November 26, 2025 • 18 mins
Hong Kong's worst residential fire in more than half a century has killed at least 44 people and left hundreds missing, as rescue workers race to extinguish the blaze and Chinese President Xi Jinping urges all-out efforts to reduce casualties. Rescue efforts continued overnight after a fire that began around 3 p.m. Wednesday turned an eight-tower housing block in northern Hong Kong into an inferno, sending thick black smoke billowing into the sky. Officials said the blaze began on a section of the bamboo scaffolding encasing the complex, which is still widely used in the city. Bloomberg's Minmin Low is on site.
Investors continue to keep an eye on the increasing probability of a December interest rate cut. What does that mean for Asian Markets? We heard from Hartmut Issel, UBS Wealth Management Head of APAC Equities and Credit. He spoke to Bloomberg's Avril Hong and Shery Ahn on the Asia Trade.
Plus - Wall Street extended its rally on Wednesday. Tech stocks led the climb in US equities as rising expectations for interest-rate cuts helped carry traders' newfound optimism into the Thanksgiving break. Also, the latest Fed survey showed little change in US economic activity during recent weeks. The so-called Beige Book also found employment declined slightly -- and prices rose moderately. We spoke to Patrick Kennedy, Founding Partner at All Source Investment Management.
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Episode Transcript
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Speaker 1 (00:02):
Bloomberg Audio Studios, podcasts, radio news.
Speaker 2 (00:10):
Welcome to the Daybreak Asia podcast. I'm Doug Prisoner. We
begin in Hong Kong, where rescue workers are trying to
extinguish a major fire at a high rise apartment complex
in the northern part of the city. At present, the
death toll is forty four, although hundreds of people are
still missing, and according to the Fire Department, blazes in
four of the buildings are under control. However, three buildings
(00:33):
are still burning. Bloomberg's midmen Low is on site.
Speaker 3 (00:36):
I just want to tell you what it's like to
be here, because the first thing you notice is the
smell of the portrait smoke, and when the wind blows,
I could feel the sting in my eye because this
the buildings behind me are still billowing the smoke. And
we are sixteen hours into this fire, which started yesterday
at three pm. It was a level three fire at
(00:58):
the time. It has upgraded within hours to a Level five,
the highest severity, by six thirty pm. And if you
can see the buildings behind me, they are very close together,
which is very typical of any know, Hong Kong apartment
a residential estate, so that is one of the reasons
why the fire was able to spread from one block
(01:18):
to another. But another reason is because this entire estate
is about forty years old or so. It is a
government subsidized residential housing unit and it was going through
heavy renovation and you can see remnants of those bamboo scarefolding. Again,
very characteristic of Hong Kong as well. Now, typically the
(01:39):
fire wouldn't be spreading as fast as it did today,
and the authorities were saying it was spreading at an
unusual speed, and they had found polystyrene boards on the windows,
and they suspect that they have found materials that were
substandard as well. So the green netting, some of the
plastic shotings, if they were compliant with Hong Kong stendards,
(02:00):
they would have to be fire resistant.
Speaker 2 (02:02):
That's Bloomberg's midmen Low. Now, Hong Kong police have arrested
three people from an engineering firm on suspicion of manslaughter.
At the same time, this fire has prompted renewed scrutiny
of the city's use of bamboo scaffolding on major renovation projects.
Let's turn to markets in the Asia Pacific, where equities
for the most part are advancing after some gains on
(02:24):
Wall Street, and we got perspective from Heartwood Issel. He
is head of APAC Equities and Credit at UBS Wealth Management.
Heartwood spoke with Bloomberg TV host Sherry On and April Hong.
Speaker 4 (02:35):
So Hartman talking fus about the most important central bank
in the world, right, the FED and December being more
or less baked and already. But we also have come
quite far. Remember around the time of October, December seemed
like a done deal. So what extent is there this
certainty was that going to mean for Asia?
Speaker 1 (02:58):
Now?
Speaker 5 (02:59):
I think we have to assume and we have we
had on our side assumed all along, also that December
is coming when we think at least another one for
also the first quarter for Asia, it's generally typically positive.
Also when the dollar comes a bit softer, right, the
US economy is doing okay, So yeah, we will have
the entire Apec region on attractive with a couple of
(03:21):
different markets that we highlight in particular.
Speaker 4 (03:23):
Which ones in particular.
Speaker 5 (03:25):
Yeah, I would mention three different drivers sort of speaking.
