APAC Stocks, US Futures Edge Higher After US-China Trade Talks
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Welcome to the Bloomberg Daybreak Asia podcast. I'm Dan Schwartzman. Doug Krizner is off this morning. The U.S. and China both reported substantial progress after two days of talks in Switzerland aimed at de-escalating their trade war. Chinese Vice Premier Hao Li-fung called the meeting, quote, an important first step towards resolving differences. U.S. Trade Representative Jameson Greer had this to say about the meeting.

It's important to understand how quickly we were able to come to agreement, which reflects that perhaps the differences were not so large as maybe thought. That being said, there was a lot of groundwork that went into these two days. That's U.S. Trade Representative Jameson Greer. For more on how markets are digesting the latest headlines, we heard from Alicia Garcia Herrero, chief APAC economist at NuttXS. She spoke with Bloomberg's Sherry Ann and Heidi Stroud-Watt.

Alicia, great to have you with us. And of course, we have been talking about US-China competition, the trade for so long now. Scant on the details at this point, but do you think the world investors have reason to be optimistic here?

Yeah, because the situation was so bad. So anything they announce will be good news. And I think they've already taken actions that explain why the market has actually read those good news already past last week, starting with the lifting of export controls. This is very good news for a number of key players, NVIDIA and so on, moving the market in the US. So we know that the negotiations have happened even before the meeting started.

you know, big orders from China. So you can tell that in a way we knew there were going to be good news. Now, how specific they might be? I think not really. For two reasons. First, they need to keep...

the action moving. I think they don't want like a big bang now, but they rather want to keep the market happy with news coming on. And that is why they announced that they would be meeting regularly. So this is just a way to keep the market on both sides, which they need, because we will have bad news on inflation. We will have bad news on China's inflation, too, not only the U.S. this week. So

So, you know, they need to keep the positive discussion. It's kind of the opposite of what we had before. How much has sentiment already taken a dent? We've seen a lot of front-loading from companies and factories already. There's a lot of uncertainty when it comes to households over the next six months for the U.S. economy and consumption. Do you think sort of an unwinding or a de-escalation is going to be able to reverse all of that?

No, that's a great question, because what's happening is not only about China and the U.S. In fact, some people may wonder, and this is particularly true in Europe, okay, now that China has jumped the queue, what is it in for us? So, you know, sentiment about Europe may worsen. But even if you ask about the U.S., there's many other things happening that are unrelated to tariffs on China that remain unresolved.

of great concern to US investors. So in that regard, I think it's not over in terms of market volatility whatsoever. But it is exactly for that reason that they decided to come up with this, let's call it mini deal or agree to agree, you name it. All of these are, you know,

suffer empty words that just want to guide the market. And they will, but the market will read something else, as you said. And those something else is really happening. The U.S. economy is decelerating and the world is in a much better, much worse place than it was before Trump.

What about the Chinese economy? Because we have seen that economy really decelerating for a while, right? But nowadays, we're not even getting clear data, whether it's on the labor market or just what consumers are feeling at the moment. Okay, so watch for today because we have CPI today and

I still remember, you know, March CPI, we were told, oh, this is a lot of, you know, February CPI, even a lot of basically CNY, you know, impact. And don't worry, it will become positive. And, you know, most analysts have rather positive CPI for this year. But today we'll probably get to negative again, let alone producer prices, let alone export prices. So,

By today, I think nobody can deny China is in deflation. And this is a big thing. This is a big thing, because it means that you just can't get your act together to have decent margins independently on the tariffs, if you want, because we saw exports. Exports are growing at 8 percent. So it's not about exports. It's about the overcompetition, this involution of the Chinese economy that is happening as we speak.

We calculated the impact of high tariffs. They don't have to be 145%, even 80%, even probably 60% are too high, our embargo level for China. And we estimated that impact to be literally 2.5% of GDP growth shaved off. So China will need to stimulate the economy big time this year if they want to avoid a massive deceleration, no matter the talks today.

