November 9, 2025 • 21 mins
The record-breaking US government shutdown is nearing an end after a group of moderate Senate Democrats agreed to support a deal to reopen the government and fund some departments and agencies for the next year, people familiar with the talks said. Under the agreement, Congress would pass full-year funding for the departments of Agriculture, Veterans Affairs and Congress itself, while funding other agencies through Jan. 30. The bill would provide pay for furloughed government workers, resume withheld federal payments to states and localities and recall agency employees who were laid off during the shutdown. US stock-index futures jumped in early Asian trading. For more on the early market action in Asia, we turn to Paul Dobson, Bloomberg's Executive Editor for Asia Markets.
Plus - the US Government shutdown has delayed the release of two monthly jobs reports and may also impact the release of a key inflation snapshot, creating a data fog for the Federal Reserve. The absence of official reports on inflation and the job market will prolong the debate about whether another rate cut is needed at the Fed's December meeting, with some economists predicting that October's figures would have supported a rate cut. Fed officials will have to rely on retroactive surveys and private-sector reports to inform their decisions, with several appearances by Fed officials in the coming week, including John Williams, Raphael Bostic, Stephen Miran, and Alberto Musalem, being closely watched by investors. We speak to Chris Carey, Portfolio Manager, Carnegie Investment Counsel.
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Episode Transcript
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Speaker 1 (00:02):
Bloomberg Audio Studios, podcasts, radio news.
Speaker 2 (00:11):
Welcome to the Daybreak Asia podcast. I'm Doug Prisner. The
US government shutdown appears to be nearing an end. Today
is day forty, making it the longest in US history,
and now we are told a group of moderate Senate
Democrats has agreed to support a deal to reopen the government.
This is after the Senate released three government funding bills
(00:31):
for the next year as a compromise, but none address
the impending expiration of subsidies for the Affordable Care Act.
We are told Democrats have secured a pledge by Republicans
to vote on a bill to renew the Affordable Care
Act tax credits by mid December. Now we are also
being told that the Senate is set to hold a
procedural test vote at midnight Eastern time, and if that
(00:55):
vote were to succeed, the Senate would still need the
consent of all members to end the show shut down quickly.
One senator can force days of delays and votes. And
in the moment, we'll look at the impact of the
shutdown on the US economy with Chris Carey, his portfolio
manager at Carnegie Investment Council. We begin this morning in
Singapore with Bloomberg's Paul Dobson, our executive editor for Asia Markets. Paul,
(01:19):
thank you so much for making time. I'd like to
begin with what seems to be a recovery in tech
stocks across Asia after last week's sudden drop. What do
you see happening?
Speaker 3 (01:29):
So the market had a little bit of a crisis
of confidence over the past week in terms of those
valuations for the tech companies for their AI related narrative
in general, and whether we'd gone too far and the
valuations were over stretch, which led to volatile trading r
a down day followed by an upday and swinging backwards
and forwards quite dramatically and quite strong moves in either
(01:53):
direction in the tech heavy Asia gauges the COSTB in
particular Middlesa, Japan, Taiwan. Seeing that kind of EBB and flow,
you know, on the one hand, you've got people that
are saying that, you know, that is just time to
take some profits here because the market has had such
a strong run up and had gotten frothy. But the
(02:16):
flip side of that is there are plenty more people
waiting to buy any dip hungreeds. This get in there
and get these opportunities because they believe in that long
term AI narrative, and so that sort of tension has
been playing off one against the other for much of
the past week. It doesn't seem like it's completely resolved yet,
but we are in a more positive mindset at the
start of this week, it seems from the early price action.
Speaker 2 (02:37):
I'm curious as to what analyst is saying. It's not
unlike the situation here in the US where you have
an extreme concentration of these big tech names in the
regional benchmarks. As a couple of examples, TSMC I think
now accounts for over forty percent of the tai X
and then if you look at the waiting of Samsung
and s k Heinex in South Korea together, those make
(03:00):
up around thirty percent of the cost be Is this
cause for concern.
