November 12, 2025 • 25 mins
Global shares held a three-day gain that took them to within touching distance of a record high as the US House passed a bill to end the longest-ever government shutdown. Asian shares and the MSCI All Country World Index fluctuated between small gains and losses as investors stayed cautious with limited economic data clouding the outlook for Federal Reserve policy. Yifan Hu, Chief Investment Officer and Head of APAC Macroeconomics at UBS Wealth Management spoke to Bloomberg's Annabelle Droulers and Yvonne Man and she gave her outlook on the Chinese economy.
Plus - The Dow Jones Industrial Average climbed for a fourth straight day in anticipation ahead of the end of the record breaking US government shutdown. For more on the markets, we spoke to Mike Dickson, Head of Research & Quantitative Strategies at Horizon Investments.
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Episode Transcript
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Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2 (00:12):
Welcome to the Daybreak Asia podcast. I'm Doug Krisner. In
the States, the House of Representatives passed a Senate measure
to end the government shutdown. The President signed it and
the government will resume operations on Thursday. In a moment,
we'll look at US markets with Mike Dixon of Horizon Investments.
We began though in Hong Kong, where we had the
chance to catch up with Hifan Hu, chief investment officer
(00:35):
and head of APAC macro Economics at UBS Wealth Management.
She spoke with Bloomberg TV, host of aon Men and
Annabel Droolers.
Speaker 3 (00:43):
Now.
Speaker 2 (00:43):
The conversation began with a question on the outlook for
the Chinese economy.
Speaker 4 (00:48):
Let's talk about twenty twenty six. I mean, I feel
like the year has just sort of flown by and
we're already forecasting. So so what are you talking with
with clients about right now?
Speaker 5 (00:58):
Yeah, I think sus some most interesting question. Now, I
think that for twenty twenty five, if we see the
China's GDP growth like we think, we will end up
with like a four point nine percent to five percent,
So for the next year, we think the government could
set up the target between like a four point five
percent to five percent. So in our view, if without
(01:20):
like a major stimulus, so the GDP could reach around
a four point five percent, so we will have probably
lower for the first half the high for the second half.
Speaker 6 (01:31):
How significant would that be lowering at least or at
least that range when it comes to that growth target
for next year.
Speaker 5 (01:37):
I think this year is around the five percent, so
I think that if it's end up is a four
point nine percent, so it's also hits the target. So
it's possible for them to give a range rather than
say around a five percent. Again, so because like the
next year could be lower unless the government like I
wants to put the major stimilus, but we think the
(01:59):
chance is not very high, so I think they would
rather put like our range, maybe more comfortable like her
for like everyone.
Speaker 4 (02:08):
So not major similars. That's more of the physical side.
What about the monetary policy side.
Speaker 5 (02:14):
Monetary party side, I think we'll still keep easy and
keep accommodative, and we still expect like a fifty two
hundred BIPs of the cut by the end of the
twenty twenty six and also maybe twenty to thirty BIPs
of the interest rate cuts. Because given or CPI infreation
is still pretty low.
Speaker 6 (02:33):
What are you expecting to be kind of the bigger
drags next year? Is it the exports side of things
are going to be a bit softer than this year
that has been quite resilient, And are we just not
expecting any sort of meaningful recovering the consumer For.
Speaker 5 (02:46):
The consumer side, I think the yeah, we think it
still will be like at between three to five percent.
We didn't see like how too much highlights about that,
I think, But the major driver should be still for
the industry autoput side, industry product because like AI AI
driven applications and also with like this kind of advanced
(03:11):
manufacturing and possibly like we call the new productivity growth.
So I think that will probably lead the driver. On
the other side. For the energy side, I think that
especially this year, we say for the energy reserves like
a new energy and also for this kind of the
high voltage like our elacricity, like our transmission. That's all
(03:31):
could become like our new highlights. But for the consumption side,
I think as will be uh in my view, will
be I could quite civil, but will not be like
very strong. Our property will still be the drag, but
we don't think the government will put too much efforts
of that, so we'll just let it go unless this
(03:51):
have the cliff that job, but that's the chance also small.
Speaker 4 (03:55):
Picking up on that theme around increasing automation you're just
referencing there, how does that also impact the jobs outlook
and the employment outlook as well?
Speaker 5 (04:07):
In this sense, I think for AI application, so like
how one side of course, like more jobs may be
taken by the machine, But at the same time, we
think maybe service sectors still have the chances. And also
withs like a new applied like a services sector, maybe
there's something like a more like how we call the
experience exposure like a services sector come out, like how
(04:31):
that's more like a digitized and also with like this
kind of more entertaining or like how even with more
creative like a more service oriented like actual opportunities. But
still I think there is still of pressure.
Speaker 6 (04:46):
And you guys upgraded Chinese Tech just a few weeks
ago and saying it's probably the most preferred, right, most
attractive here right now, how are you looking at this
rally around AI and the light now and how do
you position around it for next year.
Speaker 5 (04:59):
I think the this year AI already rallied for two
years like last year. This year, especially for this year
almost over thirty percent. But I think the think about
it for this all these kind of a big platforms
very similar to the US like Meganique since seven. I
think they just started because like one side, I think
that their valuation is still relatively low, like thirty to
(05:22):
thirty percent of discount comparing with the US PS. And
the second I think for the China, the AI investment
is still like a capex is still increasing like a
similar to the US. And also certain I think it's
a very a little bit different from the US side.
I think the China is more like an ecosystem. So
I think that with this kind of an ecosystem with
(05:44):
the basic research like then the AI, then the AI
application with this ecosystem could like the spillover effect, we
think it could be bigger.
