1 00:00:05,969 --> 00:00:08,949 Speaker 1: Hi, this is Copy Time, a podcast series on markets 2 00:00:08,949 --> 00:00:12,300 Speaker 1: and economies from DBS Group Research. I'm Tambe, chief economist, 3 00:00:12,630 --> 00:00:17,729 Speaker 1: welcoming you to our 145th episode. Happy New Year. Today 4 00:00:17,729 --> 00:00:21,069 Speaker 1: it's just yours truly here. I'm gonna talk a bit 5 00:00:21,069 --> 00:00:23,989 Speaker 1: about where we stand with the markets in 2025. 6 00:00:24,469 --> 00:00:27,860 Speaker 1: Now, I'm having this discussion recorded just a few hours 7 00:00:27,860 --> 00:00:31,209 Speaker 1: after Donald Trump took over office, and there has been 8 00:00:31,209 --> 00:00:34,990 Speaker 1: a slew of executive orders taking the US out of 9 00:00:34,990 --> 00:00:39,240 Speaker 1: the Paris climate treaty, withdrawing US from the WHO, talks 10 00:00:39,240 --> 00:00:43,909 Speaker 1: about 25% tariff on Canada, Mexico, uh, starting on the 11 00:00:43,909 --> 00:00:47,580 Speaker 1: 1st of February. I think it will take a while 12 00:00:48,110 --> 00:00:48,369 Speaker 1: before 13 00:00:48,418 --> 00:00:52,439 Speaker 1: The market can fully digest, if ever, but at least 14 00:00:52,650 --> 00:00:55,450 Speaker 1: not now. It'll be a while before the markets can digest, 15 00:00:55,459 --> 00:01:00,439 Speaker 1: even remotely the far reaching implications of some of Trump's measures, 16 00:01:00,729 --> 00:01:02,889 Speaker 1: and I don't think we can wait that long. I 17 00:01:02,889 --> 00:01:06,930 Speaker 1: think we need to suss out what awaits us perhaps 18 00:01:06,930 --> 00:01:10,169 Speaker 1: with some historical context and that's where I'd like to 19 00:01:10,169 --> 00:01:12,419 Speaker 1: begin today. Uh, let's travel back. 20 00:01:12,540 --> 00:01:18,500 Speaker 1: To the 1890s, 1890 to be precise, when William McKinley, 21 00:01:18,830 --> 00:01:21,709 Speaker 1: who was the powerful head of the House Ways and 22 00:01:21,709 --> 00:01:26,910 Speaker 1: Means Committee, pushed through a wide range of tariffs uh 23 00:01:26,910 --> 00:01:30,790 Speaker 1: for on on US imports, and the idea at that 24 00:01:30,790 --> 00:01:36,470 Speaker 1: time was to make sugar non-dutiable and balance. 25 00:01:36,769 --> 00:01:41,169 Speaker 1: The loss of revenue from sugar import to a wide 26 00:01:41,169 --> 00:01:44,330 Speaker 1: range of other non-sugar products. And the reason for that 27 00:01:44,330 --> 00:01:47,489 Speaker 1: was in the late 191880s the US was going through 28 00:01:47,489 --> 00:01:50,209 Speaker 1: a bout of high inflation, food prices were up, and 29 00:01:50,209 --> 00:01:53,080 Speaker 1: the view was that a certain imported food items, including sugar, 30 00:01:53,290 --> 00:01:55,680 Speaker 1: maybe if you make it duty free, it'll help inflation, 31 00:01:55,849 --> 00:01:58,239 Speaker 1: but if you lose that tariff, well, that's a problem, 32 00:01:58,290 --> 00:02:00,459 Speaker 1: so impose tariffs on everything else. 33 00:02:01,209 --> 00:02:05,769 Speaker 1: And as a result, the average tariff on duty of 34 00:02:05,769 --> 00:02:09,089 Speaker 1: imports in the US went to about 50% and the 35 00:02:09,089 --> 00:02:13,779 Speaker 1: average tariff on all imports went to about 20%. This 36 00:02:13,779 --> 00:02:17,779 Speaker 1: proved to be actually pretty unpopular because the Congress actually 37 00:02:17,779 --> 00:02:20,910 Speaker 1: got a revenue windfall, uh, because the tariff that they 38 00:02:20,910 --> 00:02:23,239 Speaker 1: took away from sugar and put on everything else actually 39 00:02:23,240 --> 00:02:24,179 Speaker 1: amounted to more money. 