China Mulling TikTok US Sale to Elon Musk
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Welcome to the Bloomberg Daybreak Asia podcast. I'm Doug Krisner. Our top story this morning, Bloomberg has learned Chinese officials are evaluating the possible sale of TikTok's U.S. operations to Elon Musk. We are told it's one option being explored if TikTok were to fail to fend off a ban here in the U.S.,

Plus, a look at broader markets with David Waddell. He is the CEO and chief investment strategist at Waddell & Associates. But we begin in Hong Kong. Joining me now to unpack the latest news on TikTok is Annabelle Droolers, who covers Asia Tech for Bloomberg News. Thank you for making time. I'm sure it's been a busy day for you.

This is kind of an interesting story. Just help me understand where we are at the moment. Well, I think in the bigger picture, I mean, we had the U.S. Supreme Court that had the hearings last week, and it was really a chance at that point for representatives from both the U.S. government and also from TikTok to present their sides. And what we got out of that on Friday was that it does very much seem to be the case that TikTok will be forced to go so-called dark.

in the U.S. after January 19. That would have been the deadline that would have needed to have divested its operations there. Unless it finds a buyer, right? Exactly. And that's the big Bloomberg scoop this morning. So what we're hearing is that, you know, this is something that the Chinese government is thinking about as well. And in terms of the possible options, we do need to emphasize their priority is that ByteDance continues to keep its

us app and and to retain ownership of that but of the other possibilities one of those is for elon musk to acquire the us app and that would be through x the two companies could work alongside each other of course for x it could pick up a lot of advertiser revenue from tick tock it's uh xai that's the ai or artificial intelligence company that that musk also started it could also benefit as well in terms of the amount of content that's being created by tick tock

But a lot is really still not clear how we would finance it, the scope, the way it would happen. But yes, as I said, that's one of the possibilities we're hearing about. Anytime I've had a conversation about TikTok, the thing that comes up is the algorithm. That's really the gold here, right? Would a sale necessarily force ByteDance to surrender the algorithms?

Well, that's it. And that's really the big talking point. I mean, TikTok's algorithm is sort of the prize or one of the prizes out of all of this. And in terms of the sale, that's what Beijing also really wants it to be able to retain. You've got to remember, of course, that even if Biden wants to sell

its US app, it still needs to get approval from China. And China's got export rules in place that prevent Chinese companies from selling their software algorithms like the one at TikTok. And so it does really underscore just how much of a role that the government could end up playing in what happens next. There's no way that that could change, even if Beijing wanted to curry favor with the incoming Trump administration, right?

I mean, look, I think that part is too hard to tell. I was speaking yesterday with Xiaoming Liu from Eurasia Group, and she was saying that, you know, out of all of the issues that are between the US and Chinese governments right now, actually TikTok is sort of maybe one of the priorities that's lower down the list. What has been also interesting, and I've been discussing with colleagues this morning as well, is just this possibility that going forward, if we do see an explosion of apps,

because what's interesting actually to note that the users that are leaving TikTok, they're actually going in the US to other Chinese apps like Xiaohongshu, that's a red note. There's also Lemonade that's owned by ByteDance.

If you do see these Chinese social media giants really blow up and become a lot more popular, maybe it becomes a question as well as to how they're splitting their data and do they need to have separate data centers in different regions. My recollection, correct me if I'm wrong here, is that the law in China essentially forces any Chinese-based firm to share data with the government, right? So if it's not TikTok, if it's another Chinese-based app, the law still applies.

Well, that's it. I mean, and that's something else that we've been discussing as well. And that is sort of the level of clarity that we're sort of not clear on just yet. I mean, yes, Xiaohongshu isn't specifically named in protecting Americans from foreign advisory controlled applications.

That's the act that the Supreme Court's currently considering, and that's what could result in the ban on TikTok. But there is certainly no guarantee that companies like Xiaohongshu or Red Note aren't going to sort of follow in TikTok's footsteps either by being blocked by the US government. So if it's not TikTok, I guess, as you can say, why?

what else could also fall into the crosshairs? So talk to me about price. If a deal gets done that would allow Mr. Musk to control this and maybe merge it with his platform X, is there a value that we can assign TikTok? Yes.

Yes, there has been one that's been floated. This is coming from Bloomberg Intelligence. It was done last year, but they're saying up to around $40 to $50 billion. So it's a substantial amount of money. Of course, you're talking about the richest man in the world.

So maybe it's not quite as substantial to him, but it's still very much unclear how Elon Musk would be able to sort of even pull off a transaction of that size. Would it, for instance, mean that he needs to sell or sell other holdings? Is the US government going to be approving it? He paid $44 billion for Twitter a couple of years ago. He's still paying off those loans as well.

