December 2, 2025 • 20 mins
Asian stocks traded within tight ranges early Wednesday, mirroring similar moves on Wall Street amid a lack of fresh catalysts, while a rebound in cryptocurrencies lost steam. In South Korea, Today's outperformer is the South Korean equity market. Today, the Bank of Korea reported a revised GDP growth of 1.3% quarter on quarter. It's the fastest pace of growth in nearly four years. We heard from Frederic Neumann, HSBC Chief Asia Economist and Co-Head of Global Research. He spoke to Bloomberg's Paul Allen and Avril Hong on the Asia Trade.
In the States - There was a cautious rebound in the US equity market. A portion of today's risk-taking was tied to a rebound in crypto currencies. We spoke to Chris Zaccarelli, Chief Investment Officer at Northlight Asset Management.
See omnystudio.com/listener for privacy information.
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2 (00:11):
Welcome to the Daybreak Asia Podcast. I'm Doug Chrisner. Investors
Sentiment across the Asia Pacific seems a little mixed, Equities
are confined, and cryptocurrencies do remain volatile. All of this
as markets look to this month's rate decisions from both
the Fed and the Bank of Japan. Today's outperformer once
again is the South Korean equity market. Earlier today we
(00:33):
had the Bank of Korea reporting a revised GDP growth
number of one point three percent. That's quarter on quarter,
making for the fastest pace of growth in nearly four years.
And that's where we start our conversation with Frederick Newman.
He is the Chief Asia Economist at HSBC. He's also
co head of Global Research for Asia. Fred spoke with
(00:55):
Bloomberg TV host Paul Allen and Avril Hong.
Speaker 3 (00:59):
So, when it comes to growth and the inflation dynamic mix, Deeale,
which do you think we should be more worried about
in Asia?
Speaker 4 (01:08):
Well, you know, if you look at the headline GDP numbers,
they were very strong in the last quarter, beating to
the upside in most Asian economies. But but the foundation
is more fragile than in the Peers because exports on
the AI hardware area they're doing very well. We're seeing
certainly rising equity markets. Maybe top end consumption is doing okay,
(01:32):
but broader consumer spending just isn't firing up, and we're
seeing some signs of sluggish investment coming through as well.
So despite the very encouraging headline growth picture, it doesn't
look like these economies are going to generate any inflation,
and so if there's any kind of crack in the
export picture, then central banks will need to cut interest
(01:55):
rates across much of the region, at least emerging Asia. Japan,
of course, isn't exciting option. Maybe Australia is an exception
as well. But broadly, inflation will likely surprise to the
downside over the coming year.
Speaker 3 (02:09):
Do Asia central bangs have that space to cut and
how important does that mean we need to see that
coming from the Fed in the first half of next year.
Speaker 4 (02:22):
Well, there's an interesting divergence here because the US is
probably sitting on more sticky inflation pressures than much of
Asia is.
Speaker 5 (02:30):
If you look at core.
Speaker 4 (02:31):
Inflation across much of the region, think India for example,
Think Indonesia economy has really seen very low corn inflation.
China is of course toying with deflationary pressures, and that
all that suggests that actually the inflation set up in
Asia is.
Speaker 5 (02:48):
Different from the US.
Speaker 4 (02:49):
Now, what might happen is that the US Federal Reserve
is not going to cut rates at all next year,
but Asia will.
Speaker 5 (02:56):
Continue to have to cut rates.
Speaker 4 (02:57):
So we see this divergence here potentially in monetary policy
trajectories and es.
Speaker 5 (03:04):
This rarely happens, but.
Speaker 4 (03:06):
It will of course have implications for EFX markets, and
it will just signify how the US is well exceptional.
Speaker 6 (03:16):
On the topic of China, you know you mentioned deflation,
we also had those very weak pmis over the weekend
as well. But today we've got Finance chief Land Phone
calling for policies to boost consumption, speed, innovation as well.
Do you anticipate we might see some stimulus in China
in twenty twenty six?
Speaker 4 (03:35):
We almost certainly will have to see some stimulus because
the trajectory in the last few months has been towards
weaker and weaker growth, and if you just extrapulate that
into twenty twenty six, there would have a challenge meeting
growth targets around four and a half five percent. Of course,
we don't know the growth target yet, but it would
certainly mean the economy undershoots is broad trend, and therefore
(03:58):
it's almost baked in that we.
Speaker 5 (04:00):
Get some stimulus.
Speaker 4 (04:01):
The question is how large are these packages going to be,
And probably we going to be in a period where
we just have incremental marginal stimulus just to provide enough
to put a floor onder growth, but nothing that kind
of generates a growth impulse and inflation impulse for China,
let alone for the rest of the world.
Speaker 6 (04:21):
Well, there's a risk that China perhaps exports deflation, as
you say, but some of the other big economies in
Asia are also spending big. You know, we're expecting a
big fiscal package shout of Japan. South Korea has just
announced a very chunky budget with a focus on AI
and other critical industries as well. Do you see this
potentially becoming a trend.
Speaker 5 (04:43):
It is a bit of a trend.
Speaker 4 (04:44):
In fact, not just in Northeast Asia, but even in
Southeast Asia.