Speaker 4 (05:54):
One of tho sort of issues I guess around the
AI application side is sometimes low barriers to entry, What
are the what are the sectors that you look at
in terms that AI theme in particular is being a
bit more resilient.
Speaker 5 (06:08):
I guess I think the AI, say, will range you
from the lower end to the high end. So if
the we can like AI applic applied like an advance
of manufacturing and new materials and also healthcare, I think
he's booming because of the AI like how the application,
and we also say because say AI applied to maybe
(06:29):
like era space and also uh some like how many
like a new fields. I think it's just like feed
up the exploration and also like innovation.
Speaker 6 (06:41):
What are some of the key themes you're watching out?
I mean for the fourth part, because I think there's
been a lot of allocation into domestic tech already, especially
you take a look how institutional investors are kind of positioning.
Do you think that this is extreme levels when you
talk about fund concentration now and we've already sort of
seen some rotation out of tech cannot continue in the
fourth quarter.
Speaker 5 (07:01):
Yes, I think that it's started with the tech and
also like uh yeah, the concentration set. We think the
text still have the loom, but we also see it's
applied to other sectors as well, like gradually. For example,
we think that this year it's also very shiny. Section
is for the energy reserves because now by now for
the new energy already surprise thirty five percent of the
(07:23):
China's like a total energy surprise, So I think that's
like a very like a significant number. And we'll also
say like maybe the healthcare will benefit because their price
has been low and I could benefit like maybe with
this kind of plakichi. And for the consumption side, yeah,
that side is ah, it's we have the new const
(07:45):
new consumption, but too high and it's it's it's not easy.
But I think that we still have this kind of
the like the new materials. And we also say for
the sector like booming out and also the AI is
not only the SOT to wear and also have the hardwares,
but of course most sectors, most companies are in the
A listed, so that's really we also think the issuers
(08:08):
and could also could slightly better perform than h year
next year because with all these kind of the like hardwares.
Speaker 4 (08:18):
So that's that's the equity side. What about the fixed
income side? What are your preferences there?
Speaker 5 (08:23):
Uh, for the fixed income side, because we still expect,
like for the interest rate will go down, so I
think the like for the bond side, I think it's
not very attractive. But the existing bound of course, like
I think I still like have the uh the game.
Speaker 6 (08:43):
Is buying bonds again, right, Yeah, that's is that likely
to be more measured this time around?
Speaker 5 (08:47):
I think the yeah, PBOC and also I think the
PBOC also, I think that this year we also say
for the company's actually issue like Chinese, like for the
c N y bounds like in Hong Kong. So I
think the government like pbios by bonds. I think it's
more like I'll keep the mandatory. They don't call it
(09:09):
a quantitative easy, but I think it's more like I'll
provide the liquidity adjustment of the liquidity like a provision
in the market.
Speaker 2 (09:18):
That was ifan Who from UBS Wealth Management speaking with
Bloomberg TV host Von Mann and Anabel Droolers on the
Daybreak Asia podcast. Welcome back to the Daybreak Asia podcast.
I'm Doug Prisner. As mentioned earlier, the House of Representatives
(09:40):
passed a Senate measure to end the longest government shutdown
in US history.
Speaker 3 (09:44):
Now.
Speaker 2 (09:45):
In anticipation of this development, the Dow climbed for a
fourth straight day, breaking above forty eight thousand for the
first time and closing at a record high. Financials led
the way for a closer look. I'm joined by Mike Dixon.
He is head of research and quantitative Strategies at Horizon Investments. Mike,
thank you for making time to chat with me. If
you don't mind, I'd like to start with Cisco Systems.
(10:07):
We heard from the company after the bill an upbeat
sales forecast, which is likely a reflection of the progress
Cisco is making and capturing more spending on AI. The
stock was up eight percent in late US trading to
around eighty dollars. Now that is the closest Cisco's shares
have come to eighty two. They're all time high, set
(10:29):
back on March twenty seventh, two thousand rights the dot
com bubble burst. It's interesting timing. Maybe with all the
talk we've heard about bubbles.
Speaker 1 (10:40):
I certainly love the history throwback, and yeah, I mean
we are right on the cusp of reclaiming that high.
I would say, you know, at least on a dividend
adjusted basis, that has been reclaimed within the past several months.
But nonetheless, look, this is not this AI trade is
not the Internet bubble of the nineties. When we look
at the underlying fundamental at the top of the market,
(11:01):
you have had extremely strong earnings growth and revenue growth,
and this earning season is no exception. When you look
at the Magnificent seven and the NASDAC, you've actually had
an inflection higher and revenue growth year every year of
fifteen percent for the Nasdaq and that's up from ten
percent about a year ago. So we've had an inflection
higher in revenue growth. Obviously, earnings have been absolutely stellar.
(11:25):
We have seen cash flows come down a good bit
because of a lot of the cap x, but these
we are seeing significant plans to make the power demand
and the deals needed to get that infrastructure build and
make that stuff happen. So really strong fundamentals here supporting
the top of the market, which is not what we
had back in the late nineties.
Speaker 2 (11:43):
Even so, over the last couple of days, we've seen
a rotation away from big cap tech. Yesterday that would
be the Tuesday session in the States, it was healthcare.
Today it was the financials. Is it prudent now to
kind of maybe take a little bit of risk off
the table.
