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Speaker 1: Bloomberg Audio Studios, Podcasts, radio news.

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Speaker 2: Welcome to the Daybreak Asia podcast. I'm Charlie Pellea. Doug

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Speaker 2: Chrisner's got the week off. Tensions in the Middle East

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Speaker 2: show no signs of easing, with President Trump issuing a

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Speaker 2: forty eight hour ultimatum to Iran to reopen the Strait

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Speaker 2: of Hormuz or face strikes on its power plants. Financial

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Speaker 2: markets got off to a volatile start, with Asian stock stumbling,

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Speaker 2: US equity index futures and crude oil getting whipsawed as

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Speaker 2: the war in Iran enters a fourth week with no

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Speaker 2: sign of de escalation. And that is where we begin

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Speaker 2: the conversation with Martin Schultz, the head of International Equity

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Speaker 2: Group at Federated Hermes. Shall spoke to Bloomberg TV hosts

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Speaker 2: Heidi Stroud Watts and Annabelle Droolers.

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Speaker 1: What do you make of the trading dynamic at the moment,

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Speaker 1: clearly with steal seeing reacting to headlines, is it less

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Speaker 1: of a reaction than you might expect?

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Speaker 3: There?

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Speaker 4: Good morning, he thank you so much for having me. Yeah,

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Speaker 4: I think you know, I think the markets are definitely

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Speaker 4: getting more nervous about what's going on in the Middle

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Speaker 4: East right now. But our view is that it's a

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Speaker 4: time for caution, not panic, particularly it relates to, for example,

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Speaker 4: our prison committees at Federated Hermes. We're looking at obviously

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Speaker 4: a lot of other factors out there, private credit, AIA disruption,

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Speaker 4: renewed tariff uncertain the inflation, and this is obviously just

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Speaker 4: another break in the wall of warrior, so to speak.

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Speaker 4: So from that perspective, we do think the volatility matches

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Speaker 4: historical geopolitical events in the last thirty or forty years.

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Speaker 4: You know, time will tell. Obviously, duration is the main issue.

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Speaker 4: The longer this drags out, obviously worse it gets, And

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Speaker 4: it's all about the price of oil and the supply

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Speaker 4: chain and how that all plays out.

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Speaker 1: There's so little visibility, as you point out, and we've

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Speaker 1: now got this ultimatum by President Trump. We know what

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Speaker 1: the risk of reprisal is from Iran if this plays out,

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Speaker 1: you know, as a worst case scenario. So what do

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Speaker 1: you recommend investors do at this point?

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Speaker 4: Well, it's tough, right If you were long oil going

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Speaker 4: into this event, you're probably at some point in time'm

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Speaker 4: going to take some money off the table. If you've

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Speaker 4: been smart enough maybe on the margin to take some

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Speaker 4: risk off the table for economically sensitive sectors and that

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Speaker 4: sort of thing, and or you've gotten, you know, on

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Speaker 4: the margin out of Europe some of those regions that

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Speaker 4: are most affected. I'd say you should be at least

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Speaker 4: devising a long term, medium long term plan on which

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Speaker 4: stocks and regions you think will obviously because obviously, as

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Speaker 4: we see this volatility hit the markets, high quality companies

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Speaker 4: are being sold off, and we think it's an opportunity.

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Speaker 4: And so from that perspective, we do like Latin America.

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Speaker 4: We like actually consumer plays potentially again depending how long

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Speaker 4: this drags out. And we also believe it not like

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Speaker 4: Japan and South Korea for the mid long term, because

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Speaker 4: they do have some structural factors that will lead to

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Speaker 4: higher market activity in those regions.

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Speaker 5: Just on that point of what we're seeing with Japan,

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Speaker 5: because they've got trading starting to be a little bit

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Speaker 5: more fully reflected as we see all stocks coming online

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Speaker 5: this morning for the nick K two two five, but

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Speaker 5: so far a drop of around three percent Martin on

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Speaker 5: that index. I do also want to get your views

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Speaker 5: on career in particular because we just had the twenty

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Speaker 5: day trade data coming out and still showing a lot

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Speaker 5: of strength at the start of March, even against this

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Speaker 5: backdrop of the Iran war, that tech story still seems

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Speaker 5: to be intact, even against the backdrop of this risk

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Speaker 5: of an increase in inflationary pressure. How long do you

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Speaker 5: think that stays the case.

