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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 deg Prisner in Japan.

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Speaker 2: Equities are trading lower as the market looks ahead to

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Speaker 2: Friday's rate decision from the BOJ. Governor Uwaita is widely

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Speaker 2: expected to raise the policy rate to the highest level

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Speaker 2: in three decades. That would be a twenty five basis

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Speaker 2: point hike, which would bring the policy rate to seventy

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Speaker 2: five basis points in the State's equities edged lower and

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Speaker 2: the moves were somewhat subdued in front of a couple

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Speaker 2: of key data points. Tuesday, we'll get the employment reports

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Speaker 2: plural for October and November. We'll also get data on

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Speaker 2: retail sales. That's where we start the conversation with Isaac Poole.

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Speaker 2: He is the CIO at ascalon Capital. Isaac spoke with

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Speaker 2: Bloomberg TV host Sherry On and April Hong.

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Speaker 3: Talk to us about what you are positioning for this

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Speaker 3: week and the extent in which you are putting wheat.

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Speaker 4: On the data.

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Speaker 5: I think that the data is still very important, albeit

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Speaker 5: a bit sale in some senses, but we will start

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Speaker 5: to get an idea of just how quickly the US labor.

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Speaker 4: Market is slowing. I think the trend there is very clear.

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Speaker 5: It's showing up in the private sector data, and to

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Speaker 5: the extent that it surprises to the downside, I think

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Speaker 5: there's a real risk there that equities which have really

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Speaker 5: been banking on a big reacceleration in earnings and growth

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Speaker 5: could just be wrong sided and wrong footed by the

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Speaker 5: data this week.

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Speaker 4: Yeah.

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Speaker 3: I remember when we spoke to you. I think this

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Speaker 3: was some time in September. You flagged you know, you

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Speaker 3: underwear equities. It was about the valuation risk. We've kind

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Speaker 3: of seen how it's panned out. As we approach the

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Speaker 3: end of the year. Is that assessment to you as

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Speaker 3: an investor, Is this time to pick up a bit

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Speaker 3: more tactically or are you staying away?

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Speaker 5: I really think it's not time to chase the dips

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Speaker 5: or by the dips at the moment. I would approach

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Speaker 5: the end of the year and early next year with

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Speaker 5: an abundance of caution because the valuations are so stretched

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Speaker 5: relative to your history. There really will need to be

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Speaker 5: not just good earnings growth next year, but reacceleration in

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Speaker 5: earnings growth to justify the valuations that we're seeing at

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Speaker 5: the moment, and as we've come through, particularly the second

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Speaker 5: half of this year and into twenty twenty six, there

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Speaker 5: are just no clear signs that we're going to see

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Speaker 5: that reacceleration, whether it's in economic growth or in earnings growth.

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Speaker 5: So as we're looking at equities, we look across the

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Speaker 5: US but also other major developed markets and think that

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Speaker 5: this is a time to be a little underweight equity risk,

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Speaker 5: either in absolute terms or by taking lower beta exposures,

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Speaker 5: just to try and provide a little bit of resilience

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Speaker 5: given the eyewatering valuations that we see at the moment.

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Speaker 3: Which are the other DM equity markets that you're underweight.

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Speaker 5: A bit on, Yeah, we're a little underweight the US, sorry, Europe,

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Speaker 5: and we're underweight Australia. We've been quite diversified across our

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Speaker 5: global developed market holdings and been very careful about really

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Speaker 5: targeting quality and value within the equity sleeves.

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Speaker 4: But overall, as we've seen this year, that.

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Speaker 5: Diversification has really been a benefit to portfolios. But we

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Speaker 5: still think that the valuations are just not compelling enough

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Speaker 5: and the outlook is just not solid enough to move

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Speaker 5: back towards the neutral stance just yet.

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Speaker 3: What is the strategy for you in fixed income.

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Speaker 5: I think fixed income has been so important this year

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Speaker 5: and it's shaping up to be even more important next year.

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Speaker 5: Is the FED looks somewhat less certain on its policy

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Speaker 5: outlook in Australia, the IRBA looks a little less certain,

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Speaker 5: same with the ECB.

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Speaker 4: We've really preferred to.

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Speaker 5: Move up quality in fixed income, so that means selecting

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Speaker 5: investment grade credit and specifically short spread duration over high yield.

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Speaker 4: There's been very good absolute yields.

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Speaker 5: On offer there and a little bit more downside protection

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Speaker 5: compared to high yield. And then in the Govey's space,

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Speaker 5: we've really wanted to be short of duration. There's still

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Speaker 5: a lot of risk as you move out the curve

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Speaker 5: from sticky inflation, from the less certain pathway from the FED,

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Speaker 5: from fiscal uncertainty in the US. All of this suggests

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Speaker 5: that the curve could bear steepen, and we really want

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Speaker 5: to a little bit short on the duration side there.