40 00:02:24,429 --> 00:02:27,250 Speaker 1: The Congress actually was called the billion dollar Congress in 41 00:02:27,250 --> 00:02:33,609 Speaker 1: the early 1890s, and the Democrats ran against this measure 42 00:02:33,610 --> 00:02:37,728 Speaker 1: by Republican McKinley to increase tariffs on a wide range 43 00:02:37,729 --> 00:02:41,619 Speaker 1: of things in the midterm elections in 1892 and the 44 00:02:42,220 --> 00:02:46,100 Speaker 1: Republicans lost the House and the Senate altogether, uh, because 45 00:02:46,100 --> 00:02:51,419 Speaker 1: of the unpopularity of tariff. Now, the Democrats who ran 46 00:02:51,419 --> 00:02:54,580 Speaker 1: against tariff, spent the next few years, at that time, 47 00:02:54,619 --> 00:02:56,899 Speaker 1: by the way, they had all three chambers of the House, 48 00:02:57,440 --> 00:02:59,258 Speaker 1: uh House and the Senate and the presidency. 49 00:02:59,889 --> 00:03:02,729 Speaker 1: Grover Cleveland was a precedent, and they tried for the 50 00:03:02,729 --> 00:03:05,470 Speaker 1: next couple of years to remove the tariffs. It didn't 51 00:03:05,470 --> 00:03:07,649 Speaker 1: work out that well. I think that's lesson number one 52 00:03:07,649 --> 00:03:10,369 Speaker 1: from history. Once you put up tariffs, it's not that 53 00:03:10,369 --> 00:03:13,050 Speaker 1: easy to take out because all those industries that get 54 00:03:13,050 --> 00:03:15,330 Speaker 1: protected by tariffs start fighting against it. 55 00:03:16,029 --> 00:03:21,339 Speaker 1: So the Democrats tried and failed, and by the mid 56 00:03:21,339 --> 00:03:24,989 Speaker 1: of 1890s, tariffs were still there and the US was 57 00:03:24,990 --> 00:03:28,320 Speaker 1: stepping into a big recession. There was a banking crisis, uh, 58 00:03:28,508 --> 00:03:31,229 Speaker 1: monetary policy was very tight because there was not a 59 00:03:31,229 --> 00:03:33,270 Speaker 1: lot of extra gold and the US dollar was linked 60 00:03:33,270 --> 00:03:35,869 Speaker 1: to the gold. So for a variety of reasons, uh, 61 00:03:35,949 --> 00:03:40,820 Speaker 1: public opinion turned very, very sour pretty quickly and by 1896, 62 00:03:40,949 --> 00:03:43,949 Speaker 1: the Democrats lost and the 63 00:03:44,759 --> 00:03:47,779 Speaker 1: McKinley tired guy, McKinley, William McKinley became the president of 64 00:03:47,779 --> 00:03:48,589 Speaker 1: the United States. 65 00:03:49,339 --> 00:03:54,250 Speaker 1: Um, now, the subsequent years when McKinley presided over high tariff, 66 00:03:54,470 --> 00:03:58,229 Speaker 1: the US actually went through an amazing spurt of growth, uh, 67 00:03:58,240 --> 00:04:01,350 Speaker 1: both with respect to GDP and productivity, and it was 68 00:04:01,639 --> 00:04:04,429 Speaker 1: something that has been noticed by Donald Trump. 69 00:04:05,110 --> 00:04:08,039 Speaker 1: He always says that McKinley is his favorite president. He 70 00:04:08,039 --> 00:04:10,759 Speaker 1: wants to be a tariff president himself, and he cites 71 00:04:10,759 --> 00:04:13,839 Speaker 1: the years of McKinley presidency and the years after that 72 00:04:13,839 --> 00:04:17,940 Speaker 1: early 1900s as proof that you can have high tariffs 73 00:04:17,940 --> 00:04:20,518 Speaker 1: and high growth at the same time. So it is 74 00:04:20,519 --> 00:04:23,519 Speaker 1: important for us to understand some of the things that 75 00:04:23,519 --> 00:04:26,159 Speaker 1: happened in the US in the late 1890s that led 76 00:04:26,160 --> 00:04:28,920 Speaker 1: to the strong growth and the conditions we might be 77 00:04:28,920 --> 00:04:31,558 Speaker 1: encountering going into 2025 and beyond. 