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Welcome to the Daybreak Asia podcast. I'm Doug Chrisner. So the story on US tariffs has, as we know, dominated much of the conversation in markets. Statements from the Trump administration recently have been at times contradictory, especially in the run up to the new trade deal deadline of August. First, in a moment, we'll go to Hong Kong and get the perspective of Nadia Grant from BNP Pariba Asset Management. On Thursday, we heard from Jamie Diamond, the CEO of
JP Morgan Chase. He was speaking in Dublin where he warned of complacency on tariffs. He also said it's important that an agreement is reached between the European Union and the US for a closer look now at how tariffs are impacting market psychology. I'm joined by Keith Buchanan. He is senior portfolio manager at Global Investments. Keith joining today from Chicago, Illinois. Keith, thank you so much for making
time to chat with me on this tariff story. What is your sense of where we stand right now?
Well, thanks Degan, it's a good thing to chat with you.
Again, we've looked at the tariff story as having the potential to inject new, almost reinvigorated inflation to the economy. Now it depends on the whole picks of the toll.
Is.
We look at tariffs as like a.
Traffic toll and someone has to pay it or pass along, whether it's the importer, the US corporation, or the end consumer, whether it's corporation or individual. So we've looked at this as you know, still a developing story, not one that's in the review myriad as corporations have as you mentioned in the in the break before that, there have been some corporations that made adjustments in order to make sure
that they didn't have a full implementation of tariffs. Had to run through price increases that perhaps their consumers couldn't take, so they built up inventories and there are things that might affect the cash flow but didn't affect earnings so directly. So we're investigating how that really plays out, and it's really critical this earning season.
I'm wondering how it's going to affect the Fed's thinking as well. Right now, if you look at futures pricing, the markets expecting two rate cuts before the end of the year. Do you think that's maybe a little too optimistic, But the.
Minutes last week kind of painted a story of anticipation that kind of aligns with what we're thinking internally with the corporations really making sure that you know, the way that the tariffs have been implemented won't really throw them off from an annual earning.
Standpoint, And I think that's what.
Those of the Fed have also taken notice of, is it will take some time to really see the real effects that can either outweigh or justify temporary even call it, if you will, transitory change. The corporations are made in order to elude the most negative impacts of tariff.
So I think there's a wait and.
See approach that we are waiting for corporations to see what they have done how that impacts earnings, but also the Federal Reserve and those decision makers on monetary policy are also waiting to see who has those effects that we can't get around and when does that really hit the road as far as the data perspective, And we just haven't seen it just yet, but that doesn't mean we won't see it over the next couple of months.
How difficult is it to try to assess which companies are best insulated from this tariff threat right now? Or is that simply impossible because in some way all companies are exposed.
We feel like all companies are exposed to a degree, and then that degree varies by the industry and by the approach to the latest from the administration. It's definitely too early to tell from an aggregate standpoint. We don't feel like there's a determination to be made just yet, and we'd like to wait and see them make sure that we're not premature and making a call, whether it's positible or negative on just what the lasting impact is of the most recent trade policy changes.
We just don't think we're there yet.
And frankly, this earning season could be, you know, the very first they have a full what corporations can really speak freely about it, but still could possibly be you know, several quarters a come before we really have a good grasp of what the impact is from the trade policy changes.
The unofficial start to the season begins next week. We'll hear from the big banks today a pretty upbeat forecast from Delta Airlines that stock popped about twelve percent so if we can go back to kind of expectations for not only earnings, but what we may hear in terms of forecast from some of these companies, do you have a sense of.
That, And look, Delta Airlines is a microcosm of exactly what we've been studying internally. Delta pulled their pull their earnings guidance earlier in the year from an annual standpoint, and they re implemented this quarter today when they had better color around the puts and takes as to what at this point, as much as they can graft the impact could be. So they were much less certain a quarter ago. Now they're more.
Certain that we can have more clarity is what their earnings.
And cash flow for cast could be, and we can, and we as onlookers and investors can have more confidence and some of the estimates that we've put.
Around some corporations.
So we feel like Delta really set the tone for us to really have more confidence in this earning season going in a way that it's not just a old pulling guidance.
We're not adjusting guidance. We don't know what the next.
Step could be, and a little more clarity to help us understand what this earnings growth this quarter could be, and also we understand and appreciate just how impactful that could be for evaluation of the SB five hundred going forward. So we feel like that this quarter is very critical in understanding the next steps market.
As I'm speaking to you, I'm watching Bitcoin set a record high. We're trading around one hundred and sixteen thousand at the moment. Given everything that's going on in other markets right now, do you have to have a little exposure to the crypto space, and maybe it's through bitcoins.
We don't.
We don't have any in our in our in our strategies right now. We don't necessarily look at it as the ass as a as a real detractor. We feel like it's definitely a beta plus type of measure. We'd rather get that exposure through equities, frankly, and changing our exposed equities and even gaining more leverage if possible. But right now we just don't have that exposure. But we don't.
We don't feel like that. It's it's something that we is, something that we actually discussed on a very active basis, is not yet.
