Markets Fall as Global Tariff Turmoil Enters Second Week
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Bloomberg Audio Studios. Podcasts. Radio. News. Welcome to the Bloomberg Daybreak Asia podcast. I'm Doug Krisner. The tariff-inspired turmoil in financial markets is enduring. Certainly, over the weekend, the Trump administration indicated those sweeping U.S. tariffs would be kept in place. Coming up, we'll be talking with Adam Kuhns. He is the CIO at Winthrop Capital Management.

But we begin this morning in the Asia-Pacific, where despite the holiday in China last Friday, the government did announce retaliatory measures against all U.S. imports. Tariffs were imposed at a rate of 34%, and they will take effect as of April 10th. Joining me now is Helen Ju, Chief Investment Officer, also Managing Partner at NF Trinity. Helen joins us from our studios in Hong Kong. It's always a pleasure, Helen. Thank you so much for taking the time to chat with us.

How surprised were you by the move from the Chinese government last Friday? I think it was always within expectations that there would be some degree of retaliation. The exact magnitude, I think, was somewhat of a hawkish surprise.

Very similar to what had happened the day before on Liberation Day, when everybody was expecting tariffs to come in, for sure. But the magnitude and extent of it was certainly more hawkish than expected as well. So, let's get away from the macro for just a moment and talk a little bit about what you're seeing within the market right now. I'm curious...

about the extent to which this price action is revealing a level of leverage maybe that we didn't really realize before. So you've taken a position, let's say, using a little bit of margin. The market goes against you. Uh-oh, that weakness forces you to either add to the position or to liquidate. Is that a little bit of what's going on?

I think that's part of it, but that's certainly not all of it. For example, if you actually look at retail participation in the U.S., that's been very important in terms of supporting the broader market. People are generally buying on dips very consistently, and a lot of that is not necessarily on leverage. It could just be cash, but the positioning was very concentrated there.

as in U.S. exceptionalism had rolled for a very long time and people had no interest in diversifying into fixed income and diversifying into non-U.S. markets or holding other hedges. So I think that the unwinding of that with the loss of confidence starting Friday, I think that's actually what's been

the key driver for the major unwind that we saw. So are you seeing order in these declines? Or are you seeing maybe a level of stress that would be concerning either to a central banker or a financial regulator, something that might imply a bit of financial instability?

Certainly, the magnitude of the market drops has been, you know, akin to COVID or GFC. So that's certainly a sign of financial instability. But it's not necessarily systematic risk in the equities markets. It's, you know, we have to look more at the fixed income markets, which is far more important from that regard. Now, credit spreads have really blown out over the last week. But on an absolute basis, they're not at

you know, COVID levels or GFC levels. I think that's what we have to watch very, very closely. But, you know, if I was the Fed, I would be thinking, gosh, even if I drop rates by 50 basis points, I'm not resolving the trade issue. In fact,

If interest rates were lower and markets stabilized for a few days, that might actually delay any potential negotiations on the trade issue. So I would think that the Fed would not want to be taking on the sole responsibility for stabilizing the markets when they're not the root cause of the market disarray. And in fact, the tariff situation may engender a bit of inflation that would be troubling for the Fed. Would you expect these tariffs to produce a higher level of inflation?

They will, but I think it's a little bit different from what you would expect. First of all, it's mainly on goods, and historically the sticky inflation of the U.S. over the past year or so has really been on services, which tariffs doesn't necessarily affect. And then the second thing is that you've got to think about the fact that these tariffs are going to be a one-off impact

on inflation and not necessarily sustaining over the medium to longer term if the tariff rate remains stable as a base effect reset. So I think maybe higher inflation will be one consideration for the Fed. But, you know,

Hiking rates meaningfully is not going to be a solution to fixing the tariffs. And therefore, you know, you should probably rethink the normal logic that hiking rates can fix inflation. Over the weekend, the Trump administration indicated that it had heard from no fewer than 50 countries trying to negotiate new trade agreements. Is this part of the process right now? The tariffs are in and of themselves increasing.