78 00:04:32,290 --> 00:04:35,250 Speaker 1: How did the US manage to put a massive wall 79 00:04:35,250 --> 00:04:42,059 Speaker 1: of tariffs, discourage competition, push away overseas uh flow of goods, 80 00:04:42,209 --> 00:04:46,609 Speaker 1: and somehow miraculously grow so fast. Two things happened. First, 81 00:04:46,809 --> 00:04:49,929 Speaker 1: the Klondike gold rush. There was a huge discovery of 82 00:04:49,928 --> 00:04:52,929 Speaker 1: gold in the US. That gold entered the market, and 83 00:04:52,928 --> 00:04:54,890 Speaker 1: since the dollar was linked to the gold, that resulted 84 00:04:54,890 --> 00:04:56,890 Speaker 1: in a huge expansion of money supply. 85 00:04:57,309 --> 00:05:00,540 Speaker 1: Now, as a result, the US went through a monetary 86 00:05:00,540 --> 00:05:03,589 Speaker 1: easing while dealing with some of the headwinds from tariffs. 87 00:05:03,630 --> 00:05:06,390 Speaker 1: So that was a very nice offset. The second big 88 00:05:06,390 --> 00:05:09,470 Speaker 1: offset was massive amount of immigration that was continuing into 89 00:05:09,470 --> 00:05:14,029 Speaker 1: the US from mainland Europe. So, in the late 1890s 90 00:05:14,029 --> 00:05:17,349 Speaker 1: and early 1900s, the US was blessed by substantial monetary 91 00:05:17,350 --> 00:05:21,790 Speaker 1: easing and substantially easing of labor supply because of substantial immigration. 92 00:05:22,619 --> 00:05:25,100 Speaker 1: Do we expect either of those to happen in the 93 00:05:25,100 --> 00:05:27,750 Speaker 1: next couple of years in the US? I think very unlikely. 94 00:05:28,019 --> 00:05:32,850 Speaker 1: Inflation is still a problem, tariffs could fuel even additional inflation. 95 00:05:33,220 --> 00:05:37,420 Speaker 1: Trump also has plans to cut taxes. That certainly won't 96 00:05:37,420 --> 00:05:40,779 Speaker 1: help the inflation cost in the near term, and therefore, 97 00:05:41,019 --> 00:05:44,409 Speaker 1: we might actually see monetary policy remain where it is now, 98 00:05:44,579 --> 00:05:47,059 Speaker 1: or it will be marginally easier over the next year 99 00:05:47,059 --> 00:05:47,459 Speaker 1: or two. 100 00:05:47,920 --> 00:05:52,320 Speaker 1: So the late 1890s style massive monetary expansion simply is 101 00:05:52,320 --> 00:05:55,160 Speaker 1: not on the cards. The second one is immigration. I 102 00:05:55,160 --> 00:05:57,678 Speaker 1: think we can all safely say Trump is not interested 103 00:05:57,678 --> 00:06:02,079 Speaker 1: in increasing substantial immigration. He's trying to decrease, particularly undocumented 104 00:06:02,079 --> 00:06:04,320 Speaker 1: immigration in the US, so we were not going to 105 00:06:04,320 --> 00:06:07,399 Speaker 1: see an expansion of the labor supply unlike what we 106 00:06:07,399 --> 00:06:12,440 Speaker 1: saw in the late 1890s. So my lesson from comparing 107 00:06:12,440 --> 00:06:15,079 Speaker 1: what's coming versus what happened back then. 108 00:06:15,510 --> 00:06:22,510 Speaker 1: Is that substantial additional tariffs will almost certainly add to inflation, 109 00:06:22,630 --> 00:06:25,670 Speaker 1: immigration measures will almost certainly add to tightness of the 110 00:06:25,670 --> 00:06:26,428 Speaker 1: labor market. 111 00:06:27,109 --> 00:06:32,178 Speaker 1: And therefore, going forward, I'm not particularly hopeful that Trump tariffs, 112 00:06:32,279 --> 00:06:34,600 Speaker 1: whichever shape and form they come in the coming days 113 00:06:34,600 --> 00:06:37,450 Speaker 1: and months, uh, would be particularly helpful to the US 114 00:06:37,450 --> 00:06:41,078 Speaker 1: growth outlook. I've seen some forecasters out there looking at 115 00:06:41,079 --> 00:06:43,799 Speaker 1: about 2.7% growth for the US. I mean, this is 116 00:06:43,799 --> 00:06:47,320 Speaker 1: the most optimistic end of the spectrum. I am probably 117 00:06:47,320 --> 00:06:51,118 Speaker 1: more with consensus looking at low 2s, about 2.1%, because 118 00:06:51,119 --> 00:06:53,230 Speaker 1: if indeed the tariffs get implemented in a 119 00:06:53,839 --> 00:06:58,440 Speaker 1: Wholesale manner, universal tariffs, substantial tariffs on additional tariffs on China, 120 00:06:58,640 --> 00:07:01,850 Speaker 1: substantial tariff on Mexico, Canada, all those things would be very, 121 00:07:01,859 --> 00:07:04,440 Speaker 1: very disruptive for business sentiment. It would be disruptive for 122 00:07:04,440 --> 00:07:08,600 Speaker 1: the inflation dynamic, uh, would be, uh, disruptive for flows 123 00:07:08,600 --> 00:07:11,160 Speaker 1: of trade, putting it on, and of course, let's not forget, 124 00:07:11,200 --> 00:07:12,640 Speaker 1: I forgot the other important point. 125 00:07:13,015 --> 00:07:16,415 Speaker 1: There would be retaliation. As the US raises tariffs. Other 126 00:07:16,415 --> 00:07:20,334 Speaker 1: countries would raise tariffs, US exporters would suffer, that would 127 00:07:20,334 --> 00:07:23,214 Speaker 1: then come back to again hurt US growth outlook. So 128 00:07:23,214 --> 00:07:26,364 Speaker 1: I would probably shave off 40 to 50 basis points 129 00:07:26,695 --> 00:07:30,015 Speaker 1: from that very optimistic end of the forecast instead of 2.7%. 130 00:07:30,015 --> 00:07:33,494 Speaker 1: I think a reasonable forecast for the US for 2025 131 00:07:33,494 --> 00:07:35,714 Speaker 1: would be in the low 2s, maybe 2.1 or so, 132 00:07:36,015 --> 00:07:38,524 Speaker 1: assuming some of the shocks that are likely to come 133 00:07:38,524 --> 00:07:40,415 Speaker 1: in the coming days and months. 134 00:07:41,440 --> 00:07:45,809 Speaker 1: Now, beyond the issue of growth, which again I'm underscoring 135 00:07:45,809 --> 00:07:47,959 Speaker 1: to be in the low 2%, uh what are the 136 00:07:47,959 --> 00:07:50,239 Speaker 1: other market implications for the US? And the first is 137 00:07:50,239 --> 00:07:54,079 Speaker 1: if rates do stay high, uh, there are negatives for 138 00:07:54,079 --> 00:07:57,079 Speaker 1: the equity market, which has been on a tear the 139 00:07:57,079 --> 00:08:00,399 Speaker 1: last couple of years. Uh, very rarely is the case 140 00:08:00,399 --> 00:08:03,850 Speaker 1: that you see two consecutive years of 20% plus return. 141 00:08:04,190 --> 00:08:06,829 Speaker 1: So from that perspective, uh, the headwind that will come 142 00:08:06,829 --> 00:08:09,559 Speaker 1: from the US equity markets is a simple uh yield 143 00:08:09,559 --> 00:08:14,029 Speaker 1: gap that if you have 10 year bonds yielding close 144 00:08:14,029 --> 00:08:19,630 Speaker 1: to 4.7%, 4.8%, even 5%, uh, the dividend that the 145 00:08:19,630 --> 00:08:21,739 Speaker 1: S&P 500 gives uh looks very. 146 00:08:22,225 --> 00:08:25,815 Speaker 1: Attractive by comparison, and that becomes a sell signal in 147 00:08:25,815 --> 00:08:29,005 Speaker 1: many equity evaluation models. Now you could of course argue 148 00:08:29,005 --> 00:08:33,135 Speaker 1: that dividend is passe, all that matters is growth, and 149 00:08:33,135 --> 00:08:35,895 Speaker 1: US tech companies are growing so fast. There's this huge 150 00:08:35,895 --> 00:08:38,734 Speaker 1: AI boom going on, so why should we be negative 151 00:08:38,734 --> 00:08:41,215 Speaker 1: about the US stock market. So I think that, you know, 152 00:08:41,304 --> 00:08:44,085 Speaker 1: you could be constructive about certain parts of the market, 153 00:08:44,294 --> 00:08:47,603 Speaker 1: but still be fairly cautious about the overall market outlook 154 00:08:47,794 --> 00:08:50,684 Speaker 1: uh based on the yield gap calculation and also 155 00:08:50,919 --> 00:08:56,000 Speaker 1: The good news for the tech uh companies is so 156 00:08:56,000 --> 00:08:58,840 Speaker 1: deeply priced in because as soon as Trump got elected, 157 00:08:58,849 --> 00:09:01,770 Speaker 1: we've seen a massive rally in the Teslas. 