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Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.

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Speaker 2: Welcome to the Daybreak Asia podcast. I'm Charlie Pellet. Dog

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Speaker 2: Chrisner has the week off. Oil fell on reports of

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Speaker 2: a US diplomatic push to end the war with Iran,

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Speaker 2: which eclipsed news that more troops would be sent to

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Speaker 2: the region. The New York Times reported the US Center

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Speaker 2: on a fifteen point plan to end the conflict, citing

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Speaker 2: officials briefed on the move. For more on the markets,

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Speaker 2: we heard from Todd Jablonski, CIO and global head of

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Speaker 2: multi asset and quant at Principal Asset Management. He spoke

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Speaker 2: to Bloomberg's David English and Yvonne Mann.

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Speaker 3: Is it premature or is this the markets finally see

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Speaker 3: the end of the tunnel here?

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Speaker 1: I think today's price action certainly looks like a relief rally.

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Speaker 1: From my perspective. You entered into the conflict with risk

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Speaker 1: already priced at extremely high levels, and then when you

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Speaker 1: took oil up over one twenty, that certainly escalated fears

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Speaker 1: that investors had that the higher oil prices would be

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Speaker 1: a tax on growth and really derail some of the

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Speaker 1: cyclical quickening which has been behind some of the good

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Speaker 1: news in the markets this year. I do think today's

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Speaker 1: price action does in fact reflect investors growing in confidence

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Speaker 1: that there is an end insight to high energy prices

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Speaker 1: and perhaps geopolitical tensions can take a backseat to stock fundamentals.

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Speaker 4: Okay, if we move away from the headline risks than todd,

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Speaker 4: there's still that lingering concern that you know, three weeks

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Speaker 4: of conflict has already led to some economic scarring, right,

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Speaker 4: these fears of staxflation. Is it still worse kind of

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Speaker 4: positioning around that sort of scenario now or can we

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Speaker 4: start to face some of these concerns.

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Speaker 1: Well, concerns were the order of the day, no doubt,

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Speaker 1: but I think wise investors can look through that and

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Speaker 1: point two one a strong and quickening pace of global

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Speaker 1: economic activity. The US is slaved to grow at about

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Speaker 1: two point five percent, and meanwhile worldwide you're seeing about

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Speaker 1: seven percent revenue growth with about fourteen percent earnings growth

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Speaker 1: in twenty twenty six. Despite all the drama in the headlines,

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Speaker 1: you're actually seeing a strong underlying economy and even without

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Speaker 1: two additional FED cuts. Yes, I think it's enough reason

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Speaker 1: for investors to go risk on overweight equities, overweight credit,

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Speaker 1: modestly remain optimistic that, yes, you can achieve a positive

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Speaker 1: level of return in twenty six even despite an elevated

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Speaker 1: level of geopolitical noise.

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Speaker 3: And pad just more on the fundamental story, do you

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Speaker 3: think that changes at all, even by a few degrees

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Speaker 3: coming out of this in as far as growth, inflation,

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Speaker 3: and not just in the US, right, we're talking global ems,

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Speaker 3: energy importers, what have you.

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Speaker 1: If I'm optimistic that we're seeing at the beginnings of

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Speaker 1: a de escalation, you might just see a little bit

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Speaker 1: of a haircut on sort of worldwide growth given the

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Speaker 1: short amount of time that you saw, the elevated prices

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Speaker 1: and the release of strategic reserves to offset a lot

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Speaker 1: of that will no doubt, in fact see some supply

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Speaker 1: tain crunches even in the best scenario. But worldwide, there's

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Speaker 1: reason to think that with de escalation in a relatively

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Speaker 1: short conflict, you can in fact look at risk assets

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Speaker 1: to perform. We're in fact overweight in the US, where

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Speaker 1: we like large and small caps, but I also point

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Speaker 1: to emerging markets where in China as well as in

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Speaker 1: Korea we see some opportunities. It also highlight in fact

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Speaker 1: Latin America where Brazil is showing some sign interesting signs

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Speaker 1: as well.

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Speaker 4: Yeah, interesting that you mentioned Korea. I mean, obviously there's

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Speaker 4: been concerns about supply risk given the energy crisis and

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Speaker 4: the like. You're still looking pretty as polish when it

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Speaker 4: comes to Korea Taiwan. You've hit the neutral sort of position.

