July 22, 2025 • 19 mins
The record-breaking run in global stocks got fresh fuel to power the rally after the US reached a trade deal with Japan, an agreement with a key trading partner that eases concerns about the tariff war. MSCI's benchmark gauges for global equities and Asian shares both rose Wednesday. Contracts for the S&P 500 edged up on the tariff news after closing at its highest level Tuesday. Stocks in Japan jumped more than 2% with Toyota Motor Corp. and other automakers leading the gains. We break down the day's developments with David Aspell, Partner and Co-Chief Investment Officer at Mount Lucas Management.
Plus - investors are also focused on megacap companies this week. Big Tech's strength will be on full display over the next few weeks as the group begins unveiling quarterly earnings. Tesla Inc. and Alphabet Inc. are reporting Wednesday. The so-called Magnificent Seven companies are expected to post a combined 14% rise in second-quarter profits, while earnings for the rest of the US equity benchmark are predicted to be relatively flat, according to Bloomberg Intelligence data. We discuss the role AI will play in those reports with Stephanie Leung, Chief Investment Officer at StashAway.
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Episode Transcript
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Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, radio News. Welcome to the Bloomberg
Daybreak Asia Podcast. I'm Doug Krisner. So Wall Street is
gearing up for earnings from some megacap companies. Tomorrow. After
the bell, we'll have results from Alphabet and Tesla, and
in a moment we'll get the tech story from the
(00:24):
Asian perspective. I'll be joined by Stephanie Lyung. She is
the chief investment officer at Stashaway. But we begin this
morning with breaking news on trade, President Trump saying the
US has completed a deal with Japan. In a post
on truth social Trump said that taro freight would be
set at fifteen percent. Here is Trump.
Speaker 2 (00:44):
We worked on it long and hard, and it's a
great deal for everybody. I always say it has to
be great for everybody. It's a great deal. A lot
different from the deals in the past. I can tell
you that.
Speaker 1 (00:54):
Trump also said Japan will be opening its markets to
US products, including cars and trucks, rice, and certain other
US agricultural products. And at the same time, Japan will
be investing five hundred and fifty billion dollars into the
United States. Earlier, Trump announced a new trade deal with
the Philippines a tariff right in that case of nineteen percent,
(01:15):
and earlier Trump touted a major deal with Indonesia estimating
fifty billion dollars in added US market access. Joining me
now is David Aspell, partner and co CIO at Mount
Lucas Management. David joining from just north of Philadelphia. Thank
you so much for making time to chat with me. David,
to what extent now do you believe the market will
(01:37):
be confident that we're closing in on the end of
this trade war?
Speaker 3 (01:43):
Yeah, I think it is starting to express confidence. You're
starting to see some trade deals come through. I think
you're starting to see some more clarity around what the
world post Liberation Day is going to look like. It
looked as if Liberation Day was, you know, maybe some
of the tariff rates in the way it calculated, it
seemed very high and a little difficult to accomplish their goals.
(02:05):
And that seems like they walked that back. And now
that we're on a more sound of footing, I think
and it's easier to see what we're going to look like,
a blended tariff rate for the country ten to twenty
percent low allies, higher for folks that we're not so
friendly with, and we're still trying to change people's approach
to trade to make it more balanced and fair and
(02:25):
open things up to US goods and services. I think
Secretary Best has been real clear that that's what they
want to do. They did that when they were talking
with China about China as well, that what they want
is China to spend more and to become more open
to the US. And if they can do that, I
think it's a game changing win for the administration.
Speaker 1 (02:43):
We had some new data today showing that American businesses
and consumers are paying for these tariffs. If you look
at import prices excluding fuel, those prices were up notably
in June, and George Saravellos from Deutsche Bank was saying
today the top down macro evidence seems clear Americans are
mostly paying for these tariffs, and a pair of economists
(03:05):
over at Wells Fargo saying today that domestic firms are
stomaching the cost of these higher tariffs and starting to
pass them on to consumers. So if we can accept
the reality that these costs are ultimately going to be
borne by American businesses and consumers, talk to me about
your expectations for the drag that that could potentially have
(03:29):
on USGDP.
Speaker 3 (03:31):
Yeah, it could be a drag. It's hard to say.
I think currently who's paying for it and how much?
I mean, I think there's a blend of things going on,
and it depends on the type of product, It depends
on the mix, and depends how much it's going to
be offset by, you know, by margins and the like.