Speaker 7 (04:48):
You're seeing a.
Speaker 4 (04:49):
Bit of a tail towards potentially more populist fiscal policy
in the sense that it is aimed at consumers, is
less aimed at infrastruction, for example. So there's a bit
of a fiscal expansion creeping in even in Southeast Asia,
and that is of course aimed at reducing the cost
(05:11):
of living burden for average consumers. It's designed to revive consumption,
which has generally been quite sluggage. Question is are these
packages big enough to obviate the need for central banks
to cut rates outside of Japan?
Speaker 5 (05:26):
Probably not.
Speaker 4 (05:27):
Yes, there are is fiscal easing, but in terms of magnitude,
it's not gonna let central banks off the hook not
to cut interest rates.
Speaker 3 (05:38):
Fred to your point about the inflation picture, maybe surprising
to the downside next year. To what extent might that
be offset by some of the import inflation we might see,
Given how currencies, even with the dollar soft, some of
them still look pretty vulnerable and weak.
Speaker 4 (06:01):
You're right, we have seen very weak currencies in some
Asian markets. India comes to mind here, Carea's currency of
course being somewhat weak as well. Now that means that
there is some degree of import inflation. But the broader
pictures because oil prices globally are down, because food price
pressures are easing, and because there's just very little local
(06:23):
demand to tighten labor markets. We're not going to have
a major impact from that currency depreciation, and so center
banks who are traditionally worried about effects depreciation might at
some point conclude, Look, maybe the currency depreciation is just
baked in. We have to focus on the price trends,
and the price trends are kind of undershooting what we
(06:45):
want long term from our inflation target, and that would
kind of raise then the pressure to start to ease
monetary policy. Again, markets are not necessarily pricing this in
at the moment, but we feel that the growth rist
and inflation risks such that there's certainly room for most
central banks in Asia continue to cut rates into twenty
twenty six.
Speaker 3 (07:08):
What about the uneven rate of growth within economies that
are AI heavy? Is there anything that policy makers can
do to perhaps even out of the growth a little.
Speaker 4 (07:23):
I think you're right, and that's a sort of key phenomenon.
It's sort of we're seeing a K shaped recovery in
some of these markets. Think of Taiwan's economy eight percent growth,
eight point two percent growth last quarter, but if you
look at consumer spending not very strong, and of course
that's because as you say most of the growth is
driven by Ai hardware, exports of chips, et cetera, but
(07:47):
it's not really trickling through to the broader economy. Labor
markets are relatively soft. We're seeing consumer spending being sluggish
as well.
Speaker 5 (07:56):
What can governments do.
Speaker 4 (07:58):
It's partly dial up fiscal stimulus, and we're seeing a
tilt and fiscal stimulus towards consumer support. Of course China
has led this, but in Taiwan, for example, we're also
seeing that with the hand out of vouchers for households,
for example, spending vouchers, and we might see more of
(08:18):
that across the region.
Speaker 5 (08:19):
Just to try to even out a little bit the growth.
Speaker 4 (08:22):
Drivers, because the K shaped recovery ultimately implies very imbalanced
growth and that's not healthy in the long term.
Speaker 2 (08:31):
That was Frederic Newman of HSBC, speaking earlier with Bloomberg
TV host Paul Allen and Avril Honn Here on the
Daybreak Asia podcast. Welcome back to the Daybreak Asia podcast.
I'm Doug Chrisner. Stateside, we had a cautious rebound in
(08:51):
US equities. A portion of today's risk taking seemed to
be tied to a rebound in cryptocurrencies, we had Bitcoin
recovering most of Monday's decline, rising by more than five
percent to just under ninety two thousand dollars in New
York trading.
Speaker 5 (09:06):
Now.
Speaker 2 (09:07):
Analysts we're saying the rebound offered a brief respite in
a month's long route, but sentiment, they say, is still fragile.
On the equity side, we had the S and P
rising for the sixth time in seven trading days. Markets
are still awaiting the last few economic reports before next
week's FED decision. We'll get that PCEE data on Friday. This,
(09:28):
as you know, is the Fed's preferred measure of inflation.
For a closer look at market action, I'm joined by
Chris Zacharelli. He is the chief investment officer at north
Light Asset Management. Chris is on the line from Charlotte,
North Carolina. Thank you for making time to chat. Can
we begin with the inflation story. I'd like to get
your view.
Speaker 7 (09:46):
What is it?
Speaker 8 (09:49):
Yeah, I think those concerns are warranted, you know, clearly
with what we've seen with services inflation and to some
extent goods now with tariff for twenty twenty five, inflation
has been coming down from the highs obviously from a
couple of years ago, but has really started to kind
of stick along at that level, right in the high twos,
depending on how.
Speaker 7 (10:10):
You're looking at, whether it's the PD or looking at
the CPI.
Speaker 8 (10:12):
But you know, clearly it doesn't seem like inflation is
going to get down to the two point zero percent
target anytime soon.
Speaker 7 (10:18):
However, you know, maybe just being in.
Speaker 8 (10:20):
The twos is good enough for some of the committee,
I think next week, even if they cut rates, which
looks increasingly likely based on the interest rate probabilities, I'm
sure there's a possibility of dissent and possibily a couple
of descent for that reason alone. You know, as the
committee ways unemployment versus price stability.
