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

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

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Speaker 2: The tariff inspired turmoil and financial markets is enduring. Certainly.

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Speaker 2: Over the weekend, the Trump administration indicated those sweeping US

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Speaker 2: tariffs would be kept in place. Coming up, we'll be

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Speaker 2: talking with Adam Coons. He is the CIO at Winthrop

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Speaker 2: Capital Management. But we begin this morning in the Asia Pacific, where,

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Speaker 2: despite the holiday in China last Friday, the government did

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Speaker 2: announce retaliatory measures against all US imports. Tariffs were imposed

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Speaker 2: at a rate of thirty four percent, and they will

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Speaker 2: take effect as of April tenth. Joining me now is

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Speaker 2: Helen Jude, chief Investment Officer, also managing partner at NF Trinity.

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Speaker 2: Helen joins us from our studios in Hong Kong. It's

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Speaker 2: always a pleasure, Helen. Thank you so much for taking

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Speaker 2: the time to chat with us. How surprised were you

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Speaker 2: by the move from the Chinese government last Friday.

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Speaker 3: I think it was always with an expectations that there

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Speaker 3: would be some degree of retaliation. The exact magnitude, I

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Speaker 3: think was somewhat of a hawkish surprise. Very similar to

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Speaker 3: what had happened the day before on Liberation Day, when

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Speaker 3: everybody was expecting tariffs to come in for sure, but

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Speaker 3: the magnitude and extent of it was certainly more hawkish

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Speaker 3: than expected as well.

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Speaker 2: So let's get away from the macro for just a

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Speaker 2: moment and talk a little bit about what you're seeing

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Speaker 2: within the market right now. I'm curious about the extent

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Speaker 2: to which this price action is revealing a level of leverage,

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Speaker 2: maybe that we didn't really realize before. So you've taken

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Speaker 2: a position, let's say, using a little bit of margin,

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Speaker 2: the market goes against you. Uh oh, that weakness forces

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Speaker 2: you to either add to the position or to liquidate.

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Speaker 2: Is that a little bit of what's going on.

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Speaker 3: I think that's part of it, but that's certainly not

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Speaker 3: all of it. For example, if you actually look at

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Speaker 3: retail participation in the US, that's been very important in

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Speaker 3: terms of supporting the broader market. People generally buying on

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Speaker 3: dips very you know, consistently, and a lot of that

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Speaker 3: is not necessarily on leverage. It could just be cash,

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Speaker 3: but the positioning was very concentrated. As in US, exceptionalism

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Speaker 3: had rolled for a very long time, and people had

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Speaker 3: no interest in diversifying into fixed income and diversifying into

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Speaker 3: non US markets or holding you know, other hedges. So

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Speaker 3: I think that the unwinding of that, with the loss

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Speaker 3: of confidence, you know, starting Friday, I think that's actually

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Speaker 3: what's been the key driver for the major onwine that

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Speaker 3: we saw.

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Speaker 2: So are you seeing order in these declines or are

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Speaker 2: you seeing maybe a level of stress that would be

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Speaker 2: concerning either to a central banker or a financial regulator,

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Speaker 2: something that might imply a bit of financial instability.

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Speaker 3: Certainly, the magnitude of the market drops has been and

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Speaker 3: you know, a kein to COVID or GFC, So that's

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Speaker 3: certainly a sign of financial instability, but it's not necessarily

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Speaker 3: systematic risk in the equities markets. It's you know, we

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Speaker 3: have to look more at the fixingcome markets, which is

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Speaker 3: far more important. From that record. Now, credit spreads have

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Speaker 3: really blown out over the last week, but on an

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Speaker 3: absolute basis, they're not at you know, COVID levels or

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Speaker 3: GFC levels. I think that's what we have to watch

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Speaker 3: very very closely. But you know, if I was the FED,

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Speaker 3: I would be thinking, gosh, even if I drop rates

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Speaker 3: by fifty basis points, I'm not resolving the trade issue.

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Speaker 3: In fact, you know, if interest rates were lower and

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Speaker 3: market stabilized for a few days, that might actually delay

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Speaker 3: any potential negotiations on the trade issue. So I would

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Speaker 3: think that the FED would not want to be taking

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Speaker 3: on the sole responsibility for stabilizing the markets when they're

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Speaker 3: not the root cause of the market disarray.

