Speaker 1: Bloomberg Audio Studios, podcasts, radio news. Let's talk more now
Speaker 1: about how the country plans to navigate this trade environment
Speaker 1: and the market as well. Of course, the son of
Speaker 1: Vis CEO and founder of Rock Creek Group of Sunny.
Speaker 1: You know, we have to wait and see if this
Speaker 1: market reaction holds, but for now it appears the market
Speaker 1: wasn't expecting anything this, you know, seismic. Let's say, we have,
Speaker 1: you know, quite a strong move in currencies and equities
Speaker 1: at their session lows. What is now your base case
Speaker 1: on trade for August first.
Speaker 2: Yeah, absolutely right, Vanni.
Speaker 3: The market expected something closer to fifteen to seventeen percent
Speaker 3: in terms of the average tariffs that would be getting
Speaker 3: sometime end of July ninth or some point later. So
Speaker 3: the twenty five number is a little bit up there
Speaker 3: versus the seventeen percent. So I think the market is
Speaker 3: gradually getting adjusted to this. But the fact that there's
Speaker 3: this choppiness and there's this uncertainty about one the dates
Speaker 3: to the amounts three to some of our most important
Speaker 3: trading partners like Japan and Korea, does create a lot
Speaker 3: of impact, I think, on the markets going forward, and
Speaker 3: we should expect the choppiness that we've seen over the
Speaker 3: last few days to probably continue, maybe not April scale,
Speaker 3: but certainly to continue.
Speaker 1: There will be bouts of volativity already, you know, the
Speaker 1: vexes up to just around eighteen. So nothing panicky just yet,
Speaker 1: but you know, we need to keep an eye on that, right,
Speaker 1: and we obviously need to watch for Japan's response. But
Speaker 1: what would you be doing in this environment given that
Speaker 1: there's only perhaps so much that Japan can do now.
Speaker 3: So I think one thing is that, you know, if
Speaker 3: we assumed that we would go back to that sort
Speaker 3: of average, even seventeen percent, even that is a very
Speaker 3: large tax on consumers, right because at the end of
Speaker 3: the day, the consumers will be having a large share
Speaker 3: of that.
Speaker 2: So with that scenario, if you're assuming.
Speaker 3: That US growth will be a little bit slower based
Speaker 3: on that, we have to obviously wait to see what
Speaker 3: the earnings reports are that are coming out.
Speaker 2: But what has been happening already.
Speaker 3: The kind of outflows that we saw from the US
Speaker 3: equity markets did continue in Q two, as we saw
Speaker 3: in the numbers that came out last week about thirty
Speaker 3: some billion that came out of US equities. Some of
Speaker 3: that went into small caps. Some of that went into
Speaker 3: international markets. Bond markets saw a flow. Interest rates could
Speaker 3: be coming down sooner, potentially in September money. We thought
Speaker 3: that they might be coming down later in at the
Speaker 3: end of the year in twenty twenty five. Now there's
Speaker 3: a scenario if we're slowing down, potentially we might see
Speaker 3: interest rates come down, which also has impacts on the dollar.
Speaker 3: So what does that say in general dollarsification away from
Speaker 3: US assets over time?
Speaker 2: Not one big swoop, but over time.
Speaker 1: Yeah, we're seeing the tenure yield now at four thirty
Speaker 1: eight seventy three. It had been dropping ever so slightly
Speaker 1: just after we got the guitar off announcement, but it's
Speaker 1: back at the level it was at before those letters
Speaker 1: went out. And bear in mind these are just letters, right,
Speaker 1: We're waiting for a lot more before we know what's
Speaker 1: actually going to happen. We had Med Faber on last
Speaker 1: week and he made the point that, look, valuations are
Speaker 1: very very rich right here. Perhaps you can have listened
Speaker 1: to what he had to say.
Speaker 4: Could just last fifteen years come on the show, say
Speaker 4: by SPI go away, right, But here we are and
Speaker 4: US stocks are now expensive. We came into this year,
Speaker 4: we tracked forty five countries US stocks for the first time.
Speaker 4: We've been tracking this for I think a decade. US
Speaker 4: stocks ranked the most expensive stock market in the world.
Speaker 1: So if we are the most expensive stock market in
Speaker 1: the world, and yeah, sure, breath has been improving and
Speaker 1: so on, nevertheless, we are at these levels and we're
Speaker 1: potentially going to get some detrimental tariff impact. You know,
Speaker 1: where is there to hide?