158 00:09:02,450 --> 00:09:05,419 Speaker 1: And the tech companies in general, ah, because they're expected 159 00:09:05,419 --> 00:09:07,739 Speaker 1: to benefit tremendously under the Trump administration. So I think 160 00:09:07,739 --> 00:09:10,619 Speaker 1: the the upside is very much priced in. What has 161 00:09:10,619 --> 00:09:12,940 Speaker 1: not been priced in is the likelihood of rates remaining 162 00:09:12,940 --> 00:09:17,059 Speaker 1: high under the high tariff environment and therefore I am 163 00:09:17,059 --> 00:09:19,260 Speaker 1: fairly cautious on the US equity side. 164 00:09:19,599 --> 00:09:21,770 Speaker 1: And also let's not forget there is a tremendous amount 165 00:09:21,770 --> 00:09:24,450 Speaker 1: on a relative basis value in the rest of the world, 166 00:09:24,500 --> 00:09:28,650 Speaker 1: whether it's in Asia or in Europe. They haven't had, 167 00:09:28,820 --> 00:09:31,140 Speaker 1: they haven't been blessed by the kind of growth momentum 168 00:09:31,140 --> 00:09:33,539 Speaker 1: that the US has had lately, but I wouldn't put 169 00:09:33,539 --> 00:09:37,820 Speaker 1: it past equity portfolio managers looking at those opportunities outside 170 00:09:37,820 --> 00:09:39,979 Speaker 1: of Asia if rates do remain high through the course 171 00:09:39,979 --> 00:09:42,940 Speaker 1: of 2025. The other issue related to rates is of 172 00:09:42,940 --> 00:09:45,179 Speaker 1: course the private markets in the US. We will discuss 173 00:09:45,375 --> 00:09:49,853 Speaker 1: Uh, private markets in a deeper dive, uh, in a 174 00:09:49,854 --> 00:09:53,015 Speaker 1: couple of weeks' time at a separate podcast, but there 175 00:09:53,015 --> 00:09:58,005 Speaker 1: has been a big expansion of private equity, private debt, uh, 176 00:09:58,174 --> 00:10:02,015 Speaker 1: and the impact of interest rates remaining sticky on those 177 00:10:02,015 --> 00:10:04,853 Speaker 1: asset classes, um, I don't think it's going to be 178 00:10:04,854 --> 00:10:09,414 Speaker 1: particularly constructive. I'm not necessarily foreshadowing some systemic risk coming 179 00:10:09,414 --> 00:10:12,434 Speaker 1: out of the US financial system, uh, because of high 180 00:10:12,434 --> 00:10:14,733 Speaker 1: interest rates, but it cannot be a 181 00:10:15,039 --> 00:10:19,409 Speaker 1: You know, help in any way or stretch of imagination. 182 00:10:19,479 --> 00:10:21,739 Speaker 1: It's a tail, it's a headwind, and we need to 183 00:10:21,739 --> 00:10:24,520 Speaker 1: be cognizant of that risk on the financial stability side 184 00:10:24,780 --> 00:10:28,090 Speaker 1: coming from high rates. Credit, same story, credit spreads are 185 00:10:28,090 --> 00:10:30,539 Speaker 1: exceptionally narrow. There there's only one way for them to 186 00:10:30,539 --> 00:10:33,700 Speaker 1: go in my view, which is higher and with 187 00:10:34,640 --> 00:10:38,039 Speaker 1: Policies likely to remain fairly restrictive going ahead. Uh, I 188 00:10:38,039 --> 00:10:40,479 Speaker 1: think that there is room for some, particularly in the 189 00:10:40,479 --> 00:10:43,799 Speaker 1: sub-investment grade category for credit spreads to widen from the 190 00:10:43,799 --> 00:10:46,520 Speaker 1: historical narrows that we have right now. 191 00:10:47,679 --> 00:10:51,400 Speaker 1: How will Asia deal with all this? I urge you 192 00:10:51,400 --> 00:10:54,439 Speaker 1: to read the weekly we published, uh, yesterday. Uh, we're 193 00:10:54,440 --> 00:10:56,960 Speaker 1: gonna put the link on the show notes. Uh, we 194 00:10:56,960 --> 00:11:01,200 Speaker 1: talked about the issue of trade, uh, you know, a 195 00:11:01,200 --> 00:11:04,478 Speaker 1: simple metric would be which country exports the most to 196 00:11:04,479 --> 00:11:07,799 Speaker 1: the US and the Vietnam, Taiwan's, Japan's are the highest 197 00:11:07,799 --> 00:11:11,750 Speaker 1: in the region. China is actually not that vulnerable uh 198 00:11:11,750 --> 00:11:12,320 Speaker 1: of China. 