Speaker 2: I think it will, you know. I think looking back

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Speaker 2: to twenty twenty two, where we had both equities and

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Speaker 2: bonds down double digits for the first time, I think

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Speaker 2: we started to get worried about that in April, and

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Speaker 2: as we see our deficit continue to grow without a

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Speaker 2: solid plan for actually fixing that, that is something that

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Speaker 2: we're going to be worried about moving forward.

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Speaker 1: So we talked a little bit about the trade story.

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Speaker 1: I'm curious to get your take on whether you think,

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Speaker 1: first of all, there will be resolution to these various

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Speaker 1: trade agreements at least in the near term, and secondly,

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Speaker 1: whether you are concerned that even if we get agreements

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Speaker 1: with various trading partners, that the net impact will be inflationary.

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Speaker 2: So we are concerned about stagflation, So we do think

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Speaker 2: that that could be a possibility moving forward. But we

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Speaker 2: do think that since we've seen some of these tariff

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Speaker 2: delays and there's been a clear response, even the EU

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Speaker 2: over the past day has said that they are making

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Speaker 2: good progress towards making a deal, and we think that's

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Speaker 2: going to be imperative for not only avoiding some stackflation,

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Speaker 2: but also a possible recession. At this point, we could

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Speaker 2: be in a technical recession, but we also have that

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Speaker 2: in twenty twenty where we didn't even realize we were

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Speaker 2: in the recession until we were out of it. So

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Speaker 2: recession isn't necessarily something that we're concerned about. We could

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Speaker 2: have one, but I think moving forward we just need

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Speaker 2: to see exactly how many deals are made, because we

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Speaker 2: need to see a deal done before the end of summer.

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Speaker 1: And a number of FED officials have said repeatedly that

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Speaker 1: US trade policy right now has created a fair amount

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Speaker 1: of uncertainty for the FED to consider moving rates before September.

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Speaker 1: That was what we heard over the weekend from the

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Speaker 1: head of the Minneapolis FED, Neil Kashkari, concerned that the

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Speaker 1: FED may not have the flexibility that people were hoping

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Speaker 1: for to cut rates between now and the end of

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Speaker 1: the year.

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Speaker 2: I don't know if it's a matter of flexibility. I

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Speaker 2: just don't think from their dual mandate, looking at inflation

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Speaker 2: and looking at unemployment, that either of those numbers are

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Speaker 2: in a place for the FED to cut right now.

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Speaker 2: So there's going to have to be some sort of

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Speaker 2: change between now in September or the end of the

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Speaker 2: year for that matter. And so we're not really anticipating

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Speaker 2: any FED cuts at this point, and that could be

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Speaker 2: to the chagrin of President Trump, But from their dual mandate,

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Speaker 2: looking at the numbers, there doesn't seem to be a

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Speaker 2: reason to cut.

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Speaker 1: So let's talk a little bit about artificial intelligence. You're

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Speaker 1: there near the center of the storm, which I think

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Speaker 1: is San Francisco, but you're in the Bay Area, and

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Speaker 1: tomorrow we're going to hear from end video. What are

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Speaker 1: your expectations.

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Speaker 2: While I can't provide expectations for Nvidia earnings, I will

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Speaker 2: say that it's always a drastic day in the markets

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Speaker 2: the day before earnings and obviously the day of earnings.

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Speaker 2: So you know, as we've seen Nvidia push the markets

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Speaker 2: higher and higher over the past two years, it definitely

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Speaker 2: will be a huge headline tomorrow, and I think just

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Speaker 2: adds to the headline risk that we'll be looking at.

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Speaker 1: Generally speaking, are you bullish on large cap tech?

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Speaker 2: Generally speaking, yes, we are bullish on large cap tech,

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Speaker 2: and thankfully, over the past two months, we've had great

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Speaker 2: opportunities to enter into some of these names as we

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Speaker 2: saw the multiples get reduced so much, it's been a

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Speaker 2: great opportunity to buy. So not only are we bullish

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Speaker 2: on large cap tech, but we also really like the

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Speaker 2: healthcare space as well as financials, and AI plays into

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Speaker 2: a lot of that. With healthcare, that's where we're seeing

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Speaker 2: a lot of advancements in AI and think that there's

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Speaker 2: a lot of room to run.

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Speaker 1: Also, today San Francisco based Salesforce announced the acquisition of Informatica.