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Speaker 2: And in fact, the terriff situation may and gender a

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Speaker 2: bit of inflation that would be troubling for the FED.

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Speaker 2: Would you expect these tariffs to produce a higher level

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Speaker 2: of inflation.

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Speaker 3: They will, but I think it's a little bit different

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Speaker 3: from what you would expect. First of all, it's mainly

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Speaker 3: on goods, and historically the sticky inflation of the US

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Speaker 3: or the past year or so has really been on services,

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Speaker 3: which tariffs doesn't necessarily affect. And then the second thing

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Speaker 3: is that you've got to think about the fact that

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Speaker 3: these tariffs are going to be a one off impact

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Speaker 3: on inflation and not necessarily sustaining over the medium to

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Speaker 3: longer term if the teriff rate remains stable as a

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Speaker 3: base effect resets. So I think maybe higher inflation will

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Speaker 3: be one consideration for the FED, But you know, hiking

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Speaker 3: rates meaningfully is not going to be a solution to

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Speaker 3: fixing the tariffs, and therefore, you know, you should probably

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Speaker 3: rethink the normal logic that hiking rates can fix inflation.

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Speaker 2: Over the weekend, the Trump administration indicated that it had

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Speaker 2: heard from no fewer than fifty countries trying and to

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Speaker 2: negotiate new trade agreement. Is this part of the process

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Speaker 2: right now that tariffs are in and of themselves kind

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Speaker 2: of a bargaining chip, or is this something that is

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Speaker 2: maybe a little bit more concerning in that, you know,

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Speaker 2: if this is a line in the sand that has

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Speaker 2: been drawn and that President Trump is adamant about taking

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Speaker 2: this position to try to reduce trade deficits, that these

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Speaker 2: tariffs may be with us for a while longer.

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Speaker 3: I think tariffs will be with us a well longer,

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Speaker 3: but that different countries will have different negotiations and different situations.

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Speaker 3: You know. Scott Besson in the interview with Tucker Carlson

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Speaker 3: over the weekend, he said, you know, tariffs are in

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Speaker 3: for this reason and for that reason, but he also

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Speaker 3: said that tariffs are a tool for negotiation. So I

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Speaker 3: think that is the reality. But you know, if fifty

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Speaker 3: parties contacted them for negotiation. I think we'll get fifty

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Speaker 3: different outcomes.

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Speaker 2: How are you viewing the macro right now in China?

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Speaker 2: Given everything that we've been talking about.

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Speaker 3: I think things were starting to head in the right direction.

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Speaker 3: Infrastructure investment and local governments were starting to stabilize. We

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Speaker 3: saw that the property sector had gone from a huge

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Speaker 3: drag in terms of both volume and price to you know,

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Speaker 3: price somewhat stabilizing or even starting to pick up in

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Speaker 3: some top tier cities. And then we saw that consumption.

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Speaker 3: You know, it's still not stellar, but it's not getting

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Speaker 3: worse either, And actually the government has been more focused

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Speaker 3: in terms of their efforts to try to stimulate and

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Speaker 3: support consumption. So it was starting to come around the

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Speaker 3: corner until this, but you know, this was somewhat expected

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Speaker 3: as well, although worse versus the base case expectation on

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Speaker 3: the tariffs, and I think the policy makers will have

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Speaker 3: their own policy response to it, probably focusing more on

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Speaker 3: domestic facing parts of the economy.

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Speaker 2: What have you been hearing from clients generally?

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Speaker 3: I think the market is panicking. I think that most

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Speaker 3: people initially tried to be somewhat rational, you know, switching

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Speaker 3: into defensives and you know, switching into fixed income and

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Speaker 3: so on and so forth. But then I think very

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Speaker 3: quickly people fell like they needed to sell and they

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Speaker 3: needed to get out for some of the reasons that

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Speaker 3: we've discussed, because this whole thing might last longer than

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Speaker 3: originally anticipated. So that's what we've actually seen in the

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Speaker 3: last couple of days. That's what we're seeing today. I

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Speaker 3: actually personally think that the more you know, disorderly it

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Speaker 3: is for two or three or four days, the more

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Speaker 3: it's going to force the administration's hand in terms of

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Speaker 3: coming out and saying something to stabilize market expectations. So

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Speaker 3: bad is good to some extent.

