September 25, 2025 • 23 mins
Stocks fell as valuation worries overshadowed data showing the economy is holding up. The figures didn't have much of an impact on Federal Reserve bets, but short-dated yields climbed. Bitcoin sank. Following a series of all-time highs, the S&P 500 dropped for a third straight session, the longest slide in a month. That's despite data showing US gross domestic product grew at the fastest pace in nearly two years. For more, we spoke to Brian Krawez, He's President and Chair of the Investment Committee at Scharf Investments.
President Donald Trump advanced plans for American investors to buy TikTok's US operations from its Chinese owner ByteDance Ltd., with officials setting a potential value of $14 billion and outlining measures to ensure security of the new venture. In an executive order signed Thursday at the White House, Trump declared that the deal complies with a 2024 law requiring ByteDance to divest control or face a prohibition in the US of the popular video-sharing platform. Trump also reiterated that he had won approval from his Chinese counterpart, Xi Jinping, for the deal. We got reaction from Bloomberg's Annabelle Droulers.
And at the same time, President Donald Trump announced a fresh round of tariffs, including a 100% duty on branded or patented pharmaceuticals starting October 1, unless a company is building a manufacturing plant in America. Trump posted on social media that there would be no levies on pharmaceutical imports if companies have broken ground on a US manufacturing plant, or if such a plant is under construction. We heard from Deborah Elms, Heinrich Foundation Head of Trade Policy. She spoke to Bloomberg's Shery Ahn and Avril Hong on the Asia Trade.
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:02):
Bloomberg Audio Studios, podcasts, radio news.
Speaker 2 (00:10):
Welcome to the Daybreak Asia podcast. I'm Doug Chrisner. A
short while ago, President Trump unveiled a litany of new tariffs.
He said the US will impose a one hundred percent
tariff on any branded or patented pharmaceutical product unless a
company is building their pharmaceutical manufacturing plant in America. Trump
also announced a fifty percent tariff on kitchen cabinets, thirty
(00:34):
percent levies on upholstered furniture, and twenty five percent tariffs
on heavy trucks. Incidentally, these new tariffs will take effect
October first. Separately, the President formalized an agreement for a
group of American investors to take control of TikTok's US operations.
The President said the deal would protect the data of
US users and that Oracle will secure the algorithm on
(00:58):
the American version of this platform. Vice President JD Vance
played a critical role in crafting this deal.
Speaker 3 (01:04):
The company will be valued around fourteen billion dollars. We
actually think this is a good deal for investors, but
ultimately the investors are going to make the determination about
what they want to invest in and what they think
is a.
Speaker 2 (01:14):
Proper value, that is, Vice President jd. Vance. In a
moment or two, we'll get some perspective on this deal
from the Asia Pacific, but we begin here in the States,
where markets had to recalibrate the outlook for fed raitcuts.
Today after a strong reading on US economic activity, we
had the S and P five hundred down for a
third straight session, the longest slide in a month. For
(01:37):
a look at market action, now, I'm joined by Brian Krowez.
He is president also the chair of the investment committee
at Sharf Investments. Brian is on the line from Los Gatos, California. Brian,
thank you so much for making time to chat with me.
You want to weigh in on this TikTok deal. You
and I were talking offline a moment ago about you
being invested in Oracle. What does this mean for Oracle?
Speaker 4 (02:00):
Yeah, I mean thanks for having me. Always enjoy being
on the store. It's good news for Oracle. I mean
that's extra extra business for them. And the TikTok price
seems actually pretty attractive. Would you consider how big of
a social media platform it is, so overall it should
be a good, good deal for Oracle shareholders and hopefully
(02:22):
a good deal for the American public if we can
ensure that Americans data is not somehow transferred over to China,
so overall should be a decent deal for investors and
hopefully for the country.
Speaker 2 (02:36):
The tech story has been a big part of the
market's performance this year last as well. I guess artificial
intelligence has been one of the predominant themes. We were
down today for a third straight session, and there is
a lot of concern about lofty valuations. No matter how
you slice it, how are you feeling about the AI trade,
perhaps tech more broadly, You.
Speaker 5 (02:59):
Know, we're a little cautious.
Speaker 4 (03:01):
You know, it's it's an interesting market. I've been managing
money a long time, and I'm starting to get a
little bit of shades of ninety nine. You've got open
ai with something like a trillion dollars in commitments to
do data centers. They've raised about sixty three billion, and
I think last check they have something like thirteen billion
in revenue. So you're talking about, you know, a massive
(03:21):
investment for what is still a relatively small revenue base.
And so you're starting to see deals where in Vidia,
you know, invests in open Ai and then open EI
buys some video chips, a little bit of shades of
the financing back when Cisco, Nortel, and Lucent.
Speaker 5 (03:39):
We're doing the same kind of thing.
Speaker 4 (03:41):
I'm not saying it's exactly the same level of bubble,
because you know, clearly in Vidia has you know, much
better profitability than some of the internet.
Speaker 5 (03:50):
Firms back then.
Speaker 4 (03:51):
But you're starting to get a little bit of shades
of it, and it is a little bit concerning.
