1
00:00:00,040 --> 00:00:07,000
Speaker 1: Bloomberg Audio Studios, podcasts, radio news.

2
00:00:10,440 --> 00:00:14,000
Speaker 2: Welcome to the Daybreak Asia podcast. I'm dek Krisner. Crude

3
00:00:14,000 --> 00:00:16,800
Speaker 2: oil prices rose for a third straight session in New

4
00:00:16,880 --> 00:00:20,079
Speaker 2: York Trading WTI closed up four point seven percent to

5
00:00:20,160 --> 00:00:24,400
Speaker 2: seventy four fifty six, and US diesel fuel futures rose

6
00:00:24,600 --> 00:00:28,040
Speaker 2: seven point seven percent. Now to be fair, prices did

7
00:00:28,120 --> 00:00:31,680
Speaker 2: retreat from session highs after President Trump said the US

8
00:00:31,720 --> 00:00:36,479
Speaker 2: would provide insurance guarantees and naval escorts for oil tankers

9
00:00:36,479 --> 00:00:40,440
Speaker 2: and other vessels passing through the Strait of Hormuz. That said,

10
00:00:40,800 --> 00:00:43,720
Speaker 2: war with Iran shows no sign of de escalation and

11
00:00:43,760 --> 00:00:47,360
Speaker 2: the outlook does remain precarious. For a closer look, I'm

12
00:00:47,400 --> 00:00:50,879
Speaker 2: joined by Rob Hayworth. He is senior investment Strategy director

13
00:00:50,960 --> 00:00:54,600
Speaker 2: at US Bank Asset Management Group, and Rob joins us

14
00:00:54,640 --> 00:00:56,840
Speaker 2: from our studios here in New York City. Thank you

15
00:00:56,880 --> 00:01:00,040
Speaker 2: for being here. Give me your sense of what the

16
00:01:00,120 --> 00:01:02,720
Speaker 2: markets are dealing with right now in terms of war

17
00:01:02,840 --> 00:01:06,480
Speaker 2: in Iran and how that compares with other periods of

18
00:01:06,520 --> 00:01:07,920
Speaker 2: instability that you have seen.

19
00:01:08,120 --> 00:01:10,760
Speaker 3: Well, yeah, I've been in the business maybe too long,

20
00:01:10,840 --> 00:01:13,520
Speaker 3: Doug right, thinking back to the Gulf War and other

21
00:01:13,600 --> 00:01:16,960
Speaker 3: events like that. Right, We've seen volatility like this before.

22
00:01:17,120 --> 00:01:20,520
Speaker 3: I think the interesting thing this time around is the

23
00:01:20,600 --> 00:01:23,319
Speaker 3: equity markets are a little calmer than the oil markets

24
00:01:23,319 --> 00:01:25,120
Speaker 3: and the gas markets. Right. We're seeing a lot more

25
00:01:25,240 --> 00:01:28,360
Speaker 3: volatility there than we are in the energy markets. I

26
00:01:28,360 --> 00:01:30,760
Speaker 3: think for us, what we continue to evaluate and what

27
00:01:30,800 --> 00:01:33,759
Speaker 3: investors are trying to evaluate day to day is one,

28
00:01:33,959 --> 00:01:36,120
Speaker 3: how long will this go on? Right? We knew the

29
00:01:36,680 --> 00:01:40,080
Speaker 3: Gulf War, for example, went on much longer than people anticipated. Right,

30
00:01:40,160 --> 00:01:42,119
Speaker 3: is this really just four weeks? If it's four weeks,

31
00:01:42,160 --> 00:01:44,840
Speaker 3: we can maybe wait a bit. Two, how high do

32
00:01:44,920 --> 00:01:47,080
Speaker 3: oil prices go and what impact does that have on

33
00:01:47,120 --> 00:01:49,840
Speaker 3: the consumers we entered twenty twenty six. We think the

34
00:01:49,880 --> 00:01:53,600
Speaker 3: consumers a really important part of this economic story, and

35
00:01:53,640 --> 00:01:57,480
Speaker 3: their ability to continue to spend amidst the refund season

36
00:01:57,520 --> 00:01:59,760
Speaker 3: and other things, right, remains really important. So as long

37
00:01:59,800 --> 00:02:03,040
Speaker 3: as energy prices don't get too high, that should be okay.

38
00:02:03,360 --> 00:02:06,000
Speaker 3: And then I think it's a question of duration, right,

39
00:02:06,040 --> 00:02:08,480
Speaker 3: I mean, we just have to think about duration. So

40
00:02:08,560 --> 00:02:10,480
Speaker 3: I think markets have been a little calmer than we

41
00:02:10,480 --> 00:02:13,359
Speaker 3: anticipated this time around, meaning equity markets.

42
00:02:13,760 --> 00:02:16,400
Speaker 2: The bond market, though, seems to be very concerned about

43
00:02:16,400 --> 00:02:19,280
Speaker 2: the possibility that we're going to see accelerated inflation. That

44
00:02:19,440 --> 00:02:22,720
Speaker 2: seems to be a prudent bed, wouldn't you say?

