Bloomberg Audio Studios, Podcasts, Radio News. Welcome to the Bloomberg Daybreak Asia podcast time Doug Chrisner. Following today's print on producer prices here in the US, markets in Asia are bracing for tomorrow's report on US consumer inflation. We'll be hearing from Rob Hayworth. He is with US Bank Wealth Management. We'll do that in a bit, but let's begin in Hong Kong. That's where we find Raoul Chatta, founder and
CIO of Shikarra Investment Management. I think we can agree you and I that twenty twenty four was especially challenging for many em markets across the Asia Pacific. We know that China was very much a big part of that story as it continued to struggle, and whether or not the theme of US exceptionalism was a factor, we can debate that. But I'm wondering, if you look out this year twenty twenty five, how does the APAC and look to you?
So, Doug, I'm more hopeful than what the markets are baking in today for the Asian region. And the reason for being more hopeful is I don't think the worst case scenario for tariffs plays out for Asia because look, the inflation is going to impact US those tariffs. Eventually the price is going to be worn by the US Conjua and I live in New York and trust me,
it's the inflation is literally killing us. Over there, things are super super expensive, and when you travel around the world you realize how outrageously priced things in the US are. So clearly the worst case Ontaris doesn't play out. What we're seeing is x US. Some of this disinflation coming through that was coming in product prices until Q three of last year, is coming in services also, so somewhere that kind of comes through. Dollar strength is a form
of tightening. Raids have moved up to nearly four point eight percent, so that slows down the economy. So I think clearly we've seen the worst for Asian markets.
I'm wondering what you're hearing about this situation in China. We had credit data the other day that was a little disappointing. New loans in China for twenty twenty four declined for the first time in thirteen years. Now, we know that the government is taking steps. We can talk more about that in a moment, but I'm curious as to what you're hearing from people in Hong Kong about the situation on the mainland.
So clearly what's going to get used to China growing at about slower levels. The numbers are going to be somewhere around three percent, and that's how we build our portfolio. Our portfolio for China is Chinese companies in the custotic sectors like Proya gaining share from the multinational corporations. Our portfolio China is Chinese companies who are extending their global footprints. So, whether it's Evy or the other parts of the change,
I think that's the interesting proposition as investors. We've going to get used to this new world, which is China's slowing. What has changed at the margin is over the last twelve months, the Chinese governments become a lot more positive towards businesses. They want to get the animal spirits back from a business investment perspective, from a consumer confidence perspective.
But all these things are going to take time. I mean, for those of us who've been in markets long enough know that exorcist take their own time to clear up, and we're going through one of those processes in China.
Yeah, So the consumer confidence perspective I think is key where sentiment is concerned. Obviously, that's been one of the missing pieces, right And yesterday we had one of the security regulators in China pledging more support for the equity market, and we know that officials also reiterated support for both the currency and the Chinese bond markets as well. It seems like there have been very conscious steps taken to try to address this issue of sentiment weak sentiment at
the retail level. Do you think it's been enough.
See again, idly one would have wanted ten percent of GDP as a stimulus to take care of all these things. I think the number which one is hitting from China is somewhere around three to four percent, so that's much lower. That's their different style. They don't want to do what was done in two thousand and eight and a repeat of that. Their mindful of the dead GDPI ratios, which
I hear. But clearly, if you put all these events over last twelve bunths, whether it's asking the local governments not to change the entrepreneurs for unnecessary tax liabilities, et cetera, whether it is kind of an trying to have an amakable relationship with the US, So yesterday they were news of China looking to say the TikTok us business. To Elon muss, I think that should be positive. Earlier China
was like that business cannot be sold. So I think a lot of these positive ref sprints are coming through. You see a lot of countries getting visa free access to China. So what happened around COVID was China's contact for the rest of the world almost went to negligible. So I think that is now getting resumed. So all
these are little positives to to add up. I mean funding, the funding the local governments so that they can pay their employees and so that they do not kind of miss on the salary payments is clearly big postive.
