South Korea's Lee Sworn In, Stocks Rise on US Jobs Data
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Welcome to the Bloomberg Daybreak Asia podcast. I'm Doug Krisner. So South Korea has elected a new president, while here in the U.S., the labor market is holding up in the face of a trade war. And in a moment, we'll take a look at today's market action in the States with Brad Bernstein. He is portfolio manager at UBS Private Wealth Management. But we begin this morning in Seoul and the voice of newly elected President Lee Jae-myung speaking through a translator.

While politicians may clash over interests and draw lines between factions, the people are not bound to follow those divisions. People are the master of this nation and politicians are workers who are responsible for people's lives.

Political quarrels may not be avoidable, but the people don't have to be divided and hate each other. That is President-elect Lee Jae-myung declaring victory in Tuesday's national election. Now, this is seen as a turning point for South Korea after former President Yun Suk-yeol's botched attempt to impose martial law six months ago and a subsequent constitutional crisis.

So, against the backdrop of the election, we got the latest reading this morning on Korean consumer inflation. Prices cooled in May, supporting the case for the Bank of Korea to continue easing policy settings. Consumer prices in South Korea rose at an annual rate of 1.9%. That compares with a 2.1% clip in April.

Now, the Bank of Korea is seeking to support an economy increasingly under threat from Donald Trump's tariff campaign. For a closer look, we heard from Rachel Minyong Lee. She is senior fellow at the Stimson Center's Korea program. Rachel spoke earlier with Bloomberg's Sherry Ahn and Paul Allen.

Rachel, thanks so much for joining us. Certainly wasting no time. The new president's been sworn in already. He's got a number of competing demands on both the domestic and international agenda. What's the first priority for President Lee?

I think he's got a number of priorities on the domestic front. Lee has promised to grow the economy. I think he will focus on various economic issues. He has promised a number of domestic political reforms. So I think he will focus on those as well. On the foreign policy agenda, of course, there are a number of pending issues between South Korea and the U.S., such as tariffs and defense cost sharing.

Well, it was a tight victory. Tighter than was forecast, but decisive nonetheless. But it was interesting that the two opposition candidates seemed to split the conservative vote. Can you talk to us a little bit about the challenges that President Lee is going to have when it comes to uniting a country that was so divided over the past few months? Lee has certainly promised to promote national unity. He walks into a very challenging situation because he is faced with a crisis

a very divided nation politically. If you look at the map, the electoral map, on one side you have everything is blue, right? All provinces, so the Democratic Party. And then the other side of the map is completely red. So people who voted for the People Power Party, which is the conservative party that lost this election. So it really will be a big challenge for the new president to bring the country together.

Yeah, especially when it comes to his support among men in their 20s. It seems that the younger male voters in South Korea, 20s and 30s, are even more conservative than male in their 70s. What does this demographic sort of societal look into South Korea tell you about some of the future policies that we could expect from the new administration?

So I think this, again, speaks to the divided nation that I just mentioned. As you mentioned, males in their early 20s, or in their 20s, many of them voted for the Reform Party's Lee Joon-suk. And they tend to be conservative. On the other hand, you have many of the women, South Korean women in their 20s, who voted for Lee Jae-myung, who has now just been sworn in as president.

I think that, again, this speaks to the divided nation, and President Lee will face that challenge of bridging that gap between genders and generations.

And, you know, female gender equality issue is something that he has promised that he would tackle as a priority. Yeah, he's very popular among young women here in South Korea. Let's talk a little bit about foreign policy, because, of course, that will also be very different from what we saw from the Yoon Seok-yeol administration. What do you expect to be the key changes? I think the key change will be that President Lee will probably,

aim to seek more equidistant policy between the U.S. and China. Certainly, the Yun administration made it pretty clear that it was aligning with the U.S., and it worked very hard to align many of its policies with the U.S.

