Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. Welcome to the Bloomberg
Speaker 1: day Break Asia podcast. I'm Doug Chrisner. President Trump has
Speaker 1: imposed tariffs on goods from Canada, Mexico, and China now
Speaker 1: in terms of Canada and Mexico rates of twenty five
Speaker 1: percent each for China ten percent. These tariffs will take
Speaker 1: effect at twelve oh one am Tuesday morning, and they
Speaker 1: will apply to a wide range of goods. Mexico and
Speaker 1: Canada have already vowed countermeasures, although China's response to all
Speaker 1: of this has been a bit more muted. Bloomberg Steven
Speaker 1: Engel has more from Hong Kong.
Speaker 2: It is still, you know, wrapping up the lunar Nei
Speaker 2: or holiday. The markets don't really start getting in full
Speaker 2: swing until midweek. In China, Cjnping has not necessarily commented
Speaker 2: directly on this that we know of, but Commerce Ministry has.
Speaker 2: They've expressed the strong dissatisfaction and also vowed corresponding countermeasures.
Speaker 2: As you rightfully said, they didn't elaborate what those measures
Speaker 2: might be. They've also pledged to file a complaint at
Speaker 2: the WTO citing serious violation of international trade rules. But
Speaker 2: you know, beyond tit for tat retaliation on tariffs. They
Speaker 2: could expand their export controls on critical minerals. They could
Speaker 2: restrict market access to some American companies. They could do
Speaker 2: something with a rem and B obviously to cushion the
Speaker 2: blow on exporters. And that's why we'll be watching the
Speaker 2: daily fixing later this morning. The offshore you want approaching
Speaker 2: that record low right now, around seven point three, So
Speaker 2: a number of things they can do. But keep in mind,
Speaker 2: there could be some benefit here for exporters in China.
Speaker 2: If Trump is going after on a larger scale with
Speaker 2: Canada and Mexico and vowing to go tough on the
Speaker 2: e you on the trade front, that could open up
Speaker 2: export opportunities to those markets for China. So you know,
Speaker 2: this is still early days e commerce to the United States.
Speaker 2: That's one step. There could be further export tariffs from
Speaker 2: China to the United States upwards of sixty percent. He's
Speaker 2: also vowing to further increase those tariffs if there are
Speaker 2: retaliatory measures from the countries targeted, including China. So we're
Speaker 2: just in early days here. Clearly, the Chinese economy is
Speaker 2: struggling to gain footing of its own making largely because
Speaker 2: its exports situation has kind of supported at a time,
Speaker 2: supported the economy at a time when the property sector
Speaker 2: is still trying to find its footing, and of course
Speaker 2: consumer confidence is so weak. So yes, these tariffs are
Speaker 2: going to hit the Chinese economy, but I think in
Speaker 2: these initially it's going to be fairly muted because there's
Speaker 2: been a lot of frontloading of orders, you know, from
Speaker 2: the United States of Chinese goods.
Speaker 1: That was Bloomberg's chief North Asia correspondent, Steven Engel. So
Speaker 1: let's take a closer look at the broader market backdrop.
Speaker 1: Right now, joining me from Sydney is Junebailu, founder and
Speaker 1: portfolio manager at Tencap. June bay It's always a pleasure
Speaker 1: a lot of volatility at the moment and a little
Speaker 1: bit of downside here. How do you evaluate what's happening
Speaker 1: in markets right now?
