Speaker 1: Welcome to a special Christmas Eve edition of the Bloomberg
Speaker 1: day Break Asia podcast. I'm Doug Chrisner. Coming up, We'll
Speaker 1: be taking a look at the year ahead for markets.
Speaker 1: I'll be joined here in New York by Rebecca Walzer.
Speaker 1: She is president at Wallser Wealth Management. But we begin
Speaker 1: in Hong Kong, where we find e Katerina be Ghos.
Speaker 1: She is the CIO for Asia ex Japan Core Investments
Speaker 1: at AXA Investment Managers. E Katerina joins us from our
Speaker 1: studios in Hong Kong. Thank you for making time to
Speaker 1: chat with us. I hope you're doing well. All the
Speaker 1: best for the holiday season. I want to begin by
Speaker 1: talking about what appears to be a little bit of
Speaker 1: an excess capacity problem for the auto industry. We've been
Speaker 1: talking a lot about this Honda Nissan deal. We know
Speaker 1: the situation in China, particularly as it relates to evs.
Speaker 1: China appears to have tremendous over capacity. Do you think
Speaker 1: it's likely that we're going to see a lot more
Speaker 1: in the way of consolidation in the year ahead.
Speaker 2: I think it's fair to say that consolidation orto industry
Speaker 2: will probably can but more driving consolidation, rationalization to understand
Speaker 2: where the competitive edge for the auto makers is and
Speaker 2: for different ones will be slightly different. So have European
Speaker 2: automakers in Germany that are being challenged. So certainly the
Speaker 2: behind in terms of the broader innovation when you look
Speaker 2: at Japan, certainly is leading in terms of realization that
Speaker 2: we need to have some degree of consolidation to achieve
Speaker 2: that competitiveness. And of course China has become one of
Speaker 2: the key challenges to drive that need for consolidation, and
Speaker 2: not just consolidation but becoming more competitive on relative basis
Speaker 2: because against China, as we know, leads in the av space,
Speaker 2: and a lot of the demand already in China has
Speaker 2: shifted to home manufacturers and to evs a relative to
Speaker 2: again exporters being competitive or being desired for a market
Speaker 2: which is again been one of the largest for a
Speaker 2: lot of those exporters.
Speaker 1: At the same time, we're talking about the use of
Speaker 1: tariffs as a way of protecting market share. Is this
Speaker 1: something that it will lead in your view to a
Speaker 1: lot more protectionism in twenty twenty five.
Speaker 2: I think terriffs is an element of it. But if
Speaker 2: you had to break it down by markets. I mean,
Speaker 2: US already is ahead in terms of implementing tariffs on evs,
Speaker 2: so largely for Chinese evs, US is inaccessible. I think
Speaker 2: the big question is what happens to the tariffs, and
Speaker 2: then what happens to china ability to export in US
Speaker 2: and other markets being challenged, and if they look into
Speaker 2: potentially offload some of that of a capacity in places
Speaker 2: like Eurozone and creating a broader spillover of those trade tensions.
Speaker 2: And I think this is our key secondary effect from
Speaker 2: the tariffs that we're watching very closely.
Speaker 1: Is your view that the thread of tariffs really will
Speaker 1: be nothing more than a negotiating ploy or will they
Speaker 1: really take effect?
Speaker 2: I think it's somewhere in between. We do. We have
Speaker 2: the view that they'll probably not be as aggressive, or
Speaker 2: the scale that has been projected is probably going to
Speaker 2: be lesser, but we do think they will get implemented.
Speaker 2: There will be selective. I don't think it's going to
Speaker 2: be a blanket tariff implementation, So some of them will
Speaker 2: be used for negotiation and some of them will be
Speaker 2: implemented to just be protectionists and bring some of the
Speaker 2: industries back home to the US.
