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Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.

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Speaker 2: Welcome to the Bloomberg day Break Asia Podcast. I'm Doug Chrisner.

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Speaker 2: Our top story this morning, Bloomberg has learned Chinese officials

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Speaker 2: are evaluating the possible sale of TikTok's US operations to

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Speaker 2: Elon Musk. We are told it's one option being explored

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Speaker 2: if TikTok were to fail to fend off a ban

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Speaker 2: here in the US. Plus a look at broader markets

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Speaker 2: with David Waddell. He is the CEO and chief investment

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Speaker 2: strategist at Waddell and Associates. But we begin in Hong Kong.

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Speaker 2: Joining me now to unpack the latest news on TikTok

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Speaker 2: is Annabel Jewelers, who covers Asia Tech for Bloomberg News.

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Speaker 2: Thank you for making time. I'm sure it's been a

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Speaker 2: busy day for you. This is kind of an interesting story.

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Speaker 2: Just help me understand where we are at the moment.

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Speaker 3: Well, I think in the bigger picture, I mean, we

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Speaker 3: had the US Supreme Court that had the here last week,

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Speaker 3: and it was really a chance at that point for

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Speaker 3: representatives from both the US government and also from TikTok

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Speaker 3: to present their sides and what we got out of

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Speaker 3: that on Friday was that it does very much seem

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Speaker 3: to be the case that TikTok will be forced to

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Speaker 3: go so called dark in the US after January nineteen.

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Speaker 3: That would have been the deadline that would have needed

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Speaker 3: to have divested its operations.

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Speaker 2: There, unless it finds a buyer right.

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Speaker 3: Exactly, And that's the big bloomberg scoop this morning. So

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Speaker 3: what we're hearing is that, you know, this is something

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Speaker 3: that the Chinese government is thinking about as well, and

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Speaker 3: in terms of the possible options, we do need to

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Speaker 3: emphasize their priority is that ByteDance continues to keep its

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Speaker 3: US app and to retain ownership of that. But of

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Speaker 3: the other possibilities, one of those is for Elon Musk

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Speaker 3: to acquire the US app, and that would be through

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Speaker 3: x The two companies could work alongside each other. Of course,

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Speaker 3: for x it could pick up a lot of advertiser

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Speaker 3: revenue from TikTok. It's XAI, that's the AI artificial intelligence

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Speaker 3: company that Musk also started. It could also benefit as

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Speaker 3: well in terms of the amount of content that's been

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Speaker 3: created by TikTok, but a lot is really still not

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Speaker 3: clear how we would finance it. The scope the way

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Speaker 3: it would happen. But yes, as I said, that's one

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Speaker 3: of the possibilities we're hearing about.

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Speaker 2: Anytime I've had a conversation about TikTok, the thing that

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Speaker 2: comes up is the algorithm. That's really the gold here. Right,

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Speaker 2: Would a sale necessarily force ByteDance to surrender the algorithms?

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Speaker 3: Well, that's it, and that's really the big talking point.

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Speaker 3: I mean, TikTok's algorithm is sort of the prize, or

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Speaker 3: one of the prizes out of all of this, and

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Speaker 3: in terms of the sale, that's what Beijing also really

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Speaker 3: wants it to be able to retain. You've got to remember,

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Speaker 3: of course, that even if by Dance wants to sell

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Speaker 3: its US app, it still needs to get approval from China,

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Speaker 3: and China's got export rules in place that prevent Chinese

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Speaker 3: companies from selling their software algorithms like the one at TikTok,

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Speaker 3: and so so it does really underscore just how much

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Speaker 3: of a role that the government could end up playing

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Speaker 3: in what happens next.

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Speaker 2: There's no way that that could change even if Beijing

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Speaker 2: wanted to curry favor with the incoming Trump administration, Right.

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Speaker 3: I mean, look, I think that part is too hard

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Speaker 3: to tell. I was speaking yesterday with Showminglu from Eurasia Group,

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Speaker 3: and she was saying that, you know, out of all

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Speaker 3: of the issues that are between the US and Chinese

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Speaker 3: governments right now, actually TikTok is sort of maybe one

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Speaker 3: of the priorities that's lower down the list. What has

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Speaker 3: been also interesting I've been discussing with colleagues this morning

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Speaker 3: as well as just this possibility that going forward, if

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Speaker 3: we do see an explosion of apps, because what's interesting

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Speaker 3: actually to note that the users that are leaving TikTok,

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Speaker 3: they're actually going in the US to other Chinese apps

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Speaker 3: like Shaohongshu that's read. Note there's also Lemonde that's owned

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Speaker 3: by ByteDance. If you do see these Chinese social media

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Speaker 3: giants really blow up and become a lot more popular,

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Speaker 3: maybe it becomes a question of well as to how

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Speaker 3: they're splitting their data and do they need to have

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Speaker 3: separate data centers in different regions.

