WEBVTT - South Korea's Yoon Suk Yeol Impeached

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<v Speaker 1>Welcome to the Bloomberg day Break Asia podcast. I'm Doug Krisner.

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<v Speaker 1>With a FED rate decision looming in the week ahead,

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<v Speaker 1>we'll take a look at markets and the outlook for

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<v Speaker 1>rate cuts. Will be joined in a moment by Eric Sterner.

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<v Speaker 1>He is the CIO at a Pollen Wealth Management. But

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<v Speaker 1>we begin in South Korea, where President yunsuk jol was

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<v Speaker 1>impeached over the weekend. For a closer look, I'm joined

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<v Speaker 1>now by Sam Kim, Bloomberg Eco GUV reporter. Sam joins

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<v Speaker 1>us from the South Korean capital. Sam, thanks so much

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<v Speaker 1>for taking the time to chat with us. Let me

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<v Speaker 1>begin by just asking a very simple question, who's in

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<v Speaker 1>charge right now?

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<v Speaker 2>The PIME Minister, whose name is Adoksu is in charge.

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<v Speaker 2>Is officially now the acting president, meaning that while Ian

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<v Speaker 2>Samiel the President is suspended from power and awaiting a

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<v Speaker 2>ruling by the Constitutional Court, it's going to be basically

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<v Speaker 2>ruling the country for now.

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<v Speaker 3>But certainly he's not an elected official. The constitution gives.

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<v Speaker 2>Him the power to rule on behalf of Yun, but

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<v Speaker 2>it's unlikely that he will push for policies that would

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<v Speaker 2>move things very much forward. The state's Court would be

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<v Speaker 2>something that he would be more interested in.

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<v Speaker 1>So as I understand it, Sam, the Constitutional Court has

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<v Speaker 1>one hundred and eighty days to make its decision. Could

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<v Speaker 1>it reinstate yun if it decided this impeachment move was invalid?

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<v Speaker 3>Well, nothing is garantege for sure.

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<v Speaker 2>You know, there's some chance that the court may decide

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<v Speaker 2>to put him back into office.

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<v Speaker 3>I mean, there are six judges right.

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<v Speaker 2>Now on the Constitutional Court. It's supposed to be nine

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<v Speaker 2>people actually, meaning there are three vacant seats and the

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<v Speaker 2>Parliament has said that they're going to move very quickly

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<v Speaker 2>to fill those three seats that are vacant right now.

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<v Speaker 2>But even if the Constitutional Court has just six judges,

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<v Speaker 2>they can still go with ruling.

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<v Speaker 3>The question is, you know, they need.

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<v Speaker 2>The all of the six judges to agree with the

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<v Speaker 2>motion that was passed on the weekend for impeachment, and

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<v Speaker 2>if they have nine judges, they will need at least

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<v Speaker 2>six of those judges to agree with the motion. You know,

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<v Speaker 2>it's hard to tell what they're going to decide on

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<v Speaker 2>and that's something that everybody's waiting for. But in the

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<v Speaker 2>previous case in twenty seventeen, when Parkina was impeached. They

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<v Speaker 2>did decide, as far as I remember, unanimously to finalize

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<v Speaker 2>the Ulster par But in a much older case, in

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<v Speaker 2>I think two thousand and four, the then President Romeoo

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<v Speaker 2>was actually put back into office by the Constitutional courts.

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<v Speaker 2>So it's hard to tell right now what's going to happen.

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<v Speaker 4>Sam.

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<v Speaker 1>Let's assume for the moment that the Constitutional court upholds

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<v Speaker 1>this impeachment. Could the next president of Korea come from

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<v Speaker 1>the opposition.

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<v Speaker 3>That's what media polls suggests for now.

