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Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. Welcome to the Bloomberg

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Speaker 1: Daybreak Asia Podcast. I'm Doug Chrisner. Certainly was a volatile

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Speaker 1: day in the US equity market given some conflicting news

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Speaker 1: on tariffs. We had shares jumping early on reports President

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Speaker 1: Trump was considering a pause for ninety days, but those

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Speaker 1: gains quickly evaporated when the White House said the remarks

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Speaker 1: were fake news. Then a renewed bout of selling occurred

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Speaker 1: when President Trump threatened to impose additional fifty percent import

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Speaker 1: levies on China. That's if Beijing does not withdraw its

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Speaker 1: planned retaliatory tariffs on US goods. Coming up on the program,

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Speaker 1: we'll hear from Ahmed Riesco. He is the CIO at Insignio.

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Speaker 1: But we begin this morning in Hong Kong. Joining us

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Speaker 1: now our friend Stephanie Leung, chief investment officer at Stashaway. Stephanie,

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Speaker 1: thank you for making time to chat with us. A

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Speaker 1: short while ago we heard from the Chinese government and

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Speaker 1: Beijing said it will fight to the end if the

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Speaker 1: US insists on these new tariffs. It sounds to me

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Speaker 1: like we're fully involved in a trade war.

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Speaker 2: I mean, indeed, if you look at kind of the

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Speaker 2: rhetoric of both sides, it has been I guess more

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Speaker 2: hawkish than what the market wish for. And I think

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Speaker 2: the I mean the market is I mean rightfully worry

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Speaker 2: about kind of the escalation of the trade war, and

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Speaker 2: particularly if you look at kind of how I guess

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Speaker 2: President She has responded so far, it seems like he

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Speaker 2: has kind of confidence that domestically, I mean, things are

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Speaker 2: going to be okay, such that it kind of fort

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Speaker 2: him to kind of be kind of more resilient towards

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Speaker 2: Trump's kind of tariff requests.

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Speaker 3: I mean, it's actually I think it's not.

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Speaker 2: The same case for other Asian Pacific countries. So for example,

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Speaker 2: if we look at Chinese neighbors like Japan, Career, even Taiwan,

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Speaker 2: I mean, they are uh sort of sending convoys to

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Speaker 2: the US to start negotiation. So I think from a

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Speaker 2: China perspective, yes, I mean they are kind of starting

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Speaker 2: from But I also questioned, I mean, how I guess

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Speaker 2: how much they can kind of I guess I afford

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Speaker 2: to sort of escalate this given all the neighbors seems

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Speaker 2: to be bowing to the US. Of course, I think

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Speaker 2: there's a lot of kind of considerations going on in

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Speaker 2: the Chinese administration's mind. Basically, how do you balance kind

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Speaker 2: of the national identity versus the economic concerns And that's

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Speaker 2: a fine line, and that's a fine kind of balance

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Speaker 2: they need to strike. I think the I mean, the

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Speaker 2: response have been fun, but they're not. I guess then

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Speaker 2: they're also trying not to escalate the trade war with Trump.

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Speaker 2: And if you look at kind of rem and bee,

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Speaker 2: that's the ultimate weapon that they can use.

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Speaker 3: And so far, I mean, they have refrained.

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Speaker 2: From touching it or kind of putting a firm stance

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Speaker 2: on it, because I think once they use the currency,

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Speaker 2: I mean, that would really set off a truth great war.

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Speaker 2: So far, it's is quite fun, but I think it's

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Speaker 2: also relatively quite measured.

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Speaker 1: It's hard to imagine that authorities in China were not

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Speaker 1: prepared for this. They've dealt with President Trump in the

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Speaker 1: past during his first administration. They understand his character. Does

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Speaker 1: this necessarily lead us to suspect that as China kind

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Speaker 1: of prepares to dig in and perhaps put up a fight,

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Speaker 1: that we're going to see much more in the way

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Speaker 1: of stimulus to keep the economy firing.

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Speaker 3: Yeah, I think already.

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Speaker 2: I mean, there are talks that China would actually front

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Speaker 2: low or kind of put forward some of the stimulus

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Speaker 2: they have already in place for the rest of the year.

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Speaker 2: And I mean, I think it is credible that they

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Speaker 2: can actually put.

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Speaker 3: Forwards on these stimulus.

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Speaker 2: I think the I mean, the Chinese doverment had anticipated

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Speaker 2: the I guess, the increase in tariffs, but I guess

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Speaker 2: what kind of maybe have caught them a little bit

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Speaker 2: by surprise is in the way these additional terriffs are

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Speaker 2: calculated and also kind of how how much I guess

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Speaker 2: in addition to sort of ten percent or like the

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Speaker 2: twenty percent that's already in place that the new terrrists

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Speaker 2: are imposing.

