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

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Speaker 2: Welcome to the Bloomberg Daybreak g Asia podcast. I'm Dan

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Speaker 2: Schwartzman Doug Prisoners off this morning, the US and China

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Speaker 2: both reported substantial progress after two days of talks in

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Speaker 2: Switzerland aimed at de escalating their trade war. Chinese Vice

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Speaker 2: Premier haw Lee fun called the meeting quote an important

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Speaker 2: first step towards resolving differences. US Trade Representative Jameison Greer

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Speaker 2: had this to say about the meeting.

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Speaker 3: It's important to understand how quickly we were able to

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Speaker 3: come to agreement, which reflects that perhaps the differences were

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Speaker 3: not so large as maybe thought. That being said, there

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Speaker 3: was a lot of groundwork that went into these two days.

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Speaker 2: That's US Trade Representative Jamison Greer. From more on how

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Speaker 2: markets are digesting the latest headlines. We heard from Alicia

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Speaker 2: Garcia Herrero, chief apack economist that not exists. She spoke

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Speaker 2: at Bloomberg's Sherry on In, Heidie Stroud, Watts and Lycia.

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Speaker 4: Great to have you with us at a course we

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Speaker 4: have been talking about US China competition that trade for

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Speaker 4: so long. Now scanned on the details at this point,

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Speaker 4: but do you think the world investors have reason to

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Speaker 4: be optimistic here.

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Speaker 5: Yeah, because the situation was so bad. So anything they

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Speaker 5: announced will be good news. And I think they've already

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Speaker 5: taken actions that explain why the market has actually read

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Speaker 5: those good news already past last week, starting with the

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Speaker 5: lifting of export controls. There's very good news for a

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Speaker 5: number of key players, Nvidia and so on, moving the

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Speaker 5: market in the US. So we know that the negotiations

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Speaker 5: have happened even before the meeting started. Boy, you know

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Speaker 5: big orders from China, so you can tell that that

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Speaker 5: in a way, we knew that there were going to

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Speaker 5: be good news. Now, how specific they might be, I

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Speaker 5: think not really for two reasons. First, they need to

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Speaker 5: keep the action moving. I think they don't want like

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Speaker 5: a big now, but they rather want to keep the

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Speaker 5: market happy with good news coming on, and that is

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Speaker 5: why they announced that they would be meeting regularly. So

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Speaker 5: this is just, you know, a way to keep the

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Speaker 5: market on both sides, which they need because we will

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Speaker 5: have bad news on inflation. We will have bad news

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Speaker 5: on China's inflation too, not only the US this week,

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Speaker 5: so you know, they need to keep the positive discussion.

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Speaker 5: It's kind of the opposite of what we had before.

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Speaker 4: How much a sentiment already taken a dent, right, We've

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Speaker 4: seen a lot of frontloading from companies and factories already.

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Speaker 4: There's a lot of uncertainty when it comes to households

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Speaker 4: over the next six months for the US economy and consumption.

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Speaker 4: Do you think sort of an unwinding or a de

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Speaker 4: escalation is going to be able to reverse all of that.

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Speaker 5: No, that's a great question because what's happening is normally

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Speaker 5: about China and the US. In fact, some people may wonder,

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Speaker 5: and this is particularly true in Europe. Okay, now that

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Speaker 5: China has jumped the Q what is it in for US? Yeah,

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Speaker 5: so you know, sentiment about Europe made worsen. But even

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Speaker 5: if you ask about the US, there's many other things

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Speaker 5: happening that are unrelated to two times on China that

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Speaker 5: remain of great concern to US investors. So in that regard,

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Speaker 5: I think it's not over in terms of market volatility whatsoever.

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Speaker 5: But it is exactly for that reason that they decided

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Speaker 5: to come up with this let's call it mini deal

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Speaker 5: or agree to agree, you name it. All of these

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Speaker 5: are you know, soft for empty words that just want

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Speaker 5: to guide the market and they will, but the market

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Speaker 5: will read something else, as you said, and those something

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Speaker 5: else is really happening. The US economy is accelerating and

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Speaker 5: the world is in a much better, much worse place

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Speaker 5: than it was before Trump to what.

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Speaker 1: About the Chinese economy, because we have seen that economy

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Speaker 1: really decelerating for a while, right, but nowadays we're not

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Speaker 1: even and getting clear data, whether it's on the labor

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Speaker 1: market or just what consumers are feeling at the moment.

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Speaker 5: Okay, so watch for today because we'll have CPI today.