Speaker 7 (10:41):
Clearly the Committee.
Speaker 8 (10:42):
Has been weighing a little bit more unemployment and keeping
the labor market as their highest priority. But clearly there's
a lot of Fed governors were uncomfortable with where the
inflation picture is and where may be going.
Speaker 2 (10:54):
So the two year yield was done about two basis points.
Today right now we're around three point fifty. A lot
of that is a reflection of the bet for a
Dubvish FED in the new year. We're also going to
have after the first of the year the name of
President Trump's choice for FED share when JAYE. Powell's term
expires in May. Are we going to see a much
(11:16):
more dubvish FED? Do you think going forward?
Speaker 8 (11:20):
Well, clearly, whoever Trump does pick for the FED share
will be significantly more duvish than Powell. And Powell has
been cutting interest rates, so you can't say he's been
in the inflation camp. So yes, I think we're going
to see the FED have a tone that continues to
emphasize inflation, empathize unemployment over inflation. So you know, at
(11:40):
the top of the FED, in terms of the President,
it's going to be dubvish, But obviously it's the entire committee,
and we'll see how the committee acts next week in
terms of whether or not we get a so called
hawkish cut with a twenty five base points reduction in
rates and then a number of descents, and then we'll
have to see next year how well the new FED
chair is able to corral the rest of the members.
(12:01):
Because it is a committee, it's not completely decided by
the share.
Speaker 2 (12:05):
Of course, one of the things that we do know
is that the optimism around lower interest rates is underpinning
the equity market. Do you expect that to be the
story going forward, particularly as we look into the early
part of twenty.
Speaker 8 (12:17):
Six It does appear that way, and I think it's
really important to distinguish between, you know, whether the FED
is cutting rates or raising rates, so to the extent
that it's really a choice between keeping rates constant and
cutting rates. Of course, all things being equal, the equity
markets and you know, the short term fix income markets
are going to appreciate lower rates. But as long as
(12:37):
the equity investors are able to see continued earnings growth
the resilient consumer, even if interest rates stay the same
and there's no risk of the FED raising rates to
fight inflation, I.
Speaker 7 (12:48):
Think it's still positive backdrop for equities.
Speaker 8 (12:50):
So I wouldn't be surprised to see someone's momentum continue
into the new year.
Speaker 2 (12:53):
So I think it's fair to say that some of
the risk taking that we saw in the equity market
today seem to be hied to a rebound in crypto.
When you look at Bitcoin as one example of the
crypto space, what do you learn from its price action
and how does that help guide your choices? When you're
putting new money to work, let's say, or making adjustments
(13:14):
in your equity trading.
Speaker 5 (13:17):
You know.
Speaker 8 (13:18):
So for us, when we look at the price at bitcoin,
let's say, or other or just the crypto market in general,
it is really a risk barometer to us. I know,
for a long time people were saying it's a digital gold,
it's a it's a way.
Speaker 7 (13:29):
To diverse by against inflation.
Speaker 8 (13:31):
And we've seen that in some gate that that's been true,
but largely for this year, if you look at the
price of gold versus the price of bitcoin, it seems that,
you know, it's not really a digital gold in a
literal sense. It doesn't really mirror the inflation fighting prospects
of gold.
Speaker 7 (13:45):
It really is a risk barometer.
Speaker 8 (13:47):
So, you know, we look at the price of bitcoin
or cryptocurrencies in general, you know, similar to how you
look at the vics. Maybe maybe it's the inverse of that,
but the idea is you're really looking at you know,
are we in a risk taking market or are we
in in a market where people are getting more fearful.
Speaker 7 (14:03):
So to some.
Speaker 8 (14:03):
Extent you can really look at you know, crypto is
a real time barometer for risk taking in general.
Speaker 7 (14:08):
Generally speaking, you know, we're.
Speaker 8 (14:09):
Making a lot of our investment decisions on a strategic
basis and doing an asset allocation framework. But absolutely if
you're looking at you know, how to put money to work,
you know, taking the consideration some technical analysis and other
factors within the market, RSI, et cetera.
Speaker 7 (14:25):
It's it's one more factor to look at, and it.
Speaker 8 (14:27):
Is helpful from a short term timing point of view
to see where markets are.
Speaker 7 (14:30):
From a risk taking point of view.
Speaker 2 (14:32):
So we're about three years now into the story around
artificial intelligence. It seems as though the sky is the
limit right now. Where are you right now in understanding
the AI trade and its durability?
Speaker 8 (14:45):
So the trade is something that you know, clearly a
lot of people have been talking about all year in
terms of whether or not we're in a bubble and
you know, how our valuations are they too stretched? And
you know, clearly in November we saw a lot of
those fears, you know, materialize in terms of people a
little bit concerned about some of the more speculative aspects.
We think the underlying trend.
Speaker 7 (15:05):
Is still there. We obviously see you.
Speaker 8 (15:07):
Know, Nvidia, Microsoft, Amazon, Google, especially lately the Alphabet's company
continuing to have momentum in the stock market, and we
think that momentum in stock rices is underpinned by fundamentals.
