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Speaker 1: Welcome to the Bloomberg Daybreak Asia podcast. I'm Doug Chrisner.

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Speaker 1: Twenty twenty five is often running with trading under way

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Speaker 1: in the Asia Pacific after Wall Street's first session of

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Speaker 1: the new year. It is a market holiday in Japan.

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Speaker 1: In a moment, we'll be speaking with Jay Hatfield, CEO

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Speaker 1: and CIO at Infrastructure Capital Management. But first we're following

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Speaker 1: developments in South Korea. At this hour, anti corruption investigators

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Speaker 1: are seeking to arrest impeached President yunsuk yol at his

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Speaker 1: residence and Soul Now Yonhap News as reporting officials are

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Speaker 1: attempting to exercise a warrant for Yun. His lawyers call

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Speaker 1: the warrant quote invalid. Janhapp also reports that a South

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Speaker 1: Korean military unit prevented those officials from entering the building.

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Speaker 1: Stay with the Bloomberg platforms for the latest developments in

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Speaker 1: South Korea. We turn our focus back to markets. Joining

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Speaker 1: us now is Eva Lee. She is head of Greater

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Speaker 1: China Equities at UBS Global Wealth Management. Iva joins us

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Speaker 1: from our studios in Hong Kong. Good morning to you

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Speaker 1: and happy New Year. I'm glad you could make time

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Speaker 1: to chat with us. You and I were talking a

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Speaker 1: moment ago about how busy the fourth quarter was, especially

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Speaker 1: the month of December for your business. What was the

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Speaker 1: reason for that? Do you think?

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Speaker 2: Well, I guess you know Chump being elected, everyone expects

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Speaker 2: a lot of changes to happened after he assumed the

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Speaker 2: president's office, which is the third week of Jen. So

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Speaker 2: in fact, our you know, CIO ubs CIO had revised

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Speaker 2: down the expectation in terms of INDUS raycot to fifty

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Speaker 2: bibs for twenty five. Obviously we already had the December

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Speaker 2: raycot as expected, but originally we were at one hundred

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Speaker 2: business point cut. Now we reduced to fifty business points.

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Speaker 2: So that will have a big impact across the board,

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Speaker 2: which is like the US dollar, the expectation in terms

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Speaker 2: of strengthening, strengthening of ekening and also the other currency,

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Speaker 2: how much of a ray cut, particularly in Asia, how

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Speaker 2: much a ray cuts that they will have as a result.

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Speaker 2: So all these would impact of course they will impact

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Speaker 2: gold and you know all the the bond yield and everything.

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Speaker 2: So that's why we want to have our client prepare,

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Speaker 2: you know, have the portfolio positions accordingly.

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Speaker 1: So you're in Hong Kong, what are you hearing about

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Speaker 1: the economic situation on the mainland right now. Is the

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Speaker 1: consumer still lacking in confidence to such a degree that

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Speaker 1: domestic demand will kind of remain in a slump or

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Speaker 1: are there signs of maybe things turning just a bit

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Speaker 1: more positively.

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Speaker 2: The December number is definitely better than expected, but if

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Speaker 2: you dissect to break it down, what really driving the

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Speaker 2: growth was the manufacturing activities. The export side seems to

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Speaker 2: be better. But having said that, people it's sort of saying,

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Speaker 2: oh yeah, because they want to, you know, get all

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Speaker 2: the export done before Trump put in the tariff. But

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Speaker 2: on the other hand, the property sales seems to be

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Speaker 2: better in December, but that was mainly in Tier one city.

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Speaker 2: Low tier cities remains weak. So back to your questions,

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Speaker 2: consumption sentiment remains weak. I think structurally, you know, we

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Speaker 2: have these property you know, sales. Overall it's still not

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Speaker 2: yet you know, sort of recover reviving. And then on

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Speaker 2: the other hand, the local government bond seems to be

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Speaker 2: you know, sort of they already have a solutions how

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Speaker 2: to resolve that. But still the overall in terms of employment,

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Speaker 2: the prospects people feeling is not as promising as you know,

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Speaker 2: a few years back, so consumption as a result still weak.

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Speaker 2: Like of course, the auto sales were strong, the home

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Speaker 2: appliance were strong, that was because of subsidies, but apart

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Speaker 2: from that, it's still weak.

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Speaker 1: So what are you advising clients to do that in

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Speaker 1: an environment like this, particularly for clients in Asia, are

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Speaker 1: you directing them away from the region and into places

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Speaker 1: like the US?

