Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2: Welcome to the Daybreak Asia podcast. I'm Doug Chrisner. On
Speaker 2: today's episode, we'll get an update on AI in China
Speaker 2: with Taosha Wangshi's portfolio manager at Fidelity Investments. And later
Speaker 2: we'll be taking a look at the broader market landscape
Speaker 2: with Brian Crowitz. He is president at Scharf Investments. But
Speaker 2: first to President Trump and the issue of tariffs. The
Speaker 2: President late in the day on Monday in the US
Speaker 2: issuing an executive order imposing twenty five percent tariffs on
Speaker 2: all steel and aluminum imports to the US. Now over
Speaker 2: the weekend he announced his intentions to do so, not
Speaker 2: a big surprise. Joining me now for some reaction is Jode,
Speaker 2: Metals and Mining reporter for Bloomberg News. Let's talk a
Speaker 2: little bit about what's happening with the twenty five percent
Speaker 2: tariffs on steel and aluminum. Thank you for making time.
Speaker 2: I'm sure it's a bit for you. This really didn't
Speaker 2: come as a surprise. Yesterday the President indicated that he
Speaker 2: would be taking the section right.
Speaker 1: Yeah, he said on Air Force One that he'd be
Speaker 1: putting in twenty five percent teriffs on aluminum and steel.
Speaker 1: I think that announcement came as a bit of a
Speaker 1: surprise to the market. I don't think people thought he
Speaker 1: would be moving so quickly. You got to remember last
Speaker 1: week he said he was going to do across the
Speaker 1: board tariffs on Mexico and Canada, And when he pulled
Speaker 1: back on that, most people I talked to in the
Speaker 1: steel and aluminum industries thought, Okay, great, that means we've
Speaker 1: got till about March fourth before we have to worry
Speaker 1: about tariffs again. So for him coming out and saying
Speaker 1: steel aluminum specific over the weekend, right as he was
Speaker 1: on his way to the Super Bowl, took a lot
Speaker 1: of people off guard.
Speaker 2: So we're talking about countries like Japan, South Korea, Taiwan, Vietnam.
Speaker 2: Even to what extent does the US have steel making
Speaker 2: capacity to make up for any reduction in flow coming
Speaker 2: from foreign producers.
Speaker 1: It's interesting. I was talking to an analyst today who
Speaker 1: was kind of giving me back of the envelope numbers. Right,
Speaker 1: if you assume maybe you were short to five to
Speaker 1: six million tons, there are places that you can start
Speaker 1: to make that up. You have some capacity that could
Speaker 1: be coming online from restarted mills, you might also have
Speaker 1: some capacity that you know, steel companies that exist right
Speaker 1: now have in their back pocket as a possibility, but
Speaker 1: haven't really discussed it because the idea would not be profitable.
Speaker 1: Now this is something that could be profitable for them.
Speaker 1: So it does seem you could make up the net short,
Speaker 1: but it would also take a few years to get there,
Speaker 1: so in the meantime you still need these imports.
Speaker 2: The timing is very interesting because Japanese Prime Minister Issueba
Speaker 2: was at the White House Friday. One of the many
Speaker 2: things that was discussed Nepon Steel's proposed acquisition of US Steal.
Speaker 2: We know that's pretty much done, and then news that
Speaker 2: maybe Nipon would be making an investment in US Steel. Outright,
Speaker 2: where are we on this?
Speaker 1: Yeah, this one's a little bit weird and and people
Speaker 1: are still trying to get more details about it, and
Speaker 1: right now there aren't really any details. The President came
Speaker 1: out alongside the Prime Minister and said, yeah, Nipon Steel
Speaker 1: is going to be making an investment in US Steel.
Speaker 1: There are no clear numbers out there as to what
Speaker 1: those numbers are. The companies, neither US Steel or Nipon
Speaker 1: Steel have come out and made any sort of official
Speaker 1: comment about what they might be talking about. And honestly,
Speaker 1: the investors in US Steel don't care about an investment.
Speaker 1: They care about an outright purchase. Because of the purchase,
Speaker 1: the merger agreement still exists, and that merger agreement says
Speaker 1: each of those investors would get fifty five dollars a share.
Speaker 1: Right now, the stock's trading between thirty five and forty.
Speaker 1: So if you talk to these investors, when you hear, oh, well,
Speaker 1: guess what you might get an investment from Nipon Steel,
Speaker 1: they say, I don't care. That's not why I own
Speaker 1: the stock. I own the stock because I want the deals.
