APAC Markets Open Higher as Geopolitical Risks Loom
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Welcome to the Bloomberg Daybreak Asia podcast. I'm Doug Krisner. So Wall Street took a bit of a breather in the last session. Equities drifted lower after a six-day advance. And in the bond market, longer-term treasury yields were a bit higher as U.S. budget negotiations showed little sign of resolution. In a moment, we'll be speaking with Brian Vendig. He is the chief investment officer over at MJP Wealth Advisors. But

But we start with the U.S.-China trade war and the story on tariffs. Now, in the U.S. session, we heard from the head of the St. Louis Fed, Alberto Mussolini. He said tariffs will likely weigh on growth and weaken the labor market, even after the recent 90-day de-escalation between Washington and Beijing. Here is Mussolini speaking earlier at an event in Minneapolis. Now's tariffs are higher, have been more broadly applied.

and have prompted stronger retaliation than I and many others had expected. Ongoing negotiations with trading partners might dial back tariffs significantly and durably, as we have seen with the recent announcement of a 90-day reduction in reciprocal tariffs with China.

That is the head of the St. Louis Fed, Alberto Musalem, with a perspective on how tariffs are impacting the U.S. So now let's take a look at how tariffs are impacting China. I'm joined by Helen Zhu, Managing Partner and Chief Investment Officer at NF Trinity.

Helen is joining us from our studios in Hong Kong. Good of you to make time to chat with us. Before we get to the Moody's downgrade on the U.S. credit rating, can we start with the April activity data for China, the numbers that we got on Monday? It seems somewhat surprising that industrial output performed as well as it did. What do you make of the activity data that we saw on Monday for the mainland economy?

Look, I think there is going to be a lot of noise in the activity data here today. So there is a couple of factors to consider. One is that there was clearly a lot of government support and stimulus in various parts of the economy. Harder for it to reach consumers or to massively change consumer behavior in the near term. But certainly in terms of manufacturing, infrastructure, investment, etc., the government policies can have meaningful impacts short term.

The second thing I would mention is that because of the trade war, there has been a lot of time shifting of activity as well. So, for example, the exports were very strong in the first quarter, probably because people wanted to put in their orders and get the stuff shipped prior to the trade war or prior to Liberation Day coming in. And then later on,

I think it was not necessarily clear whether things were going to be potentially extended, as we did see in May. So, I think there's a lot of jerkiness in terms of the activity because of these types of one-off events. So, the reading on retail sales was disappointing. Is it still very much the case that anything related...

to consumer sentiment begins and ends with the home market, the property market. I saw that China's home price is down in the month of April at a faster clip. Is that really the eye of the storm still?

I would say that's one factor, but probably not the only factor. But certainly it affects the wealth effect in terms of high-end discretionary spending. But retail sales itself is not just all high-end discretionary spending. A lot of it could be specific sectors, for example,

depending on what new models were coming out that particular month. And in the past, whether there were specific EV subsidy policies that are less relevant today, there could also be impacts in terms of other specifics, like were there subsidies relating to 3C products coming from the government?

Those types of things, I think, do tend to have an impact on the short term. But generally speaking, with the backdrop of the trade war lurking in the month of April, it's not a surprise that people would feel less confident about spending, irrespective of what's happening in terms of the property market.

So we're still in this period of a truce between the U.S. and China when it comes to the trade war. What is going to be the ultimate outcome of this, do you think? If you had to place a bet on where we go on the other side of that 90-day period, what does it look like?

I think it's highly unlikely that the tariffs that have been ratcheted back are going to come back in because if you actually put those back in, then essentially there won't be any trade between the U.S. and China because the tariffs would be so high. So I do think that there is going to be some decent compromise in terms of the overall headline.

As with China, similar to the rest of the world, I think within the 90-day period, there will be specifics coming out not only on a per-country basis, but also exemptions and adjustments to the tariff rates on a per-sector basis. That actually makes a lot more sense, right? The U.S. cares much more about what kind of products need to come back to the U.S. versus can continue to be made overseas for economic or other supply chain reasons. So

I think there will be a lot more complex adjustments to the headline numbers for not only China, but the rest of the world over the coming weeks. But in the end, China is still going to end up with a higher headline tariff versus the rest of the world because the U.S. does want to incentivize the supply chain to migrate out of China and into other markets where it feels more friendly and more diversified. So more of a decoupling here. And how bad could this get, do you think?

Well, I think the decoupling already started during the first Trump administration and the first trade war. Right. So it's just going to continue. But it won't be a full decoupling the way that people were assuming back in April when the reciprocal tariffs had gone out of control into levels that were basically going to mean that there was barely any

activity on the trade front between the U.S. and China. So, generally speaking, I think where the market is pricing in is probably a pretty decently mild outcome already. You can see that in both the Chinese equities as well as U.S. equities performance. So, how is this affecting your strategy these days? I mean, what are you putting money to work in right now in Asia generally?

