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

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Speaker 2: Welcome to the Bloomberg Daybreak Asia podcast. I'm Doug Chrisner.

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Speaker 2: Among the events this week from markets in the Asia Pacific,

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Speaker 2: the things that have to be discounted, I think, principally

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Speaker 2: is the story on US tariffs. There's much to talk

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Speaker 2: about here and we'll do that now with Stephanie Leung,

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Speaker 2: chief investment officer at Stashaway. Stephanie joins us from Hong Kong.

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Speaker 2: Happy New Year to you, Thanks for being with us.

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Speaker 2: I think it's fair to say that the thread of

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Speaker 2: those tariffs was very well telegraphed. There may have been

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Speaker 2: some very slim hope of a reprieve in the early

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Speaker 2: morning hours of Tuesday US time. That was after Canada

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Speaker 2: and Mexico received a reprieve from their tariffs, but within

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Speaker 2: seconds after the Chinese tariffs took effect, Beijing shot right

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Speaker 2: back and said it would apply tariffs of its own.

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Speaker 2: So what is your sense of this trade war?

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Speaker 3: Yeah, I think if you.

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Speaker 4: Kind of take a step back, and as we've outlined

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Speaker 4: in the twos and twenty five outload we call our

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Speaker 4: load piece, fat is a new normal.

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Speaker 3: Fat F stats for fiscal policy.

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Speaker 4: A stands for AI, T obviously stands for Trump, and

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Speaker 4: I think these three are kind of the key pillars

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Speaker 4: that investors need to consider or pay attention to for

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Speaker 4: this year and perhaps in the next three years, three

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Speaker 4: to four years. And within the Trump policies, if we

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Speaker 4: kind of look at the broad buckets now, of course

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Speaker 4: some of them are actually pro growth, for example, tax UH,

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Speaker 4: tax cuts, deregulation, but also I mean two major buckets

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Speaker 4: that are kind of risky to growth or would put

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Speaker 4: put risk to growth and inflation are tariff and UH.

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Speaker 3: And immigration policies.

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Speaker 4: And I think if we compare these two, we think

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Speaker 4: that the market is actually discounting much more the risk

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Speaker 4: of terriffs, but not perhaps not discounting enough on immigration.

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Speaker 4: So perhaps we can talk about imigration later, but interntal

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Speaker 4: of tariffs, I mean, our view has been that if

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Speaker 4: you think about the whole Trump framework, he has historically

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Speaker 4: used tariff as a tool for negotiation, and I think,

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Speaker 4: I mean, if you look at kind of his rhetoric,

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Speaker 4: he sounds very, very tough. However, just from his track record,

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Speaker 4: he always just wants to make a deal, and I

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Speaker 4: think that's what we've seen, like kind of play out

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Speaker 4: this week.

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Speaker 2: We know the situation in China is quite different from

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Speaker 2: what it was during the last Trump administration, and I'm

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Speaker 2: wondering whether Shi Jinping knows or feels that he has

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Speaker 2: a much weaker hand to play right now.

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Speaker 4: Yes, I think, I mean to a certain extent, of course,

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Speaker 4: the economic situation now is a lot weaker in China.

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Speaker 4: But I also think that there is kind of a

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Speaker 4: change in the global view from both sides of the

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Speaker 4: of the continents. Right from a US perspective, of course,

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Speaker 4: that if you ask a medium photo a few years ago,

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Speaker 4: they would be.

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Speaker 3: Much more for China.

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Speaker 4: Now today, I think it's sort of just across the aisle.

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Speaker 4: People are kind of seeing China as a as a threat,

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Speaker 4: more as a competition than a friendly kind of trade neighbor.

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Speaker 4: Also from the China side, we have to recognize that,

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Speaker 4: I mean, I guess the leadership from President she is

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Speaker 4: basically that we have to develop our own economy, right.

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Speaker 4: They can't rely on the external trade, It can't rely

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Speaker 4: on a global trade anymore like they've done before, and

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Speaker 4: therefore there is a lot more focus on developing the

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Speaker 4: domestic economy. And I think that's kind of where the

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Speaker 4: government is focusing on. Of course, in the past few

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Speaker 4: months we've seen some gestures of stimulus, but I think

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Speaker 4: largely what the market wants is from the government to

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Speaker 4: directly stimulate consumption and also investment demand. So far we

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Speaker 4: haven't seen that.

