Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: Welcome to the Bloomberg Daybreak Gasia podcast. I'm Doug Chrisner.
Speaker 2: The tariff inspired turmoil and financial markets is enduring. Certainly.
Speaker 2: Over the weekend, the Trump administration indicated those sweeping US
Speaker 2: tariffs would be kept in place. Coming up, we'll be
Speaker 2: talking with Adam Coons. He is the CIO at Winthrop
Speaker 2: Capital Management. But we begin this morning in the Asia Pacific, where,
Speaker 2: despite the holiday in China last Friday, the government did
Speaker 2: announce retaliatory measures against all US imports. Tariffs were imposed
Speaker 2: at a rate of thirty four percent, and they will
Speaker 2: take effect as of April tenth. Joining me now is
Speaker 2: Helen Jude, chief Investment Officer, also managing partner at NF Trinity.
Speaker 2: Helen joins us from our studios in Hong Kong. It's
Speaker 2: always a pleasure, Helen. Thank you so much for taking
Speaker 2: the time to chat with us. How surprised were you
Speaker 2: by the move from the Chinese government last Friday.
Speaker 3: I think it was always with an expectations that there
Speaker 3: would be some degree of retaliation. The exact magnitude, I
Speaker 3: think was somewhat of a hawkish surprise. Very similar to
Speaker 3: what had happened the day before on Liberation Day, when
Speaker 3: everybody was expecting tariffs to come in for sure, but
Speaker 3: the magnitude and extent of it was certainly more hawkish
Speaker 3: than expected as well.
Speaker 2: So let's get away from the macro for just a
Speaker 2: moment and talk a little bit about what you're seeing
Speaker 2: within the market right now. I'm curious about the extent
Speaker 2: to which this price action is revealing a level of leverage,
Speaker 2: maybe that we didn't really realize before. So you've taken
Speaker 2: a position, let's say, using a little bit of margin,
Speaker 2: the market goes against you. Uh oh, that weakness forces
Speaker 2: you to either add to the position or to liquidate.
Speaker 2: Is that a little bit of what's going on.
Speaker 3: I think that's part of it, but that's certainly not
Speaker 3: all of it. For example, if you actually look at
Speaker 3: retail participation in the US, that's been very important in
Speaker 3: terms of supporting the broader market. People generally buying on
Speaker 3: dips very you know, consistently, and a lot of that
Speaker 3: is not necessarily on leverage. It could just be cash,
Speaker 3: but the positioning was very concentrated. As in US, exceptionalism
Speaker 3: had rolled for a very long time, and people had
Speaker 3: no interest in diversifying into fixed income and diversifying into
Speaker 3: non US markets or holding you know, other hedges. So
Speaker 3: I think that the unwinding of that, with the loss
Speaker 3: of confidence, you know, starting Friday, I think that's actually
Speaker 3: what's been the key driver for the major onwine that
Speaker 3: we saw.
Speaker 2: So are you seeing order in these declines or are
Speaker 2: you seeing maybe a level of stress that would be
Speaker 2: concerning either to a central banker or a financial regulator,
Speaker 2: something that might imply a bit of financial instability.
Speaker 3: Certainly, the magnitude of the market drops has been and
Speaker 3: you know, a kein to COVID or GFC, So that's
Speaker 3: certainly a sign of financial instability, but it's not necessarily
Speaker 3: systematic risk in the equities markets. It's you know, we
Speaker 3: have to look more at the fixingcome markets, which is
Speaker 3: far more important. From that record. Now, credit spreads have
Speaker 3: really blown out over the last week, but on an
Speaker 3: absolute basis, they're not at you know, COVID levels or
Speaker 3: GFC levels. I think that's what we have to watch
Speaker 3: very very closely. But you know, if I was the FED,
Speaker 3: I would be thinking, gosh, even if I drop rates
Speaker 3: by fifty basis points, I'm not resolving the trade issue.