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Speaker 2: My recollection correct me if I'm wrong here, is that

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Speaker 2: the law in China essentially forces any Chinese based firm

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Speaker 2: to share data with the government. Right, so if it's

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Speaker 2: not TikTok, if it's another Chinese based app the law

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Speaker 2: still applies.

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Speaker 3: Well, that's it, I mean, and that's something else that

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Speaker 3: we've been discussing as well, and that is sort of

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Speaker 3: the level of clarity that we're sort of not clear

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Speaker 3: on just yet. I mean, yes, Hiaohongshu isn't specifically named

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Speaker 3: in Protecting Americans from Foreign Advisory Controlled Applications Act. That's

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Speaker 3: the actor that the Supreme Court's currently considering, and that's

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Speaker 3: what could result on the ban on TikTok. But there

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Speaker 3: is certainly no guarantee that companies like Hiaohongshu will read

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Speaker 3: node aren't going to sort of follow in TikTok's footsteps

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Speaker 3: either by being blocked by the US government. So if

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Speaker 3: it's not TikTok, I guess, as you can say, what

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Speaker 3: else could also fall into the crosshairs?

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Speaker 2: So talk to me about price. If a deal gets

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Speaker 2: done that would allow mister Musk to control this and

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Speaker 2: maybe merge it with his platform X. Is there a

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Speaker 2: value that we can assign TikTok.

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Speaker 3: Yes, there has been one that's been floated. This is

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Speaker 3: coming from Bloomberg Intelligence. It was done last year, but

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Speaker 3: they're saying up to around forty to fifty billion dollars,

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Speaker 3: so it's a substantial amount of money. Of course, you're

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Speaker 3: talking about the richest man in the world, so maybe

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Speaker 3: it's not quite as substantial to him. But it's still

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Speaker 3: very much unclear how Elon Musk would be able to

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Speaker 3: sort of even pull off a transaction of that size.

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Speaker 3: Would it, for instance, mean that he needs to sell

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Speaker 3: or sell other holdings? Is the US government going to

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Speaker 3: be approving it. He paid forty four billion dollars for

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Speaker 3: Twitter a couple of years ago. He's still paying off

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Speaker 3: those loans as well.

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Speaker 2: One of the interesting things you were talking about other

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Speaker 2: Chinese based apps becoming popular in the US. I don't

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Speaker 2: know whether they are as a fisticated as the TikTok algorithm,

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Speaker 2: but imagine a world where the algorithm doesn't transfer with

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Speaker 2: the sale, and the app maybe is not functioning at

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Speaker 2: the same level that it functions now that risk users

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Speaker 2: leaving the platform, does it not?

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Speaker 3: Yes, definitely. I mean, the algorithm is sort of considered

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Speaker 3: to be sort of the secret source of TikTok, and

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Speaker 3: that is what's so highly prized and probably plays a

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Speaker 3: large part into that valuation. I mean, but it's not

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Speaker 3: just sort of that's not the primary concern either from

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Speaker 3: the US government. Yes, they're concerned about the algorithm. They're

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Speaker 3: also concerned about how much data is being created as well.

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Speaker 3: But I guess underscoring all of that is also the

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Speaker 3: concern about sort of propaganda campaigns and the way that

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Speaker 3: it could be used to have sort of covert or

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Speaker 3: what they would say would be covert manipulation campaigns.

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Speaker 2: So what are you hearing from the Hong Kong perspective?

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Speaker 2: What are people in the tech world saying about the

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Speaker 2: news story that we're talking about today.

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Speaker 3: Actually this has been a really big talking point, not

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Speaker 3: so much in Hong Kong, though of course it is.

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Speaker 3: I mean, I think sometimes in Hong Kong people wish that,

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Speaker 3: you know, the tensions would be tamed down. This is

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Speaker 3: supposed to be sort of one of the leading or

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Speaker 3: pre eminent financial hubs in the world, so obviously Hong

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Speaker 3: Kong prefers to not have these sort of tensions between

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Speaker 3: the US and China. But just in you know, weed

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Speaker 3: chat and for people that aren't familiar, weed Chat is

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Speaker 3: the equivalent to WhatsApp that's also used in mainland China.

