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

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

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Speaker 2: Markets in the Asia Pacific are reacting to some disappointing

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Speaker 2: US ECO data. We had some weak prints on both

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Speaker 2: hiring and services activity, and that in turn seemed to

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Speaker 2: boost conviction in the FED cutting infrast rates as soon

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Speaker 2: as September. In a moment, we'll get reaction from David Bonson,

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Speaker 2: he is the CIO at the Bonson Group. But we

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Speaker 2: begin this morning in Hong Kong. Joining me now is

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Speaker 2: Villam Sells. He is the global CIO at HSBC Global

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Speaker 2: Private Banking and Premiere Wealth Film. Joins us from our

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Speaker 2: studios in Hong Kong. Thank you for making time to

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Speaker 2: chat with me. Let's begin with the global macro if

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Speaker 2: we can. Just the other day, the OECD cut its

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Speaker 2: forecast for global growth and given a lot of the

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Speaker 2: sentiment indicators that we have been seeing and the week

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Speaker 2: readings that we have been looking at as a result

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Speaker 2: of the trade war, that really shouldn't come as a

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Speaker 2: surprise for the US. The oe c D is saying

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Speaker 2: we're going to see a deceleration in GDP, a pretty

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Speaker 2: sharp one at that to a rate of around one

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Speaker 2: point six percent. It seems dramatic. Do you think that's

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Speaker 2: about right?

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Speaker 1: We have a one point nine percent growth forecast for

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Speaker 1: the US. I think most economists will agree that, you know,

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Speaker 1: tariff's you know, could lower growth and increase inflation to

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Speaker 1: some extent directionally. But I think what is most important

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Speaker 1: for investors is that we are of the view that

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Speaker 1: we don't go into recession, and I'm glad that the

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Speaker 1: OECD agrees with that, neither recession nor stagflation. And that

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Speaker 1: is to a very large extent, because we you know,

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Speaker 1: before we undergo this shock, we are actually in a

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Speaker 1: relatively decent and healthy position from an economic perspective, in

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Speaker 1: the labor markets, in terms of corporate balance sheets, you know,

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Speaker 1: the Atlanta Fed, the things that we are currently running

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Speaker 1: into three point eight two percent growth rate for example.

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Speaker 1: So certainly the first quarter GDP number was misleading because

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Speaker 1: it's all due to that from running of impulse. Corporate

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Speaker 1: profits are healthy as well, you know, with solid surprises,

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Speaker 1: and the margins are strong. So I think we can

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Speaker 1: undergo a shock without going into recession.

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Speaker 2: Does that necessarily mean that we should expect the fed

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Speaker 2: to lower interest rates by maybe fifty basis points between

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Speaker 2: now and the end of the year.

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Speaker 1: So they are obviously in that bind where they are

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Speaker 1: balancing that, you know, the growth story together with the

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Speaker 1: inflation story. So there is at this point in time,

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Speaker 1: as economic growth is reasonably resilient, less of an urge

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Speaker 1: to cut, but also they are still looking at whether

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Speaker 1: inflation allows them to cut. And you know, I do

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Speaker 1: think that they will see some of the tariffs being

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Speaker 1: absorbed in those fat margins of the corporates and therefore

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Speaker 1: and somewhat an trees in inflation to probably two point

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Speaker 1: nine percent this year. But importantly that is already priced

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Speaker 1: into the bond market. But yes, we do expect a

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Speaker 1: few cusps from the fit still this year.

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Speaker 2: So if we could take a step back and look

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Speaker 2: at the global economy, worldwide manufacturing operating conditions, we're down

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Speaker 2: for a second month in a row in May. That's

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Speaker 2: according to JP Morgan. They have the global manufacturing PMI.

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Speaker 2: I think it's at a five month low now and

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Speaker 2: among large nations you've got pmis contracting in China, Germany,

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Speaker 2: Japan and the UK. I know, the PMI is a

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Speaker 2: sentiment indicator we call it soft data versus you know,

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Speaker 2: when you look at an industrial production reading, which is

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Speaker 2: a more firm kind of hard data point. Are you

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Speaker 2: seeing a big divergence between hard data and soft data

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Speaker 2: still or do you think that gap is beginning to narrow.

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Speaker 1: It's narrowing a little bit, but there is indeed a gap,

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Speaker 1: and it's of course it's it's logical that you do

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Speaker 1: gain you know, net gap. Also importantly, we need to,

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Speaker 1: you know, realize that manufacturing in many countries is much

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Speaker 1: smaller than services. So in the US, for example, it's

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Speaker 1: eleven percent of GDP, it's about eight nine percent of employment.