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Speaker 3: Isaac, I want to ask you about New Zealand as well.

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Speaker 3: Behold that tour, because we have some Treasury Department economic

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Speaker 3: projections from New Zealand and it's telling us that it

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Speaker 3: sees slower economic growth this year and then a rebound

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Speaker 3: following on from that, and the government also expects to

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Speaker 3: see a later return to a budget surplus. So it's

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Speaker 3: this idea that maybe the long end could continue coming

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Speaker 3: under pressure.

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Speaker 4: Globally as well.

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Speaker 3: We are seeing the Keiwi against the green bag maybe

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Speaker 3: firming up a little Isaac. I wonder if you could,

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Speaker 3: you know, react, how are you expecting perhaps global debt

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Speaker 3: as well as we see a sort of hawkish turn

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Speaker 3: among some of these developed market central banks.

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Speaker 5: This is a challenge because inflation really did not get

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Speaker 5: under control globally, whether you're talking about Oceania with Australia

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Speaker 5: and New Zealand or the US, and that's wrong footed

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Speaker 5: central banks a little bit at the moment.

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Speaker 4: They've wanted to cut rates.

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Speaker 5: They want to cut rates to protect the economy, but

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Speaker 5: that stick inflation is.

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Speaker 4: Making it challenging.

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Speaker 5: And then you throw into the cauldron there the fact

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Speaker 5: that governments continue to spend. There's not a real clear

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Speaker 5: signal anywhere I think in the developed markets that governments

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Speaker 5: want to get their debt levels under control or their

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Speaker 5: deficits under control, and that does just continue to put

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Speaker 5: that upside pressure on global longer dated yields, and we've

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Speaker 5: seen that in the volatility that we've had this year.

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Speaker 5: We've seen that in the selloffs we've seen over the

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Speaker 5: last couple of months, and I think that's going to

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Speaker 5: be something that will persist through twenty twenty six and

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Speaker 5: make that fixed income selection within portfolios really critical in

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Speaker 5: a way that it probably hasn't been over the last

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Speaker 5: twelve months.

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Speaker 3: Isaac, what about them was in the dollar and goal

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Speaker 3: this year? Do you also see a similar seam persisting.

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Speaker 5: I think that gold is really a risky position at

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Speaker 5: the moment. We've seen non traditional buyers really come into

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Speaker 5: the gold market, and by that I mean retail buyers.

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Speaker 5: Last year, of the last eighty months, as gold pushed higher,

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Speaker 5: there was a lot of central bank demand, there was

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Speaker 5: a lot of traditional demand.

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Speaker 4: In the consumer sector.

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Speaker 5: But at these prices that's starting to dissipate, and the

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Speaker 5: people who are coming in to buy, the ETFs and

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Speaker 5: the mums and dads in the retail market.

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Speaker 4: And we know when we look back.

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Speaker 5: Over the last twenty or so years, gold has a

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Speaker 5: habit of turning lower, and when it turns lower, it

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Speaker 5: does so quickly, and it does deeply forty percent falls

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Speaker 5: are not at all uncommon, and I think that right

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Speaker 5: now at these levels, you want to be extremely cautious

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Speaker 5: with gold.

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Speaker 4: There's an analog there with the US dollar.

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Speaker 5: All the negative sentiment around the US dollar at the

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Speaker 5: start of this year is given way to a pretty

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Speaker 5: tight range for the USC and I suspect as the

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Speaker 5: FED becomes a little less certain there is real scope

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Speaker 5: for the US dollar to strengthen up a little bit,

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Speaker 5: not just at the back end of this year, but

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Speaker 5: probably through the first half of next year.

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Speaker 2: That was Isaac pool Cio at ascalon Capital, speaking with

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Speaker 2: Bloomberg TV host April Hong and Sherry on 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 Derk Krisner. In the US session, we had weakness

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Speaker 2: in information tech shares that led much of the equity

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Speaker 2: market lower. Broadcom was down by more than five and

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Speaker 2: a half percent. That on top of Friday's eleven percent decline. Now,

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Speaker 2: all of that was in response to a disappointing outlook

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Speaker 2: issued last week, especially when a to gross margins. Broadcom

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Speaker 2: shares have fallen nearly eighteen percent over the last three

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Speaker 2: trading days for a closer look at market action. I'm

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Speaker 2: joined by Greg Halter. He is director of Research at

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Speaker 2: the Carnegie Investment Council. Greg is on the line from

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Speaker 2: just outside Cleveland, Ohio. Greg, thanks for being here. Big

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Speaker 2: tech has obviously been a major theme for so much

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Speaker 2: of the year, and we've seen some de risking from

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Speaker 2: the group lately. I'm wondering whether the overall theme, especially

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Speaker 2: where AI is concerned, will remain intact in twenty twenty six.