They are all very different. That's why you know that
that's also the beauty of the Apec region here, right,
So you can diversify that pretty well. So you have
the AI side, we would probably pick their China Tech
right also come back a little bit.
Speaker 4 (03:39):
That looks very very interesting as supposed to say South Korea, Taiwan, Japan.
Speaker 5 (03:43):
Japan is for the for different reasons. I'd say Taiwan,
South Korea, especially South Korea has has run up quite
a bit, but if it comes down a little bit,
we would also consider that. But probably right now, if
we compare these, especially on the air side, probably the
favorite right now is China Tech and the other ones
we have is value A programs. So two I would
(04:04):
like to mention here is certainly mentioned that Japan. If
the other one is here, our home is Singapore. And
then you have some sort of leggers also from the
earning side, but also from the index sides to some
extent laggards, and that's India and Indonesia. So again they
have different drivers. Next to you is going to look
a lot better on earnings like it normally does. So
a three different drivers interesting region. Right now, I.
Speaker 1 (04:26):
Want to turn into Japan, but first let me stay
with China, because is it still appealing to you when
you continue to see the US China Trade engines, and
you have the Pentagon continuing to add these companies to
his blacklist.
Speaker 5 (04:39):
It's not the first time that we're seeing some noise
happening around in China or the China.
Speaker 6 (04:46):
Stocks as well.
Speaker 5 (04:47):
Look, I always take a step back on fundamentals, right,
I mean, how many of these Chinese companies are really
exporting anything significant to the US? Right, So then you
could argue they don't really right, So these sort of
maybe it's also part of a negotiation. I'm not saying
we'll stop it here, but we have seen it before.
It has never stopped really the Chinese stocks also from
doing well as long as the fundamentals are doing well,
(05:10):
so I wouldn't over interpret that part of the game.
Speaker 1 (05:13):
Yeah, I mean you have a point, right. We are
seeing this bifurcation when it comes to tech supply chains anyway,
So what does it matter if the US continues to
ban these companies at the same time for some of
those Japanese names. If you see the bigger and sharper
bifurcation of supply chains, what does it mean for the
likes of Tokyo Electron that supply this equipment and cannot
(05:35):
service their facilities in China for example, or even the
South Korean chip makers that cannot sell to Beijing.
Speaker 5 (05:43):
That has been something that influenced a couple of companies,
including of course also European ones, right, So it's a
general it's a wide phenomenon oftentimes, what we see because
the demand for certainly on the aside, but even beyond
aid somewhat traditional semiconductors, that's very very strong right now.
Also what you sometimes see is that if something really
happens on the China side with some restrictions, right then
(06:05):
you're baked maybe a few quarters in where that takes
an effect. But as long as the demand globally is
that strong, right, it never really has held back the
stock prices of these companies, and I don't see why
it would be different this time for.
Speaker 4 (06:19):
The drivers of Chinese tech in particular, what are you
seeing in terms of valuations versus it's global peers and
the prospects of growth, especially since we've just come through
the earning season, we still have meet to one coming
up of course.
Speaker 5 (06:33):
Yeah, that is interesting And one point I would pilot
in particular, especially on the China side, is the cloud
area of it, right, because you have a bit like
you had in the US with some similar names, I
would say, right, so investors watching also e commerce et cetera,
and there's one thing you can do, but ultimately we
know that everything eventually shifted towards cloud or later on.
(06:54):
Also also AI, and again I wouldn't see why it
would necessarily be different, right, So if I look at
the China ones, especially those that have cloud business, that
we see them only in recent quarters, maybe less about
two quarters, the cloud growth really coming up. So why
wouldn't I pay more than the sort of mid single
digit multiples on the earning side that we're paying now
(07:15):
that it's not difficult to make a case that should
be quite a bit higher.
Speaker 4 (07:19):
But there is a sense of a double standard, right
if you look at some of the US players, Okay,
strong cash flow, cap backs looks great, and when they
spend more, they tend to get rewarded by investors. Sometimes
that's not the case with the Chinese tech names. So
what is your sense of what might shift the needle
(07:40):
when it comes to global investors looking at Chinese tech
stocks in particular.
Speaker 5 (07:44):
I think one thing that is interesting if you also
look at how long you know the period of you know,
AI investments, thinking about AI has lasted right in US
you could say easily maybe given takes three years, right,
China probably more like like one year. Right, So that
alone means that China right in every thing that that
should follow is a bit early, and it's and it's
stays here than the US already is. So that alone,
(08:05):
in my view, is something that investors should keep in mind.