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Speaker 3: So I think that sort.

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Speaker 2: Of caught the Chinese authority is a bit off guard,

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Speaker 2: and I think they sort of a trying all the

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Speaker 2: different ways to mitigate these impacts in the worst case

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Speaker 2: that if Trump doesn't back out, the other kind of

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Speaker 2: oil branch that they can potentially offer to Trump, of

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Speaker 2: course is TikTok, and we've known that, and Trump has

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Speaker 2: been trying to make a deal for the past few months,

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Speaker 2: and he was actually very very close to getting a deal,

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Speaker 2: but of course I mean with all the trade terrorists

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Speaker 2: on that has been kind of put on hold by China.

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Speaker 2: So I mean, if I think we've seen this kind

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Speaker 2: of play out before in twenty eighteen, during the fourth quarter,

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Speaker 2: there was also a steep market soft of twenty percent,

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Speaker 2: and that was, of course, I'm partly because the fit

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Speaker 2: was actually quite hawkish, but also a lot of that

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Speaker 2: was due to the uncertainty between China and US when

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Speaker 2: they were actually fighting the previous trade war, so the

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Speaker 2: back then also there was also a lot of back

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Speaker 2: and forth. There was a lot of just I guess

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Speaker 2: progress and also undoing of those progresses, but it was

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Speaker 2: all coming down to just kind of discussions and negotiation tactics.

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Speaker 2: So again, a lot of things on the table, and

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Speaker 2: I think for sure we will be kept very busy

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Speaker 2: still for the next few weeks at least.

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Speaker 1: I was reading a piece in the Wall Street Journal

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Speaker 1: on Apple planning to send more iPhones to the US

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Speaker 1: from India rather than from China as a way of

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Speaker 1: offsetting the high cost of the tariffs. And I'm wondering

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Speaker 1: whether or not you expect other companies to follow suit

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Speaker 1: that Apple clearly will not be alone in this.

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Speaker 2: Yeah, I think, of course, in the short term it's

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Speaker 2: hard for companies to just kind of move the whole

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Speaker 2: supply chain overnight. But of course I think, I mean,

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Speaker 2: it makes sense for Apple to come out and sort

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Speaker 2: of you make these statements, and for other companies to

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Speaker 2: make these statements as well, because I think, what's the

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Speaker 2: I guess, the the the kind of implication from the

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Speaker 2: whole kind of trade ward it's I mean, even if

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Speaker 2: it ends, let's say in the next few weeks, is

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Speaker 2: that companies need to rethink again about the whole supply

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Speaker 2: chain right how dependent they are on China. And also,

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Speaker 2: I think the I guess the Trump administration is also

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Speaker 2: trying to get companies to invest back in the US

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Speaker 2: again by giving tax breaks and trying the regulation. So

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Speaker 2: I think that also prompts companies to rethink whether or

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Speaker 2: not they need kind of a more diversified supply chain

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Speaker 2: rather than just rely on China itself.

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Speaker 3: Now, I also spoke to.

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Speaker 2: I guess some of the businesses in Hong Kong, Hokore

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Speaker 2: Hong Kong businesses have a lot of investment in China,

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Speaker 2: for example, in terms of governments exports into US supplying

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Speaker 2: to names like Nike or lul lemon et cetera. And

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Speaker 2: I mean they said, I mean, yes, indeed, there has

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Speaker 2: been some kind of movements out of China into Vietnam

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Speaker 2: in the past few years, but I mean that has

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Speaker 2: been very, very slow, and you can't just change that

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Speaker 2: supply chain overnight, so there still will be impact. But

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Speaker 2: I think over time, yes, I think the supply Chaine

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Speaker 2: will will be more kind of diversified then.

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Speaker 1: Previously, before these tariffs were announced, it appeared as though

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Speaker 1: the recovery in China was beginning to kind to take hold.

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Speaker 1: I mean, the property market was beginning to firm, We

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Speaker 1: had the deep seek moment and a lot of interest

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Speaker 1: in high technology in China. Are you concerned that what

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Speaker 1: may evolve into a more intense trade war will really

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Speaker 1: have a detrimental impact on the recovery story in China

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Speaker 1: or do you think we talked a moment ago about

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Speaker 1: the fact that stimulus could be on the way. Do

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Speaker 1: you think China has the potential to absorb this shock

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Speaker 1: and not be rattled too much by it?

