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Speaker 1: Welcome to the Daybreak Asia podcast. I'm Charlie Palatin for

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Speaker 1: Doug Prisner. This week, global markets are entering a seasonally

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Speaker 1: strong period. For more on the markets, we spoke with

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Speaker 1: Alicia Garcia Herrero, chief APAC Economists at Texas cib and

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Speaker 1: she spoke with Bloomberg's sharing On and Heidi Stroud Watts.

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Speaker 2: It's interesting you talk about the lack of restraint as

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Speaker 2: being something that you know, either in response or through

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Speaker 2: a broader global trend, is going to be pervasive next year.

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Speaker 2: What does that mean for the global economic cycle? Do

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Speaker 2: you think over not just next year, but perhaps the

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Speaker 2: next few years.

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Speaker 3: Well, we're going to have physical problems.

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Speaker 4: We don't know where they're going to start.

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Speaker 3: I think Trump will get, you know, what is delivered

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Speaker 3: when you do physical stimulus beyond where we are already

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Speaker 3: in the US, which is a strong dollar.

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Speaker 4: Not what Trump wants, but that's what he will get

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Speaker 4: and what he's getting.

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Speaker 3: I think for the US to have financing problems is

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Speaker 3: too early. I think, you know, the US will attract

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Speaker 3: a lot of capital because he will cut taxes and

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Speaker 3: that will help. But in the long run, of course,

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Speaker 3: this is problematic. I think the first one is to

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Speaker 3: build a pinch of this bit goal. Lack of physical

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Speaker 3: restraint will be emerging economists, frontier markets.

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Speaker 4: I think that everybody has been writing.

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Speaker 3: On a on a on a on a fat that

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Speaker 3: would finally ease aggressively, but the fat might not is

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Speaker 3: aggressively anymore. So you know, these countries are already like

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Speaker 3: struggled somehow with hoping for cuts, and some are even

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Speaker 3: cutting because they can't wait, but others aren't able to

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Speaker 3: cut because the currencies are weakening.

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Speaker 4: We see a lot of weakening of im.

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Speaker 3: Currencies at the moment, So those those will be the

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Speaker 3: first to see what it means not to have done

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Speaker 3: physical restraint on time. And I'm expecting a lot of

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Speaker 3: these im and frontier markets to suffer indeed, and it's.

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Speaker 5: Not just emerging market ocurrence is weakening, right, I mean,

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Speaker 5: we're coming from these comments from the finance minister in France,

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Speaker 5: but the euro has just kept the worst month in

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Speaker 5: over a year already, and we saw the euro take

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Speaker 5: another lower coming from that French political volatility. Where does

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Speaker 5: the US dollar go from here when you also have

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Speaker 5: the pressure on the other side of the trade with

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Speaker 5: the weakening potentially European economy and more easyly rate cuts

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Speaker 5: to come.

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Speaker 6: Yeah.

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Speaker 4: Well, we've had.

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Speaker 3: Some comments from Urbian center band from Establation was basically

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Speaker 3: saying that, you know, the ECB might.

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Speaker 4: Not be able to cut as much as for this reason.

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Speaker 3: Yeah, because they're seeing that first the Euros already very weak.

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Speaker 3: We have these issues with the French budget. We have

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Speaker 3: elections in Germany, so you know, we might not be

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Speaker 3: seen as many cuts as expected, even for the Eurbeans

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Speaker 3: and for the reason you mentioned. But I think on

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Speaker 3: the other hand, the US weekending also because everybody is

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Speaker 3: counting by now on tariffs. If Trump there put tariffs

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Speaker 3: on Mexico and Canada basically with a frigate agreement, just

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Speaker 3: imagine Europe or you know, anywhere else. So I think

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Speaker 3: currents are weakening in the light of the need to

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Speaker 3: be weaker do we stand tifts from Trump? So it's

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Speaker 3: a mixture of I think political uncertainty in France and

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Speaker 3: Germany and the need for a weaker currency in the

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Speaker 3: light of Trump's tariffs.

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Speaker 4: That's what it is.

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Speaker 5: When it comes about the health to the health of

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Speaker 5: the US economy, What sort of indications are you getting

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Speaker 5: from the holiday shopping season, especially when it comes to

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Speaker 5: of course the American consumer that's so important for the

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Speaker 5: broader economy.

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Speaker 4: Well, we need to wait.

