Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: Welcome to the Bloomberg Daybreak Asia podcast. I'm Doug Chrisener.
Speaker 2: So US China trade talks remain our number one topic,
Speaker 2: and today Treasury Secretary Bessett was saying that Beijing has
Speaker 2: not threatened to cut off pharmaceutical exports to the US.
Speaker 2: In a moment or two, we'll check in with Bloomberg
Speaker 2: Opinion for a look at how biotech is advancing in China.
Speaker 2: I'll be joined in a moment by Bloomberg Opinion columnist
Speaker 2: Truly Ren in Hong Kong. Meantime, President Trump declared a
Speaker 2: trade framework with China has been completed, and he said
Speaker 2: Beijing will supply rare earth materials and magnets upfront. The
Speaker 2: President also said the US will allow Chinese students into
Speaker 2: American colleges and universities. Tariffs meantime for these two countries
Speaker 2: will be maintained at their current lower levels, but remember
Speaker 2: that number is still much higher than when the President
Speaker 2: took office in January. Bloomberg's Jennifer Welsh says that Beijing
Speaker 2: has learned some things.
Speaker 3: China now realizes they have this major hammer in the
Speaker 3: form of these critical mineral export controls that they can leverage,
Speaker 3: and I think that really dilutes the US ability to
Speaker 3: push China towards the deal that Washington says it.
Speaker 2: Once Jennifer Welsch of Bloomberg Economics. By the way, presidents
Speaker 2: Trump and She must still formally sign off on this agreement.
Speaker 2: So let's take a look at the market action right now,
Speaker 2: maybe a little bit about tariff action as well. I'm
Speaker 2: joined by Zachary Hill, head of portfolio management at Horizon Investments. Zach,
Speaker 2: thank you for making time to chat with us. Could
Speaker 2: you weigh in on your reaction to what you've been
Speaker 2: hearing about this agreement that was reached in London a
Speaker 2: couple of days ago.
Speaker 4: Yeah, dok. Great to be with you today.
Speaker 1: You know, I think this agreement broadly kind of hits
Speaker 1: on all the points, and the market was already expecting,
Speaker 1: so it really seems like a status quo matt expectations,
Speaker 1: but to not exceed them, and you know the context
Speaker 1: of how much risk premium has come out of the
Speaker 1: market over the last month and a half or two months,
Speaker 1: you know, it wasn't enough to push equity and disease
Speaker 1: higher today, which kind of speaks a little bit to
Speaker 1: the fact that we're pretty fully valued here above six
Speaker 1: thousand of the S and P.
Speaker 2: So Zach, I'm curious about how you're navigating the current
Speaker 2: terrain when it comes to tariffs, given what we know
Speaker 2: so far. It's interesting today on truth Social President Trump
Speaker 2: posted the US is getting a total of fifty five
Speaker 2: percent tariffs, China is getting ten percent. Now, so let's
Speaker 2: say that those levels do remain in place for a period.
Speaker 2: How is this going to impact your decision making when
Speaker 2: it comes to putting money to work.
Speaker 1: Yeah, I mean those levels are pretty pretty large and
Speaker 1: are likely going to have to be you know, force
Speaker 1: companies to adjust in terms of their cost structure and
Speaker 1: in the way that they're sourcing you know, inputs, and so,
Speaker 1: you know, we do think that that's going to, you know,
Speaker 1: weigh on economic activity. It's it's not likely large to
Speaker 1: put us into a recession, but it is likely something
Speaker 1: that we're going to feel a growth slow down. And
Speaker 1: so from a positioning perspective, we're trying to keep things,
Speaker 1: you know, pretty pretty tight and pretty close to home
Speaker 1: and keep a little bit of dry powder because we
Speaker 1: do think, you know, especially in the summer months after
Speaker 1: you know, a pretty exhausting period of trading UH to
Speaker 1: start the year.
Speaker 4: That this low liquidity environment.
Speaker 1: Is likely to uncover some opportunities for us to put
Speaker 1: some capital to work.
Speaker 2: Let's change gears. Talk a little bit about what's happening
Speaker 2: in Washington with respect to the tax bill. I know
Speaker 2: that the Senate is now trying to negotiate a few things,
Speaker 2: and there is still concern about the level of deficit spending.
Speaker 2: I guess that we could say double line capitalist. Jeff
Speaker 2: Gunlock was saying today that America's debt burden and interest
Speaker 2: expense have become untenable. The bond market at this point
Speaker 2: really doesn't seem to be as upset as it was
Speaker 2: a month ago or so it would appear when the
Speaker 2: House was negotiating its version. How do you make sense
Speaker 2: of that?
Speaker 1: Yeah, I think you know, the way that we make
Speaker 1: sense of that is just this narrative volatility we've had
Speaker 1: on the macro front.
