February 26, 2025 • 33 mins
The US economy appears indestructible. Since the Great Financial Crisis in 2008-09 and throughout the following downturns including the pandemic, consumption quickly bounced back, the labor market tightened and equity markets outperformed peers. This strength had investors coining the term “US exceptionalism” as it increasingly seemed that the greenback and other assets were the best game in town.
But risks are building, from China’s DeepSeek cooling demand for AI stocks in the US to President Donald Trump’s tariffs that threaten inflation, spending and growth. Could these risks unseat the US exceptionalism trade? Is that era potentially behind us? Steve Brice, Global Chief Investment Officer of Standard Chartered Bank, doesn’t think so, and explains why he believes the trade is here to stay – at least for now. He joins John Lee and Katia Dmitrieva on the Asia Centric podcast.
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Speaker 1 (00:02):
You're listening to Asia Centric from Bloomberg Intelligence, the podcast
that explores the big ideas and trends moving money across
the region. I'm KATYDM Dreeva here in Hong Kong.
Speaker 2 (00:12):
And I'm John Lee here in Sydney. Katia. The finance
word loves buzzwords.
Speaker 1 (00:17):
Yeah, they really do.
Speaker 3 (00:18):
Hit me with a couple.
Speaker 2 (00:19):
Well, the Magnificent Seven for a start, The Fed's pale
talking about inflation being transitory.
Speaker 1 (00:25):
Yeah, I do remember that era. You know something I've
heard gaining traction as well, basically since the pandemic reopenings
as American exceptionalism, this idea in markets and the economy
that's somehow the US is just like.
Speaker 2 (00:39):
Taflon and I've definitely heard a lot of strategists use
US or American exceptionalism in their reports. And today we
have the perfect guest to discuss this is Steve Bryce,
Global Chief Investment Officer at Standard Charter Bank based in Singapore. Steve,
welcome to the show.
Speaker 1 (00:56):
Thank you so much, such a pleasure to be I
wanted to get started by just asking very basic question,
which is what is US exceptionalism to you? As an
investor and someone who's been in a space for I
guess three decades.
Speaker 3 (01:10):
Now, yeah, I guess There's two elements to it, and
they're obviously related. So the first piece is that this
concept that the US economy is much more resilient to
factors than other parts of the world, and there's different
ways of looking at that. Obviously, you can look at
nominal growth rates and say the US actually and the
performing places like China, but it just seems to be
(01:31):
a bit more in a sweet spot in terms of
generating growth and innovation as well as a key piece.
And then the second piece of that then relates to
asset markets. So obviously the depth of markets that innovation
coming through in terms of very strong profitable opportunities for
corporates leading to the outperformance of US assets, particularly obviously
(01:52):
US equity market.
Speaker 4 (01:53):
And we've seen that now for some time.
Speaker 3 (01:55):
So if you go back to actually pretty much sinto
the global financial crisis, maybe outside the first two or
three years, we've seen in the US equity market generally
outforming in a massive way. And so that's obviously leading
to people to say, you know, can this continue forever?
And is the US the only game in town? And
that's sort of the epitome of the US exceptionalism and
(02:15):
Mantra and.
Speaker 2 (02:16):
Steve, I know you a student of financial history, but
this is the normal state of play that the US
financial markets generally outperform the rest of the world.
Speaker 4 (02:28):
So actually, no, not really.
Speaker 3 (02:30):
I suppose the second half of my career has been
basically dominated by the US, but it's certainly not the
case throughout the history time. Now, I guess the one
thing that we do see a lot of is that
because people have more data going back for the US
market more than any other market, that you do generally
see that the people using that as a benchmark for
(02:51):
global equities when doing historical analysis, so the buying on
those sort of things. Long term investing US is obviously
the starting point, but you do go through significant periods
of underperformance for US equities from time to time. A
key input for that from our perspective is, particularly on
a sort of cyclical basis, is what happens to the dollar.
(03:13):
So in a strong dollar environment, US equities generally outperform.
When the dollar is definitively weak, you usually see non
US equities outperform. You can see over the last ten
years as well, we've seen the dollar generally in an
up trend, So that fits with that piesis of why
the US is doing well?
Speaker 1 (03:31):
Why does the US generally outperform? I know you mentioned
a couple factors there, but historically and maybe even just
more recently the past few years, you know what's really
driven US out performance? Is it one sector? For example?
We look at Ai, is it the dollar? Like what
is it?
Speaker 4 (03:49):
Yees?
Speaker 3 (03:49):
So I think there's two things, right, So firstly, maybe
look at the competition hasn't been that strong.
Speaker 4 (03:55):
So we've seen in.
Speaker 3 (03:56):
Europe obviously going through pretty challenging times on a multi
year basis, whether you talk about sovereign debt crises or
just very very anemic growth, a lack of innovation, greater
regulation since the Global financial crisis as well, So those
sort of factors sort of inhibit the growth there. China, obviously,
growth is still relatively strong to the rest of the world,
(04:18):
but it's on a deceleration path and we're talking about
concerns about debt deflation cycle in China. So when you've
got all those things out there, it suggests that the
competition against the US isn't that grade. And then yes,
when you look at the US story, we talked about
innovation obviously a major major piece of the US outperformance.
(04:40):
Technology driving that You mentioned that obviously the mag seven
that has been a major port. So you're seeing a
lot of more concentration risk being taken and that's what's
been driving this out performance. So it's both the strong
domestic fundamentals in the US, but also weakness elsewhere.
Speaker 1 (04:57):
We're seeing some threat to that potentially. You know, before
we started recording, John and I were talking about deep
seek and the effect that that had on capital markets,
but also on just overall sentiment with technology and AI
in the US perhaps looking more overpriced now. And also
the fact that she met in China with a lot
(05:18):
of tech executives, which sort of shows perhaps a greater
focus on that sector going forward.
Speaker 3 (05:24):
I guess you need to balance a couple of things, right,
So clearly so far this year, for instance, actually Europe
has been one of the best performance right at performing
the US. So there's a question of whether this US
exceptionism will continue on a multi year basis. I think
if we look at the just at the pure fundamentals,
it was suggests yes, U exceptionism can continue for some
(05:46):
time to come, and certainly we are still overweight US
equities on a six to twelve month view.
Speaker 4 (05:52):
That's to some.
Speaker 3 (05:52):
Degree policy agenda, which I'm sure we'll get to from
a US perspective. But I think there's also the other
side is it's not just the story or the fundamentals
that matters. It's also matters what's priced. And so if
we're looking at relative valuations between the US and elsewhere,
and we can look at Asia, we can look at
Europe as well, those relative valuations are very extreme. So
(06:18):
one of my favorite saying things, I think it's George
Soros said that most of the money is made when
things go from really really awful to just awful, right,
you know, because of those extreme valuations. And I think
that's what's seeing at the moment is things are getting
less bad elsewhere, and that's encouraging people to sort of
reduce their underweight positions or their short positions in non
(06:39):
US equities, and that's leading to short term out performance.
I guess the question is, you know, we've had false
dawns before in this space. Is this another one of those?
Speaker 4 (06:47):
And we'll just get the resumption of the norm of.
Speaker 3 (06:50):
US exceptionalism as we go through the rest of the year,
and our sense is this it's too early to sort
of move away from the US, but obviously we're watching
with a huge interest.
Speaker 5 (07:01):
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(07:21):
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Speaker 2 (07:25):
And Steve, you've been around for a few decades, as
you mentioned, and I do remember there was a time
in the early two thousands when it wasn't all dominated
by the US. I do remember that there were some
European tech companies that were leaders in mobile phones. European
banks were challenging the US bulge bracket investment banks. Although
(07:46):
you know, yeah, they're no longer a challenge arguably now.
But tell us like, it hasn't always been this case,
has it?
Speaker 4 (07:53):
No, it hasn't.
Speaker 3 (07:54):
I mean, I still remember the Nokia of that era.
Nobody would ever own another side that. I'm right, I mean,
it was that's a slight exaggeration that it was Erickson
as well.
