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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 Krisner.

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Speaker 2: Lunar New Year celebrations continue across the Asia Pacific. We've

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Speaker 2: got market holidays today in China, Hong Kong, and South

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Speaker 2: Korea to name a few. And coming up, we'll take

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Speaker 2: a look at the Chinese consumer with Shazad Kazi. He's

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Speaker 2: managing director at China Beisebook International. But we begin here

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Speaker 2: in the States and let's start with today's FED decision,

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Speaker 2: and to help shed some light, let's bring in George Sippoloni.

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Speaker 2: He is portfolio manager at Penn Mutual Asset Management. George

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Speaker 2: joining from just outside Philadelphia. Thank you, sir for making

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Speaker 2: time to chat with us. I think Powell was pretty

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Speaker 2: clear the Fed does not need to be in a

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Speaker 2: hurry to lower interest rates. Can you understand why or

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Speaker 2: do you disagree with his position?

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Speaker 3: Hey, del great to be with you.

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Speaker 4: I completely understand his position and standing. And I think

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Speaker 4: there's one so if you read through the text, there's

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Speaker 4: one omission that's clearly important. And so the last statement

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Speaker 4: was inflation has made progress towards the committee's two percent objective,

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Speaker 4: but remained somewhat elevated. That was from the last meeting.

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Speaker 4: In this meeting, they took out a lot of those

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Speaker 4: words and now they just say inflation remains somewhat elevated.

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Speaker 4: And I think that's absolutely the most accurate way he

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Speaker 4: could describe it. And I think that's the reason why

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Speaker 4: they stood pat and sounded a little bit more hawkish

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Speaker 4: then maybe the market expected, because obviously we saw the

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Speaker 4: stock market pulled back right away, the bond market pulled back.

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Speaker 4: They've rebounded, for sure, but I do think his stance

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Speaker 4: is the proper one at the moment.

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Speaker 2: And I'm just wondering as I'm listening to that whether

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Speaker 2: a portion of that unease or ill at ease has

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Speaker 2: to do with the fact that really we don't know

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Speaker 2: whether or not there are going to be inflationary impacts

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Speaker 2: as the result of some of the policies that we're

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Speaker 2: getting from this new administration.

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Speaker 4: You're one hundred percent right, And it's funny. We had

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Speaker 4: some Bloomberg people in showing us some really cool functions

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Speaker 4: on the system, and there's always something new. One of

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Speaker 4: the big ones that we noticed from an economic standpoint

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Speaker 4: is the word count obviously for what managers, what company

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Speaker 4: managers are concerned about, And the tariff chart is just

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Speaker 4: completely stunning and eye opening, and that's what everybody doesn't

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Speaker 4: know how to deal with yet, and we don't because

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Speaker 4: we don't know what the policy will be. And if

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Speaker 4: you look at inflation, the chart on inflation, we got

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Speaker 4: really surprised there in December. If you think about just

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Speaker 4: a month or so ago, how the market was ripping.

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Speaker 4: The stock market was ripping, and the bond market was

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Speaker 4: pretty tame, and from a yield standpoint, everything changed at

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Speaker 4: that point at the last December meeting, and it needed

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Speaker 4: to because inflation expectations resumed post election. And so now

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Speaker 4: we have a lot of uncertainty about, Okay, well we

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Speaker 4: get back to two percent inflation. I know the FED

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Speaker 4: wants us to get there, but we're not there yet.

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Speaker 4: So we're going to keep an eye on oil, We're

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Speaker 4: going to keep an eye on commodities, We're going to

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Speaker 4: keep and I on policy. And I think again, as

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Speaker 4: we are right now, the FED is in an uncertain

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Speaker 4: point and I think they made the right decision today.

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Speaker 2: So far, we had quite a few earnings, key earnings

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Speaker 2: after the bell, Microsoft Meta Tesla. Let's begin with Tesla.

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Speaker 2: Quarterly profit was disappointing, but on the call with analysts,

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Speaker 2: the companies seem to say, hey, we can return to

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Speaker 2: growth this year, and the stock popped a bit in

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Speaker 2: late trading, I think, up by around four percent at

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Speaker 2: the end of late US trading. What's your view on

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Speaker 2: the Tesla story right now?

