Welcome to a special Christmas Eve edition of the Bloomberg day Break Asia podcast. I'm Doug Chrisner. Coming up, We'll be taking a look at the year ahead for markets. I'll be joined here in New York by Rebecca Walzer. She is president at Wallser Wealth Management. But we begin in Hong Kong, where we find e Katerina be Ghos. She is the CIO for Asia ex Japan Core Investments at AXA Investment Managers. E Katerina joins us from our studios in Hong Kong. Thank you for making time to
chat with us. I hope you're doing well. All the best for the holiday season. I want to begin by talking about what appears to be a little bit of an excess capacity problem for the auto industry. We've been talking a lot about this Honda Nissan deal. We know the situation in China, particularly as it relates to evs. China appears to have tremendous over capacity. Do you think it's likely that we're going to see a lot more in the way of consolidation in the year ahead.
I think it's fair to say that consolidation orto industry will probably can but more driving consolidation, rationalization to understand where the competitive edge for the auto makers is and for different ones will be slightly different. So have European automakers in Germany that are being challenged. So certainly the behind in terms of the broader innovation when you look at Japan, certainly is leading in terms of realization that we need to have some degree of consolidation to achieve
that competitiveness. And of course China has become one of the key challenges to drive that need for consolidation, and not just consolidation but becoming more competitive on relative basis because against China, as we know, leads in the av space, and a lot of the demand already in China has shifted to home manufacturers and to evs a relative to again exporters being competitive or being desired for a market which is again been one of the largest for a lot of those exporters.
At the same time, we're talking about the use of tariffs as a way of protecting market share. Is this something that it will lead in your view to a lot more protectionism in twenty twenty five.
I think terriffs is an element of it. But if you had to break it down by markets. I mean, US already is ahead in terms of implementing tariffs on evs, so largely for Chinese evs, US is inaccessible. I think the big question is what happens to the tariffs, and then what happens to china ability to export in US and other markets being challenged, and if they look into potentially offload some of that of a capacity in places like Eurozone and creating a broader spillover of those trade tensions.
And I think this is our key secondary effect from the tariffs that we're watching very closely.
Is your view that the thread of tariffs really will be nothing more than a negotiating ploy or will they really take effect?
I think it's somewhere in between. We do. We have the view that they'll probably not be as aggressive, or the scale that has been projected is probably going to be lesser, but we do think they will get implemented. There will be selective. I don't think it's going to be a blanket tariff implementation, So some of them will be used for negotiation and some of them will be implemented to just be protectionists and bring some of the industries back home to the US.
Let's talk a little bit about global macro right now, particularly where central banks are concerned. We know that the FED has adopted a strategy as a result of what we heard from the last meeting that we can expect fewer rate cuts in the new year. What do you think is changing the Fed's outlook right now? Is it stubborn inflation or is it concerned that maybe we were just talking about tariffs, that some of the policies from the incoming Trump administration could prove inflationary.
I think it's a combination of the two, but I would say the primary one is what is the state of the economy at the moment, less of the projecting what one may be the implications as much as it is a consideration, but ultimately what the Fed or the decision was based on the data that they had at hand the other day of the meeting, And suddenly it's clear that the inflation is not yet a target with in a sickness of that inflation around three point three
percent for core, and more important, the growth is staying resilient. We've seen the labor market adjusting as well, but it hasn't crashed again. The catalysts for the FED to continue with that accommodation and aggressive mode, it's probably less backed
by the data. So the data is indicating that needs to be a lot more gradual, and the FED is done the right decision to adjust the rate expectations that the market has priced in past the September card, which was quite aggressive starting with and I think the market projected quite an aggressive path from that point onwards, and I think some recalibration of that, I think it's fair.
So can we agree then that the path of the dollar is going to be that it remains strong against the major currencies, and that will in turn prove to be a little bit of a headwind for Asia a assessment.