Speaker 3 (03:06):
Only if the trade unrevels, right, I mean, you definitely
have market concentration risks. And yet, like you said, it's
the same in the US where the Magnificent seven has
been leading so much of the gains in the overall
market this year. So yes, if the market turns against
the AI narrative, then it will lead to a broader
(03:28):
drag on gauges, and that could turn into a sort
of self fulfilling kind of a spiral lower because it
would force people to liquidate and maybe from the other
parts of the market as well. I'm not sure though,
that it's an entirely negative thing, because you know, we
(03:49):
have seen such strong gains for so many of the markets,
and particularly South Korea, it's been on an absolute tear
this year. It's not only got the AI narrative, but
it's also got the government behind it. Are kind of
almost almost egging it on. They want the career discount
to disappear, They want more people to invest in domestic stocks,
They want to smooth out all of the dysfunctions that
(04:14):
have been there in terms of company ownership and favor
shareholder interests. More so, that has its own narrative as
well propelling it. And I think you know, region wide
in Asia, yes, the technology companies have been dominating, but
there have been other positive narratives that have also been
taking the market higher. And so even something that doesn't
have a lot of tech in it, like the Straight
(04:34):
Times Index for Singapore, has been continually setting record highs
this year as well.
Speaker 2 (04:39):
Over the weekend. China reported consumer prices unexpectedly increased in October.
I think you have to point to the National Day
holiday right in early October that really was responsible for
boasting a lot of domestic demand. Do I have that right?
Speaker 3 (04:55):
It seems like that's one of the main contributing factors.
And also I think that the gold jewel reprice has
a disproportionate effect on it, because obviously gold has been
on this humongous ball run for most of the year.
It doesn't change that overall narrative that China still needs
to do more to beat this kind of disinflationary headache
that it's grappling with at the moment. And we have
(05:15):
a long story out there on the wire today that
really digs into how all the prices of the goods
that a regular consumer buys have actually probably fallen more
than the official data would have you have. You think so,
And it sort of gets at that idea that you know,
it becomes again a sort of self fulfilling because prices drop,
(05:35):
wages drop, and then that kind of creates, you know,
sort of like economic gloom basically, so still more needed
probably to snap China out of that mindset.
Speaker 2 (05:45):
I'm glad you mentioned that because at the end of
the week we'll get the monthly activity data that obviously
that includes retail sales and industrial production. Do we have
a sense of what we may learn at the end
of the week.
Speaker 3 (05:57):
Ah, well, probably, it's hard, you know, kind of to
break this out. What I do think is interesting, though,
is that for all that the domestic economy doesn't look
super hot at the moment, China's financial markets have actually
been having a pretty decent ride of late. You've got
the un trading at the strongest levels further year against
the US dollar, but also against a bunch of other currencies.
(06:19):
On the crosses, it's looking stronger too. You've got stop
market has seemed relatively resilient, and the text story in China,
the domestic stocks seem to be doing well because China
set out this you know, kind of very clear path
where it wants more independence, it wants to be more
self sufficient, and it wants to push its industrial strategy
as well. So that is helping actually the stop market.
(06:40):
And then even on the bond side, So they did
a dollar bond sale last week, and the bonds yield
that they got for it was on a par with
US treasuries and then traded through it in the secondary market.
This week they're coming with eurobond, so it will be
really interesting to see how that prices as well.
Speaker 2 (06:54):
Also this week the earnings Ali, Baba, JD, dot Com
and ten Cent. I think that's likely to give us
more insight when you're looking at kind of the domestic
demand story.
Speaker 3 (07:03):
Right, yeah, Yeah, it's crunch tied. A lot of a
lot of the market inputs are all coming together, and
those will be interesting to tell us again, like you said,
about the strength and demand in the domestic economy. And
also you know, I think the market will be looking
to see what are they doing in terms of capex
(07:24):
and in terms of AI development, because that's the sort
of second part of the business model and the one
where the people are looking for the growth. I guess.
Speaker 2 (07:35):
So before I let you go, Paul, later today the
BOJ is going to release a summary of opinions from
the October meeting. Are we going to learn anything about
whether or not we are closer to let's say, a
December rate hike? Do you think from these minutes.
Speaker 3 (07:51):
The PJ is just so cautious, right, So we do
know that there are some dissenters who are pushing for
the rate hike to get done. There's just an infinite
amount of caution from the Bank of Japan with good reason.
You know, it's taken so long to get inflation going.
They don't want to snuff it out, and they don't
want to cause too many headaches for the rest of
(08:12):
the economy, which where growth isn't particularly hot at the moment,
You've got the government talking about wanting to do more
stimulus in order to create growth that's above government bond yield,
so that it can get down debt that way, which
you know, if it works out, would be all well
and dandy. But then so that gives the boj that
sort of background where if it wants to, it should
(08:33):
be able to raise interest rates. But the problem is
it also, you know, doesn't want to immediately head off
any benefits that the sort of extra fiscal stimulus might do.
So I don't know if we'll learn much more on that.