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Speaker 2: So now give me a strategy that you think would

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Speaker 2: be worthwhile over the next six to nine months based

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Speaker 2: on everything that you think you understand right now.

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Speaker 3: Well, the faster the market drops and the more disorderly

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Speaker 3: it is, the more interesting it is to jump in

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Speaker 3: and start to buy some If actually things stabilize, you know, immediately,

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Speaker 3: with valuation still above the historical median, with earnings expectations

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Speaker 3: not yet revised down, then it's probably not interesting yet.

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Speaker 3: I would say that the terriffs are imposed on a

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Speaker 3: country basis, and each country will have its own deal.

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Speaker 3: I think the countries that are US allies and countries

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Speaker 3: that are manufacturing substitutes for China are likely to negotiate

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Speaker 3: first and get the better deals, and whether their deals

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Speaker 3: are affirmed up, then those particular markets will outperform others.

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Speaker 3: So I think that's where some of the capital is

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Speaker 3: going to flow. And that's what I would use as

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Speaker 3: a general guideline for thinking about it. And if some

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Speaker 3: of those countries get out of it, then the country

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Speaker 3: the sectors like let's say, you know, US apparels that

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Speaker 3: rely on the manufacturing and shipments from you know, countries

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Speaker 3: like Vietnam, Cambodia and the rest of Asia. You know,

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Speaker 3: then those companies could potentially rebound as well. Because currently

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Speaker 3: right now people are just thinking recession hits demand and

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Speaker 3: tariffs hits margins, and it's you know, it's basically getting

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Speaker 3: squeeze between a rock and a hard place. So if

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Speaker 3: you can have some resolution on their sourcing markets as well,

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Speaker 3: that will benefit those types of sectors.

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Speaker 2: Also, one of the big themes in China so far

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Speaker 2: this year has been high technology, particularly as it relates

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Speaker 2: to artificial intelligence. We know about the deep seek moment

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Speaker 2: is that theme still intact right now, or is the

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Speaker 2: stress that we're seeing right now in markets kind of

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Speaker 2: threatening that in any way.

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Speaker 3: I think China high tech has been up and coming

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Speaker 3: for quite some time and there will certainly be meaningful breakthroughs,

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Speaker 3: But the extent of the trade and related geopolitical tensions

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Speaker 3: is actually negative for China tech, largely because one, it

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Speaker 3: increases the chances of the US cutting off the supply

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Speaker 3: of you know, Nvidia chips to China as well as

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Speaker 3: the stuff that's actually you know, getting into China from

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Speaker 3: other markets that Nvidia and others ship to. Secondly, looking forward,

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Speaker 3: there is greater risk of future policy changes on containing

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Speaker 3: China's AI you know, improvements and and innovation, for example,

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Speaker 3: probably stopping some of the Chinese models from training overseas

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Speaker 3: for example, you know, potentially cutting off equipment exports the China,

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Speaker 3: not just chip exports. There are a variety of other

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Speaker 3: things that could potentially happen if tensions should further intensify

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Speaker 3: that are specifically a threat to China's high tech industry.

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Speaker 3: So that's something that you know, one needs the balance

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Speaker 3: and think about as well.

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Speaker 2: Ellen will leave it there. Thank you so much, helenge

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Speaker 2: you Chief Investment Officer also managing partner at NF Trinity.

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Speaker 2: Joining us here on the Daybreak Asia podcast. Welcome back

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Speaker 2: to the Daybreak Asia Podcast. I'm Doug Krisner. We are

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Speaker 2: seeing dramatic moves in financial markets at this hour as

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Speaker 2: risk assets are being sold. Much of this is tied

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Speaker 2: to Beijing's announcement last Friday of retaliatory measures of tariffs

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Speaker 2: on US imports a rate of thirty four percent as

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Speaker 2: of April tenth. Now, this announcement came despite to holiday

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Speaker 2: in China. Stateside, we had the S and P five

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Speaker 2: hundred dropping six percent to its lowest level in eleven months,

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Speaker 2: and over the prior to trading days in the US,

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Speaker 2: the S and P has lost five point four trillion

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Speaker 2: dollars in market value. For a bit of perspective, I'm

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Speaker 2: joined now by Adam Koons. He is the co CIO

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Speaker 2: at Winthrop Capital Management. Adam, the big question right now

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Speaker 2: seems to be how much more downside we will see

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Speaker 2: in markets? And I'm curious as to what you're prepared

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Speaker 2: for in the Monday session. How bad do you think

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Speaker 2: it will get?

