Speaker 1: You're listening to Asia Centric from Bloomberg Intelligence, the podcast
Speaker 1: that explores the big ideas and trends moving money across
Speaker 1: the region. I'm KATYDM Dreeva here in Hong Kong.
Speaker 2: And I'm John Lee here in Sydney. Katia. The finance
Speaker 2: word loves buzzwords.
Speaker 1: Yeah, they really do.
Speaker 3: Hit me with a couple.
Speaker 2: Well, the Magnificent Seven for a start, The Fed's pale
Speaker 2: talking about inflation being transitory.
Speaker 1: Yeah, I do remember that era. You know something I've
Speaker 1: heard gaining traction as well, basically since the pandemic reopenings
Speaker 1: as American exceptionalism, this idea in markets and the economy
Speaker 1: that's somehow the US is just like.
Speaker 2: Taflon and I've definitely heard a lot of strategists use
Speaker 2: US or American exceptionalism in their reports. And today we
Speaker 2: have the perfect guest to discuss this is Steve Bryce,
Speaker 2: Global Chief Investment Officer at Standard Charter Bank based in Singapore. Steve,
Speaker 2: welcome to the show.
Speaker 1: Thank you so much, such a pleasure to be I
Speaker 1: wanted to get started by just asking very basic question,
Speaker 1: which is what is US exceptionalism to you? As an
Speaker 1: investor and someone who's been in a space for I
Speaker 1: guess three decades.
Speaker 3: Now, yeah, I guess There's two elements to it, and
Speaker 3: they're obviously related. So the first piece is that this
Speaker 3: concept that the US economy is much more resilient to
Speaker 3: factors than other parts of the world, and there's different
Speaker 3: ways of looking at that. Obviously, you can look at
Speaker 3: nominal growth rates and say the US actually and the
Speaker 3: performing places like China, but it just seems to be
Speaker 3: a bit more in a sweet spot in terms of
Speaker 3: generating growth and innovation as well as a key piece.
Speaker 3: And then the second piece of that then relates to
Speaker 3: asset markets. So obviously the depth of markets that innovation
Speaker 3: coming through in terms of very strong profitable opportunities for
Speaker 3: corporates leading to the outperformance of US assets, particularly obviously
Speaker 3: US equity market.
Speaker 4: And we've seen that now for some time.
Speaker 3: So if you go back to actually pretty much sinto
Speaker 3: the global financial crisis, maybe outside the first two or
Speaker 3: three years, we've seen in the US equity market generally
Speaker 3: outforming in a massive way. And so that's obviously leading
Speaker 3: to people to say, you know, can this continue forever?
Speaker 3: And is the US the only game in town? And
Speaker 3: that's sort of the epitome of the US exceptionalism and
Speaker 3: Mantra and.
Speaker 2: Steve, I know you a student of financial history, but
Speaker 2: this is the normal state of play that the US
Speaker 2: financial markets generally outperform the rest of the world.
Speaker 4: So actually, no, not really.
Speaker 3: I suppose the second half of my career has been
Speaker 3: basically dominated by the US, but it's certainly not the
Speaker 3: case throughout the history time. Now, I guess the one
Speaker 3: thing that we do see a lot of is that
Speaker 3: because people have more data going back for the US
Speaker 3: market more than any other market, that you do generally
Speaker 3: see that the people using that as a benchmark for
Speaker 3: global equities when doing historical analysis, so the buying on
Speaker 3: those sort of things. Long term investing US is obviously
Speaker 3: the starting point, but you do go through significant periods
Speaker 3: of underperformance for US equities from time to time. A
Speaker 3: key input for that from our perspective is, particularly on
Speaker 3: a sort of cyclical basis, is what happens to the dollar.
Speaker 3: So in a strong dollar environment, US equities generally outperform.
Speaker 3: When the dollar is definitively weak, you usually see non
Speaker 3: US equities outperform. You can see over the last ten
Speaker 3: years as well, we've seen the dollar generally in an
Speaker 3: up trend, So that fits with that piesis of why
Speaker 3: the US is doing well?
Speaker 1: Why does the US generally outperform? I know you mentioned
Speaker 1: a couple factors there, but historically and maybe even just
Speaker 1: more recently the past few years, you know what's really
Speaker 1: driven US out performance? Is it one sector? For example?
Speaker 1: We look at Ai, is it the dollar? Like what
Speaker 1: is it?
Speaker 4: Yees?
Speaker 3: So I think there's two things, right, So firstly, maybe
Speaker 3: look at the competition hasn't been that strong.
Speaker 4: So we've seen in.
Speaker 3: Europe obviously going through pretty challenging times on a multi
Speaker 3: year basis, whether you talk about sovereign debt crises or
Speaker 3: just very very anemic growth, a lack of innovation, greater
Speaker 3: regulation since the Global financial crisis as well, So those
Speaker 3: sort of factors sort of inhibit the growth there. China, obviously,
Speaker 3: growth is still relatively strong to the rest of the world,
Speaker 3: but it's on a deceleration path and we're talking about
Speaker 3: concerns about debt deflation cycle in China. So when you've
Speaker 3: got all those things out there, it suggests that the
Speaker 3: competition against the US isn't that grade. And then yes,
Speaker 3: when you look at the US story, we talked about
Speaker 3: innovation obviously a major major piece of the US outperformance.
