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Welcome to the Bloomberg Daybreak Gasia podcast. I'm Doug Chrisner. The tariff inspired turmoil and financial markets is enduring. Certainly. Over the weekend, the Trump administration indicated those sweeping US tariffs would be kept in place. Coming up, we'll be talking with Adam Coons. He is the CIO at Winthrop Capital Management. But we begin this morning in the Asia Pacific, where, despite the holiday in China last Friday, the government did
announce retaliatory measures against all US imports. Tariffs were imposed at a rate of thirty four percent, and they will take effect as of April tenth. Joining me now is Helen Jude, chief Investment Officer, also managing partner at NF Trinity. Helen joins us from our studios in Hong Kong. It's always a pleasure, Helen. Thank you so much for taking the time to chat with us. How surprised were you by the move from the Chinese government last Friday.
I think it was always with an expectations that there would be some degree of retaliation. The exact magnitude, I think was somewhat of a hawkish surprise. Very similar to what had happened the day before on Liberation Day, when everybody was expecting tariffs to come in for sure, but the magnitude and extent of it was certainly more hawkish than expected as well.
So let's get away from the macro for just a moment and talk a little bit about what you're seeing within the market right now. I'm curious about the extent to which this price action is revealing a level of leverage, maybe that we didn't really realize before. So you've taken a position, let's say, using a little bit of margin, the market goes against you. Uh oh, that weakness forces you to either add to the position or to liquidate. Is that a little bit of what's going on.
I think that's part of it, but that's certainly not all of it. For example, if you actually look at retail participation in the US, that's been very important in terms of supporting the broader market. People generally buying on dips very you know, consistently, and a lot of that is not necessarily on leverage. It could just be cash,
but the positioning was very concentrated. As in US, exceptionalism had rolled for a very long time, and people had no interest in diversifying into fixed income and diversifying into non US markets or holding you know, other hedges. So I think that the unwinding of that, with the loss of confidence, you know, starting Friday, I think that's actually what's been the key driver for the major onwine that we saw.
So are you seeing order in these declines or are you seeing maybe a level of stress that would be concerning either to a central banker or a financial regulator, something that might imply a bit of financial instability.
Certainly, the magnitude of the market drops has been and you know, a kein to COVID or GFC, So that's certainly a sign of financial instability, but it's not necessarily systematic risk in the equities markets. It's you know, we have to look more at the fixingcome markets, which is far more important. From that record. Now, credit spreads have really blown out over the last week, but on an absolute basis, they're not at you know, COVID levels or GFC levels. I think that's what we have to watch
very very closely. But you know, if I was the FED, I would be thinking, gosh, even if I drop rates by fifty basis points, I'm not resolving the trade issue. In fact, you know, if interest rates were lower and market stabilized for a few days, that might actually delay any potential negotiations on the trade issue. So I would think that the FED would not want to be taking on the sole responsibility for stabilizing the markets when they're not the root cause of the market disarray.
And in fact, the terriff situation may and gender a bit of inflation that would be troubling for the FED. Would you expect these tariffs to produce a higher level of inflation.
They will, but I think it's a little bit different from what you would expect. First of all, it's mainly on goods, and historically the sticky inflation of the US or the past year or so has really been on services, which tariffs doesn't necessarily affect. And then the second thing is that you've got to think about the fact that these tariffs are going to be a one off impact on inflation and not necessarily sustaining over the medium to longer term if the teriff rate remains stable as a
base effect resets. So I think maybe higher inflation will be one consideration for the FED, But you know, hiking rates meaningfully is not going to be a solution to fixing the tariffs, and therefore, you know, you should probably rethink the normal logic that hiking rates can fix inflation.
Over the weekend, the Trump administration indicated that it had heard from no fewer than fifty countries trying and to
negotiate new trade agreement. Is this part of the process right now that tariffs are in and of themselves kind of a bargaining chip, or is this something that is maybe a little bit more concerning in that, you know, if this is a line in the sand that has been drawn and that President Trump is adamant about taking this position to try to reduce trade deficits, that these tariffs may be with us for a while longer.