Speaker 4 (08:04):
Yeah, true, that.
Speaker 1 (08:05):
Was my first phone.
Speaker 4 (08:09):
Mine was a Nokia.
Speaker 3 (08:10):
It was a brick, right, you could throw and really
do serious damage. So look, so it hasn't always been
the case, obviously in some ways it's difficult sy what
gets it back? I think that the global financial crisis
was a really big factor in this in terms of
obviously that you mentioned the banks there, the regulation that
came through following the Global financial crisis that hit the
banking sector obviously very hard generally. But we've had a
(08:33):
lot of deregulation since in the US, and I think
that certainly helped the margin as well in terms of
driving shareholder returns. We can argue what the connotations will
be for the safety of the banking sector of the future,
especially if deregulation continues, but that certainly helped as well. So,
you know, I think we need to get to a
point where innovation.
Speaker 4 (08:54):
Is more embraced.
Speaker 3 (08:56):
But you know, again, if you look at the AI space,
Europe is already started to move in the regulation sphere
there whereas in the US, regulation is becoming almost a
four letter word as far as the policymakers are concerned.
So the AI space looks like it's still going to
be led by the US and maybe to some degree
China as well, rather than coming out of Europe.
Speaker 2 (09:18):
And we also have to ask the elephant in the
room now President Trump his protectionist policies is tariffs. Does
this add to the idea of US exceptionalism or does
it detract from it?
Speaker 3 (09:33):
So I think this is one of the reasons that
we're overweight the US market at the moment still despite
those extreme valuations, is we believe that a lot of
the policies that will be pursued will be positive for
the economy in terms of growth. Obviously, we can talk
about inflation. That's probably the biggest concern that we have
is whether you know the import tariffs and immigration controls
(09:55):
will lead to higher inflation. I think it certainly will
put the brake on inflation coming lower to significant extent.
But you know, we do think that that's going to
help ensure that the stock market in the US does well.
And obviously, if you're important're putting import tariffs on, that
is detrimental to risk appetite in some of the parts
of the world. And obviously we saw the tariffs being
(10:15):
announced on Mexico and Canada and then being rolled back
very quickly. If that was to happen, then you get
the uncertainty, but you don't get the hit necessary to
corporate earnings. I think the key thing here is is
really how much of a this is Bart versus Biden.
But I think the influence comes via the dollar. So
our senses the dollar is in the process of peaking.
Speaker 4 (10:36):
Here.
Speaker 3 (10:37):
You obviously seen the dollar weeken, not massively, but reasonably
significantly from the heights, and I think from that perspective,
you know, if we have seen the peak of the
dollar and we're moving definitively lower and we got increasing
confidence from our perspective, but also from the market investors' perspective,
I think that would then lead to much more sustained
interest in non US equities. So most parts are going
(11:00):
to be important. If they're all bark and no bit it,
ultimately dollars should come lower and that should support actually
it will support US equities as well, by the way,
because a week of dollar is good for all equity markets,
not just non US equity markets, but it does change
their relative performance as well.
Speaker 1 (11:16):
Can we talk about some of the risks on the horizon.
I know you've said, you know, will US exceptionalism continue
on a multi year basis earlier, and I wanted to
see if you had some potential answers to that, or
at least things that potentially are headwinds. For example, President
Trump's policies. While on the one hand they could really
(11:37):
strengthen the dollar and they could be good for companies,
there's also some risks of stakeflation in the US potentially
slower growth now, especially with this wave of tariffs in
recent weeks. So could you talk a bit about that.
Speaker 4 (11:50):
Yes, So it's really interesting.
Speaker 3 (11:52):
So we've just finished twenty twenty five Outlook road show
where we go to countries around Asia, Africa and the
Middle East. So you know, we presented it almost ten
thousand clients on that and in the private bank events
we were basically we asked people the question, okay, so
what's the biggest risk? Right and consistently outside of Hong
Kong we can talk a little bit about that. The
(12:13):
top two risks were trade tariffs and inflation. Now, from
our perspective, trade tariffs is the highest probability thing to worry.
Speaker 4 (12:23):
About, right, because that's going to happen.
Speaker 3 (12:25):
It's just a degree to which it happens and how
it's rolled out and how it might be rolled back
at some point in the future. But from an investor perspective,
the number one risk, and it's a tail risk that's
not a central scenario, is that inflation surges again, and
that basically then comes back to sort of being in
twenty twenty two reducts right where we saw bond yields
going up and equity markets coming down. So the diversification
(12:48):
benefits of bonds relative to equities really wasn't there anything
to the degree we've seen historically, And actually the way
we categorize twenty twenty two was it's the second worst
investment climate in the past one hundred and fifty years,
So it was a massive outlier. The ar is that
was something that we could see come back, and obviously
we do know that some of his policies are potentially inflationary.
Speaker 4 (13:11):
Now it depends who you talk to.
Speaker 3 (13:12):
Of course, the FED is obviously a little bit concerned,
but not overly concerned at the moment. But Trump is
saying this is not an issue, of course, right, So
inflation's going to come lower and therefore interest rates should
come lower, but it's a tail risk, so probably ten
percent probability, But it was the one that would have
the biggest impact on investors because it would mean that,
you know, the traditional asset allocation approach would face challenges again,
(13:36):
so that sixty to forty equity.
Speaker 4 (13:37):
Bond portfolio would perform poorly.
Speaker 3 (13:40):
The way we think about this in the longer term
is we sort of say, look, we believe that Trump
wants to be business friendly, and a stock market is
a key barometer for him on that journey. So if
we did see his policies leading to market volatility, we
would expect some sort of recalibration to make sure. And
I think what was interesting with US Treasury Secretary Scott
(14:01):
Bessant he shifted the conversation at least temporarily from what
the Fed should do to focusing on the ten year yield.
I think the soft message there was saying, look, we're
not going to do anything that's going to push the
ten year yield higher, and I think that should be
something that makes investors more comfortable. But obviously inflation is
the key tail risk.
Speaker 1 (14:21):
So the you mentioned Scott Besson's comments there, we were
trying to unpack that when it came out. I think
a lot of people are trying to unpack those comments
when they came out. So you're saying, from your view
as an investor, you kind of took that not in
the sense that they're going to, like Japan or the
Bank of Japan start engineering or trying to move around
the ten year Now.
Speaker 3 (14:39):
The way I view this is that I think Scott
Bessant is Trump's attempt to give him the cloud cover
to do what he wants. So he wants a credible
Treasury secretary not to sort of change the policies that
he wants to implement, but better sell them to markets
so that it don't lead to like a Lisz trust
(15:00):
moment in the bond market, for instance, that obviously would
be very damaging for what they're trying to achieve. So
that's the way I view Besson's job actually is not
necessarily as much on the policy front, but to sell policy.
Now there's no guarantees of course that works, and it
is quite possible that he and Trump at some point
will fall out and we'll have a different Treasury secretary.
(15:21):
But I think that's the sort of thought process at
the moment, and you know, so, yes, there's a sensible
person in the room, but there's also a salesman trying
to sell what they're doing as not being detrimental to
the inflation outlook to the economy and therefore reassuring markets
that everything's okay, okay.
Speaker 2 (15:38):
So you believe that the Trump administration is can be
very pragmatic, especially to financial markets. So if tariffs do
become inflationary, then they may possibly sort of dull back
their actions.
Speaker 3 (15:49):
Yeah, we've already seen obviously roll back in some areas.
I think they will be selective where they're more willing
to roll back and areas where they'll be less willing
to roll back. So I think, and that's more of
a gear political conversation. So if you think about a
two by two matrix, you're an ally or not an ally,
and you have a huge deficit or not a huge deficit,
(16:10):
you obviously want to be an ally and not huge
US deficit with you. If you're in the other category
with you're not necessarily an ally, but you have a
huge surplus with the US, then probably that's going to
be a more challenging area. So I think, yes, there's
going to be a lot of I mean, Europe is
obviously going to be an interesting case study because obviously
(16:30):
historically an ally there's intensions do seem to be rising,
not Jack's in trade, but also political tensions between Europe
and the US. So how that plays out it's going
to be very interesting. But I think on the trade
side they'd be more willing to threaten, maybe even implement,
but then quickly backtrack if Europe plays the game. So
that's the way that we see it happening.
