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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. Welcome to the Daybreak

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Speaker 1: Asia podcast. I'm Doug Krisner. Today Donald Trump and Shi

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Speaker 1: Jinping spoke for the first time since their tariff truth

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Speaker 1: last month. Now, the presidents discussed things like trade, Taiwan

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Speaker 1: and war in Ukraine. Trump also said that he has

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Speaker 1: agreed to visit Beijing in April, and Trump has invited

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Speaker 1: President Chief for a state visit to the US next year. Now,

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Speaker 1: the US and China are still negotiating over details on

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Speaker 1: how Beijing will free up sales of rare earth minerals.

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Speaker 1: The aim here is to agree on some type of

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Speaker 1: terms for general licenses by the end of the month.

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Speaker 1: For a closer look, I'm joined by Ritesh canary Wall.

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Speaker 1: He is managing director also the head of Investment and

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Speaker 1: Advisory at seiph Ratesh thank you so much for joining us.

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Speaker 1: I'm curious to begin with about how closely your monitoring

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Speaker 1: this back and forth between Presidents Trump and.

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Speaker 2: She Pretty closely, Doug, and look, I think a few

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Speaker 2: months back we had come with the view that while

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Speaker 2: there is this rhetoric from the US and from Trump

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Speaker 2: in terms of taking a hard stance against China, but

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Speaker 2: the reality would be that Trump is a negotiator and

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Speaker 2: he will, at the end of the day make a deal.

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Speaker 2: And that's where we are progressing through with the recent

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Speaker 2: epic meeting as well as the call that happened overnight.

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Speaker 1: What about the degree to which the US may allow

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Speaker 1: some of these more advanced semiconductors from in Vidio. There

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Speaker 1: were reports indicating that at the White House there's been

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Speaker 1: a conversation as to whether or not to allow in

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Speaker 1: Nvidia to begin selling the H two hundred ship to

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Speaker 1: the Chinese market.

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Speaker 2: Yeah, I believe it is a sticking point, but at

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Speaker 2: the same time, US also needs rare earth from China,

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Speaker 2: and in general I see Trump as being much more

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Speaker 2: commercial in his dealings with China going forward. And you know,

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Speaker 2: it also comes back to the third point, which is,

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Speaker 2: if you don't supply the chips, China will obviously move

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Speaker 2: towards self sufficiency. So that's kind of like inevitable. So

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Speaker 2: why do you want to, you know, not have those

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Speaker 2: revenues accumulate. And there is, by the way, there is

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Speaker 2: revenue that the government collects as well when Nvidia exports

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Speaker 2: chips to China.

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Speaker 1: Are you seeing any evidence that the Chinese chip manufacturers,

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Speaker 1: the chip designers are beginning to close the gap with Nvidia.

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Speaker 2: Not yet, but I guess like compared to what happened

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Speaker 2: this year earlier, we saw the deep seek moment, so

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Speaker 2: you cannot never underestimate China from that perspective. So, yes,

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Speaker 2: if there is a risk to the market going forward,

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Speaker 2: this will be one of the bigger risks that I

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Speaker 2: see if China were to develop its own chips. But

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Speaker 2: you know, I was recently in South Korea. I visited

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Speaker 2: Esky Highnix, and the intricacy with which these chips are

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Speaker 2: designed is so so you know tough, it is not

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Speaker 2: so straightforward for you to just replicate it. So you know,

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Speaker 2: there are seven hundred steps in this process three months

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Speaker 2: to design a particular chip, which basically means that if

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Speaker 2: you were to achieve ninety plus percent accuracy, each step

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Speaker 2: needs to be ninety nine percent accurate. So it's not

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Speaker 2: as straightforward as it looks like. So I don't see

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Speaker 2: that happening anytime soon, in the next one year or so,

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Speaker 2: but yes, in the next five years, there will definitely

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Speaker 2: be a catch up.