There's clearly a lot of artificial intelligence spending and so
for that theme to play out, you know, we've moved
from chips to applications. You know, clearly open AI and
(15:31):
chat KPT are the are the poster child for you know,
the first round of AI. But we think an AI
spread throughout the economy makes its way into other sectors
and other industries, that's where you're likely to see the
best brisk.
Speaker 7 (15:44):
Reward opportunity going forward.
Speaker 8 (15:45):
I do think there's a lot of specultive plays around
the edges, and we saw a lot of the air
get let out of that bubble in the previous month.
But you've seen the MAG seven you know, slow down,
but really not stumble and if anything, you've seen that
really pick up the charge and go forward. So we
do think that MAG seven, that large tech trade will continue,
(16:06):
and we think it's too soon to file on the
deck now for artificial intelligence at this point.
Speaker 2 (16:12):
Okay, but that said, if you are seeing amazing gains
in some of the MAGS seven names would you be
inclined to reduce a little bit of risk right now,
lock in some of those gains and maybe redeploy and
look at some of the other four ninety three.
Speaker 8 (16:27):
Yes, I do think that makes sense, and I think
part of it is just good risk management, you know,
as those that portrait of your portfolio grows to a
larger and larger weight just through its own socc returns,
it does make sense to trim. Again, we've never advocated
for overweighting the Mac seven, and likewise we wouldn't advocate
for draftically cutting your exposure to the Max seven. There's
(16:49):
a reason why there's so much interest in those companies,
and as I mentioned, you know, unlike the nineteen nineties
where a lot of the expecuative stock didn't have earnings
or even revenues in some cases, you know clearly the
MAG seven has fantastic revenue growth and very good earnings
growth as well. So it makes sense to continue to
be invested in most of those names, if not all
of those names. But we are trimming a little bit
(17:09):
at the edges, just more pure risk management point of view.
Speaker 2 (17:12):
So you mentioned that valuations may be a little bit stretched.
Speaker 7 (17:15):
I do hope.
Speaker 2 (17:16):
I'm not putting words into your mouth, but I'm wondering
whether or not this is also a time if you're
looking to diversify, to examine what's happening in markets offshore,
maybe in Asia or Europe or Latin America.
Speaker 7 (17:30):
Yeah.
Speaker 8 (17:30):
Absolutely, you know, again to go back to the valuation point,
you know, clearly it's much more expensive than it has
been over the twenty year average. You know, if you're
looking at twenty two point nine times earnings, you know,
versus you know, a more typical sixteen to seventeen over
a longer timeframe, or even even high teens, low twenties
over let's say the more recent five six years.
Speaker 7 (17:51):
It's still a little bit high.
Speaker 8 (17:53):
Nothing like what we saw in the late nineties in
terms of the overall market. But generally speaking, you know,
you are seeing pretty rich valuations, fair to maybe slightly
overvalued for some of these really good quality companies, and
potentially overvalued for some of those other companies which are
more speculative.
Speaker 7 (18:10):
So, yes, we do think it makes sense to diversify.
Speaker 8 (18:13):
We've always been a believer in spreading out beyond just
the S and P five hundred, both in the US,
within midcaps and small caps, and we do think internationally
there's still opportunity. Clearly, developed markets have done very well
this year, and even emerging markets have done have also
done well, and we do think that will continue, and
we think it makes sense not only to have that
diversification in place all year long, but as you head
(18:35):
into twenty twenty six, I don't think you've missed it
in terms of continuing to diversify a little bit away
from the US and just broadening out that portfolio more globally.
Speaker 2 (18:44):
Chris, before I let you go, as you look to
those markets offshore, are there themes that you could identify?
Is it still kind of a tech play right now
when we're talking about AI, particularly markets in Asia.
Speaker 8 (18:57):
So yes, Looking over in Asia, I would say it's
a little bit more tech focus. Looking in Europe, I
think there's still opportunities within industrials, within financials. You know
clearly that change from a lot of the European governments
to focus a little bit more on funding their own
defense and starting to invest in defense.
Speaker 7 (19:14):
We think defense companies have done pretty well.
Speaker 8 (19:16):
This year, they can continue to do well into next year,
and likewise, we think the entire European complex.
Speaker 7 (19:23):
It's had a one year recovery.
Speaker 8 (19:25):
You know, twenty twenty five, versus lagging the United States
for many, many years.
Speaker 7 (19:30):
We think that can continue.
Speaker 8 (19:31):
Into twenty twenty six, where you'll continue to see European
markets and Asian markets key pace or potentially out outpace
the S and B five.
Speaker 7 (19:39):
Hundred next year.
Speaker 2 (19:40):
Okay, Chris, well leave it there, Thank you so much.
