China Vows to Fight US Tariffs As APAC Markets Recover
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Bloomberg Audio Studios. Podcasts. Radio. News. Welcome to the Bloomberg Daybreak Asia podcast. I'm Doug Krisner. Certainly was a volatile day in the U.S. equity market given some conflicting news on tariffs. We had shares jumping early on reports President Trump was considering a pause for 90 days. But those gains quickly evaporated when the White House said the remarks were fake news.

Then, a renewed bout of selling occurred when President Trump threatened to impose additional 50% import levies on China. That's if...

Beijing does not withdraw its planned retaliatory tariffs on U.S. goods. Coming up on the program, we'll hear from Ahmed Riesco. He is the CIO at Insignio. But we begin this morning in Hong Kong. Joining us now, our friend Stephanie Leung, Chief Investment Officer at Stashaway. Stephanie, thank you for making time to chat with us. A short while ago, we heard from the Chinese government, and Beijing said...

it will fight to the end if the U.S. insists on these new tariffs. It sounds to me like we're fully involved in a trade war. I mean, indeed, if you look at kind of the rhetoric of both sides, it has been, I guess, more hawkish than what the market wished for. And I think the market is rightfully worried about kind of the escalation of the trade war. And particularly if you look at kind of

how I guess President Xi has responded so far. It seems like he has kind of confidence that domestically, I mean, things are going to be okay, such that it can afford him to kind of be kind of more resilient towards Trump's kind of tariff requests. I mean, it's actually, I think it's not the same case for other Asian Pacific countries. So for example, if we look at the China's neighbors,

like Japan, Korea, or even Taiwan. I mean, they are sort of sending convoys to the US to start negotiation. So I think from a China perspective, yes, I mean, they are kind of standing firm, but I also question, I mean, how, I guess, how much they can kind of, I guess, afford to sort of escalate this, given that all the neighbors seem to be bowing to the US.

Of course, I think there's a lot of considerations going on in the Chinese administration's mind. Basically, how do you balance the national identity versus the economic concerns? And that's a fine line and that's a fine kind of balance they need to strike.

I think the response have been firm, but they're not, I guess, they're also trying not to escalate the trade war with Trump. And if you look at kind of Remembe, that's the ultimate weapon.

that they can use. And so far, I mean, they have refrained from touching it or kind of putting a firm stance on it because I think once they use the currency, I mean, that would really set off a true trade war. So far, it's quite favorable

fun, but I think it's also relatively quite measured. It's hard to imagine that authorities in China were not prepared for this. They've dealt with President Trump in the past during his first administration. They understand his character. Does this necessarily lead us to suspect that as China kind of prepares to dig in and perhaps put up a fight that we're going to see much more in the way of stimulus to keep the economy firing?

yeah i think already i mean there are um talks that china would actually front load or kind of put forward um some of the stimulus they have already in place um for the rest of the year and i mean there i think it is credible um that they can actually put forward some of these stimulus

I think the Chinese government had anticipated the increase in tariffs, but I guess what kind of maybe have caught them a little bit by surprise is the way these additional tariffs are calculated and also kind of how much, I guess, in addition to sort of 10% or like the 20% that's already in place that the new tariffs are imposing.

So I think that sort of caught the Chinese authorities a bit off guard. And I think they sort of are trying all the different ways to mitigate these impacts in the worst case that if Trump doesn't back out. The other kind of oil branch that they can potentially offer to Trump, of course, is TikTok. And we've known that Trump has been trying to make a deal for the past few months. And he was actually very, very close to getting a deal.

But of course, I mean, with all the trade tariffs going on, that has been kind of put on hold by China.

So, I mean, if I think we've seen this kind of play out before in 2018 during the fourth quarter, there was also a steep market sell off of 20%. And that was, of course, partly because the Fed was actually quite hawkish, but also a lot of that was due to the uncertainty between China and US when they were actually fighting the previous trade war.

So back then, there was also a lot of back and forth. There was a lot of just, I guess, progress and also undoing of those progresses.

But it was all coming down to just kind of discussions and negotiation tactics. So, again, a lot of things on the table. And I think for sure we will be kept very, very busy still for the next few weeks at least. I was reading a piece in The Wall Street Journal on Apple planning to send more iPhones to the U.S. from India rather than from China as a way of offsetting the high cost of the tariffs.

And I'm wondering whether or not you expect other companies to follow suit, that Apple clearly will not be alone in this. Yeah, I think, of course, in the short term, it's hot for companies to just kind of move the whole supply chain overnight.