Speaker 2: Do you think this is going to get litigated successfully
Speaker 2: or is it pretty much over?
Speaker 1: The feeling is that the litigation that's out there right
Speaker 1: now is a long shot. This sense is if there
Speaker 1: is a chance of this deal getting done, it would
Speaker 1: be by Donald Trump coming to some sort of a
Speaker 1: deal or just overturning whatever the Biden administration had done
Speaker 1: in terms of a block. So if Trump doesn't come
Speaker 1: through and say, actually, I'm okay with this deal, the
Speaker 1: sense by the market right now is that that is
Speaker 1: kind of that was kind of the last hope.
Speaker 2: So let's get back to the tariff story on steel
Speaker 2: and aluminum. From what I learned, Trump is considering maybe
Speaker 2: some exemptions from Australia unlike other companies, and this I
Speaker 2: think a number of companies we're hoping for this. Maybe
Speaker 2: Australia does get an exemption. Why would the US exempt Australia.
Speaker 2: What's so special about Australia.
Speaker 1: Well, it's a pretty great trade partnership, right, I mean,
Speaker 1: the the US kind of looks at places like Australia
Speaker 1: and Canada, you know, as you know the UK, as
Speaker 1: these really important allies. And that's dating back to the
Speaker 1: post World War two era era. As to why Australia
Speaker 1: specifically might get an exemption, I'm not sure. I mean,
Speaker 1: one of the things that was very clear from the
Speaker 1: EEO sign today was we're doing these tariffs because way
Speaker 1: too many exemptions were given by the Biden administration. Let's
Speaker 1: remember that a lot of the exemptions given to the
Speaker 1: tariffs were also given by the the first Trump administration, Canada, Mexico,
Speaker 1: the EU, Japan. So I think what this might point
Speaker 1: to is that the idea that they won't give anyone exemptions,
Speaker 1: maybe that's not fully true with the idea that Australia
Speaker 1: at least is saying that maybe they will get one. So,
Speaker 1: like anything else with Trump, it does seem like maybe
Speaker 1: a lot of this could end up being transactional.
Speaker 2: Joe, thank you so much for being with us. Joe
Speaker 2: do There, Metals and Mining reporter for Bloomberg News, joining
Speaker 2: us here on the Daybreak Asia podcast. Let's change gears
Speaker 2: here on the Daybreak Asia podcast and turn to artificial intelligence.
Speaker 2: It was on Monday here in the US that the
Speaker 2: head of Google Deep Mind, Demis Hassabis, addressed the recent
Speaker 2: breakthrough in China's Deep Seek. Hassabis said the notion that
Speaker 2: Deep Seeks spent under six million dollars to develop its
Speaker 2: chatbot R one is exaggerated and a bit misleading. So
Speaker 2: what's really happening with AI in China for some perspective.
Speaker 2: I'm joined now by Tasha Wang, portfolio manager at Fidelity Investment.
Speaker 2: Taosha joins us from our studios in Hong Kong. Thank
Speaker 2: you for making time to chat with us. I know
Speaker 2: you're well aware of the debate that's been happening here
Speaker 2: in the States over how R one was developed and
Speaker 2: whether or not that the chat bot from open Ai
Speaker 2: chat shept was somehow used. There are also some investigations
Speaker 2: here as to whether or not deep Seek had access
Speaker 2: to some of those advanced computer chips that were under
Speaker 2: US export controls. Can you help me understand where China
Speaker 2: is in the race with the US over artificial intelligence?
Speaker 3: Well, thanks for having me. Definitely, I think that the
Speaker 3: recent debut of deep Sea has put China in a
Speaker 3: very competitive spot with the US. Not that it wasn't before,
Speaker 3: but certainly this has strong a lot of attention. You know,
Speaker 3: there's controversy, but there's also a lot of excitement as
Speaker 3: to you know, what has been accomplished not just by
Speaker 3: you know, a in China, but by open source model
Speaker 3: in the world collectively. So yeah, I think controversy, excitement,
Speaker 3: a lot of actions, a lot of sentiments.
Speaker 2: Can you help me understand whether there are more startups
Speaker 2: like deep Seak in China working in artificial intelligence and
Speaker 2: how many are there?
Speaker 3: I believe so, I believe there are a lot of them.