Speaker 3: In fact, you know, if interest rates were lower and
Speaker 3: market stabilized for a few days, that might actually delay
Speaker 3: any potential negotiations on the trade issue. So I would
Speaker 3: think that the FED would not want to be taking
Speaker 3: on the sole responsibility for stabilizing the markets when they're
Speaker 3: not the root cause of the market disarray.
Speaker 2: And in fact, the terriff situation may and gender a
Speaker 2: bit of inflation that would be troubling for the FED.
Speaker 2: Would you expect these tariffs to produce a higher level
Speaker 2: of inflation.
Speaker 3: They will, but I think it's a little bit different
Speaker 3: from what you would expect. First of all, it's mainly
Speaker 3: on goods, and historically the sticky inflation of the US
Speaker 3: or the past year or so has really been on services,
Speaker 3: which tariffs doesn't necessarily affect. And then the second thing
Speaker 3: is that you've got to think about the fact that
Speaker 3: these tariffs are going to be a one off impact
Speaker 3: on inflation and not necessarily sustaining over the medium to
Speaker 3: longer term if the teriff rate remains stable as a
Speaker 3: base effect resets. So I think maybe higher inflation will
Speaker 3: be one consideration for the FED, But you know, hiking
Speaker 3: rates meaningfully is not going to be a solution to
Speaker 3: fixing the tariffs, and therefore, you know, you should probably
Speaker 3: rethink the normal logic that hiking rates can fix inflation.
Speaker 2: Over the weekend, the Trump administration indicated that it had
Speaker 2: heard from no fewer than fifty countries trying and to
Speaker 2: negotiate new trade agreement. Is this part of the process
Speaker 2: right now that tariffs are in and of themselves kind
Speaker 2: of a bargaining chip, or is this something that is
Speaker 2: maybe a little bit more concerning in that, you know,
Speaker 2: if this is a line in the sand that has
Speaker 2: been drawn and that President Trump is adamant about taking
Speaker 2: this position to try to reduce trade deficits, that these
Speaker 2: tariffs may be with us for a while longer.
Speaker 3: I think tariffs will be with us a well longer,
Speaker 3: but that different countries will have different negotiations and different situations.
Speaker 3: You know. Scott Besson in the interview with Tucker Carlson
Speaker 3: over the weekend, he said, you know, tariffs are in
Speaker 3: for this reason and for that reason, but he also
Speaker 3: said that tariffs are a tool for negotiation. So I
Speaker 3: think that is the reality. But you know, if fifty
Speaker 3: parties contacted them for negotiation. I think we'll get fifty
Speaker 3: different outcomes.
Speaker 2: How are you viewing the macro right now in China?
Speaker 2: Given everything that we've been talking about.
Speaker 3: I think things were starting to head in the right direction.
Speaker 3: Infrastructure investment and local governments were starting to stabilize. We
Speaker 3: saw that the property sector had gone from a huge
Speaker 3: drag in terms of both volume and price to you know,
Speaker 3: price somewhat stabilizing or even starting to pick up in
Speaker 3: some top tier cities. And then we saw that consumption.
Speaker 3: You know, it's still not stellar, but it's not getting
Speaker 3: worse either, And actually the government has been more focused
Speaker 3: in terms of their efforts to try to stimulate and
Speaker 3: support consumption. So it was starting to come around the
Speaker 3: corner until this, but you know, this was somewhat expected
Speaker 3: as well, although worse versus the base case expectation on
Speaker 3: the tariffs, and I think the policy makers will have
Speaker 3: their own policy response to it, probably focusing more on
Speaker 3: domestic facing parts of the economy.
Speaker 2: What have you been hearing from clients generally?
Speaker 3: I think the market is panicking. I think that most
Speaker 3: people initially tried to be somewhat rational, you know, switching
Speaker 3: into defensives and you know, switching into fixed income and
Speaker 3: so on and so forth. But then I think very
Speaker 3: quickly people fell like they needed to sell and they
Speaker 3: needed to get out for some of the reasons that
Speaker 3: we've discussed, because this whole thing might last longer than
Speaker 3: originally anticipated. So that's what we've actually seen in the
Speaker 3: last couple of days. That's what we're seeing today. I
Speaker 3: actually personally think that the more you know, disorderly it
Speaker 3: is for two or three or four days, the more
Speaker 3: it's going to force the administration's hand in terms of
Speaker 3: coming out and saying something to stabilize market expectations. So
Speaker 3: bad is good to some extent.
