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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. Welcome to the Bloomberg

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Speaker 1: Daybreak Asia Podcast. I'm Doug Krisner. So Wall Street is

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Speaker 1: gearing up for earnings from some megacap companies. Tomorrow. After

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Speaker 1: the bell, we'll have results from Alphabet and Tesla, and

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Speaker 1: in a moment we'll get the tech story from the

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Speaker 1: Asian perspective. I'll be joined by Stephanie Lyung. She is

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Speaker 1: the chief investment officer at Stashaway. But we begin this

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Speaker 1: morning with breaking news on trade, President Trump saying the

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Speaker 1: US has completed a deal with Japan. In a post

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Speaker 1: on truth social Trump said that taro freight would be

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Speaker 1: set at fifteen percent. Here is Trump.

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Speaker 2: We worked on it long and hard, and it's a

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Speaker 2: great deal for everybody. I always say it has to

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Speaker 2: be great for everybody. It's a great deal. A lot

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Speaker 2: different from the deals in the past. I can tell

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Speaker 2: you that.

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Speaker 1: Trump also said Japan will be opening its markets to

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Speaker 1: US products, including cars and trucks, rice, and certain other

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Speaker 1: US agricultural products. And at the same time, Japan will

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Speaker 1: be investing five hundred and fifty billion dollars into the

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Speaker 1: United States. Earlier, Trump announced a new trade deal with

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Speaker 1: the Philippines a tariff right in that case of nineteen percent,

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Speaker 1: and earlier Trump touted a major deal with Indonesia estimating

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Speaker 1: fifty billion dollars in added US market access. Joining me

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Speaker 1: now is David Aspell, partner and co CIO at Mount

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Speaker 1: Lucas Management. David joining from just north of Philadelphia. Thank

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Speaker 1: you so much for making time to chat with me. David,

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Speaker 1: to what extent now do you believe the market will

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Speaker 1: be confident that we're closing in on the end of

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Speaker 1: this trade war?

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Speaker 3: Yeah, I think it is starting to express confidence. You're

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Speaker 3: starting to see some trade deals come through. I think

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Speaker 3: you're starting to see some more clarity around what the

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Speaker 3: world post Liberation Day is going to look like. It

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Speaker 3: looked as if Liberation Day was, you know, maybe some

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Speaker 3: of the tariff rates in the way it calculated, it

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Speaker 3: seemed very high and a little difficult to accomplish their goals.

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Speaker 3: And that seems like they walked that back. And now

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Speaker 3: that we're on a more sound of footing, I think

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Speaker 3: and it's easier to see what we're going to look like,

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Speaker 3: a blended tariff rate for the country ten to twenty

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Speaker 3: percent low allies, higher for folks that we're not so

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Speaker 3: friendly with, and we're still trying to change people's approach

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Speaker 3: to trade to make it more balanced and fair and

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Speaker 3: open things up to US goods and services. I think

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Speaker 3: Secretary Best has been real clear that that's what they

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Speaker 3: want to do. They did that when they were talking

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Speaker 3: with China about China as well, that what they want

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Speaker 3: is China to spend more and to become more open

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Speaker 3: to the US. And if they can do that, I

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Speaker 3: think it's a game changing win for the administration.

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Speaker 1: We had some new data today showing that American businesses

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Speaker 1: and consumers are paying for these tariffs. If you look

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Speaker 1: at import prices excluding fuel, those prices were up notably

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Speaker 1: in June, and George Saravellos from Deutsche Bank was saying

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Speaker 1: today the top down macro evidence seems clear Americans are

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Speaker 1: mostly paying for these tariffs, and a pair of economists

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Speaker 1: over at Wells Fargo saying today that domestic firms are

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Speaker 1: stomaching the cost of these higher tariffs and starting to

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Speaker 1: pass them on to consumers. So if we can accept

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Speaker 1: the reality that these costs are ultimately going to be

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Speaker 1: borne by American businesses and consumers, talk to me about

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Speaker 1: your expectations for the drag that that could potentially have

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Speaker 1: on USGDP.

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Speaker 3: Yeah, it could be a drag. It's hard to say.

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Speaker 3: I think currently who's paying for it and how much?

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Speaker 3: I mean, I think there's a blend of things going on,

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Speaker 3: and it depends on the type of product, It depends

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Speaker 3: on the mix, and depends how much it's going to

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Speaker 3: be offset by, you know, by margins and the like.

