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Welcome to the Bloomberg Daybreak Asia podcast. I'm Doug Krisner. We had about of euphoria gripping the US equity market in the last session. That came after President Trump paused new reciprocal tariffs for dozens of trading partners for ninety days.
Now.
These reciprocal duties from most nations will be taxed at a baseline rate of ten percent, with the exception of China. Trump did raise duties on Chinese goods all the way to one hundred and twenty five percent. In a moment, we'll be speaking with Rebecca Walzer. She is president of wallser Wealth Management. But we begin in Hong Kong. Joining me now is Chi Lo, senior market strategist at BNP Parabah Asset Management. Chi is on the line from Hong Kong.
It's always a pleasure. Thank you for making time. Can I begin by getting your reaction to the price action that we have seen in the last twelve hours or so?
By summary is in one word for volatility, which is what we've been seeing for quite some weeks now. The reaction last night, of course, is obviously due to President Trump's pausing of the RECIPI reciprocal tariffs on almost all other countries except China.
That's understandable.
Uh.
The other reason for the big reaction last night was because of the cell of you a week ago, which to some extent was an overreaction, and now this is another overreaction, but to the upside. So on a net basis, we are still seeing the US stocks over all, the indices are down a little bit compared with a week ago. Going forward, nobody knows how long this rebound could last because mister Trump said the pause is about three months,
but you never know what he will say tomorrow next week. Also, so volcidity is due the key thing, and risk management is keything could do in terms of investment.
So it would seem as though the fifty six nations plus the European Union that are going to be kind of facing these baseline tariffs of ten percent, they are in the process of negotiating. China is not negotiating right now. And perhaps it was the view of the Trump administration that because China retaliated that the new tariff of one hundred and twenty five percent was put in place. Do you think this is a dangerous exercise. Are we looking
at a full blown trade war? Forget the other trading partners for a moment, let's just talk about Washington Mai Jing. Are we dealing with the possibility that we're going to see a long protracted trade war between the US and China.
Well, that possibility actually is always there, and this time when we see China's very stern reaction to the reciprocal tarrier's buyings from is another evidence that the two nations will continue to compete in the long term, long term meaning the next ten years, fifteen years, twenty years, in the form of trade wars, tag wars, and all these things. It is a dangerous game, a dangerous chickens game. As far as this game is concerned, this time is concerned,
I think it depends on who flinches first. On the US side, they think that China will extinct significant losses and economic pains and they will blink first. But from the Chinese side, they think similarly that the US would be heard at least as much as China, if not more so. In a trade war situation like this, nobody wins, and it really depends on who gets hurt more. Now,
when you look at the tray numbers. Of course, it seems that China would be hurt more because China exports much more to the than US exports to China, which means that the tarriest impact negative times impact on Chinese exports will be much big than the Chinese tarioft impact on US exports. But that's only half the equation. The other half of the equation is about foreign investment in
each other's country. The foreign direct investment in China is significantly more than the Chinese foreign direct investment in the US, which means that Beijing can hit the American companies operating in China with significantly more negative impact than the US could hit Chinese companies or Chinese investment in the US. So when you put that into the equation, it really it is going to be very messy that we could see both sides mm c's Chinese SI USI TRADESI or get heart.
So I'm wondering about the response that Beijing may have domestically right now. Put stimulus aside for the moment. We can talk about that in a sec but I'm getting indications that Beijing has launched a coordinated government effort to support the stock market. That's one thing that can happen in a near term here. The other is that the currency can be allowed to weaken a little bit more so could those two options provide a little bit of support at least in the near term.
The two options through currency depreciation.
And also stock market support, will provide some short term support to the Chinese stock market. The policy signal is more important that China is sending the world a policy signal that yeah, you may like.
You may argue that the.
Chinese goes in with the national team buying up Chinese stocks and supporting the market.
But the point here is.
That among all these volcidity and geopolitical tensions, the Chinese are telling the world that they have its mechanism.
To protect investors investments. So I think that that's important for those people who.
Are assessing volatility risk in markets like China that will get government support and in markets like the others who will.
Not get government support. But these are only short term measures.