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Speaker 2: Diverisfication definitely would be crucial our you know, sort of

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Speaker 2: as allocation positioning for china's neutral, for US, it's record

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Speaker 2: it attractive. So you are more or less you know,

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Speaker 2: can imagine you know, the sort of positioning that we recommend.

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Speaker 3: I mean, the.

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Speaker 2: Fact is we cannot well we know that China valuation

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Speaker 2: is cheap, you know, attractive or undemanding how you put it.

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Speaker 2: But uh, the tariff risks, it's definitely a head Now

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Speaker 2: It's not about whether tariff will whether we will have

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Speaker 2: a terriff height or not, it's how much that will be.

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Speaker 2: So I think that's why the the sort of de

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Speaker 2: rating multiple de rating risks is still there or the

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Speaker 2: pressure is still there. But on the other hand, on

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Speaker 2: the you in the U S side, you know, the

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Speaker 2: copper earnings has been better than expected that the investments

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Speaker 2: in AI continue. We have two themes Ai power resources.

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Speaker 2: These are the two, you know, so a big theme

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Speaker 2: that will continue to drive growth in US market. SMP

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Speaker 2: target we said at sixty six hundred by the end

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Speaker 2: of next year, so sorry this year. So you know,

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Speaker 2: all these you know, making us you know, recommend investors diversity,

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Speaker 2: but not just an equities but aquities bonds. But on

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Speaker 2: the equity side, we favor US.

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Speaker 1: What about the technology story in China? Are there signs

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Speaker 1: that it's beginning to develop in such a way maybe

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Speaker 1: because of the restrictions that have been coming from the

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Speaker 1: United States, those export controls on things like advanced semiconductor technology.

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Speaker 1: Are you seeing the beginnings of another leg up maybe

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Speaker 1: for technology in China?

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Speaker 2: Well, I mean the technology in China, you name it.

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Speaker 2: It's like the e commerce, the gaming partal. You know,

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Speaker 2: these stocks actually have been under pressure due to the

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Speaker 2: fact that they are proxy of China, so people these

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Speaker 2: docks get short particular from overseas investors, when there are

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Speaker 2: you know, varying concerns about the micro on the chip side,

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Speaker 2: like you're talking about semiconductor and all that. Yes, I mean,

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Speaker 2: if you know US has impulsed, it's going to impose

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Speaker 2: any restrictions in terms of advance you know chip that

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Speaker 2: would affect China, or they broaden, you know, the export

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Speaker 2: restrictions onto these sort of chip exports. We're going to

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Speaker 2: affect China, but I think that's already somehow expected by

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Speaker 2: the market and.

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Speaker 1: The diversification of supply chains away from the mainland to

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Speaker 1: countries maybe like Indonesia or Vietnam or even India. I mean,

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Speaker 1: is this something that's going to be a continued theme

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Speaker 1: in twenty twenty five.

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Speaker 2: We've got to be very careful. It depends on how

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Speaker 2: Chum it's going to impulse all these you know, terriffic

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Speaker 2: impact because he has been saying, you know, can say

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Speaker 2: sixty percent tariff on US as all on China, but

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Speaker 2: ten percent of the rest of the world. If this

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Speaker 2: is a ten percent of the rest of the world,

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Speaker 2: I don't think the market is fully priced in, and

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Speaker 2: that would definitely affect you know, the places that you

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Speaker 2: mentioned because of Vietnam, Indonesia, particularly Vietnam. If you compare

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Speaker 2: to twenty eighteen until now, there are actually a significant

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Speaker 2: increase in terms of export to US. While at the

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Speaker 2: same time they if you look at the data, they

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Speaker 2: also have import a lot of raw materials from China,

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Speaker 2: so you can look at it. It's like a course out,

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Speaker 2: you know, China manufacturing platform. So if us you know,

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Speaker 2: sort of look at this data and sort of target

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Speaker 2: vietnamed will be affected, or some other regions that have

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Speaker 2: been you know, receiving the stupifications of manufacturing platforms from

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Speaker 2: China will also be affected.

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Speaker 1: So, Eva, I'm curious, you seem to be questioning a lot.

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Speaker 1: There's a lot of uncertain I get that. I'm curious

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Speaker 1: about how much cash you're sitting on right now, waiting

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Speaker 1: for opportunities, maybe for the dust to settle and reveal

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Speaker 1: some things that may look attractive to you. Are you

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Speaker 1: holding a fair amount of cash these days? Or is

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Speaker 1: most of the money that people have given you to

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Speaker 1: put to work already been allocated.

