Welcome to the Bloomberg day Break Asia podcast. I'm Doug Krisner. With a FED rate decision looming in the week ahead, we'll take a look at markets and the outlook for rate cuts. Will be joined in a moment by Eric Sterner. He is the CIO at a Pollen Wealth Management. But we begin in South Korea, where President yunsuk jol was impeached over the weekend. For a closer look, I'm joined now by Sam Kim, Bloomberg Eco GUV reporter. Sam joins us from the South Korean capital. Sam, thanks so much
for taking the time to chat with us. Let me begin by just asking a very simple question, who's in charge right now?
The PIME Minister, whose name is Adoksu is in charge. Is officially now the acting president, meaning that while Ian Samiel the President is suspended from power and awaiting a ruling by the Constitutional Court, it's going to be basically ruling the country for now.
But certainly he's not an elected official. The constitution gives.
Him the power to rule on behalf of Yun, but it's unlikely that he will push for policies that would move things very much forward. The state's Court would be something that he would be more interested in.
So as I understand it, Sam, the Constitutional Court has one hundred and eighty days to make its decision. Could it reinstate yun if it decided this impeachment move was invalid?
Well, nothing is garantege for sure.
You know, there's some chance that the court may decide to put him back into office.
I mean, there are six judges right.
Now on the Constitutional Court. It's supposed to be nine people actually, meaning there are three vacant seats and the Parliament has said that they're going to move very quickly to fill those three seats that are vacant right now. But even if the Constitutional Court has just six judges, they can still go with ruling.
The question is, you know, they need.
The all of the six judges to agree with the motion that was passed on the weekend for impeachment, and if they have nine judges, they will need at least six of those judges to agree with the motion. You know, it's hard to tell what they're going to decide on and that's something that everybody's waiting for. But in the
previous case in twenty seventeen, when Parkina was impeached. They did decide, as far as I remember, unanimously to finalize the Ulster par But in a much older case, in I think two thousand and four, the then President Romeoo was actually put back into office by the Constitutional courts. So it's hard to tell right now what's going to happen.
Sam.
Let's assume for the moment that the Constitutional court upholds this impeachment. Could the next president of Korea come from the opposition.
That's what media polls suggests for now.
Izmeng, who is the head of the main opposition Democratic Party and who is the very person who led all this campaign for impeachment of Yun, is the person that is gathering I mean at least thirty percent or forty percent in terms of approval ratings that have been conducted after the marshal law command was issued by by President Yu Zamiel. And the closest person that would be a challenge to him in terms of the media polls is a person named Handomun, who is the party leader of the ruling party.
Is last time I checked when media.
Poll put him at seven percent, So I mean there's a huge difference in terms of approval.
So you could I.
Mean safely argue that he would be the next person to lead self care if there's an election.
Help what do we know about the volatility that there has been in markets in the wake of first Yun's moved to kind of declare martial law that seemed to really rattle investor confidence pretty pretty dramatically. And since that time, I think it was over the weekend that the Bank of Korea actually stepped in to try to offer some reassurance.
Oh yeah, everything was quite dramatic in the hours right after the Marshall command was issued, Within two hours of it happening, the Bank of Korea governor and the finance minister and some other top policymakers with financial policy gathered very quickly to announce that they would unleash what they called unlimited liquidity if necessary, meaning that they're going to do everything in their power to make sure the markets
are going to maintain some stability. Despite that, what happened was the one just weakened to a level that was like the worst since the global financial prices against the dollar and the stock markets basically lost tens of billions of dollars in terms of value in the days following the marshal low command. So it was pretty pretty chaotic and you know, confusing for many of the investors in South Korea.
You know. Ever since then, you know, I think there's been some.
Sense within the markets thinking that I mean, it might be.
A little too more, a little too volatile. They may have gone a little too far.
And you know, after the impachment motion was passed on the weekend, I think already this morning we're seeing the stock markets climbing back up a.
Little bit and the one getting.