kind of a bargaining chip or is this something that is maybe a little bit more concerning in that you know if this is a line in the sand that has been drawn and that president trump is adamant about taking this position to try to reduce trade deficits that these tariffs may be with us for a while longer i think tariffs will be with us a while longer but that different countries will have different negotiations and different situations

Scott Besson, in the interview with Tucker Carlson over the weekend, he said tariffs are in for this reason and for that reason. But he also said that tariffs are a tool for negotiation. So I think that is the reality. But if 50 parties contacted them for negotiation, I think we'll get 50 different outcomes. How are you viewing the macro right now in China, given everything that we've been talking about? I think it's a good question.

I think things were starting to head in the right direction. Infrastructure investment and local governments were starting to stabilize. We saw that the property sector had gone from a huge drag in terms of both volume and price to price somewhat stabilizing or even starting to pick up in some top tier cities.

And then we saw that consumption, you know, it's still not stellar, but it's not getting worse either. And actually, the government has been more focused in terms of their efforts to try to stimulate and support consumption. So it was starting to come around the corner until this, but...

This was somewhat expected as well, although worse versus the base case expectation on the tariffs. And I think the policymakers will have their own policy response to it, probably focusing more on domestic-facing parts of the economy. What have you been hearing from clients generally? I think the market is panicking. I think that most people initially try to be somewhat rational about

you know, switching into defensives and, you know, switching into fixed income and so on and so forth. But then I think very quickly people felt like they needed to sell and they needed to get out for some of the reasons that we've discussed, because this whole thing might last longer than originally anticipated. So that's what we've actually seen in the last couple of days. That's what we're seeing today. I actually personally think that the more

you know, disorderly it is for two or three or four days, the more it's going to force the administration's hand in terms of coming out and saying something to stabilize market expectations. So that is good to some extent. So now give me a strategy that you think would be worthwhile over the next six to nine months based on everything that you think you understand right now.

Well, the faster the market drops and the more disorderly it is, the more interesting it is to jump in and start to buy some. If actually things stabilize immediately with valuations still above the historical median, with earnings expectations not yet revised down, then it's probably not interesting yet. I would say that...

the tariffs are imposed on a by-country basis, and each country will have its own deal. I think the countries that are U.S. allies and countries that are manufacturing substitutes for China are likely to negotiate first and get the better deals, and whether their deals are firmed up, then those particular markets will outperform others. So I think that's where some of the capital is going to flow, and that's what I would use as a general guideline for thinking about it.

And if some of those countries get out of it, then the country, the sectors like, let's say, you know, U.S. apparels that rely on the manufacturing and shipments from, you know, countries like Vietnam, Cambodia and the rest of Asia, you know, then those companies could potentially rebound as well. Because currently right now, people are just thinking.

recession hits demand and tariffs hits margins and it's basically getting squeezed between a rock and a hard place. So if we can have some resolution on their sourcing markets as well, that will benefit those types of sectors also. One of the big themes in China so far this year has been high technology, particularly as it relates to artificial intelligence. We know about the deep seek moment. Is that theme still intact right now or...

Is the stress that we're seeing right now in markets kind of threatening that in any way? I think China high tech has been up and coming for quite some time, and there will certainly be meaningful breakthroughs. But the extent of the trade and related geopolitical tensions is actually negative for China tech, largely because, one, it increases the chances of the U.S. cutting off the supply of, you know,

NVIDIA chips to China, as well as the stuff that's actually getting into China from other markets that NVIDIA and others ship to. Secondly, looking forward, there is greater risk of future policy changes on containing China's AI infrastructure.

improvements and innovation. For example, probably stopping some of the Chinese models from training overseas. For example, you know, potentially cutting off equipment exports to China, not just chip exports. There are a variety of other things that could potentially happen if tensions should further intensify that are specifically a threat to China's high tech industry. So that's something that, you know, one needs to balance and think about as well.

