1
00:00:02,520 --> 00:00:11,920
Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. Welcome to the Daybreak

2
00:00:11,920 --> 00:00:15,560
Speaker 1: Asia podcast. I'm Doug Krisner. Right now, markets are considering

3
00:00:15,680 --> 00:00:19,840
Speaker 1: the ramifications of that US military action in Venezuela and

4
00:00:19,880 --> 00:00:24,320
Speaker 1: the removal of Nicholas Maduro as the country's leader. Bloomberg

5
00:00:24,440 --> 00:00:28,560
Speaker 1: Intelligence is saying that Moduro's removal does raise the odds

6
00:00:28,600 --> 00:00:32,159
Speaker 1: of higher non OPEC oil supply, and that in turn

7
00:00:32,479 --> 00:00:37,640
Speaker 1: reinforces an outlook for medium term oversupply and limited upside

8
00:00:37,640 --> 00:00:42,320
Speaker 1: for crude oil prices. Now, Venezuela holds roughly one fifth

9
00:00:42,400 --> 00:00:45,600
Speaker 1: of global oil reserves. However, the country accounts for just

10
00:00:45,640 --> 00:00:49,920
Speaker 1: about one percent of total global output. China, by the way,

11
00:00:50,159 --> 00:00:53,560
Speaker 1: is the largest importer of Venezuelan crude oil. For a

12
00:00:53,600 --> 00:00:57,240
Speaker 1: closer look at market action, I'm joined by Viraj Patel.

13
00:00:57,320 --> 00:01:00,560
Speaker 1: He is head of Asset Allocation at do share A

14
00:01:00,640 --> 00:01:03,760
Speaker 1: Trust International. Raj, thank you so much for being with us.

15
00:01:04,160 --> 00:01:06,479
Speaker 1: Give me your sense of what is unfolding right now

16
00:01:06,480 --> 00:01:09,000
Speaker 1: in this Venezuela story, and how do you think we

17
00:01:09,000 --> 00:01:09,920
Speaker 1: move on from here?

18
00:01:11,000 --> 00:01:13,440
Speaker 2: Well, a lot to unpack. Firstly, Doug, thanks for happy

19
00:01:13,600 --> 00:01:16,080
Speaker 2: having me, Happy New Year, and pleasure to be here.

20
00:01:16,560 --> 00:01:19,000
Speaker 2: I think that you kind of nailed it initially. I

21
00:01:19,000 --> 00:01:22,920
Speaker 2: think the knee jerk reaction here for oil markets will

22
00:01:22,920 --> 00:01:28,119
Speaker 2: be that crude prices should open down. We do have

23
00:01:28,440 --> 00:01:32,119
Speaker 2: an oil market that is already oversupplied, and I think

24
00:01:32,160 --> 00:01:35,440
Speaker 2: the initial market reaction, or knee jerk reaction is for

25
00:01:35,520 --> 00:01:38,240
Speaker 2: global or oil markets to have a little bit more supply.

26
00:01:38,360 --> 00:01:40,560
Speaker 2: But I think that's a little short sighted and it

27
00:01:40,600 --> 00:01:44,160
Speaker 2: won't be a light switch. Lots of implications. Obviously, the

28
00:01:44,319 --> 00:01:48,800
Speaker 2: US is focused on the narrative or story of drug trafficking,

29
00:01:49,480 --> 00:01:54,200
Speaker 2: and leaders in Venezuela are talking about US seizing their

30
00:01:54,240 --> 00:01:59,720
Speaker 2: oil assets, and obviously lots of cross country and geopolitical implications,

31
00:02:00,240 --> 00:02:03,680
Speaker 2: as the biggest beneficiary of Venezuela and oil is China,

32
00:02:04,200 --> 00:02:06,120
Speaker 2: and they will not like the fact that US could

33
00:02:06,120 --> 00:02:10,000
Speaker 2: potentially be having some control. Maybe that's a little bit

34
00:02:10,280 --> 00:02:13,359
Speaker 2: of an overstatement, but certainly in interest in the rare

35
00:02:13,480 --> 00:02:17,960
Speaker 2: minerals rare earth complex along with the Venezuelan oil. But

36
00:02:19,200 --> 00:02:24,600
Speaker 2: any type of restoration or meaningful growth or output from

37
00:02:24,720 --> 00:02:26,960
Speaker 2: Venezuela and oil will take some time. It will take

38
00:02:27,040 --> 00:02:31,120
Speaker 2: years and billions of dollars of investment. But as you noted,

39
00:02:31,240 --> 00:02:34,959
Speaker 2: they do hold a sizable supply of proven oil reserves,

40
00:02:34,960 --> 00:02:38,200
Speaker 2: so looks to be kind of short term here, a

41
00:02:38,240 --> 00:02:42,040
Speaker 2: little weaker for oil prices with prospects of more production

42
00:02:42,639 --> 00:02:45,960
Speaker 2: into what is perceived to be an already over supplied market.

