WEBVTT - Trump Says He'll Set Unilateral Tariffs; China's Biotech Boom 

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>Welcome to the Bloomberg Daybreak Asia podcast. I'm Doug Chrisener.

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<v Speaker 2>So US China trade talks remain our number one topic,

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<v Speaker 2>and today Treasury Secretary Bessett was saying that Beijing has

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<v Speaker 2>not threatened to cut off pharmaceutical exports to the US.

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<v Speaker 2>In a moment or two, we'll check in with Bloomberg

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<v Speaker 2>Opinion for a look at how biotech is advancing in China.

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<v Speaker 2>I'll be joined in a moment by Bloomberg Opinion columnist

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<v Speaker 2>Truly Ren in Hong Kong. Meantime, President Trump declared a

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<v Speaker 2>trade framework with China has been completed, and he said

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<v Speaker 2>Beijing will supply rare earth materials and magnets upfront. The

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<v Speaker 2>President also said the US will allow Chinese students into

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<v Speaker 2>American colleges and universities. Tariffs meantime for these two countries

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<v Speaker 2>will be maintained at their current lower levels, but remember

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<v Speaker 2>that number is still much higher than when the President

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<v Speaker 2>took office in January. Bloomberg's Jennifer Welsh says that Beijing

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<v Speaker 2>has learned some things.

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<v Speaker 3>China now realizes they have this major hammer in the

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<v Speaker 3>form of these critical mineral export controls that they can leverage,

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<v Speaker 3>and I think that really dilutes the US ability to

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<v Speaker 3>push China towards the deal that Washington says it.

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<v Speaker 2>Once Jennifer Welsch of Bloomberg Economics. By the way, presidents

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<v Speaker 2>Trump and She must still formally sign off on this agreement.

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<v Speaker 2>So let's take a look at the market action right now,

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<v Speaker 2>maybe a little bit about tariff action as well. I'm

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<v Speaker 2>joined by Zachary Hill, head of portfolio management at Horizon Investments. Zach,

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<v Speaker 2>thank you for making time to chat with us. Could

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<v Speaker 2>you weigh in on your reaction to what you've been

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<v Speaker 2>hearing about this agreement that was reached in London a

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<v Speaker 2>couple of days ago.

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<v Speaker 4>Yeah, dok. Great to be with you today.

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<v Speaker 1>You know, I think this agreement broadly kind of hits

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<v Speaker 1>on all the points, and the market was already expecting,

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<v Speaker 1>so it really seems like a status quo matt expectations,

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<v Speaker 1>but to not exceed them, and you know the context

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<v Speaker 1>of how much risk premium has come out of the

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<v Speaker 1>market over the last month and a half or two months,

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<v Speaker 1>you know, it wasn't enough to push equity and disease

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<v Speaker 1>higher today, which kind of speaks a little bit to

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<v Speaker 1>the fact that we're pretty fully valued here above six

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<v Speaker 1>thousand of the S and P.

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<v Speaker 2>So Zach, I'm curious about how you're navigating the current

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<v Speaker 2>terrain when it comes to tariffs, given what we know

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<v Speaker 2>so far. It's interesting today on truth Social President Trump

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<v Speaker 2>posted the US is getting a total of fifty five

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<v Speaker 2>percent tariffs, China is getting ten percent. Now, so let's

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<v Speaker 2>say that those levels do remain in place for a period.

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<v Speaker 2>How is this going to impact your decision making when

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<v Speaker 2>it comes to putting money to work.

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<v Speaker 1>Yeah, I mean those levels are pretty pretty large and

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<v Speaker 1>are likely going to have to be you know, force

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<v Speaker 1>companies to adjust in terms of their cost structure and

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<v Speaker 1>in the way that they're sourcing you know, inputs, and so,

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<v Speaker 1>you know, we do think that that's going to, you know,

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<v Speaker 1>weigh on economic activity. It's it's not likely large to

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<v Speaker 1>put us into a recession, but it is likely something

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<v Speaker 1>that we're going to feel a growth slow down. And

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<v Speaker 1>so from a positioning perspective, we're trying to keep things,

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<v Speaker 1>you know, pretty pretty tight and pretty close to home

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<v Speaker 1>and keep a little bit of dry powder because we

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<v Speaker 1>do think, you know, especially in the summer months after

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<v Speaker 1>you know, a pretty exhausting period of trading UH to

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<v Speaker 1>start the year.

