WEBVTT - StanChart CIO Sticks With US Exceptionalism, Gold 0:00:02.440 --> 0:00:06.199 You're listening to Asia Centric from Bloomberg Intelligence, the podcast 0:00:06.280 --> 0:00:09.360 that explores the big ideas and trends moving money across 0:00:09.360 --> 0:00:12.200 the region. I'm KATYDM Dreeva here in Hong Kong. 0:00:12.160 --> 0:00:15.680 And I'm John Lee here in Sydney. Katia. The finance 0:00:15.680 --> 0:00:16.880 word loves buzzwords. 0:00:17.200 --> 0:00:18.040 Yeah, they really do. 0:00:18.560 --> 0:00:19.360 Hit me with a couple. 0:00:19.680 --> 0:00:23.040 Well, the Magnificent Seven for a start, The Fed's pale 0:00:23.079 --> 0:00:25.200 talking about inflation being transitory. 0:00:25.600 --> 0:00:28.600 Yeah, I do remember that era. You know something I've 0:00:28.680 --> 0:00:33.640 heard gaining traction as well, basically since the pandemic reopenings 0:00:33.680 --> 0:00:38.080 as American exceptionalism, this idea in markets and the economy 0:00:38.080 --> 0:00:39.519 that's somehow the US is just like. 0:00:39.640 --> 0:00:43.240 Taflon and I've definitely heard a lot of strategists use 0:00:43.560 --> 0:00:46.720 US or American exceptionalism in their reports. And today we 0:00:46.760 --> 0:00:49.920 have the perfect guest to discuss this is Steve Bryce, 0:00:50.159 --> 0:00:55.080 Global Chief Investment Officer at Standard Charter Bank based in Singapore. Steve, 0:00:55.120 --> 0:00:55.760 welcome to the show. 0:00:56.280 --> 0:00:58.520 Thank you so much, such a pleasure to be I 0:00:58.600 --> 0:01:02.720 wanted to get started by just asking very basic question, 0:01:03.280 --> 0:01:06.920 which is what is US exceptionalism to you? As an 0:01:06.959 --> 0:01:09.760 investor and someone who's been in a space for I 0:01:09.760 --> 0:01:11.080 guess three decades. 0:01:10.720 --> 0:01:14.319 Now, yeah, I guess There's two elements to it, and 0:01:14.360 --> 0:01:17.320 they're obviously related. So the first piece is that this 0:01:17.480 --> 0:01:20.800 concept that the US economy is much more resilient to 0:01:20.959 --> 0:01:24.800 factors than other parts of the world, and there's different 0:01:24.840 --> 0:01:26.440 ways of looking at that. Obviously, you can look at 0:01:26.440 --> 0:01:29.040 nominal growth rates and say the US actually and the 0:01:29.080 --> 0:01:31.200 performing places like China, but it just seems to be 0:01:31.240 --> 0:01:33.399 a bit more in a sweet spot in terms of 0:01:33.440 --> 0:01:37.480 generating growth and innovation as well as a key piece. 0:01:37.520 --> 0:01:39.399 And then the second piece of that then relates to 0:01:39.959 --> 0:01:43.759 asset markets. So obviously the depth of markets that innovation 0:01:43.920 --> 0:01:47.280 coming through in terms of very strong profitable opportunities for 0:01:47.319 --> 0:01:51.880 corporates leading to the outperformance of US assets, particularly obviously 0:01:52.040 --> 0:01:53.000 US equity market. 0:01:53.560 --> 0:01:55.280 And we've seen that now for some time. 0:01:55.400 --> 0:01:57.920 So if you go back to actually pretty much sinto 0:01:57.920 --> 0:02:01.080 the global financial crisis, maybe outside the first two or 0:02:01.120 --> 0:02:03.320 three years, we've seen in the US equity market generally 0:02:03.360 --> 0:02:06.480 outforming in a massive way. And so that's obviously leading 0:02:06.520 --> 0:02:09.519 to people to say, you know, can this continue forever? 0:02:09.600 --> 0:02:11.840 And is the US the only game in town? And 0:02:11.880 --> 0:02:15.440 that's sort of the epitome of the US exceptionalism and 0:02:15.480 --> 0:02:16.680 Mantra and. 0:02:16.639 --> 0:02:20.400 Steve, I know you a student of financial history, but 0:02:20.440 --> 0:02:23.200 this is the normal state of play that the US 0:02:23.800 --> 0:02:26.520 financial markets generally outperform the rest of the world. 0:02:28.280 --> 0:02:29.959 So actually, no, not really. 