US-China Trade Truce Sends Stocks Higher; India Equity Outlook
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Welcome to the Bloomberg Daybreak Asia podcast. I'm Doug Krisner. Certainly no shortage of celebration going on in the equity market today after a truce in the U.S.-China trade war. We had the S&P rallying by 3.3 percent. This was after the U.S. and China said they will temporarily lower tariffs on each other's products. And they've allocated three months to work toward a broader trade agreement. Here's President Trump.

Both sides now agree to reduce the tariffs imposed after April 2nd to 10% for 90 days as negotiators continue on the larger structural issues. And I want to tell you that a couple of things. First of all, that doesn't include the tariffs that are already on.

that are our tariffs. And it doesn't include tariffs on cars, steel, aluminum, things such as that. President Trump speaking earlier at the White House. And in a moment or two, we'll also take a look at the outlook for the Indian equity market. This is after India and Pakistan agreed to a full and immediate ceasefire mediated by the U.S. I'll be speaking with Piyush Mittal,

equity analyst at Matthews Asia momentarily, but we begin here in the States. Joining me now is Brian Krause. He is president and lead portfolio manager at Scharf Investments. He's on the line from Los Gatos, California. Brian, thanks for making time to chat with us.

Is this a one day wonder? Do you put a lot of, um, conviction into what we saw in the price action, or did this feel a little bit like a big short covering? It's a little of both. I mean, the worst case scenario is off the table. Uh,

And so that's a positive. But the art of the deal here, we've taken tariffs up to 145%, then to take them back down. Tariffs are still higher than they were six months ago. We still don't know exactly where they're going to land. And at the end of the day, tariffs are a problem for the market. And it seems like they're not going away. If you look at the UK deal, it seemed like 10% was the floor now. And so...

The market's happy because we're not going to have a trade embargo with China, which is what we had with 145%. But still, we're going to have higher tariffs, and that's going to be inflationary and bad for the market. Okay. So, let's go to the Fed next. Right now, the market seems to be pricing in just two rate cuts between now and the end of the year. Is that about right, in your view?

Yeah, I mean, I'm not even sure you might not even get any rate cuts unless you get a recession. The reality is with all the volatility in the tariffs, I mean, you mentioned before earlier, the 10 year was up today. If I'm the Fed, you know, I got to wait and see what's happening here because, you know, inflation expectations went

went to the moon. And I'd be worried if I were the Fed that you might see inflation coming through, especially because, as I just mentioned, tariffs are not going to zero. So I think the Fed's just going to have to be in a wait and see mode and we'll have to see what happens. But it could be that the Fed does only do two cuts or if the volatility continues and we get inflation coming through

after these expectations, maybe it's no cuts for the year. So we have a 90 day period for conversations to ensue now. Do you have a sense up until this point who has the upper hand? Did China somehow take advantage of maybe a lot of what President Trump has been hearing from the business community?

Oh, yeah. I mean, China is declaring this as a victory, and I think it is a victory. We were saying a while back, if you look at trade deficits, the counterhand of that is net foreign investment. So since 1971, we've been running

ever increasing trade deficits. And the counterhand to that was we as the United States were bringing in lots of foreign capital. If we really were going to take our trade deficit to zero, that would mean capital coming out of the U.S. You saw that with the bond market rates starting to go up. You saw that with the dollar falling. And so I think that really pushed the administration's

and it made them have to walk back a lot of the policies they were trying to go for. In the end, you know, we went from trade embargo to China to now they've got this pause. I think they're seeing it as a victory. You know, we'll see where we land here. But I think the markets sort of told the administration, you can't go to zero trade deficits. And this trade war is probably not going to end well for the U.S. if the dollar keeps falling and rates go up. So that said, how are you playing the current market?

Well, you know, we still believe that lower risk securities are a better way to be. That's where we've been positioned for a while. You know, names like Heineken that don't have much U.S. exposure but are trading at really cheap multiples and have good growth, even names like Hershey. So some consumer staple names.

But some tech look good. I mean, Microsoft has just had a tremendous quarter. It had come off with some of this tariff nonsense. And ultimately, we still think that's one that can keep growing. And it's got insulation not only from tariffs, but economic insulation, too, because the trends that are pushing the growth of a company like that are still going to be in place. So we still think there's places investors can look.