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<v Speaker 4>That this low liquidity environment.

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<v Speaker 1>Is likely to uncover some opportunities for us to put

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<v Speaker 1>some capital to work.

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<v Speaker 2>Let's change gears. Talk a little bit about what's happening

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<v Speaker 2>in Washington with respect to the tax bill. I know

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<v Speaker 2>that the Senate is now trying to negotiate a few things,

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<v Speaker 2>and there is still concern about the level of deficit spending.

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<v Speaker 2>I guess that we could say double line capitalist. Jeff

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<v Speaker 2>Gunlock was saying today that America's debt burden and interest

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<v Speaker 2>expense have become untenable. The bond market at this point

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<v Speaker 2>really doesn't seem to be as upset as it was

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<v Speaker 2>a month ago or so it would appear when the

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<v Speaker 2>House was negotiating its version. How do you make sense

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<v Speaker 2>of that?

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<v Speaker 1>Yeah, I think you know, the way that we make

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<v Speaker 1>sense of that is just this narrative volatility we've had

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<v Speaker 1>on the macro front.

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<v Speaker 4>You know, tariffs come and go.

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<v Speaker 1>You know, doge was a thing that the market was

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<v Speaker 1>talking about for quite a long period of time, and

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<v Speaker 1>now it's it's no longer relevant. And the concern about

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<v Speaker 1>you know, budgets and the deficit bill and long term

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<v Speaker 1>interest rates has been something that's waxed and waned. You know,

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<v Speaker 1>I would agree with you with that importance in the market.

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<v Speaker 1>Narrative has has faded, and you know likely is not

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<v Speaker 1>going to come back unless we see a material upside

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<v Speaker 1>surprise to the deficit. So, you know, nobody really thinks

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<v Speaker 1>that we're going to be cutting the deficit from current levels.

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<v Speaker 1>If we expanded in a really material way, that might

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<v Speaker 1>cause them indigestion in the long end of the bond market.

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<v Speaker 1>But it seems like a lot of that, at least

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<v Speaker 1>in the near term, is already in the price and

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<v Speaker 1>we've seen the curves deepen pretty.

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<v Speaker 2>Dramatically right to we're down today across the curve. Remember

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<v Speaker 2>that we did have that benign reading on make consumer

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<v Speaker 2>prices first thing in the morning and kind of goes

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<v Speaker 2>to the notion that maybe we can get more than

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<v Speaker 2>one FED rate cut in this year. I think the

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<v Speaker 2>swaps market is fully pricing in twenty five basis point

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<v Speaker 2>cut in October and now maybe a seventy five percent

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<v Speaker 2>probability we get a cut in September as well. How

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<v Speaker 2>are you feeling about the FED as a part of

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<v Speaker 2>this story.

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<v Speaker 1>Yeah, you know, the Fed has been kind of on

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<v Speaker 1>the sidelines for a while because of all the uncertainty

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<v Speaker 1>around you know, what the economy, how the economy is

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<v Speaker 1>going to involve, and how inflation is going to involve.

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<v Speaker 1>And it's actually interesting, the you know, end of year

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<v Speaker 1>interest rate implied in the futures market is about the

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<v Speaker 1>same as it was to start the year, so about

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<v Speaker 1>fifty basis points worth of cuts.

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<v Speaker 4>And so, you know, one of the.

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<v Speaker 1>Things that we're watching is the potential now that we've

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<v Speaker 1>had a few good inflation prints in a row after

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<v Speaker 1>a series of bad inflation prints to end the year

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<v Speaker 1>and to start this year.

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<v Speaker 4>To see if that emboldens some of the doves.

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<v Speaker 1>You know, in this in this vacuum that we have

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<v Speaker 1>right now to start pushing for the idea that interest

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<v Speaker 1>rates are too high. That's not our base case scenario,

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<v Speaker 1>and the economy seems to be doing.

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<v Speaker 4>Just fine with interest rates above four percent.

