Speaker 1: Welcome to the Bloomberg day Break Asia podcast. I'm Doug Krisner.
Speaker 1: With a FED rate decision looming in the week ahead,
Speaker 1: we'll take a look at markets and the outlook for
Speaker 1: rate cuts. Will be joined in a moment by Eric Sterner.
Speaker 1: He is the CIO at a Pollen Wealth Management. But
Speaker 1: we begin in South Korea, where President yunsuk jol was
Speaker 1: impeached over the weekend. For a closer look, I'm joined
Speaker 1: now by Sam Kim, Bloomberg Eco GUV reporter. Sam joins
Speaker 1: us from the South Korean capital. Sam, thanks so much
Speaker 1: for taking the time to chat with us. Let me
Speaker 1: begin by just asking a very simple question, who's in
Speaker 1: charge right now?
Speaker 2: The PIME Minister, whose name is Adoksu is in charge.
Speaker 2: Is officially now the acting president, meaning that while Ian
Speaker 2: Samiel the President is suspended from power and awaiting a
Speaker 2: ruling by the Constitutional Court, it's going to be basically
Speaker 2: ruling the country for now.
Speaker 3: But certainly he's not an elected official. The constitution gives.
Speaker 2: Him the power to rule on behalf of Yun, but
Speaker 2: it's unlikely that he will push for policies that would
Speaker 2: move things very much forward. The state's Court would be
Speaker 2: something that he would be more interested in.
Speaker 1: So as I understand it, Sam, the Constitutional Court has
Speaker 1: one hundred and eighty days to make its decision. Could
Speaker 1: it reinstate yun if it decided this impeachment move was invalid?
Speaker 3: Well, nothing is garantege for sure.
Speaker 2: You know, there's some chance that the court may decide
Speaker 2: to put him back into office.
Speaker 3: I mean, there are six judges right.
Speaker 2: Now on the Constitutional Court. It's supposed to be nine
Speaker 2: people actually, meaning there are three vacant seats and the
Speaker 2: Parliament has said that they're going to move very quickly
Speaker 2: to fill those three seats that are vacant right now.
Speaker 2: But even if the Constitutional Court has just six judges,
Speaker 2: they can still go with ruling.
Speaker 3: The question is, you know, they need.
Speaker 2: The all of the six judges to agree with the
Speaker 2: motion that was passed on the weekend for impeachment, and
Speaker 2: if they have nine judges, they will need at least
Speaker 2: six of those judges to agree with the motion. You know,
Speaker 2: it's hard to tell what they're going to decide on
Speaker 2: and that's something that everybody's waiting for. But in the
Speaker 2: previous case in twenty seventeen, when Parkina was impeached. They
Speaker 2: did decide, as far as I remember, unanimously to finalize
Speaker 2: the Ulster par But in a much older case, in
Speaker 2: I think two thousand and four, the then President Romeoo
Speaker 2: was actually put back into office by the Constitutional courts.
Speaker 2: So it's hard to tell right now what's going to happen.
Speaker 4: Sam.
Speaker 1: Let's assume for the moment that the Constitutional court upholds
Speaker 1: this impeachment. Could the next president of Korea come from
Speaker 1: the opposition.
Speaker 3: That's what media polls suggests for now.
Speaker 2: Izmeng, who is the head of the main opposition Democratic
Speaker 2: Party and who is the very person who led all
Speaker 2: this campaign for impeachment of Yun, is the person that
Speaker 2: is gathering I mean at least thirty percent or forty
Speaker 2: percent in terms of approval ratings that have been conducted
Speaker 2: after the marshal law command was issued by by President
Speaker 2: Yu Zamiel. And the closest person that would be a
Speaker 2: challenge to him in terms of the media polls is
Speaker 2: a person named Handomun, who is the party leader of
Speaker 2: the ruling party.
Speaker 3: Is last time I checked when media.
Speaker 2: Poll put him at seven percent, So I mean there's
Speaker 2: a huge difference in terms of approval.
Speaker 3: So you could I.
Speaker 2: Mean safely argue that he would be the next person
Speaker 2: to lead self care if there's an election.
Speaker 1: Help what do we know about the volatility that there
Speaker 1: has been in markets in the wake of first Yun's
Speaker 1: moved to kind of declare martial law that seemed to
Speaker 1: really rattle investor confidence pretty pretty dramatically. And since that time,
Speaker 1: I think it was over the weekend that the Bank
Speaker 1: of Korea actually stepped in to try to offer some reassurance.