45
00:02:23,480 --> 00:02:25,280
Speaker 3: I think so, right, because I think you have a

46
00:02:25,320 --> 00:02:28,120
Speaker 3: FED that is really evaluating the data as we press ahead,

47
00:02:28,160 --> 00:02:30,840
Speaker 3: and we've heard that from multiple speakers, right, So maybe

48
00:02:30,840 --> 00:02:33,200
Speaker 3: the FED won't be cutting rates as quickly, and we

49
00:02:33,280 --> 00:02:36,200
Speaker 3: need to embed some inflation expectations in what is still

50
00:02:36,240 --> 00:02:38,639
Speaker 3: a fairly low ten year treasure yield at four point

51
00:02:38,720 --> 00:02:41,440
Speaker 3: one percent. When you think about an economy that's growing

52
00:02:41,480 --> 00:02:44,720
Speaker 3: at two percent with depending upon how you measure inflation,

53
00:02:44,960 --> 00:02:49,919
Speaker 3: two and a half percent CPI inflation, three percent PPI inflation, right,

54
00:02:49,960 --> 00:02:52,240
Speaker 3: I mean we you know, you could have a slightly

55
00:02:52,360 --> 00:02:55,680
Speaker 3: higher ten year treasury yield at this point. So I

56
00:02:55,720 --> 00:02:57,839
Speaker 3: think there's there's room for it to move a little

57
00:02:57,919 --> 00:02:59,840
Speaker 3: higher and accommodate those higher and.

58
00:03:00,560 --> 00:03:02,280
Speaker 2: So it fields back up a little bit at the

59
00:03:02,320 --> 00:03:06,400
Speaker 2: long end. To what extent could that destabilize the equity market?

60
00:03:07,639 --> 00:03:10,000
Speaker 3: Probably not as much given where we started the first

61
00:03:10,040 --> 00:03:13,160
Speaker 3: six months of the year. For six weeks of the year, sorry, Doug.

62
00:03:14,000 --> 00:03:17,399
Speaker 3: With that draw down in software stocks, right, we've seen

63
00:03:17,480 --> 00:03:21,280
Speaker 3: such a draw down in technology that you've seen valuations

64
00:03:21,360 --> 00:03:24,960
Speaker 3: repriced there, and what we're seeing is a fairly steady

65
00:03:26,280 --> 00:03:29,440
Speaker 3: SMP five hundred. Tech stocks have been much lower. You're

66
00:03:29,440 --> 00:03:33,639
Speaker 3: seeing better performance out of industrials and energy where valuations

67
00:03:33,639 --> 00:03:37,000
Speaker 3: have been low. So the interesting thing is we've probably

68
00:03:37,040 --> 00:03:40,120
Speaker 3: seen that valuation reset and tech for the most part

69
00:03:40,120 --> 00:03:42,320
Speaker 3: at this point, and there's probably doesn't have as much

70
00:03:42,320 --> 00:03:45,560
Speaker 3: of effect as much of an effect now as it

71
00:03:45,640 --> 00:03:47,320
Speaker 3: might have at the end of the year.

72
00:03:47,440 --> 00:03:50,440
Speaker 2: That said, are you tempted to rotate a little bit

73
00:03:50,560 --> 00:03:52,240
Speaker 2: internally within the equity space.

74
00:03:52,640 --> 00:03:56,960
Speaker 3: Yeah, we've been emphasizing global equities, which takes us away

75
00:03:56,960 --> 00:04:01,600
Speaker 3: from technology. We've been emphasizing global infrastructure. It's maybe we're

76
00:04:01,640 --> 00:04:03,800
Speaker 3: probably a little rich at this point in the energy space,

77
00:04:03,880 --> 00:04:07,040
Speaker 3: given oil is pushed up quite a bit, but we

78
00:04:07,080 --> 00:04:10,480
Speaker 3: would look for more rotation and pay attention to diversification

79
00:04:10,600 --> 00:04:12,920
Speaker 3: in smaller companies and in global infrastructure.

80
00:04:13,040 --> 00:04:15,520
Speaker 2: I was struck by the fact that in today's session,

81
00:04:15,560 --> 00:04:18,839
Speaker 2: this is Tuesday evening New York Times, so Wednesday morning

82
00:04:18,960 --> 00:04:21,520
Speaker 2: in Seoul, the cost is getting whacked quite a bit.

83
00:04:21,560 --> 00:04:24,039
Speaker 2: Now we know that as a part of this AI theme,

84
00:04:24,720 --> 00:04:27,520
Speaker 2: some of the memory chip makers names like Samsung, s

85
00:04:27,600 --> 00:04:31,719
Speaker 2: K Heinez have done exceptionally well. That seems to be

86
00:04:31,720 --> 00:04:35,080
Speaker 2: being repriced right now. Is this something that you think

87
00:04:36,120 --> 00:04:39,800
Speaker 2: global markets need to consider, the possibility that everything involving

88
00:04:40,120 --> 00:04:44,240
Speaker 2: artificial intelligence needs to be examined just a little bit.

