Bloomberg Audio Studios, Podcasts, Radio News. Welcome to the Daybreak Asia podcast. I'm Doug Chrisner. The US equity market rally today. That was after the US and the European Union sped up trade talks. The market also got a bit of a boost from a sharp rebound in consumer confidence. We had the S and P jumping two percent today, but to be fair, trading volume in the S ANDP was more than ten percent below the ten day average, and sometimes light volume can exaggerate some of the price action.
For a closer look at market action, I'm joined by Clark Garnon. He is the chief market strategist at Calba Investments. He joins from the Bay Area in California. Clark, thank you so much. Give me your sense of what the market was telling you today on the equity side.
Well, we saw that delay, the push off in the tariffs on the EU, and like you said, with the new numbers coming out on the consumer confidence index, we clearly saw some bullish signals. But that being said, you know we weren't necessarily surprised. We've seen this headline risk go both ways, and like you mentioned, the low volume, I think there is some investor fatigue out there.
It was kind of interesting to look at the bond market today because overnight Japanese authorities seem to suggest a possible reduction in the amount of debt issuance. The Finance Ministry in Japan has been working to stabilize the bond market after last week's soft sale in those twenty year jgbs, where demand I think was the weakest in more than
a decade. So maybe we have a little bit of stability, But I think overhanging global debt markets right now, there is the growing concern about these the large size of these government deficits. Is that going to be something that you think will persist in of casting a pall over global bond markets going forward?
I think it will, you know. I think looking back to twenty twenty two, where we had both equities and bonds down double digits for the first time, I think we started to get worried about that in April, and as we see our deficit continue to grow without a solid plan for actually fixing that, that is something that we're going to be worried about moving forward.
So we talked a little bit about the trade story. I'm curious to get your take on whether you think, first of all, there will be resolution to these various trade agreements at least in the near term, and secondly, whether you are concerned that even if we get agreements with various trading partners, that the net impact will be inflationary.
So we are concerned about stagflation, So we do think that that could be a possibility moving forward. But we do think that since we've seen some of these tariff delays and there's been a clear response, even the EU over the past day has said that they are making good progress towards making a deal, and we think that's going to be imperative for not only avoiding some stackflation,
but also a possible recession. At this point, we could be in a technical recession, but we also have that in twenty twenty where we didn't even realize we were in the recession until we were out of it. So recession isn't necessarily something that we're concerned about. We could have one, but I think moving forward we just need to see exactly how many deals are made, because we need to see a deal done before the end of summer.
And a number of FED officials have said repeatedly that US trade policy right now has created a fair amount of uncertainty for the FED to consider moving rates before September. That was what we heard over the weekend from the head of the Minneapolis FED, Neil Kashkari, concerned that the FED may not have the flexibility that people were hoping for to cut rates between now and the end of the year.
I don't know if it's a matter of flexibility. I just don't think from their dual mandate, looking at inflation and looking at unemployment, that either of those numbers are in a place for the FED to cut right now. So there's going to have to be some sort of change between now in September or the end of the
year for that matter. And so we're not really anticipating any FED cuts at this point, and that could be to the chagrin of President Trump, But from their dual mandate, looking at the numbers, there doesn't seem to be a reason to cut.
So let's talk a little bit about artificial intelligence. You're there near the center of the storm, which I think is San Francisco, but you're in the Bay Area, and tomorrow we're going to hear from end video. What are your expectations.
While I can't provide expectations for Nvidia earnings, I will say that it's always a drastic day in the markets the day before earnings and obviously the day of earnings. So you know, as we've seen Nvidia push the markets higher and higher over the past two years, it definitely will be a huge headline tomorrow, and I think just adds to the headline risk that we'll be looking at.
Generally speaking, are you bullish on large cap tech?
Generally speaking, yes, we are bullish on large cap tech, and thankfully, over the past two months, we've had great opportunities to enter into some of these names as we saw the multiples get reduced so much, it's been a great opportunity to buy. So not only are we bullish on large cap tech, but we also really like the healthcare space as well as financials, and AI plays into
a lot of that. With healthcare, that's where we're seeing a lot of advancements in AI and think that there's a lot of room to run.