It's a little hard to think. It looks currently as
if thirty to fifty percent of it or so is
(03:51):
being passed on, But again it's a little hard. You know,
we're still quite in the early days of this, so
I'm not quite sure I know how it's going to
play out. It does look like US companies and are
going to be paying for certainly some of it, and
they're going to pass that on, and is that going
to be a drag? I think it works out as
something of a tax rise, But then there's other taxes
(04:12):
through the fiscal package that look as if they're offsetting
some of that. So it's a little hard to know
how it shakes out.
Speaker 2 (04:18):
I think.
Speaker 1 (04:19):
So we're in the midst of earning season here in
the US Bloomberg Intelligence was saying today that if you
look at the MAG seven companies, they're expected to post
a combined gain in second quarter profits of around fourteen percent,
But if you look at earnings for the remainder of
the S and P, they're predicted to be essentially flat.
How are you viewing the overall equity market right now?
Speaker 3 (04:42):
I VI the equity market. I think it's clear to
you say, what you're doing is splitting out the MAG
seven stocks so that they're they're in a class of
their own. They're fairly expensive, but they are fabulous businesses,
they really are. That they're bringing in money from all
over the world. They're largely dominant in their respective space.
And clearly the AI trade, the hyperscale and nature of
(05:02):
it is what's driving that.
Speaker 2 (05:05):
Now.
Speaker 3 (05:06):
I think what you're going to see is that this
last year or so, the AI boom has a crued
to those companies, the people that are building it out
and buying the chips and spending lots and lots of
money to try and bring AI, you know, into the
real economy. And I think over the next couple of
years you're going to see the rest of the S
(05:27):
and P start to become users of that AI technology
and that productivity boost, and you're going to start to
see in a lumpy fashion, I think, where it will
be different for different companies as they start to adopt it.
But I think you're going to see some real use
cases of companies that are making use of that AI
and seeing strange, unpredictable earnings jumps as they're using it
(05:50):
better in margins go up. And I think that that's
how I'm viewing it that the last year or so
you've seen the hyperscalers and the Max seven do real
well on the AI trade, and the next couple of
years going to see that those gains be actually used
in companies and you'll start to see that benefit broadened
out to other companies.
Speaker 1 (06:08):
At the risk of using a cliche to what extent
is the market right now price to perfection and by extension,
if we get the slightest disappointment from a name like
Alphabet tomorrow, could that create huge negative consequence?
Speaker 2 (06:24):
Yeah?
Speaker 3 (06:24):
I think so. I mean, it depends on the scale
of it. I think one of the things that's wonderful
about about AI is it really does live in the future, though,
which means you can continue to kind of believe in
the story. So I think what you'd most likely see
in that situation, I guess it could come in two ways.
It could either be that the CAPEX build out is
incredibly expensive and that shocks people and that could cause
(06:48):
a disappointment. Or you could see for individual companies, particularly
like someone like Google, where they're on the receiving end
of challenges because of AI. I think in the former case,
where you saw that the that the build out was expensive,
it'd be easier to look through it because you could
see that although it's expensive, they're doing it for a reason,
and that companies will get a benefit from this. They're
(07:10):
not wasting money. I think if you saw it the
other way around, for Google in particular, that they were
really starting to lose ground because of the core search
engine business, and that things like chat, GPT and some
of the other AI businesses were really encroaching in Google
in particular space, I think that would cause problems for
Google certainly.
Speaker 1 (07:29):
So we have a FED meeting at the end of
the month. We know there's been a lot of controversy
around the fact that the FED has been unwilling at
least at this point, to cut infrastrates again. Right now,
the market's convinced that September is the next meeting where
that twenty five basis point cut is likely. How are
you viewing FED policy right now? And if you could
(07:49):
put that kind of in the context of a lot
of the tension that seems to exist between let's say
the White House and the Fed.
