Bloomberg Audio Studios, Podcasts, radio News. Welcome to the Bloomberg day Break Asia podcast. I'm Doug Chrisner. President Trump has imposed tariffs on goods from Canada, Mexico, and China now in terms of Canada and Mexico rates of twenty five percent each for China ten percent. These tariffs will take effect at twelve oh one am Tuesday morning, and they will apply to a wide range of goods. Mexico and Canada have already vowed countermeasures, although China's response to all
of this has been a bit more muted. Bloomberg Steven Engel has more from Hong Kong.
It is still, you know, wrapping up the lunar Nei or holiday. The markets don't really start getting in full swing until midweek. In China, Cjnping has not necessarily commented directly on this that we know of, but Commerce Ministry has. They've expressed the strong dissatisfaction and also vowed corresponding countermeasures. As you rightfully said, they didn't elaborate what those measures might be. They've also pledged to file a complaint at
the WTO citing serious violation of international trade rules. But you know, beyond tit for tat retaliation on tariffs. They could expand their export controls on critical minerals. They could restrict market access to some American companies. They could do something with a rem and B obviously to cushion the blow on exporters. And that's why we'll be watching the daily fixing later this morning. The offshore you want approaching that record low right now, around seven point three, So
a number of things they can do. But keep in mind, there could be some benefit here for exporters in China. If Trump is going after on a larger scale with Canada and Mexico and vowing to go tough on the e you on the trade front, that could open up export opportunities to those markets for China. So you know, this is still early days e commerce to the United States. That's one step. There could be further export tariffs from
China to the United States upwards of sixty percent. He's also vowing to further increase those tariffs if there are retaliatory measures from the countries targeted, including China. So we're just in early days here. Clearly, the Chinese economy is struggling to gain footing of its own making largely because its exports situation has kind of supported at a time, supported the economy at a time when the property sector is still trying to find its footing, and of course
consumer confidence is so weak. So yes, these tariffs are going to hit the Chinese economy, but I think in these initially it's going to be fairly muted because there's been a lot of frontloading of orders, you know, from the United States of Chinese goods.
That was Bloomberg's chief North Asia correspondent, Steven Engel. So let's take a closer look at the broader market backdrop. Right now, joining me from Sydney is Junebailu, founder and portfolio manager at Tencap. June bay It's always a pleasure a lot of volatility at the moment and a little bit of downside here. How do you evaluate what's happening in markets right now?
Look at we're actually seeing quite a lot of opportunity at this point. So market is a little bit surprised by the timing of this tariff in position because obviously we talked about the quantum of it, but how quickly he brought it in has really surprised the market. Hence, while we see a bit of sell off, but you know, I think it is a little bit harder for investor to call that what the actual tariff will be eventually or whether there may not be any tariff, so, you know,
so there's a lot of uncertainty on that front. Hence, while we're seeing people taking money off the table, it's been a good well, it's been a good, good, you know, equity market for the last year and a bit. So we're just see people a little bit nervous. But I think, you know, for for a lot of long term invested
like ourselves, were actually pretty excited. We think this does represent good buying opportunity, particularly for some of the companies that get potentially get impacted, if they those quality companies, whether they're healthcare or whether they's some consumers names. You know, we will be looking at these opportunities to really pick up pick up those those companies.
June Bay. You know, well, how fragile the Chinese economy seems to be right now, It's been very reliant on export driven industries. So to what extent could these tariffs threaten to undermine Chinese growth?
Look, I think it's the ten percent imposition is not as large as what it could have been. You know, sixty five percent would have been pretty nasty, but ten percent is not too bad. I think China is on a slow road to recovery. You know, we will have to see more stimulus, and the consensus are expecting that the first quarter this year that China will come up with more stimulus, obviously targeted more at consumer and uh uh and the SMEs, but these should continue to drive
recovery there in China. China related equities, I think the because the less focused on the heavy uh you know, the housing market and the and the like, it will see sector like commodities to be under more volatility pressure because you know now that we have tariff net net higher tariff is not great for commodity businesses around the world. So it's not just China. So yeah, so it's just
changing the dynamics somewhat. We think China is coming back with more stimulus, but not not roaring back, but we will be focusing more on the consumer SMEs, you know, more structural growers than the than your cyclical you know sort of names like the resources.