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Speaker 1: You know, services is healthier. And you know what I

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Speaker 1: look at for the stock market, you see that correlation

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Speaker 1: between an ism manufacturing and the stock market, how the

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Speaker 1: stock market moves. That has broken down. It used to

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Speaker 1: be very strongly correlated over the last decades. Over the

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Speaker 1: last three four years much less so. And that's obviously

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Speaker 1: because of the growth in services and technology. So as

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Speaker 1: long as services and technology can do well, and we've

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Speaker 1: seen good results from technology in the first quarter, I

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Speaker 1: do think the stock market can hold up.

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Speaker 2: You're in Hong Kong. Let's talk about the Asia Pacific

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Speaker 2: China in particular. We recently heard from Treasury Secretary Scott

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Speaker 2: Besson saying that China needs to shift to a more

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Speaker 2: consumption led economy to help ease global imbalances. That seems

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Speaker 2: like it's a very obvious point. It's been out there

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Speaker 2: the zeitgeist for some time right now, But I'm curious

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Speaker 2: to get your take on what Beijing could be doing

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Speaker 2: to stimulate more domestic demand. I mean, is there some resistance.

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Speaker 2: Do you think that the government has to try to

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Speaker 2: improve domestic consumption?

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Speaker 1: China has been you know, building out some of its

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Speaker 1: you know, domestic stimulus already. There were those exchange programs

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Speaker 1: you know, of of of consumer goods for example, and

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Speaker 1: we do think that we will you know, continue to

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Speaker 1: see you know, stimulus added further. But it doesn't want

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Speaker 1: to react to every single change in you know, US

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Speaker 1: government policy. It's rather a longer term trend that we

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Speaker 1: are seeing. There. Again, from a stock market perspective, this

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Speaker 1: is actually a very domestic economy. So the so the

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Speaker 1: so the GDP exposure to US trade is much bigger

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Speaker 1: than the actual stocks in the stock market. Their exposure

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Speaker 1: to to to the US. So to give you an

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Speaker 1: idea of that. You know, Chinese stocks in the MSAI

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Speaker 1: China only their revenues only two point three percent is

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Speaker 1: goods exports to the US. So it's a very domestic

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Speaker 1: market and that's why I do think that number one,

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Speaker 1: that domestic stimulus is important, but also that makes it

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Speaker 1: a bit more resilient in terms of a stock market

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Speaker 1: visa VI the tariff news flow.

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Speaker 2: But we know that the deflation story in China is

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Speaker 2: pretty bleak right now, and in essence, the government has

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Speaker 2: been allowing excess products to be exported as a way

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Speaker 2: of trying to help with the issue of overcapacity to

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Speaker 2: some extent, and this is where the criticism is coming

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Speaker 2: from and the part of the United States. Do you

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Speaker 2: think that that's going to change in a meaningful way.

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Speaker 1: Well, we do think that there is going to be

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Speaker 1: further you know domestic staminus on top of you know,

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Speaker 1: regional integration. So China doesn't just trade with US, it

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Speaker 1: trades a lot with the region as well, and that

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Speaker 1: is also an avenue you know, to continue those exports

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Speaker 1: so that it continues to be in a balanced economy

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Speaker 1: where you have you know, exports as well as obviously

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Speaker 1: that domestic stimulus feeding through into a bit more support

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Speaker 1: for domestic amount.

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Speaker 2: I'm curious to get your take on the signals that

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Speaker 2: you're getting from the US bond market. I mean, the

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Speaker 2: inflation story is one part of it. The deficit, the

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Speaker 2: budget deficit story is another part of it. I mean,

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Speaker 2: what is your takeaway really from the if you look

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Speaker 2: at the price section in US treasuries.

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Speaker 1: So I think there are three elements to look at.

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Speaker 1: The inflation story. Obviously, we will have a tariff impact

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Speaker 1: on goods, where you will have goods inflation rising, But

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Speaker 1: goods inflation has not been the issue over the last

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Speaker 1: number of months. It has been that services inflation that

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Speaker 1: is coming down. So if you add it up together,

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Speaker 1: the components of CPI may change, but it will be

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Speaker 1: a mild increase to around the two point nine percent level.