Speaker 1 (11:58):
Well, we have seen a little bit of rotation, but
I think the market overall we tend to forget that
some of these stocks actually can be flat for a day,
and that's completely normal, and in fact it's very healthy,
you know, zooming out when you look at the more
you know, equal weight version of the SMP or you know,
I believe that the Dow right cross its forty eight
thousand today, that of course does not have a lot
(12:20):
of the Max seven you know, top of the tech
and AI trade really embedded in there. It's healthy to
see some of that, you know, certainly with what we've
had this year, because market concentration has been has been growing,
and it is good to see a broader participation even
some of the defensives you mentioned healthcare. I mean that
that to me is a really good kind of contrarian
(12:43):
sector play, and I think it's good to see participation there.
Speaker 3 (12:46):
We've had a stellar rally in the top of the.
Speaker 1 (12:48):
Market, and I do believe right now it might be
prudent to think of.
Speaker 3 (12:51):
That as more of a hold and not necessarily an ad.
Speaker 1 (12:56):
We do have Nvidia next week, which is a macro
event in al so we're going to need to see
that what that holds, whether this Santa claus rally is
going to be, you know, what we get through the
end of the year. But there are other opportunities other
than AI out there, and I do think it's wise
to be looking at what some of those may be.
Speaker 2 (13:16):
Earlier today, the White House said that the October reports
on unemployment and consumer prices will unlikely be released. Obviously,
these numbers have been delayed by the shutdown. This is
only going to add to a little bit more of
the difficulty engaging the outlook, especially for the FED. Right now,
I think FED fun Future suggests a sixty three percent
(13:36):
chance of a rate cut next month of twenty five
basis points. Although we're hearing more and more from a
number of FED members about the concern over inflation it
being sticky and perhaps a bigger risk than the unemployment story.
Where do you come down when it comes to the
FED and the outlook.
Speaker 1 (13:57):
Well, you know, seeing that the headline today about the
delay in those reports is not great timing, right. I
think we are at a point where we have had
a pretty steady decline in labor market data heading into
the shutdown. But at the same time, inflation it hasn't
necessarily been a problem, but it hasn't been improving at
the rate that folks would like. And so you know
(14:18):
what has happened with this shutdown is a lot of
these surveys just didn't get completed and as a result
may not be for at least what I was reading
the first time. Ever, that's not great because the December
meeting as well, is a little bit earlier this year
than it typically is, and so we're going to be
kind of running up against the wire to get a
lot of this data collected and get a fresh view
(14:40):
on the market. But you know, overall, I do think
what we saw at the end of October was a
little bit of a surprise from Powell and the Committee
as a whole. You know, he mentioned a number of
times that the December cut was not a foregone conclusion
for me and I think the rest of the market.
Speaker 3 (14:56):
That was a good bit of a surprise to hear that.
You know.
Speaker 1 (15:00):
On the inflation side of things, though, and I hear
the arguments out there, but if we also zoom out
a little bit, the FED has been above their inflation
target for you know, the better part of four nearly
five years, and in their recent statement of economic projections,
they don't have us getting back down to two percent
until the end of twenty twenty seven. I mean, Look,
(15:22):
that's almost eight years that they're going to be spending
above a two percent, and to me, I'm not so sure.
Their target practically is two percent, and so we'll see
what the Committee committee thinks here in December. But I,
for one, do believe that in the mid two they're
probably perfectly comfortable with that so long as they get
stability in the labor market. So that's what that's the
(15:44):
side I'm on. I think we're going to get some
get a cut, but we're going to have to see.
It's going to be highly dependent on what the missing
information tells us.
Speaker 2 (15:50):
So I'd like to get your take on whether or
not there is a great degree of bifurcation in the economy.
It was very interesting today we heard from Fitch Ratings
and the company said the share of some prime borrowers
at least sixty days past too on their auto loans
rose by more than six percent of the month of October.
I think we're now at the highest level since about
(16:11):
nineteen ninety four. Now you and I both know what
the wealth effect has done this move higher in the
equity market, and how higher income earners that own stocks
have been able to power a lot of consumer spending.
Maybe there's a little bit more concern about lower and
middle income households. Do you think this has the potential
(16:32):
really to hold back a lot of growth the way
in which we were kind of divided.
Speaker 3 (16:38):
You know, I don't think we're really there yet.
Speaker 1 (16:41):
I think that the economy, as we're seeing in the
stock market, you know, has become more concentrated because not
everybody is you know, participating in a lot of the
equity market wealth that has been created. But you know,
you mentioned on the debt side of things. The New
York Fed puts out their quarter debton credit report that
(17:02):
comes out. It was just last week the for the
for the third quarter, reporting on a lot of these statistics,
you know, across loan types and across the different you know,
age and other demographic areas. And you know, we really
didn't see many headlines around that in Bloomberger otherwise. And
the reason is because nothing really got that worse or alarming.
(17:24):
And I hear you on that data point on the
auto loans, but you know, it didn't really show up
in a screaming manner on a change basis, you know,
in that major.
Speaker 3 (17:33):
Quarter we report.
Speaker 1 (17:34):
So you know, I don't think that I think that
was good that we didn't see that tick up there.
But I don't think we're quite at a trouble area yet,
you know, as it relates to that.
Speaker 3 (17:45):
And overall, the consumer is in a.
Speaker 1 (17:47):
Really, really healthy pace, and we've seen that when we
used to get economic data, we saw that broadly, and
we'll hope to see that see that again here once
the floodgates open back up and we get some information.
Speaker 2 (17:58):
Even so, if you look at the results of the
election last week, we're talking New Jersey, we're talking Virginia,
even here in New York City, this issue of affordability,
it's front and center, you know.
Speaker 3 (18:11):
It is.
