Cautious Open for APAC Markets; Election Day in South Korea
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Welcome to the Daybreak Asia podcast. I'm Doug Krisner. South Koreans are heading to the polls on Tuesday. They will elect a new president and in a moment we'll preview the election with MJ Moon. He is professor of public policy and management at Yonsei University in Seoul. But we begin with markets. Trade news continues to dominate the headlines.

After the bell, the U.S. said that it was extending the pause on tariffs for some Chinese goods all the way to August 31st. Earlier in the day, the White House said that Presidents Trump and Xi are likely, and I put that in air quotes, to speak this week after the two sides traded accusations of breaching a trade agreement reached in May. Joining me now for a closer look at how the tariff story is impacting markets

is Adam Koons. He is the chief investment officer at Winthrop Capital Management. Adam joins us from Indianapolis. I was struck by the fact that this ISM data really underscores the problems that the tariff regime has created. U.S. manufacturing contracting in May for a third consecutive month. The group's measure of imports now at a 16-year low. And what's interesting here is that higher material cost

do remain a problem for producers. 16 of 18 industries reported higher prices. So I guess you have to look no further than this ISM data to get an immediate read on how tariffs are impacting the economy. Would you agree with that?

Oh, I totally agree. And we were saying from the beginning that ultimately, we thought that tariffs were actually disinflationary because of this reason. And what I'm getting at is that we saw tariffs as an economic contractor. And

that would net-net lead to a deceleration in inflation, not this acceleration in inflation that a lot of people were talking about. Because at the end of the day, you're going to see manufacturing contract on two things. One is the uncertainty, and you hit on it, the last part is the fact that those costs are going up.

When those things happen, you see the contraction in manufacturing sector, that's actually completely contrary to what the Trump administration is trying to do. We see this, if this goes on for too long, and what I mean by that is the narrative, the rhetoric around tariffs and the back and forth, it could spell disaster.

some tough times for the U.S. economy. Yeah, no doubt about that. And if you look at the price action in the bond market, not that yields were up to a large degree, but I think the sense is that there is a lot of concern here over the possibility of stagflation. What if that were to really take hold?

Well, stagflation is the kind of boogeyman under the bed for the Fed, right? I mean, because that's the scenario where the Fed's stuck. And what you have there is you've got unemployment is ticking up, the economy is rolling over, but at the same time, inflation would be ticking up in a stagflation environment, meaning that the Fed is

couldn't use the tools they've used in the past to try to stimulate the economy because all that would do is make the inflation part of the equation worse. That is a big concern for us because that could lead to some bigger problems. Ultimately, we think that if the Fed is in that stuck position and

can't decrease rates or they don't feel like they can decrease rates because inflation is ticking higher, then that could lead to a much harder landing for the US economy. I think ultimately that's going to work itself out. We don't think stagflation is the base case. We don't think a recession is the base case.

but that's all conducive on the duration of all this. If it continues to go on and on, like I said, that back and forth rhetoric, then we probably would hit that scenario of stagflation. I think what we need to see is we need to see the Trump administration continue to push on tariffs

and the Fed being stuck before we had that kind of scenario. We had an interesting piece on the Bloomberg Terminal today. Some large money managers are steering away from the 30-year Treasury. That list would include Double Line Capital, PIMCO, TCW Group. So these are big firms now, and they're favoring shorter maturities

I think a range here maybe between the two and the 10. Is that how you would play the bond market right now and really avoid the super long end of the curve at all cost? - Well, for right now, I would be a little bit cautious on going all the way out to the 30-year. I think that there is a buying opportunity there. I just don't think it's yet. I think you need to see, because,

Part of the issue is all of this debt that's maturing this year and the pressure that just generally we'll put on the bond market. Now I'd say I was, you know, the sophisticated fixed income investor in the U S and the globe knows that's there. So I think most of it's priced in. So that's why I think there is a buying opportunity. And so I wouldn't be selling my long end exposure right now, but you know, I would be cautious about actually extending duration at the moment because

But I do think long run, long duration is one of the best bets in the market right now. Because when you're talking about 5% on the long bond, we haven't seen that in, I know we saw it in 2023, but prior to that, we haven't seen those levels in a decade. And so I do see this as a point in time and opportunity where the

the risks are asymmetric because, you know, if we're at 5%, think of it in terms of what's the risk of 6% versus 4%.

Us getting to 6%, I think, is a low likelihood because then you start to have a lot of the global effects work into the foreign buyers would want to buy US treasuries if we're approaching 6% versus there's probably a higher chance of being at 4% than that 6%. I would take the bet that clip that 5% coupon and a

a higher likelihood that we get to 4%. I just wouldn't be going all in yet. I think we need to see a little bit of this uncertainty with the Trump administration die down first. I'm wondering how you're feeling about the equity market. If you look at the fact that the S&P is within 4% of its February record high, I think the S&P bottomed out around April 8th. That was a pretty sharp decline. How are you feeling about the overall equity space in the U.S. right now?

I don't think that the volatility is over. So we are still being cautious. Now, we had the advantage of coming into the year, we were very defensive in our equity allocations. And then when we saw the downturn in March and April, we kind of shifted back towards a more neutral state, which gave us the opportunity to ride it up. But now we are aggressively moving back towards that defensive stance because it's

The extended valuations, the uncertainty, those things really haven't changed for us. So we still want to be fully invested. We don't want to sit on the sidelines. We don't want to be in cash, but our equity allocation is

It's just been dialed back. And so we're looking at low vol strategies, higher dividend paying stocks rather than the growth oriented right now. If something changes, like I said, out of the Trump administration, then we would probably switch that again to growth because we do think that there are enough catalysts for the growth type stocks.