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Speaker 1: I'm sure Ritesh, you've been monitoring some of the recent

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Speaker 1: price section in the US equity market. There were a

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Speaker 1: lot of questions around the AI trade and whether or

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Speaker 1: not we need to really kind of think this aggressive

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Speaker 1: stance that many investors had taken on the success of

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Speaker 1: artificial intelligence. Valuations we know appear to be a little

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Speaker 1: stretched when you look at the entire kind of ecosystem

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Speaker 1: of artificial intelligence, whether we're talking about an sk heinez

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Speaker 1: a producer of those high bandwidth memory chips, or we're

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Speaker 1: talking about a company like in Nvidio, which is really

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Speaker 1: at the core manufacturing those GPUs. Give me your sense

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Speaker 1: of where we are right now in the evolution of

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Speaker 1: this AI trade, and whether or not there is a

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Speaker 1: risk maybe of they talk about a bubble, maybe there's

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Speaker 1: a risk that the market has in fact become a

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Speaker 1: little overextended.

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Speaker 2: Yeah, Doug, this is the biggest question that everyone has,

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Speaker 2: and really there are some worrying signs. So far we

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Speaker 2: have seen anything that has the mention of AI kind

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Speaker 2: of like rallying through. I believe that is going to

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Speaker 2: change as we move forward. There are concerns around the

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Speaker 2: growing circularity of revenues, which is beginning to be an

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Speaker 2: emerging feature and was also there in the previous bubbles,

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Speaker 2: so you know, that is something that is worrying investors.

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Speaker 2: At the same time, the KEP expending continues to exceed expectations. Now.

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Speaker 2: So far, most of these KPEX spendings have been funded

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Speaker 2: through internal gash flows. As we move forward, as you know,

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Speaker 2: those cash flows are not sufficient and debt needs to

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Speaker 2: be raised. That's where you know, investors are also becoming

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Speaker 2: much more circumspect in terms of how much leverage are

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Speaker 2: these companies going to take. At the same time, I guess,

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Speaker 2: like you know, so far, most of the action has

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Speaker 2: been on the infrastructure side, right, like your semiconductors, hyperscalers,

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Speaker 2: data center operators and led by Nvidia as the kind

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Speaker 2: of like key enabler off sorts. I guess in general,

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Speaker 2: the scrutiny has increased, and what that means is selectivity

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Speaker 2: will be key, and investors have already rotated a way

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Speaker 2: to a certain extent from companies with elevated leverage, right

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Speaker 2: so Oracle, Core Weave as well as Meta. Where there

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Speaker 2: is operator operating margin, you know, earnings growth. These things

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Speaker 2: are you know, taking a hit, but they are also rewarding.

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Speaker 2: On the other hand, where there is a career clear

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Speaker 2: demonstration between kpix and revenues and monetization, which is where

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Speaker 2: you see Google and Amazon doing pretty well recently.

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Speaker 1: So are you likely to stay with US trade for

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Speaker 1: a while longer and look at names across the Asia

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Speaker 1: specific maybe in the semiconductor space or in some other

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Speaker 1: aspect of the hardware space.

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Speaker 2: Yeah, I think so. And look, I think at this

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Speaker 2: juncture everything from a k PX standpoint, yes it looks elevated.

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Speaker 2: But overall, the growth, the earnings growth is justifying. You know,

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Speaker 2: this capic and cap expend and when it comes to

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Speaker 2: something revolutionary, you have to be ahead of the game,

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Speaker 2: and you can't, you know, just miss that out. I

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Speaker 2: think the questions that will dominate conversations going forward is

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Speaker 2: how much of this kpix are you able to self fund?

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Speaker 2: How much is your AI linked revenue? What are the

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Speaker 2: kind of infra advantages that you have so you know,

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Speaker 2: think of Google and their TPUs et cetera. And how

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Speaker 2: much like you know, power and energy demand bottlenecks can

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Speaker 2: you whetherby so these are things that we will be

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Speaker 2: much more careful. And what that means is beyond the infrastructure.