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<v Speaker 2>Izmeng, who is the head of the main opposition Democratic

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<v Speaker 2>Party and who is the very person who led all

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<v Speaker 2>this campaign for impeachment of Yun, is the person that

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<v Speaker 2>is gathering I mean at least thirty percent or forty

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<v Speaker 2>percent in terms of approval ratings that have been conducted

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<v Speaker 2>after the marshal law command was issued by by President

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<v Speaker 2>Yu Zamiel. And the closest person that would be a

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<v Speaker 2>challenge to him in terms of the media polls is

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<v Speaker 2>a person named Handomun, who is the party leader of

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<v Speaker 2>the ruling party.

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<v Speaker 3>Is last time I checked when media.

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<v Speaker 2>Poll put him at seven percent, So I mean there's

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<v Speaker 2>a huge difference in terms of approval.

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<v Speaker 3>So you could I.

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<v Speaker 2>Mean safely argue that he would be the next person

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<v Speaker 2>to lead self care if there's an election.

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<v Speaker 1>Help what do we know about the volatility that there

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<v Speaker 1>has been in markets in the wake of first Yun's

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<v Speaker 1>moved to kind of declare martial law that seemed to

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<v Speaker 1>really rattle investor confidence pretty pretty dramatically. And since that time,

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<v Speaker 1>I think it was over the weekend that the Bank

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<v Speaker 1>of Korea actually stepped in to try to offer some reassurance.

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<v Speaker 2>Oh yeah, everything was quite dramatic in the hours right

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<v Speaker 2>after the Marshall command was issued, Within two hours of

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<v Speaker 2>it happening, the Bank of Korea governor and the finance

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<v Speaker 2>minister and some other top policymakers with financial policy gathered

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<v Speaker 2>very quickly to announce that they would unleash what they

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<v Speaker 2>called unlimited liquidity if necessary, meaning that they're going to

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<v Speaker 2>do everything in their power to make sure the markets

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<v Speaker 2>are going to maintain some stability. Despite that, what happened

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<v Speaker 2>was the one just weakened to a level that was

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<v Speaker 2>like the worst since the global financial prices against the

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<v Speaker 2>dollar and the stock markets basically lost tens of billions

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<v Speaker 2>of dollars in terms of value in the days following

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<v Speaker 2>the marshal low command. So it was pretty pretty chaotic

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<v Speaker 2>and you know, confusing for many of the investors in

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<v Speaker 2>South Korea.

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<v Speaker 3>You know. Ever since then, you know, I think there's

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<v Speaker 3>been some.

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<v Speaker 2>Sense within the markets thinking that I mean, it might be.

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<v Speaker 3>A little too more, a little too volatile. They may

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<v Speaker 3>have gone a little too far.

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<v Speaker 2>And you know, after the impachment motion was passed on

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<v Speaker 2>the weekend, I think already this morning we're seeing the

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<v Speaker 2>stock markets climbing back up a.

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<v Speaker 3>Little bit and the one getting.

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<v Speaker 2>Some more stability, even though it remains elevated. So I think,

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<v Speaker 2>you know, what could happen going forward, barring further you know,

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<v Speaker 2>unexpected events, there could be some more stability coming, you

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<v Speaker 2>know in the way, yeah.

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<v Speaker 1>Saying before I let you go, can you offer me

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<v Speaker 1>a little bit of insight into what the future may

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<v Speaker 1>be for you? Can he face criminal charges?

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<v Speaker 3>Now?

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<v Speaker 2>There are investigation officials, including police and prosecutors who are

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<v Speaker 2>trying to summon Une so that they can question Une

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<v Speaker 2>about what really happened, what led him to declare that

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<v Speaker 2>martial law in the middle of a night, And they

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<v Speaker 2>want to make sure.

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<v Speaker 3>That, you know, they're going to get all the details

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<v Speaker 3>before they can actually understand what happens.

