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Welcome to the Daybreak Asia Podcast. I'm Charlie Tella. Doug Prisoner's got the week off. Asian equities are rallying today after President Trump signaled a delay and planned strikes on Iranian energy infrastructure, citing talks with Tehran and boosting hopes for a de escalation in the Middle East. And that's where we begin the conversation with surash Duantia. They had CIO for Asia Equity Strategy at UBS Global Wealth Management, and he spoke to Bloomberg's Heidi Stroud, Watts and Sherry on.
How do you take the latest signals coming from President Trump and Iran and is this positive sentiment that we're seeing in the markets justified at this point.
I think it's quite likely that this week we see a refriend given the markets were oversold, but this might not be the final solution. The situation is still very fluid. It's quite possible that a week later we get an a further escalation because they are asked from both side and it might be very difficult to reach to a final conclusion within a very short period of time. So I think markets could still remain very volatile in the
short term. Our base case is that four to six weeks down the line we should see a resolution of the conflict because it's not in favor of both. But having said that, path to that resolution could be very messy.
In the meantime, of course, we have seen the volatility and gold prices as people are trying to hedge right now. We saw that sort of breakdown when it comes to the safe haven correlation with the US dollar. What do you make of some of these assets and how they're training as safe havens and where would you go to hedge.
It's very common to see this kind of pressure on gold during a liquidation crisis because investors were raising cash in this crisis, and that's why they were selling any asset which had made profit this year. So we saw profit booking in gold, in core, in equities, in Japanese equities. In the short term, we do think gold is still a very good hatch, especially after the ten percent pullback
in the last few weeks. At this kind of level, it makes sense to buy gold because eventually we do think FED will deliver on rate cuts, dollar will be weaker, so gold will bounce back. The other areas investors can look at is a short dated investment grade bonds. Although there's a bit of uncertainty on how the FED is going to proceed on the rate cuts, but at least short dated bonds are not going to be effected and the eils are pretty juicy at current levels.
Would you still recommend keeping some powder dry? When it comes to keeping cash.
It might not be a bad idea to see keep some cash on a sideline. At least investors should hedge a little bit of risk in the equity side, reduce cyclical exposure. That's what we are doing in our client portfolios because you can never be sure and the tail risk is very high. Once this thing gets resolution, then I think we should say a very strong bounce back in the equity market, but meanwhile reduce cyclical exposure, diversify and keep some cash on the sideline.
It's interesting, Sarsh, I see Germany, India, Eurozone facing the highest short term risks. If you take a step out, where do you see, I guess less risk or less or more opportunity with China be one of the markets that you could consider.
You're absolutely right, and this morning actually we downdraad US on equities and Indian equities from attractive to neutral. They are more cyclical and going to be more affected by the high oil prices. Within Asia. I think China secuorities are going to be more resilient because China will keep getting the oil through the state of homus. Inflation is slow and the market has massively underperformed Asian markets over
the last six months. So we don't see further downside in China quity market from current levels unless detailed Lisksnario place out. The other areas to look at in Asia would be investment grade bonds and definitely goldsted a very good hedch at current levels.
When it comes to broader risk sentiment, how much does it help on the margins news that we have European Union Australia trade deal. I know that we're very much distracted with the ongoing Iran war. But if we see a more positive sentiment by allies, by other countries and not revolving everything around the US, could we see some help for markets.
It's quite possible that we do see a bit of really fairly that markets market attention shift from the Iran crisis to the free trade deal, which indicate towards continuation of the global economic growth. But at the front and center, we are still going to be focused more on the Iran crisis because the tail risk is very high. If you don't see a resolution, it's quite likely that we
see substantial pullback in the markets. So at the market it does help, but I think we do need to see a resolution of the crisis in the next four to six weeks.
In the meantime, central banks around the world just struggling to understand what the implications of surgeon oil will be. Here in Japan, we got inflamation numbers that decelerated, but it seems that when it comes to JGB yields, for example, they continue to rise to multi decade highs and the yen continues to weaken. What are the implications for investors when they look at this market and we have already seen an incredible round in the last few years.
Yeah, I think it's quite possible that the GGB yield continue to go higher, especially as the US skills have been going higher in the short term. But on the equity side, we do think that this pullback in the Champanese equity market has been oversold and this is actually
a buying opportunity. In the short term, yes, market could remain volatile, but if you look at the medium term outlook for Japanese equity market, the earnings this year should be up close to high single digit and they are reforms coming from the government on the macro front with fiscal spending and more corporate governance reforms, and that should support higher equity prices. Short so short term more volatile, but eventually I think we should see a recovery in the Champuese equity market.