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Speaker 3: It's a little hard to think. It looks currently as

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Speaker 3: if thirty to fifty percent of it or so is

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Speaker 3: being passed on, But again it's a little hard. You know,

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Speaker 3: we're still quite in the early days of this, so

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Speaker 3: I'm not quite sure I know how it's going to

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Speaker 3: play out. It does look like US companies and are

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Speaker 3: going to be paying for certainly some of it, and

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Speaker 3: they're going to pass that on, and is that going

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Speaker 3: to be a drag? I think it works out as

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Speaker 3: something of a tax rise, But then there's other taxes

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Speaker 3: through the fiscal package that look as if they're offsetting

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Speaker 3: some of that. So it's a little hard to know

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Speaker 3: how it shakes out.

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Speaker 2: I think.

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Speaker 1: So we're in the midst of earning season here in

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Speaker 1: the US Bloomberg Intelligence was saying today that if you

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Speaker 1: look at the MAG seven companies, they're expected to post

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Speaker 1: a combined gain in second quarter profits of around fourteen percent,

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Speaker 1: But if you look at earnings for the remainder of

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Speaker 1: the S and P, they're predicted to be essentially flat.

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Speaker 1: How are you viewing the overall equity market right now?

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Speaker 3: I VI the equity market. I think it's clear to

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Speaker 3: you say, what you're doing is splitting out the MAG

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Speaker 3: seven stocks so that they're they're in a class of

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Speaker 3: their own. They're fairly expensive, but they are fabulous businesses,

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Speaker 3: they really are. That they're bringing in money from all

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Speaker 3: over the world. They're largely dominant in their respective space.

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Speaker 3: And clearly the AI trade, the hyperscale and nature of

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Speaker 3: it is what's driving that.

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Speaker 2: Now.

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Speaker 3: I think what you're going to see is that this

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Speaker 3: last year or so, the AI boom has a crued

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Speaker 3: to those companies, the people that are building it out

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Speaker 3: and buying the chips and spending lots and lots of

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Speaker 3: money to try and bring AI, you know, into the

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Speaker 3: real economy. And I think over the next couple of

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Speaker 3: years you're going to see the rest of the S

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Speaker 3: and P start to become users of that AI technology

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Speaker 3: and that productivity boost, and you're going to start to

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Speaker 3: see in a lumpy fashion, I think, where it will

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Speaker 3: be different for different companies as they start to adopt it.

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Speaker 3: But I think you're going to see some real use

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Speaker 3: cases of companies that are making use of that AI

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Speaker 3: and seeing strange, unpredictable earnings jumps as they're using it

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Speaker 3: better in margins go up. And I think that that's

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Speaker 3: how I'm viewing it that the last year or so

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Speaker 3: you've seen the hyperscalers and the Max seven do real

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Speaker 3: well on the AI trade, and the next couple of

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Speaker 3: years going to see that those gains be actually used

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Speaker 3: in companies and you'll start to see that benefit broadened

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Speaker 3: out to other companies.

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Speaker 1: At the risk of using a cliche to what extent

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Speaker 1: is the market right now price to perfection and by extension,

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Speaker 1: if we get the slightest disappointment from a name like

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Speaker 1: Alphabet tomorrow, could that create huge negative consequence?

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Speaker 2: Yeah?

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Speaker 3: I think so. I mean, it depends on the scale

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Speaker 3: of it. I think one of the things that's wonderful

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Speaker 3: about about AI is it really does live in the future, though,

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Speaker 3: which means you can continue to kind of believe in

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Speaker 3: the story. So I think what you'd most likely see

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Speaker 3: in that situation, I guess it could come in two ways.

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Speaker 3: It could either be that the CAPEX build out is

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Speaker 3: incredibly expensive and that shocks people and that could cause

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Speaker 3: a disappointment. Or you could see for individual companies, particularly

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Speaker 3: like someone like Google, where they're on the receiving end

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Speaker 3: of challenges because of AI. I think in the former case,

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Speaker 3: where you saw that the that the build out was expensive,

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Speaker 3: it'd be easier to look through it because you could

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Speaker 3: see that although it's expensive, they're doing it for a reason,

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Speaker 3: and that companies will get a benefit from this. They're

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Speaker 3: not wasting money. I think if you saw it the

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Speaker 3: other way around, for Google in particular, that they were

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Speaker 3: really starting to lose ground because of the core search

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Speaker 3: engine business, and that things like chat, GPT and some

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Speaker 3: of the other AI businesses were really encroaching in Google

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Speaker 3: in particular space, I think that would cause problems for

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Speaker 3: Google certainly.