Speaker 1 (18:11):
I think one thing on affordability that that's going to
be an underappreciated boost to economic activity is really on
the housing side. And I think you can see that
through the fall in mortgage rates. You know, we are
still in you know, the low sixes, but a good
bit down from where things were. And one of the
(18:33):
one of the metrics that we look at and have
been tracking closely is you know, interest rate volatility and
how that's been falling, and that's playing a pretty big
role in where mortgage rates are relative to the ten year,
and you know, with as we get closer and closer
to the end of this FED easing cycle, you know,
we're going to continue to see that interest rate volatility
(18:54):
fall and even without a change in the ten year,
mortgage rates can still come down. I think some Mesma said,
we'll looking, you know, we could see you know, in
the five and a half range with no change in
the tenure, just simply through this volatility reduction channel with
interest rates. This is going to be a really big
boost to just housing affordability overall because the activity has
(19:15):
been just completely on the floor there, and I think
that can be a really big boom when it comes
to consumer confidence, labor, mobility, home equity, lines of credit.
There's there's a lot of I think booming economic activity.
We can get through that mortgage channel, and I think
that that is something it's a little bit underappreciated, but
things have been moving in the right direction to make
(19:37):
at least the housing side there with existing homes, you know,
a lot more affordable, and as time passes, I think
that that's gonna be alleviated a little bit through that channel,
and that's a really good thing.
Speaker 2 (19:47):
So, Mike, where are you finding opportunity domestically.
Speaker 1 (19:52):
Well, you know, one of my favorite areas right now,
I'll give I'll give two things that that really have
my attention lately. One of them is the small and
MidCap space in US markets. Now, this has been a
trade that has had its fits and starts, right. You've
seen numerous very short lived kind of rallies in the
(20:14):
smaller cap segments of the market, but it's really failed
to sustain a rally, you know, in the last several years.
And I think there's a couple of things working in
favor of that trade right now for more of a
longer term hold.
Speaker 3 (20:27):
You know. One of them is this rate channel.
Speaker 1 (20:28):
Right, the high level of rates overall have been you know,
difficult and weighing in a disproportionate manner on the small
and midcaps space, right, Microsoft and Video. These folks don't
really care too much about the level.
Speaker 3 (20:40):
Of interest rates.
Speaker 1 (20:41):
They have plenty of cash flow and balance sheet. So
the fact that rate hikes are definitely off the table
and whether we get a cut in December is one thing,
but the direction of travel is down. That's a really
good thing for small caps overall. The second thing I'll
point out too, is we've seen earning's breadth really pick
up materially in that space. You saw it this quarter
(21:02):
with earnings for the S and P six hundred coming
in about twelve percent year every year. That's the same
as we got in the S and P five hundred.
You also saw a pretty solid near ten percent earnings
per share surprise, So just beats with the S and
P six hundred, those smaller cap names. That's a second
quarter in a row where it was, you know, a
stellar beat. And most importantly, evaluations have actually come down
(21:24):
on a forward looking basis for small cap stocks, so
you've got really a good entry point there they have
not participated with the top of the market rally.
Speaker 3 (21:32):
And then on the longer term.
Speaker 1 (21:33):
View, just you know, overall domestic focused policies, deregulation potentially
m and A activity picking up, I think is a
really good entry point. And I'll add a really good
seasonality kind of time a year to kind of enter
that trade and carry that in your portfolio through twenty six.
Speaker 3 (21:49):
So that's one area I really like.
Speaker 1 (21:50):
And then healthcare as well is a kind of a
sector contrarian play I like for similar reasons in the
sense that healthcare used to be a kind of crowded,
secular growth trade. It's now very firmly on the value
side of the market, with lower valuations only in energy
and financials, and you still see really strong strength on
the top lines there. And it also hasn't rallied. I
(22:13):
think that's poised to be a winter as we had
in next year too.
Speaker 2 (22:16):
I'm curious about how you're feeling about markets outside the US,
particularly in Asia. Any interest there, maybe Japan.
Speaker 1 (22:24):
Yeah, overall, I think international diversification in general is a
great place to be of certainly with hindsight this year, right,
international markets have done exceptionally well. But you know, one
of the things that I think is not just think
I firmly believe is going to be critical for you know,
this AI trade and the AI cap X to really
(22:47):
be put to work, is you know, just the infrastructure
being built out. And when you look at the international block,
you have a sector composition that's primarily made up more
so of industrials and energy material those type companies. These
sectors not only are they underrepresented in the US economy,
they're also poised to participate in a you know, kind
(23:10):
of industrial type rallying industrial type build out, and I
think that's going to be a really good sector composition
to look to as a diversification from the you know,
tech centered US markets, but also as you get a
lot of that infrastructure build out. And then you know,
of course, there's also the policy side of things from
a central bank perspective. I think with the FED, you know,
(23:30):
still in the cutting cycle, where a lot of other
uh you know, global markets are kind of near the
end of theirs, You're going to continue to see this
kind of narrowing interest rate deferment differential that should weigh
on the dollar uh more, and that should be a
tailwind for those kind of foreign markets uh here in
US dollars.
Speaker 3 (23:49):
So you know, a couple of reasons there.
Speaker 1 (23:51):
I think the international block as a whole U is
kind of a great place to be and provide some
diversification from the US.
Speaker 2 (23:58):
Very quickly, Mike, do you want to be exposed China
right now?
Speaker 1 (24:02):
I think China does have some interesting prospects to it
along those similar lines, most acutely just from you know,
just a policy response standpoint.
Speaker 3 (24:13):
So yeah, I think China.
