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

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Speaker 2: Welcome to the Daybreak Asia podcast. I'm Doug Chrisner. On

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Speaker 2: today's episode, we'll get an update on AI in China

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Speaker 2: with Taosha Wangshi's portfolio manager at Fidelity Investments. And later

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Speaker 2: we'll be taking a look at the broader market landscape

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Speaker 2: with Brian Crowitz. He is president at Scharf Investments. But

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Speaker 2: first to President Trump and the issue of tariffs. The

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Speaker 2: President late in the day on Monday in the US

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Speaker 2: issuing an executive order imposing twenty five percent tariffs on

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Speaker 2: all steel and aluminum imports to the US. Now over

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Speaker 2: the weekend he announced his intentions to do so, not

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Speaker 2: a big surprise. Joining me now for some reaction is Jode,

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Speaker 2: Metals and Mining reporter for Bloomberg News. Let's talk a

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Speaker 2: little bit about what's happening with the twenty five percent

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Speaker 2: tariffs on steel and aluminum. Thank you for making time.

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Speaker 2: I'm sure it's a bit for you. This really didn't

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Speaker 2: come as a surprise. Yesterday the President indicated that he

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Speaker 2: would be taking the section right.

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Speaker 1: Yeah, he said on Air Force One that he'd be

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Speaker 1: putting in twenty five percent teriffs on aluminum and steel.

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Speaker 1: I think that announcement came as a bit of a

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Speaker 1: surprise to the market. I don't think people thought he

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Speaker 1: would be moving so quickly. You got to remember last

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Speaker 1: week he said he was going to do across the

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Speaker 1: board tariffs on Mexico and Canada, And when he pulled

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Speaker 1: back on that, most people I talked to in the

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Speaker 1: steel and aluminum industries thought, Okay, great, that means we've

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Speaker 1: got till about March fourth before we have to worry

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Speaker 1: about tariffs again. So for him coming out and saying

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Speaker 1: steel aluminum specific over the weekend, right as he was

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Speaker 1: on his way to the Super Bowl, took a lot

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Speaker 1: of people off guard.

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Speaker 2: So we're talking about countries like Japan, South Korea, Taiwan, Vietnam.

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Speaker 2: Even to what extent does the US have steel making

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Speaker 2: capacity to make up for any reduction in flow coming

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Speaker 2: from foreign producers.

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Speaker 1: It's interesting. I was talking to an analyst today who

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Speaker 1: was kind of giving me back of the envelope numbers. Right,

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Speaker 1: if you assume maybe you were short to five to

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Speaker 1: six million tons, there are places that you can start

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Speaker 1: to make that up. You have some capacity that could

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Speaker 1: be coming online from restarted mills, you might also have

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Speaker 1: some capacity that you know, steel companies that exist right

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Speaker 1: now have in their back pocket as a possibility, but

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Speaker 1: haven't really discussed it because the idea would not be profitable.

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Speaker 1: Now this is something that could be profitable for them.

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Speaker 1: So it does seem you could make up the net short,

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Speaker 1: but it would also take a few years to get there,

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Speaker 1: so in the meantime you still need these imports.

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Speaker 2: The timing is very interesting because Japanese Prime Minister Issueba

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Speaker 2: was at the White House Friday. One of the many

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Speaker 2: things that was discussed Nepon Steel's proposed acquisition of US Steal.

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Speaker 2: We know that's pretty much done, and then news that

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Speaker 2: maybe Nipon would be making an investment in US Steel. Outright,

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Speaker 2: where are we on this?

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Speaker 1: Yeah, this one's a little bit weird and and people

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Speaker 1: are still trying to get more details about it, and

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Speaker 1: right now there aren't really any details. The President came

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Speaker 1: out alongside the Prime Minister and said, yeah, Nipon Steel

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Speaker 1: is going to be making an investment in US Steel.

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Speaker 1: There are no clear numbers out there as to what

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Speaker 1: those numbers are. The companies, neither US Steel or Nipon

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Speaker 1: Steel have come out and made any sort of official

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Speaker 1: comment about what they might be talking about. And honestly,

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Speaker 1: the investors in US Steel don't care about an investment.

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Speaker 1: They care about an outright purchase. Because of the purchase,

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Speaker 1: the merger agreement still exists, and that merger agreement says

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Speaker 1: each of those investors would get fifty five dollars a share.

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Speaker 1: Right now, the stock's trading between thirty five and forty.