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Speaker 1: So we have a FED meeting at the end of

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Speaker 1: the month. We know there's been a lot of controversy

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Speaker 1: around the fact that the FED has been unwilling at

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Speaker 1: least at this point, to cut infrastrates again. Right now,

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Speaker 1: the market's convinced that September is the next meeting where

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Speaker 1: that twenty five basis point cut is likely. How are

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Speaker 1: you viewing FED policy right now? And if you could

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Speaker 1: put that kind of in the context of a lot

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Speaker 1: of the tension that seems to exist between let's say

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Speaker 1: the White House and the Fed.

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Speaker 3: Yeah, there's a lot of political pressure put on Powell

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Speaker 3: and the rest of the FOMC for lower rates. Powell

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Speaker 3: is clearly bearing a brunt of it. Obviously Trump did

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Speaker 3: appoint them because it's a slightly strange I think there's

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Speaker 3: a good case. I don't think Trump's completely wrong here

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Speaker 3: that the FED should cut rates. I don't think they're

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Speaker 3: particularly slow in doing so. But I think at this

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Speaker 3: point it's fairly clear. I think that things are slowing

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Speaker 3: somewhat and that the inflationary dynamics that you saw a

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Speaker 3: couple of years ago aren't really there. You can really

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Speaker 3: see that in house prices and some of the very

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Speaker 3: interest rates that sensitive sector of the economy look as

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Speaker 3: if they're slowing. So I'm not particularly worried about inflation

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Speaker 3: picking up again. And I think that when you've got

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Speaker 3: a FED rate that is what four p thirty three

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Speaker 3: or four point three currently that is notably above where

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Speaker 3: I think inflation ends up, particularly be adjust for the

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Speaker 3: housing issue. I think Trump is likely right. I mean,

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Speaker 3: I don't think we need to be cutting rates by

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Speaker 3: two hundred basis points. That I think is a bit

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Speaker 3: extreme there. But should the FED be cutting in July

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Speaker 3: and septem berming, Yes, I think so. I mean, you

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Speaker 3: could get rates down fifty to seventy five basis points,

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Speaker 3: and I think that would be I don't think that

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Speaker 3: would be unreasonable all. I don't think it's right that

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Speaker 3: they're putting quite so much pressure on them. I don't

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Speaker 3: think that's particularly helpful. And if you do end up

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Speaker 3: with a powel that was fired, I don't quite know

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Speaker 3: how that would play out. I imagine you'd see a

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Speaker 3: steeper curve because you'd a price that rates would get

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Speaker 3: cut more drastically, and then you might price that you'd

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Speaker 3: lose somewhat lose some control of the back end of

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Speaker 3: the curve. But you know, it's a staggered a committee

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Speaker 3: with staggered appointments. So I think there's plenty of other

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Speaker 3: people on the FED that will continue with the monetary

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Speaker 3: policy in the manner of which they've been doing it

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Speaker 3: so far.

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Speaker 1: David will leave it there, always a pleasure. Thank you

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Speaker 1: so very much. David Espell, partner co CIO at Mount

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Speaker 1: Lucas Management, joining from just outside Philadelphia here on the

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Speaker 1: Daybreak as your podcast. Welcome back to the Daybreak Asia podcast.

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Speaker 1: I'm Doug Chrisner. Markets are now looking ahead to megacap tech.

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Speaker 1: Earnings from both Alphabet and Tesla companies are set to

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Speaker 1: report in under twenty four hours. Let's take a closer

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Speaker 1: look now. I'm joined by Stephanie Leung. She is the

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Speaker 1: chief investment officer at Stashaway. Stephanie joins us from our

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Speaker 1: studios in Hong Kong. Thank you so much for making

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Speaker 1: time to chat with me. I'm going to play to

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Speaker 1: one of your strengths, technology and particularly artificial intelligence. On

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Speaker 1: Wednesday here in the States. After the bell, we're going

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Speaker 1: to hear from Alphabet, and I think the market's going

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Speaker 1: to be very curious not only on spending when it

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Speaker 1: comes to AI, but what some analysts have expressed concern

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Speaker 1: over in the past, which is how AI may be

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Speaker 1: impacting the company's core search business. How do you understand

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Speaker 1: the risk of some of these AI back chatbots posing

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Speaker 1: some sort of risk to a business, even for bay

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Speaker 1: Do in China, which has around seventy percent of the

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Speaker 1: search market. Is AI a way for this to be reimagined,

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Speaker 1: do you think, and maybe does it represent a near

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Speaker 1: term risk?