I think there's a combination of FED staying higher for longer, and of course tariffs are deemed to be dollar strengthening. And we do think for the Asian economy's biggest risk or biggest consideration is the ability of their own central banks to be able to support their growth and respective markets. Accounting for the fact that the FED of course will be a little bit higher, and then the currency is a consideration, and the tariffs, of course an implication of that will be a consideration.
So which central bank has more difficulty. Is it the Bank of Japan or the People's Bank of China.
I think it's hard to say, but I mean they have slightly different challenges. When you look at a Bank of China, of course, the intention is to be a commoditive in twenty twenty five, whatever that's fiscal or monitor and I think they projected that pretty well as we go into the year end. The biggest risk for a Bank of China is the monetary policy, the ability of
that policy to do what it needs to do. And I say, because as I said, we have a FED that's still be more paid in terms of normalization, but tariffs again will have a weakening effect to the currency. So we do have it. It has a too double wami, if you might say, in terms of the ability to maneuver that monetary policy, and I think some realization and weakness in the one have to be accepted twenty twenty five.
When you look at Bank of Japan, of course, the situation is slightly different in a sense that they are looking and they intend to normalize the monetary policy or bring the rates slightly higher, purely because they need to get out of the cycle, but also to give them additional room to maneuver in the future if they need to accommodate again to support the economy. So certainly the Bank of Japan has been fairly dorvish at the meeting, but it's fair to say that the intention is to
normalize policy. I think January is a potential move, but it depends on where their wage negotiations go, and I think this will be a key catalyst. And the second one, of course, is what the Trump administration does and the policies that implements. And I think March and April is probably going to be more a given because again more data and transparency will be around those measures.
So how are you evaluating consumers in both of those jurisdictions, first China and then Japan.
In terms of consumption, you could say in Japan it's upward trending or consumption is starting to recover. We've seen the data, and I think the indications is that double continue in twenty twenty five. That is supported by improving
disposable income. And I think the trajectory for growth has been fairly constructive in twenty twenty four people because global has stayed resilient and has provided support for the growth in Japan when it looks when you look at China, I think the consideration for consumption is related to a broader wealth and income creation, which both have been weaker and it's been negative. You might say, obviously we've had a downturn and property market which has pressed the wealth creation.
We also had the income effect has been negative because of the weaker labor market, and the broader consumption is subdued. And I think a key focus for China twenty twenty five will be to support that recovery in consumption.
So I think we can agree that Japan has finally emerged from three decades of deflation. Is there a risk still, in your view, that China gets miired in something that's very similar look.
I think ultimately there are signs that Japan has exited of that deflation period. Again, we need to see a lot a few more data points to crystallize that view indefinitely.
When it comes to China, I think their dynamics in China is quite different, and I think it's fair to say that policymakers have realized the complexity of the problem, of the structural challenges and the micro challenges that they're facing, and they're having an intention to use both fiscal as and monitor in twenty twenty five to help that growth and preshia and not enter into a similar spiral of deflation, force sustain or a long prolonged period of time.
Katerine, it's always a pleasure. Thanks for making time to chat with us from our studios in Hong Kong. E Katerina Bigos from AXA Investment Managers, joining us here on the Daybreak Asia podcast. Welcome back to a special Christmas Eve edition of the Bloomberg Daybreak Asia Podcast. I'm Doug Chrisner. So with twenty twenty four pretty much in the rear view mirror, we want to look ahead at the major themes likely to drive market action in the year ahead.
I'm pleased to welcome Rebecca Waltzer. She is president of Walser Wealth Management, joining us here in our studios in New York City. Nice of you to drop by, love with you looking forward. Thank you. I'm looking forward to this conversation. What do you think the new year is going to hold when mister Trump takes office and we start to get greater clarity on some of these economic policies.
