Asia Stocks Gain on US Bounce, China Optimism
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Bloomberg Audio Studios. Podcasts, radio, news. Welcome to the Daybreak Asia podcast. I'm Doug Krisner. Seems to be an appetite for risk assets this morning across the Asia-Pacific. In Japan, bank shares are benefiting from a steepening yield curve. Now, do remember, we have a BOJ meeting later in the week. At the same time, Berkshire Hathaway has returned recently.

to increase its stakes in Japan's biggest trading houses. Meantime, in Hong Kong, the story is on the steps taken by the Chinese government to boost consumption vis-a-vis increasing wages. And remember, yesterday's activity data for the month of February did top estimates. Let's take a closer look now with our guest, Mark Conan. He is the chief investment officer at AIA Group, joining us from our studios in Hong Kong. Thank you for making time to chat with us.

How much of the moves that we're seeing today, the fundamentals aside for a moment, is based on valuation?

Well, there's clearly a rotation out of the U.S. into other global markets. We've seen an exceptional period of U.S. outperformance, strong dollar, and a real focus, as we know, on the MAG7. I think with valuation stretching and opportunities elsewhere globally, and particularly policy initiatives both in Japan and in mainland China, we're now seeing that rotation take hold both in emerging market portfolios and in global equity portfolios.

So are these stories, the one in Japan, the other in Hong Kong, are they durable? Are they kind of providing for the foundation that you would need to see further gains in markets?

They're not linked. They are different. I think the moves in Japan, which has now seen inflation expectations anchored, particularly now with the wage hike negotiation well underway, as of 12th of March, we're looking at about a 5.3% increase. That really anchors the inflation expectations. So with that and with rate rises forthcoming, we do expect to see

an improvement in the outlook for Japan and we expect to see a moderate to stronger yen through the course of this year. So as a result, I think that is more structural for China. The messaging we've seen around the reports coming out both the NPC and subsequently we've seen

further initiatives out of Beijing with the works report. Some of that is a bit more top-down signaling rather than substance in policy. So it remains to be seen how that is implemented. But

But the early signs are that we're moving away from the initiatives that were announced in September, which were more about stabilization. And now we're moving much more into focus points around consumption and individuals and a long term program to try and encourage people to be more positive about

and support the labor market. That said, the story on DeepSeek was an amazing pivot point in the enthusiasm that it seemed to create immediately for a lot of tech in China. Perhaps global markets had been underestimating the degree to which that China could make big strides in technology.

That is no doubt the case. What we've seen, if you look at the performance of companies reporting, which reporting is underway in China at the moment, those companies that are involved in sectors which have been focused on and highlighted by the central authorities for support are the ones that are doing well. Technology, of course, is one of those sectors. And bringing back some of the tech leaders in from the cold is

and allowing them the flexibility to participate in this AI revolution has really substantiated the catalyst, if you like, that was created by that deep-seek announcement. So how do you assess geopolitics right now as it relates to the tariff story, what the Trump administration is endeavoring to do

to try to reshore manufacturing, going about what seems to be a draconian kind of strategy, all or nothing. I know we've talked a little bit recently about the tariffs on steel and aluminum. There are also tariffs on Chinese imports, all Chinese imports, to the tune of about 20%. And April 2nd is the date when these reciprocal tariffs will be unveiled. Talk to me about the degree to which this really has...

the potential for material negative impact in the region? Well, no doubt. And we've seen the reports, either the World Bank or other supranational bodies have come out and reported extensively on the impact that tariffs can have. And I think the general consensus is it suppresses growth and potentially, depending how inflation expectations react, it could be

So overall, not positive for the global economy and will diminish and reduce the amount of trade flow. But there are some structural aspects at play here as well. And markets are finding it quite difficult to differentiate between the sort of knee jerk short term reaction to uncertainty around tariffs, the size of

who and when compared to some of the structural aspects. And those structural aspects in this part of the world are already firmly underway. China has been looking to move up the value chain, create more higher-end value-added manufacturing domestically and to offshore the sort of lower value-added out

across the region. And that is well underway. Of course, China in the meantime is vulnerable. The trade surplus is at a record level. And terrorists have a potential to set that back. But

But the gears are already in motion for a much more focused attempt to try and build the domestic economy based on domestic consumption. So we're going through a transition phase here. If we compare it to Trump 1.0, where China was able to offset the effects of tariffs through depreciating the currency, that is limited this time, given that the currency is already starting from a weaker base. So it will have an impact. It will affect China.

overall growth. But we expect more stimulus domestically in China as the fiscal breaks are taken off. We've already seen in the first two months of this year something almost three times the amount of new bond issuance, government bond issuance.

compared to last year. And this is an indication of the rate at which credit is being created, borrowing is being created in the Chinese economy. So there is clearly a near-term impact and markets are finding it very difficult to assess, but structurally and longer term, the path is already set. It's interesting because already here in the US we have seen a negative impact on US consumer sentiment. There is a conversation around whether or not the American economy will slip into recession. This is certainly going to complicate

what the Fed is trying to achieve, no doubt about that. But for the moment, if you can imagine a world where the Fed's easing is perhaps accelerated a bit because of this financial stress, I'm wondering whether or not you would bet that the dollar weakens from here and that perversely takes a great deal of pressure off of economies and markets in the Asia-Pacific.