Speaker 1 (16:52):
So, given Trump's policies being on net pretty good for
US stocks over the next let's say four years, is
there any reason for people to invest outside of the
US to get US Yeah, I mean probably exactly. We're
based here in Hong Kong. It makes me think of,
(17:13):
you know, if we have a situation where there will
be tariffs coming in and pretty broad tariffs, you know,
not just you have ten percent so we're going to
give ten percent. It's also on things like VAT and
taxes and subsidies and some of these foreign countries that
for a company looking to invest abroad or you know FDI,
any kind of FDI, you're gonna be thinking, well, where
(17:35):
can I actually go that won't be hurt by tariffs,
and so is it sort of US exceptionalism because there
are limited places to get gains elsewhere? Or is there
maybe an argument that you should be overweight in these
other countries?
Speaker 3 (17:50):
So the main argument, I mean, are the ones for
being overweight outside the US or what we've discussed right,
So we're seeing some positive science in here, obviously the
deep seek phenomena, but we also see the relative valuations
as well, so that those are the two arguments. We
don't think they're necessarily compelling enough to warrant overweighting assets
(18:11):
equities outside the US. So we're overweight global equitism within
that way, overweight the US, but overweight doesn't mean.
Speaker 4 (18:17):
Zero allocation elsewhere.
Speaker 3 (18:19):
And so you'd expect a CIO to come on and
talk about diversification at some point. Of course, you should
have exposure to Asian equities, you should have exposure to
European equities and Japanese equities, etc.
Speaker 4 (18:32):
So that's something that we truly believe in.
Speaker 3 (18:34):
You know, nobody knows with one hundred percent surety what's
going to happen going forward, So it could be that
this performance of Europe is the start of a twelve
month out performance.
Speaker 4 (18:44):
It is possible.
Speaker 3 (18:45):
It's not our central scenario, but that's another reason why
you should have European equities in your portfolio as you
go forward. So that diversification thing, I think is really
important for people to remember. And if we look at
investor behavior, it is very tempting for people to become
very narrow in their exposures. Right, So you know the
mag seven and we've discussed, right, that's sort of something
(19:07):
that can lead to very narrow exposures in the technology space,
and we like going, yes, technology is the future, but
it's priced quite high already. So it's not to say
that you shouldn't have exposure there. But if you're like saying, Okay,
I'm invested fifty percent in the US equities and fifty
percent in the Nasdaq, then I've got a massive exposure
to US tech and maybe we should be looking at
(19:29):
ways of diversifying that to say, Okay, this can't go
on forever. Whatever can't go on forever, at some point
must stop, and therefore we should be just making sure
we're calibrating our exposures to diversify away. And you can
do that through you know, okay, maybe instead of SMP exposure,
I'll do SMP equal weighted and then I'll add in
some international equity exposure as well and stiff.
Speaker 2 (19:50):
You mentioned your global outlook where you visited in numerous cities,
but you mentioned that Hong Kong the risks were different.
What was the Hong Kong audience word of.
Speaker 3 (20:00):
So obviously they were still worried about trade and inflation
as well, but I think the additional one that they
added in that actually was quite interesting. It wasn't elsewhere
was the debt deflation risk in China, right, So elsewhere
people really weren't focused on that, maybe because of the timing. Obviously,
we're doing this around the time of the US inauguration,
(20:22):
so you know, it's obviously front and center of the news,
whereas China moved a little bit off the front and center.
But debt deflation cycle in China was obviously high on
their agenda as well, and that fed into.
Speaker 4 (20:33):
The other question.
Speaker 3 (20:34):
We asked them, are you optimistic, neutral, or worried about
twenty twenty five? And Hong Kong rated the highest on
you know, worried about twenty twenty five, And I guess
that's also a proximity to China conversation as well, we
can argue and step back and say, wait a second,
China is still going to grow about four and a
half five percent growth this year. Not many people can
(20:56):
match that, but I think when you look at the
nominal the Deceller nominal growth, so real growth coming down,
but also inflation coming down, and you add in the
high debt levels, then clearly that is something that we
need to manage. And the way we see this playing
out is it's just going to be a muddle through
economy going forward. And the reason we think that is
because while investors in Chinese equities are saying, why aren't
(21:20):
we making sure inflation's going up?
Speaker 4 (21:22):
Right? So we really need.
Speaker 3 (21:24):
To avoid deflation, and I don't think the authorities would
be disagreeing with that. They're also very cognizant that just
laying on debt on debt on debt is not a
solution to the problem either, So they're taking a much
more balanced view of this. And maybe they're also waiting
to see what Trump's going to do and say, okay,
if we're going to do something, you know, a mini
(21:44):
two thousand and eight two thousand and nine in terms
of fiscal stimulus, then maybe we'll wait until we can
have maximum impact of that on sentiment on the markets,
And probably that's better to do after Trump has decided
what he's going to do on China rather than before
and then see the euphoria way later.
Speaker 1 (22:03):
Does it make it harder during this period of time
where the US is outperforming and we have these America
first policies? Does it make it harder for other countries
to sort of stand out and their equity markets to
stand out and garner investment? Like I'm thinking for example
of Vietnam, they're aiming for eight percent GDP growth this year,
(22:23):
which is going to be very tricky, but they're trying
to engineer through fiscal and hopefully monetary stimulus where used
to do that. So yeah, does it make it kind
of trickier when you have this one kind of giant
in the room.
Speaker 4 (22:38):
It certainly does. So there's two elements that writes them.
Speaker 3 (22:40):
From a growth perspective, It's very difficult to form policies
for the rest of the year because you don't exist
in a vacuum. So historically you'd like, go, okay, I'm
not going to be hugely blindsided by policies out of
the US. Now, that's obviously not a given, So you
need to acknowledge that decisions you may take today might
want to revisit tomorrow based on something that the US
(23:03):
might do. And obviously the China plus one strategy will
come under increasing strutiny and will continue to do so
under a Trump administration. One would think the second thing
then is you know, okay, what does this mean for
my financial markets as another country elsewhere? And again that's
not totally in your control, of course, but one thing
(23:23):
that investors hate is uncertainty, and one thing that we
all know we're going to have lots of is uncertainty,
and so that increases the risk premium potentially on your
assets unless you can find a way to come up
with a model that is actually much more resistant. And
I think this is a broader point geopolitical point is
(23:43):
I think the one thing that countries globally have to do,
and I don't think this is just for the next
four years now, is if I'm reliant on the US
for anything, I need to really try and figure out
how it can be more resilient. And that can be
either trade, which is the obvious one or it can
be foreign aid, or it can be military cover. We're
seeing all three areas being hugely scrutinized in the US
(24:05):
at the moment. And if you're reliant on the US
in a significant way in either of those three spares,
then that's probably where you should be spending your time
as a policymaker in trying to say, what can I
do to reduce my reliance strategically on the US. And
I think that's I don't think that's actually long term
good for the US, but I think, you know, it
is something that policymakers and governments really have to think
(24:28):
about more and more nowadays.
Speaker 1 (24:31):
How chaotic is this time right now for you? We
were just chatting before the recording about you moving to
Singapore in the midst of the Asia financial crisis. I mean,
how does this time compare with other errors?
Speaker 3 (24:44):
So obviously this is more of a slow burn, and
the Asian financial crisis of the global financial crisis, right,
that was extremely chaotic and things were changing structurally or
what the risks were changing exponentially within days, right, So
it was really I mean I was here for the
Korean devaluate during the Asian financial crisis, That's one of
my first when I was twenty five, when I moved
to Singapore. Right, that was a real education on what
(25:07):
can go wrong. Obviously the global financial market at one
point it looked like the system was going to collapse,
and COVID as well. You know, again, very different situation,
but something equally scary. This almost feels a bit more
entertainment value rather than really really scary. But that doesn't
mean it's not scary. I think, you know, you can
take a geopolitical lens of saying, look, we're moving now
(25:30):
from a unilateral world to a multipolar world. That's not
new information. We've known that for some time. That increases
uncertainty and will lead to things that we don't for
see today. In the extreme, obviously, that leads to military conflict.