What other markets right now look attractive to you? In the Asia Pacific, I'm curious about Indonesia. I'm also curious about your take on Vietnam.
So I think Azen is clearly attractive. Though Azen gets impacted all the more Vietnam from these tariffs coming through, which is why if you see Vietnam's not gone anywhere. But look that market has been littlely flatlined for last five years. Valuations are super attractive, so once some of these tariffs are biked in two. In terms of the market participlaate, s centible, et cetera, that is a market one would like to add. India is a market we've
liked for a while. It's structurally a strong story in this world of slow growth. India will continue to show five to six percent growth and last three four months because of the cyclical downtown we are having in India is providing a good entry opportunity, particularly for small medcaps et cetera. So right now, what we're doing in India is adding to our large caps. But I think another fifteen percent down for small medcaps they become attractive again.
So Rao, Well, you're having meetings with clients Nasia right now. I'm curious about the one question that you're being asked most frequently. What is it?
So I think the tariffs are on minds of everybody. What happens in terms of rates is the question commonly asked, and which is which is where our point is? Incoming months, we'll get clarity on both and we are lot most sanguine.
Then the markets on this and a view is a lot of negatives up priced in them, so almost everybody is positioned in US, whereas what we believe is things should improve, particularly in the Asian part of EAMs, and that should be positive for investors who are positioned for that.
Raoul, We'll leave it there, thank you so much? Or who will chat? A founder and CIO of Chikara Investment Management joining us from Hong Kong here on the Daybreak Asia podcast. Welcome back to the Daybreak Asia Podcast. I'm Doug Prisoner. State side markets seem to be unwilling to make any big bets in front of tomorrow's report on US retail inflation. Today's report on wholesale inflation was a bit cooler than forecast. The Producer Price Index up two
tents of one percent from the month before. That was half expectations. Perhaps more importantly, the core PPI was unchanged. Big question now, how will these data play into the FED and it's thinking on the path forward with radcuts. To answer that question, I'm joined by Rob Hayworth. He is senior investment strategist at US Bank Wealth Management. Rob joins us from Seattle. Thanks for making time to chat with us. What's your sense of where we stand right
now in the fight against inflation? Here in the US.
Yeah, Doug, great to be with you. The fighting against inflation is going okay, but it certainly could be better. We were certainly seeing that inflation probably remains elevated somewhat this year, even though we don't foresee an acceleration. We think it's going to be hard to get that last
smile down to the federal reserve. But certainly what we're seeing in the short term is higher fuel costs, higher energy costs, higher food costs because we're seeing shortages right We're seeing some supply challenges when it comes to eggs, for example, due to the ABM flu. We're seeing low inventories in the US for energy, so we're seeing some
pressure there. And then we'll have to see if the labor market can loosen up and let wages keep creeping lower to help push down on those core inflation prints later in the year. But for now, it looks like it's going to be kind of stubbornly elevated.
How big unknown is whether some of those economic policies from the incoming Trump administration will be inflation arey. And I'm thinking primarily of the tariff story. What's your sense of that.
Well, we're certainly seeing the market react a bit to that every day as news comes out. First and foremost, it's coming down to tariffs and how much, how quickly, how soon. The good news it seemed like this morning was that it's going to be a more extended implementation rather than a rapid implementation of tariffs, which I think would be helpful to the market so that they're not
seeing that inflationary pressure right away. It's just hard for us to handicap what the policies are going to be as they come out fairly quickly, but that's certainly a risk to the market that could push prices higher if we see significant tariffs, especially early on. I think the
other challenge remains the labor market. If we see a significant trinkage in the labor market because of deportations, that's also inflationary from a wage perspective, that could be a challenge too, And I think we're all just kind of waiting to see what's really enacted. As we get into the first couple of weeks of President Electrump's new term.
Very little movement in the bond market today. We've got a tenure with a yield that is sub for eighty. Do you think it's likely that we could test five percent this year in twenty twenty five.