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<v Speaker 2>And you know, if the charged by the opposition that

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<v Speaker 2>he committed treason is something valid, that's a very serious charge,

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<v Speaker 2>so much so that in the constitution, even though a

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<v Speaker 2>president in South Krek is exempted from all kinds of

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<v Speaker 2>criminal prosecution, if the horizon has committed treason or some

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<v Speaker 2>kind of activity that would threaten national security, that is

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<v Speaker 2>not something that the president is going to be exempted from.

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<v Speaker 2>And that's the ground these prosecutors are pursuing the charges

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<v Speaker 2>against him on that they that makes them feel that

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<v Speaker 2>they can actually go ahead with the investigation and try

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<v Speaker 2>to basically question him in person. So that'll be something

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<v Speaker 2>that will hound hum and going forward even as the

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<v Speaker 2>Constitutional Court, you know, makes its ruling and deliberate on

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<v Speaker 2>the valid video of the emotion.

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<v Speaker 1>Sam, thank you so much for joining us and helping

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<v Speaker 1>us understand the developments over the weekend in South Korea

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<v Speaker 1>where lawmakers voted to impeach President Yunsukiol Bloomberg Sam Kim

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<v Speaker 1>joining us on the Daybreak Asia podcast. Welcome back to

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<v Speaker 1>the Bloomberg Debreak Asia Podcast. I'm Doug Chrisner. The FED

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<v Speaker 1>Policy Meeting will be top of mind for investors here

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<v Speaker 1>in the US in the week ahead. Maybe it's fair

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<v Speaker 1>to say even investors globally joining us now for a

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<v Speaker 1>closer look is Eric Stirner. He is the chief investment

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<v Speaker 1>officer at Apollen Wealth Management. Eric, thanks for taking time

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<v Speaker 1>to chat with us. I think it's fair to say

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<v Speaker 1>that the market right now is basically expecting a quarter

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<v Speaker 1>point rate cut. The bigger question may be where does

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<v Speaker 1>the FED go from here? Is inflation proving a little

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<v Speaker 1>too stubborn? Do you think for the FED to be

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<v Speaker 1>kind of comfortable with what they laid out in terms

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<v Speaker 1>of the plan trajectory for rate cuts at the last meeting.

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<v Speaker 4>Yeah, well, thanks for having me, and I agree with you.

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<v Speaker 5>I think it's almost as shirt that we're going to

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<v Speaker 5>get another twenty five basis point cut on Wednesday. And

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<v Speaker 5>the dot plot, I think that's where everyone's interested in

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<v Speaker 5>because the last dot plot in September they're projecting for

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<v Speaker 5>one hundred basis points and cuts in twenty twenty five,

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<v Speaker 5>and it's almost certainly going to be that's going to

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<v Speaker 5>be reduced. I'm guessing it's going to be seventy five

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<v Speaker 5>basis points because, like you said, the road to get

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<v Speaker 5>inflation downs to their target rate of two percent. It's

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<v Speaker 5>going to be mumpy, and it's proven to be bumpy.

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<v Speaker 5>I mean, just the last CPI report, we saw used

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<v Speaker 5>car sales go up, and I think that that's not

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<v Speaker 5>surprised given the hurricanes and people, you know, the buying

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<v Speaker 5>cars after the destruction of the hurricanes, and even some

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<v Speaker 5>of the food prices. But I think, you know, we

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<v Speaker 5>are on track. We are you know, the major source

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<v Speaker 5>of the inflationary pressures from the labor market and imbalanced there.

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<v Speaker 5>That's gone away because now we have better balance with

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<v Speaker 5>the labor markets and we're seeing great productivity two point

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<v Speaker 5>two percent in the third quarter. It's just going to

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<v Speaker 5>take some time, and I think, as pal has hinted

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<v Speaker 5>to us over the last few weeks, because the economy

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<v Speaker 5>is doing so well, they don't need to be in

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<v Speaker 5>a rush to cut so fast. So we're going to

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<v Speaker 5>see one cut removed from the projected table in twenty

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<v Speaker 5>twenty five.