I think they're waiting for more data, particularly on wage
growth and whether that can remain resilient and robust. But
you know, our experience over the last year is that
(08:54):
the Bank of Japan tends to chicken out, So if
there is anything that comes along the pipeline the discourage
it in the meantime, then it will probably still err
on the side of causion.
Speaker 2 (09:04):
All Right, Paul, thank you so very much. We'll leave
it there with Paul Dobson, Bloomberg's executive editor for Asia Markets,
joining from Singapore here on the Daybreak Asia podcast. Welcome
back to the Daybreak Asia Podcast. I'm Doug Prisner, and
as I mentioned earlier, the US government shutdown appears to
(09:26):
be nearing an end. It's already delayed the release of
two monthly employment reports, and this week's readings on both
inflation and retail sales for the month of October will
likely be delayed as well. Now the absence of official
data is certainly going to complicate the debate about whether
another rate cut is needed. That will of course take
place at the fed's December meeting. Let's bring in Chris Carey.
(09:49):
He is portfolio manager at Carnegie Investment Council. Chris, thanks
for making time to chat with me. So, as I mentioned,
we have this key vote tonight at midnight, and maybe
some posit sitive momentum developing on ending the shutdown, but
as I mentioned, we're still likely to be without official data.
Is that the way you see it, I wouldn't be surprised.
Speaker 1 (10:10):
We're pretty fortunate though that, despite we don't know when
the government shut down is going to end, it's the
longest one we've ever had in recorded history. Now, we're
very fortunate that nowadays there are plenty of alternative data
sources from third parties that have been able to give
us a bit of an insight into inflation metrics, unemployment,
(10:33):
so and so forth. And you know, I think now
versus ten years ago, in this situation that we're sitting in,
it we be you know, there'd be a lot more uncertainty,
and I'd be a lot more difficult. So I'm pretty
grateful from that. Who knows when we'll actually get that data,
you know, the FED themselves it's a pretty tough job,
(10:54):
given the fact that for as long as I can remember,
they're always saying how data dependent they are. Now there's
no data, so it sucks to be them. But I'm
not sure when we're going to get it, but it's
definitely something that is top of mind for a lot
of people. I think we're fortunate though that there's been
a prolonged period of sub three percent, especially core pc,
(11:20):
which is the Fed's target measure of inflation. If we
are in a much higher inflacial environment and we're having
the shutdown, I think it would be a lot more
of a ding to investor confidence.
Speaker 2 (11:30):
I'm curious to get your sense of the damage that
may have been inflicted as a result of the forty
days that the government was shut down. New York Fed
Bank President John Williams, in an interview with the FT,
was focused on the financial strain among lower and middle
income Americans, and he was basically saying, hey, that could
threaten the resilience of the American economy. I think he
(11:52):
has a point there, right.
Speaker 1 (11:54):
Yeah, he does have a point one hundred percent. And
it's those people on the lower end of the scale
that need the assistance, and it's a real shame that
they haven't been able to get that thus far. But
also conversely, you've seen that the vast majority of spending
is by their top ten to twenty thirty percent of earners,
(12:18):
and you really do see that for those their consumer confidence,
their sentiment is drastically differ different from those on the
low end of the scale, and so companies that are
able to benefit from those with larger wallets and more
premium brands aren't really seeing any sort of impact to sales.
(12:39):
But as I mentioned the note that I sent over
to you, you're seeing that a lot of consumers are
trading down and that they're going to more value orientated products,
and that companies themselves aren't necessarily always hitting the forecasts
that were anticipated. As a result that people are there's
(12:59):
a lot of certainty brewing, and that as a result
of that, they might be foregoing purchases or trading down.
So I was, you know, also saw that news before
I hopped on here too, and so I'm hopeful that
the shutdown does come to an end soon, as I
think it will bring a lot of peace to many Americans,
(13:20):
many consumers.
Speaker 2 (13:20):
We can talk about the earnings portion in a minute,
but let's talk about the wealth effect. To go back
to that Williams interview, he was focused on acknowledging that
wealthier households have indeed benefited from higher stock prices. Give
me your sense of where the equity market goes from here.
I mean, there's been so much optimism about productivity gains
being driven by AI. There's also a lot of conversation
(13:44):
around over investment and maybe even a bubble in pockets
of the equity market. How do you view the landscape.
Speaker 1 (13:52):
I'll never use the word bubble given where we are
right now, just given that, I think it's when you
use that word's that's based on the fact that the
fundamentals just cannot justify what what sort of an environment
that we're in. And you you know, if we want
to talk about some porters of the market Max seven,
for instance, the cash flows that they're generating far outstrip
(14:13):
their capex when that line intersects, and that's not the case,
I think, then you know, we're working to have that
sort of discussion. But even over the last three four years,
it hasn't been the case that we've seen. It's just
been up into the right of the entire time. I think.