Chris Zacharelli is the Chief investment Officer at north Light
Asset Management, joining from Charlotte, North Carolina here on the
Daybreak Asia Podcast. Thanks for listening to today's episode of
the Bloomberg Daybreak Asia Edition podcast. Each weekday, we look
at the story shaping markets, finance, and geopolitics in the
(20:03):
Asia Pacific. You can find us on Apple, Spotify, the
Bloomberg Podcast YouTube channel, or anywhere else you listen. Join
us again tomorrow for insight on the market moves from
Hong Kong to Singapore and Australia. I'm Doug Prisoner and
this is Bloomberg
Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2 (00:11):
Welcome to the Daybreak Asia Podcast. I'm Doug Chrisner. Investors
Sentiment across the Asia Pacific seems a little mixed, Equities
are confined, and cryptocurrencies do remain volatile. All of this
as markets look to this month's rate decisions from both
the Fed and the Bank of Japan. Today's outperformer once
again is the South Korean equity market. Earlier today we
(00:33):
had the Bank of Korea reporting a revised GDP growth
number of one point three percent. That's quarter on quarter,
making for the fastest pace of growth in nearly four years.
And that's where we start our conversation with Frederick Newman.
He is the Chief Asia Economist at HSBC. He's also
co head of Global Research for Asia. Fred spoke with
(00:55):
Bloomberg TV host Paul Allen and Avril Hong.
Speaker 3 (00:59):
So, when it comes to growth and the inflation dynamic mix, Deeale,
which do you think we should be more worried about
in Asia?
Speaker 4 (01:08):
Well, you know, if you look at the headline GDP numbers,
they were very strong in the last quarter, beating to
the upside in most Asian economies. But but the foundation
is more fragile than in the Peers because exports on
the AI hardware area they're doing very well. We're seeing
certainly rising equity markets. Maybe top end consumption is doing okay,
(01:32):
but broader consumer spending just isn't firing up, and we're
seeing some signs of sluggish investment coming through as well.
So despite the very encouraging headline growth picture, it doesn't
look like these economies are going to generate any inflation,
and so if there's any kind of crack in the
export picture, then central banks will need to cut interest
(01:55):
rates across much of the region, at least emerging Asia. Japan,
of course, isn't exciting option. Maybe Australia is an exception
as well. But broadly, inflation will likely surprise to the
downside over the coming year.
Speaker 3 (02:09):
Do Asia central bangs have that space to cut and
how important does that mean we need to see that
coming from the Fed in the first half of next year.
Speaker 4 (02:22):
Well, there's an interesting divergence here because the US is
probably sitting on more sticky inflation pressures than much of
Asia is.
Speaker 5 (02:30):
If you look at core.
Speaker 4 (02:31):
Inflation across much of the region, think India for example,
Think Indonesia economy has really seen very low corn inflation.
China is of course toying with deflationary pressures, and that
all that suggests that actually the inflation set up in
Asia is.
Speaker 5 (02:48):
Different from the US.
Speaker 4 (02:49):
Now, what might happen is that the US Federal Reserve
is not going to cut rates at all next year,
but Asia will.
Speaker 5 (02:56):
Continue to have to cut rates.
Speaker 4 (02:57):
So we see this divergence here potentially in monetary policy
trajectories and es.
Speaker 5 (03:04):
This rarely happens, but.
Speaker 4 (03:06):
It will of course have implications for EFX markets, and
it will just signify how the US is well exceptional.
Speaker 6 (03:16):
On the topic of China, you know you mentioned deflation,
we also had those very weak pmis over the weekend
as well. But today we've got Finance chief Land Phone
calling for policies to boost consumption, speed, innovation as well.
Do you anticipate we might see some stimulus in China
in twenty twenty six?
Speaker 4 (03:35):
We almost certainly will have to see some stimulus because
the trajectory in the last few months has been towards
weaker and weaker growth, and if you just extrapulate that
into twenty twenty six, there would have a challenge meeting
growth targets around four and a half five percent. Of course,
we don't know the growth target yet, but it would
certainly mean the economy undershoots is broad trend, and therefore
(03:58):
it's almost baked in that we.
Speaker 5 (04:00):
Get some stimulus.
Speaker 4 (04:01):
The question is how large are these packages going to be,
And probably we going to be in a period where
we just have incremental marginal stimulus just to provide enough
to put a floor onder growth, but nothing that kind
of generates a growth impulse and inflation impulse for China,
let alone for the rest of the world.
Speaker 6 (04:21):
Well, there's a risk that China perhaps exports deflation, as
you say, but some of the other big economies in
Asia are also spending big. You know, we're expecting a
big fiscal package shout of Japan. South Korea has just
announced a very chunky budget with a focus on AI
and other critical industries as well. Do you see this
potentially becoming a trend.
Speaker 5 (04:43):
It is a bit of a trend.
Speaker 4 (04:44):
In fact, not just in Northeast Asia, but even in
Southeast Asia.
Speaker 7 (04:48):
You're seeing a.
Speaker 4 (04:49):
Bit of a tail towards potentially more populist fiscal policy
in the sense that it is aimed at consumers, is
less aimed at infrastruction, for example. So there's a bit
of a fiscal expansion creeping in even in Southeast Asia,
and that is of course aimed at reducing the cost
(05:11):
of living burden for average consumers. It's designed to revive consumption,
which has generally been quite sluggage. Question is are these
packages big enough to obviate the need for central banks
to cut rates outside of Japan?
Speaker 5 (05:26):
Probably not.
Speaker 4 (05:27):
Yes, there are is fiscal easing, but in terms of magnitude,
it's not gonna let central banks off the hook not
to cut interest rates.
