APAC Parses Mixed US Tech Earnings, Gold in Focus

Good morning, and welcome to the Bloomberg day Break Asia podcast. I'm Doug Prisner. Here are the stories we're following today.

I'm Charlie Pellett. Doug Prisoner is off this week. It was a mixed open for Asian markets this morning, as the region work through mixed US tech earnings. For more, we spoke with Adrian Zurker, co head of Global Asset Allocation at the UBS Global Wealth Management.

You guys went overweight viewers equities across your portfolios.

Tell us why.

As you mentioned, actually the word looks very complex. We have election data coming in, inflation rates are going up. That doesn't really speak for high equity markets. But if you take a step back, I think in general we actually do see that the macroeconomic environment is are very solid. So there was talk about soft landing or hard landing. We think we actually be in no landing scenario where growth day is actually quite supported.

Inflation is still coming off, maybe a bit slower than expected.

The labor market is still solid, so that really points to solid earn's growth. We do expect double digits for this year, still very high single digit for next year.

The market still looks attractive.

We actually do think there's so much cash on the sideline that wants to go back to the market. They have missed the rally in the equity market, and we actually want to be positioned before the election because usually election makes a lot of uncertainties, but once the under inties is gone, it doesn't matter so much who actually gets elected.

We actually do.

Think that the market had sort of relief rally as well get to the end of the year, so a lot of positive supporting factors.

There is that narrative though that if either candidate wins, you're going to see fiscal deficits. Rates are probably going to stay still elevated. At some point the Fed's going to be a bit restricted and how much they're going to cut. Does that impact your review on equities at all?

Though?

Well, two things on the election side, so we think it's very split at the.

Moment fifty to fifty who could win.

But we have a quite strong view that if Kamala Harris wins that it will be sort of a mixed garment with a basically red Senate. If Trump wins, it will be sort of a red sweep. So these are our key scenarios and I think both of these scenarios should be actually positive for equities. Yes, the FED might have to consider how much they can cut. We still have pencil in fifty basis points for the end of this year and one hundred basis points for next year. Maybe they will skip on one basis or one cut,

Yeah, and as you point out right, a lot of money still parked in money market assets. The one hundred and fifty basis points of cutstore doesn't sound like a no landing scenario. Why do we suspect the Fed styal is able to cut rates in a no landing scenario? I guess it's a question there. And why do equities do well in the absence of perhaps he's more easy coming out of the Fed.

Well, Sha, don't forget that the FED had to overtighten, they lost control inflation, They overtight and we went above five percent. Neutral rate is probably somewhere and three to three and a half, and that's where they will have to guide it to. So just to keep MONTI policy stable and neutral and as it's not an easy mode actually they are going into so they're basically readjusting to the market environment. And I said at the end it all points down to ernest growth. Corporates are not earning

Very ropust to what we have seen in the last ten years. So there's a lot of aspects. We have structural drivers as AI.

Yes, the market will look a bit more into the earnings do they really deliver and we can see it's actually also taking clear views. So if you are able to beat, you get rewarded. If not, you actually get also questioned. And basically market can trade lower, but it's still a two trade. It's not that you're surprising and nothing happens and you basically surprising negatively and the market is selling off. And I think so it still shows healthy environment.

It seems like you're leaning more towards the equity side of things. What about when it comes to fixed income, do you think this market is cheap enough now that you can actually add some duration in your portfolio.

So we actually started to add a bit. We were long the whole year. We actually cut basically our long duration positions roughly two three weeks before the first cut, and now we have seen rates backing up. We didn't expect that in this extent, but it definitely looks very interesting. You might want to wait for next week to see what's happening after the election, but it definitely starts to look like an interesting trade again.

Yeah, well that takes us into income strategies, right, So what would be the preferred income strategies at this point in time. Is it in the equity market, is it in fixed income for example?

It's probably a mix. So we still like dividend stocks. And I also have to say that we talked about Magnificent seven. So last year these were the companies that really had ernest growth. The rest of the four hundred and ninety three and average didn't have any earnest growth.

It starts to be more balanced.

So we see that the four hundred ninety three stocks, particularly the fourth quarter, will catch up a lot with the Magnificent seven. Darn's growth is coming off, so we think they will be broadening dividend stocks definitely look very interesting. But I would definitely go into the fixed income market as well.

Definitely more interesting than cash.

So we actually have maxed out our cash position to the lowest level.

In our portfolios.

Okay, but within fixed income, really still focus on quality evaluation in high yield is really unattractive and therefore be cautious there.

How much does gold come up in your conversations?

Yeah? Lot? Does it come up? Okay, up a lot?