So just because it feels entertaining and we know we're
going to get new information on a daily basis and
you're going to maybe roll your eyes at some stuff,
(25:52):
applaud other things, etc. But the long term implications here
I think are going to be much more broader felt
than COVID and things like this. That's probably the bigger
concern longer term, rather than what happens this year.
Speaker 2 (26:04):
So, Steve, you came to Asia during the Asian financial
crisis in the late nineteen nineties, so that means that
you also went through the tech bubble in late nineteen
ninety nine. Now some pundits are drawing analogies to the
elevated stock valuations now and the tech bubble of the nineties.
Speaker 3 (26:22):
What's your view there, So it's a really good question, right, So,
I mean, as then you had market leaders, right, you
had businesses that don't really make money, but people still
valuing them hugely and will see that today. I guess
my thoughts here are I think that's the way we're heading.
I'm not sure where the end of ninety nine beginning
of two thousand yet, because I don't think the euphoria
(26:43):
necessary is as high as it was then. And one
of the things that we often get asked about is
we talked about relative valuations, but even US valuations on
a standalone basis are reasonably high, but they're not at
late nineteen nineties highs. And so from that perspective of
my set scenarios that we still probably have a little
bit of a melt up in terms of you know,
(27:03):
stock prices generally maybe on the tech.
Speaker 4 (27:06):
Side as well.
Speaker 3 (27:08):
Before we see that peak form. I think we're not
an excessive optimism yet, so from our perspective, we still
have some road. Again, the risk manager in me says, okay,
but we don't know. It is possible that we are,
you know, the beginning of two thousand now and we
could see the peak in the market. That is obviously
a potential outcome. So again we talked about diversifying within equities,
(27:32):
but also diversifying outside of equerders. We think bond yields
are pretty attractive in this environment. So you know, if
you think back two years ago, three years ago, people
would say, oh, I'd kill for a five percent yield.
Speaker 4 (27:44):
Well, now you can get IG bonds as.
Speaker 3 (27:45):
A seven percent yield, right, So you sort of say, okay,
that's not a bad place to have an allocation too,
even if it's just to protect your wealth, but also
as a counterbalance to equity markets.
Speaker 4 (27:57):
In case we are wrong and we.
Speaker 3 (27:59):
Do see that surgeon in or we do see a
recession coming down the path, then maybe having ancation there
makes more sense and you'll be more protected this time,
even if it's inflation. Because the baseline of interest rates
is higher, so the coupons you're clipping a higher that
gives you a lot more protection than you had the
beginning of twenty twenty two.
Speaker 2 (28:16):
And do you also have a view on other assets
potentially gold.
Speaker 4 (28:21):
Yeah.
Speaker 3 (28:21):
Our challenge here is we've already hit our full year target,
so I think from our perspective, well yeah, actually I
think this is the second year in three that that's
happened to us, Like by february've hit our full year target.
So I guess the challenge now is saying, Okay, how
much of this should we extrapolate and revise higher. I
think our sense is that the structural outlook for gold
is positive, and part of this is the geopolitical conversation,
(28:44):
and a lot of people focus on individual investors or
institutional investors, but obviously there's also a central bank element
to this in terms of, you know, the sanctioning of
the Russian Central Bank really some shop ways through the
central bank community. And if you're not fully aligned with
the US and Europe, then and obviously you want to
diversify as much as away from US assets as you can.
There's not a lot you can do because they're the
(29:05):
deepest financial markets, but one thing you can do is
add to your gold holdings and actually physically really okate
your gold as well. So it's not under the Bank
of England, it's probably in your own country. So I
think that's something that still hasn't fully played out. If
you look at what central banks have been doing, you
saw a massive increase in twenty twenty two of gold
purchases from central banks. Unsurprisingly, that's still elevated and if
(29:28):
you look at intentions, that's continuing to accelerate. So we
see that as a strong source of demand for gold.
So we have about of five to seven percent allocation
of gold in our portfolios. That's obviously helped us really
well so far this year, and we can see the
long term up trend for gold as being intact.
Speaker 4 (29:47):
Maybe got a bit.
Speaker 3 (29:48):
Ahead of itself in the short term, but certainly buying
on dips if we get down to sort of two
thousand and six fifty would be a really I think
you'd be lucky to get it down there, but maybe
even two seven fifty, that's probably a decent place to
start accumulating gold again.
Speaker 1 (30:04):
So, Steve, you had mentioned this risk of inflation and
what potentially can happen in the States, but also globally.
Of course, tariffs would not help in that regard. So
if we do get that situation, whether it's stake inflation
or another kind of resurgence in inflation which no one
wants to see, what do investors do? How can investors
play that?
Speaker 4 (30:25):
Yes, so I.
Speaker 3 (30:25):
Guess the default answer would probably be what we just
discussed in terms of gold, Right, So gold is you know,
over the long term at least is a good inflation edge,
and actually so our equity is over the long period,
but obviously the short term dynamics would be quite challenging.
I think then you're looking at diversifying beyond sort of
public markets, and really so private credit is probably a
(30:46):
good place to be. Yes, that would come with some
economic concerns, but at least their floating rate exposures that
you're taking, So if interest rates did have to go up,
then you'd be benefiting from that. So that would provide
some sick nificant diversification for investors. Infrastructure is obviously a
grade inflation protection as well, or hedge against inflation of
(31:08):
a reasonably short period of time. Actually, because often they're
inflation linked in terms of the payouts they offer, and
then the final place would be obviously in the sort
of hedge fund space. So whether you know, we can
talk about equity long short, that's usually a difficult place
to be because it often has a correlation with equities.
If you can get a good market neutral strategy in
(31:29):
that space, then that can work. But also if we're
looking at the sort of macro strategies space where they
can go long short and different assets, that is often
a very good place to allocate. It's a bit like
an insurance policy. So I think that's why it's difficult
to get much traction in the macro strategy CTA space
because you know, people say, well, it often doesn't do
(31:51):
that well in normal times, but as with any insurance policy,
it really pays off when you get that volatility on
the downside. So having an allocation and that's as well
makes sense for us.
Speaker 2 (32:02):
Steve, I wanted to before I let you go on
to ask you a personal question. Now, you moved to
Asia and you're twenty five. I think you mentioned during
the Asian financial crisis to Singapore, you did stints in Dubai.
I think South Africa you mentioned as well, and you
studied and you grew up in England. But just wind
the clock back if you're twenty five, now, where would
(32:22):
you like to work and live?
Speaker 3 (32:25):
I guess it depends which space you're in, right, So
if you're in data science or something like that, I
think the most interesting stuff you're going to be doing,
or AI, you almost have to be in the US
these days. I guess you maybe to some degree, some degree,
you could be in China as well, So I think
that's an interesting space. Obviously, it's going to be probably
more constrained, but you know, strange you may get more
(32:48):
backing as well in the areas where they want to develop. Certainly,
if I was to rewind the clock, I wouldn't change
a thing. I always say that, you know, I got
where I am today through the choices I've made, And yeah,
of course I wouldn't do everything the same way, but yeah,
I think it's where I ended up was a good space.
I get to do fun things like this all right,
and talk to interesting people. So Asia is still a
(33:10):
huge powerhouse for the region. I just think it's going
to be that. Yeah, the US is going to be
very interesting as well. Well.
Speaker 1 (33:18):
It's been a great conversation Steve, thank you so much
for joining us.
Speaker 4 (33:22):
Thank you so much being a pleasure. As always, you've.
Speaker 1 (33:26):
Been listening to Asia Centric from Bloomberg Intelligence. I'm Cartedmu
Treeva here in Hong Kong. You can find me on
LinkedIn or on the terminal.