You know, people's memories are very short, thinking back to
April or to twenty twenty two where Google, Amazon, other
(14:34):
names got cut in half. You know, the average since
the eighties, the average draw down intra year in stocks
is what fifteen percent, and you know, ending the year
typically we'll be up around ten to part eight percent.
We're up fourteen percent so far this year, and most importantly,
earnings have continued to do well. They've beat the average
(14:58):
ten year estimates in terms of earnings being higher, revenues
being higher through the bulk of this earning season thus far.
And it was the same story last year, sorry last quarter,
where analysts were a lot more pessimistic and there was
an additional surprise to the upside. There's definitely some cracks
here and there, especially in certain industries, and I'd mentioned
(15:20):
that a little bit earlier, but overall, whilst it might
be a little bit uncomfortable in the midst of it,
it always is, but this is nothing all that extraordinary.
Profit margins have risen from where they used to be
previously as well, and so you know, from a PE basis,
you could rationalize that, well, it does make sense.
Speaker 2 (15:42):
What I was going to ask about that. I mean,
if you're looking at Nvidia trading fifty five times earnings
forward to PE is something just under forty two. If
you look at the overall market on a historical basis,
that seems pretty stretched, maybe a little.
Speaker 1 (15:57):
Expensive, yeah, exactly, And that's why these companies have to
make sure that they can put up the results to
show that, you know, the valuations are justified. I think
of you know, a handful of companies the serling seasons
that have got absolutely demolished because they haven't been able
to put out the numbers. I think that's definitely a
(16:20):
worthwhile concern. What is important for companies like in the videos. Okay,
obviously they have their handful of core customers that continue
to spend, But from then on, our actual individual businesses
utilizing AI, and more importantly, are they continuing to renew
(16:40):
those contracts with those companies, And I think overall business
spending shows that they are ramp has you know, the
company has great insights into AI spend within the economy,
and our businesses continuing to hold onto these contracts versus
you know, they just try it out and see if
it works. But contract values continue to increase, and you're
(17:04):
also seeing that, you know, retention rates for software year
and year continue to increase. So that's the first place
I'd look. Once you see individual business spend starts to deteriorate,
then I think that definitely opens up the question of
have we maybe misvalued or misjudged these companies. But so
(17:24):
far they continue to put up record results, and you
know that's, let's reflected.
Speaker 2 (17:30):
We're still in the early innings of adoption, right, But
if you look at the at the end user for
a moment, have we seen enough there on the productivity front,
a front two to kind of warrant things.
Speaker 1 (17:42):
I think so. I think in some in some areas,
it's not the case that we're taking large swaths of
you know, employees out of these companies and that AI
is replacing their jobs. But I think you are starting
to see more and more that these investments are paying off.
(18:03):
It is slowly, but surely. I don't think that this
is going to be something by you know, this time
next year, we're going to be a radically different different environment.
But you know, this this moment, I don't think we're
we're you know, we're not off to the races. But
there definitely does seem to be use cases full of software.
(18:25):
I think even within my own industry, within my own job,
there's plenty of ways that it's made you myself more
efficient in the things that I have to do on
a day to day basis. And you know, only a
small fraction of employees that these companies are using it,
and I'm not yet seeing any signs, at least from
a business sand perspective that it's not you know, that
(18:49):
it's not rational.
Speaker 2 (18:50):
So help me with an investment strategy. Do I if I've
been holding on to some of these AI names for
a while and I've realized pretty terrific returns at this
point in the cycle, do I want to maybe reduce
my exposure a little bit? Are there other areas of
the market that you think represent better value right now?
I mean, what's the strategy that you're using.
Speaker 1 (19:12):
I mean, ultimately, when it comes to our clients, it's
you have an allocation that you're you're you're set to
because you're you're dependent on these these funds for retirement
or whatever it may be. And so there's nothing wrong
necessarily with taking a little bit of risk off the
table and continuing to do so. And you know, diversification
(19:37):
I think has been more important than ever this year.
You know, finally holding into national stocks for the first
time paid off in many many years that I can
think of, And so I think that it's important to
you know, from from an investor perspective, if this was
to get cut in half as a as has happened
(20:00):
for you know, many of the mag seven names over
the last couple of years, or in case it's Navidia,
but more than half, would you be okay? You know,
how do you practice a regret minimization in that respect?