We've actually been looking at other markets outside of China. So, for example, you know, we've added to some of our positions in Taiwan, Korea and Japan, as well as Southeast Asia. In Taiwan, we had that massive move in the NTD, which was unexpected and probably, you know, not as expected.

conspiracy, much of a conspiracy as what people had feared. So some of the tech supply chain companies got hit aggressively on the back of that. So we've been adding to that. Korea, we've been positive on for some time. The Korean won's been pressured

by the very strong U.S. dollar last year, and that has eased to some extent. And we actually think that the value-up efforts as well as the political situation are both going to see some improvement off a relatively low base. Japan was pressured by the fact that the yen kept appreciating

And, you know, earlier this year, because the dollar was plummeting, now I think the risk-reward on the currency front is a little bit more balanced and the valuations are still fairly reasonable. And Southeast Asia, you know, slammed with a ton of very aggressive tariffs and people were quite concerned. But I do think that like Mexico, like some other places in LATAM and Southeast Asia, those tariffs will probably be brought down to $1.

very reasonable levels going forward. And so as a result of that, we think that, you know, those are looking better. And then obviously the weaker U.S. dollar helps a lot as well. To what extent is your strategy kind of concentrated in the area of technology? You mentioned South Korea. I'm thinking semiconductors, Taiwan. There are other electronic components that are manufactured there. Is it mostly centered around high tech?

Oh, no, not necessarily. We're very diversified investors across different asset classes, across different regions, across different sectors. So, no, it's definitely not purely tech. And, you know, tech has a pretty broad definition as well, everything from internet to software to hardware to semi, et cetera. So, we will pick and choose between those different areas depending on where they are in the cycle. We do think that the expectations now for investors

Some of the AI plays is no longer low. In the last couple of weeks, they've really popped quite a bit. We do have a lot of those positions. We're holding on to them, but we're not adding to them at this point. But for example, some of the smartphone and other hardware supply chain, I think the expectations are very low at the moment. And that might be a good time to potentially add to those positions.

China Internet has rallied pretty dramatically since the beginning of the year. And so, you know, maybe have to be a little bit more selective versus before. And, you know, U.S. software is more idiosyncratic than just the beta trade. So various parts of tech are not necessarily the same. How are you feeling about U.S. risk assets right now? Do you have an appetite for U.S. stocks?

Look, we added to U.S. stocks in April on the sell-off, but now I think that risk-reward is no longer as obvious. This is basically because the market has pretty much rebounded as if the trade war didn't really happen to this extent and that there will be a pretty decent resolution. Also, at some point, the market was pricing a much higher risk of recession. Now, I think that has been priced out to a certain extent.

The room for further positive surprise on U.S. equities is not as great as before. But we do still think that if we have a mild outcome in terms of the trade negotiations and Trump ends up being fairly reasonable and people stop thinking that the U.S. system is going to be potentially breaking down quickly, then we actually see more

upside for Treasury and fixed income versus equities in the US at the moment. We'll leave it there. Helen, it's always a pleasure. Thank you so much. Helen Zhu, managing partner, also the CIO at NF Trinity from 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. So the Fed seems likely to resist the notion of rate cuts, at least in the near term, given some of the mounting headwinds we've been talking about for the American economy. The founder of Bridgewater Associates, Ray Dalio, says the Fed should not be cutting rates right now. Here is Dalio in conversation with Bloomberg's Shanali Basik, speaking at the BNP Paribas annual Global Electric Vehicle and Mobility Conference. Right.

I think the markets, if they were to see a too aggressive cut in monetary policy, too inappropriate cut, that it would actually be bad for the bond market. That is Bridgewater founder Ray Dalio speaking to Bloomberg's Shanali Basik in Hong Kong. For a closer look at the macro, let's bring in Brian Vendig. He is the chief investment officer at MJP Wealth Advisors.

Brian is on the line from Westport, Connecticut. Brian, thank you so much for making time to chat. How do you understand the economic risk right now, given the story on tariffs? I know this is a very dynamic situation, working pretty much in the middle of a 90-day cooling-off period. Let's call it a pause. But I'm curious to get your take on where you think things stand right now.