China, at least for today is still on holiday for lunar new year. I'm curious as to whether or not you are seeing or have seen any high frequency data about the performance of Chinese consumers during this period. How well do you think they've been holding up during the holiday Yeah, actually.
It's been pretty good for some of the data we've seen. You know, it seems like there's broad based optimism. However, I think the strength we saw in the December quarter seems to have faulted somewhat just on the consumer front, but it's still pretty strong. So, you know, we're hopeful when we get the full picture. Once that's done, you know,
that will continue to drive the return of it. But but you know, from here, you really it's China's recovery is really about, you know, the continuous the sort of stimulus targeted to consumer, to the sme s. Without those stimulus, I think, you know, confidence just not yet strong enough to sustain its own recovery.
So we've been talking a little bit about tariffs. We've been talking about US China relations in regard to those tariffs, but now thinking about US China relations in regard to artificial intelligence, particularly around last week's story when it comes to deep seek, do you think this story could result in a lot more strict controls on American technology flowing into China.
Look, I think the story itself is not going to be the trigger of it. However, in the last five years or more than five years, we have seen this decoupling between China and US across many different fronts, whether security, technology, infrastructure, a lot of those has been taking place, and we expect that to continue. And you know, deep Seak, you know, in my view is that it's really just a sign
that you know, technological avestment. Right, at some point we will have someone come up with a cheaper model and you know, whether it's from a Chinese company or from everywhere else, you know net you know, I don't see that as negative for the growth of the sector because it just makes it AI models cheaper, make it more useful, and more people can use it, and more consumer can
you know, drive the next leg of uptake. Right, So you know, it's not it's not negative, but it's yeah, so you know, the segregation, the decoupling between US and China will continue, maybe it'll become more rapid, but or maybe not. And but it just it's it's good expected to be a long trend over the next few decades.
Before I let you go, I know you're in Sydney and I want to get your take on how well the Australian economy is performing. We know that it's very strongly correlated to the China story. How are things down under right now?
Yeah, Interestingly in Australia economy is actually okay. You know, it's doing quite well and uh, consumer you know, sort of come back somewhat, and but it's uh, you know, with the expectation of a rate cut in February, you know, things are looking pretty pretty good back here. Our equity market optimism returning January would deliver very strong return in January. And we do think this year could be the year for the Aussie market to outperform. It's some of its peers,
like the US and AS that peers. So yeah, so the market conditions here is good. We expect this reporting season just about to start is going to generate a bit more positivity relative to last reporting season. You know, earnings would have done a little bit better they expected and they're holding the margin well. So and also our resources company, with commodity prices doing okay, is actually expected to pay big dividends again. So yeah, so there, we're actually pretty positive over here.
June Babill, leave it there. It's always a pleasure. Thanks for making time to catch up with us. June Bailou, founder and portfolio manager at Tencap, joining us from Sydney here on the Daybreak Asia podcast. Welcome back to the Bloomberg Daybreak Asia Podcast. I'm Doug Krisner. Joining us now for more on the tariff story and what we can expect from the U side. Is Stuart Thomas. He is founding partner at Presidian Investments. Stuart, thank you for making
time to chat with us. One of the things that we're seeing right now in terms of immediate knee jerk fashion is weaker currencies in Canada, Mexico, Europe as well as a much much stronger dollar. In fact, the Bloomberg Dollar Spot index right now is up by around one percent. Is this going to be a major headwind for US multinationals.
Well, look, I don't think any of this comes as a surprise, right I mean, the fireworks have started. As I always say to everybody, Sorry to use the old cliche, but buckle up. It's going to be bumpy, you know. I think long term, the trends are in place for a very strong US dollar. Red you you have a hawkish fed, you had the thread of tariffs which are now actual, actually being implemented. I guess it will happen on this Tuesday. We've got a stronger economy relative to
the rest of the world. So you've got all the pieces of a puzzle in place for a very strong US dollar. Will it be a headwind? You know what, I am not as concerned long term as I think most people are. Again, I think these are knee jerk reactions. Let's think about where this is coming from. President Trump is the penultimate negotiator. This is not about punishing our
trade partners. This is about trying to implement fair trade policies and stop putting US companies and their workers at a disadvantage.
So we're getting an immediate response on the part of both the government in Canada and the government in Mexico. It seems as though retaliatory tariffs will be put in place. This smells a little bit like a trade war rather than a process of negotiation.