I think tariffs will be with us a well longer, but that different countries will have different negotiations and different situations. You know. Scott Besson in the interview with Tucker Carlson over the weekend, he said, you know, tariffs are in for this reason and for that reason, but he also said that tariffs are a tool for negotiation. So I think that is the reality. But you know, if fifty parties contacted them for negotiation. I think we'll get fifty different outcomes.
How are you viewing the macro right now in China? Given everything that we've been talking about.
I think things were starting to head in the right direction. Infrastructure investment and local governments were starting to stabilize. We saw that the property sector had gone from a huge drag in terms of both volume and price to you know, price somewhat stabilizing or even starting to pick up in some top tier cities. And then we saw that consumption.
You know, it's still not stellar, but it's not getting worse either, And actually the government has been more focused in terms of their efforts to try to stimulate and support consumption. So it was starting to come around the corner until this, but you know, this was somewhat expected as well, although worse versus the base case expectation on the tariffs, and I think the policy makers will have their own policy response to it, probably focusing more on domestic facing parts of the economy.
What have you been hearing from clients generally?
I think the market is panicking. I think that most people initially tried to be somewhat rational, you know, switching into defensives and you know, switching into fixed income and so on and so forth. But then I think very quickly people fell like they needed to sell and they needed to get out for some of the reasons that we've discussed, because this whole thing might last longer than originally anticipated. So that's what we've actually seen in the
last couple of days. That's what we're seeing today. I actually personally think that the more you know, disorderly it is for two or three or four days, the more it's going to force the administration's hand in terms of coming out and saying something to stabilize market expectations. So bad is good to some extent.
So now give me a strategy that you think would be worthwhile over the next six to nine months based on everything that you think you understand right now.
Well, the faster the market drops and the more disorderly it is, the more interesting it is to jump in and start to buy some If actually things stabilize, you know, immediately, with valuation still above the historical median, with earnings expectations not yet revised down, then it's probably not interesting yet. I would say that the terriffs are imposed on a country basis, and each country will have its own deal.
I think the countries that are US allies and countries that are manufacturing substitutes for China are likely to negotiate first and get the better deals, and whether their deals are affirmed up, then those particular markets will outperform others. So I think that's where some of the capital is going to flow. And that's what I would use as
a general guideline for thinking about it. And if some of those countries get out of it, then the country the sectors like let's say, you know, US apparels that rely on the manufacturing and shipments from you know, countries like Vietnam, Cambodia and the rest of Asia. You know, then those companies could potentially rebound as well. Because currently right now people are just thinking recession hits demand and tariffs hits margins, and it's you know, it's basically getting
squeeze between a rock and a hard place. So if you can have some resolution on their sourcing markets as well, that will benefit those types of sectors.
Also, one of the big themes in China so far this year has been high technology, particularly as it relates to artificial intelligence. We know about the deep seek moment is that theme still intact right now, or is the stress that we're seeing right now in markets kind of threatening that in any way.
I think China high tech has been up and coming for quite some time and there will certainly be meaningful breakthroughs, But the extent of the trade and related geopolitical tensions is actually negative for China tech, largely because one, it increases the chances of the US cutting off the supply of you know, Nvidia chips to China as well as the stuff that's actually you know, getting into China from
other markets that Nvidia and others ship to. Secondly, looking forward, there is greater risk of future policy changes on containing China's AI you know, improvements and and innovation, for example, probably stopping some of the Chinese models from training overseas for example, you know, potentially cutting off equipment exports the China,
not just chip exports. There are a variety of other things that could potentially happen if tensions should further intensify that are specifically a threat to China's high tech industry. So that's something that you know, one needs the balance and think about as well.