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<v Speaker 1>But from the way the Fed looks at things, they

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<v Speaker 1>do still think that they need to be cutting at

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<v Speaker 1>some point, and so that's something that we're going to

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<v Speaker 1>be paying quite a bit of attention to over the

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<v Speaker 1>next few weeks to see if that narrative of the

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<v Speaker 1>FED needs to start acting, and they're not going to

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<v Speaker 1>act this summer because it's too soon, but they could

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<v Speaker 1>potentially act pretty forcefully in the fall.

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<v Speaker 4>And so that's something that we're going to be watching,

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<v Speaker 4>you know, as the news flow evolves.

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<v Speaker 2>So President Trump was saying that he is very very

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<v Speaker 2>close to releasing the name of a nominee to replace

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<v Speaker 2>FED shared J. Powell, and a number of market participants

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<v Speaker 2>we're saying the probability of Trump appointing someone that is

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<v Speaker 2>uber dubvish is very very high, given mister Trump's stance

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<v Speaker 2>on being pro growth. What would that do in your

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<v Speaker 2>mind if we get an uber dubbish FED chairman.

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<v Speaker 1>Yeah, I don't think that would be good for market

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<v Speaker 1>sentiment generally speaking, because it's going to cause you some

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<v Speaker 1>pretty material steepening in the yield curve and that's going

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<v Speaker 1>to be felt in equity valuations, and similar to some

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<v Speaker 1>of the price action that we've seen, you know at

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<v Speaker 1>parts of this year, you know, higher long term interest

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<v Speaker 1>rates that we met with a lower dollar and not

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<v Speaker 1>not a higher one.

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<v Speaker 4>As the typical relationship would hold.

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<v Speaker 1>And so you know, we don't think that would be

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<v Speaker 1>good for markets, and there's a potential, you know, like

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<v Speaker 1>you said that if we get an announcement you know,

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<v Speaker 1>more in the in the near future, we could have

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<v Speaker 1>that shadow fed chair idea, which is something that investors

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<v Speaker 1>have not ever had to deal with in the US,

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<v Speaker 1>and so, you know, I don't think that's something generally

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<v Speaker 1>speaking that would be well received by by the market.

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<v Speaker 2>Let's talk a little bit about the equity space right now.

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<v Speaker 2>Are you still constructive on US stocks?

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<v Speaker 4>Uh?

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<v Speaker 1>We are constructive on US stocks, but not nearly as much,

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<v Speaker 1>you know as we were to start the year. You know, actually,

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<v Speaker 1>our favorite in our highest conviction call that we have

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<v Speaker 1>is that we're likely to continued dollar weakness, especially against

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<v Speaker 1>you know, large uh, you know, international economies like Europe

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<v Speaker 1>and Japan and so, you know, markets is a part

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<v Speaker 1>of the global equity universe that we favor. And within

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<v Speaker 1>the US, you know, kind of keeping things pretty neutral

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<v Speaker 1>and not going on the defensive side of things, maintaining

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<v Speaker 1>some tech exposure and playing offense in the in the

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<v Speaker 1>domestic financials and the banks, as we think that's the

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<v Speaker 1>area of the market that has the clearest de regulatory tailwinds.

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<v Speaker 2>Are those the same things that you would employ if

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<v Speaker 2>you went offshore financials in tech, Well.

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<v Speaker 1>The composition of the offshore market's a good bit different,

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<v Speaker 1>and so you know, a lot of our you know,

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<v Speaker 1>favoring international markets more than we have over the last

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<v Speaker 1>few years is due to the dollar dynamics that we

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<v Speaker 1>think are can continue to be in play. You know,

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<v Speaker 1>the sector composition of those markets is a good bit

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<v Speaker 1>is a good bit different than what you get in

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<v Speaker 1>the US, and so we do think, especially in this

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<v Speaker 1>kind of environment where risk is higher than it has

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<v Speaker 1>been in some time, that international stocks are going to

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<v Speaker 1>offer a lot more diversification.

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<v Speaker 4>Than they have in the past.

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<v Speaker 1>You know, US investors have been pretty disappointed with the

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<v Speaker 1>benefits of global diversification really for the last ten plus years.

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<v Speaker 1>But we do think this is an environment where that's

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<v Speaker 1>going to continue to pay dividends in terms of reducing

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<v Speaker 1>overall portfolio risk and potentially improving returns.