Well, Doug, that's certainly a view that's out there. It's not a view we agree with.

view today is that the US will avoid a recession. I know that was not taken off the table in recent interviews with President Trump. But our view is the US will avoid a recession this year. Some of that anecdotal data that we saw for January and February on consumption in the US is purely that anecdotal, and we wouldn't read too much into that or overemphasize it. The more formalized data reporting would suggest that consumption is still reasonably robust

In the US, in terms of the currency, clearly, the dollar has has been moving in reverse. And we've seen appreciation, particularly in the euro, because we've seen a significant shift in policy stance there. We're now talking in Germany about removing defense spending from the restrictions, the master restrictions that are in place.

And for the first time, Germany taking a full-blown approach to rearming. And that's going to have a massive impact on the defense industry across Europe. And it's going to be reflationary. We know that. Industrial, certain industrials are going to benefit from that. So that's had a bit of a tailwind so far. But we would expect DXY to settle back.

as we go through the course of this year and to retrace the more recent weakness for the dollar. Mark, we'll leave it there. It's always a pleasure. Thank you so much for joining us. Mark Conan there, Chief Investment Officer at AIA Group, joining us from our studios in Hong Kong here on the Daybreak Asia podcast.

strong relationships, broad capabilities. It's what makes Stiefel one of the industry's leading providers of M&A and capital-raising services in the middle market. But don't just take anyone's word for it. IFR has named Stiefel U.S. Mid-Market Equity House of the Year five times in the last 10 years. When it comes to investment banking, Stiefel is the name you should know.

To learn more about how Stiefel can help you address your most complex investment banking needs, visit StiefelInstitutional.com. Stiefel, Nicholas & Company, Inc., member SIPC and New York Stock Exchange. Every business starts with an idea. How can you go from daydreamer to industry leader? Amazon Business accelerates your journey.

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Welcome back to the Daybreak Asia podcast. I'm Doug Krisner. So the equity market finished higher in the Monday session despite weakness in some tech mega cap names. We had the S&P picking up around six tenths of one percent as the benchmark extended last Friday's post-correction rebound.

More than 90% of the companies in the S&P were higher in the last session. However, the market's most influential members were left behind. I'm thinking of Tesla, down today by 4.8%, and shares in Nvidia were off 1.8%. Let's take a closer look at the price action with our guest, Eric Sterner. He is the Chief Investment Officer at Apollon Wealth Management.

Eric, thank you for taking the time to chat with us. What does it mean to you when names like Tesla or Nvidia don't participate in the move higher?

Thanks for having me it's always great to be back on the show and I think what that shows is just the strength of the market I mean I know we just. Of fell into correction territory in the market is bouncing back. But you know for the last two years we've seen you know the markets risen and fallen with the mega tax and now it's coming back without the mega tax I think. That's what we're expecting this year to see. A.

a rounding of the market, a rotation in the market into some of these other sectors that really haven't produced the earnings in the last two years. But we expect higher earnings growth this year. So I think that's a good sign for the market going forward. The elephant in the room, obviously, is the situation with tariffs. On April 2nd, we're expecting the Trump administration to announce those reciprocal tariffs.

To what extent do you believe this has been discounted by the market right now? Or is there still some risk if we get details that maybe the market is not even suspecting? Yeah, well, I mean, that's Trump 2.0. I mean, we knew with Trump taking the office, just as we saw in the first term, the volatility was going to be high because he is unorthodox and it's very hard to predict what he'll do. Right.

I do, you know, there's been a lot of press and he came out and he said, you know, he'd be willing to take a recession to, to, you know, to, to reset these trade agreements and the trade balance. I,

I think this is just more part of his negotiations. And I think Trump, his legacy is very important to him. He considered himself a businessman. And a big part of that's what the stock market did. I mean, the stock market did great. It was up 14% in his first term. And so I'm of the belief that there's more bark

marked and bites these tariffs. So he's playing hard negotiations right now. And that's freaking out the market. Hence, the market is drawn back 10 percent. But I think we'll have better days ahead of us. I think it's just a big negotiation here. And he has to, as part of that negotiation play, say he's willing to go into recession. But deep down inside, I just I'm not sure if I believe that.