43
00:02:46,240 --> 00:02:49,120
Speaker 1: Over the weekend, President Trump was saying that American oil

44
00:02:49,160 --> 00:02:53,519
Speaker 1: companies will be spending billions of dollars to rebuild Venezuela's

45
00:02:53,639 --> 00:02:57,440
Speaker 1: energy infrastructure. Is it too soon to get involved in

46
00:02:57,480 --> 00:03:00,519
Speaker 1: a name like Chevron, for example, to kind of put

47
00:03:00,560 --> 00:03:05,240
Speaker 1: some money to work right now in international oil companies.

48
00:03:05,800 --> 00:03:08,000
Speaker 2: I think it's tough to tell. I think a lot

49
00:03:08,080 --> 00:03:10,880
Speaker 2: of these companies over the years or decades have also

50
00:03:10,919 --> 00:03:14,440
Speaker 2: been burned in Venezuela as well. So I think that

51
00:03:14,560 --> 00:03:18,200
Speaker 2: while Trump is likely right in the direction that there

52
00:03:18,240 --> 00:03:23,600
Speaker 2: will be some US interest or US oil exploration and

53
00:03:23,680 --> 00:03:27,880
Speaker 2: production interest in Venezuela, I'm not sure that American companies

54
00:03:27,880 --> 00:03:31,280
Speaker 2: would head right back in immediately because they have a

55
00:03:31,320 --> 00:03:36,400
Speaker 2: lot of resource and investment already going on here Stateside

56
00:03:36,680 --> 00:03:40,320
Speaker 2: in the shale and light oil production. As I mentioned earlier,

57
00:03:40,920 --> 00:03:43,240
Speaker 2: a lot of oil companies had moved out of Venezuela

58
00:03:43,280 --> 00:03:46,400
Speaker 2: over the last two decades or so after being burned,

59
00:03:46,520 --> 00:03:49,560
Speaker 2: and there's a different type of accruit that's a little

60
00:03:49,560 --> 00:03:53,200
Speaker 2: bit more heavy in viscus in Venezuela that requires a

61
00:03:53,240 --> 00:03:56,840
Speaker 2: little bit of a different kind of expertise and equipment.

62
00:03:56,920 --> 00:04:02,160
Speaker 2: So a lot of capex men would be required, because

63
00:04:02,160 --> 00:04:05,200
Speaker 2: this isn't a situation where you go in as Venezuela

64
00:04:05,600 --> 00:04:07,720
Speaker 2: with some experienced folks and just turn on the pigots,

65
00:04:07,720 --> 00:04:08,160
Speaker 2: so to speak.

66
00:04:08,280 --> 00:04:12,640
Speaker 3: Lots of really outdated.

67
00:04:12,120 --> 00:04:15,400
Speaker 2: Infrastructure and assets and equipment that really need to be

68
00:04:16,760 --> 00:04:19,680
Speaker 2: reinvested in. So I think it'll be a complicated story,

69
00:04:19,800 --> 00:04:21,800
Speaker 2: and I'm not sure that oil companies from the US

70
00:04:21,839 --> 00:04:24,400
Speaker 2: will be running into Venezuela for what could be potentially

71
00:04:25,440 --> 00:04:28,359
Speaker 2: billions of dollars of an investment that could take upwards

72
00:04:28,360 --> 00:04:30,280
Speaker 2: of five years, and it could be a low marginal

73
00:04:30,400 --> 00:04:33,400
Speaker 2: return or a low margin story. So lots more impact

74
00:04:33,480 --> 00:04:36,200
Speaker 2: over the coming weeks and months, obviously, but I'm not

75
00:04:36,240 --> 00:04:39,960
Speaker 2: sure that anyone's going into it as well perspective overnight.

76
00:04:40,080 --> 00:04:42,479
Speaker 1: Let's pivot to the macro story in the US. We

77
00:04:42,560 --> 00:04:44,360
Speaker 1: get the employment data at the end of the week,

78
00:04:44,400 --> 00:04:46,840
Speaker 1: how are you feeling about the American economy as we

79
00:04:46,920 --> 00:04:47,719
Speaker 1: start the new year.

80
00:04:48,960 --> 00:04:51,480
Speaker 2: American economy feels like it's on stable footing. We've been

81
00:04:51,520 --> 00:04:55,760
Speaker 2: operating in a period of above average growth that's being

82
00:04:55,800 --> 00:04:59,039
Speaker 2: held up by the US consumer and consumption. So I

83
00:04:59,040 --> 00:05:01,000
Speaker 2: think it's a tale of two here in the US.

84
00:05:01,080 --> 00:05:05,440
Speaker 2: When you look at underlying sentiment and survey data, you

85
00:05:05,560 --> 00:05:08,320
Speaker 2: get the idea that consumers are weak, that they're not

86
00:05:08,360 --> 00:05:10,440
Speaker 2: willing to spend a whole lot, that they just don't

87
00:05:10,440 --> 00:05:12,600
Speaker 2: have the confidence. But when you look at actual consumption

88
00:05:12,720 --> 00:05:16,000
Speaker 2: data that comes out or retail sales data, you get

89
00:05:16,040 --> 00:05:19,719
Speaker 2: a story where consumption is holding up quite well and

90
00:05:19,760 --> 00:05:23,719
Speaker 2: the US growth and aggregate is modestly above trend. Now,

91
00:05:24,000 --> 00:05:26,640
Speaker 2: we would like to see a little bit more broadening