Speaker 3 (05:38):
Fred to your point about the inflation picture, maybe surprising
to the downside next year. To what extent might that
be offset by some of the import inflation we might see,
Given how currencies, even with the dollar soft, some of
them still look pretty vulnerable and weak.
Speaker 4 (06:01):
You're right, we have seen very weak currencies in some
Asian markets. India comes to mind here, Carea's currency of
course being somewhat weak as well. Now that means that
there is some degree of import inflation. But the broader
pictures because oil prices globally are down, because food price
pressures are easing, and because there's just very little local
(06:23):
demand to tighten labor markets. We're not going to have
a major impact from that currency depreciation, and so center
banks who are traditionally worried about effects depreciation might at
some point conclude, Look, maybe the currency depreciation is just
baked in. We have to focus on the price trends,
and the price trends are kind of undershooting what we
(06:45):
want long term from our inflation target, and that would
kind of raise then the pressure to start to ease
monetary policy. Again, markets are not necessarily pricing this in
at the moment, but we feel that the growth rist
and inflation risks such that there's certainly room for most
central banks in Asia continue to cut rates into twenty
twenty six.
Speaker 3 (07:08):
What about the uneven rate of growth within economies that
are AI heavy? Is there anything that policy makers can
do to perhaps even out of the growth a little.
Speaker 4 (07:23):
I think you're right, and that's a sort of key phenomenon.
It's sort of we're seeing a K shaped recovery in
some of these markets. Think of Taiwan's economy eight percent growth,
eight point two percent growth last quarter, but if you
look at consumer spending not very strong, and of course
that's because as you say most of the growth is
driven by Ai hardware, exports of chips, et cetera, but
(07:47):
it's not really trickling through to the broader economy. Labor
markets are relatively soft. We're seeing consumer spending being sluggish
as well.
Speaker 5 (07:56):
What can governments do.
Speaker 4 (07:58):
It's partly dial up fiscal stimulus, and we're seeing a
tilt and fiscal stimulus towards consumer support. Of course China
has led this, but in Taiwan, for example, we're also
seeing that with the hand out of vouchers for households,
for example, spending vouchers, and we might see more of
(08:18):
that across the region.
Speaker 5 (08:19):
Just to try to even out a little bit the growth.
Speaker 4 (08:22):
Drivers, because the K shaped recovery ultimately implies very imbalanced
growth and that's not healthy in the long term.
Speaker 2 (08:31):
That was Frederic Newman of HSBC, speaking earlier with Bloomberg
TV host Paul Allen and Avril Honn Here on the
Daybreak Asia podcast. Welcome back to the Daybreak Asia podcast.
I'm Doug Chrisner. Stateside, we had a cautious rebound in
(08:51):
US equities. A portion of today's risk taking seemed to
be tied to a rebound in cryptocurrencies, we had Bitcoin
recovering most of Monday's decline, rising by more than five
percent to just under ninety two thousand dollars in New
York trading.
Speaker 5 (09:06):
Now.
Speaker 2 (09:07):
Analysts we're saying the rebound offered a brief respite in
a month's long route, but sentiment, they say, is still fragile.
On the equity side, we had the S and P
rising for the sixth time in seven trading days. Markets
are still awaiting the last few economic reports before next
week's FED decision. We'll get that PCEE data on Friday. This,
(09:28):
as you know, is the Fed's preferred measure of inflation.
For a closer look at market action, I'm joined by
Chris Zacharelli. He is the chief investment officer at north
Light Asset Management. Chris is on the line from Charlotte,
North Carolina. Thank you for making time to chat. Can
we begin with the inflation story. I'd like to get
your view.
Speaker 7 (09:46):
What is it?
Speaker 8 (09:49):
Yeah, I think those concerns are warranted, you know, clearly
with what we've seen with services inflation and to some
extent goods now with tariff for twenty twenty five, inflation
has been coming down from the highs obviously from a
couple of years ago, but has really started to kind
of stick along at that level, right in the high twos,
depending on how.
Speaker 7 (10:10):
You're looking at, whether it's the PD or looking at
the CPI.
Speaker 8 (10:12):
But you know, clearly it doesn't seem like inflation is
going to get down to the two point zero percent
target anytime soon.
Speaker 7 (10:18):
However, you know, maybe just being in.
Speaker 8 (10:20):
The twos is good enough for some of the committee,
I think next week, even if they cut rates, which
looks increasingly likely based on the interest rate probabilities, I'm
sure there's a possibility of dissent and possibily a couple
of descent for that reason alone. You know, as the
committee ways unemployment versus price stability.
Speaker 7 (10:41):
Clearly the Committee.
Speaker 8 (10:42):
Has been weighing a little bit more unemployment and keeping
the labor market as their highest priority. But clearly there's
a lot of Fed governors were uncomfortable with where the
inflation picture is and where may be going.
Speaker 2 (10:54):
So the two year yield was done about two basis points.
Today right now we're around three point fifty. A lot
of that is a reflection of the bet for a
Dubvish FED in the new year. We're also going to
have after the first of the year the name of
President Trump's choice for FED share when JAYE. Powell's term
expires in May. Are we going to see a much
(11:16):
more dubvish FED? Do you think going forward?
