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Welcome to the Bloomberg Daybreak Asia podcast. I'm Doug Chrisner. We had some weakness and US equities in the last session as the market assessed the impact of the trade war. And later we'll be joined by Gene Goldman. He is the Chief Investment Officer at Satara Financial Group. But we begin in Hong Kong where HSBC's Global Investment Summit has just wrapped up. Joining me now is Villam Cells. He
is the Global CIO at HSBC Global Private Banking and Wealth. Vilm, thank you so much for making time to chat with us. There is so much conversation around tariffs, the economic impact that they will likely have, principally whether or not these tariffs will contribute to a higher level of inflation. I'm going to imagine that you're trying to filter signal and noise here, with the tariff conversation really mounting to a
lot of noise at this point. How are you able to kind of find the signal in markets these days?
Well, it's what our clients try to do as well. You mentioned the Global Investment Summit. We actually did a poll of seven hundred of our clients across private and retail banking, and what came out is that they see you know, geopolitics as the number one driver of markets fifty percent of clients. Then after that comes you know,
the fear of stackflation around twenty percent of clients. Then luckily there are two positive drivers AI and you know, China, and interestingly, very small percentage only that is concerned around the debt pile in the US. So that's potentially positive news. But I think, you know, just like clients, we don't know where the next step is going to be from
the US administration. I do think the main impact of the uncertainty and the rapid changes in policy that uncertainty is leading to, you know, a likelihood of some businesses and consumers taking away and see approach and therefore premium go up, and you know, earning's growth and economic growth
expectations probably come down a little bit. So we've cut, you know, two days ago, we cut our US equity allocation from an overweight to neutral, taking advantage of the bounds that we've seen over the last few days.
So is that solely based on valuation.
Not so much on valuation. I think the valuations obviously have fallen quite significantly. For the Magnificent seven, they're way below below the ten year average. For the for what we call the Forgotten four hundred and ninety three, they're about at the ten year average. So they're not yet at a level where in and of themselves, low valuations
make people step in. But I do think the reason for our move was rather twofold Number one, that that lack of confidence can lead to revisions to growth and earnings, and number two that investors are generally also not yet underweight their confidence. Investor confidence is very low, but investor positioning is not yet very low.
So are they favoring markets Let's say in Asia, I'm thinking of Japan, perhaps even South Korea, China, maybe there are opportunities now you mentioned kind of high technology. Where is the bias favoring.
Exactly so, so the bias is towards Asia is also the only region that we are overweighted at this point in time. The enthusiasm is around China, in part because, of course, the deep seek news has triggered that realization that many people you know, didn't didn't seem to have them. You know, China has progressed quite rapidly in terms of technological you know, evolution and everything that is related to that. So that's into manufacturing, that's into internet, you know, consumer
leaders and so on. So that's the first leg driven by people that added to their positioning and that enthusiasm around technology. Now the next leg is and the debate that we had at the conference was around how much is the new stimulus to the consumer going to lead to a broadening of that economic activity, because that is then going to lead to a second leg. I think, you know, website for the Chinese market.
Is there still a great deal of concern among your clients about the health of the Chinese consumer? Maybe they are healthy, but they are just the sentiment is so weak right now. Is that a primary concern still?
So indeed, as I said, there is a debate around that we are seeing the first inklings of the consumer feeling that that a little bit better of retail spending being supported, of discounting being less. So less discounts mean a little bit more confidence from the part of the
consumer related you know, companies and so on. But it's of course, you know, given the very low valuations, it is that when you see those first inklings that people want to get into it, and so we're seeing evidence of hedge funds, for example, being you know, quite actively looking for those opportunities as they expect that to be the next leg driving the Chinese market higher.
Was there much in the way of conversation around money moving out of Asia to Europe, money.
Moving out of the US into Europe, or US allocations right, US portfolio allocations into Europe and also into Asia. So you have that rotation continuing to take place, and I think there is still scope for that to that to take place, Asian investors do also want to allocate to Europe.
When I was here two months ago, I saw some of the most pessimistic views on Europe, and now it's much you know, more positive, obviously because of the dram and package, but also the hope that even if it is mainly defense, this is going to lead to more R and D research and development that then can spill
over into more competitiveness for Europe. From a longer term perspective, clearly people are underweight in Europe as well, squaring that position, getting closer to benchmark and adding to it there as well. In Europe, the question is going to be how much other reforms are there going to be as well, because obviously Europe needs to further integrate its capital markets and especially create one single market for services. The hope is that European leaders are going to use the collaboration on
defense to also then take initiative on other areas. That is obviously we will need to see, but some people are taking that as a positive and at least squaring their positions, going back to neutral from an underway.
So the markets are painfully aware of the trade tension between more Washington and Beijing, and we know that China has been looking for new markets. Europe has represented a key market for Chinese goods for some time, but I'm curious as to whether or not people in China are trying to fortify those relationships given the current tension between Washington and Beijing.