Some more stability, even though it remains elevated. So I think, you know, what could happen going forward, barring further you know, unexpected events, there could be some more stability coming, you know in the way, yeah.
Saying before I let you go, can you offer me a little bit of insight into what the future may be for you? Can he face criminal charges?
Now?
There are investigation officials, including police and prosecutors who are trying to summon Une so that they can question Une about what really happened, what led him to declare that martial law in the middle of a night, And they want to make sure.
That, you know, they're going to get all the details before they can actually understand what happens.
And you know, if the charged by the opposition that he committed treason is something valid, that's a very serious charge, so much so that in the constitution, even though a president in South Krek is exempted from all kinds of criminal prosecution, if the horizon has committed treason or some kind of activity that would threaten national security, that is not something that the president is going to be exempted from.
And that's the ground these prosecutors are pursuing the charges against him on that they that makes them feel that they can actually go ahead with the investigation and try to basically question him in person. So that'll be something that will hound hum and going forward even as the Constitutional Court, you know, makes its ruling and deliberate on the valid video of the emotion.
Sam, thank you so much for joining us and helping us understand the developments over the weekend in South Korea where lawmakers voted to impeach President Yunsukiol Bloomberg Sam Kim joining us on the Daybreak Asia podcast. Welcome back to the Bloomberg Debreak Asia Podcast. I'm Doug Chrisner. The FED Policy Meeting will be top of mind for investors here in the US in the week ahead. Maybe it's fair to say even investors globally joining us now for a
closer look is Eric Stirner. He is the chief investment officer at Apollen Wealth Management. Eric, thanks for taking time to chat with us. I think it's fair to say that the market right now is basically expecting a quarter point rate cut. The bigger question may be where does the FED go from here? Is inflation proving a little too stubborn? Do you think for the FED to be kind of comfortable with what they laid out in terms of the plan trajectory for rate cuts at the last meeting.
Yeah, well, thanks for having me, and I agree with you.
I think it's almost as shirt that we're going to get another twenty five basis point cut on Wednesday. And the dot plot, I think that's where everyone's interested in because the last dot plot in September they're projecting for one hundred basis points and cuts in twenty twenty five, and it's almost certainly going to be that's going to be reduced. I'm guessing it's going to be seventy five basis points because, like you said, the road to get
inflation downs to their target rate of two percent. It's going to be mumpy, and it's proven to be bumpy. I mean, just the last CPI report, we saw used car sales go up, and I think that that's not surprised given the hurricanes and people, you know, the buying cars after the destruction of the hurricanes, and even some of the food prices. But I think, you know, we are on track. We are you know, the major source of the inflationary pressures from the labor market and imbalanced there.
That's gone away because now we have better balance with the labor markets and we're seeing great productivity two point two percent in the third quarter. It's just going to take some time, and I think, as pal has hinted to us over the last few weeks, because the economy is doing so well, they don't need to be in a rush to cut so fast. So we're going to see one cut removed from the projected table in twenty twenty five.
So at the end of the week, we're going to get the Fed's preferred measure of underlying inflation, the PCE. The data also probably will show very solid consumer spending and income growth as well. When you look at the American consumer, what do you come away with.
It's a tailed two cities right there. Because you have the higher end consumer who's doing very well. The US consumer net worth is up almost fifty percent since twenty nineteen thanks to a few things with the wage growth, the stock market, stock market twenty plus returns for the
past two years, and real estate. But on the other hand, and you have the lower rank consumer who is hurt from the cost of living has obviously increased substantially, it depends where you're looking, but up to twenty thirty percent, and while inflation is cooling down, the cost of living
is going to remain high. So I think overall, at the aggregate level, I think US consumer spending, retail sales remains very healthy, but the lower end consumers is certainly struggling with this higher cost of living.
No doubt about that. We're going to get a data point on retail sales also this week for the month of November. It may be a little tricky for the FED to try to anticipate the impact of what we're hearing from the incoming Trump administration in terms of economic policy. Tax cuts obviously a part of that story, but tariffs will likely be a part of that story as well.