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Speaker 1: So if you talk to these investors, when you hear, oh, well,

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Speaker 1: guess what you might get an investment from Nipon Steel,

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Speaker 1: they say, I don't care. That's not why I own

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Speaker 1: the stock. I own the stock because I want the deals.

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Speaker 2: Do you think this is going to get litigated successfully

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Speaker 2: or is it pretty much over?

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Speaker 1: The feeling is that the litigation that's out there right

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Speaker 1: now is a long shot. This sense is if there

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Speaker 1: is a chance of this deal getting done, it would

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Speaker 1: be by Donald Trump coming to some sort of a

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Speaker 1: deal or just overturning whatever the Biden administration had done

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Speaker 1: in terms of a block. So if Trump doesn't come

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Speaker 1: through and say, actually, I'm okay with this deal, the

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Speaker 1: sense by the market right now is that that is

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Speaker 1: kind of that was kind of the last hope.

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Speaker 2: So let's get back to the tariff story on steel

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Speaker 2: and aluminum. From what I learned, Trump is considering maybe

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Speaker 2: some exemptions from Australia unlike other companies, and this I

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Speaker 2: think a number of companies we're hoping for this. Maybe

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Speaker 2: Australia does get an exemption. Why would the US exempt Australia.

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Speaker 2: What's so special about Australia.

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Speaker 1: Well, it's a pretty great trade partnership, right, I mean,

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Speaker 1: the the US kind of looks at places like Australia

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Speaker 1: and Canada, you know, as you know the UK, as

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Speaker 1: these really important allies. And that's dating back to the

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Speaker 1: post World War two era era. As to why Australia

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Speaker 1: specifically might get an exemption, I'm not sure. I mean,

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Speaker 1: one of the things that was very clear from the

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Speaker 1: EEO sign today was we're doing these tariffs because way

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Speaker 1: too many exemptions were given by the Biden administration. Let's

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Speaker 1: remember that a lot of the exemptions given to the

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Speaker 1: tariffs were also given by the the first Trump administration, Canada, Mexico,

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Speaker 1: the EU, Japan. So I think what this might point

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Speaker 1: to is that the idea that they won't give anyone exemptions,

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Speaker 1: maybe that's not fully true with the idea that Australia

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Speaker 1: at least is saying that maybe they will get one. So,

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Speaker 1: like anything else with Trump, it does seem like maybe

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Speaker 1: a lot of this could end up being transactional.

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Speaker 2: Joe, thank you so much for being with us. Joe

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Speaker 2: do There, Metals and Mining reporter for Bloomberg News, joining

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Speaker 2: us here on the Daybreak Asia podcast. Let's change gears

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Speaker 2: here on the Daybreak Asia podcast and turn to artificial intelligence.

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Speaker 2: It was on Monday here in the US that the

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Speaker 2: head of Google Deep Mind, Demis Hassabis, addressed the recent

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Speaker 2: breakthrough in China's Deep Seek. Hassabis said the notion that

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Speaker 2: Deep Seeks spent under six million dollars to develop its

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Speaker 2: chatbot R one is exaggerated and a bit misleading. So

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Speaker 2: what's really happening with AI in China for some perspective.

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Speaker 2: I'm joined now by Tasha Wang, portfolio manager at Fidelity Investment.

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Speaker 2: Taosha joins us from our studios in Hong Kong. Thank

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Speaker 2: you for making time to chat with us. I know

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Speaker 2: you're well aware of the debate that's been happening here

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Speaker 2: in the States over how R one was developed and

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Speaker 2: whether or not that the chat bot from open Ai

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Speaker 2: chat shept was somehow used. There are also some investigations

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Speaker 2: here as to whether or not deep Seek had access

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Speaker 2: to some of those advanced computer chips that were under

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Speaker 2: US export controls. Can you help me understand where China

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Speaker 2: is in the race with the US over artificial intelligence?

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Speaker 3: Well, thanks for having me. Definitely, I think that the

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Speaker 3: recent debut of deep Sea has put China in a

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Speaker 3: very competitive spot with the US. Not that it wasn't before,

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Speaker 3: but certainly this has strong a lot of attention. You know,

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Speaker 3: there's controversy, but there's also a lot of excitement as

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Speaker 3: to you know, what has been accomplished not just by

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Speaker 3: you know, a in China, but by open source model

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Speaker 3: in the world collectively. So yeah, I think controversy, excitement,

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Speaker 3: a lot of actions, a lot of sentiments.

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Speaker 2: Can you help me understand whether there are more startups

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Speaker 2: like deep Seak in China working in artificial intelligence and

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Speaker 2: how many are there?

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Speaker 3: I believe so, I believe there are a lot of them.

