APAC Stocks Jittery as Tariff Concerns Build Up
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Welcome to the Daybreak Asia podcast. I'm Doug Krisner. We're seeing a cautious tone in markets across the APAC this morning after equity market weakness in the States. Joining us now for a closer look is Olivier Dossier, head of investment decision research for the APAC at Simcorp. Olivier, it's always a pleasure. Would you say that the lack of conviction is correlated directly with the uncertainty that we're seeing around these tariffs?

Yeah, certainly. We haven't gotten any kind of details yet as to the status of these tariffs, especially with regards to the US and China relationship. The largest and second largest economies in the world are about to have another trade war. And that really makes everybody else nervous because you can't plan anything until you know

what direction this is taken and if a deal is possible and what shape would that deal take. Nothing is known at this point and that makes it very difficult for investors. No doubt about that. Today the White House did warn of big tariffs. I think the spokesperson was referring to the reciprocal tariffs that we're expecting next week.

Today, I was struck by the fact that Double Line Capital's Jeff Gundlach was saying these tariffs could very well be inflationary. Now, Fed Chair Jay Powell seemed to concede that point yesterday, although the term that he applied to tariffs being inflationary was transitory. Now, we know where we've been when the Fed has used that term in the past. How do you expect the tariff story to contribute to inflation, if at all?

So, you know, tariffs will be inflationary if they're maintained, if they're kept long enough, if they're just a tool to get a trade deal and they're only, you know, here a few months and then gone, then they don't usually show up in the data because most of the resellers will absorb that monthly bump quickly.

in their margin. So they really have to be there for a long period to be inflationary. What they can do in the short term though is raise inflation expectations among consumers, which will, some of them will try to jump the gun on some purchases and that could lead to, you know, a little bump in or short-term bump in inflation because people rush to buy things before they take effect. But that is transitionary in impact.

So, Olivier, imagine that the tariffs last a couple of months, perhaps. Does that necessarily force central banks in Asia to consider adjusting their policy when it comes to currencies?

A lot of them are pegged to the dollar, so obviously they need to follow what the Fed does in that sense. But if the Fed thinks tariffs are inflationary, they will maintain the interest rates where they are, which is quite a restrictive level at this time.

And that's the problem for a lot of the debtors in Asia who have U.S. dollar bonds out that are expiring this year or next year, and they need to start rolling that debt over at a much higher interest rate than when they first took it out.

So, Olivier, today we had the CPI data for Japan coming in a little above forecast. In the same week that we had the BOJ meeting and Governor Ueda sounding a little relaxed in terms of the move that we have seen, the upward push in yields on JGBs, he didn't seem to be too alarmed by the fact that that appreciation has been happening pretty quickly. Are you in the camp that we're going to get a BOJ rate hike in May?

I think, yes, this is something they should have done already in my book. Inflation has been above the 2% target for 19 straight months now, and they're still reacting very slowly. And I think the danger is for them to have this kind of

of lack of communications with market where they say, we're not alarmed, we're not alarmed. And they raise rates and everybody gets spooked. And that's what happened last August. So they need to communicate more clearly about what their plans is so that markets have time to adjust in a disciplined fashion. How would you evaluate risk assets right now in Japan? So there's been a lot of, you know, Japan had the second best market last year with the U.S.,

There's been a lot of people that are looking at moving money around. We don't know yet what the situation is between the US and Japan. That hasn't even been discussed yet. So will there be tariffs on Japan? We don't know.

We know that Donald Trump would like a weaker dollar, therefore stronger yen. So that might be negative for the Japanese market. So would higher BOJ interest rates. So I think Japan is probably peaked in a sense in my mind last year, both economically and in terms of the market. And I think people are looking at relative value to move out of this expensive market into cheaper ones.

I'm curious as to how you're feeling about Japanese tech stocks in particular. We've talked a lot on this program about the deep seek moment in China and the ripple effect that it created around the world. So when it comes to Japanese tech shares, how are you feeling?

So Japan benefited from the decoupling that the US is trying to do with its especially tech supply chain away from China towards more, you know, US friendly countries. In Asia, Japan is the only signatory to some of their defense treaties. So Japan was a

a big benefactor of that, of that reallocation, relocation of supply chains. But it also led to a market that performed really well, but was very concentrated, maybe just two sectors, industrials and technology was the bulk of the move for the Nikkei. And I think those are getting a little bit expensive now. And if the BOJ needs to start raising rates,

and the yen starts to strengthen, then those gains are at a bit at risk right now. So what is your outlook for China in the meantime?

So China has obviously very big structural problems on its economic model, and I'm not sure that the authorities yet know how to address them. They are, though, supporting their market. They are creating this floor. They are trying to reinflate their banking sector. They're trying to reinflate some other parts of their consumption of food, but ultimately,

They'll wait until they hear from Donald Trump and where that trade war is going to decide what kind of measures need to be taken to

turn their economy around. But it's going to be a very, very tough fight. I think that China is three years into potentially its last decade because it's still doing the old, you know, let's borrow more and increase the debt and ask the banks to roll over the debt at a cheaper margin. And that game is not scalable. And I think it's reaching its end right now. So I would say China

has support of the government, lots of money there that they can throw at the stock market and create a floor and create a better feeling. But ultimately, if the U.S. and China has a trade war, if the decoupling of these two economies goes on, it'll be very tough for China to turn that ship around. What about the story on domestic demand? We have seen the government take a number of steps to try to improve that. Is it going to be enough to change the narrative?