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Speaker 4: Yeah? I think, I mean you bring a very very

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Speaker 4: good point, right in the sense that, of course, if

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Speaker 4: you think about the Internet era, search was a very

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Speaker 4: very profitable business and Google by do pretty much have

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Speaker 4: like a dominance or monopoly in these businesses. However, if

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Speaker 4: we enter the AI era, if you think about kind

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Speaker 4: of just what people go to search engines to do,

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Speaker 4: they're basically asking questions, and you can ask these questions

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Speaker 4: much more directly and get much better answers by going

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Speaker 4: to the LM chat bots to ask the same questions,

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Speaker 4: and they will give you a much more comprehensive answer

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Speaker 4: rather than just the templu links that that Google would provide.

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Speaker 4: And I think that actually creates a sort of a

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Speaker 4: dilemma for companies like Google in the sense that I

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Speaker 4: mean they know that that's the direction that things are going. However,

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Speaker 4: of course they have existing sort of earnings to try

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Speaker 4: to protect, so they need to. I mean, they are

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Speaker 4: trying to actually strike a balance between like kind of

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Speaker 4: not cannibalizing the existing business, but meanwhile making efforts to

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Speaker 4: make sure that they don't get this kind of extinct

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Speaker 4: in the in the new AI era. So, for example AI,

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Speaker 4: if you go to Google Search right now, you see

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Speaker 4: that they will provide a AI generated search summary. Uh,

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Speaker 4: and that's sort of some of the efforts to help

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Speaker 4: the company that migrates. Of course, I think if you

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Speaker 4: look at the share price and also valuation, I mean

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Speaker 4: that concern seems to me to be quite well understood

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Speaker 4: by the market in the sense that if you kind

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Speaker 4: of kind of compare Google's valuation versus others in the

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Speaker 4: Max seven, I mean, they are the lowest, and they're

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Speaker 4: also trading at the lowest kind of price earnings valuation

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Speaker 4: compared to its own history. So I think if you

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Speaker 4: just kind of look at Google's kind of whole business,

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Speaker 4: of course, search is a very very important part.

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Speaker 5: However, there are other businesses.

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Speaker 4: For example, Weimo is making some very good progress in

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Speaker 4: terms of autonomous driving.

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Speaker 5: That's also AI driven.

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Speaker 2: Uh.

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Speaker 5: If you look at kind of YouTube, it's also doing well.

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Speaker 5: That's uh.

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Speaker 4: There's also kind of AI enabled kind of algorithms that

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Speaker 4: help them to sort of promote relevant videos and velephant contents.

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Speaker 4: So I do think that there are actually, of course,

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Speaker 4: there are other levers that googleg and pull, and one

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Speaker 4: of which is of course, like if you and I

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Speaker 4: kind of look at war is the most popular mail

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Speaker 4: protocol and mail program out there. I mean there's still

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Speaker 4: a Gmail, right, So I think there are optionalities. It's

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Speaker 4: about just kind of in the intim period, how to

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Speaker 4: balance kind of the the search business with it.

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Speaker 1: So if you're looking at opportunities in AI in China,

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Speaker 1: are you more focused on the software side or are

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Speaker 1: you looking at the hardware story and maybe semiconductors, how

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Speaker 1: do you play it?

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Speaker 5: I think.

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Speaker 4: If you look at the semiconduct to our hardware side,

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Speaker 4: it's very very focused in a few kind of companies

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Speaker 4: that have the technology. So by that I mean, for example,

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Speaker 4: n video, Nvidia has the chips that are kind of

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Speaker 4: ways ahead. And if you look at all the recent

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Speaker 4: kind of announcements from big big tech companies like for example,

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Speaker 4: Matters big announcement of their data centers, I mean they

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Speaker 4: are still predominantly using UH in video technology. UH if

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Speaker 4: you look at kind of in China. Of course, recently, uh,

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Speaker 4: President Trump lifted the restriction to export H twenty chips

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Speaker 4: to China, and I mean Nvidia is receiving a lot

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Speaker 4: of orders and I mean the citing supply shortages.

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Speaker 5: So still Nvidia is the kind of the.

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Speaker 4: Dominant player in the infrastructure layer. Of course, like companies

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Speaker 4: like Huawei are catching up, but I think they are

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Speaker 4: still kind of somewhat behind on the application side. I

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Speaker 4: think that's where it gets more interesting, right, because it's

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Speaker 4: not it's not that kind of u dominated by one

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Speaker 4: or two players. I think in the application side, you

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Speaker 4: can see a lot of very creative uses of the

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Speaker 4: underlying technology in terms of driving usage, driving revenue, or

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Speaker 4: cutting costs. And here I think you can see that

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Speaker 4: in the US there are different companies in different verticals

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Speaker 4: kind of I guess making big strides. And also in China, right,

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Speaker 4: if you look at kind of the software companies, I

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Speaker 4: think they are one of the first to benefit from

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Speaker 4: these AI coding agents, for example, and these actually benefit

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Speaker 4: a lot more companies than just the infrastructure.