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Speaker 4: Can you square that a little bit for US?

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Speaker 1: Yeah, on Taiwan, no doubt. I think you have some

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Speaker 1: of the higher valuations you'll find across Asia, and then

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Speaker 1: of course syncs up with what you find with the

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Speaker 1: hyperscalers of course in the US, but at those level

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Speaker 1: of valuations were a bit less interested than we are

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Speaker 1: in Korea, where in fact you've had tremendous price volatility,

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Speaker 1: but all behind some very interesting fundamentals. You've seen investors

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Speaker 1: perhaps move for the exit, take some profits after the

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Speaker 1: rally to begin the year and the subsequent decline on

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Speaker 1: energy concerns. We actually think Korea may be undervalued and

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Speaker 1: that good news may be yet to come, as you

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Speaker 1: see an abatement on energy prices and continued demand for chips,

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Speaker 1: electronics and some of the other global trade elements well

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Speaker 1: within the Korean economy.

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Speaker 3: Todd talk a little bit more about your preference in

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Speaker 3: terms of fixed income exposure, duration and everything in between.

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Speaker 1: Sir, Now, on a globe balanced bass, there's a lot

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Speaker 1: to like in the fixed income markets. In particular, we

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Speaker 1: like credit on the short end of the curve. That

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Speaker 1: could be investment grade corporates, preferred securities, US dollar high yield.

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Speaker 1: I'd also note em debt, particularly on the hard currency

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Speaker 1: side that basket of In fact, credit we think is

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Speaker 1: well positioned, despite the tight level of spreads, to continue

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Speaker 1: to give positive carry, especially in the short and in

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Speaker 1: the middle end of the curve. Now, it's always a

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Speaker 1: good idea to own long thirty year treasuries just in

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Speaker 1: case you see some negative news in an environment like this.

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Speaker 1: So I still think long treasuries make sense as a

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Speaker 1: bit of a hedge against a bad news surprise event.

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Speaker 1: But even without the tailwind of FED easing, we do

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Speaker 1: think that bonds could be poised to deliver a pretty

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Speaker 1: strong year, especially on the back of good credit fundamentals,

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Speaker 1: despite in fact, some of the noise you've seen on

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Speaker 1: the private side. Public credit we think actually is poised

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Speaker 1: to perform well in twenty six.

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Speaker 4: Yeah, you mentioned the noise on the private side of

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Speaker 4: private credit Todd. I got to get your take on this, right.

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Speaker 4: Are you looking to pick up some of these loans

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Speaker 4: as some of these private credit funds are having trouble

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Speaker 4: to sell at the moment because of these kind of

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Speaker 4: increased redemption requests, or do you think that there's more

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Speaker 4: something that's brewing here and we might see more defaults

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Speaker 4: along the line down the line here.

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Speaker 1: I think there's some increased pressure, no doubt on the group,

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Speaker 1: And certainly I think the democratization of private sounds like

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Speaker 1: a great idea, but sophisticated investors will We're well aware

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Speaker 1: of the illiquidity, and now that asset class private credit

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Speaker 1: is owned by many more investors with less familiarity with

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Speaker 1: the illiquidity that's part of the asset class. You know,

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Speaker 1: our research indicates in fact, there isn't a contagion and

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Speaker 1: despite some of the smoke that we've seen on a

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Speaker 1: few idiosyncratic issues, the market's behaving well. And in fact,

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Speaker 1: while you're seeing some pullback on some of the pricing

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Speaker 1: and invented is that were related around in sort of

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Speaker 1: the COVID era, I think it's a bit early to

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Speaker 1: step in and say, you know, I'd be ready to

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Speaker 1: be a buyer of some of those, but I don't

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Speaker 1: expect a force selling. I don't expect a kind of

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Speaker 1: pressure in the system, either on a liquidity event or

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Speaker 1: on accreditive or event enough to really shock that would

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Speaker 1: provide those kind of entry prices that I'm certainly looking for.

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Speaker 1: My sense is that private credit can continue through this

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Speaker 1: sort of framework of pressure and prove itself yet to

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Speaker 1: be a durable asset class.