Speaker 1 (08:09):
It's been really interesting Hartmouth, how sentiment has turned in
recent days after the textile of earlier in the month, right,
and now it seems that the driver's seat is also
molnetary policy with more Dubvish FED speak. What does it
mean for Asian markets?
Speaker 5 (08:24):
If I look a bit further out for the landscape,
let's say we will get a bit softer next year
GDP growth, et cetera. Then perhaps is expected right now
that gives a lot of the Asian Central Bank a
lot more also room to come even further than we
already think they would still go to some extent, so
(08:45):
it buffers the downside on the equity side.
Speaker 4 (08:48):
What does this mean for Asia local credit next year?
If growth to your point about it being quite resilient,
but we also have maybe some of these central banks
have run up into the limits of how chazing they
can do.
Speaker 5 (09:02):
We see also the bit longer term with bond deals
coming from certainly the US also going a bit lower
from here right and then with a dollar especially maybe
over the next six months, so also being a bit softer.
That means here for apex, we prefer the IG side,
but we also prefer naturally, I would almost say the
local fax site on the bond site. These two are
(09:23):
the ones we really like.
Speaker 2 (09:24):
That was hartwood Issel, head of a pack equities and
credit at UBS Wealth Management. He was speaking with Bloomberg
TV host Sherry On and April Hong here on the
Daybreak Asia podcast. Welcome back to the Daybreak Asia podcast.
(09:44):
I'm Doug Chrisner. The US equity market advanced in the
last session on rising expectations for FED rate cuts. We
had the S and P gaining ground for a fourth
straight session with a gain of seven tens of one percent. Unsurprisingly,
trading was light in front of the thanks thank Giving
Day holiday. Volume in the S and P was about
twenty three percent below the thirty day average, and volatility
(10:06):
seemed to take a breather. We had the Vicks falling
more than seven percent, closing just above seventeen. For a
closer look at the price action, I'm joined by Patrick Kennedy.
He is founding partner at All Source Investment Management. Patrick,
thanks for being here. What is your sense of what
the market is trying to understand at present?
Speaker 7 (10:26):
I think there's two big risks that the market is
focused on right now. One is obviously valuation, So valuation
is very frothy when you look at history. Things like
the buffet indicator are hitting an all time high too,
standard deviations above where they usually are. So the buffet
indicator is just GDP versus what this stock market value is, right,
(10:46):
very simple indicator, but a powerful one.
Speaker 6 (10:49):
And then the other is rates.
Speaker 7 (10:50):
So I think we're getting more clarity that there'll be
cuts coming.
Speaker 6 (10:55):
After the last meeting, we had.
Speaker 7 (10:57):
A lot of fed chairs saying that, you know, we
wasn't necessarily a certainty that we would be getting a
cut in December. I think the odds are now favoring
a cut and potentially a couple more in the second
half of next year. But if that story falls apart,
if all of a sudden, you know we're pausing for
longer we view that as a pretty big risk to market,
(11:19):
especially with where valuations currently are.
Speaker 2 (11:22):
So we had the Beige Book today from the FED,
and as a part of this report, multiple districts including
New York, Atlanta, Minneapolis on the list. They all reported
spending among higher income consumers was resilient. However, low and
middle income households are tightening the belt. This goes to
this ke shaped economy that we've been talking about. It
(11:43):
doesn't seem to be changing at all, does it.
Speaker 6 (11:47):
It doesn't. It's the story of two economies.
Speaker 7 (11:49):
And to your point, I think the folks on the
lower half of the income spectrum are getting hit harder
from things like tariffs, right and inflation. So you got
to think about what that consumer has been through over
the past five years. They've seen rates go from two
percent to you know, well above five and now.
Speaker 6 (12:07):
Back down to around four, right.
Speaker 7 (12:09):
But they've also seen skyrocketing prices and fuel, food, you
name it. So they've been through quite a lot when
you just look at their wallet right now, the top
half of the income spectrum can weather things like that,
it's not as big of a blow to them, but
that's not the case for lower income households, so we
have to see how that plays out for more cyclical names,
(12:29):
things like retailers and such.
Speaker 2 (12:31):
So if expectations are calling for a FED rate cut
in December and many more in the year ahead, maybe
as many as three for twenty twenty six, I'm curious
just to get your take on the effectiveness of lower
rates and helping to address this ke shaped economy.
Speaker 6 (12:48):
That's that's a very tough question.
