Speaker 1: Welcome to the Bloomberg Daybreak Asia podcast. I'm Doug Chrisner.
Speaker 1: Twenty twenty five is often running with trading under way
Speaker 1: in the Asia Pacific after Wall Street's first session of
Speaker 1: the new year. It is a market holiday in Japan.
Speaker 1: In a moment, we'll be speaking with Jay Hatfield, CEO
Speaker 1: and CIO at Infrastructure Capital Management. But first we're following
Speaker 1: developments in South Korea. At this hour, anti corruption investigators
Speaker 1: are seeking to arrest impeached President yunsuk yol at his
Speaker 1: residence and Soul Now Yonhap News as reporting officials are
Speaker 1: attempting to exercise a warrant for Yun. His lawyers call
Speaker 1: the warrant quote invalid. Janhapp also reports that a South
Speaker 1: Korean military unit prevented those officials from entering the building.
Speaker 1: Stay with the Bloomberg platforms for the latest developments in
Speaker 1: South Korea. We turn our focus back to markets. Joining
Speaker 1: us now is Eva Lee. She is head of Greater
Speaker 1: China Equities at UBS Global Wealth Management. Iva joins us
Speaker 1: from our studios in Hong Kong. Good morning to you
Speaker 1: and happy New Year. I'm glad you could make time
Speaker 1: to chat with us. You and I were talking a
Speaker 1: moment ago about how busy the fourth quarter was, especially
Speaker 1: the month of December for your business. What was the
Speaker 1: reason for that? Do you think?
Speaker 2: Well, I guess you know Chump being elected, everyone expects
Speaker 2: a lot of changes to happened after he assumed the
Speaker 2: president's office, which is the third week of Jen. So
Speaker 2: in fact, our you know, CIO ubs CIO had revised
Speaker 2: down the expectation in terms of INDUS raycot to fifty
Speaker 2: bibs for twenty five. Obviously we already had the December
Speaker 2: raycot as expected, but originally we were at one hundred
Speaker 2: business point cut. Now we reduced to fifty business points.
Speaker 2: So that will have a big impact across the board,
Speaker 2: which is like the US dollar, the expectation in terms
Speaker 2: of strengthening, strengthening of ekening and also the other currency,
Speaker 2: how much of a ray cut, particularly in Asia, how
Speaker 2: much a ray cuts that they will have as a result.
Speaker 2: So all these would impact of course they will impact
Speaker 2: gold and you know all the the bond yield and everything.
Speaker 2: So that's why we want to have our client prepare,
Speaker 2: you know, have the portfolio positions accordingly.
Speaker 1: So you're in Hong Kong, what are you hearing about
Speaker 1: the economic situation on the mainland right now. Is the
Speaker 1: consumer still lacking in confidence to such a degree that
Speaker 1: domestic demand will kind of remain in a slump or
Speaker 1: are there signs of maybe things turning just a bit
Speaker 1: more positively.
Speaker 2: The December number is definitely better than expected, but if
Speaker 2: you dissect to break it down, what really driving the
Speaker 2: growth was the manufacturing activities. The export side seems to
Speaker 2: be better. But having said that, people it's sort of saying,
Speaker 2: oh yeah, because they want to, you know, get all
Speaker 2: the export done before Trump put in the tariff. But
Speaker 2: on the other hand, the property sales seems to be
Speaker 2: better in December, but that was mainly in Tier one city.
Speaker 2: Low tier cities remains weak. So back to your questions,
Speaker 2: consumption sentiment remains weak. I think structurally, you know, we
Speaker 2: have these property you know, sales. Overall it's still not
Speaker 2: yet you know, sort of recover reviving. And then on
Speaker 2: the other hand, the local government bond seems to be
Speaker 2: you know, sort of they already have a solutions how
Speaker 2: to resolve that. But still the overall in terms of employment,
Speaker 2: the prospects people feeling is not as promising as you know,
Speaker 2: a few years back, so consumption as a result still weak.
Speaker 2: Like of course, the auto sales were strong, the home
Speaker 2: appliance were strong, that was because of subsidies, but apart
Speaker 2: from that, it's still weak.
Speaker 1: So what are you advising clients to do that in
Speaker 1: an environment like this, particularly for clients in Asia, are
Speaker 1: you directing them away from the region and into places
Speaker 1: like the US?