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Speaker 2: Now you know that next phase will also be in

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Speaker 2: terms of the AI platforms and the AI enabled revenue

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Speaker 2: segment of the companies and how they are coming up

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Speaker 2: will be key. But in general, I think when it

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Speaker 2: comes to the Asia ecosystem that remains very strong because

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Speaker 2: you know Nvidia is leading the pack there and the

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Speaker 2: supply chain comes from Asia, so I see, you know

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Speaker 2: the positivity to continue.

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Speaker 1: So when we talk about data centers, cloud providers that

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Speaker 1: have this AI component as a part of the services

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Speaker 1: that they provide. If you look to China and you

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Speaker 1: think of a name like Ali, Baba or ten Cent,

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Speaker 1: are there opportunities here that you think are still attractive

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Speaker 1: or are you still more focused on US based firms.

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Speaker 2: There's definitely a lot of opportunities within China. I think

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Speaker 2: at this juncture, US firms are still not able to

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Speaker 2: access China the way DOMSI stick company could. And the

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Speaker 2: reality is when you look at returns this year, Alibaba

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Speaker 2: has doubled in its stock price this year. Overall, the

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Speaker 2: Chinese Hong Kong markets have given more than thirty percent returns. Similarly,

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Speaker 2: markets beyond the US, which is X developed x US

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Speaker 2: as well as em have all generated returns not of

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Speaker 2: thirty percent in US dollar terms, whereas you know, the

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Speaker 2: S and P five hundred returns is fourteen percent at

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Speaker 2: this juncture, so the bar for US returns have become

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Speaker 2: much higher. We are also in a US dollar weekening

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Speaker 2: cycle as interest rates continue to get cut, which basically

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Speaker 2: means that when it comes to invested positioning and asset allocation,

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Speaker 2: we do would want to have a more diversified allocation

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Speaker 2: as we move forward compared to a more dominant US

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Speaker 2: presence as it was the case previously.

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Speaker 1: So give me some jurisdictions that you think are attractive

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Speaker 1: in the current environment. Japan, South Korea mentioned sk Heinez there,

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Speaker 1: what about Taiwan.

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Speaker 2: Yeah, in general, we see selective opportunities across the EM

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Speaker 2: in Asia, particularly within em we believe Indian equities have

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Speaker 2: been showing so far lackluster returns. So while the overall

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Speaker 2: emerging markets are up thirty percent, India market is just

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Speaker 2: three percent up here to date. Obviously also impacted a

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Speaker 2: bit because of you know, the trade related rhetoric, But

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Speaker 2: when it comes to earnings growth that's picking up in

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Speaker 2: India as well as the domestic consumption story remains pretty solid.

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Speaker 2: And when it comes to you know, positioning within the

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Speaker 2: emerging markets. Then I would still have a much more

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Speaker 2: you know, allocation still in the tech sensitive equity market

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Speaker 2: across Korea, Taiwan and China, but I would also have

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Speaker 2: some balance of it with more domestic oriented markets like India,

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Speaker 2: Brazil and South Africa.

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Speaker 1: Okay, Ries, We'll leave it there, Thank you so very much.

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Speaker 1: Ritesh Canary wall is managing director. He's also head of

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Speaker 1: Investment and Advisory at the firm Siphe joining us here

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Speaker 1: on the Daybreak Asia podcast. Welcome back to the Daybreak

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Speaker 1: Asia Podcast. I'm Doug Chrisner. US markets began a holiday

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Speaker 1: shortened week with greater conviction of a FED rate cut

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Speaker 1: in December, not surprising given some dubvish FED speak. Today

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Speaker 1: we had Governor Chris Waller indicating support for a rate

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Speaker 1: cut next month, and the head of the San Francisco Fed,

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Speaker 1: Mary Daily, told the Wall Street Journal she supports lowering

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Speaker 1: the policy rate due to a sudden deterioration in the

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Speaker 1: job market. Now. Right now, money markets are pricing in

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Speaker 1: a roughly seventy percent probability of a cut at the

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Speaker 1: next meeting. For a closer look, I'm joined by Rob Hayworth.