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Speaker 2: So I'm trying to understand Stephanie, whether or not this

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Speaker 2: US China trade war will become protracted. Okay, ten percent

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Speaker 2: may not be a lot initially, but Trump has already

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Speaker 2: said that this tariff could go as high as sixty percent,

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Speaker 2: and I'm imagining that that would inflict a lot of

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Speaker 2: pain on the export economy in China.

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Speaker 3: Yeah, I think.

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Speaker 4: I mean, if eventually sixty percent gets imposed, and it

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Speaker 4: gets imposed on the most critical components, then I think, yes,

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Speaker 4: of course it will dampant growth in China, given that

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Speaker 4: export is still very, very important. But I think we

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Speaker 4: also have to remember that also dampens growth and pushes

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Speaker 4: up inflation potentially in the US as well. So if

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Speaker 4: you look at like kind of the trade between the

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Speaker 4: two nations, the biggest areas of trade is actually from

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Speaker 4: it's actually in electronics and some of these kind of

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Speaker 4: consumer related products. Right, these are your iPhones, TVs. I

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Speaker 4: guess I thinks that go into the to the car

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Speaker 4: et cetera. Right, So these are actually essential for the

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Speaker 4: US consumer. And if you think about kind of sixty

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Speaker 4: percent tariff, of course, I China can fight back with

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Speaker 4: some tools like currency to appreciation or kind of like

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Speaker 4: more domestic stimulus. But I think at the end of

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Speaker 4: the day, tariff actually hurts both sides, and I mean

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Speaker 4: Trump administration knows that. Also. I think if you look

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Speaker 4: at the US median voter, and I mean there's there's

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Speaker 4: a survey that was done asking photers what do they

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Speaker 4: want to get resolved in the first hundred days of

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Speaker 4: Trump's presidency, and they rank actually on the top inflation.

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Speaker 4: I mean, we know that inflation is a big from

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Speaker 4: in the US. Even with kind of inflation rates coming off,

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Speaker 4: the level of prices is still way higher than what

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Speaker 4: it was pre COVID, So inflation comes on top. The

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Speaker 4: second like kind of top of mind for people is

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Speaker 4: actually not tariff but immigration. And actually if you look

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Speaker 4: at tariff, it ranks very very low. Indeed, it ranks

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Speaker 4: kind of maybe the lowest kind of like the second

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Speaker 4: lowest priority that people want Trump to be focusing on.

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Speaker 2: So consistent with that serve, I'm wondering whether markets are

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Speaker 2: kind of having the same sentiment. Right the tariffs don't

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Speaker 2: mean a lot right now, because there's a level of

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Speaker 2: confidence that there will be some resolution and there are

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Speaker 2: more important issues to be concerned about and principally other

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Speaker 2: drivers of inflation that aren't TERRFF related.

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Speaker 3: Yes, I think.

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Speaker 4: Indeed, right if you look at the of course, the

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Speaker 4: equity markets reacted quite violently, but we all know that

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Speaker 4: equity markets are are are a bit expensive in the US,

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Speaker 4: and also reseal possession has been has been quite high,

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Speaker 4: so I think there's been a bit of wash out

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Speaker 4: in terms of possessioning.

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Speaker 3: But I think the real gauge is actually in the

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Speaker 3: bond market.

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Speaker 4: I don't think so far we've seen much reaction from

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Speaker 4: the bond market for the trade teriffs, because if the

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Speaker 4: market is taking this quite seriously, then I think.

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Speaker 3: We should see bond yields much lower.

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Speaker 4: And indeed, I mean bon yills have been just in

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Speaker 4: the tight range, and I mean I think there's still

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Speaker 4: a risk that bond yios would actually increase, uh should

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Speaker 4: trade tarf kind of settle down. So I think the.

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Speaker 3: Real gauge is actually how the bar market reacts to it.

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Speaker 2: I know you, Stephanie is an expert when it comes

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Speaker 2: to artificial intelligence, and I'm very curious to get your

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Speaker 2: take on what we learned last week when it came

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Speaker 2: to deep Seek, certainly from the US side, a lot

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Speaker 2: of questions on how this model was developed. What's your

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Speaker 2: sense of what's happening here?

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Speaker 4: Yeah, I mean, of course, like things in AI developed,

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Speaker 4: I guess changes the narrat that actually changes a daily basis.

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Speaker 4: But I think the significance of deep Seek is it's

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Speaker 4: not the fact that it's so cheap. Of course, people

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Speaker 4: focus on kind of how it got developed, in like

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Speaker 4: kind of with with five million versus the billions that

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Speaker 4: Open Ai has spent on it. But I think more

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Speaker 4: importantly there's like two I think two major things to that.