Speaker 2 (03:57):
I'm wondering whether you were surprised at all. Want to
change gears here and talk a little bit about the
macro surprised by this very strong rating that we had
on second quarter GDP, the final revision with a growth
rate of three point eight percent. That seems stunning when
we've talked about weakness in the labor market and expectations
(04:17):
that the FED is going to lean in here and
be a little more accommodative. That was called into question today.
How do you feel about that?
Speaker 5 (04:24):
It's definitely a conundrum.
Speaker 4 (04:26):
I mean, you've seen a three point eight percent GDP revision,
as you just mentioned, up from three point two, so
you know, three point eight is a pretty good you know,
you called it stunning. I mean, it's definitely very good,
healthy growth. On top of that, you've had some other
data where you know, continuing claims wasn't as bad as expected.
(04:46):
So you've had a little bit of different crosswinds. And
you haven't seen the inflation really starting to pick up
yet from tariffs, but you know, we think that's probably coming.
And then the other thing i'd say about the strong
GDP is a big help to GDP is all of
this investment that's happening, and a lot of it's related
(05:07):
to AI, as we.
Speaker 5 (05:08):
Just talked about.
Speaker 4 (05:09):
So there's been massive commitments in AI, and so there's
a lot of investment that goes into the GDP equation
and that's definitely playing a part. The other thing is
there's just general optimism around some of the changes that
President Trump has done, and so you're getting even investment
in just general manufacturing. You've gotten just sort of the
hammer coming down where they're saying you need to build
(05:31):
more in America. So you're seeing a lot of GP
being very much helped by investment. The question is is
that investment going to be worth it?
Speaker 5 (05:40):
Is it gonna be malinvestment?
Speaker 4 (05:41):
Are we going to build tons of data centers and
not really have revenue from that. That's the open question,
And some of the other reads is that parts of
the GDP are actually not as strong, and so it's
a little bit too early to tell, but certainly it's
an odd environment for people to be called for the
FED to make massive rate cuts at the same time
(06:03):
you're having GDP revised up.
Speaker 2 (06:05):
So you made the point about the possibility that tariffs
will be inflationary, maybe that is down the road a bit.
Do we need to talk about the potential inflationary impact
of energy? As these AI data centers begin to demand
a lot more in the way of electricity and providers,
utilities or private companies just race to be able to
(06:26):
produce the amount of electricity that's required. Is there the
risk here that prices begin to creep up and that
that begins to spill over into inflation in a way
that becomes damaging.
Speaker 4 (06:40):
Yeah, no, that's an astutent observation. I mean, you've probably
seen the charts. Energy prices are zooming higher at a
rate we haven't seen in decades, and that definitely is
going to transfer through in terms of inflation. Although energy
is a percentage of GDP is a relatively small component now.
I mean, it's not like in the seventies, and so
it's probably less of an impact that would have in
(07:01):
the past.
Speaker 5 (07:01):
I'll also point out that healthcare.
Speaker 4 (07:04):
You know, we don't know what's gonna happen with the
ACA tax credit, and you know, you've got wrangling in Congress,
and you know in Washington about a potential work stoppage.
But one of the issues that I think isn't getting
talked about enough is ACA marketplace, which is sort of
Obamacare health insurance. You're talking about twenty percent type premium
(07:28):
increases in a lot of those markets, and overall, health
care inflation should be a lot higher than people are
talking about, even in the private sector, So that will
definitely transfer through the economy, as healthcare is a pretty
big component of people's expenditures.
Speaker 2 (07:43):
So we're approaching the end of both the month and
the quarter. For the month, I think so far the
S and P is still up around one point nine percent,
and for the quarter so far, I think the S
and P is up around six percent. I'm curious about
the extent to which you're rebalancing right now as we
close out the quarter, and and any pivot that you're making.
(08:05):
What does that look like right now?
Speaker 4 (08:08):
You know, we're you know, so we talked a little
bit about being worried about AI. And also I would
say evaluations are very very high right now. But what's interesting,
and this was sort of similar to you know, back
twenty five years ago, when you had an opportunity to
buy sort of value names at just historically low valuations,
(08:29):
and yet the overall market was extremely high. If you
bought those low valuation stocks, you actually did very well
over the next decade. Similarly, right now, there are some
very high quality companies that are trading at valuations you've
never seen before. I mean, just to throw out a
couple of them. You know, Zoetis is a company that's
really big and animal health. It is trading at evaluation
(08:51):
relatively s and P it's never it's never seen before
and actually, you know, fairly reasonable valuation of a company
that's is high quality and dominant in its market space
and probably will benefit from AI because ultimately they come
up with drugs for animals, and AI will undoubtedly make
it easier and cheaper to come up with new drugs,
(09:12):
and because they are dominant in their sector, they'll probably
be able to hold on to some of the pricing,
so it'll be good for people's pets and it'll be
good for the company.
Speaker 3 (09:19):
You know.
Speaker 4 (09:20):
Another one would be a name like UNP, which is potentially.
Speaker 5 (09:23):
Going to do a merger. You know, rails have dominant
market space.
Speaker 4 (09:29):
It's only around eighteen times, you know, in a market
that's twenty two times. And yet if they are able
to pull off that deal, they'll be you know, one
of only a few companies that can compete. And they
also similarly can benefit from AI as they can reduce labor.