So rash Tantia, the head CIO for Asia Equity Strategy at UBS Global Wealth Management, speaking to Bloomberg's highly Scround What and Sherry on Welcome back to the Daybreak Asia podcast. I'm Charlie Pellett, Doug Chrisner's got the week off And as we mentioned earlier, President Trump says the US will postpone strikes against Iran's energy infrastructure after productive conversations with
the country. And for more analysis, we heard from rhanda Slim Middle East program lead at the Stimpson Center, and she spoke to Bloomberg's Heidi Stroud, Watts and Sherry.
On President Trump clearly looking for an off ramp who has extended this deadline for negotiations to five days.
The Iranians say, no.
Such negotiations are taking place, and in fact, you know that the tone and the aggression is pretty intense coming from that side. Is this an asymmetric desire to find an end to the war at this point, No.
I think we have entered the bizarre phase of this war, and each side is going to try to get as much as possible ahead of the actual negotiation and trying to improve their position. And that's what the Iranians are doing.
If we look at the contacts that have been established, for example, between the Iranian officials and Pakistani officials or a rumored to be one of the three of countries that are helping with the mediation right now between the two countries, it proves that the Iranians are speaking with a potential mediator now, whether they have agreed on the
terms of a meeting. I think mister Trump maybe has gone overboard, partly to help shape the market ahead of this morning opening, but definitely the two sides are interested and each one is going, especially the Iranian is going to try to improve the pre negotiation conditions. Let's put it this way in their favor.
I think it's easier to see a scenario where the US and Iran can come to the table for some sort of ceisfile compromise. What about Israel, though, because I have a fairly different set of ambitions in this conflict.
I totally agree with you. I mean, Israel remains interested in achieving its objective, which is Iranian regime collapse. The Americans are not interested in this objective. They want somebody who can they can deal with, you know, as mister Trump put it, another Ayatula or another insider from the regime that they can deal with, similar to the Venezuelan model.
But at the same time, Israel cannot wage this war the way it is being waged without the American approval and the American assistance, and especially without mister trump approval, and so I think they are going to be in a bind. At some point they have to accede to mister Trump's demands if he gets to the point where he wants a ceasfire.
Randa, where is the Iranian uprising? The popular uprising that we keep hearing might come, especially at a time when the Iranian security forces have been battered by these us is really strike.
But yes, but when bombs are falling, you know from the skies on your towns, on your cities, it's very hard to go into the streets and and do enterprising. I mean, I lived through a civil war in Lebanon, and I know what people feel when you are in a state of war, and it's going to be very hard later. Now, if the regime survives, it's going to survive. Weakened, it's going to be to survive. Followed out, then you have conditions, political conditions on the ground that could lead
to the regime collapse and change. But under in a war scenario, it's very hard to have a citizen uprising.
How strong is the Ranian regime right now? And I'm not just talking within the country, but also when it comes to its proxy ecosystem.
The proxy has been weakened. But at the same time, we thought that Hasbalala has been weakened a lot. Now we knew that it was. It was weakened, but not out, not defeated. But we did not think, at least I did not think, having studied has Bollah for a long time, that they will be as able as they have shown until now. To be able to mount and attack in response to the Israeli attacks on Lebanon, the hashed in Iraq.
The pm F seems, you know, they are strong, but not too I mean, not as as strong as has Bola and the Hooties have not yet joined the fight. They are being held in reserve in my opinion by the Iranians.
And how are you factoring in you and semestic politics in how this conflict also really evolves from this point because we have seen, as Haidi mentioned, President Trump really wanting an off ramp from here. But where do we go with Washington politics really combining with what these railings want and how this conflict might evolve.
Look, there are two factors that are going to push you know, the administration to seek a ceasfire. One is munitions. They are running law on munitions and their ally is running law on munition. We know that the countries in the Gulf are running law on interceptors. And then the second is basically money. Is the stock market and the impact of not only the stop market but the oil fuel And now we are starting to hear from American farmers who are you know, are paying too much, too
high a price for diesel. They are running short on fertilizers, so you are going to start seeing now the impact of this war manifesting itself domestically in different segments of the American society.
Run the Slim Middle East programmed leader The Stimson Setter speaking to Bloomberg's High These Ground, Watts and shay On, 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