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Speaker 3: I believe there are a lot of them as there's

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Speaker 3: a lot of effort at the major internet company is

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Speaker 3: the incumbents tech companies in China are making a lot

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Speaker 3: of efforts indust regard as well. And I think the

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Speaker 3: fact that deep Sick has made it more accessible, you know,

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Speaker 3: significantly lower in the cost of using AI has just

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Speaker 3: open the gate to allowing more people to participate and

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Speaker 3: contribute to AI research, to advancing the progress there. You

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Speaker 3: don't have to be backed by a deep pockets in

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Speaker 3: you know, Silicon Valley venture capital to essentially work on

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Speaker 3: this front, work in this very exciting area.

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Speaker 2: So with some of the established players, I'm thinking Ali Baba,

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Speaker 2: I'm thinking ten Cent, they have deep pockets. You mentioned

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Speaker 2: venture capital. To what extent is the government involved in

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Speaker 2: any of this?

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Speaker 3: As much as we know, Deep Sick wasn't you know,

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Speaker 3: it wasn't part of any of the government initiatives. It

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Speaker 3: wasn't affiliated with the big incumbent tents and Alibabas of

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Speaker 3: the world. It really shows that, you know, technological innovation

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Speaker 3: can be a bit of a spontaneous you know, where

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Speaker 3: exactly get breaks through exactly from who can be pretty spontaneous.

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Speaker 3: But obviously this is in the environment in the context

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Speaker 3: that a lot of people are making efforts towards the

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Speaker 3: same common goal.

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Speaker 2: I mentioned a moment ago that there is some concern

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Speaker 2: that perhaps the R one chatbot was developed using these

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Speaker 2: advanced chips. We know that the Nvidia chips are under

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Speaker 2: export controls. To what extent is China making advancements in

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Speaker 2: the semiconductor space.

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Speaker 3: Well, I think Nvidia has come out to say that

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Speaker 3: the chips that they use are export compliant, export restriction compliant.

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Speaker 3: So I mean that's the extent that outsiders like us know.

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Speaker 3: I think deep Seak represent mainly algorithmic improvement in how

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Speaker 3: to use the incumbent chips, rather than you know, coming

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Speaker 3: up with advanced chips that all of a sudden can't

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Speaker 3: do new and beautiful things. I think that efficiency game

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Speaker 3: is really the you know, the breakthrough here, and that

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Speaker 3: efficiency gang has been you know, shared by to the world,

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Speaker 3: and you know a lot of people are amaze those,

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Speaker 3: so to speak, by the significant algorithmic improvement.

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Speaker 2: No doubt about that. I guess I was asking whether

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Speaker 2: concurrent with that that there were also some advancements being

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Speaker 2: made in Chinese semiconductor manufacturing.

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Speaker 3: Do we know? I mean, I know it's necessarily I

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Speaker 3: don't think it's implied from the deep Sick advance Uh,

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Speaker 3: you know product Okay, so it's not not implied there.

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Speaker 3: But are they concurrently making progress. I'm sure they're trying.

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Speaker 2: I'm sure they are too, But there are export controls

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Speaker 2: when it comes to some of the lithography, some of

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Speaker 2: the machines that are manufactured in Europe that are used

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Speaker 2: to really produce some of these very sophisticated high end chips.

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Speaker 2: I know that. But talk to me a little bit

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Speaker 2: about your thesis on the overall technology industry in China.

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Speaker 2: Is this something that you're bullish on right now to

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Speaker 2: a great degree?

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Speaker 3: I think yes. I think the market is certainly short.

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Speaker 3: Answer to your question is yes, I think there's more

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Speaker 3: reason to be to be polish about the development there.

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Speaker 3: I think there are two sort of arguments to be

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Speaker 3: made there when evaluating, you know, the China tech in

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Speaker 3: the context of global tech with its relationship to the

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Speaker 3: US tech. Number one is, as in deep sequels have

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Speaker 3: to prompt a careful reassessment of the incumbent export uh

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Speaker 3: the US chip export restrictions. Certainly, the risk is that

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Speaker 3: if you continue to maintain such a strict restriction, the

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Speaker 3: risks than the US risk being cut off from you know,

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Speaker 3: the technological progress made in China which now proves to

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Speaker 3: be pretty significant. H And also there's the balance of

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Speaker 3: payment argument, so that is certainly I think the risk

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Speaker 3: of whether the arguments formed against the export chip uh

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Speaker 3: chip export restriction has become more balanced than than the

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Speaker 3: market is currently pricing. And the second part is just

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Speaker 3: that I think the US and Chinese tech communities are

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Speaker 3: finding their interests more aligned after deep Sick. So for example,

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Speaker 3: all the US major cloud providers have you know hosted

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Speaker 3: Deepsick on their cloud platform. And you know, the more

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Speaker 3: popular the model gets more cloud services revenue to get.