Speaker 3: Technology driving that You mentioned that obviously the mag seven
Speaker 3: that has been a major port. So you're seeing a
Speaker 3: lot of more concentration risk being taken and that's what's
Speaker 3: been driving this out performance. So it's both the strong
Speaker 3: domestic fundamentals in the US, but also weakness elsewhere.
Speaker 1: We're seeing some threat to that potentially. You know, before
Speaker 1: we started recording, John and I were talking about deep
Speaker 1: seek and the effect that that had on capital markets,
Speaker 1: but also on just overall sentiment with technology and AI
Speaker 1: in the US perhaps looking more overpriced now. And also
Speaker 1: the fact that she met in China with a lot
Speaker 1: of tech executives, which sort of shows perhaps a greater
Speaker 1: focus on that sector going forward.
Speaker 3: I guess you need to balance a couple of things, right,
Speaker 3: So clearly so far this year, for instance, actually Europe
Speaker 3: has been one of the best performance right at performing
Speaker 3: the US. So there's a question of whether this US
Speaker 3: exceptionism will continue on a multi year basis. I think
Speaker 3: if we look at the just at the pure fundamentals,
Speaker 3: it was suggests yes, U exceptionism can continue for some
Speaker 3: time to come, and certainly we are still overweight US
Speaker 3: equities on a six to twelve month view.
Speaker 4: That's to some.
Speaker 3: Degree policy agenda, which I'm sure we'll get to from
Speaker 3: a US perspective. But I think there's also the other
Speaker 3: side is it's not just the story or the fundamentals
Speaker 3: that matters. It's also matters what's priced. And so if
Speaker 3: we're looking at relative valuations between the US and elsewhere,
Speaker 3: and we can look at Asia, we can look at
Speaker 3: Europe as well, those relative valuations are very extreme. So
Speaker 3: one of my favorite saying things, I think it's George
Speaker 3: Soros said that most of the money is made when
Speaker 3: things go from really really awful to just awful, right,
Speaker 3: you know, because of those extreme valuations. And I think
Speaker 3: that's what's seeing at the moment is things are getting
Speaker 3: less bad elsewhere, and that's encouraging people to sort of
Speaker 3: reduce their underweight positions or their short positions in non
Speaker 3: US equities, and that's leading to short term out performance.
Speaker 3: I guess the question is, you know, we've had false
Speaker 3: dawns before in this space. Is this another one of those?
Speaker 4: And we'll just get the resumption of the norm of.
Speaker 3: US exceptionalism as we go through the rest of the year,
Speaker 3: and our sense is this it's too early to sort
Speaker 3: of move away from the US, but obviously we're watching
Speaker 3: with a huge interest.
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Speaker 2: And Steve, you've been around for a few decades, as
Speaker 2: you mentioned, and I do remember there was a time
Speaker 2: in the early two thousands when it wasn't all dominated
Speaker 2: by the US. I do remember that there were some
Speaker 2: European tech companies that were leaders in mobile phones. European
Speaker 2: banks were challenging the US bulge bracket investment banks. Although
Speaker 2: you know, yeah, they're no longer a challenge arguably now.
Speaker 2: But tell us like, it hasn't always been this case,
Speaker 2: has it?
Speaker 4: No, it hasn't.
Speaker 3: I mean, I still remember the Nokia of that era.
Speaker 3: Nobody would ever own another side that. I'm right, I mean,
Speaker 3: it was that's a slight exaggeration that it was Erickson
Speaker 3: as well.
Speaker 4: Yeah, true, that.
Speaker 1: Was my first phone.
Speaker 4: Mine was a Nokia.
Speaker 3: It was a brick, right, you could throw and really
Speaker 3: do serious damage. So look, so it hasn't always been
Speaker 3: the case, obviously in some ways it's difficult sy what
Speaker 3: gets it back? I think that the global financial crisis
Speaker 3: was a really big factor in this in terms of
Speaker 3: obviously that you mentioned the banks there, the regulation that
Speaker 3: came through following the Global financial crisis that hit the
Speaker 3: banking sector obviously very hard generally. But we've had a
Speaker 3: lot of deregulation since in the US, and I think
Speaker 3: that certainly helped the margin as well in terms of
Speaker 3: driving shareholder returns. We can argue what the connotations will
Speaker 3: be for the safety of the banking sector of the future,
Speaker 3: especially if deregulation continues, but that certainly helped as well. So,
Speaker 3: you know, I think we need to get to a
Speaker 3: point where innovation.
Speaker 4: Is more embraced.