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Speaker 4: Yeah, Tesla's an interesting one, so tip full disclosure. I'm

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Speaker 4: a value manager and Tesla's not in our wheelhouse by

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Speaker 4: any stretch. I think, you know, if you look at

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Speaker 4: Tesla as an auto company, I think all the auto

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Speaker 4: companies are facing a ton of competition from China, and

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Speaker 4: we're seeing that across the board. You name the company,

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Speaker 4: whether it's a European company, even some domestic companies. Now

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Speaker 4: four and GM are a little different because they're so

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Speaker 4: they have such a strong foothold in the US. But

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Speaker 4: if you look at European automakers that's sell into China,

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Speaker 4: they are not doing well. And if you look at

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Speaker 4: how strong Chinese ev companies have been doing, and that's

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Speaker 4: a lot of competition for Tesla.

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Speaker 3: So I understand why their earnings.

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Speaker 4: Are the way they are, but a lot of people

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Speaker 4: don't look at Tesla just as an automotive company. They

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Speaker 4: look at it as a tech company, as a robotics company,

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Speaker 4: as you know, an FSD company for you know, or

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Speaker 4: fully autonomous driving, and so they have that buzz about them,

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Speaker 4: and so it seems like no matter what the numbers

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Speaker 4: look like, or no matter how bad they look like,

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Speaker 4: some commentary can always help give the stock a pop.

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Speaker 4: So again, as a value manager, it's not my favorite

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Speaker 4: one to analyze because the fundamentals are so tough to

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Speaker 4: work with.

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Speaker 2: So let's go to Microsoft next, trading it around thirty

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Speaker 2: five times earnings, hardly meeting the definition of value. But

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Speaker 2: this company is so closely tied to this AI revolution.

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Speaker 2: Aren't you tempted to maybe put a little money to

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Speaker 2: work at Microsoft?

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Speaker 4: So I think so again, as a value manager, I

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Speaker 4: think one of the interesting things is we'll try to

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Speaker 4: start with companies that maybe have more upside potential than

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Speaker 4: some of the bigger names. So the bigger names are

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Speaker 4: doing great, and if you look at the numbers, they're

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Speaker 4: really good. After hours, the market really isn't that satisfied

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Speaker 4: with Microsoft, and the primary reason was the growth in

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Speaker 4: their Asia business or their cloud business, and so if

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Speaker 4: you look at what the commentary was, it was really

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Speaker 4: really telling.

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Speaker 3: And this is going to go back to your point.

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Speaker 3: Microsoft said its.

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Speaker 4: Cloud computing business will continue to grow slowly in the

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Speaker 4: current quarter as the company struggles to build enough data

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Speaker 4: centers to handle demand for its artificial intelligence products. And

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Speaker 4: then I'm sure we're going to talk about Meta as well.

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Speaker 4: Metas comments from a CAPEC standpoint were pretty eye opening

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Speaker 4: as well, especially in terms of what we just saw

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Speaker 4: Monday with deep Seek and the fears that these companies

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Speaker 4: were spending too much. That is the exact opposite of

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Speaker 4: what the company's just said after hours. So going back

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Speaker 4: to your point, Doug, I do think there are companies

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Speaker 4: in the data center business that look really, really cheap

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Speaker 4: relative to maybe some of these bigger names. I think

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Speaker 4: they're underappreciated. And I can't name each one just because

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Speaker 4: I can't, but that's our policy not to do that

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Speaker 4: in the media. But there are companies underlying that can

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Speaker 4: supply those data centers that can help fuel that growth

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Speaker 4: that we think are pretty cheap.

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Speaker 2: It's interesting that you mentioned Microsoft and Meta. When it

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Speaker 2: comes to AI. We know that Microsoft and open AI

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Speaker 2: have that partnership with chat GPT, Meta's AI model Islama,

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Speaker 2: and this week shocker was the story on deep Seek

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Speaker 2: and how it's aimodel can rival chat GPT. I think

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Speaker 2: it's important to point out that we are learning that

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Speaker 2: Microsoft is now looking at whether a group linked to

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Speaker 2: deep seek may have taken a large amount of data

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Speaker 2: from open AI in an unauthorized fashion. More to come

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Speaker 2: on that, But the deep seek model, known as R one,

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Speaker 2: is open source, and metas Lama AI model is also

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Speaker 2: open source. So I'm wondering whether the real story of

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Speaker 2: the week is the impact open sources having on these

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Speaker 2: AI models. Let's set that aside for a moment. I'm

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Speaker 2: wondering about whether some of the second order impacts of

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Speaker 2: the AI story are still intact, like electric power, for example,

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Speaker 2: are they.

