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We have great analysis now, particularly picking up the pieces of a Federal Reserve present and a Federal Reserve future. Joining a Sema Shah, she's chief Global Strategist, principal asset Management. To me, Seema, the heart of the debate whatever anyone thinks is a humility on the part of a central bank, including the Bank of England, of getting out front of the debate or waiting to see what the data hands you. That's called X post. How X post are central banks right now?
Tom? Yeah, Look, it was an interesting interview and I think that you know, as you said, what we've seen from central banks everywhere is that they become very, very responsive to the data, which when you're confronting shocks like we've had in the last five to six years, it does make their job really difficult and it creates the risk, the higher risk of policy errors. I think what John was saying at the end of the interview there about
the importance of creating discussion is absolutely right. I mean, in every single company, from an investors standpoint, we try and revisit the framework that we've created for our portfolio decisions.
That's normal, particularly in a time where the circumstances, when the backdrop of the economy of the market is shifting, and I think for the last five sixes that is exactly what we're seeing, the kind of the increase in geopolitical risks, the focus and supply chains, things are shifting really really rapidly, and so we do need to revisit the framework, even if it's just a decide to stick with the same thing.
And you are a wonderfully qualified for this question, then is it just simply that the US Central Bank has to move towards the heritage of a younger bank of England where there is more debate and more descent.
I think that there is there's a line in this stand there. You know, we don't want to get to a point where there's so much disagreevent that actually is very difficult for markets to get to a point where they know the kind of direction that central banks are moving in. But at the same time having that active debate. I think I think it is important for vested at this time. We need to try and think through, for example, what is the impact of population growth, the impact of AI.
Is it going to be disinflation or is it going to be inflationary? These are really really key questions that we ourselves are grappling with. They're trying to get an idea and understanding of how the Federal Reserve, the Bank of England, et cetera. Are considering it. I think is important as long as it doesn't spill into significantly greater volatility, which makes it difficult to understand how your portfolio decisions going to be impacted.
Suma, We're about to get a new chairman of the US Federal Reserve. How do you think the Federal Reserve will change its behavior if at all, or it's view as to interest rates, if at all going forward.
Well, so there's a guess there's two parts of the conversation. There's going to be the cyclical the short term, and then there is so focusing mainly on the cyclicals. So what happens in the next six six to twelve months, just as there always has been, there has to be a focus on what are the economic conditions. So there may be this inclination, for example, as has been suggested, of kind of a move towards a preference for lower rates,
but the economic conditions need to support that. And certainly where we are today with an economy which continues to be really strong, where the labor market has been surprising to the upside most recently, and then of course inflationary conditions both on the consumer side and on the producer
side surprising to the upside. I think it's a really difficult environment for a central bank to be cutting interest rates with in mind, staying on hold and really taking the time to see how this plays out is probably the most likely, which suggests that even with the new head of the Fed, actually the policy impact is going to be quite minimal, at least in the near term.
Sema, given that backdrop here, with all the crosswinds out there for investors to negotia, whether it's geopolitical issues in the Middle Easter or Ukraine, we've got the President Trump in China. What's the message you have for your global clients these days.
Yeah, as you said, there's a number of different cross currents. So for investments what we've been pointing to is that, look, we do have confidence in the global economy. We can see pockets and weakness, and there is divergence with the US surprising to the upside and maybe Europe and Asia as any more exposed to the negative impact from the
geolitical conflict. So global diversification is still key. Though There's going to be companies in Europe and in Asia who are going to be well positioned for this environment as well as take into account, of course, that very important secular force of AI. It is still a question of global diversification, both regions style gies and of course asset costs, because investors need to be open to the idea that
there is a lot of volatility. We don't know what's going to come, so we need have that diversification, but also positioned for strength because the economic backdrop is still pretty resilient.
All I know, Seman, you're lifting the market. Semashaw, thank you so much, Chief Global Strategist, Principal asset manager. Stay with us. More from Bloomberg Surveillance coming up after this.
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This is a joy.
Pop Quincy is a really wonderful perspective for JP Morgan, as mister Diamond has made clear he desires to build out Europe and build out are huge plans for the London platform Global adad of equities JP Morgan Asset Management. I'm going to steal some thunder from Sweeney because Sweeney nailed this fourteen months ago. A shift to emerging markets, a shift out of America that's not popular right now.