Speaker 3: But you know, again, if you look at the AI space,
Speaker 3: Europe is already started to move in the regulation sphere
Speaker 3: there whereas in the US, regulation is becoming almost a
Speaker 3: four letter word as far as the policymakers are concerned.
Speaker 3: So the AI space looks like it's still going to
Speaker 3: be led by the US and maybe to some degree
Speaker 3: China as well, rather than coming out of Europe.
Speaker 2: And we also have to ask the elephant in the
Speaker 2: room now President Trump his protectionist policies is tariffs. Does
Speaker 2: this add to the idea of US exceptionalism or does
Speaker 2: it detract from it?
Speaker 3: So I think this is one of the reasons that
Speaker 3: we're overweight the US market at the moment still despite
Speaker 3: those extreme valuations, is we believe that a lot of
Speaker 3: the policies that will be pursued will be positive for
Speaker 3: the economy in terms of growth. Obviously, we can talk
Speaker 3: about inflation. That's probably the biggest concern that we have
Speaker 3: is whether you know the import tariffs and immigration controls
Speaker 3: will lead to higher inflation. I think it certainly will
Speaker 3: put the brake on inflation coming lower to significant extent.
Speaker 3: But you know, we do think that that's going to
Speaker 3: help ensure that the stock market in the US does well.
Speaker 3: And obviously, if you're important're putting import tariffs on, that
Speaker 3: is detrimental to risk appetite in some of the parts
Speaker 3: of the world. And obviously we saw the tariffs being
Speaker 3: announced on Mexico and Canada and then being rolled back
Speaker 3: very quickly. If that was to happen, then you get
Speaker 3: the uncertainty, but you don't get the hit necessary to
Speaker 3: corporate earnings. I think the key thing here is is
Speaker 3: really how much of a this is Bart versus Biden.
Speaker 3: But I think the influence comes via the dollar. So
Speaker 3: our senses the dollar is in the process of peaking.
Speaker 4: Here.
Speaker 3: You obviously seen the dollar weeken, not massively, but reasonably
Speaker 3: significantly from the heights, and I think from that perspective,
Speaker 3: you know, if we have seen the peak of the
Speaker 3: dollar and we're moving definitively lower and we got increasing
Speaker 3: confidence from our perspective, but also from the market investors' perspective,
Speaker 3: I think that would then lead to much more sustained
Speaker 3: interest in non US equities. So most parts are going
Speaker 3: to be important. If they're all bark and no bit it,
Speaker 3: ultimately dollars should come lower and that should support actually
Speaker 3: it will support US equities as well, by the way,
Speaker 3: because a week of dollar is good for all equity markets,
Speaker 3: not just non US equity markets, but it does change
Speaker 3: their relative performance as well.
Speaker 1: Can we talk about some of the risks on the horizon.
Speaker 1: I know you've said, you know, will US exceptionalism continue
Speaker 1: on a multi year basis earlier, and I wanted to
Speaker 1: see if you had some potential answers to that, or
Speaker 1: at least things that potentially are headwinds. For example, President
Speaker 1: Trump's policies. While on the one hand they could really
Speaker 1: strengthen the dollar and they could be good for companies,
Speaker 1: there's also some risks of stakeflation in the US potentially
Speaker 1: slower growth now, especially with this wave of tariffs in
Speaker 1: recent weeks. So could you talk a bit about that.
Speaker 4: Yes, So it's really interesting.
Speaker 3: So we've just finished twenty twenty five Outlook road show
Speaker 3: where we go to countries around Asia, Africa and the
Speaker 3: Middle East. So you know, we presented it almost ten
Speaker 3: thousand clients on that and in the private bank events
Speaker 3: we were basically we asked people the question, okay, so
Speaker 3: what's the biggest risk? Right and consistently outside of Hong
Speaker 3: Kong we can talk a little bit about that. The
Speaker 3: top two risks were trade tariffs and inflation. Now, from
Speaker 3: our perspective, trade tariffs is the highest probability thing to worry.
Speaker 4: About, right, because that's going to happen.
Speaker 3: It's just a degree to which it happens and how
Speaker 3: it's rolled out and how it might be rolled back
Speaker 3: at some point in the future. But from an investor perspective,
Speaker 3: the number one risk, and it's a tail risk that's
Speaker 3: not a central scenario, is that inflation surges again, and
Speaker 3: that basically then comes back to sort of being in
Speaker 3: twenty twenty two reducts right where we saw bond yields
Speaker 3: going up and equity markets coming down. So the diversification
Speaker 3: benefits of bonds relative to equities really wasn't there anything
Speaker 3: to the degree we've seen historically, And actually the way
Speaker 3: we categorize twenty twenty two was it's the second worst
Speaker 3: investment climate in the past one hundred and fifty years,
Speaker 3: So it was a massive outlier. The ar is that
Speaker 3: was something that we could see come back, and obviously
Speaker 3: we do know that some of his policies are potentially inflationary.
Speaker 4: Now it depends who you talk to.