President Lee Jae-myung on the campaign trail has said that he wanted to mend ties with China and with North Korea as well. So I think what we'll see is more of an equidistance policy. Now, I don't know how well that would be taken by the Trump administration, because I think that there will be pressure from Washington

for Seoul to take sides to make its position more clear. Also, relations with Japan will probably not be as strong as that relationship was in Yoon Sung-yeol's time. The UN administration worked very hard to mend ties with Japan. I think that the new administration in South Korea will

Lee Jae-myung has cautioned about striking a deal with the U.S. too quickly. What are we expecting on how he'll approach those trade negotiations with President Trump?

I think it'll be interesting to see how he responds to the various pressures that we can expect from the Trump administration. So far, President Trump has not said much about South Korea, mostly because South Korea did not have a president. It had acting presidents over the last six months, now that an election has taken place. I think we will see these negotiations moving more quickly. But I think it's

I think it's a little difficult to expect at this point or trying to figure out exactly how quickly or how well the new administration of South Korea will reply or respond to Washington's demands.

One of the promises that candidate Lee made was to make some changes to corporate governance, break the grip of the family-run conglomerates, the chaebols in South Korea. What are his chances of success there now that he has an opportunity to try and enact that agenda?

Certainly, he comes in with a great amount of power. He has won nearly 50 percent or about 50 percent of the votes, and we have the highest turnout in the last 28 years. So that speaks for something. And also the National Assembly is

under control by his party, which is the Democratic Party. So I think he will again, he has talked a lot about reforms, political and economic, and I think he will act swiftly to act on those promises. Just finally, what now for former President Yoon and his supporters? Because, of course, the former president is still facing charges.

I think this election outcome was a big disappointment for the PPP supporters, including Yoon supporters. And Yoon still is a

faces that criminal charge of insurrection. And again, I think this goes back to our earlier point about a very, very divided nation. Again, the opposition party's candidate, Kim Moon-soo, still managed to garner 42%. Now, still he didn't win, but that was a huge improvement over 2017 when the conservative party's candidate, Hong Joon-pyo at the time, only got 24% of the vote. So

So that's something that the new Lee administration will have to reckon with. Rachel Min Young Lee, good to have you with us, senior fellow at the Simpson Center's Korea program.

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Welcome back to the Daybreak Asia podcast. I'm Doug Krisner. In the States on Tuesday, the equity market advanced on signs the American labor market is holding up despite risk stemming from the trade war. The government reported an unexpected increase in the number of job openings.

Importantly, we'll get Friday's data on employment for the month of May. We'll talk more about that momentarily as we bring into the conversation Brad Bernstein. He is managing director at UBS Private Wealth Management. Brad is on the line from Philadelphia.

It's good of you to make time to chat with me. I mentioned the JOLTS data. This seems to support the Fed's assertion that the labor market is really in a good place right now, and maybe it would justify the Fed's maintaining kind of a wait-and-see approach. Do you think they have it right?

What we continue to see is the hard data continues to be resilient, you know, uh, related to the economy related to GDP, you know, projections now for the second quarter out of the Atlanta fed of potentially 4.6% GDP up from 3.8 for this quarter. Uh, whether it's the PCE that we got on Friday, that was evidence that, uh,

Inflation over the last 12 months grew at the slowest rate in four years, which, by the way, markets are now pricing in two cuts this year instead of one. I do think it's been fantastic that the economy has been holding up. But I believe the Fed is waiting for clarity on tariff policy if it wasn't for the tariff

uncertainty, I think the Fed would actually be able to start cutting this month, but we think they'll start cutting in September. - I don't know how much weight you would put in anything coming out of the OECD, but today the research group published a report. It indicated that the combative trade policies

have essentially tipped the world into an economic downturn. Now, for the U.S., the OECD is expecting GDP this year to decelerate sharply to a rate of around 1.6%. I'm curious as to whether or not you become a little concerned when you hear that fact.

Yes and no. What we've seen, if you take a look at what Wall Street is saying about where we'll be at the end of the year with the market, these numbers continue to go up and down with all the announcements of trade. So what the OCD is saying is that if where we are right now with tariffs continue to stay the course and they don't get better and decline, then yeah, of course, the growth is going to slow. So you're either on the camp that

tariffs are going to stay high or you think that the administration wants to continue to move in the reduction of the lower number on tariffs, which in that case, you know, bodes better for the economy and the market. So it just really depends on what side of the fence you are with where the administration is going to end up. I want to get your sense of U.S. fiscal policy right now. We've been talking a lot about that big, beautiful bill. It's in the Senate, up for debate.