Ellen will leave it there. Thank you so much, helenge you Chief Investment Officer also managing partner at NF Trinity. Joining us here on the Daybreak Asia podcast. Welcome back to the Daybreak Asia Podcast. I'm Doug Krisner. We are seeing dramatic moves in financial markets at this hour as risk assets are being sold. Much of this is tied to Beijing's announcement last Friday of retaliatory measures of tariffs on US imports a rate of thirty four percent as
of April tenth. Now, this announcement came despite to holiday in China. Stateside, we had the S and P five hundred dropping six percent to its lowest level in eleven months, and over the prior to trading days in the US, the S and P has lost five point four trillion dollars in market value. For a bit of perspective, I'm joined now by Adam Koons. He is the co CIO at Winthrop Capital Management. Adam, the big question right now seems to be how much more downside we will see
in markets? And I'm curious as to what you're prepared for in the Monday session. How bad do you think it will get?
Well?
I mean, yeah, Monday session is going to be another blood bath. Per se if you look at the future is and probably just the kind of concrete nature that it seems that the Trump administration's taking with these tariffs.
It frankly, the market's got it wrong.
I think the market was trying to anticipate that the Trump administration would come with a heavy handed narrative around the tariffs and then would back off. And it seems quite clear that they're going full tilt into this, you know, increased tariff regime, and for right now, the base case should be they're not going to back off.
So if there is a level of market stress that were to develop that might alarm the FED, do you have a sense of what that might be. What is a key pressure point that you would be looking at?
Well, I think for the FED, I mean obviously a lot of participants look at equity markets, but when it comes to the FED, I think what they're really looking at or credit spreads, and I think, you know, one of the bigger stories for me is that, you know, if you look at high yield spreads, levered loans, those kind of things, spreads on in those markets have gapped out almost two hundred basis points.
If you look at high yield index.
It was trading below three hundred and spread and now is approaching five hundred. So that, I think is what the Fed's going to be looking at more than anything. Our credit markets deteriorating. Are they shutting down? Are you refinance? Is going to be an issue because that's really where the FED would have to start stepping in. If we started to see the credit markets deteriorating, that's where we start to see this unwind.
I mentioned a tweet that happened on Sunday from Bill Ackman over at Pershing Square, and he suggested that if by Monday there isn't an announcement on some sort of pause with respect to these coming tariffs, our recession will rapidly become the base case for the equity market. It seems like we're already there, does it not.
Well, that's what the equity markets already pressed in undoubtedly, So I agree it's too late for that per se. I think the question is, you know, a recession can come simply on the perception that things are bad, and if consumers just cut back because they're just uncertain, that in itself would create the recession. So that seems to be what the equity markets are starting to you know, fully price in. It could be that we start pricing
in a a very harsh recession. So there still is the downside potential of the equity markets if we start to see you know, further deterioration in the consumer and their behavior, if it rapidly, you know, kind of deteriorates. Makes it simply based off of narratives, because right now fundamentals haven't really changed. This is all based off of what could happen and how it might affect the economy.
But as we know, that's how we act as humans.
We react based off of what we think is going to happen, and so that right now, I think for us that is the base case, is that we're moving towards that. I don't think it doesn't really matter what the administration comes out on Monday. It says, I think enough damage is already done.
At what point do risk assets become a bargain? Though, given the weakness that we have seen and imagining that we're going to see much more in the regular session Monday, is it possible that in near term there is going to be some sort of buying opportunity.
Yeah, I think it's already approaching it obviously depends on how you entered the market this year. If you were kind of like us, we had already shifted towards more
defensive stance. We were fully invested, but it was, like I said, it did have a defensive tilt and that has helped us whether this to a degree, but more importantly, it has given us a little bit of dry powder to add to names like Navidia, because we were quite underweighted that name, and so by no means are we neutral yet, but we're moving incrementally towards that as we see these kind of drops.
So I think if you do have dry powder, you're not going to pick the bottom.
And so you you know, you should still believe in your investment strategy those companies that you think are great companies and you know, are cash flow generators, like I said, like a Navidia, like a Google alphabet, Microsoft. With these kind of drops, I think you should be incrementally adding, like I said, because you're not going to guess the bottom. And this is going to be one of those markets where it's going to be very news driven and you don't know what the next headline is going to be.