Speaker 1 (24:15):
I think China is going to be critical to you know,
a lot of this kind of cyclical build out theme
that I'm talking about. So yes, I think that would
be a good, you know, emerging market area of focus
in the international block.
Speaker 2 (24:27):
Okay, Mike, we'll leave it there. Thank you so very much.
Mike Dixon there. He is head of Research and Quantitative
Strategies at Horizon Investments. Joining us 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 Asia Pacific.
(24:49):
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 (00:12):
Welcome to the Daybreak Asia podcast. I'm Doug Krisner. In
the States, the House of Representatives passed a Senate measure
to end the government shutdown. The President signed it and
the government will resume operations on Thursday. In a moment,
we'll look at US markets with Mike Dixon of Horizon Investments.
We began though in Hong Kong, where we had the
chance to catch up with Hifan Hu, chief investment officer
(00:35):
and head of APAC macro Economics at UBS Wealth Management.
She spoke with Bloomberg TV, host of aon Men and
Annabel Droolers.
Speaker 3 (00:43):
Now.
Speaker 2 (00:43):
The conversation began with a question on the outlook for
the Chinese economy.
Speaker 4 (00:48):
Let's talk about twenty twenty six. I mean, I feel
like the year has just sort of flown by and
we're already forecasting. So so what are you talking with
with clients about right now?
Speaker 5 (00:58):
Yeah, I think sus some most interesting question. Now, I
think that for twenty twenty five, if we see the
China's GDP growth like we think, we will end up
with like a four point nine percent to five percent,
So for the next year, we think the government could
set up the target between like a four point five
percent to five percent. So in our view, if without
(01:20):
like a major stimulus, so the GDP could reach around
a four point five percent, so we will have probably
lower for the first half the high for the second half.
Speaker 6 (01:31):
How significant would that be lowering at least or at
least that range when it comes to that growth target
for next year.
Speaker 5 (01:37):
I think this year is around the five percent, so
I think that if it's end up is a four
point nine percent, so it's also hits the target. So
it's possible for them to give a range rather than
say around a five percent. Again, so because like the
next year could be lower unless the government like I
wants to put the major stimilus, but we think the
(01:59):
chance is not very high, so I think they would
rather put like our range, maybe more comfortable like her
for like everyone.
Speaker 4 (02:08):
So not major similars. That's more of the physical side.
What about the monetary policy side.
Speaker 5 (02:14):
Monetary party side, I think we'll still keep easy and
keep accommodative, and we still expect like a fifty two
hundred BIPs of the cut by the end of the
twenty twenty six and also maybe twenty to thirty BIPs
of the interest rate cuts. Because given or CPI infreation
is still pretty low.
Speaker 6 (02:33):
What are you expecting to be kind of the bigger
drags next year? Is it the exports side of things
are going to be a bit softer than this year
that has been quite resilient, And are we just not
expecting any sort of meaningful recovering the consumer For.
Speaker 5 (02:46):
The consumer side, I think the yeah, we think it
still will be like at between three to five percent.
We didn't see like how too much highlights about that,
I think, But the major driver should be still for
the industry autoput side, industry product because like AI AI
driven applications and also with like this kind of advanced
(03:11):
manufacturing and possibly like we call the new productivity growth.
So I think that will probably lead the driver. On
the other side. For the energy side, I think that
especially this year, we say for the energy reserves like
a new energy and also for this kind of the
high voltage like our elacricity, like our transmission. That's all
(03:31):
could become like our new highlights. But for the consumption side,
I think as will be uh in my view, will
be I could quite civil, but will not be like
very strong. Our property will still be the drag, but
we don't think the government will put too much efforts
of that, so we'll just let it go unless this
(03:51):
have the cliff that job, but that's the chance also small.
Speaker 4 (03:55):
Picking up on that theme around increasing automation you're just
referencing there, how does that also impact the jobs outlook
and the employment outlook as well?
Speaker 5 (04:07):
In this sense, I think for AI application, so like
how one side of course, like more jobs may be
taken by the machine, But at the same time, we
think maybe service sectors still have the chances. And also
withs like a new applied like a services sector, maybe
there's something like a more like how we call the
experience exposure like a services sector come out, like how
(04:31):
that's more like a digitized and also with like this
kind of more entertaining or like how even with more
creative like a more service oriented like actual opportunities. But
still I think there is still of pressure.
Speaker 6 (04:46):
And you guys upgraded Chinese Tech just a few weeks
ago and saying it's probably the most preferred, right, most
attractive here right now, how are you looking at this
rally around AI and the light now and how do
you position around it for next year.
Speaker 5 (04:59):
I think the this year AI already rallied for two
years like last year. This year, especially for this year
almost over thirty percent. But I think the think about
it for this all these kind of a big platforms
very similar to the US like Meganique since seven. I
think they just started because like one side, I think
that their valuation is still relatively low, like thirty to
(05:22):
thirty percent of discount comparing with the US PS. And
the second I think for the China, the AI investment
is still like a capex is still increasing like a
similar to the US. And also certain I think it's
a very a little bit different from the US side.
I think the China is more like an ecosystem. So
I think that with this kind of an ecosystem with
(05:44):
the basic research like then the AI, then the AI
application with this ecosystem could like the spillover effect, we
think it could be bigger.
Speaker 4 (05:54):
One of tho sort of issues I guess around the
AI application side is sometimes low barriers to entry, What
are the what are the sectors that you look at
in terms that AI theme in particular is being a
bit more resilient.