Speaker 2: Diverisfication definitely would be crucial our you know, sort of
Speaker 2: as allocation positioning for china's neutral, for US, it's record
Speaker 2: it attractive. So you are more or less you know,
Speaker 2: can imagine you know, the sort of positioning that we recommend.
Speaker 3: I mean, the.
Speaker 2: Fact is we cannot well we know that China valuation
Speaker 2: is cheap, you know, attractive or undemanding how you put it.
Speaker 2: But uh, the tariff risks, it's definitely a head Now
Speaker 2: It's not about whether tariff will whether we will have
Speaker 2: a terriff height or not, it's how much that will be.
Speaker 2: So I think that's why the the sort of de
Speaker 2: rating multiple de rating risks is still there or the
Speaker 2: pressure is still there. But on the other hand, on
Speaker 2: the you in the U S side, you know, the
Speaker 2: copper earnings has been better than expected that the investments
Speaker 2: in AI continue. We have two themes Ai power resources.
Speaker 2: These are the two, you know, so a big theme
Speaker 2: that will continue to drive growth in US market. SMP
Speaker 2: target we said at sixty six hundred by the end
Speaker 2: of next year, so sorry this year. So you know,
Speaker 2: all these you know, making us you know, recommend investors diversity,
Speaker 2: but not just an equities but aquities bonds. But on
Speaker 2: the equity side, we favor US.
Speaker 1: What about the technology story in China? Are there signs
Speaker 1: that it's beginning to develop in such a way maybe
Speaker 1: because of the restrictions that have been coming from the
Speaker 1: United States, those export controls on things like advanced semiconductor technology.
Speaker 1: Are you seeing the beginnings of another leg up maybe
Speaker 1: for technology in China?
Speaker 2: Well, I mean the technology in China, you name it.
Speaker 2: It's like the e commerce, the gaming partal. You know,
Speaker 2: these stocks actually have been under pressure due to the
Speaker 2: fact that they are proxy of China, so people these
Speaker 2: docks get short particular from overseas investors, when there are
Speaker 2: you know, varying concerns about the micro on the chip side,
Speaker 2: like you're talking about semiconductor and all that. Yes, I mean,
Speaker 2: if you know US has impulsed, it's going to impose
Speaker 2: any restrictions in terms of advance you know chip that
Speaker 2: would affect China, or they broaden, you know, the export
Speaker 2: restrictions onto these sort of chip exports. We're going to
Speaker 2: affect China, but I think that's already somehow expected by
Speaker 2: the market and.
Speaker 1: The diversification of supply chains away from the mainland to
Speaker 1: countries maybe like Indonesia or Vietnam or even India. I mean,
Speaker 1: is this something that's going to be a continued theme
Speaker 1: in twenty twenty five.
Speaker 2: We've got to be very careful. It depends on how
Speaker 2: Chum it's going to impulse all these you know, terriffic
Speaker 2: impact because he has been saying, you know, can say
Speaker 2: sixty percent tariff on US as all on China, but
Speaker 2: ten percent of the rest of the world. If this
Speaker 2: is a ten percent of the rest of the world,
Speaker 2: I don't think the market is fully priced in, and
Speaker 2: that would definitely affect you know, the places that you
Speaker 2: mentioned because of Vietnam, Indonesia, particularly Vietnam. If you compare
Speaker 2: to twenty eighteen until now, there are actually a significant
Speaker 2: increase in terms of export to US. While at the
Speaker 2: same time they if you look at the data, they
Speaker 2: also have import a lot of raw materials from China,
Speaker 2: so you can look at it. It's like a course out,
Speaker 2: you know, China manufacturing platform. So if us you know,
Speaker 2: sort of look at this data and sort of target
Speaker 2: vietnamed will be affected, or some other regions that have
Speaker 2: been you know, receiving the stupifications of manufacturing platforms from
Speaker 2: China will also be affected.
Speaker 1: So, Eva, I'm curious, you seem to be questioning a lot.
Speaker 1: There's a lot of uncertain I get that. I'm curious
Speaker 1: about how much cash you're sitting on right now, waiting
Speaker 1: for opportunities, maybe for the dust to settle and reveal
Speaker 1: some things that may look attractive to you. Are you
Speaker 1: holding a fair amount of cash these days? Or is
Speaker 1: most of the money that people have given you to
Speaker 1: put to work already been allocated.