The question is I'm too late? Did I miss it? We have it in our portfolio. We went in, we cut our position by health probably also a bit too early, but we still let it run after say, it's a bit profy at this level. We still see upside fundamentally, but it was going up in very short period, maybe a bit too quick. There might be some profit taking here and there, but I would say fundamentally they're still upside. You have central banks that are trying to diversify their ethics reserves.

You haven't seen very.

Strong ETF flows, which we actually do expect will come in. We still expect the Fed to cut interest rates, and we still have a weeked all of you, which should be supported for stronger goal prices.

So what is the best election hedge then?

Is a goal?

Is it yen? Given how cheap it is these days? What do you look at some something that you know? I know you're saying you can see through the noise and still in the US equities, But how are you actually protecting your portfolio as well?

A very good point.

I mean, we try to build very robus portfolios. So we have two key election hatches. One is actually despite the overweight equities, we have a few narratives in it that sort of flower out inside. The other key election hatch we have is just short a CNY versus US dollar.

If it doesn't, I just.

Want to get your thoughts on is there still a cyclical trade to be made here, a tactical trade to be made in China? Do I need to wait for the elections?

What's what's your overall view on that?

Before me unpacked, Probably still some tactical upside, but I will probably wait for the election out common and we also see a test that down.

A little bit.

Everybody wants to know who they will face going forward, and then it could be actually a good still tactical trade.

At least you mentioned any potential tactical rally in China might have to wait until the US elections are over. Do you think that Chinese policy makers will also need to wait who wins before they give us give us the goods.

I think they want to wait.

I mean the package and the rumors we have heard is probably in line what we also would expect, and I'm pretty sure the dates that has been set was related to the US election. They want to see how markets react who they will face as a president. Then they will announce basically stimulus package as well and probably readjust that. And I said, that's probably where you have potential.

For a good sort of short term trade. If it's structure enough, we will see.

I think the key issue in China currently is still you can throw a lot at this economy, and as said.

Market is cheap.

People in opposition that's probably driving some flows, but it's the real estate market and as long as you have real estate prices going down, it's very hard to convince the consumer and get is creating this positive feedback loop before the consumer to get back and spend. And I think that's if you look at the economy which is missed, and I think that's the biggest part where I'm still concerned about the structural challenges that China has.

So do you think it's still more going to be domestically driven or do you think I look at you know what terriff risks for example, is that going to be a bigger overhang on this market.

Well, if Trump gets elected and he follows up on his sixty percent tiis or whatever it is, that's definitely a major challenge that will impact GDP growth, definitely also impact the consumer spending. And so it's definitely much more domestically focused, and I think that's what they also have to do. The good thing is in China, it's a very big economy, so they have the flexibility also to

And you know, since if it is indeed the property market that will be you know, the ultimate acid test of you know, any potential bull market that might be at least still a year away. How do you think what is the appropriate exposure you think to Chinese equities or Chinese assets at that that do you think people should have? Well, we wait for that ship to eventually turn hopefully.

So what we try to focus mainly really building solid global portfolios, and unfortunately China is a relatively small part out of that. We talk about maybe two percent exposure. If you want to have a bit more Asian focus for some.

Cent exposure, yeah, if you want to have a.

Bit more of an Asian focus for some of the clients, I want to have a bit of a home buas we still talk about six to seven percent exposure to China.

Wow, that's not a lot.

But also not forget I mean the compositions has changed, so India actually caught up with China largely.

You have time on your Korea.

I think if you take India, Korea and Time and together, it's almost forty five percent of the Asian extra pan market. So you see, Asia overall is growing. There's actually positive trends and so you have a much more balanced portfolio if you invest into Asia, then just basically be overly dependent on China.

I was going to get your take. I mean, what is the playbook for this election? Can we do what we did back in twenty sixteen when Trump won? I mean at that time, inflation was way more controlled, rates for much lower and there was this rally that went on for about fifteen months after Trump won. I mean, can we subscribe those same sort of narratives this time around, because we've already seen aquen markets rally so much and things are not cheap anymore.

That's a very good question.

I think the environment is very different than we are much more advanced in the cycle. Well, the positive news is the Fed is cutting industrates are coming off, there will be more stimulus. I think the market at least initially will play sort of the playbook of twenty sixteen. But then once we actually go into next year and we start to see policies coming through, then we will have to see how solid the macroeconomic environment is, how much the economy can digest if it's overspent, how much

But if we're pushing too hard.

Inflation might go up and I won't be something negative for the markets as well. So I think the market will played until the end of the year, until the inauguration the same way, but then afterwards might be a bit more nuanced on that part.

Fancy, I guess if Harris takes it this time next week, what do you think market reaction will be the first forty eight hours? And if it's Trump, what do you think market reaction will be.