199 00:11:12,469 --> 00:11:15,978 Speaker 1: Total exports, barely 15% or even less, uh go to 200 00:11:15,979 --> 00:11:18,260 Speaker 1: the US these days. It's come down a lot. Now 201 00:11:18,260 --> 00:11:21,218 Speaker 1: you might argue that China has diverted the trade through 202 00:11:21,219 --> 00:11:24,780 Speaker 1: Mexico and Vietnam, and those countries trade share with the 203 00:11:24,780 --> 00:11:27,820 Speaker 1: US has certainly gone up, uh, but it is still 204 00:11:27,820 --> 00:11:30,940 Speaker 1: a final demand export from those countries that tariffs will 205 00:11:30,940 --> 00:11:34,979 Speaker 1: affect those countries directly, China downstream indirectly. 206 00:11:35,820 --> 00:11:38,630 Speaker 1: But if I were to look at countries that are 207 00:11:38,630 --> 00:11:42,189 Speaker 1: most vulnerable to a universal tariff, I would not put 208 00:11:42,190 --> 00:11:43,750 Speaker 1: China at the top of my list. I would think 209 00:11:43,750 --> 00:11:47,789 Speaker 1: more about Vietnam, Japan, Taiwan, and so on. Uh, I 210 00:11:47,789 --> 00:11:50,080 Speaker 1: also think that some of these countries are such strong 211 00:11:50,080 --> 00:11:53,030 Speaker 1: allies of the US, Japan and Taiwan in particular, that 212 00:11:53,030 --> 00:11:54,959 Speaker 1: there will be a lot of horse trading and exceptions 213 00:11:54,960 --> 00:11:59,400 Speaker 1: made to universal tariff. Nonetheless, tariffs are coming. 214 00:11:59,960 --> 00:12:02,679 Speaker 1: Markets will know that these countries will see some of 215 00:12:02,679 --> 00:12:05,589 Speaker 1: their export demand in the US go down as a result, 216 00:12:05,599 --> 00:12:08,439 Speaker 1: and they would be cautious about the outlook of the 217 00:12:08,440 --> 00:12:12,840 Speaker 1: export industry, particularly of those countries. In addition to export performance, 218 00:12:12,919 --> 00:12:15,718 Speaker 1: the other thing for Asian economies to worry about in 219 00:12:15,719 --> 00:12:18,199 Speaker 1: the tariff for 2.0 scenario. 220 00:12:19,070 --> 00:12:22,380 Speaker 1: Is the currencies. Uh, that is usually the first place 221 00:12:22,380 --> 00:12:26,450 Speaker 1: where the market reflects its view on the impact of tariff. 222 00:12:26,659 --> 00:12:28,449 Speaker 1: If I think Country A is going to be heard 223 00:12:28,450 --> 00:12:31,780 Speaker 1: by tariff of Country B, then Country A's exchanges should 224 00:12:31,780 --> 00:12:35,299 Speaker 1: be bid down against Country B. And then we've seen 225 00:12:35,299 --> 00:12:37,070 Speaker 1: this play out in the last couple of months, uh, 226 00:12:37,299 --> 00:12:40,369 Speaker 1: Asian FX in particular, including that of Mexico outside of 227 00:12:40,419 --> 00:12:44,369 Speaker 1: Asia have sold off ever since Trump got elected in 228 00:12:44,369 --> 00:12:47,330 Speaker 1: anticipation of the tariff shock that's coming, exchange rates have 229 00:12:47,330 --> 00:12:51,679 Speaker 1: been adjusting. But these sort of developments rates remaining likely, 230 00:12:51,809 --> 00:12:55,309 Speaker 1: you know, high in the US, exchange rate outlook becoming 231 00:12:55,309 --> 00:12:59,179 Speaker 1: a bit cloudy, exports outlook looking a bit difficult. This 232 00:12:59,609 --> 00:13:00,380 Speaker 1: will put 233 00:13:00,520 --> 00:13:03,049 Speaker 1: Monetary policymakers in the region in a bit of a quandary. 