But I'd be a little careful with the potential for a recession coming. So we had the tariff story, obviously, at the top of the news cycle. Let's not forget what happened in Washington, where the House Tax Committee released a draft plan of a multi-trillion dollar tax cut.

bill, it aims to cut taxes by more than $4 trillion over the next decade and reduce spending by at least $1.5 trillion. To what extent is this tax plan influencing the market right now? There's so much news, as we were talking about before, it's hard to parse it apart because you also had an executive order, which was a major deal for pharmaceutical prices, PBM. So you've got all kinds of crosswinds happening, just coming rapid fire.

the day I think that the budget plan is very important for the markets. I think it could be problematic for the bond market if we're going to be running big deficits. And at the end of the day pro growth tax policies are important to the stock market. So you've got counter winds to which markets are winning and

or rooting for what. And I think the Republicans have a long road ahead of them to get something done, given that some of them are worried about salt and everyone has their own little thing they're worried about. So we'll just have to see how it plays out. But I think it is important for the market. I think many market participants such as ourselves are in a wait and see mode before you really make big

bets on what's going to come out of Washington. There was a lot of strength in big cap tech in particular today. A NASDAQ comp was up about 4.3 percent. And I think the NASDAQ 100 is back in a bull market. How are you feeling about big cap tech right now?

Well, I just mentioned we like Microsoft, but generally speaking, most of the big tech we don't like. They're still expensive. And one thing that's going to come out of the trade war is potentially still retaliation on some of these large companies.

tech companies that are requiring big markets to play in. While there's selective ones we like, there's other ones we think are just too expensive relative to the growth. At least, that's our view. How much of that is tied to maybe a little too much enthusiasm where AI is concerned?

Yeah, 100%. I mean, these stocks have really run high and hard, and some of them are going to be benefited from AI, and some of them it's really unclear. I mean, Google could be a beneficiary of AI, but it's also an existential risk for them.

It's also a potential risk longer term, but in the shorter term, they're hoping it gets a pop to iPhone sales. So I think investors have really just put all the good stuff in and pushed all of them up and just the easy button to hit is buy big tech. But it's not necessarily going to benefit all of them in the same way. And it's not necessarily going to be an undoubted positive.

positive because names like Google could actually get disrupted by it. So in the Monday session here in New York, we had the NASDAQ Golden Dragon China Index, which obviously measures U.S. listed Chinese shares. It was up more than 5 percent. And this came after a big rally in Hong Kong Monday where the Hang Seng was up about 3 percent. How are you feeling about opportunities offshore right now, especially in Asia?

We think there's good opportunities as there's a big difference between U.S. and international stocks.

We're a little bit burned by China because of some of the past policies, and it's a little unclear if they're going to be really pro-capitalist policies. But outside of there, we like Korea, Japan, Europe. And so we like a lot of international markets, be a little bit more cautious on China specifically. But there is a big valuation discrepancy between the U.S. and the rest of the world. And one of the things about tariffs in the U.S. is we think that will be a

It will benefit international stocks. So would you be using a day like today in the U.S. where we're up big to kind of reduce your exposure to risk assets in the United States?

It depends on what those risk assets are. But yeah, I think in particular, if you've got some of those big tech stocks that could be affected and have made some good money, it's an opportunity to take a little off the table and move into some of these international names. I mentioned Heineken, we like Samsung. There's a number of names we think are really good that you could be pivoting into. Brian, it's always a pleasure. Thank you so much for making time to chat with us. Brian Krause is the president, also the lead portfolio manager

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Welcome back to the Daybreak Asia podcast. I'm Doug Krisner. Stocks in both Pakistan and India rallied in the last session. That was after a ceasefire agreement between these two nations. Pakistan's major benchmark finished up by more than 9%. And in Mumbai, the nifty 50 was up about 3.8%. Now, both markets have been shaken recently.

by military clashes on the border between India and Pakistan. Foreign investors had been on a 16-day buying spree until last Friday. Joining me now for a closer look is Piyush Mittal, Senior Equity Research Analyst at Matthews Asia. Piyush is on the line from San Francisco. Good of you to make time to chat with me.

Talk to me a little bit about what you've seen develop between India and Pakistan and how that may have changed your view or at least outlook for the region. So as it relates to India and Pakistan, I think the two countries have had a fairly tense relationship over the last 75 years. They've fought multiple wars and have seen multiple attacks.

terrorist-like situations. But I think over the last many years, while we've seen such incidents play out with a fair degree of frequency, but we've never really seen the situation in terms of it escalating into a war-like situation or a war being fought on back of this, right? So

Given that context and given what we've seen over the last 25 years, I don't think we were in the camp of seeing a full-blown war, though I would say the situation did escalate more than we thought.

But it's good to see that, you know, calmer heads have prevailed. Both countries, you know, have fairly poor populations. So to the extent that they have to fight a

continuous war is not going to be good for fiscal deficit on both sides. So in that sense, I think it's good that ceasefire was announced and it looks like it's business back to usual. In our view, given what has played out, it really does not change

Much in terms of the outlook for investments or equity returns in India, India's GDP growth over the last 15, 20 years on an average has been roughly 6% to 6.5%. We continue to think that's something that will sustain growth.

