May 27, 2025 • 19 mins
Wall Street kicked off the week with a rally in stocks as consumer confidence rebounded sharply while the US and the European Union sped up trade talks. A global surge in bonds also helped sentiment. We got reaction from Clark Geranen, Chief Market Strategist at CalBay Investments.
Plus - Eastspring Investments just released their mid-year market outlook and said that they see greater upside potential for Asian and emerging markets as the dollar weakens and investors looking to diversify their portfolio. We speak to Vis Nayar, the Chief Investment Officer at Eastspring Investments.
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Episode Transcript
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Speaker 1 (00:00):
Bloomberg Audio Studios, Podcasts, Radio News. Welcome to the Daybreak
Asia podcast. I'm Doug Chrisner. The US equity market rally today.
That was after the US and the European Union sped
up trade talks. The market also got a bit of
(00:22):
a boost from a sharp rebound in consumer confidence. We
had the S and P jumping two percent today, but
to be fair, trading volume in the S ANDP was
more than ten percent below the ten day average, and
sometimes light volume can exaggerate some of the price action.
For a closer look at market action, I'm joined by
Clark Garnon. He is the chief market strategist at Calba Investments.
(00:44):
He joins from the Bay Area in California. Clark, thank
you so much. Give me your sense of what the
market was telling you today on the equity side.
Speaker 2 (00:55):
Well, we saw that delay, the push off in the
tariffs on the EU, and like you said, with the
new numbers coming out on the consumer confidence index, we
clearly saw some bullish signals. But that being said, you
know we weren't necessarily surprised. We've seen this headline risk
go both ways, and like you mentioned, the low volume,
(01:18):
I think there is some investor fatigue out there.
Speaker 1 (01:22):
It was kind of interesting to look at the bond
market today because overnight Japanese authorities seem to suggest a
possible reduction in the amount of debt issuance. The Finance
Ministry in Japan has been working to stabilize the bond
market after last week's soft sale in those twenty year jgbs,
where demand I think was the weakest in more than
(01:43):
a decade. So maybe we have a little bit of stability,
But I think overhanging global debt markets right now, there
is the growing concern about these the large size of
these government deficits. Is that going to be something that
you think will persist in of casting a pall over
global bond markets going forward?
Speaker 2 (02:05):
I think it will, you know. I think looking back
to twenty twenty two, where we had both equities and
bonds down double digits for the first time, I think
we started to get worried about that in April, and
as we see our deficit continue to grow without a
solid plan for actually fixing that, that is something that
(02:25):
we're going to be worried about moving forward.
Speaker 1 (02:27):
So we talked a little bit about the trade story.
I'm curious to get your take on whether you think,
first of all, there will be resolution to these various
trade agreements at least in the near term, and secondly,
whether you are concerned that even if we get agreements
with various trading partners, that the net impact will be inflationary.
Speaker 2 (02:51):
So we are concerned about stagflation, So we do think
that that could be a possibility moving forward. But we
do think that since we've seen some of these tariff
delays and there's been a clear response, even the EU
over the past day has said that they are making
good progress towards making a deal, and we think that's
(03:11):
going to be imperative for not only avoiding some stackflation,
but also a possible recession. At this point, we could
be in a technical recession, but we also have that
in twenty twenty where we didn't even realize we were
in the recession until we were out of it. So
recession isn't necessarily something that we're concerned about. We could
(03:33):
have one, but I think moving forward we just need
to see exactly how many deals are made, because we
need to see a deal done before the end of summer.
Speaker 1 (03:43):
And a number of FED officials have said repeatedly that
US trade policy right now has created a fair amount
of uncertainty for the FED to consider moving rates before September.
That was what we heard over the weekend from the
head of the Minneapolis FED, Neil Kashkari, concerned that the
FED may not have the flexibility that people were hoping
(04:04):
for to cut rates between now and the end of
the year.
Speaker 2 (04:09):
I don't know if it's a matter of flexibility. I
just don't think from their dual mandate, looking at inflation
and looking at unemployment, that either of those numbers are
in a place for the FED to cut right now.
So there's going to have to be some sort of
change between now in September or the end of the
year for that matter. And so we're not really anticipating
(04:31):
any FED cuts at this point, and that could be
to the chagrin of President Trump, But from their dual mandate,
looking at the numbers, there doesn't seem to be a
reason to cut.