And so being able to take some off the table
and diversify is necessarily a good thing. But this conversation
you would be having during environment like this where stocks
are within five percent of full time highs, not when
(20:21):
they're down twenty percent. That's the wrong time for rebalance.
But that's easier said than done, right, But I mean,
think back to April, and think back to twenty twenty two,
and think back to twenty twenty, twenty eighteen. Those are
all horrific points in time to rebalance, and so for
our clients, it's about being proactive, not reactive.
Speaker 2 (20:43):
Okay, Chris, we'll leave it there. Thanks so much. Chris
Carey is portfolio manager at Carnegie Investment Council, 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 shit being markets, finance, and
geopolitics in the Asia Pacific You can find us on Apple, Spotify,
(21:06):
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 (00:11):
Welcome to the Daybreak Asia podcast. I'm Doug Prisner. The
US government shutdown appears to be nearing an end. Today
is day forty, making it the longest in US history,
and now we are told a group of moderate Senate
Democrats has agreed to support a deal to reopen the government.
This is after the Senate released three government funding bills
(00:31):
for the next year as a compromise, but none address
the impending expiration of subsidies for the Affordable Care Act.
We are told Democrats have secured a pledge by Republicans
to vote on a bill to renew the Affordable Care
Act tax credits by mid December. Now we are also
being told that the Senate is set to hold a
procedural test vote at midnight Eastern time, and if that
(00:55):
vote were to succeed, the Senate would still need the
consent of all members to end the show shut down quickly.
One senator can force days of delays and votes. And
in the moment, we'll look at the impact of the
shutdown on the US economy with Chris Carey, his portfolio
manager at Carnegie Investment Council. We begin this morning in
Singapore with Bloomberg's Paul Dobson, our executive editor for Asia Markets. Paul,
(01:19):
thank you so much for making time. I'd like to
begin with what seems to be a recovery in tech
stocks across Asia after last week's sudden drop. What do
you see happening?
Speaker 3 (01:29):
So the market had a little bit of a crisis
of confidence over the past week in terms of those
valuations for the tech companies for their AI related narrative
in general, and whether we'd gone too far and the
valuations were over stretch, which led to volatile trading r
a down day followed by an upday and swinging backwards
and forwards quite dramatically and quite strong moves in either
(01:53):
direction in the tech heavy Asia gauges the COSTB in
particular Middlesa, Japan, Taiwan. Seeing that kind of EBB and flow,
you know, on the one hand, you've got people that
are saying that, you know, that is just time to
take some profits here because the market has had such
a strong run up and had gotten frothy. But the
(02:16):
flip side of that is there are plenty more people
waiting to buy any dip hungreeds. This get in there
and get these opportunities because they believe in that long
term AI narrative, and so that sort of tension has
been playing off one against the other for much of
the past week. It doesn't seem like it's completely resolved yet,
but we are in a more positive mindset at the
start of this week, it seems from the early price action.
Speaker 2 (02:37):
I'm curious as to what analyst is saying. It's not
unlike the situation here in the US where you have
an extreme concentration of these big tech names in the
regional benchmarks. As a couple of examples, TSMC I think
now accounts for over forty percent of the tai X
and then if you look at the waiting of Samsung
and s k Heinex in South Korea together, those make
(03:00):
up around thirty percent of the cost be Is this
cause for concern.
Speaker 3 (03:06):
Only if the trade unrevels, right, I mean, you definitely
have market concentration risks. And yet, like you said, it's
the same in the US where the Magnificent seven has
been leading so much of the gains in the overall
market this year. So yes, if the market turns against
the AI narrative, then it will lead to a broader
(03:28):
drag on gauges, and that could turn into a sort
of self fulfilling kind of a spiral lower because it
would force people to liquidate and maybe from the other
parts of the market as well. I'm not sure though,
that it's an entirely negative thing, because you know, we
(03:49):
have seen such strong gains for so many of the markets,
and particularly South Korea, it's been on an absolute tear
this year. It's not only got the AI narrative, but
it's also got the government behind it. Are kind of
almost almost egging it on. They want the career discount
to disappear, They want more people to invest in domestic stocks,
They want to smooth out all of the dysfunctions that
(04:14):
have been there in terms of company ownership and favor
shareholder interests. More so, that has its own narrative as
well propelling it. And I think you know, region wide
in Asia, yes, the technology companies have been dominating, but
there have been other positive narratives that have also been
taking the market higher. And so even something that doesn't
have a lot of tech in it, like the Straight
(04:34):
Times Index for Singapore, has been continually setting record highs
this year as well.
