1 00:00:02,480 --> 00:00:06,800 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. 2 00:00:09,320 --> 00:00:13,040 Speaker 2: This is the Bloomberg Daybreak Asia podcast. I'm Brian Curtis 3 00:00:13,119 --> 00:00:15,840 Speaker 2: along with Doug Krisner, join us each day for the 4 00:00:15,880 --> 00:00:19,240 Speaker 2: stories making news and moving markets in the Asia Pacific. 5 00:00:19,480 --> 00:00:21,880 Speaker 2: You can subscribe to the show anywhere you get your 6 00:00:21,920 --> 00:00:25,799 Speaker 2: podcasts and always on Bloomberg Radio, the Bloomberg Terminal, and 7 00:00:25,920 --> 00:00:27,240 Speaker 2: the Bloomberg Business App. 8 00:00:27,440 --> 00:00:29,880 Speaker 3: Let's bring in our guest. Rebecca Waalser is with us. 9 00:00:29,920 --> 00:00:33,279 Speaker 3: She is president at Wallser Wealth Management, joining us here 10 00:00:33,320 --> 00:00:35,440 Speaker 3: at the Interactive Broker Studio in New York. 11 00:00:35,560 --> 00:00:37,440 Speaker 4: Thanks for dropping by, so glad to be here, deg 12 00:00:37,479 --> 00:00:38,159 Speaker 4: thanks for having me. 13 00:00:38,280 --> 00:00:40,400 Speaker 3: Are we talking about a soft landing now? When you 14 00:00:40,440 --> 00:00:42,800 Speaker 3: look at kind of what the FED is signaling and 15 00:00:42,840 --> 00:00:45,680 Speaker 3: then the data that we had today, particularly the second 16 00:00:45,760 --> 00:00:46,879 Speaker 3: quarter GDP. 17 00:00:46,640 --> 00:00:48,240 Speaker 5: Number, Oh gosh. 18 00:00:48,240 --> 00:00:51,000 Speaker 4: I hate to be such a contrarium, but I wish 19 00:00:51,080 --> 00:00:53,440 Speaker 4: I could say yes, Doug, but I just don't see it. 20 00:00:53,960 --> 00:00:54,800 Speaker 5: I wish I did. 21 00:00:54,880 --> 00:00:57,160 Speaker 4: I know, the retail numbers are great, but I'm looking 22 00:00:57,200 --> 00:01:00,320 Speaker 4: at the forward guidance of the consumer, and the consumer 23 00:01:00,520 --> 00:01:03,480 Speaker 4: is really telling us that they are out of cash 24 00:01:03,520 --> 00:01:05,520 Speaker 4: to spend. I know, retail sales have been good, But 25 00:01:05,600 --> 00:01:08,360 Speaker 4: that's always historical data, right, So we're looking forward and 26 00:01:08,360 --> 00:01:10,920 Speaker 4: we're seeing the consumers. We have the highest credit card 27 00:01:11,000 --> 00:01:13,760 Speaker 4: balances one point three trillion in the history of our country. 28 00:01:13,840 --> 00:01:18,600 Speaker 4: Our delinquency rates are astronomically accelerating. Our car delinquency rates 29 00:01:18,600 --> 00:01:21,280 Speaker 4: are accelerating. So, Doug, the stories aren't matching up with 30 00:01:21,360 --> 00:01:24,959 Speaker 4: the GDP numbers showing such good, strong consumer spending versus 31 00:01:24,959 --> 00:01:26,360 Speaker 4: where we know the consumer is right now. 32 00:01:26,400 --> 00:01:27,759 Speaker 5: So that's what I'm talking about the future. 33 00:01:27,840 --> 00:01:30,440 Speaker 3: Okay. So the equity market then should be pretty worried 34 00:01:30,480 --> 00:01:32,880 Speaker 3: when it comes to earnings, right, I believe so. 35 00:01:33,120 --> 00:01:35,280 Speaker 4: And I do think that we've had some, you know, 36 00:01:35,520 --> 00:01:40,080 Speaker 4: mag seven not great numbers this season, and in Video 37 00:01:40,240 --> 00:01:42,480 Speaker 4: was great, I'm not a double beat, absolutely great, but 38 00:01:42,520 --> 00:01:45,960 Speaker 4: the guidance was still you know, saying are we it 39 00:01:46,000 --> 00:01:49,000 Speaker 4: was it was a reassurance that their market has got 40 00:01:49,000 --> 00:01:51,560 Speaker 4: a long runway. But Doug, when you look at the guidance, 41 00:01:51,560 --> 00:01:54,120 Speaker 4: people are still wondering, how is this going to be monetized? 42 00:01:54,160 --> 00:01:57,960 Speaker 4: And if these other commercial buyers of in video chips 43 00:01:57,960 --> 00:02:00,280 Speaker 4: for AI are not able to get a return non 44 00:02:00,320 --> 00:02:03,760 Speaker 4: investment fast enough, are they going to be keeping pouring 45 00:02:03,800 --> 00:02:05,600 Speaker 4: the billions and billions that are going to envy that 46 00:02:05,640 --> 00:02:09,280 Speaker 4: are giving us these crazy, astronomical three thousand percent growth 47 00:02:09,320 --> 00:02:09,919 Speaker 4: in five years. 48 00:02:10,120 --> 00:02:12,680 Speaker 3: The autumn can be very rough for the equity market. 49 00:02:12,720 --> 00:02:15,560 Speaker 3: We're a week away from September. Are you braced for 50 00:02:15,639 --> 00:02:16,440 Speaker 3: some downside? 51 00:02:16,520 --> 00:02:21,560 Speaker 5: Absolutely? I mean, this is this is the most shallow 52 00:02:22,200 --> 00:02:23,600 Speaker 5: depth that we have seen. 53 00:02:23,639 --> 00:02:26,920 Speaker 4: I mean, look at the concentration of mag seven in 54 00:02:27,000 --> 00:02:28,960 Speaker 4: the Nasdaq, in the S and P five hundred. This 55 00:02:29,080 --> 00:02:32,760 Speaker 4: is awful concentration in it. So if anything goes wrong, 56 00:02:32,800 --> 00:02:33,880 Speaker 4: I mean, you look at the Middle East, and you 57 00:02:33,880 --> 00:02:35,600 Speaker 4: look at Russia, Ukraine, and you look at all the 58 00:02:35,600 --> 00:02:37,200 Speaker 4: things geopolitically that are. 59 00:02:37,040 --> 00:02:39,240 Speaker 5: Going on in the middle of an election season, in 60 00:02:39,280 --> 00:02:39,840 Speaker 5: the middle. 61 00:02:39,639 --> 00:02:42,799 Speaker 4: Of you know, we've got all of these pandemics who 62 00:02:42,800 --> 00:02:45,200 Speaker 4: has declared a new pandemic of impocs. So you have 63 00:02:45,720 --> 00:02:49,079 Speaker 4: so many factors that any one of them pops off. 64 00:02:49,120 --> 00:02:51,880 Speaker 4: When you have such a weak economy fund the fundamentals 65 00:02:51,919 --> 00:02:56,640 Speaker 4: are so weak, then you should expect a really unfortunately 66 00:02:56,960 --> 00:03:00,000 Speaker 4: an oversized response to anything that is on the outbum 67 00:03:00,160 --> 00:03:01,200 Speaker 4: that will be affecting it. 68 00:03:01,360 --> 00:03:03,440 Speaker 3: So you mentioned the election, I'm curious as to how 69 00:03:03,480 --> 00:03:06,800 Speaker 3: that's affected your thinking. On markets these days. 70 00:03:07,840 --> 00:03:11,760 Speaker 4: Yeah, I mean I think that obviously with a Trump 71 00:03:11,760 --> 00:03:15,040 Speaker 4: administration we would be more business friendly. I mean, we 72 00:03:15,120 --> 00:03:18,399 Speaker 4: don't really know where Kamala's positions are economically. I'm really 73 00:03:18,440 --> 00:03:20,520 Speaker 4: looking forward to this nine o'clock interview. I'm hoping that 74 00:03:20,560 --> 00:03:23,760 Speaker 4: she actually does go more into the economics of her plans, because, 75 00:03:23,919 --> 00:03:25,840 Speaker 4: you know, Doug her first kind of things that she's 76 00:03:25,840 --> 00:03:28,440 Speaker 4: talking about our price controls, and all of us are 77 00:03:28,520 --> 00:03:31,120 Speaker 4: racing and saying, where is this coming from? This is 78 00:03:31,240 --> 00:03:33,720 Speaker 4: not anything that we were expecting to hear. So for me, 79 00:03:33,840 --> 00:03:36,680 Speaker 4: we're really looking for more details on what is her 80 00:03:36,720 --> 00:03:37,600 Speaker 4: economic positions. 