Speaker 3 (07:58):
Yeah, there's a lot of political pressure put on Powell
and the rest of the FOMC for lower rates. Powell
is clearly bearing a brunt of it. Obviously Trump did
appoint them because it's a slightly strange I think there's
a good case. I don't think Trump's completely wrong here
that the FED should cut rates. I don't think they're
particularly slow in doing so. But I think at this
(08:20):
point it's fairly clear. I think that things are slowing
somewhat and that the inflationary dynamics that you saw a
couple of years ago aren't really there. You can really
see that in house prices and some of the very
interest rates that sensitive sector of the economy look as
if they're slowing. So I'm not particularly worried about inflation
picking up again. And I think that when you've got
a FED rate that is what four p thirty three
(08:41):
or four point three currently that is notably above where
I think inflation ends up, particularly be adjust for the
housing issue. I think Trump is likely right. I mean,
I don't think we need to be cutting rates by
two hundred basis points. That I think is a bit
extreme there. But should the FED be cutting in July
and septem berming, Yes, I think so. I mean, you
(09:02):
could get rates down fifty to seventy five basis points,
and I think that would be I don't think that
would be unreasonable all. I don't think it's right that
they're putting quite so much pressure on them. I don't
think that's particularly helpful. And if you do end up
with a powel that was fired, I don't quite know
how that would play out. I imagine you'd see a
steeper curve because you'd a price that rates would get
(09:23):
cut more drastically, and then you might price that you'd
lose somewhat lose some control of the back end of
the curve. But you know, it's a staggered a committee
with staggered appointments. So I think there's plenty of other
people on the FED that will continue with the monetary
policy in the manner of which they've been doing it
so far.
Speaker 1 (09:43):
David will leave it there, always a pleasure. Thank you
so very much. David Espell, partner co CIO at Mount
Lucas Management, joining from just outside Philadelphia here on the
Daybreak as your podcast. Welcome back to the Daybreak Asia podcast.
(10:06):
I'm Doug Chrisner. Markets are now looking ahead to megacap tech.
Earnings from both Alphabet and Tesla companies are set to
report in under twenty four hours. Let's take a closer
look now. I'm joined by Stephanie Leung. She is the
chief investment officer at Stashaway. Stephanie joins us from our
studios in Hong Kong. Thank you so much for making
(10:26):
time to chat with me. I'm going to play to
one of your strengths, technology and particularly artificial intelligence. On
Wednesday here in the States. After the bell, we're going
to hear from Alphabet, and I think the market's going
to be very curious not only on spending when it
comes to AI, but what some analysts have expressed concern
over in the past, which is how AI may be
(10:49):
impacting the company's core search business. How do you understand
the risk of some of these AI back chatbots posing
some sort of risk to a business, even for bay
Do in China, which has around seventy percent of the
search market. Is AI a way for this to be reimagined,
do you think, and maybe does it represent a near
(11:10):
term risk?
Speaker 4 (11:11):
Yeah? I think, I mean you bring a very very
good point, right in the sense that, of course, if
you think about the Internet era, search was a very
very profitable business and Google by do pretty much have
like a dominance or monopoly in these businesses. However, if
we enter the AI era, if you think about kind
of just what people go to search engines to do,
(11:33):
they're basically asking questions, and you can ask these questions
much more directly and get much better answers by going
to the LM chat bots to ask the same questions,
and they will give you a much more comprehensive answer
rather than just the templu links that that Google would provide.
And I think that actually creates a sort of a
(11:54):
dilemma for companies like Google in the sense that I
mean they know that that's the direction that things are going. However,
of course they have existing sort of earnings to try
to protect, so they need to. I mean, they are
trying to actually strike a balance between like kind of
not cannibalizing the existing business, but meanwhile making efforts to
make sure that they don't get this kind of extinct
(12:16):
in the in the new AI era. So, for example AI,
if you go to Google Search right now, you see
that they will provide a AI generated search summary. Uh,
and that's sort of some of the efforts to help
the company that migrates. Of course, I think if you
look at the share price and also valuation, I mean
that concern seems to me to be quite well understood
(12:39):
by the market in the sense that if you kind
of kind of compare Google's valuation versus others in the
Max seven, I mean, they are the lowest, and they're
also trading at the lowest kind of price earnings valuation
compared to its own history. So I think if you
just kind of look at Google's kind of whole business,
of course, search is a very very important part.
Speaker 5 (12:59):
However, there are other businesses.
Speaker 4 (13:01):
For example, Weimo is making some very good progress in
terms of autonomous driving.
Speaker 5 (13:06):
That's also AI driven.
Speaker 2 (13:08):
Uh.
Speaker 5 (13:08):
If you look at kind of YouTube, it's also doing well.
That's uh.
Speaker 4 (13:13):
There's also kind of AI enabled kind of algorithms that
help them to sort of promote relevant videos and velephant contents.