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Speaker 2: That was Todd Jablonski from Principal Asset Management speaking to

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Speaker 2: Bloomberg's David Inglis and Yvonne Mann. Coming up an exclusive

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Speaker 2: interview with Philippines President Ferdinand Marcos Junior right here on

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Speaker 2: the Daybreak Asia podcast. Welcome back to the Daybreak Asia podcast.

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Speaker 2: I'm Charlie Pella, Doug Prisoners got the week off, and

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Speaker 2: we go to the Philippines next, where the country has

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Speaker 2: declared a national Energy emergency that will be enforced for

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Speaker 2: one year. President Ferdinand Marcos Juniors as the conflict in

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Speaker 2: Iran could spur energy talks with China, and he spoke

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Speaker 2: exclusively to Bloomberg's has Linda Ahmen.

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Speaker 5: I think it's going certainly going to happen. I don't think, uh,

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Speaker 5: that's something that we can that is like an option.

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Speaker 5: That's it's happening.

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Speaker 6: Now.

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Speaker 5: There's going to be a very very seriously structuring I

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Speaker 5: remember I was watching Prime Minister Long from Singapore and

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Speaker 5: he was saying, there will be we will have to

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Speaker 5: withdraw redraw all of our our even our legal legal

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Speaker 5: relationships in terms of the international law, in terms of

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Speaker 5: all of these things, that they will have a lasting

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Speaker 5: effect and there is there will have to be a

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Speaker 5: new normal.

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Speaker 6: Is there reason to say that maybe it is a

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Speaker 6: good idea to have a partnership in developing the guest

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Speaker 6: resources in the disputed areas in the South China Sea.

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Speaker 5: We've always tried to differentiate the territorial disputes from our

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Speaker 5: trade arrangements and many investments still of the big programs

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Speaker 5: here of the government coming from China, and they have

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Speaker 5: not used this as somehow they haven't leveraged this, and

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Speaker 5: in any way, in quite the countrary, they've been very

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Speaker 5: helpful in terms of for example, fertilizer, which is important,

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Speaker 5: great deal for a fertilizer from China.

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Speaker 6: So would you consider developing guest resources with China in

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Speaker 6: the disputed regions areas in the South China Sea. Is

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Speaker 6: that something almost something that we've.

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Speaker 5: Been talking about for a great deal, but the territorial

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Speaker 5: disputes will get in the way of that. Maybe this

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Speaker 5: should be provided impetus for both sides to come to

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Speaker 5: an agreement.

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Speaker 6: The Iran war. Do you support the US Israel war

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Speaker 6: against Iran?

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Speaker 5: It certainly certainly was unexpected, and we never want war.

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Speaker 5: Our Our foreign policy is very very simple. It's peace

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Speaker 5: in the national interest, that's it. And war is never

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Speaker 5: in the national interest as far as the Philippines is concerned.

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Speaker 5: And so we just are hoping that this and soon

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Speaker 5: and that they whatever recalibration will will be, will be

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Speaker 5: done as quickly as possible so we can get back

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Speaker 5: to work. And that's that's really the that's really where

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Speaker 5: the Philippines is. We are watching, waiting, hoping and praying

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Speaker 5: that this end soon.

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Speaker 6: The war has sent the Philippine passo reeling sixty to

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Speaker 6: the dollar. It's testing new lows of the new lows.

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Speaker 6: Do you think the BSP needs to tighten policy to

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Speaker 6: height rates to support the currency.

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Speaker 5: As a matter of policy, we defend, we defend the

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Speaker 5: pestle to a certain extent, but we just i think

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Speaker 5: with the dollar moving the way it is, and it's

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Speaker 5: it's moving whereas before the dollar was seen as a

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Speaker 5: safe harbor currency. When you look deeper into it, the

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Speaker 5: dollars movement increase in value has been really because they're

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Speaker 5: the largest oil producer, and that's that's why that is.

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Speaker 5: And considering that then we have to I think it

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Speaker 5: would be even to be futile, uh to try to

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Speaker 5: spend all of this uh, all of our foreign reserves

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Speaker 5: on defending on defending the pestle. The impact of all

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Speaker 5: of this uh uh, of the war, of the war

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Speaker 5: in the middle is really to the middle income and

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Speaker 5: the lower middle income countries. And we are middle income country,

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Speaker 5: and so that's where that's why we have to look

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Speaker 5: at that. The other side of that for the Philippines

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Speaker 5: is the remittances. The remittances are paid in dollars, and

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Speaker 5: so there will be an increase, but that doesn't make

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Speaker 5: up for for the for the for the drop and

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Speaker 5: the dollar to pass over.