0:02:30.800 --> 0:02:32.839 I suppose the second half of my career has been 0:02:33.360 --> 0:02:36.480 basically dominated by the US, but it's certainly not the 0:02:36.520 --> 0:02:39.280 case throughout the history time. Now, I guess the one 0:02:39.320 --> 0:02:41.959 thing that we do see a lot of is that 0:02:42.040 --> 0:02:45.480 because people have more data going back for the US 0:02:45.560 --> 0:02:48.680 market more than any other market, that you do generally 0:02:48.720 --> 0:02:51.560 see that the people using that as a benchmark for 0:02:51.600 --> 0:02:55.480 global equities when doing historical analysis, so the buying on 0:02:55.919 --> 0:02:58.800 those sort of things. Long term investing US is obviously 0:02:58.880 --> 0:03:02.120 the starting point, but you do go through significant periods 0:03:02.160 --> 0:03:06.400 of underperformance for US equities from time to time. A 0:03:06.480 --> 0:03:10.400 key input for that from our perspective is, particularly on 0:03:10.440 --> 0:03:13.120 a sort of cyclical basis, is what happens to the dollar. 0:03:13.200 --> 0:03:16.919 So in a strong dollar environment, US equities generally outperform. 0:03:17.560 --> 0:03:20.399 When the dollar is definitively weak, you usually see non 0:03:20.480 --> 0:03:23.359 US equities outperform. You can see over the last ten 0:03:23.440 --> 0:03:25.680 years as well, we've seen the dollar generally in an 0:03:25.760 --> 0:03:28.720 up trend, So that fits with that piesis of why 0:03:28.760 --> 0:03:29.880 the US is doing well? 0:03:31.280 --> 0:03:35.200 Why does the US generally outperform? I know you mentioned 0:03:35.560 --> 0:03:38.680 a couple factors there, but historically and maybe even just 0:03:38.760 --> 0:03:41.240 more recently the past few years, you know what's really 0:03:41.320 --> 0:03:44.760 driven US out performance? Is it one sector? For example? 0:03:44.760 --> 0:03:47.280 We look at Ai, is it the dollar? Like what 0:03:47.400 --> 0:03:47.640 is it? 0:03:49.120 --> 0:03:49.320 Yees? 0:03:49.400 --> 0:03:52.480 So I think there's two things, right, So firstly, maybe 0:03:52.560 --> 0:03:55.120 look at the competition hasn't been that strong. 0:03:55.480 --> 0:03:56.480 So we've seen in. 0:03:56.400 --> 0:04:00.400 Europe obviously going through pretty challenging times on a multi 0:04:00.520 --> 0:04:04.480 year basis, whether you talk about sovereign debt crises or 0:04:04.560 --> 0:04:08.280 just very very anemic growth, a lack of innovation, greater 0:04:08.400 --> 0:04:11.720 regulation since the Global financial crisis as well, So those 0:04:11.760 --> 0:04:15.800 sort of factors sort of inhibit the growth there. China, obviously, 0:04:15.880 --> 0:04:18.200 growth is still relatively strong to the rest of the world, 0:04:18.200 --> 0:04:22.719 but it's on a deceleration path and we're talking about 0:04:22.720 --> 0:04:25.760 concerns about debt deflation cycle in China. So when you've 0:04:25.760 --> 0:04:29.440 got all those things out there, it suggests that the 0:04:29.520 --> 0:04:33.160 competition against the US isn't that grade. And then yes, 0:04:33.240 --> 0:04:35.559 when you look at the US story, we talked about 0:04:35.560 --> 0:04:39.840 innovation obviously a major major piece of the US outperformance. 0:04:40.160 --> 0:04:43.520 Technology driving that You mentioned that obviously the mag seven 0:04:44.279 --> 0:04:46.120 that has been a major port. So you're seeing a 0:04:46.120 --> 0:04:49.799 lot of more concentration risk being taken and that's what's 0:04:49.839 --> 0:04:52.720 been driving this out performance. So it's both the strong 0:04:52.760 --> 0:04:56.000 domestic fundamentals in the US, but also weakness elsewhere. 0:04:57.279 --> 0:05:01.520 We're seeing some threat to that potentially. You know, before 0:05:01.520 --> 0:05:04.359 we started recording, John and I were talking about deep 0:05:04.440 --> 0:05:07.320 seek and the effect that that had on capital markets, 0:05:07.360 --> 0:05:11.479 but also on just overall sentiment with technology and AI 0:05:11.600 --> 0:05:15.080 in the US perhaps looking more overpriced now. And also 0:05:15.200 --> 0:05:18.400 the fact that she met in China with a lot 0:05:18.440 --> 0:05:21.719 of tech executives, which sort of shows perhaps a greater 0:05:21.800 --> 0:05:23.680 focus on that sector going forward. 