Speaker 1: Let's talk a little bit about global macro right now,
Speaker 1: particularly where central banks are concerned. We know that the
Speaker 1: FED has adopted a strategy as a result of what
Speaker 1: we heard from the last meeting that we can expect
Speaker 1: fewer rate cuts in the new year. What do you
Speaker 1: think is changing the Fed's outlook right now? Is it
Speaker 1: stubborn inflation or is it concerned that maybe we were
Speaker 1: just talking about tariffs, that some of the policies from
Speaker 1: the incoming Trump administration could prove inflationary.
Speaker 2: I think it's a combination of the two, but I
Speaker 2: would say the primary one is what is the state
Speaker 2: of the economy at the moment, less of the projecting
Speaker 2: what one may be the implications as much as it
Speaker 2: is a consideration, but ultimately what the Fed or the
Speaker 2: decision was based on the data that they had at
Speaker 2: hand the other day of the meeting, And suddenly it's
Speaker 2: clear that the inflation is not yet a target with
Speaker 2: in a sickness of that inflation around three point three
Speaker 2: percent for core, and more important, the growth is staying resilient.
Speaker 2: We've seen the labor market adjusting as well, but it
Speaker 2: hasn't crashed again. The catalysts for the FED to continue
Speaker 2: with that accommodation and aggressive mode, it's probably less backed
Speaker 2: by the data. So the data is indicating that needs
Speaker 2: to be a lot more gradual, and the FED is
Speaker 2: done the right decision to adjust the rate expectations that
Speaker 2: the market has priced in past the September card, which
Speaker 2: was quite aggressive starting with and I think the market
Speaker 2: projected quite an aggressive path from that point onwards, and
Speaker 2: I think some recalibration of that, I think it's fair.
Speaker 1: So can we agree then that the path of the
Speaker 1: dollar is going to be that it remains strong against
Speaker 1: the major currencies, and that will in turn prove to
Speaker 1: be a little bit of a headwind for Asia a assessment.
Speaker 2: I think there's a combination of FED staying higher for longer,
Speaker 2: and of course tariffs are deemed to be dollar strengthening.
Speaker 2: And we do think for the Asian economy's biggest risk
Speaker 2: or biggest consideration is the ability of their own central
Speaker 2: banks to be able to support their growth and respective markets.
Speaker 2: Accounting for the fact that the FED of course will
Speaker 2: be a little bit higher, and then the currency is
Speaker 2: a consideration, and the tariffs, of course an implication of
Speaker 2: that will be a consideration.
Speaker 1: So which central bank has more difficulty. Is it the
Speaker 1: Bank of Japan or the People's Bank of China.
Speaker 2: I think it's hard to say, but I mean they
Speaker 2: have slightly different challenges. When you look at a Bank
Speaker 2: of China, of course, the intention is to be a
Speaker 2: commoditive in twenty twenty five, whatever that's fiscal or monitor
Speaker 2: and I think they projected that pretty well as we
Speaker 2: go into the year end. The biggest risk for a
Speaker 2: Bank of China is the monetary policy, the ability of
Speaker 2: that policy to do what it needs to do. And
Speaker 2: I say, because as I said, we have a FED
Speaker 2: that's still be more paid in terms of normalization, but
Speaker 2: tariffs again will have a weakening effect to the currency.
Speaker 2: So we do have it. It has a too double wami,
Speaker 2: if you might say, in terms of the ability to
Speaker 2: maneuver that monetary policy, and I think some realization and
Speaker 2: weakness in the one have to be accepted twenty twenty five.
Speaker 2: When you look at Bank of Japan, of course, the
Speaker 2: situation is slightly different in a sense that they are
Speaker 2: looking and they intend to normalize the monetary policy or
Speaker 2: bring the rates slightly higher, purely because they need to
Speaker 2: get out of the cycle, but also to give them
Speaker 2: additional room to maneuver in the future if they need
Speaker 2: to accommodate again to support the economy. So certainly the
Speaker 2: Bank of Japan has been fairly dorvish at the meeting,
Speaker 2: but it's fair to say that the intention is to
Speaker 2: normalize policy. I think January is a potential move, but
Speaker 2: it depends on where their wage negotiations go, and I
Speaker 2: think this will be a key catalyst. And the second one,
Speaker 2: of course, is what the Trump administration does and the
Speaker 2: policies that implements. And I think March and April is
Speaker 2: probably going to be more a given because again more
Speaker 2: data and transparency will be around those measures.
