US Stock Selloff Extends to APAC Markets
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Welcome to the Bloomberg Daybreak Asia podcast. I'm Doug Krisner. It was very much a risk-off day in the U.S. Equity sold off, especially the big tech names, and this selling wiped out more than a trillion dollars in market value for U.S. stocks. Corporate bond sales were scrapped as a lot of fear and uncertainty spiked, and in a moment we'll be speaking with

Scott Landner, he is the Chief Investment Officer at Horizon Investments. But we begin in China, where mainland investors bought an unprecedented $3.8 billion worth of Hong Kong stocks on a net basis in the Monday session. Joining me now is Ben Harburg. He is the founder, also portfolio manager at Core Values Alpha. Ben is based in Beijing.

Ben, always a pleasure. Thanks for making time to chat with us. What did you make of the buying yesterday in Hong Kong? Can you give me some insight here? Our view is that people are finally kind of coming to their senses and also starting to feel safe again that they can come back to the public markets.

The Chinese had stayed away largely to do with the kind of austerity environment that we've encountered of real estate prices collapsing, rock bottom portfolio values, lack of really a consistent stimulus package, a fear of where people's next steps

paycheck might come from. And we really felt a bottoming. And that's the reason why we started our ETF 18 months ago was a view that the market was itself bottoming and that we were in a counter cyclical environment vis-a-vis the United States. These two economies are no longer coupled at all.

And the U.S. was at unprecedented heights and in most instances, I think, on irrationally valued most many, many companies. And so I think what we were waiting for and what I think people in Hong Kong have been waiting for was we're kind of some of these catalytic events. And one of them, for instance, was this deep seek moment, right, where kind of exposed a bit of the hubris of U.S. tech, but also the potency and resilience of Chinese technology. And then you had China.

You know, you had historically the government in Beijing kind of at odds with technology entrepreneurs. Just in the last week or two, we had meetings where high profile entrepreneurs like Jack Ma met directly with Xi Jinping. We had during the Central Party Congress or the National People's Congress, a focus on technology and kind of a description of it being the core and main driver of future growth in the country. And so the net result of all that

bottoming stability, stabilizing power, is that I think people were recognizing that a lot of these equities were significantly undervalued. They see a secular support from the Chinese government and they are therefore buying. Well, let's talk a little bit more about the support from the government, because as part of the two sessions meeting, we heard from Premier Li Cheng and there seems like a lot more on the way in terms of government stimulus. And I'm wondering if you kind of make that connection with the sentiment that we had in the Monday session.

absolutely i mean again so our we had kind of four i would call them four levers of of growth that would drive the chinese stocks significantly higher than where they've been valued today one was that stabilization of real estate and public portfolios where people maybe became less afraid to spend or take a bit more risk

Two was this future stimulus package, which has been promised but really kind of still continued to dribble out. And obviously we got kind of solid rhetoric around that during the Congress. The third was that reevaluation of equities.

as a result of deep seek or whatever else. And then the fourth is that there would be some kind of pragmatic trajectory for U.S. trade dynamics. So if any one of those four levers is pulled, and it doesn't have to be all four, we think we'd see an uptick in equities and uptick in valuations. And we're getting kind of inklings now of two out of or three out of four of them.

Yesterday in Australia, one of my colleagues sat down with Malcolm Turnbull, the former PM of Australia. And essentially what he said is that the way in which President Trump is behaving, his treatment of longtime allies is providing an opportunity for China, especially if President Xi Jinping can essentially do the opposite of what Trump is doing, which is to say being consistent, respectful, respectful.

predictable and maybe that's a way of inviting some capital into China. What do you think? So certainly the ETF numbers, the public equity numbers would tell you that global capital is starting to come back to China and it's staying away from some of the markets that were kind of net recipients of some of the off flow. And that was, you know, the likes of

Japan or India. So I think that the capital is certainly coming back. China does have a unique moment in time here. They were already the leading trading partner to most of the key economies around the world. They were already kind of perfecting the ability to kind of take global

their technology companies, kind of next generation technology companies in a way that their hardware was already going global. And so the Chinese today are dominating in electric vehicles in, say, the Middle East or cross-border e-commerce in Latin America, digital social networking and gaming, obviously, through the likes of TikTok across the world. And so it's an opportune moment for them. And they do have the ability to differentiate from the West. And I think

What really is critical for them is stimulating domestic consumption, because right now they're operating in the trade deficit or surplus, depending on what side you're sitting on, with almost every one of their trade partners. And if they can somehow figure out a way to reconcile that a bit, to buy more goods from those countries and make it feel more reciprocal, plus being more stable and less emotional and more predictable, then there's a really unique moment in time for China.

I want to get your view on the tariff story. We know what the U.S. is doing to Chinese imports into the United States, and yesterday, Chinese tariffs of up to 15% on U.S. agricultural goods took effect. Do you think this is something that markets are going to have to deal with for a while longer, or is this part of a strategy and negotiation and will have resolution in short order?