So there's a lot of these companies out there that
will probably benefit from AI, be able to get their
(09:49):
margins up potentially enhance revenue. The market is sort of
ignoring them for the most part, as people are piling
into names that are really AI beneficiaries or direct I
should say, directly involved in the AI ecosystem, such as
Nvidia and all the semis and names like that.
Speaker 2 (10:07):
I'm curious as to whether or not you're looking for
opportunities in certain areas of technology offshore, whether in Asia
or perhaps Europe. Is that something that you're leaning into
a little bit at the moment.
Speaker 4 (10:18):
Yeah, we own Samsung, which is a name that I think,
you know, has that we could do a whole segment
just on SAG Samsung and they're missing. They actually created HBM,
which is the memory that's very important in AI, and
then they didn't know what to do with it, so
they got passed up by s K Hynks. But they
are one of the largest world's largest tech companies by revenue,
(10:40):
very important to the ecosystem.
Speaker 5 (10:42):
And you know, have had some missteps.
Speaker 4 (10:45):
But recently, you know, we're approved for HBM three for Nvidia,
and there's talk of them being approved for HM four
and that could be a very big help.
Speaker 5 (10:57):
To their revenues.
Speaker 4 (10:59):
And ultimately they're ting, you know, something like twenty five
percent over book value and you know kind of teams
multiple so you've got to if they were a US company,
they probably have a much higher valuation. Because they trade
in Korea, they're somewhat forgotten.
Speaker 2 (11:14):
Brian will leave it there, Thank you so very much.
Brian Crowez is president. He's also the chair of the
investment committee at Scharf Investments. Joining us on the line
from Los Gatos, California here on the Daybreak Asia Podcast.
Welcome back to the Daybreak Asia Podcast. I'm Derek Prisoner.
(11:37):
President Trump formalized an agreement today for a group of
American investors to take control of the US operations of TikTok.
The President said the deal will protect the data of
US users and Oracle will secure the algorithm on the
American version of this platform. Vice President JD. Vans played
a central role in crafting this deal, and today he
(11:58):
said the new company will be valued at around fourteen
billion dollars. Here is Bloomberg's Annabelle Jewelers.
Speaker 6 (12:05):
In the executive order, it essentially acknowledged or stated that
there is a plan in place that meets the conditions
for TikTok to continue operating in the US.
Speaker 7 (12:14):
So it says that there's a framework.
Speaker 6 (12:16):
Agreement in place where where the app is going to
be essentially operated in a joint venture structure that will
be majority owned and controlled by Americans. So you can
see here President Trump signing that executive order just earlier
today ByteDance as well. It's contained in the order it
says it's going to take less than a twenty percent stake,
and also that there's going to be a new board
of directors that will be established to run TikTok's US operations.
(12:39):
Just who the eventual buyers are that part is still
not exactly clear, but what we heard from sources is
Oracle and silver Ake. They continue to be the names
that are coming up. MGX is actually another one that's
come up. This one's new, but it's an interesting one
because it's an Abu Dhabi based sovereigns or state owned
investment firm rather that does have a big focus on
AI and advanced tech knowledgies. The framework of the deal
(13:02):
does seem to at least meet what would have been
one of the key conditions for China, which is that
the technology, the actual algorithm will stay in Chinese hands,
just a copy of it is going to be licensed
to the operations in the US. But China, as you said,
is yet to say publicly whether it's actually granted approval
for this, even though you heard from President Trump, they're
saying that the President she had given the go ahead.
Speaker 7 (13:25):
When they spoke last week.
Speaker 6 (13:26):
The Chinese embassy as well didn't respond to our request
for comment. But we are coming up against another deadline
to this one, so the deal does need to close
within one hundred and twenty days. That takes us until
the end of January. We've already seen a number of
deadlines for this or deadlines being extended, in fact five extensions.
Speaker 7 (13:45):
But it is something that will have to get past China.
Speaker 6 (13:47):
It's also saying that it's going to have to get
past US lawmakers who are still promising to very closely
scrutinize the contents of that deal as well.
Speaker 2 (13:55):
That is Bloomberg's Annabelle Droolers. At the same time, today,
President Trump and anounced a one hundred percent tariff on
any branded or patented pharmaceutical product unless a company is
building their pharmaceutical manufacturing plant in the United States. Trump
also announced a fifty percent tariff on kitchen cabinets, thirty
percent levies on upholstered furniture, and twenty five percent tariffs
(14:19):
on heavy trucks. These new tariffs, by the way, will
take effect October first. For some insight, we spoke with
Deborah Elms of the Heinrich Foundation. She is head of
policy there, and she spoke with Bloomberg TV host Sherry
On and April Hong on the Asia trade.
Speaker 3 (14:34):
Well, first, Trump is never going to be done with tariffs,
So anyone who thinks that this is the end, or
at any point that that would be the end of
his tariff game is delusional. The man loves tariffs. He'll
continue to use them. So that's the first point. The
second is that these negotiations have been largely about what
were called the reciprocal tariffs, that is, those tariffs imposed
under emergency powers originally on April second, had been revised
(14:58):
since then. That's where the focus has been, and what
the Trump administration has been doing is moving more and
more tariff coverage to these sector specific tariffs on increasingly
now everything as you can see, including now the kitchen,
cabinet and the couch in the living room. I mean,
this is an incredible, breathtaking expansion of tariff coverage that
(15:20):
will affect everyone, including those countries that thought that they
had a deal in place under those reciprocal tariffs that
are not covered by these sector specific new applications.