Speaker 7 (12:50):
I think that you know, if you have lower rates,
there's a reverberation across markets. I don't think that that's
the only thing that we need to do in order
to correct that. It's a much more difficult problem to solve,
in my opinion. One, you need strong earnings to come
through so you can continue to have job growth, income growth,
(13:11):
and that sort of thing. And I think the S
and P is now pricing in around fourteen percent on
earnings growth next year, which is largely due to AI.
Speaker 6 (13:19):
I think the big story.
Speaker 7 (13:21):
Around earnings growth next year is that the bottom four
ninety three need to deliver. Right, so everyone knows that
the Max seven is doing very well. They're profiting from AI.
You're already seeing the underlying impact of their balance sheet,
cash flow, so on and so forth. Where we haven't
seen that is the four hundred ninety three, the bottom
four ninety three, right, And the expectation is that in
(13:41):
twenty six we see a broadening throughout those names which
will help those lower income households.
Speaker 6 (13:47):
Right.
Speaker 7 (13:47):
If we don't see a broadening within those four ninety three,
that's a big risk for markets. And in fact our
view is ironically, if we don't see a broadening within
the four ninety three, what's even more at risk than
those names decreasing in value as the MAG seven themselves
because of the concentration within those names. So in the
S and p as, I think it's over thirty percent
(14:08):
now within the MAG seven. If all of a sudden
that thesis doesn't come to play where we see this
broadening within the market and the market is sold off,
it's going to hit the heavy concentrated names, which is
the MAG seven.
Speaker 2 (14:20):
So we know that the equity market has been challenged
recently with a fair amount of skepticism when it comes
to the AI trade, especially where megacap Tech is concerned.
Trading has been pretty choppy over the last couple of weeks,
although now it seems as if the market has found
some solid footing, does that necessarily mean all questions have
been answered, particularly as we look ahead to the new year.
Speaker 7 (14:45):
So I see a definite split on the street when
it comes to your viewpoint for next year. Right, I mean,
at the beginning of twenty twenty five, there's a lot
of bullishness out there that has very much changed at
the end of twenty five, where you see almost an
equal amount of bears. I think the big inflection point
for next year is does AI monetize in the way
(15:06):
we think it will?
Speaker 4 (15:07):
Right.
Speaker 6 (15:08):
If it does, great, you.
Speaker 7 (15:10):
Know, the bulls win that argument, and the bull market
can continue as long as rate cuts come along with that.
If we don't see monetization next year, I think that's
when the chickens come home to roosts, so to speak.
I think that next year is that inflection point the
show me market, so to speak, where AI truly needs
to show its benefits.
Speaker 6 (15:31):
Because now we've.
Speaker 7 (15:31):
Been rallying on what three years of this news, So
if we don't see the underlying impacts hit to earnings,
I think that investors aren't going to start aren't going
to give as much rope as they gave this year, right,
and we'll sell that news. So because of that, we're
a little more cautious next year on that story, and
we want to see how it plays out.
Speaker 2 (15:51):
How are you feeling about markets offshore right now? Foreign markets,
particularly those in Asia.
Speaker 7 (15:58):
EM has had a phenomenal year, right, a banner year.
We see momentum going into next year. I think obviously,
if the US market gets hit, you know, if the
US market sneezes, everyone else catches the cold, so to speak. Right,
But I do think the story can continue in EM
next year as long as rates come down. I think
a lot of that has to do with the story
(16:19):
of Hey, rates of peaks. We're now seeing rates come
down or at least the expectation of rate cuts coming,
and therefore EM stocks should continue to do well.
Speaker 6 (16:28):
So a lot of momentum.
Speaker 7 (16:29):
Has been built up over there, and I think it's
going to be tough to kill that within the next
six months.
Speaker 2 (16:33):
So we've seen the dollar hold up pretty well recently,
even though there's been a lot of conversation about impending
FED rate cuts, and if the dollar continues to remain firm, yes,
markets in Asia may benefit. But I'm wondering about the
point where the dollar's fortunes begin to change. Is that
something you've thought about.
Speaker 7 (16:52):
It's been a strange macro story, Doug.
Speaker 6 (16:54):
I mean, look at gold.
Speaker 7 (16:55):
For example, gold has rallied with stocks, so I think
you know, one of the things that investors were concerned
about is usually the gold market will sniff something out
prior to the equity markets, and all of a sudden
you see the gold markets rep higher. It's definitely cause
for I won't say a concern, but pause. Right, So,
all year we've seen gold rally with stocks. I think
(17:18):
a lot of that has to do with concern around valuations,
concern around debt, central banks, so on and so forth.
