APAC Markets React to New US Auto Tariffs
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Welcome to the Daybreak Asia podcast. I'm Doug Krisner. Transportation stocks in Asia are slumping. That's after President Trump unveiled tariffs on foreign-made autos. This is a key reason for the weakness that we had stateside in the U.S. equity market. And in a moment, we'll be hearing from Robert Schein. He is the chief investment officer at Blanke Schein Wealth Management.

But we begin in the Lion City. And joining us now is friend of the program, Mary Nicola. She is Bloomberg Markets Live strategist. Joining us from our studios in Singapore. It's all about tariffs, isn't it? It is. And I'm looking at the stocks right now in Toyota down more than 3%. Hyundai Motor off more than 2.5%. I found it interesting that you wrote earlier on the Markets Live blog, there's essentially no sign of leniency.

Well, that's the thing, because essentially what we heard is, especially from Hyundai, Hyundai has been praised by President Trump for building a factory and expanding investment in the U.S., yet we haven't heard anything. And so you would think that when President Trump said that there's leniency, that the markets would get excited. However, it doesn't look like there's much in terms of give-aways.

that we've seen. So, for example, we haven't seen that. Sure, he's mentioned the idea of leniency, but what has happened as a result? Because we know that Japan and Korea would be one of the hardest hit, especially in this region, at least, as a result of these auto tariffs. I'm wondering if anything could change next week when we get the reciprocal tariffs. Is that likely, do you think, or not so much?

You know, I think the main thing is there's just going to be this huge sigh of relief in terms of some degree of there's a lot of tension being built up for that April 2nd deadline. And I think there's going to be a little bit of relief of that there's something and we know what it is.

Right. In terms of implementation, that always tends to be a little bit more muddy. But at least we get some clarity in terms of what are the reciprocal tariffs and who is going to be the most affected. You know, President Trump has been described as being transactional. And I thought it was very interesting today that he said that he would consider lowering tariff rates immediately.

imposed on China to secure Beijing support for a sale of the U.S. operations of TikTok to an American company. This seems to kind of plant the thin end of the wedge into the idea that this is all really a negotiation.

Absolutely. And I think that was very clear in the comments that he made about TikTok. So if the Chinese authorities show any sort of budge, they could see some signs of relief. But at the end of the day, I think there's always the factor of, you know, what if there's more and how far will it go? And I think that's...

the key issue that was going to come up in terms of the transactions over and over is how much leeway and how much give can go in these negotiations. Which brings us to the China story and the fact that Beijing might not have a lot of leverage against the U.S. right now. One of the bright spots, though, I think we can agree, Mary, has been the high-tech space in China, particularly China.

after the kind of deep seek moment? What are we seeing right now in the behavior of Chinese equities? Absolutely. And I think one of the things is that everyone has gotten very excited about China equities, and that's taken a while to really come through. And it's more than just policy right now. It's about the tech innovation. It's about their ability to come through and to make these developments and significant developments decide

despite what has some of the obstacles that have come their way. So there's still a lot of support for the tech industry and likely to continue. I think the problem is now is that a lot of it has been already baked in. Valuations aren't enough to keep

to keep this going. What it will need is more improvement on company outlooks, more innovation in terms of news about robotics and AI, to really drive that rally and to keep it a lot more sustainable. But there are some dark clouds, and I think we have to acknowledge them. In the U.S. session, we had TD Cowen pointing out that Microsoft is abandoning some new data center projects in the U.S. and Europe.

So that may turn people away from putting new money to work in the semis. And then, as you know, the chairman of Alibaba, Joe Tsai, was talking about a possible bubble in AI data centers. So I think there's got to be a little bit of caution that pointed out here, right? I think there's general caution

for U.S. tech. But I think it's because the China story is quite new, especially with DeepSeek. That only came up in the start of this year. But the U.S. tech industry and innovation has been a story that has carried U.S. stocks for quite some time. And of course, now everyone's rethinking it because of valuations, because of the cracks in U.S. exceptionalism, and because China's becoming a real competitor.

So I think for now, especially with China, it really comes down to what are the improvements we see on company outlooks and what do we see on the improvement, especially coming through from the government and on policy implementation to really drive that next leg higher in the rally. There's a bit of a concern, I think, that the Fed may have to, given the fact that these tariffs may be inflationary, that the Fed may have to go on hold.

even if there is a little bit of economic weakness just because of the inflation concern. Is that a concern that you share, or do you think the Fed would opt to lower rates in the face of economic weakness?