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Speaker 1: Well?

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Speaker 4: I mean, yeah, Monday session is going to be another

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Speaker 4: blood bath. Per se if you look at the future

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Speaker 4: is and probably just the kind of concrete nature that

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Speaker 4: it seems that the Trump administration's taking with these tariffs.

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Speaker 1: It frankly, the market's got it wrong.

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Speaker 4: I think the market was trying to anticipate that the

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Speaker 4: Trump administration would come with a heavy handed narrative around

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Speaker 4: the tariffs and then would back off. And it seems

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Speaker 4: quite clear that they're going full tilt into this, you know,

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Speaker 4: increased tariff regime, and for right now, the base case

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Speaker 4: should be they're not going to back off.

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Speaker 2: So if there is a level of market stress that

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Speaker 2: were to develop that might alarm the FED, do you

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Speaker 2: have a sense of what that might be. What is

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Speaker 2: a key pressure point that you would be looking at?

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Speaker 4: Well, I think for the FED, I mean obviously a

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Speaker 4: lot of participants look at equity markets, but when it

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Speaker 4: comes to the FED, I think what they're really looking

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Speaker 4: at or credit spreads, and I think, you know, one

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Speaker 4: of the bigger stories for me is that, you know,

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Speaker 4: if you look at high yield spreads, levered loans, those

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Speaker 4: kind of things, spreads on in those markets have gapped

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Speaker 4: out almost two hundred basis points.

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Speaker 1: If you look at high yield index.

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Speaker 4: It was trading below three hundred and spread and now

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Speaker 4: is approaching five hundred. So that, I think is what

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Speaker 4: the Fed's going to be looking at more than anything.

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Speaker 4: Our credit markets deteriorating. Are they shutting down? Are you refinance?

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Speaker 4: Is going to be an issue because that's really where

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Speaker 4: the FED would have to start stepping in. If we

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Speaker 4: started to see the credit markets deteriorating, that's where we

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Speaker 4: start to see this unwind.

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Speaker 2: I mentioned a tweet that happened on Sunday from Bill

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Speaker 2: Ackman over at Pershing Square, and he suggested that if

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Speaker 2: by Monday there isn't an announcement on some sort of

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Speaker 2: pause with respect to these coming tariffs, our recession will

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Speaker 2: rapidly become the base case for the equity market. It

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Speaker 2: seems like we're already there, does it not.

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Speaker 4: Well, that's what the equity markets already pressed in undoubtedly,

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Speaker 4: So I agree it's too late for that per se.

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Speaker 4: I think the question is, you know, a recession can

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Speaker 4: come simply on the perception that things are bad, and

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Speaker 4: if consumers just cut back because they're just uncertain, that

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Speaker 4: in itself would create the recession. So that seems to

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Speaker 4: be what the equity markets are starting to you know,

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Speaker 4: fully price in. It could be that we start pricing

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Speaker 4: in a a very harsh recession. So there still is

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Speaker 4: the downside potential of the equity markets if we start

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Speaker 4: to see you know, further deterioration in the consumer and

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Speaker 4: their behavior, if it rapidly, you know, kind of deteriorates.

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Speaker 4: Makes it simply based off of narratives, because right now

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Speaker 4: fundamentals haven't really changed. This is all based off of

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Speaker 4: what could happen and how it might affect the economy.

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Speaker 1: But as we know, that's how we act as humans.

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Speaker 4: We react based off of what we think is going

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Speaker 4: to happen, and so that right now, I think for

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Speaker 4: us that is the base case, is that we're moving

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Speaker 4: towards that. I don't think it doesn't really matter what

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Speaker 4: the administration comes out on Monday. It says, I think

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Speaker 4: enough damage is already done.