Speaker 2 (04:39):
Over the weekend. China reported consumer prices unexpectedly increased in October.
I think you have to point to the National Day
holiday right in early October that really was responsible for
boasting a lot of domestic demand. Do I have that right?
Speaker 3 (04:55):
It seems like that's one of the main contributing factors.
And also I think that the gold jewel reprice has
a disproportionate effect on it, because obviously gold has been
on this humongous ball run for most of the year.
It doesn't change that overall narrative that China still needs
to do more to beat this kind of disinflationary headache
that it's grappling with at the moment. And we have
(05:15):
a long story out there on the wire today that
really digs into how all the prices of the goods
that a regular consumer buys have actually probably fallen more
than the official data would have you have. You think so,
And it sort of gets at that idea that you know,
it becomes again a sort of self fulfilling because prices drop,
(05:35):
wages drop, and then that kind of creates, you know,
sort of like economic gloom basically, so still more needed
probably to snap China out of that mindset.
Speaker 2 (05:45):
I'm glad you mentioned that because at the end of
the week we'll get the monthly activity data that obviously
that includes retail sales and industrial production. Do we have
a sense of what we may learn at the end
of the week.
Speaker 3 (05:57):
Ah, well, probably, it's hard, you know, kind of to
break this out. What I do think is interesting, though,
is that for all that the domestic economy doesn't look
super hot at the moment, China's financial markets have actually
been having a pretty decent ride of late. You've got
the un trading at the strongest levels further year against
the US dollar, but also against a bunch of other currencies.
(06:19):
On the crosses, it's looking stronger too. You've got stop
market has seemed relatively resilient, and the text story in China,
the domestic stocks seem to be doing well because China
set out this you know, kind of very clear path
where it wants more independence, it wants to be more
self sufficient, and it wants to push its industrial strategy
as well. So that is helping actually the stop market.
(06:40):
And then even on the bond side, So they did
a dollar bond sale last week, and the bonds yield
that they got for it was on a par with
US treasuries and then traded through it in the secondary market.
This week they're coming with eurobond, so it will be
really interesting to see how that prices as well.
Speaker 2 (06:54):
Also this week the earnings Ali, Baba, JD, dot Com
and ten Cent. I think that's likely to give us
more insight when you're looking at kind of the domestic
demand story.
Speaker 3 (07:03):
Right, yeah, Yeah, it's crunch tied. A lot of a
lot of the market inputs are all coming together, and
those will be interesting to tell us again, like you said,
about the strength and demand in the domestic economy. And
also you know, I think the market will be looking
to see what are they doing in terms of capex
(07:24):
and in terms of AI development, because that's the sort
of second part of the business model and the one
where the people are looking for the growth. I guess.
Speaker 2 (07:35):
So before I let you go, Paul, later today the
BOJ is going to release a summary of opinions from
the October meeting. Are we going to learn anything about
whether or not we are closer to let's say, a
December rate hike? Do you think from these minutes.
Speaker 3 (07:51):
The PJ is just so cautious, right, So we do
know that there are some dissenters who are pushing for
the rate hike to get done. There's just an infinite
amount of caution from the Bank of Japan with good reason.
You know, it's taken so long to get inflation going.
They don't want to snuff it out, and they don't
want to cause too many headaches for the rest of
(08:12):
the economy, which where growth isn't particularly hot at the moment,
You've got the government talking about wanting to do more
stimulus in order to create growth that's above government bond yield,
so that it can get down debt that way, which
you know, if it works out, would be all well
and dandy. But then so that gives the boj that
sort of background where if it wants to, it should
(08:33):
be able to raise interest rates. But the problem is
it also, you know, doesn't want to immediately head off
any benefits that the sort of extra fiscal stimulus might do.
So I don't know if we'll learn much more on that.
I think they're waiting for more data, particularly on wage
growth and whether that can remain resilient and robust. But
you know, our experience over the last year is that
(08:54):
the Bank of Japan tends to chicken out, So if
there is anything that comes along the pipeline the discourage
it in the meantime, then it will probably still err
on the side of causion.
Speaker 2 (09:04):
All Right, Paul, thank you so very much. We'll leave
it there with Paul Dobson, Bloomberg's executive editor for Asia Markets,
joining from Singapore here on the Daybreak Asia podcast. Welcome
back to the Daybreak Asia Podcast. I'm Doug Prisner, and
as I mentioned earlier, the US government shutdown appears to
(09:26):
be nearing an end. It's already delayed the release of
two monthly employment reports, and this week's readings on both
inflation and retail sales for the month of October will
likely be delayed as well. Now the absence of official
data is certainly going to complicate the debate about whether
another rate cut is needed. That will of course take
place at the fed's December meeting. Let's bring in Chris Carey.