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Speaker 1: He is senior investment strategy director at US Bank Asset

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Speaker 1: Management Group. Rob is on the line from Seattle. Good

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Speaker 1: of you to make time to chat with me, Rob.

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Speaker 1: In recent weeks, we've seen the odds of FED rate

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Speaker 1: cut next month kind of fluctuate. There seems to have

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Speaker 1: been a growing divide that is dissipating at this moment.

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Speaker 1: What do you think is really driving the Fed's thinking

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Speaker 1: at this point in time.

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Speaker 3: Well, I think the Fed, like the rest of us,

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Speaker 3: is really trying to incorporate the incoming data, particularly given

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Speaker 3: all the delayed data we had with the government, to

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Speaker 3: understand how the economy is really doing. And I think

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Speaker 3: the challenge we had after the jobs report on Thursday

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Speaker 3: was the job's report looked pretty good, and I think

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Speaker 3: that gave people a lot of concerns that the Fed

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Speaker 3: may not cut rates, And we certainly heard that from

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Speaker 3: a couple of the speakers, and we've seen speakers now

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Speaker 3: walk that back, and I think it's really solidifying the

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Speaker 3: market around. Yes, the Fed does want to take care

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Speaker 3: of the labor market. They'll pay attention to that, but

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Speaker 3: they do want to take care of the labor market,

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Speaker 3: and they're may be not as concerned about inflation, particularly

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Speaker 3: as we've seen oil prices take a little bit lower

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Speaker 3: here over the last month or so. So I think

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Speaker 3: it's a lot of confusion, much as we saw on

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Speaker 3: the dot plot out of the September meeting.

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Speaker 1: How would you judge financial conditions right now? It seems

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Speaker 1: to me that there is still a lot of liquidity

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Speaker 1: in the system, perhaps one of the reasons that the

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Speaker 1: equity market has been able to put in these tremendous gains.

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Speaker 3: Yeah, I think there is decent liquidity in this market,

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Speaker 3: but I know we've seen some tightness at the short

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Speaker 3: end of the funding market, particularly around repo rates and

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Speaker 3: things like that. So I think this is something where

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Speaker 3: the market today is maybe a little concerned as we

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Speaker 3: head into the end of FED quantitative tightening on December first,

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Speaker 3: and maybe things will get easier as we move beyond

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Speaker 3: that date, and that could actually provide a little more

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Speaker 3: of a holiday rally as we head into year end.

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Speaker 1: Could this be viewed as kind of an insurance policy

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Speaker 1: against a lot more economic weakness? Are we on that

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Speaker 1: kind of fulcrum right now?

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Speaker 3: I think that's certainly how we're hearing some of the

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Speaker 3: FED speakers look at. This is there's not enough reason

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Speaker 3: to not cut rates. There's certainly no reason to raise rates, right.

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Speaker 3: It's a matter of are they going to hold steady

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Speaker 3: or cut. There'll probably be some people unhappy with a cut.

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Speaker 3: There'll be some people unhappy if we don't get a cut.

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Speaker 3: There certainly may be another FED official who's unhappy if

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Speaker 3: we don't get a half point cut. So I'm not

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Speaker 3: sure everyone will get what they want out of the

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Speaker 3: December tenth FED meeting, but it does seem like there's

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Speaker 3: room for them to go ahead and cut rates and

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Speaker 3: not and provide that insurance to the market and the economy.

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Speaker 1: I was struck by a note from the trading desk

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Speaker 1: today over at UBS Securities. The firm thinks the sellof

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Speaker 1: that we have seen lately in the US equity market

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Speaker 1: may have run its course, especially given what we're talking

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Speaker 1: about the expectation here that the FED will be lowering

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Speaker 1: interest rates. Is that the way you see it on

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Speaker 1: the equity side, that maybe we're in for a so

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Speaker 1: called Santa claus rally.