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Speaker 3: I think the key data is yet to come. I

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Speaker 3: really want to see this employment data after the distorted

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Speaker 3: data because of storms, because the consumption data is kind

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Speaker 3: of hard to read now, I have to say. I

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Speaker 3: mean everywhere in the world, we have very positive consumption

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Speaker 3: data in October for China, and nobody understands how that

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Speaker 3: would happen, because.

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Speaker 4: You know, the mood is so negative, and I think

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Speaker 4: in the US it's a little bit like that as well.

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Speaker 3: So I think we need to wait for employment data

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Speaker 3: to have it because we missed amounths. We couldn't read

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Speaker 3: that month to really know what the effect might be doing.

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Speaker 3: But the fact knows that it will need to deal

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Speaker 3: with import with much more expensive imports from by now

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Speaker 3: literally all over the world. Mexico is the largest import

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Speaker 3: market for the US, and we are going to have time.

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Speaker 3: So the effect will have to come to all of this,

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Speaker 3: no matter the consumption data, even the employment data, because

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Speaker 3: their inflation outlook will look worse, that's clear.

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Speaker 2: So we've been kind of trying to be patient when

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Speaker 2: it comes to how these stimulums measures have started to

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Speaker 2: kind of percolate through, particularly when it comes to some

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Speaker 2: of these private companies. Right, how sustainable do you think

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Speaker 2: this sort of rebound will be and how does kind

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Speaker 2: of the fiscal side potentially change if Beijing is looking at,

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Speaker 2: you know, needing kind of firepower for the next four

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Speaker 2: years depending on what President Trump does.

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Speaker 4: So I'd be blunt and brief.

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Speaker 3: We're not expecting every bound but no Texas and why

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Speaker 3: because stimulus it's not stimulus, it's every structuring package, which

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Speaker 3: is very welcome, by the way, because China has all

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Speaker 3: of these hidden debt, local governments are excessively indebted. These

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Speaker 3: spercolates into the economy, and any supplier from local governments

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Speaker 3: is still waiting to be paid.

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Speaker 4: So you know, all of this is welcome, but it's

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Speaker 4: not really a.

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Speaker 3: Stimulus package in the way we understand it in you know,

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Speaker 3: comparing it to two thousand and eight in any form.

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Speaker 3: So you know, we are going to have lower growth

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Speaker 3: into the twenty five maybe mitigating the deceleration thanks to

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Speaker 3: the package.

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Speaker 4: So we're around.

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Speaker 3: Probably four point five in twenty twenty five, So not

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Speaker 3: no real recovery unless and by the way, and this

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Speaker 3: is still not counting on massive times. So you know, basically,

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Speaker 3: if Trump behaves nicely, I would say a train yield,

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Speaker 3: but at least times that are not too different for

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Speaker 3: China as we're seeing so far given his announcement on

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Speaker 3: China versus Mexico and Canada, would see that type of growth. If, however,

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Speaker 3: the Party feels that, you know, they need more and

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Speaker 3: they come with a big stimulus this time around consumption based.

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Speaker 4: Stimulus, then that would be a different ballgame.

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Speaker 3: But frankly, I think they would be very hesitant because

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Speaker 3: the actual official that in China will go up but

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Speaker 3: eight percent in terms of GDP only because of these

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Speaker 3: ten trillion R and B package only, So you know,

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Speaker 3: the the official dead is really going to increase, and

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Speaker 3: I think that will be very careful to have a

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Speaker 3: big bump in public that with an additional consumption based stimulus.

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Speaker 2: So what do you say is being I guess the

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Speaker 2: sort of flow on effects when it comes to China's

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Speaker 2: trading partners, right, we're really saying this sort of flurry

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Speaker 2: of front loading effects and we're seeing that from some

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Speaker 2: companies that trade with Channel as well. Do you see

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Speaker 2: that sort of level of I guess the green shirts

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Speaker 2: that we have at the moment being sustained on that

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Speaker 2: front as well.

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Speaker 3: So there's two types of green shoots. One is on

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Speaker 3: the consumption side. In October we had good numbers, but

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Speaker 3: it was most little Golden Week, and the first ten

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Speaker 3: days of October were you know, stock market flurry and

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Speaker 3: everybody was, you know, thinking it would last.

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Speaker 4: It did last.

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Speaker 3: So I think I'm expecting worse consumption numbers in November.

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Speaker 3: PMI I think is very much driven by expert orders

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Speaker 3: and these are coming because of tariffs and therefore they're

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Speaker 3: not sustainable. So I actually think China's growth next year

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Speaker 3: will be heard mostly because of a smaller contribution of

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Speaker 3: external demand.

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Speaker 4: And this is started related not only the US.