Speaker 2 (33:34):
And I'm John Lee. You can also find me on LinkedIn.
This podcast was produced and edited by Clara Chen and
thank you for listening to Asia Centric.
Speaker 1 (33:43):
You can find us on Apple Podcasts, Spotify, or wherever
you listen. See you next time.
You're listening to Asia Centric from Bloomberg Intelligence, the podcast
that explores the big ideas and trends moving money across
the region. I'm KATYDM Dreeva here in Hong Kong.
Speaker 2 (00:12):
And I'm John Lee here in Sydney. Katia. The finance
word loves buzzwords.
Speaker 1 (00:17):
Yeah, they really do.
Speaker 3 (00:18):
Hit me with a couple.
Speaker 2 (00:19):
Well, the Magnificent Seven for a start, The Fed's pale
talking about inflation being transitory.
Speaker 1 (00:25):
Yeah, I do remember that era. You know something I've
heard gaining traction as well, basically since the pandemic reopenings
as American exceptionalism, this idea in markets and the economy
that's somehow the US is just like.
Speaker 2 (00:39):
Taflon and I've definitely heard a lot of strategists use
US or American exceptionalism in their reports. And today we
have the perfect guest to discuss this is Steve Bryce,
Global Chief Investment Officer at Standard Charter Bank based in Singapore. Steve,
welcome to the show.
Speaker 1 (00:56):
Thank you so much, such a pleasure to be I
wanted to get started by just asking very basic question,
which is what is US exceptionalism to you? As an
investor and someone who's been in a space for I
guess three decades.
Speaker 3 (01:10):
Now, yeah, I guess There's two elements to it, and
they're obviously related. So the first piece is that this
concept that the US economy is much more resilient to
factors than other parts of the world, and there's different
ways of looking at that. Obviously, you can look at
nominal growth rates and say the US actually and the
performing places like China, but it just seems to be
(01:31):
a bit more in a sweet spot in terms of
generating growth and innovation as well as a key piece.
And then the second piece of that then relates to
asset markets. So obviously the depth of markets that innovation
coming through in terms of very strong profitable opportunities for
corporates leading to the outperformance of US assets, particularly obviously
(01:52):
US equity market.
Speaker 4 (01:53):
And we've seen that now for some time.
Speaker 3 (01:55):
So if you go back to actually pretty much sinto
the global financial crisis, maybe outside the first two or
three years, we've seen in the US equity market generally
outforming in a massive way. And so that's obviously leading
to people to say, you know, can this continue forever?
And is the US the only game in town? And
that's sort of the epitome of the US exceptionalism and
(02:15):
Mantra and.
Speaker 2 (02:16):
Steve, I know you a student of financial history, but
this is the normal state of play that the US
financial markets generally outperform the rest of the world.
Speaker 4 (02:28):
So actually, no, not really.
Speaker 3 (02:30):
I suppose the second half of my career has been
basically dominated by the US, but it's certainly not the
case throughout the history time. Now, I guess the one
thing that we do see a lot of is that
because people have more data going back for the US
market more than any other market, that you do generally
see that the people using that as a benchmark for
(02:51):
global equities when doing historical analysis, so the buying on
those sort of things. Long term investing US is obviously
the starting point, but you do go through significant periods
of underperformance for US equities from time to time. A
key input for that from our perspective is, particularly on
a sort of cyclical basis, is what happens to the dollar.
(03:13):
So in a strong dollar environment, US equities generally outperform.
When the dollar is definitively weak, you usually see non
US equities outperform. You can see over the last ten
years as well, we've seen the dollar generally in an
up trend, So that fits with that piesis of why
the US is doing well?
Speaker 1 (03:31):
Why does the US generally outperform? I know you mentioned
a couple factors there, but historically and maybe even just
more recently the past few years, you know what's really
driven US out performance? Is it one sector? For example?
We look at Ai, is it the dollar? Like what
is it?
Speaker 4 (03:49):
Yees?
Speaker 3 (03:49):
So I think there's two things, right, So firstly, maybe
look at the competition hasn't been that strong.
Speaker 4 (03:55):
So we've seen in.
Speaker 3 (03:56):
Europe obviously going through pretty challenging times on a multi
year basis, whether you talk about sovereign debt crises or
just very very anemic growth, a lack of innovation, greater
regulation since the Global financial crisis as well, So those
sort of factors sort of inhibit the growth there. China, obviously,
growth is still relatively strong to the rest of the world,
(04:18):
but it's on a deceleration path and we're talking about
concerns about debt deflation cycle in China. So when you've
got all those things out there, it suggests that the
competition against the US isn't that grade. And then yes,
when you look at the US story, we talked about
innovation obviously a major major piece of the US outperformance.
(04:40):
Technology driving that You mentioned that obviously the mag seven
that has been a major port. So you're seeing a
lot of more concentration risk being taken and that's what's
been driving this out performance. So it's both the strong
domestic fundamentals in the US, but also weakness elsewhere.
Speaker 1 (04:57):
We're seeing some threat to that potentially. You know, before
we started recording, John and I were talking about deep
seek and the effect that that had on capital markets,
but also on just overall sentiment with technology and AI
in the US perhaps looking more overpriced now. And also
the fact that she met in China with a lot
(05:18):
of tech executives, which sort of shows perhaps a greater
focus on that sector going forward.
Speaker 3 (05:24):
I guess you need to balance a couple of things, right,
So clearly so far this year, for instance, actually Europe
has been one of the best performance right at performing
the US. So there's a question of whether this US
exceptionism will continue on a multi year basis. I think
if we look at the just at the pure fundamentals,
it was suggests yes, U exceptionism can continue for some
(05:46):
time to come, and certainly we are still overweight US
equities on a six to twelve month view.
Speaker 4 (05:52):
That's to some.
Speaker 3 (05:52):
Degree policy agenda, which I'm sure we'll get to from
a US perspective. But I think there's also the other
side is it's not just the story or the fundamentals
that matters. It's also matters what's priced. And so if
we're looking at relative valuations between the US and elsewhere,
and we can look at Asia, we can look at
Europe as well, those relative valuations are very extreme. So
(06:18):
one of my favorite saying things, I think it's George
Soros said that most of the money is made when
things go from really really awful to just awful, right,
you know, because of those extreme valuations. And I think
that's what's seeing at the moment is things are getting
less bad elsewhere, and that's encouraging people to sort of
reduce their underweight positions or their short positions in non
(06:39):
US equities, and that's leading to short term out performance.
I guess the question is, you know, we've had false
dawns before in this space. Is this another one of those?
Speaker 4 (06:47):
And we'll just get the resumption of the norm of.
Speaker 3 (06:50):
US exceptionalism as we go through the rest of the year,
and our sense is this it's too early to sort
of move away from the US, but obviously we're watching
with a huge interest.
Speaker 5 (07:01):
Asia Centric is produced by Bloomberg Intelligence, where more than
five hundred experienced analysts and strategists work around the clock
to bring you timely, world class research. Our coverage spans
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(07:21):
what you hear, don't forget to subscribe and chairm.
Speaker 2 (07:25):
And Steve, you've been around for a few decades, as
you mentioned, and I do remember there was a time
in the early two thousands when it wasn't all dominated
by the US. I do remember that there were some
European tech companies that were leaders in mobile phones. European
banks were challenging the US bulge bracket investment banks. Although
(07:46):
you know, yeah, they're no longer a challenge arguably now.
But tell us like, it hasn't always been this case,
has it?
Speaker 4 (07:53):
No, it hasn't.
Speaker 3 (07:54):
I mean, I still remember the Nokia of that era.
Nobody would ever own another side that. I'm right, I mean,
it was that's a slight exaggeration that it was Erickson
as well.
Speaker 4 (08:04):
Yeah, true, that.
Speaker 1 (08:05):
Was my first phone.
Speaker 4 (08:09):
Mine was a Nokia.