Speaker 5 (06:08):
I guess I think the AI, say, will range you
from the lower end to the high end. So if
the we can like AI applic applied like an advance
of manufacturing and new materials and also healthcare, I think
he's booming because of the AI like how the application,
and we also say because say AI applied to maybe
(06:29):
like era space and also uh some like how many
like a new fields. I think it's just like feed
up the exploration and also like innovation.
Speaker 6 (06:41):
What are some of the key themes you're watching out?
I mean for the fourth part, because I think there's
been a lot of allocation into domestic tech already, especially
you take a look how institutional investors are kind of positioning.
Do you think that this is extreme levels when you
talk about fund concentration now and we've already sort of
seen some rotation out of tech cannot continue in the
fourth quarter.
Speaker 5 (07:01):
Yes, I think that it's started with the tech and
also like uh yeah, the concentration set. We think the
text still have the loom, but we also see it's
applied to other sectors as well, like gradually. For example,
we think that this year it's also very shiny. Section
is for the energy reserves because now by now for
the new energy already surprise thirty five percent of the
(07:23):
China's like a total energy surprise, So I think that's
like a very like a significant number. And we'll also
say like maybe the healthcare will benefit because their price
has been low and I could benefit like maybe with
this kind of plakichi. And for the consumption side, yeah,
that side is ah, it's we have the new const
(07:45):
new consumption, but too high and it's it's it's not easy.
But I think that we still have this kind of
the like the new materials. And we also say for
the sector like booming out and also the AI is
not only the SOT to wear and also have the hardwares,
but of course most sectors, most companies are in the
A listed, so that's really we also think the issuers
(08:08):
and could also could slightly better perform than h year
next year because with all these kind of the like hardwares.
Speaker 4 (08:18):
So that's that's the equity side. What about the fixed
income side? What are your preferences there?
Speaker 5 (08:23):
Uh, for the fixed income side, because we still expect,
like for the interest rate will go down, so I
think the like for the bond side, I think it's
not very attractive. But the existing bound of course, like
I think I still like have the uh the game.
Speaker 6 (08:43):
Is buying bonds again, right, Yeah, that's is that likely
to be more measured this time around?
Speaker 5 (08:47):
I think the yeah, PBOC and also I think the
PBOC also, I think that this year we also say
for the company's actually issue like Chinese, like for the
c N y bounds like in Hong Kong. So I
think the government like pbios by bonds. I think it's
more like I'll keep the mandatory. They don't call it
(09:09):
a quantitative easy, but I think it's more like I'll
provide the liquidity adjustment of the liquidity like a provision
in the market.
Speaker 2 (09:18):
That was ifan Who from UBS Wealth Management speaking with
Bloomberg TV host Von Mann and Anabel Droolers on the
Daybreak Asia podcast. Welcome back to the Daybreak Asia podcast.
I'm Doug Prisner. As mentioned earlier, the House of Representatives
(09:40):
passed a Senate measure to end the longest government shutdown
in US history.
Speaker 3 (09:44):
Now.
Speaker 2 (09:45):
In anticipation of this development, the Dow climbed for a
fourth straight day, breaking above forty eight thousand for the
first time and closing at a record high. Financials led
the way for a closer look. I'm joined by Mike Dixon.
He is head of research and quantitative Strategies at Horizon Investments. Mike,
thank you for making time to chat with me. If
you don't mind, I'd like to start with Cisco Systems.
(10:07):
We heard from the company after the bill an upbeat
sales forecast, which is likely a reflection of the progress
Cisco is making and capturing more spending on AI. The
stock was up eight percent in late US trading to
around eighty dollars. Now that is the closest Cisco's shares
have come to eighty two. They're all time high, set
(10:29):
back on March twenty seventh, two thousand rights the dot
com bubble burst. It's interesting timing. Maybe with all the
talk we've heard about bubbles.
Speaker 1 (10:40):
I certainly love the history throwback, and yeah, I mean
we are right on the cusp of reclaiming that high.
I would say, you know, at least on a dividend
adjusted basis, that has been reclaimed within the past several months.
But nonetheless, look, this is not this AI trade is
not the Internet bubble of the nineties. When we look
at the underlying fundamental at the top of the market,
(11:01):
you have had extremely strong earnings growth and revenue growth,
and this earning season is no exception. When you look
at the Magnificent seven and the NASDAC, you've actually had
an inflection higher and revenue growth year every year of
fifteen percent for the Nasdaq and that's up from ten
percent about a year ago. So we've had an inflection
higher in revenue growth. Obviously, earnings have been absolutely stellar.
(11:25):
We have seen cash flows come down a good bit
because of a lot of the cap x, but these
we are seeing significant plans to make the power demand
and the deals needed to get that infrastructure build and
make that stuff happen. So really strong fundamentals here supporting
the top of the market, which is not what we
had back in the late nineties.
Speaker 2 (11:43):
Even so, over the last couple of days, we've seen
a rotation away from big cap tech. Yesterday that would
be the Tuesday session in the States, it was healthcare.
Today it was the financials. Is it prudent now to
kind of maybe take a little bit of risk off
the table.
Speaker 1 (11:58):
Well, we have seen a little bit of rotation, but
I think the market overall we tend to forget that
some of these stocks actually can be flat for a day,
and that's completely normal, and in fact it's very healthy,
you know, zooming out when you look at the more
you know, equal weight version of the SMP or you know,
I believe that the Dow right cross its forty eight
thousand today, that of course does not have a lot
(12:20):
of the Max seven you know, top of the tech
and AI trade really embedded in there. It's healthy to
see some of that, you know, certainly with what we've
had this year, because market concentration has been has been growing,
and it is good to see a broader participation even
some of the defensives you mentioned healthcare. I mean that
that to me is a really good kind of contrarian
(12:43):
sector play, and I think it's good to see participation there.