Well, you know what, Doug, Let's remember if Canada, for example, what is it I think we represent exports to the US represents something like twenty five percent. Maybe it's even higher than that these days of their GDP. So I still think this is initial reaction. I think this is to bring everybody back to the table. Nobody wants an extended trade war. It would absolutely impact the US market over the long term. So I think this is to
get everybody back to the table. We knew they would react in this fashion, but I don't believe it's going to hurt them a lot worse than it will hurt us. And that's that's not to say that we want to be in an extended trade war here, but I think it's to bring people back to the table. No one should be surprised by the retaliation.
So I hear what you're saying in terms of a negotiating strategy. But let's assume for a moment that the process takes several months, and in that period there are inflationary pressures that begin to seep through.
Here.
I'll use one example. Wolf re Search was saying the average price of a new car in the US may climb by around three thousand dollars. Does the inflationary even though it may be kind of short term, does that concern you in the least.
Well, it does, because ultimately that impacts our GDP. In a prolonged trade war, could peel off one hundred basis points of GDP for US. But I think what you're going to say, I think they're gonna be a lot of benefits. You know, again, we're all guessing it. Where this is going. I think it's to bring people back to the table to negotiate and unfair trade policies. I
like it short term, not obviously long term. If we've seen this type of action before, if Canadian companies hadn't already been considering moving business and manufacturings in the US, they sure as heck will now. So I think it could. It could ultimately be a big benefit to us, But an extended trade wark, to your point, will absolutely peel off GDP.
I think the price action in the bond market is going to be particularly interesting. On one hand, there may be some haven buying people wanting to reduce their exposure to risk. The other tension is going to come from the implicit inflationary impact of tariffs. What do you think is going to happen to the interest rate environment?
Well, I mean, I think we're already seeing that. But for first and foremost, the we we've got a lot more flexibility here than either Canada or China for that matter, or Mexico. We've got all of the elements in place for strong US dollar, and we have reiterated both the Treasury Secretary and President Trump have reiterated our commitment to ensuring that the US dollar remains the reserve currency of the world. That is going to still drive in a
risk on situation. Risk off situation is going to drive people to US bond market.
So if you were putting a strategy together, given the current environment, what assets, what instruments would you be deploying right now as a part of that.
Well, I'd like to I'd like to take it, Doug, if you don't mind, and just a slightly different different avenue here, because one of the things that really concerns me most is that, and this is one of the things you and I were talking about before, most US investors don't even understand the implications of a strong US dollar policy and a falling foreign currency the impact that
it has on the returns of their international investment. So if I could take in a different direction, set, I think we need to start raising awareness, because we've done an awful job of that, especially when it comes to the equity side of the equation where people own ADRs, and it's understandable why they may think they don't have the risk right US listed securities traded in US dollars. They don't understand it. They've got risks. So I want to raise a cautionary flag here and say you need
to reevaluate your portfolio. All of US own international equities and fixed income for that matter. When you own international equities in particular through ADRs or foreign ordinary shares, you have to be aware of the fact that you have dollar for dollar exposure to the local currency, whether it be sterling, euro, yen pay so, whatever it happens to be. So I would say, take a look at your portfolio,
take a look at your international investments in particular. Even if you owned US listed securities ADRs in particular, you have currency risk, and I would caution you going forward to bet against the US dollar.
Okay, So that's a hedging strategy, that's my takeaway. Talk a little bit more about what that might look like. What is the shape of a good effective hedging strategy these days?
Well, it's you know, we talk about hedging strategy, but for the average US investor, there is no way to hedge individual positions, at least until now. So if you need exposure to a particular region, there are ETFs out there that are hedged versus an entire index. And then recently we've watched a whole series, a whole new series of products called ADR hedged ETFs, which are simply the underlying ADR plus a currency hedge overlay to mitigate the
volatility between the US dollar and the local currency. So first and foremost, when you're taking a look at international equities in particular and identifying the company, what you want to know is do I want currency risk or not? And for most investors the answers you shouldn't. The de facto position really should be I want to hedge security. The only people that should be buying ADRs are ones or people that want to actively take currency risk versus a local currency.
Stuart will leave it there. Thank you so much for joining us, helping us understand market dynamics during the time of tariffs. Stuart Thomas there founding partner at Presidian Investments, 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 move moves from Hong Kong to Singapore and Australia. I'm Doug Prisoner and this is Bloomberg