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Welcome to the Bloomberg Daybreak Asia Podcast. I'm Dan Schwartzman. Doug Chrisner is off this week, coming up the latest developments from the Shanghai Cooperation Summit in Tianjin, China. But we begin with the markets. On Tuesday, we'll get the first US trading session of September, which is usually the weakest month for stocks. From more, we hear from Michael Hartnett,
chief investment strategist at b of A Global Research. He spoke at Bloomberg Television hosts Sherry On in April, Honk on the Asia trade.
Really good to have you with us. Should we get started with what to expect out of the US, because, I mean, we are headed towards the reopen after the holidays, but valuations have been pretty high. I mean, is this a concern.
Yes, it is a concern. It's one of the few concerns. However, I think people are very happy that we've seen a turn in tariff's lower, We're seeing a turn in rates lower, we're seeing taxation lower, and of course you've got an incentive now for both the administration to be joined by the Fed in creating good economic conditions in front of the midterms next year.
So I think there's.
Still a fair bit of amentum behind the US market. I think the difference in twenty twenty five is that there are other stories around the world. Japan's one of them, China is another one of them. So it's not just a US exclusive bull story. But I think the story in the US is still fairly intact. But you're very right.
The valuations are the one thing the longer term investors are looking at in the US and seeing can I really get the upside from the US that I could get perhaps out of China or Japan going forward in the next twelve months.
Does that also apply to the currency space as well. We have seen the dollar now lose ground for the last five sessions.
Yeah, Look, the dollars in a bear market and the dollars down ten percent year to date. There are good reasons for that. The bear market will continue. Interest rates are going to come down in the US. You've still got a lot of debt, a lot of deficits, You've got a finance You've got a very radical president pursuing quite radical, unconventional you know, policies. Some are good, some are bad, but foreign investors have a little worry about that,
and I think that that bear market will continue. That's why golds at an all time high. That's why silver's at an all time high. A normal US dollar bull bear market, you know, is down thirty forty percent. Thus far, we're down ten percent and you've still got further to go with a dollar going down. And of course that's one of the reasons why in twenty twenty five international markets have outperformed the US.
You're positive on Japan as well. What in terms of stocks do you like there? What are you perhaps steering clear off?
Well, I think there's interest in Japan.
I mean, I'm here at the Bank of America, you know, Tokyo Conference, the Japan Conference. I think we've got six hundred plus global investors here. I think eighty percent of them are from overseas.
I think the.
Numbers up twenty twenty five percent, you know from last year. Why are they coming to Japan, Well, a, they're looking for an alternative from the USB. You know, the currency is cheap. But I think there are Japanese narratives. One is you know, the content, you know, companies, and other is the defense industry, which is starting to grow because of you know, US isolationism. And of course you've got a banking industry in Japan, which you.
Know suddenly is doing well.
You know.
And even though the Japanese banks are up two hundred, three hundred, four hundred percent from their lows three four years ago, they're still, believe it or not, seventy percent below where they were in the late eighties. And so long as the Bank of Japan is behind the curve, which it is, and so long as the Bank of Japan is going to be forced to raise interest rates,
which it will, those bank stocks will do well. So I think bank's content, defense are probably the three big narratives in the Japanese market right now.
What about ships in techs in Japan?
The tech companies in Japan Again, I think that the tech companies globally will continue to do fairly well. I think the big focus right now, however, is China. You know, I think in China, you know, this is the market, the ballmarket that nobody speaks of, and it's very you know, you arguably what we've learnt, you know, this year in twenty twenty five or global investors have learned this year in twenty twenty five, driven by that deep seek moment that we had earlier on in this year, is that
you cannot be exclusively in US tech. You need to barbel that, particularly with Chinese tech companies. But in addition, I think there are Japanese tech companies that can also benefit from that globalization if you like, of the tech exposure that investors feel that they need right now.
