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Welcome to the Daybreak Asia podcast. I'm Doug Chrisner. On today's episode, we'll get an update on AI in China with Taosha Wangshi's portfolio manager at Fidelity Investments. And later we'll be taking a look at the broader market landscape with Brian Crowitz. He is president at Scharf Investments. But first to President Trump and the issue of tariffs. The President late in the day on Monday in the US issuing an executive order imposing twenty five percent tariffs on
all steel and aluminum imports to the US. Now over the weekend he announced his intentions to do so, not a big surprise. Joining me now for some reaction is Jode, Metals and Mining reporter for Bloomberg News. Let's talk a little bit about what's happening with the twenty five percent tariffs on steel and aluminum. Thank you for making time. I'm sure it's a bit for you. This really didn't come as a surprise. Yesterday the President indicated that he would be taking the section right.
Yeah, he said on Air Force One that he'd be putting in twenty five percent teriffs on aluminum and steel. I think that announcement came as a bit of a surprise to the market. I don't think people thought he
would be moving so quickly. You got to remember last week he said he was going to do across the board tariffs on Mexico and Canada, And when he pulled back on that, most people I talked to in the steel and aluminum industries thought, Okay, great, that means we've got till about March fourth before we have to worry about tariffs again. So for him coming out and saying steel aluminum specific over the weekend, right as he was on his way to the Super Bowl, took a lot of people off guard.
So we're talking about countries like Japan, South Korea, Taiwan, Vietnam. Even to what extent does the US have steel making capacity to make up for any reduction in flow coming from foreign producers.
It's interesting. I was talking to an analyst today who was kind of giving me back of the envelope numbers. Right, if you assume maybe you were short to five to six million tons, there are places that you can start
to make that up. You have some capacity that could be coming online from restarted mills, you might also have some capacity that you know, steel companies that exist right now have in their back pocket as a possibility, but haven't really discussed it because the idea would not be profitable. Now this is something that could be profitable for them. So it does seem you could make up the net short, but it would also take a few years to get there, so in the meantime you still need these imports.
The timing is very interesting because Japanese Prime Minister Issueba was at the White House Friday. One of the many things that was discussed Nepon Steel's proposed acquisition of US Steal. We know that's pretty much done, and then news that maybe Nipon would be making an investment in US Steel. Outright, where are we on this?
Yeah, this one's a little bit weird and and people are still trying to get more details about it, and right now there aren't really any details. The President came out alongside the Prime Minister and said, yeah, Nipon Steel is going to be making an investment in US Steel. There are no clear numbers out there as to what those numbers are. The companies, neither US Steel or Nipon Steel have come out and made any sort of official
comment about what they might be talking about. And honestly, the investors in US Steel don't care about an investment. They care about an outright purchase. Because of the purchase, the merger agreement still exists, and that merger agreement says each of those investors would get fifty five dollars a share. Right now, the stock's trading between thirty five and forty. So if you talk to these investors, when you hear, oh, well, guess what you might get an investment from Nipon Steel,
they say, I don't care. That's not why I own the stock. I own the stock because I want the deals.
Do you think this is going to get litigated successfully or is it pretty much over?
The feeling is that the litigation that's out there right now is a long shot. This sense is if there is a chance of this deal getting done, it would be by Donald Trump coming to some sort of a deal or just overturning whatever the Biden administration had done in terms of a block. So if Trump doesn't come through and say, actually, I'm okay with this deal, the sense by the market right now is that that is kind of that was kind of the last hope.
So let's get back to the tariff story on steel and aluminum. From what I learned, Trump is considering maybe some exemptions from Australia unlike other companies, and this I think a number of companies we're hoping for this. Maybe Australia does get an exemption. Why would the US exempt Australia. What's so special about Australia.
Well, it's a pretty great trade partnership, right, I mean, the the US kind of looks at places like Australia and Canada, you know, as you know the UK, as these really important allies. And that's dating back to the post World War two era era. As to why Australia specifically might get an exemption, I'm not sure. I mean, one of the things that was very clear from the EEO sign today was we're doing these tariffs because way
too many exemptions were given by the Biden administration. Let's remember that a lot of the exemptions given to the tariffs were also given by the the first Trump administration, Canada, Mexico, the EU, Japan. So I think what this might point to is that the idea that they won't give anyone exemptions, maybe that's not fully true with the idea that Australia
at least is saying that maybe they will get one. So, like anything else with Trump, it does seem like maybe a lot of this could end up being transactional.