81 00:03:37,600 --> 00:03:41,080 Speaker 3: Now, speaking of the economy, how do you think the 82 00:03:41,080 --> 00:03:43,840 Speaker 3: FED has been doing it kind of getting away from 83 00:03:44,000 --> 00:03:47,280 Speaker 3: ultra tight monetary policy. We got an indication pretty strong 84 00:03:47,320 --> 00:03:50,760 Speaker 3: one last week from Feedshair J. Powell. We're looking at 85 00:03:50,800 --> 00:03:53,320 Speaker 3: a rate cut as soon as the September meeting. It 86 00:03:53,360 --> 00:03:56,000 Speaker 3: could be as much as fifty basis points, although I 87 00:03:56,000 --> 00:03:58,680 Speaker 3: don't think when you look at what the market is telegraphing, 88 00:03:58,680 --> 00:04:01,840 Speaker 3: it's more likely twenty five. How do you feel about 89 00:04:01,920 --> 00:04:03,680 Speaker 3: raid cuts going into the end of the year. Is 90 00:04:03,720 --> 00:04:06,160 Speaker 3: it possible that we get a total of one hundred 91 00:04:06,160 --> 00:04:07,560 Speaker 3: basis points and cuts. 92 00:04:07,920 --> 00:04:09,760 Speaker 4: Well, I think that would be difficult if we only 93 00:04:09,760 --> 00:04:12,040 Speaker 4: get a twenty five in September on September eighteenth, So 94 00:04:12,360 --> 00:04:13,080 Speaker 4: we'll see. 95 00:04:13,200 --> 00:04:14,600 Speaker 5: But I don't think the Fed. 96 00:04:14,440 --> 00:04:16,640 Speaker 4: Is going to go to a fifty point cut swing 97 00:04:16,800 --> 00:04:18,960 Speaker 4: as fast as September one because it's so close to 98 00:04:18,960 --> 00:04:20,919 Speaker 4: the election and that can kind of be couch as 99 00:04:20,960 --> 00:04:21,640 Speaker 4: political by. 100 00:04:21,520 --> 00:04:22,839 Speaker 5: People that don't appreciate that. 101 00:04:23,240 --> 00:04:26,480 Speaker 4: But two, it also really dug sends a more fundamental 102 00:04:26,520 --> 00:04:30,640 Speaker 4: message to the global economy that something is wrong fundamentally underlying. 103 00:04:30,920 --> 00:04:33,599 Speaker 4: And if you look at we had the largest second 104 00:04:33,720 --> 00:04:37,840 Speaker 4: largest retraction of jobs eight hundred and eighteen thousand last Wednesday, 105 00:04:38,160 --> 00:04:40,159 Speaker 4: and we already that's on top of all of the 106 00:04:40,200 --> 00:04:42,919 Speaker 4: diminutions that we had monthly, all the corrections. This is 107 00:04:42,960 --> 00:04:47,080 Speaker 4: the second most corrected BLS that we've had since two 108 00:04:47,120 --> 00:04:49,400 Speaker 4: thousand and eight and two thousand and nine. So obviously 109 00:04:49,480 --> 00:04:52,520 Speaker 4: those numbers were just coming in way over, you know, 110 00:04:52,600 --> 00:04:55,320 Speaker 4: too extreme, and they were brought back down as they 111 00:04:55,320 --> 00:04:56,400 Speaker 4: were corrected. 112 00:04:56,000 --> 00:04:56,760 Speaker 5: All over the months. 113 00:04:56,760 --> 00:05:00,000 Speaker 4: But then the annual correction almost took another million job 114 00:05:00,200 --> 00:05:02,679 Speaker 4: away from last year. So that is where you're seeing 115 00:05:02,720 --> 00:05:06,000 Speaker 4: PAL come back in insane labor is definitely now a concern. 116 00:05:06,240 --> 00:05:09,760 Speaker 4: We're seeing the softness and so he's looking at a cut. 117 00:05:10,160 --> 00:05:12,200 Speaker 4: But if we have to go to a fifty basis 118 00:05:12,200 --> 00:05:14,800 Speaker 4: point cut, that is signaling that there's something even more 119 00:05:14,839 --> 00:05:15,720 Speaker 4: alarming going on. 120 00:05:15,960 --> 00:05:18,320 Speaker 3: Where are you seeing opportunity in markets these days? 121 00:05:18,520 --> 00:05:21,279 Speaker 4: You know, obviously the hate to say it, but the 122 00:05:21,480 --> 00:05:24,039 Speaker 4: breadth or the long term runway that we really do 123 00:05:24,120 --> 00:05:26,640 Speaker 4: think is there is the AI tech space and that's 124 00:05:26,680 --> 00:05:27,040 Speaker 4: why the. 125 00:05:27,000 --> 00:05:30,159 Speaker 5: Whole world is invested in it. So there is common 126 00:05:30,200 --> 00:05:30,720 Speaker 5: sense there. 127 00:05:30,960 --> 00:05:34,000 Speaker 4: But you know, you have to look at if we're 128 00:05:34,000 --> 00:05:37,640 Speaker 4: going to go into recessionary worldwide kind of period, where 129 00:05:37,680 --> 00:05:40,400 Speaker 4: are recessionary places And that's always going to be your consumer, 130 00:05:40,680 --> 00:05:46,360 Speaker 4: you know, defensive your staples, your utilities, you know, your commodities. 131 00:05:46,560 --> 00:05:49,240 Speaker 4: So we would look at if we start to see 132 00:05:49,279 --> 00:05:52,520 Speaker 4: really moving towards more weakening economic data, then we would 133 00:05:52,520 --> 00:05:54,040 Speaker 4: look at more defensive positions. 134 00:05:54,080 --> 00:05:55,640 Speaker 3: Are you worried about recession at all? 135 00:05:55,920 --> 00:05:56,279 Speaker 6: I am? 136 00:05:56,440 --> 00:05:58,520 Speaker 4: I am, because you know you look at Germany and 137 00:05:58,560 --> 00:06:01,600 Speaker 4: they're manufacturing is PRESHI level. You look at China and 138 00:06:01,640 --> 00:06:04,200 Speaker 4: we know what's happened there. You just mentioned yourself. Japan 139 00:06:04,680 --> 00:06:08,560 Speaker 4: is slowing. Everything is slowing globally, and really, if you think. 140 00:06:08,440 --> 00:06:10,920 Speaker 5: About it from my perspective, it starts kind of in. 141 00:06:10,880 --> 00:06:14,239 Speaker 4: The East with the Asian exporters, and then it also 142 00:06:14,320 --> 00:06:16,880 Speaker 4: moves to Europe, the European Zone, which we know how 143 00:06:16,920 --> 00:06:19,120 Speaker 4: that is going with Germany, and it really then comes 144 00:06:19,120 --> 00:06:21,960 Speaker 4: to America. So these have already kind of been going 145 00:06:22,000 --> 00:06:25,080 Speaker 4: through the slow down and it's now coming to us. 146 00:06:25,120 --> 00:06:27,240 Speaker 5: And we are the world's reserve. 147 00:06:26,880 --> 00:06:30,200 Speaker 4: Currency, which helps us, you know, export our inflation as 148 00:06:30,279 --> 00:06:32,600 Speaker 4: much as we possibly can. But there is a day, Doug, 149 00:06:32,640 --> 00:06:34,400 Speaker 4: that we have to we have to pay the piper too. 150 00:06:34,600 --> 00:06:37,800 Speaker 3: So if we can agree then that places like Asia 151 00:06:37,839 --> 00:06:40,440 Speaker 3: and Europe have been slowing for a while, maybe there's 152 00:06:40,480 --> 00:06:43,679 Speaker 3: opportunity in those markets. What do you think, Well, can. 153 00:06:43,520 --> 00:06:45,960 Speaker 4: Telpany tell you that I don't recommend anybody go out 154 00:06:46,000 --> 00:06:49,039 Speaker 4: and borrow yin and buy and do investments and dollars 155 00:06:49,080 --> 00:06:51,440 Speaker 4: if you guess the garage trade that we know came 156 00:06:51,520 --> 00:06:54,240 Speaker 4: up in August, the fifth is far from being over with. 157 00:06:54,640 --> 00:06:58,320 Speaker 4: So be careful, just be be cautious because right now 158 00:06:58,440 --> 00:07:01,640 Speaker 4: if we go into a kind of global financial and 159 00:07:01,680 --> 00:07:04,200 Speaker 4: you have to understand too, Doug, this is the first 160 00:07:04,240 --> 00:07:10,160 Speaker 4: time that we are really seeing global economic interplace so 161 00:07:10,840 --> 00:07:15,200 Speaker 4: vastly that as China, you know, potentially collapses as Japan. 