92
00:05:26,680 --> 00:05:29,040
Speaker 2: of growth as we get into or head into twenty

93
00:05:29,080 --> 00:05:35,160
Speaker 2: twenty six, moving beyond just a healthcare, technology, gig economy

94
00:05:35,240 --> 00:05:38,560
Speaker 2: type of growth profile into one that becomes a little

95
00:05:38,600 --> 00:05:43,040
Speaker 2: bit more broad based and cyclical. That includes housing and manufacturing,

96
00:05:43,040 --> 00:05:45,560
Speaker 2: which has been in the doldrums for a number of

97
00:05:45,680 --> 00:05:49,800
Speaker 2: years now. So that's the story on macro. We think

98
00:05:50,040 --> 00:05:54,080
Speaker 2: it's important for policy makers to keep financial conditions loose.

99
00:05:54,440 --> 00:05:57,359
Speaker 2: Can't tighten a whole lot until you get confirmation that

100
00:05:57,440 --> 00:05:59,560
Speaker 2: the other side of the economy that's a little bit

101
00:05:59,560 --> 00:06:02,560
Speaker 2: more sickly goal and interest rate sensitive is kicking to

102
00:06:02,680 --> 00:06:04,480
Speaker 2: gear as well. We're just not seeing that quite yet,

103
00:06:04,480 --> 00:06:07,360
Speaker 2: but we do feel confident that is likely to happen

104
00:06:07,640 --> 00:06:08,680
Speaker 2: in twenty twenty six.

105
00:06:09,040 --> 00:06:13,800
Speaker 1: So do current conditions, in your view, require or justify

106
00:06:14,279 --> 00:06:15,480
Speaker 1: more rate cuts.

107
00:06:16,080 --> 00:06:20,279
Speaker 2: It'll be tough to see so. Based on economic activity,

108
00:06:20,320 --> 00:06:23,919
Speaker 2: I think it's difficult to justify more rate cuts, and

109
00:06:23,960 --> 00:06:26,520
Speaker 2: policy makers and the FAT have been pretty clear about that.

110
00:06:27,160 --> 00:06:30,880
Speaker 2: But they are seeing a little bit more skew downside

111
00:06:30,920 --> 00:06:34,200
Speaker 2: skew that is in labor data, which has obviously been

112
00:06:34,240 --> 00:06:36,480
Speaker 2: a little bit more noisy lately. Right we had the

113
00:06:36,520 --> 00:06:42,599
Speaker 2: government shutdown, we had some of the DOJ effects from

114
00:06:42,839 --> 00:06:47,800
Speaker 2: when Elon Musk was under the administration. So from where

115
00:06:47,800 --> 00:06:51,240
Speaker 2: we're sitting, the softness in labor market seems manageable. We

116
00:06:51,320 --> 00:06:55,560
Speaker 2: don't necessarily have a view here that's recessionary. We're describing

117
00:06:55,600 --> 00:06:58,360
Speaker 2: this economy and labor market as one that's a low

118
00:06:58,440 --> 00:07:03,040
Speaker 2: higher and low five economy. But known necessarily we're not

119
00:07:03,080 --> 00:07:05,640
Speaker 2: seeing any yellow or red signals that are firing from

120
00:07:05,640 --> 00:07:07,920
Speaker 2: the economy as well, but we do expect it to

121
00:07:07,920 --> 00:07:12,960
Speaker 2: move beyond AI technology, healthcare into more cyclical areas of

122
00:07:12,960 --> 00:07:13,960
Speaker 2: the economy as well.

123
00:07:14,240 --> 00:07:16,360
Speaker 1: I'm glad you mentioned AI because I think for the

124
00:07:16,400 --> 00:07:18,760
Speaker 1: market right now, chief concern as we move into the

125
00:07:18,760 --> 00:07:23,160
Speaker 1: new year is this issue of over investment in AI infrastructure.

126
00:07:23,360 --> 00:07:30,520
Speaker 1: Bloomberg data indicates that combined capital expenditure this year from Microsoft,

127
00:07:30,600 --> 00:07:34,720
Speaker 1: from Alphabet, Amazon, and Meta are expected to rise thirty

128
00:07:34,720 --> 00:07:38,520
Speaker 1: four percent to roughly four hundred and forty billion. And

129
00:07:38,640 --> 00:07:41,040
Speaker 1: on top of that, Open Ai is committed to spending

130
00:07:41,080 --> 00:07:44,680
Speaker 1: more than a trillion dollars on AI infrastructure. Are we

131
00:07:44,920 --> 00:07:49,080
Speaker 1: at the point now where we have to reconsider total spending?

132
00:07:50,280 --> 00:07:52,120
Speaker 2: I don't think we're there quite yet, So I think

133
00:07:52,160 --> 00:07:55,520
Speaker 2: you make a great point in terms of the hyperscalers

134
00:07:56,040 --> 00:08:00,680
Speaker 2: that are spending, the biggest sums of money are subzing

135
00:08:01,720 --> 00:08:07,040
Speaker 2: and fueling that spend from free cash flow. So for now,

136
00:08:07,320 --> 00:08:10,520
Speaker 2: while the dollars of spend are massive, as you mentioned,

137
00:08:10,520 --> 00:08:13,040
Speaker 2: on the orders of hundreds of billions of dollars, we

138
00:08:13,120 --> 00:08:17,000
Speaker 2: would become incrementally more cautious and worried if there was

139
00:08:17,040 --> 00:08:21,160
Speaker 2: a major termout of debt happening, right so we're just

140
00:08:21,200 --> 00:08:25,680
Speaker 2: seeing that in very earnest. Obviously, Oracle is the poorster Child.