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Speaker 3: You're one hundred percent right, Doug.

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Speaker 4: I mean, if you think about the ripple effects of

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Speaker 4: AI and this capex spending, I think as long as

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Speaker 4: you could tie it back and say and if that

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Speaker 4: capex is sustainable, it's going to create a lot of

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Speaker 4: demand for land and buildings that are close to or

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Speaker 4: data centers, and land that's going to be close to

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Speaker 4: power sources. It's going to help increase if you look

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Speaker 4: at a chart of potential natural gas demand that should

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Speaker 4: go up. And then again, it's funny because the ripple

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Speaker 4: effects work both ways, and a lot of those companies

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Speaker 4: that benefited over the last year from this AI buzz

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Speaker 4: all got hit on Monday pretty pretty severely. So again,

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Speaker 4: I think Zuckerberg's comment was pretty telling as well, saying

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Speaker 4: his consumer AI offering is going to be one of

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Speaker 4: the most transformative products that we've ever made. And that's

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Speaker 4: a pretty big statement coming from Zuckerberg in terms of,

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Speaker 4: you know, a huge product, like comparing it to something

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Speaker 4: that might be even bigger than Facebook. So yes, to

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Speaker 4: your point, there are going to be a lot of

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Speaker 4: names that should do really, really well that Capex.

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Speaker 3: Is going to have to hold up there. That's going

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Speaker 3: to be the key.

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Speaker 2: So Apple will be reporting tomorrow after the closing bell,

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Speaker 2: are you optimistic?

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Speaker 4: So Apple is challenging. So if you look at all

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Speaker 4: these names, So for example, if you look at Metas quarter,

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Speaker 4: they aren't eight dollars this quarter. If you compare that

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Speaker 4: to twenty twenty two, they aren't eight fifty nine in

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Speaker 4: the full year of twenty twenty two. So this was

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Speaker 4: an outstanding quarter. Apple just about all of their return

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Speaker 4: last year came from PE expansion and not from Earning's growth.

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Speaker 4: So I think there's a very big question. So each

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Speaker 4: of the each of these companies, obviously they're in the

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Speaker 4: mag seven. Some people may look at them, you know,

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Speaker 4: in a very homogeneous fashion, but they are all different companies.

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Speaker 4: And I think Apple needs to prove that they can

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Speaker 4: continue to grow, and I think they where these other

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Speaker 4: companies have. You know, if you look at Meta for example,

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Speaker 4: over the last year, their revenues went from one hundred

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Speaker 4: and thirty five billion up to one hundred and sixty

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Speaker 4: five billion, and Apple's kind of stayed steady. They've grown,

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Speaker 4: but not at this pace. And given the fact that

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Speaker 4: their PE is where it is today's thirty percent higher

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Speaker 4: than it was last year, for example, they have to

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Speaker 4: prove it now. They have to prove it once again

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Speaker 4: that they can grow at this size of a company.

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Speaker 4: Can they continue to grow it with headwinds like China

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Speaker 4: for example, staring at them in the face.

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Speaker 2: George will leave it. They're always a pleasure. Thanks for

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Speaker 2: making time to talk with us today. George Sippoloni. He

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Speaker 2: is portfolio manager at pen Mutual Asset management, joining from

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Speaker 2: just outside Philadelphia here on the Daybreak Asia podcast. Welcome

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Speaker 2: back to the Daybreak Asia Podcast. I'm Deuk Krisner. Many

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Speaker 2: countries across the APAK are enjoying Lunar New Year holidays,

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Speaker 2: so markets will now be keenly interested in the high

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Speaker 2: frequency data tracking consumer spending across the region for a

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Speaker 2: closer look. I'm joined now by Shazad Kazi. He's managing

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Speaker 2: director at the China Beijbook International. Shazade, thank you for

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Speaker 2: making time to chat with us. Let's begin by talking

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Speaker 2: about consumer behavior. What are your expectations?

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Speaker 1: Well, look, I think the consumer data actually look quite positive,

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Speaker 1: you know, and I think a lot of the credit

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Speaker 1: of the reasoning goes to the lunar New Year spending.

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Speaker 1: You got travel doing well, you got the hospitality sector

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Speaker 1: showing sales improvement. You even have restaurants showing sales improvement.

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Speaker 1: You even have retailers actually ramping up hiring. So I

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Speaker 1: think the expectation is that consumers are going to come

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Speaker 1: back and spend more money, you know, this year than

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Speaker 1: they have in the last probably couple of months, maybe

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Speaker 1: even compared.