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Speaker 4: Well, that's a great question. I think you're highlighting some

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Speaker 4: really important data. We were going into this to your

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Speaker 4: political event, if you will, fairly in a stronger situation, right,

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Speaker 4: you know, inflation has been coming down the last few years.

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Speaker 4: The labor market was already somewhat weak, but at the

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Speaker 4: end of the day, global economic activities actually starting to

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Speaker 4: ramp up. You've got the big beautiful bill in the US,

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Speaker 4: you have some pump priming fiscally in places like Japan

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Speaker 4: and in China that we're helping things. And so you know,

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Speaker 4: this AI story that particularly that Korea is a big

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Speaker 4: part of, we think is going to continue. But to

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Speaker 4: your point, you know, again, I think if you look

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Speaker 4: back at the Rock War early nineties all through the

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Speaker 4: more recent past, generally speaking, it's that four to six

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Speaker 4: week period when you're going to hit the heightened area

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Speaker 4: of uncertainty, and that's kind of what we're in and

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Speaker 4: entering right now. And so yeah to question, yeah, it's

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Speaker 4: right duration. You know, if this, if this is another

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Speaker 4: if this, if the oil price stays above ninety, that's

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Speaker 4: going to be deleterious economic activities, is going to be

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Speaker 4: demand to strug. We don't think we're there yet. As

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Speaker 4: you mentioned earlier, Goldman Saxis increased its oil price. Oil

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Speaker 4: was actually going into this a deflationary force into the

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Speaker 4: economic realm, and now it's going to potentially be a headwind.

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Speaker 4: And so yes, if we're still talking about this three

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Speaker 4: to four weeks from now and oil is above ninety

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Speaker 4: or even over one hundred, then I'd say we definitely would.

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Speaker 4: I think the markets will then have to readjust accordingly.

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Speaker 6: Yeah.

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Speaker 5: I found the point you were making around historical precedent

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Speaker 5: really interesting and saying that week four could be sort

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Speaker 5: of a peak period of uncertainty if you go back

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Speaker 5: to conflicts all the way back into the late nineties.

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Speaker 5: But do you take this then as a buying opportunity

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Speaker 5: if you're saying that.

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Speaker 6: This is actually.

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Speaker 5: The factors that were already in play ahead of the

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Speaker 5: IRUN conflict could actually be the same factors exiting out

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Speaker 5: of it as well.

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Speaker 4: Yeah, No, timing is always a difficult you know, as

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Speaker 4: they say, when there's blood in the streets, should be buying.

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Speaker 4: I'd say we're closer to and then if you will

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Speaker 4: do this uncertainty, higher volatility and higher O prices, but

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Speaker 4: obviously events on the ground. You know, this is what

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Speaker 4: makes forecasting in this arena so difficult, because the news

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Speaker 4: cycle is so quick and obviously it effects market sentiments

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Speaker 4: so quickly as well. But we do think on the margin.

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Speaker 4: We started to dip our toe in on Friday here

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Speaker 4: and there because we do think you Friday was kind

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Speaker 4: of a unique because quadruple Witching Hour and a lot

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Speaker 4: of other factors in play. But we do think that

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Speaker 4: near term volatility will remain high. But in the next

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Speaker 4: week or so, if if you've got some high quality

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Speaker 4: stocks even following that you like, particular those in Latin

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Speaker 4: America in the consumption space and healthcare, there probably stocks

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Speaker 4: you should be at least dipping your toe and buying

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Speaker 4: at this point.

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Speaker 2: Martin Schulz, the head of International Equity Group at Federated Armies,

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Speaker 2: speaking to Bloomberg TV hosts Heidi stround Watts and Annabel Drulers,

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Speaker 2: Coming up next, we'll be going to Hong Kong where

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Speaker 2: the Milkan Institute's Global Investors Symposium is kicking off this week.

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Speaker 2: Welcome back to the Daybreak Asia podcast. I'm Charlie Pellett.

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Speaker 2: Doug Prisoner's got the week off. We go to Hong

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Speaker 2: Kong next and the Milkin Institute's Global Investors Symposium is

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Speaker 2: taking place this week, bringing together some of the world's

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Speaker 2: most influential investors and business leaders in the Asia Pacific.

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Speaker 2: And it was there that we had the chance to

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Speaker 2: catch up with Perry Wang, Senior Fellow and Managing Director

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Speaker 2: at the Milkin Institute. Wang spoke to Bloomberg's menmn.