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Speaker 3: If you look at the number of countries so far,

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Speaker 3: even Russia in latest news, the number of sivist channel

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Speaker 3: will be confronted with next year will be helobus.

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Speaker 5: What will that mean for training partners across Asia? Already

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Speaker 5: last week were surprised to see the Bank of Korea

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Speaker 5: actually cut rates. That was unexpected. We saw the RBY

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Speaker 5: and Z also cutting rates. It seems that the economic

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Speaker 5: outlook across Asia might not look as encouraging in twenty

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Speaker 5: twenty five.

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Speaker 3: Yes, exactly, And I think there is an important reason

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Speaker 3: for this. I mean we we we think substitution. Yeah,

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Speaker 3: we think, okay, if China is hit by tarists, somebody

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Speaker 3: else was expert to the US. But South Korea was

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Speaker 3: already bunking on that this was the IRA. I mean,

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Speaker 3: South Korea had kind of a special access to the

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Speaker 3: US market with China didn't through basically access to subsidies.

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Speaker 4: And that that is very likely just to be stopped by.

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Speaker 3: Trump, so that the gain that we could have seen

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Speaker 3: for South Korea isactly not going to be there. And

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Speaker 3: then in general, you know, the whole region is decelerating.

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Speaker 3: India's decelerating. China, as I said, even with this stimulus,

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Speaker 3: so called so called stimulus, will be decelerated next year.

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Speaker 4: So you know, it's just only natural to do.

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Speaker 3: And by the way, the US economy is still I mean,

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Speaker 3: no matter what track I do, we still hold the

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Speaker 3: video that it will be a deceleration. Europe is not

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Speaker 3: doing well. I mean, why would you have an exuberant Asia.

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Speaker 3: I mean, I can understand the feeling of many of

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Speaker 3: his central bands that they want to cut it is logical.

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Speaker 3: The problem is some might not be able to cut

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Speaker 3: because the currency is maybe too weak, and that is

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Speaker 3: when we hit the you know, the world for some

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Speaker 3: Ian Asia.

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Speaker 5: Yeah, I hear a lot of caution coming from you, Alicia.

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Speaker 5: Good to have you with us. Alicia garziarero chief Asia

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Speaker 5: Pacific Economists and the Texas CIV.

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Speaker 1: Welcome back to the Daybreak Asia podcast. I'm Charlie Pealett.

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Speaker 1: Doug Chrisner's got the week off. As geopolitical concerns linger

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Speaker 1: around China's economy, market participants are exploring opportunities in other

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Speaker 1: Asian markets. We heard earlier from Vikas Pershad Asian equities

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Speaker 1: portfolio manager M and G Investments, and he spoke with

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Speaker 1: Bloomberg Sharry On and Heidi Stroud Watts.

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Speaker 2: So, you know, as we sort of start to get

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Speaker 2: into the paid where we round out the year, I

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Speaker 2: suppose it's worth reflecting on some of the big market trends,

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Speaker 2: and two of them, of course, have been the market

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Speaker 2: darlings of Japan and India, and then also the under

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Speaker 2: value I suppose, the lack of interest and appetite for China.

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Speaker 2: How do you think these themes play into the next

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Speaker 2: year do you think investors should sort of brace but

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Speaker 2: hold their positions if there is that rotation three to.

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Speaker 6: Very different markets.

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Speaker 7: My view is that investors should be braced for outflows

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Speaker 7: from these markets into the US when you look at

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Speaker 7: the strength there. We just had a great month in

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Speaker 7: the US. We should be braced for that, but investors

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Speaker 7: should be doing the opposite. As we head into twenty

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Speaker 7: twenty five. The equity growth stories for the next year

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Speaker 7: and beyond in all three markets remain very strong. In Japan,

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Speaker 7: this is a market that can compound earnings at ten

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Speaker 7: percent eighty ten percent over the next few years. Buybacks

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Speaker 7: dividends will help that. China, the equity market capitalization contribution

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Speaker 7: to the world is dwarfed by the GDP contribution to

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Speaker 7: the world. There's a huge dislocation there. People are wary

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Speaker 7: of the tariffs that are coming. But these are not

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Speaker 7: the same Chinese companies that were around in twenty sixteen

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Speaker 7: and seventeen when the first set of tariffs came under

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Speaker 7: Trump one point zero. These companies are smarter, they're leaner,

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Speaker 7: the better capital allocation, and we're seeing.

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Speaker 6: Lots of opportunities there and India.