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Speaker 3: For me.

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Speaker 4: Number one is that I think the surprise was actually

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Speaker 4: how closely Chinese models are following the US models, Because

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Speaker 4: I think before deep Seek, the common kind of consensus

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Speaker 4: was that Chinese models are in terms of AI technology,

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Speaker 4: China is probably six to just one months behind.

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Speaker 1: Uh.

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Speaker 4: If you look at kind of how deep Seek has

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Speaker 4: been following GPT.

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Speaker 3: Now the timeline has.

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Speaker 4: Been pushed to like three or six months, which is

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Speaker 4: a much much closer race than than people had UH

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Speaker 4: had consensus on before the release of deep Seek. And

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Speaker 4: I think the second more important point is that UH

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Speaker 4: they actually release deep Seek in open source, and I

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Speaker 4: think this actually puts the open source versus closed source

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Speaker 4: debate much more kind of tilted towards UH in favor

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Speaker 4: of open source. And indeed, if you look at the

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Speaker 4: recent statement that sem Ollman put out UH, he is

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Speaker 4: also saying that even within open AI, there are considering

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Speaker 4: UH the possibility of doing kind of going the route

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Speaker 4: of more open source, and I think that actually brings

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Speaker 4: quite a bit of a UH star or changes in

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Speaker 4: how the whole ecosystem develops. I think this is great

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Speaker 4: news for UH, for for the application layer, for developers

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Speaker 4: using AI to develop various applications and usage, and but

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Speaker 4: I think it also poses questions on a lot of

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Speaker 4: the initial investments into labs, right, how these how quickly

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Speaker 4: these albums are actually commoditized, And I mean, what is

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Speaker 4: the business value and just having like a proprietary l model.

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Speaker 2: Before I let you go, let's talk a little bit

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Speaker 2: about the Chinese consumer From what I've been reading they

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Speaker 2: were setting records for travel and movie attendance during the

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Speaker 2: Lunar New Year holiday. And I'm just trying to get

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Speaker 2: a sense of whether or not we're beginning to see

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Speaker 2: some green shoots in China where consumer spending is concerned.

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Speaker 2: Is that your sense or is it too soon to

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Speaker 2: make that claim?

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Speaker 4: Yeah? I think one very good gauge is actually to

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Speaker 4: look at the property prices in China. And the great

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Speaker 4: thing about this is, I mean, this is a very

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Speaker 4: very time of data that comes out every month.

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Speaker 3: And I think the because if you think.

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Speaker 4: About the the Chinese I guess the Chinese population or

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Speaker 4: the average Chinese consumer, a lot of the wealth is

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Speaker 4: actually in the housing market, uh, And I mean it's

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Speaker 4: it's quite Actually in the US, a lot of wealth

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Speaker 4: is in equity market.

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Speaker 3: Same thing.

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Speaker 4: The wealth effect of China actually depends on how how

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Speaker 4: the housing market does. And I think, uh, I mean,

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Speaker 4: we would love to see a stabilization in the housing

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Speaker 4: market or even some recovery, and that would give us

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Speaker 4: a lot more confidence in the recovery in the Chinese

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Speaker 4: kind of consumer recovery story.

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Speaker 2: Stephanie, Thank you so much. Stephanie Leung, their chief investment

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Speaker 2: officer at Stashaway, joining us from Hong Kong here on

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Speaker 2: the Daybreak Asia podcast. Welcome back to the Bloomberg Daybreak

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Speaker 2: Asia Podcast. I'm Derek Christner. I think it's fair to

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Speaker 2: say that we have certainly seen a whip sawing of

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Speaker 2: markets recently, no shortage of factors driving the price action

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Speaker 2: at all. I mean there's been an economic data, trade

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Speaker 2: tensions galore, and questions around the spending on artificial intelligence.

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Speaker 2: For a closer look, I'm joined now by Zachary Hill.

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Speaker 2: He is head of portfolio management at Horizon Investments. Zachary,

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Speaker 2: thanks for making time to chat with us here. So

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Speaker 2: I listed a couple of factors that may be influencing

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Speaker 2: the market's behavior. Is there one that you think is

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Speaker 2: predominant right now?

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Speaker 1: Yeah, Doug, thanks for having me. We really have been

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Speaker 1: playing narrative ping pong for this year, just back and

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Speaker 1: forth between different things. I think I think two things

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Speaker 1: are really important right now. One obviously is tariffs. Quite frankly,

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Speaker 1: we're a little surprised how well the market is hanging

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Speaker 1: in with ten percent tariffs on all of Chinese exports.