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Speaker 3: Yeah, I think, yeah, You're right.

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Speaker 2: In the past kind of two three months, we have

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Speaker 2: seen some green sheets from the China economy However, I

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Speaker 2: would say these are very very early green sheets. Right

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Speaker 2: when we look at data like inflation or CPI or

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Speaker 2: kind of property prices, I mean, they are still falling.

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Speaker 3: So I think China.

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Speaker 2: Was there are signs that things are stabilizing, but it's

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Speaker 2: not yet in full recovery mold, so China's kind of

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Speaker 2: cyclical economical state. It's still fairly weak. I would say, Now,

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Speaker 2: of course, we had the deep seek moment, and I

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Speaker 2: think that kind of wakes up, like the whole investing

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Speaker 2: world to the fact that oh Ai is not just

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Speaker 2: a US story but also a China story. And I

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Speaker 2: think that, combined with low valuation, low investor positioning, meant

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Speaker 2: that Chinese equities, which are kind of thirty forty percent tech,

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Speaker 2: had a pretty good rally in the first quarter of

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Speaker 2: the year. And I think but I think that, I mean,

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Speaker 2: that doesn't speak about the kind of the real economy. Right.

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Speaker 2: The real economy, although it's not kind of going through

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Speaker 2: a systemic crisis.

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Speaker 3: Is not strong.

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Speaker 2: So export still makes up kind of one third of

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Speaker 2: Chinese economy and it's still very very.

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Speaker 3: Important for China.

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Speaker 2: So I do think that if these tariffs are to stay,

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Speaker 2: then I mean the Chinese will have to do like

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Speaker 2: combination of things, sorry for example, to push out larger

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Speaker 2: scare stimulus, and I think perhaps combined with that use

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Speaker 2: currency as one of the tools to stimulate the economy.

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Speaker 2: Now there are I think non I guess important also

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Speaker 2: consequences from using these tools. So I think the Chinese

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Speaker 2: authorities would be actually quite careful about thinking about like

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Speaker 2: doing a big scale stimulus and also big scale kind

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Speaker 2: of courtesy devaluation.

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Speaker 1: Stephanie will leave it there, Thank you so much for

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Speaker 1: joining us. She is definitely Leung, chief investment officer at Stashaway,

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Speaker 1: joining from Hong Kong. Here on the Daybreak Asia podcast.

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Speaker 1: Welcome back to the Daybreak Asia podcast. I'm Doug Chrisner.

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Speaker 1: There was no shortage of volatility today in the treasury market.

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Speaker 1: I think it's fair to say that in the last

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Speaker 1: several sessions treasuries have been the big beneficiary of haven

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Speaker 1: buying given a lot of the turbulence that we have

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Speaker 1: seen in the stock market. Not so today. Treasuries were

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Speaker 1: sold in what may have been somewhat of a liquidation

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Speaker 1: to raise cash to cover the losses in the stock market,

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Speaker 1: and in turn those lower treasury prices produced higher yields

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Speaker 1: right across the curve. At the long end, we had

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Speaker 1: the ten year up about eighteen basis points, last quoted

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Speaker 1: in New York at around four point one point eight percent.

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Speaker 1: Joining me now is Ahmed Riesco. He is the chief

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Speaker 1: investment officer at Insignio Securities. Ahmed is based in Miami. Ahmed,

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Speaker 1: it's always a pleasure to have a chance to benefit

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Speaker 1: from your perspective. I'd like to begin by getting your

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Speaker 1: sense of what we are seeing play out in the

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Speaker 1: bond market today.

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Speaker 4: So obviously tumultual's day, but listen, the Trump administration has

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Speaker 4: actually been signaling to us that they're not really looking

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Speaker 4: at stocks. They're actually focused on the ten year and

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Speaker 4: long duration bonds and they want them lower. Since January,

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Speaker 4: the ten year bond peaked at around four point eight

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Speaker 4: and it hit just below four on Friday at the close.

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Speaker 4: So it's been a very strong moved up in priced

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Speaker 4: down in yield for the tenure. I think this is

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Speaker 4: moving in the direction that Trump and his administration wants

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Speaker 4: it to. I think what you saw today is a

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Speaker 4: little bit of an unwinding of what was a very

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Speaker 4: strong moved down in yields, and that potentially came on

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Speaker 4: the back of some reassessments of how much the Fed

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Speaker 4: was going to actually be able to cut. At one

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Speaker 4: point at the end of last week, when things got

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Speaker 4: very uncertain, about five to six cuts were being priced in.