But typically you don't see as HI have a correlation
between gold and the stock market. But we're really interested
in seeing is next time there's a big pullback in stocks,
if there's also a pullback within gold.
Speaker 6 (17:37):
Right, So we own.
Speaker 7 (17:37):
It as a hedge one and then two obviously capital appreciation,
But if all of a sudden that head story falls apart,
we're really going to have to rethink our thesis on that.
Speaker 2 (17:47):
Okay, Patrick, we'll leave it there. Always a pleasure, happy
thanksgiving to you, Patrick Kennedy, as founding partner at All
Source Investment Management, joining us here on the Daybreak as
your 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.
(18:10):
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 Chrisner, and this is
Bloomberg
Bloomberg Audio Studios, podcasts, radio news.
Speaker 2 (00:10):
Welcome to the Daybreak Asia podcast. I'm Doug Prisoner. We
begin in Hong Kong, where rescue workers are trying to
extinguish a major fire at a high rise apartment complex
in the northern part of the city. At present, the
death toll is forty four, although hundreds of people are
still missing, and according to the Fire Department, blazes in
four of the buildings are under control. However, three buildings
(00:33):
are still burning. Bloomberg's midmen Low is on site.
Speaker 3 (00:36):
I just want to tell you what it's like to
be here, because the first thing you notice is the
smell of the portrait smoke, and when the wind blows,
I could feel the sting in my eye because this
the buildings behind me are still billowing the smoke. And
we are sixteen hours into this fire, which started yesterday
at three pm. It was a level three fire at
(00:58):
the time. It has upgraded within hours to a Level five,
the highest severity, by six thirty pm. And if you
can see the buildings behind me, they are very close together,
which is very typical of any know, Hong Kong apartment
a residential estate, so that is one of the reasons
why the fire was able to spread from one block
(01:18):
to another. But another reason is because this entire estate
is about forty years old or so. It is a
government subsidized residential housing unit and it was going through
heavy renovation and you can see remnants of those bamboo scarefolding. Again,
very characteristic of Hong Kong as well. Now, typically the
(01:39):
fire wouldn't be spreading as fast as it did today,
and the authorities were saying it was spreading at an
unusual speed, and they had found polystyrene boards on the windows,
and they suspect that they have found materials that were
substandard as well. So the green netting, some of the
plastic shotings, if they were compliant with Hong Kong stendards,
(02:00):
they would have to be fire resistant.
Speaker 2 (02:02):
That's Bloomberg's midmen Low. Now, Hong Kong police have arrested
three people from an engineering firm on suspicion of manslaughter.
At the same time, this fire has prompted renewed scrutiny
of the city's use of bamboo scaffolding on major renovation projects.
Let's turn to markets in the Asia Pacific, where equities
for the most part are advancing after some gains on
(02:24):
Wall Street, and we got perspective from Heartwood Issel. He
is head of APAC Equities and Credit at UBS Wealth Management.
Heartwood spoke with Bloomberg TV host Sherry On and April Hong.
Speaker 4 (02:35):
So Hartman talking fus about the most important central bank
in the world, right, the FED and December being more
or less baked and already. But we also have come
quite far. Remember around the time of October, December seemed
like a done deal. So what extent is there this
certainty was that going to mean for Asia?
Speaker 1 (02:58):
Now?
Speaker 5 (02:59):
I think we have to assume and we have we
had on our side assumed all along, also that December
is coming when we think at least another one for
also the first quarter for Asia, it's generally typically positive.
Also when the dollar comes a bit softer, right, the
US economy is doing okay, So yeah, we will have
the entire Apec region on attractive with a couple of
(03:21):
different markets that we highlight in particular.
Speaker 4 (03:23):
Which ones in particular.
Speaker 5 (03:25):
Yeah, I would mention three different drivers sort of speaking.
They are all very different. That's why you know that
that's also the beauty of the Apec region here, right,
So you can diversify that pretty well. So you have
the AI side, we would probably pick their China Tech
right also come back a little bit.
Speaker 4 (03:39):
That looks very very interesting as supposed to say South Korea, Taiwan, Japan.
Speaker 5 (03:43):
Japan is for the for different reasons. I'd say Taiwan,
South Korea, especially South Korea has has run up quite
a bit, but if it comes down a little bit,
we would also consider that. But probably right now, if
we compare these, especially on the air side, probably the
favorite right now is China Tech and the other ones
we have is value A programs. So two I would
(04:04):
like to mention here is certainly mentioned that Japan. If
the other one is here, our home is Singapore. And
then you have some sort of leggers also from the
earning side, but also from the index sides to some
extent laggards, and that's India and Indonesia. So again they
have different drivers. Next to you is going to look
a lot better on earnings like it normally does. So
a three different drivers interesting region. Right now, I.
