Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News. Welcome to the Daybreak
Speaker 1: Asia podcast. I'm Doug Chrisner. The US equity market rally today.
Speaker 1: That was after the US and the European Union sped
Speaker 1: up trade talks. The market also got a bit of
Speaker 1: a boost from a sharp rebound in consumer confidence. We
Speaker 1: had the S and P jumping two percent today, but
Speaker 1: to be fair, trading volume in the S ANDP was
Speaker 1: more than ten percent below the ten day average, and
Speaker 1: sometimes light volume can exaggerate some of the price action.
Speaker 1: For a closer look at market action, I'm joined by
Speaker 1: Clark Garnon. He is the chief market strategist at Calba Investments.
Speaker 1: He joins from the Bay Area in California. Clark, thank
Speaker 1: you so much. Give me your sense of what the
Speaker 1: market was telling you today on the equity side.
Speaker 2: Well, we saw that delay, the push off in the
Speaker 2: tariffs on the EU, and like you said, with the
Speaker 2: new numbers coming out on the consumer confidence index, we
Speaker 2: clearly saw some bullish signals. But that being said, you
Speaker 2: know we weren't necessarily surprised. We've seen this headline risk
Speaker 2: go both ways, and like you mentioned, the low volume,
Speaker 2: I think there is some investor fatigue out there.
Speaker 1: It was kind of interesting to look at the bond
Speaker 1: market today because overnight Japanese authorities seem to suggest a
Speaker 1: possible reduction in the amount of debt issuance. The Finance
Speaker 1: Ministry in Japan has been working to stabilize the bond
Speaker 1: market after last week's soft sale in those twenty year jgbs,
Speaker 1: where demand I think was the weakest in more than
Speaker 1: a decade. So maybe we have a little bit of stability,
Speaker 1: But I think overhanging global debt markets right now, there
Speaker 1: is the growing concern about these the large size of
Speaker 1: these government deficits. Is that going to be something that
Speaker 1: you think will persist in of casting a pall over
Speaker 1: global bond markets going forward?
Speaker 2: I think it will, you know. I think looking back
Speaker 2: to twenty twenty two, where we had both equities and
Speaker 2: bonds down double digits for the first time, I think
Speaker 2: we started to get worried about that in April, and
Speaker 2: as we see our deficit continue to grow without a
Speaker 2: solid plan for actually fixing that, that is something that
Speaker 2: we're going to be worried about moving forward.
Speaker 1: So we talked a little bit about the trade story.
Speaker 1: I'm curious to get your take on whether you think,
Speaker 1: first of all, there will be resolution to these various
Speaker 1: trade agreements at least in the near term, and secondly,
Speaker 1: whether you are concerned that even if we get agreements
Speaker 1: with various trading partners, that the net impact will be inflationary.
Speaker 2: So we are concerned about stagflation, So we do think
Speaker 2: that that could be a possibility moving forward. But we
Speaker 2: do think that since we've seen some of these tariff
Speaker 2: delays and there's been a clear response, even the EU
Speaker 2: over the past day has said that they are making
Speaker 2: good progress towards making a deal, and we think that's
Speaker 2: going to be imperative for not only avoiding some stackflation,
Speaker 2: but also a possible recession. At this point, we could
Speaker 2: be in a technical recession, but we also have that
Speaker 2: in twenty twenty where we didn't even realize we were
Speaker 2: in the recession until we were out of it. So
Speaker 2: recession isn't necessarily something that we're concerned about. We could
Speaker 2: have one, but I think moving forward we just need
Speaker 2: to see exactly how many deals are made, because we
Speaker 2: need to see a deal done before the end of summer.
Speaker 1: And a number of FED officials have said repeatedly that
Speaker 1: US trade policy right now has created a fair amount
Speaker 1: of uncertainty for the FED to consider moving rates before September.
Speaker 1: That was what we heard over the weekend from the
Speaker 1: head of the Minneapolis FED, Neil Kashkari, concerned that the
Speaker 1: FED may not have the flexibility that people were hoping
Speaker 1: for to cut rates between now and the end of
Speaker 1: the year.
Speaker 2: I don't know if it's a matter of flexibility. I
Speaker 2: just don't think from their dual mandate, looking at inflation
Speaker 2: and looking at unemployment, that either of those numbers are
Speaker 2: in a place for the FED to cut right now.
Speaker 2: So there's going to have to be some sort of
Speaker 2: change between now in September or the end of the
Speaker 2: year for that matter. And so we're not really anticipating
Speaker 2: any FED cuts at this point, and that could be
Speaker 2: to the chagrin of President Trump, But from their dual mandate,
Speaker 2: looking at the numbers, there doesn't seem to be a
Speaker 2: reason to cut.