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Speaker 2: At what point do risk assets become a bargain? Though,

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Speaker 2: given the weakness that we have seen and imagining that

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Speaker 2: we're going to see much more in the regular session Monday,

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Speaker 2: is it possible that in near term there is going

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Speaker 2: to be some sort of buying opportunity.

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Speaker 4: Yeah, I think it's already approaching it obviously depends on

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Speaker 4: how you entered the market this year. If you were

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Speaker 4: kind of like us, we had already shifted towards more

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Speaker 4: defensive stance. We were fully invested, but it was, like

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Speaker 4: I said, it did have a defensive tilt and that

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Speaker 4: has helped us whether this to a degree, but more importantly,

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Speaker 4: it has given us a little bit of dry powder

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Speaker 4: to add to names like Navidia, because we were quite

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Speaker 4: underweighted that name, and so by no means are we

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Speaker 4: neutral yet, but we're moving incrementally towards that as we

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Speaker 4: see these kind of drops.

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Speaker 1: So I think if you do have dry powder, you're

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Speaker 1: not going to pick the bottom.

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Speaker 4: And so you you know, you should still believe in

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Speaker 4: your investment strategy those companies that you think are great

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Speaker 4: companies and you know, are cash flow generators, like I said,

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Speaker 4: like a Navidia, like a Google alphabet, Microsoft. With these

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Speaker 4: kind of drops, I think you should be incrementally adding,

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Speaker 4: like I said, because you're not going to guess the bottom.

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Speaker 4: And this is going to be one of those markets

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Speaker 4: where it's going to be very news driven and you

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Speaker 4: don't know what the next headline is going to be.

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Speaker 1: So we could see a further drop.

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Speaker 4: But I think if you do like I said, if

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Speaker 4: you have dry powder, you should be putting into work

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Speaker 4: incrementally right now.

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Speaker 2: So last Friday we heard from FED share J. Powell.

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Speaker 2: He seemed to suggest that the damage of this trade

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Speaker 2: war is going to be a lot greater than anticipated.

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Speaker 2: Tonight here in New York, we heard from Bob Michael,

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Speaker 2: the global head of fixed income at JP Morgan Asset Management.

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Speaker 2: He thinks the FED should step in right now given

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Speaker 2: a lot of the stress that we're seeing in markets.

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Speaker 2: But if you listen to what Powell is saying, yes,

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Speaker 2: growth probably will weaken as a result of what we're

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Speaker 2: seeing right now in terms of kind of sentiment more

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Speaker 2: than anything else at this point, before that soft data

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Speaker 2: becomes hard data. But the inflationary impact of these tariffs

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Speaker 2: would be even more troubling to the FED, would they not.

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Speaker 4: Yeah, So I think that that's why the Fed's in

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Speaker 4: a tough spot and why I don't really see how

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Speaker 4: how easing monetary policy solves the current issue. Right So,

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Speaker 4: what are lower interest rates going to do for higher

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Speaker 4: import costs? They're not going to really do anything, so

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Speaker 4: potentially make it worse because you can borrow.

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Speaker 1: More to buy those more expensive goods.

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Speaker 4: So I think in the near term, yeah, I think

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Speaker 4: the Fed's a little bit stuck and it's going to

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Speaker 4: have to kind of wade.

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Speaker 1: Through this.

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Speaker 4: Because the reality is the you know, the solve for

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Speaker 4: high prices or high prices, and so likely what will happen.

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Speaker 4: I think what the market's really seeing and pricing in

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Speaker 4: here is that these higher costs due to the tariffs,

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Speaker 4: they're not just going to increase inflation long term. You

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Speaker 4: might see a short term blip, but all they're going

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Speaker 4: to do is choke off the economy and then you're

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Speaker 4: going to see a demand decline.

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Speaker 1: So that's when the FED would need to step in.

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Speaker 4: I think it's too soon right now, just like you

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Speaker 4: said to because of the inflationary fears. Eventually, the increase

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Speaker 4: in flo that's caused by tariffs will end up leading

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Speaker 4: to a more disinflationary period and that's when the FED

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Speaker 4: should step in.