One of the interesting things you were talking about, other Chinese-based apps becoming popular in the U.S. I don't know whether they are as sophisticated as the TikTok algorithm, but imagine a world where the algorithm doesn't transfer with the sale and the app maybe is not functioning at the same level that it functions now. That risks users leaving the platform, does it not?

Yes, definitely. I mean, the algorithm is sort of considered to be sort of the secret source of TikTok. And that is what's so highly prized and probably plays a large part into that valuation. I mean, but it's not just sort of that's not the primary concern either from the US government. Yes, they're concerned about the algorithm. They're also concerned about how much data is being created as well. But

I guess underscoring all of that is also the concern about propaganda campaigns and the way that it could be used to have covert or what they would say would be covert manipulation campaigns. So what are you hearing from the Hong Kong perspective? What are people in the tech world saying about the news story that we're talking about today?

Actually, this has been a really big talking point. Not so much in Hong Kong, although of course it is. I mean, I think sometimes in Hong Kong people wish that the tensions would be tamed down. This is supposed to be sort of one of the leading or preeminent financial hubs in the world. So obviously Hong Kong prefers to not have these sort of tensions between the US and China. But just in WeChat, and for people that aren't familiar, WeChat is the equivalent to WhatsApp that's also used in mainland China. This has been the...

leading chat this morning for me with people that are working in a lot of different Chinese tech companies and they're all putting up different images in it. I'm just looking through it now, but talking about how their Red Hook books or their Xiaohongshu pages are

basically going mad, going crazy. A lot of people are getting involved in this and so-called TikTok refugees are starting to flood the platform as well. But just to underscore that and to note, I was actually looking at the US App Store this morning for Apple on the iPhone downloads and number one right now is Xiaohongshu and it's followed by Lemonade. So there is a clear trend that we're seeing whether that lasts.

but certainly people are really exploring the alternatives and for a long time we'd be thinking that it would be, you know,

meta or Facebook and Instagram, you know, the meta names. But right now, it seems like it's that trend from TikTok, but still keeping it within China. Yeah, such an interesting story, particularly now that we've got Elon Musk's name involved. Annabelle, thank you so much for being with us. Bloomberg's Annabelle Droehler is covering the tech story for us in Asia from our bureau in Hong Kong, joining us here on the Daybreak Asia podcast.

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Welcome back to the Daybreak Asia podcast. I'm Doug Prisner. So we want to take a look at the broader market right now, and we'll do that with the help of David Waddell. He is the CEO and chief investment strategist at Waddell and Associates. David, thank you for joining us. Can we begin with your overview of markets for 2025? I'd like your expectations for the price action.

Well, thanks for having me. You know, it started off with the VIX up here around 20. So, you know, there's plenty of confusion out there, some of which I share. But I think that the Trump agenda is such a big component of all of this that until we see that reconciliation bill, a lot of it is unknowable. But I can tell you kind of my guess before we see the details on that.

First, you know, we ended the year with a whole lot of expectations. We had hindsight bias after two 20% plus years in the S&P. And so the market needed to cool off a little bit. There was a major rally in stocks once the betting markets forecasted a Trump victory.

And then those started to go sideways and sell off a bit as the rest of the markets caught up. So there have been major rallies, obviously, in interest rates, major rallies in oil, major rallies in the U.S. dollar and oil.

I don't know if this is axiomatic, but the S&P doesn't tend to rally when those three do. So I think we've been in a bit of a digestion phase, and I'm not really afraid of that. But just to put some numbers around it, and this is kind of where my thinking is going for the year, we had two years where earnings and valuations both expanded. I'm not sure that in 2025 we will see valuations expand.

So we ended the end of '24 at 22 times earnings, but the yield on the 10-year was, you know, 0.5% lower. Now we're at 4.75, which would support a 21 times P/E multiple. And the difference between '22 and '21 is about 5%, which is the drawdown that we've had so far on the S&P.

So if you think that rates can go to five to five and a quarter because we are in an environment of higher structural nominal GDP and the Trump agenda will pass through the system, then you also have to forecast PEs that are one to two points lower.

which means you could lose altitude of 10 to 15% just from PE compression. Now that sounds daunting, but if earnings go up 15%, it's a wash. Okay. And then you, you have to look into 2026. So I think it's tougher sledding this year because,

because there are valuation headwinds, which we didn't have up until this point. So in terms of economic policies from the incoming administration, we know tariffs have really become the centerpiece. And we were talking earlier in the day here in New York about members of the Trump economic team discussing a gradual approach to these tariffs. And one idea that we are told would be to increase them by about 2% to 5%.

per month. So we are understanding the aim here is to get a little bit of negotiating leverage and at the same time to avoid a spike in inflation. So if you get that as kind of the underpinnings for them push into applying tariffs, does that give you any comfort at all? No, because that story changes daily.

