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This is the Bloomberg Daybreak Asia podcast. I'm Brian Curtis along with Doug Krisner, join us each day for the stories making news and moving markets in the Asia Pacific. You can subscribe to the show anywhere you get your podcasts and always on Bloomberg Radio, the Bloomberg Terminal, and the Bloomberg Business App.
Let's bring in our guest. Rebecca Waalser is with us. She is president at Wallser Wealth Management, joining us here at the Interactive Broker Studio in New York.
Thanks for dropping by, so glad to be here, deg thanks for having me.
Are we talking about a soft landing now? When you look at kind of what the FED is signaling and then the data that we had today, particularly the second quarter GDP.
Number, Oh gosh.
I hate to be such a contrarium, but I wish I could say yes, Doug, but I just don't see it.
I wish I did.
I know, the retail numbers are great, but I'm looking at the forward guidance of the consumer, and the consumer is really telling us that they are out of cash to spend. I know, retail sales have been good, But that's always historical data, right, So we're looking forward and we're seeing the consumers. We have the highest credit card balances one point three trillion in the history of our country. Our delinquency rates are astronomically accelerating. Our car delinquency rates
are accelerating. So, Doug, the stories aren't matching up with the GDP numbers showing such good, strong consumer spending versus where we know the consumer is right now.
So that's what I'm talking about the future.
Okay. So the equity market then should be pretty worried when it comes to earnings, right, I believe so.
And I do think that we've had some, you know, mag seven not great numbers this season, and in Video was great, I'm not a double beat, absolutely great, but the guidance was still you know, saying are we it was it was a reassurance that their market has got a long runway. But Doug, when you look at the guidance, people are still wondering, how is this going to be monetized?
And if these other commercial buyers of in video chips for AI are not able to get a return non investment fast enough, are they going to be keeping pouring the billions and billions that are going to envy that are giving us these crazy, astronomical three thousand percent growth in five years.
The autumn can be very rough for the equity market. We're a week away from September. Are you braced for some downside?
Absolutely? I mean, this is this is the most shallow depth that we have seen.
I mean, look at the concentration of mag seven in the Nasdaq, in the S and P five hundred. This is awful concentration in it. So if anything goes wrong, I mean, you look at the Middle East, and you look at Russia, Ukraine, and you look at all the things geopolitically that are.
Going on in the middle of an election season, in the middle.
Of you know, we've got all of these pandemics who has declared a new pandemic of impocs. So you have so many factors that any one of them pops off. When you have such a weak economy fund the fundamentals are so weak, then you should expect a really unfortunately an oversized response to anything that is on the outbum that will be affecting it.
So you mentioned the election, I'm curious as to how that's affected your thinking. On markets these days.
Yeah, I mean I think that obviously with a Trump administration we would be more business friendly. I mean, we don't really know where Kamala's positions are economically. I'm really looking forward to this nine o'clock interview. I'm hoping that she actually does go more into the economics of her plans, because, you know, Doug her first kind of things that she's talking about our price controls, and all of us are racing and saying, where is this coming from? This is
not anything that we were expecting to hear. So for me, we're really looking for more details on what is her economic positions.
Now, speaking of the economy, how do you think the FED has been doing it kind of getting away from ultra tight monetary policy. We got an indication pretty strong one last week from Feedshair J. Powell. We're looking at a rate cut as soon as the September meeting. It could be as much as fifty basis points, although I don't think when you look at what the market is telegraphing, it's more likely twenty five. How do you feel about
raid cuts going into the end of the year. Is it possible that we get a total of one hundred basis points and cuts.
Well, I think that would be difficult if we only get a twenty five in September on September eighteenth, So we'll see.
But I don't think the Fed.
Is going to go to a fifty point cut swing as fast as September one because it's so close to the election and that can kind of be couch as political by.
People that don't appreciate that.
But two, it also really dug sends a more fundamental message to the global economy that something is wrong fundamentally underlying. And if you look at we had the largest second largest retraction of jobs eight hundred and eighteen thousand last Wednesday, and we already that's on top of all of the diminutions that we had monthly, all the corrections. This is the second most corrected BLS that we've had since two
thousand and eight and two thousand and nine. So obviously those numbers were just coming in way over, you know, too extreme, and they were brought back down as they were corrected.