141
00:08:26,160 --> 00:08:29,040
Speaker 2: Some of their credit default swap spreads are starting to

142
00:08:29,040 --> 00:08:33,480
Speaker 2: widen significantly, but other companies that have taken out debt

143
00:08:33,720 --> 00:08:37,760
Speaker 2: is very marginal relative to their willingness and abilities. We're

144
00:08:37,800 --> 00:08:40,200
Speaker 2: not quite worried yet. I think the important narrative for

145
00:08:40,240 --> 00:08:42,680
Speaker 2: twenty twenty six will will be in terms of the

146
00:08:42,720 --> 00:08:47,080
Speaker 2: direction of travel, maybe moving away from the hyperscalers, away

147
00:08:47,080 --> 00:08:49,880
Speaker 2: from just the NVIDIAs story, and the debate will be

148
00:08:50,000 --> 00:08:53,320
Speaker 2: more focused on what are the companies that will benefit

149
00:08:53,640 --> 00:08:57,960
Speaker 2: from using AI in terms of productivity, cost savings. And

150
00:08:58,000 --> 00:09:02,000
Speaker 2: we think the AI build out will continue, and twenty

151
00:09:02,040 --> 00:09:04,720
Speaker 2: twenty six is more maybe a year of a strong

152
00:09:04,760 --> 00:09:08,360
Speaker 2: debate in terms of how these hyperscalers and companies start

153
00:09:08,400 --> 00:09:14,080
Speaker 2: to monetize the massive amount of spend on AI and

154
00:09:14,080 --> 00:09:17,800
Speaker 2: will they learn sufficient the return on that investment.

155
00:09:18,280 --> 00:09:21,800
Speaker 1: How are you feeling these days about being exposed to

156
00:09:22,200 --> 00:09:24,320
Speaker 1: markets offshore, particularly in Asia.

157
00:09:25,080 --> 00:09:26,480
Speaker 3: Yeah, we feel really constructive.

158
00:09:26,520 --> 00:09:29,160
Speaker 2: So that broadening theme that I mentioned here domestically is

159
00:09:29,200 --> 00:09:32,440
Speaker 2: more of a cyclical story related to manufacturing and housing,

160
00:09:32,480 --> 00:09:37,920
Speaker 2: but you can really apply that theme globally as well. Right, Europe, Japan,

161
00:09:38,040 --> 00:09:40,560
Speaker 2: and non US markets broadly speaking had one of their

162
00:09:40,559 --> 00:09:44,959
Speaker 2: best years in quite some time. We think that markets

163
00:09:45,160 --> 00:09:47,960
Speaker 2: are well positioned for twenty twenty six as well. We

164
00:09:48,000 --> 00:09:52,480
Speaker 2: think that largely the story in Europe, Japan, and even

165
00:09:52,600 --> 00:09:56,320
Speaker 2: China was one that was more driven by macro and policy,

166
00:09:56,840 --> 00:09:59,720
Speaker 2: and it was right for these countries' equity markets to

167
00:09:59,760 --> 00:10:03,480
Speaker 2: re eight and twenty twenty six should be more of

168
00:10:03,520 --> 00:10:06,320
Speaker 2: a story about corporate fundamentals and earning sort So the

169
00:10:06,320 --> 00:10:09,840
Speaker 2: first time in a long time that twenty twenty six

170
00:10:10,480 --> 00:10:14,400
Speaker 2: earnings growth outside the US has the potential to be

171
00:10:15,480 --> 00:10:18,200
Speaker 2: low double digits or mid teens growth as well. So

172
00:10:18,240 --> 00:10:21,199
Speaker 2: that's Europe, Japan, China, and you can even throw India

173
00:10:21,200 --> 00:10:23,640
Speaker 2: in there. So if we can get ten to twelve

174
00:10:23,679 --> 00:10:26,960
Speaker 2: percent earnings growth out of countries that have had really

175
00:10:27,000 --> 00:10:30,200
Speaker 2: weak earnings growth have done really weak relative to their

176
00:10:30,360 --> 00:10:33,800
Speaker 2: US counterparts, that could be a story that could set

177
00:10:33,880 --> 00:10:37,800
Speaker 2: us up for another nice return profile and non US

178
00:10:37,840 --> 00:10:39,960
Speaker 2: markets similar to twenty twenty five.

179
00:10:40,480 --> 00:10:44,200
Speaker 1: So, given those various jurisdictions you just mentioned, I'm curious

180
00:10:44,280 --> 00:10:46,000
Speaker 1: as to how the themes compare.