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Speaker 1: Then on top of that, bond market is asking for

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Speaker 1: two kinds of risk premiums. One is the real yield,

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Speaker 1: which is simply the compensation over inflation expectations, and that

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Speaker 1: is already at a multi year high. The other one

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Speaker 1: is the term premium, and the term premium compensates you

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Speaker 1: for taking longer dated risk, and that obviously needs to

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Speaker 1: compensate for the difficulty to assess where's economic growth going

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Speaker 1: over the next number of years and where is that

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Speaker 1: debt pile going over the next number of years. Well,

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Speaker 1: that term premium as well is near multi year highs,

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Speaker 1: so I do think that the market compensates you with

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Speaker 1: a risk premium. Clearly, we will have continued volatility until

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Speaker 1: we get to the big beautiful bill being voted and

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Speaker 1: then the budget being voted. But I do think that

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Speaker 1: bonds have a place in portfolios because of the valuations

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Speaker 1: that already incorporate at risk premium, and certainly for people

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Speaker 1: who worry, of course about the recesion risk.

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Speaker 2: Philm We've been having a number of conversation on this

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Speaker 2: podcast about the degree to which foreign investors have been

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Speaker 2: reducing their exposure to US risk assets. Is that a

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Speaker 2: trade that you're participating in.

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Speaker 1: We're seeing this a little bit from our Asian clients,

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Speaker 1: but much less so from our European clients, and frankly,

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Speaker 1: that is what you see as well in the data

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Speaker 1: so far in terms of flows. Now, the DICK data

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Speaker 1: are very slow. You will have a new release, so

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Speaker 1: put it in your calendar for the eighteenth of June.

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Speaker 1: On the same day as the FED where you will

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Speaker 1: see a lot of specific data around US flows. So far,

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Speaker 1: it's in details Asians that have potentially been selling a

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Speaker 1: little bit, but the European has been buying. What we

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Speaker 1: are doing is, rather than flee from the US, diversify

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Speaker 1: a bit. And I think that is healthy Asia merits

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Speaker 1: and higher allocation in many portfolios, not just for diversification purposes,

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Speaker 1: but also because of the because of the improving fundamentals here.

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Speaker 1: We were talking about the challenges to Chinese demand, but

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Speaker 1: there is on the other hand, the very strong, you know,

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Speaker 1: technological innovation that we have here in the region, and

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Speaker 1: that is creating a lot of excitement. And obviously those

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Speaker 1: technology companies are trading at much lower multiples than in

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Speaker 1: the US, so a lot of clients are very interested

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Speaker 1: in that AI plus the application so automation and so on.

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Speaker 2: What markets in the Asia Pacific are you favoring right

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Speaker 2: now and for what reason?

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Speaker 1: So mostly we're favoring India, China and Singapore, and that

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Speaker 1: is indeed because of the point that we just touched on,

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Speaker 1: which is that domestic angle. So China, India and Singapore

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Speaker 1: have some somewhere between two and four percent of their

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Speaker 1: revenues for the equity markets coming from goods exports to

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Speaker 1: the US. If you compare that to Korea, that's twelve percent.

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Speaker 1: If you compare it to Japan, it's eighteen percent. So

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Speaker 1: that's the choice that we're making here, is that we

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Speaker 1: think that the tariff and volatility is going to continue

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Speaker 1: to lead to equity market volatility. So to shield yourself,

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Speaker 1: you go to those three domestic markets.

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Speaker 2: Villain will leave it there, Thank you so much. Villain

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Speaker 2: Sells the Global CIO at HSBC Global Private Banking and

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Speaker 2: Premiere Wealth. Joining from our Hong Kong studio here on

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Speaker 2: the Daybreak Asia podcast, Welcome back to the Daybreak Asia Podcast.

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Speaker 2: I'm Doug Krisner. The latest economic news in the US

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Speaker 2: was a bit disappointing and it seemed to boost the

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Speaker 2: conviction in the Fed cutting interest rates as soon as September.

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Speaker 2: We had the ISM measure of services activity contracting in

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Speaker 2: May for the first time in a year, and the

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Speaker 2: private payroll survey from ADP showed weakness and job creation

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Speaker 2: the weakest job creation that we've had in about two years.

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Speaker 2: In the bond market, today, we had yields down right

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Speaker 2: across the treasury curve For a closer look at the macro,

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Speaker 2: I am joined by David Bonson. He is the founder

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Speaker 2: also the CIO at the Bonson Group. He is on

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Speaker 2: the line from Newport Beach, California. David, thank you for

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Speaker 2: making time to chat with me. Can we talk about

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Speaker 2: what you saw today in not only the data but

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Speaker 2: the way in which the bond market performed. That was

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Speaker 2: a pretty big move in the tenure. I think we

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Speaker 2: were down about ten basis points. Do you think the

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Speaker 2: bond market is getting maybe a little too ahead of itself,

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Speaker 2: given the fact that we still have a lot of

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Speaker 2: uncertainty on this spending bill that has yet to get

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Speaker 2: out of Congress.