Speaker 1: So how are you evaluating consumers in both of those jurisdictions,
Speaker 1: first China and then Japan.
Speaker 2: In terms of consumption, you could say in Japan it's
Speaker 2: upward trending or consumption is starting to recover. We've seen
Speaker 2: the data, and I think the indications is that double
Speaker 2: continue in twenty twenty five. That is supported by improving
Speaker 2: disposable income. And I think the trajectory for growth has
Speaker 2: been fairly constructive in twenty twenty four people because global
Speaker 2: has stayed resilient and has provided support for the growth
Speaker 2: in Japan when it looks when you look at China,
Speaker 2: I think the consideration for consumption is related to a
Speaker 2: broader wealth and income creation, which both have been weaker
Speaker 2: and it's been negative. You might say, obviously we've had
Speaker 2: a downturn and property market which has pressed the wealth creation.
Speaker 2: We also had the income effect has been negative because
Speaker 2: of the weaker labor market, and the broader consumption is subdued.
Speaker 2: And I think a key focus for China twenty twenty
Speaker 2: five will be to support that recovery in consumption.
Speaker 1: So I think we can agree that Japan has finally
Speaker 1: emerged from three decades of deflation. Is there a risk still,
Speaker 1: in your view, that China gets miired in something that's
Speaker 1: very similar look.
Speaker 2: I think ultimately there are signs that Japan has exited
Speaker 2: of that deflation period. Again, we need to see a
Speaker 2: lot a few more data points to crystallize that view indefinitely.
Speaker 2: When it comes to China, I think their dynamics in
Speaker 2: China is quite different, and I think it's fair to
Speaker 2: say that policymakers have realized the complexity of the problem,
Speaker 2: of the structural challenges and the micro challenges that they're facing,
Speaker 2: and they're having an intention to use both fiscal as
Speaker 2: and monitor in twenty twenty five to help that growth
Speaker 2: and preshia and not enter into a similar spiral of deflation,
Speaker 2: force sustain or a long prolonged period of time.
Speaker 1: Katerine, it's always a pleasure. Thanks for making time to
Speaker 1: chat with us from our studios in Hong Kong. E
Speaker 1: Katerina Bigos from AXA Investment Managers, joining us here on
Speaker 1: the Daybreak Asia podcast. Welcome back to a special Christmas
Speaker 1: Eve edition of the Bloomberg Daybreak Asia Podcast. I'm Doug Chrisner.
Speaker 1: So with twenty twenty four pretty much in the rear
Speaker 1: view mirror, we want to look ahead at the major
Speaker 1: themes likely to drive market action in the year ahead.
Speaker 1: I'm pleased to welcome Rebecca Waltzer. She is president of
Speaker 1: Walser Wealth Management, joining us here in our studios in
Speaker 1: New York City. Nice of you to drop by, love
Speaker 1: with you looking forward. Thank you. I'm looking forward to
Speaker 1: this conversation. What do you think the new year is
Speaker 1: going to hold when mister Trump takes office and we
Speaker 1: start to get greater clarity on some of these economic policies.
Speaker 3: So we've seen a really big divergence with CEOs and
Speaker 3: CFOs specifically really having a positive economic outlook globally under
Speaker 3: the new administration in comparison to you know, the previous
Speaker 3: even you know, i'd say two decades, Like, there's really
Speaker 3: big positive economic momentum that they feel with this Trump
Speaker 3: administration is going to be possible. I don't know, Doug,
Speaker 3: if it's related to his tariff policy, the fact that
Speaker 3: he's been so open and blatant about it that he's
Speaker 3: already having world leaders discussed that. We're already having Europe
Speaker 3: say hey, we're going to buy crude from America instead
Speaker 3: of Russia. We've got a lot of moving parts. So
Speaker 3: there's a lot of positivity which is really great. Which
Speaker 3: is why, too, Doug, that you saw the FED literally
Speaker 3: in the last FOMC meeting come back and say, hey,
Speaker 3: we're going to pare down the expectations from really more
Speaker 3: than three or three or more to two or really two.