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<v Speaker 1>So at the end of the week, we're going to

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<v Speaker 1>get the Fed's preferred measure of underlying inflation, the PCE.

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<v Speaker 1>The data also probably will show very solid consumer spending

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<v Speaker 1>and income growth as well. When you look at the

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<v Speaker 1>American consumer, what do you come away with.

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<v Speaker 5>It's a tailed two cities right there. Because you have

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<v Speaker 5>the higher end consumer who's doing very well. The US

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<v Speaker 5>consumer net worth is up almost fifty percent since twenty

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<v Speaker 5>nineteen thanks to a few things with the wage growth,

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<v Speaker 5>the stock market, stock market twenty plus returns for the

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<v Speaker 5>past two years, and real estate. But on the other hand,

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<v Speaker 5>and you have the lower rank consumer who is hurt

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<v Speaker 5>from the cost of living has obviously increased substantially, it

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<v Speaker 5>depends where you're looking, but up to twenty thirty percent,

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<v Speaker 5>and while inflation is cooling down, the cost of living

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<v Speaker 5>is going to remain high. So I think overall, at

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<v Speaker 5>the aggregate level, I think US consumer spending, retail sales

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<v Speaker 5>remains very healthy, but the lower end consumers is certainly

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<v Speaker 5>struggling with this higher cost of living.

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<v Speaker 1>No doubt about that. We're going to get a data

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<v Speaker 1>point on retail sales also this week for the month

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<v Speaker 1>of November. It may be a little tricky for the

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<v Speaker 1>FED to try to anticipate the impact of what we're

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<v Speaker 1>hearing from the incoming Trump administration in terms of economic policy.

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<v Speaker 1>Tax cuts obviously a part of that story, but tariffs

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<v Speaker 1>will likely be a part of that story as well.

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<v Speaker 1>Is this something that you're expecting or is your notion

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<v Speaker 1>that the Trump administration is basically going to use tariffs

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<v Speaker 1>as a negotiating strategy to try to work out some

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<v Speaker 1>new trade deals and they probably will not take effect

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<v Speaker 1>in the way that maybe the market had been fearing.

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<v Speaker 1>Is that a fair statement.

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<v Speaker 4>I think that's a very fair statement.

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<v Speaker 5>I think you know, Trump has thrown some very big

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<v Speaker 5>tariff numbers out there, whether he was talking about the

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<v Speaker 5>Russia and China and other emerging market countries potentially looking

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<v Speaker 5>to create new currency and his threat to put one

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<v Speaker 5>hundred percent tariffs on those countries or twenty five percent

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<v Speaker 5>on Canada and Mexico with the help on illegal immigration.

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<v Speaker 4>So I think those are just negotiating tactics.

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<v Speaker 5>I mean, back when Trump was in office, the highest

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<v Speaker 5>the Chinese tariffs were, We're at twenty five percent. And

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<v Speaker 5>Trump knows he back in his first term, as we

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<v Speaker 5>all recall, he began so many of his speeches with, hey.

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<v Speaker 4>How's your four oh one k doing? Because he was

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<v Speaker 4>taking credit.

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<v Speaker 5>For the when the stock market was going up to

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<v Speaker 5>and he considers a big part of his scorecard. So

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<v Speaker 5>I won't see Trump or this administration do anything to

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<v Speaker 5>turn this bull market into a bear market. So that's

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<v Speaker 5>why I just I don't think. I think the term

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<v Speaker 5>that I've heard repeatedly is everyone we should take Trump seriously,

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<v Speaker 5>but not literally. And you know, if he were to

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<v Speaker 5>re ignite inflation with some of these large tariffs, that's

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<v Speaker 5>just going to increase the.

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<v Speaker 4>Cost of thing that much more.

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<v Speaker 5>And I could turn this unified government into a divided

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<v Speaker 5>government come mid terms two years from now. So I

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<v Speaker 5>think all those fears from investors with these numbers should

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<v Speaker 5>just remember that Trump likes make bold statements, but we

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<v Speaker 5>should wait and see which of those statements result in

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<v Speaker 5>policy change.