(09:49):
He is portfolio manager at Carnegie Investment Council. Chris, thanks
for making time to chat with me. So, as I mentioned,
we have this key vote tonight at midnight, and maybe
some posit sitive momentum developing on ending the shutdown, but
as I mentioned, we're still likely to be without official data.
Is that the way you see it, I wouldn't be surprised.
Speaker 1 (10:10):
We're pretty fortunate though that, despite we don't know when
the government shut down is going to end, it's the
longest one we've ever had in recorded history. Now, we're
very fortunate that nowadays there are plenty of alternative data
sources from third parties that have been able to give
us a bit of an insight into inflation metrics, unemployment,
(10:33):
so and so forth. And you know, I think now
versus ten years ago, in this situation that we're sitting in,
it we be you know, there'd be a lot more uncertainty,
and I'd be a lot more difficult. So I'm pretty
grateful from that. Who knows when we'll actually get that data,
you know, the FED themselves it's a pretty tough job,
(10:54):
given the fact that for as long as I can remember,
they're always saying how data dependent they are. Now there's
no data, so it sucks to be them. But I'm
not sure when we're going to get it, but it's
definitely something that is top of mind for a lot
of people. I think we're fortunate though that there's been
a prolonged period of sub three percent, especially core pc,
(11:20):
which is the Fed's target measure of inflation. If we
are in a much higher inflacial environment and we're having
the shutdown, I think it would be a lot more
of a ding to investor confidence.
Speaker 2 (11:30):
I'm curious to get your sense of the damage that
may have been inflicted as a result of the forty
days that the government was shut down. New York Fed
Bank President John Williams, in an interview with the FT,
was focused on the financial strain among lower and middle
income Americans, and he was basically saying, hey, that could
threaten the resilience of the American economy. I think he
(11:52):
has a point there, right.
Speaker 1 (11:54):
Yeah, he does have a point one hundred percent. And
it's those people on the lower end of the scale
that need the assistance, and it's a real shame that
they haven't been able to get that thus far. But
also conversely, you've seen that the vast majority of spending
is by their top ten to twenty thirty percent of earners,
(12:18):
and you really do see that for those their consumer confidence,
their sentiment is drastically differ different from those on the
low end of the scale, and so companies that are
able to benefit from those with larger wallets and more
premium brands aren't really seeing any sort of impact to sales.
(12:39):
But as I mentioned the note that I sent over
to you, you're seeing that a lot of consumers are
trading down and that they're going to more value orientated products,
and that companies themselves aren't necessarily always hitting the forecasts
that were anticipated. As a result that people are there's
(12:59):
a lot of certainty brewing, and that as a result
of that, they might be foregoing purchases or trading down.
So I was, you know, also saw that news before
I hopped on here too, and so I'm hopeful that
the shutdown does come to an end soon, as I
think it will bring a lot of peace to many Americans,
(13:20):
many consumers.
Speaker 2 (13:20):
We can talk about the earnings portion in a minute,
but let's talk about the wealth effect. To go back
to that Williams interview, he was focused on acknowledging that
wealthier households have indeed benefited from higher stock prices. Give
me your sense of where the equity market goes from here.
I mean, there's been so much optimism about productivity gains
being driven by AI. There's also a lot of conversation
(13:44):
around over investment and maybe even a bubble in pockets
of the equity market. How do you view the landscape.
Speaker 1 (13:52):
I'll never use the word bubble given where we are
right now, just given that, I think it's when you
use that word's that's based on the fact that the
fundamentals just cannot justify what what sort of an environment
that we're in. And you you know, if we want
to talk about some porters of the market Max seven,
for instance, the cash flows that they're generating far outstrip
(14:13):
their capex when that line intersects, and that's not the case,
I think, then you know, we're working to have that
sort of discussion. But even over the last three four years,
it hasn't been the case that we've seen. It's just
been up into the right of the entire time. I think.
You know, people's memories are very short, thinking back to
April or to twenty twenty two where Google, Amazon, other
(14:34):
names got cut in half. You know, the average since
the eighties, the average draw down intra year in stocks
is what fifteen percent, and you know, ending the year
typically we'll be up around ten to part eight percent.
We're up fourteen percent so far this year, and most importantly,
earnings have continued to do well. They've beat the average
(14:58):
ten year estimates in terms of earnings being higher, revenues
being higher through the bulk of this earning season thus far.