89
00:04:44,480 --> 00:04:46,039
Speaker 3: Well, I think part of what's going on in Asia

90
00:04:46,080 --> 00:04:49,599
Speaker 3: is they're so dependent upon oil imports and energy imports

91
00:04:49,640 --> 00:04:51,640
Speaker 3: that they're much more sensitive to the price of oil

92
00:04:51,640 --> 00:04:54,760
Speaker 3: than we are for the moment. That said, I think

93
00:04:54,920 --> 00:04:56,680
Speaker 3: there is a bit of a reset going on with

94
00:04:56,800 --> 00:05:00,360
Speaker 3: artificial intelligence, but it's no less important, right. I certainly

95
00:05:00,360 --> 00:05:03,440
Speaker 3: heard in earning season the amount of investment in artificial

96
00:05:03,440 --> 00:05:06,720
Speaker 3: intelligence infrastructure from the big hyperscalers is going to go

97
00:05:06,800 --> 00:05:09,839
Speaker 3: up thirty plus percent in twenty twenty six. That's certainly

98
00:05:09,880 --> 00:05:12,200
Speaker 3: true globally. So there may be a bit of a

99
00:05:12,200 --> 00:05:15,040
Speaker 3: price reset in the near term as everyone's rethinking their

100
00:05:15,120 --> 00:05:19,560
Speaker 3: risk tolerance amidst this global turmoil, but there's probably a

101
00:05:19,600 --> 00:05:22,080
Speaker 3: floor beyond it and part of it to your point,

102
00:05:22,080 --> 00:05:25,159
Speaker 3: I mean, South Korea has had a tremendous run in

103
00:05:25,200 --> 00:05:27,480
Speaker 3: the last thirteen months, right if we look at twenty

104
00:05:27,520 --> 00:05:28,840
Speaker 3: twenty five, is spectacular.

105
00:05:29,040 --> 00:05:31,080
Speaker 2: So what's your view on the macro right now? In

106
00:05:31,160 --> 00:05:33,760
Speaker 2: terms of the US. You mentioned how important it is

107
00:05:33,800 --> 00:05:36,719
Speaker 2: for the consumer to be able to participate. Maybe we

108
00:05:36,720 --> 00:05:39,080
Speaker 2: can put a question mark over that at the moment,

109
00:05:39,200 --> 00:05:43,400
Speaker 2: But are you still constructive in terms of where equities

110
00:05:43,480 --> 00:05:44,360
Speaker 2: may end the year.

111
00:05:45,040 --> 00:05:48,400
Speaker 3: Yes, we are staying constructive, and i'd really highlight a

112
00:05:48,400 --> 00:05:50,120
Speaker 3: couple of things. So one, if we look at the

113
00:05:50,120 --> 00:05:52,880
Speaker 3: purchasing manager surveys that have come through, they're holding up

114
00:05:53,000 --> 00:05:58,040
Speaker 3: very well. Now that's pre Iran conflict data, not post

115
00:05:58,120 --> 00:06:01,719
Speaker 3: but still coming into it. Those fundamentals were very solid.

116
00:06:01,960 --> 00:06:05,719
Speaker 3: Retail sales will get Friday for another look, but certainly

117
00:06:05,760 --> 00:06:09,440
Speaker 3: the weekly retail sales data is holding up well. And

118
00:06:09,480 --> 00:06:12,080
Speaker 3: then earning season has been very good for the fourth

119
00:06:12,160 --> 00:06:14,960
Speaker 3: quarter and setting up higher expectations for the rest of

120
00:06:15,000 --> 00:06:17,680
Speaker 3: the year. So we think the fundamentals are here and

121
00:06:17,800 --> 00:06:20,800
Speaker 3: drawdowns are an opportunity for people to start picking their

122
00:06:20,800 --> 00:06:23,400
Speaker 3: positions as they press ahead for the longer term.

123
00:06:23,440 --> 00:06:27,440
Speaker 2: At what point do you begin to maybe consider the

124
00:06:27,720 --> 00:06:30,440
Speaker 2: off term elections, the midterms that we'll have in November,

125
00:06:30,480 --> 00:06:33,920
Speaker 2: and whether or not, if let's say the Democrats were

126
00:06:33,960 --> 00:06:37,440
Speaker 2: to regain control of the House, whether that is going

127
00:06:37,480 --> 00:06:40,920
Speaker 2: to be a significant development for markets. What do you think, Yeah, what.