Speaker 3: I believe there are a lot of them as there's
Speaker 3: a lot of effort at the major internet company is
Speaker 3: the incumbents tech companies in China are making a lot
Speaker 3: of efforts indust regard as well. And I think the
Speaker 3: fact that deep Sick has made it more accessible, you know,
Speaker 3: significantly lower in the cost of using AI has just
Speaker 3: open the gate to allowing more people to participate and
Speaker 3: contribute to AI research, to advancing the progress there. You
Speaker 3: don't have to be backed by a deep pockets in
Speaker 3: you know, Silicon Valley venture capital to essentially work on
Speaker 3: this front, work in this very exciting area.
Speaker 2: So with some of the established players, I'm thinking Ali Baba,
Speaker 2: I'm thinking ten Cent, they have deep pockets. You mentioned
Speaker 2: venture capital. To what extent is the government involved in
Speaker 2: any of this?
Speaker 3: As much as we know, Deep Sick wasn't you know,
Speaker 3: it wasn't part of any of the government initiatives. It
Speaker 3: wasn't affiliated with the big incumbent tents and Alibabas of
Speaker 3: the world. It really shows that, you know, technological innovation
Speaker 3: can be a bit of a spontaneous you know, where
Speaker 3: exactly get breaks through exactly from who can be pretty spontaneous.
Speaker 3: But obviously this is in the environment in the context
Speaker 3: that a lot of people are making efforts towards the
Speaker 3: same common goal.
Speaker 2: I mentioned a moment ago that there is some concern
Speaker 2: that perhaps the R one chatbot was developed using these
Speaker 2: advanced chips. We know that the Nvidia chips are under
Speaker 2: export controls. To what extent is China making advancements in
Speaker 2: the semiconductor space.
Speaker 3: Well, I think Nvidia has come out to say that
Speaker 3: the chips that they use are export compliant, export restriction compliant.
Speaker 3: So I mean that's the extent that outsiders like us know.
Speaker 3: I think deep Seak represent mainly algorithmic improvement in how
Speaker 3: to use the incumbent chips, rather than you know, coming
Speaker 3: up with advanced chips that all of a sudden can't
Speaker 3: do new and beautiful things. I think that efficiency game
Speaker 3: is really the you know, the breakthrough here, and that
Speaker 3: efficiency gang has been you know, shared by to the world,
Speaker 3: and you know a lot of people are amaze those,
Speaker 3: so to speak, by the significant algorithmic improvement.
Speaker 2: No doubt about that. I guess I was asking whether
Speaker 2: concurrent with that that there were also some advancements being
Speaker 2: made in Chinese semiconductor manufacturing.
Speaker 3: Do we know? I mean, I know it's necessarily I
Speaker 3: don't think it's implied from the deep Sick advance Uh,
Speaker 3: you know product Okay, so it's not not implied there.
Speaker 3: But are they concurrently making progress. I'm sure they're trying.
Speaker 2: I'm sure they are too, But there are export controls
Speaker 2: when it comes to some of the lithography, some of
Speaker 2: the machines that are manufactured in Europe that are used
Speaker 2: to really produce some of these very sophisticated high end chips.
Speaker 2: I know that. But talk to me a little bit
Speaker 2: about your thesis on the overall technology industry in China.
Speaker 2: Is this something that you're bullish on right now to
Speaker 2: a great degree?
Speaker 3: I think yes. I think the market is certainly short.
Speaker 3: Answer to your question is yes, I think there's more
Speaker 3: reason to be to be polish about the development there.
Speaker 3: I think there are two sort of arguments to be
Speaker 3: made there when evaluating, you know, the China tech in
Speaker 3: the context of global tech with its relationship to the
Speaker 3: US tech. Number one is, as in deep sequels have
Speaker 3: to prompt a careful reassessment of the incumbent export uh
Speaker 3: the US chip export restrictions. Certainly, the risk is that
Speaker 3: if you continue to maintain such a strict restriction, the
Speaker 3: risks than the US risk being cut off from you know,
Speaker 3: the technological progress made in China which now proves to
Speaker 3: be pretty significant. H And also there's the balance of
Speaker 3: payment argument, so that is certainly I think the risk
Speaker 3: of whether the arguments formed against the export chip uh
Speaker 3: chip export restriction has become more balanced than than the
Speaker 3: market is currently pricing. And the second part is just
Speaker 3: that I think the US and Chinese tech communities are
Speaker 3: finding their interests more aligned after deep Sick. So for example,
Speaker 3: all the US major cloud providers have you know hosted
Speaker 3: Deepsick on their cloud platform. And you know, the more
Speaker 3: popular the model gets more cloud services revenue to get.