Yeah, thanks, Doug. I think in the short term, there has been damage to the economy, as we've seen with business leaders on surveys talking about slowing hiring, slowing investment in their businesses. And obviously, the consumer pulling back a little bit, even though retail sales numbers in the past have come in healthy, I think the concern is moving forward, price sensitivity there. So, I think damage has been done in the short term to the economy. However,

depending on the jump ball, on the speed of further trade negotiations, and are we going to get to

So meaningful trade negotiations of some of our larger partners over the next you know 60 days on the first pause and of course China later on in the summer I think that's really where that economic risk is going to present itself because if we have some resolution on trade and some improving confidence coming back to the business community and consumers then I still think over the second half of the year the economy is

still has a chance for some growth. However, of course, if things go to the contrary and these negotiations are extended, then I think those recession odds can continue to stay elevated, Doug. I'm curious to get your take on price pressures. We heard earlier in the week from Jamie Dimon, the head of JPMorgan, and he was saying the chances of elevated inflation, even stagflation, are greater than people think. Do you think that's pretty much a risk?

I think stagflation is a risk in the short term in the sense that we're going to start to see price increases start to flow through. However, going back to my comment about trade and also just looking at earnings forecasts right now, I mean, earnings forecasts have been taken down. But for Q2, we're still looking at year-over-year profits of about 5.5%, something very similar still in the outlooks for Q3. And

and some improvement in Q4. I think once we get to July earnings, we'll get some confirmation there. I think if there is stagflation, assuming trade negotiation and those earnings outlooks hold when we get to July, then I think Jamie Dimon's comments might be

might be short-lived, and there will be some disruption in the short term, but not necessarily over the longer term. I think also at the same point in time, when we think about the disruptions that have happened with supply chains in the short term, inventory levels definitely need to be restocked. In June, we've heard from Walmart, for example, saying, you know, we'll do our best to try to

control margin, but we're going to have to pass on some of these prices. I think that's the concern that investors have over the next two to three months. Let's talk a little bit about the bond market. We had a backup in yields today, ever so slightly. The budget negotiations today show very little in the way of resolution. And we were told that the president, it

expressed a little bit of frustration today with demands to significantly boost the cap on state and local tax deductions. If you look at all the variables right now that are influencing the bond market, where is the fiscal story right now as something that's carrying weight?

Yeah, Doug, I mean, I think with the uncertainty around the level of government spending and how much the new bill that's getting worked on in Congress is going to add to budget deficits going forward, I think the bond market is telling us that uncertainty is leading to an absence of confidence in holding treasuries right now. And you're seeing a little bit of selling pressure there with yields going up.

Very similar to the reaction that we saw in the Treasury market, you know, back in the beginning of April with the announcement of tariffs on Liberation Day. I also think there's a little bit of flow through as well with elevated yields because of those concerns about,

Price is increasing, coming from tariffs as well in the short term. So I really think it's a double-edged sword. But once we get some resolution later on this summer, I think, with the reconciliation bill and we get a better, clearer view on taxes and spending,

I think there's a ceiling on yields in the Treasury market where we'd really be surprised if we see yields shoot past 4.7 or 4.8 on the 10-year. So, definitely keeping a close eye on it, but I think it's not surprising in seeing that slight increase based on today's news.

Before I get your view on how to put new money to work in these markets, I want to address geopolitical risk because we are getting indications from CNN that U.S. intelligence has suggested that Israel is planning to make preparations

to possibly strike Iranian nuclear facilities. And crude oil right now is up by more than 2% in the electronic session. How are you weighting geopolitics, whether it's in the Mideast or whether we're talking about trying to find an end to war in Ukraine?

Well, when you look back historically, when geopolitical events come up, they're primarily short-lived. And yes, they create volatility and disruption in the markets. But if you still have a longer-term view focusing on earnings, fundamentals, and some of the things we talked about earlier, I think having a broadly diversified portfolio in this environment is still going to help you weather through the storm. So I don't see gold...

uh... you know i think old appreciating when you go through these types of geopolitical absurdities yields usually come in which which favor more conservative investments like bond that i think we think about equities you know just making making sure in this environment with so much going on but you're not overpaying for growth uh... and making sure that your your balance between value stocks uh... big cap stocks that really have a particular much uh... in the past in market rallies are are good ways to kind of hedge

a little bit in the short term against those geopolitical events. How are you viewing markets offshore right now? Are there opportunities that you're taking advantage of?

Oh, definitely. You know, we added to international equities, you know, a couple of months ago, especially more on the news of countries wanting to reinvest in themselves, relooking at fiscal policies that are helping to support domestic economic growth as the U.S. is evaluating, you know, trade and maybe taking a step back and decoupling from some aspects of the global economy.

And I think valuations there on international equities are definitely a lot more fair per se than an S&P that's back up to a 4 PE with a 20 handle while international equities are in the low teens. So I think being selective in developed markets right now makes a lot of sense. We like Europe, we like Japan, and specific parts of Latin South America. But I think at the same point in time, there's been a huge run

international equities, Doug. So I wouldn't be surprised if there's a little consolidation to find a better entry point moving forward. All right, Brian, we'll leave it there. Thank you so much for joining us. Brian Vendig there. He is the chief investment officer at MJP Wealth Advisors, joining from Westport, Connecticut, 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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