181
00:10:46,400 --> 00:10:48,640
Speaker 2: It is quite a diverse situation. So I'll start with

182
00:10:48,720 --> 00:10:52,119
Speaker 2: Europe and I'll go eastward. So if you start with Europe,

183
00:10:52,200 --> 00:10:57,800
Speaker 2: you've got obviously the depth breaks being lifted from a

184
00:10:57,840 --> 00:11:01,199
Speaker 2: fiscal austerity perspective, and the Europe has committed to spending

185
00:11:01,200 --> 00:11:03,600
Speaker 2: a trillion dollars over ten years. So I think the

186
00:11:03,679 --> 00:11:09,680
Speaker 2: beneficiaries there are cyplical economies, industrials, materials, infrastructure, and obviously

187
00:11:09,720 --> 00:11:12,920
Speaker 2: aerospace at defense type of companies. They obviously don't have

188
00:11:13,000 --> 00:11:15,599
Speaker 2: the sectoral composition like the US where you have a

189
00:11:15,600 --> 00:11:18,319
Speaker 2: lot of technology companies, So think of that as more

190
00:11:18,320 --> 00:11:24,079
Speaker 2: of infrastructure, aerospace, defense, energy. Now when you move further

191
00:11:24,160 --> 00:11:27,640
Speaker 2: east to Japan, I think that's more of a broad

192
00:11:27,720 --> 00:11:31,760
Speaker 2: based recovery as they've experienced reflation for the first time

193
00:11:32,360 --> 00:11:34,840
Speaker 2: in forty years, but maybe more of a technology focus

194
00:11:34,880 --> 00:11:38,440
Speaker 2: there given their demographic issues, given some of the work

195
00:11:38,480 --> 00:11:42,120
Speaker 2: that the new Prime Minister Takachi is undertaken. So a

196
00:11:42,120 --> 00:11:45,160
Speaker 2: little bit on robotics, a little bit on engineering, a

197
00:11:45,160 --> 00:11:48,920
Speaker 2: little bit on AI. Obviously, with the yen trading at

198
00:11:48,960 --> 00:11:50,880
Speaker 2: some of the weakest levels we've seen in some time,

199
00:11:51,640 --> 00:11:55,480
Speaker 2: their export base and manufacturing should kick into gear. And

200
00:11:55,520 --> 00:11:57,960
Speaker 2: then when you go into China a little bit. We

201
00:11:57,960 --> 00:11:59,680
Speaker 2: think it's a little bit of a barbelled approach. We

202
00:11:59,720 --> 00:12:02,960
Speaker 2: serve they need to see real estate and property prices

203
00:12:03,320 --> 00:12:06,440
Speaker 2: need to stabilize there for them to really recover. And

204
00:12:06,480 --> 00:12:08,040
Speaker 2: then on the other side of the spectrum, you have

205
00:12:08,080 --> 00:12:12,280
Speaker 2: a consumer confidence which is really weak, right because wage

206
00:12:12,320 --> 00:12:15,080
Speaker 2: growth hasn't been that great and a lot of consumer

207
00:12:15,120 --> 00:12:17,520
Speaker 2: savings are locked up in property in real estate markets

208
00:12:17,520 --> 00:12:20,440
Speaker 2: which have done really poorly over the last three to

209
00:12:20,480 --> 00:12:22,840
Speaker 2: five years. So we like to see some kind of

210
00:12:23,000 --> 00:12:26,720
Speaker 2: fiscal stimulus kind of kicking animal spirits. In China, they

211
00:12:26,800 --> 00:12:29,200
Speaker 2: can boost consumption for the middle past and then permeate

212
00:12:29,240 --> 00:12:31,560
Speaker 2: through real estate market. So a little bit of a

213
00:12:31,600 --> 00:12:34,559
Speaker 2: different kind of approach in all the different economies or

214
00:12:34,640 --> 00:12:38,240
Speaker 2: jurisdictions as you mentioned, and India not to be left out,

215
00:12:38,320 --> 00:12:40,599
Speaker 2: is really kind of broad based, so they're kind of

216
00:12:40,640 --> 00:12:43,960
Speaker 2: firing on all cylinders from the top down, bottom up.

217
00:12:44,000 --> 00:12:46,640
Speaker 2: And you have the financial sector that's doing really well,

218
00:12:46,760 --> 00:12:51,360
Speaker 2: technology that's doing really well, industrials, infrastructure, materials. So a

219
00:12:51,400 --> 00:12:55,080
Speaker 2: little bit of a different story in different economic blocks

220
00:12:55,480 --> 00:12:58,040
Speaker 2: and countries around the world, but one where we feel

221
00:12:58,520 --> 00:13:01,240
Speaker 2: they could all benefit from. We're describing as a global

222
00:13:01,280 --> 00:13:05,840
Speaker 2: synchronizer recovery in twenty sixteen, using the twenty twenty five

223
00:13:05,920 --> 00:13:10,080
Speaker 2: momentum and strong macro backdrop as a foundation for growth

224
00:13:10,080 --> 00:13:10,760
Speaker 2: into twenty six.