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Speaker 3: I think that the bond market is properly responding to

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Speaker 3: growth expectations. So this is a rally in bonds for

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Speaker 3: the wrong reason. It's not coming from declining inflation expectations

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Speaker 3: or greater stability. It's coming from declining real growth expectations.

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Speaker 3: If we want a ten year around four to four

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Speaker 3: point three, you really want that because you're getting somewhere

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Speaker 3: around one half for two inflation expectations and then another

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Speaker 3: you know, two to three real GDP growth we're not

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Speaker 3: getting that. I think. I think that the other side

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Speaker 3: to this coin is very important. Though, when the yield

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Speaker 3: was up around four point five and everybody said, oh boy,

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Speaker 3: the bond market is really revolting against this spending bill,

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Speaker 3: that was rather exaggerated as well. So my my own

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Speaker 3: view is that the bond market is in a very

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Speaker 3: tight range. Actually, it is not pricing in a big extreme,

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Speaker 3: either for recession or for some sort of runaway fears

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Speaker 3: about where the debt is going. My fear is that

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Speaker 3: the debt is going too high, but it isn't the

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Speaker 3: bond market saying so, it's just our our expectations of

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Speaker 3: real growth.

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Speaker 2: We also had the latest survey from the FED, the

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Speaker 2: Beijbook Report, and it seemed to underscore the risk facing

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Speaker 2: the economy, where overall activity declined slightly, but all twelve

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Speaker 2: FED districts did report elevated levels of uncertainty. And this

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Speaker 2: seems directly correlated to the story on tariffs. Wouldn't you

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Speaker 2: agree there's.

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Speaker 3: Absolutely no question that that is correct, that the uncertainty

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Speaker 3: is highly correlated to the tariff policy reality not only

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Speaker 3: the difficulties of the policy, but the uncertainties around the

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Speaker 3: policy including implementation timing, and just various expectations. So I

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Speaker 3: expect to see more of it in data that we

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Speaker 3: find out throughout month of May. There was a really

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Speaker 3: compressed reality of productive activity as a result of tariff uncertainty.

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Speaker 2: But it's not just the story on weaker growth. I mean,

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Speaker 2: the basebook indicates widespread expectations that both cost and prices

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Speaker 2: are going to rise at a faster rate going forward.

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Speaker 2: That sounds like a recipe for stagflation, which is the

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Speaker 2: big concern.

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Speaker 3: Well, if that were the case the bond market, you

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Speaker 3: would see tip spreads widening. I just simply don't believe

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Speaker 3: that we're seeing that. I think that we mix up

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Speaker 3: the definition of inflation sometimes. I think that it's very

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Speaker 3: true the tariffs raise prices on certain things. But if

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Speaker 3: inflation is indeed a monetary phenomena in theory, what it's

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Speaker 3: doing is pushing price is higher on autos or steel aluminum,

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Speaker 3: and yet pushing prices lower on other things. My bigger

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Speaker 3: fear as to why I see them as problematic is

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Speaker 3: that they force a lower level of productive activity, a

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Speaker 3: lower level of trade. So I would be worried about

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Speaker 3: the stag of portion, but not the inflation portion. I

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Speaker 3: think there's downward pressure on prices, and I don't say

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Speaker 3: that is a good thing.

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Speaker 2: So where does this leave the Fed at the end

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Speaker 2: of the day, We've got a policy decision in a

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Speaker 2: couple of weeks.

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Speaker 3: Well, it's pretty clear in the futures market that they

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Speaker 3: don't intend to be cutting rates at the next meeting.

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Speaker 3: The future's curve is indicating September. Do they end up

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Speaker 3: acting in July? It's possible, it's not zero percent, but

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Speaker 3: I think you're going to get two to three by

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Speaker 3: the end of the year. And the question is more

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Speaker 3: if you're going to start getting them a little bit

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Speaker 3: sooner than later, so you get a couple other weak

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Speaker 3: economic points. You know this ism services today, the ISM

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Speaker 3: manufacturing the other day, the ADP number today. If you

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Speaker 3: get a couple tag on negative economic data points, that

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Speaker 3: will start more of a narrative of the FED doing

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Speaker 3: so sooner than later. But I don't think it changes

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Speaker 3: the terminal for the end of the year. I think

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Speaker 3: at the most they're going to cut seventy five out.

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Speaker 3: It's just a matter of when they start.

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Speaker 2: So let's change gears. If we can talk a little

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Speaker 2: bit about the equity market. Are you still constructive on

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Speaker 2: US stocks?

