Global Markets Gear Up for Trump's Inauguration
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Bloomberg Audio Studios. Podcasts, radio, news. Welcome to the Bloomberg Daybreak Asia podcast. I'm Doug Krisner. U.S. markets will be closed Monday in observance of Martin Luther King Jr. Day. And Monday will also feature the inauguration of Donald Trump as the 47th president of the United States. We are expecting a slew of policy announcements.

And Asian markets may be the first to react. In a moment, I'll be joined by Shana Sissel of Banrion Capital Management. We'll get her take on what the Trump administration will mean for markets.

We begin this morning in Hong Kong to look at how China is bracing for a second presidency of Donald Trump. I'm joined by Hua Cheng, Director of Asia Credit Research at Alliance Bernstein. Hua, joining us from Hong Kong. Thank you so much for making time to chat with us. Unlike the years of the first Trump term, China is now struggling with a weaker economy, I think it's fair to say. And given very weak domestic demand,

The economy we have seen has become a lot more reliant on exports than it was during the first Trump trade war. Are you concerned about the negative impact that tariffs might have on the overall economy in China?

As you rightly pointed out, U.S.-China relation has always been a very important watch point for us. It has always been a very important driver of how investors view this region, view Asia. And what we're seeing is that China's economic growth, it is indeed decelerating.

But we do want to point out that, you know, we really had a policy pivot in September last year that shows that China is really aware of the slowdown and will take more forceful measures to address the slowdown.

And also when it comes to external pressures, right? I think with the new administration in the U.S., what we are going to have is an acceleration of trade tension, i.e. a trade war in the form of higher terrorist pressure.

for the region. So the impact of U.S. tariff will be greater on China than to other Asian economies. So that is something we're going to be watching very, very closely. But if you simply look at the number, I think China's

China actually successfully reduced the reliance on U.S. export over the past years, at least from Trump 1.0.

That is very true. But if you go back to what we learned last week, GDP for all of 2024 was 5%. But what was really striking about economic growth in China at the end of last year during the fourth quarter, I think the number was 5.4% growth. So clearly, many companies were concerned about growth.

how tariffs might impact their business and they were trying to get product out of China sooner rather than later. Do you expect economic growth to hold up now that basically that event has subsided?

we think it's very important to engage with the companies to understand what they are doing in order to assess the impact. First of all, I think given the fundamental headwinds to China economy, to Chinese corporates, we don't want to be too pessimistic, right? I think it's important for us to have a very balanced view.

As you said, the economic growth, it is slowing down. And higher U.S. tariff, it is the fundamental wind. But a very important point we want to make, we want the audience to know is higher U.S. tariff does not really necessarily translate into the worsening of

of corporate credit fundamentals. Because if you look at most of the Asian corporates, most of the Chinese corporates we look at, a very important point I want to make is that they are more driven by domestic demand, right? Or they have very little reliance on US for supply.

We may have a rollback of U.S. climate-related policies under the Trump administration, and that might dampen the demand for electric vehicles or new energy affecting the companies in these two sectors. But do remember that China has reduced its reliance on the U.S., both from a demand perspective as well as from a supply perspective.

So are we really going to see, you know, with a higher tariff imposed on China, are we really going to see a transformation or a significant change of the profiles of the fundamentals of Chinese corporates? We'll see. But our answer is, you know, it is not likely.

To your point about how China's been able to diversify its export markets, I think exports to Vietnam soared to a record last year. Yes, it's a very small market, but it helps to illustrate the point that you're making. Hua, when you look at the various industries, I know you're talking about the credit space in China. Are there certain industries right now that have been doing well enough where the opportunity in credit for those industries is compelling?

We still like the auto industry, right? The tech, hardware, internet companies. Yes, there will be external pressure in the form of higher U.S. tariffs, as we just discussed about. But again, as you said, these companies...

they are not without mitigants, right? As we discussed, right? It remains a solution for them to move at least part of the production out of China to other countries to really diversify their supply chain. Or they can sell more products to non-U.S. or other Asian economies

And, you know, if things really, you know, is getting worse, for example, we're going to have like a reduced volume and more price cuts as a result of U.S. tariffs. Right. We're going to have industry consolidation. And out of that, there will be winners emerging from that consolidation process. And that is important for us to identify the winners as they invested.

So back to your question, we do believe that there are sweet spots in Chinese corporate credits like the auto industry, the quasi-sovereign, the state-owned companies, the hard tech work companies, and the internet companies. Remember, this company, they have a very strong market share.

positions. They are primarily domestically focused. They have a very strong balance sheet that help them navigate any any any volatilities. So we want to stay constructive here. What are your expectations for additional stimulus from the government in the year ahead?

That's a very good question. I guess the good news we have so far is that we really had a policy pivot in September last year. It gives a lot of comfort to investors, that shows that China is really acknowledging that the economy is slowing down, so we have to do something about it.