Speaker 2: So now give me a strategy that you think would
Speaker 2: be worthwhile over the next six to nine months based
Speaker 2: on everything that you think you understand right now.
Speaker 3: Well, the faster the market drops and the more disorderly
Speaker 3: it is, the more interesting it is to jump in
Speaker 3: and start to buy some If actually things stabilize, you know, immediately,
Speaker 3: with valuation still above the historical median, with earnings expectations
Speaker 3: not yet revised down, then it's probably not interesting yet.
Speaker 3: I would say that the terriffs are imposed on a
Speaker 3: country basis, and each country will have its own deal.
Speaker 3: I think the countries that are US allies and countries
Speaker 3: that are manufacturing substitutes for China are likely to negotiate
Speaker 3: first and get the better deals, and whether their deals
Speaker 3: are affirmed up, then those particular markets will outperform others.
Speaker 3: So I think that's where some of the capital is
Speaker 3: going to flow. And that's what I would use as
Speaker 3: a general guideline for thinking about it. And if some
Speaker 3: of those countries get out of it, then the country
Speaker 3: the sectors like let's say, you know, US apparels that
Speaker 3: rely on the manufacturing and shipments from you know, countries
Speaker 3: like Vietnam, Cambodia and the rest of Asia. You know,
Speaker 3: then those companies could potentially rebound as well. Because currently
Speaker 3: right now people are just thinking recession hits demand and
Speaker 3: tariffs hits margins, and it's you know, it's basically getting
Speaker 3: squeeze between a rock and a hard place. So if
Speaker 3: you can have some resolution on their sourcing markets as well,
Speaker 3: that will benefit those types of sectors.
Speaker 2: Also, one of the big themes in China so far
Speaker 2: this year has been high technology, particularly as it relates
Speaker 2: to artificial intelligence. We know about the deep seek moment
Speaker 2: is that theme still intact right now, or is the
Speaker 2: stress that we're seeing right now in markets kind of
Speaker 2: threatening that in any way.
Speaker 3: I think China high tech has been up and coming
Speaker 3: for quite some time and there will certainly be meaningful breakthroughs,
Speaker 3: But the extent of the trade and related geopolitical tensions
Speaker 3: is actually negative for China tech, largely because one, it
Speaker 3: increases the chances of the US cutting off the supply
Speaker 3: of you know, Nvidia chips to China as well as
Speaker 3: the stuff that's actually you know, getting into China from
Speaker 3: other markets that Nvidia and others ship to. Secondly, looking forward,
Speaker 3: there is greater risk of future policy changes on containing
Speaker 3: China's AI you know, improvements and and innovation, for example,
Speaker 3: probably stopping some of the Chinese models from training overseas
Speaker 3: for example, you know, potentially cutting off equipment exports the China,
Speaker 3: not just chip exports. There are a variety of other
Speaker 3: things that could potentially happen if tensions should further intensify
Speaker 3: that are specifically a threat to China's high tech industry.
Speaker 3: So that's something that you know, one needs the balance
Speaker 3: and think about as well.
Speaker 2: Ellen will leave it there. Thank you so much, helenge
Speaker 2: you Chief Investment Officer also managing partner at NF Trinity.
Speaker 2: Joining us here on the Daybreak Asia podcast. Welcome back
Speaker 2: to the Daybreak Asia Podcast. I'm Doug Krisner. We are
Speaker 2: seeing dramatic moves in financial markets at this hour as
Speaker 2: risk assets are being sold. Much of this is tied
Speaker 2: to Beijing's announcement last Friday of retaliatory measures of tariffs
Speaker 2: on US imports a rate of thirty four percent as
Speaker 2: of April tenth. Now, this announcement came despite to holiday
Speaker 2: in China. Stateside, we had the S and P five
Speaker 2: hundred dropping six percent to its lowest level in eleven months,
Speaker 2: and over the prior to trading days in the US,
Speaker 2: the S and P has lost five point four trillion
Speaker 2: dollars in market value. For a bit of perspective, I'm
Speaker 2: joined now by Adam Koons. He is the co CIO
Speaker 2: at Winthrop Capital Management. Adam, the big question right now
Speaker 2: seems to be how much more downside we will see
Speaker 2: in markets? And I'm curious as to what you're prepared
Speaker 2: for in the Monday session. How bad do you think
Speaker 2: it will get?