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Speaker 3: I think we certainly could be, particularly if the market

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Speaker 3: really believes the FED is going to cut rates now,

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Speaker 3: maybe they won't stay here at seventy seventy five percent. Odds,

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Speaker 3: we have a lot more FED speaking to go before

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Speaker 3: we get to that meeting, and I think that's where

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Speaker 3: the market is really focused at this point is how

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Speaker 3: is the FED interpreting the incoming data more so than

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Speaker 3: what is the incoming data? Knowing that even the retail

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Speaker 3: sales report we get tomorrow, the producer price index report

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Speaker 3: we get tomorrow are all are all very lagged at

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Speaker 3: this point. I think the good news for US is

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Speaker 3: when we look at high frequency data like the weekly

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Speaker 3: retail sales numbers, those are holding in pretty well. So

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Speaker 3: that debt tells us that the market will have some

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Speaker 3: good news or decent news from the economy looking at

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Speaker 3: the high frequency data, and maybe they'll even get a

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Speaker 3: little help from the Fed.

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Speaker 1: It's hard to ignore the price action in bitcoin lately.

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Speaker 1: I think since October A, bitcoin is down by more

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Speaker 1: than thirty percent. This has been a wild year for

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Speaker 1: gold and bitcoin. If you look at year today, gold

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Speaker 1: I think is up more than fifty percent. Bitcoin is

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Speaker 1: down roughly seven percent year today. When you look at bitcoin,

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Speaker 1: is it a reliable indicator of the appetite for risk?

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Speaker 1: How would you judge this?

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Speaker 2: Yeah?

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Speaker 3: I mean, we don't spend too much time looking at it,

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Speaker 3: but I think certainly is coinciding with some risk off

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Speaker 3: sentiment as we look at the market right and it

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Speaker 3: is perhaps just a little more volatile than we look

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Speaker 3: at the market, whereas gold has been that diversifying asset

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Speaker 3: class that's been a little more contrary to the market,

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Speaker 3: and I think that's why we've seen such strong performance

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Speaker 3: as people been looking for diversification from the equity market,

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Speaker 3: maybe looking to gold. We'll see if it can really

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Speaker 3: get restarted. As we look into year end, we're still

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Speaker 3: really more growth oriented and growth constructive on this market.

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Speaker 3: So we'd still tilt towards equities relative fixed income and

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Speaker 3: other asset classes at this point because it seems like

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Speaker 3: the economy is able to plug along, particularly as we

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Speaker 3: look at getting the government reopened. That means people got repaid,

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Speaker 3: there's more money in their pocketbooks, and as we look

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Speaker 3: into April next year, there's another round of stimulus coming

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Speaker 3: from the One Big Beautiful Bill Act as consumers will

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Speaker 3: get some tax relief later in twenty twenty six.

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Speaker 1: So Rob, if your focus is on growth, I'm curious

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Speaker 1: when it comes to the AI theme whether or not

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Speaker 1: you're adding to names like Nvidia or Alphabet or even Microsoft.

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Speaker 3: Yeah, our focus has been I think the challenge for

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Speaker 3: the market is so many people are already so invested

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Speaker 3: in that trade that we'd look more towards adding diversification

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Speaker 3: if you're already fully invested there, So getting more globally oriented,

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Speaker 3: looking not just at the US equity market, but getting

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Speaker 3: outside the US. As we see good returns coming for

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Speaker 3: emerging markets, particularly those that are technology oriented around Asia,

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Speaker 3: and then even we're seeing decent returns in Europe and Japan,

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Speaker 3: we'd look there as well, So we'd look for more

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Speaker 3: global diversification. That said, we'd still make sure people are

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Speaker 3: fully invested to at least to index weights in those

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Speaker 3: artificial intelligence teams, because as we look at earning season

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Speaker 3: and the conclusion of earning season, that is a key

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Speaker 3: driver for growth into twenty twenty six for the US market,

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Speaker 3: and we think there's room for that trade to still run.