128
00:06:40,839 --> 00:06:44,200
Speaker 3: We typically see in midterms on average is yes, a

129
00:06:44,240 --> 00:06:47,200
Speaker 3: little weaker performance going in and a little better performance

130
00:06:47,200 --> 00:06:50,839
Speaker 3: coming out, but statistically it's not very different. I think

131
00:06:51,440 --> 00:06:53,080
Speaker 3: we're going to have to be much later in the

132
00:06:53,120 --> 00:06:55,560
Speaker 3: cycle for the market to really start to pay a

133
00:06:55,560 --> 00:06:58,880
Speaker 3: lot of attention to midterms, because right now the president

134
00:06:58,960 --> 00:07:01,599
Speaker 3: is very much in control of agenda. He has the

135
00:07:01,640 --> 00:07:04,440
Speaker 3: tools he wants and needs to implement tariffs. Even though

136
00:07:04,440 --> 00:07:07,760
Speaker 3: he lost the AIPA tariff power, he has all the

137
00:07:07,800 --> 00:07:10,400
Speaker 3: other trade acts and believes he can carry out his

138
00:07:10,520 --> 00:07:13,440
Speaker 3: tariff needs. He's already been able to push to get

139
00:07:13,440 --> 00:07:15,480
Speaker 3: pushed through the One Big Beautiful Bill Act, which has

140
00:07:15,560 --> 00:07:20,239
Speaker 3: led to stimulus for consumers. So I think the market's

141
00:07:20,240 --> 00:07:22,680
Speaker 3: going to be a little sanguine about midterm elections, even

142
00:07:22,720 --> 00:07:24,440
Speaker 3: if it looks like there's going to be a shift

143
00:07:24,440 --> 00:07:27,160
Speaker 3: in power in Congress, because we're not pushing through a

144
00:07:27,200 --> 00:07:30,440
Speaker 3: lot before the midterm elections, and I'm not sure there's

145
00:07:30,480 --> 00:07:32,960
Speaker 3: a lot the president will want from Congress after the

146
00:07:33,000 --> 00:07:34,080
Speaker 3: midterm elections either.

147
00:07:34,720 --> 00:07:37,600
Speaker 2: What is the most significant development outside of what we

148
00:07:37,680 --> 00:07:39,920
Speaker 2: have seen in the crude oil space, What is the

149
00:07:39,920 --> 00:07:42,760
Speaker 2: most significant development for you that you're kind of hanging

150
00:07:42,800 --> 00:07:45,480
Speaker 2: your hat on if you have to maybe be a

151
00:07:45,480 --> 00:07:48,240
Speaker 2: little tactical change course in the equity market. Is there

152
00:07:48,320 --> 00:07:52,080
Speaker 2: something that's happened recently that's created a bit of rethink.

153
00:07:52,360 --> 00:07:54,520
Speaker 2: One thing that jumps to my mind is the research

154
00:07:54,600 --> 00:07:58,040
Speaker 2: report from Satrini a couple of weeks ago, where everybody

155
00:07:58,120 --> 00:08:01,320
Speaker 2: was kind of re examining the thesis of around AI disruption.

156
00:08:01,520 --> 00:08:06,120
Speaker 2: We saw how it hit various industries, software companies, wealth

157
00:08:06,200 --> 00:08:10,160
Speaker 2: management firms. Is there something that's happened recently that is

158
00:08:10,200 --> 00:08:13,200
Speaker 2: really giving you cause to be more reflective than usual?

159
00:08:13,440 --> 00:08:16,880
Speaker 3: So I'd think about two things. So one, relative to

160
00:08:16,960 --> 00:08:22,400
Speaker 3: artificial intelligence, we were emphasizing diversification before this all went down,

161
00:08:22,520 --> 00:08:25,800
Speaker 3: right before we saw that draw down, we'd still emphasize

162
00:08:25,800 --> 00:08:29,720
Speaker 3: it coming out right. So if you've been overweight artificial intelligence,

163
00:08:29,720 --> 00:08:31,880
Speaker 3: maybe is not not the time to get back overweight.

164
00:08:32,480 --> 00:08:35,040
Speaker 3: But if you'd been taking advantage of other sectors and

165
00:08:35,080 --> 00:08:37,000
Speaker 3: you've had your run up and energy and industrials and

166
00:08:37,040 --> 00:08:40,079
Speaker 3: your underweight artificial intelligence, we'd look at that. I think

167
00:08:40,120 --> 00:08:43,600
Speaker 3: the second factor we're paying attention to, but we don't

168
00:08:43,640 --> 00:08:46,120
Speaker 3: think it's a long term problem yet, is private credit.

169
00:08:47,080 --> 00:08:51,880
Speaker 3: I think the fallout from a couple of companies and

170
00:08:51,920 --> 00:08:56,000
Speaker 3: their redemption issues speaks to how difficult it is in

171
00:08:56,000 --> 00:09:00,480
Speaker 3: private credit to match up duration properly. Need to pay

172
00:09:00,520 --> 00:09:04,160
Speaker 3: attention to the liquidity terms of a fund, it's redemption

173
00:09:04,320 --> 00:09:06,880
Speaker 3: period's relative to its underlying investments. And that's one of

174
00:09:06,920 --> 00:09:10,280
Speaker 3: the problems I think we're seeing. We'd watch for if

175
00:09:10,320 --> 00:09:14,840
Speaker 3: it means that there's an underlying underwriting problem, maybe a

176
00:09:14,840 --> 00:09:17,959
Speaker 3: distress or a default problem. We're not seeing that yet, right.