A longer term, we still need to see aggressive and assertive Chinese easing to push the message sector to fight the tariff war.
What about more stimulus chie how much more can Beijing afford to unleash at this moment before it becomes problematic, before we talk about an even larger debt bubble in China.
At this point, I.
Think the risk freshold probably is another two position points of GDP on the downside, which means that if the tariff impact shaves of between two and three percentage points of GDP in China, Beijing will have to increase fiscal stimulus by a similar amount a similar amount to offset that impact.
And I believe China.
Still has the room to do it because government borrowing is still reasonably level and the reception to Chinese boring internationally and locally in China are.
Still very high. So, assuming there is no disaster.
Earthquake hitting the Chinese economy, I think the tariff impact it's going to be painful, but it's still manageable at.
This point by the Chinese with more aggressive fiscal stabilism.
Gee, we've talked about the macro. I'm interested now in a practical investment strategy, and I'm curious as to whether that would include what has been up until this point a bright spot for the Chinese equity market, which is high technology. What is going to work in the next six to nine, let's say even twelve months right now, if I had to put money to work in China.
For the sick, next six months probably is too early to really go or eat into China beyond six months, assuming the tariff does get settled one way or the other. UH, the Chinese tax sector, Chinese stocks actually are reasonably positioned to recover assuming that Beijing comes up with more aggressive easing.
That's the key point.
If we don't see aggressive easing by Beijing, then you can forget about Chinese assets for a while longer. But if we do see that, which I think there's a reasonable chance that Mayjing will be more aggressive in easing beyond six months. Once when the does steffled, we could see we we could see a reasonable recovery in Chinese asset prices and also UH the economy for the simple fact that exports, or net exports to be more precise, it's not a key driver.
For Chinese growth and earnings growth.
You know, there's going to be pains with net expots down, but they are not the key driver for Chinese growth. Scenes GFC more than ten years ago, the domestic sector is the primary drive growth for growth, so that's why it's so important that Beijing will have to push the domestic sector with more aggressive easing in order to turn things around.
Gee, what about the high tech sector. We've seen the enthusiasm post Deep Seek. I'm wondering whether or not that still has legs. What do you think it has legs?
But it's in the longer term.
A short term forget about it, because the near term factors are still the macro volatility, political risk, tariff war and so on. But beyond this short term, you know, as I said that it doesn't settle. The Chinese tech sector, especially companies and industries that serve domestic markead still has a positive future because it is a national policy that China has to develop itself into a high tech economy to compete in the US. And this is not a
short term policy. This is a long term policy direction. So domestic oriented tech companies, industries, sectors are going to be positive in the long term, while those rely more on the on the external market for revenues and stuff will not be as positive as the domestic oriented companies.
She will leave it there. Thank you so much for joining us. It's always a pleasure to chat with you Chi Lo, their senior market strategist at BNP PAABO Asset Management, on the line from Hong Kong. Here on the Daybreak Asia podcast. Welcome back to the Debreak Asia Podcast. I'm
Doug Chrisner. So President Trump ignited an explosive rally in the equity market today when he paused new reciprocal tariffs for dozens of trading partners for ninety days, and we saw the biggest burst of buying for US stocks since two thousand and eight. The S and P five hundred surge ninety and to a half percent, while the next DAK composit rallied more than twelve percent today. Joining me now for a closer look is Rebecca Waalzer. She is
the president of wallser Wealth Management. She is on the line from Tampa, Florida. Rebecca, it's always a pleasure to visit with you. What did you make of today's price section?
Wow?
What can I say, Doug? I mean, this is a day for the record books. You know, we this is this is unprecedented. I mean, you know, we haven't seen the gains on the Dow since, like you know, before dot Com basically now as DAK twenty four year record here that we're talking about. Obviously the S and P had was more affected with the global financial crisis two thousand and eight, but literally it's for the record books, Doug.
And it just shows you that, you know, and an administration can really come in and leverage there might economically and have reverberations geopolitically globally across the world. So it's it's unbelievable.
Wow.
When when you look at the tariff story, we know that President Trump paused those new reciprocal tariffs on a dozen trading hardness for ninety days. That was only thirteen hours after they went into effect. But I'm wondering whether the markets guided him. Was this a little bit of a capitulation on the part of the president?