Speaker 3: Look at we're actually seeing quite a lot of opportunity
Speaker 3: at this point. So market is a little bit surprised
Speaker 3: by the timing of this tariff in position because obviously
Speaker 3: we talked about the quantum of it, but how quickly
Speaker 3: he brought it in has really surprised the market. Hence,
Speaker 3: while we see a bit of sell off, but you know,
Speaker 3: I think it is a little bit harder for investor
Speaker 3: to call that what the actual tariff will be eventually
Speaker 3: or whether there may not be any tariff, so, you know,
Speaker 3: so there's a lot of uncertainty on that front. Hence,
Speaker 3: while we're seeing people taking money off the table, it's
Speaker 3: been a good well, it's been a good, good, you know,
Speaker 3: equity market for the last year and a bit. So
Speaker 3: we're just see people a little bit nervous. But I think,
Speaker 3: you know, for for a lot of long term invested
Speaker 3: like ourselves, were actually pretty excited. We think this does
Speaker 3: represent good buying opportunity, particularly for some of the companies
Speaker 3: that get potentially get impacted, if they those quality companies,
Speaker 3: whether they're healthcare or whether they's some consumers names. You know,
Speaker 3: we will be looking at these opportunities to really pick
Speaker 3: up pick up those those companies.
Speaker 1: June Bay. You know, well, how fragile the Chinese economy
Speaker 1: seems to be right now, It's been very reliant on
Speaker 1: export driven industries. So to what extent could these tariffs
Speaker 1: threaten to undermine Chinese growth?
Speaker 3: Look, I think it's the ten percent imposition is not
Speaker 3: as large as what it could have been. You know,
Speaker 3: sixty five percent would have been pretty nasty, but ten
Speaker 3: percent is not too bad. I think China is on
Speaker 3: a slow road to recovery. You know, we will have
Speaker 3: to see more stimulus, and the consensus are expecting that
Speaker 3: the first quarter this year that China will come up
Speaker 3: with more stimulus, obviously targeted more at consumer and uh
Speaker 3: uh and the SMEs, but these should continue to drive
Speaker 3: recovery there in China. China related equities, I think the
Speaker 3: because the less focused on the heavy uh you know,
Speaker 3: the housing market and the and the like, it will
Speaker 3: see sector like commodities to be under more volatility pressure
Speaker 3: because you know now that we have tariff net net
Speaker 3: higher tariff is not great for commodity businesses around the world.
Speaker 3: So it's not just China. So yeah, so it's just
Speaker 3: changing the dynamics somewhat. We think China is coming back
Speaker 3: with more stimulus, but not not roaring back, but we
Speaker 3: will be focusing more on the consumer SMEs, you know,
Speaker 3: more structural growers than the than your cyclical you know
Speaker 3: sort of names like the resources.
Speaker 1: China, at least for today is still on holiday for
Speaker 1: lunar new year. I'm curious as to whether or not
Speaker 1: you are seeing or have seen any high frequency data
Speaker 1: about the performance of Chinese consumers during this period. How
Speaker 1: well do you think they've been holding up during the
Speaker 1: holiday Yeah, actually.
Speaker 3: It's been pretty good for some of the data we've seen.
Speaker 3: You know, it seems like there's broad based optimism. However,
Speaker 3: I think the strength we saw in the December quarter
Speaker 3: seems to have faulted somewhat just on the consumer front,
Speaker 3: but it's still pretty strong. So, you know, we're hopeful
Speaker 3: when we get the full picture. Once that's done, you know,
Speaker 3: that will continue to drive the return of it. But
Speaker 3: but you know, from here, you really it's China's recovery
Speaker 3: is really about, you know, the continuous the sort of
Speaker 3: stimulus targeted to consumer, to the sme s. Without those stimulus,
Speaker 3: I think, you know, confidence just not yet strong enough
Speaker 3: to sustain its own recovery.
Speaker 1: So we've been talking a little bit about tariffs. We've
Speaker 1: been talking about US China relations in regard to those tariffs,
Speaker 1: but now thinking about US China relations in regard to
Speaker 1: artificial intelligence, particularly around last week's story when it comes
Speaker 1: to deep seek, do you think this story could result
Speaker 1: in a lot more strict controls on American technology flowing
Speaker 1: into China.