You know, right after the election, a lot of the conversation focused on merger and acquisition activity and deregulation. We haven't seen much in the way of deal flow and M and A activity. How are you feeling about that possibility moving forward, perhaps after the tariff story fades into the background.
From a deregulatory standpoint, the initial thought was after deregulation and some anti trust concerns were abated, then you'd see
this influx and flurry of eminet. We feel like the main driver and the data supports this is more brilliant economic exportations and we just haven't had that because the traff conversation has been in a way so as that starts to not necessarily that the terrorfs go away, but is there more certainty and clarity around the direction and the drivers of the psychology of our trade positive changes,
specifically when it comes to TERRAFK. We feel like some of that imminate can unlocked because the anti trust levers are have been loosen some and so we appreciate that part of it, but we just still have to have some economic clarity in order for those conversations to really gain momentum and we get paying the pad on though, so we feel like economic inspectation to wait more. Even we're selling this environment than some of the anti trust
concerns being alleviated. You have to have optimism about economic developments over the next five, ten, fifteen years, and that picture's just been very, very unclear. And as that clarity comes to the marketplace, we feel like em and they could pick up in a substantial way.
So away from the US keith, I'm wondering whether you're forced to find opportunity offshore right now. Maybe it's in Europe. How are you thinking about foreign markets?
We've we've we've had a underway when it comes in the national compared to domestic here for some time.
Now.
That's that's a that's a marketplace that we've paid more attention to it. It's a little more exciting and more you know, our ears are perking up a little more, but not necessarily where we feel like we change that position that we're in as far as going from underweight to overweight, we feel like you have. Politically, there's still
a lot of concerns in the world. You know, we can go down the list and it's you know, very well known issues that kind of take some of the headlines here in the past several months, we don't really feel like that changes, and the prospects here in the US we feel like, even with our monetary fiscal concerns, still a little more exciting than what we see in nationally. So we're comf fable in the position we've been in. And that's that goes from Margie and the Bella markets as well.
Keith will leave it there, Thank you so very much. He is Keith Buchanan, Senior portfolio manager at Globalt Investments, joining from Chicago here on the Daybreak Asia podcast. Welcome back to the Daybreak Asia Podcast. I'm Doug Chrisner. I think we can agree the major challenge for markets right now is determining the effect of those US tariffs. For a closer look now, I am joined by Nadia Grant.
She is head of Global Equity at Bnpperabat Asset Management, and Nadia is joining from our studios in Hong Kong. Thank you so much for making time to chat with me.
I know the.
Tariff story is a still evolving one right now, although I think we may be able to say there are several highly probable scenarios. Let me begin with the growth outlook. How are you feeling about growth going forward.
Yeah, it's a pleasure to be with you. The growth outlook is definitely uncertain and most definitely as well, most likely on a downward trajectory. And so when we think about the tariff and how the market is looking at them, it seems that the market is now completely pricing an outcome whereby their view as a negotiating tool, and that
they will be evolving. And when we listen to what has been said more recently by the administration, and I'm thinking about a Treasury Secretary as cop essant when he was actually talking about using tariff as a source of revenues and to finance that the tax cuts and the provisions from the big beautiful Bill. And so there may be a bit of complacency in the part of the market when it comes to tariff because of that ever changing nature of it.
When it comes to the impact of tariff's I'm curious as to how you see the economic risk distributed across Asia. So many of those countries we know are exporters, and obviously they have exposure, but I'm wondering about jurisdictions that may have a slight advantage.
So I'm a Stockpiaker. So I look at companies and sectors and so and obviously at countries as well, and so I would say, you know that we initially when we heard about the potential of tariff, those that had big exposure to US exports were obviously the most at risk. And so I'm thinking the like Vietnam, for example, But Vietnam has been really quick to get to negotiate, and actually what the end did up negotiating is a pretty
positive outcome versus what was feared. And so the knee jerk reaction of the market was really to sell this market first. And now we're seeing really that we've passed that big overhang and you can start investing and looking at companies again. So you have a big of a big relief rally there, and then you have obviously others where you still have a very uncertain outcome because we
just don't know where the tariff will land. Definitely, we know that the auto sector has been very penalized for Japan,
it's been quite impactful. So although we like some of our exposure in Japan, we prefer exposure in Japan to the financials, to the banks that are exposed to more of the CPI strands and the wage growth and the fact that the rates are well underpend and so benefit from that outlook as opposed to the exporters on the auto side that are really feeling the blunt of the pressure on the tariff.
So you're normally based in London, I understand you or in China recently, and I'm very curious about your observations there and whether or not you're finding opportunity in China right now.
We are absolutely so. We were really excited by China Tech after Deep Sick. We thought that there was a big realization that actually really China was closing in on the AI race and find opportunities there earlier on the year. But we also really like the fact that on the consumer side on there's not The service sector and particularly the financial service sector has got so much greenfield that's got so much room to grow, and so we have
exposure to a life insurance company there. And what has really captured our attention this week in particular has been the talks on supply side reform, the talks of anti involution, because that's been one of the area where we were did in terms of sectors where we've been sort of
more shy and haven't really wanted to get exposure. Have been those where we've seen obviously oversupply, fierce competition, because that is very negative for margins for returns, and so if the government is really a key to tackle the issue and to instill more supply discipline, we think that would be a really strong catalyst for Chinese equity, in particular in the sector of ev so on the auto surrey, on the battery, on the solar side, where you've seen that fierce competition.