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Speaker 2: What do you think There's.

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Speaker 6: Been certainly some skittishness on the part of investors relative

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Speaker 6: to the large companies, you know, Oracle, If you look

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Speaker 6: at their CDs, it's they're hitting higher levels. You know,

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Speaker 6: these companies have produced so much cash and free cash

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Speaker 6: flow that there's some concern that that wave maybe abating

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Speaker 6: a little bit where they have to take on debt.

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Speaker 6: It's really a company specific situation. I believe some companies

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Speaker 6: are probably more exposed than others. Very you're right, very

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Speaker 6: interesting market. But I'd also say that, you know, none

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Speaker 6: of this stuff happens if we don't have the power,

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Speaker 6: if we don't have the electricity, So that's a huge

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Speaker 6: crux in the hole situation right now.

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Speaker 2: You mentioned the story on Oracle. Last week's projection on

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Speaker 2: cloud revenue missed analyst forecast. The company also boosted its

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Speaker 2: annual cap spending target by fifteen billion dollars, and on

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Speaker 2: top of that, Oracle more than doubled its future lease commitments.

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Speaker 2: So in response, we have seen, and it shouldn't come

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Speaker 2: as a big surprise, Oracle's credit risk reaching a sixteen

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Speaker 2: year high last week. Now, I know the term price

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Speaker 2: to perfection gets thrown around a lot. How does that

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Speaker 2: apply in your mind.

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Speaker 6: Well, for the market as a whole, I certainly don't

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Speaker 6: think so. I mean, you've got various sectors of the

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Speaker 6: market that have not done much at all, like energy

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Speaker 6: and healthcare. You have seen utilities perk up, certainly for

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Speaker 6: some of these companies. You know, you need to see

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Speaker 6: those numbers come through for the NVIDIAs of the world

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Speaker 6: and Amazons and Microsoft. So from that perspective, yes, But

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Speaker 6: I also wouldn't say that the valuations are all that crazy.

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Speaker 6: Certainly are not relative to what we saw in the

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Speaker 6: dot com era. So it's really a strange, strange market.

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Speaker 2: I think it's interesting to look at the ways the

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Speaker 2: Trump administration has been impacting markets. Put a tariff issue aside.

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Speaker 2: For the moment, I'm thinking of the move to eliminate

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Speaker 2: tax credits on electric vehicles. It was just to we

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Speaker 2: heard from Ford Motor and the company is undergoing a

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Speaker 2: major overhaul now to its EV strategy. So away from

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Speaker 2: the auto industry, I'm interested in the other areas that

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Speaker 2: you believe the administration is having an outsized effect.

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Speaker 6: Well, whenever you have a new administration, there are changes,

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Speaker 6: no doubt. This one seems to be, in particular, more

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Speaker 6: of a wrecking ball of sorts. You know, just look

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Speaker 6: what's happened with the agricultural side of things, and you know,

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Speaker 6: soybean purchases from the Chinese and so forth. You know,

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Speaker 6: what Ford is saying is that they're going to convert

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Speaker 6: this so they can, i think use some of the

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Speaker 6: fuel cells for battery storage or power storage. You know,

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Speaker 6: that's very interesting. That kind of doesn't have anything to

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Speaker 6: do with car manufacturing and Tesla. You know, if you

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Speaker 6: look behind their numbers and their segments, that's probably for Tesla,

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Speaker 6: one of their fastest growth gowing business is the whole

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Speaker 6: battery storage side of things. So you know, behind the

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Speaker 6: scenes in these companies, if you dig in they're really

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Speaker 6: not what you think they are, and Ford seems to

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Speaker 6: be moving that way as well. And a lot of

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Speaker 6: this is being driven by the administration. I mean, even

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Speaker 6: if we get a fraction of those dollars that come

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Speaker 6: here to build plants, that's huge. That's we haven't seen

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Speaker 6: that in a long time.

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Speaker 2: We know that the administration has expressed some openness to

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Speaker 2: the fintech industry as well as crypto. Today we heard

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Speaker 2: from PayPal the company has applied to become a bank

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Speaker 2: in the US. So talk to me about the changes

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Speaker 2: that we're likely to see unfold next year when it

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Speaker 2: comes to banking and financial services.

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Speaker 6: Yeah, it's a great question, and we do continue to

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Speaker 6: like the banks, especially especially the larger banks. But you know,

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Speaker 6: if you start looking at the mid and small they're

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Speaker 6: trading it, many of them at book or below book value.

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Speaker 6: So good opportunities there, we think. But the change in

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Speaker 6: regulations that will probably probably be coming and enacted here

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Speaker 6: in the new year will be helpful to the banks

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Speaker 6: in terms of reducing their costs. The uptake of stable

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Speaker 6: coins I think maybe really take people by surprise at

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Speaker 6: how fast this may occur. You've got these cross river

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Speaker 6: Bank and some of these others that were granted charters

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Speaker 6: as well last Friday. So that whole space is changing,

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Speaker 6: and maybe it's to the detriment of the of the rails.