Do you think that we can avoid recession or at some point will this become perhaps a little bit of a self-fulfilling prophecy where negative sentiment actually causes the economy to contract? Well, yeah, I mean, in any given year, the chances of a recession are 15%. And I would say, you know, right now, based upon, um,

The high uncertainty with the policy coming out of the White House is probably a little bit elevated, maybe 20%, 25%. But that's not my base case. I don't think we're going to have a recession for a number of reasons. One, corporate profits are very healthy. We just came off a great last quarter, fourth quarter, where corporate profits and S&P 500 were up nearly 18%.

Their profit margins are at about 12.5%, which is above the five-year average, 11.5%.

unemployment rate is near historic lows and the consumer is at an aggregate level is doing very well so I do think you know because of that we're not going to experience a recession however if this uncertainty continues to drag out and going into the spring potentially maybe into the summer then yes I see businesses less willing to commit to

hiring needs or maybe capital expenditures, consumers maybe holding back on spending. We're seeing some moderating on all those fronts right now, but not enough that pushes me to believe we will experience a recession. But I think we need to get past some of this uncertainty in the next, hopefully, few weeks with Trump, knowing that, you know, tariffs will be a major weapon that he uses as part of his negotiations.

But the other things that make me optimistic is we still have tax cuts coming, we still have deregulation coming, and onshore initiatives. And those shall all provide boosts to the economy probably in the second half of this year. So for those reasons, while I do have some slight concerns, I remain optimistic on the markets and in the economy in general. So we have the Fed meeting this week. Basically, the market's view here is that officials will hold rates steady

The focus, I think, is going to be on the update to economic projections and then obviously Chair Jay Powell's press conference. What is your sense of the path ahead for the Fed? Are we on hold for the foreseeable future? Are you holding on to the possibility that we will get maybe one, two or maybe even three rate cuts this year? I believe that we should get at least two cuts.

I'm hopeful we get three, because while I say the labor market is healthy, and if you look at the unemployment rate, it's near historic lows, we know weekly continued claims are somewhat elevated. So if you have a job right now, you're okay. But if you don't have a job, it's a tough situation to be in right now. So we see that moderation in consumer spending, moderation in the labor markets, still very healthy, but I'm

I don't want to see the Fed hold rates too high for too long just because they don't know what Trump's going to do, just because of the uncertainty. I mean, if you're waiting for when we'll know what Trump's going to do next, you're waiting for four years. That's just Trump being Trump.

and I elevation is still above the feds rate target of two percent but it's trending in the right direction stubborn and it's going to take a while.

I mean, some of the things that are causing inflation to be a bit higher right now, we all know the price of eggs. And that's as a result of the birth, though. So that has nothing to do with interest rates. And then there's housing. And housing is always the long pole or an intent of inflation. And a lot of that's the housing shortage. And Powell has acknowledged it's going to take years to address that. So with all that said, I'm

that the uncertainty doesn't cause the fed to wait and we've heard mixed signals from the fed some like- the summit said Michelle Bowman seems that want to hear more clear some of that uncertainty up before we start cutting what Christopher Waller is said some things are the opposite that if inflation continues to come down that we should be able to cut. Inflation

Even with that uncertainty, so it seems to be some mixed messages within the Fed But I'm hopeful that we'll get at least two cuts in maybe even three So the Fed doesn't make a mistake and you know caused unnecessary economic pain Just because we don't know what Trump's gonna do

at any point in time, which is just Trump being Trump. I'm glad you mentioned Michelle Bowman there, the Fed governor, late today was tapped by President Trump to serve as the Fed's vice chair for supervision. Now, we know she's been kind of a sharp critic of a plan to require banks to hold more capital. And I think it's fair to say that she would support a lighter touch

to bank regulation, certainly than her predecessor, Michael Barr. How do you view the overall environment for bank regulation right now? And would you be a buyer of some of the big bank stocks? Yeah, I really like the, uh, financial stocks and big bank stocks this year. I just, just in the first quarter alone, they had very strong earnings. They were, um, 84% of financials beat their, uh, estimates and, and, uh,

earnings on a year-over-year basis were up 56%. I think there's still some more legs to run there because you have more M&A activity most likely to happen as interest rates come down, and deregulation should provide tailwinds.

So I think the big banks and financials are one of the sectors that I really like for the remainder of the year. Eric, we'll leave it there. Always a pleasure. Thank you so much for making time to chat with us. Eric Sterner is the chief investment officer at Apollon Wealth Management, joining us 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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