And Michael, China is also a geopolitical story, right, I mean, with a realignment of alliances and partnerships. You know, of course you have a war going on in Ukraine, how big will the defense sector be? I mean, overnight we saw European defense chairs rallying on ideas that potentially we could see really a detailed plan on rearmament right now, just a headline on the Bloomberg right now that South
Korea is also going to gradually raise defense costs. It seems to be a very global story at the moment.
Absolutely, yeah.
I mean, look, I think that for twenty thirty years, I mean, America has really policed the world in exchange, if you like, for savings around the world coming back to America and buying treasuries and financing the deficit. And I think, you know, the Trump administration you know, has
really been you know, fairly honest. I think in saying to the rest of the world, we're no longer going to you know, finance your security, We're no longer going to make you you know, you know, be your defense industry. You have to stand up on your own two feet. And I think we saw that first in Europe, but I think now Asia is the next leg of that defense trade. And as I said earlier, the defense docks
in Japan are doing well. You yourself said that career. China are sort of joining that theme, but it is now a multi year theme. You know, America has debt problems, it has deficit problems. It's said, we can no longer use American tax payer money to defend your countries. You have to defend them yourselves. And that is going to mean that there's going to be greater spending on defense across a greater range of companies, you know, to the benefit of those companies within the local stock markets.
Michael, you alluded to some of this earlier. How when it comes to us exceptionalism, we've seen a bit of it creepedback and starts AI a key play. Maybe you talk about the valuation with there. Bonds have also creped back in, but dollar, I think that's still the missing piece of the puzzle.
And you know, you're.
Still burish in the view even into the end of the year. What are you expecting into next year as well?
Well?
Again, I think the dollars in a bear market.
And again, if the dollar was as exceptional as you know, everyone thought it was a year ago, the dollar wouldn't be going down. You know, the dollar is going down because the US is less exceptional. It's it's got less exceptional outperformance and it's got a less exceptional narrative.
And then again that's partly.
Because the rest of the world has reasons to invest there Europe defense, europe fiscal stimulus, China rebalancing a week in a week dollar, which is great for emerging market.
So twenty five is.
Very different in that suddenly an equity investor has other places to invest in. It's not just exclusively the NASDAG.
And so that's why I think.
That the US has lost a little bit of its luster in terms of the exceptionalism story. Of course, it's still got Ai, it's still got, you know, a business sector, the ones to make money, blah blah blah. But I think the dollar is something that will be sacrificed, if
you like, by the Trump administration. If you want to make America great again, and you want to rebalance the US economy and you want to get manufacturing going in the crucially electorally important states of Pennsylvania, Michigan and Wisconsin, you really don't want a strong dollar. So I think the dollar is in a bear market.
It's just beginning. It will continue.
But as I said, if you look at gold, you look at silver, they're telling you that they're very much in the early stages of that dollar bear market.
Yeah, and all this as part of as you highlighted, their investors looking for alternatives other than the US, such and perhaps in Japan. Michael, really good to get your insights on all this. Michael Hartnet is chief investment strategist at b of A.
Welcome back to the Daybreak Asia podcast. I'm Dan Schwartzman in for Doug Krisner. This morning, Chinese President Shijin Bing is pledging over one and a half billion dollars in grants and loans to member states of the Shanghai Cooperation Organization. Attendees at this year's summit include Russian President Vladimir Putin and Indian President Narendra Modi. Speaking in Tianjin, she called for the creation of a development bank, more joint green
energy projects, and expanded education programs. We got reaction from Henry Wang, founder and president of the Center for China and Globalization. He spoke at Bloomberg's sherry On and April hung on the Asia Trade.
Very good to see you, sir. Let's start off with your key takeaways from the SEO. I think one of the meaningful developments includes grants, investments, loans that China is pledging. How significant is that to you?