All over the months.
But then the annual correction almost took another million job away from last year. So that is where you're seeing PAL come back in insane labor is definitely now a concern. We're seeing the softness and so he's looking at a cut. But if we have to go to a fifty basis point cut, that is signaling that there's something even more alarming going on.
Where are you seeing opportunity in markets these days?
You know, obviously the hate to say it, but the breadth or the long term runway that we really do think is there is the AI tech space and that's why the.
Whole world is invested in it. So there is common sense there.
But you know, you have to look at if we're going to go into recessionary worldwide kind of period, where are recessionary places And that's always going to be your consumer, you know, defensive your staples, your utilities, you know, your commodities. So we would look at if we start to see really moving towards more weakening economic data, then we would look at more defensive positions.
Are you worried about recession at all?
I am?
I am, because you know you look at Germany and they're manufacturing is PRESHI level. You look at China and we know what's happened there. You just mentioned yourself. Japan is slowing. Everything is slowing globally, and really, if you think.
About it from my perspective, it starts kind of in.
The East with the Asian exporters, and then it also moves to Europe, the European Zone, which we know how that is going with Germany, and it really then comes to America. So these have already kind of been going through the slow down and it's now coming to us.
And we are the world's reserve.
Currency, which helps us, you know, export our inflation as much as we possibly can. But there is a day, Doug, that we have to we have to pay the piper too.
So if we can agree then that places like Asia and Europe have been slowing for a while, maybe there's opportunity in those markets. What do you think, Well, can.
Telpany tell you that I don't recommend anybody go out and borrow yin and buy and do investments and dollars if you guess the garage trade that we know came up in August, the fifth is far from being over with. So be careful, just be be cautious because right now if we go into a kind of global financial and you have to understand too, Doug, this is the first time that we are really seeing global economic interplace so vastly that as China, you know, potentially collapses as Japan.
I'm not saying it's collapsing, but I'm saying, as these things happen, we are so dependent now as they're the exporters and we are the importers, that what happens with them is going to come to us.
We just have to be very cautious.
So do you like the bond market there if you're a little concerned about growth going forward and the FED is going to cut rates. We don't know by the magnitude, but are you seeing opportunity in the bond market?
I mean, I think that the bond market always does well in a period where there's less interference by central bank policy. So that's where we have to see where are the central bank policies taking us. We know they're implementing Basal three, and that's why we've seen all of this gold purchases by all of these central banks around the world. How does that impact what the central banks are going to be doing? But you're looking at the like just even here in the Federals Serve here we're
in a negative interest rate situation. We're normally having the FED send the Treasury interest on a monthly basis. That is costing us money right now, so the Fed's balance sheet at seven trillion, it still needs to come down to your point earlier said, how are we slowing down the tightening? Well, we reduce quantitative tightening from some ninety billion to some much less sixty billion less, and that
has helped our economies be sustainable. But now are at the point of cuts, and so I would be more concerned about yields in the short term.
Just want to point out that everything that the FED earns on its balance sheet is deposited at the Fed's account in the US Treasury. So it's a way the government can make a little bit of money in the margin.
Right, That's right.
Let's do some walk about economics. You're based in Florida. How is the economy and in Florida holding up?
I mean, I think that for us, you know, I'm in Central Florida, Tampa, and we're still seeing just a massive amount of relocations. Business wise, you know, we still I mean, our property in the commercial space is actually really tight. Our inventory's low as far as the you know, retail and consumer housing that has the inventory is ticked up, just like it has across the country, but we are
still seeing a really tight commercial retail availability. So that is really just because of the pure a lot of businesses relocating to the state of Florida, state of Texas from other states that are maybe more restrictive and more expensive.
Miami in particular too.
Do you get down to Miami Ago, I do, absolutely, and it is it is just Florida just feels like a different part of the country right now. Everyone else seems to be slowing down, and I just know Florida, Texas, Arizona, these countries are really growing their net, you know, businesses, which is which is great, but it is a problem in between moving office spaces and it has been quite a challenge in Tampa just securing office space and doing a build out because of how much activity is going on.