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Speaker 4: That pulled back a little bit. Today we're only having

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Speaker 4: about four more cuts priced into the year, and that

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Speaker 4: potentially is what drove these yields a bit higher today.

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Speaker 1: I think that's right. I mean, and if you look

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Speaker 1: at the swaps market pricing in about ninety six bass

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Speaker 1: points of easing for the year, are you expecting these

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Speaker 1: new tariffs to contribute to a much higher rate of inflation?

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Speaker 4: I do? I think you know. Well, let's prefaces were saying,

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Speaker 4: it depends how long these tariffs actually stay on, right,

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Speaker 4: So I think a lot of that view depends on

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Speaker 4: whether you think these are permanent here to stay negotiating

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Speaker 4: to or some combination of the two, which I think

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Speaker 4: is most likely to be the case. This will have

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Speaker 4: a one time impact on inflation, so you'll start seeing

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Speaker 4: these inflationary numbers start coming in in the next couple

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Speaker 4: of months. What the Fed does with it, though, is

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Speaker 4: what matters, because Traditionally, the FED will look through a

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Speaker 4: shock like this and kind of ignore it. However, if

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Speaker 4: they think we're spiraling into a tit for trade war

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Speaker 4: with potentially higher and higher tariffs coming down the line,

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Speaker 4: which by the way, not our base case, but I'm

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Speaker 4: just saying what the point of view from the FED

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Speaker 4: might be, then they could potentially pause. But I don't

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Speaker 4: think that's the case. I definitely think we will see

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Speaker 4: rate cuts from the Fed this year.

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Speaker 1: In terms of whether or not we're embarking on a recession,

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Speaker 1: I mean to the point that you raised earlier. It

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Speaker 1: depends on how long the tariff policy remains in place.

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Speaker 1: But if you had to bet today, I mean, are

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Speaker 1: we flirting with a recession?

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Speaker 4: Ohslutely we are. We have a recessionaire indicator. That number

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Speaker 4: was sitting at around fifteen percent in February. You saw

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Speaker 4: the unemployment number last week. It was a good number.

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Speaker 4: The US economy is in a good spot. However, policy

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Speaker 4: uncertainty has gone so high so quickly here that these

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Speaker 4: recession probabilities now sit north of fifty percent. They're actually

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Speaker 4: sitting around fifty five percent in our model. So a

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Speaker 4: recession is now a base case for US, although we

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Speaker 4: don't have a high conviction on that because we're just

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Speaker 4: sitting at fifty five percent.

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Speaker 1: So I'm imagining that's what you're describing here for the US, right,

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Speaker 1: And the question becomes whether or not those recessionary forces

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Speaker 1: begin to permeate the global economy.

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Speaker 4: Yeah, I think a lot of that is going to

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Speaker 4: depend on what the severity of the US recession could

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Speaker 4: potentially be. If it's a mild one, we could see

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Speaker 4: some parts of the global economy escape. They will all

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Speaker 4: take a growth hit, a leg down, but whether they

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Speaker 4: go into outright constructure or not as another story, however,

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Speaker 4: if we do get a much more severe recession than

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Speaker 4: what we would expect, then that will probably drag down

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Speaker 4: the entire global economy with it.

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Speaker 1: In a current environment, do you become defensive? Do you

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Speaker 1: go into different aspects of the fixed income space? Are

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Speaker 1: you looking at corporate bonds right now of really high

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Speaker 1: credit quality? Are you looking at sovereign debt maybe not

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Speaker 1: just in the US but other places around the world.

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Speaker 4: Not quite yet. What we've told people is that if

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Speaker 4: they haven't de risked already, now is not the time

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Speaker 4: to do so. This is where investors actually do get

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Speaker 4: into trouble because they end up chasing their tails, and

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Speaker 4: they're chasing moves that already happen. Now, we could still

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Speaker 4: see some further downdraft in risk assets, equities, you know,

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Speaker 4: spread products, high yield, investment grade. Even we think the

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Speaker 4: time will will will pop up. I think I could

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Speaker 4: foresee that happen in the next couple of weeks or so.

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Speaker 4: But a lot of this, Remember, this is policy induced,

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Speaker 4: so policy can quickly change this on a debt you

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Speaker 4: saw today, as soon as that announcement came out that

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Speaker 4: there was potentially a ninety day stall in the implementation

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Speaker 4: of the tariffs, the market did a one eighty and

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Speaker 4: then when the White House does avowed it, it went

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Speaker 4: back down. So that is proof that this is policy induce.

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Speaker 4: It's policy driven, so policy can undo it rather quickly.

