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

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Speaker 2: Welcome to the Daybreak Asia podcast. I'm deg Prisner. South

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Speaker 2: Koreans are heading to the polls on Tuesday. They will

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Speaker 2: elect a new president, and in a moment we'll preview

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Speaker 2: the election with MJ. Moon. He is professor of public

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Speaker 2: policy and management at Yonsai University in Seoul. But we

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Speaker 2: begin with markets. Trade news continues to dominate the headlines.

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Speaker 2: After the bell, the US said that it was extending

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Speaker 2: the pause on tariffs for some Chinese goods all the

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Speaker 2: way to August thirty first. Earlier in the day, the

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Speaker 2: White House said that Presidents Trump and She are likely

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Speaker 2: and I put that in air quotes to speak this

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Speaker 2: week after the two sides traded accusations of breaching a

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Speaker 2: trade agreement reached in May. Joining me now for a

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Speaker 2: closer look at how the tariff story is impacting markets

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Speaker 2: is Adam Koons. He is the chief investment officer at

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Speaker 2: Winthrop Capital Management. Adam joins US from Indianapolis. I was

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Speaker 2: struck by the fact that this ism data really underscores

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Speaker 2: the problems that the tariff regime has created. US manufacturing

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Speaker 2: contracting in May for a third consecutive month. The group's

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Speaker 2: measure of imports now at a sixteen year low. And

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Speaker 2: what's interesting here is that higher material cost do remain

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Speaker 2: a problem for producers. Sixteen of eighteen industries reported higher prices.

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Speaker 2: So I guess you have to look no further than

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Speaker 2: this ISM data to get an immediate read on how

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Speaker 2: tariffs are impacting the economy. Would you agree with that?

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Speaker 3: Oh, I totally agree.

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Speaker 4: And you know, we were saying from the beginning that

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Speaker 4: ultimately we thought that tariffs were actually disinflationary because of

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Speaker 4: this reason. And what I'm getting at is that we

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Speaker 4: saw tariffs as an economic contractor.

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Speaker 3: And that would net net.

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Speaker 4: Lead to, you know, a deceleration inflation, not this acceleration

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Speaker 4: and inflation that a lot of people were talking about,

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Speaker 4: because at the end of the day, you're going to

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Speaker 4: see manufacturing contract on two things. One is the uncertainty,

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Speaker 4: and you hit on the last part is the fact

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Speaker 4: that those costs are going up. And so when those

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Speaker 4: things happen, and you see the contraction and manufacturing sector,

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Speaker 4: and that's actually completely contrary to what the Trump administration

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Speaker 4: is trying to do. And we see this if this

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Speaker 4: goes on for too long And what I mean by

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Speaker 4: that is the narrative, the rhetoric around tariffs in the

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Speaker 4: back and forth.

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Speaker 3: You know, it could spell some tough times for the

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Speaker 3: US economy.

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Speaker 2: Yeah, no doubt about that. And if you look at

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Speaker 2: the price action in the bond market, not that yields

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Speaker 2: were up to a large degree, but I think the

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Speaker 2: sense is that there is a lot of concern here

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Speaker 2: over the possibility of stagflation. What if that were to

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Speaker 2: really take hold.

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Speaker 4: Well, saculation is the kind of boogeyman under the bed

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Speaker 4: for the FED, right, I mean, because that's the scenario

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Speaker 4: where the Fed's stuck and what you have there is

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Speaker 4: you've got, you know, unemployment is ticking up, the economy

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Speaker 4: is rolling over, but at the same time, inflation would

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Speaker 4: be ticking up in a stackflation environment, meaning that the

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Speaker 4: FED couldn't use the tools they've used in the past

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Speaker 4: to try to stimulate the economy because all that would

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Speaker 4: do is make the inflation part of the equation, you know, worse,

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Speaker 4: And so that is a big concern for us because

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Speaker 4: that could lead to some bigger problems. Ultimately, we think

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Speaker 4: that if the FED is in that kind of stuck

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Speaker 4: position and can't decrease rates or they don't feel like

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Speaker 4: they can decrease rates because inflation is ticking higher. Then

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Speaker 4: that could lead to a much harder landing for the

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Speaker 4: US economy. I think ultimately that's going to work itself out.