So I do think that there are actually, of course,
there are other levers that googleg and pull, and one
of which is of course, like if you and I
kind of look at war is the most popular mail
(13:34):
protocol and mail program out there. I mean there's still
a Gmail, right, So I think there are optionalities. It's
about just kind of in the intim period, how to
balance kind of the the search business with it.
Speaker 1 (13:46):
So if you're looking at opportunities in AI in China,
are you more focused on the software side or are
you looking at the hardware story and maybe semiconductors, how
do you play it?
Speaker 5 (13:57):
I think.
Speaker 4 (13:58):
If you look at the semiconduct to our hardware side,
it's very very focused in a few kind of companies
that have the technology. So by that I mean, for example,
n video, Nvidia has the chips that are kind of
ways ahead. And if you look at all the recent
kind of announcements from big big tech companies like for example,
Matters big announcement of their data centers, I mean they
(14:20):
are still predominantly using UH in video technology. UH if
you look at kind of in China. Of course, recently, uh,
President Trump lifted the restriction to export H twenty chips
to China, and I mean Nvidia is receiving a lot
of orders and I mean the citing supply shortages.
Speaker 5 (14:40):
So still Nvidia is the kind of the.
Speaker 4 (14:42):
Dominant player in the infrastructure layer. Of course, like companies
like Huawei are catching up, but I think they are
still kind of somewhat behind on the application side. I
think that's where it gets more interesting, right, because it's
not it's not that kind of u dominated by one
or two players. I think in the application side, you
(15:03):
can see a lot of very creative uses of the
underlying technology in terms of driving usage, driving revenue, or
cutting costs. And here I think you can see that
in the US there are different companies in different verticals
kind of I guess making big strides. And also in China, right,
(15:23):
if you look at kind of the software companies, I
think they are one of the first to benefit from
these AI coding agents, for example, and these actually benefit
a lot more companies than just the infrastructure.
Speaker 1 (15:34):
Later, you touched on autonomous driving in China a moment ago,
and I'm curious how is that progressing? Are there developments
that look promising at this point where you want to
be invested in those companies?
Speaker 4 (15:48):
I think in China is developing very very quickly, but
still if you look at kind of the where their
technology is in the forefront is still in the US
right Tesla is leading the effort in developing some of
the more advanced AI driven kind of I guess automis
driving technologies. As I mentioned, Weimo is also making some
(16:10):
very vaguer good progresses. So these are companies that are
at the forefront. I think in China is where the
application of these technologies may actually surprise on the upside
in the sense that I think if you look at
kind of how China can deploy these technologies, it tends
to be a lot more efficient. So I think that's
(16:31):
sort of at the again, it's at the application layer
where some of these companies can benefit.
Speaker 1 (16:36):
We know the trade negotiators from the European Union and
the US will be meeting again this week for more
trade talks. So whether we're talking about the European Union
or China, we do have this August deadline in front
of us. But I'm curious, are you optimistic that we're
going to be able to kind of turn the page
on this tariff story soon.
Speaker 4 (16:55):
So I think if you look at Trump's policy, it's
been kind of kicking the can down the road. And
if you listen to the latest Bestent interview, what he
mentioned was actually quite telling, right he said, it's about
the quality of the outcome, not the timing of the outcome.
So I think again, the next kind of deadline that's
(17:16):
coming up and is first of August, which is kind
of a few days from from today, but I do
suspect that they will try to kick the can down
the road again, which I think it's it's sort of
expected or digested by the market. And if you look
at kind of the current level of actual tariffs that
(17:37):
are being imposed, they are sort of in ten to
twenty percent range. And I think if you look at
the where it like the level of the level of
tariff really hit US economy, if it goes up to
about thirty percent, then that's when things get much challenged,
much more challenging. So I mean, we'll have to see
what the outcome is, But I mean I think if
(17:59):
you look at kind of the summer months August September
tends to be.
Speaker 5 (18:02):
Like the worst months in terms of seasonality.
Speaker 4 (18:05):
I mean, liquidity is quite thin, and I mean we've
had a market that has rally like twenty something thirty
percent from as bottom. So I wouldn't be surprised if
in the summer we see some headlines coming out from
these trade talks that could rattle markets and create I
mean five to ten percent correction. However, the fundamentals are
still quite solid, so I think those are kind of
(18:26):
good opportunity for people to still I mean, add to
the risk.