April's inflation in China really decelerating again, both when it comes to consumers and factory as well, Alicia. So what can we expect in terms of what the U.S. and Chinese policymakers will do next in order to support their economies as the trade negotiations continue?

Well, I mean, I think the ultimate goal, the U.S. ultimate goal of kind of decoupling or reducing its dependence, trade dependence on China is true no matter what we see on the news today.

I think what both, and by the way, and China is also substituting any component that is not basically domestic other than commodities in its supply chain or of countries that China basically controls. So the long-term direction is clear. It's bifurcation. But both parties have every interest in harming themselves the least possible so that this direction is not too painful.

That's what's happening. And that's how the market should read it. And is this world going to be better or worse? Well, I mean, we're no longer in this wonderful globalization mode. So maybe it is better to bifurcate slowly and steadily and nicely rather than fighting it over, as we were doing right before this conversation started in Geneva. Alicia, always great to get your insights. Alicia Garcia Herrero, Chief Asia-Pacific Economist at NatTexas.

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Welcome back to the Daybreak Asia podcast. I'm Dan Schwartzman in for Doug Krisner this morning. We turn our focus to Japan, where stock futures rose on optimism the U.S.-China trade tension may begin to de-escalate after two days of talks over the weekend. The Nikkei 225 has climbed 5% through Friday since U.S. President Donald Trump announced so-called reciprocal tariffs on April 2nd among the best-performing major markets.

For more, we heard from Jean-Erik Salata, chairman and head of private credit at EQT Asia. He spoke with Bloomberg's Sherry Anand, Heidi Stroud-Watts. Really good to have you with us. Are you seeing what people are talking about, this veering away from U.S. assets when you talk to your clients? Yes. Good morning, Sherry. Thanks for having me here today. Absolutely. We're seeing a big shift in asset allocation away from the U.S., both, I say, in public markets and private markets where we specialize.

I think it's driven by some of the policy uncertainty in the U.S. But also I'd say there's been a period of time where U.S. assets outperformed and people were over allocated to U.S. assets. And I think there's a rebalancing going on. We see a lot more asset flows coming back to Asia, coming back to Europe. Despite the volatility that we're seeing in markets, do you sense the optimism about Asia and where are those flows going?

Well, I think for private equity, for what we do, we're sort of structured to take on volatility as an industry because our funds are set up as 10-year funds. They're locked up capital. So we don't have the redemption issues that public managers have.

So in many ways, we have an ability to kind of ride through this volatility and look at the long term. And these kind of environments are actually quite interesting for us because you have more interesting opportunities to buy at better valuations. There's less competition in many cases for opportunities that we see.

So I think overall we're investing, we remain committed to our strategy and we're seeing opportunities, for example here in Japan we continue to see opportunities in a lot of take privates, publicly listed companies where there's a real sense of shareholder reform happening and a new focus on operational efficiency and new growth strategies. So we're very excited about the opportunities here in Japan and we've

We're planning to invest something like $5 billion over the next couple of years into the market here. What about fundraising?

Fundraising, I think the fundraising market is becoming more bifurcated. There's a bit of a consolidation happening globally in private equity fundraising. But I think there's a group of managers that are continuing to raise capital and grow the fund sizes. And then I think there's another group that's finding it more difficult. And I think you're going to continue to see this divergence in fundraising. But at the end of the day, what private equity offers investors is higher returns.

Essentially, if you look at it over long periods of time, the private markets offer significantly higher returns than the public markets if you look at extended periods of time. And I think that's why the asset class continues to grow. But I think investors are getting a lot more careful about manager selection and focusing a lot more on investment performance and track record.

China has been attractive from a valuation perspective for quite some time and now that we are sort of hearing murmurings of progress when it comes to the US and China's relationship, does that make that market a little bit more compelling?

Hi, Heidi. I think for China, our strategy is a regional strategy. So our strategy essentially has four components to it. We are a buyout investor, so we only invest in control situations where we can drive change in companies. Secondly, we have a regionally diversified portfolio where we invest across the region.