But right now, it's just there's too much back and forth for us to feel comfortable just going all in, you know, and turning the dial all the way back up. So we did move back to defensive within the last, I'd say, 15 days. And if we saw volatility pick up again, we'd probably just kind of trade this because this could be, you know, a trader's

best environment where we see choppy markets. And that's kind of our base case for the rest of the summer until we kind of get to that back half of the year. Then we may see things settle down. But our base case is that volatility will remain high for the next several months. What about foreign markets? Are you being pushed to consider looking offshore?

So our offshore exposure is relatively small. And what we're doing right now actually is taking that even lower. And if you look at the – what we're looking at is kind of the valuation and the divide, the delta between developed international markets and the U.S. markets. And depending on the day you look,

It's running roughly a 16% to 17% delta, meaning that international stocks at any given day are outperforming U.S. this year by that amount. And we haven't seen that in I don't know how many years where the international markets have outperformed the U.S. on a consistent basis.

And we think that that delta has gotten too wide. So we're actually pulling back our international exposure with that scenario, moving more into the U.S. markets, looking for that gap to close before we move back towards international markets again. Adam, we'll leave it there. Always a pleasure. Thank you so much for joining us. Adam Kuhn's there. He is the chief investment officer at Winthrop Capital Management. Joining from Indianapolis, Indiana, here on the Daybreak Asia podcast.

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Ready to bring your visions to life? Learn how at AmazonBusiness.com. Welcome back to the Daybreak Asia podcast. I'm Doug Krisner. South Koreans are headed to the polls on Tuesday to choose a new president. This election comes after an attempt last year to impose martial law. That event triggered one of South Korea's worst constitutional crises in decades.

Now, today's winner will be facing the challenges of trying to unite a deeply fractured country and to restore growth to a shrinking economy, one of the most vulnerable in the world to President Trump's trade tariffs. For more, we heard from M.J. Moon. He is professor of public policy and management at Yonsei University in Seoul. He spoke with Bloomberg's Sherry Ahn.

Professor, really great to have you with us outside here of the National Assembly. Thank you so much for coming out. Thank you for having me. I have to ask you, I mean, it's a public holiday, so thank you so much for coming out. Did you vote already? Are you voting today? Well, I did last week. We had two days, early voting days. So I did, yes, last Friday. That was super high turnout, what, the second highest on record? That's right, about 35%, so that's the highest.

second highest in Korean history. Does that give us sort of an indication of where this election could be headed? Yeah, I think so. Well, you know, that high turnout in early voting, I think that symbolizes the sentiment and then, you know, the heightened public engagement in this election. So I think that's a really big turnout.

And I think that's maybe a signal to the positive signal to the Mr. Lee, Lee Jae-myung Democratic Party. Yeah, the frontrunner of the election so far, as we saw in last week's polls. But tell us a little bit about what we can expect from him, because if he's elected,

The difference with this snap election is that he will not have a transition period to put everything in place before he gets into office. Yeah, this is a snap presidential election, so that there will be no formal standardized transition period.

so that he should take over the power as soon as the National Election Commission announced the election result, so that he should be ready for taking over the administration and ready for making policies and also working through in the middle of very pressing domestic and international issues.

Yeah, that was my point because if you have to work this fast, how soon can you put a working cabinet in place at a time when you're running out of time in order to negotiate with the United States on these 25% tariffs that have been temporarily lowered to 10%? So according to the law, all the ministers should be nominated by the prime minister. So they'll

we don't have a prime minister right now. So the formality, he should wait until he has new prime minister. So I think his cabinet, formality-wise, he will work with the current ministers. So I think he has his own shadow cabinet already, and he has his own team already. But formality, he should work with the

Depending on whether it's Lee Jae-myung or the ruling party's Kim Moon-soo,

or any other third party candidate. What sort of policies could we see when it comes to dealing with the United States in these trade negotiations? Well, I think that's one of the pressing issues. And Mr. Lee has been emphasizing the significance

of the uh the allied relationship with the u.s but at the same time he really wants to have very problematic uh relationship with major players particularly he wants to have a good relationship with china for

national interest and China is the largest trading partner. So he really tried to balance between military-ally relationship and trading economic relationship with other countries. And of course, the relationship with China will be tricky. The relationship with Japan could also change depending on if we see a change in government.

Well, geopolitics is really changing. That's a major issue. And I think, you know, they really try to maintain a positive trilateral relationship, U.S., Japan, Korea. At the same time, I think, you know, deal with the frosty relations with China. I think that's one of the major key foreign policy issues to Mr. Lee. For voters, is it all about the

the economy? Is it about democracy? Yeah, a lot of people really got frustrated with the economic downturns and small, medium business owners really got frustrated so that you know there's a really big demand from the people for economic stimulation so that I think economic package, policy package by the new administration will be really critical and I think that's one of the big things to the voters mind today.

Thank you so much for joining us today here outside of the National Assembly. It was really great speaking to you. And of course, this is MJ Moon Underwood, Distinguished Professor at Yonsei University's Department of Public Policy and Management. Of course, voters here in South Korea can get to the polls until 8 p.m. local time to cast their ballots.

Thanks for listening to today's episode of the Bloomberg Daybreak Asia Edition podcast. Each weekday, we look at the story 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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Terms apply. For J.D. Power 2024 award information, visit jdpower.com slash awards. Thrivent can help you plan your finances for the people, causes, and community you love. What makes Thrivent different? Financial services and generosity programs are combined to help you build a financial roadmap for the future while also creating opportunities to give back along the way. Visit Thrivent.com to learn more. Thrivent, where money means more. This is an iHeart Podcast.