Speaker 1 (18:29):
Stephanie will leave it there. It's always a pleasure. Thank
you so very much, Stephanie Jung. She is the chief
investment officer at Stashaway. Joining from our Hong Kong studios
here on the Daybreak Asia Podcast. Thanks for listening to
today's episode of the Bloomberg Daybreak Asia Edition podcast. Each weekday,
we look at the story shaping markets, finance, and geopolitics
(18:52):
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 and Australia. I'm Doug prisoner
and this is Bloomberg
Bloomberg Audio Studios, Podcasts, radio News. Welcome to the Bloomberg
Daybreak Asia Podcast. I'm Doug Krisner. So Wall Street is
gearing up for earnings from some megacap companies. Tomorrow. After
the bell, we'll have results from Alphabet and Tesla, and
in a moment we'll get the tech story from the
(00:24):
Asian perspective. I'll be joined by Stephanie Lyung. She is
the chief investment officer at Stashaway. But we begin this
morning with breaking news on trade, President Trump saying the
US has completed a deal with Japan. In a post
on truth social Trump said that taro freight would be
set at fifteen percent. Here is Trump.
Speaker 2 (00:44):
We worked on it long and hard, and it's a
great deal for everybody. I always say it has to
be great for everybody. It's a great deal. A lot
different from the deals in the past. I can tell
you that.
Speaker 1 (00:54):
Trump also said Japan will be opening its markets to
US products, including cars and trucks, rice, and certain other
US agricultural products. And at the same time, Japan will
be investing five hundred and fifty billion dollars into the
United States. Earlier, Trump announced a new trade deal with
the Philippines a tariff right in that case of nineteen percent,
(01:15):
and earlier Trump touted a major deal with Indonesia estimating
fifty billion dollars in added US market access. Joining me
now is David Aspell, partner and co CIO at Mount
Lucas Management. David joining from just north of Philadelphia. Thank
you so much for making time to chat with me. David,
to what extent now do you believe the market will
(01:37):
be confident that we're closing in on the end of
this trade war?
Speaker 3 (01:43):
Yeah, I think it is starting to express confidence. You're
starting to see some trade deals come through. I think
you're starting to see some more clarity around what the
world post Liberation Day is going to look like. It
looked as if Liberation Day was, you know, maybe some
of the tariff rates in the way it calculated, it
seemed very high and a little difficult to accomplish their goals.
(02:05):
And that seems like they walked that back. And now
that we're on a more sound of footing, I think
and it's easier to see what we're going to look like,
a blended tariff rate for the country ten to twenty
percent low allies, higher for folks that we're not so
friendly with, and we're still trying to change people's approach
to trade to make it more balanced and fair and
(02:25):
open things up to US goods and services. I think
Secretary Best has been real clear that that's what they
want to do. They did that when they were talking
with China about China as well, that what they want
is China to spend more and to become more open
to the US. And if they can do that, I
think it's a game changing win for the administration.
Speaker 1 (02:43):
We had some new data today showing that American businesses
and consumers are paying for these tariffs. If you look
at import prices excluding fuel, those prices were up notably
in June, and George Saravellos from Deutsche Bank was saying
today the top down macro evidence seems clear Americans are
mostly paying for these tariffs, and a pair of economists
(03:05):
over at Wells Fargo saying today that domestic firms are
stomaching the cost of these higher tariffs and starting to
pass them on to consumers. So if we can accept
the reality that these costs are ultimately going to be
borne by American businesses and consumers, talk to me about
your expectations for the drag that that could potentially have
(03:29):
on USGDP.
Speaker 3 (03:31):
Yeah, it could be a drag. It's hard to say.
I think currently who's paying for it and how much?
I mean, I think there's a blend of things going on,
and it depends on the type of product, It depends
on the mix, and depends how much it's going to
be offset by, you know, by margins and the like.
It's a little hard to think. It looks currently as
if thirty to fifty percent of it or so is
(03:51):
being passed on, But again it's a little hard. You know,
we're still quite in the early days of this, so
I'm not quite sure I know how it's going to
play out. It does look like US companies and are
going to be paying for certainly some of it, and
they're going to pass that on, and is that going
to be a drag? I think it works out as
something of a tax rise, But then there's other taxes
(04:12):
through the fiscal package that look as if they're offsetting
some of that. So it's a little hard to know
how it shakes out.