Speaker 1: So let's talk a little bit about artificial intelligence. You're
Speaker 1: there near the center of the storm, which I think
Speaker 1: is San Francisco, but you're in the Bay Area, and
Speaker 1: tomorrow we're going to hear from end video. What are
Speaker 1: your expectations.
Speaker 2: While I can't provide expectations for Nvidia earnings, I will
Speaker 2: say that it's always a drastic day in the markets
Speaker 2: the day before earnings and obviously the day of earnings.
Speaker 2: So you know, as we've seen Nvidia push the markets
Speaker 2: higher and higher over the past two years, it definitely
Speaker 2: will be a huge headline tomorrow, and I think just
Speaker 2: adds to the headline risk that we'll be looking at.
Speaker 1: Generally speaking, are you bullish on large cap tech?
Speaker 2: Generally speaking, yes, we are bullish on large cap tech,
Speaker 2: and thankfully, over the past two months, we've had great
Speaker 2: opportunities to enter into some of these names as we
Speaker 2: saw the multiples get reduced so much, it's been a
Speaker 2: great opportunity to buy. So not only are we bullish
Speaker 2: on large cap tech, but we also really like the
Speaker 2: healthcare space as well as financials, and AI plays into
Speaker 2: a lot of that. With healthcare, that's where we're seeing
Speaker 2: a lot of advancements in AI and think that there's
Speaker 2: a lot of room to run.
Speaker 1: Also, today San Francisco based Salesforce announced the acquisition of Informatica.
Speaker 1: This is an eight billion dollar deal. Informatica helps customers
Speaker 1: manage their data in the cloud, So a bit of
Speaker 1: an AI play here for salesforce. While back, people were
Speaker 1: really anticipating a lot more M and A activity that
Speaker 1: really hasn't panned out. Do you think we're going to
Speaker 1: turn the corner soon and see much more in the
Speaker 1: way of deal flow.
Speaker 2: I do, but I think first we need to get
Speaker 2: a few deals done in order to have some more
Speaker 2: clarity and certainty moving forward. I think that also comes
Speaker 2: with the TCGA being passed, and once we have more
Speaker 2: clarity there, then we'll start to see some more deals
Speaker 2: pan out, because we also expected M and A to
Speaker 2: be a large part of this administration's plan moving forward,
Speaker 2: but I think tariffs and getting some deals done with
Speaker 2: countries is first priority. Then we can talk about the
Speaker 2: corporate tax cuts, which are then going to follow into
Speaker 2: the mergers and acquisitions and just sort of the deregulation
Speaker 2: of industries in general.
Speaker 1: So if you're anticipating a pickup in deal flow, I
Speaker 1: would imagine that you look at some of the big banks,
Speaker 1: some of the investment banks as an opportunity.
Speaker 2: Right, absolutely, investment banks and regional banks as well, So
Speaker 2: you know, this is where we're going to see some
Speaker 2: consolidation and most likely not until Q three, Q four
Speaker 2: and even into twenty twenty six, So not necessarily something
Speaker 2: that's going to happen tomorrow, but we know down the
Speaker 2: road once we have more clarity that it will happen.
Speaker 1: Are you still very much squarely focused on putting money
Speaker 1: to work in the United States at the exclusion of
Speaker 1: other developed markets globally?
Speaker 2: So what we like to do is we like to
Speaker 2: keep less than ten percent international, and that's just from
Speaker 2: our investment philosophy. So obviously through this year international's done
Speaker 2: quite well. We didn't want to chase returns, so we
Speaker 2: don't think of ourselves as traders. We are long term
Speaker 2: investors and overall we have a strong bullish view of
Speaker 2: the US markets, and so we'll continue to stick to
Speaker 2: that ten percent.
Speaker 1: All right, Clark, we'll leave it there. Thank you so
Speaker 1: much for joining us. Clark Aaron and he is the
Speaker 1: chief market strategist at Calbay Investments, joining from the Bay
Speaker 1: Area of northern California. Here on the Daybreak Asia podcast.
Speaker 1: Welcome back to the Daybreak Asia podcast. I'm Doug Chrisner.
Speaker 1: So we have talked on this podcast for a while
Speaker 1: about how investors across Asia have been rethinking their strategy
Speaker 1: of investing in US assets. We know the concerns are many.
Speaker 1: There's the US budget deficit along with the impact of
Speaker 1: tariffs and shifting US trade policies, as well as the
Speaker 1: knock on effect of a weaker dollar. For a closer look, now,
Speaker 1: I'm joined by vs N i Are. He is the
Speaker 1: CIO at East Spring Investments. Vs joins us from our
Speaker 1: studios in Hong Kong. Good of you to make time
Speaker 1: to chat with me. I'm curious to get your take
Speaker 1: on the way in which investors in Asia are now
Speaker 1: de risking from the US. What are those fun flows
Speaker 1: look like to you?
Speaker 2: Hi?