You know, it's interesting. It depends how the Fed sees it. So Jay Powell had mentioned that he sees tariffs as inflationary. It's a one-off adjustment, and then we won't see anything coming through afterwards. So it would suggest that, yes, they'll see what happens, and they'll take more of a wait-and-see approach. So I think one to two cuts still makes sense.

especially with how tariffs are going. But we still have to remember that the Fed has a dual mandate. So if they see that the labor market is really weakening significantly, they'll see that that's going to have implications on inflation and we'll have to become a little bit more aggressive in terms of easing. What else are you really kind of talking about in your MLive writing today? Is there anything that you want to tease out here?

Yeah, actually, there's been a lot of interesting idiosyncratic things coming up in Asia. So, for example, in Indonesia, where we're seeing a significant downside to the equity markets and largely coming through from growth concerns domestically and fiscal concerns as well. And we're seeing the implications on the currency as well. So the currency has been at the weakest point.

that we've seen it in a very long time. And we're seeing, and that is becoming more of an issue because of the fact that you're seeing cracks in U.S. exceptionalism. The Chinese recovery isn't as strong just yet. So the question is, becomes more scrutinized into how EM unfolds.

And these idiosyncratic issues become even more concerning for places like Indonesia in terms of their ability to entice foreign investors to keep buying into their bond markets or their equity markets. So I think one of the main things to watch, especially with all this uncertainty, especially around tariffs,

is some of the idiosyncratic risks that we're seeing out of emerging markets, and the broader implications given the weak global risk appetite. What are you looking at in the week ahead? Is there anything that you're paying especially close attention to?

Labor market, absolutely. I think that's going to be the pivotal point because everyone's been so focused on inflation. And of course, the April 2nd deadline, we can't escape tariffs. I think that's one thing we know so far in the first three months of this year. So the tariffs and I think the labor market is going to be especially important. Mary Nicola there, Bloomberg Markets Live strategist, joining us from Singapore here on the Daybreak Asia podcast.

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Welcome back to the Daybreak Asia podcast. I'm Doug Krisner. So the U.S. equity market was in retreat in the last session on some concern over the impact of the trade war. We had the S&P 500 down a little more than 1%. And then after the bell, President Trump imposed tariffs on imported autos. This is a 25% levy on all cars not made in the U.S. It's going to go into effect April 2nd.

Let's take a closer look now at market action with our guest, Robert Schein. He is the chief investment officer at Blankie Schein Wealth Management on the line from Palm Desert, California. Thanks for taking the time to chat with us, Robert. I'd like to begin by getting your assessment on the impact of tariffs. Do we really know at this point whether it's going to be completely negative?

That's the question that markets, investors and everyone's trying to sift through. I think this short-term volatility will have long-term opportunity for investors that do take advantage of what we're seeing is all of this uncertainty that's playing out. And, you know, we've seen it in the first term of President Trump.

when the U.S. and China, they imposed phase one, then they went to phase two, then they went to phase three, and then Trump removed it. And then they finally got a deal done towards the end. But that was over a couple of year period of time. And markets actually ended up higher over that period of time. And if you look at the S&P, there were bouts of time where the S&P did test

some lows, but not lower lows. So, you know, if we look at the first term during President Trump, there was a lot of volatility when he went for the tariffs, you know, and fair trade practices, but it turned out to be a positive.

It's interesting. One member of the Fed today was saying that it's not clear whether or not we're going to have an inflationary impact from these tariffs proving to be temporary. I'm referring here to the head of the St. Louis Fed, Alberto Mussolini. He said secondary effects could prompt the Fed to hold rates steady for longer. Does he have a point there? Could there be an inflationary impact of the tariffs?

He absolutely does have a point. And that is the biggest, I would say, concern of the overall market, which is putting, you know, we came into the year thinking we were going to get two to maybe three interest rate cuts. So some relief and some more sort of, you know, wind in the sail to keep this rally going. Now, it's just the opposite of saying, wait a minute.

The tariffs impact on prices are an unknown, a question mark. So what does that actually mean? That means that the Federal Reserve obviously is keeping an eye on the labor market, which seems to be holding in there so far so good. But more importantly, if they lower interest rates, they are going to invite inflation. Adding more fuel to the fire is the overall concern, not only for the Federal Reserve,

but for investors as well. Markets are playing that out and it's only time we'll tell. Traditionally, tariffs should be a one-time effect where it's sort of a speed bump, you pay your toll. But then again, I go back to what I said earlier, tariffs can be imposed and then they can be taken away months, even years later, depending upon how things are going.

If you look at the tape today, the chip makers were the big losers. NVIDIA and gang, I'm looking at the Philadelphia Semiconductor Index down about 3.3% today. We had analysts over at TD Cowan today saying that Microsoft is abandoning new data center projects, not just in the U.S., but Europe as well. And that seemed to create this negative sentiment toward the chip stocks.

Where are you right now in terms of the thesis on AI that the build-out is going to continue? Or maybe now we're reaching a point of capacity starting to kind of reach a near-term peak.