But of course, I think it makes sense for Apple to come out and sort of make these statements and for other companies to make these statements as well, because I think what's the, I guess the kind of implication, I guess,

from the whole kind of trade war. I mean, even if it ends, let's say in the next few weeks, is that companies need to rethink again about the whole supply chain, right? How dependent they are on China. And also, I think the, I guess the Trump administration is also trying to get companies to invest back in the US again by giving tax breaks

and trying deregulation. So I think that also prompts companies to rethink whether or not they need kind of a more diversified supply chain rather than just rely on China itself. Now, I also spoke to, I guess, some of the businesses in Hong Kong, Hong Kong business owners,

have a lot of investment in China, for example, in terms of garments, exports into US, supplying to names like Nike or Lululemon, etc. And I mean, they said, I mean, yes, indeed, there has been some kind of movements out of China into Vietnam in the past few years. But I mean, that has been very, very slow. And you can't just change that supply chain overnight. So there was

still will be in fact but I think over time yes I think the supply chain will be more kind of diversified than previously. Before these tariffs were announced it appeared as though the recovery in China was beginning to kind of take hold. I mean the property market was beginning to firm we had the deep seek moment and a lot of interest in high technology in China.

Are you concerned that what may evolve into a more intense trade war will really have a detrimental impact on the recovery story in China? Or do you think we talked a moment ago about the fact that stimulus could be on the way? Do you think China has the potential to absorb this shock and not be rattled too much by it?

Yeah, I think you're right. In the past two, three months, we have seen some green sheets from the China economy. However, I would say these are very, very early green sheets. When we look at data like inflation or CPI or property prices, they are still falling.

There are signs that things are stabilizing, but it's not yet in full recovery mode. So China's kind of cyclical economical state, it's still fairly weak, I would say. Now, of course, we have the deep-seek moment, and I think that kind of

wakes up the whole investing world to the fact that AI is not just a US story, but also a China story. And I think that combined with low valuation, low investor positioning meant that Chinese equities, which are kind of 30, 40% tech, had a pretty good rally in the first quarter of the year.

But I think that doesn't speak about the real economy. The real economy, although it's not going through a systemic crisis, is not strong. So export still makes up one third of China's economy and it's still very, very important for China. So I do think that if these tariffs are to stay, then the Chinese will have to do

a combination of things, for example, to push out larger scale stimulus. And I think perhaps combined with that, use currency as one of the tools to stimulate the economy. Now, there are, I think, I guess important also consequences from using these tools.

So I think the Chinese authorities would be actually quite careful about thinking about like doing big scale stimulus and also big scale kind of currency devaluation. Stephanie, we'll leave it there. Thank you so much for joining us. She is Stephanie Leung, chief investment officer at Stashaway, joining from Hong Kong here on the Daybreak Asia podcast. Want to understand trends shaping the global investment landscape?

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where money means more. Welcome back to the Daybreak Asia podcast. I'm Doug Krisner. There was no shortage of volatility today in the treasury market. I think it's fair to say that in the last several sessions, treasuries have been the big beneficiary of haven buying, given a lot of the turbulence that we have seen in the stock market. Not so today. Treasuries were sold

in what may have been somewhat of a liquidation to raise cash to cover losses in the stock market. And in turn, those lower Treasury prices produced higher yields right across the curve. At the long end, we had the 10-year up about 18 basis points.

Last quoted in New York at around 4.18%. Joining me now is Ahmed Riesco. He is the chief investment officer at Insignio Securities. Ahmed is based in Miami. Ahmed, it's always a pleasure to have a chance to benefit from your perspective. I'd like to begin by getting your sense of what we are seeing play out in the bond market today.

So obviously, it's a mutualist day. But listen, the Trump administration has actually been signaling to us that they're not really looking at stocks. They're actually focused on the 10-year and long-duration bonds, and they want them lower. Since January, the 10-year bond peaked at around 4.8, and it hit just below 4 on Friday at the close. So it's been a very strong move

up in price down in yield for the 10-year i think this is moving in the direction that trump and his administration wants it to i think what you saw today is a little bit of an unwinding of what was a very strong move down in yields uh and that potentially came on the back of some reassessments of how much

the Fed was going to actually be able to cut. At one point at the end of last week, when things got very uncertain, about five to six cuts were being priced in. That pulled back a little bit today. We're only having about four more cuts priced into the year, and that potentially is what drove these yields a bit higher today. I think that's right. I mean, if you look at the swaps market, they're pricing in about 96 basis points of easing for the year. Are you expecting these new tariffs to contribute to a much higher rate of inflation?

I do. I think, you know, well, let's preface this by saying it depends how long these tariffs actually stay on, right? So I think a lot of that view depends on whether you think these are permanent here to stay, negotiating to, or some combination of the two, which I think is most likely to be the case. This will have a one-time impact on inflation. So you'll start seeing these inflationary numbers start coming in in the next couple of months.