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Speaker 3: This has been the leading chat this morning for me

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Speaker 3: with people that are working at a lot of different

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Speaker 3: Chinese tech companies and they're all putting up different images

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Speaker 3: in it. I'm just looking through it now, but talking

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Speaker 3: about how they're red hook books or their their jhaohong

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Speaker 3: Sshoo pages are basically going mad, going crazy. A lot

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Speaker 3: of people are getting involved with this, and so called

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Speaker 3: TikTok refugees are starting to flood the platform as well.

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Speaker 3: But just to underscore that, and to note, I was

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Speaker 3: actually looking at the US app Store this morning for

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Speaker 3: Apple on the iPhone downloads and number one right now

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Speaker 3: is Jahangshou and it's followed by Lemonade. So there is

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Speaker 3: a clear trend that we're seeing. Whether that lasts, but

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Speaker 3: certainly people are really exploring the alternatives and for a

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Speaker 3: long time we'll be thinking that it would be you know,

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Speaker 3: Meadow or Facebook and Instagram, you know the meta names.

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Speaker 3: But right now it seems like it's that trend from TikTok,

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Speaker 3: but still keeping it within China.

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Speaker 2: Yeah, such an interesting story, particularly now that we've got

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Speaker 2: Elon Musk's name involved. Annabel, thank you so much for

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Speaker 2: being with us. Bloomberg's Anabel Drollers covering the tech story

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Speaker 2: for us in Asia from our bureau in Hong Kong.

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Speaker 2: Joining us here on the Daybreak Asia podcast. Welcome back

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Speaker 2: to the Daybreak Asia Podcast. I'm Doug Prisoner. So we

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Speaker 2: want to take a look at the broader market right now,

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Speaker 2: and we'll do that with the help of David Wardell.

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Speaker 2: He is the CEO and chief investment strategist at Wardell

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Speaker 2: and Associate. David, thank you for joining us. Can we

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Speaker 2: begin with your overview of markets for twenty twenty five.

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Speaker 2: I'd like your expectations for the price action?

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Speaker 1: Well, thanks for having me. You know, it started off

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Speaker 1: with the vis up here around twenty so you know,

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Speaker 1: there's plenty of confusion out there, some of which I share.

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Speaker 1: But I think that the Trump agenda is such a

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Speaker 1: big component of all of this that until we see

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Speaker 1: that reconciliation bill, a lot of it is unknowable. But

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Speaker 1: I can tell you kind of my guests before we

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Speaker 1: see the details on that. First, you know, we ended

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Speaker 1: the year with a whole lot of expectations. We had

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Speaker 1: hindsight bias after two twenty percent plus years in the SMP,

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Speaker 1: and so the market needed to cool off a little bit.

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Speaker 1: There was a major rally in stocks once the betting

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Speaker 1: markets forecasted a Trump victory, and then those started to

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Speaker 1: go sideways and sell off a bit as the rest

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Speaker 1: of the market it's caught up. So there have been

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Speaker 1: major rallies obviously in interest rates, major rallies in oil,

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Speaker 1: major rallies in the US dollar, and I don't know

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Speaker 1: if this is axiomatic, but the SMP doesn't tend to

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Speaker 1: rally when those three do. So I think we've been

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Speaker 1: in a bit of a digestion phase and I'm not

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Speaker 1: really afraid of that, but just to put some numbers

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Speaker 1: around it, and this is kind of where my thinking's

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Speaker 1: going for the year. You know, we had two years

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Speaker 1: where earnings and valuations both expanded. I'm not sure that

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Speaker 1: in twenty twenty five we will see valuations expand. So

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Speaker 1: we ended the end of twenty four at twenty two

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Speaker 1: times earnings, but the yield on the ten year was was,

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Speaker 1: you know, half a percent lower. Now we're at four

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Speaker 1: zero point seventy five, which would support twenty one times

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Speaker 1: pe multiple. And the difference between twenty two and twenty

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Speaker 1: one is about five percent, which is the drawdown that

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Speaker 1: we've had so far on the SMP. So if you

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Speaker 1: think that rates can go to five to five and

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Speaker 1: a quarter because we are in an environment of higher

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Speaker 1: structural nominal GDP and the Trump agenda will pass through

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Speaker 1: the system. Then you also have to forecast pees that

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Speaker 1: are one to two points lower, which means you could

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Speaker 1: lose altitude of ten to fifteen percent just from pe compression.