Speaker 1: Well?
Speaker 4: I mean, yeah, Monday session is going to be another
Speaker 4: blood bath. Per se if you look at the future
Speaker 4: is and probably just the kind of concrete nature that
Speaker 4: it seems that the Trump administration's taking with these tariffs.
Speaker 1: It frankly, the market's got it wrong.
Speaker 4: I think the market was trying to anticipate that the
Speaker 4: Trump administration would come with a heavy handed narrative around
Speaker 4: the tariffs and then would back off. And it seems
Speaker 4: quite clear that they're going full tilt into this, you know,
Speaker 4: increased tariff regime, and for right now, the base case
Speaker 4: should be they're not going to back off.
Speaker 2: So if there is a level of market stress that
Speaker 2: were to develop that might alarm the FED, do you
Speaker 2: have a sense of what that might be. What is
Speaker 2: a key pressure point that you would be looking at?
Speaker 4: Well, I think for the FED, I mean obviously a
Speaker 4: lot of participants look at equity markets, but when it
Speaker 4: comes to the FED, I think what they're really looking
Speaker 4: at or credit spreads, and I think, you know, one
Speaker 4: of the bigger stories for me is that, you know,
Speaker 4: if you look at high yield spreads, levered loans, those
Speaker 4: kind of things, spreads on in those markets have gapped
Speaker 4: out almost two hundred basis points.
Speaker 1: If you look at high yield index.
Speaker 4: It was trading below three hundred and spread and now
Speaker 4: is approaching five hundred. So that, I think is what
Speaker 4: the Fed's going to be looking at more than anything.
Speaker 4: Our credit markets deteriorating. Are they shutting down? Are you refinance?
Speaker 4: Is going to be an issue because that's really where
Speaker 4: the FED would have to start stepping in. If we
Speaker 4: started to see the credit markets deteriorating, that's where we
Speaker 4: start to see this unwind.
Speaker 2: I mentioned a tweet that happened on Sunday from Bill
Speaker 2: Ackman over at Pershing Square, and he suggested that if
Speaker 2: by Monday there isn't an announcement on some sort of
Speaker 2: pause with respect to these coming tariffs, our recession will
Speaker 2: rapidly become the base case for the equity market. It
Speaker 2: seems like we're already there, does it not.
Speaker 4: Well, that's what the equity markets already pressed in undoubtedly,
Speaker 4: So I agree it's too late for that per se.
Speaker 4: I think the question is, you know, a recession can
Speaker 4: come simply on the perception that things are bad, and
Speaker 4: if consumers just cut back because they're just uncertain, that
Speaker 4: in itself would create the recession. So that seems to
Speaker 4: be what the equity markets are starting to you know,
Speaker 4: fully price in. It could be that we start pricing
Speaker 4: in a a very harsh recession. So there still is
Speaker 4: the downside potential of the equity markets if we start
Speaker 4: to see you know, further deterioration in the consumer and
Speaker 4: their behavior, if it rapidly, you know, kind of deteriorates.
Speaker 4: Makes it simply based off of narratives, because right now
Speaker 4: fundamentals haven't really changed. This is all based off of
Speaker 4: what could happen and how it might affect the economy.
Speaker 1: But as we know, that's how we act as humans.
Speaker 4: We react based off of what we think is going
Speaker 4: to happen, and so that right now, I think for
Speaker 4: us that is the base case, is that we're moving
Speaker 4: towards that. I don't think it doesn't really matter what
Speaker 4: the administration comes out on Monday. It says, I think
Speaker 4: enough damage is already done.