0:05:24.839 --> 0:05:26.960 I guess you need to balance a couple of things, right, 0:05:27.000 --> 0:05:29.920 So clearly so far this year, for instance, actually Europe 0:05:29.920 --> 0:05:32.039 has been one of the best performance right at performing 0:05:32.080 --> 0:05:35.400 the US. So there's a question of whether this US 0:05:35.480 --> 0:05:39.119 exceptionism will continue on a multi year basis. I think 0:05:39.440 --> 0:05:42.840 if we look at the just at the pure fundamentals, 0:05:43.760 --> 0:05:46.760 it was suggests yes, U exceptionism can continue for some 0:05:46.800 --> 0:05:48.880 time to come, and certainly we are still overweight US 0:05:48.960 --> 0:05:51.320 equities on a six to twelve month view. 0:05:52.040 --> 0:05:52.880 That's to some. 0:05:52.839 --> 0:05:56.040 Degree policy agenda, which I'm sure we'll get to from 0:05:56.080 --> 0:05:59.400 a US perspective. But I think there's also the other 0:05:59.440 --> 0:06:03.400 side is it's not just the story or the fundamentals 0:06:03.400 --> 0:06:06.400 that matters. It's also matters what's priced. And so if 0:06:06.400 --> 0:06:09.600 we're looking at relative valuations between the US and elsewhere, 0:06:09.640 --> 0:06:12.440 and we can look at Asia, we can look at 0:06:12.520 --> 0:06:17.320 Europe as well, those relative valuations are very extreme. So 0:06:18.040 --> 0:06:19.880 one of my favorite saying things, I think it's George 0:06:19.920 --> 0:06:22.680 Soros said that most of the money is made when 0:06:22.760 --> 0:06:26.279 things go from really really awful to just awful, right, 0:06:26.520 --> 0:06:28.440 you know, because of those extreme valuations. And I think 0:06:28.440 --> 0:06:31.760 that's what's seeing at the moment is things are getting 0:06:31.839 --> 0:06:35.240 less bad elsewhere, and that's encouraging people to sort of 0:06:35.400 --> 0:06:39.080 reduce their underweight positions or their short positions in non 0:06:39.200 --> 0:06:42.039 US equities, and that's leading to short term out performance. 0:06:42.360 --> 0:06:44.640 I guess the question is, you know, we've had false 0:06:44.720 --> 0:06:47.600 dawns before in this space. Is this another one of those? 0:06:47.640 --> 0:06:50.680 And we'll just get the resumption of the norm of. 0:06:50.680 --> 0:06:53.480 US exceptionalism as we go through the rest of the year, 0:06:53.520 --> 0:06:55.560 and our sense is this it's too early to sort 0:06:55.600 --> 0:06:58.440 of move away from the US, but obviously we're watching 0:06:58.440 --> 0:07:00.360 with a huge interest. 0:07:01.120 --> 0:07:05.040 Asia Centric is produced by Bloomberg Intelligence, where more than 0:07:05.080 --> 0:07:09.160 five hundred experienced analysts and strategists work around the clock 0:07:09.200 --> 0:07:13.240 to bring you timely, world class research. Our coverage spans 0:07:13.280 --> 0:07:18.080 two hundred market indices, currencies, commodities, and industries, as well 0:07:18.120 --> 0:07:21.360 as over two thousand equities and credits. If you like 0:07:21.400 --> 0:07:25.440 what you hear, don't forget to subscribe and chairm. 0:07:25.080 --> 0:07:28.040 And Steve, you've been around for a few decades, as 0:07:28.040 --> 0:07:30.560 you mentioned, and I do remember there was a time 0:07:31.080 --> 0:07:33.840 in the early two thousands when it wasn't all dominated 0:07:33.880 --> 0:07:36.520 by the US. I do remember that there were some 0:07:36.600 --> 0:07:41.600 European tech companies that were leaders in mobile phones. European 0:07:41.640 --> 0:07:46.160 banks were challenging the US bulge bracket investment banks. Although 0:07:46.200 --> 0:07:49.640 you know, yeah, they're no longer a challenge arguably now. 0:07:50.200 --> 0:07:52.600 But tell us like, it hasn't always been this case, 0:07:52.640 --> 0:07:52.920 has it? 0:07:53.560 --> 0:07:54.119 No, it hasn't. 0:07:54.160 --> 0:07:57.680 I mean, I still remember the Nokia of that era. 0:07:58.280 --> 0:08:01.040 Nobody would ever own another side that. I'm right, I mean, 0:08:01.080 --> 0:08:04.280 it was that's a slight exaggeration that it was Erickson 0:08:04.320 --> 0:08:04.640 as well. 0:08:04.760 --> 0:08:05.720 Yeah, true, that. 0:08:05.800 --> 0:08:08.680 Was my first phone. 