Speaker 8 (11:20):
Well, clearly, whoever Trump does pick for the FED share
will be significantly more duvish than Powell. And Powell has
been cutting interest rates, so you can't say he's been
in the inflation camp. So yes, I think we're going
to see the FED have a tone that continues to
emphasize inflation, empathize unemployment over inflation. So you know, at
(11:40):
the top of the FED, in terms of the President,
it's going to be dubvish, But obviously it's the entire committee,
and we'll see how the committee acts next week in
terms of whether or not we get a so called
hawkish cut with a twenty five base points reduction in
rates and then a number of descents, and then we'll
have to see next year how well the new FED
chair is able to corral the rest of the members.
(12:01):
Because it is a committee, it's not completely decided by
the share.
Speaker 2 (12:05):
Of course, one of the things that we do know
is that the optimism around lower interest rates is underpinning
the equity market. Do you expect that to be the
story going forward, particularly as we look into the early
part of twenty.
Speaker 8 (12:17):
Six It does appear that way, and I think it's
really important to distinguish between, you know, whether the FED
is cutting rates or raising rates, so to the extent
that it's really a choice between keeping rates constant and
cutting rates. Of course, all things being equal, the equity
markets and you know, the short term fix income markets
are going to appreciate lower rates. But as long as
(12:37):
the equity investors are able to see continued earnings growth
the resilient consumer, even if interest rates stay the same
and there's no risk of the FED raising rates to
fight inflation, I.
Speaker 7 (12:48):
Think it's still positive backdrop for equities.
Speaker 8 (12:50):
So I wouldn't be surprised to see someone's momentum continue
into the new year.
Speaker 2 (12:53):
So I think it's fair to say that some of
the risk taking that we saw in the equity market
today seem to be hied to a rebound in crypto.
When you look at Bitcoin as one example of the
crypto space, what do you learn from its price action
and how does that help guide your choices? When you're
putting new money to work, let's say, or making adjustments
(13:14):
in your equity trading.
Speaker 5 (13:17):
You know.
Speaker 8 (13:18):
So for us, when we look at the price at bitcoin,
let's say, or other or just the crypto market in general,
it is really a risk barometer to us. I know,
for a long time people were saying it's a digital gold,
it's a it's a way.
Speaker 7 (13:29):
To diverse by against inflation.
Speaker 8 (13:31):
And we've seen that in some gate that that's been true,
but largely for this year, if you look at the
price of gold versus the price of bitcoin, it seems that,
you know, it's not really a digital gold in a
literal sense. It doesn't really mirror the inflation fighting prospects
of gold.
Speaker 7 (13:45):
It really is a risk barometer.
Speaker 8 (13:47):
So, you know, we look at the price of bitcoin
or cryptocurrencies in general, you know, similar to how you
look at the vics. Maybe maybe it's the inverse of that,
but the idea is you're really looking at you know,
are we in a risk taking market or are we
in in a market where people are getting more fearful.
Speaker 7 (14:03):
So to some.
Speaker 8 (14:03):
Extent you can really look at you know, crypto is
a real time barometer for risk taking in general.
Speaker 7 (14:08):
Generally speaking, you know, we're.
Speaker 8 (14:09):
Making a lot of our investment decisions on a strategic
basis and doing an asset allocation framework. But absolutely if
you're looking at you know, how to put money to work,
you know, taking the consideration some technical analysis and other
factors within the market, RSI, et cetera.
Speaker 7 (14:25):
It's it's one more factor to look at, and it.
Speaker 8 (14:27):
Is helpful from a short term timing point of view
to see where markets are.
Speaker 7 (14:30):
From a risk taking point of view.
Speaker 2 (14:32):
So we're about three years now into the story around
artificial intelligence. It seems as though the sky is the
limit right now. Where are you right now in understanding
the AI trade and its durability?
Speaker 8 (14:45):
So the trade is something that you know, clearly a
lot of people have been talking about all year in
terms of whether or not we're in a bubble and
you know, how our valuations are they too stretched? And
you know, clearly in November we saw a lot of
those fears, you know, materialize in terms of people a
little bit concerned about some of the more speculative aspects.
We think the underlying trend.
Speaker 7 (15:05):
Is still there. We obviously see you.
Speaker 8 (15:07):
Know, Nvidia, Microsoft, Amazon, Google, especially lately the Alphabet's company
continuing to have momentum in the stock market, and we
think that momentum in stock rices is underpinned by fundamentals.
There's clearly a lot of artificial intelligence spending and so
for that theme to play out, you know, we've moved
from chips to applications. You know, clearly open AI and
(15:31):
chat KPT are the are the poster child for you know,
the first round of AI. But we think an AI
spread throughout the economy makes its way into other sectors
and other industries, that's where you're likely to see the
best brisk.
Speaker 7 (15:44):
Reward opportunity going forward.
Speaker 8 (15:45):
I do think there's a lot of specultive plays around
the edges, and we saw a lot of the air
get let out of that bubble in the previous month.
But you've seen the MAG seven you know, slow down,
but really not stumble and if anything, you've seen that
really pick up the charge and go forward. So we
do think that MAG seven, that large tech trade will continue,
(16:06):
and we think it's too soon to file on the
deck now for artificial intelligence at this point.