Speaker 2: At what point do risk assets become a bargain? Though,
Speaker 2: given the weakness that we have seen and imagining that
Speaker 2: we're going to see much more in the regular session Monday,
Speaker 2: is it possible that in near term there is going
Speaker 2: to be some sort of buying opportunity.
Speaker 4: Yeah, I think it's already approaching it obviously depends on
Speaker 4: how you entered the market this year. If you were
Speaker 4: kind of like us, we had already shifted towards more
Speaker 4: defensive stance. We were fully invested, but it was, like
Speaker 4: I said, it did have a defensive tilt and that
Speaker 4: has helped us whether this to a degree, but more importantly,
Speaker 4: it has given us a little bit of dry powder
Speaker 4: to add to names like Navidia, because we were quite
Speaker 4: underweighted that name, and so by no means are we
Speaker 4: neutral yet, but we're moving incrementally towards that as we
Speaker 4: see these kind of drops.
Speaker 1: So I think if you do have dry powder, you're
Speaker 1: not going to pick the bottom.
Speaker 4: And so you you know, you should still believe in
Speaker 4: your investment strategy those companies that you think are great
Speaker 4: companies and you know, are cash flow generators, like I said,
Speaker 4: like a Navidia, like a Google alphabet, Microsoft. With these
Speaker 4: kind of drops, I think you should be incrementally adding,
Speaker 4: like I said, because you're not going to guess the bottom.
Speaker 4: And this is going to be one of those markets
Speaker 4: where it's going to be very news driven and you
Speaker 4: don't know what the next headline is going to be.
Speaker 1: So we could see a further drop.
Speaker 4: But I think if you do like I said, if
Speaker 4: you have dry powder, you should be putting into work
Speaker 4: incrementally right now.
Speaker 2: So last Friday we heard from FED share J. Powell.
Speaker 2: He seemed to suggest that the damage of this trade
Speaker 2: war is going to be a lot greater than anticipated.
Speaker 2: Tonight here in New York, we heard from Bob Michael,
Speaker 2: the global head of fixed income at JP Morgan Asset Management.
Speaker 2: He thinks the FED should step in right now given
Speaker 2: a lot of the stress that we're seeing in markets.
Speaker 2: But if you listen to what Powell is saying, yes,
Speaker 2: growth probably will weaken as a result of what we're
Speaker 2: seeing right now in terms of kind of sentiment more
Speaker 2: than anything else at this point, before that soft data
Speaker 2: becomes hard data. But the inflationary impact of these tariffs
Speaker 2: would be even more troubling to the FED, would they not.
Speaker 4: Yeah, So I think that that's why the Fed's in
Speaker 4: a tough spot and why I don't really see how
Speaker 4: how easing monetary policy solves the current issue. Right So,
Speaker 4: what are lower interest rates going to do for higher
Speaker 4: import costs? They're not going to really do anything, so
Speaker 4: potentially make it worse because you can borrow.
Speaker 1: More to buy those more expensive goods.
Speaker 4: So I think in the near term, yeah, I think
Speaker 4: the Fed's a little bit stuck and it's going to
Speaker 4: have to kind of wade.
Speaker 1: Through this.
Speaker 4: Because the reality is the you know, the solve for
Speaker 4: high prices or high prices, and so likely what will happen.
Speaker 4: I think what the market's really seeing and pricing in
Speaker 4: here is that these higher costs due to the tariffs,
Speaker 4: they're not just going to increase inflation long term. You
Speaker 4: might see a short term blip, but all they're going
Speaker 4: to do is choke off the economy and then you're
Speaker 4: going to see a demand decline.
Speaker 1: So that's when the FED would need to step in.
Speaker 4: I think it's too soon right now, just like you
Speaker 4: said to because of the inflationary fears. Eventually, the increase
Speaker 4: in flo that's caused by tariffs will end up leading
Speaker 4: to a more disinflationary period and that's when the FED
Speaker 4: should step in.