234 00:13:03,419 --> 00:13:05,900 Speaker 1: You've seen in Asia in the last couple of months 235 00:13:05,900 --> 00:13:08,380 Speaker 1: some central banks choosing to stay on pause, some being 236 00:13:08,380 --> 00:13:11,700 Speaker 1: a bit brave and cutting ahead of any further shock 237 00:13:11,700 --> 00:13:13,700 Speaker 1: that is coming out of the US, but by and 238 00:13:13,700 --> 00:13:16,260 Speaker 1: large I think it's safe to say if the Fed 239 00:13:16,260 --> 00:13:19,260 Speaker 1: becomes reticent about cutting rates, Asian central banks would have 240 00:13:19,260 --> 00:13:20,329 Speaker 1: a very hard time. 241 00:13:20,719 --> 00:13:23,400 Speaker 1: Uh, trying to differentiate themselves away from the fat and 242 00:13:23,400 --> 00:13:26,799 Speaker 1: cut by themselves. Mind you, rate cut imperative is not 243 00:13:26,799 --> 00:13:29,640 Speaker 1: that great in Asia anyway. Asian economies have done pretty 244 00:13:29,640 --> 00:13:30,479 Speaker 1: well this year. 245 00:13:31,190 --> 00:13:34,728 Speaker 1: There aren't that many headwinds to worry about beyond tariff. 246 00:13:34,969 --> 00:13:37,500 Speaker 1: Regional travel, tourism has picked up. The region is going 247 00:13:37,500 --> 00:13:40,859 Speaker 1: through a purple patch with respect to investment, and in 248 00:13:40,859 --> 00:13:45,859 Speaker 1: that mix of fairly decent macrodynamic, I don't think there 249 00:13:45,859 --> 00:13:48,780 Speaker 1: is a great deal of desperation or urgency among central 250 00:13:48,780 --> 00:13:50,940 Speaker 1: banks to cut rates. It would be nice to cut rates, 251 00:13:51,080 --> 00:13:51,789 Speaker 1: but it won't. 252 00:13:51,849 --> 00:13:53,880 Speaker 1: The end of the world. I would not be revising 253 00:13:53,880 --> 00:13:57,809 Speaker 1: down Asian growth forecasts in a wholesale manner if I 254 00:13:57,809 --> 00:14:00,229 Speaker 1: start losing confidence in the rate narrative. I don't think so. 255 00:14:00,429 --> 00:14:02,559 Speaker 1: So rates may come down or not may come down. 256 00:14:02,640 --> 00:14:05,549 Speaker 1: I think Asia can chug along pretty well. But again, 257 00:14:05,719 --> 00:14:08,159 Speaker 1: if you are hugely exposed to the trade cycle, if 258 00:14:08,159 --> 00:14:10,760 Speaker 1: you're hugely exposed to the US markets, there will be 259 00:14:10,760 --> 00:14:12,400 Speaker 1: noise that just goes without saying. 260 00:14:13,719 --> 00:14:17,369 Speaker 1: I will conclude my short podcast for today, uh, and 261 00:14:17,369 --> 00:14:20,039 Speaker 1: guests are coming, don't worry. Next year podcast, we'll have 262 00:14:20,039 --> 00:14:22,919 Speaker 1: some excellent guests. Uh, I want to finish the podcast 263 00:14:22,919 --> 00:14:26,919 Speaker 1: today by talking about China. The Chinese economy eked out 5% 264 00:14:26,919 --> 00:14:31,119 Speaker 1: growth for 2024. People always have some quibbles about China's 265 00:14:31,119 --> 00:14:33,450 Speaker 1: national accounts numbers, but when we look at 266 00:14:34,005 --> 00:14:38,765 Speaker 1: performance from a wide variety of companies which report audited 267 00:14:38,765 --> 00:14:41,604 Speaker 1: accounts outside the US, outside of China, and when we 268 00:14:41,604 --> 00:14:44,604 Speaker 1: look at their books and their sales in China, they 269 00:14:44,604 --> 00:14:47,984 Speaker 1: don't look that different from an economy that is growing by, uh, 270 00:14:48,125 --> 00:14:51,364 Speaker 1: you know, 4 to 5% in real terms or expanding 271 00:14:51,364 --> 00:14:53,364 Speaker 1: in nominal terms by 5 to 6%. 