0:08:09.280 --> 0:08:10.160 Mine was a Nokia. 0:08:10.440 --> 0:08:12.920 It was a brick, right, you could throw and really 0:08:13.000 --> 0:08:16.680 do serious damage. So look, so it hasn't always been 0:08:16.720 --> 0:08:19.200 the case, obviously in some ways it's difficult sy what 0:08:19.280 --> 0:08:21.640 gets it back? I think that the global financial crisis 0:08:21.720 --> 0:08:23.760 was a really big factor in this in terms of 0:08:23.880 --> 0:08:26.600 obviously that you mentioned the banks there, the regulation that 0:08:26.680 --> 0:08:29.720 came through following the Global financial crisis that hit the 0:08:29.720 --> 0:08:33.360 banking sector obviously very hard generally. But we've had a 0:08:33.360 --> 0:08:36.319 lot of deregulation since in the US, and I think 0:08:36.360 --> 0:08:39.000 that certainly helped the margin as well in terms of 0:08:39.200 --> 0:08:43.240 driving shareholder returns. We can argue what the connotations will 0:08:43.280 --> 0:08:46.360 be for the safety of the banking sector of the future, 0:08:46.400 --> 0:08:50.360 especially if deregulation continues, but that certainly helped as well. So, 0:08:51.000 --> 0:08:52.480 you know, I think we need to get to a 0:08:52.520 --> 0:08:54.800 point where innovation. 0:08:54.480 --> 0:08:55.360 Is more embraced. 0:08:56.280 --> 0:08:58.480 But you know, again, if you look at the AI space, 0:08:58.840 --> 0:09:01.840 Europe is already started to move in the regulation sphere 0:09:01.960 --> 0:09:05.520 there whereas in the US, regulation is becoming almost a 0:09:05.559 --> 0:09:08.520 four letter word as far as the policymakers are concerned. 0:09:09.400 --> 0:09:12.280 So the AI space looks like it's still going to 0:09:12.280 --> 0:09:15.199 be led by the US and maybe to some degree 0:09:15.280 --> 0:09:17.200 China as well, rather than coming out of Europe. 0:09:18.520 --> 0:09:21.760 And we also have to ask the elephant in the 0:09:21.840 --> 0:09:26.640 room now President Trump his protectionist policies is tariffs. Does 0:09:26.720 --> 0:09:30.880 this add to the idea of US exceptionalism or does 0:09:30.880 --> 0:09:31.959 it detract from it? 0:09:33.120 --> 0:09:35.240 So I think this is one of the reasons that 0:09:35.280 --> 0:09:37.960 we're overweight the US market at the moment still despite 0:09:38.000 --> 0:09:40.320 those extreme valuations, is we believe that a lot of 0:09:40.320 --> 0:09:43.920 the policies that will be pursued will be positive for 0:09:43.960 --> 0:09:46.319 the economy in terms of growth. Obviously, we can talk 0:09:46.320 --> 0:09:49.720 about inflation. That's probably the biggest concern that we have 0:09:49.920 --> 0:09:55.160 is whether you know the import tariffs and immigration controls 0:09:55.200 --> 0:09:57.240 will lead to higher inflation. I think it certainly will 0:09:57.240 --> 0:10:00.559 put the brake on inflation coming lower to significant extent. 0:10:01.080 --> 0:10:02.800 But you know, we do think that that's going to 0:10:02.840 --> 0:10:05.679 help ensure that the stock market in the US does well. 0:10:06.080 --> 0:10:08.960 And obviously, if you're important're putting import tariffs on, that 0:10:09.120 --> 0:10:12.439 is detrimental to risk appetite in some of the parts 0:10:12.480 --> 0:10:15.520 of the world. And obviously we saw the tariffs being 0:10:15.720 --> 0:10:18.720 announced on Mexico and Canada and then being rolled back 0:10:18.840 --> 0:10:21.320 very quickly. If that was to happen, then you get 0:10:21.320 --> 0:10:23.920 the uncertainty, but you don't get the hit necessary to 0:10:24.280 --> 0:10:28.240 corporate earnings. I think the key thing here is is 0:10:28.280 --> 0:10:30.600 really how much of a this is Bart versus Biden. 