177
00:09:17,960 --> 00:09:21,080
Speaker 3: We're actually seeing defaults come down when we look at

178
00:09:21,080 --> 00:09:24,920
Speaker 3: the bank loan space, right, this is a fairly concentrated problem,

179
00:09:24,920 --> 00:09:28,040
Speaker 3: but certainly those stocks have been hurt very badly. You

180
00:09:28,240 --> 00:09:32,760
Speaker 3: see you're seeing discounts to nav and some of those

181
00:09:33,240 --> 00:09:36,880
Speaker 3: BDC vehicles. Right. That's something we're going to have to

182
00:09:36,880 --> 00:09:38,720
Speaker 3: watch and make sure it's okay. We think there's still

183
00:09:38,720 --> 00:09:41,640
Speaker 3: opportunity in private credit that we'd pay attention to slightly

184
00:09:41,679 --> 00:09:42,360
Speaker 3: different security.

185
00:09:42,360 --> 00:09:44,680
Speaker 2: If there is a question about the strength of the

186
00:09:44,760 --> 00:09:47,760
Speaker 2: economy overall and the degree to which it may be

187
00:09:48,040 --> 00:09:51,280
Speaker 2: negatively impacted by what we're seeing play out and energy,

188
00:09:51,559 --> 00:09:53,600
Speaker 2: How do you feel about small caps right now?

189
00:09:54,640 --> 00:09:56,720
Speaker 3: Yeah, they've certainly had a tougher go in the last

190
00:09:56,760 --> 00:09:59,120
Speaker 3: couple of weeks, and I think a lot of that

191
00:09:59,240 --> 00:10:01,840
Speaker 3: has to do with the backup we've seen in rates,

192
00:10:02,040 --> 00:10:04,480
Speaker 3: right and so I think if we can get through

193
00:10:04,960 --> 00:10:09,480
Speaker 3: this in short order and the FED looks like it

194
00:10:09,559 --> 00:10:11,800
Speaker 3: is going to cut rates some more, small caps are

195
00:10:11,840 --> 00:10:17,280
Speaker 3: really well positioned. I think if energy costs stay elevated,

196
00:10:17,360 --> 00:10:19,920
Speaker 3: you know it's going to be a little tougher road

197
00:10:20,040 --> 00:10:21,520
Speaker 3: for small companies at this point.

198
00:10:22,160 --> 00:10:24,440
Speaker 2: So at the moment, I think the money market is

199
00:10:24,600 --> 00:10:27,840
Speaker 2: betting on only forty five basis points in FED easing

200
00:10:27,920 --> 00:10:30,160
Speaker 2: between now and the end of the year. So that's

201
00:10:30,280 --> 00:10:33,800
Speaker 2: less than two full quarter point cuts. Is that the

202
00:10:33,840 --> 00:10:36,000
Speaker 2: way you see things right now? I mean, how are

203
00:10:36,000 --> 00:10:38,480
Speaker 2: you evaluating what we're likely to see from the Fed?

204
00:10:38,960 --> 00:10:41,680
Speaker 3: Yeah, I think we're very much waiting as they are

205
00:10:41,720 --> 00:10:44,160
Speaker 3: for data. I mean, one of the interesting things for

206
00:10:44,240 --> 00:10:46,520
Speaker 3: us when we look at the December dot plot, and

207
00:10:46,600 --> 00:10:48,680
Speaker 3: I know that's a little old as we're in March now,

208
00:10:48,720 --> 00:10:50,480
Speaker 3: but when we look at the December dot plot, what

209
00:10:50,520 --> 00:10:54,920
Speaker 3: we saw was seventeen forecasts with a lot of we

210
00:10:54,960 --> 00:10:57,120
Speaker 3: don't know what's going to happen, right, We're just not

211
00:10:57,240 --> 00:10:59,400
Speaker 3: sure Some of them thought they needed to cut. Some

212
00:10:59,440 --> 00:11:02,240
Speaker 3: of them thought they could stand pat and I think

213
00:11:02,240 --> 00:11:05,439
Speaker 3: that's very much based on the speakers. Where the committee remains.

214
00:11:05,440 --> 00:11:07,400
Speaker 3: We'll look hard at the march stop plot to see

215
00:11:07,400 --> 00:11:10,280
Speaker 3: what they're saying. But I think we're all a little

216
00:11:10,360 --> 00:11:12,400
Speaker 3: data depending at this point to tell us how many

217
00:11:12,440 --> 00:11:14,760
Speaker 3: cuts we're going to get, kind of no matter what.

218
00:11:15,040 --> 00:11:18,800
Speaker 3: And the surprising thing has been PPI producer prices came

219
00:11:18,800 --> 00:11:23,719
Speaker 3: in a little hotter, PCE personal consumpject expenditures came in

220
00:11:23,760 --> 00:11:26,000
Speaker 3: a little cooler. I think it's important to see where

221
00:11:26,040 --> 00:11:27,920
Speaker 3: inflation comes in, and it's going to be important to

222
00:11:27,920 --> 00:11:30,640
Speaker 3: see where Friday's jobs data comes in. Right are we

223
00:11:30,720 --> 00:11:33,920
Speaker 3: still is the jobs market still robust? Or does the

224
00:11:33,960 --> 00:11:36,280
Speaker 3: FED need to worry about a slowing labor market?