So certainly what could could happen is that, you know, when you have trade tariffs in certain from certain countries, you can have trade diversion. So what that means is that some Chinese goods could end up in Europe. And this is one of the reasons why we expect, you know, inflation in Europe to continue to be reasonably low. It's
one of the reasons as well. While we think there are opportunities in the European bond market, European bond yields have gone up significantly on the back of fears of more supply from Germany, but those are now attractive level. So German bonds and actually UK guilts as well, you know to us are are attractive because some of those goods can and end up in the UK in Europe, and therefore inflation should remain reasonably well behaved there.
So I'm curious in terms of topics at the HSBC Global Investment Summit, how did artificial intelligence enter into the conversation, particularly given the recent news on deep seek.
Well, it features everywhere, and we also obviously had a lot of companies presenting in from the services industries, from the manufacturing industries. All of them are saying that AI, they are basically users of AI, and there are so many different examples there they So the enthusiasm from our clients has shifted from the AI enablers to the AI adopters, and that is obviously leading to productivity grains across industries.
But one of the industries that really benefits from it is the software industries rather than the hardware where that has been hit because people feel that there is going to be and fewer semiconductors needed to do the same tasks. The software industry really is gearing up to develop all of those applications for those different industries to really allow them to use AI to develop new products, to develop their customer services and so on.
We'll leave it there, Villain, thank you so much for joining us. Villam sells there. He is the Global CIO at HSBC Global Private Banking and Wealth. Joining us here on the Daybreak Asia podcast. Welcome back to the Daybreak Asia Podcast. I'm Doug Chrisner. So we had some weakness for US equities as the market considered the impacts of
the trade war. The consensus view on tariff seems to be that they will lead to higher prices, fewer options for consumers, and and fewer manufacturing jobs in the US. For a closer look, now, I'm joined by Gene Goldman. He is the CIO at Satara Financial Group. Gen's on the line from El Segundo, California. Thanks for making time to chat with us. Gene, Thanks so much. Doug, give me your sense of where things stand right now in terms of the tariffs having an impact on equity market price section.
Yeah, First of all, it's a great question because clearly the tariffs is the news de jore, basically the news of the year. So for us, we're more optimistic than I think the markets. You know, I do think tariffs are going to create a lot of market volatility, and we're seeing this already. But if we look at tariffs and we say three things why, it won't be as bad as the markets are worried about. Number one, I do think, you know, President Trump of the administration continues
to talk about tariffs being retaliatory, not universal. That's a very important point. I think. Second of all is that if you look at other countries and their exposure to US imports to their imports to the United States, it's a greater percentage of those countries GDP than our country. Of course, that leads room for negotiation. And third of all, if we just use use twenty eighteen as a base case, during the tariffs, then stocks fell from peak to trough
by about sixteen percent. But keep in mind we were back to pre tariff levels by May of twenty nineteen, So yes, there's gonna be uncertainty. Es. Yes, there's gonna be lots of market volatility, but we do think it's gonna be a little bit less expected. In today's announcement about tariffs, it's just more rhetoric really focusing on the fact that it's going to be retaliatory and less universal. Yes,
there are going to be ratifications. I do think that you know, consumers may not spend as much on car or may maybe you know, they're still going to buy cars, but maybe just not buy as many cars. But I do think, you know, there's very lack of response from so far from the EU, you suggesting maybe potentially more negotiations. And you know, if you think about the ratifications, US auto exports to the United States are not going to be wiped out because it's going to take some time
for US production to ramp up. Also, demand performed auto is fairly priced in elastic and then really a twenty five percent tariff doesn't necessarily wipe out the cost advantage of lower cost exporters. And what we're seeing, especially we saw from Mexico today, we could see a weakening of foreign currencies versus the dollar. So I know that the tariff uncertainty creates volatility, But I think the good news is that we think will be less than the markets have anticipated.
But when you consider where the FED is in all of this, I mean there are policy ramifications as well. We heard from the head of the Boston FED this afternoon, Susan Collins. She was saying, it looks inevitable that tariffs will boost inflation, and for that reason, it's likely appropriate to keep rate steady for longer. So when you consider the fact that we may be in a new regulatory regime on monetary policy, is not going to impact the equity market at all.