Also, today San Francisco based Salesforce announced the acquisition of Informatica. This is an eight billion dollar deal. Informatica helps customers manage their data in the cloud, So a bit of an AI play here for salesforce. While back, people were really anticipating a lot more M and A activity that really hasn't panned out. Do you think we're going to turn the corner soon and see much more in the way of deal flow.
I do, but I think first we need to get a few deals done in order to have some more clarity and certainty moving forward. I think that also comes with the TCGA being passed, and once we have more clarity there, then we'll start to see some more deals pan out, because we also expected M and A to be a large part of this administration's plan moving forward, but I think tariffs and getting some deals done with
countries is first priority. Then we can talk about the corporate tax cuts, which are then going to follow into the mergers and acquisitions and just sort of the deregulation of industries in general.
So if you're anticipating a pickup in deal flow, I would imagine that you look at some of the big banks, some of the investment banks as an opportunity.
Right, absolutely, investment banks and regional banks as well, So you know, this is where we're going to see some consolidation and most likely not until Q three, Q four and even into twenty twenty six, So not necessarily something that's going to happen tomorrow, but we know down the road once we have more clarity that it will happen.
Are you still very much squarely focused on putting money to work in the United States at the exclusion of other developed markets globally?
So what we like to do is we like to keep less than ten percent international, and that's just from our investment philosophy. So obviously through this year international's done quite well. We didn't want to chase returns, so we don't think of ourselves as traders. We are long term investors and overall we have a strong bullish view of the US markets, and so we'll continue to stick to that ten percent.
All right, Clark, we'll leave it there. Thank you so much for joining us. Clark Aaron and he is the chief market strategist at Calbay Investments, joining from the Bay Area of northern California. Here on the Daybreak Asia podcast. Welcome back to the Daybreak Asia podcast. I'm Doug Chrisner. So we have talked on this podcast for a while about how investors across Asia have been rethinking their strategy of investing in US assets. We know the concerns are many.
There's the US budget deficit along with the impact of tariffs and shifting US trade policies, as well as the knock on effect of a weaker dollar. For a closer look, now, I'm joined by vs N i Are. He is the CIO at East Spring Investments. Vs joins us from our studios in Hong Kong. Good of you to make time to chat with me. I'm curious to get your take on the way in which investors in Asia are now de risking from the US. What are those fun flows look like to you?
Hi?
Thanks, Thanks Doug for having me here. So what we see is that we've had a number of years now where US markets in general, both fixed income and equities, have had a very large outshare of interest and of drawing capital, so into US equities, into use fixed income, et cetera. Now now we've now in a position where we're seeing some challenges to growth, be it driven by
tariff some uncertainty. We've seen weakness in the dollar. Often forgotten is that the US markets have recovered, But in twenty twenty five, US markets have underperformed some of the larger Asian markets. So it's a very interesting cocktail. So in the backdrop of a falling dollar, challenges and the long end of the US curve, you know, we've seen some disappointments there as well in terms of the auctions,
we see investors really increasingly thinking about diversification. So the last few years has been a very clear market where concentration has done well. So a few stocks, particularly tech stocks in the US, have driven global markets and of course the US markets as well. And you're seeing a change in that. You're seeing a change in that leadership, You're seeing challenges to growth, you're seeing longer long end
interest rates, we're seeing a falling dollar. So these cocktail is a cocktail of changes really, and investors are adapt to that. Then they're adapting by being much more focused again on diversification, seeking out those pockets of the market that might be a little bit more resilient, those pockets that potentially could outperform, and then allocating appropriately, which often means now a little bit away from the US.
So to what extent does China represent an alternative right now? How would you wait opportunities in China broadly speaking, and whether there is really the kind of story, the kind of narrative that would compel an investor to put money to work on the mainland.