What the Fed does with it, though, is what matters, because traditionally the Fed will look through a shock like this and kind of ignore it. However, if they think we're spiraling into a tit-for-tat trade war with potentially higher and higher tariffs coming down the line, which, by the way, not our base case, but I'm just saying what the

point of view from the Fed might be, then they could potentially pause. But I don't think that's the case. I definitely think we will see rate cuts from the Fed this year. In terms of whether or not we're embarking on a recession, I mean, to the point that you raised earlier, it depends on how long the tariff policy remains in place. But if you had to bet today, I mean, are we flirting with a recession?

Oh, absolutely we are. We have a recessionary indicator. That number was sitting at around 15% in February. You saw the unemployment number last week. It was a good number. The U.S. economy is in a good spot. However,

policy uncertainty has gone so high so quickly here that these recession probabilities now sit north of 50%. They're actually sitting around 55% in our model. So a recession is now a base case for us, although we don't have a high conviction on that because we're just sitting at 55%. So I'm imagining that's what you're describing here for the U.S., right? And the question becomes...

whether or not those recessionary forces begin to permeate the global economy. Yeah, I think a lot of that is going to depend on what the severity of the U.S. recession could potentially be. If it's a mild one, we could see some parts of the global economy escape. They will all take a growth hit, a leg down, but whether they go into outright contraction or not is another story. However, if we do get a much more severe recession...

than what we would expect, then that will probably drag down the entire global economy with it. In a current environment, do you become defensive? Do you go into different aspects of the fixed income space? Are you looking at corporate bonds right now of really high credit quality? Are you looking at sovereign debt, maybe not just in the U.S., but other places around the world?

Not quite yet. What we've told people is that if they haven't de-risked already, now is not the time to do so. This is where investors actually do get into trouble because they end up chasing their tails and they're chasing moves that already happened. Now, we could still see some further downdraft in risk assets, equities,

um you know spread product high yield investment grade even we think the time will will will pop up um i think i could foresee that happening in the next couple weeks or so but a lot of this remember this is policy induced

so policy can quickly change this on a dime. You saw today, as soon as that announcement came out that there was potentially a 90-day stall in the implementation of the tariffs, the market did a 180. And then when the White House disavowed it, it went back down. So that is proof that this is policy-induced, it's policy-driven, so policy can undo it rather quickly.

Is it impossible to know right now as to whether or not there are problems with the plumbing? Is the financial system working well? Is there been enough order in the way that the market has been behaving not to become concerned that this policy crises may spill into a financial crisis?

Yes. So, so far, so good. We have not had any indications that the financial plumbing, like you said, is clogged up and would require some emergency moves from the Fed. But if any of that were to pop up, it is our expectation that the Fed would step in right away because

On the good end here, long-term inflation expectations, market-based inflation expectations have not gone up. In fact, they've been drifting lower towards the two-year target of the Fed. I'm talking about five and ten years out. So that gives the Fed room to cut rates if they have to and if they must in case of a financial crisis. Where are you seeing opportunity right now in global markets? Well, right now, the only places that we like...

in order to sort of make moves right now, long duration and develop market currencies like the yen, the Swiss franc, British pound sterling and euro. We're still not ready to dive into risk assets yet. I think discretion is a better part of valor. I think there will be opportunities if our base case comes true to nibble at some of these things a bit lower from here, but we don't think we're quite there yet because

If we do go even into a mild recession, I would expect another 7% to 10% drawdown in U.S. equity markets from today's closing levels. So is that what you're waiting for as the buy signal, another pullback of that magnitude? Or is there something else from which you are deriving signal?

Yeah, look, typically with no other information in hand, if we see a broad market like the S&P down 25%, we'll start buying because that's typically, that's the median drawdown of the index in any kind of recession, which means at that price, it's already baked in. It's in the price. So at that point, we would really like to take on risk. If the market were to fall even further, then we become really aggressive buyers of it.

So give me a sense of timeline here. I mean, how do you expect the remainder of the year to play out? Or is it simply too difficult to know? I mean, you can speculate in the fact that maybe Trump is using the strategy as a way of getting other countries to the negotiating table. And perhaps by mid-year, we have some new trade agreements. Is that a fair assumption to make? Or do you not want to place that bet at all?

Well, that's a very plausible assumption. In fact, I think it's the most likely one. However, in this environment, you have to be very cautious with any sort of forecast

or convictions that you might have. Any conviction you have should be very low conviction and you have to keep your eyes wide open and expect new information to update your probabilities. This is all about Bayesian probability updating as new information comes in. If this were to start escalating in the wrong direction, then you have to act accordingly and just

pull further back from the sideline. Ahmed, thank you so much for making time to chat with us. He is Ahmed Riesco, the Chief Investment Officer at Insignio Securities. Ahmed, based in Miami, joining us today 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. There are presentations.

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