Joe, thank you so much for being with us. Joe do There, Metals and Mining reporter for Bloomberg News, joining us here on the Daybreak Asia podcast. Let's change gears here on the Daybreak Asia podcast and turn to artificial intelligence. It was on Monday here in the US that the head of Google Deep Mind, Demis Hassabis, addressed the recent breakthrough in China's Deep Seek. Hassabis said the notion that Deep Seeks spent under six million dollars to develop its
chatbot R one is exaggerated and a bit misleading. So what's really happening with AI in China for some perspective. I'm joined now by Tasha Wang, portfolio manager at Fidelity Investment. Taosha joins us from our studios in Hong Kong. Thank you for making time to chat with us. I know you're well aware of the debate that's been happening here in the States over how R one was developed and whether or not that the chat bot from open Ai
chat shept was somehow used. There are also some investigations here as to whether or not deep Seek had access to some of those advanced computer chips that were under US export controls. Can you help me understand where China is in the race with the US over artificial intelligence?
Well, thanks for having me. Definitely, I think that the recent debut of deep Sea has put China in a very competitive spot with the US. Not that it wasn't before, but certainly this has strong a lot of attention. You know, there's controversy, but there's also a lot of excitement as to you know, what has been accomplished not just by you know, a in China, but by open source model in the world collectively. So yeah, I think controversy, excitement, a lot of actions, a lot of sentiments.
Can you help me understand whether there are more startups like deep Seak in China working in artificial intelligence and how many are there?
I believe so, I believe there are a lot of them. I believe there are a lot of them as there's a lot of effort at the major internet company is the incumbents tech companies in China are making a lot of efforts indust regard as well. And I think the fact that deep Sick has made it more accessible, you know, significantly lower in the cost of using AI has just open the gate to allowing more people to participate and
contribute to AI research, to advancing the progress there. You don't have to be backed by a deep pockets in you know, Silicon Valley venture capital to essentially work on this front, work in this very exciting area.
So with some of the established players, I'm thinking Ali Baba, I'm thinking ten Cent, they have deep pockets. You mentioned venture capital. To what extent is the government involved in any of this?
As much as we know, Deep Sick wasn't you know, it wasn't part of any of the government initiatives. It wasn't affiliated with the big incumbent tents and Alibabas of the world. It really shows that, you know, technological innovation can be a bit of a spontaneous you know, where exactly get breaks through exactly from who can be pretty spontaneous. But obviously this is in the environment in the context that a lot of people are making efforts towards the same common goal.
I mentioned a moment ago that there is some concern that perhaps the R one chatbot was developed using these advanced chips. We know that the Nvidia chips are under export controls. To what extent is China making advancements in the semiconductor space.
Well, I think Nvidia has come out to say that the chips that they use are export compliant, export restriction compliant. So I mean that's the extent that outsiders like us know. I think deep Seak represent mainly algorithmic improvement in how to use the incumbent chips, rather than you know, coming up with advanced chips that all of a sudden can't
do new and beautiful things. I think that efficiency game is really the you know, the breakthrough here, and that efficiency gang has been you know, shared by to the world, and you know a lot of people are amaze those, so to speak, by the significant algorithmic improvement.
No doubt about that. I guess I was asking whether concurrent with that that there were also some advancements being made in Chinese semiconductor manufacturing.
Do we know? I mean, I know it's necessarily I don't think it's implied from the deep Sick advance Uh, you know product Okay, so it's not not implied there. But are they concurrently making progress. I'm sure they're trying.
I'm sure they are too, But there are export controls when it comes to some of the lithography, some of the machines that are manufactured in Europe that are used to really produce some of these very sophisticated high end chips. I know that. But talk to me a little bit about your thesis on the overall technology industry in China. Is this something that you're bullish on right now to a great degree?
I think yes. I think the market is certainly short. Answer to your question is yes, I think there's more reason to be to be polish about the development there. I think there are two sort of arguments to be made there when evaluating, you know, the China tech in the context of global tech with its relationship to the US tech. Number one is, as in deep sequels have to prompt a careful reassessment of the incumbent export uh
the US chip export restrictions. Certainly, the risk is that if you continue to maintain such a strict restriction, the risks than the US risk being cut off from you know, the technological progress made in China which now proves to be pretty significant. H And also there's the balance of payment argument, so that is certainly I think the risk of whether the arguments formed against the export chip uh chip export restriction has become more balanced than than the
market is currently pricing. And the second part is just that I think the US and Chinese tech communities are finding their interests more aligned after deep Sick. So for example, all the US major cloud providers have you know hosted Deepsick on their cloud platform. And you know, the more popular the model gets more cloud services revenue to get.
That's just you know, simple mass. But also there's you know, we are in that with the significant job in model costs, more value is going to be created from you know AI applications, and US is abundant you know opportunities for these value creations. So you know, cheaper model is like lower raw material costs for you know AI application companies, And that's just you know aligned interest right there. Also
there's a goal for you know, Agi et cetera. And then the fact that TikTok is potentially becoming a JV opens the door for you know, finding common ground despite you know, tech rivalry between the two countries.
It's not just tech rivalry. I mean the threat of tariffs now and from the Chinese side, antitrust investigations into major tech players. There's a lot of tension here and I'm wondering whether or not the Deep Seek is only going to exacerbate that to some extent.