162 00:07:15,280 --> 00:07:17,560 Speaker 4: I'm not saying it's collapsing, but I'm saying, as these 163 00:07:17,600 --> 00:07:21,120 Speaker 4: things happen, we are so dependent now as they're the 164 00:07:21,200 --> 00:07:24,080 Speaker 4: exporters and we are the importers, that what happens with 165 00:07:24,120 --> 00:07:25,480 Speaker 4: them is going to come to us. 166 00:07:25,600 --> 00:07:26,720 Speaker 5: We just have to be very cautious. 167 00:07:26,760 --> 00:07:28,640 Speaker 3: So do you like the bond market there if you're 168 00:07:28,680 --> 00:07:31,160 Speaker 3: a little concerned about growth going forward and the FED 169 00:07:31,240 --> 00:07:33,960 Speaker 3: is going to cut rates. We don't know by the magnitude, 170 00:07:34,000 --> 00:07:36,360 Speaker 3: but are you seeing opportunity in the bond market? 171 00:07:36,800 --> 00:07:40,119 Speaker 4: I mean, I think that the bond market always does 172 00:07:40,240 --> 00:07:44,280 Speaker 4: well in a period where there's less interference by central 173 00:07:44,280 --> 00:07:46,280 Speaker 4: bank policy. So that's where we have to see where 174 00:07:46,320 --> 00:07:48,880 Speaker 4: are the central bank policies taking us. We know they're 175 00:07:48,880 --> 00:07:51,040 Speaker 4: implementing Basal three, and that's why we've seen all of 176 00:07:51,080 --> 00:07:53,600 Speaker 4: this gold purchases by all of these central banks around 177 00:07:53,640 --> 00:07:56,280 Speaker 4: the world. How does that impact what the central banks 178 00:07:56,280 --> 00:07:58,360 Speaker 4: are going to be doing? But you're looking at the 179 00:07:58,560 --> 00:08:00,960 Speaker 4: like just even here in the Federals Serve here we're 180 00:08:00,960 --> 00:08:03,760 Speaker 4: in a negative interest rate situation. We're normally having the 181 00:08:03,800 --> 00:08:06,600 Speaker 4: FED send the Treasury interest on a monthly basis. That 182 00:08:06,760 --> 00:08:09,360 Speaker 4: is costing us money right now, so the Fed's balance 183 00:08:09,400 --> 00:08:11,360 Speaker 4: sheet at seven trillion, it still needs to come down 184 00:08:11,560 --> 00:08:14,000 Speaker 4: to your point earlier said, how are we slowing down 185 00:08:14,040 --> 00:08:16,880 Speaker 4: the tightening? Well, we reduce quantitative tightening from some ninety 186 00:08:16,880 --> 00:08:19,680 Speaker 4: billion to some much less sixty billion less, and that 187 00:08:19,760 --> 00:08:22,560 Speaker 4: has helped our economies be sustainable. But now are at 188 00:08:22,600 --> 00:08:24,400 Speaker 4: the point of cuts, and so I would be more 189 00:08:24,440 --> 00:08:27,040 Speaker 4: concerned about yields in the short term. 190 00:08:27,320 --> 00:08:29,440 Speaker 3: Just want to point out that everything that the FED 191 00:08:29,560 --> 00:08:33,360 Speaker 3: earns on its balance sheet is deposited at the Fed's 192 00:08:33,360 --> 00:08:35,600 Speaker 3: account in the US Treasury. So it's a way the 193 00:08:35,640 --> 00:08:37,920 Speaker 3: government can make a little bit of money in the margin. 194 00:08:38,000 --> 00:08:38,720 Speaker 5: Right, That's right. 195 00:08:38,880 --> 00:08:42,040 Speaker 3: Let's do some walk about economics. You're based in Florida. 196 00:08:42,120 --> 00:08:44,480 Speaker 3: How is the economy and in Florida holding up? 197 00:08:44,600 --> 00:08:47,040 Speaker 4: I mean, I think that for us, you know, I'm 198 00:08:47,040 --> 00:08:49,320 Speaker 4: in Central Florida, Tampa, and we're still seeing just a 199 00:08:49,480 --> 00:08:52,960 Speaker 4: massive amount of relocations. Business wise, you know, we still 200 00:08:53,040 --> 00:08:56,200 Speaker 4: I mean, our property in the commercial space is actually 201 00:08:56,200 --> 00:08:58,840 Speaker 4: really tight. Our inventory's low as far as the you know, 202 00:08:58,920 --> 00:09:03,040 Speaker 4: retail and consumer housing that has the inventory is ticked up, 203 00:09:03,120 --> 00:09:05,160 Speaker 4: just like it has across the country, but we are 204 00:09:05,200 --> 00:09:10,080 Speaker 4: still seeing a really tight commercial retail availability. So that 205 00:09:10,240 --> 00:09:12,720 Speaker 4: is really just because of the pure a lot of 206 00:09:12,720 --> 00:09:15,800 Speaker 4: businesses relocating to the state of Florida, state of Texas 207 00:09:15,840 --> 00:09:19,679 Speaker 4: from other states that are maybe more restrictive and more expensive. 208 00:09:20,080 --> 00:09:21,440 Speaker 3: Miami in particular too. 209 00:09:21,520 --> 00:09:23,800 Speaker 4: Do you get down to Miami Ago, I do, absolutely, 210 00:09:23,840 --> 00:09:26,559 Speaker 4: and it is it is just Florida just feels like 211 00:09:26,600 --> 00:09:28,400 Speaker 4: a different part of the country right now. Everyone else 212 00:09:28,400 --> 00:09:32,599 Speaker 4: seems to be slowing down, and I just know Florida, Texas, Arizona, 213 00:09:32,679 --> 00:09:36,440 Speaker 4: these countries are really growing their net, you know, businesses, 214 00:09:36,480 --> 00:09:40,319 Speaker 4: which is which is great, but it is a problem 215 00:09:40,559 --> 00:09:42,600 Speaker 4: in between moving office spaces and it has been quite 216 00:09:42,600 --> 00:09:46,360 Speaker 4: a challenge in Tampa just securing office space and doing 217 00:09:46,400 --> 00:09:48,240 Speaker 4: a build out because of how much activity is going on. 218 00:09:48,280 --> 00:09:48,680 Speaker 1: It's crazy. 219 00:09:48,720 --> 00:09:50,520 Speaker 5: It's like we're living in two different worlds. 220 00:09:50,640 --> 00:09:52,760 Speaker 3: Rebecca A delight to have you on the program here 221 00:09:52,800 --> 00:09:55,400 Speaker 3: in New York. Rebecca Walls are president at Walls Are 222 00:09:55,480 --> 00:10:04,840 Speaker 3: Wealth Management. Joining us here on that daybreak Asia, Let's 223 00:10:04,840 --> 00:10:07,320 Speaker 3: bring in our guest. Thomas Todd joins us. Thomas is 224 00:10:07,400 --> 00:10:09,839 Speaker 3: head of a pack investment strategy at black Rock. He 225 00:10:09,960 --> 00:10:12,640 Speaker 3: joins us from our studios in Hong Kong. Good of 226 00:10:12,679 --> 00:10:14,320 Speaker 3: you to drop by. I hope you're doing well. Are 227 00:10:14,360 --> 00:10:16,800 Speaker 3: you still constructive on markets generally speaking? 228 00:10:17,800 --> 00:10:20,240 Speaker 7: Hey Doug, how are you doing? Good to be back? Yeah, 229 00:10:20,280 --> 00:10:21,720 Speaker 7: I mean, I think for the for the most part, 230 00:10:21,760 --> 00:10:24,800 Speaker 7: there are some some shifts that we've been making over 231 00:10:24,840 --> 00:10:29,760 Speaker 7: the last month, particularly around the US market, not essentially 232 00:10:29,800 --> 00:10:32,360 Speaker 7: telling investors to to to sell out of positions, but 233 00:10:32,480 --> 00:10:35,920 Speaker 7: maybe take some rotation and beta off the table. I mean, 234 00:10:35,920 --> 00:10:39,920 Speaker 7: the US economy looks relatively strong. There's a little bit 235 00:10:39,960 --> 00:10:43,480 Speaker 7: concerned about the labor market and perhaps that weakening, but 236 00:10:43,960 --> 00:10:47,200 Speaker 7: earnings growth across most sectors has done pretty well. I think, 237 00:10:47,240 --> 00:10:49,160 Speaker 7: you know, in terms of taking the bit off, it's 238 00:10:49,160 --> 00:10:53,280 Speaker 7: more about the rotation trade, which we see continuing, particularly 239 00:10:53,280 --> 00:10:56,320 Speaker 7: into some of those those small caps and companies that 240 00:10:56,360 --> 00:10:59,440 Speaker 7: are more more aligned and more sensitive to to FED 241 00:10:59,480 --> 00:11:00,880 Speaker 7: funds rate in terms of borrowing. 