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Speaker 1: Now that sounds daunting, but if earnings go up fifteen percent,

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Speaker 1: it's a wash, okay, And then you have to look

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Speaker 1: into twenty twenty six. So I think it's tougher sledding

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Speaker 1: this year because there are valuation headwinds which we didn't

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Speaker 1: have up until this point.

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Speaker 2: So in terms of economic policies from the incoming administration,

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Speaker 2: we know tariffs have really become the centerpiece. And we

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Speaker 2: were talking earlier in the day here in New York

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Speaker 2: about members of the Trump economic team discussing a gradual

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Speaker 2: approach to these tariffs, and one idea that we are

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Speaker 2: told would be to increase them by about two percent

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Speaker 2: to five percent per months. So we are understanding the

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Speaker 2: aim here is to get a little bit of negotiating

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Speaker 2: leverage and at the same time to avoid a spike

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Speaker 2: in inflation. So if you get that as kind of

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Speaker 2: the underpinnings for them push into applying tariffs. Does that

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Speaker 2: give you any comfort at all?

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Speaker 1: No, because that story changes daily. So the purpose of

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Speaker 1: the tariffs, the reason, and I am a little nervous

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Speaker 1: about this, but the purpose of the tariffs is that

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Speaker 1: Trump wants to ship away at the budget deficit, which

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Speaker 1: is six point six percent of GDP. Right last time

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Speaker 1: he came in pre COVID, he expanded the budget deficit

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Speaker 1: about one point five percent of GDP. So he's a

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Speaker 1: stimulative kind of guy obviously, So how are you going

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Speaker 1: to cut the budget deficit while you know, trying to

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Speaker 1: stimulate the economy the same way. Well, the only way

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Speaker 1: to do that is to have the foreigners finance the spending,

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Speaker 1: and not just through the treasury market, but also through

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Speaker 1: tax receipts. So I know that in the modeling they've done,

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Speaker 1: what they've forecast out is that they can come up with,

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Speaker 1: you know, a good deal more called two hundred and

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Speaker 1: fifty three hundred, four hundred billion dollars worth of subsidy

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Speaker 1: for the deficit from foreign entities. Is that possible?

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Speaker 2: Yes?

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Speaker 1: How disruptive will it be? Unknown? I don't think we're

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Speaker 1: in a smooth, holly kind of moment. But you know

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Speaker 1: today there was conversation with Canada about maybe they just

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Speaker 1: won't ship us the four million barrels of oil or

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Speaker 1: whatever they send us every day to retaliate against the tariffs.

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Speaker 1: That would be bad. You know, that probably has something

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Speaker 1: to do with white oils floating around eighty bucks again.

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Speaker 1: So I don't know where those policies end up. And

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Speaker 1: you know, you can sterilize that with some currency appreciation.

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Speaker 1: We've seen that as well, but I just don't think

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Speaker 1: it's going to be easy. And Trump also advocates for

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Speaker 1: a lower dollar, tear US argue against that. If you

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Speaker 1: want to lower dollar, you tax foreigners on interest income

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Speaker 1: that they receive, and you disincentivize investing in the US.

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Speaker 1: So it's really complicated to figure out how to subsidize

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Speaker 1: your government with foreign taxes.

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Speaker 2: You were talking a moment ago about that twenty percent

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Speaker 2: plus gain for the S and P in twenty twenty four.

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Speaker 2: A large portion of that was built on the back

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Speaker 2: of artificial intelligence in the rally and those names like

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Speaker 2: in Nvidia. It was interesting today to see the weakness

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Speaker 2: in the stock in Nvidia, shares down about two percent.

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Speaker 2: We had a report in the publication The Information suggesting

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Speaker 2: that some of Nvidia's biggest customers are now dialing back

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Speaker 2: on orders for the latest black quilled chips. How are

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Speaker 2: you feeling about the AI trade in twenty twenty five.

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Speaker 1: I think it's broader, you know. I think that Trump

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Speaker 1: agenda really should benefit the laggards more than the previous leaders.

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Speaker 1: So I think it's time for the to broaden out.