Speaker 3: Thanks, Thanks Doug for having me here. So what we
Speaker 3: see is that we've had a number of years now
Speaker 3: where US markets in general, both fixed income and equities,
Speaker 3: have had a very large outshare of interest and of
Speaker 3: drawing capital, so into US equities, into use fixed income,
Speaker 3: et cetera. Now now we've now in a position where
Speaker 3: we're seeing some challenges to growth, be it driven by
Speaker 3: tariff some uncertainty. We've seen weakness in the dollar. Often
Speaker 3: forgotten is that the US markets have recovered, But in
Speaker 3: twenty twenty five, US markets have underperformed some of the
Speaker 3: larger Asian markets. So it's a very interesting cocktail. So
Speaker 3: in the backdrop of a falling dollar, challenges and the
Speaker 3: long end of the US curve, you know, we've seen
Speaker 3: some disappointments there as well in terms of the auctions,
Speaker 3: we see investors really increasingly thinking about diversification. So the
Speaker 3: last few years has been a very clear market where
Speaker 3: concentration has done well. So a few stocks, particularly tech
Speaker 3: stocks in the US, have driven global markets and of
Speaker 3: course the US markets as well. And you're seeing a
Speaker 3: change in that. You're seeing a change in that leadership,
Speaker 3: You're seeing challenges to growth, you're seeing longer long end
Speaker 3: interest rates, we're seeing a falling dollar. So these cocktail
Speaker 3: is a cocktail of changes really, and investors are adapt
Speaker 3: to that. Then they're adapting by being much more focused
Speaker 3: again on diversification, seeking out those pockets of the market
Speaker 3: that might be a little bit more resilient, those pockets
Speaker 3: that potentially could outperform, and then allocating appropriately, which often
Speaker 3: means now a little bit away from the US.
Speaker 1: So to what extent does China represent an alternative right now?
Speaker 1: How would you wait opportunities in China broadly speaking, and
Speaker 1: whether there is really the kind of story, the kind
Speaker 1: of narrative that would compel an investor to put money
Speaker 1: to work on the mainland.
Speaker 3: So what a great questen. So what we see, of course,
Speaker 3: this year, we've seen the Chinese markets have outperformed the US.
Speaker 3: Of course, there's been a lot of volatility around tariffs,
Speaker 3: a lot of uncertainty around tariffs, and that of course
Speaker 3: holds back perhaps invests a little bit from going all
Speaker 3: in in some ways. But the Chinese market, of course,
Speaker 3: as we've moved to a world where despite all the
Speaker 3: tariff on certainty, we see effectively there this effective tariff
Speaker 3: rate of about thirty five percent. You know, there's a
Speaker 3: ten percent flat rate, there's a twenty percent fentanyl rate,
Speaker 3: and there's some sector specific additional rates as well. So
Speaker 3: on average, we think that's about thirty five percent. That
Speaker 3: is potentially a one percent headwind to GDP, but we
Speaker 3: still see China delivering about four point four percent growth
Speaker 3: this year. We've seen two percent fiscal stimulus already, we
Speaker 3: think there could be another one one and a half
Speaker 3: percent coming, and we think they can deliver that four
Speaker 3: percent growth. This is against a backdrop of US growth
Speaker 3: actually deteriorating in the second half of the year. Secondly,
Speaker 3: there is room for interest rates to to come down
Speaker 3: in China, and we've also seen very much sector specific
Speaker 3: lending to help certain sectors. So in no way do
Speaker 3: we think that there is a sort of across the
Speaker 3: board positive stories across all sectors in China. We still
Speaker 3: have concerns around property, et cetera. But certainly things like
Speaker 3: the technology sector in China trade a very cheap valuations.
Speaker 3: You you are you are buying into the market at
Speaker 3: very very attractive valuations, and we think this is a
Speaker 3: good point, and that's why investors have started to become
Speaker 3: much more likely to allocate to some of those agent
Speaker 3: markets in particularly China.
Speaker 1: I'm wondering how you wait the problem of deflation in
Speaker 1: China and whether you are worried that this could become
Speaker 1: a more intractable and deeper problem for officials in China
Speaker 1: to deal with.
Speaker 3: Well, I think the key thing there is that they
Speaker 3: have the tools, so it's it's you know, we're not
Speaker 3: We're not. I think tracking a repeat of what we
Speaker 3: saw with Japan. They have got tools that will allow
Speaker 3: them to to stimulate. We still are seeing growth, So
Speaker 3: it's not a zero growth environment. They they delivered something
Speaker 3: last year. We think they'll deliver four and a half
Speaker 3: this year. But I think what might be the concern
Speaker 3: is that we don't see this as an across the board,
Speaker 3: across all sects. There are domestic champions. There are particular
Speaker 3: sectors that do well. We do strongly advocate. I mean,
Speaker 3: we've just released our midyear outlook and the theme of
Speaker 3: that was think Asia, but think active. We don't think
Speaker 3: this is a broad market recovery or a broad market allocation.