It's crazy.
It's like we're living in two different worlds.
Rebecca A delight to have you on the program here in New York. Rebecca Walls are president at Walls Are Wealth Management. Joining us here on that daybreak Asia, Let's bring in our guest. Thomas Todd joins us. Thomas is head of a pack investment strategy at black Rock. He joins us from our studios in Hong Kong. Good of you to drop by. I hope you're doing well. Are you still constructive on markets generally speaking?
Hey Doug, how are you doing? Good to be back? Yeah, I mean, I think for the for the most part, there are some some shifts that we've been making over the last month, particularly around the US market, not essentially telling investors to to to sell out of positions, but maybe take some rotation and beta off the table. I mean, the US economy looks relatively strong. There's a little bit concerned about the labor market and perhaps that weakening, but
earnings growth across most sectors has done pretty well. I think, you know, in terms of taking the bit off, it's more about the rotation trade, which we see continuing, particularly into some of those those small caps and companies that are more more aligned and more sensitive to to FED funds rate in terms of borrowing.
I have to ask you about the AI trade because we were kind of breaking down the Nvidia result yesterday after the bell of course, and the fact that the revenue forecast was a little disappointing to some who have been very optimistic about the rate of sales growth continuing. I mean, when you look at some of these AI stocks, are you still a buyer of the thesis? Are you still willing to put new money to work in these names? Or maybe it's getting a little topy here? What do
you think? Yeah? I think not just now.
You know, Navidia is obviously the kind of the poster child for that trade, and in terms of the AI story, obviously it's a long term story, you know. I think what's basically happened is, you know, we've had a lot of rhetoric around what AI means for productivity, gains, et cetera. It's very hard to quantify that the initial phase of that investment leg was around basically buying hardware and chips makers semiconductors, that that was kind of the first rotation
we've seen. And then we have investors looking at, Okay, what's what's the actual next leg of this? Is it cybersecurity? You know, where do we where do we go after this? So I think, you know, we're looking at it as a longer term thematic. It always concerns me when the entire market is looking at the earnings, the earnings calls of a single company in the S and P five hundred, So I think in terms of concentration risks, they are there.
But I think that the AI story is more of a long term but probably it's one to revisit the next year.
Are you equally as cautious on some of those high bandwidth memory chip makers less sk Heinex in South Korea along with Samsung. Are you cautious? Well, we don't.
I mean I don't look particularly at single stocks, but certainly, you know, if you look at their their holdings or their waitings in the South Korean Stock Index COSTP or the or the Taiwan Stock Index, it is a little bit concerning. You know, there's about they're about twenty five percent of both, and when we look at the general portfolio, it is we are talking about how do we take some of the growth exposure, the tech exposure away from that and moving into Q moving to Q four and
also into next year. It's about, you know, looking for economies that are more driven by domestic factors rather than than global factors as we move into into US election. So South Korea Taiwan are not in that bucket. It's more kind of India and Japan, at least on the on the larger exposure.
You read my mind, I was wondering about Japan and the domestic demand story there, But the retail sales number that we just had for July was very disappointing. Half of what the market's looking for here? Is there something to be concerned about now?
You know, in terms of the in terms of the next leg of the structural bull story in Japan, it is about the domestic consumer. You know, you have to bear in mind that you know, for forty years they've had basically zero inflation or disinflation, and so it's going to take a little bit of time for that consumer
mindset to change. We are seeing some signs that we're getting more investing through NISA programs and things like that, but you know, there is a lot of money sitting on the sideline in Japan, somewhere around seven trillion US dollars in cash, and you know, inflation is going up.
The stock market did have a brief drop, and I think I think if you look the foreign investor positioning, it's kind of the index money kind of moved out very quickly, and now it's kind of more of an active story finding those companies with actual earnings growth that benefit from structural reform. So it will take some time, and there is a lot of faith being put in that consumer story, but I think that transition is going to take a little bit of time. But we're still we're still bulls on Japan.
A few hours before Jay Powell spoke at the Jackson Hole Symposium, we heard from the governor of the bojks way to talking about the possibility, the likelihood that the Bank of Japan would continue to raise interest rates. We see a rate hike between now and the end of the year from the BOJ.