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Speaker 7: Low Perry, great to have you here with us here. Yes, sir,

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Speaker 7: we have seen a lot of lack of volatility, no

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Speaker 7: signs of the escalation in the Iran War. There are

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Speaker 7: no fears of inflation and a global economics flowed out.

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Speaker 7: One of the implications on China's growth given it so reliabent.

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Speaker 3: Exports as well, say China as one of the larger economy,

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Speaker 3: not just China but all economies, but the larger one

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Speaker 3: depends on energy tremendously. So with the up and down

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Speaker 3: the market coupled with uncertainty. I think up and down

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Speaker 3: yourself is not a big issue, but the unanswered questions

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Speaker 3: on how this ends and when this will end, I

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Speaker 3: think would affect the market continuously. I think let's let's

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Speaker 3: just play it out as say, if we solve the

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Speaker 3: problem today, so we'll see more seas to exist and

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Speaker 3: people start to talk. Even if we enter that on

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Speaker 3: that stage, the market will still kind of watch. The

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Speaker 3: perceived risk sometimes is affect the economy even more, can

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Speaker 3: be more than the actual risk. I think because people

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Speaker 3: just don't know. Business operator cannot run on say you know,

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Speaker 3: unpredictable future because that where departmer capital. That becomes a

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Speaker 3: huge question.

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Speaker 7: So given the current scenario, where do you think realistically

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Speaker 7: China's growth will fall this year between the four and

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Speaker 7: a half to five percent.

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Speaker 3: Well, I say that the new target reflects on a

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Speaker 3: couple of realities. If you will, that either some Chinese

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Speaker 3: government can manage and control or contain, but others China cannot.

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Speaker 3: Just like business flow, no one country can say I

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Speaker 3: dictate the growth ware or dictate the flower capital. So

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Speaker 3: in that the Chinese government and a common day for

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Speaker 3: the external risks and also look at some of the

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Speaker 3: structural reform that the Chinese government, I think the fifteen

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Speaker 3: five years Plan, they laid it out, so they go accordingly,

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Speaker 3: so internally, externally they try to take a balance. And

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Speaker 3: if you look back in the Chinese government's planning, this

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Speaker 3: is one.

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Speaker 6: Of the five year plan that could be more balanced

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Speaker 6: with some focus, but anticipating risks.

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Speaker 3: That beyond their control. So it's a fun plan to read.

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Speaker 3: So they put a zone at four point five to five.

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Speaker 3: With the four point five it says, right, even if

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Speaker 3: the economy grow at five four point five percent by

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Speaker 3: say twenty thirty twenty thirty five, you know, some would

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Speaker 3: take the extra five years that the growth target would

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Speaker 3: pretty much go with their own planning and their targets.

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Speaker 6: So they could give this.

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Speaker 3: This lower band and higher band to just reflect upon

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Speaker 3: uncertain pots.

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Speaker 7: So some economists believe that China's PPI, which has been

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Speaker 7: in inflation for three and a half years now, I

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Speaker 7: believe something can flip too positive even as soon as

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Speaker 7: this month, given the energy shocks. If you think that that's.

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Speaker 3: Possible, that's possible. I think the question is it's a possibility.

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Speaker 3: But if you look at China's growth planning. They would

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Speaker 3: rather go for quality growth than quantity growth, and that

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Speaker 3: is not a slogan because they do have to address

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Speaker 3: on several of the fundamental issues that have been if

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Speaker 3: you will dragging the growth behind or below expectation, not

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Speaker 3: just the nations leader's expectation, but the business person and

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Speaker 3: you know, broadly speaking people, so they would expect the

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Speaker 3: economy would do better and hope that the economy will

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Speaker 3: do better with that. In rime, we cannot expect if

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Speaker 3: the economy growth substantially beyond I say, all of a sudden,

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Speaker 3: the contraction will turn hugely positive. I think if run

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Speaker 3: of balance, say their pocket is two percent underpricing increase,

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Speaker 3: which would be more in lind On most of the

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Speaker 3: major economies around the world. So everyone talking at two percent,

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Speaker 3: but it's sometimes it's not that easy.

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Speaker 7: How much concern is there that the energy inflation is

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Speaker 7: going to lead to a negative feedback loop on consumption

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Speaker 7: because it's it's not necessarily demand driven, it's cost driven, right,

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Speaker 7: and it could squeeze on corporate profits.

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Speaker 3: Agatting can actually it can get out of control. And

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Speaker 3: I think so far if you look at this is

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Speaker 3: a funny thing. If you look at the Chinese government,

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Speaker 3: they have been trying to build up their oil reserve.