Speaker 1 (04:44):
So let's talk a little bit about artificial intelligence. You're
there near the center of the storm, which I think
is San Francisco, but you're in the Bay Area, and
tomorrow we're going to hear from end video. What are
your expectations.
Speaker 2 (05:00):
While I can't provide expectations for Nvidia earnings, I will
say that it's always a drastic day in the markets
the day before earnings and obviously the day of earnings.
So you know, as we've seen Nvidia push the markets
higher and higher over the past two years, it definitely
(05:20):
will be a huge headline tomorrow, and I think just
adds to the headline risk that we'll be looking at.
Speaker 1 (05:26):
Generally speaking, are you bullish on large cap tech?
Speaker 2 (05:31):
Generally speaking, yes, we are bullish on large cap tech,
and thankfully, over the past two months, we've had great
opportunities to enter into some of these names as we
saw the multiples get reduced so much, it's been a
great opportunity to buy. So not only are we bullish
on large cap tech, but we also really like the
(05:55):
healthcare space as well as financials, and AI plays into
a lot of that. With healthcare, that's where we're seeing
a lot of advancements in AI and think that there's
a lot of room to run.
Speaker 1 (06:07):
Also, today San Francisco based Salesforce announced the acquisition of Informatica.
This is an eight billion dollar deal. Informatica helps customers
manage their data in the cloud, So a bit of
an AI play here for salesforce. While back, people were
really anticipating a lot more M and A activity that
(06:27):
really hasn't panned out. Do you think we're going to
turn the corner soon and see much more in the
way of deal flow.
Speaker 2 (06:35):
I do, but I think first we need to get
a few deals done in order to have some more
clarity and certainty moving forward. I think that also comes
with the TCGA being passed, and once we have more
clarity there, then we'll start to see some more deals
pan out, because we also expected M and A to
(06:57):
be a large part of this administration's plan moving forward,
but I think tariffs and getting some deals done with
countries is first priority. Then we can talk about the
corporate tax cuts, which are then going to follow into
the mergers and acquisitions and just sort of the deregulation
(07:18):
of industries in general.
Speaker 1 (07:20):
So if you're anticipating a pickup in deal flow, I
would imagine that you look at some of the big banks,
some of the investment banks as an opportunity.
Speaker 2 (07:28):
Right, absolutely, investment banks and regional banks as well, So
you know, this is where we're going to see some
consolidation and most likely not until Q three, Q four
and even into twenty twenty six, So not necessarily something
that's going to happen tomorrow, but we know down the
(07:49):
road once we have more clarity that it will happen.
Speaker 1 (07:52):
Are you still very much squarely focused on putting money
to work in the United States at the exclusion of
other developed markets globally?
Speaker 2 (08:01):
So what we like to do is we like to
keep less than ten percent international, and that's just from
our investment philosophy. So obviously through this year international's done
quite well. We didn't want to chase returns, so we
don't think of ourselves as traders. We are long term
investors and overall we have a strong bullish view of
(08:25):
the US markets, and so we'll continue to stick to
that ten percent.
Speaker 1 (08:30):
All right, Clark, we'll leave it there. Thank you so
much for joining us. Clark Aaron and he is the
chief market strategist at Calbay Investments, joining from the Bay
Area of northern California. Here on the Daybreak Asia podcast.
Welcome back to the Daybreak Asia podcast. I'm Doug Chrisner.
(08:53):
So we have talked on this podcast for a while
about how investors across Asia have been rethinking their strategy
of investing in US assets. We know the concerns are many.
There's the US budget deficit along with the impact of
tariffs and shifting US trade policies, as well as the
knock on effect of a weaker dollar. For a closer look, now,
(09:15):
I'm joined by vs N i Are. He is the
CIO at East Spring Investments. Vs joins us from our
studios in Hong Kong. Good of you to make time
to chat with me. I'm curious to get your take
on the way in which investors in Asia are now
de risking from the US. What are those fun flows
look like to you?
Speaker 2 (09:34):
Hi?