Yeah, so we go to the FED. Okay, So if you think about the FED first and foremost, one of our key themes coming into twenty twenty five was that the FED would not be a good friend. The FED would not cut rates as much as the Marcus anticipated. And if you look at the FED, you know the FED is seeing fairly pretty good economic growth, stocks somewhat close to all time highs, a pretty good labor market,
but they're seeing above target inflation. So even regardless of the tariff uncertainty, I still think they're going to be on the sideline for some time. We think the FED, regardless of what happens, cuts rates only once or maybe not at all for this year. But the good news, going back to the market's sort of ramifications, we do think that returns this year are going to be good
but not great. And what I look at is the fact that the economy is, you know, we have modest economic growth, we have moderating inflation, we have a pretty okay labor market, and we also have double digit earnings growth expected for the markets. And the other bonus point is that the FED is not going to be raising rates. So in that type of environment, the market historically does
good but not great. That's why our target for the SMP is still about six to eight percent for the year, or about sixty three hundred from where it is right now.
So beyond just kind of giving me the technicals and where the overall market is going to be in your view, what are the themes underneath that forecast? I mean, are you buying specific industries or sectors of the market right now and selling others?
Sure so coming in So keep in mind, coming into the correction, we weren't surprised by the correction. We've been saying we expected the correction for some time. We were just surprised it took so long for the market to actually have a crection. So with that in mind, we had sort of a I guess I call it. I know it's opening day for baseball, but really using a basketball analogy, we were investing, like Shack SAJAQ, a little bit biased towards small and midcaps, bias towards healthcare, bias
towards alternatives, and bias towards quality names. What we're doing now, especially with this market pullback we're around, we're looking to boost some of our beta within our portfolio. So broadly speaking, we're reducing our liquid alternatus exposure in favor of global equity. We're also from a positioning standpoint, we continue to be overweight value versus growth, continue to be avoid SmallCap in MidCap. We do think that market breath will continue to widen.
And then from a sector standpoint, our favorite sector is continue to be healthcare. You know healthcare, you have so much advances in biotech and personalized medicine and telehealth solutions really revolutionizes patient care. And we also like financial services higher yields, somewhat of a steepening yield curve sort of the economy not being as bad as the markets think. We think take that into consideration. Healthcare and financials will
be a great opportunity in this environment. The sector that we would avoid that we are really scared about energy. We think energy it's one of the best performing sectors this year. But energy worry worries us because significance supply where a record levels of exports, record levels of drilling and all of a sudden, you know, Joe baby drill puts more pressure where's the oil going to go? And you have Sali Arabia the UAE both have come out recently and said, hey, if oil prices served, we will
be ready to put more supply on the market. Not a good sector for us to be in.
Some of the recent sentiment data that we have seen on the US consumer has been very weak, and I'm interested, Jean, to get your take on how you see the health of the American consumer right now.
We definitely know. One of our other themes was that the economy was moderating, we called the Great Moderation, and definitely the economy is definitely slowing down. We just don't see a recession. We think recession warriors are very overblown. Keep in mind, in January it was the coldest January
since nineteen eighty eight. We also had a very extended flu season, so a lot of the weakness that we saw in January really affected weather related industries like construction, like services like hospitality, And keep in mind it's also January and February. Consumers tend to spend a little less money after the post holiday season. We are seeing February data and March data come in a little bit better than expected, and that's a good good sign for us.
We saw some p andis come out earlier this week on the services side, well above expectations. So you take this into consideration, just don't see a recession anytime soon, at least for this year. And I think that's an important connection because if you think about that, a correction is a normal part of investing once every thirteen months or so. We just don't see a bear market because corrections are when markets are worried about a recession. Bear
markets occur when we actually have a recession. And we've only had three bear markets with out a recession nineteen sixty two, nineteen eighty seven, and then twenty twenty two. So we just don't see a recession. We just don't see a bear market.
So your investment ideas seem focused primarily on the equity side, at least that's what I've heard so far. I'm curious as to whether you're finding opportunity in the fixed income space at all.
Sure, fix inc them. Broadly speaking, we like fixing them, especially high quality, especially treasuries. You know, you think with yields about you know, one and a half to two percent over inflation, they're pretty attractive. We continue to see
strong foreign ownership with treasuries. You know, they're driven by better yields, by the stronger dollar, and there's a huge retail demand for bonds, and so for our perspective, and we do think the tenure treasury is pretty close to the max I mean, the tenure Treasury tends and max out around sort of that year over year us GDP nominal rate. It's about five percent, So we're pretty close to that upper end range on our end. The area that within fixing them that we do worry about though,
would be high yield, high yielding. Again, we don't see a recession, but we'll worries about high yield is that high yield spreads are so narrow right now, pricing in everything being exactly perfect, and we don't think everything will perfect. We think there'll be some bumps. And you know, you saw corporate bankruptcies increase a little bit lately. But at the end of the day, we don't see a recession.
But high yield spreads are pricing and everything being super blissful, like a perfect game on opening day, and we just don't see that.
All right, We'll leave it there, Gene. It's always a pleasure. Thank you so much. Gene Goldman.
There.
He is the CIO at Satara Financial Group, joining from El Segundo, California. Here on the Daybreakasia 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 Prisoner and this is Bloomberg