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Speaker 6: And when I say rails, I mean things like Visa

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Speaker 6: a MasterCard where all these payments run. Maybe that doesn't

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Speaker 6: or is not as strong or solid of a business

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Speaker 6: going forward, depending on how all this information and business

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Speaker 6: flow with stable coins starts to play out.

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Speaker 2: So how do you see Fed policy is a part

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Speaker 2: of that story. We know that there is a move

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Speaker 2: now to lower interest rates. Maybe we only get one

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Speaker 2: more rate cut in the new year. Markets right now

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Speaker 2: are expecting I think two quarter point rate cuts. Talk

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Speaker 2: to me a little bit about how you see the

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Speaker 2: FED influencing the market in twenty twenty six.

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Speaker 6: It's probably more theater than anything. I mean, we're talking

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Speaker 6: twenty five basis points or fifty basis points. Does that

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Speaker 6: really make or break that many businesses? Sure, lower rates help,

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Speaker 6: but if you're on the cusp of having to need

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Speaker 6: twenty five basis points, you know a lot of other

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Speaker 6: things have to go well also, So again there's a

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Speaker 6: lot of theater on who's going to be the chairman

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Speaker 6: who are going who will the members be in the

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Speaker 6: bottom line analysis? You know, again, if you're looking at

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Speaker 6: twenty five or fifty basis points, that's that just doesn't

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Speaker 6: seem to be a whole lot given where we are.

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Speaker 6: And again maybe maybe more political theater than anything.

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Speaker 2: We've already seen some rotation away from megacap tech names

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Speaker 2: and into stocks with valuations that maybe aren't as richly priced.

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Speaker 2: How much more of that trend do you expect.

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Speaker 6: Well from from the standpoint of some of the companies

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Speaker 6: that have had historically high pes. And these aren't the

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Speaker 6: you know, the mega camp names, but companies like Sintas

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Speaker 6: and Costco, Waste Management, Republic Services, these companies have historically

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Speaker 6: had very high pees, premium pees, and we've actually seen

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Speaker 6: those share prices, you know, they haven't really plummeted, but

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Speaker 6: they haven't really gone anywhere in the last year. And

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Speaker 6: I think some of those dollars have been recite into

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Speaker 6: utilities which have actually done fairly well. Healthcare is starting

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Speaker 6: to receive a bid. Even energy, if you can believe that,

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Speaker 6: with oil at fifty eight or whatever it is these days,

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Speaker 6: starting to see some interest. So there does appear to

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Speaker 6: be this rotation among sectors, what.

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Speaker 2: About rotating money out of the United States.

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Speaker 6: We at Carnegie are not big fans of international investing.

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Speaker 6: We probably have not had much in the way of

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Speaker 6: international exposure overall for ten plus years. Frankly, it's until

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Speaker 6: this year it's been a good move. You know. We

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Speaker 6: believe it's hard enough to keep track of companies and

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Speaker 6: their businesses and their accounting in the US. Let alone

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Speaker 6: go outside the US and try and make sure that

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Speaker 6: the accounting and other rules and regulations are up to snuff.

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Speaker 6: You know, our system here in the US has its faults,

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Speaker 6: but we know what they are.

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Speaker 4: At least.

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Speaker 2: Are you fully invested right now? Maybe you're holding onto

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Speaker 2: a bit of dry powder in anticipation of some sort

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Speaker 2: of pullback.

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Speaker 6: How to blanket answer that question because we have about

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Speaker 6: twenty separate portfolio managers here. But if I had to

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Speaker 6: put a blanket statement on that, I would say we

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Speaker 6: are probably pretty well invested, mainly inequities, certainly some individual bonds,

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Speaker 6: and the cash holdings have been really kept to a

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Speaker 6: minimum for a couple of years.

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Speaker 2: Now, Okay, Greg, we'll leave it there, Thank you so much.

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Speaker 2: Greg Halter is the director of Research at the Carnegie

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Speaker 2: Investment Council, joining us from just outside Cleveland, Ohio here

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Speaker 2: on the Daybreak Asia Podcast. Thanks for listening to today's

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Speaker 2: episode of the Bloomberg Daybreak Asia Edition podcast. Each weekday,

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Speaker 2: we look at the story shaping markets, finance, and geopolitics

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Speaker 2: in the Asia Pacific. You can find us on apple Spot,

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Speaker 2: the Bloomberg Podcast YouTube channel, or anywhere else you listen.

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Speaker 2: Join us again tomorrow for insight on the market moves

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Speaker 2: from Hong Kong to Singapore and Australia. I'm Doug Prisoner

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Speaker 2: and this is Bloomberg