Speaker 3: Look, I think the story itself is not going to
Speaker 3: be the trigger of it. However, in the last five
Speaker 3: years or more than five years, we have seen this
Speaker 3: decoupling between China and US across many different fronts, whether security, technology, infrastructure,
Speaker 3: a lot of those has been taking place, and we
Speaker 3: expect that to continue. And you know, deep Seak, you know,
Speaker 3: in my view is that it's really just a sign
Speaker 3: that you know, technological avestment. Right, at some point we
Speaker 3: will have someone come up with a cheaper model and
Speaker 3: you know, whether it's from a Chinese company or from
Speaker 3: everywhere else, you know net you know, I don't see
Speaker 3: that as negative for the growth of the sector because
Speaker 3: it just makes it AI models cheaper, make it more useful,
Speaker 3: and more people can use it, and more consumer can
Speaker 3: you know, drive the next leg of uptake. Right, So
Speaker 3: you know, it's not it's not negative, but it's yeah,
Speaker 3: so you know, the segregation, the decoupling between US and
Speaker 3: China will continue, maybe it'll become more rapid, but or
Speaker 3: maybe not. And but it just it's it's good expected
Speaker 3: to be a long trend over the next few decades.
Speaker 1: Before I let you go, I know you're in Sydney
Speaker 1: and I want to get your take on how well
Speaker 1: the Australian economy is performing. We know that it's very
Speaker 1: strongly correlated to the China story. How are things down
Speaker 1: under right now?
Speaker 3: Yeah, Interestingly in Australia economy is actually okay. You know,
Speaker 3: it's doing quite well and uh, consumer you know, sort
Speaker 3: of come back somewhat, and but it's uh, you know,
Speaker 3: with the expectation of a rate cut in February, you know,
Speaker 3: things are looking pretty pretty good back here. Our equity
Speaker 3: market optimism returning January would deliver very strong return in January.
Speaker 3: And we do think this year could be the year
Speaker 3: for the Aussie market to outperform. It's some of its peers,
Speaker 3: like the US and AS that peers. So yeah, so
Speaker 3: the market conditions here is good. We expect this reporting
Speaker 3: season just about to start is going to generate a
Speaker 3: bit more positivity relative to last reporting season. You know,
Speaker 3: earnings would have done a little bit better they expected
Speaker 3: and they're holding the margin well. So and also our
Speaker 3: resources company, with commodity prices doing okay, is actually expected
Speaker 3: to pay big dividends again. So yeah, so there, we're
Speaker 3: actually pretty positive over here.
Speaker 1: June Babill, leave it there. It's always a pleasure. Thanks
Speaker 1: for making time to catch up with us. June Bailou,
Speaker 1: founder and portfolio manager at Tencap, joining us from Sydney
Speaker 1: here on the Daybreak Asia podcast. Welcome back to the
Speaker 1: Bloomberg Daybreak Asia Podcast. I'm Doug Krisner. Joining us now
Speaker 1: for more on the tariff story and what we can
Speaker 1: expect from the U side. Is Stuart Thomas. He is
Speaker 1: founding partner at Presidian Investments. Stuart, thank you for making
Speaker 1: time to chat with us. One of the things that
Speaker 1: we're seeing right now in terms of immediate knee jerk
Speaker 1: fashion is weaker currencies in Canada, Mexico, Europe as well
Speaker 1: as a much much stronger dollar. In fact, the Bloomberg
Speaker 1: Dollar Spot index right now is up by around one percent.
Speaker 1: Is this going to be a major headwind for US multinationals.
Speaker 4: Well, look, I don't think any of this comes as
Speaker 4: a surprise, right I mean, the fireworks have started. As
Speaker 4: I always say to everybody, Sorry to use the old cliche,
Speaker 4: but buckle up. It's going to be bumpy, you know.
Speaker 4: I think long term, the trends are in place for
Speaker 4: a very strong US dollar. Red you you have a
Speaker 4: hawkish fed, you had the thread of tariffs which are
Speaker 4: now actual, actually being implemented. I guess it will happen
Speaker 4: on this Tuesday. We've got a stronger economy relative to
Speaker 4: the rest of the world. So you've got all the
Speaker 4: pieces of a puzzle in place for a very strong
Speaker 4: US dollar. Will it be a headwind? You know what,
Speaker 4: I am not as concerned long term as I think
Speaker 4: most people are. Again, I think these are knee jerk reactions.