Speaker 2: Oh yeah, everything was quite dramatic in the hours right
Speaker 2: after the Marshall command was issued, Within two hours of
Speaker 2: it happening, the Bank of Korea governor and the finance
Speaker 2: minister and some other top policymakers with financial policy gathered
Speaker 2: very quickly to announce that they would unleash what they
Speaker 2: called unlimited liquidity if necessary, meaning that they're going to
Speaker 2: do everything in their power to make sure the markets
Speaker 2: are going to maintain some stability. Despite that, what happened
Speaker 2: was the one just weakened to a level that was
Speaker 2: like the worst since the global financial prices against the
Speaker 2: dollar and the stock markets basically lost tens of billions
Speaker 2: of dollars in terms of value in the days following
Speaker 2: the marshal low command. So it was pretty pretty chaotic
Speaker 2: and you know, confusing for many of the investors in
Speaker 2: South Korea.
Speaker 3: You know. Ever since then, you know, I think there's
Speaker 3: been some.
Speaker 2: Sense within the markets thinking that I mean, it might be.
Speaker 3: A little too more, a little too volatile. They may
Speaker 3: have gone a little too far.
Speaker 2: And you know, after the impachment motion was passed on
Speaker 2: the weekend, I think already this morning we're seeing the
Speaker 2: stock markets climbing back up a.
Speaker 3: Little bit and the one getting.
Speaker 2: Some more stability, even though it remains elevated. So I think,
Speaker 2: you know, what could happen going forward, barring further you know,
Speaker 2: unexpected events, there could be some more stability coming, you
Speaker 2: know in the way, yeah.
Speaker 1: Saying before I let you go, can you offer me
Speaker 1: a little bit of insight into what the future may
Speaker 1: be for you? Can he face criminal charges?
Speaker 3: Now?
Speaker 2: There are investigation officials, including police and prosecutors who are
Speaker 2: trying to summon Une so that they can question Une
Speaker 2: about what really happened, what led him to declare that
Speaker 2: martial law in the middle of a night, And they
Speaker 2: want to make sure.
Speaker 3: That, you know, they're going to get all the details
Speaker 3: before they can actually understand what happens.
Speaker 2: And you know, if the charged by the opposition that
Speaker 2: he committed treason is something valid, that's a very serious charge,
Speaker 2: so much so that in the constitution, even though a
Speaker 2: president in South Krek is exempted from all kinds of
Speaker 2: criminal prosecution, if the horizon has committed treason or some
Speaker 2: kind of activity that would threaten national security, that is
Speaker 2: not something that the president is going to be exempted from.
Speaker 2: And that's the ground these prosecutors are pursuing the charges
Speaker 2: against him on that they that makes them feel that
Speaker 2: they can actually go ahead with the investigation and try
Speaker 2: to basically question him in person. So that'll be something
Speaker 2: that will hound hum and going forward even as the
Speaker 2: Constitutional Court, you know, makes its ruling and deliberate on
Speaker 2: the valid video of the emotion.
Speaker 1: Sam, thank you so much for joining us and helping
Speaker 1: us understand the developments over the weekend in South Korea
Speaker 1: where lawmakers voted to impeach President Yunsukiol Bloomberg Sam Kim
Speaker 1: joining us on the Daybreak Asia podcast. Welcome back to
Speaker 1: the Bloomberg Debreak Asia Podcast. I'm Doug Chrisner. The FED
Speaker 1: Policy Meeting will be top of mind for investors here
Speaker 1: in the US in the week ahead. Maybe it's fair
Speaker 1: to say even investors globally joining us now for a
Speaker 1: closer look is Eric Stirner. He is the chief investment
Speaker 1: officer at Apollen Wealth Management. Eric, thanks for taking time
Speaker 1: to chat with us. I think it's fair to say
Speaker 1: that the market right now is basically expecting a quarter
Speaker 1: point rate cut. The bigger question may be where does
Speaker 1: the FED go from here? Is inflation proving a little
Speaker 1: too stubborn? Do you think for the FED to be
Speaker 1: kind of comfortable with what they laid out in terms
Speaker 1: of the plan trajectory for rate cuts at the last meeting.
Speaker 4: Yeah, well, thanks for having me, and I agree with you.
Speaker 5: I think it's almost as shirt that we're going to
Speaker 5: get another twenty five basis point cut on Wednesday. And
Speaker 5: the dot plot, I think that's where everyone's interested in
Speaker 5: because the last dot plot in September they're projecting for
Speaker 5: one hundred basis points and cuts in twenty twenty five,
Speaker 5: and it's almost certainly going to be that's going to
Speaker 5: be reduced. I'm guessing it's going to be seventy five
Speaker 5: basis points because, like you said, the road to get
Speaker 5: inflation downs to their target rate of two percent. It's
Speaker 5: going to be mumpy, and it's proven to be bumpy.