272 00:14:53,989 --> 00:14:56,150 Speaker 1: So we do think that China had a decent year, 273 00:14:56,280 --> 00:14:58,559 Speaker 1: led by exports, of course, the manufacturing sector had a 274 00:14:58,559 --> 00:15:01,789 Speaker 1: great year, exports did very, very well, mind you again. 275 00:15:02,280 --> 00:15:05,320 Speaker 1: While exports to the US are import for China, almost 276 00:15:05,320 --> 00:15:07,960 Speaker 1: 90 or 85% of China's exports go to the rest 277 00:15:07,960 --> 00:15:08,489 Speaker 1: of the world. 278 00:15:09,719 --> 00:15:11,799 Speaker 1: Those markets have been very buoyant and again, we're not 279 00:15:11,799 --> 00:15:15,869 Speaker 1: just talking about third market parties through which those countries 280 00:15:15,869 --> 00:15:19,270 Speaker 1: eventually trade with the US. Asian domestic demand has been strong, 281 00:15:19,479 --> 00:15:24,210 Speaker 1: Middle East has been strong, Latin America has pockets of strength, Africa, 282 00:15:24,320 --> 00:15:28,479 Speaker 1: same story, and those areas are increasingly intertwined with China's 283 00:15:28,479 --> 00:15:30,640 Speaker 1: trade and exports, uh, dynamic. 284 00:15:31,390 --> 00:15:35,750 Speaker 1: So, China had a good 2024, 25 will be clouded 285 00:15:35,750 --> 00:15:37,989 Speaker 1: by the trade and tariff wars and the uncertainties vis 286 00:15:37,989 --> 00:15:40,390 Speaker 1: a vis the US, but at the same time, we 287 00:15:40,390 --> 00:15:44,700 Speaker 1: do expect a substantial more support measures coming from the authorities. 288 00:15:44,929 --> 00:15:48,469 Speaker 1: Our China team in their reaction to the 2024 GDP numbers. 289 00:15:48,715 --> 00:15:52,565 Speaker 1: said that to sustain anything close to that 5% in 2025, 290 00:15:52,804 --> 00:15:56,445 Speaker 1: we'll probably need 50 basis points at least of prime 291 00:15:56,445 --> 00:16:00,844 Speaker 1: lending cuts. We probably would need additional fiscal stimulus, not 292 00:16:00,844 --> 00:16:04,525 Speaker 1: necessarily higher quantum, but better targeting aimed at areas that 293 00:16:04,525 --> 00:16:05,775 Speaker 1: need revitalization. 294 00:16:06,010 --> 00:16:07,830 Speaker 1: And I do think that some of those things are 295 00:16:07,830 --> 00:16:11,739 Speaker 1: fairly well understood within the policy circles in China and therefore, 296 00:16:11,989 --> 00:16:15,869 Speaker 1: watch out for a more targeted, if not more quantity 297 00:16:15,869 --> 00:16:19,429 Speaker 1: of stimulus coming out of China in 2025. So I'm 298 00:16:19,429 --> 00:16:22,270 Speaker 1: gonna wrap it up for that uh on that right 299 00:16:22,270 --> 00:16:24,950 Speaker 1: for the time being. So thanks to listening to the 300 00:16:24,950 --> 00:16:27,590 Speaker 1: first podcast of 2025. It's great to have you guys. 301 00:16:27,695 --> 00:16:31,005 Speaker 1: And your support. Copy Time was produced by the very 302 00:16:31,005 --> 00:16:34,565 Speaker 1: efficient Ken Delbridge at Spy Studios. Violet Lee and Daisy 303 00:16:34,565 --> 00:16:37,965 Speaker 1: Sharma provided additional assistance. It is for information only, does 304 00:16:37,965 --> 00:16:42,684 Speaker 1: not represent any trade recommendations. All 145 episodes of Copy 305 00:16:42,684 --> 00:16:47,205 Speaker 1: Time are available on YouTube and on all major podcast platforms, 306 00:16:47,405 --> 00:16:52,015 Speaker 1: including Apple, Google, and Spotify. As for our research publications, webinars, 307 00:16:52,025 --> 00:16:54,125 Speaker 1: and live stream, you can find them all by Google 308 00:16:54,125 --> 00:16:56,284 Speaker 1: and DBS Research Library. Have a great day.