And it was the same story last year, sorry last quarter,
where analysts were a lot more pessimistic and there was
an additional surprise to the upside. There's definitely some cracks
here and there, especially in certain industries, and I'd mentioned
(15:20):
that a little bit earlier, but overall, whilst it might
be a little bit uncomfortable in the midst of it,
it always is, but this is nothing all that extraordinary.
Profit margins have risen from where they used to be
previously as well, and so you know, from a PE basis,
you could rationalize that, well, it does make sense.
Speaker 2 (15:42):
What I was going to ask about that. I mean,
if you're looking at Nvidia trading fifty five times earnings
forward to PE is something just under forty two. If
you look at the overall market on a historical basis,
that seems pretty stretched, maybe a little.
Speaker 1 (15:57):
Expensive, yeah, exactly, And that's why these companies have to
make sure that they can put up the results to
show that, you know, the valuations are justified. I think
of you know, a handful of companies the serling seasons
that have got absolutely demolished because they haven't been able
to put out the numbers. I think that's definitely a
(16:20):
worthwhile concern. What is important for companies like in the videos. Okay,
obviously they have their handful of core customers that continue
to spend, But from then on, our actual individual businesses
utilizing AI, and more importantly, are they continuing to renew
(16:40):
those contracts with those companies, And I think overall business
spending shows that they are ramp has you know, the
company has great insights into AI spend within the economy,
and our businesses continuing to hold onto these contracts versus
you know, they just try it out and see if
it works. But contract values continue to increase, and you're
(17:04):
also seeing that, you know, retention rates for software year
and year continue to increase. So that's the first place
I'd look. Once you see individual business spend starts to deteriorate,
then I think that definitely opens up the question of
have we maybe misvalued or misjudged these companies. But so
(17:24):
far they continue to put up record results, and you
know that's, let's reflected.
Speaker 2 (17:30):
We're still in the early innings of adoption, right, But
if you look at the at the end user for
a moment, have we seen enough there on the productivity front,
a front two to kind of warrant things.
Speaker 1 (17:42):
I think so. I think in some in some areas,
it's not the case that we're taking large swaths of
you know, employees out of these companies and that AI
is replacing their jobs. But I think you are starting
to see more and more that these investments are paying off.
(18:03):
It is slowly, but surely. I don't think that this
is going to be something by you know, this time
next year, we're going to be a radically different different environment.
But you know, this this moment, I don't think we're
we're you know, we're not off to the races. But
there definitely does seem to be use cases full of software.
(18:25):
I think even within my own industry, within my own job,
there's plenty of ways that it's made you myself more
efficient in the things that I have to do on
a day to day basis. And you know, only a
small fraction of employees that these companies are using it,
and I'm not yet seeing any signs, at least from
a business sand perspective that it's not you know, that
(18:49):
it's not rational.
Speaker 2 (18:50):
So help me with an investment strategy. Do I if I've
been holding on to some of these AI names for
a while and I've realized pretty terrific returns at this
point in the cycle, do I want to maybe reduce
my exposure a little bit? Are there other areas of
the market that you think represent better value right now?
I mean, what's the strategy that you're using.
Speaker 1 (19:12):
I mean, ultimately, when it comes to our clients, it's
you have an allocation that you're you're you're set to
because you're you're dependent on these these funds for retirement
or whatever it may be. And so there's nothing wrong
necessarily with taking a little bit of risk off the
table and continuing to do so. And you know, diversification
(19:37):
I think has been more important than ever this year.
You know, finally holding into national stocks for the first
time paid off in many many years that I can
think of, And so I think that it's important to
you know, from from an investor perspective, if this was
to get cut in half as a as has happened
(20:00):
for you know, many of the mag seven names over
the last couple of years, or in case it's Navidia,
but more than half, would you be okay? You know,
how do you practice a regret minimization in that respect?
And so being able to take some off the table
and diversify is necessarily a good thing. But this conversation
you would be having during environment like this where stocks
are within five percent of full time highs, not when
(20:21):
they're down twenty percent. That's the wrong time for rebalance.
But that's easier said than done, right, But I mean,
think back to April, and think back to twenty twenty two,
and think back to twenty twenty, twenty eighteen. Those are
all horrific points in time to rebalance, and so for
our clients, it's about being proactive, not reactive.
Speaker 2 (20:43):
Okay, Chris, we'll leave it there. Thanks so much. Chris
Carey is portfolio manager at Carnegie Investment Council, 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 shit being markets, finance, and
geopolitics in the Asia Pacific You can find us on Apple, Spotify,
(21:06):
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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