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Speaker 2: You know, our theme within CIO is always they invested.

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Speaker 2: It's very difficult to time the market, so how we

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Speaker 2: do it? It's a week.

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Speaker 3: You know, we.

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Speaker 2: Diversified across equity, bonds and private so alternative investment is

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Speaker 2: a big thing. So we can rely on you know,

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Speaker 2: some of these very professional hash fund managers, pirate equities,

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Speaker 2: pirate debt managers. They not being affected that much by

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Speaker 2: the up and down of while suits in the market,

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Speaker 2: and in fact, on the other hand, they're able to

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Speaker 2: invest while people sort of stay put. So that's and

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Speaker 2: plus they can react very quickly. So this is a

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Speaker 2: theme that we actually have been pushing even before COVID,

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Speaker 2: and in fact it worked really well, particularly in the downtime,

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Speaker 2: say twenty twenty one, twenty two. So that's the way

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Speaker 2: we go pursue in particularly in these sort of holatile moments.

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Speaker 1: Yva, I know that you're a head of Greater China

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Speaker 1: Equities for UBS Global Wealth Management, but if you can

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Speaker 1: give me a little bit of your perspective on the

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Speaker 1: political instability that's happening right now in South Korea. I

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Speaker 1: was struck today by the fact that the equity market

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Speaker 1: is is rallying in the face of the fact that

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Speaker 1: we are being told that the impeached president yunsukiol is

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Speaker 1: facing arrest. Hard to maybe understand the two as they

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Speaker 1: are juxtaposed. But I'm wondering, broadly speaking, when you look

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Speaker 1: at the South Korean market, what do you take away.

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Speaker 2: In fact, if you look at fundamental. People always sort

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Speaker 2: of look at the tech side, which is the Taiwan

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Speaker 2: and Korea markets, and in fact there were clear divergence

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Speaker 2: like Taiwan market obviously have all performed career market by large,

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Speaker 2: and that was relating to the chip side, which I

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Speaker 2: cannot mention a company, but you know which one I'm

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Speaker 2: talking about, And as a result, the divergence is actually

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Speaker 2: because of that the company in Taiwan, it's able we

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Speaker 2: need to you know, right on that's ai chipped, very

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Speaker 2: advanced hipped technology. Wild career company seems to be sort

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Speaker 2: of luck behind. So this fundamental actually explained the divergence

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Speaker 2: and also potentially the continue of one market of performing

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Speaker 2: the other disregardless of you know, it's sort of the

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Speaker 2: political situation or evaluation. I think that is something we

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Speaker 2: should focus on rather than obviously the political side would

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Speaker 2: effect there was another element of it, but I think

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Speaker 2: since this you know, what happened in mauritial law, the

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Speaker 2: curfee or whatever, that already people already expect some changes

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Speaker 2: of political instability in career market.

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Speaker 1: We'll leave it there, Eve. It's always a pleasure. Thank

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Speaker 1: you for visiting with us in Happy New Year to

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Speaker 1: you all. The best for twenty twenty five. Evili is

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Speaker 1: head of Greater China Equities at UBS Global Wealth Management.

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Speaker 1: Joining us here on the Bloomberg Daybreak Asia podcast. Welcome

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Speaker 1: back to the Daybreak Asia Podcast. I'm Doug Chrisner. Joining

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Speaker 1: us now is Jay Hatfield. He is the CEO and

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Speaker 1: CIO at Infrastructure Capital Management. Jay joins us from here

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Speaker 1: in New York City. Jay, Thanks for being with us.

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Speaker 1: Happy New year to you. What did you make of

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Speaker 1: today's price section on the first day of trading in

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Speaker 1: the States?

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Speaker 3: Happy to hear, Doug, What we thought, well, actually was

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Speaker 3: happening last week was just a normal rebalance, so big

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Speaker 3: pension funds buying bonds and selling stocks. So we had

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Speaker 3: actually that was going to reverse earlier in the morning

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Speaker 3: before Tesla announced their shortfall and deliveries, and that really

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Speaker 3: caused the futures to drop and you stabilized the Nasdaq.

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Speaker 3: So we had a pretty big drop for a while.

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Speaker 3: But we think that as soon as we get into

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Speaker 3: earning season next week, then we will the market will

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Speaker 3: start rolling and stabilize. Whenever you don't have earnings, you

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Speaker 3: get a lot of volatility around very little information.