If you saw the revenue generated by what NVIDIA has had committed from just the Mach 7, I mean, that's really the driver of what NVIDIA or even the semiconductors, if you will, at whole. They pledged so much capital and so many billions of dollars that it was absolutely head-scratching.

For Microsoft to take a moment and reassess how much they actually need to invest is not uncommon. That's actually a prudent business move. But what I would say and submit for consideration, we are in the early innings of

of the AI race, arms race. And so you're going to have the trickle down effect. And by the way, there are 493 other S&P 500 companies that are going to have to start joining the race. So there's a lot of capacity and opportunity to be reinvesting in the semiconductors from just not only S&P 500, but all the way down the value stack of all the companies that want to stay competitive for the future.

What about the lower-cost Chinese AI models that utilize a lot less computing power? Is that a negative, let's say, for the build-out of some of these data centers?

Yeah, we're going to see, I mean, every 18 months, everything doubles in terms of, you know, memory storage capacity and technology. That's not, you know, for, for a chip that comes out today, uh, and you know, there's more efficient way of doing it for tomorrow, or like you just pointed out a better way of using, you know, getting more production with less is always going to be in the DNA of the capital structure, uh,

of the economy. And that's the way we need it for more growth moving forward. But yeah, short term, it remains to be seen as it relates to how it plays out. It wouldn't shock me that more and more next month, next week, and even next year, we're going to be able to do more with less all across the technology spectrum.

Let's talk a little bit about the macro. In terms of eco data today, we learned that factory orders for business equipment unexpectedly declined in February. And at the same time today, an update to the Atlanta Fed's GDP Now tracker still shows contraction in Q1 by around 1.8%. Are you worried about recession? Not so much recession right now, but I could see, you know, what we...

Ideally, I think what we should have seen

I think markets would have liked this a little bit better, which is the sequence of what the Trump policy is doing right now. They should have positioned, and they know better than we do, but they should have positioned the big, beautiful tax bill, the extension of 2017 tax cuts, as well as maybe a little bit more what they wanted to get. Because they have congressional support. You have momentum post-election.

Instead, they went for tariffs, and we understand why. They're trying to offset all the asks that they want and make it sort of revenue neutral as much as possible, both in the short and the long term. And healthy-wise, fiscally, that's very responsible. But getting to point A to point B, that's putting...

businesses on pause. That's putting consumers on pause. That delay could cause or lead into a potential slowdown in what we're seeing in consumer behavior. And that's playing out in the data. In the short term, that's okay. Long term, yeah, we could basically lull ourself into a recession because everyone's just sitting on their hands. Now, what gets us past that? We do need that bill

extension of we just need certainty. We need the tax cuts to continue. We need to see what else is going to happen with policy measures. Again, is there going to be business owner incentives inside that tax bill? Therefore, you'll see capital goods and capital spending pick up again. So we could touch slowdown, but we could reaccelerate really quickly. We do have a strong economy.

All we need is certainty in terms of policy. So I think Congress needs to get, you know, to work. I know they have been working, but I think they need to get it done sooner than later, sooner than Memorial Day. I think that would be the key. I'm glad you mentioned the consumer there. Tomorrow we'll get the February numbers on retail sales. We know that some of the sentiment indicators, both from the conference board and the University of Michigan, have been significant.

depressed. Would it surprise you if these numbers on retail sales were a big miss? It wouldn't surprise me. But again, I wouldn't bet against the U.S. consumer. Again, we could see one month slowdown and maybe a pause. If it's two or three months, that's a trend that's concerning. So but, you know, given all the uncertainty, the trade talks, the nightly headlines and even some geopolitical headlines that we've

had to deal with over the last 30, 45 days. If it comes out to be a weaker number, that shouldn't be a major surprise. If we see multiple months in a row and that trend is negative, that's where we have the issue.

So we've talked about a lot of things. How does this kind of coalesce in your mind in terms of coming up with an investment strategy? You know, the balance in diversification has won out. We always keep dry powder, but it's working for us. And, you know, Treasuries are still paying us 4%. We expected that. So we added some dry powder again afterwards.

allocated to some fixed income early on at the very beginning of the year. And now, quite honestly, we're taking advantage of some great dislocation. Markets were overvalued coming into the beginning of the year. So for markets to pull back by five or even 10%, that's not unheard of. That's actually that that's a common place that should happen for a healthy market.

But don't just sit there. Take advantage of some high-quality companies, dividend compounders, companies that will be there not only in the next six to 12 months, but for the long term, because you're going to, you know, you're going to,

miss this opportunity. I think the headlines and the uncertainty are going to create a lot of opportunity moving forward for investors. So don't miss out. All right, Robert, we'll leave it there. Thank you so much. Robert Schein there. He is the chief investment officer at Blankey Schein Wealth Management, joining from Palm Desert, California, 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.

Thank you.

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