Speaker 1 (04:26):
Want to turn into Japan, but first let me stay
with China, because is it still appealing to you when
you continue to see the US China Trade engines, and
you have the Pentagon continuing to add these companies to
his blacklist.
Speaker 5 (04:39):
It's not the first time that we're seeing some noise
happening around in China or the China.
Speaker 6 (04:46):
Stocks as well.
Speaker 5 (04:47):
Look, I always take a step back on fundamentals, right,
I mean, how many of these Chinese companies are really
exporting anything significant to the US? Right, So then you
could argue they don't really right, So these sort of
maybe it's also part of a negotiation. I'm not saying
we'll stop it here, but we have seen it before.
It has never stopped really the Chinese stocks also from
doing well as long as the fundamentals are doing well,
(05:10):
so I wouldn't over interpret that part of the game.
Speaker 1 (05:13):
Yeah, I mean you have a point, right. We are
seeing this bifurcation when it comes to tech supply chains anyway,
So what does it matter if the US continues to
ban these companies at the same time for some of
those Japanese names. If you see the bigger and sharper
bifurcation of supply chains, what does it mean for the
likes of Tokyo Electron that supply this equipment and cannot
(05:35):
service their facilities in China for example, or even the
South Korean chip makers that cannot sell to Beijing.
Speaker 5 (05:43):
That has been something that influenced a couple of companies,
including of course also European ones, right, So it's a
general it's a wide phenomenon oftentimes, what we see because
the demand for certainly on the aside, but even beyond
aid somewhat traditional semiconductors, that's very very strong right now.
Also what you sometimes see is that if something really
happens on the China side with some restrictions, right then
(06:05):
you're baked maybe a few quarters in where that takes
an effect. But as long as the demand globally is
that strong, right, it never really has held back the
stock prices of these companies, and I don't see why
it would be different this time for.
Speaker 4 (06:19):
The drivers of Chinese tech in particular, what are you
seeing in terms of valuations versus it's global peers and
the prospects of growth, especially since we've just come through
the earning season, we still have meet to one coming
up of course.
Speaker 5 (06:33):
Yeah, that is interesting And one point I would pilot
in particular, especially on the China side, is the cloud
area of it, right, because you have a bit like
you had in the US with some similar names, I
would say, right, so investors watching also e commerce et cetera,
and there's one thing you can do, but ultimately we
know that everything eventually shifted towards cloud or later on.
(06:54):
Also also AI, and again I wouldn't see why it
would necessarily be different, right, So if I look at
the China ones, especially those that have cloud business, that
we see them only in recent quarters, maybe less about
two quarters, the cloud growth really coming up. So why
wouldn't I pay more than the sort of mid single
digit multiples on the earning side that we're paying now
(07:15):
that it's not difficult to make a case that should
be quite a bit higher.
Speaker 4 (07:19):
But there is a sense of a double standard, right
if you look at some of the US players, Okay,
strong cash flow, cap backs looks great, and when they
spend more, they tend to get rewarded by investors. Sometimes
that's not the case with the Chinese tech names. So
what is your sense of what might shift the needle
(07:40):
when it comes to global investors looking at Chinese tech
stocks in particular.
Speaker 5 (07:44):
I think one thing that is interesting if you also
look at how long you know the period of you know,
AI investments, thinking about AI has lasted right in US
you could say easily maybe given takes three years, right,
China probably more like like one year. Right, So that
alone means that China right in every thing that that
should follow is a bit early, and it's and it's
stays here than the US already is. So that alone,
(08:05):
in my view, is something that investors should keep in mind.
Speaker 1 (08:09):
It's been really interesting Hartmouth, how sentiment has turned in
recent days after the textile of earlier in the month, right,
and now it seems that the driver's seat is also
molnetary policy with more Dubvish FED speak. What does it
mean for Asian markets?
Speaker 5 (08:24):
If I look a bit further out for the landscape,
let's say we will get a bit softer next year
GDP growth, et cetera. Then perhaps is expected right now
that gives a lot of the Asian Central Bank a
lot more also room to come even further than we
already think they would still go to some extent, so
(08:45):
it buffers the downside on the equity side.
Speaker 4 (08:48):
What does this mean for Asia local credit next year?
