US Tariff Delay Boosts Global Market Sentiment
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Welcome to the Bloomberg Daybreak Asia podcast. I'm Doug Krisner. In a moment, we'll take a look at the story on tech stocks in China. David Chao will join us. He is global market strategist for the APAC at Invesco. But we begin in Hong Kong on a day when the Trump administration said it's considering reciprocal tariffs on numerous trading partners as soon as April.

Joining us now is Helen Ju. She is managing partner, also the CIO at NF Trinity. Helen joins from our radio studios in Hong Kong. Helen, thank you for making time to chat with us. I'd like to begin by getting your reaction when you hear that the Trump administration is saying, rather than a blanket tariff, we're going to create something with a bit of reciprocity, kind of tit-for-tat tariffs. How do you make sense of that? I think it's a good question.

I think obviously the market is responding to this positively and seeing it as a better than feared type of potential resolution to the tariff threats that we have seen. So we all don't know too much about the reciprocal tariff regime, and obviously it's being cooked up at the moment. But if indeed it's going to be equaling out the tariff imbalance,

then it actually means that we could have a scenario whereby everybody's cutting tariffs rather than just imposing more and more tariffs uniformly without rationale, etc. So that could actually be positive for global growth and it could be positive for globalization and for countries like China that don't necessarily have huge tariff imbalances because China is not imposing a huge amount of tariffs on U.S. imports.

it could actually be a relief. Speaking of relief, I'm seeing stocks in Hong Kong move higher at the moment with the Hang Seng up about one point. That's the relief. Yeah, that is the relief. So is there an industry group that you think would benefit mostly from this type of policy? I think...

I think it really varies by country. So if I look at the U.S.'s exports, a lot of it is going to be like manufacturing and some materials and energy. So I think it depends on what kind of deal can be worked out.

But some of the countries most sensitive to the trade tariff imbalance with the U.S. include, for example, India, where he's, you know, obviously Trump has been talking to Modi in the last couple of days. So I think the fact that you're going to settle this individually with different countries on a one-by-one basis is already a huge positive versus what the market would expect.

And for, you know, very friendly allies that are nearby, Mexico, Canada, etc., it's going to mean less onerous risk to them as well, right? Because they obviously export to the U.S. a lot, but don't necessarily import a huge amount. And I'm guessing they probably don't have huge reserves.

tariffs on U.S. imports either. So that might actually give them a graceful way out and make them look less pressured. What is your sense of what is happening these days in China so far as the economy is concerned right now? Are we on a kind of an uptrend at the moment? Have things turned a corner? And is there enough positivity to get you interested in putting money to work on the mainland?

Well, I think the cyclical picture is basically stabilized, but it hasn't really shown any meaningful signs of V-shaped recovery. I think there's two main reasons why, despite all the stimulus that's been put on over the last 12 months, there hasn't been too much reaction. One is because of the overhang of the uncertainty about the tariffs and the trade war.

And the second one is actually because of the lagging and still suffering property market as prices have come down and price expectation is still negative, which is actually a big burden on people's wealth effect and expectation. So I think the former could have some short-term relief if things head in the direction that we're talking about, which is obviously still some tariffs, but maybe not as bad as what we had been anticipating.

But the latter one, which is the property market and the price expectation, I think that still takes some time to fix and is probably not going to be an instantaneous recovery. But that said, I think the second derivative is improving, i.e., things are still declining, but declining at a lower pace versus before. So, on the margin, I think that's actually a positive to some extent. So, just on the basis of valuation alone, isn't China compelling?

From a valuation perspective, certainly it has been compelling for quite some time. It's just that people have been worried about the grave uncertainties facing the economy for the reasons that I had mentioned. I think it has to come from whatever happens with the tariffs with China, the sooner that you have clarity and it gets sorted out, the better. If everything gets dragged out until end of this year or even into next year, even if the end result ends up being not too bad, just that never-ending uncertainty I think is going to be

you know, pretty negative for the broader economy because people won't really know whether they should place orders, whether they should hire people. All of those decisions are going to be, you know, in doubt. We had some dollar weakness during New York trading today, the combination of lower treasury yields, also the delay of those reciprocal tariffs. To what extent has a strong dollar been problematic for putting money to work in Asia?

Oh, it's been a huge problem. I mean, that's been the key factor to weigh on asset prices in Asia, in China, and particularly in the rest of emerging markets. Actually, in this regard, the RMB has been much more resilient and much less volatile versus most other Asian currencies and emerging market currencies, mostly because of the PBOC's intervention and defense of the currency. But if the dollar can, you know,

start to weaken to some extent, or at least not strengthen even further, I think that would be a massive positive for the rest of the world in terms of asset prices. And we're actually much more positive on the rest of the world versus on U.S. Obviously, last year was all about U.S. exceptionalism, especially after the election heading into the year end.