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Speaker 4: We don't think stagflation is the base case. We don't

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Speaker 4: think a recession is the base case. But that's all

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Speaker 4: you conducive on the duration of all this, And if

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Speaker 4: it continues to kind of go on and on, like

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Speaker 4: I said that back and forth rhetoric, then we probably

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Speaker 4: would hit that scenario of stagflation. But I think what

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Speaker 4: we need to see is we need to see the

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Speaker 4: Trump administration continue to push on tariffs and the FED

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Speaker 4: being stuck before we had that kind of scenario.

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Speaker 2: We had an interesting piece on the Bloomberg terminal today

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Speaker 2: some large money managers are steering away from the thirty

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Speaker 2: year treasury. That list would include Double Line Capital, Pimco,

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Speaker 2: TCW Group. So these are big firms now and they're

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Speaker 2: favoring shorter maturities. I think a range here maybe between

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Speaker 2: the two and the ten. Is that how you would

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Speaker 2: play the bond market right now and really avoid the

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Speaker 2: super long end of the curve at all cost well.

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Speaker 4: For right now, I would be a little bit cautious

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Speaker 4: on going all the way out to the thirty year.

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Speaker 4: I think if there is a buying opportunity there, I

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Speaker 4: just don't think it's yet. I think you need to

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Speaker 4: see because part of the issue is all of this

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Speaker 4: death that's maturing this year and the pressure that just

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Speaker 4: generally will put on the bond market. Now, it'd say

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Speaker 4: I was, you know, the sophisticated fixed income investor in

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Speaker 4: the US, and the globe knows that's there.

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Speaker 3: So I think most of it's priced in. So that's

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Speaker 3: why I think there is a.

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Speaker 4: Buying opportunity, and so I wouldn't be selling my long

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Speaker 4: end exposure right now, but you know, I would be

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Speaker 4: cautious about actually extending duration at the moment.

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Speaker 3: But I do think long run long duration is.

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Speaker 4: One of the best bets in the market right now,

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Speaker 4: because you know, when you're talking about five percent on

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Speaker 4: the long bond, we haven't seen that in you know.

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Speaker 4: I know we saw it because in twenty three, but

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Speaker 4: prior to that, we haven't seen those levels in a decade.

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Speaker 4: And so I do see this as a as a

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Speaker 4: point in time and opportunity where the risk for asymmetric

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Speaker 4: because you know, if we're at five percent, think of

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Speaker 4: it in terms of what's the risk of six percent

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Speaker 4: versus four percent?

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Speaker 3: US getting to six percent.

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Speaker 4: I think is a low likelihood because then you start

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Speaker 4: to have a lot of the kind of global effects

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Speaker 4: work into you know, the foreign buyers would want to

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Speaker 4: buy US treasuries if we're approaching six percent versus there's

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Speaker 4: probably a higher chance of being at four percent than

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Speaker 4: that six percent. So I would take the bet that,

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Speaker 4: you know, clip that five percent coupon and a higher

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Speaker 4: likelihood that we get to four percent.

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Speaker 3: I just wouldn't be going all in yet.

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Speaker 4: I think we need to see a little bit of

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Speaker 4: this uncertainty with the Trump administration die down first.

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Speaker 2: I'm wondering how you're feeling about the equity market if

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Speaker 2: you look at the fact that the S and P

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Speaker 2: is within four percent of its February record high. I

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Speaker 2: think the S and P bottomed oalt around April eighth.

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Speaker 2: That was a pretty sharp decline. How are you feeling

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Speaker 2: about the overall equity space in the US right now?

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Speaker 4: I don't think that the volatility is over, so we

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Speaker 4: are still being cautious.

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Speaker 1: Now.

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Speaker 4: We had the advantage of coming into the year, we

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Speaker 4: were very defensive in our equity allocations, and then when

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Speaker 4: we saw the downturn in March and April, we kind

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Speaker 4: of shifted back towards a more neutral state, which gave

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Speaker 4: us the opportunity to write it up. But now we

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Speaker 4: are aggressively moving back towards that defensive stance because the

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Speaker 4: extended valuations, the uncertainty, those things really haven't changed for us.

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Speaker 4: So we still want to be fully invested. We don't

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Speaker 4: want to sit on the sidelines. We don't want to

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Speaker 4: be in cash, but our equity allocation it's just been

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Speaker 4: dialed back, and so we're looking at low vall strategies,

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Speaker 4: higher dividend paying stocks rather.