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<v Speaker 1>So, in terms of an investment strategy, what is it

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<v Speaker 1>leading you to do right now? In terms of putting

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<v Speaker 1>fresh money to work in markets?

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<v Speaker 5>Well, I remain optimistic on the US commy very optimistic,

0:13:47.320 --> 0:13:48.400
<v Speaker 5>and I think.

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<v Speaker 4>Small caps have a lot of runaway to run here.

0:13:53.000 --> 0:13:57.080
<v Speaker 5>Their valuations are much more attractive, and large caps a

0:13:57.120 --> 0:14:00.360
<v Speaker 5>lot of tailwinds there with the feed cutting rates, I

0:14:00.360 --> 0:14:02.839
<v Speaker 5>mean that asset class has been held back because it's

0:14:02.920 --> 0:14:06.000
<v Speaker 5>very interest rate sensitive. So the feed cutting rates, even

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<v Speaker 5>though it'll be a bit more slow.

0:14:08.440 --> 0:14:10.719
<v Speaker 4>It certainly helped those companies.

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<v Speaker 5>And if we do, we know that almost certainly there

0:14:14.880 --> 0:14:17.120
<v Speaker 5>will be some tariffs, and I'm sure there will be

0:14:17.200 --> 0:14:23.640
<v Speaker 5>some China or you're potentially putting some tariffs on US goods.

0:14:23.960 --> 0:14:26.960
<v Speaker 5>So if those trade war does initiate, and I think

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<v Speaker 5>we all know that are all betting that will happen,

0:14:29.720 --> 0:14:32.400
<v Speaker 5>it's just to what degree. I mean, US small caps

0:14:32.600 --> 0:14:36.920
<v Speaker 5>the ninety percent of their revenue is from domestic, while

0:14:37.120 --> 0:14:42.000
<v Speaker 5>large caps it's sixty percent it's domestic and forty percent international.

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<v Speaker 5>So small caps are going to be more insulated from

0:14:45.360 --> 0:14:47.880
<v Speaker 5>this trade war. So that's why I think there's there's

0:14:48.280 --> 0:14:51.960
<v Speaker 5>a lot of potential appreciation there.

0:14:52.200 --> 0:14:54.520
<v Speaker 4>And the other good news on.

0:14:54.520 --> 0:14:57.160
<v Speaker 5>The small cap front is that their earnings are have

0:14:57.280 --> 0:15:00.640
<v Speaker 5>been in a recession for many quarters now, but they're

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<v Speaker 5>expected to produce positive earnings in this quarter to the

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<v Speaker 5>fourth quarter as well as twenty twenty five, and in fact,

0:15:07.960 --> 0:15:11.920
<v Speaker 5>their profit growth rate is expected to outpace large caps

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<v Speaker 5>in the second half of next year, so well still

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<v Speaker 5>have exposure on the large cap side. I think there

0:15:18.040 --> 0:15:21.200
<v Speaker 5>should be some rotation to some of these other sectors

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<v Speaker 5>besides the magnificent seven. I think investors should really put

0:15:26.760 --> 0:15:29.080
<v Speaker 5>some more focus in the small caps as well, because

0:15:29.080 --> 0:15:31.960
<v Speaker 5>we could see some stronger turns out of that asset class.

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<v Speaker 1>Well, I'm glad you mentioned the mag seven. I've got

0:15:34.080 --> 0:15:36.600
<v Speaker 1>a question for you when it comes to megacap tech.