Speaker 3 (09:34):
Thanks, Thanks Doug for having me here. So what we
see is that we've had a number of years now
where US markets in general, both fixed income and equities,
have had a very large outshare of interest and of
drawing capital, so into US equities, into use fixed income,
et cetera. Now now we've now in a position where
(09:57):
we're seeing some challenges to growth, be it driven by
tariff some uncertainty. We've seen weakness in the dollar. Often
forgotten is that the US markets have recovered, But in
twenty twenty five, US markets have underperformed some of the
larger Asian markets. So it's a very interesting cocktail. So
in the backdrop of a falling dollar, challenges and the
(10:19):
long end of the US curve, you know, we've seen
some disappointments there as well in terms of the auctions,
we see investors really increasingly thinking about diversification. So the
last few years has been a very clear market where
concentration has done well. So a few stocks, particularly tech
stocks in the US, have driven global markets and of
(10:42):
course the US markets as well. And you're seeing a
change in that. You're seeing a change in that leadership,
You're seeing challenges to growth, you're seeing longer long end
interest rates, we're seeing a falling dollar. So these cocktail
is a cocktail of changes really, and investors are adapt
to that. Then they're adapting by being much more focused
(11:03):
again on diversification, seeking out those pockets of the market
that might be a little bit more resilient, those pockets
that potentially could outperform, and then allocating appropriately, which often
means now a little bit away from the US.
Speaker 1 (11:19):
So to what extent does China represent an alternative right now?
How would you wait opportunities in China broadly speaking, and
whether there is really the kind of story, the kind
of narrative that would compel an investor to put money
to work on the mainland.
Speaker 3 (11:35):
So what a great questen. So what we see, of course,
this year, we've seen the Chinese markets have outperformed the US.
Of course, there's been a lot of volatility around tariffs,
a lot of uncertainty around tariffs, and that of course
holds back perhaps invests a little bit from going all
in in some ways. But the Chinese market, of course,
(11:57):
as we've moved to a world where despite all the
tariff on certainty, we see effectively there this effective tariff
rate of about thirty five percent. You know, there's a
ten percent flat rate, there's a twenty percent fentanyl rate,
and there's some sector specific additional rates as well. So
on average, we think that's about thirty five percent. That
is potentially a one percent headwind to GDP, but we
(12:19):
still see China delivering about four point four percent growth
this year. We've seen two percent fiscal stimulus already, we
think there could be another one one and a half
percent coming, and we think they can deliver that four
percent growth. This is against a backdrop of US growth
actually deteriorating in the second half of the year. Secondly,
(12:40):
there is room for interest rates to to come down
in China, and we've also seen very much sector specific
lending to help certain sectors. So in no way do
we think that there is a sort of across the
board positive stories across all sectors in China. We still
have concerns around property, et cetera. But certainly things like
(13:01):
the technology sector in China trade a very cheap valuations.
You you are you are buying into the market at
very very attractive valuations, and we think this is a
good point, and that's why investors have started to become
much more likely to allocate to some of those agent
markets in particularly China.
Speaker 1 (13:18):
I'm wondering how you wait the problem of deflation in
China and whether you are worried that this could become
a more intractable and deeper problem for officials in China
to deal with.
Speaker 3 (13:32):
Well, I think the key thing there is that they
have the tools, so it's it's you know, we're not
We're not. I think tracking a repeat of what we
saw with Japan. They have got tools that will allow
them to to stimulate. We still are seeing growth, So
it's not a zero growth environment. They they delivered something
last year. We think they'll deliver four and a half
(13:53):
this year. But I think what might be the concern
is that we don't see this as an across the board,
across all sects. There are domestic champions. There are particular
sectors that do well. We do strongly advocate. I mean,
we've just released our midyear outlook and the theme of
that was think Asia, but think active. We don't think
this is a broad market recovery or a broad market allocation.
(14:17):
It's very much about identifying those companies that are much
more resilient with you know, competitive advantages, strong balance sheets,
the kind of essentially quality names, and we think those
are the ones that can outperform because evaluations are so
much more attractive.
Speaker 1 (14:33):
I want to pivot to supply chain reconfiguration if we can't,
because it's a part of the tariff story obviously, and
we know that firms began to diversify away from China
to a small extent during the first Trump trade war
with Beijing. Then the pandemic struck, and that clearly highlighted
the risk of being overly concentrated in China. Now during
(14:54):
the second Trump trade war, there seems to be even
greater risk now under the current strategy, the Trump administration
is trying to counter this reconfiguration story. It's focused on
places like Vietnam, where reshoring has been underway as we
know for some time. And I'm curious, viz, how are
you navigating all of this?
