Welcome to the Bloomberg Daybreak Asia podcast. I'm Doug Chrisner. Twenty twenty five is often running with trading under way in the Asia Pacific after Wall Street's first session of the new year. It is a market holiday in Japan. In a moment, we'll be speaking with Jay Hatfield, CEO and CIO at Infrastructure Capital Management. But first we're following
developments in South Korea. At this hour, anti corruption investigators are seeking to arrest impeached President yunsuk yol at his residence and Soul Now Yonhap News as reporting officials are attempting to exercise a warrant for Yun. His lawyers call the warrant quote invalid. Janhapp also reports that a South Korean military unit prevented those officials from entering the building. Stay with the Bloomberg platforms for the latest developments in
South Korea. We turn our focus back to markets. Joining us now is Eva Lee. She is head of Greater China Equities at UBS Global Wealth Management. Iva joins us from our studios in Hong Kong. Good morning to you and happy New Year. I'm glad you could make time to chat with us. You and I were talking a moment ago about how busy the fourth quarter was, especially the month of December for your business. What was the reason for that? Do you think?
Well, I guess you know Chump being elected, everyone expects a lot of changes to happened after he assumed the president's office, which is the third week of Jen. So in fact, our you know, CIO ubs CIO had revised down the expectation in terms of INDUS raycot to fifty bibs for twenty five. Obviously we already had the December raycot as expected, but originally we were at one hundred business point cut. Now we reduced to fifty business points.
So that will have a big impact across the board, which is like the US dollar, the expectation in terms of strengthening, strengthening of ekening and also the other currency, how much of a ray cut, particularly in Asia, how much a ray cuts that they will have as a result. So all these would impact of course they will impact gold and you know all the the bond yield and everything. So that's why we want to have our client prepare, you know, have the portfolio positions accordingly.
So you're in Hong Kong, what are you hearing about the economic situation on the mainland right now. Is the consumer still lacking in confidence to such a degree that domestic demand will kind of remain in a slump or are there signs of maybe things turning just a bit more positively.
The December number is definitely better than expected, but if you dissect to break it down, what really driving the growth was the manufacturing activities. The export side seems to be better. But having said that, people it's sort of saying, oh yeah, because they want to, you know, get all the export done before Trump put in the tariff. But on the other hand, the property sales seems to be better in December, but that was mainly in Tier one city.
Low tier cities remains weak. So back to your questions, consumption sentiment remains weak. I think structurally, you know, we have these property you know, sales. Overall it's still not yet you know, sort of recover reviving. And then on the other hand, the local government bond seems to be you know, sort of they already have a solutions how
to resolve that. But still the overall in terms of employment, the prospects people feeling is not as promising as you know, a few years back, so consumption as a result still weak. Like of course, the auto sales were strong, the home appliance were strong, that was because of subsidies, but apart from that, it's still weak.
So what are you advising clients to do that in an environment like this, particularly for clients in Asia, are you directing them away from the region and into places like the US?
Diverisfication definitely would be crucial our you know, sort of as allocation positioning for china's neutral, for US, it's record it attractive. So you are more or less you know, can imagine you know, the sort of positioning that we recommend.
I mean, the.
Fact is we cannot well we know that China valuation is cheap, you know, attractive or undemanding how you put it. But uh, the tariff risks, it's definitely a head Now It's not about whether tariff will whether we will have a terriff height or not, it's how much that will be. So I think that's why the the sort of de rating multiple de rating risks is still there or the
pressure is still there. But on the other hand, on the you in the U S side, you know, the copper earnings has been better than expected that the investments in AI continue. We have two themes Ai power resources. These are the two, you know, so a big theme that will continue to drive growth in US market. SMP target we said at sixty six hundred by the end of next year, so sorry this year. So you know, all these you know, making us you know, recommend investors diversity,
but not just an equities but aquities bonds. But on the equity side, we favor US.
What about the technology story in China? Are there signs that it's beginning to develop in such a way maybe because of the restrictions that have been coming from the United States, those export controls on things like advanced semiconductor technology. Are you seeing the beginnings of another leg up maybe for technology in China?
Well, I mean the technology in China, you name it. It's like the e commerce, the gaming partal. You know, these stocks actually have been under pressure due to the fact that they are proxy of China, so people these docks get short particular from overseas investors, when there are you know, varying concerns about the micro on the chip side,
like you're talking about semiconductor and all that. Yes, I mean, if you know US has impulsed, it's going to impose any restrictions in terms of advance you know chip that would affect China, or they broaden, you know, the export restrictions onto these sort of chip exports. We're going to affect China, but I think that's already somehow expected by the market and.
The diversification of supply chains away from the mainland to countries maybe like Indonesia or Vietnam or even India. I mean, is this something that's going to be a continued theme in twenty twenty five.