I think that's absolutely a risk, and that's a risk that would be concerning to the equity market from a valuation perspective. We saw this earlier last year when we tested five percent on the tenure and we had a pretty decent decline in the equity market. I think it's a concern when it comes to borrowing costs and the
ability of especially smaller companies to refinance. And I think it's a concern for valuation multiples as you're really getting into some attractive levels where investors may start to think they're better off in bonds than stocks at that point. So that's certainly an area we're watching closely. We think it remains a risk to the equity market if we start to see those levels.
And I'm wondering about whether any shift in the yield curve could either help or hurt some of the big banks. We're going to hear tomorrow from a City Group along with Goldman, Wells, Fargo and JP Morgan in terms of their latest earnings. Do you have a sense of what we're going to get in terms of guidance going forward.
We don't have a great sense of what we're going to get in terms of guidance, but what we're certainly looking for, Doug is what's going on with the consumer and business spending and loan trends. Our banks still easing up on lending terms. That's something we heard from the Senior Loan Officer survey that that would be helpful for the economy and what's happening with net interest income, and certainly a steeper yield curve is often helpful when it
comes to these companies. So that's certainly something we're looking very closely at over the next couple of days as we get an awful lot of financial firms reporting very quickly.
Here, what about fewer regulations? Would that be helpful as well?
Generally it would be well, I know, there's a lot of talk about easing regulations across a number of industries, including the financial services industry. That could certainly be helpful to companies as we move forward, but that's probably a longer term issue compared to what we're seeing. What we'd like to see right now in terms of loan growth and how is the consumer progressing after such a such a strong expansion Already, we've.
Got crude oil and this is New York Crew WTI just under eighty dollars a barrel. We know that the president elect is committed to increasing domestic production. Is the energy space something that you want to be exposed to this year in a major way?
No, we're probably We're probably a little mixed on that in that one. Yes, we may be able to get more output, but these companies have been very adept at managing their balance sheet over the past year and figuring out how to return capital to shareholders without overinvesting, and so we haven't had the boom bust cycles of oil output that we've had in the past. And I think that companies are still on that path of strong financial management,
which we as shareholders certainly applaud. But I think it's tough to say that oil prices are going to break out and really cause a big run here in oil prices, and I think it's tough to see them fall apart here.
One.
US inventories are quite low too. OPEC still has a couple of million barrels a day it would like to add to the global market, so that kind of puts aus ceiling on prices, and then from a floor perspective, we're still refilling the strategic petroleum reserve, so this is probably more of a range bound price market as we look into the rest of the year.
So you're talking about returning capital to shareholders, I'm wondering about dividend plays. Is there a lot of attraction right now in the dividend space for you?
We really probably have a two pronged approach to this, where where one we'd say for the longer term, technology is vital to own from the growth perspective and the portfolio and the revenue growth perspective. It is garnering a lot of investment by companies and that should continue and too,
You're right we are looking at income plays. Energy would be a part of that, but utilities really as well, particularly because we're seeing utilities needing to invest more money to develop facilities, to create more electricity to support this artificial intelligence investment boom. So we think there's room for both those in your portfolio.
Before I let you go, Rob, I got to get your take as to whether or not you're seeing opportunities offshore right now, particularly in emerging markets. Is there value there still.
Yeah, We certainly think there is value in global markets, and part of that is driven by the elevated valuations we have here in the US. Really US growth, the US performance over the rest of this year we think requires significant earnings growth rather than multiple expansion again this year, and that means we're seeing that it's somewhat attractive to look offshore, particularly given the recent strength in the US
dollar that may not be replicated. So you know, it's not the same growth story outside the US that it is inside the US, but we think there is reason to consider some of those value plays outside the US.
Rob, thanks for being with us. Great insights from Rob Hayworth there. He is the senior investment strategist at US Bank 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 Prisner, and this is Bloomberg.