Speaker 3 (15:16):
That question almost identified all of the concerns that we
have as investors as well. So undoubtedly the first President
Trump administration was very focused on China, and what we
saw was this China plus one strategy adopted by many
Asian manufacturers, essentially relocating to the likes of Vietnam and
(15:37):
other places in Southeast Asia. I think that the ideological
and game still seems very much that the US policies
are very much trying to contain China. I think we
are in a journey of discovery around trade deals and
those negotiations. The Chinese have got some concerns, you know,
(15:59):
very clearly the US is focused on the bigger nations
they've you know, we're talking about Europe, Japan, China. They're
putting a lot of energy into that. It's pertinent that
we haven't easily struck deals so it's not a negotiation
tactic that has forced a kind of a submission. It's
very much a negotiation that the likes of Japan and
(16:23):
China are going through, and the Chinese are very aware
and they're looking out for deals that in any way
disadvantage them in the global market. Now, when we think
of that policy, I think that it's the uncertainty they
investors are struggling with. So if investors are struggling with it,
so are you know, business owners and business managers, Because
(16:43):
how do you relocate production into a third into a
third nation or a third region without policy certainty. I
think that is that that is the dimension that really
has suffered in the last few months, because this uncertainty
potentially leads to less investment and then that potentially leads
(17:03):
to lower growth. So as investors, that is the primary focus.
If we're trying to predict the endgame, I think that
it's very difficult to do. Other than perhaps a few
points we know we think there might be something like
a ten percent tariff ry across the board with many nations.
I think that even the Chinese have sort of got
(17:23):
themselves to a roughly relaxed point there. I think that
there is some strong negotiations around trying to limit the
impact on inflation from those tariff tax rises, and then
we are in a void discovery around what that means
in terms of supply chain adjustment. The first administration moved
(17:45):
a lot of supply chain manufacturing to Southeast Asia. Clearly,
now the US President is very clear that they want
to at least try and limit or pay attention to that.
They haven't we haven't got to the endpoint where we
know for certain that's not going to be a good idea. Clearly,
we've got other parts of the world that they may
be paying attention to. But I think if there's one
(18:07):
anchor to everything is they want to at least limit
their reliance on China as in terms of their own
supply chain. That's the best we can give.
Speaker 1 (18:16):
We'll leave it there. Vis Thank you so much for
being with us. Fee Sneier is the CIO at East
Spring Investments, joining from Hong Kong 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.
(18:38):
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 Prisner, and this is
Bloomberg
Bloomberg Audio Studios, Podcasts, Radio News. Welcome to the Daybreak
Asia podcast. I'm Doug Chrisner. The US equity market rally today.
That was after the US and the European Union sped
up trade talks. The market also got a bit of
(00:22):
a boost from a sharp rebound in consumer confidence. We
had the S and P jumping two percent today, but
to be fair, trading volume in the S ANDP was
more than ten percent below the ten day average, and
sometimes light volume can exaggerate some of the price action.
For a closer look at market action, I'm joined by
Clark Garnon. He is the chief market strategist at Calba Investments.
(00:44):
He joins from the Bay Area in California. Clark, thank
you so much. Give me your sense of what the
market was telling you today on the equity side.
Speaker 2 (00:55):
Well, we saw that delay, the push off in the
tariffs on the EU, and like you said, with the
new numbers coming out on the consumer confidence index, we
clearly saw some bullish signals. But that being said, you
know we weren't necessarily surprised. We've seen this headline risk
go both ways, and like you mentioned, the low volume,
(01:18):
I think there is some investor fatigue out there.
Speaker 1 (01:22):
It was kind of interesting to look at the bond
market today because overnight Japanese authorities seem to suggest a
possible reduction in the amount of debt issuance. The Finance
Ministry in Japan has been working to stabilize the bond
market after last week's soft sale in those twenty year jgbs,
where demand I think was the weakest in more than
(01:43):
a decade. So maybe we have a little bit of stability,
But I think overhanging global debt markets right now, there
is the growing concern about these the large size of
these government deficits. Is that going to be something that
you think will persist in of casting a pall over
global bond markets going forward?
Speaker 2 (02:05):
I think it will, you know. I think looking back
to twenty twenty two, where we had both equities and
bonds down double digits for the first time, I think
we started to get worried about that in April, and
as we see our deficit continue to grow without a
solid plan for actually fixing that, that is something that
(02:25):
we're going to be worried about moving forward.