0:10:30.760 --> 0:10:33.679 But I think the influence comes via the dollar. So 0:10:33.760 --> 0:10:36.160 our senses the dollar is in the process of peaking. 0:10:36.200 --> 0:10:36.400 Here. 0:10:37.440 --> 0:10:41.199 You obviously seen the dollar weeken, not massively, but reasonably 0:10:41.240 --> 0:10:44.720 significantly from the heights, and I think from that perspective, 0:10:44.840 --> 0:10:46.200 you know, if we have seen the peak of the 0:10:46.200 --> 0:10:49.360 dollar and we're moving definitively lower and we got increasing 0:10:49.400 --> 0:10:53.040 confidence from our perspective, but also from the market investors' perspective, 0:10:53.679 --> 0:10:56.920 I think that would then lead to much more sustained 0:10:56.960 --> 0:11:00.600 interest in non US equities. So most parts are going 0:11:00.640 --> 0:11:02.640 to be important. If they're all bark and no bit it, 0:11:02.760 --> 0:11:06.160 ultimately dollars should come lower and that should support actually 0:11:06.240 --> 0:11:08.080 it will support US equities as well, by the way, 0:11:08.080 --> 0:11:11.240 because a week of dollar is good for all equity markets, 0:11:11.280 --> 0:11:14.160 not just non US equity markets, but it does change 0:11:14.160 --> 0:11:15.640 their relative performance as well. 0:11:16.400 --> 0:11:19.079 Can we talk about some of the risks on the horizon. 0:11:19.120 --> 0:11:22.920 I know you've said, you know, will US exceptionalism continue 0:11:22.920 --> 0:11:26.360 on a multi year basis earlier, and I wanted to 0:11:26.400 --> 0:11:29.760 see if you had some potential answers to that, or 0:11:29.800 --> 0:11:34.840 at least things that potentially are headwinds. For example, President 0:11:34.840 --> 0:11:37.320 Trump's policies. While on the one hand they could really 0:11:37.320 --> 0:11:39.840 strengthen the dollar and they could be good for companies, 0:11:40.160 --> 0:11:43.640 there's also some risks of stakeflation in the US potentially 0:11:43.679 --> 0:11:47.920 slower growth now, especially with this wave of tariffs in 0:11:47.960 --> 0:11:50.080 recent weeks. So could you talk a bit about that. 0:11:50.880 --> 0:11:52.320 Yes, So it's really interesting. 0:11:52.360 --> 0:11:56.320 So we've just finished twenty twenty five Outlook road show 0:11:56.360 --> 0:11:59.280 where we go to countries around Asia, Africa and the 0:11:59.280 --> 0:12:02.640 Middle East. So you know, we presented it almost ten 0:12:02.720 --> 0:12:05.800 thousand clients on that and in the private bank events 0:12:05.840 --> 0:12:08.040 we were basically we asked people the question, okay, so 0:12:08.080 --> 0:12:10.920 what's the biggest risk? Right and consistently outside of Hong 0:12:11.000 --> 0:12:13.400 Kong we can talk a little bit about that. The 0:12:13.440 --> 0:12:19.160 top two risks were trade tariffs and inflation. Now, from 0:12:19.160 --> 0:12:23.640 our perspective, trade tariffs is the highest probability thing to worry. 0:12:23.480 --> 0:12:25.080 About, right, because that's going to happen. 0:12:25.360 --> 0:12:27.600 It's just a degree to which it happens and how 0:12:27.600 --> 0:12:29.480 it's rolled out and how it might be rolled back 0:12:29.559 --> 0:12:32.959 at some point in the future. But from an investor perspective, 0:12:33.280 --> 0:12:35.480 the number one risk, and it's a tail risk that's 0:12:35.480 --> 0:12:38.880 not a central scenario, is that inflation surges again, and 0:12:38.920 --> 0:12:41.000 that basically then comes back to sort of being in 0:12:41.040 --> 0:12:44.120 twenty twenty two reducts right where we saw bond yields 0:12:44.160 --> 0:12:48.120 going up and equity markets coming down. So the diversification 0:12:48.200 --> 0:12:51.600 benefits of bonds relative to equities really wasn't there anything 0:12:51.679 --> 0:12:55.120 to the degree we've seen historically, And actually the way 0:12:55.120 --> 0:12:58.120 we categorize twenty twenty two was it's the second worst 0:12:58.160 --> 0:13:01.160 investment climate in the past one hundred and fifty years, 0:13:01.280 --> 0:13:04.600 So it was a massive outlier. The ar is that 0:13:04.800 --> 0:13:07.280 was something that we could see come back, and obviously 0:13:07.280 --> 0:13:11.400 we do know that some of his policies are potentially inflationary. 