Speaker 2 (04:18):
I think.
Speaker 1 (04:19):
So we're in the midst of earning season here in
the US Bloomberg Intelligence was saying today that if you
look at the MAG seven companies, they're expected to post
a combined gain in second quarter profits of around fourteen percent,
But if you look at earnings for the remainder of
the S and P, they're predicted to be essentially flat.
How are you viewing the overall equity market right now?
Speaker 3 (04:42):
I VI the equity market. I think it's clear to
you say, what you're doing is splitting out the MAG
seven stocks so that they're they're in a class of
their own. They're fairly expensive, but they are fabulous businesses,
they really are. That they're bringing in money from all
over the world. They're largely dominant in their respective space.
And clearly the AI trade, the hyperscale and nature of
(05:02):
it is what's driving that.
Speaker 2 (05:05):
Now.
Speaker 3 (05:06):
I think what you're going to see is that this
last year or so, the AI boom has a crued
to those companies, the people that are building it out
and buying the chips and spending lots and lots of
money to try and bring AI, you know, into the
real economy. And I think over the next couple of
years you're going to see the rest of the S
(05:27):
and P start to become users of that AI technology
and that productivity boost, and you're going to start to
see in a lumpy fashion, I think, where it will
be different for different companies as they start to adopt it.
But I think you're going to see some real use
cases of companies that are making use of that AI
and seeing strange, unpredictable earnings jumps as they're using it
(05:50):
better in margins go up. And I think that that's
how I'm viewing it that the last year or so
you've seen the hyperscalers and the Max seven do real
well on the AI trade, and the next couple of
years going to see that those gains be actually used
in companies and you'll start to see that benefit broadened
out to other companies.
Speaker 1 (06:08):
At the risk of using a cliche to what extent
is the market right now price to perfection and by extension,
if we get the slightest disappointment from a name like
Alphabet tomorrow, could that create huge negative consequence?
Speaker 2 (06:24):
Yeah?
Speaker 3 (06:24):
I think so. I mean, it depends on the scale
of it. I think one of the things that's wonderful
about about AI is it really does live in the future, though,
which means you can continue to kind of believe in
the story. So I think what you'd most likely see
in that situation, I guess it could come in two ways.
It could either be that the CAPEX build out is
incredibly expensive and that shocks people and that could cause
(06:48):
a disappointment. Or you could see for individual companies, particularly
like someone like Google, where they're on the receiving end
of challenges because of AI. I think in the former case,
where you saw that the that the build out was expensive,
it'd be easier to look through it because you could
see that although it's expensive, they're doing it for a reason,
and that companies will get a benefit from this. They're
(07:10):
not wasting money. I think if you saw it the
other way around, for Google in particular, that they were
really starting to lose ground because of the core search
engine business, and that things like chat, GPT and some
of the other AI businesses were really encroaching in Google
in particular space, I think that would cause problems for
Google certainly.
Speaker 1 (07:29):
So we have a FED meeting at the end of
the month. We know there's been a lot of controversy
around the fact that the FED has been unwilling at
least at this point, to cut infrastrates again. Right now,
the market's convinced that September is the next meeting where
that twenty five basis point cut is likely. How are
you viewing FED policy right now? And if you could
(07:49):
put that kind of in the context of a lot
of the tension that seems to exist between let's say
the White House and the Fed.
Speaker 3 (07:58):
Yeah, there's a lot of political pressure put on Powell
and the rest of the FOMC for lower rates. Powell
is clearly bearing a brunt of it. Obviously Trump did
appoint them because it's a slightly strange I think there's
a good case. I don't think Trump's completely wrong here
that the FED should cut rates. I don't think they're
particularly slow in doing so. But I think at this
(08:20):
point it's fairly clear. I think that things are slowing
somewhat and that the inflationary dynamics that you saw a
couple of years ago aren't really there. You can really
see that in house prices and some of the very
interest rates that sensitive sector of the economy look as
if they're slowing. So I'm not particularly worried about inflation
picking up again. And I think that when you've got
a FED rate that is what four p thirty three
(08:41):
or four point three currently that is notably above where
I think inflation ends up, particularly be adjust for the
housing issue. I think Trump is likely right. I mean,
I don't think we need to be cutting rates by
two hundred basis points. That I think is a bit
extreme there. But should the FED be cutting in July
and septem berming, Yes, I think so. I mean, you
(09:02):
could get rates down fifty to seventy five basis points,
and I think that would be I don't think that
would be unreasonable all. I don't think it's right that
they're putting quite so much pressure on them. I don't
think that's particularly helpful. And if you do end up
with a powel that was fired, I don't quite know
how that would play out. I imagine you'd see a
steeper curve because you'd a price that rates would get
(09:23):
cut more drastically, and then you might price that you'd
lose somewhat lose some control of the back end of
the curve. But you know, it's a staggered a committee
with staggered appointments. So I think there's plenty of other
people on the FED that will continue with the monetary
policy in the manner of which they've been doing it
so far.