You know, I think that there's going to be a lot of dissection of exactly that question, Doug. You're hitting the nail on the head there, because the question is does he all along realize that what he's doing is so evasive and we'll have such a deep and important impact to every corner of trade and the globe that he expects it to be met with total, you know,
consternation and immediate like let's fix this. I mean, he did say in the press release on True Social that seventy five countries had called to basically negotiate what they could do to have a more equal in his and his learning I'm summarizing now, but you know, to do negotiate a more balanced tariff arrangement between between trade and you know, to Secretary Treasury Secretary best point to his point is we need ninety days to actually work through
these trade deals, and there's going to be a lot of negotiation that happens over the next ninety days. I think the biggest issue that the market is sort of ignoring and discounting right now is what you said earlier in the open, which is trade war with China is
squarely the peg that is in front of us. Now, what has happened is all of these superfluous noise of all of the other countries has now dissipated and fallen away really exponentially immediately today with this pause, and now we're literally looking at a tit for tat with China directly, and so obviously the policy that he had put in place.
China counter acted and raised their thirty four percent average tariffs across US imports to eighty four percent, which then obviously prompted Trump to respond again and raise again from over one hundred percent tariff to one hundred and twenty five percent. So, Doug, this is a setup, complete setup to one for one have a direct trade war with China.
And although that is a very uncomfortable thing for me to say, it is about time because you know, one thing that I can just say universally that I think most economists would agree on is that China is the number two largest economy in the world, in some cases
larger than America in some certain instances. And from that perspective, they shouldn't have what we call most Favored Nation status at the World Trade Organization as if they were a disadvantaged country, and them having that status, as you know, Doug, allows them to do and to circumvent a lot of protections that other countries like America, industrialized countries have to
live within. So I think that there's at least a fairness conversation that this is going to make happen now, and it's going to alert the players of the world to the unfairness potentially of some of our interactions with China.
So about twenty hours ago, we had a bit of a meltdown in the treasury market and yield spiked, particularly on the ten year. That may have been a catalyst for a bit of rethink on the part of the administration. We don't know exactly, but clearly China holds a trillion dollars worth of US treasuries. This has to be considered as part of the story too, right.
I mean, there is a rumor, and we won't discuss rumors, but there's a there's a title of it and everything. It's Operation Sandman, where we could literally see, you know, a coordinated effort of multiple nations across the globe dumping selling US treasuries simultaneously, which would be a disaster for the US dollar. And so I can't say that I have direct confirmation, but I think that it's very obvious dead that there is no doubt that the pressure on
the ten year is absolutely problematic. It was problematic for the auctions that are happening this week. And I also will recognize that we have nine trillion dollars of US federal debt that has to be refinanced in twenty twenty five. Of the thirty six trillion that we have, and we can't afford to finance that, you know, in the four
percent range. We just can't because you know, that's debt that was written, you know, from the two thousand and eight to the twenty twenty two timeframe, when our cost you know, our FED funds rate was twenty five basis points, Doug. So we just are in a much different place and that debt has to be refinanced, and of course we need our auctions to continue to be seen throughout the world as stable and ongoing.
So the President raised duties today on Chinese goods all the way to one hundred and twenty five percent, and he did say later in the day that he can't imagine increasing them further. But he did say that sectoral tariffs are still coming and pharmaceutical companies will be facing tariffs as well. So the dust, i think we can agree,
has not completely settled. So when you look at the potential here for more volatility in the equity market, would you expect there to be maybe not the level that we saw over the last three trading days, but a lot more volatility.