So what a great questen. So what we see, of course, this year, we've seen the Chinese markets have outperformed the US. Of course, there's been a lot of volatility around tariffs, a lot of uncertainty around tariffs, and that of course holds back perhaps invests a little bit from going all in in some ways. But the Chinese market, of course, as we've moved to a world where despite all the tariff on certainty, we see effectively there this effective tariff
rate of about thirty five percent. You know, there's a ten percent flat rate, there's a twenty percent fentanyl rate, and there's some sector specific additional rates as well. So on average, we think that's about thirty five percent. That is potentially a one percent headwind to GDP, but we still see China delivering about four point four percent growth
this year. We've seen two percent fiscal stimulus already, we think there could be another one one and a half percent coming, and we think they can deliver that four percent growth. This is against a backdrop of US growth actually deteriorating in the second half of the year. Secondly, there is room for interest rates to to come down in China, and we've also seen very much sector specific lending to help certain sectors. So in no way do we think that there is a sort of across the
board positive stories across all sectors in China. We still have concerns around property, et cetera. But certainly things like the technology sector in China trade a very cheap valuations. You you are you are buying into the market at very very attractive valuations, and we think this is a good point, and that's why investors have started to become much more likely to allocate to some of those agent markets in particularly China.
I'm wondering how you wait the problem of deflation in China and whether you are worried that this could become a more intractable and deeper problem for officials in China to deal with.
Well, I think the key thing there is that they have the tools, so it's it's you know, we're not We're not. I think tracking a repeat of what we saw with Japan. They have got tools that will allow them to to stimulate. We still are seeing growth, So it's not a zero growth environment. They they delivered something last year. We think they'll deliver four and a half this year. But I think what might be the concern is that we don't see this as an across the board,
across all sects. There are domestic champions. There are particular sectors that do well. We do strongly advocate. I mean, we've just released our midyear outlook and the theme of that was think Asia, but think active. We don't think this is a broad market recovery or a broad market allocation.
It's very much about identifying those companies that are much more resilient with you know, competitive advantages, strong balance sheets, the kind of essentially quality names, and we think those are the ones that can outperform because evaluations are so much more attractive.
I want to pivot to supply chain reconfiguration if we can't, because it's a part of the tariff story obviously, and we know that firms began to diversify away from China to a small extent during the first Trump trade war with Beijing. Then the pandemic struck, and that clearly highlighted the risk of being overly concentrated in China. Now during the second Trump trade war, there seems to be even greater risk now under the current strategy, the Trump administration
is trying to counter this reconfiguration story. It's focused on places like Vietnam, where reshoring has been underway as we know for some time. And I'm curious, viz, how are you navigating all of this?
That question almost identified all of the concerns that we have as investors as well. So undoubtedly the first President Trump administration was very focused on China, and what we saw was this China plus one strategy adopted by many Asian manufacturers, essentially relocating to the likes of Vietnam and other places in Southeast Asia. I think that the ideological and game still seems very much that the US policies
are very much trying to contain China. I think we are in a journey of discovery around trade deals and those negotiations. The Chinese have got some concerns, you know, very clearly the US is focused on the bigger nations they've you know, we're talking about Europe, Japan, China. They're putting a lot of energy into that. It's pertinent that we haven't easily struck deals so it's not a negotiation
tactic that has forced a kind of a submission. It's very much a negotiation that the likes of Japan and China are going through, and the Chinese are very aware and they're looking out for deals that in any way disadvantage them in the global market. Now, when we think of that policy, I think that it's the uncertainty they
investors are struggling with. So if investors are struggling with it, so are you know, business owners and business managers, Because how do you relocate production into a third into a third nation or a third region without policy certainty. I think that is that that is the dimension that really has suffered in the last few months, because this uncertainty potentially leads to less investment and then that potentially leads to lower growth. So as investors, that is the primary focus.
If we're trying to predict the endgame, I think that it's very difficult to do. Other than perhaps a few points we know we think there might be something like a ten percent tariff ry across the board with many nations. I think that even the Chinese have sort of got themselves to a roughly relaxed point there. I think that there is some strong negotiations around trying to limit the impact on inflation from those tariff tax rises, and then we are in a void discovery around what that means
in terms of supply chain adjustment. The first administration moved a lot of supply chain manufacturing to Southeast Asia. Clearly, now the US President is very clear that they want to at least try and limit or pay attention to that. They haven't we haven't got to the endpoint where we know for certain that's not going to be a good idea. Clearly, we've got other parts of the world that they may
be paying attention to. But I think if there's one anchor to everything is they want to at least limit their reliance on China as in terms of their own supply chain. That's the best we can give.
We'll leave it there. Vis Thank you so much for being with us. Fee Sneier is the CIO at East Spring Investments, joining from Hong Kong 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 Prisner, and this is Bloomberg