Speaker 3: And when you consider that they started saying twenty twenty
Speaker 3: four we're gonna have six and we're only going to
Speaker 3: have three, then you can see that they've already kind
Speaker 3: of backed themselves into a corner. And I think they
Speaker 3: learned a hard lesson.
Speaker 1: Yeah, I think you're right about that, because it's even
Speaker 1: Powell say that there were members of the FOMC, the
Speaker 1: FEDS committee that guides interest rate policy, they expressed some
Speaker 1: uncertainty about where disinflation may be going from here, and
Speaker 1: largely because of exactly what you're talking about the incoming
Speaker 1: Trump administration. And it's not just tariff policy, is it.
Speaker 1: I mean, it's a bit of spending and also the
Speaker 1: possibility that investment, well, tax cuts.
Speaker 3: To cuts two well, I mean, I'm not really happy
Speaker 3: that the political cloud is not there to work on
Speaker 3: the tax extension of his jobs and tax cut of
Speaker 3: seventeen at the beginning of the term, because literally they're
Speaker 3: talking about, we're going to do border stuff. We want
Speaker 3: to do these things first, and then we'll look at
Speaker 3: the tax policy. But we know that the tax jobs
Speaker 3: since at the end of twenty twenty five, beginning of
Speaker 3: twenty six, so we really need the political cloud to
Speaker 3: go after that pretty quickly. So I'm a little concerned
Speaker 3: that they're kind of pushing that more to the backburn
Speaker 3: or later in the year instead of doing it right
Speaker 3: up front when they have the mandate, because you know,
Speaker 3: how things politics get in the way and things change,
Speaker 3: and then if we get some kind of bad economy
Speaker 3: where we need more stimulus, and I do think that
Speaker 3: that is a really big risk, you know, Doug, I've
Speaker 3: been saying that there's a lot of hopism and there's
Speaker 3: a lot of you know, irrational exuberance on the AI sector.
Speaker 3: I believe AI has got a long runway and it
Speaker 3: will deliver just like the Internet did in the two thousand,
Speaker 3: but we still had to go through the dot com
Speaker 3: crash before we realize how to monetize. So that's why
Speaker 3: I'm saying AI's going to bring us real, true results
Speaker 3: long term. But to expect that we're going to keep
Speaker 3: this twenty plus growth rate before the monetization happens is
Speaker 3: not right, And that's more comparable to dot com.
Speaker 1: You know, it's interesting that you make that point because
Speaker 1: when the FED made its decision, I saw how hard
Speaker 1: hit small capstarts absolutely right, And so you think that's
Speaker 1: going to be a big question mark over some of
Speaker 1: the companies that are more exposed to the domestic economy
Speaker 1: and not so much kind of exposed to what's happening internationally.
Speaker 3: I think, yes, absolutely, But I also Am, As you know,
Speaker 3: I've been very bearish on global economic situations, both in
Speaker 3: Asia and Europe because these theaters have been really experiencing
Speaker 3: economic malaise a lot longer than we have. And I
Speaker 3: would say, you know, we had twenty twenty two that
Speaker 3: was obviously a problem, right, but this last year, this year, hey,
Speaker 3: we've run this AI wave. And yet that's not what
Speaker 3: Germany's experiencing. That's not the US experiencing, and that's what
Speaker 3: the UK's experience, that's what Chinese experiencing. We have big problems.
Speaker 3: They just haven't arrived here yet. So while we have
Speaker 3: Trump and we have all this positive economic outlook, and
Speaker 3: I love that hopiism, I just see the reality. And
Speaker 3: I also do see Doug that we had a lot
Speaker 3: of influences trying to really sort of help look at
Speaker 3: the numbers from a recession basis. You know, we had
Speaker 3: a lot of things triggered that said, hey, we already
Speaker 3: in recession. Yet all of the official administrative reports were no,
Speaker 3: we're fine, we're fine. And now that we have this
Speaker 3: Trump administration coming in, I'm wonderfu we'll see a sea
Speaker 3: change in the data. And started saying Okay, yeah, there
Speaker 3: is some issues here.