225
00:11:36,360 --> 00:11:38,240
Speaker 2: Okay, Rob, thank you so much. We'll leave it there.

226
00:11:38,320 --> 00:11:42,320
Speaker 2: Rob Hayworth is senior investment strategy director at us Bank

227
00:11:42,400 --> 00:11:45,960
Speaker 2: Asset Management Group. Joining us here on the Daybreak Asia Podcast.

228
00:11:53,280 --> 00:11:56,319
Speaker 2: Welcome back to the Daybreak Asia Podcast. I'm deg Krisner.

229
00:11:56,640 --> 00:12:00,160
Speaker 2: We're seeing a significant decline in South Korean stocks as

230
00:12:00,200 --> 00:12:03,160
Speaker 2: the result of the war in Iran. Consider the fact

231
00:12:03,200 --> 00:12:06,560
Speaker 2: that South Korea is a major oil importer. Now, the

232
00:12:06,640 --> 00:12:09,560
Speaker 2: COSPY was down by as much as six percent earlier,

233
00:12:09,640 --> 00:12:13,040
Speaker 2: and chip heavyweights like Samsung and sk Heinex were the

234
00:12:13,080 --> 00:12:16,920
Speaker 2: big drags. That's where we begin our conversation with Carrie Craig,

235
00:12:17,320 --> 00:12:20,960
Speaker 2: carry is the global market strategistic JP Morgan Asset Management.

236
00:12:21,200 --> 00:12:24,079
Speaker 2: He spoke with Bloomberg TV host April Hong and Heidi

237
00:12:24,160 --> 00:12:24,960
Speaker 2: Stroud Watts.

238
00:12:25,280 --> 00:12:29,080
Speaker 4: Carrie, what stood out to us was the decline that

239
00:12:29,160 --> 00:12:32,000
Speaker 4: we saw in a market, South Korea that had been

240
00:12:32,120 --> 00:12:35,200
Speaker 4: leading the pack higher for much of this year. I mean,

241
00:12:35,720 --> 00:12:38,840
Speaker 4: how are you viewing the ructions we're seeing in South

242
00:12:38,920 --> 00:12:39,680
Speaker 4: Korea at the moment?

243
00:12:42,120 --> 00:12:44,320
Speaker 5: Good morning, Well, I think what we're seeing across the

244
00:12:44,440 --> 00:12:47,040
Speaker 5: Asian Morning Open here as obviously a continuation of a

245
00:12:47,040 --> 00:12:49,600
Speaker 5: bit of the sell off we saw yesterday in the US.

246
00:12:49,600 --> 00:12:52,880
Speaker 5: There's still the concerns around the escalation of the conflict

247
00:12:52,960 --> 00:12:54,880
Speaker 5: in the Middle East and how long it could last,

248
00:12:54,960 --> 00:12:57,640
Speaker 5: and then the knock on effects from the potential closure

249
00:12:57,679 --> 00:12:59,760
Speaker 5: of that straight of hor Moose for a longer period

250
00:12:59,800 --> 00:13:02,920
Speaker 5: of time, which would flow through to restrict energy that

251
00:13:03,000 --> 00:13:05,679
Speaker 5: was available to markets like Korea and Japan who are

252
00:13:05,679 --> 00:13:08,200
Speaker 5: big energy importers. So I think that's probably on the

253
00:13:08,200 --> 00:13:10,880
Speaker 5: macro front, and then on the market front. Obviously, markets

254
00:13:10,920 --> 00:13:13,600
Speaker 5: there have done very well, so you're probably seeing continued

255
00:13:13,679 --> 00:13:16,760
Speaker 5: repositioning by investors taking a little bit of what's done

256
00:13:16,840 --> 00:13:19,960
Speaker 5: very well in their portfolios looking to rotate that into

257
00:13:19,960 --> 00:13:22,880
Speaker 5: more defensive positioning as they sort of away what the

258
00:13:22,960 --> 00:13:26,320
Speaker 5: scenarios may play out in the Middle East and the

259
00:13:26,400 --> 00:13:29,160
Speaker 5: duration of which is a big question at the moment.

260
00:13:29,240 --> 00:13:31,760
Speaker 5: So I think it's probably a little bit more of

261
00:13:31,800 --> 00:13:35,320
Speaker 5: the rotation within portfolios that's driving this, rather than thinking

262
00:13:35,320 --> 00:13:39,319
Speaker 5: about a big flight away from risk assets at the moment,

263
00:13:39,360 --> 00:13:42,000
Speaker 5: given the questions we still have around the severity and

264
00:13:42,080 --> 00:13:44,200
Speaker 5: duration of what the conflict in the Middle East may

265
00:13:44,200 --> 00:13:44,560
Speaker 5: look like.

266
00:13:47,040 --> 00:13:49,480
Speaker 4: Do you think then there's more selling to go When

267
00:13:49,480 --> 00:13:50,960
Speaker 4: it comes to Korean assets.