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Speaker 3: That's just you know, simple mass. But also there's you know,

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Speaker 3: we are in that with the significant job in model costs,

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Speaker 3: more value is going to be created from you know

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Speaker 3: AI applications, and US is abundant you know opportunities for

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Speaker 3: these value creations. So you know, cheaper model is like

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Speaker 3: lower raw material costs for you know AI application companies,

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Speaker 3: And that's just you know aligned interest right there. Also

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Speaker 3: there's a goal for you know, Agi et cetera. And

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Speaker 3: then the fact that TikTok is potentially becoming a JV

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Speaker 3: opens the door for you know, finding common ground despite

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Speaker 3: you know, tech rivalry between the two countries.

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Speaker 2: It's not just tech rivalry. I mean the threat of

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Speaker 2: tariffs now and from the Chinese side, antitrust investigations into

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Speaker 2: major tech players. There's a lot of tension here and

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Speaker 2: I'm wondering whether or not the Deep Seek is only

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Speaker 2: going to exacerbate that to some extent.

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Speaker 3: I don't. I mean, I think the two countries has

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Speaker 3: gone through, you know, a few years of decoupling, escalating tension.

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Speaker 3: It's not going to be sunshine overnight. But I think,

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Speaker 3: you know, through two several or but one step back

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Speaker 3: maybe I think that's just a possibility of striving for

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Speaker 3: a common ground is I think the possibility is a

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Speaker 3: little bit greater after the Deep Seak revelation.

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Speaker 2: Last question before you go, you mentioned TikTok. Do you

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Speaker 2: have a sense of how this is going to get resolved?

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Speaker 3: I have no idea, actually have not an insider, but

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Speaker 3: only to speculate. I think that you know, the simple

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Speaker 3: fact that a JV is being talked about and seriously

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Speaker 3: contemplated is you know it was unthinkable just months ago.

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Speaker 2: Yeah, joint venture between the US and China on the

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Speaker 2: tech front, specifically as it relates to TikTok, and we

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Speaker 2: know what a sensitive topic, that is for sure, especially

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Speaker 2: in the States. Taosha, thank you so much for joining us.

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Speaker 2: Tasha Wong, their portfolio manager at Fidelity International, joining us

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

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Speaker 2: Daybreak Asia podcast. I'm Doug. Markets are now shifting their

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Speaker 2: focus to this week's eco data here in the US,

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Speaker 2: I mean, consumer prices and retail sales will also have

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Speaker 2: congressional testimony this week from Feedshair J. Powell for a

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Speaker 2: closer look. I'm joined now by Brian Craws. He is

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Speaker 2: the president at Sharp Investments, joining from Los Gatos, California. Brian,

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Speaker 2: thank you for making time. I'm curious to get your

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Speaker 2: take on where we stand with inflation. The markets may

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Speaker 2: have received a bit of a sigh of relief today

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Speaker 2: the New York Fed's estimate on inflation expectations for the

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Speaker 2: next year and the next three years we're both unchanged

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Speaker 2: in the month of January at around three percent. Where

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Speaker 2: do you think we are now in this inflation cycle?

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Speaker 4: I mean, thank you for having me. The inflation cycle

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Speaker 4: is interesting. You had a real big spike post COVID

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Speaker 4: that obviously was a big deal in the election. Even

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Speaker 4: though inflation had been coming down going into the election,

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Speaker 4: but unfortunately a lot of the kind of gains have

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Speaker 4: ourlready been seen and now we're sort of stuck at

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Speaker 4: a certain level. And then you throw in all this

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Speaker 4: Trump tariff volatility, and it's going to be tough for

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Speaker 4: the Fed potentially, as CPI may stay higher than they

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Speaker 4: would they would like to see.

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Speaker 2: It's interesting I was looking at data from Goldmunt Sachs

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Speaker 2: showing that hedge funds recently emerged as some big buyers

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Speaker 2: of US stocks in the most recent week. Is this

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Speaker 2: the time that you want to take a lot of

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Speaker 2: risk on?

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Speaker 4: We think you still want to be a little bit cautious. However,

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Speaker 4: I would say, you know, you can pick your spots.

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Speaker 4: You know what's really masked, The big tech is really masked.