242 00:11:01,320 --> 00:11:03,480 Speaker 3: I have to ask you about the AI trade because 243 00:11:03,520 --> 00:11:06,400 Speaker 3: we were kind of breaking down the Nvidia result yesterday 244 00:11:06,440 --> 00:11:08,840 Speaker 3: after the bell of course, and the fact that the 245 00:11:08,880 --> 00:11:12,040 Speaker 3: revenue forecast was a little disappointing to some who have 246 00:11:12,160 --> 00:11:16,800 Speaker 3: been very optimistic about the rate of sales growth continuing. 247 00:11:16,840 --> 00:11:19,280 Speaker 3: I mean, when you look at some of these AI stocks, 248 00:11:19,440 --> 00:11:21,960 Speaker 3: are you still a buyer of the thesis? Are you 249 00:11:22,080 --> 00:11:24,439 Speaker 3: still willing to put new money to work in these names? 250 00:11:24,559 --> 00:11:27,560 Speaker 3: Or maybe it's getting a little topy here? What do 251 00:11:27,600 --> 00:11:30,360 Speaker 3: you think? Yeah? I think not just now. 252 00:11:31,000 --> 00:11:35,280 Speaker 7: You know, Navidia is obviously the kind of the poster 253 00:11:35,400 --> 00:11:39,240 Speaker 7: child for that trade, and in terms of the AI story, 254 00:11:39,280 --> 00:11:41,360 Speaker 7: obviously it's a long term story, you know. I think 255 00:11:41,520 --> 00:11:44,240 Speaker 7: what's basically happened is, you know, we've had a lot 256 00:11:44,240 --> 00:11:47,040 Speaker 7: of rhetoric around what AI means for productivity, gains, et cetera. 257 00:11:47,200 --> 00:11:51,000 Speaker 7: It's very hard to quantify that the initial phase of 258 00:11:51,040 --> 00:11:55,559 Speaker 7: that investment leg was around basically buying hardware and chips 259 00:11:55,600 --> 00:11:58,840 Speaker 7: makers semiconductors, that that was kind of the first rotation 260 00:11:58,920 --> 00:12:01,240 Speaker 7: we've seen. And then we have investors looking at, Okay, 261 00:12:01,320 --> 00:12:04,920 Speaker 7: what's what's the actual next leg of this? Is it cybersecurity? 262 00:12:04,960 --> 00:12:06,640 Speaker 7: You know, where do we where do we go after this? 263 00:12:06,760 --> 00:12:08,200 Speaker 7: So I think, you know, we're looking at it as 264 00:12:08,200 --> 00:12:11,440 Speaker 7: a longer term thematic. It always concerns me when the 265 00:12:11,559 --> 00:12:14,280 Speaker 7: entire market is looking at the earnings, the earnings calls 266 00:12:14,280 --> 00:12:16,640 Speaker 7: of a single company in the S and P five hundred, 267 00:12:16,679 --> 00:12:19,720 Speaker 7: So I think in terms of concentration risks, they are there. 268 00:12:19,760 --> 00:12:21,240 Speaker 7: But I think that the AI story is more of 269 00:12:21,240 --> 00:12:23,920 Speaker 7: a long term but probably it's one to revisit the 270 00:12:24,080 --> 00:12:24,560 Speaker 7: next year. 271 00:12:24,679 --> 00:12:26,880 Speaker 3: Are you equally as cautious on some of those high 272 00:12:26,920 --> 00:12:30,760 Speaker 3: bandwidth memory chip makers less sk Heinex in South Korea 273 00:12:30,760 --> 00:12:33,480 Speaker 3: along with Samsung. Are you cautious? Well, we don't. 274 00:12:33,520 --> 00:12:37,040 Speaker 7: I mean I don't look particularly at single stocks, but certainly, 275 00:12:37,080 --> 00:12:40,400 Speaker 7: you know, if you look at their their holdings or 276 00:12:40,440 --> 00:12:44,400 Speaker 7: their waitings in the South Korean Stock Index COSTP or 277 00:12:44,480 --> 00:12:47,280 Speaker 7: the or the Taiwan Stock Index, it is a little 278 00:12:47,320 --> 00:12:49,400 Speaker 7: bit concerning. You know, there's about they're about twenty five 279 00:12:49,400 --> 00:12:52,479 Speaker 7: percent of both, and when we look at the general portfolio, 280 00:12:52,480 --> 00:12:54,480 Speaker 7: it is we are talking about how do we take 281 00:12:54,520 --> 00:12:58,000 Speaker 7: some of the growth exposure, the tech exposure away from 282 00:12:58,000 --> 00:13:02,320 Speaker 7: that and moving into Q moving to Q four and 283 00:13:02,360 --> 00:13:06,120 Speaker 7: also into next year. It's about, you know, looking for 284 00:13:06,200 --> 00:13:09,040 Speaker 7: economies that are more driven by domestic factors rather than 285 00:13:09,080 --> 00:13:12,079 Speaker 7: than global factors as we move into into US election. 286 00:13:12,200 --> 00:13:14,640 Speaker 7: So South Korea Taiwan are not in that bucket. It's 287 00:13:14,679 --> 00:13:16,520 Speaker 7: more kind of India and Japan, at least on the 288 00:13:16,600 --> 00:13:17,800 Speaker 7: on the larger exposure. 289 00:13:17,920 --> 00:13:19,920 Speaker 3: You read my mind, I was wondering about Japan and 290 00:13:20,000 --> 00:13:22,960 Speaker 3: the domestic demand story there, But the retail sales number 291 00:13:23,000 --> 00:13:25,720 Speaker 3: that we just had for July was very disappointing. Half 292 00:13:25,720 --> 00:13:28,000 Speaker 3: of what the market's looking for here? Is there something 293 00:13:28,240 --> 00:13:29,480 Speaker 3: to be concerned about now? 294 00:13:30,880 --> 00:13:33,280 Speaker 7: You know, in terms of the in terms of the 295 00:13:33,320 --> 00:13:36,000 Speaker 7: next leg of the structural bull story in Japan, it 296 00:13:36,080 --> 00:13:38,200 Speaker 7: is about the domestic consumer. You know, you have to 297 00:13:38,200 --> 00:13:40,440 Speaker 7: bear in mind that you know, for forty years they've 298 00:13:40,440 --> 00:13:45,760 Speaker 7: had basically zero inflation or disinflation, and so it's going 299 00:13:45,800 --> 00:13:47,679 Speaker 7: to take a little bit of time for that consumer 300 00:13:47,720 --> 00:13:51,240 Speaker 7: mindset to change. We are seeing some signs that we're 301 00:13:51,280 --> 00:13:54,760 Speaker 7: getting more investing through NISA programs and things like that, 302 00:13:54,880 --> 00:13:56,959 Speaker 7: but you know, there is a lot of money sitting 303 00:13:56,960 --> 00:13:59,400 Speaker 7: on the sideline in Japan, somewhere around seven trillion US 304 00:13:59,480 --> 00:14:04,200 Speaker 7: dollars in cash, and you know, inflation is going up. 305 00:14:04,640 --> 00:14:07,280 Speaker 7: The stock market did have a brief drop, and I 306 00:14:07,280 --> 00:14:10,359 Speaker 7: think I think if you look the foreign investor positioning, 307 00:14:10,720 --> 00:14:13,120 Speaker 7: it's kind of the index money kind of moved out 308 00:14:13,160 --> 00:14:15,000 Speaker 7: very quickly, and now it's kind of more of an 309 00:14:15,080 --> 00:14:18,600 Speaker 7: active story finding those companies with actual earnings growth that 310 00:14:18,640 --> 00:14:21,720 Speaker 7: benefit from structural reform. So it will take some time, 311 00:14:21,800 --> 00:14:24,120 Speaker 7: and there is a lot of faith being put in 312 00:14:24,160 --> 00:14:26,800 Speaker 7: that consumer story, but I think that transition is going 313 00:14:26,840 --> 00:14:28,560 Speaker 7: to take a little bit of time. But we're still 314 00:14:28,640 --> 00:14:29,800 Speaker 7: we're still bulls on Japan. 