But, you know, a few factors. One is that the U.S. economy, despite being strong, you know, the long end may not necessarily keep going up, especially, you know, Scott Besson talked about bringing down the long end, if at all possible, through less supply of treasuries and so on and so forth. And then I think on the margin, the less than worst case tariffs scenario is positive for the rest of the world.

world. And on the margin, any kind of progress towards resolution of the wars in the Middle East and Ukraine are going to be more positive for the rest of the world, Europe, et cetera, versus for the U.S. So some of these factors are shifting away from the U.S. exceptionalism thesis that had been in place for a long time. When we look at the inflation story in China, the latest CPI data showed a slight improvement

a little bit of positivity. But certainly when you look at factory gate data, I think we are negative for a 28th consecutive month. So clearly at the wholesale level, mired in deflation still. How is Beijing going to deal with this? And if it is not dealt with, to what degree is this a major problem? Oh, it has been a major problem for a couple of years. 28 months. Yeah.

One of the key issues, though, is that, well, the consumer confidence and the lackluster overall activity level, I think that's definitely been a factor. But the other factor, which might actually reverse on its own, is just that food prices, the hog cycle and so on and so forth, were really dire and dragging down the CPI as well. But that has started to improve as the supply has exited and as...

the base effect gets easier. So I think the food will be less of a drag. As for the core, it's been positive overall throughout this period, somewhere between 0% and 1% positive. So definitely not a huge boost. But certainly, I think if there is any kind of improvement in the confidence because of the tariff situation, because of the stimulative policies that the government has put on, I think that will eventually start to show through.

The major risk to a reflation story in China would be if energy prices crashed globally because of what's happening outside of China. Let's say, for example, if the wars end and oil price moves down by $10 or something like that, then associated with that, metals prices and everything else would react accordingly, which might create an air pocket of destocking for various companies as they wait to buy things cheaper three to six months later.

But overall speaking, for a country like China that's very reliant on import of energy and materials, it's still net positive, versus the deflationary forces on the rest of the world might be less positive. We're going to talk about the high-tech story in China with our next guest in a moment or two. But I want to get your take on what we've seen recently with the development on DeepSeek, artificial intelligence in China. What do you think is important to tease out here?

Well, I think it's quite clear that the world has just recognized that there are very rapid technological developments in China as well as in the U.S. And this is actually quite surprisingly impactful

outside of China as well, because apparently the American consumer cares more about being able to use an LLM for free and saving the $20 off ChaiGPT, and less concerned about whether this is an invasion of Chinese technology into the U.S. society, and whether the Chinese are going to run off with any of their personal queries, information. So, if there can be any global potential for China AI, that would be the...

kind of really upside case scenario. I'm a little bit concerned and skeptical because I think the geopolitical situation is not going to improve so much in the short term that many other countries are going to trust China AI. There's probably still a

more permanent decoupling from a strategic technologies perspective that will last, even if the near-term cyclical trade situation sees a better than expected outcome. And we didn't even discuss TikTok. We'll save that for next time. Helen, thank you so much. Helen Zhu there, Managing Partner and CIO at NF Trinity from our studios in Hong Kong, joining us here on the Daybreak Asia podcast.

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Welcome back to the Daybreak Asia podcast. I'm Doug Krisner. We go next to Singapore and we find David Chow. He is the global market strategist for the APAC at Invesco. David, thanks for being with us. It's always a pleasure to chat with you. Earlier today in the U.S., there was a fair amount of positivity as it related to President Trump essentially delaying some of the reciprocal tariffs.

that the new administration is considering. We understand they're not going to take place right away. Maybe the market's hoping for some type of negotiation. So when you assess risk of these tariffs as it relates to U.S. trading partners like China, Japan, South Korea, does that cause you a bit of unease in terms of putting new money to work in the Asia-Pacific?

Well, to be frank, the tariffs that have been levied against China, that 10 percent was much better than the 60 percent that we feared that President Trump previously had mentioned before. And I think that

Trump's taking a much more conciliatory gesture and attitude towards China, which I think is a positive development and is also one of the reasons why I think Chinese stocks have also done well. This reciprocal tariff that has just been announced, I think it's a much bigger deal than the universal measure. So previously, Trump, you know, you know,

was interested in imposing a flat universal tariff of 10 to 20 percent on imports from all countries. But now it seems like he's moving towards the reciprocal tariffs to be imposed on a country by country basis. Now, if we look at which countries are the big losers and the big winners on that,

The big losers would be like India and Brazil. I think they would be hit the hardest, followed by the EU and the UK, Mexico and Canada. And the winners would actually be places like Singapore, Taiwan and Korea. But companies in China, haven't they already repositioned some of their supply chains to try to get around these tariffs?