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Speaker 4: There's some other values out there. So stocks are probably

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Speaker 4: still a good place to be, but you got to

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Speaker 4: be a little bit more cautious. And you know, they're

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Speaker 4: probably going to be a better place to be than bonds,

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Speaker 4: given our expectation that rates are going to be higher

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Speaker 4: than many investors are thinking.

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Speaker 2: We were talking a moment ago about the new tariffs

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Speaker 2: the Resident launched today twenty five percent on all imports

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Speaker 2: of steel and aluminum, and the metal producers were in

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Speaker 2: the spotlight in the equity market today. I think US

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Speaker 2: steel was up more than four and a half percent,

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Speaker 2: al CoA up more than two percent. Would you want

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Speaker 2: to be long material producers in this type of environment.

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Speaker 4: Well, I think you want to be diversified. Material producers

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Speaker 4: are certainly one area. One of the interesting things that

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Speaker 4: we've seen in our study is that if you look

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Speaker 4: at the ten year treasury, when it's above four percent,

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Speaker 4: value stocks tend to outperform, and things like steel is

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Speaker 4: certainly in the value camp. But when rates are below

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Speaker 4: four percent, you get growth out performing. And we've just

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Speaker 4: been through a good fifteen year period where rates were

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Speaker 4: below four percent almost the entire time. So investors have

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Speaker 4: really gotten used to, oh, I just buy tech and

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Speaker 4: forget about it. We think going forward, you know, investors

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Speaker 4: are going to want to look in all kinds of

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Speaker 4: other areas, not only like industrial and materials type companies,

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Speaker 4: but also other areas like financials and healthcare and energy.

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Speaker 4: We think are all good places to potentially be outside

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Speaker 4: of technology.

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Speaker 2: So on Tuesday, it will be the first of two

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Speaker 2: days of testimony from Fed sha J. Powell. He's expected

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Speaker 2: to say that the FED has time to assess the

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Speaker 2: impact of Trump's new tariff policy. Immigration is obviously a

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Speaker 2: factor on the economy right now, as are any type

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Speaker 2: of tax cut that we may see in the future. Here,

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Speaker 2: broadly speaking, how do you think Powell is going to

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Speaker 2: thread the needle so to speak?

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Speaker 4: Well, I don't have Powell's job. He has to thread

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Speaker 4: the needle among a number of things. First, he's got

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Speaker 4: investors to keep happy. Second of all, he's got to

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Speaker 4: pay attention to the new president, who's obviously going to

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Speaker 4: be watching what he says. I think what he's going

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Speaker 4: to do is he's going to thread the needle by saying, hey,

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Speaker 4: we're data dependent. We've made a lot of progress inflations

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Speaker 4: come down a lot from where it was a couple

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Speaker 4: of years ago, but we still don't know what we

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Speaker 4: don't know, and so we're going to have to just

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Speaker 4: sort of play it by the data. And I think

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Speaker 4: that's what he's going to do. Markets will probably be

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Speaker 4: okay with that. You know, six months ago they might

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Speaker 4: not have been, as investors are really expecting rates to

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Speaker 4: come down a lot. But I think many investors have

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Speaker 4: gotten comfortable with the fact that the Fed is not

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Speaker 4: going to do five or six cuts this year.

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Speaker 2: So if you had to give me a sense of

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Speaker 2: where the bond market may be headed in the next

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Speaker 2: ten months or so, am I looking closer to a

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Speaker 2: five percent yield on the tenure?

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Speaker 4: Yeah? We think so. You know, that's not obviously where

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Speaker 4: the tenure is today at around four and a half.

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Speaker 4: But we think ultimately it's not so much the tariffs themselves,

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Speaker 4: although those could cause inflation, it's really the volatility that

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Speaker 4: could spook investors a little bit, particularly if they don't

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Speaker 4: see CPI coming down. So we wouldn't be surprised to

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Speaker 4: see the ten year treasury closer to five or even

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Speaker 4: above five. And again we think that'll help value stocks.

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Speaker 4: Detriment to grow stocks doesn't mean stocks have to be

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Speaker 4: a bad place to be, but you know, we'd say

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Speaker 4: temporary expectations. We've just come off to twenty percent plus

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Speaker 4: years and so it's going to be tougher to get

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Speaker 4: that kind of return, but relative to bonds, we still

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Speaker 4: think stocks will be a good place to be.

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Speaker 2: Brian will leave it there, Thank you so much for

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Speaker 2: chatting with us. Brian kraw is their president at Scharf Investments.

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Speaker 2: Joining us 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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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