Speaker 4: Let's think about where this is coming from. President Trump
Speaker 4: is the penultimate negotiator. This is not about punishing our
Speaker 4: trade partners. This is about trying to implement fair trade
Speaker 4: policies and stop putting US companies and their workers at
Speaker 4: a disadvantage.
Speaker 1: So we're getting an immediate response on the part of
Speaker 1: both the government in Canada and the government in Mexico.
Speaker 1: It seems as though retaliatory tariffs will be put in place.
Speaker 1: This smells a little bit like a trade war rather
Speaker 1: than a process of negotiation.
Speaker 4: Well, you know what, Doug, Let's remember if Canada, for example,
Speaker 4: what is it I think we represent exports to the
Speaker 4: US represents something like twenty five percent. Maybe it's even
Speaker 4: higher than that these days of their GDP. So I
Speaker 4: still think this is initial reaction. I think this is
Speaker 4: to bring everybody back to the table. Nobody wants an
Speaker 4: extended trade war. It would absolutely impact the US market
Speaker 4: over the long term. So I think this is to
Speaker 4: get everybody back to the table. We knew they would
Speaker 4: react in this fashion, but I don't believe it's going
Speaker 4: to hurt them a lot worse than it will hurt us.
Speaker 4: And that's that's not to say that we want to
Speaker 4: be in an extended trade war here, but I think
Speaker 4: it's to bring people back to the table. No one
Speaker 4: should be surprised by the retaliation.
Speaker 1: So I hear what you're saying in terms of a
Speaker 1: negotiating strategy. But let's assume for a moment that the
Speaker 1: process takes several months, and in that period there are
Speaker 1: inflationary pressures that begin to seep through.
Speaker 4: Here.
Speaker 1: I'll use one example. Wolf re Search was saying the
Speaker 1: average price of a new car in the US may
Speaker 1: climb by around three thousand dollars. Does the inflationary even
Speaker 1: though it may be kind of short term, does that
Speaker 1: concern you in the least.
Speaker 4: Well, it does, because ultimately that impacts our GDP. In
Speaker 4: a prolonged trade war, could peel off one hundred basis
Speaker 4: points of GDP for US. But I think what you're
Speaker 4: going to say, I think they're gonna be a lot
Speaker 4: of benefits. You know, again, we're all guessing it. Where
Speaker 4: this is going. I think it's to bring people back
Speaker 4: to the table to negotiate and unfair trade policies. I
Speaker 4: like it short term, not obviously long term. If we've
Speaker 4: seen this type of action before, if Canadian companies hadn't
Speaker 4: already been considering moving business and manufacturings in the US,
Speaker 4: they sure as heck will now. So I think it could.
Speaker 4: It could ultimately be a big benefit to us, But
Speaker 4: an extended trade wark, to your point, will absolutely peel
Speaker 4: off GDP.
Speaker 1: I think the price action in the bond market is
Speaker 1: going to be particularly interesting. On one hand, there may
Speaker 1: be some haven buying people wanting to reduce their exposure
Speaker 1: to risk. The other tension is going to come from
Speaker 1: the implicit inflationary impact of tariffs. What do you think
Speaker 1: is going to happen to the interest rate environment?
Speaker 4: Well, I mean, I think we're already seeing that. But
Speaker 4: for first and foremost, the we we've got a lot
Speaker 4: more flexibility here than either Canada or China for that matter,
Speaker 4: or Mexico. We've got all of the elements in place
Speaker 4: for strong US dollar, and we have reiterated both the
Speaker 4: Treasury Secretary and President Trump have reiterated our commitment to
Speaker 4: ensuring that the US dollar remains the reserve currency of
Speaker 4: the world. That is going to still drive in a
Speaker 4: risk on situation. Risk off situation is going to drive
Speaker 4: people to US bond market.