Yes, thank you having absolutely you know you see this SEO summit held in Tenjin is really very big significance because it is the largest SEO gathering in more than twenty years. It's probably the one of the highest level that we have twenty over some leaders there and Indian Primise Moody was there. And also this SEO has been well planned and organized and they used to many statement For example, they have a ten year long term strategy has been stipulated. As you said, they're also going to
establish a new SEO bank. But further than that, they're also built up quite a few platform plans. For example, platform on the green industry, on the energy on also digital and also there's a science and technology platform, education platform or vocational platform. On top of that. China also pledged actual dollars and the moneys to this development, so that you have something to start with, you have something to catalyze with all those members, So this is really
you have an anchor to really drive that. Plus you have all those heads of state gather here to really push forward a kind of the more in the multipolar world. There's one strong polo here right here gathering as well. So they actually propose many new thinking as well, that you're going to maintain maltiltalism, stick to you and principle, maintain wto There's.
A lot on there. So I think this is really a very important gap.
Henry, talk to us about this show of unity between the Indian, Chinese Russian presidents. What do you see beyond the symbolism as a way to counter US dominance.
Well, I think they certainly there's a very.
Strong uh you know this, this pleasure demonstrated on what US has been pushing for. For example, you know, UNI Lato is unpacking on back off of the who you know, Climbate agreement and the UNISICO and threatening W two and all those you know.
Unilatter approach.
Certainly, the China being the second largest economy and India soon to be the third largest economy, they really want to show to the world.
And including Russia, that they want to maintain.
UH the eighty years older global system, want to improve in largely hands of this system.
They don't want this to be disrupted. So I think there's a lot of matches sent on that.
You know, they want to actually keep the go go trade and go go business as as as strong as they can, and also SL become a mediating public platform. You see both Prime Mister Moody and Pakistan Mini Prime Minister they're at the same table Armenia as a jam had to say, China and India.
Actually get together.
So I think this shows that of course they want to promote in peace. So SL could be an extra guarante to UH. Maybe bricks countries like China India can help settle the Ukraine Russian War.
How would that differ from all of the other multilateral organizations that we already have in place, like the China late ai i B for example.
Yeah, well ai B is an international organization.
You have a lot of you know, largely developed country like all the European country are there and many Australia, Canada, in New Zealand there, so so there's a lot of a great mix of uh uh bricks countries and the developed countries like India was there as as a vice president. India actually received the largest loan from ai B. But that's purely financial. But like there's also a new development bank that established in Shaghai that focused on the bricks
country development. So this time they have se O Bank developments. So you can see, actually there's more financially economically interchanges with this or the which is which is you know reflect reality.
I mean bricks countries, SEO countries.
Are already growing economic strong bricks country GDP is very larger than G seven now, so I think there is reflect that business.
Geopolitically speaking, though, how sustainable are such partnerships given of course the China has issues with other countries, territorial issues with Southeast Asian countries, to mention. Of course the China India relationship also mare intense a little bit because of the Pakistan relationship as well well.
I think this is going to improve you know, economic comes first and then I see the key takeaway is that also they build up kind of some some kind of cordial and friendly atmosphere at the summit, particularly with India, that both Moody and persons should announced that we're not rivraries, you know, not that US and Europe take China as a rivalry. You know, they are saying, you know, we're not riving. So you know, all those countries are seeking
friendly corporation. So further that then you can see, you know, they could improve relations. And there's quite a few Asian countries and allows is added to the member or part of the member of SEO as well. And this is really a good way to gather cooperative spirit. Particularly this time you see SCO is building it gradually built into a big block of we can corporation. So it's it's really interesting you have a I B, you have our CP,
you have UH you know SCO breaks. So those are really great shift to more UH in addition to security, more economy and business uh. You know, for example, the trade amount of the s steel countries amounts to two pound street billion dollars a year.
That's enormous.
So so I think that that's really interesting to see this kind of a.
Proliferation or you know, striving of the uh uh.
You know economic boom or economic model that be emerging against this. You know that the globally is not functioned so well, so there's a lot of origional uh practice.
Now, Henry juya One, really good to have you with us, founder and president at the Center for China and Globalization.
Thanks for listening to today's episode of the Bloomberg Daybreak Asia Edition podcast. Each weekday, we look at 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