And today, Elon Musk was publicly criticizing the legislation, calling it a budget-busting abomination. Now, yes, it is forecast to add around $2.5 trillion to the federal deficit over a decade. Do you expect this to sail through the Senate, or is there going to be a lot of horse trading here?

Well, it appears as of the moment they don't have the Republican support to prove as is. It will have to be moderated. If you listen to Rand Paul this morning, who was on TV talking about it, and the president responded in his unique way, and whether you listen to what Elon Musk said or you listen to what Senator Johnson said, they don't have the Republican support. So they're going to have to amend this bill immediately.

to be more friendly to the deficit in order to pass. So it'll be interesting to see what comes about over the next few days and few weeks. Would you expect the bond vigilantes to emerge to kind of push back on anything that may be super aggressive in adding to the deficit?

It depends. You know, once again, it depends on where this this tax extension of cuts ends up. You know, if as is, I think yields could move higher or steepen if if the Fed starts cutting later this year. And if they redo it to a degree and they don't add as much debt, yields can come down. So it'll be interesting to see what comes out.

of the Senate and the reaction by the bond market based on how much extra debt it adds to the deficit. You mentioned the fact that we do get the monthly employment report for May on Friday. I think in our survey, economists predict growth in jobs of around 130,000. The unemployment rate is expected to hold steady at around 4.2%. How does that square with the research team at UBS?

I think that's right about in line. But at the end of the day, you know, in order to get the Fed cuts, I believe we need the trade war to continue to move in the direction that it's been moving. We need, you know, hopefully on Friday, there'll be some positive developments with China. Hopefully in the very near future, there'll be positive developments with the EU and worst case scenarios continue to be removed and better case scenarios continue to be priced in. And, you know,

depending on those outcomes over the next week or two, I think markets have a great chance of moving higher into the end of the year based on the fact of how well the hard data is held up, how well earnings have held up. We continue to see companies guide higher as we did tonight in the technology space. And we think AI growth will power earnings growth in the next couple of years.

So, Brad, I'm curious, is AI the area where you're still finding opportunity or are there other corners of the market that you're attracted to right now? Well, I think AI got, you know, the technology sector was the worst place to be in the April sell-off and it's been the best place to be since the April bottom, interestingly. And

You know, everyone's talking about international. International had its day in the first quarter. But if you look at the lows of April to today, the U.S. markets have actually outperformed the world and led by technology dramatically. So if that trade continues, I think from these levels into the end of the year, U.S. markets outperformed led by tech.

If I ask you to diversify a portfolio away from tech so that you weren't so heavily concentrated on technology, what would be the first industry group that you would want to include in that?

So we want to be diversified in large cap, mid cap, small cap in multiple sectors and yes, have some exposure international, but overweight large cap U.S. equities. And what we've been seeing is that in the industrial and power company, in the industrial sector and power companies that sell to data centers reiterated their solid outlook. And obviously that bodes well for AI. So there's a lot of ways to see the growth and

And what's amazing about AI is that you don't have to own just technology to benefit from it. It's really impacting almost every sector. How are you viewing the bond market these days?

I think if you are conservative, you get paid to be short. You can stay under two-year US treasuries, have no risk, have no interest rate risk, have no credit risk, and get paid in the low fours. So that's a great place to hide out. But depending on the outcome of

the, uh, the trade war, or if you want to call it that, that we're in right now and the, and the outcome of the tax extension and what they do and how they impact that bonds, you know, interest rates on bonds right now, yields on bonds are the highest they've been in 18 years. So we've been really adding a lot of money, uh, specifically in tax freeze, uh,

you know, in the intermediate space. I think that, you know, getting clipping four to four and a half yield right now tax-free is a great place to be. Brad, we'll leave it there. Brad Bernstein is Managing Director at UBS Private Wealth Management on the line from Philadelphia 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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