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Speaker 3: Well, I am, but it requires someone being selective, It

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Speaker 3: requires someone having a value orientation. I do not think

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Speaker 3: that i'd be constructive on buying forty x you know,

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Speaker 3: fortype stocks, hoping they go to fifty PE and in

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Speaker 3: some cases that's been conservative. So unfortunately for capitlated index investors,

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Speaker 3: they're still heavily, heavily reliant on a few names, and

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Speaker 3: I think that's going to prove to run in place

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Speaker 3: for quite some time. But where there is better value,

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Speaker 3: better opportunity, better you know PE ratios and yet organic

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Speaker 3: earnings growth, ourselves, as divid and growth investors are very

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Speaker 3: focused in some of those names, and we think there's

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Speaker 3: some good opportunities in financials and healthcare and consumer staples and.

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Speaker 2: Energy without naming a specific stock or a specific company.

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Speaker 2: Are there generalizations that you can make about certain industry

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Speaker 2: groups groups right now that you believe have some type

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Speaker 2: of advantage.

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Speaker 3: Yes, And again I'm happy to talk in visual names

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Speaker 3: if you want me to do it. But if you'd

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Speaker 3: rather I just talk sectors, that's fine. I think, like

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Speaker 3: I said, the mid stream energy sector provides a lot

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Speaker 3: of great opportunity. There's very attractive yield spreads and very

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Speaker 3: healthy financials, and so that sector to me is attractive

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Speaker 3: regardless of where some of these issues around tariffs go. Similarly,

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Speaker 3: with healthcare, they've kind of priced in a lot of

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Speaker 3: bad news some of the pharmaceutical names. There's this fear of,

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Speaker 3: you know, the pricing executive order. There's a lot of

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Speaker 3: upside possibility because some of those things that the presidents

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Speaker 3: threatened are at risk of not happening once courts and

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Speaker 3: Congress and other things get involved. But at the end

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Speaker 3: of the day, though, the bad news seems to be

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Speaker 3: disproportionately priced in. So we think pharma and energy offer

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Speaker 3: some great opportunities where you're not trying to buy a

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Speaker 3: stock at thirty times earnings.

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Speaker 2: What about the financials. We were talking a moment ago

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Speaker 2: about your expectations for lower interest rates a slower economy.

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Speaker 2: Does that necessarily mean that you want to put money

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Speaker 2: into the banks right now?

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Speaker 3: No. I think when I talk about the financials, we're

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Speaker 3: talking about asset managers. We're talking about some fee based

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Speaker 3: type businesses. There are a couple of banks we own

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Speaker 3: that we like, but as a group or as a

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Speaker 3: I think that the overall business model that is just

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Speaker 3: requiring that interest margin is more difficult. But again, the

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Speaker 3: commercial banks tend to be more pro cyclical and even

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Speaker 3: in good times are pretty boring businesses. There are a

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Speaker 3: couple we like, but the financials includes more than just

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Speaker 3: the banks, and when you look at some of the

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Speaker 3: asset managers, there's some good opportunities there.

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Speaker 2: Before I let you go, David, I have to ask

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Speaker 2: about opportunities offshore and whether you're compelled to look at

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Speaker 2: markets elsewhere, particularly in Asia.

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Speaker 3: Well, we're more bottom up investors, and so the top

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Speaker 3: down side, meaning looking at a country to provoke opportunity,

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Speaker 3: is a little bit different than our process. What I

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Speaker 3: would say is if one has a week dollar thesis,

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Speaker 3: so they believe that the end result of a lot

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Speaker 3: of these trade deals is going to be the administration

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Speaker 3: wanting a weeker dollar, then I think emerging markets are

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Speaker 3: finally going to get a little better tailwind, and so

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Speaker 3: we wouldn't mind a excuse me emerging markets, But in

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Speaker 3: terms of the developed Asian, developed European markets, it's hard

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Speaker 3: to get real bullish there.

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Speaker 2: David. We'll leave it there, thank you so much. David

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Speaker 2: Bonson there. He is the founder also the CIO at

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Speaker 2: Bonson Group. On the line from Newport Beach, California, here

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Speaker 2: on the Daybreak Asia podcast. Thanks for listening to today's

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Speaker 2: episode of the Bloomberg Daybreak Asia Edition podcast. Each weekday,

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Speaker 2: we look at the story shaping markets, finance, and geopolitics

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Speaker 2: in the Asia Pacific. You can find us on Apple, Spotify,

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Speaker 2: the Bloomberg Podcast YouTube channel, or anywhere else you listen.

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Speaker 2: Join us again tomorrow for insight on the market moves

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Speaker 2: from Hong Kong to Singapore and Australia. I'm Doug Chrisner,

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Speaker 2: and this is Bloomberg