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Speaker 7: This might be the longest tail growth story in the

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Speaker 7: world today among major markets and six thousand listed companies

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Speaker 7: five and a half trillion dollar market cap. If you

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Speaker 7: look at where the GDP is going, I know we

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Speaker 7: had a hiccup in the most recent monthly, we can

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Speaker 7: talk about that, but there will be a GDP multiplier here.

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Speaker 7: The economy will continue to grow. This market is also

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Speaker 7: one that should deliver alpha for investors for the long term.

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Speaker 2: Yeah, and in fact that's where we're coming to at

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Speaker 2: in India at the moment. Right What sort of conversations

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Speaker 2: are you having with investors right now, who, I guess

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Speaker 2: want to know. As richly valued as this market is,

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Speaker 2: where do you see the expansion of opportunities from here?

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Speaker 7: Well, make in India is very real. This is one

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Speaker 7: of my key lessons from this year. It's how real

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Speaker 7: that is, how pervasive that is, and how much support

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Speaker 7: there is from the government. The semiconductor industry is something

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Speaker 7: that I thought would not be taking root in India

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Speaker 7: anytime soon, but you look at the magnitude of the

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Speaker 7: investments by the government, the facilities being set up in

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Speaker 7: Western India and southern India, that.

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Speaker 6: Is very real.

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Speaker 7: But if you look lower end from that the assembly

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Speaker 7: and manufacturing of components that will shift to India.

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Speaker 6: It already has.

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Speaker 7: The fact that Apple produces as the high percentage of

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Speaker 7: bones in India that it does already. That's the signal

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Speaker 7: that things are moving apace. We're also related to make

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Speaker 7: in India. It's not just selling to Indians, but selling

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Speaker 7: abroad and the export opportunity. I'm in India now, I'm

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Speaker 7: headed to Riyad for the first time later this week.

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Speaker 7: I'm looking forward to that. Most of the companies I

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Speaker 7: speak to these days that are involved in the manufacturing

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Speaker 7: sector bring up making India and selling to Indians, but

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Speaker 7: they also bring up the very large opportunities that are

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Speaker 7: resulting from Saudi that could be a potential manufacturing hub.

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Speaker 7: Companies that are involved in infrastructure are seeing massive demand

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Speaker 7: from the Soudeast. I think it was Bloomberg just last

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Speaker 7: month that carried a headline saying that within the next

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Speaker 7: three to four years, Saudi will be the largest construction

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Speaker 7: site on the planet.

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Speaker 6: So I'm going to go check it out.

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Speaker 7: Based on what I'm hearing from the companies, that's something

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Speaker 7: that's very real. The last thing I'll just add quickly

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Speaker 7: is on luxury spending. When I moved to Asia twenty

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Speaker 7: years ago, the focus was on the bottom of the pyramid.

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Speaker 7: Now most of the new exciting opportunity we're seeing at

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Speaker 7: the very top of the pyramid, where the ultra highest

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Speaker 7: spending is on property, on cars, on luxury items. We

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Speaker 7: just had the Blueberry CEO on before me, so that

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Speaker 7: team is playing out in India. Hospitals also paying for

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Speaker 7: high end services, high end surgeries. That's where our focus.

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Speaker 5: Because another market darling this year, as Heidi aluda to,

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Speaker 5: has been in Japan, of course, and we continue to

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Speaker 5: see this stronger than expected economic numbers. Just now we

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Speaker 5: got capital spending also surprising to the upside. Come twenty

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Speaker 5: twenty five, we continue to see BOJ rate hikes. Could

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Speaker 5: this economic moment and also market momentum behindered.

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Speaker 7: Our our views beyond that longer term when we look

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Speaker 7: at the corporate governance transformation underway and what that is yielding,

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Speaker 7: and it's across sectors, it's across market caps even now.

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Speaker 7: It started with the largest companies like Attachi and Sony

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Speaker 7: and the transformations they went through, but we're seeing it

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Speaker 7: pervade throughout the entire listed universe. In Japan, and in

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Speaker 7: some of the private companies as well. Our view is

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Speaker 7: if we pick the largest wide spaces and we back

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Speaker 7: the best management teams. Though we're not ignorant of interest

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Speaker 7: rate levels and effects levels, will these best companies will

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Speaker 7: treat this as business as usual and they will help it.

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Speaker 6: They will figure it out.

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Speaker 7: Also, what is very heartening to us is the level

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Speaker 7: of engagement that we now have with Japanese companies on

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Speaker 7: all of these issues, and including on diversity, on board structure,

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Speaker 7: and disclosures. So Japan is changing, and though we're constructive

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Speaker 7: on Japan for twenty twenty five, our excitement goes far

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Speaker 7: beyond that.