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Speaker 3: Than the growth oriented right now.

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Speaker 4: If something changes, like I said, out of the Trump administration,

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Speaker 4: then we would probably switch out again to growth because

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Speaker 4: we do think that there are enough catalysts for the

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Speaker 4: growth type stocks. But right now it's just there's too

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Speaker 4: much back and forth for us to feel comfortable just

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Speaker 4: going all in, you know, and turning the dial all

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Speaker 4: the way back up. So we did move back to

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Speaker 4: defensive within the last i'd say fifteen days, and if

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Speaker 4: we saw volatility pick up again, we'd probably just kind

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Speaker 4: of trade this because this could be you know, a

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Speaker 4: trader's best environment where we see chopping markets, and that's

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Speaker 4: that's kind of our base case for the rest of

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Speaker 4: the summer until we kind of get to that you know,

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Speaker 4: back half of the year, then we may see things

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Speaker 4: settle down, but our base cases a volatility will remain

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Speaker 4: high for the next several months.

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Speaker 2: What about foreign markets? Are you being pushed to consider

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Speaker 2: looking offshore?

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Speaker 4: So our offshore exposure is relatively small, and what we're

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Speaker 4: doing right now now actually is taking that even lower.

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Speaker 4: And if you look at the what we're looking at

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Speaker 4: is kind of the evaluation and the divide the delta

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Speaker 4: between developed international markets and the US markets, And depending

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Speaker 4: on the day you look, it's running roughly a sixteen

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Speaker 4: to seventeen percent delta, meaning that international stocks at any

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Speaker 4: given day are out performing.

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Speaker 3: US this year by that amount, and we.

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Speaker 4: Haven't seen that and I don't know how many years

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Speaker 4: where the international markets have outperformed in the US on

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Speaker 4: a consistent basis, and we think that that delta has

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Speaker 4: gotten too wide. So we're actually pulling back our international

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Speaker 4: exposure with that scenario, moving more into the US markets,

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Speaker 4: looking for that gap to close before we move back

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Speaker 4: towards international markets again.

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Speaker 2: Adam will leave it there, always a pleasure. Thank you

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Speaker 2: so much for joining us. Adam kons there. He is

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Speaker 2: the chief investment officer at Winthrop Capital Management, joining from Indianapolis.

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Speaker 2: In the end, here on the Daybreak Asia podcast, Welcome

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Speaker 2: back to the Daybreak Asia Podcast. I'm Doug Chrisner. South

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Speaker 2: Koreans are headed to the polls on Tuesday to choose

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Speaker 2: a new president. This election comes after an attempt last

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Speaker 2: year to impose martial law. That event triggered one of

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Speaker 2: South Korea's worst constitutional crises in decades. Now, today's winner,

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Speaker 2: we'll be facing the challenges of trying to unite a

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Speaker 2: deeply fractured country and to restore growth to a shrinking economy,

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Speaker 2: one of the most vulnerable in the world to President

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Speaker 2: Trump's trade tariffs. For more, we heard from MJ. Moon.

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Speaker 2: He is professor of Public Policy and Management at Yonsai

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Speaker 2: University in Seoul. He spoke with Bloomberg's cherry On Professor.

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Speaker 1: Really great to have you with us outside here of

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Speaker 1: the National Assembly. Thank you so much for coming out

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Speaker 1: for having me. I have to ask you I mean

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Speaker 1: it's a public holiday, so thank you so much coming out.

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Speaker 1: Did you vote already? Are you voting today?

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Speaker 2: Well?

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Speaker 3: I did the last week.

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Speaker 5: We had two days early voting days, so that I did.

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Speaker 3: Yeah, that Friday, that was.

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Speaker 1: Super high turnout, what the second highest on record, that's.

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Speaker 5: Right about thirty five, So that that's the high, second

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Speaker 5: highest in Korean history.

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Speaker 1: That's like give us sort of an indication of where

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Speaker 1: this election could be headed.

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Speaker 5: Yeah, I think so. Well, you know that high turnout

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Speaker 5: in an early voting, I think that's the the that

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Speaker 5: symbolized the sentiment and then you know the heightened public

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Speaker 5: engagement in this election, so that I think that's a

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Speaker 5: really big turnout and I think that's maybe a signal

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Speaker 5: to the positive signal to the mister Lee Democratic Party.