Speaker 3: Of course, the FED is obviously a little bit concerned,
Speaker 3: but not overly concerned at the moment. But Trump is
Speaker 3: saying this is not an issue, of course, right, So
Speaker 3: inflation's going to come lower and therefore interest rates should
Speaker 3: come lower, but it's a tail risk, so probably ten
Speaker 3: percent probability, But it was the one that would have
Speaker 3: the biggest impact on investors because it would mean that,
Speaker 3: you know, the traditional asset allocation approach would face challenges again,
Speaker 3: so that sixty to forty equity.
Speaker 4: Bond portfolio would perform poorly.
Speaker 3: The way we think about this in the longer term
Speaker 3: is we sort of say, look, we believe that Trump
Speaker 3: wants to be business friendly, and a stock market is
Speaker 3: a key barometer for him on that journey. So if
Speaker 3: we did see his policies leading to market volatility, we
Speaker 3: would expect some sort of recalibration to make sure. And
Speaker 3: I think what was interesting with US Treasury Secretary Scott
Speaker 3: Bessant he shifted the conversation at least temporarily from what
Speaker 3: the Fed should do to focusing on the ten year yield.
Speaker 3: I think the soft message there was saying, look, we're
Speaker 3: not going to do anything that's going to push the
Speaker 3: ten year yield higher, and I think that should be
Speaker 3: something that makes investors more comfortable. But obviously inflation is
Speaker 3: the key tail risk.
Speaker 1: So the you mentioned Scott Besson's comments there, we were
Speaker 1: trying to unpack that when it came out. I think
Speaker 1: a lot of people are trying to unpack those comments
Speaker 1: when they came out. So you're saying, from your view
Speaker 1: as an investor, you kind of took that not in
Speaker 1: the sense that they're going to, like Japan or the
Speaker 1: Bank of Japan start engineering or trying to move around
Speaker 1: the ten year Now.
Speaker 3: The way I view this is that I think Scott
Speaker 3: Bessant is Trump's attempt to give him the cloud cover
Speaker 3: to do what he wants. So he wants a credible
Speaker 3: Treasury secretary not to sort of change the policies that
Speaker 3: he wants to implement, but better sell them to markets
Speaker 3: so that it don't lead to like a Lisz trust
Speaker 3: moment in the bond market, for instance, that obviously would
Speaker 3: be very damaging for what they're trying to achieve. So
Speaker 3: that's the way I view Besson's job actually is not
Speaker 3: necessarily as much on the policy front, but to sell policy.
Speaker 3: Now there's no guarantees of course that works, and it
Speaker 3: is quite possible that he and Trump at some point
Speaker 3: will fall out and we'll have a different Treasury secretary.
Speaker 3: But I think that's the sort of thought process at
Speaker 3: the moment, and you know, so, yes, there's a sensible
Speaker 3: person in the room, but there's also a salesman trying
Speaker 3: to sell what they're doing as not being detrimental to
Speaker 3: the inflation outlook to the economy and therefore reassuring markets
Speaker 3: that everything's okay, okay.
Speaker 2: So you believe that the Trump administration is can be
Speaker 2: very pragmatic, especially to financial markets. So if tariffs do
Speaker 2: become inflationary, then they may possibly sort of dull back
Speaker 2: their actions.
Speaker 3: Yeah, we've already seen obviously roll back in some areas.
Speaker 3: I think they will be selective where they're more willing
Speaker 3: to roll back and areas where they'll be less willing
Speaker 3: to roll back. So I think, and that's more of
Speaker 3: a gear political conversation. So if you think about a
Speaker 3: two by two matrix, you're an ally or not an ally,
Speaker 3: and you have a huge deficit or not a huge deficit,
Speaker 3: you obviously want to be an ally and not huge
Speaker 3: US deficit with you. If you're in the other category
Speaker 3: with you're not necessarily an ally, but you have a
Speaker 3: huge surplus with the US, then probably that's going to
Speaker 3: be a more challenging area. So I think, yes, there's
Speaker 3: going to be a lot of I mean, Europe is
Speaker 3: obviously going to be an interesting case study because obviously
Speaker 3: historically an ally there's intensions do seem to be rising,
Speaker 3: not Jack's in trade, but also political tensions between Europe
Speaker 3: and the US. So how that plays out it's going
Speaker 3: to be very interesting. But I think on the trade
Speaker 3: side they'd be more willing to threaten, maybe even implement,
Speaker 3: but then quickly backtrack if Europe plays the game. So
Speaker 3: that's the way that we see it happening.