So it's a dance. And to some degree, markets were anticipating much worse, right? I mean, we'd heard, you know, things like 60% tariffs. And so there was this kind of fear already baked in. And so when that dropped to 10% and now increased up to, you know, say 20% on certain goods,

from the U.S. side, that felt like a discount on the trade. And then, you know, the Chinese, I think for their part, obviously in kind of in the first inning, they tried to take a very soft touch. They didn't hit back hard against the U.S. in terms of the tariffs that they were imposing onto goods coming into the U.S.,

or coming out of the U.S. into China. And then this time around, it feels like they are rationing it up. They're taking a little bit of a playbook, the Canadian playbook, and going after some of those agricultural products that are coming out of swing states or states that were supportive of the Trump campaign. And so I do think there will be this kind of tit-for-tat dance. But I do think that President Trump is highly transactional. He wants to do a deal.

We've seen deals being struck in record time elsewhere. And so I think if the Chinese are willing to come to the table with authentic kind of ability to enforce what they agreed to, because the problem was in trade deal 1.0, they didn't do what they said they were going to do. So if there are some types of protections against that, I think you'll see a deal done. And that will be that fourth lever that I mentioned that will really drive upward Chinese equities.

Over the weekend, we learned that consumer inflation in China was down in the month of February. So, we're deeper into deflation with the CPI falling seven-tenths of 1% from last year. And I think we're below zero now for the first time in 13 months. Obviously, this is a critical problem. Are you confident that Beijing can solve this conundrum? It didn't shock us to see those numbers. We've not expected any real improvement around those.

It is still a very tough day-to-day market in China, so still hard for even consumer-facing businesses in the discretionary spending space to attract much capital out of

people that are really bunkered down and worried again about the equity value in their home and their stock portfolios and worry where their next paycheck is going to come from. So we still don't feel that livelihood jumping back into the Chinese market. Our thesis was simply that Chinese equities, even in this

high deflationary environment were still massively undervalued relative to their Western peers and therefore deserving of a re-rating, which would drive upward the value of RETF and others. And so we didn't need to see an improvement in the consumer picture in China to Yip Rewards

reap rewards. But I think that will come as all those kind of kind of components stabilize around stimulus and real estate. Ben, we'll leave it there. Always a pleasure. Thank you so much. Ben Harburg there. He is founder, also portfolio manager at Core Values Alpha. Ben is based in Beijing. Joining us here on the Daybreak Asia podcast.

I'm Alpine skier Michaela Schifrin. I've won the most World Cup ski races in history. But what does success mean to me? Success means discipline. It's teamwork. It's the drive and passion inside of us that comes before all recognition. And it's why Stiefel is one of the fastest growing global wealth management firms in the country. If you're looking for success, surround yourself with the people who will get you there.

Thank you.

If you're an advisor or investor, choose Stiefel. Where success meets success. Stiefel Nicholas & Company, Inc. Member SIPC and NYSE. For J.D. Power 2024 award information, visit jdpower.com slash awards. Compensation provided for using, not obtaining the award.

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Welcome back to the Daybreak Asia podcast. I'm Doug Krisner. So the U.S. equity market sold off on Monday, given a lot of anxiety over slower growth as the result of tariffs and those government firings. Over the weekend, President Trump refused to rule out the possibility of a recession. And today, the S&P 500 tumbled by 2.7 percent. For a closer look, I'm joined now by Scott Ladner. He is the chief investment officer at Horizon Investments. Scott,

Scott is on the line from Charlotte, North Carolina. Thanks for making time to chat with us. It's always a pleasure. I'm curious to hear what you have to say about how clients were reacting to this enormity of selling today. Yeah. Hey, thanks. And thanks for having me on. Look, the clients are, they're starting to freak out a little bit. We actually did a kind of an impromptu webinar for clients this morning and it got, it got

What I thought was, what I thought would be, if maybe 10 people get on or 20 people get on, we had a couple hundred people on this. People are definitely interested in what's going on and sort of people's take on it because they just don't understand. I mean, folks are generally confused. And it all, I think it really all stems from this idea that

Trump 2.0 isn't like Trump 1.0. And that's caught investors very much by surprise. Today, we had the S&P 500 breaking below that 200-day moving average in there. I referred to this earlier in the day that there is an old saying on the street that nothing good happens below the 200-day. Is this concerning to you on a technical basis?

Yeah, I would say I felt mildly concerning on a technical basis. You're absolutely right. Nothing does good happen under the 200-day. But there are some signs on the other side of that that we could take as some positives.

One of those is a lot of systematic selling that I think has driven part of this unwind and part of this selling, be it from ball-charting strategies or from commodity trading advisors, kind of momentum traders. Those are probably likely exhausted or very close to being exhausted. And so additional selling pressure coming off the back of this from that kind of technical element is probably going to be somewhat limited, but that doesn't mean

that were out of the woods yet, certainly. When the tariffs were first put in place, there were a lot of analysts saying this was nothing more than a negotiating ploy, that they would not be lasting. I think the street is coming to terms with the possibility that these tariffs could be extended into the future. And maybe that's creating a lot of stability. Trump seems to want to make a point here, and he's trying to kind of de-globalize the economy to some extent. Would you agree with that?