If growth to your point about it being quite resilient,
but we also have maybe some of these central banks
have run up into the limits of how chazing they
can do.
Speaker 5 (09:02):
We see also the bit longer term with bond deals
coming from certainly the US also going a bit lower
from here right and then with a dollar especially maybe
over the next six months, so also being a bit softer.
That means here for apex, we prefer the IG side,
but we also prefer naturally, I would almost say the
local fax site on the bond site. These two are
(09:23):
the ones we really like.
Speaker 2 (09:24):
That was hartwood Issel, head of a pack equities and
credit at UBS Wealth Management. He was speaking with Bloomberg
TV host Sherry On and April Hong here on the
Daybreak Asia podcast. Welcome back to the Daybreak Asia podcast.
(09:44):
I'm Doug Chrisner. The US equity market advanced in the
last session on rising expectations for FED rate cuts. We
had the S and P gaining ground for a fourth
straight session with a gain of seven tens of one percent. Unsurprisingly,
trading was light in front of the thanks thank Giving
Day holiday. Volume in the S and P was about
twenty three percent below the thirty day average, and volatility
(10:06):
seemed to take a breather. We had the Vicks falling
more than seven percent, closing just above seventeen. For a
closer look at the price action, I'm joined by Patrick Kennedy.
He is founding partner at All Source Investment Management. Patrick,
thanks for being here. What is your sense of what
the market is trying to understand at present?
Speaker 7 (10:26):
I think there's two big risks that the market is
focused on right now. One is obviously valuation, So valuation
is very frothy when you look at history. Things like
the buffet indicator are hitting an all time high too,
standard deviations above where they usually are. So the buffet
indicator is just GDP versus what this stock market value is, right,
(10:46):
very simple indicator, but a powerful one.
Speaker 6 (10:49):
And then the other is rates.
Speaker 7 (10:50):
So I think we're getting more clarity that there'll be
cuts coming.
Speaker 6 (10:55):
After the last meeting, we had.
Speaker 7 (10:57):
A lot of fed chairs saying that, you know, we
wasn't necessarily a certainty that we would be getting a
cut in December. I think the odds are now favoring
a cut and potentially a couple more in the second
half of next year. But if that story falls apart,
if all of a sudden, you know we're pausing for
longer we view that as a pretty big risk to market,
(11:19):
especially with where valuations currently are.
Speaker 2 (11:22):
So we had the Beige Book today from the FED,
and as a part of this report, multiple districts including
New York, Atlanta, Minneapolis on the list. They all reported
spending among higher income consumers was resilient. However, low and
middle income households are tightening the belt. This goes to
this ke shaped economy that we've been talking about. It
(11:43):
doesn't seem to be changing at all, does it.
Speaker 6 (11:47):
It doesn't. It's the story of two economies.
Speaker 7 (11:49):
And to your point, I think the folks on the
lower half of the income spectrum are getting hit harder
from things like tariffs, right and inflation. So you got
to think about what that consumer has been through over
the past five years. They've seen rates go from two
percent to you know, well above five and now.
Speaker 6 (12:07):
Back down to around four, right.
Speaker 7 (12:09):
But they've also seen skyrocketing prices and fuel, food, you
name it. So they've been through quite a lot when
you just look at their wallet right now, the top
half of the income spectrum can weather things like that,
it's not as big of a blow to them, but
that's not the case for lower income households, so we
have to see how that plays out for more cyclical names,
(12:29):
things like retailers and such.
Speaker 2 (12:31):
So if expectations are calling for a FED rate cut
in December and many more in the year ahead, maybe
as many as three for twenty twenty six, I'm curious
just to get your take on the effectiveness of lower
rates and helping to address this ke shaped economy.
Speaker 6 (12:48):
That's that's a very tough question.
Speaker 7 (12:50):
I think that you know, if you have lower rates,
there's a reverberation across markets. I don't think that that's
the only thing that we need to do in order
to correct that. It's a much more difficult problem to solve,
in my opinion. One, you need strong earnings to come
through so you can continue to have job growth, income growth,
(13:11):
and that sort of thing. And I think the S
and P is now pricing in around fourteen percent on
earnings growth next year, which is largely due to AI.
Speaker 6 (13:19):
I think the big story.
Speaker 7 (13:21):
Around earnings growth next year is that the bottom four
ninety three need to deliver. Right, so everyone knows that
the Max seven is doing very well. They're profiting from AI.
You're already seeing the underlying impact of their balance sheet,
cash flow, so on and so forth. Where we haven't
seen that is the four hundred ninety three, the bottom
four ninety three, right, And the expectation is that in
(13:41):
twenty six we see a broadening throughout those names which
will help those lower income households.