But what we hope to see more is, you know, more monetary policy support and more fiscal policy support, more importantly. So these are really needed to support the economy, to stabilize the economy. So what we will pay close attention to is whether there will be supportive and, more importantly, forceful measures to support, first, the property sector. That is still struggling.

and domestic consumption. Is it possible to stimulate on the monetary side and the fiscal side at the same time and still create a scenario where the currency remains strong? Or is the risk then that the UN would weaken a bit further? That's a very hard question. I believe that's more of a, you know, if you look at China's central bank, right, they are in a dilemma to sort of strike a balance between lowering the funding costs for the economy by cutting rates

versus stabilizing the economy as well as stabilize the foreign currency. Eventually, I think we have to figure out what really matters to them. But we do acknowledge that if the central bank further cuts interest rate, it's really going to put downward pressure on banks' profitability. Because whenever there's a rate cut,

it is going to hurt banks' profitability. And we need Chinese banks to be able to grow at a reasonable pace in order to provide enough credit to the economy to support the growth. So it is a dilemma to China. I'm curious to get your take on whether there are opportunities in the credit space in other jurisdictions in Asia right now. What are you seeing?

If you look at other jurisdictions, first of all, higher U.S. tariff, again, under the new administration, it is going to be a headwind not only for China, but for the entire Asian region, right? Nobody is really immune. So as a result of that, I think it's fair to argue that a world is going to tilt it

It's going to tilt towards the downside as a result of the higher U.S. tariff for the whole region. So if you look at the external environment, it is less certain than before. But the impact will be greater to export-driven economies in Asia than to the rest.

So, you know, what we'll be watching very closely is if there's a stronger fiscal policy that can be implemented to mitigate the hot wind for those countries. So outside of China, you know, overall speaking, we're still constructive because we do expect, you know, most Asian corporates to report stable fundamentals in 2025 in the form of, you know, still decent growth of

revenue and still stable credit metrics in the form of leverage and margins. Out of that, I think if you really ask us to pick up the sweet spot, we still like Indian renewables. This sector received a lot of policy support and reports and will continue to report credit fundamentals. A lot of the positive is already in the price. Other than that, I think there are certain pockets

of opportunities in Asian credits like Southeast Asian quasi-sovereign fund issuers or even some companies from Korea. Again, security selection is key. We'll leave it there. Hua, thank you so much for being with us. Hua Chung is Director of Asia Credit Research at Alliance Bernstein, joining us from Hong Kong here on the Daybreak Asia podcast.

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Welcome back to the Daybreak Asia podcast. I'm Doug Krisner. U.S. markets will be closed Monday in observance of Martin Luther King Jr. Day. And in Washington, the forecast is for extremely cold weather. And this has forced the inauguration of Donald Trump indoors. And then after the festivities...

Trump is expected to sign executive orders for major changes to things like immigration, energy and government hiring policies. Joining me now is Shana Sissel. She is the president and CEO of Banrion Capital Management, joining from Chicago here on the Daybreak Asia podcast. Shana, thank you for making time. It's always a pleasure.

So if we can look back to the initial rally of the equity market after the election, I think we can agree that some of those gains have evaporated. I'm thinking small caps, some of the banks, even energy stocks have lost momentum. What is the market on the equity side telling you right now? So I think the initial rally was sort of a relief rally. There was this real concern about the political situation.

policies of each candidate, some more favorable to the markets and some not. And so the market in general, not a political point, but in general felt that a Trump win was more positive for stocks. And that's why we saw that rally, because the market also likes certainty. So once it kind of knew where we were going, it took a breath.

But now we know who is in charge, but then becomes the question of, well, what does that mean for policy? I know it's mostly favorable for equities, but there's concerns about tariffs and tax policy and all kinds of other things that people are concerned with how that will impact the overall economy and how that in turn will impact policy.

What about the inflation story as a part of the economic policies that we're learning about? You mentioned tariffs, tax cuts, a part of that story as well. Is there the recipe here for much more in terms of a pickup of inflation? There could be. But if we look back on the first Trump administration where there was tariff policy and there was discussions of tariffs, things of that nature, we didn't see an uptick in inflation. Now we're obviously down.

not in the same place we were then where interest rates were different, inflation was different, we're coming off elevated inflation rates. And so there's obviously things can impact inflation at these levels differently than it might have been in the past. But I do think that they're worth

A DISCUSSION. THE DEBATE REALLY IS HOW MUCH OF AN IMPACT IT WILL HAVE ON INFLATION. AND I THINK THERE ARE PEOPLE ON BOTH SIDES THAT MAKE GOOD ARGUMENTS, ENOUGH SO THAT I DON'T FEEL COMFORTABLE SAYING, WELL, YEAH, TARIFFS DEFINITELY RAISE INFLATION. I MEAN, IN THEORY THEY SHOULD, BUT THERE'S A LOT OF NUANCE TO THESE THINGS.