Helen, we'll leave it there. Thank you so much. Helen Zhu, Chief Investment Officer, also Managing Partner at NF Trinity, joining us here on the Daybreak Asia podcast. Want to understand trends shaping the global investment landscape?

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where money means more. Welcome back to the Daybreak Asia podcast. I'm Doug Krisner. We are seeing dramatic moves in financial markets at this hour as risk assets are being sold. Much of this is tied to Beijing's announcement last Friday of retaliatory measures of tariffs on U.S. imports, a rate of 34 percent as of April 10th.

Now, this announcement came despite a holiday in China. Stateside, we had the S&P 500 dropping 6% to its lowest level in 11 months. And over the prior two trading days in the U.S., the S&P has lost $5.4 trillion in market value. For a bit of perspective, I'm joined now by Adam Koons. He is the co-CIO at Winthrop Capital Management. Adam, the big

question right now seems to be how much more downside we will see in markets and i'm curious as to what you're prepared for in the monday session how bad do you think it will get well i mean yeah monday session is going to be another uh bloodbath per se if you look at the futures and probably just the kind of concrete nature that it seems that the trump administration is taking with um

these tariffs. Frankly, the market's got it wrong. I think the market was trying to anticipate that the Trump administration would come with a heavy-handed narrative around the tariffs and then would back off. It seems quite clear that they're going full tilt into this increased tariff or just

regime. And for right now, the base case should be they're not going to back off. So if there is a level of market stress that were to develop that might alarm the Fed, do you have a sense of what that might be? What is the key pressure point that you would be looking at? Well, I think for the Fed, I mean, obviously, a lot of participants look at equity markets. But when it comes to the Fed, I think what they're really looking at are credit spreads.

And I think one of the bigger stories for me is that if you look at high-yield spreads, levered loans, those kind of things, spreads in those markets have –

gapped out almost 200 basis points. If you look at the high yield index, it was trading below 300 and spread, and now it's approaching 500. So that, I think, is what the Fed's going to be looking at more than anything. Are credit markets deteriorating? Are they shutting down? Are refinances going to be an issue? Because that's really where the Fed would have to start stepping in if we started to see the credit markets deteriorating significantly.

That's where we start to see this unwind. I mentioned a tweet that happened on Sunday from Bill Ackman over at Pershing Square, and he suggested that if by Monday there isn't an announcement on some sort of pause with respect to these coming tariffs, a recession will rapidly become the base case for the equity market. It seems like we're already there, does it not? Yeah.

Well, that's what the equity markets are depressed in undoubtedly. I agree, it's too late for that per se. I think the question is, a recession can come simply on the perception that things are bad. If consumers just cut back because they're just uncertain, that in itself would create the recession. That seems to be what the equity markets are starting to fully price in.

It could be that we start pricing in a very harsh recession. So there still is the downside potential of the equity markets if we start to see further deterioration in the consumer and their behavior, if it rapidly kind of deteriorates, like I said, simply based off of narratives, because right now,

The fundamentals haven't really changed. This is all based off of what could happen and how it might affect the economy. But as we know, that's how we act as humans. We react based off of what we think is going to happen. And so right now, I think for us, that is the base case is that we're moving towards that. I don't think it doesn't really matter what the administration comes out on Monday and says.

I think enough damage is already done. At what point do risk assets become a bargain, though, given the weakness that we have seen and imagining that we're going to see much more in the regular session Monday? Is it possible that in near term there is going to be some sort of buying opportunity?

Yeah, I think it's already approaching. It obviously depends on how you entered the market this year. If you were like us, we had already shifted towards a more defensive stance, we were fully invested.

But it was, like I said, it did have a defensive tilt and that has helped us weather this to a degree. But more importantly, it's given us a little bit of dry powder to add to names like NVIDIA because we were quite underweighted at that name. And so, yeah.

By no means are we neutral yet, but we're moving incrementally towards that as we see these drops. I think if you do have dry powder, you're not going to pick the bottom. You should still believe in your investment strategy, those companies that you think are great companies and are cash flow generators, like I said, like Nvidia, like a Google, Alphabet, Microsoft. With these drops, I think you should be incrementally adding.