Speaker 1 (15:34):
Picking and choosing which sectors the president protects among the
American industries, how big of a problem is this when
you have different levees contending with different ones still and
aluminum in place, and now trying to perhaps help those
carmakers that are dealing with higher prices when it comes
(15:55):
to metals.
Speaker 3 (15:57):
Yeah, the complexity is honestly driving companies, supply chain managers,
customs brokers right on off the edge because every day
is a new set of tariffs. We've had twenty eight
revisions to US tariff codes since the beginning of this year,
twenty eight separate revisions, plus all of these sector specific tariffs,
(16:17):
and the order and the stacking of tariffs want sometimes stacked,
sometimes doesn't. This product might that product might not. I mean,
is it is mind bogglingly complicated to trade with the
United States?
Speaker 8 (16:29):
Now, that is a good number to keep in mind,
the number of revisions that have already been pushed through
from the US President, Debra. But when it comes to
perhaps how this is being received by the base, how
much cognizance is there between the vetoric and the tariff
(16:52):
policy that actual impact on these industries that Trump is
saying he's supporting.
Speaker 3 (16:59):
I think that's it's unclear right now. I suspect you're
going to get a lot of very disgruntled Americans, regardless
of their political base, when they try to go replace
a worn out kitchen cabinet, when they try to replace
the sofa that's sagging when they go out and they
look for purchases, especially of their pharmaceutical products. One hundred
percent tariff on imported products for pharma is going to
(17:21):
hit an awful lot of people literally in their bodies.
So I think there will be deep unhappiness by consumers
in particular in the United States, whether or not they
work for these particular companies. So we'll have to see
how this plays out. Clearly, he thinks it's an important
way to drive manufacturing back to the United States. I
think consumers who are sometimes in manufacturing, but most Americans
(17:44):
are not in manufacturing, So most consumers who are not
in manufacturing will say, why am I having to pay
this enormous price for a few jobs for somebody else.
Speaker 8 (17:57):
The countries that we are watching in terms of how
their industries might be particularly affected include India because of
its pharmaceutical trade with the US, and then the auto
industry in Japan and South Korea. All this happening as
these trade negotiations are still ongoing. What is the best
course of action for them at this stage?
Speaker 3 (18:20):
Well, the counterparties are in real trouble here because you know,
on the one hand, there are instinct I'm sure is
to just say forget it, just like we're done. You
let us know what the number is and we'll deal
with it then. But obviously that has incredible complications for
their domestic economy. So they're going to have to have
a negotiation with the United States. But the complexity is bewildering.
(18:41):
The changes are complicated. A lot of those reciprocal tariff
deals again are based on this IEPA statute, which is
going to be reviewed by the Supreme Court starting November fifth.
That might change altogether. So again for governments, they have
to engage, they have to negotiate, but it's unclear for
them what are we negotiat. And if I get a
(19:01):
fantastic deal on autos in this case and then heavy
trucks come into effect, does that cover heavy trucks as well?
For me? Probably not. But does that mean that I
need to make a new negotiation to deal with heavy trucks.
I think this is completely uncertain, and you can imagine
that trade partners are waking up every morning, you know,
very nervously reaching for their phone to see what is
(19:23):
the new information that has come in overnight from the
United States.
Speaker 7 (19:28):
What about the messic businesses.
Speaker 1 (19:29):
Are we going to see more legal challenges against the
President Trump's new tariffs.
Speaker 3 (19:36):
I think it's possible. I think the real challenge though,
for these newest tariffs, these sector specific Section two three
two tariffs, is that they're offecially done for national security purposes.
So now, how exactly your sofa in your living room
is a national security threat is unclear, But nonetheless that's
the justification that is very hard to overturn because the
(19:59):
court gives very widely way for national security. Congress, which
has done nothing anyways, is going to say that's not
our prerogative, that is the President's prerogative. So I think
these national security tariffs will be very hard to argue about.
Speaker 8 (20:15):
Debra talk to us about how there has been already
that bypassing of trade right, given how economies such as
China potentially you know, they're seeing that they can export
to the US anymore. We talk about the China Shop
two point oh three point zero. Their are dual risk
(20:38):
at place here, including for Southeast Asian economies. What have
you been seeing in the realignment in the past couple of.
Speaker 3 (20:45):
Months on the corporate level, it's starting to accelerate, So
companies at the beginning of a lot of this sort
of froze in place and said, well, let me just
see how this evolves. Will push as much inventory into
the US as we can, and then we'll wait and see.
At this point, it seems quite clear to companies that
you're going to be dealing with a high tariff environment
(21:06):
and an uncertain environment for a very long time. So
firms are increasingly looking to pivot. Now. That doesn't mean
that they're pivoting overnight. Some are many of them don't
have that option, but they're certainly exploring whatever possibilities they have.