0:13:11.480 --> 0:13:12.760 Now it depends who you talk to. 0:13:12.840 --> 0:13:15.000 Of course, the FED is obviously a little bit concerned, 0:13:15.000 --> 0:13:18.439 but not overly concerned at the moment. But Trump is 0:13:18.480 --> 0:13:20.320 saying this is not an issue, of course, right, So 0:13:20.520 --> 0:13:22.720 inflation's going to come lower and therefore interest rates should 0:13:22.720 --> 0:13:26.439 come lower, but it's a tail risk, so probably ten 0:13:26.480 --> 0:13:28.880 percent probability, But it was the one that would have 0:13:28.960 --> 0:13:32.160 the biggest impact on investors because it would mean that, 0:13:32.280 --> 0:13:36.200 you know, the traditional asset allocation approach would face challenges again, 0:13:36.280 --> 0:13:38.199 so that sixty to forty equity. 0:13:37.800 --> 0:13:39.600 Bond portfolio would perform poorly. 0:13:40.280 --> 0:13:42.680 The way we think about this in the longer term 0:13:42.840 --> 0:13:45.480 is we sort of say, look, we believe that Trump 0:13:45.520 --> 0:13:49.000 wants to be business friendly, and a stock market is 0:13:49.040 --> 0:13:51.559 a key barometer for him on that journey. So if 0:13:51.559 --> 0:13:55.920 we did see his policies leading to market volatility, we 0:13:55.960 --> 0:13:59.120 would expect some sort of recalibration to make sure. And 0:13:59.120 --> 0:14:01.559 I think what was interesting with US Treasury Secretary Scott 0:14:01.600 --> 0:14:05.600 Bessant he shifted the conversation at least temporarily from what 0:14:05.640 --> 0:14:07.880 the Fed should do to focusing on the ten year yield. 0:14:08.520 --> 0:14:10.920 I think the soft message there was saying, look, we're 0:14:10.920 --> 0:14:12.439 not going to do anything that's going to push the 0:14:12.480 --> 0:14:14.880 ten year yield higher, and I think that should be 0:14:15.320 --> 0:14:19.240 something that makes investors more comfortable. But obviously inflation is 0:14:19.240 --> 0:14:20.080 the key tail risk. 0:14:21.080 --> 0:14:23.800 So the you mentioned Scott Besson's comments there, we were 0:14:24.880 --> 0:14:26.640 trying to unpack that when it came out. I think 0:14:26.640 --> 0:14:28.120 a lot of people are trying to unpack those comments 0:14:28.160 --> 0:14:29.720 when they came out. So you're saying, from your view 0:14:29.760 --> 0:14:31.880 as an investor, you kind of took that not in 0:14:31.880 --> 0:14:34.880 the sense that they're going to, like Japan or the 0:14:34.880 --> 0:14:38.200 Bank of Japan start engineering or trying to move around 0:14:38.240 --> 0:14:39.480 the ten year Now. 0:14:39.680 --> 0:14:42.880 The way I view this is that I think Scott 0:14:42.960 --> 0:14:47.280 Bessant is Trump's attempt to give him the cloud cover 0:14:47.360 --> 0:14:49.880 to do what he wants. So he wants a credible 0:14:49.920 --> 0:14:54.200 Treasury secretary not to sort of change the policies that 0:14:54.280 --> 0:14:57.600 he wants to implement, but better sell them to markets 0:14:57.840 --> 0:14:59.960 so that it don't lead to like a Lisz trust 0:15:00.080 --> 0:15:02.520 moment in the bond market, for instance, that obviously would 0:15:02.560 --> 0:15:05.960 be very damaging for what they're trying to achieve. So 0:15:06.520 --> 0:15:09.320 that's the way I view Besson's job actually is not 0:15:09.360 --> 0:15:12.040 necessarily as much on the policy front, but to sell policy. 