So we've seen a really big divergence with CEOs and CFOs specifically really having a positive economic outlook globally under the new administration in comparison to you know, the previous even you know, i'd say two decades, Like, there's really big positive economic momentum that they feel with this Trump administration is going to be possible. I don't know, Doug, if it's related to his tariff policy, the fact that he's been so open and blatant about it that he's
already having world leaders discussed that. We're already having Europe say hey, we're going to buy crude from America instead of Russia. We've got a lot of moving parts. So there's a lot of positivity which is really great. Which is why, too, Doug, that you saw the FED literally in the last FOMC meeting come back and say, hey, we're going to pare down the expectations from really more than three or three or more to two or really two.
And when you consider that they started saying twenty twenty four we're gonna have six and we're only going to have three, then you can see that they've already kind of backed themselves into a corner. And I think they learned a hard lesson.
Yeah, I think you're right about that, because it's even Powell say that there were members of the FOMC, the FEDS committee that guides interest rate policy, they expressed some uncertainty about where disinflation may be going from here, and largely because of exactly what you're talking about the incoming Trump administration. And it's not just tariff policy, is it. I mean, it's a bit of spending and also the possibility that investment, well, tax cuts.
To cuts two well, I mean, I'm not really happy that the political cloud is not there to work on the tax extension of his jobs and tax cut of seventeen at the beginning of the term, because literally they're talking about, we're going to do border stuff. We want to do these things first, and then we'll look at the tax policy. But we know that the tax jobs since at the end of twenty twenty five, beginning of twenty six, so we really need the political cloud to
go after that pretty quickly. So I'm a little concerned that they're kind of pushing that more to the backburn or later in the year instead of doing it right up front when they have the mandate, because you know, how things politics get in the way and things change, and then if we get some kind of bad economy where we need more stimulus, and I do think that that is a really big risk, you know, Doug, I've been saying that there's a lot of hopism and there's
a lot of you know, irrational exuberance on the AI sector. I believe AI has got a long runway and it will deliver just like the Internet did in the two thousand, but we still had to go through the dot com crash before we realize how to monetize. So that's why I'm saying AI's going to bring us real, true results long term. But to expect that we're going to keep this twenty plus growth rate before the monetization happens is not right, And that's more comparable to dot com.
You know, it's interesting that you make that point because when the FED made its decision, I saw how hard hit small capstarts absolutely right, And so you think that's going to be a big question mark over some of the companies that are more exposed to the domestic economy and not so much kind of exposed to what's happening internationally.
I think, yes, absolutely, But I also Am, As you know, I've been very bearish on global economic situations, both in Asia and Europe because these theaters have been really experiencing economic malaise a lot longer than we have. And I would say, you know, we had twenty twenty two that was obviously a problem, right, but this last year, this year, hey, we've run this AI wave. And yet that's not what Germany's experiencing. That's not the US experiencing, and that's what
the UK's experience, that's what Chinese experiencing. We have big problems. They just haven't arrived here yet. So while we have Trump and we have all this positive economic outlook, and I love that hopiism, I just see the reality. And I also do see Doug that we had a lot of influences trying to really sort of help look at the numbers from a recession basis. You know, we had a lot of things triggered that said, hey, we already
in recession. Yet all of the official administrative reports were no, we're fine, we're fine. And now that we have this Trump administration coming in, I'm wonderfu we'll see a sea change in the data. And started saying Okay, yeah, there is some issues here.
So you're looking out ahead, and I'm interested in knowing how your investment strategy is changing for twenty twenty five. What are you doing differently?
We have to broaden out. We've been really a commodity's focus because we really did feel that we were going to have some kind of retrenchment and pull back, and that it was too much optimism too fast on the AI sector. I also have a little bit of a concern, honestly, Doug. When I have US officials, President Trump included Senator Loomis introducing a Bitcoin bill about a Reserve Act Bitcoin Reserve
Actor in July of twenty four. And what you're talking about is now creating a federal reserve funded by the Federal Reserve that is in bitcoin. We're talking about one million bitcoins. Is the proposal for the Bitcoin Act of twenty four that Loomis proposed. And when you're looking at that, Doug, what are you really saying. You're saying, Hm, we are the global reserve currency of the world since Bretonwood's that
has not changed yet. We are acknowledging, admitting, and then actually taking action to maybe look at an alternative to be a reserve currency, and that says a lot. And I think that people are skipping over that, not even realizing why can't we hold the reserves and dollars? And there's that competition isn't happening, and that's a big problem.