Now we will see, and we are seeing in the
supply chain space increasing rerouting of trade and that will,
(21:27):
I think continue and it will accelerate. On the government level,
it has been more challenging than perhaps people would anticipate
to create coalitions to deal with trade and other venues,
in other words, to like how can we create new
trade opportunities for our businesses outside the United States. But
I think that is also accelerating. I mean, this is
the week in which Acion is having its Economic ministers meeting,
(21:49):
and there was a lot of discussion in Asion about
how do we beef up our internal Accion Trade. How
do we do so with our partners in Asia who
are all part of the Regional Capprehensive Economic Partnership. How
do we accelerate progress on this four year old agreement
that I think is going to continue as well?
Speaker 8 (22:10):
And this could also figure into the conversations that are
coming up at the APEX event next month and the
ASCION summit as well. Deborah agreed to get your insights.
Thank you so much for coming on our show on
what I'm sure as a very busy morning for you.
Heinrich Foundation Head of Trade Policy, Debra Elms.
Speaker 2 (22:30):
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. 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
(22:52):
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 Chrisner. A
short while ago, President Trump unveiled a litany of new tariffs.
He said the US will impose a one hundred percent
tariff on any branded or patented pharmaceutical product unless a
company is building their pharmaceutical manufacturing plant in America. Trump
also announced a fifty percent tariff on kitchen cabinets, thirty
(00:34):
percent levies on upholstered furniture, and twenty five percent tariffs
on heavy trucks. Incidentally, these new tariffs will take effect
October first. Separately, the President formalized an agreement for a
group of American investors to take control of TikTok's US operations.
The President said the deal would protect the data of
US users and that Oracle will secure the algorithm on
(00:58):
the American version of this platform. Vice President JD Vance
played a critical role in crafting this deal.
Speaker 3 (01:04):
The company will be valued around fourteen billion dollars. We
actually think this is a good deal for investors, but
ultimately the investors are going to make the determination about
what they want to invest in and what they think
is a.
Speaker 2 (01:14):
Proper value, that is, Vice President jd. Vance. In a
moment or two, we'll get some perspective on this deal
from the Asia Pacific, but we begin here in the States,
where markets had to recalibrate the outlook for fed raitcuts.
Today after a strong reading on US economic activity, we
had the S and P five hundred down for a
third straight session, the longest slide in a month. For
(01:37):
a look at market action, now, I'm joined by Brian Krowez.
He is president also the chair of the investment committee
at Sharf Investments. Brian is on the line from Los Gatos, California. Brian,
thank you so much for making time to chat with me.
You want to weigh in on this TikTok deal. You
and I were talking offline a moment ago about you
being invested in Oracle. What does this mean for Oracle?
Speaker 4 (02:00):
Yeah, I mean thanks for having me. Always enjoy being
on the store. It's good news for Oracle. I mean
that's extra extra business for them. And the TikTok price
seems actually pretty attractive. Would you consider how big of
a social media platform it is, so overall it should
be a good, good deal for Oracle shareholders and hopefully
(02:22):
a good deal for the American public if we can
ensure that Americans data is not somehow transferred over to China,
so overall should be a decent deal for investors and
hopefully for the country.
Speaker 2 (02:36):
The tech story has been a big part of the
market's performance this year last as well. I guess artificial
intelligence has been one of the predominant themes. We were
down today for a third straight session, and there is
a lot of concern about lofty valuations. No matter how
you slice it, how are you feeling about the AI trade,
perhaps tech more broadly, You.
Speaker 5 (02:59):
Know, we're a little cautious.
Speaker 4 (03:01):
You know, it's it's an interesting market. I've been managing
money a long time, and I'm starting to get a
little bit of shades of ninety nine. You've got open
ai with something like a trillion dollars in commitments to
do data centers. They've raised about sixty three billion, and
I think last check they have something like thirteen billion
in revenue. So you're talking about, you know, a massive
(03:21):
investment for what is still a relatively small revenue base.
And so you're starting to see deals where in Vidia,
you know, invests in open Ai and then open EI
buys some video chips, a little bit of shades of
the financing back when Cisco, Nortel, and Lucent.
Speaker 5 (03:39):
We're doing the same kind of thing.
Speaker 4 (03:41):
I'm not saying it's exactly the same level of bubble,
because you know, clearly in Vidia has you know, much
better profitability than some of the internet.
Speaker 5 (03:50):
Firms back then.
Speaker 4 (03:51):
But you're starting to get a little bit of shades
of it, and it is a little bit concerning.
Speaker 2 (03:57):
I'm wondering whether you were surprised at all. Want to
change gears here and talk a little bit about the
macro surprised by this very strong rating that we had
on second quarter GDP, the final revision with a growth
rate of three point eight percent. That seems stunning when
we've talked about weakness in the labor market and expectations
(04:17):
that the FED is going to lean in here and
be a little more accommodative. That was called into question today.
How do you feel about that?
Speaker 5 (04:24):
It's definitely a conundrum.
Speaker 4 (04:26):
I mean, you've seen a three point eight percent GDP revision,
as you just mentioned, up from three point two, so
you know, three point eight is a pretty good you know,
you called it stunning. I mean, it's definitely very good,
healthy growth. On top of that, you've had some other
data where you know, continuing claims wasn't as bad as expected.
(04:46):
So you've had a little bit of different crosswinds. And
you haven't seen the inflation really starting to pick up
yet from tariffs, but you know, we think that's probably coming.