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Speaker 1: One of the other things I think that the market's

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Speaker 1: been struggling with is the notion of far fewer rate

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Speaker 1: cuts from the Fed in the new year. And I

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Speaker 1: was struck by that GDP forecast, the Atlanta Fed's GDP

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Speaker 1: now model estimating real growth at two six. Yes, that's

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Speaker 1: down from three to one from last week. But am

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Speaker 1: I wrong here? Two six is still pretty healthy?

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Speaker 3: It absolutely is. We do think though, that that direction

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Speaker 3: is going to continue. What the Fed is missing is

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Speaker 3: there hawkish rhetoric has caused really the only important financial

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Speaker 3: condition to blow out. So we had a ninety basis

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Speaker 3: points increase in the ten year already in a housing recession.

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Speaker 3: We think that's going to worsen. So we think that

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Speaker 3: in the less rates drop, we're going to have only

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Speaker 3: growth of one to two percent in the first half

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Speaker 3: of this year, and then the Fed will relent, and

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Speaker 3: we actually think there will be four cuts this year

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Speaker 3: and the tenure will end below four.

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Speaker 1: So how are you setting yourself up for twenty twenty

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Speaker 1: five then, given everything that you just kind of sketched

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Speaker 1: out there.

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Speaker 3: So we have a seven thousand target, but that is

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Speaker 3: contingent on rates dropping and a eighteen percent corporate tax rate.

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Speaker 3: We do think that, at least on a risk adjusted basis,

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Speaker 3: that yield and value stocks will outperform. Particularly a number

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Speaker 3: one call is investment banks. You know, the large caps

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Speaker 3: are Golden Sacks, Morgan Stanley, those are some of the

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Speaker 3: biggest holdings in our ICAP fund. But we think there's

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Speaker 3: going to be two more legs to the stool this year,

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Speaker 3: an m and a boom because of deregulation on the

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Speaker 3: antitrust side. But also we think there's going to be,

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Speaker 3: particularly in the second half, a ai IPOL boom that

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Speaker 3: we haven't seen yet. So we're forecasting thirty percent above

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Speaker 3: consensus estimates for Golden Socks, for instance. So we're super

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Speaker 3: bowled up on the investment banks.

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Speaker 1: If you look at what happened since early twenty twenty three,

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Speaker 1: so for all of twenty three and twenty four, I

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Speaker 1: think the S and P five hundred was up by

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Speaker 1: more than fifty percent. Do you have some projection as

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Speaker 1: to what we may see from the S and P

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Speaker 1: and twenty twenty.

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Speaker 3: Five Absolutely so. We have a seven thousand target, which

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Speaker 3: is roughly sixteen percent return. The normal return is ten percent.

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Speaker 3: So if we didn't get that, we don't get that

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Speaker 3: corporate tax reduction, so we're you know, we use the

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Speaker 3: terminal to get consensus twenty six earnings because of course,

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Speaker 3: if you have a year end twenty five target used

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Speaker 3: twenty six estimates number is only three h five, So

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Speaker 3: to get to seven thousand, we're adjusting that up, you know,

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Speaker 3: to correct for the fact that corporate taxes are lower.

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Speaker 3: So it's about a three to twenty estimate. So that's

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Speaker 3: the math. We do think we can hold this multiple

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Speaker 3: that's quite high if we get lower rates and if

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Speaker 3: we get a continued AI boom. So we think three

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Speaker 3: seven thousands of most reasonable target right now.

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Speaker 1: So if you're thinking there are possibly four rate cuts

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Speaker 1: from the Fed in the year ahead, I'm going to

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Speaker 1: imagine that there are a few screaming buys in the

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Speaker 1: bond market. Am I wrong about that?

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Speaker 3: Well, we do think that we favor Our biggest fund

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Speaker 3: is PFFA. It's like two thirds of our assets. That's

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Speaker 3: a preferred stock fund. We think the riskier portion of

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Speaker 3: fixed income will do really well because that's where you

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Speaker 3: want to be when rates are dropping or at least stable,

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Speaker 3: and the stock market's strong. You want to have spread

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Speaker 3: product that typically tightens when the stock market is rallying,

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Speaker 3: so we think that preferred stock and Hi You bonds,

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Speaker 3: which are pretty similar asset classes, will both outperform other

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Speaker 3: asset classes within fixed income.