315 00:14:30,160 --> 00:14:33,600 Speaker 3: A few hours before Jay Powell spoke at the Jackson 316 00:14:33,640 --> 00:14:36,960 Speaker 3: Hole Symposium, we heard from the governor of the bojks 317 00:14:37,280 --> 00:14:40,640 Speaker 3: way to talking about the possibility, the likelihood that the 318 00:14:40,640 --> 00:14:44,000 Speaker 3: Bank of Japan would continue to raise interest rates. We 319 00:14:44,040 --> 00:14:46,600 Speaker 3: see a rate hike between now and the end of 320 00:14:46,600 --> 00:14:47,480 Speaker 3: the year from the BOJ. 321 00:14:48,080 --> 00:14:49,440 Speaker 7: I think, so yeah, I mean, I don't think it's 322 00:14:49,480 --> 00:14:51,720 Speaker 7: going to come in September, but I think October is 323 00:14:51,760 --> 00:14:55,920 Speaker 7: definitely a possibility. Inflation is trending up, and so, you know, 324 00:14:55,960 --> 00:14:58,240 Speaker 7: I think that's definitely a possibility. In terms of the 325 00:14:58,880 --> 00:15:02,120 Speaker 7: JPY movement, it's very basic. But we also have to 326 00:15:02,160 --> 00:15:04,800 Speaker 7: understand that the BOJ moves in increments of ten BIPs 327 00:15:04,800 --> 00:15:06,840 Speaker 7: and the Fed moves in increments of twenty five BIPs. 328 00:15:06,880 --> 00:15:10,520 Speaker 7: So net you know, I think that there's there's still 329 00:15:10,520 --> 00:15:13,760 Speaker 7: a possibility that we get some repricing on four rate 330 00:15:13,800 --> 00:15:16,280 Speaker 7: cuts this year, So I do think that the end 331 00:15:16,320 --> 00:15:19,360 Speaker 7: will continue to appreciate, but we could see a little 332 00:15:19,360 --> 00:15:21,240 Speaker 7: bit of a depreciation going into end of year. 333 00:15:21,280 --> 00:15:23,920 Speaker 3: To what extent would we have a much better Japanese 334 00:15:24,000 --> 00:15:27,560 Speaker 3: economy if the Chinese economy we're doing better than it is. 335 00:15:29,440 --> 00:15:32,360 Speaker 7: I mean, I don't think it's that it's that relevant. 336 00:15:32,440 --> 00:15:35,920 Speaker 7: I mean, you're currently again moving into US election cycle. 337 00:15:36,360 --> 00:15:39,760 Speaker 7: We're looking at those economies that are more exposed to 338 00:15:39,880 --> 00:15:44,040 Speaker 7: China trade, China growth and US trade and US growth, 339 00:15:44,080 --> 00:15:46,680 Speaker 7: and basically trying to find economies that are more domestically driven. 340 00:15:46,880 --> 00:15:50,640 Speaker 7: Japan is obviously a big exporter, but one of the 341 00:15:50,720 --> 00:15:52,280 Speaker 7: one of the things that we're looking at in Japan 342 00:15:52,320 --> 00:15:57,720 Speaker 7: now is basically moving away from those broad export driven 343 00:15:58,240 --> 00:16:02,200 Speaker 7: indexes topic for example, more into kind of the granular, 344 00:16:02,960 --> 00:16:08,120 Speaker 7: high divinend type of exposure. So the trade with China 345 00:16:08,160 --> 00:16:10,760 Speaker 7: is important, but it's again we're kind of more focused 346 00:16:10,800 --> 00:16:11,960 Speaker 7: on the domestic story here. 347 00:16:12,520 --> 00:16:15,120 Speaker 3: So if it's the domestic story, then you avoid China 348 00:16:15,120 --> 00:16:17,040 Speaker 3: at all cost I would imagine, right. 349 00:16:18,120 --> 00:16:20,480 Speaker 7: Well, I mean, I think for the most part, foreign 350 00:16:20,480 --> 00:16:23,640 Speaker 7: investors have been avoiding China at all costs. But actually 351 00:16:23,920 --> 00:16:27,560 Speaker 7: China is very much driven by the domestic domestic retail. 352 00:16:27,600 --> 00:16:29,040 Speaker 7: That's kind of the issue is that that. 353 00:16:29,400 --> 00:16:31,440 Speaker 3: Growth hasn't been there at all. 354 00:16:31,600 --> 00:16:34,520 Speaker 7: So until that picks up, I think foreign investors are 355 00:16:34,520 --> 00:16:36,200 Speaker 7: just going to stay on the sideline when it comes 356 00:16:36,200 --> 00:16:37,840 Speaker 7: to when it comes to China equities. 357 00:16:38,360 --> 00:16:40,520 Speaker 3: Tom, It's always a pleasure to have you on the program. 358 00:16:40,680 --> 00:16:43,480 Speaker 3: Thank you so much. Thomas Ta ahead of APAC Investment 359 00:16:43,560 --> 00:16:47,200 Speaker 3: Strategy at Blackrock, joining us from our studios in Hong Kong. 360 00:16:47,280 --> 00:16:56,240 Speaker 3: Here on daybreak Asia, Let's go to Singapore. Bring in 361 00:16:56,320 --> 00:17:00,480 Speaker 3: Bloomberg's marrying Nicola, who is one of the m lives 362 00:17:00,560 --> 00:17:03,000 Speaker 3: in the APAC region. I was looking at the M 363 00:17:03,080 --> 00:17:05,760 Speaker 3: Live blog right on the Bloomberg terminal and I see 364 00:17:05,760 --> 00:17:08,440 Speaker 3: that you had a posting earlier in the day. What 365 00:17:08,560 --> 00:17:13,160 Speaker 3: was the genesis behind this? What caused you to write 366 00:17:13,200 --> 00:17:15,639 Speaker 3: about the subject matter that you unpacked today. 367 00:17:16,480 --> 00:17:19,640 Speaker 1: Yeah, I think the main thing, especially with what we've 368 00:17:19,680 --> 00:17:22,359 Speaker 1: seen with the equity markets, we've been so focused on 369 00:17:22,400 --> 00:17:25,240 Speaker 1: in Vidia and how in Nvidia plays out into the 370 00:17:25,240 --> 00:17:28,199 Speaker 1: rest of the markets. But the key thing here is 371 00:17:28,240 --> 00:17:30,879 Speaker 1: that even though we had a weekday because in Vidia 372 00:17:30,960 --> 00:17:33,560 Speaker 1: dragged down the S and P five hundred, most stocks 373 00:17:33,600 --> 00:17:36,399 Speaker 1: advanced and you're seeing this broad based rally and a 374 00:17:37,080 --> 00:17:39,919 Speaker 1: sign of a more sustainable rally because now the focus 375 00:17:40,040 --> 00:17:43,040 Speaker 1: is not only shifting, is shifting from the Magnificent seven 376 00:17:43,280 --> 00:17:45,520 Speaker 1: to the rest of the four ninety three, and that 377 00:17:45,600 --> 00:17:49,960 Speaker 1: actually bodes very well for a more sustainable and broad 378 00:17:50,040 --> 00:17:50,800 Speaker 1: based rally. 379 00:17:50,960 --> 00:17:52,679 Speaker 3: Do you think that the pivot on the part of 380 00:17:52,680 --> 00:17:54,719 Speaker 3: the FED chairman last Friday had a lot to do 381 00:17:54,800 --> 00:17:57,959 Speaker 3: with what you're describing here in terms of a broadening 382 00:17:58,560 --> 00:18:01,280 Speaker 3: where the market can feel that they're some wind at 383 00:18:01,320 --> 00:18:01,760 Speaker 3: its back. 384 00:18:02,640 --> 00:18:05,359 Speaker 1: Well, it also helps too that Q two earnings were 385 00:18:05,440 --> 00:18:07,439 Speaker 1: quite strong for the rest of the four ninety three. 386 00:18:07,640 --> 00:18:11,359 Speaker 1: I think that's another key important factor to consider. So 387 00:18:11,400 --> 00:18:14,800 Speaker 1: it's actually that fundamentals are working in their favor as well. 388 00:18:15,480 --> 00:18:17,639 Speaker 1: Of course, the fact that the FED is pivoting and 389 00:18:17,640 --> 00:18:20,639 Speaker 1: we're looking for cuts to come as soon as September 390 00:18:20,720 --> 00:18:23,159 Speaker 1: is another one. But I think the fact that the 391 00:18:23,200 --> 00:18:26,840 Speaker 1: fundamentals are also playing in favor and valuations are actually 392 00:18:26,840 --> 00:18:31,320 Speaker 1: looking better and brighter for the four ninety three says 393 00:18:31,600 --> 00:18:33,439 Speaker 1: says something for equities. 394 00:18:33,560 --> 00:18:36,280 Speaker 3: So if you were to compare and contrast the games 395 00:18:36,280 --> 00:18:38,720 Speaker 3: that we have seen for the US equity market versus 396 00:18:38,840 --> 00:18:42,320 Speaker 3: let's say the US bond market, not just treasuries, but 397 00:18:42,440 --> 00:18:46,120 Speaker 3: corporate bonds as well. What do we know about that relationship. 