No, because the top 10% of earners in China make 60% of the retail sales. You can double the other 60% that doesn't really move the needle in terms of the economic things.

And those 10% are not rushing to the store right now to exchange their old toaster for a new one. They want to buy big ticket items. They want to buy long-term durable things. And for that, they need confidence. They need reassurance that the economy is going to turn around, that there is a plan to do better, that there won't be a trade war with the U.S., that won't be a war with Taiwan, that sort of thing. And I think that uncertainty is holding that segment of the consumption back, and that's the bulk of it.

So, Olivia, your challenge now is to formulate an investment strategy, given everything that we've described. Give me something that you think will succeed in the next six to nine months.

So what we've seen is a lot of rebalancing has already happened since about mid-December when investors went into 2025 thinking, betting on growth, betting on momentum. They had a pro-business president in the U.S. They had a peaceful transfer of power. They had a Republican Congress. They thought that growth was back on.

And these are the these are kinds of assumptions are being threatened right now. Even inflation, the assumption that inflation would keep going down is being threatened right now. So we've seen a big rebalancing move in the last two plus months towards more defensive assets and away from growth assets. So we now have a situation where you have two times more.

risk averse investors than risk tolerant ones in the market. So any kind of shock, any kind of risk event might create a very big overreaction right now in the market. And that's what worries us. But I would wait for that to happen because I think something is going to shock the system. There's not enough confidence for people to hold on very long right now. They don't know if any of their assumptions for 2025 are going to come true.

through. And that's creating an environment where big drawdowns or sharp drawdowns are likely. So I would wait for that. I would say the for me, markets, equity markets right now are buy on the dip thing, not chase the trend. All right. So let's assume you're right for the moment and there is some type of shock event. Does that necessarily create a buying opportunity?

I think it does in the short term because as we saw from Nike's earnings and other earnings, earnings and some of the economic data is coming in better than feared, in some cases better than expected. So there is still quite a strong economy underneath and consumers would like to keep spending. They just need to be given

a little bit more certainty about where all of this is going. There are just so many things happening right now. Geopolitics is a live show right now. It used to happen once every decade, now it's happening every 10 minutes. So I think that's spooking people, but ultimately the will to spend and the will to invest is there. It just needs a little bit more comfort.

All right, Olivier, we'll leave it there. Thank you so much. Enjoy the weekend. Olivier Dossier is head of investment decision research for the APAC at Simcorp. Joining us here on the Daybreak Asia podcast.

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Welcome back to the Daybreak Asia podcast. I'm Doug Krisner. On Thursday in the U.S., President Trump reiterated his support for stablecoin legislation, and he called on Congress to create simple, common-sense rules. Let's take a closer look now at the crypto space with Peter Chung. He is head of research at Presto Research. Peter is normally based in Hong Kong. Today, he's on the line from Seoul, South Korea.

Peter, I'm glad you could make time to chat with us. Now, President Trump seems to be having a lot of influence over the market for digital assets these days, and he's been promoting a few projects. One is World Liberty Financial. We can talk more about that in a moment. It was earlier in the month that he signed an executive order calling for the creation of a strategic Bitcoin reserve. Give me your assessment of this plan.

Yeah. So what he has announced so far is that there's going to be two things, Bitcoin strategic reserve and a digital asset stockpile. Both of these two funds is going to be funded through the confiscated assets, which is currently mostly held under DPP.

the DOJ. Most of it is actually Bitcoin, but there is some small portion of non-Bitcoin digital assets as well. So what Trump has ordered is to create two different set of funds, one purely funded by Bitcoin only and the other one with non-Bitcoin digital assets.

assets. And Bitcoin Strategic Reserve is going to be, you know, he has ordered the Commerce Secretary and the Treasury Secretary to figure out a way to accumulate more through a budget neutral way. And for digital asset stockpile, they've indicated that they're not going to try to add anything more. I know you've been in markets for quite some time, I think more than 20 years professionally.

So I want you to give me your analysis as to whether or not promoting a strategic Bitcoin reserve or even developing one in any way would undermine the confidence in the U.S. dollar as the world's reserve currency. Isn't that a risk?