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Speaker 5: And I still remember, you know, March CPI, we were told, oh,

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Speaker 5: this is a lot of you know, favorite CPI, even

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Speaker 5: a lot of basically CNHY you know, impacts, and don't worry,

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Speaker 5: it will become positive. And you know most analysts have

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Speaker 5: rather positive CPI for this year. But today we'll probably

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Speaker 5: get to negative again. Let alone producer prices, let on

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Speaker 5: export prices. So by today, I think nobody can deny

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Speaker 5: China is in deflation. And this is a big thing.

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Speaker 5: This is a big thing because it means that you

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Speaker 5: just can't get your act together to have decent margins

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Speaker 5: independently on the tariffs if you want. Because we saw

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Speaker 5: exports experts are ruined at a percent. So it's not

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Speaker 5: about exports, it's about the over competition, this evolution of

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Speaker 5: the Chinese economy that is happening as we speak. We

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Speaker 5: had a we calculated impact of high tariffs. They don't

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Speaker 5: have to be one hundred and forty five percent. Even

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Speaker 5: eighty percent, even probably sixty percent are too higher embargo

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Speaker 5: level for China, and we estimated that impact to be

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Speaker 5: literally two point five percent of GDP growth shaped off.

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Speaker 5: So they China will need to stimulate the economy big

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Speaker 5: time this year if they want to avoid the massive deceleration,

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Speaker 5: no matter the talks today.

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Speaker 1: Yeah, April's inflation in China are really decelerating again, both

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Speaker 1: when it comes to consumers and factory as well as lysia.

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Speaker 1: So what can we expect in terms of what the

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Speaker 1: US and Chinese policy makers will do next in order

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Speaker 1: to support their economies as the trade negotiations continue.

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Speaker 5: Well, I mean, I think the ultimate goal, the US

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Speaker 5: ultimate goal of kind of big Caplin or if you want,

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Speaker 5: you know, the reducing its dependence trade dependence of China

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Speaker 5: is true. No matter what we see on the news today,

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Speaker 5: I think what both and by the way, and China

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Speaker 5: is also substituting any component that is not basically domestic

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Speaker 5: other than commodities in its supply chain or of countries

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Speaker 5: that China basically controlled. So the long term direction is clear,

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Speaker 5: it is bifurcation. But both parties have every interest in

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Speaker 5: harming themselves the least possible so that this direction is

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Speaker 5: not too painful. That's what's happening, and that's how the

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Speaker 5: market should really And is this world going to be

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Speaker 5: better or worse? Well, I mean we're no longer in

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Speaker 5: this wonderful globalization mood, so maybe it is better to

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Speaker 5: bifurcate slowly and steadily and nicely rather than fighting it

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Speaker 5: over as we were doing right before this conversation started

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Speaker 5: in Geneva, Alysia.

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Speaker 1: Always great to get your insights. Alicia or Cifro, chief

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Speaker 1: a Pacific economist at not Texas.

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Speaker 2: Welcome back to the Daybreak Asia podcast. I'm Dan Schwartzman

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Speaker 2: in for Doug Prisner. This morning, we turn our focus

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Speaker 2: to Japan, where stock futures rose on optimism. The US

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Speaker 2: China trade tension may begin to de escalate after two

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Speaker 2: days of talks over the weekend. Then e K two

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Speaker 2: two five has climbed five percent through Friday since US

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Speaker 2: President Donald Trump announced so called reciprocal tariffs on April

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Speaker 2: twond among the best performing major markets. For more, we

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Speaker 2: heard from Jean Eric Salada, chairman and head of private

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Speaker 2: credit at EQT Asia. He spoke at Bloomberg's sherry On

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Speaker 2: in Heidi Stroud Watts really good to.

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Speaker 1: Have you with us. Are you seeing what people are

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Speaker 1: talking about this veering away from US assets when you

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Speaker 1: talk to your clients.

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Speaker 6: Yes, good morning, Sherif, thanks for having me here today. Absolutely,

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Speaker 6: we're seeing a big shift in asset allocation away from

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Speaker 6: the US, both I say in public markets and private

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Speaker 6: markets where we specialize. I think it's driven by some

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Speaker 6: of the policy uncertainty in the US, but also I'd

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Speaker 6: say there's been a period of time where US assets

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Speaker 6: outperformed and people were over allocated to US assets, and

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Speaker 6: I think there's a rebalancing going on. And we see

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Speaker 6: a lot more asset flows coming back to Asia, coming

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Speaker 6: back to Europe.

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Speaker 1: Despite the volatility that we're seeing in market. So you

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Speaker 1: sense the optimism about Asian Where are those flows going?

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Speaker 2: Well?