So we could see a further drop.
But I think if you do like I said, if you have dry powder, you should be putting into work incrementally right now.
So last Friday we heard from FED share J. Powell. He seemed to suggest that the damage of this trade war is going to be a lot greater than anticipated. Tonight here in New York, we heard from Bob Michael, the global head of fixed income at JP Morgan Asset Management. He thinks the FED should step in right now given a lot of the stress that we're seeing in markets.
But if you listen to what Powell is saying, yes, growth probably will weaken as a result of what we're seeing right now in terms of kind of sentiment more than anything else at this point, before that soft data becomes hard data. But the inflationary impact of these tariffs would be even more troubling to the FED, would they not.
Yeah, So I think that that's why the Fed's in a tough spot and why I don't really see how how easing monetary policy solves the current issue. Right So, what are lower interest rates going to do for higher import costs? They're not going to really do anything, so potentially make it worse because you can borrow.
More to buy those more expensive goods.
So I think in the near term, yeah, I think the Fed's a little bit stuck and it's going to have to kind of wade.
Through this.
Because the reality is the you know, the solve for high prices or high prices, and so likely what will happen. I think what the market's really seeing and pricing in here is that these higher costs due to the tariffs, they're not just going to increase inflation long term. You might see a short term blip, but all they're going to do is choke off the economy and then you're going to see a demand decline.
So that's when the FED would need to step in.
I think it's too soon right now, just like you said to because of the inflationary fears. Eventually, the increase in flo that's caused by tariffs will end up leading to a more disinflationary period and that's when the FED should step in.
So that ten percent baseline tariffy on all US imports went into effect on Saturday, and I was given some news from the Port of Long Beach, California. The port is now projecting import volumes this week will drop by around fifteen percent. But if you have to put money to work right now, given everything that we're describing in the macro, what do you do? Do you seek the safety of US treasuries and call it today? Are there
opportunities you mentioned in Nvidia. I'm curious as to whether you're seeing anything else in the equity tape.
Yeah.
I think when you look at the equities, you've got to look at what's hit the hardest but still has you know, a fundamental, fundamentally sound business model. And so when you look exaid, I still like your high quality tech names. I think you want to stay away from the low quality names right now. I don't think you want to chase uh, you know, companies that are just all about uh, you know, earnings growth or revenue growth. I think you want the companies that the business model is fairly sound.
Your large cap domestic.
Names that maybe aren't as I don't have all the sizzle that you might have in some smaller names. That's where you want to stay because, like I said, we don't have a crystal ball and you shouldn't be investing that way.
So there could be more pain here. But you want to own companies that you think can.
Overall weather this storm and then on the other side of it will outperform. So yeah, I think, like I said, looking at large cap tech in the healthcare space, we still like some names like Lily. Those really have weathered this fairly well. But still with the dips that we're seeing, and you know, names like am gin.
Uh and and Lily will put money to work there.
Outside of that, you know, when you're looking at Amazon or some of the consumer consumer discretionary names, those are obviously very very hard.
So looking at names like VF Corp.
That were down what nearly fifty percent in just the last two days, so there is value there. Those companies just didn't change overnight. There's a you know, a great cloud over them right now. But as we kind of emerge from this at some point, which we will, those companies will prosper again.
And I'm wondering if you want to avoid companies like Apple and Tesla that have huge exposure to the Chinese market.
Yeah, and that's that is where we're focusing.
Is we're really doing that analysis to determine, Okay, if this persists, not only who is most exposed to China, but where the manufacturing shift if you did have to shift to back to the US would take a long time. And so shifting manufacturing of something like an iPhone or Tesla that takes quite a long time. So I think that those are the companies, Yeah, you want to stay
away from. If it's something where there's you know, so agility around manufacturing and production, those are the companies really focused on.
Adam, thank you so much for making time to chat with us. That's Adam Koons, co CIO at Winthrop Capital Management joining 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