Speaker 1 (09:43):
David will leave it there, always a pleasure. Thank you
so very much. David Espell, partner co CIO at Mount
Lucas Management, joining from just outside Philadelphia here on the
Daybreak as your podcast. Welcome back to the Daybreak Asia podcast.
(10:06):
I'm Doug Chrisner. Markets are now looking ahead to megacap tech.
Earnings from both Alphabet and Tesla companies are set to
report in under twenty four hours. Let's take a closer
look now. I'm joined by Stephanie Leung. She is the
chief investment officer at Stashaway. Stephanie joins us from our
studios in Hong Kong. Thank you so much for making
(10:26):
time to chat with me. I'm going to play to
one of your strengths, technology and particularly artificial intelligence. On
Wednesday here in the States. After the bell, we're going
to hear from Alphabet, and I think the market's going
to be very curious not only on spending when it
comes to AI, but what some analysts have expressed concern
over in the past, which is how AI may be
(10:49):
impacting the company's core search business. How do you understand
the risk of some of these AI back chatbots posing
some sort of risk to a business, even for bay
Do in China, which has around seventy percent of the
search market. Is AI a way for this to be reimagined,
do you think, and maybe does it represent a near
(11:10):
term risk?
Speaker 4 (11:11):
Yeah? I think, I mean you bring a very very
good point, right in the sense that, of course, if
you think about the Internet era, search was a very
very profitable business and Google by do pretty much have
like a dominance or monopoly in these businesses. However, if
we enter the AI era, if you think about kind
of just what people go to search engines to do,
(11:33):
they're basically asking questions, and you can ask these questions
much more directly and get much better answers by going
to the LM chat bots to ask the same questions,
and they will give you a much more comprehensive answer
rather than just the templu links that that Google would provide.
And I think that actually creates a sort of a
(11:54):
dilemma for companies like Google in the sense that I
mean they know that that's the direction that things are going. However,
of course they have existing sort of earnings to try
to protect, so they need to. I mean, they are
trying to actually strike a balance between like kind of
not cannibalizing the existing business, but meanwhile making efforts to
make sure that they don't get this kind of extinct
(12:16):
in the in the new AI era. So, for example AI,
if you go to Google Search right now, you see
that they will provide a AI generated search summary. Uh,
and that's sort of some of the efforts to help
the company that migrates. Of course, I think if you
look at the share price and also valuation, I mean
that concern seems to me to be quite well understood
(12:39):
by the market in the sense that if you kind
of kind of compare Google's valuation versus others in the
Max seven, I mean, they are the lowest, and they're
also trading at the lowest kind of price earnings valuation
compared to its own history. So I think if you
just kind of look at Google's kind of whole business,
of course, search is a very very important part.
Speaker 5 (12:59):
However, there are other businesses.
Speaker 4 (13:01):
For example, Weimo is making some very good progress in
terms of autonomous driving.
Speaker 5 (13:06):
That's also AI driven.
Speaker 2 (13:08):
Uh.
Speaker 5 (13:08):
If you look at kind of YouTube, it's also doing well.
That's uh.
Speaker 4 (13:13):
There's also kind of AI enabled kind of algorithms that
help them to sort of promote relevant videos and velephant contents.
So I do think that there are actually, of course,
there are other levers that googleg and pull, and one
of which is of course, like if you and I
kind of look at war is the most popular mail
(13:34):
protocol and mail program out there. I mean there's still
a Gmail, right, So I think there are optionalities. It's
about just kind of in the intim period, how to
balance kind of the the search business with it.
Speaker 1 (13:46):
So if you're looking at opportunities in AI in China,
are you more focused on the software side or are
you looking at the hardware story and maybe semiconductors, how
do you play it?