0:15:37.480 --> 0:15:39.760
<v Speaker 1>Was looking at a piece in the Financial Times and

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<v Speaker 1>investment fund run by Blue Whale Capital has, according to

0:15:44.760 --> 0:15:47.200
<v Speaker 1>the Ft, reduced at stakes in a number of major

0:15:47.240 --> 0:15:50.120
<v Speaker 1>tech firms. The Ft kind of indicating that there's concern

0:15:50.200 --> 0:15:53.800
<v Speaker 1>now about the cost of artificial intelligence. What do you

0:15:53.880 --> 0:15:56.320
<v Speaker 1>make of the AI trade right now?

0:15:57.120 --> 0:16:00.800
<v Speaker 5>I think it still has room to run. Think you

0:16:00.840 --> 0:16:03.840
<v Speaker 5>know that that we we are seeing that market rotation

0:16:04.080 --> 0:16:07.560
<v Speaker 5>right now. But if we're going to see these geopolitical

0:16:07.680 --> 0:16:12.040
<v Speaker 5>tentions increase or any threats to the economy, we saw

0:16:12.080 --> 0:16:15.320
<v Speaker 5>it for the past two years, Investors flock to those

0:16:15.600 --> 0:16:19.840
<v Speaker 5>Magnificent seven companies because the are very high in quality,

0:16:19.880 --> 0:16:23.760
<v Speaker 5>they have really strong balance each of course really strong earnings.

0:16:24.200 --> 0:16:27.600
<v Speaker 4>So I think that there's always should be a room in.

0:16:27.760 --> 0:16:31.400
<v Speaker 5>Investors' portfolios for the magnifics at seven. And I know

0:16:31.440 --> 0:16:35.120
<v Speaker 5>there's you know, questions as far as when AI investments

0:16:35.160 --> 0:16:37.720
<v Speaker 5>are going to pay off and how companies are going

0:16:37.800 --> 0:16:42.640
<v Speaker 5>to uh monetize it. But we're seeing those productivity gains

0:16:42.680 --> 0:16:46.960
<v Speaker 5>like I mentioned in the third quarter GDP GDP report,

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<v Speaker 5>I think we're going to see some more. So I

0:16:50.080 --> 0:16:53.600
<v Speaker 5>think that it's still in the early endings of this

0:16:53.720 --> 0:16:59.000
<v Speaker 5>AI revolution, and in my minds, yeah, you should investors

0:16:59.000 --> 0:17:01.400
<v Speaker 5>should put more This is in other areas in the

0:17:01.440 --> 0:17:04.800
<v Speaker 5>market because we're going to see the earnings broadened out.

0:17:04.880 --> 0:17:08.680
<v Speaker 5>But I think there's still some plenty of good returns

0:17:08.680 --> 0:17:12.320
<v Speaker 5>that come on the technology sector in twenty twenty five

0:17:12.400 --> 0:17:12.879
<v Speaker 5>and beyond.

0:17:13.320 --> 0:17:15.040
<v Speaker 1>Eric, thank you so much for making time to chat

0:17:15.080 --> 0:17:18.080
<v Speaker 1>with us. Eric Stirner is the chief investment officer at

0:17:18.119 --> 0:17:21.680
<v Speaker 1>Apollen Wealth Management, joining us here on the Daybreak Asia Podcast.

0:17:24.960 --> 0:17:28.280
<v Speaker 1>Thanks for listening to today's episode of the Bloomberg Daybreak

0:17:28.400 --> 0:17:31.720
<v Speaker 1>Asia Edition podcast. Each weekday, we look at the story

0:17:31.800 --> 0:17:36.080
<v Speaker 1>shaping markets, finance, and geopolitics in the Asia Pacific. You

0:17:36.119 --> 0:17:40.159
<v Speaker 1>can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel,

0:17:40.240 --> 0:17:43.240
<v Speaker 1>or anywhere else you listen. Join us again tomorrow for

0:17:43.359 --> 0:17:46.800
<v Speaker 1>insight on the market moves from Hong Kong to Singapore

0:17:47.160 --> 0:17:50.879
<v Speaker 1>and Australia. I'm Doug Chrisner, and this is Bloomberg