Speaker 5: I mean, just the last CPI report, we saw used
Speaker 5: car sales go up, and I think that that's not
Speaker 5: surprised given the hurricanes and people, you know, the buying
Speaker 5: cars after the destruction of the hurricanes, and even some
Speaker 5: of the food prices. But I think, you know, we
Speaker 5: are on track. We are you know, the major source
Speaker 5: of the inflationary pressures from the labor market and imbalanced there.
Speaker 5: That's gone away because now we have better balance with
Speaker 5: the labor markets and we're seeing great productivity two point
Speaker 5: two percent in the third quarter. It's just going to
Speaker 5: take some time, and I think, as pal has hinted
Speaker 5: to us over the last few weeks, because the economy
Speaker 5: is doing so well, they don't need to be in
Speaker 5: a rush to cut so fast. So we're going to
Speaker 5: see one cut removed from the projected table in twenty
Speaker 5: twenty five.
Speaker 1: So at the end of the week, we're going to
Speaker 1: get the Fed's preferred measure of underlying inflation, the PCE.
Speaker 1: The data also probably will show very solid consumer spending
Speaker 1: and income growth as well. When you look at the
Speaker 1: American consumer, what do you come away with.
Speaker 5: It's a tailed two cities right there. Because you have
Speaker 5: the higher end consumer who's doing very well. The US
Speaker 5: consumer net worth is up almost fifty percent since twenty
Speaker 5: nineteen thanks to a few things with the wage growth,
Speaker 5: the stock market, stock market twenty plus returns for the
Speaker 5: past two years, and real estate. But on the other hand,
Speaker 5: and you have the lower rank consumer who is hurt
Speaker 5: from the cost of living has obviously increased substantially, it
Speaker 5: depends where you're looking, but up to twenty thirty percent,
Speaker 5: and while inflation is cooling down, the cost of living
Speaker 5: is going to remain high. So I think overall, at
Speaker 5: the aggregate level, I think US consumer spending, retail sales
Speaker 5: remains very healthy, but the lower end consumers is certainly
Speaker 5: struggling with this higher cost of living.
Speaker 1: No doubt about that. We're going to get a data
Speaker 1: point on retail sales also this week for the month
Speaker 1: of November. It may be a little tricky for the
Speaker 1: FED to try to anticipate the impact of what we're
Speaker 1: hearing from the incoming Trump administration in terms of economic policy.
Speaker 1: Tax cuts obviously a part of that story, but tariffs
Speaker 1: will likely be a part of that story as well.
Speaker 1: Is this something that you're expecting or is your notion
Speaker 1: that the Trump administration is basically going to use tariffs
Speaker 1: as a negotiating strategy to try to work out some
Speaker 1: new trade deals and they probably will not take effect
Speaker 1: in the way that maybe the market had been fearing.
Speaker 1: Is that a fair statement.
Speaker 4: I think that's a very fair statement.
Speaker 5: I think you know, Trump has thrown some very big
Speaker 5: tariff numbers out there, whether he was talking about the
Speaker 5: Russia and China and other emerging market countries potentially looking
Speaker 5: to create new currency and his threat to put one
Speaker 5: hundred percent tariffs on those countries or twenty five percent
Speaker 5: on Canada and Mexico with the help on illegal immigration.
Speaker 4: So I think those are just negotiating tactics.
Speaker 5: I mean, back when Trump was in office, the highest
Speaker 5: the Chinese tariffs were, We're at twenty five percent. And
Speaker 5: Trump knows he back in his first term, as we
Speaker 5: all recall, he began so many of his speeches with, hey.
Speaker 4: How's your four oh one k doing? Because he was
Speaker 4: taking credit.
Speaker 5: For the when the stock market was going up to
Speaker 5: and he considers a big part of his scorecard. So
Speaker 5: I won't see Trump or this administration do anything to
Speaker 5: turn this bull market into a bear market. So that's
Speaker 5: why I just I don't think. I think the term
Speaker 5: that I've heard repeatedly is everyone we should take Trump seriously,
Speaker 5: but not literally. And you know, if he were to
Speaker 5: re ignite inflation with some of these large tariffs, that's
Speaker 5: just going to increase the.
Speaker 4: Cost of thing that much more.
Speaker 5: And I could turn this unified government into a divided
Speaker 5: government come mid terms two years from now. So I
Speaker 5: think all those fears from investors with these numbers should
Speaker 5: just remember that Trump likes make bold statements, but we
Speaker 5: should wait and see which of those statements result in
Speaker 5: policy change.