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Speaker 6: I think for private equity, for what we do, we're

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Speaker 6: sort of structured to take on volatility as an industry

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Speaker 6: because our funds are set up as ten year funds,

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Speaker 6: they're locked up capital, so we don't have the redemption

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Speaker 6: issues that public managers have. So in many ways, we

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Speaker 6: have an ability to kind of ride through this volatility

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Speaker 6: and look at the long term. And these kind of

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Speaker 6: environments are actually quite interesting for us because you have

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Speaker 6: more interesting opportunities to buy at better valuations. There's less

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Speaker 6: competition in many cases for opportunities that we see, So

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Speaker 6: I think overall, we're investing, we remain commit to our strategy,

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Speaker 6: and we're seeing opportunities. For example, here in Japan, we

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Speaker 6: continue to see opportunities in a lot of take privates,

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Speaker 6: publicly listed companies where there's a real sense of shareholder

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Speaker 6: reform happening and a new focus on operational efficiency and

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Speaker 6: new growth strategies. So we're very excited about the opportunities

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Speaker 6: here in Japan, and we've you know, we're planning to

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Speaker 6: invest something like five billion dollars over the next couple

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Speaker 6: of years into the market here.

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Speaker 1: What about fundraising.

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Speaker 6: Fundraising, I think the fundraising market is becoming more bifurcated.

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Speaker 6: There's a bit of a consolidation happening globally and private

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Speaker 6: equity fundraising. But I think there's a group of managers

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Speaker 6: that are continuing to raise capital and grow the fund sizes,

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Speaker 6: and then I think there's another group that's finding it

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Speaker 6: more difficult, and I think you're going to continue to

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Speaker 6: see this divergence in fundraising. But there's you know, at

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Speaker 6: the end of the day, what private equity offers investors

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Speaker 6: is higher returns. Essentially, if you look at it over

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Speaker 6: long periods of time, the private markets offer significantly higher

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Speaker 6: returns in the public more markets if you look at

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Speaker 6: extended periods of time, and I think that's why the

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Speaker 6: asset class continues to grow. But I think investors are

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Speaker 6: getting a lot more a lot more careful about manager

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Speaker 6: selection and focusing a lot more on investment performance and

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Speaker 6: track record.

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Speaker 4: China has been attracted from evaluation perspective for quite some time.

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Speaker 4: And now that we are sort of hearing murmurings of

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Speaker 4: progress when it comes to the US and China's relationship,

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Speaker 4: does that make that market a little bit more compelling?

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Speaker 6: Hi, Heid, I think for a China, you know, our

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Speaker 6: strategy is a regional strategy, so our strategies essentially has

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Speaker 6: four components to it. We are a buyout investor, so

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Speaker 6: we only invest in control situations where we can drive

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Speaker 6: change in companies. Secondly, we have a regionally diversified portfolio

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Speaker 6: where we invest across the region. If you look at

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Speaker 6: geographic exposure today, our two biggest areas of focus are

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Speaker 6: Japan and India. That would be one and two, and

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Speaker 6: then behind that we would be looking at Australia and

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Speaker 6: Southeast Asia. China continues to be a market that we

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Speaker 6: are interested in. It's a large economy, but it's still

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Speaker 6: i'd say a difficult market to underwrite through the kind

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Speaker 6: of current market volatility and particularly some of the policy

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Speaker 6: changes in geopolitics that we see, so it wouldn't be

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Speaker 6: one of our top priority markets in our strategy today.

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Speaker 4: How much of the trend are you seeing of that

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Speaker 4: sort of dialing back of US enthusiasm and how much

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Speaker 4: of that is being willingly reallocated to Asia.

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Speaker 6: I think there's a significant asset allocation shift happening in

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Speaker 6: the world. I think people are reassessing risk. In the US.

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Speaker 6: I think there's been there's been a lot of public

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Speaker 6: market and private market beta in America. There's been a

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Speaker 6: tremendous last ten year run of asset prices, and everybody's

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Speaker 6: made a lot of money doing that, and I think

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Speaker 6: that may.

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Speaker 2: Have run its course.

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Speaker 6: Is what people are assessing right now and looking for

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Speaker 6: sources of alpha. Where can you deliver returns independent of

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Speaker 6: what's happening in the public markets. And I think what

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Speaker 6: Asia offers people, and this is why there's an attraction

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Speaker 6: to the region, is structural alpha. You look at Japan

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Speaker 6: for example. Here there are just a lot of opportunities

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Speaker 6: here where we believe companies can be run more efficiently

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Speaker 6: and there's a lot more room to deliver better returns

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Speaker 6: and better outcomes that are being delivered today in the

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Speaker 6: public markets through this active ownership approach that private equity takes.