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Speaker 1: Later, you touched on autonomous driving in China a moment ago,

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Speaker 1: and I'm curious how is that progressing? Are there developments

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Speaker 1: that look promising at this point where you want to

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Speaker 1: be invested in those companies?

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Speaker 4: I think in China is developing very very quickly, but

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Speaker 4: still if you look at kind of the where their

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Speaker 4: technology is in the forefront is still in the US

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Speaker 4: right Tesla is leading the effort in developing some of

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Speaker 4: the more advanced AI driven kind of I guess automis

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Speaker 4: driving technologies. As I mentioned, Weimo is also making some

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Speaker 4: very vaguer good progresses. So these are companies that are

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Speaker 4: at the forefront. I think in China is where the

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Speaker 4: application of these technologies may actually surprise on the upside

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Speaker 4: in the sense that I think if you look at

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Speaker 4: kind of how China can deploy these technologies, it tends

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Speaker 4: to be a lot more efficient. So I think that's

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Speaker 4: sort of at the again, it's at the application layer

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Speaker 4: where some of these companies can benefit.

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Speaker 1: We know the trade negotiators from the European Union and

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Speaker 1: the US will be meeting again this week for more

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Speaker 1: trade talks. So whether we're talking about the European Union

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Speaker 1: or China, we do have this August deadline in front

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Speaker 1: of us. But I'm curious, are you optimistic that we're

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Speaker 1: going to be able to kind of turn the page

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Speaker 1: on this tariff story soon.

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Speaker 4: So I think if you look at Trump's policy, it's

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Speaker 4: been kind of kicking the can down the road. And

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Speaker 4: if you listen to the latest Bestent interview, what he

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Speaker 4: mentioned was actually quite telling, right he said, it's about

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Speaker 4: the quality of the outcome, not the timing of the outcome.

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Speaker 4: So I think again, the next kind of deadline that's

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Speaker 4: coming up and is first of August, which is kind

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Speaker 4: of a few days from from today, but I do

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Speaker 4: suspect that they will try to kick the can down

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Speaker 4: the road again, which I think it's it's sort of

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Speaker 4: expected or digested by the market. And if you look

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Speaker 4: at kind of the current level of actual tariffs that

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Speaker 4: are being imposed, they are sort of in ten to

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Speaker 4: twenty percent range. And I think if you look at

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Speaker 4: the where it like the level of the level of

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Speaker 4: tariff really hit US economy, if it goes up to

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Speaker 4: about thirty percent, then that's when things get much challenged,

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Speaker 4: much more challenging. So I mean, we'll have to see

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Speaker 4: what the outcome is, But I mean I think if

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Speaker 4: you look at kind of the summer months August September

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Speaker 4: tends to be.

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Speaker 5: Like the worst months in terms of seasonality.

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Speaker 4: I mean, liquidity is quite thin, and I mean we've

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Speaker 4: had a market that has rally like twenty something thirty

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Speaker 4: percent from as bottom. So I wouldn't be surprised if

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Speaker 4: in the summer we see some headlines coming out from

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Speaker 4: these trade talks that could rattle markets and create I

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Speaker 4: mean five to ten percent correction. However, the fundamentals are

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Speaker 4: still quite solid, so I think those are kind of

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Speaker 4: good opportunity for people to still I mean, add to

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Speaker 4: the risk.

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Speaker 1: Stephanie will leave it there. It's always a pleasure. Thank

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Speaker 1: you so very much, Stephanie Jung. She is the chief

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Speaker 1: investment officer at Stashaway. Joining from our Hong Kong studios

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Speaker 1: here on the Daybreak Asia Podcast. Thanks for listening to

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Speaker 1: today's episode of the Bloomberg Daybreak Asia Edition podcast. Each weekday,

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Speaker 1: we look at the story shaping markets, finance, and geopolitics

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Speaker 1: in the Asia Pacific. You can find us on Apple, Spotify,

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Speaker 1: the Bloomberg Podcast YouTube channel, or anywhere else you listen.

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Speaker 1: Join us again tomorrow for insight on the market moves

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Speaker 1: from Hong Kong to Singapore and Australia. I'm Doug prisoner

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Speaker 1: and this is Bloomberg