268
00:13:53,720 --> 00:13:55,319
Speaker 5: I think the market there has done very well and

269
00:13:55,360 --> 00:13:58,400
Speaker 5: it's been underpended by a very strong secular theme around

270
00:13:58,600 --> 00:14:00,880
Speaker 5: both the AI stocks. While I was thinking about some

271
00:14:00,920 --> 00:14:03,040
Speaker 5: of the defensive positioning that comes through in terms of

272
00:14:03,080 --> 00:14:06,120
Speaker 5: the build out in Europe given their focus on wanting

273
00:14:06,160 --> 00:14:09,560
Speaker 5: to increase some of their defensive capabilities after the Ukrainian

274
00:14:09,960 --> 00:14:13,680
Speaker 5: Russia conflict. So there's big structural supports there for the market. Obviously,

275
00:14:13,720 --> 00:14:15,840
Speaker 5: evaluations had moved up a long way, and I think

276
00:14:15,880 --> 00:14:18,319
Speaker 5: when we look at the North Asian markets, whether it's

277
00:14:18,360 --> 00:14:22,120
Speaker 5: Taiwan or Japan or Korea, they're going to be going

278
00:14:22,160 --> 00:14:24,760
Speaker 5: back to thinking about their role in that AI supply

279
00:14:24,960 --> 00:14:27,760
Speaker 5: chain and how that really hasn't changed given what we've

280
00:14:27,760 --> 00:14:29,800
Speaker 5: seen in the last couple of days, and so that

281
00:14:29,840 --> 00:14:32,480
Speaker 5: can provide a little bit of a cushion, or should

282
00:14:32,480 --> 00:14:35,120
Speaker 5: the outlooks start to improve, you may see investors that

283
00:14:35,160 --> 00:14:38,240
Speaker 5: want to move back into those markets that slightly better valuations.

284
00:14:38,600 --> 00:14:40,720
Speaker 5: That's still a bit early on that question, but I

285
00:14:40,720 --> 00:14:43,120
Speaker 5: think that there's a longer term case for these markets

286
00:14:43,360 --> 00:14:45,840
Speaker 5: given their key role in that AI secular theme.

287
00:14:47,240 --> 00:14:49,080
Speaker 1: That's kind of what I wanted to get to because

288
00:14:49,080 --> 00:14:51,000
Speaker 1: I think even just a month ago you were talking

289
00:14:51,040 --> 00:14:54,680
Speaker 1: about the rotation into Europe, into Japan, into emerging markets.

290
00:14:54,760 --> 00:14:57,040
Speaker 1: All of these markets have been really palmmeled. Particularly over

291
00:14:57,080 --> 00:14:59,400
Speaker 1: the past few sessions. We've talked about the sell off

292
00:14:59,400 --> 00:15:01,840
Speaker 1: when it comes to the AI scare trade. You are

293
00:15:01,840 --> 00:15:04,720
Speaker 1: starting to see the emergence of value in some of

294
00:15:04,760 --> 00:15:06,080
Speaker 1: these markets and companies.

295
00:15:08,400 --> 00:15:11,280
Speaker 5: Yeah, there had been a shift in terms of overweights

296
00:15:11,280 --> 00:15:13,600
Speaker 5: towards that growth theme that had come through movement back

297
00:15:13,600 --> 00:15:16,120
Speaker 5: and towards value that had been going through in Europe

298
00:15:16,160 --> 00:15:18,360
Speaker 5: for be the part of twelve months, and it started

299
00:15:18,360 --> 00:15:20,600
Speaker 5: to appear in the US, and it's late last year.

300
00:15:21,080 --> 00:15:23,560
Speaker 5: I think the question of whether these prices could fall

301
00:15:23,640 --> 00:15:26,200
Speaker 5: but further in that de rating could go further in

302
00:15:26,280 --> 00:15:28,400
Speaker 5: markets like US and career is a little bit too

303
00:15:28,880 --> 00:15:31,080
Speaker 5: early to tell. I mean, the timing around these things

304
00:15:31,120 --> 00:15:33,480
Speaker 5: is the biggest issue. I think In the long run, though,

305
00:15:33,520 --> 00:15:36,120
Speaker 5: you'll still see a lot of investor interest in those markets,

306
00:15:36,160 --> 00:15:38,840
Speaker 5: given that they are the big producers of memory chips.