Speaker 3 (08:10):
It was a brick, right, you could throw and really
do serious damage. So look, so it hasn't always been
the case, obviously in some ways it's difficult sy what
gets it back? I think that the global financial crisis
was a really big factor in this in terms of
obviously that you mentioned the banks there, the regulation that
came through following the Global financial crisis that hit the
banking sector obviously very hard generally. But we've had a
(08:33):
lot of deregulation since in the US, and I think
that certainly helped the margin as well in terms of
driving shareholder returns. We can argue what the connotations will
be for the safety of the banking sector of the future,
especially if deregulation continues, but that certainly helped as well. So,
you know, I think we need to get to a
point where innovation.
Speaker 4 (08:54):
Is more embraced.
Speaker 3 (08:56):
But you know, again, if you look at the AI space,
Europe is already started to move in the regulation sphere
there whereas in the US, regulation is becoming almost a
four letter word as far as the policymakers are concerned.
So the AI space looks like it's still going to
be led by the US and maybe to some degree
China as well, rather than coming out of Europe.
Speaker 2 (09:18):
And we also have to ask the elephant in the
room now President Trump his protectionist policies is tariffs. Does
this add to the idea of US exceptionalism or does
it detract from it?
Speaker 3 (09:33):
So I think this is one of the reasons that
we're overweight the US market at the moment still despite
those extreme valuations, is we believe that a lot of
the policies that will be pursued will be positive for
the economy in terms of growth. Obviously, we can talk
about inflation. That's probably the biggest concern that we have
is whether you know the import tariffs and immigration controls
(09:55):
will lead to higher inflation. I think it certainly will
put the brake on inflation coming lower to significant extent.
But you know, we do think that that's going to
help ensure that the stock market in the US does well.
And obviously, if you're important're putting import tariffs on, that
is detrimental to risk appetite in some of the parts
of the world. And obviously we saw the tariffs being
(10:15):
announced on Mexico and Canada and then being rolled back
very quickly. If that was to happen, then you get
the uncertainty, but you don't get the hit necessary to
corporate earnings. I think the key thing here is is
really how much of a this is Bart versus Biden.
But I think the influence comes via the dollar. So
our senses the dollar is in the process of peaking.
Speaker 4 (10:36):
Here.
Speaker 3 (10:37):
You obviously seen the dollar weeken, not massively, but reasonably
significantly from the heights, and I think from that perspective,
you know, if we have seen the peak of the
dollar and we're moving definitively lower and we got increasing
confidence from our perspective, but also from the market investors' perspective,
I think that would then lead to much more sustained
interest in non US equities. So most parts are going
(11:00):
to be important. If they're all bark and no bit it,
ultimately dollars should come lower and that should support actually
it will support US equities as well, by the way,
because a week of dollar is good for all equity markets,
not just non US equity markets, but it does change
their relative performance as well.
Speaker 1 (11:16):
Can we talk about some of the risks on the horizon.
I know you've said, you know, will US exceptionalism continue
on a multi year basis earlier, and I wanted to
see if you had some potential answers to that, or
at least things that potentially are headwinds. For example, President
Trump's policies. While on the one hand they could really
(11:37):
strengthen the dollar and they could be good for companies,
there's also some risks of stakeflation in the US potentially
slower growth now, especially with this wave of tariffs in
recent weeks. So could you talk a bit about that.
Speaker 4 (11:50):
Yes, So it's really interesting.
Speaker 3 (11:52):
So we've just finished twenty twenty five Outlook road show
where we go to countries around Asia, Africa and the
Middle East. So you know, we presented it almost ten
thousand clients on that and in the private bank events
we were basically we asked people the question, okay, so
what's the biggest risk? Right and consistently outside of Hong
Kong we can talk a little bit about that. The
(12:13):
top two risks were trade tariffs and inflation. Now, from
our perspective, trade tariffs is the highest probability thing to worry.
Speaker 4 (12:23):
About, right, because that's going to happen.
Speaker 3 (12:25):
It's just a degree to which it happens and how
it's rolled out and how it might be rolled back
at some point in the future. But from an investor perspective,
the number one risk, and it's a tail risk that's
not a central scenario, is that inflation surges again, and
that basically then comes back to sort of being in
twenty twenty two reducts right where we saw bond yields
going up and equity markets coming down. So the diversification
(12:48):
benefits of bonds relative to equities really wasn't there anything
to the degree we've seen historically, And actually the way
we categorize twenty twenty two was it's the second worst
investment climate in the past one hundred and fifty years,
So it was a massive outlier. The ar is that
was something that we could see come back, and obviously
we do know that some of his policies are potentially inflationary.
Speaker 4 (13:11):
Now it depends who you talk to.
Speaker 3 (13:12):
Of course, the FED is obviously a little bit concerned,
but not overly concerned at the moment. But Trump is
saying this is not an issue, of course, right, So
inflation's going to come lower and therefore interest rates should
come lower, but it's a tail risk, so probably ten
percent probability, But it was the one that would have
the biggest impact on investors because it would mean that,
you know, the traditional asset allocation approach would face challenges again,
(13:36):
so that sixty to forty equity.
Speaker 4 (13:37):
Bond portfolio would perform poorly.
Speaker 3 (13:40):
The way we think about this in the longer term
is we sort of say, look, we believe that Trump
wants to be business friendly, and a stock market is
a key barometer for him on that journey. So if
we did see his policies leading to market volatility, we
would expect some sort of recalibration to make sure. And
I think what was interesting with US Treasury Secretary Scott
(14:01):
Bessant he shifted the conversation at least temporarily from what
the Fed should do to focusing on the ten year yield.
I think the soft message there was saying, look, we're
not going to do anything that's going to push the
ten year yield higher, and I think that should be
something that makes investors more comfortable. But obviously inflation is
the key tail risk.
Speaker 1 (14:21):
So the you mentioned Scott Besson's comments there, we were
trying to unpack that when it came out. I think
a lot of people are trying to unpack those comments
when they came out. So you're saying, from your view
as an investor, you kind of took that not in
the sense that they're going to, like Japan or the
Bank of Japan start engineering or trying to move around
the ten year Now.
Speaker 3 (14:39):
The way I view this is that I think Scott
Bessant is Trump's attempt to give him the cloud cover
to do what he wants. So he wants a credible
Treasury secretary not to sort of change the policies that
he wants to implement, but better sell them to markets
so that it don't lead to like a Lisz trust
(15:00):
moment in the bond market, for instance, that obviously would
be very damaging for what they're trying to achieve. So
that's the way I view Besson's job actually is not
necessarily as much on the policy front, but to sell policy.
Now there's no guarantees of course that works, and it
is quite possible that he and Trump at some point
will fall out and we'll have a different Treasury secretary.
(15:21):
But I think that's the sort of thought process at
the moment, and you know, so, yes, there's a sensible
person in the room, but there's also a salesman trying
to sell what they're doing as not being detrimental to
the inflation outlook to the economy and therefore reassuring markets
that everything's okay, okay.
Speaker 2 (15:38):
So you believe that the Trump administration is can be
very pragmatic, especially to financial markets. So if tariffs do
become inflationary, then they may possibly sort of dull back
their actions.
Speaker 3 (15:49):
Yeah, we've already seen obviously roll back in some areas.
I think they will be selective where they're more willing
to roll back and areas where they'll be less willing
to roll back. So I think, and that's more of
a gear political conversation. So if you think about a
two by two matrix, you're an ally or not an ally,
and you have a huge deficit or not a huge deficit,
(16:10):
you obviously want to be an ally and not huge
US deficit with you. If you're in the other category
with you're not necessarily an ally, but you have a
huge surplus with the US, then probably that's going to
be a more challenging area. So I think, yes, there's
going to be a lot of I mean, Europe is
obviously going to be an interesting case study because obviously
(16:30):
historically an ally there's intensions do seem to be rising,
not Jack's in trade, but also political tensions between Europe
and the US. So how that plays out it's going
to be very interesting. But I think on the trade
side they'd be more willing to threaten, maybe even implement,
but then quickly backtrack if Europe plays the game. So
that's the way that we see it happening.