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Speaker 1: This is an eight billion dollar deal. Informatica helps customers

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Speaker 1: manage their data in the cloud, So a bit of

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Speaker 1: an AI play here for salesforce. While back, people were

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Speaker 1: really anticipating a lot more M and A activity that

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Speaker 1: really hasn't panned out. Do you think we're going to

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Speaker 1: turn the corner soon and see much more in the

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Speaker 1: way of deal flow.

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Speaker 2: I do, but I think first we need to get

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Speaker 2: a few deals done in order to have some more

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Speaker 2: clarity and certainty moving forward. I think that also comes

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Speaker 2: with the TCGA being passed, and once we have more

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Speaker 2: clarity there, then we'll start to see some more deals

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Speaker 2: pan out, because we also expected M and A to

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Speaker 2: be a large part of this administration's plan moving forward,

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Speaker 2: but I think tariffs and getting some deals done with

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Speaker 2: countries is first priority. Then we can talk about the

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Speaker 2: corporate tax cuts, which are then going to follow into

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Speaker 2: the mergers and acquisitions and just sort of the deregulation

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Speaker 2: of industries in general.

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Speaker 1: So if you're anticipating a pickup in deal flow, I

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Speaker 1: would imagine that you look at some of the big banks,

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Speaker 1: some of the investment banks as an opportunity.

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Speaker 2: Right, absolutely, investment banks and regional banks as well, So

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Speaker 2: you know, this is where we're going to see some

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Speaker 2: consolidation and most likely not until Q three, Q four

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Speaker 2: and even into twenty twenty six, So not necessarily something

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Speaker 2: that's going to happen tomorrow, but we know down the

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Speaker 2: road once we have more clarity that it will happen.

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Speaker 1: Are you still very much squarely focused on putting money

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Speaker 1: to work in the United States at the exclusion of

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Speaker 1: other developed markets globally?

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Speaker 2: So what we like to do is we like to

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Speaker 2: keep less than ten percent international, and that's just from

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Speaker 2: our investment philosophy. So obviously through this year international's done

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Speaker 2: quite well. We didn't want to chase returns, so we

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Speaker 2: don't think of ourselves as traders. We are long term

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Speaker 2: investors and overall we have a strong bullish view of

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Speaker 2: the US markets, and so we'll continue to stick to

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Speaker 2: that ten percent.

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Speaker 1: All right, Clark, we'll leave it there. Thank you so

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Speaker 1: much for joining us. Clark Aaron and he is the

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Speaker 1: chief market strategist at Calbay Investments, joining from the Bay

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Speaker 1: Area of northern California. Here on the Daybreak Asia podcast.

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Speaker 1: Welcome back to the Daybreak Asia podcast. I'm Doug Chrisner.

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Speaker 1: So we have talked on this podcast for a while

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Speaker 1: about how investors across Asia have been rethinking their strategy

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Speaker 1: of investing in US assets. We know the concerns are many.

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Speaker 1: There's the US budget deficit along with the impact of

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Speaker 1: tariffs and shifting US trade policies, as well as the

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Speaker 1: knock on effect of a weaker dollar. For a closer look, now,

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Speaker 1: I'm joined by vs N i Are. He is the

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Speaker 1: CIO at East Spring Investments. Vs joins us from our

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Speaker 1: studios in Hong Kong. Good of you to make time

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Speaker 1: to chat with me. I'm curious to get your take

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Speaker 1: on the way in which investors in Asia are now

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Speaker 1: de risking from the US. What are those fun flows

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Speaker 1: look like to you?

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Speaker 2: Hi?

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Speaker 3: Thanks, Thanks Doug for having me here. So what we

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Speaker 3: see is that we've had a number of years now

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Speaker 3: where US markets in general, both fixed income and equities,

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Speaker 3: have had a very large outshare of interest and of

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Speaker 3: drawing capital, so into US equities, into use fixed income,

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Speaker 3: et cetera. Now now we've now in a position where

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Speaker 3: we're seeing some challenges to growth, be it driven by

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Speaker 3: tariff some uncertainty. We've seen weakness in the dollar. Often

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Speaker 3: forgotten is that the US markets have recovered, But in

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Speaker 3: twenty twenty five, US markets have underperformed some of the

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Speaker 3: larger Asian markets. So it's a very interesting cocktail. So

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Speaker 3: in the backdrop of a falling dollar, challenges and the

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Speaker 3: long end of the US curve, you know, we've seen

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Speaker 3: some disappointments there as well in terms of the auctions,

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Speaker 3: we see investors really increasingly thinking about diversification. So the

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Speaker 3: last few years has been a very clear market where

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Speaker 3: concentration has done well. So a few stocks, particularly tech