0:15:12.760 --> 0:15:15.920 Now there's no guarantees of course that works, and it 0:15:16.000 --> 0:15:18.360 is quite possible that he and Trump at some point 0:15:18.400 --> 0:15:20.760 will fall out and we'll have a different Treasury secretary. 0:15:21.040 --> 0:15:23.280 But I think that's the sort of thought process at 0:15:23.280 --> 0:15:26.360 the moment, and you know, so, yes, there's a sensible 0:15:26.400 --> 0:15:28.720 person in the room, but there's also a salesman trying 0:15:28.720 --> 0:15:31.600 to sell what they're doing as not being detrimental to 0:15:31.840 --> 0:15:36.280 the inflation outlook to the economy and therefore reassuring markets 0:15:36.320 --> 0:15:38.560 that everything's okay, okay. 0:15:38.600 --> 0:15:40.840 So you believe that the Trump administration is can be 0:15:40.920 --> 0:15:44.720 very pragmatic, especially to financial markets. So if tariffs do 0:15:44.840 --> 0:15:48.040 become inflationary, then they may possibly sort of dull back 0:15:48.120 --> 0:15:48.800 their actions. 0:15:49.520 --> 0:15:52.160 Yeah, we've already seen obviously roll back in some areas. 0:15:52.400 --> 0:15:55.240 I think they will be selective where they're more willing 0:15:55.280 --> 0:15:57.760 to roll back and areas where they'll be less willing 0:15:57.800 --> 0:16:00.480 to roll back. So I think, and that's more of 0:16:00.520 --> 0:16:03.880 a gear political conversation. So if you think about a 0:16:03.920 --> 0:16:06.680 two by two matrix, you're an ally or not an ally, 0:16:07.320 --> 0:16:09.840 and you have a huge deficit or not a huge deficit, 0:16:10.240 --> 0:16:12.520 you obviously want to be an ally and not huge 0:16:12.640 --> 0:16:15.560 US deficit with you. If you're in the other category 0:16:15.600 --> 0:16:18.000 with you're not necessarily an ally, but you have a 0:16:18.080 --> 0:16:21.760 huge surplus with the US, then probably that's going to 0:16:21.800 --> 0:16:24.360 be a more challenging area. So I think, yes, there's 0:16:24.400 --> 0:16:26.600 going to be a lot of I mean, Europe is 0:16:26.600 --> 0:16:30.560 obviously going to be an interesting case study because obviously 0:16:30.920 --> 0:16:33.720 historically an ally there's intensions do seem to be rising, 0:16:33.800 --> 0:16:37.200 not Jack's in trade, but also political tensions between Europe 0:16:37.400 --> 0:16:39.680 and the US. So how that plays out it's going 0:16:39.720 --> 0:16:42.000 to be very interesting. But I think on the trade 0:16:42.040 --> 0:16:46.160 side they'd be more willing to threaten, maybe even implement, 0:16:46.200 --> 0:16:49.520 but then quickly backtrack if Europe plays the game. So 0:16:49.600 --> 0:16:51.120 that's the way that we see it happening. 0:16:52.080 --> 0:16:57.320 So, given Trump's policies being on net pretty good for 0:16:57.560 --> 0:17:01.720 US stocks over the next let's say four years, is 0:17:01.760 --> 0:17:04.679 there any reason for people to invest outside of the 0:17:04.840 --> 0:17:09.920 US to get US Yeah, I mean probably exactly. We're 0:17:09.960 --> 0:17:12.919 based here in Hong Kong. It makes me think of, 0:17:13.119 --> 0:17:14.840 you know, if we have a situation where there will 0:17:14.840 --> 0:17:18.320 be tariffs coming in and pretty broad tariffs, you know, 0:17:18.480 --> 0:17:20.920 not just you have ten percent so we're going to 0:17:21.000 --> 0:17:24.159 give ten percent. It's also on things like VAT and 0:17:24.280 --> 0:17:28.080 taxes and subsidies and some of these foreign countries that 0:17:28.320 --> 0:17:32.520 for a company looking to invest abroad or you know FDI, 0:17:32.760 --> 0:17:35.119 any kind of FDI, you're gonna be thinking, well, where 0:17:35.240 --> 0:17:38.280 can I actually go that won't be hurt by tariffs, 0:17:38.640 --> 0:17:42.760 and so is it sort of US exceptionalism because there 0:17:42.800 --> 0:17:46.280 are limited places to get gains elsewhere? Or is there 0:17:46.320 --> 0:17:48.640 maybe an argument that you should be overweight in these 0:17:48.680 --> 0:17:49.360 other countries? 