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Speaker 5: To last year.

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Speaker 2: So how are you evaluating Let's talk about China here,

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Speaker 2: the overall Chinese economy at the moment, What does it

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Speaker 2: look like to you in terms of it's strength or

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Speaker 2: perhaps weakness.

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Speaker 1: Look, I think the beauty is a very nuanced right now.

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Speaker 1: You know, the economy is certainly not you know, shooting

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Speaker 1: upwards to the moon, so to speak, but it's absolutely

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Speaker 1: not falling apart. You know, you've got a story where

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Speaker 1: there's a lot of semblance of stability a word of

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Speaker 1: course of the Communist Party loves, compared to where things

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Speaker 1: were a year ago, and an improvement over what was

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Speaker 1: a week December and all around slower Q four.

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Speaker 2: So the latest PMI reading is, as I recall, on

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Speaker 2: the manufacturing side continued to show contraction. Isn't that concerning

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Speaker 2: to you?

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Speaker 1: You know, I don't buy that the economy actually was

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Speaker 1: in any kind of outright contraction heading into the beginning

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Speaker 1: of this year, to be honest, Doug, I wouldn't be

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Speaker 1: surprised if a lot of that is just lagged weakness

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Speaker 1: from late last year finally being reported in official data.

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Speaker 2: How are you understanding the risk of tariffs to the

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Speaker 2: overall manufacturing sector in China right now?

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Speaker 5: Yeah?

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Speaker 1: I think you know, overall If the economy is doing

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Speaker 1: all right, that brings down the pressure on she to

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Speaker 1: do large scale stimulus. The big risk factor then is

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Speaker 1: what happens with tariffs. If they do get hit with tariffs,

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Speaker 1: you know, then of course they are going to have

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Speaker 1: to step it up to provide additional support to the

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Speaker 1: manufacturing sector, which already, of course gets quite a lot

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Speaker 1: of help in terms of subsidies, zero interest rate loans

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Speaker 1: and so forth. But Beijing, i think will step up

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Speaker 1: the support for its factories.

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Speaker 2: Today in the US we had news that the Trump

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Speaker 2: administration is exploring additional curbs on the sale of certain

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Speaker 2: in Nvidia chips to China. This would be kind of

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Speaker 2: a continuation or maybe a deepening on some of the

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Speaker 2: export controls that were initiated under the Biden administration. It

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Speaker 2: seems like, certainly in the area of high technology, things

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Speaker 2: are maybe going to get a little bit more tense

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Speaker 2: between these two powerhouses, and not any less.

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Speaker 1: So that's absolutely correct. But here's the reality. You know,

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Speaker 1: we can talk a big game here in the US,

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Speaker 1: but the Chinese are still being able to actcess American chips,

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Speaker 1: including high end technology, So expert controls are incredibly complicated.

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Speaker 1: To say the least, and the administration, if it's serious

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Speaker 1: about export controls, is going to have to figure out

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Speaker 1: what the game plan is and learn from the lessons

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Speaker 1: of the last four years where clearly a lot of

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Speaker 1: stuff lead through.

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Speaker 5: Yeah.

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Speaker 2: We have also news today that Microsoft and open ai

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Speaker 2: are investigating the actions of a group that was linked

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Speaker 2: to the Chinese AI startup Deep Seek. Now this group

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Speaker 2: may have taken large amounts of data from the company

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Speaker 2: open Ai in an unauthorized fashion. That seems like it's

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Speaker 2: just going to fuel this tension even further. I mean,

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Speaker 2: what is the risk here between the US and China

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Speaker 2: when it comes to technology away from semiconductors.

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Speaker 1: Well so, technology theft, of course is an ever lasting

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Speaker 1: problem in the US China relationship.

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Speaker 5: This may be just a latest example of it.

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Speaker 1: I think the question is is the current administration going

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Speaker 1: to take any of this seriously and as and really

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Speaker 1: it just boils under the president? Is the focus there?

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Speaker 1: Is this going to mean much? Or is the focus

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Speaker 1: just going to continue to be on things like the

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Speaker 1: trade and balance because that will lead to two very

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Speaker 1: different types of policy prescriptions and actions. And of course

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Speaker 1: tariffs are not going to necessarily solve this problem, which,

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Speaker 1: as we said, requires vast amounts of efectsport controls, and

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Speaker 1: you know, things of that nature, more than just tariffs.