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Speaker 1: So markets like Taiwan, maybe Hong Kong, maybe in North Asia,

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Speaker 1: South Korea, Japan. Is that about right?

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Speaker 2: Yeah?

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Speaker 3: Absolutely, Asia is well positioned given kind of the strength

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Speaker 3: and tech globally.

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Speaker 1: Is that more on the semiconductor side, or are you

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Speaker 1: looking at a kind of a broader story when it

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Speaker 1: comes to tech.

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Speaker 3: We think the story has to be broader because it's

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Speaker 3: not just chips that are in demand. To make artificial

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Speaker 3: intelligence work, right, we really need to be able to

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Speaker 3: store and process that data, protect that data. So that

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Speaker 3: takes you into cybersecurity, That takes you into the hyperscalers

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Speaker 3: who are going to provide right, who are going to

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Speaker 3: provide some analysis around that data as well, And then

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Speaker 3: it takes you into the energy component, right, the infrastructure

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Speaker 3: just to power these data centers and to power these models,

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Speaker 3: before you even get to the next wave, which we

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Speaker 3: think has to be the usage of AI for other applications.

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Speaker 3: We're starting to see some of that in healthcare here

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Speaker 3: in the US. We're seeing better performance here in the

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Speaker 3: US for healthcare, and some of that we think is

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Speaker 3: because it's AI application driven. So I think there's a

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Speaker 3: large infrastructure around artificial intelligence that needs to be a

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Speaker 3: pay paid attention to, and then we need to look

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Speaker 3: at that next phase of who's benefiting from the use

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Speaker 3: of artificial intelligence.

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Speaker 1: So stateside, we obviously have the Thanksgiving holiday on Thursday,

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Speaker 1: markets will be closed The next day, of course, is

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Speaker 1: Black Friday, which is I guess you could call it

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Speaker 1: the unofficial start of the holiday shopping season. At one

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Speaker 1: time it may have been the official start. Where are

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Speaker 1: you right now in understanding the strength of the American

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Speaker 1: consumer and what are we likely to see in this

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Speaker 1: holiday period in terms of retail sales.

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Speaker 3: Yeah, it's very interesting. I'm sure like you, you've received a

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Speaker 3: number of emails already advertising Black Friday and holiday sales

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Speaker 3: right now ready to go, So retailers are not waiting

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Speaker 3: on this at all. I think what we're seeing is

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Speaker 3: we're seeing a little bit of concern that the lower

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Speaker 3: end consumer is maybe challenged. They're certainly paying attention to

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Speaker 3: what they're spending, reducing their basket size a little bit

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Speaker 3: in current spending, but the high end consumer is still

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Speaker 3: doing okay. I think the thing we're looking at for

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Speaker 3: this holiday season is probably more about unique products and

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Speaker 3: experiences more than it has been just more goods. So

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Speaker 3: this holiday season we think could be okay, but it's

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Speaker 3: going to be a different sort of holiday season where

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Speaker 3: people are looking more at the quality of what they're

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Speaker 3: getting or the uniqueness of what they're getting, rather than

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Speaker 3: getting more of everything.

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Speaker 1: Okay, Rob, believe it. They're good toime. Enjoy the holiday.

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Speaker 1: Rob Hayworth. There. He is Senior Investment Strategy Director at

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Speaker 1: us Bank Asset Management Group. Joining from Seattle here on

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Speaker 1: the Daybreak Asia Podcast. Thanks for listening to today's episode

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Speaker 1: of the Bloomberg Daybreak Asia Edition podcast. Each weekday, we

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Speaker 1: look at the story shaping markets, finance, and geopolitics in

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Speaker 1: the Asia Pacific. You can find us on Apple, Spotify,

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Speaker 1: the Bloomberg Podcast YouTube channel, or anywhere else you listen.

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Speaker 1: Join us again tomorrow for insight on the market moves

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Speaker 1: from Hong Kong to Singapore and Australia. I'm Doug Prisner,

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Speaker 1: and this is Bloomberg