It's not what we usually do, but I give you my indication is that I still think market will be positive because the Unswerta is a way we get more clarity, and I said it will be probably a red Senate, which also should dampen some of the policies that she wants to implement.

Adre great to have you. Adrian's Rusher, their co head of Global asset Allocation at UBS.

Global Wealth.

Gold trading at a record extending a surge that has sent gold up over a third this year, joining US now George Milling Stanley, chief gold strategist at State Street Global Advisors. He is in our Hong Kong studio. So with gold at a record, what is it that got us here?

I think there are really three things that got us up here. The first is that central banks have been very significant buyers of gold, now primarily central banks in the emerging markets, buying gold because they didn't have enough in their official reserves. And that's been a process that's been going on for fourteen straight years, not going to go away anytime soon. The second thing, we've seen a

Well, does the current price of gold then justify current valuations?

I think it does. I mean, you know, if you think about it the kind of macroeconomic scenario that we're in, with inflation still being sticky, especially on the Fed's preferred measure, and with the Fed having started to cut interest rates and clearly embarking on a sustained period of rate cutting that's going to run through next year if everybody is to believe it to be believed that I think is likely to lead to dollar weakness and then consequently gold strength.

Well, let me throw in one more piece of uncertainty, and that is the American presidential election. Potentially what might that mean for the price of gold.

I'm guessing that whoever becomes the president We're going to see continued spending, whether it's spending on domestic programs from the Democrats, or whether it's spending to finance, whether it's it's tax cuts. We're going to see bigger deficits whoever becomes the president, and that I think is going to lead to further dollar depreciation and quite possibly a renewal of inflation, which could be really very very damaging.

At this point, is there a perhaps more bullish or bearish case depending on the outcome of the election.

I think that as long as we avoid the dreaded trifecta, as long as we avoid one party getting the presidency, the House, and the Senate, which I think has always led to extremism in the past. I think that as long as we get the checks and balances that the US system is designed to incorporate, then I don't think that there is anything likely to be bearish for gold

What happens if we don't quickly know the election outcome, how might that play into the price of gold.

I think all that would do, and I think is a very real possibility of that, given the way some of the candidates are talking, I think that all that would do is simply add to the general feeling of geopolitical uncertainty, the uncertainty about the conflict in Ukraine and the conflict in the Middle East. And if we have, let's hope it's not an armed conflict in the United States. But if we have a contentious election, which I think is a very likely outcome, I think that's simply going

Well, certainly, we've got a lot ahead on the calendar. In addition to the presidential election, there's also a Federal Reserve meeting. What assumptions are you and your colleagues making about the Federal Reserve and the pace of further rate cuts.

I think that you know Jerome Powell has said explicitly and many many times that he plans to be driven by the data, and that he's also trying not to be to put too much emphasis on any one month's particular set of economic statistics, because these are always open to revision. But if everything stays pretty much the same as we are right now, and he doesn't get any major surprises in the data, then it looks like the

Two more rate.

Cuts this year, and then a succession of rate cuts next year, and then somewhere toward the end of twenty twenty five, the Fed will will take a little pause and have another macro view, if you like, the view from thirty five thousand feet, to see exactly where the general economy is and where all the other indicators that

What's the view at State Street Global about where gold heads not only next year, but first of all by the end of this year and then into twenty twenty five.

Look, I think that you know, it's difficult. As I said, it's difficult to see any major headwinds at the moment, and there are a number of tailwinds. The fact that inflation is still sticky that I think is usually helpful for gold. The fact that even in spite of inflation being sticky. The FED has decided that it is definitely time and possibly even they were a little late to the party, but it's definitely time for them to start cutting rates and embark on a sustained rate cutting a

Quick question about demand. You are talking to us from Hong Kong. China and India are the world's two top gold consumers. Is the demand story for the precious metal the same in both countries?

No, I think there are very very different dynamics in each country. We have seen We've seen pretty good jewelry demand in China, but nothing outstanding. We've seen stellar investment demand, I think because the Chinese investor is frightened of his stock market right now. India is a very very different story. What we have in India is that demographics population growth is definitely on gold side, with strong population growth there unlike China, and the economic factors are also on gold side.

This is Bloomberg day Break Asia. You're morning brief on the stories making news from Hong Kong to Singapore and Wall Street. Look for us on your podcast feed every day, on Apple, Spotify, and anywhere else you get your podcast. Our flagship New York station is also available on your Amazon Alexa de devices. Just say Alexa Play Bloomberg eleven thirty plus. Listen coast to coast on the Bloomberg Business app, Siriusxmtheiheartradio app, and on Bloomberg dot Com. I'm Doug Chrisner.