225
00:13:10,920 --> 00:13:13,240
Speaker 1: Okay, Raj, We'll leave it there. Vi Raj Patel as

226
00:13:13,280 --> 00:13:17,240
Speaker 1: head of Asset Allocation at Fiduciary Trust International, joining us

227
00:13:17,240 --> 00:13:27,520
Speaker 1: here on the Debreak Asia podcast. Welcome back to the

228
00:13:27,559 --> 00:13:31,360
Speaker 1: Debreak Asia Podcast. I'm Doug Krisner. Over the weekend, Beijing

229
00:13:31,440 --> 00:13:34,760
Speaker 1: said it was deeply shocked by the US military strikes

230
00:13:34,760 --> 00:13:39,040
Speaker 1: on Venezuela and the capture of President Nicholas Maduro. Now,

231
00:13:39,160 --> 00:13:42,320
Speaker 1: China is not only the biggest buyer of Venezuelan crude oil,

232
00:13:42,520 --> 00:13:46,480
Speaker 1: it is Venezuela's largest creditor as well. We got some

233
00:13:46,640 --> 00:13:50,320
Speaker 1: perspective from Alicia Garcia Herrero. She is the chief APAC

234
00:13:50,400 --> 00:13:54,679
Speaker 1: economist at Natixis. Alisha spoke with Bloomberg TV host Paul

235
00:13:54,760 --> 00:13:58,200
Speaker 1: Allen and Avril Hong, and the conversation began with a

236
00:13:58,280 --> 00:14:03,280
Speaker 1: question on the ramifications of the US military action in Caracas.

237
00:14:03,840 --> 00:14:05,760
Speaker 3: China has had a norm.

238
00:14:06,000 --> 00:14:10,559
Speaker 4: It still has very large commercial relations with Venezuela.

239
00:14:11,400 --> 00:14:12,160
Speaker 3: At the highest end.

240
00:14:12,280 --> 00:14:17,959
Speaker 4: Of course, Chinese oil companies stayed on oil companies. This

241
00:14:18,040 --> 00:14:22,240
Speaker 4: is really what is behind those sixty billion loans that

242
00:14:22,440 --> 00:14:26,680
Speaker 4: started right before the global financial crisis in two thousand

243
00:14:26,680 --> 00:14:31,320
Speaker 4: and eight. It's not very clear though, that China still

244
00:14:31,360 --> 00:14:35,120
Speaker 4: has basically a loan of sixty billion.

245
00:14:35,720 --> 00:14:38,760
Speaker 3: The most likely scenarios that this loan has.

246
00:14:38,680 --> 00:14:43,120
Speaker 4: Been reduced by basically sizing Venezuela and assets, part of

247
00:14:43,160 --> 00:14:48,120
Speaker 4: which are oil related upstream related. Sino Venza, for example,

248
00:14:48,240 --> 00:14:51,600
Speaker 4: is a JV between Peedevesa, the Venezuela and oil company,

249
00:14:51,720 --> 00:14:56,280
Speaker 4: and China. So probably China has more equity now than

250
00:14:56,920 --> 00:15:00,280
Speaker 4: actual loans in my view. But the reality is that

251
00:15:00,360 --> 00:15:03,840
Speaker 4: all of this equity means that the relations in even

252
00:15:03,920 --> 00:15:08,280
Speaker 4: human relations are huge. Yeah, I mean beyond the upstream oil,

253
00:15:08,320 --> 00:15:12,680
Speaker 4: there's a lot of sectors, construction, you name it. Also,

254
00:15:12,760 --> 00:15:17,080
Speaker 4: because Venezuela invoices all of it's oil, which is more

255
00:15:17,120 --> 00:15:20,480
Speaker 4: than ninety percent going to China. Around four percent of

256
00:15:20,560 --> 00:15:25,000
Speaker 4: Chinese imports of oil come from Venezuela six hundred thousand

257
00:15:25,000 --> 00:15:27,960
Speaker 4: barrels a day. But all of that for Venezuela is

258
00:15:28,000 --> 00:15:30,520
Speaker 4: all it has in terms of exports, so it all

259
00:15:30,560 --> 00:15:33,560
Speaker 4: comes in R and B, and that means that anything

260
00:15:33,640 --> 00:15:37,080
Speaker 4: that Venezuela needs to do in terms of again construction

261
00:15:37,240 --> 00:15:41,920
Speaker 4: imports obviously come from China. So it is a very

262
00:15:42,080 --> 00:15:45,840
Speaker 4: very important relation for Venezuela and in some way it

263
00:15:45,880 --> 00:15:49,280
Speaker 4: is also important for China, although obviously at a lesser extent.

264
00:15:51,520 --> 00:15:53,520
Speaker 5: Can you talk to us a little bit as well

265
00:15:53,560 --> 00:15:56,840
Speaker 5: about the implications of the events we've seen in Venezuela

266
00:15:56,920 --> 00:16:00,400
Speaker 5: over the weekend for global risk appetime, because at the moment,

267
00:16:00,920 --> 00:16:04,840
Speaker 5: early stages in Asia on Monday really smarkets seem to

268
00:16:04,840 --> 00:16:05,920
Speaker 5: be just shrugging this off.

269
00:16:08,120 --> 00:16:11,840
Speaker 4: Yeah, well, markets struggle of everything as we know lately.