And then the other thing i'd say about the strong
GDP is a big help to GDP is all of
this investment that's happening, and a lot of it's related
(05:07):
to AI, as we.
Speaker 5 (05:08):
Just talked about.
Speaker 4 (05:09):
So there's been massive commitments in AI, and so there's
a lot of investment that goes into the GDP equation
and that's definitely playing a part. The other thing is
there's just general optimism around some of the changes that
President Trump has done, and so you're getting even investment
in just general manufacturing. You've gotten just sort of the
hammer coming down where they're saying you need to build
(05:31):
more in America. So you're seeing a lot of GP
being very much helped by investment. The question is is
that investment going to be worth it?
Speaker 5 (05:40):
Is it gonna be malinvestment?
Speaker 4 (05:41):
Are we going to build tons of data centers and
not really have revenue from that. That's the open question,
And some of the other reads is that parts of
the GDP are actually not as strong, and so it's
a little bit too early to tell, but certainly it's
an odd environment for people to be called for the
FED to make massive rate cuts at the same time
(06:03):
you're having GDP revised up.
Speaker 2 (06:05):
So you made the point about the possibility that tariffs
will be inflationary, maybe that is down the road a bit.
Do we need to talk about the potential inflationary impact
of energy? As these AI data centers begin to demand
a lot more in the way of electricity and providers,
utilities or private companies just race to be able to
(06:26):
produce the amount of electricity that's required. Is there the
risk here that prices begin to creep up and that
that begins to spill over into inflation in a way
that becomes damaging.
Speaker 4 (06:40):
Yeah, no, that's an astutent observation. I mean, you've probably
seen the charts. Energy prices are zooming higher at a
rate we haven't seen in decades, and that definitely is
going to transfer through in terms of inflation. Although energy
is a percentage of GDP is a relatively small component now.
I mean, it's not like in the seventies, and so
it's probably less of an impact that would have in
(07:01):
the past.
Speaker 5 (07:01):
I'll also point out that healthcare.
Speaker 4 (07:04):
You know, we don't know what's gonna happen with the
ACA tax credit, and you know, you've got wrangling in Congress,
and you know in Washington about a potential work stoppage.
But one of the issues that I think isn't getting
talked about enough is ACA marketplace, which is sort of
Obamacare health insurance. You're talking about twenty percent type premium
(07:28):
increases in a lot of those markets, and overall, health
care inflation should be a lot higher than people are
talking about, even in the private sector, So that will
definitely transfer through the economy, as healthcare is a pretty
big component of people's expenditures.
Speaker 2 (07:43):
So we're approaching the end of both the month and
the quarter. For the month, I think so far the
S and P is still up around one point nine percent,
and for the quarter so far, I think the S
and P is up around six percent. I'm curious about
the extent to which you're rebalancing right now as we
close out the quarter, and and any pivot that you're making.
(08:05):
What does that look like right now?
Speaker 4 (08:08):
You know, we're you know, so we talked a little
bit about being worried about AI. And also I would
say evaluations are very very high right now. But what's interesting,
and this was sort of similar to you know, back
twenty five years ago, when you had an opportunity to
buy sort of value names at just historically low valuations,
(08:29):
and yet the overall market was extremely high. If you
bought those low valuation stocks, you actually did very well
over the next decade. Similarly, right now, there are some
very high quality companies that are trading at valuations you've
never seen before. I mean, just to throw out a
couple of them. You know, Zoetis is a company that's
really big and animal health. It is trading at evaluation
(08:51):
relatively s and P it's never it's never seen before
and actually, you know, fairly reasonable valuation of a company
that's is high quality and dominant in its market space
and probably will benefit from AI because ultimately they come
up with drugs for animals, and AI will undoubtedly make
it easier and cheaper to come up with new drugs,
(09:12):
and because they are dominant in their sector, they'll probably
be able to hold on to some of the pricing,
so it'll be good for people's pets and it'll be
good for the company.
Speaker 3 (09:19):
You know.
Speaker 4 (09:20):
Another one would be a name like UNP, which is potentially.
Speaker 5 (09:23):
Going to do a merger. You know, rails have dominant
market space.
Speaker 4 (09:29):
It's only around eighteen times, you know, in a market
that's twenty two times. And yet if they are able
to pull off that deal, they'll be you know, one
of only a few companies that can compete. And they
also similarly can benefit from AI as they can reduce labor.
So there's a lot of these companies out there that
will probably benefit from AI, be able to get their
(09:49):
margins up potentially enhance revenue. The market is sort of
ignoring them for the most part, as people are piling
into names that are really AI beneficiaries or direct I
should say, directly involved in the AI ecosystem, such as
Nvidia and all the semis and names like that.
Speaker 2 (10:07):
I'm curious as to whether or not you're looking for
opportunities in certain areas of technology offshore, whether in Asia
or perhaps Europe. Is that something that you're leaning into
a little bit at the moment.
Speaker 4 (10:18):
Yeah, we own Samsung, which is a name that I think,
you know, has that we could do a whole segment
just on SAG Samsung and they're missing. They actually created HBM,
which is the memory that's very important in AI, and
then they didn't know what to do with it, so
they got passed up by s K Hynks. But they
are one of the largest world's largest tech companies by revenue,
(10:40):
very important to the ecosystem.