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Speaker 1: But you know, expectations have been that that's going to

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Speaker 1: get rolled back relatively soon, and so we'll see, you know,

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Speaker 1: how how those things evolved. And then the second, you know,

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Speaker 1: major theme that we've had going on over the last

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Speaker 1: few weeks is just a rotation within the AI theme,

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Speaker 1: not really you know, bringing down the overall theme in

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Speaker 1: terms of importance, but accelerating in terms of monetization. And

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Speaker 1: so we do think that's important for investors to consider.

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Speaker 2: What do you think about the quality of earnings that

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Speaker 2: we have had recently from some of these megacap companies

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Speaker 2: names like Alphabet.

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Speaker 1: Yeah, I mean, obviously the market didn't like their earnings today,

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Speaker 1: but you know, broadly speaking, we do think we've seen

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Speaker 1: a pretty healthy earnings backdrop. Overall, we've had above average

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Speaker 1: surprises on the top line and the bottom line, and

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Speaker 1: so that's something that's pretty healthy, and you know, going

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Speaker 1: into this year, really the thing that we're watching for

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Speaker 1: is just the earnings from the rest of the market

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Speaker 1: to see if that can catch up to the yawning

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Speaker 1: gap that the top of the market was able to

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Speaker 1: deliver in twenty twenty four, and that's something that's really

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Speaker 1: important for market breadth.

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Speaker 2: Many participants in the market have been looking to the

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Speaker 2: FED for some type of direction here in terms of

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Speaker 2: the interest rate environment. Although I thought it was interesting

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Speaker 2: today that in an interview with Fox Business, Treasury Secretary

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Speaker 2: Besson was saying, the administration is focused really on the

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Speaker 2: ten year treasury yield, not so much on what the

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Speaker 2: FED is doing with the benchmark policy rate in the

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Speaker 2: short term. So if you look at the tenure here,

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Speaker 2: we're under four and a half percent four for two

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Speaker 2: now in late New York trading. Is that kind of

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Speaker 2: aligned with your thinking? You really want to pay attention

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Speaker 2: to the longer end of the yield curve right now

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Speaker 2: more than what's going on with the FED.

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Speaker 1: Yeah, I would agree with that. We do think, you know,

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Speaker 1: the FED is on hold for for the near term,

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Speaker 1: and so that means, you know, longer term, it's about

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Speaker 1: you know, growth expectations. And then the thing that we've

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Speaker 1: been talking about on again, off again for the last

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Speaker 1: two months, term premium. We definitely had a little bit

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Speaker 1: of a scare in yields in the middle of January,

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Speaker 1: and that is all but reverse now and so we're

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Speaker 1: back now basically to where we were in the December

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Speaker 1: FOMC meeting. So things seem pretty fair here for long

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Speaker 1: end yields, and you know, we would echo Besten's comments.

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Speaker 1: You know, the longer end of the curve is where

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Speaker 1: more people finance rather than the short end, and so

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Speaker 1: we do think that's more important, you know, for the

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Speaker 1: overall outlook, both for the economy and for markets in

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Speaker 1: twenty twenty five.

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Speaker 2: Most speaking of the economy, we get the January jobs

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Speaker 2: data on Friday. If you look at a couple of

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Speaker 2: the data points that we have had this week, I'm

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Speaker 2: thinking about the ADP, Private Payroll Survey, the Services PMI.

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Speaker 2: Some of these data points are really showing that employment

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Speaker 2: is quite strong. Still, do you think we're going to

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Speaker 2: get a blowout number Friday? How do you think the

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Speaker 2: labor market is performing.

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Speaker 1: It's hard to say what we're gonna get on Friday.

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Speaker 1: In terms of the non farm print. We've had some

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Speaker 1: noise back and forth within those numbers over the last

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Speaker 1: few months related to strikes and the weather and that

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Speaker 1: type of thing, and so you know, last month's surprised

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Speaker 1: at the upside in a really material way, and so

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Speaker 1: getting a handle on what exactly we're gonna see on

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Speaker 1: Friday is kind of challenging. But I think broadly speaking,

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Speaker 1: you know, the totality of data is telling us that

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Speaker 1: the consumer is in a really good shape and the

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Speaker 1: job market is in a really good shape. And you know,

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Speaker 1: more to the point on potential market reactions to Friday,

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Speaker 1: the FED has told us that, look, they're more concerned

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Speaker 1: about inflation as opposed to growth the labor market, and

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Speaker 1: so that's something that we're focusing more on, and we think,

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Speaker 1: you know, Friday's non farm number is likely to be

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Speaker 1: a non event, just like the FED was last week.