Speaker 1: So, in terms of an investment strategy, what is it
Speaker 1: leading you to do right now? In terms of putting
Speaker 1: fresh money to work in markets?
Speaker 5: Well, I remain optimistic on the US commy very optimistic,
Speaker 5: and I think.
Speaker 4: Small caps have a lot of runaway to run here.
Speaker 5: Their valuations are much more attractive, and large caps a
Speaker 5: lot of tailwinds there with the feed cutting rates, I
Speaker 5: mean that asset class has been held back because it's
Speaker 5: very interest rate sensitive. So the feed cutting rates, even
Speaker 5: though it'll be a bit more slow.
Speaker 4: It certainly helped those companies.
Speaker 5: And if we do, we know that almost certainly there
Speaker 5: will be some tariffs, and I'm sure there will be
Speaker 5: some China or you're potentially putting some tariffs on US goods.
Speaker 5: So if those trade war does initiate, and I think
Speaker 5: we all know that are all betting that will happen,
Speaker 5: it's just to what degree. I mean, US small caps
Speaker 5: the ninety percent of their revenue is from domestic, while
Speaker 5: large caps it's sixty percent it's domestic and forty percent international.
Speaker 5: So small caps are going to be more insulated from
Speaker 5: this trade war. So that's why I think there's there's
Speaker 5: a lot of potential appreciation there.
Speaker 4: And the other good news on.
Speaker 5: The small cap front is that their earnings are have
Speaker 5: been in a recession for many quarters now, but they're
Speaker 5: expected to produce positive earnings in this quarter to the
Speaker 5: fourth quarter as well as twenty twenty five, and in fact,
Speaker 5: their profit growth rate is expected to outpace large caps
Speaker 5: in the second half of next year, so well still
Speaker 5: have exposure on the large cap side. I think there
Speaker 5: should be some rotation to some of these other sectors
Speaker 5: besides the magnificent seven. I think investors should really put
Speaker 5: some more focus in the small caps as well, because
Speaker 5: we could see some stronger turns out of that asset class.
Speaker 1: Well, I'm glad you mentioned the mag seven. I've got
Speaker 1: a question for you when it comes to megacap tech.
Speaker 1: Was looking at a piece in the Financial Times and
Speaker 1: investment fund run by Blue Whale Capital has, according to
Speaker 1: the Ft, reduced at stakes in a number of major
Speaker 1: tech firms. The Ft kind of indicating that there's concern
Speaker 1: now about the cost of artificial intelligence. What do you
Speaker 1: make of the AI trade right now?
Speaker 5: I think it still has room to run. Think you
Speaker 5: know that that we we are seeing that market rotation
Speaker 5: right now. But if we're going to see these geopolitical
Speaker 5: tentions increase or any threats to the economy, we saw
Speaker 5: it for the past two years, Investors flock to those
Speaker 5: Magnificent seven companies because the are very high in quality,
Speaker 5: they have really strong balance each of course really strong earnings.
Speaker 4: So I think that there's always should be a room in.
Speaker 5: Investors' portfolios for the magnifics at seven. And I know
Speaker 5: there's you know, questions as far as when AI investments
Speaker 5: are going to pay off and how companies are going
Speaker 5: to uh monetize it. But we're seeing those productivity gains
Speaker 5: like I mentioned in the third quarter GDP GDP report,
Speaker 5: I think we're going to see some more. So I
Speaker 5: think that it's still in the early endings of this
Speaker 5: AI revolution, and in my minds, yeah, you should investors
Speaker 5: should put more This is in other areas in the
Speaker 5: market because we're going to see the earnings broadened out.
Speaker 5: But I think there's still some plenty of good returns
Speaker 5: that come on the technology sector in twenty twenty five
Speaker 5: and beyond.
Speaker 1: Eric, thank you so much for making time to chat
Speaker 1: with us. Eric Stirner is the chief investment officer at
Speaker 1: Apollen Wealth Management, joining us here on the Daybreak Asia Podcast.
Speaker 1: Thanks for listening to today's episode of the Bloomberg Daybreak
Speaker 1: Asia Edition podcast. Each weekday, we look at the story
Speaker 1: shaping markets, finance, and geopolitics in the Asia Pacific. You
Speaker 1: can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel,
Speaker 1: or anywhere else you listen. Join us again tomorrow for
Speaker 1: insight on the market moves from Hong Kong to Singapore
Speaker 1: and Australia. I'm Doug Chrisner, and this is Bloomberg