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Speaker 1: Is it impossible to know right now as to whether

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Speaker 1: or not there are problems with the plumbing. Is the

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Speaker 1: financial system working well? Is there been enough order in

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Speaker 1: the way that the market has been behaving not to

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Speaker 1: become concerned that this policy crises may spill into a

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Speaker 1: financial crisis.

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Speaker 4: Yes, so, so far, so good. We have not had

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Speaker 4: any indications that the financial plumbing, like you said, is

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Speaker 4: clogged up and would require some emergency moves from the FED.

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Speaker 4: But if any of that were to pop up, it

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Speaker 4: is our expectation of the FED would step in right

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Speaker 4: away because on the good end here, long term inflation expectations,

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Speaker 4: market based inflation expectations have not gone up. In fact,

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Speaker 4: they've been drifting lower towards the two year target of

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Speaker 4: the FED. I'm talking about five and ten years out,

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Speaker 4: so that gives FED room to cut rates if they

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Speaker 4: have to, and if they must in case of a

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Speaker 4: financial crisis.

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Speaker 1: Where are you seeing opportunity right now in global markets?

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Speaker 3: Well, right now.

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Speaker 4: The only places that we like in order to sort

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Speaker 4: of make moves right now long duration and develop market

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Speaker 4: currencies like the yen, the Swiss franc, British pound, sterling,

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Speaker 4: and euro. We're still not ready to dive into risk

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Speaker 4: adsets yet. I think discretion is a better part of valor.

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Speaker 4: I think there will be opportunities if our base case

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Speaker 4: comes true to nibble at some of these things a

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Speaker 4: bit lower from here, but we don't think we're quite

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Speaker 4: there yet because if we do go even into a

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Speaker 4: mild recession, I would expect another seven to ten percent

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Speaker 4: draw down in US equity markets from today's closing levels.

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Speaker 1: So is that what you're waiting for as the buy signal,

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Speaker 1: another pullback of that magnitude, or is there something else

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Speaker 1: from which you are deriving signal.

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Speaker 3: Yeah.

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Speaker 4: Look, typically with no other information in hand, if we

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Speaker 4: see a broad market like the SMP down twenty five percent,

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Speaker 4: we'll start We'll start buying because that's typically that's the

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Speaker 4: medium drawdown of the index in any kind of recession,

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Speaker 4: which means at that price it's already baked in. It's

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Speaker 4: in the price. So at that point we would really

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Speaker 4: like to take on risks. If the market were to

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Speaker 4: fall even further, then we become really aggressive buyers of it.

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Speaker 1: So give me a sense of timeline here, I mean,

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Speaker 1: how do you expect the remainder of the year to

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Speaker 1: play out? Or is it simply too difficult to know?

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Speaker 1: I mean, you can speculate in the fact that maybe

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Speaker 1: Trump is using the strategy as a way of getting

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Speaker 1: other countries to the negotiating table and perhaps by mid

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Speaker 1: year we have some new trade agreements. Is that a

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Speaker 1: fair assumption to make or do you not want to

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Speaker 1: place that bad at all?

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Speaker 4: Well, that's a very plausible assumption. In fact, I think

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Speaker 4: it's the most likely one. However, in this environment, you

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Speaker 4: have to be very cautious with any sort of forecast

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Speaker 4: or convictions that you might have. Any conviction you have

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Speaker 4: should be very low conviction, and you have to keep

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Speaker 4: your eyes wide open and expect new information to update

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Speaker 4: your probabilities. This is all about basing probability, updating as

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Speaker 4: new information comes in. If this were to start escalating

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Speaker 4: in the wrong direction, then you have to act accordingly

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Speaker 4: and just pull further back from the sideline.

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Speaker 1: Ahmed, thank you so much for making time to chat

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Speaker 1: with us. He is Ahmed Riesco, the Chief investment Officer

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Speaker 1: at Insignio Securities. Ahmed based in Miami. Joining us today

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Speaker 1: on the Daybreak Asia podcast. Thanks for listening to today's

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Speaker 1: episode of the Bloomberg Daybreak Asia Edition podcast. Each weekday,

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Speaker 1: we look at the story shaping markets, finance, and geopolitics

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Speaker 1: in the Asia Pacific. You can find us on Apple, Spotify,

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Speaker 1: the Bloomberg Podcast YouTube channel, or anywhere else you listen.

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Speaker 1: Join us again tomorrow for insight on the market moves

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Speaker 1: from Hong Kong to Singapore and Australia. I'm Doug Chrisner

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Speaker 1: and this is Bloomberg.

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Speaker 3: How can you live