Speaker 4: You know, tariffs come and go.
Speaker 1: You know, doge was a thing that the market was
Speaker 1: talking about for quite a long period of time, and
Speaker 1: now it's it's no longer relevant. And the concern about
Speaker 1: you know, budgets and the deficit bill and long term
Speaker 1: interest rates has been something that's waxed and waned. You know,
Speaker 1: I would agree with you with that importance in the market.
Speaker 1: Narrative has has faded, and you know likely is not
Speaker 1: going to come back unless we see a material upside
Speaker 1: surprise to the deficit. So, you know, nobody really thinks
Speaker 1: that we're going to be cutting the deficit from current levels.
Speaker 1: If we expanded in a really material way, that might
Speaker 1: cause them indigestion in the long end of the bond market.
Speaker 1: But it seems like a lot of that, at least
Speaker 1: in the near term, is already in the price and
Speaker 1: we've seen the curves deepen pretty.
Speaker 2: Dramatically right to we're down today across the curve. Remember
Speaker 2: that we did have that benign reading on make consumer
Speaker 2: prices first thing in the morning and kind of goes
Speaker 2: to the notion that maybe we can get more than
Speaker 2: one FED rate cut in this year. I think the
Speaker 2: swaps market is fully pricing in twenty five basis point
Speaker 2: cut in October and now maybe a seventy five percent
Speaker 2: probability we get a cut in September as well. How
Speaker 2: are you feeling about the FED as a part of
Speaker 2: this story.
Speaker 1: Yeah, you know, the Fed has been kind of on
Speaker 1: the sidelines for a while because of all the uncertainty
Speaker 1: around you know, what the economy, how the economy is
Speaker 1: going to involve, and how inflation is going to involve.
Speaker 1: And it's actually interesting, the you know, end of year
Speaker 1: interest rate implied in the futures market is about the
Speaker 1: same as it was to start the year, so about
Speaker 1: fifty basis points worth of cuts.
Speaker 4: And so, you know, one of the.
Speaker 1: Things that we're watching is the potential now that we've
Speaker 1: had a few good inflation prints in a row after
Speaker 1: a series of bad inflation prints to end the year
Speaker 1: and to start this year.
Speaker 4: To see if that emboldens some of the doves.
Speaker 1: You know, in this in this vacuum that we have
Speaker 1: right now to start pushing for the idea that interest
Speaker 1: rates are too high. That's not our base case scenario,
Speaker 1: and the economy seems to be doing.
Speaker 4: Just fine with interest rates above four percent.
Speaker 1: But from the way the Fed looks at things, they
Speaker 1: do still think that they need to be cutting at
Speaker 1: some point, and so that's something that we're going to
Speaker 1: be paying quite a bit of attention to over the
Speaker 1: next few weeks to see if that narrative of the
Speaker 1: FED needs to start acting, and they're not going to
Speaker 1: act this summer because it's too soon, but they could
Speaker 1: potentially act pretty forcefully in the fall.
Speaker 4: And so that's something that we're going to be watching,
Speaker 4: you know, as the news flow evolves.
Speaker 2: So President Trump was saying that he is very very
Speaker 2: close to releasing the name of a nominee to replace
Speaker 2: FED shared J. Powell, and a number of market participants
Speaker 2: we're saying the probability of Trump appointing someone that is
Speaker 2: uber dubvish is very very high, given mister Trump's stance
Speaker 2: on being pro growth. What would that do in your
Speaker 2: mind if we get an uber dubbish FED chairman.
Speaker 1: Yeah, I don't think that would be good for market
Speaker 1: sentiment generally speaking, because it's going to cause you some
Speaker 1: pretty material steepening in the yield curve and that's going
Speaker 1: to be felt in equity valuations, and similar to some
Speaker 1: of the price action that we've seen, you know at
Speaker 1: parts of this year, you know, higher long term interest
Speaker 1: rates that we met with a lower dollar and not
Speaker 1: not a higher one.
Speaker 4: As the typical relationship would hold.
Speaker 1: And so you know, we don't think that would be
Speaker 1: good for markets, and there's a potential, you know, like
Speaker 1: you said that if we get an announcement you know,
Speaker 1: more in the in the near future, we could have
Speaker 1: that shadow fed chair idea, which is something that investors
Speaker 1: have not ever had to deal with in the US,
Speaker 1: and so, you know, I don't think that's something generally
Speaker 1: speaking that would be well received by by the market.
Speaker 2: Let's talk a little bit about the equity space right now.
Speaker 2: Are you still constructive on US stocks?
Speaker 4: Uh?