Speaker 1 (02:27):
So we talked a little bit about the trade story.
I'm curious to get your take on whether you think,
first of all, there will be resolution to these various
trade agreements at least in the near term, and secondly,
whether you are concerned that even if we get agreements
with various trading partners, that the net impact will be inflationary.
Speaker 2 (02:51):
So we are concerned about stagflation, So we do think
that that could be a possibility moving forward. But we
do think that since we've seen some of these tariff
delays and there's been a clear response, even the EU
over the past day has said that they are making
good progress towards making a deal, and we think that's
(03:11):
going to be imperative for not only avoiding some stackflation,
but also a possible recession. At this point, we could
be in a technical recession, but we also have that
in twenty twenty where we didn't even realize we were
in the recession until we were out of it. So
recession isn't necessarily something that we're concerned about. We could
(03:33):
have one, but I think moving forward we just need
to see exactly how many deals are made, because we
need to see a deal done before the end of summer.
Speaker 1 (03:43):
And a number of FED officials have said repeatedly that
US trade policy right now has created a fair amount
of uncertainty for the FED to consider moving rates before September.
That was what we heard over the weekend from the
head of the Minneapolis FED, Neil Kashkari, concerned that the
FED may not have the flexibility that people were hoping
(04:04):
for to cut rates between now and the end of
the year.
Speaker 2 (04:09):
I don't know if it's a matter of flexibility. I
just don't think from their dual mandate, looking at inflation
and looking at unemployment, that either of those numbers are
in a place for the FED to cut right now.
So there's going to have to be some sort of
change between now in September or the end of the
year for that matter. And so we're not really anticipating
(04:31):
any FED cuts at this point, and that could be
to the chagrin of President Trump, But from their dual mandate,
looking at the numbers, there doesn't seem to be a
reason to cut.
Speaker 1 (04:44):
So let's talk a little bit about artificial intelligence. You're
there near the center of the storm, which I think
is San Francisco, but you're in the Bay Area, and
tomorrow we're going to hear from end video. What are
your expectations.
Speaker 2 (05:00):
While I can't provide expectations for Nvidia earnings, I will
say that it's always a drastic day in the markets
the day before earnings and obviously the day of earnings.
So you know, as we've seen Nvidia push the markets
higher and higher over the past two years, it definitely
(05:20):
will be a huge headline tomorrow, and I think just
adds to the headline risk that we'll be looking at.
Speaker 1 (05:26):
Generally speaking, are you bullish on large cap tech?
Speaker 2 (05:31):
Generally speaking, yes, we are bullish on large cap tech,
and thankfully, over the past two months, we've had great
opportunities to enter into some of these names as we
saw the multiples get reduced so much, it's been a
great opportunity to buy. So not only are we bullish
on large cap tech, but we also really like the
(05:55):
healthcare space as well as financials, and AI plays into
a lot of that. With healthcare, that's where we're seeing
a lot of advancements in AI and think that there's
a lot of room to run.
Speaker 1 (06:07):
Also, today San Francisco based Salesforce announced the acquisition of Informatica.
This is an eight billion dollar deal. Informatica helps customers
manage their data in the cloud, So a bit of
an AI play here for salesforce. While back, people were
really anticipating a lot more M and A activity that
(06:27):
really hasn't panned out. Do you think we're going to
turn the corner soon and see much more in the
way of deal flow.
Speaker 2 (06:35):
I do, but I think first we need to get
a few deals done in order to have some more
clarity and certainty moving forward. I think that also comes
with the TCGA being passed, and once we have more
clarity there, then we'll start to see some more deals
pan out, because we also expected M and A to
(06:57):
be a large part of this administration's plan moving forward,
but I think tariffs and getting some deals done with
countries is first priority. Then we can talk about the
corporate tax cuts, which are then going to follow into
the mergers and acquisitions and just sort of the deregulation
(07:18):
of industries in general.
Speaker 1 (07:20):
So if you're anticipating a pickup in deal flow, I
would imagine that you look at some of the big banks,
some of the investment banks as an opportunity.
Speaker 2 (07:28):
Right, absolutely, investment banks and regional banks as well, So
you know, this is where we're going to see some
consolidation and most likely not until Q three, Q four
and even into twenty twenty six, So not necessarily something
that's going to happen tomorrow, but we know down the
(07:49):
road once we have more clarity that it will happen.