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Speaker 2: Where are you finding value right now in the US

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Speaker 2: equity space?

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Speaker 1: Yeah, I mean, we have a kind of an interesting

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Speaker 1: view on US equities right now. We still like the

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Speaker 1: the AI theme and that is some of the megacaps

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Speaker 1: in the top of the market in large cap growth

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Speaker 1: in general, but we also think you need to be

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Speaker 1: moving a little bit down the cap spectrum towards some

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Speaker 1: of those smaller cap growth companies and some software names

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Speaker 1: that stand to benefit from the accelers acceleration of the

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Speaker 1: monetization of AI that we've seen, with cheaper models likely

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Speaker 1: coming in the very near future. At the same time,

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Speaker 1: we think, you know, some some parts of the market

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Speaker 1: that are more cyclical have some interesting tailwinds from a

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Speaker 1: deregulatory and you know, business sentiment perspective, and so that

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Speaker 1: the two areas that we that we like the most

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Speaker 1: are you know, small caps and banks. In the US,

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Speaker 1: we're staying away though from you know, some of the

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Speaker 1: more China pendent, more value wee parts of the market,

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Speaker 1: like energy and materials. We don't think it's an environment,

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Speaker 1: especially with the tariff overhang, that those offer an attractive

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Speaker 1: risk award.

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Speaker 2: Well, speaking of China, I'm curious as to whether or

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Speaker 2: not you're seeing opportunities offshore right now or whether you

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Speaker 2: remain focused solely on what's happening in the States.

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Speaker 1: I mean, we're looking at what's going on overseas for sure,

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Speaker 1: but you know, our our main focus is within the US.

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Speaker 1: You know, there just aren't as many you know, favorable

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Speaker 1: kind of narratives and things going on in the rest

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Speaker 1: of the world. And also just from a US dollar perspective,

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Speaker 1: if we have threats of tariffs looming, that is something

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Speaker 1: that's going to tend to underpin the dollar and so

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Speaker 1: you know, we'll be a headwind to international allocations. And

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Speaker 1: so you know, so far this year we've seen a

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Speaker 1: really strong move in European stocks, both in local currency

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Speaker 1: terms and in dollar terms. That's something that seems to

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Speaker 1: us like it's you know, running its course and not

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Speaker 1: something that's going to continue. But certainly we're keeping it

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Speaker 1: open mind because as we saw in year one of

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Speaker 1: the first Trump presidency, you know, expectations were not what

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Speaker 1: was realized in market performance over that time.

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Speaker 2: I mentioned the Best Sint interview a moment ago. One

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Speaker 2: of the other points that he made during that conversation

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Speaker 2: was his support for making the twenty seventeen tax cuts permanent. Now,

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Speaker 2: those cuts, as we know, are set to expire at

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Speaker 2: the end of the year. To what extent has the

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Speaker 2: market already maybe discounted the fact that these cuts will

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Speaker 2: indeed be permanent or do you think that is still

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Speaker 2: up for debate.

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Speaker 1: I think it's up for debate. I mean, there's a

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Speaker 1: lot of disagreement within the Republican coalition, especially around anything

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Speaker 1: that involves potentially increasing the deficit. You know, the majority

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Speaker 1: is pretty narrow, and so I do think that's something

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Speaker 1: that will come to bear in those conversations, and we're

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Speaker 1: certainly seeing you know, some rumblings of that already in

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Speaker 1: Washington about one bill versus two bills, and so you know,

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Speaker 1: I think that's clearly the policy priority of the Treasury Secretary.

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Speaker 1: It remains to be seen if that can be passed

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Speaker 1: in the law. And so I don't think the market

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Speaker 1: is really banking on necessarily a continuation are a further

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Speaker 1: tax cut.

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Speaker 2: From here, Zachary will leave it there. Thank you so

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Speaker 2: much for joining us. Zachary Hill there. He is head

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Speaker 2: of portfolio management at Horizon Investments. Joining us here on

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Speaker 2: the Daybreak Asia Podcast. Thanks for listening to today's episode

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Speaker 2: of the Bloomberg Daybreak Asia Edition podcast. Each weekday, we

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Speaker 2: look at the story shaping markets, finance, and geopolitics in

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

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

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

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

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Speaker 2: and this is Bloomberg