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Speaker 6: One of the key challenges is the economy. The Philippines

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Speaker 6: used to be one of the fastest growing in the region.

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Speaker 6: Now a leg guard fourth quarter GDP was a mere

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Speaker 6: three percent, which was the slowest space in fourteen years

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Speaker 6: outside the pandemic. Can you get GDP back above six perice?

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Speaker 5: Yes, we believe we can. I mean, we were forecasting

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Speaker 5: for the year twenty six. We were going we were

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Speaker 5: going to manage six to seven percent, six six to

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Speaker 5: seven percent, and that that that figure was something that

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Speaker 5: we came up with internally, but as well the other

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Speaker 5: financing institutions and the banks seem to have had the

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Speaker 5: same same opinion. Because the improvement.

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Speaker 1: In our.

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Speaker 5: Our grave on SMP and was it was going to improve. However,

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Speaker 5: but the war in the Middle East, those have to

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Speaker 5: be redrawn. Everything has to be redrawn. Then of course

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Speaker 5: oil oil does what it does, but it was fairly

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Speaker 5: steady at seventy two dollars per barrel for a good while.

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Speaker 5: So that's those are the basis that we were calculating.

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Speaker 5: Right now, the things change every day, so we have

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Speaker 5: to model that and recalculate that. So we we'll have

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Speaker 5: to see how long this this problem lasts, how long

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Speaker 5: it will take to readjust.

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Speaker 6: But how do you get to above six percent? What

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Speaker 6: is the strategy? What's needed?

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Speaker 5: Of course, it's investment because when it comes to when

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Speaker 5: it comes to production, most perhaps our largest, our largest

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Speaker 5: export in dollar terms is semiconductors, and that has been

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Speaker 5: a very that has been a very very important part,

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Speaker 5: and we have now moved away not no way, but

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Speaker 5: up from up the value chain from just pure fabrication

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Speaker 5: to design and that has put us in a very

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Speaker 5: good position for the advent of data centers of AI

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Speaker 5: and investment of course is the most important as well,

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Speaker 5: and so we have we have restructured even our tax

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Speaker 5: incentives for investors. The ease of doing business is something

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Speaker 5: that we been working very hard on. Bring down the

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Speaker 5: costs of transportation, for example, to digitalized. Digitalization is key.

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Speaker 6: Jet fuel is the other component to all of this,

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Speaker 6: and reports have suggested that that's a lack of jet

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Speaker 6: fuel and perhaps Philippines Air would have to ground some of.

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Speaker 5: The flights with a scarcity. So we say limitations now

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Speaker 5: on colude supply they refined. The refining of jet fuel

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Speaker 5: is much takes a longer time and so we will

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Speaker 5: have to depend on what is already readily available and

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Speaker 5: already there are when we when our airlines fly out,

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Speaker 5: several countries have said we cannot fuel your aircraft, so

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Speaker 5: you will have to carry the fuel there and back,

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Speaker 5: and that's around here. The long haul is going to

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Speaker 5: be a much more serious problem.

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Speaker 6: So inevitably planes will have to be grounded.

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Speaker 5: We're hoping not, but that's a possibility, is a distinct possibility.

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Speaker 2: Philippine President Ferdinand Marcos Junior, speaking exclusively to Bloomberg's Hos

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Speaker 2: Linda Ahmen, thanks for listening to today's episode of the

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Speaker 2: Bloomberg Daybreak Asia Edition podcast. Each weekday, we look at

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Speaker 2: the story shaping markets, finance, and geopolitics in the Asia Pacific.

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Speaker 2: You can find us on Apple, Spotify, the Bloomberg Podcast

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Speaker 2: YouTube channel, or anywhere else you listen. Join us again

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Speaker 2: tomorrow for insight on the market moves from Hong Kong

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Speaker 2: to Singapore and Australia. I'm Doug Prisoner and this is

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Speaker 2: Bloomberg