Speaker 1 (07:52):
Are you still very much squarely focused on putting money
to work in the United States at the exclusion of
other developed markets globally?
Speaker 2 (08:01):
So what we like to do is we like to
keep less than ten percent international, and that's just from
our investment philosophy. So obviously through this year international's done
quite well. We didn't want to chase returns, so we
don't think of ourselves as traders. We are long term
investors and overall we have a strong bullish view of
(08:25):
the US markets, and so we'll continue to stick to
that ten percent.
Speaker 1 (08:30):
All right, Clark, we'll leave it there. Thank you so
much for joining us. Clark Aaron and he is the
chief market strategist at Calbay Investments, joining from the Bay
Area of northern California. Here on the Daybreak Asia podcast.
Welcome back to the Daybreak Asia podcast. I'm Doug Chrisner.
(08:53):
So we have talked on this podcast for a while
about how investors across Asia have been rethinking their strategy
of investing in US assets. We know the concerns are many.
There's the US budget deficit along with the impact of
tariffs and shifting US trade policies, as well as the
knock on effect of a weaker dollar. For a closer look, now,
(09:15):
I'm joined by vs N i Are. He is the
CIO at East Spring Investments. Vs joins us from our
studios in Hong Kong. Good of you to make time
to chat with me. I'm curious to get your take
on the way in which investors in Asia are now
de risking from the US. What are those fun flows
look like to you?
Speaker 2 (09:34):
Hi?
Speaker 3 (09:34):
Thanks, Thanks Doug for having me here. So what we
see is that we've had a number of years now
where US markets in general, both fixed income and equities,
have had a very large outshare of interest and of
drawing capital, so into US equities, into use fixed income,
et cetera. Now now we've now in a position where
(09:57):
we're seeing some challenges to growth, be it driven by
tariff some uncertainty. We've seen weakness in the dollar. Often
forgotten is that the US markets have recovered, But in
twenty twenty five, US markets have underperformed some of the
larger Asian markets. So it's a very interesting cocktail. So
in the backdrop of a falling dollar, challenges and the
(10:19):
long end of the US curve, you know, we've seen
some disappointments there as well in terms of the auctions,
we see investors really increasingly thinking about diversification. So the
last few years has been a very clear market where
concentration has done well. So a few stocks, particularly tech
stocks in the US, have driven global markets and of
(10:42):
course the US markets as well. And you're seeing a
change in that. You're seeing a change in that leadership,
You're seeing challenges to growth, you're seeing longer long end
interest rates, we're seeing a falling dollar. So these cocktail
is a cocktail of changes really, and investors are adapt
to that. Then they're adapting by being much more focused
(11:03):
again on diversification, seeking out those pockets of the market
that might be a little bit more resilient, those pockets
that potentially could outperform, and then allocating appropriately, which often
means now a little bit away from the US.
Speaker 1 (11:19):
So to what extent does China represent an alternative right now?
How would you wait opportunities in China broadly speaking, and
whether there is really the kind of story, the kind
of narrative that would compel an investor to put money
to work on the mainland.
Speaker 3 (11:35):
So what a great questen. So what we see, of course,
this year, we've seen the Chinese markets have outperformed the US.
Of course, there's been a lot of volatility around tariffs,
a lot of uncertainty around tariffs, and that of course
holds back perhaps invests a little bit from going all
in in some ways. But the Chinese market, of course,
(11:57):
as we've moved to a world where despite all the
tariff on certainty, we see effectively there this effective tariff
rate of about thirty five percent. You know, there's a
ten percent flat rate, there's a twenty percent fentanyl rate,
and there's some sector specific additional rates as well. So
on average, we think that's about thirty five percent. That
is potentially a one percent headwind to GDP, but we
(12:19):
still see China delivering about four point four percent growth
this year. We've seen two percent fiscal stimulus already, we
think there could be another one one and a half
percent coming, and we think they can deliver that four
percent growth. This is against a backdrop of US growth
actually deteriorating in the second half of the year. Secondly,
(12:40):
there is room for interest rates to to come down
in China, and we've also seen very much sector specific
lending to help certain sectors. So in no way do
we think that there is a sort of across the
board positive stories across all sectors in China. We still
have concerns around property, et cetera. But certainly things like
(13:01):
the technology sector in China trade a very cheap valuations.