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Speaker 2: So that ten percent baseline tariffy on all US imports

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Speaker 2: went into effect on Saturday, and I was given some

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Speaker 2: news from the Port of Long Beach, California. The port

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Speaker 2: is now projecting import volumes this week will drop by

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Speaker 2: around fifteen percent. But if you have to put money

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Speaker 2: to work right now, given everything that we're describing in

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Speaker 2: the macro, what do you do? Do you seek the

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Speaker 2: safety of US treasuries and call it today? Are there

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Speaker 2: opportunities you mentioned in Nvidia. I'm curious as to whether

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Speaker 2: you're seeing anything else in the equity tape.

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Speaker 1: Yeah.

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Speaker 4: I think when you look at the equities, you've got

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Speaker 4: to look at what's hit the hardest but still has

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Speaker 4: you know, a fundamental, fundamentally sound business model. And so

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Speaker 4: when you look exaid, I still like your high quality

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Speaker 4: tech names. I think you want to stay away from

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Speaker 4: the low quality names right now. I don't think you

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Speaker 4: want to chase uh, you know, companies that are just

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Speaker 4: all about uh, you know, earnings growth or revenue growth.

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Speaker 4: I think you want the companies that the business model

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Speaker 4: is fairly sound.

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Speaker 1: Your large cap domestic.

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Speaker 4: Names that maybe aren't as I don't have all the

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Speaker 4: sizzle that you might have in some smaller names. That's

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Speaker 4: where you want to stay because, like I said, we

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Speaker 4: don't have a crystal ball and you shouldn't be investing

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Speaker 4: that way.

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Speaker 1: So there could be more pain here. But you want

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Speaker 1: to own companies that you think can.

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Speaker 4: Overall weather this storm and then on the other side

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Speaker 4: of it will outperform. So yeah, I think, like I said,

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Speaker 4: looking at large cap tech in the healthcare space, we

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Speaker 4: still like some names like Lily. Those really have weathered

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Speaker 4: this fairly well. But still with the dips that we're seeing,

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Speaker 4: and you know, names like am gin.

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Speaker 1: Uh and and Lily will put money to work there.

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Speaker 4: Outside of that, you know, when you're looking at Amazon

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Speaker 4: or some of the consumer consumer discretionary names, those are

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Speaker 4: obviously very very hard.

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Speaker 1: So looking at names like VF Corp.

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Speaker 4: That were down what nearly fifty percent in just the

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Speaker 4: last two days, so there is value there. Those companies

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Speaker 4: just didn't change overnight. There's a you know, a great

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Speaker 4: cloud over them right now. But as we kind of

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Speaker 4: emerge from this at some point, which we will, those

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Speaker 4: companies will prosper again.

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Speaker 2: And I'm wondering if you want to avoid companies like

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Speaker 2: Apple and Tesla that have huge exposure to the Chinese market.

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Speaker 1: Yeah, and that's that is where we're focusing.

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Speaker 4: Is we're really doing that analysis to determine, Okay, if

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Speaker 4: this persists, not only who is most exposed to China,

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Speaker 4: but where the manufacturing shift if you did have to

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Speaker 4: shift to back to the US would take a long time.

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Speaker 4: And so shifting manufacturing of something like an iPhone or

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Speaker 4: Tesla that takes quite a long time. So I think

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Speaker 4: that those are the companies, Yeah, you want to stay

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Speaker 4: away from. If it's something where there's you know, so

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Speaker 4: agility around manufacturing and production, those are the companies really

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Speaker 4: focused on.

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Speaker 2: Adam, thank you so much for making time to chat

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Speaker 2: with us. That's Adam Koons, co CIO at Winthrop Capital

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Speaker 2: Management joining here on the Daybreak Asia Podcast. Thanks for

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Speaker 2: listening to today's episode of the Bloomberg Daybreak Asia Edition podcast.

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Speaker 2: Each weekday, we look at the story shaping markets, finance,

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Speaker 2: and geopolitics in the Asia Pacific. You can find us

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Speaker 2: on Apple, Spotify, the Bloomberg Podcast YouTube channel, or anywhere

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00:21:33,080 --> 00:21:36,159
Speaker 2: else you listen. Join us again tomorrow for insight on

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Speaker 2: the market moves from Hong Kong to Singapore and Australia.

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Speaker 2: I'm Doug Chrisner, and this is Bloomberg