0:17:50.400 --> 0:17:52.960 So the main argument, I mean, are the ones for 0:17:53.080 --> 0:17:56.520 being overweight outside the US or what we've discussed right, 0:17:56.600 --> 0:17:58.920 So we're seeing some positive science in here, obviously the 0:17:59.000 --> 0:18:03.000 deep seek phenomena, but we also see the relative valuations 0:18:03.040 --> 0:18:05.919 as well, so that those are the two arguments. We 0:18:05.960 --> 0:18:11.000 don't think they're necessarily compelling enough to warrant overweighting assets 0:18:11.359 --> 0:18:14.040 equities outside the US. So we're overweight global equitism within 0:18:14.080 --> 0:18:17.440 that way, overweight the US, but overweight doesn't mean. 0:18:17.680 --> 0:18:19.040 Zero allocation elsewhere. 0:18:19.040 --> 0:18:22.199 And so you'd expect a CIO to come on and 0:18:22.240 --> 0:18:25.040 talk about diversification at some point. Of course, you should 0:18:25.040 --> 0:18:28.600 have exposure to Asian equities, you should have exposure to 0:18:28.640 --> 0:18:31.000 European equities and Japanese equities, etc. 0:18:32.119 --> 0:18:34.040 So that's something that we truly believe in. 0:18:34.160 --> 0:18:37.600 You know, nobody knows with one hundred percent surety what's 0:18:37.680 --> 0:18:40.119 going to happen going forward, So it could be that 0:18:40.200 --> 0:18:43.000 this performance of Europe is the start of a twelve 0:18:43.080 --> 0:18:43.960 month out performance. 0:18:44.040 --> 0:18:44.840 It is possible. 0:18:45.080 --> 0:18:48.080 It's not our central scenario, but that's another reason why 0:18:48.119 --> 0:18:52.240 you should have European equities in your portfolio as you 0:18:52.280 --> 0:18:55.480 go forward. So that diversification thing, I think is really 0:18:55.520 --> 0:18:57.359 important for people to remember. And if we look at 0:18:57.440 --> 0:19:00.560 investor behavior, it is very tempting for people to become 0:19:00.680 --> 0:19:04.000 very narrow in their exposures. Right, So you know the 0:19:04.040 --> 0:19:07.440 mag seven and we've discussed, right, that's sort of something 0:19:07.480 --> 0:19:10.680 that can lead to very narrow exposures in the technology space, 0:19:10.680 --> 0:19:12.840 and we like going, yes, technology is the future, but 0:19:12.880 --> 0:19:16.200 it's priced quite high already. So it's not to say 0:19:16.720 --> 0:19:21.000 that you shouldn't have exposure there. But if you're like saying, Okay, 0:19:21.000 --> 0:19:23.160 I'm invested fifty percent in the US equities and fifty 0:19:23.160 --> 0:19:26.639 percent in the Nasdaq, then I've got a massive exposure 0:19:26.680 --> 0:19:29.479 to US tech and maybe we should be looking at 0:19:29.520 --> 0:19:32.280 ways of diversifying that to say, Okay, this can't go 0:19:32.359 --> 0:19:34.960 on forever. Whatever can't go on forever, at some point 0:19:35.040 --> 0:19:37.640 must stop, and therefore we should be just making sure 0:19:37.680 --> 0:19:41.359 we're calibrating our exposures to diversify away. And you can 0:19:41.400 --> 0:19:44.680 do that through you know, okay, maybe instead of SMP exposure, 0:19:44.680 --> 0:19:47.080 I'll do SMP equal weighted and then I'll add in 0:19:47.119 --> 0:19:50.359 some international equity exposure as well and stiff. 0:19:50.359 --> 0:19:53.879 You mentioned your global outlook where you visited in numerous cities, 0:19:53.920 --> 0:19:57.080 but you mentioned that Hong Kong the risks were different. 0:19:58.240 --> 0:20:00.000 What was the Hong Kong audience word of. 0:20:00.600 --> 0:20:05.520 So obviously they were still worried about trade and inflation 0:20:05.640 --> 0:20:08.919 as well, but I think the additional one that they 0:20:08.960 --> 0:20:11.440 added in that actually was quite interesting. It wasn't elsewhere 0:20:11.600 --> 0:20:15.880 was the debt deflation risk in China, right, So elsewhere 0:20:15.920 --> 0:20:19.119 people really weren't focused on that, maybe because of the timing. Obviously, 0:20:19.119 --> 0:20:21.440 we're doing this around the time of the US inauguration, 0:20:22.400 --> 0:20:25.439