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Speaker 2: I think it's a well worn narrative, this deflationary pressure

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Speaker 2: that China has been enduring for a while. Now it

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Speaker 2: feels as though it's been a couple of years, and

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Speaker 2: it also feels is that it's becoming a little bit

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Speaker 2: more protracted. I'm curious, does that concern you at all?

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Speaker 1: You know, we're going to start getting more and more

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Speaker 1: concerned if we see these low levels of inflation persist.

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Speaker 1: You know, one thing I always like to point to

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Speaker 1: is that consumer inflation has not yet been hit by

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Speaker 1: outright deflation, unlike what has happened on the industrial side.

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Speaker 1: If that happens again, the pressure on the Communist Party,

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Speaker 1: and I think Secretary she goes off to figure out

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Speaker 1: what to and guess what they are not very good at,

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Speaker 1: and I'm not sure they even know how to do

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Speaker 1: consumer side stimulus, real consumer stimulus, which means that the

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Speaker 1: economy could get into some serious hot water.

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Speaker 2: Isn't that what's really necessary right now? To try to

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Speaker 2: find an effective way of stimulating domestic demand.

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Speaker 1: They have to do some amounts of stimulus. They are

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Speaker 1: not in so much trouble that they need to necessarily

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Speaker 1: do these sort of big Bazuka style spending.

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Speaker 5: But again, here's the thing.

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Speaker 1: She cares much less about the stock market and quite frankly,

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Speaker 1: much less about economic growth than he does about national security.

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Speaker 1: I think he's made it very clear that it's the

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Speaker 1: national security aspects that he's going to focus on, whether

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Speaker 1: it's independence in the tech sector, whether it's military dominance

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Speaker 1: within the region and so forth. He may be willing

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Speaker 1: to live with a low growth figure as long as

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Speaker 1: he can pursue those goals.

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Speaker 2: Do you see a policy prescription on the horizon, anything

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Speaker 2: that the government made on veil or initiate to try

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Speaker 2: to address some of the problems that we've been talking about.

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Speaker 1: I think they're taking a piecemeal approach, which again makes

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Speaker 1: sense because they're not trying to post these large GDP

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Speaker 1: growth figures anymore. They know it's easily sub five percent.

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Speaker 1: They'll they'll live with, you know, something closer to four

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Speaker 1: as well, even if they announce larger numbers.

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Speaker 5: So I don't see anything on the horizon for.

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Speaker 1: A big so called big bang stimulus that markets have

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Speaker 1: been scheering, you know, every few months now.

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Speaker 2: So I'm looking at the offshore currency right around seven

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Speaker 2: twenty six or so. Is this something that you expect

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Speaker 2: will weaken in terms of the yuan's relationship with a dollar.

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Speaker 2: I know that they use the basket in a lot

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Speaker 2: of the waiting when they set the daily reference rate,

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Speaker 2: but I'm just talking about the yuan's relationship with a

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Speaker 2: dollar right now. Are you expecting that to weaken further?

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Speaker 5: Look the week we could.

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Speaker 1: Get additional yuon week and if they're going to be

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Speaker 1: very careful about that, you know, they don't necessarily need

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Speaker 1: the yuan.

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Speaker 5: They do not want the yuant week and too much.

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Speaker 1: And they also want to be very careful about anything

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Speaker 1: that starts to look like it's a currency deval, So

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Speaker 1: they are not looking to antagonize necessarily the administration right now.

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Speaker 1: If theyuan weekends too much, on top of all the

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Speaker 1: other problems that the administration could point to, currency manipulation

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Speaker 1: could rise to the top very very quickly.

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Speaker 2: We'll leave it there, Shazad, thank you so much for

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Speaker 2: being with a. Shazad Kazi, managing director at the China

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Speaker 2: beij Book International, joining us here on the Daybreak Asia Podcast.

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Speaker 2: Thanks for listening to today's episode of the Bloomberg Daybreak

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Speaker 2: Asia Edition podcast. Each weekday, we look at the story

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Speaker 2: shaping markets, finance, and geopolitics in the Asia Pacific. You

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Speaker 2: can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel,

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Speaker 2: or anywhere else you listen. Join us again tomorrow for

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Speaker 2: insight on the market moves from Hong Kong to Singapore

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Speaker 2: and Australia. I'm Doug Chrisner and this is Bloomberg. Hey,