Speaker 1 (16:52):
So, given Trump's policies being on net pretty good for
US stocks over the next let's say four years, is
there any reason for people to invest outside of the
US to get US Yeah, I mean probably exactly. We're
based here in Hong Kong. It makes me think of,
(17:13):
you know, if we have a situation where there will
be tariffs coming in and pretty broad tariffs, you know,
not just you have ten percent so we're going to
give ten percent. It's also on things like VAT and
taxes and subsidies and some of these foreign countries that
for a company looking to invest abroad or you know FDI,
any kind of FDI, you're gonna be thinking, well, where
(17:35):
can I actually go that won't be hurt by tariffs,
and so is it sort of US exceptionalism because there
are limited places to get gains elsewhere? Or is there
maybe an argument that you should be overweight in these
other countries?
Speaker 3 (17:50):
So the main argument, I mean, are the ones for
being overweight outside the US or what we've discussed right,
So we're seeing some positive science in here, obviously the
deep seek phenomena, but we also see the relative valuations
as well, so that those are the two arguments. We
don't think they're necessarily compelling enough to warrant overweighting assets
(18:11):
equities outside the US. So we're overweight global equitism within
that way, overweight the US, but overweight doesn't mean.
Speaker 4 (18:17):
Zero allocation elsewhere.
Speaker 3 (18:19):
And so you'd expect a CIO to come on and
talk about diversification at some point. Of course, you should
have exposure to Asian equities, you should have exposure to
European equities and Japanese equities, etc.
Speaker 4 (18:32):
So that's something that we truly believe in.
Speaker 3 (18:34):
You know, nobody knows with one hundred percent surety what's
going to happen going forward, So it could be that
this performance of Europe is the start of a twelve
month out performance.
Speaker 4 (18:44):
It is possible.
Speaker 3 (18:45):
It's not our central scenario, but that's another reason why
you should have European equities in your portfolio as you
go forward. So that diversification thing, I think is really
important for people to remember. And if we look at
investor behavior, it is very tempting for people to become
very narrow in their exposures. Right, So you know the
mag seven and we've discussed, right, that's sort of something
(19:07):
that can lead to very narrow exposures in the technology space,
and we like going, yes, technology is the future, but
it's priced quite high already. So it's not to say
that you shouldn't have exposure there. But if you're like saying, Okay,
I'm invested fifty percent in the US equities and fifty
percent in the Nasdaq, then I've got a massive exposure
to US tech and maybe we should be looking at
(19:29):
ways of diversifying that to say, Okay, this can't go
on forever. Whatever can't go on forever, at some point
must stop, and therefore we should be just making sure
we're calibrating our exposures to diversify away. And you can
do that through you know, okay, maybe instead of SMP exposure,
I'll do SMP equal weighted and then I'll add in
some international equity exposure as well and stiff.
Speaker 2 (19:50):
You mentioned your global outlook where you visited in numerous cities,
but you mentioned that Hong Kong the risks were different.
What was the Hong Kong audience word of.
Speaker 3 (20:00):
So obviously they were still worried about trade and inflation
as well, but I think the additional one that they
added in that actually was quite interesting. It wasn't elsewhere
was the debt deflation risk in China, right, So elsewhere
people really weren't focused on that, maybe because of the timing. Obviously,
we're doing this around the time of the US inauguration,
(20:22):
so you know, it's obviously front and center of the news,
whereas China moved a little bit off the front and center.
But debt deflation cycle in China was obviously high on
their agenda as well, and that fed into.
Speaker 4 (20:33):
The other question.
Speaker 3 (20:34):
We asked them, are you optimistic, neutral, or worried about
twenty twenty five? And Hong Kong rated the highest on
you know, worried about twenty twenty five, And I guess
that's also a proximity to China conversation as well, we
can argue and step back and say, wait a second,
China is still going to grow about four and a
half five percent growth this year. Not many people can
(20:56):
match that, but I think when you look at the
nominal the Deceller nominal growth, so real growth coming down,
but also inflation coming down, and you add in the
high debt levels, then clearly that is something that we
need to manage. And the way we see this playing
out is it's just going to be a muddle through
economy going forward. And the reason we think that is
because while investors in Chinese equities are saying, why aren't
(21:20):
we making sure inflation's going up?
Speaker 4 (21:22):
Right? So we really need.
Speaker 3 (21:24):
To avoid deflation, and I don't think the authorities would
be disagreeing with that. They're also very cognizant that just
laying on debt on debt on debt is not a
solution to the problem either, So they're taking a much
more balanced view of this. And maybe they're also waiting
to see what Trump's going to do and say, okay,
if we're going to do something, you know, a mini
(21:44):
two thousand and eight two thousand and nine in terms
of fiscal stimulus, then maybe we'll wait until we can
have maximum impact of that on sentiment on the markets,
And probably that's better to do after Trump has decided
what he's going to do on China rather than before
and then see the euphoria way later.
Speaker 1 (22:03):
Does it make it harder during this period of time
where the US is outperforming and we have these America
first policies? Does it make it harder for other countries
to sort of stand out and their equity markets to
stand out and garner investment? Like I'm thinking for example
of Vietnam, they're aiming for eight percent GDP growth this year,
(22:23):
which is going to be very tricky, but they're trying
to engineer through fiscal and hopefully monetary stimulus where used
to do that. So yeah, does it make it kind
of trickier when you have this one kind of giant
in the room.
Speaker 4 (22:38):
It certainly does. So there's two elements that writes them.
Speaker 3 (22:40):
From a growth perspective, It's very difficult to form policies
for the rest of the year because you don't exist
in a vacuum. So historically you'd like, go, okay, I'm
not going to be hugely blindsided by policies out of
the US. Now, that's obviously not a given, So you
need to acknowledge that decisions you may take today might
want to revisit tomorrow based on something that the US
(23:03):
might do. And obviously the China plus one strategy will
come under increasing strutiny and will continue to do so
under a Trump administration. One would think the second thing
then is you know, okay, what does this mean for
my financial markets as another country elsewhere? And again that's
not totally in your control, of course, but one thing
(23:23):
that investors hate is uncertainty, and one thing that we
all know we're going to have lots of is uncertainty,
and so that increases the risk premium potentially on your
assets unless you can find a way to come up
with a model that is actually much more resistant. And
I think this is a broader point geopolitical point is
(23:43):
I think the one thing that countries globally have to do,
and I don't think this is just for the next
four years now, is if I'm reliant on the US
for anything, I need to really try and figure out
how it can be more resilient. And that can be
either trade, which is the obvious one or it can
be foreign aid, or it can be military cover. We're
seeing all three areas being hugely scrutinized in the US
(24:05):
at the moment. And if you're reliant on the US
in a significant way in either of those three spares,
then that's probably where you should be spending your time
as a policymaker in trying to say, what can I
do to reduce my reliance strategically on the US. And
I think that's I don't think that's actually long term
good for the US, but I think, you know, it
is something that policymakers and governments really have to think
(24:28):
about more and more nowadays.
Speaker 1 (24:31):
How chaotic is this time right now for you? We
were just chatting before the recording about you moving to
Singapore in the midst of the Asia financial crisis. I mean,
how does this time compare with other errors?
Speaker 3 (24:44):
So obviously this is more of a slow burn, and
the Asian financial crisis of the global financial crisis, right,
that was extremely chaotic and things were changing structurally or
what the risks were changing exponentially within days, right, So
it was really I mean I was here for the
Korean devaluate during the Asian financial crisis, That's one of
my first when I was twenty five, when I moved
to Singapore. Right, that was a real education on what
(25:07):
can go wrong. Obviously the global financial market at one
point it looked like the system was going to collapse,
and COVID as well. You know, again, very different situation,
but something equally scary. This almost feels a bit more
entertainment value rather than really really scary. But that doesn't
mean it's not scary. I think, you know, you can
take a geopolitical lens of saying, look, we're moving now
(25:30):
from a unilateral world to a multipolar world. That's not
new information. We've known that for some time. That increases
uncertainty and will lead to things that we don't for
see today. In the extreme, obviously, that leads to military conflict.