398 00:18:46,960 --> 00:18:50,000 Speaker 1: Yeah, Interestingly, we've had over the past few years that 399 00:18:50,040 --> 00:18:54,480 Speaker 1: there's been this positive correlation right between bonds and equities, 400 00:18:54,520 --> 00:18:59,399 Speaker 1: so as especially, and they haven't usually there's a negative 401 00:18:59,400 --> 00:19:05,240 Speaker 1: correlation where the stocks when they underperform, bonds outperform. However, 402 00:19:05,400 --> 00:19:08,919 Speaker 1: over the last year, sometimes when you see, you know, 403 00:19:09,040 --> 00:19:13,560 Speaker 1: the bonds underperforming, equities are also underperforming. And we've seen 404 00:19:13,600 --> 00:19:17,240 Speaker 1: an underperformance in bonds for quite some time. So now 405 00:19:17,440 --> 00:19:22,360 Speaker 1: we're seeing that the comeback of that negative correlation coming 406 00:19:22,440 --> 00:19:27,800 Speaker 1: into play, which is actually supportive because if you're a manager, 407 00:19:28,200 --> 00:19:30,200 Speaker 1: you know, like I was at some point, and you're 408 00:19:30,240 --> 00:19:33,359 Speaker 1: managing sixty forty now your gains are being buffered. So 409 00:19:33,440 --> 00:19:35,719 Speaker 1: let's say you've got some losses in the equity markets, 410 00:19:35,760 --> 00:19:38,679 Speaker 1: and the recent losses, they're being somewhat buffered by the 411 00:19:38,720 --> 00:19:42,640 Speaker 1: fact that you've been gaining on duration and on bonds. 412 00:19:43,000 --> 00:19:47,000 Speaker 1: So we have seen a bonds gaining traction as a 413 00:19:47,040 --> 00:19:49,800 Speaker 1: result of the FED and it's a question of does 414 00:19:49,840 --> 00:19:52,879 Speaker 1: that continue because or is everything already priced in? 415 00:19:53,960 --> 00:19:57,679 Speaker 3: So when you're describing what the expectations are for cuts 416 00:19:57,720 --> 00:19:59,760 Speaker 3: and interest rates from the Fed. I think I'd like 417 00:19:59,800 --> 00:20:02,560 Speaker 3: to talk about the dollar here and get your views 418 00:20:02,640 --> 00:20:05,359 Speaker 3: on whether or not you're expecting much more in the 419 00:20:05,400 --> 00:20:08,000 Speaker 3: way of dollar weakness. We've seen a fair amount already, 420 00:20:08,000 --> 00:20:13,000 Speaker 3: I think, down about four percent since Jackson Hole. Is 421 00:20:13,040 --> 00:20:15,720 Speaker 3: this something we can expect more of more dollar weakness? 422 00:20:15,720 --> 00:20:18,520 Speaker 3: And then what made that do to some of the 423 00:20:18,560 --> 00:20:21,600 Speaker 3: em currencies that you track closely there in Singapore. 424 00:20:22,240 --> 00:20:25,440 Speaker 1: Yeah, I feel that the dollar is always and forever 425 00:20:25,560 --> 00:20:29,800 Speaker 1: about rate differentials, and if rate differentials are still working 426 00:20:29,840 --> 00:20:32,160 Speaker 1: in the favor of the dollar, it's hard to see 427 00:20:32,160 --> 00:20:35,359 Speaker 1: the dollar week in too much. And that's where it 428 00:20:35,400 --> 00:20:38,919 Speaker 1: comes in where if let's say the FED goes aggressive 429 00:20:39,040 --> 00:20:41,800 Speaker 1: and starts hiking and starts cutting grates a lot more 430 00:20:41,800 --> 00:20:44,680 Speaker 1: aggressively than we expect, then sure the dollar is going 431 00:20:44,720 --> 00:20:48,359 Speaker 1: to struggle. But if it takes a more methodical and 432 00:20:48,760 --> 00:20:54,160 Speaker 1: cautious approach, it's hard for there to see further weakness 433 00:20:54,160 --> 00:20:57,800 Speaker 1: in the dollar if their nominal yields are still above 434 00:20:58,640 --> 00:21:05,000 Speaker 1: several currencies within G ten and as well within emerging markets. 435 00:21:05,080 --> 00:21:07,479 Speaker 3: When you look at what some of your colleagues are 436 00:21:07,480 --> 00:21:10,639 Speaker 3: writing on the M Blog M Live Blog today. Is 437 00:21:10,680 --> 00:21:13,640 Speaker 3: there anything that was kind of jumped off the page 438 00:21:13,680 --> 00:21:15,480 Speaker 3: so to speak to you, anything that's interesting. 439 00:21:16,480 --> 00:21:19,680 Speaker 1: Yeah, you know, one of my colleagues actually wrote about, 440 00:21:19,840 --> 00:21:24,239 Speaker 1: you know, rising EM rate expectations and the ability and 441 00:21:24,440 --> 00:21:28,600 Speaker 1: that being an underpinning for EM currencies and the fact 442 00:21:28,640 --> 00:21:31,359 Speaker 1: that as the FED prepares to cut that's going to 443 00:21:31,359 --> 00:21:34,959 Speaker 1: be supportive for EM and I think it supports you know, 444 00:21:35,160 --> 00:21:36,840 Speaker 1: a lot of the high carry so a lot of 445 00:21:36,880 --> 00:21:41,840 Speaker 1: the emerging market currencies with higher yields. I think it 446 00:21:41,880 --> 00:21:45,200 Speaker 1: doesn't bode as well for a lot of the currencies 447 00:21:45,200 --> 00:21:48,200 Speaker 1: with lower yields, and a lot of them are in Asia. 448 00:21:48,480 --> 00:21:50,800 Speaker 3: You know, it was interesting we were talking about the 449 00:21:51,280 --> 00:21:53,840 Speaker 3: tariff's story as it relates to some of the Chinese 450 00:21:53,880 --> 00:21:56,960 Speaker 3: electric vehicles a moment ago. Do you think the tariffs 451 00:21:57,200 --> 00:22:00,320 Speaker 3: have the potential to play a big role in holding 452 00:22:00,440 --> 00:22:02,879 Speaker 3: back some of the growth in China going forward? 453 00:22:03,720 --> 00:22:05,520 Speaker 1: I think so. I think it carries a lot of 454 00:22:05,560 --> 00:22:09,520 Speaker 1: reluctance for companies to invest in private companies to invest. 455 00:22:09,560 --> 00:22:12,040 Speaker 1: I think that's been and we've seen demand has been 456 00:22:12,080 --> 00:22:18,639 Speaker 1: exceptionally sluggish. Exporters, multinationals are hoarding, onto, onto, onto cash 457 00:22:18,800 --> 00:22:22,600 Speaker 1: onto onto US dollars, and a lot of it has 458 00:22:22,640 --> 00:22:25,640 Speaker 1: to do with the fact of there is this overhang 459 00:22:26,119 --> 00:22:29,639 Speaker 1: of what is happening within the markets about tariffs, and 460 00:22:29,680 --> 00:22:33,040 Speaker 1: I think if that continues to linger, you will see 461 00:22:33,080 --> 00:22:36,439 Speaker 1: that that's going to have broader implications on the on 462 00:22:36,520 --> 00:22:39,000 Speaker 1: the Chinese equity markets and on the currency as well. 463 00:22:39,960 --> 00:22:49,080 Speaker 3: Daybreak Asia. That's Mary Niccolo. Let's bring in our guest, 464 00:22:49,400 --> 00:22:53,480 Speaker 3: Yu Chian Ding, head of China Autos Research at HSBC 465 00:22:54,000 --> 00:22:58,680 Speaker 3: Chian High Securities, and Yu Chian joins us from our 466 00:22:58,800 --> 00:23:02,000 Speaker 3: studios inh good of you to stop by, Thanks so much. 467 00:23:02,359 --> 00:23:05,240 Speaker 3: Can we talk about the disappointment that we saw yesterday 468 00:23:05,240 --> 00:23:08,399 Speaker 3: and some of those EV makers. What's happening with the 469 00:23:08,440 --> 00:23:10,000 Speaker 3: EV makers in China right now? 470 00:23:11,480 --> 00:23:13,840 Speaker 6: Yeah, thank you for having me. I would say for 471 00:23:13,880 --> 00:23:16,200 Speaker 6: the first twenty five days of August that the EV 472 00:23:16,280 --> 00:23:21,000 Speaker 6: penetration in China breaking fifty five percent, So EV is 473 00:23:21,040 --> 00:23:25,720 Speaker 6: now materially the majority of the mix in China. But 474 00:23:26,000 --> 00:23:28,080 Speaker 6: in terms of the earning season, there's a lot of 475 00:23:28,160 --> 00:23:32,160 Speaker 6: expection expectation play too, So when we talk about stocks, 476 00:23:32,400 --> 00:23:35,680 Speaker 6: I would say that's a little bit different. Last night, 477 00:23:36,119 --> 00:23:40,159 Speaker 6: the ad R EV stocks had a strong rebound, although 478 00:23:40,200 --> 00:23:43,840 Speaker 6: the other day it was a little bit of roller coaster. 