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Speaker 3: stocks in the US, have driven global markets and of

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Speaker 3: course the US markets as well. And you're seeing a

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Speaker 3: change in that. You're seeing a change in that leadership,

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Speaker 3: You're seeing challenges to growth, you're seeing longer long end

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Speaker 3: interest rates, we're seeing a falling dollar. So these cocktail

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Speaker 3: is a cocktail of changes really, and investors are adapt

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Speaker 3: to that. Then they're adapting by being much more focused

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Speaker 3: again on diversification, seeking out those pockets of the market

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Speaker 3: that might be a little bit more resilient, those pockets

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Speaker 3: that potentially could outperform, and then allocating appropriately, which often

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Speaker 3: means now a little bit away from the US.

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Speaker 1: So to what extent does China represent an alternative right now?

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Speaker 1: How would you wait opportunities in China broadly speaking, and

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Speaker 1: whether there is really the kind of story, the kind

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Speaker 1: of narrative that would compel an investor to put money

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Speaker 1: to work on the mainland.

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Speaker 3: So what a great questen. So what we see, of course,

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Speaker 3: this year, we've seen the Chinese markets have outperformed the US.

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Speaker 3: Of course, there's been a lot of volatility around tariffs,

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Speaker 3: a lot of uncertainty around tariffs, and that of course

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Speaker 3: holds back perhaps invests a little bit from going all

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Speaker 3: in in some ways. But the Chinese market, of course,

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Speaker 3: as we've moved to a world where despite all the

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Speaker 3: tariff on certainty, we see effectively there this effective tariff

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Speaker 3: rate of about thirty five percent. You know, there's a

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Speaker 3: ten percent flat rate, there's a twenty percent fentanyl rate,

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Speaker 3: and there's some sector specific additional rates as well. So

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Speaker 3: on average, we think that's about thirty five percent. That

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Speaker 3: is potentially a one percent headwind to GDP, but we

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Speaker 3: still see China delivering about four point four percent growth

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Speaker 3: this year. We've seen two percent fiscal stimulus already, we

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Speaker 3: think there could be another one one and a half

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Speaker 3: percent coming, and we think they can deliver that four

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Speaker 3: percent growth. This is against a backdrop of US growth

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Speaker 3: actually deteriorating in the second half of the year. Secondly,

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Speaker 3: there is room for interest rates to to come down

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Speaker 3: in China, and we've also seen very much sector specific

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Speaker 3: lending to help certain sectors. So in no way do

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Speaker 3: we think that there is a sort of across the

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Speaker 3: board positive stories across all sectors in China. We still

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Speaker 3: have concerns around property, et cetera. But certainly things like

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Speaker 3: the technology sector in China trade a very cheap valuations.

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Speaker 3: You you are you are buying into the market at

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Speaker 3: very very attractive valuations, and we think this is a

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Speaker 3: good point, and that's why investors have started to become

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Speaker 3: much more likely to allocate to some of those agent

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Speaker 3: markets in particularly China.

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Speaker 1: I'm wondering how you wait the problem of deflation in

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Speaker 1: China and whether you are worried that this could become

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Speaker 1: a more intractable and deeper problem for officials in China

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Speaker 1: to deal with.

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Speaker 3: Well, I think the key thing there is that they

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Speaker 3: have the tools, so it's it's you know, we're not

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Speaker 3: We're not. I think tracking a repeat of what we

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Speaker 3: saw with Japan. They have got tools that will allow

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Speaker 3: them to to stimulate. We still are seeing growth, So

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Speaker 3: it's not a zero growth environment. They they delivered something

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Speaker 3: last year. We think they'll deliver four and a half

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Speaker 3: this year. But I think what might be the concern

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Speaker 3: is that we don't see this as an across the board,

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Speaker 3: across all sects. There are domestic champions. There are particular

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Speaker 3: sectors that do well. We do strongly advocate. I mean,

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Speaker 3: we've just released our midyear outlook and the theme of

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Speaker 3: that was think Asia, but think active. We don't think

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Speaker 3: this is a broad market recovery or a broad market allocation.

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Speaker 3: It's very much about identifying those companies that are much

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Speaker 3: more resilient with you know, competitive advantages, strong balance sheets,

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Speaker 3: the kind of essentially quality names, and we think those

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Speaker 3: are the ones that can outperform because evaluations are so

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Speaker 3: much more attractive.