Speaker 3: That's just you know, simple mass. But also there's you know,
Speaker 3: we are in that with the significant job in model costs,
Speaker 3: more value is going to be created from you know
Speaker 3: AI applications, and US is abundant you know opportunities for
Speaker 3: these value creations. So you know, cheaper model is like
Speaker 3: lower raw material costs for you know AI application companies,
Speaker 3: And that's just you know aligned interest right there. Also
Speaker 3: there's a goal for you know, Agi et cetera. And
Speaker 3: then the fact that TikTok is potentially becoming a JV
Speaker 3: opens the door for you know, finding common ground despite
Speaker 3: you know, tech rivalry between the two countries.
Speaker 2: It's not just tech rivalry. I mean the threat of
Speaker 2: tariffs now and from the Chinese side, antitrust investigations into
Speaker 2: major tech players. There's a lot of tension here and
Speaker 2: I'm wondering whether or not the Deep Seek is only
Speaker 2: going to exacerbate that to some extent.
Speaker 3: I don't. I mean, I think the two countries has
Speaker 3: gone through, you know, a few years of decoupling, escalating tension.
Speaker 3: It's not going to be sunshine overnight. But I think,
Speaker 3: you know, through two several or but one step back
Speaker 3: maybe I think that's just a possibility of striving for
Speaker 3: a common ground is I think the possibility is a
Speaker 3: little bit greater after the Deep Seak revelation.
Speaker 2: Last question before you go, you mentioned TikTok. Do you
Speaker 2: have a sense of how this is going to get resolved?
Speaker 3: I have no idea, actually have not an insider, but
Speaker 3: only to speculate. I think that you know, the simple
Speaker 3: fact that a JV is being talked about and seriously
Speaker 3: contemplated is you know it was unthinkable just months ago.
Speaker 2: Yeah, joint venture between the US and China on the
Speaker 2: tech front, specifically as it relates to TikTok, and we
Speaker 2: know what a sensitive topic, that is for sure, especially
Speaker 2: in the States. Taosha, thank you so much for joining us.
Speaker 2: Tasha Wong, their portfolio manager at Fidelity International, joining us
Speaker 2: here on the Daybreak Asia podcast. Welcome back to the
Speaker 2: Daybreak Asia podcast. I'm Doug. Markets are now shifting their
Speaker 2: focus to this week's eco data here in the US,
Speaker 2: I mean, consumer prices and retail sales will also have
Speaker 2: congressional testimony this week from Feedshair J. Powell for a
Speaker 2: closer look. I'm joined now by Brian Craws. He is
Speaker 2: the president at Sharp Investments, joining from Los Gatos, California. Brian,
Speaker 2: thank you for making time. I'm curious to get your
Speaker 2: take on where we stand with inflation. The markets may
Speaker 2: have received a bit of a sigh of relief today
Speaker 2: the New York Fed's estimate on inflation expectations for the
Speaker 2: next year and the next three years we're both unchanged
Speaker 2: in the month of January at around three percent. Where
Speaker 2: do you think we are now in this inflation cycle?
Speaker 4: I mean, thank you for having me. The inflation cycle
Speaker 4: is interesting. You had a real big spike post COVID
Speaker 4: that obviously was a big deal in the election. Even
Speaker 4: though inflation had been coming down going into the election,
Speaker 4: but unfortunately a lot of the kind of gains have
Speaker 4: ourlready been seen and now we're sort of stuck at
Speaker 4: a certain level. And then you throw in all this
Speaker 4: Trump tariff volatility, and it's going to be tough for
Speaker 4: the Fed potentially, as CPI may stay higher than they
Speaker 4: would they would like to see.
Speaker 2: It's interesting I was looking at data from Goldmunt Sachs
Speaker 2: showing that hedge funds recently emerged as some big buyers
Speaker 2: of US stocks in the most recent week. Is this
Speaker 2: the time that you want to take a lot of
Speaker 2: risk on?
Speaker 4: We think you still want to be a little bit cautious. However,
Speaker 4: I would say, you know, you can pick your spots.
Speaker 4: You know what's really masked, The big tech is really masked.