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Speaker 6: So I think this search for alpha, the search for

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Speaker 6: structural alpha, is really benefiting Asia because Asia has undermanaged assets.

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Speaker 6: We also have higher growth rates in the region, and

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Speaker 6: we also have what I would call less correlated liquidity

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Speaker 6: and markets. If you look at say public markets, you know,

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Speaker 6: one of the biggest IPOs happening right now is happening

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Speaker 6: in Hong Kong this week, in the next few weeks

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Speaker 6: with COATL, and you have a similar situation in India

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Speaker 6: where we have a lot of our investments also seeking

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Speaker 6: to go public there and finding grid liquidity in the

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Speaker 6: IPO markets there for our private equity investments. That's a

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Speaker 6: very different narrative, very different story than what you see

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Speaker 6: in the US, where the public markets have been a

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Speaker 6: little bit more challenging. So I think this idea of

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Speaker 6: diversification is really something that investors are starting to pay

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Speaker 6: attention to. It's not to say that people are not

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Speaker 6: going to be investing in the US. It's the biggest

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Speaker 6: and deepest market. It's going to continue to be a

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Speaker 6: very important part of investor allocations, but I think the

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Speaker 6: relative weightings are changing.

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Speaker 1: Is that why you're also really invested in Australia's software

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Speaker 1: sector as well. What do you like in Australia?

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Speaker 6: Yeah, I think Australia is a really interesting economy. It's

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Speaker 6: continued to grow for the last thirty years almost without interruption. Thematically,

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Speaker 6: we love the software sector in Australia. We've invested in

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Speaker 6: for software companies there in the last two years. There's

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Speaker 6: a lot of innovation there and many of the companies

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Speaker 6: that we find they are actually able to then become

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Speaker 6: global businesses and grow outside of the local market there

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Speaker 6: by moving into Europe or even the United States. So

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Speaker 6: I think that's one of the big themes there. Healthcare

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Speaker 6: is another big theme in Australia, even pet care. I

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Speaker 6: would say we bought a business, yes, that is a

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Speaker 6: great business, and we've just bought the largest veterinary services

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Speaker 6: practice in Australia last year. So it's a market that

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Speaker 6: we continue to stay active in. And we have both

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Speaker 6: a large cap fund and a mid market fund, and

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Speaker 6: i'd say in the mid market space it's even more

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Speaker 6: interesting because there's a lot of mid sized companies that

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Speaker 6: are really very rapidly growing and we see a lot

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Speaker 6: of innovation there and a lot of potential for growth.

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Speaker 1: It seems these days monetary policy sort of has fallen

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Speaker 1: to the background just because of everything that's happening with

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Speaker 1: trade negotiations. But when it comes to investing for the

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Speaker 1: long term and just raising funds, how much do the

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Speaker 1: divergent monetary policies across Asia matter?

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Speaker 6: I think at the end of the day, for what

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Speaker 6: we do, the changes in monetary policy on a year

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Speaker 6: to year basis or even currency fluctuations don't matter that much.

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Speaker 6: And what we're really looking at is earnings, growth and

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Speaker 6: the ability to drive value creation and the businesses that

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Speaker 6: we manage and that we invest in. So I think,

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Speaker 6: you know, we're trying to invest behind multi decade themes

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Speaker 6: in society, whether it's things like better healthcare, the emerging

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Speaker 6: middle class, areas like the move to the cloud, and

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Speaker 6: how there's more. For example, invested here in Japan in

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Speaker 6: a company called hr Brain, which is doing HR software,

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Speaker 6: but it's a cloud native company, so trying to gain

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Speaker 6: share from all of the traditional companies that are doing

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Speaker 6: client server based HR software solutions, which is still the

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Speaker 6: predominant form of doing business in Japan, but we think

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Speaker 6: things are changing, so trying to get behind these multi

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Speaker 6: decade trends early, finding great companies with great managers or

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Speaker 6: bringing in new management and then driving growth and driving change.

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Speaker 1: Son Eric Soaltter, really good to have you with us,

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Speaker 1: chairperson at eqt Asia, joining us here in the Tokyo studio.

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Speaker 7: Thanks for listening to today's episode of the Bloomberg Daybreak

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Speaker 7: Asia Edition podcast. Each weekday, we look at the story

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Speaker 7: shaping markets, finance, and geopolitics in the Asia Pacific. You

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Speaker 7: can find us on Apple, Spotify, the Bloomberg Podcast, YouTube channel,

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Speaker 7: or anywhere else you listen. Join us again tomorrow for

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Speaker 7: insight on the market moves from Hong Kong to Singapore

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Speaker 7: and Australia. I'm Doug Prisoner and this is Bloomberg