Speaker 2: You know, our theme within CIO is always they invested.
Speaker 2: It's very difficult to time the market, so how we
Speaker 2: do it? It's a week.
Speaker 3: You know, we.
Speaker 2: Diversified across equity, bonds and private so alternative investment is
Speaker 2: a big thing. So we can rely on you know,
Speaker 2: some of these very professional hash fund managers, pirate equities,
Speaker 2: pirate debt managers. They not being affected that much by
Speaker 2: the up and down of while suits in the market,
Speaker 2: and in fact, on the other hand, they're able to
Speaker 2: invest while people sort of stay put. So that's and
Speaker 2: plus they can react very quickly. So this is a
Speaker 2: theme that we actually have been pushing even before COVID,
Speaker 2: and in fact it worked really well, particularly in the downtime,
Speaker 2: say twenty twenty one, twenty two. So that's the way
Speaker 2: we go pursue in particularly in these sort of holatile moments.
Speaker 1: Yva, I know that you're a head of Greater China
Speaker 1: Equities for UBS Global Wealth Management, but if you can
Speaker 1: give me a little bit of your perspective on the
Speaker 1: political instability that's happening right now in South Korea. I
Speaker 1: was struck today by the fact that the equity market
Speaker 1: is is rallying in the face of the fact that
Speaker 1: we are being told that the impeached president yunsukiol is
Speaker 1: facing arrest. Hard to maybe understand the two as they
Speaker 1: are juxtaposed. But I'm wondering, broadly speaking, when you look
Speaker 1: at the South Korean market, what do you take away.
Speaker 2: In fact, if you look at fundamental. People always sort
Speaker 2: of look at the tech side, which is the Taiwan
Speaker 2: and Korea markets, and in fact there were clear divergence
Speaker 2: like Taiwan market obviously have all performed career market by large,
Speaker 2: and that was relating to the chip side, which I
Speaker 2: cannot mention a company, but you know which one I'm
Speaker 2: talking about, And as a result, the divergence is actually
Speaker 2: because of that the company in Taiwan, it's able we
Speaker 2: need to you know, right on that's ai chipped, very
Speaker 2: advanced hipped technology. Wild career company seems to be sort
Speaker 2: of luck behind. So this fundamental actually explained the divergence
Speaker 2: and also potentially the continue of one market of performing
Speaker 2: the other disregardless of you know, it's sort of the
Speaker 2: political situation or evaluation. I think that is something we
Speaker 2: should focus on rather than obviously the political side would
Speaker 2: effect there was another element of it, but I think
Speaker 2: since this you know, what happened in mauritial law, the
Speaker 2: curfee or whatever, that already people already expect some changes
Speaker 2: of political instability in career market.
Speaker 1: We'll leave it there, Eve. It's always a pleasure. Thank
Speaker 1: you for visiting with us in Happy New Year to
Speaker 1: you all. The best for twenty twenty five. Evili is
Speaker 1: head of Greater China Equities at UBS Global Wealth Management.
Speaker 1: Joining us here on the Bloomberg Daybreak Asia podcast. Welcome
Speaker 1: back to the Daybreak Asia Podcast. I'm Doug Chrisner. Joining
Speaker 1: us now is Jay Hatfield. He is the CEO and
Speaker 1: CIO at Infrastructure Capital Management. Jay joins us from here
Speaker 1: in New York City. Jay, Thanks for being with us.
Speaker 1: Happy New year to you. What did you make of
Speaker 1: today's price section on the first day of trading in
Speaker 1: the States?
Speaker 3: Happy to hear, Doug, What we thought, well, actually was
Speaker 3: happening last week was just a normal rebalance, so big
Speaker 3: pension funds buying bonds and selling stocks. So we had
Speaker 3: actually that was going to reverse earlier in the morning
Speaker 3: before Tesla announced their shortfall and deliveries, and that really
Speaker 3: caused the futures to drop and you stabilized the Nasdaq.
Speaker 3: So we had a pretty big drop for a while.
Speaker 3: But we think that as soon as we get into
Speaker 3: earning season next week, then we will the market will
Speaker 3: start rolling and stabilize. Whenever you don't have earnings, you
Speaker 3: get a lot of volatility around very little information.