Speaker 3 (12:46):
We've had a stellar rally in the top of the.
Speaker 1 (12:48):
Market, and I do believe right now it might be
prudent to think of.
Speaker 3 (12:51):
That as more of a hold and not necessarily an ad.
Speaker 1 (12:56):
We do have Nvidia next week, which is a macro
event in al so we're going to need to see
that what that holds, whether this Santa claus rally is
going to be, you know, what we get through the
end of the year. But there are other opportunities other
than AI out there, and I do think it's wise
to be looking at what some of those may be.
Speaker 2 (13:16):
Earlier today, the White House said that the October reports
on unemployment and consumer prices will unlikely be released. Obviously,
these numbers have been delayed by the shutdown. This is
only going to add to a little bit more of
the difficulty engaging the outlook, especially for the FED. Right now,
I think FED fun Future suggests a sixty three percent
(13:36):
chance of a rate cut next month of twenty five
basis points. Although we're hearing more and more from a
number of FED members about the concern over inflation it
being sticky and perhaps a bigger risk than the unemployment story.
Where do you come down when it comes to the
FED and the outlook.
Speaker 1 (13:57):
Well, you know, seeing that the headline today about the
delay in those reports is not great timing, right. I
think we are at a point where we have had
a pretty steady decline in labor market data heading into
the shutdown. But at the same time, inflation it hasn't
necessarily been a problem, but it hasn't been improving at
the rate that folks would like. And so you know
(14:18):
what has happened with this shutdown is a lot of
these surveys just didn't get completed and as a result
may not be for at least what I was reading
the first time. Ever, that's not great because the December
meeting as well, is a little bit earlier this year
than it typically is, and so we're going to be
kind of running up against the wire to get a
lot of this data collected and get a fresh view
(14:40):
on the market. But you know, overall, I do think
what we saw at the end of October was a
little bit of a surprise from Powell and the Committee
as a whole. You know, he mentioned a number of
times that the December cut was not a foregone conclusion
for me and I think the rest of the market.
Speaker 3 (14:56):
That was a good bit of a surprise to hear that.
You know.
Speaker 1 (15:00):
On the inflation side of things, though, and I hear
the arguments out there, but if we also zoom out
a little bit, the FED has been above their inflation
target for you know, the better part of four nearly
five years, and in their recent statement of economic projections,
they don't have us getting back down to two percent
until the end of twenty twenty seven. I mean, Look,
(15:22):
that's almost eight years that they're going to be spending
above a two percent, and to me, I'm not so sure.
Their target practically is two percent, and so we'll see
what the Committee committee thinks here in December. But I,
for one, do believe that in the mid two they're
probably perfectly comfortable with that so long as they get
stability in the labor market. So that's what that's the
(15:44):
side I'm on. I think we're going to get some
get a cut, but we're going to have to see.
It's going to be highly dependent on what the missing
information tells us.
Speaker 2 (15:50):
So I'd like to get your take on whether or
not there is a great degree of bifurcation in the economy.
It was very interesting today we heard from Fitch Ratings
and the company said the share of some prime borrowers
at least sixty days past too on their auto loans
rose by more than six percent of the month of October.
I think we're now at the highest level since about
(16:11):
nineteen ninety four. Now you and I both know what
the wealth effect has done this move higher in the
equity market, and how higher income earners that own stocks
have been able to power a lot of consumer spending.
Maybe there's a little bit more concern about lower and
middle income households. Do you think this has the potential
(16:32):
really to hold back a lot of growth the way
in which we were kind of divided.
Speaker 3 (16:38):
You know, I don't think we're really there yet.
Speaker 1 (16:41):
I think that the economy, as we're seeing in the
stock market, you know, has become more concentrated because not
everybody is you know, participating in a lot of the
equity market wealth that has been created. But you know,
you mentioned on the debt side of things. The New
York Fed puts out their quarter debton credit report that
(17:02):
comes out. It was just last week the for the
for the third quarter, reporting on a lot of these statistics,
you know, across loan types and across the different you know,
age and other demographic areas. And you know, we really
didn't see many headlines around that in Bloomberger otherwise. And
the reason is because nothing really got that worse or alarming.
(17:24):
And I hear you on that data point on the
auto loans, but you know, it didn't really show up
in a screaming manner on a change basis, you know,
in that major.
Speaker 3 (17:33):
Quarter we report.
Speaker 1 (17:34):
So you know, I don't think that I think that
was good that we didn't see that tick up there.
But I don't think we're quite at a trouble area yet,
you know, as it relates to that.
Speaker 3 (17:45):
And overall, the consumer is in a.
Speaker 1 (17:47):
Really, really healthy pace, and we've seen that when we
used to get economic data, we saw that broadly, and
we'll hope to see that see that again here once
the floodgates open back up and we get some information.
Speaker 2 (17:58):
Even so, if you look at the results of the
election last week, we're talking New Jersey, we're talking Virginia,
even here in New York City, this issue of affordability,
it's front and center, you know.
Speaker 3 (18:11):
It is.