I think, so yeah, I mean, I don't think it's going to come in September, but I think October is definitely a possibility. Inflation is trending up, and so, you know, I think that's definitely a possibility. In terms of the JPY movement, it's very basic. But we also have to understand that the BOJ moves in increments of ten BIPs and the Fed moves in increments of twenty five BIPs.
So net you know, I think that there's there's still a possibility that we get some repricing on four rate cuts this year, So I do think that the end will continue to appreciate, but we could see a little bit of a depreciation going into end of year.
To what extent would we have a much better Japanese economy if the Chinese economy we're doing better than it is.
I mean, I don't think it's that it's that relevant. I mean, you're currently again moving into US election cycle. We're looking at those economies that are more exposed to China trade, China growth and US trade and US growth, and basically trying to find economies that are more domestically driven.
Japan is obviously a big exporter, but one of the one of the things that we're looking at in Japan now is basically moving away from those broad export driven indexes topic for example, more into kind of the granular, high divinend type of exposure. So the trade with China is important, but it's again we're kind of more focused on the domestic story here.
So if it's the domestic story, then you avoid China at all cost I would imagine, right.
Well, I mean, I think for the most part, foreign investors have been avoiding China at all costs. But actually China is very much driven by the domestic domestic retail. That's kind of the issue is that that.
Growth hasn't been there at all.
So until that picks up, I think foreign investors are just going to stay on the sideline when it comes to when it comes to China equities.
Tom, It's always a pleasure to have you on the program. Thank you so much. Thomas Ta ahead of APAC Investment Strategy at Blackrock, joining us from our studios in Hong Kong. Here on daybreak Asia, Let's go to Singapore. Bring in Bloomberg's marrying Nicola, who is one of the m lives in the APAC region. I was looking at the M Live blog right on the Bloomberg terminal and I see that you had a posting earlier in the day. What
was the genesis behind this? What caused you to write about the subject matter that you unpacked today.
Yeah, I think the main thing, especially with what we've seen with the equity markets, we've been so focused on in Vidia and how in Nvidia plays out into the
rest of the markets. But the key thing here is that even though we had a weekday because in Vidia dragged down the S and P five hundred, most stocks advanced and you're seeing this broad based rally and a sign of a more sustainable rally because now the focus is not only shifting, is shifting from the Magnificent seven to the rest of the four ninety three, and that actually bodes very well for a more sustainable and broad based rally.
Do you think that the pivot on the part of the FED chairman last Friday had a lot to do with what you're describing here in terms of a broadening where the market can feel that they're some wind at its back.
Well, it also helps too that Q two earnings were quite strong for the rest of the four ninety three. I think that's another key important factor to consider. So it's actually that fundamentals are working in their favor as well. Of course, the fact that the FED is pivoting and we're looking for cuts to come as soon as September
is another one. But I think the fact that the fundamentals are also playing in favor and valuations are actually looking better and brighter for the four ninety three says says something for equities.
So if you were to compare and contrast the games that we have seen for the US equity market versus let's say the US bond market, not just treasuries, but corporate bonds as well. What do we know about that relationship.
Yeah, Interestingly, we've had over the past few years that there's been this positive correlation right between bonds and equities, so as especially, and they haven't usually there's a negative correlation where the stocks when they underperform, bonds outperform. However, over the last year, sometimes when you see, you know, the bonds underperforming, equities are also underperforming. And we've seen
an underperformance in bonds for quite some time. So now we're seeing that the comeback of that negative correlation coming into play, which is actually supportive because if you're a manager, you know, like I was at some point, and you're managing sixty forty now your gains are being buffered. So let's say you've got some losses in the equity markets, and the recent losses, they're being somewhat buffered by the fact that you've been gaining on duration and on bonds.
So we have seen a bonds gaining traction as a result of the FED and it's a question of does that continue because or is everything already priced in?
So when you're describing what the expectations are for cuts and interest rates from the Fed. I think I'd like to talk about the dollar here and get your views on whether or not you're expecting much more in the way of dollar weakness. We've seen a fair amount already, I think, down about four percent since Jackson Hole. Is this something we can expect more of more dollar weakness? And then what made that do to some of the em currencies that you track closely there in Singapore.