Speaker 1: One of the other things I think that the market's
Speaker 1: been struggling with is the notion of far fewer rate
Speaker 1: cuts from the Fed in the new year. And I
Speaker 1: was struck by that GDP forecast, the Atlanta Fed's GDP
Speaker 1: now model estimating real growth at two six. Yes, that's
Speaker 1: down from three to one from last week. But am
Speaker 1: I wrong here? Two six is still pretty healthy?
Speaker 3: It absolutely is. We do think though, that that direction
Speaker 3: is going to continue. What the Fed is missing is
Speaker 3: there hawkish rhetoric has caused really the only important financial
Speaker 3: condition to blow out. So we had a ninety basis
Speaker 3: points increase in the ten year already in a housing recession.
Speaker 3: We think that's going to worsen. So we think that
Speaker 3: in the less rates drop, we're going to have only
Speaker 3: growth of one to two percent in the first half
Speaker 3: of this year, and then the Fed will relent, and
Speaker 3: we actually think there will be four cuts this year
Speaker 3: and the tenure will end below four.
Speaker 1: So how are you setting yourself up for twenty twenty
Speaker 1: five then, given everything that you just kind of sketched
Speaker 1: out there.
Speaker 3: So we have a seven thousand target, but that is
Speaker 3: contingent on rates dropping and a eighteen percent corporate tax rate.
Speaker 3: We do think that, at least on a risk adjusted basis,
Speaker 3: that yield and value stocks will outperform. Particularly a number
Speaker 3: one call is investment banks. You know, the large caps
Speaker 3: are Golden Sacks, Morgan Stanley, those are some of the
Speaker 3: biggest holdings in our ICAP fund. But we think there's
Speaker 3: going to be two more legs to the stool this year,
Speaker 3: an m and a boom because of deregulation on the
Speaker 3: antitrust side. But also we think there's going to be,
Speaker 3: particularly in the second half, a ai IPOL boom that
Speaker 3: we haven't seen yet. So we're forecasting thirty percent above
Speaker 3: consensus estimates for Golden Socks, for instance. So we're super
Speaker 3: bowled up on the investment banks.
Speaker 1: If you look at what happened since early twenty twenty three,
Speaker 1: so for all of twenty three and twenty four, I
Speaker 1: think the S and P five hundred was up by
Speaker 1: more than fifty percent. Do you have some projection as
Speaker 1: to what we may see from the S and P
Speaker 1: and twenty twenty.
Speaker 3: Five Absolutely so. We have a seven thousand target, which
Speaker 3: is roughly sixteen percent return. The normal return is ten percent.
Speaker 3: So if we didn't get that, we don't get that
Speaker 3: corporate tax reduction, so we're you know, we use the
Speaker 3: terminal to get consensus twenty six earnings because of course,
Speaker 3: if you have a year end twenty five target used
Speaker 3: twenty six estimates number is only three h five, So
Speaker 3: to get to seven thousand, we're adjusting that up, you know,
Speaker 3: to correct for the fact that corporate taxes are lower.
Speaker 3: So it's about a three to twenty estimate. So that's
Speaker 3: the math. We do think we can hold this multiple
Speaker 3: that's quite high if we get lower rates and if
Speaker 3: we get a continued AI boom. So we think three
Speaker 3: seven thousands of most reasonable target right now.
Speaker 1: So if you're thinking there are possibly four rate cuts
Speaker 1: from the Fed in the year ahead, I'm going to
Speaker 1: imagine that there are a few screaming buys in the
Speaker 1: bond market. Am I wrong about that?
Speaker 3: Well, we do think that we favor Our biggest fund
Speaker 3: is PFFA. It's like two thirds of our assets. That's
Speaker 3: a preferred stock fund. We think the riskier portion of
Speaker 3: fixed income will do really well because that's where you
Speaker 3: want to be when rates are dropping or at least stable,
Speaker 3: and the stock market's strong. You want to have spread
Speaker 3: product that typically tightens when the stock market is rallying,
Speaker 3: so we think that preferred stock and Hi You bonds,
Speaker 3: which are pretty similar asset classes, will both outperform other
Speaker 3: asset classes within fixed income.
Speaker 1: You were talking a moment ago about the fact that
Speaker 1: maybe there are opportunities in financials, and I'm wondering about
Speaker 1: kind of the real estate situation, particularly commercial. We've talked
Speaker 1: in the past about how the office complex is still
Speaker 1: in dire straits. Is this an area of concern for
Speaker 1: you still or are you not in an environment where
Speaker 1: you expect rates to fall. Do you think some of
Speaker 1: that risk will be a little bit mitigated by those
Speaker 1: falling rates.