Speaker 6 (13:47):
Right.
Speaker 7 (13:47):
If we don't see a broadening within those four ninety three,
that's a big risk for markets. And in fact our
view is ironically, if we don't see a broadening within
the four ninety three, what's even more at risk than
those names decreasing in value as the MAG seven themselves
because of the concentration within those names. So in the
S and p as, I think it's over thirty percent
(14:08):
now within the MAG seven. If all of a sudden
that thesis doesn't come to play where we see this
broadening within the market and the market is sold off,
it's going to hit the heavy concentrated names, which is
the MAG seven.
Speaker 2 (14:20):
So we know that the equity market has been challenged
recently with a fair amount of skepticism when it comes
to the AI trade, especially where megacap Tech is concerned.
Trading has been pretty choppy over the last couple of weeks,
although now it seems as if the market has found
some solid footing, does that necessarily mean all questions have
been answered, particularly as we look ahead to the new year.
Speaker 7 (14:45):
So I see a definite split on the street when
it comes to your viewpoint for next year. Right, I mean,
at the beginning of twenty twenty five, there's a lot
of bullishness out there that has very much changed at
the end of twenty five, where you see almost an
equal amount of bears. I think the big inflection point
for next year is does AI monetize in the way
(15:06):
we think it will?
Speaker 4 (15:07):
Right.
Speaker 6 (15:08):
If it does, great, you.
Speaker 7 (15:10):
Know, the bulls win that argument, and the bull market
can continue as long as rate cuts come along with that.
If we don't see monetization next year, I think that's
when the chickens come home to roosts, so to speak.
I think that next year is that inflection point the
show me market, so to speak, where AI truly needs
to show its benefits.
Speaker 6 (15:31):
Because now we've.
Speaker 7 (15:31):
Been rallying on what three years of this news, So
if we don't see the underlying impacts hit to earnings,
I think that investors aren't going to start aren't going
to give as much rope as they gave this year, right,
and we'll sell that news. So because of that, we're
a little more cautious next year on that story, and
we want to see how it plays out.
Speaker 2 (15:51):
How are you feeling about markets offshore right now? Foreign markets,
particularly those in Asia.
Speaker 7 (15:58):
EM has had a phenomenal year, right, a banner year.
We see momentum going into next year. I think obviously,
if the US market gets hit, you know, if the
US market sneezes, everyone else catches the cold, so to speak. Right,
But I do think the story can continue in EM
next year as long as rates come down. I think
a lot of that has to do with the story
(16:19):
of Hey, rates of peaks. We're now seeing rates come
down or at least the expectation of rate cuts coming,
and therefore EM stocks should continue to do well.
Speaker 6 (16:28):
So a lot of momentum.
Speaker 7 (16:29):
Has been built up over there, and I think it's
going to be tough to kill that within the next
six months.
Speaker 2 (16:33):
So we've seen the dollar hold up pretty well recently,
even though there's been a lot of conversation about impending
FED rate cuts, and if the dollar continues to remain firm, yes,
markets in Asia may benefit. But I'm wondering about the
point where the dollar's fortunes begin to change. Is that
something you've thought about.
Speaker 7 (16:52):
It's been a strange macro story, Doug.
Speaker 6 (16:54):
I mean, look at gold.
Speaker 7 (16:55):
For example, gold has rallied with stocks, so I think
you know, one of the things that investors were concerned
about is usually the gold market will sniff something out
prior to the equity markets, and all of a sudden
you see the gold markets rep higher. It's definitely cause
for I won't say a concern, but pause. Right, So,
all year we've seen gold rally with stocks. I think
(17:18):
a lot of that has to do with concern around valuations,
concern around debt, central banks, so on and so forth.
But typically you don't see as HI have a correlation
between gold and the stock market. But we're really interested
in seeing is next time there's a big pullback in stocks,
if there's also a pullback within gold.
Speaker 6 (17:37):
Right, So we own.
Speaker 7 (17:37):
It as a hedge one and then two obviously capital appreciation,
But if all of a sudden that head story falls apart,
we're really going to have to rethink our thesis on that.
Speaker 2 (17:47):
Okay, Patrick, we'll leave it there. Always a pleasure, happy
thanksgiving to you, Patrick Kennedy, as founding partner at All
Source Investment Management, joining us here on the Daybreak as
your 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.
(18:10):
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 Chrisner, and this is
Bloomberg
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