479 00:23:44,119 --> 00:23:47,760 Speaker 6: I think the second quarter print so far we've got 480 00:23:47,800 --> 00:23:51,560 Speaker 6: from the EV makers are generally strong, but the marketing expectation, 481 00:23:51,760 --> 00:23:54,120 Speaker 6: the market focus that has been pretty much hinged on 482 00:23:54,760 --> 00:23:57,639 Speaker 6: the second half. Our look, some of the company didn't 483 00:23:58,080 --> 00:24:02,080 Speaker 6: talk much, so the market got a little bit disappoint 484 00:24:02,240 --> 00:24:05,000 Speaker 6: and it overshoot the night before last night, but it 485 00:24:05,119 --> 00:24:08,719 Speaker 6: rebounded last night. So I would say generally we are 486 00:24:08,840 --> 00:24:12,199 Speaker 6: sailing into a high season in September and October, and 487 00:24:12,240 --> 00:24:16,119 Speaker 6: the China government has doubled down the trading subsidy on 488 00:24:16,160 --> 00:24:18,840 Speaker 6: the EV side and also on the ice side by 489 00:24:18,840 --> 00:24:22,160 Speaker 6: the end of July. We're seeing more follow up policy 490 00:24:22,200 --> 00:24:25,560 Speaker 6: coming in August. So we believe the double down of 491 00:24:25,680 --> 00:24:29,720 Speaker 6: the policy support and also the high season, coupled with 492 00:24:29,920 --> 00:24:34,040 Speaker 6: a strong new model supply pipeline into September and October, 493 00:24:34,160 --> 00:24:38,720 Speaker 6: should boost the marginal improvement from the whole sector perspective, 494 00:24:38,960 --> 00:24:42,360 Speaker 6: especially benefiting the ones with the new model coming, such 495 00:24:42,359 --> 00:24:44,600 Speaker 6: as byd X, Pond and Neil. 496 00:24:47,240 --> 00:24:49,639 Speaker 1: Just a quick This is very from Singapore. Just a 497 00:24:49,720 --> 00:24:52,560 Speaker 1: quick question for you. So we've seen a lot of 498 00:24:52,640 --> 00:24:57,399 Speaker 1: discussion about tariffs on the Chinese auto industry. How is 499 00:24:57,440 --> 00:25:01,679 Speaker 1: this affecting some of the investment the ambition of some 500 00:25:01,720 --> 00:25:02,800 Speaker 1: of these automakers. 501 00:25:04,640 --> 00:25:09,000 Speaker 6: Yes, Indeed, the global trade environment is challenging and complicated. 502 00:25:09,440 --> 00:25:15,240 Speaker 6: I would say from the China export perspective, currently EV 503 00:25:15,560 --> 00:25:19,960 Speaker 6: is the highlight, but it's only about twenty five percent 504 00:25:20,040 --> 00:25:22,719 Speaker 6: of the mix. What do we expect given the product 505 00:25:22,720 --> 00:25:29,560 Speaker 6: strengths and the competitiveness of the whole industry, that there 506 00:25:29,600 --> 00:25:32,520 Speaker 6: should be more gross opportunity down the road. But the 507 00:25:32,520 --> 00:25:36,000 Speaker 6: emerging market such as ZM, South America and the Mid 508 00:25:36,000 --> 00:25:38,680 Speaker 6: the East could be the key focus in a come 509 00:25:39,160 --> 00:25:42,919 Speaker 6: in in the coming years, while in some developed market, 510 00:25:43,080 --> 00:25:47,480 Speaker 6: given the terraff barrier, it could be proved to be 511 00:25:47,600 --> 00:25:51,080 Speaker 6: a little difficult. So again there's a still room to go, 512 00:25:51,240 --> 00:25:54,640 Speaker 6: but it's more emerging market focused on the China EV side. 513 00:25:55,119 --> 00:25:57,240 Speaker 3: So you could make the case then that the teriff 514 00:25:57,240 --> 00:26:00,760 Speaker 3: really is a response to very low pricing. And you 515 00:26:00,760 --> 00:26:03,520 Speaker 3: could also make the case that China right now, given 516 00:26:03,640 --> 00:26:06,800 Speaker 3: a lot of the overcapacity, and I use that term cautiously, 517 00:26:06,840 --> 00:26:10,359 Speaker 3: I know it's up for debate, but that China is 518 00:26:10,400 --> 00:26:13,800 Speaker 3: attempting to kind of export some of the overcapacity to 519 00:26:13,920 --> 00:26:19,240 Speaker 3: markets offshore the United States or maybe areas of Latin America, 520 00:26:19,359 --> 00:26:22,159 Speaker 3: parts of Europe as well. Do you think there's going 521 00:26:22,200 --> 00:26:25,600 Speaker 3: to be a lot more forced consolidation within the EV 522 00:26:25,840 --> 00:26:29,880 Speaker 3: manufacturing space in China because of this issue of so 523 00:26:29,960 --> 00:26:31,119 Speaker 3: called overcapacity. 524 00:26:32,480 --> 00:26:36,240 Speaker 6: Great question, but a couple of them. So let's break 525 00:26:36,280 --> 00:26:39,280 Speaker 6: it down. So I would say, actually, the China EV 526 00:26:39,400 --> 00:26:42,880 Speaker 6: is not a competing on low pricing OVISE market. Taking 527 00:26:42,920 --> 00:26:46,800 Speaker 6: BID for example, I so European pricing is almost twice 528 00:26:46,880 --> 00:26:49,119 Speaker 6: as of US as what is in China. In the 529 00:26:49,119 --> 00:26:51,440 Speaker 6: rest of the globe is also having a high premium 530 00:26:51,440 --> 00:26:55,119 Speaker 6: over fifty percent versus China pricing, so it's not really 531 00:26:55,160 --> 00:26:58,879 Speaker 6: competing on the low price. And another aspect about the 532 00:26:58,960 --> 00:27:02,240 Speaker 6: China EV going globe is part of the part of 533 00:27:02,280 --> 00:27:05,480 Speaker 6: the production has now been localized. It's not just made 534 00:27:05,480 --> 00:27:10,080 Speaker 6: in China ship shipped abroad. BID just completed the Thailand 535 00:27:10,119 --> 00:27:14,120 Speaker 6: plant and they're going to open the Brazil plant next year, 536 00:27:14,160 --> 00:27:17,080 Speaker 6: in Anesia plant the year after. They're also building a 537 00:27:17,119 --> 00:27:21,480 Speaker 6: two plant in Europe in Turkey and Hungary. So the 538 00:27:21,520 --> 00:27:26,320 Speaker 6: localization should mitigate part of the tariff risk because they 539 00:27:26,440 --> 00:27:29,320 Speaker 6: want to be more committed to the local market. So 540 00:27:29,560 --> 00:27:32,600 Speaker 6: these are the two angles with the contact into the 541 00:27:32,640 --> 00:27:37,520 Speaker 6: broader China TV condition debate. And also consolidation is more 542 00:27:37,600 --> 00:27:40,960 Speaker 6: like a domestic topic. Yes, we do see the domatic 543 00:27:41,280 --> 00:27:44,199 Speaker 6: consolidation happening in China. If we are talking about the 544 00:27:44,240 --> 00:27:50,199 Speaker 6: top ten EV makers, consolidation rate is increasing from seventy 545 00:27:50,200 --> 00:27:54,320 Speaker 6: percent two years ago to close to eighty percent, So 546 00:27:54,359 --> 00:27:57,840 Speaker 6: we do see the consolidation happen. Small players got phased out, 547 00:27:57,880 --> 00:28:02,000 Speaker 6: squeezed out, there's less brand left. Still the status quo 548 00:28:02,200 --> 00:28:06,639 Speaker 6: is is still too much and we're in meido of this. 549 00:28:07,320 --> 00:28:10,160 Speaker 6: During the process of consolidation, it could be a temporary 550 00:28:10,200 --> 00:28:13,640 Speaker 6: value destroyed for the space. But when we reach the inflection, 551 00:28:14,680 --> 00:28:17,520 Speaker 6: the pricing environment should be able to get better. But 552 00:28:17,560 --> 00:28:20,680 Speaker 6: we're still in meido of this, and some of our 553 00:28:20,720 --> 00:28:25,080 Speaker 6: EV companies Leader talked about twenty six could be the 554 00:28:25,119 --> 00:28:28,280 Speaker 6: consolidation year, so we are now righting medea of that. 555 00:28:28,560 --> 00:28:30,919 Speaker 6: But it is happening in China. 