Speaker 2 (16:12):
Okay, but that said, if you are seeing amazing gains
in some of the MAGS seven names would you be
inclined to reduce a little bit of risk right now,
lock in some of those gains and maybe redeploy and
look at some of the other four ninety three.
Speaker 8 (16:27):
Yes, I do think that makes sense, and I think
part of it is just good risk management, you know,
as those that portrait of your portfolio grows to a
larger and larger weight just through its own socc returns,
it does make sense to trim. Again, we've never advocated
for overweighting the Mac seven, and likewise we wouldn't advocate
for draftically cutting your exposure to the Max seven. There's
(16:49):
a reason why there's so much interest in those companies,
and as I mentioned, you know, unlike the nineteen nineties
where a lot of the expecuative stock didn't have earnings
or even revenues in some cases, you know clearly the
MAG seven has fantastic revenue growth and very good earnings
growth as well. So it makes sense to continue to
be invested in most of those names, if not all
of those names. But we are trimming a little bit
(17:09):
at the edges, just more pure risk management point of view.
Speaker 2 (17:12):
So you mentioned that valuations may be a little bit stretched.
Speaker 7 (17:15):
I do hope.
Speaker 2 (17:16):
I'm not putting words into your mouth, but I'm wondering
whether or not this is also a time if you're
looking to diversify, to examine what's happening in markets offshore,
maybe in Asia or Europe or Latin America.
Speaker 7 (17:30):
Yeah.
Speaker 8 (17:30):
Absolutely, you know, again to go back to the valuation point,
you know, clearly it's much more expensive than it has
been over the twenty year average. You know, if you're
looking at twenty two point nine times earnings, you know,
versus you know, a more typical sixteen to seventeen over
a longer timeframe, or even even high teens, low twenties
over let's say the more recent five six years.
Speaker 7 (17:51):
It's still a little bit high.
Speaker 8 (17:53):
Nothing like what we saw in the late nineties in
terms of the overall market. But generally speaking, you know,
you are seeing pretty rich valuations, fair to maybe slightly
overvalued for some of these really good quality companies, and
potentially overvalued for some of those other companies which are
more speculative.
Speaker 7 (18:10):
So, yes, we do think it makes sense to diversify.
Speaker 8 (18:13):
We've always been a believer in spreading out beyond just
the S and P five hundred, both in the US,
within midcaps and small caps, and we do think internationally
there's still opportunity. Clearly, developed markets have done very well
this year, and even emerging markets have done have also
done well, and we do think that will continue, and
we think it makes sense not only to have that
diversification in place all year long, but as you head
(18:35):
into twenty twenty six, I don't think you've missed it
in terms of continuing to diversify a little bit away
from the US and just broadening out that portfolio more globally.
Speaker 2 (18:44):
Chris, before I let you go, as you look to
those markets offshore, are there themes that you could identify?
Is it still kind of a tech play right now
when we're talking about AI, particularly markets in Asia.
Speaker 8 (18:57):
So yes, Looking over in Asia, I would say it's
a little bit more tech focus. Looking in Europe, I
think there's still opportunities within industrials, within financials. You know
clearly that change from a lot of the European governments
to focus a little bit more on funding their own
defense and starting to invest in defense.
Speaker 7 (19:14):
We think defense companies have done pretty well.
Speaker 8 (19:16):
This year, they can continue to do well into next year,
and likewise, we think the entire European complex.
Speaker 7 (19:23):
It's had a one year recovery.
Speaker 8 (19:25):
You know, twenty twenty five, versus lagging the United States
for many, many years.
Speaker 7 (19:30):
We think that can continue.
Speaker 8 (19:31):
Into twenty twenty six, where you'll continue to see European
markets and Asian markets key pace or potentially out outpace
the S and B five.
Speaker 7 (19:39):
Hundred next year.
Speaker 2 (19:40):
Okay, Chris, well leave it there, Thank you so much.
Chris Zacharelli is the Chief investment Officer at north Light
Asset Management, joining from Charlotte, North Carolina here on the
Daybreak Asia Podcast. Thanks for listening to today's episode of
the Bloomberg Daybreak Asia Edition podcast. Each weekday, we look
at the story shaping markets, finance, and geopolitics in the
(20:03):
Asia Pacific. You can find us on Apple, Spotify, the
Bloomberg Podcast YouTube channel, or anywhere else you listen. Join
us again tomorrow for insight on the market moves from
Hong Kong to Singapore and Australia. I'm Doug Prisoner and
this is Bloomberg
Popular Podcasts
Las Culturistas with Matt Rogers and Bowen Yang
Ding dong! Join your culture consultants, Matt Rogers and Bowen Yang, on an unforgettable journey into the beating heart of CULTURE. Alongside sizzling special guests, they GET INTO the hottest pop-culture moments of the day and the formative cultural experiences that turned them into Culturistas. Produced by the Big Money Players Network and iHeartRadio.
The Joe Rogan Experience
The official podcast of comedian Joe Rogan.
Stuff You Should Know
If you've ever wanted to know about champagne, satanism, the Stonewall Uprising, chaos theory, LSD, El Nino, true crime and Rosa Parks, then look no further. Josh and Chuck have you covered.