Like I said, because you're not going to guess the bottom. And this is going to be one of those markets where it's going to be very news-driven, and you don't know what the next headline is going to be. So we could see a further drop, but I think if you do, like I said, if you have dry powder, you should be putting it to work incrementally right now. So last Friday, we heard from Fed Chair Jay Powell. He seemed to suggest that the damage of this trade war is going to be a lot greater than anticipated.

Tonight here in New York, we heard from Bob Michael, the global head of fixed income at J.P. Morgan Asset Management. He thinks the Fed should step in right now, given a lot of the stress that we're seeing in markets. But if you listen to what Powell is saying, yes, growth probably will weaken as a result of

what we're seeing right now in terms of kind of sentiment more than anything else at this point before that soft data becomes hard data, but the inflationary impact of these tariffs would be even more troubling to the Fed, would they not? - Yeah, so I think that that's why the Fed's in a tough spot and why I don't really see how easing monetary policy solve the current issue, right? So what are lower interest rates gonna do for

higher import costs. They're not going to really do anything except potentially make it worse because you can borrow more to buy those more expensive goods. So I think in the near term, yeah, I think the Fed's a little bit stuck and is going to have to kind of wade through this because the reality is the

the solve for high prices or high prices. And so likely what will happen, I think what the market's really seeing and pricing in here is that these higher costs due to the tariffs, they're not just going to increase inflation long term. You might see a short-term blip, but all they're going to do is choke off the economy, and then you're going to see a demand decline. So that's when the Fed would need to step in. I think it's too soon right now just to

like you said, because of the inflationary fears. Eventually, the increased inflation that's caused by tariffs will end up leading to a more disinflationary period, and that's when the Fed should step in. So that 10% baseline tariff on all U.S. imports

went into effect on Saturday, and I was given some news from the Port of Long Beach, California. The port is now projecting import volumes this week will drop by around 15%. But if you have to put money to work right now, given everything that we're describing in the macro, what do you do? Do you seek the safety of U.S. treasuries and call it a day? Are there opportunities? You mentioned NVIDIA. I'm curious as to whether you're seeing anything else in the equity tape.

Yeah, I think when you're looking at equities, you've got to look at what's hit the hardest but still has a fundamentally sound business model. And so when you look, I still like your high-quality tech names. I think you want to stay away from the low-quality names right now. I don't think you want to chase companies that are just all about –

you know, earnings growth or revenue growth. I think you want the companies that the business model is, is fairly sound. Your large cap domestic names that maybe aren't as, don't have all the sizzle that you might have in some smaller names. That's where you want to stay. Because like I said, it,

i we don't have a crystal ball and you shouldn't be investing that way so there could be more pain here but you want to own companies that you think can overall weather the storm and then on the other side of it will outperform so yeah i think like i said looking at large cap tech in the healthcare space we still like some names like lily those really have weathered this fairly well but still with the dips that we're seeing and you know names like amgen uh

and Lilly will put money to work there. Outside of that, when you're looking at Amazon or some of the consumer discretionary names, those are obviously hit very, very hard. So looking at names like VF Corp that were down, what, nearly 50% in just the last two days. So there is a value there. Those companies just didn't change overnight. There's a

you know, a gray cloud over them right now. But as we kind of emerge from this at some point, which we will, those companies will prosper again. And I'm wondering if you want to avoid companies like Apple and Tesla that have huge exposure to the Chinese market. Yeah. And that's that is where we're focusing is we're really doing that analysis to determine, OK, if this persists,

not only who is most exposed to China, but where the manufacturing shift, if you did have to shift back to the US, would take a long time. And so shifting manufacturing of something like an iPhone or a Tesla, that takes quite a long time. So I think...

Those are the companies you want to stay away from. If it's something where there's some agility around manufacturing and production, those are the companies we're really focused on. Adam, thank you so much for making time to chat with us. That's Adam Koons, co-CIO at Winthrop Capital Management, joining 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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