Inflation in India is actually coming down. Oil prices are down. And on back of that, we're seeing central bank actually cut rates in the economy, which is again sort of positive for GDP growth. Inflation reduction is also helpful for growth in consumption. So we expect

you know, consumption, which has been weak in the economy for the last, you know, three or four years is actually expected to pick up. And then all the global geopolitics situation, I know you might have a separate questions, but it looks like, you know, India is likely going to be a net beneficiary and India should be a bigger part of the global supply chain, you know, in years to come. And that again,

should only help with the economic growth and the GDP growth of the country. Certainly, as American companies try to diversify themselves away from the China story, yes, very much the India growth story was largely intact until this skirmish last week. And I'm wondering if you talk about the influx of

foreign capital into a market like India, whether that tension between India and Pakistan remains the type of dark cloud that really has the threat to hold back a lot of capital inflow? I certainly don't think so. I think to an extent that, you know, the event has just recently happened. It is likely to, you know, potentially maybe create some wait and watch mode in case there is another escalation.

But our view is, given the involvement of United States, again, given the opportunity in terms of being a bigger part of supply chain that India has given all the geopolitical tension.

I think, you know, cooler and calmer heads will prevail. We don't expect any further, you know, escalation of the situation. And to that extent, as that ceasefire holds, peace holds, you know, for an extended period of time, matter of weeks and months going forward, we would fully expect, you know, some of the foreign forces

investments to actually come back to the country. So we can talk about businesses moving into the Indian market or at least expanding there. But before we get there, talk to me a little bit about how you understand the macro, particularly with the inflation story in India. I think the macro situation in India is actually very good right now, given one of the biggest

you know inputs into inflation story in india is actually oil and oil where it is currently around 60 to 75 uh if oil holds in that range um you know it it is it not just helps in bringing down inflation it is also it also helps in containing the you know current deficit you know that india has uh inflation the last reported number was 3.34 um

on the CPI side. And anytime you have a number which is below 4%, I think that gives the central bank, Reserve Bank of India, headway or headroom to actually reduce the rates. We've already seen two rate cuts amounting to 50 basis points. And it is our expectation that through the course of revaluating

remaining calendar year, we should expect another 50 basis points and maybe further 25 basis points in the three months of the first three months of calendar year 2026, right? So we are

Looking into moderate inflation, moderate inflation feeding into monetary policy easing. We also are of the view that this is going to feed into lower 10-year yields in the country. So current yields are around 640, and that's down almost 40, 50 basis points from what it was earlier in the year.

And our view is that you can see another similar 40 basis point correction before, you know, down to maybe 6% level before the 10-year actually stabilizes. And if it were to play out like that, you know, it will be one of the lowest rates. Already at 640, it's one of the lowest rates on the 10-year side that the country has seen. And another 40 basis point reduction would mean that it's the lowest rates that India has seen, you know, recently.

So you mentioned a moment ago that India, you expect India to be a beneficiary of what's been happening between the U.S. and China. And when you said that, I immediately thought of Apple as an example. Are there other examples and are they primarily in the technology space? Sure.

So electronics would be one of the biggest spaces that you're seeing the transition happen. Um, uh, you know, many, many different electronics manufacturing companies, uh, which are not just on the mobile side or the smartphone side, but also on the laptop side and many other things. Right. So, so another example would be, um,

air conditioner, you know, air conditioners that might be coming into United States, which currently possibly are coming from China. And almost all of them are actually coming from China. But India, over the last three, five years, has actually built a fairly large ecosystem of building consumer durables. So 10 years back,

Almost 70% to 80% of what goes into a consumer durable in India actually was imported again from China. But over the last three, five years, that entire supply chain has gotten localized to where almost 80% to 85% of the bill of material of any consumer durable is actually now locally produced and manufactured, right? As that domestic manufacturing is happening, they are also becoming more and more competitive, right?

with Chinese players in order to be able to become a viable supplier for a U.S. company that potentially was buying from China can possibly look at procuring the same from India. And with the relative difference in the tariffs that we are seeing, hopefully likely to prevail between China and India, that competitiveness of an Indian supplier

only increases versus a Chinese company. So beyond just these smartphones, consumer durables is another story. And we are seeing that in many other small, small items where that might actually be true. What about barriers to entry for American companies that would like

to do business in India? Do you expect the Trump administration to work with Prime Minister Modi to successfully navigate a type of trade agreement where

U.S. industries would have a fair shake in India? I 100% expect that, right? I mean, I think there's been already certain announcements which have been made, for example, on the automotive side, right? In the past, you know, an imported automotive or an imported car was actually taxed

or tariff very high when it was coming from outside. I think those tariffs are coming down. I'm not sure if it'll go down to zero, but from what it was, maybe 150%, it could likely be slashed down to half or even

even less than that, right? So certainly I expect, you know, President Trump to negotiate certain things which will help and reduce the barriers for, you know, companies in the United States to be able to do business in India. Payush, we'll leave it there. Thank you so much for making time to chat with us. Payush Mittal, he is Senior Equity Research Analyst at Matthews Asia, joining from San Francisco 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. There are presentations.

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