Speaker 1: So you're looking out ahead, and I'm interested in knowing
Speaker 1: how your investment strategy is changing for twenty twenty five.
Speaker 1: What are you doing differently?
Speaker 3: We have to broaden out. We've been really a commodity's
Speaker 3: focus because we really did feel that we were going
Speaker 3: to have some kind of retrenchment and pull back, and
Speaker 3: that it was too much optimism too fast on the
Speaker 3: AI sector. I also have a little bit of a concern, honestly, Doug.
Speaker 3: When I have US officials, President Trump included Senator Loomis
Speaker 3: introducing a Bitcoin bill about a Reserve Act Bitcoin Reserve
Speaker 3: Actor in July of twenty four. And what you're talking
Speaker 3: about is now creating a federal reserve funded by the
Speaker 3: Federal Reserve that is in bitcoin. We're talking about one
Speaker 3: million bitcoins. Is the proposal for the Bitcoin Act of
Speaker 3: twenty four that Loomis proposed. And when you're looking at that, Doug,
Speaker 3: what are you really saying. You're saying, Hm, we are
Speaker 3: the global reserve currency of the world since Bretonwood's that
Speaker 3: has not changed yet. We are acknowledging, admitting, and then
Speaker 3: actually taking action to maybe look at an alternative to
Speaker 3: be a reserve currency, and that says a lot. And
Speaker 3: I think that people are skipping over that, not even
Speaker 3: realizing why can't we hold the reserves and dollars? And
Speaker 3: there's that competition isn't happening, and that's a big problem.
Speaker 1: What about changes in the regulatory regime that the Trump
Speaker 1: administration may.
Speaker 3: Initiate, I mean, very pro business, very pro We're very
Speaker 3: pro crypto. I mean, look at Gary Gensler. Obviously a
Speaker 3: lot of origination of litigation and so yeah, I think
Speaker 3: that will be very much more pro growth on that.
Speaker 1: We've seen how the financials have benefited. Right, maybe we
Speaker 1: get fewer regulations where banks are concerned. But I'm wondering
Speaker 1: about the M and A environment. Are you expecting a
Speaker 1: lot more deal making in that?
Speaker 3: I do, I am, But again, deal making from an
Speaker 3: administrative policy perspective, yes, very you know, let's cut red tape,
Speaker 3: let's make bureaucracy go down. But from an economic perspective,
Speaker 3: and will we still have the momentum and the growth
Speaker 3: momentum to kind of get us out of the quagmar
Speaker 3: that we really are? It has really been siloed Ai
Speaker 3: has done well, Crypto has done well, But if you
Speaker 3: broaden out beyond those two things, that we don't have
Speaker 3: a massive broad support strong economy like we need.
Speaker 1: Well, so you mentioned some of the markets offshore. You
Speaker 1: mentioned Europe, you mentioned Asia, particularly China. Valuations obviously in
Speaker 1: those jurisdictions are much below what we're experiencing now in
Speaker 1: the US. Sure, right, would you be inclined to put
Speaker 1: some money to work in either.
Speaker 3: Europe or or Asia if I had a long term
Speaker 3: at excess capital play that I knew I wouldn't need
Speaker 3: a return for sixty months if we had a major pullback. Absolutely,
Speaker 3: if you're looking for a long term growth trajectory that
Speaker 3: you don't need a return in the next sixty months, Yes,
Speaker 3: But if you're looking at the next sixty months and
Speaker 3: thinking that while I'm going to buy cheap and get
Speaker 3: a turn around in two to three years, I think
Speaker 3: that again, there is major global economic situations that are
Speaker 3: under penning foundations that we've had for fifty years, and
Speaker 3: so that is going to take its time.