Speaker 2: So that ten percent baseline tariffy on all US imports
Speaker 2: went into effect on Saturday, and I was given some
Speaker 2: news from the Port of Long Beach, California. The port
Speaker 2: is now projecting import volumes this week will drop by
Speaker 2: around fifteen percent. But if you have to put money
Speaker 2: to work right now, given everything that we're describing in
Speaker 2: the macro, what do you do? Do you seek the
Speaker 2: safety of US treasuries and call it today? Are there
Speaker 2: opportunities you mentioned in Nvidia. I'm curious as to whether
Speaker 2: you're seeing anything else in the equity tape.
Speaker 1: Yeah.
Speaker 4: I think when you look at the equities, you've got
Speaker 4: to look at what's hit the hardest but still has
Speaker 4: you know, a fundamental, fundamentally sound business model. And so
Speaker 4: when you look exaid, I still like your high quality
Speaker 4: tech names. I think you want to stay away from
Speaker 4: the low quality names right now. I don't think you
Speaker 4: want to chase uh, you know, companies that are just
Speaker 4: all about uh, you know, earnings growth or revenue growth.
Speaker 4: I think you want the companies that the business model
Speaker 4: is fairly sound.
Speaker 1: Your large cap domestic.
Speaker 4: Names that maybe aren't as I don't have all the
Speaker 4: sizzle that you might have in some smaller names. That's
Speaker 4: where you want to stay because, like I said, we
Speaker 4: don't have a crystal ball and you shouldn't be investing
Speaker 4: that way.
Speaker 1: So there could be more pain here. But you want
Speaker 1: to own companies that you think can.
Speaker 4: Overall weather this storm and then on the other side
Speaker 4: of it will outperform. So yeah, I think, like I said,
Speaker 4: looking at large cap tech in the healthcare space, we
Speaker 4: still like some names like Lily. Those really have weathered
Speaker 4: this fairly well. But still with the dips that we're seeing,
Speaker 4: and you know, names like am gin.
Speaker 1: Uh and and Lily will put money to work there.
Speaker 4: Outside of that, you know, when you're looking at Amazon
Speaker 4: or some of the consumer consumer discretionary names, those are
Speaker 4: obviously very very hard.
Speaker 1: So looking at names like VF Corp.
Speaker 4: That were down what nearly fifty percent in just the
Speaker 4: last two days, so there is value there. Those companies
Speaker 4: just didn't change overnight. There's a you know, a great
Speaker 4: cloud over them right now. But as we kind of
Speaker 4: emerge from this at some point, which we will, those
Speaker 4: companies will prosper again.
Speaker 2: And I'm wondering if you want to avoid companies like
Speaker 2: Apple and Tesla that have huge exposure to the Chinese market.
Speaker 1: Yeah, and that's that is where we're focusing.
Speaker 4: Is we're really doing that analysis to determine, Okay, if
Speaker 4: this persists, not only who is most exposed to China,
Speaker 4: but where the manufacturing shift if you did have to
Speaker 4: shift to back to the US would take a long time.
Speaker 4: And so shifting manufacturing of something like an iPhone or
Speaker 4: Tesla that takes quite a long time. So I think
Speaker 4: that those are the companies, Yeah, you want to stay
Speaker 4: away from. If it's something where there's you know, so
Speaker 4: agility around manufacturing and production, those are the companies really
Speaker 4: focused on.
Speaker 2: Adam, thank you so much for making time to chat
Speaker 2: with us. That's Adam Koons, co CIO at Winthrop Capital
Speaker 2: Management joining here on the Daybreak Asia Podcast. Thanks for
Speaker 2: listening to today's episode of the Bloomberg Daybreak Asia Edition podcast.
Speaker 2: Each weekday, we look at the story shaping markets, finance,
Speaker 2: and geopolitics in the Asia Pacific. You can find us
Speaker 2: on Apple, Spotify, the Bloomberg Podcast YouTube channel, or anywhere
Speaker 2: else you listen. Join us again tomorrow for insight on
Speaker 2: the market moves from Hong Kong to Singapore and Australia.
Speaker 2: I'm Doug Chrisner, and this is Bloomberg