270
00:16:12,400 --> 00:16:14,840
Speaker 4: I mean, I would say since tramp came to any

271
00:16:14,880 --> 00:16:18,600
Speaker 4: geopolitical event. And by the way, let's not forget North

272
00:16:18,680 --> 00:16:23,600
Speaker 4: Korea actually tested missiles as we speak and nothing happens,

273
00:16:23,680 --> 00:16:25,920
Speaker 4: So you know, we also have this the North Korea

274
00:16:26,040 --> 00:16:28,640
Speaker 4: risk at a time where you know, the South Korean

275
00:16:28,680 --> 00:16:32,360
Speaker 4: leader is visiting Beijing. So you can't understand markets as

276
00:16:32,360 --> 00:16:36,000
Speaker 4: far as geopolitics are concerned. They just struggling off everything,

277
00:16:36,040 --> 00:16:38,440
Speaker 4: as I mentioned. But I do think it's important because

278
00:16:38,760 --> 00:16:41,680
Speaker 4: there's two things here that relate to Asia. One is,

279
00:16:41,720 --> 00:16:46,760
Speaker 4: of course Taiwan. How we China read Venezuela. There's two readings.

280
00:16:46,760 --> 00:16:50,120
Speaker 4: One is well, you know, nobody's going to do to

281
00:16:50,160 --> 00:16:52,680
Speaker 4: tell me that I shouldn't do whatever I may have

282
00:16:52,760 --> 00:16:55,520
Speaker 4: to do. But secondly, it could be fear.

283
00:16:55,640 --> 00:16:59,520
Speaker 3: Yeah, the US has proven to be pretty.

284
00:17:01,080 --> 00:17:06,639
Speaker 4: Pretty targeted in terms of reaching a leader taking away leader.

285
00:17:06,640 --> 00:17:10,359
Speaker 4: I mean, that's not something that is easy to do.

286
00:17:10,040 --> 00:17:12,480
Speaker 4: So we don't really know how China will read this.

287
00:17:12,840 --> 00:17:14,520
Speaker 4: In a way, there's two readings in my view, and

288
00:17:14,560 --> 00:17:18,000
Speaker 4: we still need to see what will unfold. Will the

289
00:17:18,160 --> 00:17:24,520
Speaker 4: US basically bring Venezuela back to democracy or just profit

290
00:17:24,680 --> 00:17:29,720
Speaker 4: from a non Maduro type autocratic state in Venezuela. If

291
00:17:29,760 --> 00:17:33,959
Speaker 4: the latter, that opens the door to potentially other events

292
00:17:33,960 --> 00:17:37,320
Speaker 4: in Asia in my view, whether it's Russia. You know,

293
00:17:37,359 --> 00:17:39,639
Speaker 4: there's many things that could happen that are negative for

294
00:17:39,800 --> 00:17:42,000
Speaker 4: markets that we may not be reading.

295
00:17:41,720 --> 00:17:48,439
Speaker 6: Yet Alisia, as you allude to, it seems like the

296
00:17:48,560 --> 00:17:52,600
Speaker 6: takeaway here is we are moving into a more fragmented

297
00:17:52,680 --> 00:17:54,760
Speaker 6: well not just development of the weekend, but in the

298
00:17:54,800 --> 00:17:59,040
Speaker 6: past year. What is that going to mean for the

299
00:17:59,160 --> 00:18:02,440
Speaker 6: current ongo wing the alignment of global trade and how

300
00:18:02,480 --> 00:18:05,840
Speaker 6: does that actually impact the outlo for Asian economies?

301
00:18:08,280 --> 00:18:13,880
Speaker 4: Well, you know the story here. I think Trump two

302
00:18:14,000 --> 00:18:17,560
Speaker 4: point zero was okay. You know, trap comes with tariffs

303
00:18:17,600 --> 00:18:20,760
Speaker 4: and we're going to basically get closer to China in

304
00:18:20,800 --> 00:18:24,280
Speaker 4: terms of trade, because that's that's what Asen has.

305
00:18:24,160 --> 00:18:26,000
Speaker 3: Been doing and that pace off.

306
00:18:26,840 --> 00:18:30,040
Speaker 4: Yes, China was is still today important too little, but

307
00:18:30,560 --> 00:18:34,320
Speaker 4: at least it's kind of a non tariff related market.

308
00:18:34,359 --> 00:18:36,720
Speaker 4: We don't need to be forced to investigate us. That

309
00:18:36,840 --> 00:18:40,320
Speaker 4: was the world up to the beginning of this year.

310
00:18:40,600 --> 00:18:44,159
Speaker 4: I think this event in Venezuela shows that that's not

311
00:18:44,240 --> 00:18:47,040
Speaker 4: going to be so easy. Yeah, if you get too close,

312
00:18:47,119 --> 00:18:49,680
Speaker 4: if you become a vasal state of China, which is

313
00:18:49,720 --> 00:18:53,520
Speaker 4: what Venezuela was maybe with some hints from Russia, and

314
00:18:53,560 --> 00:18:58,160
Speaker 4: Russia also had six billion actually uh lunch to Venezuela

315
00:18:58,280 --> 00:19:00,879
Speaker 4: when when China was at the peak six sixty billions.

316
00:19:00,920 --> 00:19:04,080
Speaker 4: So that combination, maybe you don't want to be there.