Yeah, I feel that the dollar is always and forever about rate differentials, and if rate differentials are still working in the favor of the dollar, it's hard to see the dollar week in too much. And that's where it comes in where if let's say the FED goes aggressive and starts hiking and starts cutting grates a lot more aggressively than we expect, then sure the dollar is going
to struggle. But if it takes a more methodical and cautious approach, it's hard for there to see further weakness in the dollar if their nominal yields are still above several currencies within G ten and as well within emerging markets.
When you look at what some of your colleagues are writing on the M Blog M Live Blog today. Is there anything that was kind of jumped off the page so to speak to you, anything that's interesting.
Yeah, you know, one of my colleagues actually wrote about, you know, rising EM rate expectations and the ability and that being an underpinning for EM currencies and the fact that as the FED prepares to cut that's going to be supportive for EM and I think it supports you know, a lot of the high carry so a lot of the emerging market currencies with higher yields. I think it doesn't bode as well for a lot of the currencies with lower yields, and a lot of them are in Asia.
You know, it was interesting we were talking about the tariff's story as it relates to some of the Chinese electric vehicles a moment ago. Do you think the tariffs have the potential to play a big role in holding back some of the growth in China going forward?
I think so. I think it carries a lot of reluctance for companies to invest in private companies to invest. I think that's been and we've seen demand has been
exceptionally sluggish. Exporters, multinationals are hoarding, onto, onto, onto cash onto onto US dollars, and a lot of it has to do with the fact of there is this overhang of what is happening within the markets about tariffs, and I think if that continues to linger, you will see that that's going to have broader implications on the on the Chinese equity markets and on the currency as well.
Daybreak Asia. That's Mary Niccolo. Let's bring in our guest, Yu Chian Ding, head of China Autos Research at HSBC Chian High Securities, and Yu Chian joins us from our studios inh good of you to stop by, Thanks so much. Can we talk about the disappointment that we saw yesterday and some of those EV makers. What's happening with the EV makers in China right now?
Yeah, thank you for having me. I would say for the first twenty five days of August that the EV penetration in China breaking fifty five percent, So EV is now materially the majority of the mix in China. But in terms of the earning season, there's a lot of expection expectation play too, So when we talk about stocks, I would say that's a little bit different. Last night, the ad R EV stocks had a strong rebound, although the other day it was a little bit of roller coaster.
I think the second quarter print so far we've got from the EV makers are generally strong, but the marketing expectation, the market focus that has been pretty much hinged on the second half. Our look, some of the company didn't talk much, so the market got a little bit disappoint and it overshoot the night before last night, but it
rebounded last night. So I would say generally we are sailing into a high season in September and October, and the China government has doubled down the trading subsidy on the EV side and also on the ice side by the end of July. We're seeing more follow up policy
coming in August. So we believe the double down of the policy support and also the high season, coupled with a strong new model supply pipeline into September and October, should boost the marginal improvement from the whole sector perspective, especially benefiting the ones with the new model coming, such as byd X, Pond and Neil.
Just a quick This is very from Singapore. Just a quick question for you. So we've seen a lot of discussion about tariffs on the Chinese auto industry. How is this affecting some of the investment the ambition of some of these automakers.
Yes, Indeed, the global trade environment is challenging and complicated. I would say from the China export perspective, currently EV is the highlight, but it's only about twenty five percent of the mix. What do we expect given the product strengths and the competitiveness of the whole industry, that there
should be more gross opportunity down the road. But the emerging market such as ZM, South America and the Mid the East could be the key focus in a come in in the coming years, while in some developed market, given the terraff barrier, it could be proved to be a little difficult. So again there's a still room to go, but it's more emerging market focused on the China EV side.
So you could make the case then that the teriff really is a response to very low pricing. And you could also make the case that China right now, given a lot of the overcapacity, and I use that term cautiously, I know it's up for debate, but that China is attempting to kind of export some of the overcapacity to markets offshore the United States or maybe areas of Latin America,
parts of Europe as well. Do you think there's going to be a lot more forced consolidation within the EV manufacturing space in China because of this issue of so called overcapacity.