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Speaker 3: I think in anphicipation of say, you know, not necessary war,

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Speaker 3: but just say trade friction to some economies in some countries,

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Speaker 3: so they would try to protect their supply. It's the

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Speaker 3: energy and put stuff that the Chinese government have take

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Speaker 3: a three to five years planning looking back. So now

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Speaker 3: the reserve is pretty high. So I think if you

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Speaker 3: go by some energy specialistic forecast, it's about the Chinese

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Speaker 3: economy can take perhaps sixteen months or so, maybe even longer,

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Speaker 3: you know, given the energy crisis you know coming, they

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Speaker 3: can actually sustain their domestic productions.

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Speaker 6: How big are a hit?

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Speaker 7: Do you think China's exports will be effective?

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Speaker 3: It will be a big hit, but how much it's

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Speaker 3: hard to tell because if you look at China's export,

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Speaker 3: a huge product what I would call stable products, meaning

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Speaker 3: people have to replace non durable consumption items. They are

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Speaker 3: not say two dollars items, perhaps they are five dollars items,

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Speaker 3: ten dollar items, and those I don't think would be

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Speaker 3: affected so much. Now the production costs is high, but

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Speaker 3: then the problem market is really so thin and they

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Speaker 3: have the supply chains. Some of them moved to other

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Speaker 3: countries in Asia and some of them in Africa. Even so,

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Speaker 3: the cost is not necessarily burden totally on the Chinese economy.

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Speaker 3: So if you take the other side of it, say

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Speaker 3: the higher end products such as eed and that takes

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Speaker 3: a lot to produce, but then the market is opening

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Speaker 3: up to the Chinese producers, say Australia, Canada. Even so

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Speaker 3: you have new markets and Europe now that I think

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Speaker 3: would help the Chinese export Still, so if you look

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Speaker 3: at the up and downside and upside, I would say

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Speaker 3: the risk is there, it would hurt the production and export,

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Speaker 3: but then at least it's not going to be so detrimental.

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Speaker 7: Not only and last week was a big central bank

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Speaker 7: week week we have most central banks holding rates. Does

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Speaker 7: it change your forecasts of the scale and pace of

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Speaker 7: recouds from the PBOC?

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Speaker 3: Not necessary, because I think there are factors in the

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Speaker 3: Chinese government have to pay attention to. It's not just external,

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Speaker 3: they internal. They want to engage in some reform, which

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Speaker 3: is a big promise because they know that they have

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Speaker 3: to dig deep, okay into some of the root course

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Speaker 3: of some of the problems that put the Chinese economy

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Speaker 3: such as property sector and also such as what they

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Speaker 3: call nature. Okay, so the ultra competitive operation in China,

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Speaker 3: no one makes up of it. They want to clem

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Speaker 3: down on that. So all those that can go back

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Speaker 3: to you, okay, how do you look at your INTERESTIP,

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Speaker 3: what's your placing targets? And those I think the Chinese

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Speaker 3: try to lay them into what they call the social

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Speaker 3: capital for formation, not just investment funds. Right, and also

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Speaker 3: look at the act we see from different regions. You

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Speaker 3: have regions such as Guangkong, Xangsu, those are two leading

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Speaker 3: one or says you only add one more. They actually

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Speaker 3: the economy those regional economies are doing well, but if

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Speaker 3: you go to others now they may not. So they

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Speaker 3: have to take a pretty much a strike the balance.

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Speaker 3: So that's not easy to do, but they at least

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Speaker 3: have that in mind to try to make the market

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Speaker 3: really more responsive to the fiscal condition of the country.

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Speaker 3: Tax we see taxing mechanism reform. Those actually would bore

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Speaker 3: into a one basket. So it's not as simple.

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Speaker 2: Perry Wong, Senior Fellow and Managing Director at the Milkin Institute,

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Speaker 2: speaking of Bloomberg's midmen Low at the Milkin Institute's Global

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Speaker 2: Investors Symposium in Hong Kong, and we are bringing the

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Speaker 2: conversation to you here on the Daybreak Asia. Thanks for

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

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

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Speaker 2: and geopolitics in the Asia Pacific. You can find us

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Speaker 2: on Apple, Spotify, the Bloomberg Podcast YouTube channel, or anywhere

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Speaker 2: else you listen. Join us again tomorrow for insight on

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Speaker 2: the market moves from Hong Kong to Singapore and Australia.

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Speaker 2: I'm Doug Prisner, and this is Bloomberg