Speaker 4: There's some other values out there. So stocks are probably
Speaker 4: still a good place to be, but you got to
Speaker 4: be a little bit more cautious. And you know, they're
Speaker 4: probably going to be a better place to be than bonds,
Speaker 4: given our expectation that rates are going to be higher
Speaker 4: than many investors are thinking.
Speaker 2: We were talking a moment ago about the new tariffs
Speaker 2: the Resident launched today twenty five percent on all imports
Speaker 2: of steel and aluminum, and the metal producers were in
Speaker 2: the spotlight in the equity market today. I think US
Speaker 2: steel was up more than four and a half percent,
Speaker 2: al CoA up more than two percent. Would you want
Speaker 2: to be long material producers in this type of environment.
Speaker 4: Well, I think you want to be diversified. Material producers
Speaker 4: are certainly one area. One of the interesting things that
Speaker 4: we've seen in our study is that if you look
Speaker 4: at the ten year treasury, when it's above four percent,
Speaker 4: value stocks tend to outperform, and things like steel is
Speaker 4: certainly in the value camp. But when rates are below
Speaker 4: four percent, you get growth out performing. And we've just
Speaker 4: been through a good fifteen year period where rates were
Speaker 4: below four percent almost the entire time. So investors have
Speaker 4: really gotten used to, oh, I just buy tech and
Speaker 4: forget about it. We think going forward, you know, investors
Speaker 4: are going to want to look in all kinds of
Speaker 4: other areas, not only like industrial and materials type companies,
Speaker 4: but also other areas like financials and healthcare and energy.
Speaker 4: We think are all good places to potentially be outside
Speaker 4: of technology.
Speaker 2: So on Tuesday, it will be the first of two
Speaker 2: days of testimony from Fed sha J. Powell. He's expected
Speaker 2: to say that the FED has time to assess the
Speaker 2: impact of Trump's new tariff policy. Immigration is obviously a
Speaker 2: factor on the economy right now, as are any type
Speaker 2: of tax cut that we may see in the future. Here,
Speaker 2: broadly speaking, how do you think Powell is going to
Speaker 2: thread the needle so to speak?
Speaker 4: Well, I don't have Powell's job. He has to thread
Speaker 4: the needle among a number of things. First, he's got
Speaker 4: investors to keep happy. Second of all, he's got to
Speaker 4: pay attention to the new president, who's obviously going to
Speaker 4: be watching what he says. I think what he's going
Speaker 4: to do is he's going to thread the needle by saying, hey,
Speaker 4: we're data dependent. We've made a lot of progress inflations
Speaker 4: come down a lot from where it was a couple
Speaker 4: of years ago, but we still don't know what we
Speaker 4: don't know, and so we're going to have to just
Speaker 4: sort of play it by the data. And I think
Speaker 4: that's what he's going to do. Markets will probably be
Speaker 4: okay with that. You know, six months ago they might
Speaker 4: not have been, as investors are really expecting rates to
Speaker 4: come down a lot. But I think many investors have
Speaker 4: gotten comfortable with the fact that the Fed is not
Speaker 4: going to do five or six cuts this year.
Speaker 2: So if you had to give me a sense of
Speaker 2: where the bond market may be headed in the next
Speaker 2: ten months or so, am I looking closer to a
Speaker 2: five percent yield on the tenure?
Speaker 4: Yeah? We think so. You know, that's not obviously where
Speaker 4: the tenure is today at around four and a half.
Speaker 4: But we think ultimately it's not so much the tariffs themselves,
Speaker 4: although those could cause inflation, it's really the volatility that
Speaker 4: could spook investors a little bit, particularly if they don't
Speaker 4: see CPI coming down. So we wouldn't be surprised to
Speaker 4: see the ten year treasury closer to five or even
Speaker 4: above five. And again we think that'll help value stocks.
Speaker 4: Detriment to grow stocks doesn't mean stocks have to be
Speaker 4: a bad place to be, but you know, we'd say
Speaker 4: temporary expectations. We've just come off to twenty percent plus
Speaker 4: years and so it's going to be tougher to get
Speaker 4: that kind of return, but relative to bonds, we still
Speaker 4: think stocks will be a good place to be.
Speaker 2: Brian will leave it there, Thank you so much for
Speaker 2: chatting with us. Brian kraw is their president at Scharf Investments.
Speaker 2: Joining us 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