Speaker 1: We are constructive on US stocks, but not nearly as much,
Speaker 1: you know as we were to start the year. You know, actually,
Speaker 1: our favorite in our highest conviction call that we have
Speaker 1: is that we're likely to continued dollar weakness, especially against
Speaker 1: you know, large uh, you know, international economies like Europe
Speaker 1: and Japan and so, you know, markets is a part
Speaker 1: of the global equity universe that we favor. And within
Speaker 1: the US, you know, kind of keeping things pretty neutral
Speaker 1: and not going on the defensive side of things, maintaining
Speaker 1: some tech exposure and playing offense in the in the
Speaker 1: domestic financials and the banks, as we think that's the
Speaker 1: area of the market that has the clearest de regulatory tailwinds.
Speaker 2: Are those the same things that you would employ if
Speaker 2: you went offshore financials in tech, Well.
Speaker 1: The composition of the offshore market's a good bit different,
Speaker 1: and so you know, a lot of our you know,
Speaker 1: favoring international markets more than we have over the last
Speaker 1: few years is due to the dollar dynamics that we
Speaker 1: think are can continue to be in play. You know,
Speaker 1: the sector composition of those markets is a good bit
Speaker 1: is a good bit different than what you get in
Speaker 1: the US, and so we do think, especially in this
Speaker 1: kind of environment where risk is higher than it has
Speaker 1: been in some time, that international stocks are going to
Speaker 1: offer a lot more diversification.
Speaker 4: Than they have in the past.
Speaker 1: You know, US investors have been pretty disappointed with the
Speaker 1: benefits of global diversification really for the last ten plus years.
Speaker 1: But we do think this is an environment where that's
Speaker 1: going to continue to pay dividends in terms of reducing
Speaker 1: overall portfolio risk and potentially improving returns.
Speaker 2: I'm curious as to how you're thinking about Chinese equities
Speaker 2: right now. Obviously, the deep seek moment was a big
Speaker 2: one for the equity space. In a moment we're going
Speaker 2: to be taking a look at what's going on with
Speaker 2: biotech in China. How do you view Chinese equities.
Speaker 1: Yeah, I mean, China is one place in terms of
Speaker 1: equity market composition where you can actually get a lot
Speaker 1: of high growth tech names. The problems there, you know,
Speaker 1: are are potentially existential.
Speaker 4: However, in terms of.
Speaker 1: You know, the few between the US and China, which
Speaker 1: while it seems to be on a better page today,
Speaker 1: you know, two and a half months ago was in
Speaker 1: it was in a very very dark place. And so
Speaker 1: you know, we're a little bit cautious on EM as
Speaker 1: as a whole, and we don't necessarily think that that
Speaker 1: kind of dollar weakness trend that we expect is going
Speaker 1: to going to extend across the EM universe more broadly,
Speaker 1: and so, you know, not really embracing the EM trade.
Speaker 4: We prefer develop markets.
Speaker 2: Zach will leave it there, thank you so much. Zachary
Speaker 2: Hill is head of portfolio management at Horizon Investments. Joining
Speaker 2: us here on the Daybreak Asia podcast. Welcome back to
Speaker 2: the Daybreak Asia Podcast. I'm Doug Chrisner. China has offered
Speaker 2: a few deep seek moments so farthes here, and it
Speaker 2: really shows the country is more than just the world's
Speaker 2: largest factory. China has clearly demonstrated it can compete with
Speaker 2: the US on the technology front in areas from artificial
Speaker 2: intelligence to military defense, and now Chinese biotech is having
Speaker 2: its day in the sun. For a closer look, I'm
Speaker 2: joined by Bloomberg opinion columnist Julie Wren. She's on the
Speaker 2: line from Hong Kong. Shuley's been writing about how China's
Speaker 2: biotech industry is gaining momentum. Surely it's always a pleasure.
Speaker 2: Can we begin by having you give me a sense
Speaker 2: of scale here, perhaps a few examples of how biotech
Speaker 2: in China is advancing.
Speaker 5: Well. The revelation came really just a month ago when
Speaker 5: Pisa agreed to pay a record one point two seven sorry,
Speaker 5: when Pisa agreed to pay a record one point two
Speaker 5: five billion upfront to license an experimental cancer drug from
Speaker 5: a Chinese company costs three is bio. Two weeks later,
Speaker 5: Bristol biosquib said it will pay Biointech another one point
Speaker 5: five billion to license a similar cancer drug, and that
Speaker 5: cancer drug was an acquisition from Biointech. That cancer drug
Speaker 5: was bought by Buyotech from a Chinese company just lay
Speaker 5: last year for eight hundred million. So what we're seeing
Speaker 5: is that the Big Farmer are paying billions of dollars
Speaker 5: licensing Chinese drugs.