Speaker 3: It's very much about identifying those companies that are much
Speaker 3: more resilient with you know, competitive advantages, strong balance sheets,
Speaker 3: the kind of essentially quality names, and we think those
Speaker 3: are the ones that can outperform because evaluations are so
Speaker 3: much more attractive.
Speaker 1: I want to pivot to supply chain reconfiguration if we can't,
Speaker 1: because it's a part of the tariff story obviously, and
Speaker 1: we know that firms began to diversify away from China
Speaker 1: to a small extent during the first Trump trade war
Speaker 1: with Beijing. Then the pandemic struck, and that clearly highlighted
Speaker 1: the risk of being overly concentrated in China. Now during
Speaker 1: the second Trump trade war, there seems to be even
Speaker 1: greater risk now under the current strategy, the Trump administration
Speaker 1: is trying to counter this reconfiguration story. It's focused on
Speaker 1: places like Vietnam, where reshoring has been underway as we
Speaker 1: know for some time. And I'm curious, viz, how are
Speaker 1: you navigating all of this?
Speaker 3: That question almost identified all of the concerns that we
Speaker 3: have as investors as well. So undoubtedly the first President
Speaker 3: Trump administration was very focused on China, and what we
Speaker 3: saw was this China plus one strategy adopted by many
Speaker 3: Asian manufacturers, essentially relocating to the likes of Vietnam and
Speaker 3: other places in Southeast Asia. I think that the ideological
Speaker 3: and game still seems very much that the US policies
Speaker 3: are very much trying to contain China. I think we
Speaker 3: are in a journey of discovery around trade deals and
Speaker 3: those negotiations. The Chinese have got some concerns, you know,
Speaker 3: very clearly the US is focused on the bigger nations
Speaker 3: they've you know, we're talking about Europe, Japan, China. They're
Speaker 3: putting a lot of energy into that. It's pertinent that
Speaker 3: we haven't easily struck deals so it's not a negotiation
Speaker 3: tactic that has forced a kind of a submission. It's
Speaker 3: very much a negotiation that the likes of Japan and
Speaker 3: China are going through, and the Chinese are very aware
Speaker 3: and they're looking out for deals that in any way
Speaker 3: disadvantage them in the global market. Now, when we think
Speaker 3: of that policy, I think that it's the uncertainty they
Speaker 3: investors are struggling with. So if investors are struggling with it,
Speaker 3: so are you know, business owners and business managers, Because
Speaker 3: how do you relocate production into a third into a
Speaker 3: third nation or a third region without policy certainty. I
Speaker 3: think that is that that is the dimension that really
Speaker 3: has suffered in the last few months, because this uncertainty
Speaker 3: potentially leads to less investment and then that potentially leads
Speaker 3: to lower growth. So as investors, that is the primary focus.
Speaker 3: If we're trying to predict the endgame, I think that
Speaker 3: it's very difficult to do. Other than perhaps a few
Speaker 3: points we know we think there might be something like
Speaker 3: a ten percent tariff ry across the board with many nations.
Speaker 3: I think that even the Chinese have sort of got
Speaker 3: themselves to a roughly relaxed point there. I think that
Speaker 3: there is some strong negotiations around trying to limit the
Speaker 3: impact on inflation from those tariff tax rises, and then
Speaker 3: we are in a void discovery around what that means
Speaker 3: in terms of supply chain adjustment. The first administration moved
Speaker 3: a lot of supply chain manufacturing to Southeast Asia. Clearly,
Speaker 3: now the US President is very clear that they want
Speaker 3: to at least try and limit or pay attention to that.
Speaker 3: They haven't we haven't got to the endpoint where we
Speaker 3: know for certain that's not going to be a good idea. Clearly,
Speaker 3: we've got other parts of the world that they may
Speaker 3: be paying attention to. But I think if there's one
Speaker 3: anchor to everything is they want to at least limit
Speaker 3: their reliance on China as in terms of their own
Speaker 3: supply chain. That's the best we can give.
Speaker 1: We'll leave it there. Vis Thank you so much for
Speaker 1: being with us. Fee Sneier is the CIO at East
Speaker 1: Spring Investments, joining from Hong Kong here on the Daybreak
Speaker 1: Asia podcast. Thanks for listening to today's episode of the
Speaker 1: Bloomberg Daybreak Asia Edition podcast. Each weekday, we look at
Speaker 1: the story shaping markets, finance, and geopolitics in the Asia Pacific.
Speaker 1: You can find us on Apple, Spotify, the Bloomberg Podcast
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Speaker 1: tomorrow for insight on the market moves from Hong Kong
Speaker 1: to Singapore and Australia. I'm Doug Prisner, and this is
Speaker 1: Bloomberg