Speaker 3: Well, we've had a non consensus call, which has been
Speaker 3: correct for twenty four that the office freak out was overdone.
Speaker 3: Not to say that for B and C offices that's
Speaker 3: a huge problem, but keep in mind most of the
Speaker 3: reads that are publicly traded have a buildings similar to
Speaker 3: all most of the buildings in Midtown Manhattan, like Bloomberg
Speaker 3: headquarters or we're headquartered. So we've been correct about that
Speaker 3: part of it. The reason I didn't highlight that as
Speaker 3: our number one call is that I do believe that
Speaker 3: it's now dependent on rates going lower to really good,
Speaker 3: good returns. So that's probably our most controversial call, is
Speaker 3: that rates are going to go down, and that's some
Speaker 3: banks will do fine, other banks might not. If rates
Speaker 3: are higher, rates won't do that well. Small caps won't
Speaker 3: do that well. So our call that non tech will
Speaker 3: at least keep up with the tech sector is dependent
Speaker 3: on lower rates.
Speaker 1: Okay, So declining rates, then I'm thinking immediately weaker dollar,
Speaker 1: and then I'm looking to markets offshore and particularly those
Speaker 1: in Asian I'm thinking, okay, valuations that are relatively low
Speaker 1: compared to the US. If the dollar were a week
Speaker 1: and I want to be a buyer of risk assets
Speaker 1: in Asia, do I not?
Speaker 3: Well, there's no question that rates and the dollar are linked.
Speaker 3: So that's why we don't think we can stay where
Speaker 3: we are at this four to fifty level with a
Speaker 3: nine percent appreciation, because it's hugely deflation area in the US.
Speaker 3: It's the inflationary overseas. We still think the US is
Speaker 3: the best place to be. No one else has the
Speaker 3: technology that we have. I mean, we're bullish on Broadcom,
Speaker 3: we're bullish on Amazon, and you really can't find those
Speaker 3: companies in the rest of the world. So we wouldn't
Speaker 3: buy the whole any one market if there's an idea there.
Speaker 3: We don't cover a lot of international stocks, but if
Speaker 3: there's an idea there, fine, But I think it's best
Speaker 3: to be in the US participate in the most capitalist country,
Speaker 3: one of the most capitalist countries in the world, with
Speaker 3: definitely the best technology.
Speaker 1: Are you generally optimistic about the policies that the incoming
Speaker 1: Trump administration is going to deliver.
Speaker 3: Well, we actually had the polar opposite view of consensus. Specifically,
Speaker 3: we think that tariffs. We're not a huge fan of arrifts,
Speaker 3: but if they do happen, they're actually deflationary because it's
Speaker 3: just a one time increase and then it reduces demand
Speaker 3: because it's like a sales tax, and you can use
Speaker 3: those proceeds to cut corporate taxes. So we have the
Speaker 3: opposite view of consensus on that. We also believe that
Speaker 3: if you really listen to what the Trump administration is proposing,
Speaker 3: they're proposing to deport criminals and there's some discussion of
Speaker 3: expanding H one B visas, So those two combined would
Speaker 3: be very deflationary because you get college educated immigrants coming
Speaker 3: in and producing more GDP. So we think that most
Speaker 3: of the concerns about the Trump policies are political talking
Speaker 3: points left over from the election.
Speaker 1: Jay will leave it. They are always a pleasure to
Speaker 1: have a chance to visit with you. All the best
Speaker 1: for the new year. By the way, Jay Hatfield there,
Speaker 1: he is the CEO CIO also at Infrastructure Capital Management.
Speaker 1: Joining us from midtown here in New York City on
Speaker 1: the Daybreak Asia Podcast. Thanks for listening to today's episode
Speaker 1: of the Bloomberg Daybreak Asia Edition podcast. Each weekday, we
Speaker 1: look at the story shaping markets, finance, and geopolitics in
Speaker 1: the Asia Pacific. You can find us on Apple, Spotify,
Speaker 1: the Bloomberg Podcast YouTube channel, or anywhere else you listen.
Speaker 1: Join us again tomorrow for insight on the market moves
Speaker 1: from Hong Kong to Singapore and Australia. I'm Doug Chrisner
Speaker 1: and this is Bloomberg