Speaker 3: So US stock market is what about two thirds or
Speaker 3: a little bit more than two thirds of the total
Speaker 3: stock market about you know, ten years ago it was
Speaker 3: maybe in excess of fifty percent, So it is sort
Speaker 3: of the overwhelming part of the market Europe, you know,
Speaker 3: added together Japan we just talked about Japan. The rest
Speaker 3: of the world really are the rest of the equity.
Speaker 2: Markets what we saw some of us.
Speaker 3: Remember what happened to Japan when japan stock market reached
Speaker 3: a very big high and it took a very long time,
Speaker 3: and then it collapsed because of very bad economic policies.
Speaker 3: I'm not suggesting that's going to happen here, but I'm
Speaker 3: suggesting that US equity share in people's portfolios has started
Speaker 3: to go down aunt slightly and every institutional investment committee
Speaker 3: is looking now at looking at other asset classes, be
Speaker 3: it European securities. They might have obviously better price earnings ratios,
Speaker 3: especially if they are oriented towards domestic markets. Japanese stocks
Speaker 3: that are oriented towards domestic markets, emerging market stocks similarly,
Speaker 3: So I think people are starting to look at those
Speaker 3: kinds of assets. Bonds in other countries similarly as well
Speaker 3: as gold. Gold is already reached two thousand, but it
Speaker 3: could be you know, reaching a point under four thousand
Speaker 3: because central banks that saw US dollar as a safe
Speaker 3: haven may not be seeing it the safe haven. And
Speaker 3: little kids are taking their mothers to Cosco.
Speaker 2: To buy buy gold bars.
Speaker 3: So you see that people who never thought about anything
Speaker 3: but the US dollars, from the kid on the street
Speaker 3: to the central banks, are starting to think while the
Speaker 3: US dollars are going to be predominant, they will stay
Speaker 3: predominant in their portfolios will not have the same size,
Speaker 3: So I think that will be important. And one last
Speaker 3: point is people are doing FX hedging, particularly institutions, so
Speaker 3: that even if they are despite rich earning price earnings ratios,
Speaker 3: they want to stay in certain US DOOC special will
Speaker 3: benefit from Ai. They are doing the fx he edging
Speaker 3: to reduce their US dollar exposure.
Speaker 2: I've Sanda.
Speaker 1: Last time you were on, which is April, you were
Speaker 1: saying that Vietnam would be an important one to watch
Speaker 1: for the impact that we have on China, whether it
Speaker 1: you know, pick the US over China or what China
Speaker 1: would do in response. Do you have any further thoughts
Speaker 1: now that we have some kind of a deal with
Speaker 1: Vietnam on what this means for China's relationship with its partners.
Speaker 1: Bearing in mind that we had Trump put in these
Speaker 1: letters about transhipments and he's obviously, you know, cracking down
Speaker 1: on that now as well.
Speaker 3: Now, I think transshipments is going to be a very
Speaker 3: big deal. I think Vietnam is it beneficiary. As you said,
Speaker 3: they did make one of the first trade deals and
Speaker 3: they will continue to benefit. But the size of the
Speaker 3: Vietnamese market at the same time, let's just be frank,
Speaker 3: is not huge. Even if it expands, it's still going
Speaker 3: to be a tiny market, So it's not going to
Speaker 3: be life changing for anyone. China has surprisingly been quiet
Speaker 3: in the last few weeks. You know, it was sort
Speaker 3: of very bustering in the in the early days it's
Speaker 3: been quieter, so it will be very interesting to see
Speaker 3: how whether a letter is going to China. Particular, we
Speaker 3: saw that ten percent extra potential tariffs on countries that
Speaker 3: are negotiating together as part of the Brick Group, so
Speaker 3: that will be interesting to see whether the letter to
Speaker 3: China has the twenty five plus a ten or whatever
Speaker 3: other numbers come up.
Speaker 1: All right, we have to leave there about our thanks
Speaker 1: to your Sana Vishla's CEO and founder of Rock Creek Group.
Speaker 1: And I just want to point out that the ADRs
Speaker 1: of Japanese automakers are now at session low as well,
Speaker 1: Toyota and Honda down three plus percent a piece