Yeah, look, I think it's kind of hard to disagree with that right now, Doug. It's it's you know, what we're getting out of Trump 2.0, which is different than Trump 1.0, is like we're dealing now with an ideologue rather than as than with the pragmatist. So I think you can make the case that in Trump's first term, he was willing. He's much more of a pragmatist about some of this stuff. And he was really willing to do almost anything in order to not take pain.

either economic-wise or market-wise. And this run, this time around, it seems like he's acting more like an ideologue. He just thinks these are the right things to do, and he's willing and almost seems like almost welcoming some short-term economic pain in order to enact some of these policies. And that makes investors think that he doesn't really have their back in a way that

I think folks generally assumed that he would after how he behaved in his first term. And that's causing this ideologue versus pragmatist realization is definitely causing a major, major rethink about what he means, at least in the short term, for markets. So, it shouldn't really be a surprise that havens were in favor today. We had yields falling quite a bit across the curve. At the long end, the 10-year was down.

more than eight basis points today. I think we were last quoted in New York at around 4.21%. And the market, I think, was also supported not just by this notion of slower economic growth, but the bet that the Fed is going to come to the rescue here and policymakers are essentially going to be forced to have to slash interest rates. So if we get three rate cuts this year, is that within your thinking at this point, or maybe it's too soon to make that call?

It's probably still a little too soon. We were actually in the camp, Doug, that we thought they were done with everything. We thought they sort of settled on where they were going to be. We thought the Fed was done with either hikes or cuts. But certainly, sort of the momentum that we've seen out of some of these economic numbers over the last 30 or 45 days brings into question, like, we are going to have a little bit of a growth scare because the sequencing of the bad stuff first, like tariff stuff first and

the good stuff later, the regulation of taxes later, that is certainly calling into question how strong this, what is a strong economy? How long can it stay this way with some of these headwinds that we didn't think were going to be big headwinds, but they're certainly turning out to be.

um so the fed is definitely caught in a bit of a bit of a pickle you know i thought powell did a great job of kind of talking about the four you know they need to understand the net impact of four trump policy not just the tariff stuff you know if they need to understand that impact of you know trade policy immigration policy

regulatory policy and fiscal policy. Let's see how all those things end up wrapping up together in order to affect the economy or they have any confidence to move. And we're obviously a long way from any of those things being solved. So, Scott, I'm curious, given everything that you are laying out there, how is this changing your investment strategy these days?

Well, it's not, I would say it isn't changing it drastically. I mean, we certainly have some protection strategies that clients, I think are probably happy they're in right now. But, but, but overall, this is still an economy that is, is, has amazing, some amazing tailwinds at it. You know, the AI thing is real. I mean, the productivity gains we're going to get out of this on a global basis is massively, massively, you know, like important for the

for the global economy. And because US consumers are in amazing shape and there's no leverage in the system. And so, you know, there is some really good things out there, but we are dealing with like the short-term doubt of unexpected uncertainty, 'cause we thought we knew Trump and it turns out maybe we didn't quite know him as well.

And that's driving the next few months to be probably pretty choppy. But once we get to the back half of this year, Doug, we're pretty bullish on stuff. And we think this is going to be some pretty good buying opportunities. But if you have a short-term horizon, probably hang out until we get to late spring or early summer. But if you've got a longer-term perspective,

We're getting some pretty good deals that are actually coming into play right about now. I don't want to get political necessarily, but Elon Musk was saying today that he's essentially calling for cuts to entitlement spending, and that would include Social Security and Medicare. This was during an interview with Fox Business.

And he pointed out the obvious, that most federal spending is in entitlements, and that's the big one to eliminate, in his words. That seems to contradict what we've been hearing or have heard from the president's pledge not to touch those programs. How do you feel right now about this Doge movement and the way that it's impacting market psychology? Is it a positive? Is it a negative? Where do you come down with this?

In terms of market psychology, it's a clear negative. I'm not going to stand here and argue that cutting federal spending and rationalizing some things and moving some workers from the public sector into the private sector, those things are all probably really good things over the medium and long term, but they're undoubtedly a challenging thing from a near-term perspective.

We've seen through COVID and periods like this, like afterwards, that the market rewards this kind of expansionary fiscal policy. This is part of the reason, not the only reason, but part of the reason why the US equity market has been so dominant is because US fiscal expansion has been so dominant, whereas places like Europe and China have basically refused to spend money. And now that's what we're seeing over the last couple of weeks, really last week,

that paradigm might be shifting and shifting pretty meaningfully if the US is gonna be sort of in a period of negative fiscal thrust or at least kind of no fiscal expansion. And, you know, whereas places like Germany, Europe, and possibly even China enter into a period of fiscal expansion,

investors should stand up and take notice of this. That is the kind of thing that markets, equity markets especially, tend to really pay attention to and reward. So, that's pretty much top of mind for us right now. Scott, we'll leave it there. Thank you so much for joining us. Scott Ladner there. He is the Chief Investment Officer at Horizon Investment, joining from Charlotte, North Carolina, 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.