I don't. I mean, I think the two countries has gone through, you know, a few years of decoupling, escalating tension. It's not going to be sunshine overnight. But I think, you know, through two several or but one step back maybe I think that's just a possibility of striving for a common ground is I think the possibility is a little bit greater after the Deep Seak revelation.
Last question before you go, you mentioned TikTok. Do you have a sense of how this is going to get resolved?
I have no idea, actually have not an insider, but only to speculate. I think that you know, the simple fact that a JV is being talked about and seriously contemplated is you know it was unthinkable just months ago.
Yeah, joint venture between the US and China on the tech front, specifically as it relates to TikTok, and we know what a sensitive topic, that is for sure, especially in the States. Taosha, thank you so much for joining us. Tasha Wong, their portfolio manager at Fidelity International, joining us here on the Daybreak Asia podcast. Welcome back to the
Daybreak Asia podcast. I'm Doug. Markets are now shifting their focus to this week's eco data here in the US, I mean, consumer prices and retail sales will also have congressional testimony this week from Feedshair J. Powell for a closer look. I'm joined now by Brian Craws. He is the president at Sharp Investments, joining from Los Gatos, California. Brian, thank you for making time. I'm curious to get your
take on where we stand with inflation. The markets may have received a bit of a sigh of relief today the New York Fed's estimate on inflation expectations for the next year and the next three years we're both unchanged in the month of January at around three percent. Where do you think we are now in this inflation cycle?
I mean, thank you for having me. The inflation cycle is interesting. You had a real big spike post COVID that obviously was a big deal in the election. Even though inflation had been coming down going into the election, but unfortunately a lot of the kind of gains have ourlready been seen and now we're sort of stuck at
a certain level. And then you throw in all this Trump tariff volatility, and it's going to be tough for the Fed potentially, as CPI may stay higher than they would they would like to see.
It's interesting I was looking at data from Goldmunt Sachs showing that hedge funds recently emerged as some big buyers of US stocks in the most recent week. Is this the time that you want to take a lot of risk on?
We think you still want to be a little bit cautious. However, I would say, you know, you can pick your spots. You know what's really masked, The big tech is really masked. There's some other values out there. So stocks are probably still a good place to be, but you got to be a little bit more cautious. And you know, they're probably going to be a better place to be than bonds, given our expectation that rates are going to be higher than many investors are thinking.
We were talking a moment ago about the new tariffs the Resident launched today twenty five percent on all imports of steel and aluminum, and the metal producers were in the spotlight in the equity market today. I think US steel was up more than four and a half percent, al CoA up more than two percent. Would you want to be long material producers in this type of environment.
Well, I think you want to be diversified. Material producers are certainly one area. One of the interesting things that we've seen in our study is that if you look at the ten year treasury, when it's above four percent, value stocks tend to outperform, and things like steel is certainly in the value camp. But when rates are below four percent, you get growth out performing. And we've just been through a good fifteen year period where rates were
below four percent almost the entire time. So investors have really gotten used to, oh, I just buy tech and forget about it. We think going forward, you know, investors are going to want to look in all kinds of other areas, not only like industrial and materials type companies, but also other areas like financials and healthcare and energy. We think are all good places to potentially be outside of technology.
So on Tuesday, it will be the first of two days of testimony from Fed sha J. Powell. He's expected to say that the FED has time to assess the impact of Trump's new tariff policy. Immigration is obviously a factor on the economy right now, as are any type of tax cut that we may see in the future. Here, broadly speaking, how do you think Powell is going to thread the needle so to speak?
Well, I don't have Powell's job. He has to thread the needle among a number of things. First, he's got investors to keep happy. Second of all, he's got to pay attention to the new president, who's obviously going to be watching what he says. I think what he's going to do is he's going to thread the needle by saying, hey,
we're data dependent. We've made a lot of progress inflations come down a lot from where it was a couple of years ago, but we still don't know what we don't know, and so we're going to have to just sort of play it by the data. And I think that's what he's going to do. Markets will probably be okay with that. You know, six months ago they might not have been, as investors are really expecting rates to
come down a lot. But I think many investors have gotten comfortable with the fact that the Fed is not going to do five or six cuts this year.
So if you had to give me a sense of where the bond market may be headed in the next ten months or so, am I looking closer to a five percent yield on the tenure?
Yeah? We think so. You know, that's not obviously where the tenure is today at around four and a half. But we think ultimately it's not so much the tariffs themselves, although those could cause inflation, it's really the volatility that could spook investors a little bit, particularly if they don't see CPI coming down. So we wouldn't be surprised to see the ten year treasury closer to five or even above five. And again we think that'll help value stocks.
Detriment to grow stocks doesn't mean stocks have to be a bad place to be, but you know, we'd say temporary expectations. We've just come off to twenty percent plus years and so it's going to be tougher to get that kind of return, but relative to bonds, we still think stocks will be a good place to be.
Brian will leave it there, Thank you so much for chatting with us. Brian kraw is their president at Scharf Investments. 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