Speaker 2: It's interesting because when we think about our official intelligence,
Speaker 2: obviously military defense, I think these are areas where the
Speaker 2: government is kind of working with the private sector to
Speaker 2: accelerate a lot of development. Is the same true in biotechnology?
Speaker 2: Is the government involved in some way?
Speaker 5: Not really? I mean, biotech is having a winter globally,
Speaker 5: right like. What we are seeing is that the biotech
Speaker 5: companies in the US are not getting that much to
Speaker 5: venture capital funding. And the situation is even dar in China.
Speaker 5: I mean, venture capital has lost its shine since the
Speaker 5: government crackdown on big tech starting twenty twenty one. And
Speaker 5: what we are seeing is that the biotech startups are
Speaker 5: basically coming up with innovative drugs on their own.
Speaker 2: So are we to understand then that this pace of
Speaker 2: deal making and a lot of the appetite for biotech
Speaker 2: in China is going to last? Is it durable? Do
Speaker 2: you think?
Speaker 5: I think so? And I think President Donald Trump's unpredictable
Speaker 5: economic policy plays a huge catalyst. I mean, look at
Speaker 5: Big Farmer. Trump has talked about cutting a prescription drug
Speaker 5: prices by fifty nine percent at the minimum right, and
Speaker 5: his big beautiful tax and spending bill has Medicare and
Speaker 5: Medicaid cuts. What that means is that big farmer are
Speaker 5: just not going to be as profitable as before, and
Speaker 5: that gives them incentive to outsource research and development to
Speaker 5: cheaper destinations such as China.
Speaker 2: So within China, give me a sense of how the
Speaker 2: labor market is supporting the biotech industry. Are young college
Speaker 2: grads moving into the field, are their.
Speaker 5: Opportunities absolutely In China, there is this popular phrase called
Speaker 5: the engineer difend, and basically it talks about in the
Speaker 5: last decade or so, China has been producing a ton
Speaker 5: millions of the stem science students, for instance, like engineering
Speaker 5: medicine are two of the most popular degrees for graduate
Speaker 5: school studies. And all these young and fresh engineers, bioengineers,
Speaker 5: medical students, they're coming to market right and they are
Speaker 5: going to come to work for biotech startups for pretty
Speaker 5: cheap prices compared to the US.
Speaker 2: When you look at the way in which some of
Speaker 2: these stocks have been performing, perhaps on the mainland or
Speaker 2: in Hong Kong, have they been doing remarkably.
Speaker 5: Well, remarkably well The hands in bioteching deck is up
Speaker 5: sixty percent this year. By comparison, SMP biotech in Decks
Speaker 5: is in the red right. And what investors are banking
Speaker 5: on is that the Big farmer are not only going
Speaker 5: to license billion dollar deals, they're also going to buy
Speaker 5: equity stakes in those biotech smaller biotech companies. For instance,
Speaker 5: the Pisor deal one point two five billion, like a
Speaker 5: licensing deal with the three Spile, they're also putting a
Speaker 5: one hundred million dollar dollar investment equity investment in the
Speaker 5: Chinese company.
Speaker 2: When I think about R and D drug development in
Speaker 2: this country, I think about the Food and Drug Administration.
Speaker 2: What is the regulatory regime like in China? And if
Speaker 2: you had to compare let's say Chinese standards versus US standards,
Speaker 2: what conclusion would you arrive at.
Speaker 5: I think the Chinese are also quite strict with approving
Speaker 5: drug use, and the Chinese regulatory body is actually pretty
Speaker 5: open minded about introducing Western drugs because they do see
Speaker 5: that Western drugs are often seen as better quality. So
Speaker 5: in a way, for the Chinese biotech companies to go
Speaker 5: to market, it could be just a little bit better
Speaker 5: for them to partner up with the US Big farmer surely.
Speaker 2: We'll leave it there. It's always a pleasure. Thank you
Speaker 2: so much, Bloomberg opinion columnist July Wren. She's writing about
Speaker 2: how China's biotech industry is gaining momentum. And you can
Speaker 2: read Chuly's writing if you have a Bloomberg terminal. The
Speaker 2: function is OPI N go shu Ley Wrenn joining us
Speaker 2: here on the Daybreak Asia Podcast. Thanks for listening to
Speaker 2: today's episode of the Bloomberg Daybreak Asia Edition podcast. Each weekday,
Speaker 2: we look at the story shaping markets, finance, and geopolitics
Speaker 2: in the Asia Pacific. You can find us on Apple, Spotify,
Speaker 2: the Bloomberg Podcast YouTube channel, or anywhere else you listen.
Speaker 2: Join us again tomorrow for insight on the market moves
Speaker 2: from Hong Kong to Singapore and Australia. I'm Doug Chrisner,
Speaker 2: and this is Bloomberg