If you look at geographic exposure today, our two biggest areas of focus are Japan and India. That would be one and two. And then behind that, we would be looking at Australia and Southeast Asia. China continues to be a market that we are interested in. It's a large economy, but it's still, I'd say, a difficult market to underwrite through the kind of current market volatility and particularly some of the policy changes in geopolitics that we see

So it wouldn't be one of our top priority markets in our strategy today. How much of the trend are you seeing of that sort of dialing back of U.S. enthusiasm and how much of that is being willingly reallocated to Asia? I think there's a significant asset allocation shift happening in the world. I think people are reassessing risk in the U.S. I think there's been

There's been a lot of public market and private market beta in America. There's been a tremendous last 10-year run of asset prices, and everybody's made a lot of money doing that. And I think that may have run its course, is what people are assessing right now, and looking for sources of alpha. Where can you deliver returns independent of what's happening in the public markets? And I think what Asia offers people, and this is why there's an attraction to the region, is structural alpha.

You look at Japan, for example, here, there are just a lot of opportunities here where we believe companies can be run more efficiently and there's a lot more room to deliver better returns and better outcomes than are being delivered today in the public markets through this active ownership approach that private equity takes.

So I think this search for alpha, the search for structural alpha, is really benefiting Asia because Asia has under-managed assets. We also have higher growth rates in the region. And we also have what I would call less correlated liquidity and markets. If you look at, say, public markets,

One of the biggest IPOs happening right now is happening in Hong Kong this week or in the next few weeks with CATL. And you have a similar situation in India where we have a lot of our investments also seeking to go public there and finding good liquidity in the IPO markets there for our private equity investments. That's a very different narrative, very different story than what you see in the U.S. where the public markets have been a little bit more challenging.

So I think this idea of diversification is really something that investors are starting to pay attention to. It's not to say that people are not going to be investing in the U.S. It's the biggest and deepest market. It's going to continue to be a very important part of investor allocations. But I think the relative weightings are changing.

Is that why you're also really invested in Australia's software sector as well? What do you like in Australia? Yeah, I think Australia is a really interesting economy. It's continued to grow for the last 30 years almost without interruption. Thematically, we love the software sector in Australia. We've invested in four software companies there in the last two years.

There's a lot of innovation there and many of the companies that we find there are actually able to then become global businesses and grow outside of the local market there by moving into Europe or even the United States. So I think that's one of the big themes there. Healthcare is another big theme in Australia. Even pet care, I would say, we bought a business. Everywhere in pet care. Yes, pets is a great business. And we just bought the largest veterinary services practice in Australia last year.

So it's a market that we continue to stay active in. And we have both a large cap fund and a mid-market fund. And I'd say in the mid-market space, it's even more interesting because there's a lot of mid-sized companies that are really very rapidly growing. And we see a lot of innovation there and a lot of potential for growth.

It seems these days monetary policy sort of has fallen to the background just because of everything that's happening with trade negotiations. But when it comes to investing for the long term and just raising funds, how much do the divergent monetary policies across Asia matter?

I think at the end of the day, for what we do, the changes in monetary policy on a year-to-year basis or even currency fluctuations don't matter that much. And what we're really looking at is earnings growth and the ability to drive value creation in the businesses that we manage and that we invest in. So I think...

We're trying to invest behind multi-decade themes in society, whether it's things like better healthcare, the emerging middle class, areas like the move to the cloud. We, for example, invested here in Japan in a company called HR Brain, which is doing HR software.

It's a cloud native company. So trying to gain share from all of the traditional companies that were doing client server based HR software solutions, which is still the predominant form of doing business in Japan. But we think things are changing. So trying to get behind these multi-decade trends early, finding great companies with great managers or bringing in new management and then driving growth and driving change. Shanaeric Salata, really good to have you with us. Chairperson at EQT Asia joining us here in the Tokyo studio.

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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