Speaker 1: So, given Trump's policies being on net pretty good for
Speaker 1: US stocks over the next let's say four years, is
Speaker 1: there any reason for people to invest outside of the
Speaker 1: US to get US Yeah, I mean probably exactly. We're
Speaker 1: based here in Hong Kong. It makes me think of,
Speaker 1: you know, if we have a situation where there will
Speaker 1: be tariffs coming in and pretty broad tariffs, you know,
Speaker 1: not just you have ten percent so we're going to
Speaker 1: give ten percent. It's also on things like VAT and
Speaker 1: taxes and subsidies and some of these foreign countries that
Speaker 1: for a company looking to invest abroad or you know FDI,
Speaker 1: any kind of FDI, you're gonna be thinking, well, where
Speaker 1: can I actually go that won't be hurt by tariffs,
Speaker 1: and so is it sort of US exceptionalism because there
Speaker 1: are limited places to get gains elsewhere? Or is there
Speaker 1: maybe an argument that you should be overweight in these
Speaker 1: other countries?
Speaker 3: So the main argument, I mean, are the ones for
Speaker 3: being overweight outside the US or what we've discussed right,
Speaker 3: So we're seeing some positive science in here, obviously the
Speaker 3: deep seek phenomena, but we also see the relative valuations
Speaker 3: as well, so that those are the two arguments. We
Speaker 3: don't think they're necessarily compelling enough to warrant overweighting assets
Speaker 3: equities outside the US. So we're overweight global equitism within
Speaker 3: that way, overweight the US, but overweight doesn't mean.
Speaker 4: Zero allocation elsewhere.
Speaker 3: And so you'd expect a CIO to come on and
Speaker 3: talk about diversification at some point. Of course, you should
Speaker 3: have exposure to Asian equities, you should have exposure to
Speaker 3: European equities and Japanese equities, etc.
Speaker 4: So that's something that we truly believe in.
Speaker 3: You know, nobody knows with one hundred percent surety what's
Speaker 3: going to happen going forward, So it could be that
Speaker 3: this performance of Europe is the start of a twelve
Speaker 3: month out performance.
Speaker 4: It is possible.
Speaker 3: It's not our central scenario, but that's another reason why
Speaker 3: you should have European equities in your portfolio as you
Speaker 3: go forward. So that diversification thing, I think is really
Speaker 3: important for people to remember. And if we look at
Speaker 3: investor behavior, it is very tempting for people to become
Speaker 3: very narrow in their exposures. Right, So you know the
Speaker 3: mag seven and we've discussed, right, that's sort of something
Speaker 3: that can lead to very narrow exposures in the technology space,
Speaker 3: and we like going, yes, technology is the future, but
Speaker 3: it's priced quite high already. So it's not to say
Speaker 3: that you shouldn't have exposure there. But if you're like saying, Okay,
Speaker 3: I'm invested fifty percent in the US equities and fifty
Speaker 3: percent in the Nasdaq, then I've got a massive exposure
Speaker 3: to US tech and maybe we should be looking at
Speaker 3: ways of diversifying that to say, Okay, this can't go
Speaker 3: on forever. Whatever can't go on forever, at some point
Speaker 3: must stop, and therefore we should be just making sure
Speaker 3: we're calibrating our exposures to diversify away. And you can
Speaker 3: do that through you know, okay, maybe instead of SMP exposure,
Speaker 3: I'll do SMP equal weighted and then I'll add in
Speaker 3: some international equity exposure as well and stiff.
Speaker 2: You mentioned your global outlook where you visited in numerous cities,
Speaker 2: but you mentioned that Hong Kong the risks were different.
Speaker 2: What was the Hong Kong audience word of.
Speaker 3: So obviously they were still worried about trade and inflation
Speaker 3: as well, but I think the additional one that they
Speaker 3: added in that actually was quite interesting. It wasn't elsewhere
Speaker 3: was the debt deflation risk in China, right, So elsewhere
Speaker 3: people really weren't focused on that, maybe because of the timing. Obviously,
Speaker 3: we're doing this around the time of the US inauguration,
Speaker 3: so you know, it's obviously front and center of the news,
Speaker 3: whereas China moved a little bit off the front and center.
Speaker 3: But debt deflation cycle in China was obviously high on
Speaker 3: their agenda as well, and that fed into.
Speaker 4: The other question.
Speaker 3: We asked them, are you optimistic, neutral, or worried about
Speaker 3: twenty twenty five? And Hong Kong rated the highest on
Speaker 3: you know, worried about twenty twenty five, And I guess
Speaker 3: that's also a proximity to China conversation as well, we
Speaker 3: can argue and step back and say, wait a second,
Speaker 3: China is still going to grow about four and a
Speaker 3: half five percent growth this year. Not many people can
Speaker 3: match that, but I think when you look at the
Speaker 3: nominal the Deceller nominal growth, so real growth coming down,
Speaker 3: but also inflation coming down, and you add in the
Speaker 3: high debt levels, then clearly that is something that we
Speaker 3: need to manage. And the way we see this playing
Speaker 3: out is it's just going to be a muddle through
Speaker 3: economy going forward. And the reason we think that is
Speaker 3: because while investors in Chinese equities are saying, why aren't
Speaker 3: we making sure inflation's going up?
Speaker 4: Right? So we really need.