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Speaker 5: We're also keeping a close eye on all of the

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Speaker 5: concerns around the budget negotiations right now happening in France,

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Speaker 5: and of course the broad euro economy. How exposed are

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Speaker 5: Asian markets to what's happening in Europe.

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Speaker 7: So this is something I feel like in Asia, perhaps

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Speaker 7: we don't talk about enough on the byside.

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Speaker 6: Perhaps with the south side. Also, companies are quite exposed.

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Speaker 7: And if you look at machine tool companies in Japan,

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Speaker 7: listed machine tool companies in Japan, the leading companies have

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Speaker 7: thirty to forty percent exposure to Europe. If you look

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Speaker 7: at some of the auto parks companies in India that

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Speaker 7: are listed, they also have thirty forty percent of their

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Speaker 7: revenues coming from Europe.

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Speaker 6: The situation is not great and it's global.

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Speaker 7: So if we start with the largest manufacturing sector in

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Speaker 7: the world, the auto sector. I opened Bloomberg this morning

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Speaker 7: to see Nissan CFO has resigned, the Stalantis CEO has resigned.

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Speaker 7: Are there's pain on the ground in Germany in particular,

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Speaker 7: and the auto manufacturer is there, but it goes beyond

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Speaker 7: that as well. So if we start with the largest

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Speaker 7: manufacturing sector in the world in autos, situation is not good.

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Speaker 7: And that does include cvs, that does include auto parts,

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Speaker 7: it's not just passenger vehicles.

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Speaker 6: And that brings us back to China.

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Speaker 7: Chinese evs are benefiting, clearly, we've seen that that supply

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Speaker 7: chain is benefiting. And there's a broader set of benefits

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Speaker 7: accruing to Chinese companies in manufacturing in the semi inductor

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Speaker 7: supply chain as well. We talk about that now, perhaps later,

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Speaker 7: but there's a lot to discuss about China as well.

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Speaker 5: And because we started this conversation and you mentioned how

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Speaker 5: I was practicing my Spanish earlier before we came on VIAIR.

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Speaker 5: I follow a lot of time stocks in Latin America

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Speaker 5: very closely, as you know. I know that you don't

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Speaker 5: follow them very closely. But when we talk about China

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Speaker 5: and the broader emerging market scheme, how important will the

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Speaker 5: offshore you on, for example, be in the anchoring of

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Speaker 5: expectations around emerging markets come twenty twenty five, especially when

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Speaker 5: you have another big player with Trump two point zero

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Speaker 5: coming with really these idiosyncratic news that could come out

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Speaker 5: from that administration.

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Speaker 7: Well, I'm going to contradict myself briefly and say that

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Speaker 7: we tend not to focus too much on FX levels,

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Speaker 7: but the yen and the yuan and what's going on

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Speaker 7: there we do pay attention, and the yuan anchoring you're

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Speaker 7: talking about, we'll see the ramifications of that next year.

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Speaker 7: Now on LATHAM, it's fascinating to look at time series

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Speaker 7: data of who the largest trading partners are for countries

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Speaker 7: in South America and how that is evolved and shifted

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Speaker 7: away from the US and moved towards China. We're seeing

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Speaker 7: the same thing in the GCC sow they in particular,

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Speaker 7: and how important China is to these economies, so it's

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Speaker 7: not something I spend too much time thinking about every day,

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Speaker 7: but Indian companies are setting up manufacturing there. We know

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Speaker 7: that Japanese and Chinese companies are setting up manufacturing there,

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Speaker 7: so we do pay attention to it. On the services side,

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Speaker 7: on e commerce pharmaceuticals, we're seeing some win some losses

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Speaker 7: on that front, but Latin America will become more and

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Speaker 7: more important. And keeping an eye on the yuan as

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Speaker 7: we head into next year also very important.

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Speaker 5: Because Prashan always got to have you with us Asian

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Speaker 5: what is portfolio manager at MNG Investments. Great to have

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Speaker 5: you with us.

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Speaker 1: Thanks for listening to today's episode of the Bloomberg Daybreak

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Speaker 1: Asia Edition podcast. Each weekday, we look at the story

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Speaker 1: shaping markets, finance, and geopolitics in the Asia Pacific. You

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Speaker 1: can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel,

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Speaker 1: or anywhere else you listen. Join us again tomorrow for

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Speaker 1: insight on the market moves from Hong Kong to Singapore

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Speaker 1: and Australia. I'm Doug Chrisner and this is Bloomberg