Speaker 5 (13:57):
I think.
Speaker 4 (13:58):
If you look at the semiconduct to our hardware side,
it's very very focused in a few kind of companies
that have the technology. So by that I mean, for example,
n video, Nvidia has the chips that are kind of
ways ahead. And if you look at all the recent
kind of announcements from big big tech companies like for example,
Matters big announcement of their data centers, I mean they
(14:20):
are still predominantly using UH in video technology. UH if
you look at kind of in China. Of course, recently, uh,
President Trump lifted the restriction to export H twenty chips
to China, and I mean Nvidia is receiving a lot
of orders and I mean the citing supply shortages.
Speaker 5 (14:40):
So still Nvidia is the kind of the.
Speaker 4 (14:42):
Dominant player in the infrastructure layer. Of course, like companies
like Huawei are catching up, but I think they are
still kind of somewhat behind on the application side. I
think that's where it gets more interesting, right, because it's
not it's not that kind of u dominated by one
or two players. I think in the application side, you
(15:03):
can see a lot of very creative uses of the
underlying technology in terms of driving usage, driving revenue, or
cutting costs. And here I think you can see that
in the US there are different companies in different verticals
kind of I guess making big strides. And also in China, right,
(15:23):
if you look at kind of the software companies, I
think they are one of the first to benefit from
these AI coding agents, for example, and these actually benefit
a lot more companies than just the infrastructure.
Speaker 1 (15:34):
Later, you touched on autonomous driving in China a moment ago,
and I'm curious how is that progressing? Are there developments
that look promising at this point where you want to
be invested in those companies?
Speaker 4 (15:48):
I think in China is developing very very quickly, but
still if you look at kind of the where their
technology is in the forefront is still in the US
right Tesla is leading the effort in developing some of
the more advanced AI driven kind of I guess automis
driving technologies. As I mentioned, Weimo is also making some
(16:10):
very vaguer good progresses. So these are companies that are
at the forefront. I think in China is where the
application of these technologies may actually surprise on the upside
in the sense that I think if you look at
kind of how China can deploy these technologies, it tends
to be a lot more efficient. So I think that's
(16:31):
sort of at the again, it's at the application layer
where some of these companies can benefit.
Speaker 1 (16:36):
We know the trade negotiators from the European Union and
the US will be meeting again this week for more
trade talks. So whether we're talking about the European Union
or China, we do have this August deadline in front
of us. But I'm curious, are you optimistic that we're
going to be able to kind of turn the page
on this tariff story soon.
Speaker 4 (16:55):
So I think if you look at Trump's policy, it's
been kind of kicking the can down the road. And
if you listen to the latest Bestent interview, what he
mentioned was actually quite telling, right he said, it's about
the quality of the outcome, not the timing of the outcome.
So I think again, the next kind of deadline that's
(17:16):
coming up and is first of August, which is kind
of a few days from from today, but I do
suspect that they will try to kick the can down
the road again, which I think it's it's sort of
expected or digested by the market. And if you look
at kind of the current level of actual tariffs that
(17:37):
are being imposed, they are sort of in ten to
twenty percent range. And I think if you look at
the where it like the level of the level of
tariff really hit US economy, if it goes up to
about thirty percent, then that's when things get much challenged,
much more challenging. So I mean, we'll have to see
what the outcome is, But I mean I think if
(17:59):
you look at kind of the summer months August September
tends to be.
Speaker 5 (18:02):
Like the worst months in terms of seasonality.
Speaker 4 (18:05):
I mean, liquidity is quite thin, and I mean we've
had a market that has rally like twenty something thirty
percent from as bottom. So I wouldn't be surprised if
in the summer we see some headlines coming out from
these trade talks that could rattle markets and create I
mean five to ten percent correction. However, the fundamentals are
still quite solid, so I think those are kind of
(18:26):
good opportunity for people to still I mean, add to
the risk.
Speaker 1 (18:29):
Stephanie will leave it there. It's always a pleasure. Thank
you so very much, Stephanie Jung. She is the chief
investment officer at Stashaway. Joining from our Hong Kong studios
here on the Daybreak Asia Podcast. Thanks for listening to
today's episode of the Bloomberg Daybreak Asia Edition podcast. Each weekday,
we look at the story shaping markets, finance, and geopolitics
(18:52):
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 and Australia. I'm Doug prisoner
and this is Bloomberg
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