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<v Speaker 2>I'm curious as to how you're thinking about Chinese equities

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<v Speaker 2>right now. Obviously, the deep seek moment was a big

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<v Speaker 2>one for the equity space. In a moment we're going

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<v Speaker 2>to be taking a look at what's going on with

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<v Speaker 2>biotech in China. How do you view Chinese equities.

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<v Speaker 1>Yeah, I mean, China is one place in terms of

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<v Speaker 1>equity market composition where you can actually get a lot

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<v Speaker 1>of high growth tech names. The problems there, you know,

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<v Speaker 1>are are potentially existential.

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<v Speaker 4>However, in terms of.

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<v Speaker 1>You know, the few between the US and China, which

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<v Speaker 1>while it seems to be on a better page today,

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<v Speaker 1>you know, two and a half months ago was in

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<v Speaker 1>it was in a very very dark place. And so

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<v Speaker 1>you know, we're a little bit cautious on EM as

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<v Speaker 1>as a whole, and we don't necessarily think that that

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<v Speaker 1>kind of dollar weakness trend that we expect is going

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<v Speaker 1>to going to extend across the EM universe more broadly,

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<v Speaker 1>and so, you know, not really embracing the EM trade.

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<v Speaker 4>We prefer develop markets.

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<v Speaker 2>Zach will leave it there, thank you so much. Zachary

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<v Speaker 2>Hill is head of portfolio management at Horizon Investments. Joining

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<v Speaker 2>us here on the Daybreak Asia podcast. Welcome back to

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<v Speaker 2>the Daybreak Asia Podcast. I'm Doug Chrisner. China has offered

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<v Speaker 2>a few deep seek moments so farthes here, and it

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<v Speaker 2>really shows the country is more than just the world's

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<v Speaker 2>largest factory. China has clearly demonstrated it can compete with

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<v Speaker 2>the US on the technology front in areas from artificial

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<v Speaker 2>intelligence to military defense, and now Chinese biotech is having

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<v Speaker 2>its day in the sun. For a closer look, I'm

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<v Speaker 2>joined by Bloomberg opinion columnist Julie Wren. She's on the

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<v Speaker 2>line from Hong Kong. Shuley's been writing about how China's

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<v Speaker 2>biotech industry is gaining momentum. Surely it's always a pleasure.

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<v Speaker 2>Can we begin by having you give me a sense

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<v Speaker 2>of scale here, perhaps a few examples of how biotech

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<v Speaker 2>in China is advancing.

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<v Speaker 5>Well. The revelation came really just a month ago when

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<v Speaker 5>Pisa agreed to pay a record one point two seven sorry,

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<v Speaker 5>when Pisa agreed to pay a record one point two

0:11:23.200 --> 0:11:27.480
<v Speaker 5>five billion upfront to license an experimental cancer drug from

0:11:27.559 --> 0:11:31.280
<v Speaker 5>a Chinese company costs three is bio. Two weeks later,

0:11:32.480 --> 0:11:36.840
<v Speaker 5>Bristol biosquib said it will pay Biointech another one point

0:11:36.880 --> 0:11:40.240
<v Speaker 5>five billion to license a similar cancer drug, and that

0:11:40.400 --> 0:11:45.880
<v Speaker 5>cancer drug was an acquisition from Biointech. That cancer drug

0:11:46.160 --> 0:11:49.920
<v Speaker 5>was bought by Buyotech from a Chinese company just lay

0:11:50.040 --> 0:11:52.880
<v Speaker 5>last year for eight hundred million. So what we're seeing

0:11:53.120 --> 0:11:56.360
<v Speaker 5>is that the Big Farmer are paying billions of dollars

0:11:56.400 --> 0:11:57.880
<v Speaker 5>licensing Chinese drugs.

0:11:58.160 --> 0:12:01.280
<v Speaker 2>It's interesting because when we think about our official intelligence,

0:12:01.320 --> 0:12:04.880
<v Speaker 2>obviously military defense, I think these are areas where the

0:12:04.920 --> 0:12:07.800
<v Speaker 2>government is kind of working with the private sector to

0:12:07.880 --> 0:12:12.760
<v Speaker 2>accelerate a lot of development. Is the same true in biotechnology?