But you're not concerned about the overcapacity issue, or you're not concerned at all when you look at the wholesale level of deflation in China, these are not concerns that you have.
Oh absolutely. That's why at the moment we're on the sideline. We want to see whether these measures will come to fruition. But historically, when you've seen more supply discipline, when you've seen closure of capacity that has been that's very market positive. So we're really keen to see whether these measures are going to come through, whether you will see supply side reform to tackle these issues.
Do you feel confident in Beijing's ability to strike some sort of deal with Washington so that the pressure that this trade war represents will be alleviated.
I think we've already seen a big degree of de escalation because if you recall earlier on a year we had really outlandish tariff levels that were completely punitive and prohibitive. We were in one hundred percent range if memory serves me well, So you've already had a great degree of de escalation. I think in the case of China, I think that they can really tackle the tariff in many ways.
So there's the negotiation route, absolutely, but there's also been a high degree of trying to offset some of the impact of the tariff by stimulating the economy so to really try to compensate. And then there's also the opportunity.
What we've observed the first time we had tariff back in twenty eighteen is a degree as well of re routing and recycling, and so really seeing some of the exports that were meant for the US market perhaps being rerouted such that it would not go directly to the US but find its way there eventually, and recycling meaning that some of the exports that were initially meant for the US actually finding their way elsewhere, and I'm thinking in Europe or elsewhere in the world, and so there's
many ways in which we've seen companies being agile and adapting to the circumstances. But to go back to your first question of growth, obviously this is a gross reduction. This is a handicap that we're putting on global trade and on global growth.
So, Nadia, when you are on the mainland and you were engaged in conversation around technology, particularly the focus on AI, I'm curious as to whether or not people really feel that the US has a potential, through these export controls and the limits that have already been put into effect when it comes to certain aspects of the technology, whether that still has the ability to hold back further growth in the tech sector in China, or is there a
growing sense of confidence that China, through its own means, has the ability to kind of compensate and maybe work this out on its own.
Yeah.
I think it's very interesting because I've been really amazed by the agility really of China tech in terms of that ability to adapt and find efficiencies in the face of challenge, in the face of restriction. And so when you listen to some of the big tech CEO in the US, they would tell you that they actually think that China is really catching up and he is really able to manage with those constraints. So yeah, I would
think so. And in the case of on the US side, I mean, you know, the CEO of the largest chip company or the largest company has really been quite vocal about the fact that it would be a lot more productive to not have this restrictions because in the end they don't achieve the objective that they set out to achieve.
Give me your sense of the pharmaceutical industry. I know that China and the US are somewhat entwined at that level. Are you optimistic that we can avoid much more in the way of tension on that front? And I'm curious to get your take on the farmer business on the mainland.
Oh, farmer business on the mainland. So we don't have much exposure to the farmer business there. I must admit. We have exposure to European pharmaceutical company, but the way they are set up, so the one in particular, we have exposure to one leader on oncology because we really think that from a demographic standpoint, oncology is not only the largest therapeutics, but it's the one that's growing the
most because of aging population. But that specific company has having its manufacturing footprint, is answering US demand with the US manufacturing and supply chain and so pretty much insulated
from from the impact on the tariff. It's so, it seems so we really want to make sure that when we think about tariff and specific companies that we understand the makeup of their supply chain, of their manufacturing footprint, because if the if the if a company in the same sector would export its drugs to the US, then obviously would feel the full blunt of the tariff. So it's really important to understand case by case how the
companies are organized. And we've seen actually a florry of announcement for on shoring of farmer companies from Europe in particular, but not only back to the US, and the tariff that have just been announced on the farmer sector by the administration this week, they really allow for a year or two before coming into effect, because they acknowledged that if you want to bring bring manufacturing back to the U S you really need to allow some time for this to occur.
So you mentioned European pharma how are you feeling about European markets more broadly.
Well, for the first time in a long time, I'm actually pretty sanguine in that I really think we've had we've had a wake up call in Europe that you've had that bazooka in the German Infrastructure Plan. Germany was the only country that had fiscal room to ease, and
it's doing so in a very material way. And so we think that the plan that has been announced, I mean, Germany is the largest European economy, he's going to add point three two point six percent growth to European GDP, which is very material when Europe was so desperately in need of growth and so and so we really added exposure to what we thought was some of the main beneficiaries of that plan, so namely in the construction sector, MidCap names that would set to benefit from a lot
of the stimulus happening there. And you know, monetary policy is also loose in Europe, so we think the combination of those two ise is quite supportive. Obviously, the European market started the year really strongly, and then I sort of gave some back because of the fear of tariff and we'll have to We'll have to see what happens there.
But in so far as our exposure, we can really sort of get exposure mainly through MidCap that are more insulated and more focused on the German infrastructure plan.
Nadia will leave it there. Thank you so very much for making time to chat with me. She is Nadi a Grant, Head of Global Equity at BNP. Payabout asset 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.
Pason it.
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