Speaker 3: To avoid deflation, and I don't think the authorities would
Speaker 3: be disagreeing with that. They're also very cognizant that just
Speaker 3: laying on debt on debt on debt is not a
Speaker 3: solution to the problem either, So they're taking a much
Speaker 3: more balanced view of this. And maybe they're also waiting
Speaker 3: to see what Trump's going to do and say, okay,
Speaker 3: if we're going to do something, you know, a mini
Speaker 3: two thousand and eight two thousand and nine in terms
Speaker 3: of fiscal stimulus, then maybe we'll wait until we can
Speaker 3: have maximum impact of that on sentiment on the markets,
Speaker 3: And probably that's better to do after Trump has decided
Speaker 3: what he's going to do on China rather than before
Speaker 3: and then see the euphoria way later.
Speaker 1: Does it make it harder during this period of time
Speaker 1: where the US is outperforming and we have these America
Speaker 1: first policies? Does it make it harder for other countries
Speaker 1: to sort of stand out and their equity markets to
Speaker 1: stand out and garner investment? Like I'm thinking for example
Speaker 1: of Vietnam, they're aiming for eight percent GDP growth this year,
Speaker 1: which is going to be very tricky, but they're trying
Speaker 1: to engineer through fiscal and hopefully monetary stimulus where used
Speaker 1: to do that. So yeah, does it make it kind
Speaker 1: of trickier when you have this one kind of giant
Speaker 1: in the room.
Speaker 4: It certainly does. So there's two elements that writes them.
Speaker 3: From a growth perspective, It's very difficult to form policies
Speaker 3: for the rest of the year because you don't exist
Speaker 3: in a vacuum. So historically you'd like, go, okay, I'm
Speaker 3: not going to be hugely blindsided by policies out of
Speaker 3: the US. Now, that's obviously not a given, So you
Speaker 3: need to acknowledge that decisions you may take today might
Speaker 3: want to revisit tomorrow based on something that the US
Speaker 3: might do. And obviously the China plus one strategy will
Speaker 3: come under increasing strutiny and will continue to do so
Speaker 3: under a Trump administration. One would think the second thing
Speaker 3: then is you know, okay, what does this mean for
Speaker 3: my financial markets as another country elsewhere? And again that's
Speaker 3: not totally in your control, of course, but one thing
Speaker 3: that investors hate is uncertainty, and one thing that we
Speaker 3: all know we're going to have lots of is uncertainty,
Speaker 3: and so that increases the risk premium potentially on your
Speaker 3: assets unless you can find a way to come up
Speaker 3: with a model that is actually much more resistant. And
Speaker 3: I think this is a broader point geopolitical point is
Speaker 3: I think the one thing that countries globally have to do,
Speaker 3: and I don't think this is just for the next
Speaker 3: four years now, is if I'm reliant on the US
Speaker 3: for anything, I need to really try and figure out
Speaker 3: how it can be more resilient. And that can be
Speaker 3: either trade, which is the obvious one or it can
Speaker 3: be foreign aid, or it can be military cover. We're
Speaker 3: seeing all three areas being hugely scrutinized in the US
Speaker 3: at the moment. And if you're reliant on the US
Speaker 3: in a significant way in either of those three spares,
Speaker 3: then that's probably where you should be spending your time
Speaker 3: as a policymaker in trying to say, what can I
Speaker 3: do to reduce my reliance strategically on the US. And
Speaker 3: I think that's I don't think that's actually long term
Speaker 3: good for the US, but I think, you know, it
Speaker 3: is something that policymakers and governments really have to think
Speaker 3: about more and more nowadays.
Speaker 1: How chaotic is this time right now for you? We
Speaker 1: were just chatting before the recording about you moving to
Speaker 1: Singapore in the midst of the Asia financial crisis. I mean,
Speaker 1: how does this time compare with other errors?
Speaker 3: So obviously this is more of a slow burn, and
Speaker 3: the Asian financial crisis of the global financial crisis, right,
Speaker 3: that was extremely chaotic and things were changing structurally or
Speaker 3: what the risks were changing exponentially within days, right, So
Speaker 3: it was really I mean I was here for the
Speaker 3: Korean devaluate during the Asian financial crisis, That's one of
Speaker 3: my first when I was twenty five, when I moved
Speaker 3: to Singapore. Right, that was a real education on what
Speaker 3: can go wrong. Obviously the global financial market at one
Speaker 3: point it looked like the system was going to collapse,
Speaker 3: and COVID as well. You know, again, very different situation,
Speaker 3: but something equally scary. This almost feels a bit more
Speaker 3: entertainment value rather than really really scary. But that doesn't
Speaker 3: mean it's not scary. I think, you know, you can
Speaker 3: take a geopolitical lens of saying, look, we're moving now
Speaker 3: from a unilateral world to a multipolar world. That's not
Speaker 3: new information. We've known that for some time. That increases
Speaker 3: uncertainty and will lead to things that we don't for
Speaker 3: see today. In the extreme, obviously, that leads to military conflict.