So just because it feels entertaining and we know we're
going to get new information on a daily basis and
you're going to maybe roll your eyes at some stuff,
(25:52):
applaud other things, etc. But the long term implications here
I think are going to be much more broader felt
than COVID and things like this. That's probably the bigger
concern longer term, rather than what happens this year.
Speaker 2 (26:04):
So, Steve, you came to Asia during the Asian financial
crisis in the late nineteen nineties, so that means that
you also went through the tech bubble in late nineteen
ninety nine. Now some pundits are drawing analogies to the
elevated stock valuations now and the tech bubble of the nineties.
Speaker 3 (26:22):
What's your view there, So it's a really good question, right, So,
I mean, as then you had market leaders, right, you
had businesses that don't really make money, but people still
valuing them hugely and will see that today. I guess
my thoughts here are I think that's the way we're heading.
I'm not sure where the end of ninety nine beginning
of two thousand yet, because I don't think the euphoria
(26:43):
necessary is as high as it was then. And one
of the things that we often get asked about is
we talked about relative valuations, but even US valuations on
a standalone basis are reasonably high, but they're not at
late nineteen nineties highs. And so from that perspective of
my set scenarios that we still probably have a little
bit of a melt up in terms of you know,
(27:03):
stock prices generally maybe on the tech.
Speaker 4 (27:06):
Side as well.
Speaker 3 (27:08):
Before we see that peak form. I think we're not
an excessive optimism yet, so from our perspective, we still
have some road. Again, the risk manager in me says, okay,
but we don't know. It is possible that we are,
you know, the beginning of two thousand now and we
could see the peak in the market. That is obviously
a potential outcome. So again we talked about diversifying within equities,
(27:32):
but also diversifying outside of equerders. We think bond yields
are pretty attractive in this environment. So you know, if
you think back two years ago, three years ago, people
would say, oh, I'd kill for a five percent yield.
Speaker 4 (27:44):
Well, now you can get IG bonds as.
Speaker 3 (27:45):
A seven percent yield, right, So you sort of say, okay,
that's not a bad place to have an allocation too,
even if it's just to protect your wealth, but also
as a counterbalance to equity markets.
Speaker 4 (27:57):
In case we are wrong and we.
Speaker 3 (27:59):
Do see that surgeon in or we do see a
recession coming down the path, then maybe having ancation there
makes more sense and you'll be more protected this time,
even if it's inflation. Because the baseline of interest rates
is higher, so the coupons you're clipping a higher that
gives you a lot more protection than you had the
beginning of twenty twenty two.
Speaker 2 (28:16):
And do you also have a view on other assets
potentially gold.
Speaker 4 (28:21):
Yeah.
Speaker 3 (28:21):
Our challenge here is we've already hit our full year target,
so I think from our perspective, well yeah, actually I
think this is the second year in three that that's
happened to us, Like by february've hit our full year target.
So I guess the challenge now is saying, Okay, how
much of this should we extrapolate and revise higher. I
think our sense is that the structural outlook for gold
is positive, and part of this is the geopolitical conversation,
(28:44):
and a lot of people focus on individual investors or
institutional investors, but obviously there's also a central bank element
to this in terms of, you know, the sanctioning of
the Russian Central Bank really some shop ways through the
central bank community. And if you're not fully aligned with
the US and Europe, then and obviously you want to
diversify as much as away from US assets as you can.
There's not a lot you can do because they're the
(29:05):
deepest financial markets, but one thing you can do is
add to your gold holdings and actually physically really okate
your gold as well. So it's not under the Bank
of England, it's probably in your own country. So I
think that's something that still hasn't fully played out. If
you look at what central banks have been doing, you
saw a massive increase in twenty twenty two of gold
purchases from central banks. Unsurprisingly, that's still elevated and if
(29:28):
you look at intentions, that's continuing to accelerate. So we
see that as a strong source of demand for gold.
So we have about of five to seven percent allocation
of gold in our portfolios. That's obviously helped us really
well so far this year, and we can see the
long term up trend for gold as being intact.
Speaker 4 (29:47):
Maybe got a bit.
Speaker 3 (29:48):
Ahead of itself in the short term, but certainly buying
on dips if we get down to sort of two
thousand and six fifty would be a really I think
you'd be lucky to get it down there, but maybe
even two seven fifty, that's probably a decent place to
start accumulating gold again.
Speaker 1 (30:04):
So, Steve, you had mentioned this risk of inflation and
what potentially can happen in the States, but also globally.
Of course, tariffs would not help in that regard. So
if we do get that situation, whether it's stake inflation
or another kind of resurgence in inflation which no one
wants to see, what do investors do? How can investors
play that?
Speaker 4 (30:25):
Yes, so I.
Speaker 3 (30:25):
Guess the default answer would probably be what we just
discussed in terms of gold, Right, So gold is you know,
over the long term at least is a good inflation edge,
and actually so our equity is over the long period,
but obviously the short term dynamics would be quite challenging.
I think then you're looking at diversifying beyond sort of
public markets, and really so private credit is probably a
(30:46):
good place to be. Yes, that would come with some
economic concerns, but at least their floating rate exposures that
you're taking, So if interest rates did have to go up,
then you'd be benefiting from that. So that would provide
some sick nificant diversification for investors. Infrastructure is obviously a
grade inflation protection as well, or hedge against inflation of
(31:08):
a reasonably short period of time. Actually, because often they're
inflation linked in terms of the payouts they offer, and
then the final place would be obviously in the sort
of hedge fund space. So whether you know, we can
talk about equity long short, that's usually a difficult place
to be because it often has a correlation with equities.
If you can get a good market neutral strategy in
(31:29):
that space, then that can work. But also if we're
looking at the sort of macro strategies space where they
can go long short and different assets, that is often
a very good place to allocate. It's a bit like
an insurance policy. So I think that's why it's difficult
to get much traction in the macro strategy CTA space
because you know, people say, well, it often doesn't do
(31:51):
that well in normal times, but as with any insurance policy,
it really pays off when you get that volatility on
the downside. So having an allocation and that's as well
makes sense for us.
Speaker 2 (32:02):
Steve, I wanted to before I let you go on
to ask you a personal question. Now, you moved to
Asia and you're twenty five. I think you mentioned during
the Asian financial crisis to Singapore, you did stints in Dubai.
I think South Africa you mentioned as well, and you
studied and you grew up in England. But just wind
the clock back if you're twenty five, now, where would
(32:22):
you like to work and live?
Speaker 3 (32:25):
I guess it depends which space you're in, right, So
if you're in data science or something like that, I
think the most interesting stuff you're going to be doing,
or AI, you almost have to be in the US
these days. I guess you maybe to some degree, some degree,
you could be in China as well, So I think
that's an interesting space. Obviously, it's going to be probably
more constrained, but you know, strange you may get more
(32:48):
backing as well in the areas where they want to develop. Certainly,
if I was to rewind the clock, I wouldn't change
a thing. I always say that, you know, I got
where I am today through the choices I've made, And yeah,
of course I wouldn't do everything the same way, but yeah,
I think it's where I ended up was a good space.
I get to do fun things like this all right,
and talk to interesting people. So Asia is still a
(33:10):
huge powerhouse for the region. I just think it's going
to be that. Yeah, the US is going to be
very interesting as well. Well.
Speaker 1 (33:18):
It's been a great conversation Steve, thank you so much
for joining us.
Speaker 4 (33:22):
Thank you so much being a pleasure. As always, you've.
Speaker 1 (33:26):
Been listening to Asia Centric from Bloomberg Intelligence. I'm Cartedmu
Treeva here in Hong Kong. You can find me on
LinkedIn or on the terminal.
Speaker 2 (33:34):
And I'm John Lee. You can also find me on LinkedIn.
This podcast was produced and edited by Clara Chen and
thank you for listening to Asia Centric.
Speaker 1 (33:43):
You can find us on Apple Podcasts, Spotify, or wherever
you listen. See you next time.
Hosts And Creators
John Lee
Tom Corbett
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