0:12:12.920 --> 0:12:14.640
<v Speaker 2>Is the government involved in some way?

0:12:15.559 --> 0:12:19.319
<v Speaker 5>Not really? I mean, biotech is having a winter globally,

0:12:19.440 --> 0:12:22.360
<v Speaker 5>right like. What we are seeing is that the biotech

0:12:22.400 --> 0:12:25.240
<v Speaker 5>companies in the US are not getting that much to

0:12:25.320 --> 0:12:29.200
<v Speaker 5>venture capital funding. And the situation is even dar in China.

0:12:29.320 --> 0:12:32.640
<v Speaker 5>I mean, venture capital has lost its shine since the

0:12:32.679 --> 0:12:37.040
<v Speaker 5>government crackdown on big tech starting twenty twenty one. And

0:12:37.400 --> 0:12:41.480
<v Speaker 5>what we are seeing is that the biotech startups are

0:12:41.520 --> 0:12:45.040
<v Speaker 5>basically coming up with innovative drugs on their own.

0:12:45.400 --> 0:12:48.000
<v Speaker 2>So are we to understand then that this pace of

0:12:48.040 --> 0:12:51.319
<v Speaker 2>deal making and a lot of the appetite for biotech

0:12:51.320 --> 0:12:53.280
<v Speaker 2>in China is going to last? Is it durable? Do

0:12:53.320 --> 0:12:53.680
<v Speaker 2>you think?

0:12:54.520 --> 0:12:59.160
<v Speaker 5>I think so? And I think President Donald Trump's unpredictable

0:12:59.200 --> 0:13:02.640
<v Speaker 5>economic policy plays a huge catalyst. I mean, look at

0:13:02.679 --> 0:13:06.640
<v Speaker 5>Big Farmer. Trump has talked about cutting a prescription drug

0:13:06.679 --> 0:13:10.360
<v Speaker 5>prices by fifty nine percent at the minimum right, and

0:13:10.440 --> 0:13:14.440
<v Speaker 5>his big beautiful tax and spending bill has Medicare and

0:13:14.600 --> 0:13:18.000
<v Speaker 5>Medicaid cuts. What that means is that big farmer are

0:13:18.080 --> 0:13:20.680
<v Speaker 5>just not going to be as profitable as before, and

0:13:20.760 --> 0:13:25.360
<v Speaker 5>that gives them incentive to outsource research and development to

0:13:25.920 --> 0:13:28.240
<v Speaker 5>cheaper destinations such as China.

0:13:28.320 --> 0:13:31.840
<v Speaker 2>So within China, give me a sense of how the

0:13:31.920 --> 0:13:36.480
<v Speaker 2>labor market is supporting the biotech industry. Are young college

0:13:36.520 --> 0:13:38.360
<v Speaker 2>grads moving into the field, are their.

0:13:38.320 --> 0:13:42.440
<v Speaker 5>Opportunities absolutely In China, there is this popular phrase called

0:13:42.440 --> 0:13:45.880
<v Speaker 5>the engineer difend, and basically it talks about in the

0:13:45.960 --> 0:13:49.040
<v Speaker 5>last decade or so, China has been producing a ton

0:13:49.240 --> 0:13:56.439
<v Speaker 5>millions of the stem science students, for instance, like engineering

0:13:56.760 --> 0:14:02.120
<v Speaker 5>medicine are two of the most popular degrees for graduate

0:14:02.120 --> 0:14:07.000
<v Speaker 5>school studies. And all these young and fresh engineers, bioengineers,

0:14:07.040 --> 0:14:10.280
<v Speaker 5>medical students, they're coming to market right and they are

0:14:10.320 --> 0:14:13.880
<v Speaker 5>going to come to work for biotech startups for pretty

0:14:13.960 --> 0:14:15.679
<v Speaker 5>cheap prices compared to the US.

0:14:15.880 --> 0:14:17.400
<v Speaker 2>When you look at the way in which some of

0:14:17.440 --> 0:14:20.920
<v Speaker 2>these stocks have been performing, perhaps on the mainland or

0:14:20.920 --> 0:14:23.680
<v Speaker 2>in Hong Kong, have they been doing remarkably.