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Speaker 1: I want to pivot to supply chain reconfiguration if we can't,

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Speaker 1: because it's a part of the tariff story obviously, and

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Speaker 1: we know that firms began to diversify away from China

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Speaker 1: to a small extent during the first Trump trade war

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Speaker 1: with Beijing. Then the pandemic struck, and that clearly highlighted

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Speaker 1: the risk of being overly concentrated in China. Now during

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Speaker 1: the second Trump trade war, there seems to be even

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Speaker 1: greater risk now under the current strategy, the Trump administration

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Speaker 1: is trying to counter this reconfiguration story. It's focused on

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Speaker 1: places like Vietnam, where reshoring has been underway as we

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Speaker 1: know for some time. And I'm curious, viz, how are

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Speaker 1: you navigating all of this?

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Speaker 3: That question almost identified all of the concerns that we

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Speaker 3: have as investors as well. So undoubtedly the first President

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Speaker 3: Trump administration was very focused on China, and what we

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Speaker 3: saw was this China plus one strategy adopted by many

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Speaker 3: Asian manufacturers, essentially relocating to the likes of Vietnam and

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Speaker 3: other places in Southeast Asia. I think that the ideological

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Speaker 3: and game still seems very much that the US policies

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Speaker 3: are very much trying to contain China. I think we

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Speaker 3: are in a journey of discovery around trade deals and

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Speaker 3: those negotiations. The Chinese have got some concerns, you know,

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Speaker 3: very clearly the US is focused on the bigger nations

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Speaker 3: they've you know, we're talking about Europe, Japan, China. They're

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Speaker 3: putting a lot of energy into that. It's pertinent that

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Speaker 3: we haven't easily struck deals so it's not a negotiation

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Speaker 3: tactic that has forced a kind of a submission. It's

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Speaker 3: very much a negotiation that the likes of Japan and

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Speaker 3: China are going through, and the Chinese are very aware

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Speaker 3: and they're looking out for deals that in any way

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Speaker 3: disadvantage them in the global market. Now, when we think

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Speaker 3: of that policy, I think that it's the uncertainty they

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Speaker 3: investors are struggling with. So if investors are struggling with it,

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Speaker 3: so are you know, business owners and business managers, Because

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Speaker 3: how do you relocate production into a third into a

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Speaker 3: third nation or a third region without policy certainty. I

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Speaker 3: think that is that that is the dimension that really

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Speaker 3: has suffered in the last few months, because this uncertainty

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Speaker 3: potentially leads to less investment and then that potentially leads

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Speaker 3: to lower growth. So as investors, that is the primary focus.

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Speaker 3: If we're trying to predict the endgame, I think that

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Speaker 3: it's very difficult to do. Other than perhaps a few

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Speaker 3: points we know we think there might be something like

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Speaker 3: a ten percent tariff ry across the board with many nations.

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Speaker 3: I think that even the Chinese have sort of got

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Speaker 3: themselves to a roughly relaxed point there. I think that

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Speaker 3: there is some strong negotiations around trying to limit the

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Speaker 3: impact on inflation from those tariff tax rises, and then

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Speaker 3: we are in a void discovery around what that means

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Speaker 3: in terms of supply chain adjustment. The first administration moved

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Speaker 3: a lot of supply chain manufacturing to Southeast Asia. Clearly,

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Speaker 3: now the US President is very clear that they want

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Speaker 3: to at least try and limit or pay attention to that.

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Speaker 3: They haven't we haven't got to the endpoint where we

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Speaker 3: know for certain that's not going to be a good idea. Clearly,

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Speaker 3: we've got other parts of the world that they may

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Speaker 3: be paying attention to. But I think if there's one

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Speaker 3: anchor to everything is they want to at least limit

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Speaker 3: their reliance on China as in terms of their own

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Speaker 3: supply chain. That's the best we can give.

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Speaker 1: We'll leave it there. Vis Thank you so much for

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Speaker 1: being with us. Fee Sneier is the CIO at East

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Speaker 1: Spring Investments, joining from Hong Kong here on the Daybreak

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Speaker 1: Asia podcast. Thanks for listening to today's episode of the

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Speaker 1: Bloomberg Daybreak Asia Edition podcast. Each weekday, we look at

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Speaker 1: the story shaping markets, finance, and geopolitics in the Asia Pacific.

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Speaker 1: You can find us on Apple, Spotify, the Bloomberg Podcast

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Speaker 1: YouTube channel, or anywhere else you listen. Join us again

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Speaker 1: tomorrow for insight on the market moves from Hong Kong

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Speaker 1: to Singapore and Australia. I'm Doug Prisner, and this is

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Speaker 1: Bloomberg