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Speaker 1: Yah, the front runner of the election so far as

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Speaker 1: we saw in last week's polls. But tell us a

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Speaker 1: little bit about what.

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Speaker 6: We can expect from him because if his election, the

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Speaker 6: difference is now elections, you will not have a transition

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Speaker 6: period to put everything in place before he gets into office.

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Speaker 5: Yeah, this is snap credential elections, so that there will

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Speaker 5: be no formal, standardized transition period, so that he should

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Speaker 5: have taken over the power as soon as the National

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Speaker 5: Election Commission announced the election result, so that he should

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Speaker 5: be ready for taking over the administration and ready for

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Speaker 5: the making policies and also working through in the middle

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Speaker 5: of very passing domestic and international issues.

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Speaker 1: Yeah, that was my point because if you have to

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Speaker 1: work this fast, how soon can you put a working

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Speaker 1: cabinet in place at a time when you're running out

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Speaker 1: of time in order to negotiate with the United States

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Speaker 1: on these twenty five percent tariffs that have been temporarily

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Speaker 1: lowered to ten percent.

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Speaker 5: So that according to the law, all the ministers should

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Speaker 5: be nominated by the Prime minister, so that we don't

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Speaker 5: have a prime minister now, so that formality, uh, he

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Speaker 5: should have waited until he has due prime minister, so

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Speaker 5: that I think his cabinet formality wise, he will work

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Speaker 5: with the current ministers, so that I think, you know,

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Speaker 5: he has his own shadow cabinet already and he has

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Speaker 5: his own team already, but you know, his formality, he

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Speaker 5: should have worked with the current ministers. But I think

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Speaker 5: he will appoint the vice ministers in its ministries so

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Speaker 5: that they will play key roles in cabinet meetings.

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Speaker 1: I think, depending on whether it's Jong or the ruling parties,

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Speaker 1: Kimunsu or any other third party candidate, what sort of

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Speaker 1: policies could we see when it comes to dealing with

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Speaker 1: the United States in these trade negotiations. Well, I think, you.

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Speaker 5: Know, that's one of the pressing issues. And the mister

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Speaker 5: Lee has been emphasizing the significance of the ally relationship

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Speaker 5: with the US, but at the same time, he really

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Speaker 5: wanted to have very programmatic relationship with the major players.

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Speaker 5: Particularly he wanted to have a good relationship with the

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Speaker 5: China for national interests, and China is the largest trading partner,

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Speaker 5: so he really tried to balance between military ally relationship

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Speaker 5: and trading economic relationship with other countries.

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Speaker 1: And of course the relationship with China will be tricky.

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Speaker 1: The relationship with Japan could also change depending on if

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Speaker 1: we see a change in government.

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Speaker 5: Well, geopolitics is really changing. That's major issues, and I

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Speaker 5: think you know, the really tried to maintain positive trilateral

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Speaker 5: relationship US, Japan, Korea at the same time, I think,

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Speaker 5: you know, deal with the frosty relationship with the China.

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Speaker 5: I think that's one of the major key forwarding policy issues.

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Speaker 3: To miss the lead for voters.

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Speaker 1: Is it all about the economy? Is it about democrassing?

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Speaker 5: Yeah, a lot of people really got frustrated with the

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Speaker 5: down economic downturn and small medium business owners really got frustrated.

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Speaker 5: So that you know, there's a really big demand from

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Speaker 5: the people for stimul economic stimulations, so that I think

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Speaker 5: economic package, police package by the new administration will be

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Speaker 5: really critical, and I think that's one of the big

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Speaker 5: things to the voter's mind today.

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Speaker 3: Right.

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Speaker 1: Thank you so much for joining us today here outside

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Speaker 1: of the National Assembly. Was really great speaking to you,

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Speaker 1: And of course this is MJ. Moon Underwood, the swimmers

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Speaker 1: professor at Jonce University's Department of Public Policy and Management.

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Speaker 1: Of course, our voters here in South Kolia can get

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Speaker 1: to the polls until apm Global time to cast their ballads.

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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 panel,

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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 prisoner, and this is Bloomberg