Speaker 3: So just because it feels entertaining and we know we're
Speaker 3: going to get new information on a daily basis and
Speaker 3: you're going to maybe roll your eyes at some stuff,
Speaker 3: applaud other things, etc. But the long term implications here
Speaker 3: I think are going to be much more broader felt
Speaker 3: than COVID and things like this. That's probably the bigger
Speaker 3: concern longer term, rather than what happens this year.
Speaker 2: So, Steve, you came to Asia during the Asian financial
Speaker 2: crisis in the late nineteen nineties, so that means that
Speaker 2: you also went through the tech bubble in late nineteen
Speaker 2: ninety nine. Now some pundits are drawing analogies to the
Speaker 2: elevated stock valuations now and the tech bubble of the nineties.
Speaker 3: What's your view there, So it's a really good question, right, So,
Speaker 3: I mean, as then you had market leaders, right, you
Speaker 3: had businesses that don't really make money, but people still
Speaker 3: valuing them hugely and will see that today. I guess
Speaker 3: my thoughts here are I think that's the way we're heading.
Speaker 3: I'm not sure where the end of ninety nine beginning
Speaker 3: of two thousand yet, because I don't think the euphoria
Speaker 3: necessary is as high as it was then. And one
Speaker 3: of the things that we often get asked about is
Speaker 3: we talked about relative valuations, but even US valuations on
Speaker 3: a standalone basis are reasonably high, but they're not at
Speaker 3: late nineteen nineties highs. And so from that perspective of
Speaker 3: my set scenarios that we still probably have a little
Speaker 3: bit of a melt up in terms of you know,
Speaker 3: stock prices generally maybe on the tech.
Speaker 4: Side as well.
Speaker 3: Before we see that peak form. I think we're not
Speaker 3: an excessive optimism yet, so from our perspective, we still
Speaker 3: have some road. Again, the risk manager in me says, okay,
Speaker 3: but we don't know. It is possible that we are,
Speaker 3: you know, the beginning of two thousand now and we
Speaker 3: could see the peak in the market. That is obviously
Speaker 3: a potential outcome. So again we talked about diversifying within equities,
Speaker 3: but also diversifying outside of equerders. We think bond yields
Speaker 3: are pretty attractive in this environment. So you know, if
Speaker 3: you think back two years ago, three years ago, people
Speaker 3: would say, oh, I'd kill for a five percent yield.
Speaker 4: Well, now you can get IG bonds as.
Speaker 3: A seven percent yield, right, So you sort of say, okay,
Speaker 3: that's not a bad place to have an allocation too,
Speaker 3: even if it's just to protect your wealth, but also
Speaker 3: as a counterbalance to equity markets.
Speaker 4: In case we are wrong and we.
Speaker 3: Do see that surgeon in or we do see a
Speaker 3: recession coming down the path, then maybe having ancation there
Speaker 3: makes more sense and you'll be more protected this time,
Speaker 3: even if it's inflation. Because the baseline of interest rates
Speaker 3: is higher, so the coupons you're clipping a higher that
Speaker 3: gives you a lot more protection than you had the
Speaker 3: beginning of twenty twenty two.
Speaker 2: And do you also have a view on other assets
Speaker 2: potentially gold.
Speaker 4: Yeah.
Speaker 3: Our challenge here is we've already hit our full year target,
Speaker 3: so I think from our perspective, well yeah, actually I
Speaker 3: think this is the second year in three that that's
Speaker 3: happened to us, Like by february've hit our full year target.
Speaker 3: So I guess the challenge now is saying, Okay, how
Speaker 3: much of this should we extrapolate and revise higher. I
Speaker 3: think our sense is that the structural outlook for gold
Speaker 3: is positive, and part of this is the geopolitical conversation,
Speaker 3: and a lot of people focus on individual investors or
Speaker 3: institutional investors, but obviously there's also a central bank element
Speaker 3: to this in terms of, you know, the sanctioning of
Speaker 3: the Russian Central Bank really some shop ways through the
Speaker 3: central bank community. And if you're not fully aligned with
Speaker 3: the US and Europe, then and obviously you want to
Speaker 3: diversify as much as away from US assets as you can.
Speaker 3: There's not a lot you can do because they're the
Speaker 3: deepest financial markets, but one thing you can do is
Speaker 3: add to your gold holdings and actually physically really okate
Speaker 3: your gold as well. So it's not under the Bank
Speaker 3: of England, it's probably in your own country. So I
Speaker 3: think that's something that still hasn't fully played out. If
Speaker 3: you look at what central banks have been doing, you
Speaker 3: saw a massive increase in twenty twenty two of gold
Speaker 3: purchases from central banks. Unsurprisingly, that's still elevated and if
Speaker 3: you look at intentions, that's continuing to accelerate. So we
Speaker 3: see that as a strong source of demand for gold.
Speaker 3: So we have about of five to seven percent allocation
Speaker 3: of gold in our portfolios. That's obviously helped us really
Speaker 3: well so far this year, and we can see the
Speaker 3: long term up trend for gold as being intact.