What about changes in the regulatory regime that the Trump administration may.
Initiate, I mean, very pro business, very pro We're very pro crypto. I mean, look at Gary Gensler. Obviously a lot of origination of litigation and so yeah, I think that will be very much more pro growth on that.
We've seen how the financials have benefited. Right, maybe we get fewer regulations where banks are concerned. But I'm wondering about the M and A environment. Are you expecting a lot more deal making in that?
I do, I am, But again, deal making from an administrative policy perspective, yes, very you know, let's cut red tape, let's make bureaucracy go down. But from an economic perspective, and will we still have the momentum and the growth momentum to kind of get us out of the quagmar that we really are? It has really been siloed Ai has done well, Crypto has done well, But if you broaden out beyond those two things, that we don't have a massive broad support strong economy like we need.
Well, so you mentioned some of the markets offshore. You mentioned Europe, you mentioned Asia, particularly China. Valuations obviously in those jurisdictions are much below what we're experiencing now in the US. Sure, right, would you be inclined to put some money to work in either.
Europe or or Asia if I had a long term at excess capital play that I knew I wouldn't need
a return for sixty months if we had a major pullback. Absolutely, if you're looking for a long term growth trajectory that you don't need a return in the next sixty months, Yes, But if you're looking at the next sixty months and thinking that while I'm going to buy cheap and get a turn around in two to three years, I think that again, there is major global economic situations that are under penning foundations that we've had for fifty years, and so that is going to take its time.
So I'm curious as to whether your defensiveness is pushing you more into the fixed income market.
Now, Well, that is such a great question. I'm so glad you asked it because Honestly, the bond market is really kind of forecasting and really a red flagging to us that hey, we are seeing more risk than the
market is acknowledging. And the fact that PAW again, the reason that the Fed came out at the last FOMC meeting and really paired down expectations is because PO has been almost preempted and his last two raises that basically he excuse me, cuts, he caught, and the market took a right back up to not only the.
Pre cut level, but higher.
And that's what happened again in the lastep ever, MCMDI he cuts again twenty five BIPs and we're back to four five for four four five. This is crazy. So I think fixed income I want to say, it's going to be another twenty twenty two year, but we are going to see that what the Fed and central banks are doing globally is not aligning with what the market is pricing us from a risk perspective.
What are you hearing from clients these days? What's their biggest concern?
I think that they are so double minded. And this double mind in the sense that they hear the AI, they hear the crypto, they hear all of these wonderful new technologies that really are going to have decades and decades of a long growth trajectory and runway. But yet they do know that things just aren't exactly right. They do still know that prices are still sticky. Inflation is
two point seven CPI, now it's going up. We expect the unemployment rate, according to policymakers in twenty twenty five, to jump to four point three percent. So you're seeing these indicators that there are fundamental underlying problems, but yet everything seems so positive because they again it's like a rational exuberance. Alan greenspan to mention like the dot com air again only in the AI crypto space. So it feels like a dichotomy of two different messages.
If you had to put a number on what you expect the total return for the S and P five hundred to be in twenty twenty five, what is that number?
Well, I mean, I think if we have another you're like twenty twenty four, we could easily see, you know, growth is slowing down globally. But I think if we're if we're going to have a repeat of this year and exactly what happened this year as far as you know, how how the growth one, I think we could still see you know, anywhere from a seven to twelve percent growth rate literally not necessarily broad spectrum the entire market,
but the sectors. Right. But again though, Doug, if we start to see the geopolitical and the economic weaknesses of Asia and Europe come to our shores, then we could have a loss year. And that's the issue that we're not exactly sure which way it's going to go.
Rebecca, thank you so much for being with as.
Happy New Year, TA, thank you you as well.
Thank you. Rebecca Wallser is president at Wallser 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 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 Chrisner, and this is Bloomberg