Is this something that you're expecting or is your notion that the Trump administration is basically going to use tariffs as a negotiating strategy to try to work out some new trade deals and they probably will not take effect in the way that maybe the market had been fearing. Is that a fair statement.
I think that's a very fair statement.
I think you know, Trump has thrown some very big tariff numbers out there, whether he was talking about the Russia and China and other emerging market countries potentially looking to create new currency and his threat to put one hundred percent tariffs on those countries or twenty five percent on Canada and Mexico with the help on illegal immigration.
So I think those are just negotiating tactics.
I mean, back when Trump was in office, the highest the Chinese tariffs were, We're at twenty five percent. And Trump knows he back in his first term, as we all recall, he began so many of his speeches with, hey.
How's your four oh one k doing? Because he was taking credit.
For the when the stock market was going up to and he considers a big part of his scorecard. So I won't see Trump or this administration do anything to turn this bull market into a bear market. So that's why I just I don't think. I think the term that I've heard repeatedly is everyone we should take Trump seriously, but not literally. And you know, if he were to re ignite inflation with some of these large tariffs, that's just going to increase the.
Cost of thing that much more.
And I could turn this unified government into a divided government come mid terms two years from now. So I think all those fears from investors with these numbers should just remember that Trump likes make bold statements, but we should wait and see which of those statements result in policy change.
So, in terms of an investment strategy, what is it leading you to do right now? In terms of putting fresh money to work in markets?
Well, I remain optimistic on the US commy very optimistic, and I think.
Small caps have a lot of runaway to run here.
Their valuations are much more attractive, and large caps a lot of tailwinds there with the feed cutting rates, I mean that asset class has been held back because it's very interest rate sensitive. So the feed cutting rates, even though it'll be a bit more slow.
It certainly helped those companies.
And if we do, we know that almost certainly there will be some tariffs, and I'm sure there will be some China or you're potentially putting some tariffs on US goods. So if those trade war does initiate, and I think we all know that are all betting that will happen, it's just to what degree. I mean, US small caps the ninety percent of their revenue is from domestic, while large caps it's sixty percent it's domestic and forty percent international. So small caps are going to be more insulated from
this trade war. So that's why I think there's there's a lot of potential appreciation there.
And the other good news on.
The small cap front is that their earnings are have been in a recession for many quarters now, but they're expected to produce positive earnings in this quarter to the fourth quarter as well as twenty twenty five, and in fact, their profit growth rate is expected to outpace large caps in the second half of next year, so well still have exposure on the large cap side. I think there should be some rotation to some of these other sectors
besides the magnificent seven. I think investors should really put some more focus in the small caps as well, because we could see some stronger turns out of that asset class.
Well, I'm glad you mentioned the mag seven. I've got a question for you when it comes to megacap tech. Was looking at a piece in the Financial Times and investment fund run by Blue Whale Capital has, according to the Ft, reduced at stakes in a number of major tech firms. The Ft kind of indicating that there's concern now about the cost of artificial intelligence. What do you make of the AI trade right now?
I think it still has room to run. Think you know that that we we are seeing that market rotation right now. But if we're going to see these geopolitical tentions increase or any threats to the economy, we saw it for the past two years, Investors flock to those Magnificent seven companies because the are very high in quality, they have really strong balance each of course really strong earnings.
So I think that there's always should be a room in.
Investors' portfolios for the magnifics at seven. And I know there's you know, questions as far as when AI investments are going to pay off and how companies are going to uh monetize it. But we're seeing those productivity gains like I mentioned in the third quarter GDP GDP report,
I think we're going to see some more. So I think that it's still in the early endings of this AI revolution, and in my minds, yeah, you should investors should put more This is in other areas in the market because we're going to see the earnings broadened out. But I think there's still some plenty of good returns that come on the technology sector in twenty twenty five and beyond.
Eric, thank you so much for making time to chat with us. Eric Stirner is the chief investment officer at Apollen 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 Chrisner, and this is Bloomberg