So the purpose of the tariffs, the reason, and I am a little nervous about this, but the purpose of the tariffs is that Trump wants to chip away at the budget deficit, which is 6.6% of GDP, right? Last time he came in pre-COVID, he expanded the budget deficit about 1.5% of GDP. So he's a stimulative kind of guy, obviously.

So how are you going to cut the budget deficit while trying to stimulate the economy the same way? Well, the only way to do that is to have the foreigners finance the spending, and not just through the Treasury market, but also through tax receipts. So I know that in the modeling they've done, what they forecast out is that they can come up with, you know,

a good deal more call it 250 300 400 billion dollars worth of subsidy for the deficit from foreign entities is that possible yes how disruptive will it be unknown um I don't think we're in a smooth Holly kind of moment but you know today there was conversation with Canada about maybe they just won't ship us the four million barrels of oil or whatever they send us every day yeah um

to retaliate against the tariffs. That would be bad. You know, that probably has something to do with why oil is floating around 80 bucks again. So,

I don't know where those policies end up. And, you know, you can sterilize that with some currency appreciation. We've seen that as well. But I just don't think it's going to be easy. And Trump also advocates for a lower dollar. Tariffs argue against that. If you want a lower dollar, you tax foreigners on interest income that they receive and you disincentivize investing in the U.S. So.

It's really complicated to figure out how to subsidize your government with foreign taxes. You were talking a moment ago about that 20% plus gain for the S&P in 2024. A large portion of that was built on the back of artificial intelligence and the rally and those

those names like NVIDIA. It was interesting today to see the weakness in the stock in NVIDIA shares down about 2%. We had a report in the publication, the information suggesting that some of NVIDIA's biggest customers are now dialing back on orders for the latest Blackwell chips. How are you feeling about the AI trade in 2025? I think it's broader. Um,

You know, I think the Trump agenda really should benefit the laggards more than the previous leaders. So I think it's time for that to broaden out. You know, earnings this year for the S&P could be 14 percent, something like that. Earnings for the MAG-7 are projected to be something like 19. The MAG-7 trades at 30 times.

you know, the S&P trades X mag seven around 20. So it seems to me like the premium that they've received in the past likely isn't the premium they'll receive in the future. And also, if you look at the earnings expectations across sectors for this year, each sector is supposed to be higher in terms of earnings by the end of the year. We did not see that last year. It's also supposed to be the case next year. So, you know, to me, I'd rather own

say the MDY, the S&P mid-cap,

than the large cap or the mag seven because I can get almost as much earnings growth at a fraction of the valuation. And I just think people are going to be more fundamentally focused this year in the in the contest between earnings and valuations. You were talking a moment ago about your expectations on the Fed may be moving at a slower rate. I think the market welcomes that given the stubborn signs on inflation.

Does that necessarily mean there are opportunities that we should talk about in the bond market?

You know, in terms of people who play the price action is not really our core client base. The question is, what can you get out of fixed income? And if you look at, I guess, the ag year to date, it's down a percent or so. But if you're picking up a five and a half percent yield, a six percent on high grade corporates, then that becomes a structural component of the portfolio. So I know a lot of people say the

the asset allocation trades are dead and 60-40 is dead, etc. But if 40% of your portfolio can generate a yield of 6%, that ain't too bad. So I think there's benefit to investors for these yields

It's headwinds to stocks to a certain extent, but let's not forget the average yield going back 50 years or so is 5%, not 2.5%. So to me, if we can be an environment of true structural growth,

real of 3%, nominal of 5%, then the bond yields make sense. And you can still grow earnings, especially with the utilization of technologies, less regulation, maybe some tax cuts. So I still think we're in a pretty good environment, both for stock and bond investors. But I would encourage bond investors to think about coupons and not play price.

So if yields do remain somewhat elevated, I'm wondering whether or not it's time to look at the financials a little bit more closely. Well, I mean, good thing you brought that up because we're going to learn a whole lot about them on Wednesday as earnings season shows up. And they obviously had great price action today. And so I thought what was interesting about today is we got to see what people are going to buy now that they've done some tax loss selling. And obviously the financials had a really good day yesterday.

you know, 72 basis points or so while the S&P was a fraction of that. So I think people are buying the financials and I think we'll learn more about it. But the highest earnings growth expectation for this year's is the financials, more so than tech. David, thank you so much. Some great insights there from David Waddell, CEO and Chief Investment Strategist at Waddell & Associates. 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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