317
00:19:04,440 --> 00:19:07,840
Speaker 4: And that is what we've learned here. So it is fragmented,

318
00:19:08,240 --> 00:19:10,800
Speaker 4: but it's riskier. It's not only about trade, it's not

319
00:19:10,880 --> 00:19:14,040
Speaker 4: only about Paris, it's not only about forced investment. Is

320
00:19:14,040 --> 00:19:16,480
Speaker 4: that you know, you may end up losing your power

321
00:19:16,480 --> 00:19:20,399
Speaker 4: if you're a leader. So that means that taking sights

322
00:19:20,520 --> 00:19:27,000
Speaker 4: here as what was happening before, could become riskier and

323
00:19:27,160 --> 00:19:29,639
Speaker 4: more expensive. That gives the US a little bit of

324
00:19:29,640 --> 00:19:34,480
Speaker 4: a of a hands up, but only if the US

325
00:19:34,640 --> 00:19:37,200
Speaker 4: handles this well, which is very unlikely to be from

326
00:19:37,320 --> 00:19:39,080
Speaker 4: because this is a very messy situation.

327
00:19:42,680 --> 00:19:49,000
Speaker 6: What about your assessment of the extent in which I

328
00:19:49,000 --> 00:19:56,479
Speaker 6: mean going forward this realignment, How exactly is that going

329
00:19:56,560 --> 00:19:59,119
Speaker 6: to benefit some of these economies in Asia that are

330
00:19:59,160 --> 00:20:03,760
Speaker 6: perhaps more tech focus. Given to Paul's point, they seem

331
00:20:03,800 --> 00:20:09,520
Speaker 6: to be overlooking or looking past these geopolitical developments.

332
00:20:10,119 --> 00:20:11,560
Speaker 3: Yeah, that's right.

333
00:20:11,640 --> 00:20:16,400
Speaker 4: I mean, when we look at Asia's performance in twenty

334
00:20:16,480 --> 00:20:20,720
Speaker 4: twenty five years, is basically exports, which is ironic given guitarists,

335
00:20:21,200 --> 00:20:25,560
Speaker 4: but it is because the US demand for Asian exports

336
00:20:25,560 --> 00:20:29,240
Speaker 4: and especially tech related you know, at the Highescent, that's

337
00:20:29,280 --> 00:20:33,680
Speaker 4: side one, basically close to one hundred percent increase in exports,

338
00:20:33,720 --> 00:20:37,160
Speaker 4: mostly to the US and then even Malaysia, whether it's

339
00:20:37,560 --> 00:20:41,439
Speaker 4: AI chips, packaging or you know, other types of chicks

340
00:20:41,440 --> 00:20:46,119
Speaker 4: for that matter, lower end, even Chinese exports of chips

341
00:20:46,160 --> 00:20:49,480
Speaker 4: beyond the US obviously elsewhere and maybe re export it

342
00:20:49,520 --> 00:20:52,000
Speaker 4: to the US. All of that is the story that

343
00:20:52,040 --> 00:20:55,360
Speaker 4: has nothing to do with the geopolitical situation, and that's

344
00:20:55,400 --> 00:20:58,200
Speaker 4: why we see this shrugging off. It's because the market

345
00:20:58,240 --> 00:21:01,400
Speaker 4: is still on ai and tech while the world is

346
00:21:01,480 --> 00:21:04,800
Speaker 4: in Venezuela and Venezuela has no tech, so you know

347
00:21:04,880 --> 00:21:08,439
Speaker 4: there's no link. But for how long can you keep

348
00:21:08,600 --> 00:21:12,919
Speaker 4: that disconnect? I would argue that you just need to

349
00:21:13,000 --> 00:21:16,920
Speaker 4: see something related to Taiwan and then things change, because

350
00:21:16,960 --> 00:21:19,200
Speaker 4: that's the origin of all of these high end chip

351
00:21:19,240 --> 00:21:22,040
Speaker 4: s which everybody needs, including Nvidia. So you know the

352
00:21:22,080 --> 00:21:25,639
Speaker 4: relation with the stock market will clearly change if we

353
00:21:25,760 --> 00:21:28,720
Speaker 4: saw any signal that Taiwan is at risk.

354
00:21:30,280 --> 00:21:33,720
Speaker 5: All right, Alisia Gusia Herrera, a chief APEC economistat ne

355
00:21:33,840 --> 00:21:34,960
Speaker 5: tekes US, Thanks so much.

356
00:21:34,840 --> 00:21:35,480
Speaker 2: For joining us.

357
00:21:36,440 --> 00:21:39,800
Speaker 1: Thanks for listening to today's episode of the Bloomberg Daybreak

358
00:21:39,960 --> 00:21:43,359
Speaker 1: Asia Edition podcast. Each weekday, we look at the story

359
00:21:43,400 --> 00:21:47,760
Speaker 1: shaping markets, finance, and geopolitics in the Asia Pacific. You

360
00:21:47,800 --> 00:21:51,879
Speaker 1: can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel,

361
00:21:52,040 --> 00:21:55,040
Speaker 1: or anywhere else you listen. Join us again tomorrow for

362
00:21:55,160 --> 00:21:58,639
Speaker 1: insight on the market moves from Hong Kong to Singapore

363
00:21:59,080 --> 00:22:02,840
Speaker 1: and Australia. I'm Doug Prisoner and this is Bloomberg