Speaker 4: Maybe got a bit.
Speaker 3: Ahead of itself in the short term, but certainly buying
Speaker 3: on dips if we get down to sort of two
Speaker 3: thousand and six fifty would be a really I think
Speaker 3: you'd be lucky to get it down there, but maybe
Speaker 3: even two seven fifty, that's probably a decent place to
Speaker 3: start accumulating gold again.
Speaker 1: So, Steve, you had mentioned this risk of inflation and
Speaker 1: what potentially can happen in the States, but also globally.
Speaker 1: Of course, tariffs would not help in that regard. So
Speaker 1: if we do get that situation, whether it's stake inflation
Speaker 1: or another kind of resurgence in inflation which no one
Speaker 1: wants to see, what do investors do? How can investors
Speaker 1: play that?
Speaker 4: Yes, so I.
Speaker 3: Guess the default answer would probably be what we just
Speaker 3: discussed in terms of gold, Right, So gold is you know,
Speaker 3: over the long term at least is a good inflation edge,
Speaker 3: and actually so our equity is over the long period,
Speaker 3: but obviously the short term dynamics would be quite challenging.
Speaker 3: I think then you're looking at diversifying beyond sort of
Speaker 3: public markets, and really so private credit is probably a
Speaker 3: good place to be. Yes, that would come with some
Speaker 3: economic concerns, but at least their floating rate exposures that
Speaker 3: you're taking, So if interest rates did have to go up,
Speaker 3: then you'd be benefiting from that. So that would provide
Speaker 3: some sick nificant diversification for investors. Infrastructure is obviously a
Speaker 3: grade inflation protection as well, or hedge against inflation of
Speaker 3: a reasonably short period of time. Actually, because often they're
Speaker 3: inflation linked in terms of the payouts they offer, and
Speaker 3: then the final place would be obviously in the sort
Speaker 3: of hedge fund space. So whether you know, we can
Speaker 3: talk about equity long short, that's usually a difficult place
Speaker 3: to be because it often has a correlation with equities.
Speaker 3: If you can get a good market neutral strategy in
Speaker 3: that space, then that can work. But also if we're
Speaker 3: looking at the sort of macro strategies space where they
Speaker 3: can go long short and different assets, that is often
Speaker 3: a very good place to allocate. It's a bit like
Speaker 3: an insurance policy. So I think that's why it's difficult
Speaker 3: to get much traction in the macro strategy CTA space
Speaker 3: because you know, people say, well, it often doesn't do
Speaker 3: that well in normal times, but as with any insurance policy,
Speaker 3: it really pays off when you get that volatility on
Speaker 3: the downside. So having an allocation and that's as well
Speaker 3: makes sense for us.
Speaker 2: Steve, I wanted to before I let you go on
Speaker 2: to ask you a personal question. Now, you moved to
Speaker 2: Asia and you're twenty five. I think you mentioned during
Speaker 2: the Asian financial crisis to Singapore, you did stints in Dubai.
Speaker 2: I think South Africa you mentioned as well, and you
Speaker 2: studied and you grew up in England. But just wind
Speaker 2: the clock back if you're twenty five, now, where would
Speaker 2: you like to work and live?
Speaker 3: I guess it depends which space you're in, right, So
Speaker 3: if you're in data science or something like that, I
Speaker 3: think the most interesting stuff you're going to be doing,
Speaker 3: or AI, you almost have to be in the US
Speaker 3: these days. I guess you maybe to some degree, some degree,
Speaker 3: you could be in China as well, So I think
Speaker 3: that's an interesting space. Obviously, it's going to be probably
Speaker 3: more constrained, but you know, strange you may get more
Speaker 3: backing as well in the areas where they want to develop. Certainly,
Speaker 3: if I was to rewind the clock, I wouldn't change
Speaker 3: a thing. I always say that, you know, I got
Speaker 3: where I am today through the choices I've made, And yeah,
Speaker 3: of course I wouldn't do everything the same way, but yeah,
Speaker 3: I think it's where I ended up was a good space.
Speaker 3: I get to do fun things like this all right,
Speaker 3: and talk to interesting people. So Asia is still a
Speaker 3: huge powerhouse for the region. I just think it's going
Speaker 3: to be that. Yeah, the US is going to be
Speaker 3: very interesting as well. Well.
Speaker 1: It's been a great conversation Steve, thank you so much
Speaker 1: for joining us.
Speaker 4: Thank you so much being a pleasure. As always, you've.
Speaker 1: Been listening to Asia Centric from Bloomberg Intelligence. I'm Cartedmu
Speaker 1: Treeva here in Hong Kong. You can find me on
Speaker 1: LinkedIn or on the terminal.
Speaker 2: And I'm John Lee. You can also find me on LinkedIn.
Speaker 2: This podcast was produced and edited by Clara Chen and
Speaker 2: thank you for listening to Asia Centric.
Speaker 1: You can find us on Apple Podcasts, Spotify, or wherever
Speaker 1: you listen. See you next time.