Speaker 1: So if you were putting a strategy together, given the
Speaker 1: current environment, what assets, what instruments would you be deploying
Speaker 1: right now as a part of that.
Speaker 4: Well, I'd like to I'd like to take it, Doug,
Speaker 4: if you don't mind, and just a slightly different different
Speaker 4: avenue here, because one of the things that really concerns
Speaker 4: me most is that, and this is one of the
Speaker 4: things you and I were talking about before, most US
Speaker 4: investors don't even understand the implications of a strong US
Speaker 4: dollar policy and a falling foreign currency the impact that
Speaker 4: it has on the returns of their international investment. So
Speaker 4: if I could take in a different direction, set, I
Speaker 4: think we need to start raising awareness, because we've done
Speaker 4: an awful job of that, especially when it comes to
Speaker 4: the equity side of the equation where people own ADRs,
Speaker 4: and it's understandable why they may think they don't have
Speaker 4: the risk right US listed securities traded in US dollars.
Speaker 4: They don't understand it. They've got risks. So I want
Speaker 4: to raise a cautionary flag here and say you need
Speaker 4: to reevaluate your portfolio. All of US own international equities
Speaker 4: and fixed income for that matter. When you own international
Speaker 4: equities in particular through ADRs or foreign ordinary shares, you
Speaker 4: have to be aware of the fact that you have
Speaker 4: dollar for dollar exposure to the local currency, whether it
Speaker 4: be sterling, euro, yen pay so, whatever it happens to be.
Speaker 4: So I would say, take a look at your portfolio,
Speaker 4: take a look at your international investments in particular. Even
Speaker 4: if you owned US listed securities ADRs in particular, you
Speaker 4: have currency risk, and I would caution you going forward
Speaker 4: to bet against the US dollar.
Speaker 1: Okay, So that's a hedging strategy, that's my takeaway. Talk
Speaker 1: a little bit more about what that might look like.
Speaker 1: What is the shape of a good effective hedging strategy
Speaker 1: these days?
Speaker 4: Well, it's you know, we talk about hedging strategy, but
Speaker 4: for the average US investor, there is no way to
Speaker 4: hedge individual positions, at least until now. So if you
Speaker 4: need exposure to a particular region, there are ETFs out
Speaker 4: there that are hedged versus an entire index. And then
Speaker 4: recently we've watched a whole series, a whole new series
Speaker 4: of products called ADR hedged ETFs, which are simply the
Speaker 4: underlying ADR plus a currency hedge overlay to mitigate the
Speaker 4: volatility between the US dollar and the local currency. So
Speaker 4: first and foremost, when you're taking a look at international
Speaker 4: equities in particular and identifying the company, what you want
Speaker 4: to know is do I want currency risk or not?
Speaker 4: And for most investors the answers you shouldn't. The de
Speaker 4: facto position really should be I want to hedge security.
Speaker 4: The only people that should be buying ADRs are ones
Speaker 4: or people that want to actively take currency risk versus
Speaker 4: a local currency.
Speaker 1: Stuart will leave it there. Thank you so much for
Speaker 1: joining us, helping us understand market dynamics during the time
Speaker 1: of tariffs. Stuart Thomas there founding partner at Presidian Investments,
Speaker 1: joining us here on the Daybreak Asia podcast. Thanks for
Speaker 1: listening to today's episode of the Bloomberg Daybreak Asia Edition podcast.
Speaker 1: Each weekday, we look at the story shaping markets, finance,
Speaker 1: and geopolitics in the Asia Pacific. You can find us
Speaker 1: on Apple, Spotify, the Bloomberg Podcast YouTube channel, or anywhere
Speaker 1: else you listen. Join us again tomorrow for insight on
Speaker 1: the market move moves from Hong Kong to Singapore and Australia.
Speaker 1: I'm Doug Prisoner and this is Bloomberg