That's right. I mean, they've had, what, like around eight years to be able to prepare. And we've seen significant supply chain diversification. So if you look at the...

The trade between the US and China, it's down pretty meaningfully over the past eight years. Although China still enjoys a trade surplus, it's much less than what it was before. Now, China does more trade between China and Southeast Asia than China and US.

You know, maybe some of these Chinese companies are using places like Mexico to reroute some of this trade and get around some of these tariff barriers into the U.S. And so we've seen that the trade deficit between Mexico and U.S. has grown around, you know, the same amount.

as the trade deficit between China and Mexico. There is no mistaking the exuberance that we have seen in China regarding artificial intelligence recently, especially since the unveiling of that chatbot from DeepSeek. Is this a trade that you must be participating in right now?

Well, we have become more constructive on Chinese equity starting around the summer of last year, given where valuations were. We thought that they really reached kind of the bottom. And then we saw significant fiscal and monetary stimulus measures that were announced. So it seems like the government has really pivoted towards ensuring that both the market and the economy starts to turn around. Now,

Now, this deep-seek development, I think, is a gift in terms of a catalyst that investors can use to look at Chinese equities again. And when foreign investors pivot back to China, we know that Chinese equities have been unloved for so long that the first stock that they buy are the big cap tech stocks.

you know, trading on Hong Kong. And we've seen, you know, the Hang Seng tech index, you know, up double digits so far these days. So I think that if investors wanted to dip their toes back into China, buying Chinese tech would be the place to look at. I'd like to get your perspective on where we are in the recovery of the mainland economy, especially as it relates to the property market. Are things, is a bottom, let me put it that way, is a bottom firmly in place?

I'm not going to be the one that calls the property in China has bottomed. But I will say things are getting less bad. And I think that's already a pretty positive development.

What we have to see is a bottoming would be when across the board the property data starts to stabilize or improve. We're starting to see prices in first-tier cities like Shanghai and Beijing, both primary and secondary home prices start to improve, but not so much in tier three and tier four cities. But it seems like the government is taking a much more muscled approach

you know, bailing out developers, really loosening restrictions on property purchases. So what I would say is that I expect more of a stability of housing prices, new home starts, floor area sold by the middle of this year. And if the

property market can just stabilize from the second half of this year. That would really add a tailwind to economic growth in China for the year. So stability, does that necessarily translate into improved consumer sentiment? And maybe while we're talking about the Chinese consumer, you can give me your perspective on what you observed over the recent Lunar New Year holiday.

Sure. I'd say that there are green shoots in consumer spending, household spending in China. And the initial data out of China during the Lunar New Year last week pointed to pretty strong activity. So domestic trips were up 5.9 percent compared to last year. And spending on these trips rose 7 percent, according to the Chinese data. And Chinese stocks reacted pretty strongly.

you know, when they reopened following the holiday. So as you know, domestic spending is the key. It's the crux, I think, for investors this year, whether it picks up or not.

And I think that it is directly linked to the property market. So you can see more stable signs coming out of the property market. I think that investors feel a lot more confident to go out and consume. So away from China, you mentioned the positivity that you're seeing in Singapore. I'm wondering if there are other markets or jurisdictions in the APAC region where maybe foreign investors would find value.

Well, I think what's interesting is going on in India. Indian stocks are down around 11%, 12% from their highs in September. But this is after they've had a huge bull run. Indian stocks are the only stock that have outperformed the S&P over the past 20 years. So the economy experiencing a bit of a cyclical slowdown. The previous quarter growth was something like 5.5%, 5.7%.

which missed expectations, which were around 6.5%. And that was because consumer spending is also taking a bit of a backseat government spending,

was on a pause after the elections last year as the government formed a cabinet. But things, I think, are starting to turn up for the cyclical growth part in India. And so despite Indian stocks being expensive, investors have traditionally paid up for growth. And

And India is the only major economy where growth is going to accelerate, you know, from 5.7 to 6.5% in the coming year, maybe 7.5% in the next year. So I'm bullish on Indian stocks. I think that for investors that have been waiting, you know, for Indian stocks to come down, I think this could be an interesting opportunity. David, thank you so much for taking the time to chat with us. David Chow there, global market strategist for the APAC at Invesco, joining from Singapore 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. The number three means perfection.

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