Speaker 1: So I'm curious as to whether your defensiveness is pushing
Speaker 1: you more into the fixed income market.
Speaker 3: Now, Well, that is such a great question. I'm so
Speaker 3: glad you asked it because Honestly, the bond market is
Speaker 3: really kind of forecasting and really a red flagging to
Speaker 3: us that hey, we are seeing more risk than the
Speaker 3: market is acknowledging. And the fact that PAW again, the
Speaker 3: reason that the Fed came out at the last FOMC
Speaker 3: meeting and really paired down expectations is because PO has
Speaker 3: been almost preempted and his last two raises that basically
Speaker 3: he excuse me, cuts, he caught, and the market took
Speaker 3: a right back up to not only the.
Speaker 1: Pre cut level, but higher.
Speaker 3: And that's what happened again in the lastep ever, MCMDI
Speaker 3: he cuts again twenty five BIPs and we're back to
Speaker 3: four five for four four five. This is crazy. So
Speaker 3: I think fixed income I want to say, it's going
Speaker 3: to be another twenty twenty two year, but we are
Speaker 3: going to see that what the Fed and central banks
Speaker 3: are doing globally is not aligning with what the market
Speaker 3: is pricing us from a risk perspective.
Speaker 1: What are you hearing from clients these days? What's their
Speaker 1: biggest concern?
Speaker 3: I think that they are so double minded. And this
Speaker 3: double mind in the sense that they hear the AI,
Speaker 3: they hear the crypto, they hear all of these wonderful
Speaker 3: new technologies that really are going to have decades and
Speaker 3: decades of a long growth trajectory and runway. But yet
Speaker 3: they do know that things just aren't exactly right. They
Speaker 3: do still know that prices are still sticky. Inflation is
Speaker 3: two point seven CPI, now it's going up. We expect
Speaker 3: the unemployment rate, according to policymakers in twenty twenty five,
Speaker 3: to jump to four point three percent. So you're seeing
Speaker 3: these indicators that there are fundamental underlying problems, but yet
Speaker 3: everything seems so positive because they again it's like a
Speaker 3: rational exuberance. Alan greenspan to mention like the dot com
Speaker 3: air again only in the AI crypto space. So it
Speaker 3: feels like a dichotomy of two different messages.
Speaker 1: If you had to put a number on what you
Speaker 1: expect the total return for the S and P five
Speaker 1: hundred to be in twenty twenty five, what is that number?
Speaker 3: Well, I mean, I think if we have another you're
Speaker 3: like twenty twenty four, we could easily see, you know,
Speaker 3: growth is slowing down globally. But I think if we're
Speaker 3: if we're going to have a repeat of this year
Speaker 3: and exactly what happened this year as far as you know,
Speaker 3: how how the growth one, I think we could still
Speaker 3: see you know, anywhere from a seven to twelve percent
Speaker 3: growth rate literally not necessarily broad spectrum the entire market,
Speaker 3: but the sectors. Right. But again though, Doug, if we
Speaker 3: start to see the geopolitical and the economic weaknesses of
Speaker 3: Asia and Europe come to our shores, then we could
Speaker 3: have a loss year. And that's the issue that we're
Speaker 3: not exactly sure which way it's going to go.
Speaker 1: Rebecca, thank you so much for being with as.
Speaker 3: Happy New Year, TA, thank you you as well.
Speaker 1: Thank you. Rebecca Wallser is president at Wallser Wealth Management.
Speaker 1: Joining us here on the Daybreak Asia Podcast. Thanks for
Speaker 1: listening to today's episode of the Bloomberg Daybreak Asia Edition podcast.
Speaker 1: Each weekday, we look at the story shaping markets, finance,
Speaker 1: and geopolitics in the Asia Pacific. You can find us
Speaker 1: on Apple, Spotify, the Bloomberg Podcast YouTube channel, or anywhere
Speaker 1: else you listen. Join us again tomorrow for insight on
Speaker 1: the market moves from Hong Kong to Singapore and Australia.
Speaker 1: I'm Doug Chrisner, and this is Bloomberg