307
00:15:39,240 --> 00:15:40,920
Speaker 5: Then the demand is always going to be there as

308
00:15:40,920 --> 00:15:43,360
Speaker 5: we see that build out in AI capabilities in the

309
00:15:43,480 --> 00:15:45,680
Speaker 5: US and around the world, So there will be a

310
00:15:45,680 --> 00:15:47,880
Speaker 5: point where these markets look a little more attractive and

311
00:15:47,880 --> 00:15:50,960
Speaker 5: you'll find the stabilization. Trying to time that is something

312
00:15:51,000 --> 00:15:52,680
Speaker 5: that we wouldn't want to get into at the moment,

313
00:15:52,720 --> 00:15:55,800
Speaker 5: given the uncertainty and the size of the tail risks

314
00:15:55,800 --> 00:15:57,520
Speaker 5: that are out there at the moment. But I certainly

315
00:15:57,600 --> 00:15:59,800
Speaker 5: think that there's going to be opportunities that come to

316
00:15:59,840 --> 00:16:02,280
Speaker 5: the for in the years ahead. I think right now

317
00:16:02,680 --> 00:16:05,040
Speaker 5: investors really need to focus on the appropriate levels of

318
00:16:05,080 --> 00:16:08,520
Speaker 5: diversification and hedges, and a portfolio where we do have

319
00:16:09,000 --> 00:16:12,120
Speaker 5: what could be quite sizable risks around growth at the

320
00:16:12,120 --> 00:16:15,560
Speaker 5: moment the focuses inflation and depending on how things develop

321
00:16:15,600 --> 00:16:16,320
Speaker 5: in the Middle East.

322
00:16:17,920 --> 00:16:20,520
Speaker 1: It's interesting we've had a pretty stellar earning season here

323
00:16:20,520 --> 00:16:23,480
Speaker 1: in Australia. Australia's always an interesting one when it comes

324
00:16:23,520 --> 00:16:28,000
Speaker 1: to a device ccation or a place of safety. When

325
00:16:28,000 --> 00:16:31,480
Speaker 1: there's global and certainty going on. Are there opportunities in

326
00:16:31,480 --> 00:16:32,280
Speaker 1: the Aussie market.

327
00:16:34,520 --> 00:16:36,480
Speaker 5: Well, certainly look like on Monday that the market hill

328
00:16:36,520 --> 00:16:38,680
Speaker 5: hadn't been as affected. I think you're seeing a bit

329
00:16:38,680 --> 00:16:40,880
Speaker 5: more of a sell off come through this morning and yesterday.

330
00:16:41,640 --> 00:16:43,920
Speaker 5: The currency also taking a bit of a hit. Given

331
00:16:44,320 --> 00:16:46,280
Speaker 5: as a beta currency and suclical to the rest of

332
00:16:46,320 --> 00:16:49,600
Speaker 5: the world. I think those same continuations around some of

333
00:16:49,640 --> 00:16:53,040
Speaker 5: the repositioning and portfolios and balance will come through. I

334
00:16:53,040 --> 00:16:55,160
Speaker 5: think a healthy rotation we had seen in the Australian

335
00:16:55,160 --> 00:16:57,960
Speaker 5: market last year was towards thinking around more of the

336
00:16:58,000 --> 00:17:01,640
Speaker 5: resources side and a little bit less on the financial side. Again,

337
00:17:01,680 --> 00:17:03,240
Speaker 5: if it's a case of thinking about a bit of

338
00:17:03,360 --> 00:17:06,000
Speaker 5: inflation shock that may come through rather than a deep

339
00:17:06,000 --> 00:17:09,840
Speaker 5: seated growth shock, you should see those continued rotation towards

340
00:17:09,880 --> 00:17:12,399
Speaker 5: the resource of materials. Names do a little bit in

341
00:17:12,440 --> 00:17:15,080
Speaker 5: that environment, and again I think as investors look for

342
00:17:15,119 --> 00:17:20,080
Speaker 5: ways to provide a bit more diversification and resilience and portfolios,

343
00:17:20,080 --> 00:17:22,000
Speaker 5: income is obviously a key part of that, and the

344
00:17:22,000 --> 00:17:25,280
Speaker 5: Australian market is a relatively high income generator, can offer

345
00:17:25,280 --> 00:17:26,800
Speaker 5: a little bit of a buffer in that regard.

346
00:17:27,320 --> 00:17:30,359
Speaker 2: That was Kerry Craig, global market strategist at JP Morgan

347
00:17:30,400 --> 00:17:34,119
Speaker 2: Asset Management, speaking with Bloomberg TV host Avril Hong and

348
00:17:34,200 --> 00:17:37,359
Speaker 2: Heidi Stroud Watts bringing you their conversation here on the

349
00:17:37,440 --> 00:17:42,439
Speaker 2: Daybreak Asia Podcast. Thanks for listening to today's episode of

350
00:17:42,480 --> 00:17:46,600
Speaker 2: the Bloomberg Daybreak Asia Edition podcast. Each weekday, we look

351
00:17:46,600 --> 00:17:50,439
Speaker 2: at the story shaping markets, finance, and geopolitics in the

352
00:17:50,440 --> 00:17:53,680
Speaker 2: Asia Pacific. You can find us on Apple, Spotify, the

353
00:17:53,720 --> 00:17:57,760
Speaker 2: Bloomberg Podcast YouTube channel, or anywhere else you listen. Join

354
00:17:57,840 --> 00:18:00,840
Speaker 2: us again tomorrow for insight on the market moves from

355
00:18:00,880 --> 00:18:05,320
Speaker 2: Hong Kong to Singapore and Australia. I'm Doug Prisoner and

356
00:18:05,480 --> 00:18:06,639
Speaker 2: this is Bloomberg