Speaker 1 (18:11):
I think one thing on affordability that that's going to
be an underappreciated boost to economic activity is really on
the housing side. And I think you can see that
through the fall in mortgage rates. You know, we are
still in you know, the low sixes, but a good
bit down from where things were. And one of the
(18:33):
one of the metrics that we look at and have
been tracking closely is you know, interest rate volatility and
how that's been falling, and that's playing a pretty big
role in where mortgage rates are relative to the ten year,
and you know, with as we get closer and closer
to the end of this FED easing cycle, you know,
we're going to continue to see that interest rate volatility
(18:54):
fall and even without a change in the ten year,
mortgage rates can still come down. I think some Mesma said,
we'll looking, you know, we could see you know, in
the five and a half range with no change in
the tenure, just simply through this volatility reduction channel with
interest rates. This is going to be a really big
boost to just housing affordability overall because the activity has
(19:15):
been just completely on the floor there, and I think
that can be a really big boom when it comes
to consumer confidence, labor, mobility, home equity, lines of credit.
There's there's a lot of I think booming economic activity.
We can get through that mortgage channel, and I think
that that is something it's a little bit underappreciated, but
things have been moving in the right direction to make
(19:37):
at least the housing side there with existing homes, you know,
a lot more affordable, and as time passes, I think
that that's gonna be alleviated a little bit through that channel,
and that's a really good thing.
Speaker 2 (19:47):
So, Mike, where are you finding opportunity domestically.
Speaker 1 (19:52):
Well, you know, one of my favorite areas right now,
I'll give I'll give two things that that really have
my attention lately. One of them is the small and
MidCap space in US markets. Now, this has been a
trade that has had its fits and starts, right. You've
seen numerous very short lived kind of rallies in the
(20:14):
smaller cap segments of the market, but it's really failed
to sustain a rally, you know, in the last several years.
And I think there's a couple of things working in
favor of that trade right now for more of a
longer term hold.
Speaker 3 (20:27):
You know. One of them is this rate channel.
Speaker 1 (20:28):
Right, the high level of rates overall have been you know,
difficult and weighing in a disproportionate manner on the small
and midcaps space, right, Microsoft and Video. These folks don't
really care too much about the level.
Speaker 3 (20:40):
Of interest rates.
Speaker 1 (20:41):
They have plenty of cash flow and balance sheet. So
the fact that rate hikes are definitely off the table
and whether we get a cut in December is one thing,
but the direction of travel is down. That's a really
good thing for small caps overall. The second thing I'll
point out too, is we've seen earning's breadth really pick
up materially in that space. You saw it this quarter
(21:02):
with earnings for the S and P six hundred coming
in about twelve percent year every year. That's the same
as we got in the S and P five hundred.
You also saw a pretty solid near ten percent earnings
per share surprise, So just beats with the S and
P six hundred, those smaller cap names. That's a second
quarter in a row where it was, you know, a
stellar beat. And most importantly, evaluations have actually come down
(21:24):
on a forward looking basis for small cap stocks, so
you've got really a good entry point there they have
not participated with the top of the market rally.
Speaker 3 (21:32):
And then on the longer term.
Speaker 1 (21:33):
View, just you know, overall domestic focused policies, deregulation potentially
m and A activity picking up, I think is a
really good entry point. And I'll add a really good
seasonality kind of time a year to kind of enter
that trade and carry that in your portfolio through twenty six.
Speaker 3 (21:49):
So that's one area I really like.
Speaker 1 (21:50):
And then healthcare as well is a kind of a
sector contrarian play I like for similar reasons in the
sense that healthcare used to be a kind of crowded,
secular growth trade. It's now very firmly on the value
side of the market, with lower valuations only in energy
and financials, and you still see really strong strength on
the top lines there. And it also hasn't rallied. I
(22:13):
think that's poised to be a winter as we had
in next year too.
Speaker 2 (22:16):
I'm curious about how you're feeling about markets outside the US,
particularly in Asia. Any interest there, maybe Japan.
Speaker 1 (22:24):
Yeah, overall, I think international diversification in general is a
great place to be of certainly with hindsight this year, right,
international markets have done exceptionally well. But you know, one
of the things that I think is not just think
I firmly believe is going to be critical for you know,
this AI trade and the AI cap X to really
(22:47):
be put to work, is you know, just the infrastructure
being built out. And when you look at the international block,
you have a sector composition that's primarily made up more
so of industrials and energy material those type companies. These
sectors not only are they underrepresented in the US economy,
they're also poised to participate in a you know, kind
(23:10):
of industrial type rallying industrial type build out, and I
think that's going to be a really good sector composition
to look to as a diversification from the you know,
tech centered US markets, but also as you get a
lot of that infrastructure build out. And then you know,
of course, there's also the policy side of things from
a central bank perspective. I think with the FED, you know,
(23:30):
still in the cutting cycle, where a lot of other
uh you know, global markets are kind of near the
end of theirs, You're going to continue to see this
kind of narrowing interest rate deferment differential that should weigh
on the dollar uh more, and that should be a
tailwind for those kind of foreign markets uh here in
US dollars.
Speaker 3 (23:49):
So you know, a couple of reasons there.
Speaker 1 (23:51):
I think the international block as a whole U is
kind of a great place to be and provide some
diversification from the US.
Speaker 2 (23:58):
Very quickly, Mike, do you want to be exposed China
right now?
Speaker 1 (24:02):
I think China does have some interesting prospects to it
along those similar lines, most acutely just from you know,
just a policy response standpoint.
Speaker 3 (24:13):
So yeah, I think China.
Speaker 1 (24:15):
I think China is going to be critical to you know,
a lot of this kind of cyclical build out theme
that I'm talking about. So yes, I think that would
be a good, you know, emerging market area of focus
in the international block.
Speaker 2 (24:27):
Okay, Mike, we'll leave it there. Thank you so very much.
Mike Dixon there. He is head of Research and Quantitative
Strategies at Horizon Investments. Joining us 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 Asia Pacific.
(24:49):
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
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