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Speaker 1: You were talking a moment ago about the fact that

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Speaker 1: maybe there are opportunities in financials, and I'm wondering about

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Speaker 1: kind of the real estate situation, particularly commercial. We've talked

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Speaker 1: in the past about how the office complex is still

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Speaker 1: in dire straits. Is this an area of concern for

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Speaker 1: you still or are you not in an environment where

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Speaker 1: you expect rates to fall. Do you think some of

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Speaker 1: that risk will be a little bit mitigated by those

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Speaker 1: falling rates.

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Speaker 3: Well, we've had a non consensus call, which has been

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Speaker 3: correct for twenty four that the office freak out was overdone.

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Speaker 3: Not to say that for B and C offices that's

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Speaker 3: a huge problem, but keep in mind most of the

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Speaker 3: reads that are publicly traded have a buildings similar to

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Speaker 3: all most of the buildings in Midtown Manhattan, like Bloomberg

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Speaker 3: headquarters or we're headquartered. So we've been correct about that

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Speaker 3: part of it. The reason I didn't highlight that as

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Speaker 3: our number one call is that I do believe that

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Speaker 3: it's now dependent on rates going lower to really good,

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Speaker 3: good returns. So that's probably our most controversial call, is

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Speaker 3: that rates are going to go down, and that's some

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Speaker 3: banks will do fine, other banks might not. If rates

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Speaker 3: are higher, rates won't do that well. Small caps won't

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Speaker 3: do that well. So our call that non tech will

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Speaker 3: at least keep up with the tech sector is dependent

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Speaker 3: on lower rates.

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Speaker 1: Okay, So declining rates, then I'm thinking immediately weaker dollar,

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Speaker 1: and then I'm looking to markets offshore and particularly those

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Speaker 1: in Asian I'm thinking, okay, valuations that are relatively low

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Speaker 1: compared to the US. If the dollar were a week

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Speaker 1: and I want to be a buyer of risk assets

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Speaker 1: in Asia, do I not?

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Speaker 3: Well, there's no question that rates and the dollar are linked.

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Speaker 3: So that's why we don't think we can stay where

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Speaker 3: we are at this four to fifty level with a

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Speaker 3: nine percent appreciation, because it's hugely deflation area in the US.

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Speaker 3: It's the inflationary overseas. We still think the US is

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Speaker 3: the best place to be. No one else has the

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Speaker 3: technology that we have. I mean, we're bullish on Broadcom,

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Speaker 3: we're bullish on Amazon, and you really can't find those

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Speaker 3: companies in the rest of the world. So we wouldn't

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Speaker 3: buy the whole any one market if there's an idea there.

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Speaker 3: We don't cover a lot of international stocks, but if

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Speaker 3: there's an idea there, fine, But I think it's best

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Speaker 3: to be in the US participate in the most capitalist country,

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Speaker 3: one of the most capitalist countries in the world, with

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Speaker 3: definitely the best technology.

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Speaker 1: Are you generally optimistic about the policies that the incoming

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Speaker 1: Trump administration is going to deliver.

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Speaker 3: Well, we actually had the polar opposite view of consensus. Specifically,

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Speaker 3: we think that tariffs. We're not a huge fan of arrifts,

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Speaker 3: but if they do happen, they're actually deflationary because it's

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Speaker 3: just a one time increase and then it reduces demand

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Speaker 3: because it's like a sales tax, and you can use

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Speaker 3: those proceeds to cut corporate taxes. So we have the

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Speaker 3: opposite view of consensus on that. We also believe that

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Speaker 3: if you really listen to what the Trump administration is proposing,

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Speaker 3: they're proposing to deport criminals and there's some discussion of

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Speaker 3: expanding H one B visas, So those two combined would

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Speaker 3: be very deflationary because you get college educated immigrants coming

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Speaker 3: in and producing more GDP. So we think that most

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Speaker 3: of the concerns about the Trump policies are political talking

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Speaker 3: points left over from the election.

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Speaker 1: Jay will leave it. They are always a pleasure to

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Speaker 1: have a chance to visit with you. All the best

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Speaker 1: for the new year. By the way, Jay Hatfield there,

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Speaker 1: he is the CEO CIO also at Infrastructure Capital Management.

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Speaker 1: Joining us from midtown here in New York City on

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Speaker 1: the Daybreak Asia Podcast. Thanks for listening to today's episode

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Speaker 1: of the Bloomberg Daybreak Asia Edition podcast. Each weekday, we

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

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

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

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

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

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Speaker 1: and this is Bloomberg