556 00:28:31,160 --> 00:28:33,479 Speaker 1: So tariff's socide. What do you think is the biggest 557 00:28:33,560 --> 00:28:35,760 Speaker 1: risk for earnings growth for these auto companies? 558 00:28:38,360 --> 00:28:42,640 Speaker 6: I would say generally the tariff in certain markets such 559 00:28:42,640 --> 00:28:46,040 Speaker 6: as US and Europe is in full discussion, so we 560 00:28:46,160 --> 00:28:50,560 Speaker 6: know where the risk is where the debate. The company 561 00:28:50,680 --> 00:28:54,760 Speaker 6: has their strategy formed out, more emergent market driven already, 562 00:28:54,880 --> 00:28:57,600 Speaker 6: and for the for the places with the tariff, the 563 00:28:57,680 --> 00:29:00,520 Speaker 6: local plant has been building. Of course, there will be 564 00:29:00,640 --> 00:29:05,280 Speaker 6: higher execution costs and longer execution time, but that's the way, 565 00:29:05,440 --> 00:29:08,320 Speaker 6: that's the proper way to mitigate the risk to the 566 00:29:08,440 --> 00:29:11,959 Speaker 6: most and also build the business into the midterm for longer. 567 00:29:12,280 --> 00:29:15,240 Speaker 6: So generally, I would say it's largely priced ing with 568 00:29:15,360 --> 00:29:19,040 Speaker 6: the current market expectation for what has been announced was 569 00:29:19,120 --> 00:29:22,360 Speaker 6: in the news enterprise, and for the rest I think 570 00:29:22,800 --> 00:29:28,200 Speaker 6: I would stress that the localization plan has been in 571 00:29:28,280 --> 00:29:31,960 Speaker 6: progress that should help the potential tariff risk should there. 572 00:29:32,240 --> 00:29:35,680 Speaker 3: More so, we've talked a lot about in terms of 573 00:29:35,720 --> 00:29:37,960 Speaker 3: what the foreign markets would be for some of these 574 00:29:38,040 --> 00:29:40,640 Speaker 3: Chinese v EV makers. Let's talk a little bit about 575 00:29:40,640 --> 00:29:43,640 Speaker 3: what's happening domestically in China and the extent to which 576 00:29:43,720 --> 00:29:47,240 Speaker 3: some of the European manufacturers are being squeezed out. Is 577 00:29:47,240 --> 00:29:49,200 Speaker 3: that going to continue at a pretty healthy clip? 578 00:29:50,680 --> 00:29:56,440 Speaker 6: I would say the consolidation coupled with electrification or the 579 00:29:56,480 --> 00:30:00,680 Speaker 6: ev transition of the two themes so different OEMs tackling 580 00:30:00,760 --> 00:30:04,080 Speaker 6: that with different strategy. Of course, if you have a 581 00:30:04,080 --> 00:30:07,600 Speaker 6: strong EV pipeline from the pricing perspective, that should be 582 00:30:07,960 --> 00:30:11,479 Speaker 6: able to remain relatively more dynamic. I would argue some 583 00:30:11,560 --> 00:30:17,120 Speaker 6: of the incumbency company the ice the ice makers probably 584 00:30:17,200 --> 00:30:20,360 Speaker 6: under the near term pressure because the consumers prefers EV 585 00:30:20,880 --> 00:30:24,880 Speaker 6: and the consumers prefers advanced the software experience. For the ones, 586 00:30:25,120 --> 00:30:29,160 Speaker 6: the model is not up to the ballpark market average 587 00:30:29,200 --> 00:30:33,280 Speaker 6: competition requirement. The market share losing in the short term 588 00:30:33,480 --> 00:30:37,240 Speaker 6: or the pricing discount is probably something we would expect 589 00:30:37,320 --> 00:30:41,800 Speaker 6: in order. So I think it's largely about the product strategy, 590 00:30:41,840 --> 00:30:44,480 Speaker 6: whether you get whether you can get the right EV 591 00:30:44,600 --> 00:30:47,240 Speaker 6: product right. Maybe you get it in the next generation, 592 00:30:47,520 --> 00:30:50,560 Speaker 6: but against the very strong competition and very strong model 593 00:30:50,600 --> 00:30:55,840 Speaker 6: supply the Ropert Doope time, probably pricing is is it 594 00:30:55,880 --> 00:30:58,840 Speaker 6: something you have to you have to you have to 595 00:30:58,880 --> 00:30:59,840 Speaker 6: pay for the need. 596 00:31:02,040 --> 00:31:06,080 Speaker 1: Mary, just one last question, is you know you seem 597 00:31:06,120 --> 00:31:08,840 Speaker 1: quite optimistic. What are some of the risks that you 598 00:31:08,880 --> 00:31:10,280 Speaker 1: see besides the tariffs? 599 00:31:12,000 --> 00:31:15,000 Speaker 6: Of course, I would say two sides what we discussed. 600 00:31:15,000 --> 00:31:19,480 Speaker 6: I'm also concerned, of course the trade environment is is 601 00:31:19,720 --> 00:31:23,440 Speaker 6: is quite important for the overseas expansion. The footprint and 602 00:31:23,720 --> 00:31:28,640 Speaker 6: uh uh the local execution and domestically the competition, the 603 00:31:28,720 --> 00:31:31,480 Speaker 6: pricing pressure might continue for. 604 00:31:31,440 --> 00:31:33,280 Speaker 5: A while, although we would argue. 605 00:31:33,040 --> 00:31:36,880 Speaker 6: The pricing uh, the pricing pressure is online off, there's 606 00:31:36,920 --> 00:31:39,719 Speaker 6: a finality, there's a model supply cycle, there's a different 607 00:31:40,120 --> 00:31:43,800 Speaker 6: strategy coming from the leaders, so there's a mixture of 608 00:31:43,880 --> 00:31:47,400 Speaker 6: things and and and on top of that, I would argue, uh, 609 00:31:47,440 --> 00:31:50,720 Speaker 6: the demand side of the of the of the risk 610 00:31:50,960 --> 00:31:54,200 Speaker 6: is constantly tangible. So if the demand is working their 611 00:31:54,240 --> 00:31:56,600 Speaker 6: way out, the pricing should be easy. But if there's 612 00:31:56,680 --> 00:31:59,800 Speaker 6: limited demand, you will see the OEMs will trying to 613 00:32:00,120 --> 00:32:02,640 Speaker 6: pete more aggressively for the limited pie. 614 00:32:02,920 --> 00:32:05,440 Speaker 3: So maybe lower interest rates helps things out. We'll have 615 00:32:05,480 --> 00:32:06,080 Speaker 3: to wait and say. 616 00:32:06,360 --> 00:32:06,440 Speaker 6: You. 617 00:32:06,600 --> 00:32:11,920 Speaker 3: Chanding, head of China Autos Research at HSBC Chianhai Securities, 618 00:32:11,960 --> 00:32:15,560 Speaker 3: joining us from our studios in Hong Kong. Here on 619 00:32:15,800 --> 00:32:16,760 Speaker 3: Daybreak Asia. 620 00:32:17,240 --> 00:32:20,680 Speaker 2: This is the Bloomberg Daybreak Asia podcast, bringing you the 621 00:32:20,760 --> 00:32:24,200 Speaker 2: stories making news and moving markets in the Asia Pacific. 622 00:32:24,440 --> 00:32:27,600 Speaker 2: Visit the Bloomberg Podcast channel on YouTube to get more 623 00:32:27,640 --> 00:32:31,400 Speaker 2: episodes of this and other shows from Bloomberg. Subscribe to 624 00:32:31,480 --> 00:32:35,280 Speaker 2: the podcast on Apple, Spotify, or anywhere else you listen, 625 00:32:35,560 --> 00:32:38,760 Speaker 2: and always on Bloomberg Radio, the Bloomberg terminal, and the 626 00:32:38,800 --> 00:32:40,080 Speaker 2: Bloomberg Business app.