You you are you are buying into the market at
very very attractive valuations, and we think this is a
good point, and that's why investors have started to become
much more likely to allocate to some of those agent
markets in particularly China.
Speaker 1 (13:18):
I'm wondering how you wait the problem of deflation in
China and whether you are worried that this could become
a more intractable and deeper problem for officials in China
to deal with.
Speaker 3 (13:32):
Well, I think the key thing there is that they
have the tools, so it's it's you know, we're not
We're not. I think tracking a repeat of what we
saw with Japan. They have got tools that will allow
them to to stimulate. We still are seeing growth, So
it's not a zero growth environment. They they delivered something
last year. We think they'll deliver four and a half
(13:53):
this year. But I think what might be the concern
is that we don't see this as an across the board,
across all sects. There are domestic champions. There are particular
sectors that do well. We do strongly advocate. I mean,
we've just released our midyear outlook and the theme of
that was think Asia, but think active. We don't think
this is a broad market recovery or a broad market allocation.
(14:17):
It's very much about identifying those companies that are much
more resilient with you know, competitive advantages, strong balance sheets,
the kind of essentially quality names, and we think those
are the ones that can outperform because evaluations are so
much more attractive.
Speaker 1 (14:33):
I want to pivot to supply chain reconfiguration if we can't,
because it's a part of the tariff story obviously, and
we know that firms began to diversify away from China
to a small extent during the first Trump trade war
with Beijing. Then the pandemic struck, and that clearly highlighted
the risk of being overly concentrated in China. Now during
(14:54):
the second Trump trade war, there seems to be even
greater risk now under the current strategy, the Trump administration
is trying to counter this reconfiguration story. It's focused on
places like Vietnam, where reshoring has been underway as we
know for some time. And I'm curious, viz, how are
you navigating all of this?
Speaker 3 (15:16):
That question almost identified all of the concerns that we
have as investors as well. So undoubtedly the first President
Trump administration was very focused on China, and what we
saw was this China plus one strategy adopted by many
Asian manufacturers, essentially relocating to the likes of Vietnam and
(15:37):
other places in Southeast Asia. I think that the ideological
and game still seems very much that the US policies
are very much trying to contain China. I think we
are in a journey of discovery around trade deals and
those negotiations. The Chinese have got some concerns, you know,
(15:59):
very clearly the US is focused on the bigger nations
they've you know, we're talking about Europe, Japan, China. They're
putting a lot of energy into that. It's pertinent that
we haven't easily struck deals so it's not a negotiation
tactic that has forced a kind of a submission. It's
very much a negotiation that the likes of Japan and
(16:23):
China are going through, and the Chinese are very aware
and they're looking out for deals that in any way
disadvantage them in the global market. Now, when we think
of that policy, I think that it's the uncertainty they
investors are struggling with. So if investors are struggling with it,
so are you know, business owners and business managers, Because
(16:43):
how do you relocate production into a third into a
third nation or a third region without policy certainty. I
think that is that that is the dimension that really
has suffered in the last few months, because this uncertainty
potentially leads to less investment and then that potentially leads
(17:03):
to lower growth. So as investors, that is the primary focus.
If we're trying to predict the endgame, I think that
it's very difficult to do. Other than perhaps a few
points we know we think there might be something like
a ten percent tariff ry across the board with many nations.
I think that even the Chinese have sort of got
(17:23):
themselves to a roughly relaxed point there. I think that
there is some strong negotiations around trying to limit the
impact on inflation from those tariff tax rises, and then
we are in a void discovery around what that means
in terms of supply chain adjustment. The first administration moved
(17:45):
a lot of supply chain manufacturing to Southeast Asia. Clearly,
now the US President is very clear that they want
to at least try and limit or pay attention to that.
They haven't we haven't got to the endpoint where we
know for certain that's not going to be a good idea. Clearly,
we've got other parts of the world that they may
be paying attention to. But I think if there's one
(18:07):
anchor to everything is they want to at least limit
their reliance on China as in terms of their own
supply chain. That's the best we can give.
Speaker 1 (18:16):
We'll leave it there. Vis Thank you so much for
being with us. Fee Sneier is the CIO at East
Spring Investments, joining from Hong Kong 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.
(18:38):
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 Prisner, and this is
Bloomberg
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