I think that what we're seeing, though, is the market's concern about the nuance because nobody really understands. And yet after the Fed's December meeting, Chair Jay Powell seemed to suggest some members of the committee were a little concerned about the risk of higher inflation as a result of some of these unknown policies. So that, I guess, takes us to the Fed. What are your expectations in terms of the amount of easing we're going to see this year? Or is it simply too soon to say?

Well, I think that the most recent inflation number that just came out was supportive of the Fed continuing to ease. But one data point does not make a trend. So I think the Fed is right to be concerned about inflation.

policy changes impacting inflation. I think the Fed was right in mentioning that. I think the folks on the committee that raised their concerns have raised good concerns. I think cutting was not what I would have thought they would have done. I would have thought they would have held off to see what the policies were going to be before making that decision, especially when there was no economic

reason. There wasn't any data that came out that suggested that there was something to be concerned about. That said, I don't expect the Fed to cut. I think a year ago it was six cuts. Then it was four. Now it's looking more like two. I think that's a realistic probability. There's also an equally realistic probability that they cut not at all, especially if the economy remains robust. Inflation is

seems to be somewhat under control. And then you have to think about, you know, if you have a robust growing economy, how much do you want to bring rates down, especially if you consider historically rates aren't particularly high, just because we had a period where they were basically zero doesn't mean that that's the right policy either. So given everything you're saying, how does an investment strategy change in 2025 versus what seemed to work last year?

Well, I think the greatest risk as an investment is anything related to interest rate policy. That's the most uncertain aspect of what we're facing in 2025. Inflation, interest rate policy, and Fed decisions. And for me, because of that, I'm going to stay away and find ways to get diversification in my portfolio outside Fed.

potentially a fixed income, traditional fixed income, because that's going to be the most volatile. Now, I could be completely wrong. I'm wrong from time to time. We all are. But I do think that for me, I'm positioning portfolios being a bit more

constructive for things like alternatives and equities and a little more negative on fixed income as an asset class at the moment, given the uncertainty in the rate environment. So within the equity market, are there themes that we can tease out? Is artificial intelligence still one of the trends that you favor right now?

Yeah, I mean, AI is a long-term trend that has a lot of potential ways that it can impact the economy above and beyond technology. I mean, we get so caught up on AI and the tech giants that we don't think about how AI can impact other aspects of the economy as well, and every sector is impacted by it. I think

If we think about policy under the new administration, I think energy companies could do better. So maybe we take other looks at energy and materials, things of that nature, which could do better in an environment where there's an administration that is not necessarily anti-energy.

like oil, anti-gas, things of that nature. So these are the things you need to worry about. Healthcare is a place that I would be paying a lot of attention to. I don't know good or bad, but it's a sector that I really want to pay attention to because since that's such a hot button right now, as we think about the major changes that continue to be considered in our healthcare system and the issues that stand there. So those are kind of some of the places that I think I would personally be looking.

I don't recall whether in the past when you and I have spoken, you've addressed the crypto space. Does that seem interesting to you right now? I've always been interested in crypto since I sort of had my eyes opened by Matt Hogan of Bitwise back in 2018. I, like many folks who didn't understand the space, had a level of skepticism that he took the time to teach and I learned.

I think that crypto as a whole, there's like the speculative crypto, which is like any kind of coin that has nothing behind it in blockchain. That's really speculative, like the Trump coin and Dogecoin and things of that nature. And then there's the ones that actually have practical application like Bitcoin and ETH and Solana and things of that nature. Those ones I'm more interested in because at the end of the day, as far as I'm concerned,

It's not the crypto asset like Bitcoin or Ether that has the value. It's the blockchain it sits on. So the evaluation for me becomes about the use case for those blockchains and how that grows and how it can be practically applied. So that's where I pay attention. But I'm very bullish on crypto. You were talking a moment ago about the need to become maybe a little bit more diversified this year. And I'm wondering whether that would include going offshore. Exactly.

It could. You know, you got to think about some of the, especially in Europe, there's real limitations to growth. But in Asia, there's some really interesting opportunities. You know, China has been really beat up. I'm not typically a China bull for a number of reasons, but it's hard not to recognize the fact that valuations are very attractive in China. And then some of the other Asian economies are very interesting as well. South Korea, if you think about India, which

is in Asia. Those are areas that are interesting. And I think for a long time, we've really been so U.S. focused. These are super cycles. You tend to have many decades where one outperforms the other. But, you know, as we look to go into 2025, I don't think

it would be wise to ignore the opportunities that you can find in the international markets and the opportunities that sit there. Shana, good stuff. Thank you so much for making time for us. Shana Sissel there. She is the president and CEO at Bannery on Capital Management. Joining us from Chicago 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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