We've got to be very careful. It depends on how Chum it's going to impulse all these you know, terriffic impact because he has been saying, you know, can say sixty percent tariff on US as all on China, but ten percent of the rest of the world. If this is a ten percent of the rest of the world, I don't think the market is fully priced in, and that would definitely affect you know, the places that you
mentioned because of Vietnam, Indonesia, particularly Vietnam. If you compare to twenty eighteen until now, there are actually a significant increase in terms of export to US. While at the same time they if you look at the data, they also have import a lot of raw materials from China, so you can look at it. It's like a course out,
you know, China manufacturing platform. So if us you know, sort of look at this data and sort of target vietnamed will be affected, or some other regions that have been you know, receiving the stupifications of manufacturing platforms from China will also be affected.
So, Eva, I'm curious, you seem to be questioning a lot. There's a lot of uncertain I get that. I'm curious about how much cash you're sitting on right now, waiting for opportunities, maybe for the dust to settle and reveal some things that may look attractive to you. Are you holding a fair amount of cash these days? Or is most of the money that people have given you to put to work already been allocated.
You know, our theme within CIO is always they invested. It's very difficult to time the market, so how we do it? It's a week.
You know, we.
Diversified across equity, bonds and private so alternative investment is a big thing. So we can rely on you know, some of these very professional hash fund managers, pirate equities, pirate debt managers. They not being affected that much by the up and down of while suits in the market, and in fact, on the other hand, they're able to invest while people sort of stay put. So that's and
plus they can react very quickly. So this is a theme that we actually have been pushing even before COVID, and in fact it worked really well, particularly in the downtime, say twenty twenty one, twenty two. So that's the way we go pursue in particularly in these sort of holatile moments.
Yva, I know that you're a head of Greater China Equities for UBS Global Wealth Management, but if you can give me a little bit of your perspective on the political instability that's happening right now in South Korea. I was struck today by the fact that the equity market is is rallying in the face of the fact that we are being told that the impeached president yunsukiol is facing arrest. Hard to maybe understand the two as they
are juxtaposed. But I'm wondering, broadly speaking, when you look at the South Korean market, what do you take away.
In fact, if you look at fundamental. People always sort of look at the tech side, which is the Taiwan and Korea markets, and in fact there were clear divergence like Taiwan market obviously have all performed career market by large, and that was relating to the chip side, which I cannot mention a company, but you know which one I'm talking about, And as a result, the divergence is actually because of that the company in Taiwan, it's able we need to you know, right on that's ai chipped, very
advanced hipped technology. Wild career company seems to be sort of luck behind. So this fundamental actually explained the divergence and also potentially the continue of one market of performing the other disregardless of you know, it's sort of the
political situation or evaluation. I think that is something we should focus on rather than obviously the political side would effect there was another element of it, but I think since this you know, what happened in mauritial law, the curfee or whatever, that already people already expect some changes of political instability in career market.
We'll leave it there, Eve. It's always a pleasure. Thank you for visiting with us in Happy New Year to you all. The best for twenty twenty five. Evili is head of Greater China Equities at UBS Global Wealth Management. Joining us here on the Bloomberg Daybreak Asia podcast. Welcome back to the Daybreak Asia Podcast. I'm Doug Chrisner. Joining us now is Jay Hatfield. He is the CEO and CIO at Infrastructure Capital Management. Jay joins us from here in New York City. Jay, Thanks for being with us.
Happy New year to you. What did you make of today's price section on the first day of trading in the States?
Happy to hear, Doug, What we thought, well, actually was happening last week was just a normal rebalance, so big pension funds buying bonds and selling stocks. So we had actually that was going to reverse earlier in the morning before Tesla announced their shortfall and deliveries, and that really caused the futures to drop and you stabilized the Nasdaq. So we had a pretty big drop for a while. But we think that as soon as we get into earning season next week, then we will the market will
start rolling and stabilize. Whenever you don't have earnings, you get a lot of volatility around very little information.
One of the other things I think that the market's been struggling with is the notion of far fewer rate cuts from the Fed in the new year. And I was struck by that GDP forecast, the Atlanta Fed's GDP now model estimating real growth at two six. Yes, that's down from three to one from last week. But am I wrong here? Two six is still pretty healthy?
It absolutely is. We do think though, that that direction is going to continue. What the Fed is missing is there hawkish rhetoric has caused really the only important financial condition to blow out. So we had a ninety basis points increase in the ten year already in a housing recession.
We think that's going to worsen. So we think that in the less rates drop, we're going to have only growth of one to two percent in the first half of this year, and then the Fed will relent, and we actually think there will be four cuts this year and the tenure will end below four.
So how are you setting yourself up for twenty twenty five then, given everything that you just kind of sketched out there.