0:14:23.120 --> 0:14:27.640
<v Speaker 5>Well, remarkably well The hands in bioteching deck is up

0:14:27.720 --> 0:14:31.920
<v Speaker 5>sixty percent this year. By comparison, SMP biotech in Decks

0:14:32.000 --> 0:14:35.760
<v Speaker 5>is in the red right. And what investors are banking

0:14:35.800 --> 0:14:39.360
<v Speaker 5>on is that the Big farmer are not only going

0:14:39.400 --> 0:14:43.760
<v Speaker 5>to license billion dollar deals, they're also going to buy

0:14:43.800 --> 0:14:48.120
<v Speaker 5>equity stakes in those biotech smaller biotech companies. For instance,

0:14:48.240 --> 0:14:50.920
<v Speaker 5>the Pisor deal one point two five billion, like a

0:14:51.000 --> 0:14:54.720
<v Speaker 5>licensing deal with the three Spile, they're also putting a

0:14:54.800 --> 0:14:59.520
<v Speaker 5>one hundred million dollar dollar investment equity investment in the

0:14:59.600 --> 0:15:00.440
<v Speaker 5>Chinese company.

0:15:00.600 --> 0:15:03.360
<v Speaker 2>When I think about R and D drug development in

0:15:03.400 --> 0:15:06.880
<v Speaker 2>this country, I think about the Food and Drug Administration.

0:15:07.400 --> 0:15:11.560
<v Speaker 2>What is the regulatory regime like in China? And if

0:15:11.600 --> 0:15:16.360
<v Speaker 2>you had to compare let's say Chinese standards versus US standards,

0:15:16.400 --> 0:15:18.040
<v Speaker 2>what conclusion would you arrive at.

0:15:18.840 --> 0:15:23.840
<v Speaker 5>I think the Chinese are also quite strict with approving

0:15:24.080 --> 0:15:29.920
<v Speaker 5>drug use, and the Chinese regulatory body is actually pretty

0:15:30.280 --> 0:15:34.520
<v Speaker 5>open minded about introducing Western drugs because they do see

0:15:34.520 --> 0:15:38.760
<v Speaker 5>that Western drugs are often seen as better quality. So

0:15:38.840 --> 0:15:41.680
<v Speaker 5>in a way, for the Chinese biotech companies to go

0:15:41.760 --> 0:15:44.880
<v Speaker 5>to market, it could be just a little bit better

0:15:44.960 --> 0:15:48.720
<v Speaker 5>for them to partner up with the US Big farmer surely.

0:15:48.520 --> 0:15:50.360
<v Speaker 2>We'll leave it there. It's always a pleasure. Thank you

0:15:50.400 --> 0:15:54.400
<v Speaker 2>so much, Bloomberg opinion columnist July Wren. She's writing about

0:15:54.440 --> 0:15:57.640
<v Speaker 2>how China's biotech industry is gaining momentum. And you can

0:15:57.680 --> 0:16:00.240
<v Speaker 2>read Chuly's writing if you have a Bloomberg terminal. The

0:16:00.280 --> 0:16:03.680
<v Speaker 2>function is OPI N go shu Ley Wrenn joining us

0:16:03.680 --> 0:16:09.600
<v Speaker 2>here on the Daybreak Asia Podcast. Thanks for listening to

0:16:09.600 --> 0:16:14.560
<v Speaker 2>today's episode of the Bloomberg Daybreak Asia Edition podcast. Each weekday,

0:16:14.600 --> 0:16:18.520
<v Speaker 2>we look at the story shaping markets, finance, and geopolitics

0:16:18.520 --> 0:16:21.800
<v Speaker 2>in the Asia Pacific. You can find us on Apple, Spotify,

0:16:21.960 --> 0:16:25.440
<v Speaker 2>the Bloomberg Podcast YouTube channel, or anywhere else you listen.

0:16:25.880 --> 0:16:28.760
<v Speaker 2>Join us again tomorrow for insight on the market moves

0:16:28.840 --> 0:16:33.360
<v Speaker 2>from Hong Kong to Singapore and Australia. I'm Doug Chrisner,

0:16:33.520 --> 0:16:34.920
<v Speaker 2>and this is Bloomberg