Speaker 5 (10:42):
And you know, have had some missteps.
Speaker 4 (10:45):
But recently, you know, we're approved for HBM three for Nvidia,
and there's talk of them being approved for HM four
and that could be a very big help.
Speaker 5 (10:57):
To their revenues.
Speaker 4 (10:59):
And ultimately they're ting, you know, something like twenty five
percent over book value and you know kind of teams
multiple so you've got to if they were a US company,
they probably have a much higher valuation. Because they trade
in Korea, they're somewhat forgotten.
Speaker 2 (11:14):
Brian will leave it there, Thank you so very much.
Brian Crowez is president. He's also the chair of the
investment committee at Scharf Investments. Joining us on the line
from Los Gatos, California here on the Daybreak Asia Podcast.
Welcome back to the Daybreak Asia Podcast. I'm Derek Prisoner.
(11:37):
President Trump formalized an agreement today for a group of
American investors to take control of the US operations of TikTok.
The President said the deal will protect the data of
US users and Oracle will secure the algorithm on the
American version of this platform. Vice President JD. Vans played
a central role in crafting this deal, and today he
(11:58):
said the new company will be valued at around fourteen
billion dollars. Here is Bloomberg's Annabelle Jewelers.
Speaker 6 (12:05):
In the executive order, it essentially acknowledged or stated that
there is a plan in place that meets the conditions
for TikTok to continue operating in the US.
Speaker 7 (12:14):
So it says that there's a framework.
Speaker 6 (12:16):
Agreement in place where where the app is going to
be essentially operated in a joint venture structure that will
be majority owned and controlled by Americans. So you can
see here President Trump signing that executive order just earlier
today ByteDance as well. It's contained in the order it
says it's going to take less than a twenty percent stake,
and also that there's going to be a new board
of directors that will be established to run TikTok's US operations.
(12:39):
Just who the eventual buyers are that part is still
not exactly clear, but what we heard from sources is
Oracle and silver Ake. They continue to be the names
that are coming up. MGX is actually another one that's
come up. This one's new, but it's an interesting one
because it's an Abu Dhabi based sovereigns or state owned
investment firm rather that does have a big focus on
AI and advanced tech knowledgies. The framework of the deal
(13:02):
does seem to at least meet what would have been
one of the key conditions for China, which is that
the technology, the actual algorithm will stay in Chinese hands,
just a copy of it is going to be licensed
to the operations in the US. But China, as you said,
is yet to say publicly whether it's actually granted approval
for this, even though you heard from President Trump, they're
saying that the President she had given the go ahead.
Speaker 7 (13:25):
When they spoke last week.
Speaker 6 (13:26):
The Chinese embassy as well didn't respond to our request
for comment. But we are coming up against another deadline
to this one, so the deal does need to close
within one hundred and twenty days. That takes us until
the end of January. We've already seen a number of
deadlines for this or deadlines being extended, in fact five extensions.
Speaker 7 (13:45):
But it is something that will have to get past China.
Speaker 6 (13:47):
It's also saying that it's going to have to get
past US lawmakers who are still promising to very closely
scrutinize the contents of that deal as well.
Speaker 2 (13:55):
That is Bloomberg's Annabelle Droolers. At the same time, today,
President Trump and anounced a one hundred percent tariff on
any branded or patented pharmaceutical product unless a company is
building their pharmaceutical manufacturing plant in the United States. Trump
also announced a fifty percent tariff on kitchen cabinets, thirty
percent levies on upholstered furniture, and twenty five percent tariffs
(14:19):
on heavy trucks. These new tariffs, by the way, will
take effect October first. For some insight, we spoke with
Deborah Elms of the Heinrich Foundation. She is head of
policy there, and she spoke with Bloomberg TV host Sherry
On and April Hong on the Asia trade.
Speaker 3 (14:34):
Well, first, Trump is never going to be done with tariffs,
So anyone who thinks that this is the end, or
at any point that that would be the end of
his tariff game is delusional. The man loves tariffs. He'll
continue to use them. So that's the first point. The
second is that these negotiations have been largely about what
were called the reciprocal tariffs, that is, those tariffs imposed
under emergency powers originally on April second, had been revised
(14:58):
since then. That's where the focus has been, and what
the Trump administration has been doing is moving more and
more tariff coverage to these sector specific tariffs on increasingly
now everything as you can see, including now the kitchen,
cabinet and the couch in the living room. I mean,
this is an incredible, breathtaking expansion of tariff coverage that
(15:20):
will affect everyone, including those countries that thought that they
had a deal in place under those reciprocal tariffs that
are not covered by these sector specific new applications.
Speaker 1 (15:34):
Picking and choosing which sectors the president protects among the
American industries, how big of a problem is this when
you have different levees contending with different ones still and
aluminum in place, and now trying to perhaps help those
carmakers that are dealing with higher prices when it comes
(15:55):
to metals.
Speaker 3 (15:57):
Yeah, the complexity is honestly driving companies, supply chain managers,
customs brokers right on off the edge because every day
is a new set of tariffs. We've had twenty eight
revisions to US tariff codes since the beginning of this year,
twenty eight separate revisions, plus all of these sector specific tariffs,
(16:17):
and the order and the stacking of tariffs want sometimes stacked,
sometimes doesn't. This product might that product might not. I mean,
is it is mind bogglingly complicated to trade with the
United States?