I know that there are some people who argue, makes that point, and I tend to disagree. There is no real hard evidence that the existence of a Bitcoin reserve is going to lead to declining confidence in U.S. dollars. I mean, we already have

gold strategy reserve. I know it's the kind of the legacy of the past financial system. But nonetheless, I think, you know, you cannot just directly jump onto the conclusion that just because you have

another hard asset supporting or backing the US dollars, markets are going to suddenly freak out and say that this means that the US dollar is not to be trusted. There are other factors that supports the US dollar confidence. Would there need to be some sort of regulatory regime? I can only imagine this making the Fed's job as one instance a lot more difficult. First of all, it's going to be

under the Department of Treasury, not under the Fed. So I don't think the Fed is going to be directly involved in managing this. So it does not necessarily make the Fed job more difficult, in my view. Remember, there is legislative efforts to codify Bitcoin Strategic Reserve as well. So Trump is not going to be in the White House forever.

In order to make this a more permanent thing, you need legislations to support this. And that work is already underway. What would be the effect if other countries were to adopt a similar strategy and set up their own strategic Bitcoin reserve or some other reserve tied to another cryptocurrency? Well, I think the effect would be very positive for the market. And I think the likelihood of that happening has gone up with Bitcoin.

the most powerful country in the world giving legitimacy to Bitcoin as a strategic asset. So I think, you know, when you think about this, this is a huge development. It's something that six months ago, I don't think anybody would have kind of imagined happening. So I think there's going to be a similar conversation taking place in many other governments around the world. And it's going to be a lot

easier for them to make an argument to own Bitcoin as a strategy asset than, let's say, six months ago when no major governments were actually doing it. When cryptocurrencies were first introduced, there was a lot in the conversation at the time

around using these cryptocurrencies as a means for conducting or transacting business. Right now, the emphasis seems to be on holding them as anyone would hold gold as kind of a reserve asset. Does that surprise you? The fact that we haven't moved into a world where we're using cryptocurrencies to transact business more frequently? That doesn't surprise me at all.

Bitcoin is going through three stages of becoming a money. And whether Bitcoin will end up actually becoming a money or not, I don't know. But these three stages are, you know, they don't happen simultaneously. It first needs to be adopted as a store of value. And secondly, only after that you get a medium of exchange stage. And the last one is the unit of account stage.

And so Bitcoin is going through the first stage of being adopted as a store of value. And this can take a long time. It's a multi-decade process. A similar thing happened with the gold as well. So and right now, I don't think it's wise to spend your Bitcoin as a medium of exchange because it's going to be a very expensive spending 10 years from now if the Bitcoin value goes up a lot higher from where it is.

So right thing to do right now is just hold on to your Bitcoin, don't spend it. And after the adoption is more widely spread out and the upside potential of a Bitcoin kind of peaks out, then that's when you start thinking about maybe spending it as a medium of exchange.

So maybe we can talk a little bit about President Trump's World Liberty Financial. This is something I think that his family is involved with and has endorsed. And from what I understand, World Liberty Financial has just completed its second set of token sales, raising about a quarter of a billion total amount of coins now sold just over around $550 million worth.

Are you concerned when you have something like this where the president, who is obviously invested in the success of this project, may have a little bit of a conflict of interest? Does that concern you at all?

Yeah, I mean, that's I mean, I generally in support of everything that Trump is doing in crypto space. But this is one part where I wish that he didn't really proactively engaged in because it does create room for some potential problems down the road. So I think the White House is trying their best.

to make everything transparent, to avoid any future problems. So we'll see how it goes. But yeah, it's one part that I wish that Trump kind of stayed away from.

So you're in Seoul at the moment, and I know you travel frequently across Asia. Give me a sense of how what is happening here in the States with crypto policy is impacting the mindset of the people who play in this space across Asia. As I mentioned earlier, I think this definitely has prompted a lot of conversations through many jurisdictions in Asia in terms of

how these governments in Asia will have to approach the Bitcoin as a potential strategic asset. And I think every country is different. So depending on their priorities, their eventual approach will look quite different. And I think some countries will be more proactive than others. And I think the countries that will be more proactive are the ones where they kind of see the

the value that the blockchain technology delivers to their own economy. And generally, the open economy that values open financial system, I think is going to be a lot more proactive in adopting or incorporating blockchain into their system.

But Hong Kong or Singapore, which is a financial hub and also are keenly trying to compete against other financial hubs like New York or London, is going to be more proactive in trying to adopt a blockchain as part of their financial system. So would it surprise you if a country like China, Russia, maybe even Japan, if those nations were to go about accumulating Bitcoin in the run up to any strategic Bitcoin reserve that may get created in the United States?

Yeah, I mean, I think I would be surprised that these countries also embrace Bitcoin as part of their strategic assets. I mean, it can come in many shapes and forms. It may not necessarily be in the form of a strategic reserve, but maybe their public pension system may allocate some small portion to Bitcoin.

or maybe their sovereign wealth funds may allocate a small portion to Bitcoin. Some people speculate that that has already taken place with some of the Asian governments. They are under no obligation to disclose their holdings, so maybe we simply may not know about it. So I wouldn't be surprised at all if that happens. And I think that's all going to be very positive for the digital asset prices.

Peter, we'll leave it there. Always a pleasure. Thank you so much. Peter Chung there, head of research at Presto Research, 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 stories 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 and Australia. I'm Doug Krisner, and this is Bloomberg.

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