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Speaker 1: You know, earnings this year for the SMP could be

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Speaker 1: fourteen percent something like that. Earnings for the MAG seven

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Speaker 1: are projected to be something like nineteen. The MAG seven

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Speaker 1: trades at thirty times, you know, the S and P

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Speaker 1: trades x MAG seven around twenty. So it seems to

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Speaker 1: me like the premium that they've received in the past

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Speaker 1: likely isn't the premium they'll receive in the future. And also,

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Speaker 1: if you look at the earnings expectations across sectors for

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Speaker 1: this year, each sector is supposed to be higher in

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Speaker 1: terms of earnings by the end of the year. We

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Speaker 1: did not see that last year. It's also supposed to

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Speaker 1: be the case next year. So you know, to me,

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Speaker 1: I'd rather own say the MDY, the S and P

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Speaker 1: MidCap than the large cap or the mag seven because

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Speaker 1: I can get almost as much earnings growth at a

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Speaker 1: fraction of the valuation. And I just think people are

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Speaker 1: going to be more fundamentally focused this year in the

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Speaker 1: in the contest between earnings and valuations.

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Speaker 2: You were talking a moment ago about your expectations on

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Speaker 2: the FED maybe moving at a slower rate. I think

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Speaker 2: the market welcomes that, given the stubborn signs on inflation.

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Speaker 2: Does that necessarily mean there are opportunities that we should

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Speaker 2: talk about in the bond market?

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Speaker 1: You know, people who play the price action is not

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Speaker 1: really our core client base. The question is what can

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Speaker 1: you get out of fixed income? And if you look

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Speaker 1: at I guess the AG year to date, it's down

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Speaker 1: a percent or so. But if you're picking up a

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Speaker 1: five and a half percent yield a six percent on

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Speaker 1: high grade corporates, then that becomes a structural component of

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Speaker 1: the portfolio. So I know a lot of people say

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Speaker 1: the acid allocation trades are dead and sixty forties dead,

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Speaker 1: et cetera. But if forty percent of your portfolio can

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Speaker 1: generate a yield of six percent, that ain't too bad.

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Speaker 1: So I think there's benefit to investors for these yields.

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Speaker 1: It's headwind to stocks to a certain extent. But let's

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Speaker 1: not forget the average yield going back, you know, fifty

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Speaker 1: years or so is five percent, not two and a

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Speaker 1: half percent. So to me, if we can be an

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Speaker 1: environment of true structural growth reel of three percent penomenal

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Speaker 1: of five percent, then the bond yields make sense and

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Speaker 1: you can still grow earnings, especially with the utilization of technologies,

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Speaker 1: less regulation, maybe some tax cuts. So I still think

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Speaker 1: we're in a pretty good environment both for stock and

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Speaker 1: bond investors. But I would encourage bond investors to think

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Speaker 1: about coupons and not play price.

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Speaker 2: So if yields do remain somewhat elevated, I'm wondering whether

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Speaker 2: or not it's time to look at the financials a

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Speaker 2: little bit more closely.

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Speaker 1: Well, I mean, good thing you brought that up, because

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Speaker 1: we're going to learn a whole lot about them. On

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Speaker 1: Wednesday is earning season shows up, and they obviously had

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Speaker 1: great price action today, and so I thought, what was

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Speaker 1: interesting about today is we got to see what people

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Speaker 1: are going to buy. They've done some tax laws selling,

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Speaker 1: and obviously the financials had a really good day, you know,

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Speaker 1: seventy to basis points or so, while the sp is

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Speaker 1: a fraction of that. So I think people are buying

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Speaker 1: the financials and I think we'll learn more about it.

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Speaker 1: But the highest Ernie's growth expectation for this year's is

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Speaker 1: the financials more so than tech.

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Speaker 2: David, thank you so much. Some great insights there from

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Speaker 2: David Waddell, CEO and chief investment strategist at Waddell and Associates.

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Speaker 2: Joining us here on the Daybreak Asia Podcast. Thanks for

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Speaker 2: listening to today's episode of the Bloomberg Daybreak Asia Edition podcast.

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Speaker 2: Each weekday, we look at the story shaping markets, finance,

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Speaker 2: and geopolitics in the Asia Pacific. You can find us

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Speaker 2: on Apple, Spotify, the Bloomberg Podcast YouTube channel, or anywhere

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Speaker 2: else you listen. Join us again tomorrow for insight on

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Speaker 2: the market moves from Hong Kong to Singapore and Austrilall you,

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Speaker 2: I'm Doug Prisoner and this is Bloomberg

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Speaker 3: M HM.