Speaker 8 (16:29):
Now, that is a good number to keep in mind,
the number of revisions that have already been pushed through
from the US President, Debra. But when it comes to
perhaps how this is being received by the base, how
much cognizance is there between the vetoric and the tariff
(16:52):
policy that actual impact on these industries that Trump is
saying he's supporting.
Speaker 3 (16:59):
I think that's it's unclear right now. I suspect you're
going to get a lot of very disgruntled Americans, regardless
of their political base, when they try to go replace
a worn out kitchen cabinet, when they try to replace
the sofa that's sagging when they go out and they
look for purchases, especially of their pharmaceutical products. One hundred
percent tariff on imported products for pharma is going to
(17:21):
hit an awful lot of people literally in their bodies.
So I think there will be deep unhappiness by consumers
in particular in the United States, whether or not they
work for these particular companies. So we'll have to see
how this plays out. Clearly, he thinks it's an important
way to drive manufacturing back to the United States. I
think consumers who are sometimes in manufacturing, but most Americans
(17:44):
are not in manufacturing, So most consumers who are not
in manufacturing will say, why am I having to pay
this enormous price for a few jobs for somebody else.
Speaker 8 (17:57):
The countries that we are watching in terms of how
their industries might be particularly affected include India because of
its pharmaceutical trade with the US, and then the auto
industry in Japan and South Korea. All this happening as
these trade negotiations are still ongoing. What is the best
course of action for them at this stage?
Speaker 3 (18:20):
Well, the counterparties are in real trouble here because you know,
on the one hand, there are instinct I'm sure is
to just say forget it, just like we're done. You
let us know what the number is and we'll deal
with it then. But obviously that has incredible complications for
their domestic economy. So they're going to have to have
a negotiation with the United States. But the complexity is bewildering.
(18:41):
The changes are complicated. A lot of those reciprocal tariff
deals again are based on this IEPA statute, which is
going to be reviewed by the Supreme Court starting November fifth.
That might change altogether. So again for governments, they have
to engage, they have to negotiate, but it's unclear for
them what are we negotiat. And if I get a
(19:01):
fantastic deal on autos in this case and then heavy
trucks come into effect, does that cover heavy trucks as well?
For me? Probably not. But does that mean that I
need to make a new negotiation to deal with heavy trucks.
I think this is completely uncertain, and you can imagine
that trade partners are waking up every morning, you know,
very nervously reaching for their phone to see what is
(19:23):
the new information that has come in overnight from the
United States.
Speaker 7 (19:28):
What about the messic businesses.
Speaker 1 (19:29):
Are we going to see more legal challenges against the
President Trump's new tariffs.
Speaker 3 (19:36):
I think it's possible. I think the real challenge though,
for these newest tariffs, these sector specific Section two three
two tariffs, is that they're offecially done for national security purposes.
So now, how exactly your sofa in your living room
is a national security threat is unclear, But nonetheless that's
the justification that is very hard to overturn because the
(19:59):
court gives very widely way for national security. Congress, which
has done nothing anyways, is going to say that's not
our prerogative, that is the President's prerogative. So I think
these national security tariffs will be very hard to argue about.
Speaker 8 (20:15):
Debra talk to us about how there has been already
that bypassing of trade right, given how economies such as
China potentially you know, they're seeing that they can export
to the US anymore. We talk about the China Shop
two point oh three point zero. Their are dual risk
(20:38):
at place here, including for Southeast Asian economies. What have
you been seeing in the realignment in the past couple of.
Speaker 3 (20:45):
Months on the corporate level, it's starting to accelerate, So
companies at the beginning of a lot of this sort
of froze in place and said, well, let me just
see how this evolves. Will push as much inventory into
the US as we can, and then we'll wait and see.
At this point, it seems quite clear to companies that
you're going to be dealing with a high tariff environment
(21:06):
and an uncertain environment for a very long time. So
firms are increasingly looking to pivot. Now. That doesn't mean
that they're pivoting overnight. Some are many of them don't
have that option, but they're certainly exploring whatever possibilities they have.
Now we will see, and we are seeing in the
supply chain space increasing rerouting of trade and that will,
(21:27):
I think continue and it will accelerate. On the government level,
it has been more challenging than perhaps people would anticipate
to create coalitions to deal with trade and other venues,
in other words, to like how can we create new
trade opportunities for our businesses outside the United States. But
I think that is also accelerating. I mean, this is
the week in which Acion is having its Economic ministers meeting,
(21:49):
and there was a lot of discussion in Asion about
how do we beef up our internal Accion Trade. How
do we do so with our partners in Asia who
are all part of the Regional Capprehensive Economic Partnership. How
do we accelerate progress on this four year old agreement
that I think is going to continue as well?
Speaker 8 (22:10):
And this could also figure into the conversations that are
coming up at the APEX event next month and the
ASCION summit as well. Deborah agreed to get your insights.
Thank you so much for coming on our show on
what I'm sure as a very busy morning for you.
Heinrich Foundation Head of Trade Policy, Debra Elms.
Speaker 2 (22:30):
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. 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
(22:52):
and Australia. I'm Doug Chrisner, and this is Bloomberg
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