So we have a seven thousand target, but that is contingent on rates dropping and a eighteen percent corporate tax rate. We do think that, at least on a risk adjusted basis, that yield and value stocks will outperform. Particularly a number one call is investment banks. You know, the large caps are Golden Sacks, Morgan Stanley, those are some of the
biggest holdings in our ICAP fund. But we think there's going to be two more legs to the stool this year, an m and a boom because of deregulation on the antitrust side. But also we think there's going to be, particularly in the second half, a ai IPOL boom that we haven't seen yet. So we're forecasting thirty percent above consensus estimates for Golden Socks, for instance. So we're super bowled up on the investment banks.
If you look at what happened since early twenty twenty three, so for all of twenty three and twenty four, I think the S and P five hundred was up by more than fifty percent. Do you have some projection as to what we may see from the S and P and twenty twenty.
Five Absolutely so. We have a seven thousand target, which is roughly sixteen percent return. The normal return is ten percent.
So if we didn't get that, we don't get that corporate tax reduction, so we're you know, we use the terminal to get consensus twenty six earnings because of course, if you have a year end twenty five target used twenty six estimates number is only three h five, So to get to seven thousand, we're adjusting that up, you know, to correct for the fact that corporate taxes are lower. So it's about a three to twenty estimate. So that's
the math. We do think we can hold this multiple that's quite high if we get lower rates and if we get a continued AI boom. So we think three seven thousands of most reasonable target right now.
So if you're thinking there are possibly four rate cuts from the Fed in the year ahead, I'm going to imagine that there are a few screaming buys in the bond market. Am I wrong about that?
Well, we do think that we favor Our biggest fund is PFFA. It's like two thirds of our assets. That's a preferred stock fund. We think the riskier portion of fixed income will do really well because that's where you want to be when rates are dropping or at least stable,
and the stock market's strong. You want to have spread product that typically tightens when the stock market is rallying, so we think that preferred stock and Hi You bonds, which are pretty similar asset classes, will both outperform other asset classes within fixed income.
You were talking a moment ago about the fact that maybe there are opportunities in financials, and I'm wondering about kind of the real estate situation, particularly commercial. We've talked in the past about how the office complex is still in dire straits. Is this an area of concern for you still or are you not in an environment where you expect rates to fall. Do you think some of that risk will be a little bit mitigated by those falling rates.
Well, we've had a non consensus call, which has been correct for twenty four that the office freak out was overdone. Not to say that for B and C offices that's a huge problem, but keep in mind most of the reads that are publicly traded have a buildings similar to all most of the buildings in Midtown Manhattan, like Bloomberg headquarters or we're headquartered. So we've been correct about that
part of it. The reason I didn't highlight that as our number one call is that I do believe that it's now dependent on rates going lower to really good, good returns. So that's probably our most controversial call, is that rates are going to go down, and that's some banks will do fine, other banks might not. If rates are higher, rates won't do that well. Small caps won't do that well. So our call that non tech will at least keep up with the tech sector is dependent on lower rates.
Okay, So declining rates, then I'm thinking immediately weaker dollar, and then I'm looking to markets offshore and particularly those in Asian I'm thinking, okay, valuations that are relatively low compared to the US. If the dollar were a week and I want to be a buyer of risk assets in Asia, do I not?
Well, there's no question that rates and the dollar are linked. So that's why we don't think we can stay where we are at this four to fifty level with a nine percent appreciation, because it's hugely deflation area in the US. It's the inflationary overseas. We still think the US is the best place to be. No one else has the technology that we have. I mean, we're bullish on Broadcom, we're bullish on Amazon, and you really can't find those
companies in the rest of the world. So we wouldn't buy the whole any one market if there's an idea there. We don't cover a lot of international stocks, but if there's an idea there, fine, But I think it's best to be in the US participate in the most capitalist country, one of the most capitalist countries in the world, with definitely the best technology.
Are you generally optimistic about the policies that the incoming Trump administration is going to deliver.
Well, we actually had the polar opposite view of consensus. Specifically, we think that tariffs. We're not a huge fan of arrifts, but if they do happen, they're actually deflationary because it's just a one time increase and then it reduces demand because it's like a sales tax, and you can use those proceeds to cut corporate taxes. So we have the
opposite view of consensus on that. We also believe that if you really listen to what the Trump administration is proposing, they're proposing to deport criminals and there's some discussion of expanding H one B visas, So those two combined would be very deflationary because you get college educated immigrants coming in and producing more GDP. So we think that most of the concerns about the Trump policies are political talking points left over from the election.
Jay will leave it. They are always a pleasure to have a chance to visit with you. All the best for the new year. By the way, Jay Hatfield there, he is the CEO CIO also at Infrastructure Capital Management. Joining us from midtown here in New York City 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