Nonetheless, absolutely, Doug, and I think that is the best message that if anyone walks away from this conversation and has one takeaway. It has to be that this has just begun, and I don't think that, you know, one of the best trading days that we've had to the upside today should give anybody super confident footing because the ground is still moving beneath us. And it is uncomfortable when the ground is shifting and you don't feel like
you have your footing. But that is what this president basically ran on, changing the global dynamic with the world on the economic side, and he is determined to do that. And if you have read the Art of the Deal, you know that he leverages the power that he has to negotiate the absolute best deal, and some of his negotiations sometime is very uncomfortable. So he's doing this on a very public scale that we have to live through through our four to one k's in our iras, which
makes it very uncomfortable for a lot of people. But the point of Trump and the Art of the Deal is to be the last one standing with the negotiation. So the pharmaceutical industry being as as it's become, and even China into China doug Interestingly enough, if you look at the percentage. Somewhere eighty plus percent of our pharmaceutical ingredients come from China directly, and that is a huge problem if you look at like the global pandemic of
twenty twenty coronavirus. If we have another thing like that and we're in some kind of trade war with China and they decide to just cut off our ingredients, we could literally have a situation where we can't even take care of our health and our own country autonomously. So I don't think that the pharmaceuticals being so intertwined into
China is not it's not a coincidence. It's tied together to his almost to me, and I'm not suggesting that he's anti China or he's against China, but I do see that he is very His policies are antagonistic because he thinks that China is so unfair, and we know their ip stealing is unfair, we know they're doing a lot of unfair trade practices. But he's really directly head on with the fact that we are so beholden to them as a country. We are not autonomous in a lot of ways.
So after the tweak to tariff policy today, Goldman Sachs, the economist at the firm, withdrew their forecast for a US recession. Although if you listen to what some corporate leaders are saying, whether they're at Delta Airlines or Walmart, they're warning of a wave of pessimism. Are you confident that we can avoid recession here?
No, not at all, doug As you know, I've been more on the bearish side for a while, and the reason is it's a metro macroeconomic reason. The reason is we simply globally printed way too much Fiat currency after coronavirus, after twenty twenty, between the years of twenty twenty to twenty twenty three, the world has to absorb that currency.
It's certainly inflated pockets. We can in America export a lot of our ination because we are the world's reserve currency, but we still felt it and we still do feel it, and there is the market has been priced i would say the last at least twenty thirty months. I'll say the last thirty months, we've been almost priced for perfection, so that anything that went wrong is going to cause
a problem. If the job markets comes in during the Biden administration, it looks like the FED might ease rates again after raising rates, then the market's positive with bad jobs number because the Fed's going to intervene. So we've had a lot of monetary policy, modern monetary theory, print print, print, print, and that has got to be dealt with. And the fact that we are refinancing and we are dealing with the trade war with China. This is going to be disruptive.
And we already had weak global demand and global growth forecast for twenty twenty five, a separate apart from all of this teriff situation. So the weakness of the growth of the twenty twenty five year for the globe was
already felt it felt in the United States. So with the trade war continuing and not being fully resolved and for us to have to go through something before it gets resolved, I do think that a recession is very much in the cards because there's just not a lot of positive to bring us away from problems.
I'm so glad you brought up the FED because we had the minutes of the last FED meeting release today and they seem to challenge this notion of aggressive easing. They clearly show that officials view the risk to inflation is being tilted to the upside, and at the same time, the risk to employment tilted to the downside. Last question, to kind of put a bow on everything we're talking about, where does this leave the FED.
It's really difficult because pow Is really wants to be independent, and Trump is already obviously publicly calling for him to, you know, lower rates because obviously the terror policy, you know, you know his I believe I'm speaking and I'm summarizing what my opinion is for Trump. I believe that he is going to try to offset any kind of tariff
impact two ways. One, he wants the FED to lower rate so that the cost of capital is less so that the credit card debt is lower and you feel like you're paying less for your car and your credit card. He also wants to make energy more abundant, so that the cost of energy goes down, so that it feels like it's cheaper at the gas station and we can all go on our summer holidays. So I feel like he's attacking these things two waste, but he absolutely does need the FED to be accommodative. And I'm of a
different mindset than that. I think that modern monetary theory and US printing printing, printing the printing press of the FED will only cause us more problems at this stage. Jug And it's really a matter of the fact that we are accumulating debt now too fast. Every one hundred days is another trillion dollars.
Rebecca, thank you so much for taking the time to chat with us. Rebecca Wallser there, she is president at Wallser Wealth Management. On the line from Tampa, Florida. 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 again tomorrow for insight on the market moves from Hong Kong to Singapore and Australia. I'm Doug Prisoner and this is Bloomberg