Great question, but a couple of them. So let's break it down. So I would say, actually, the China EV is not a competing on low pricing OVISE market. Taking BID for example, I so European pricing is almost twice as of US as what is in China. In the rest of the globe is also having a high premium over fifty percent versus China pricing, so it's not really competing on the low price. And another aspect about the China EV going globe is part of the part of
the production has now been localized. It's not just made in China ship shipped abroad. BID just completed the Thailand plant and they're going to open the Brazil plant next year, in Anesia plant the year after. They're also building a two plant in Europe in Turkey and Hungary. So the localization should mitigate part of the tariff risk because they want to be more committed to the local market. So these are the two angles with the contact into the
broader China TV condition debate. And also consolidation is more like a domestic topic. Yes, we do see the domatic consolidation happening in China. If we are talking about the top ten EV makers, consolidation rate is increasing from seventy percent two years ago to close to eighty percent, So we do see the consolidation happen. Small players got phased out, squeezed out, there's less brand left. Still the status quo is is still too much and we're in meido of this.
During the process of consolidation, it could be a temporary value destroyed for the space. But when we reach the inflection, the pricing environment should be able to get better. But we're still in meido of this, and some of our EV companies Leader talked about twenty six could be the consolidation year, so we are now righting medea of that. But it is happening in China.
So tariff's socide. What do you think is the biggest risk for earnings growth for these auto companies?
I would say generally the tariff in certain markets such as US and Europe is in full discussion, so we know where the risk is where the debate. The company has their strategy formed out, more emergent market driven already, and for the for the places with the tariff, the
local plant has been building. Of course, there will be higher execution costs and longer execution time, but that's the way, that's the proper way to mitigate the risk to the most and also build the business into the midterm for longer.
So generally, I would say it's largely priced ing with the current market expectation for what has been announced was in the news enterprise, and for the rest I think I would stress that the localization plan has been in progress that should help the potential tariff risk should there.
More so, we've talked a lot about in terms of what the foreign markets would be for some of these Chinese v EV makers. Let's talk a little bit about what's happening domestically in China and the extent to which some of the European manufacturers are being squeezed out. Is that going to continue at a pretty healthy clip?
I would say the consolidation coupled with electrification or the ev transition of the two themes so different OEMs tackling that with different strategy. Of course, if you have a strong EV pipeline from the pricing perspective, that should be able to remain relatively more dynamic. I would argue some of the incumbency company the ice the ice makers probably under the near term pressure because the consumers prefers EV
and the consumers prefers advanced the software experience. For the ones, the model is not up to the ballpark market average competition requirement. The market share losing in the short term or the pricing discount is probably something we would expect in order. So I think it's largely about the product strategy, whether you get whether you can get the right EV
product right. Maybe you get it in the next generation, but against the very strong competition and very strong model supply the Ropert Doope time, probably pricing is is it something you have to you have to you have to pay for the need.
Mary, just one last question, is you know you seem quite optimistic. What are some of the risks that you see besides the tariffs?
Of course, I would say two sides what we discussed. I'm also concerned, of course the trade environment is is is quite important for the overseas expansion. The footprint and uh uh the local execution and domestically the competition, the pricing pressure might continue for.
A while, although we would argue.
The pricing uh, the pricing pressure is online off, there's a finality, there's a model supply cycle, there's a different strategy coming from the leaders, so there's a mixture of things and and and on top of that, I would argue, uh, the demand side of the of the of the risk is constantly tangible. So if the demand is working their way out, the pricing should be easy. But if there's limited demand, you will see the OEMs will trying to pete more aggressively for the limited pie.
So maybe lower interest rates helps things out. We'll have to wait and say.
You.
Chanding, head of China Autos Research at HSBC Chianhai Securities, joining us from our studios in Hong Kong. Here on Daybreak Asia.
This is the Bloomberg Daybreak Asia podcast, bringing you the stories making news and moving markets in the Asia Pacific. Visit the Bloomberg Podcast channel on YouTube to get more episodes of this and other shows from Bloomberg. Subscribe to the podcast on Apple, Spotify, or anywhere else you listen, and always on Bloomberg Radio, the Bloomberg terminal, and the Bloomberg Business app.