Is no, the emerging markets have shown tremendous signs of life. When I look around our investment team, the most optimism I find is on our emerging market desks. Really yeah, So, look, you've got markets that massively underperform the US and the cumulative underperformance from the peak in twenty ten to the trough it was only eighteen months ago. Is there around eighty percent and we made back I don't know ten
fifteen percent of that so a little bit. So there's just based on historical comparisons, is a long way to go. But look, investing in stocks is about earnings fundamentally, and earnings growth in emerging markets was really strong last year.
It's even stronger this year.
We've got earnings up fort north of forty percent for the emerging market for zero for zero, and you're not paying particularly high price for that. So there's a lot to be excited about in emerging markets right now.
Where in particular, I mean, when I think emerging markets, I feel like I have to start with China.
I know it's a big part of the MSCI.
The biggest where in emerging markets it gets the attention of the GP Moorgan asset.
Actually, China is no longer the biggest part of the MCI, so Taiwan has.
A higher I did not know that well.
And in that statistic you see, of course, the trade that's dominating just about everything in global equities at the moment, which is the AI investment boom. Now that is having a huge impact on emerging markets, particularly this year as the boom has sort of spilled away from the hyperscalers into the memory stocks, semiconductors. They're obviously very highly represented in emerging markets. They're booming, But there's more to emerging markets than just technology.
So let me just go back to Taiwan in the MSCI is bigger than China.
Yeah.
Wow, So that must be an interesting discussion with President Trump and President in g It's like, wait a minute, I mean, Taiwan can stand on its own in many different ways. So from an investment perspective, how do you think about some of the other parts of the globe, Because we saw in twenty twenty five, while the US secondary markets did very well, a lot of the rest of the world did a lot better. Here is that trade still on? Is that rest of the world trades still play.
Yeah, so there was a big catch up last year. As you point out. I think what happened last year is that European investors remembered they have a European market they have to pay attention to. And you know what we've seen really from many investors in Europe over the last fifteen years, understandably, is all the attention being on the United States when US stocks dropped in the first half of last year in euro terms, when European markets
started doing better, then attention switched back to Europe. We saw Europeans keeping some more of their money at home, and we saw the same thing in Asia as well.
How's the dollar linkage here? What's the correlation? You're off dxy or bbdxy or you guys handled the ADXY and X I believe, I mean, what's the correlation here? Of I need I need to see a weaker dollar to make this equation work.
Yeah, you need at least a flat dollar.
I think our emerging markets team would say that the macro indicator that they pay the most attention to is a dollar. A really strong dollar just sucks the life out of the emerging markets. So as long as it's flat or down, then that then that's fine, and the other other fundamentals come into play.
You're too young to remember this, but in my youth, emerging markets was a concrete company and maybe the telephone company. Total discussion in a given say South East Asia country, how do you diversify across them? You don't buy just two stocks, do you? No?
Look, I think first of all, we look at emerging US state.
Yeah.
Look, you look at things by industry, not country. Primarily in the emerging markets a little more. Country factors can play into But and at the moment, of course, it's about AI and tech and then the and then the rest. But the rest, there's a defense theme. There's a recovery in the financial sector of Latin America. There's more going on across the emerging markets than just a boom in memory set in conductor stocks.
Energy. I got oil on one hundred bucks around the world.
Here.
What are you guys doing with energy? I know it's a small part of the S and P five hundred, but the way we've had a monster move in energy, Yeah.
Well it's a growing part of the S and P five hundred.
Again, we've got profits, you know what, up sixty seventy percent this year. One of the things that we focus on in energy and gives us sort of more comfort. It's not so much excited about the commodity price itself, because to the extent we know anything, and it's very hard to know a lot about commodity prices. We wouldn't
be that excited about that. But the companies themselves these days just do such a better job of generating cash, looking after the balance sheets, returning money to shareholders, and that discipline's still there even in the face of this big move we've seen in oil prices. You look at the statements from the first quarter they're staying conservative and that's good for long term shareholder returns.
Can I ask about an individual start?
Yeah, I'm to answer it, but we'll give it so afterthought, I'm trying to teach you about the equity market, and I'm like, after the come on, buy shares, Apple, buy Microsoft, buy this, you know by.
Netflix or whatever she wants. Jolly Bee in the Philippines down fifty three percent from the peak. How do you avoid the jolly bees of the emerging market?
There's always going to be a couple of jolly bees in any portfolio, right, That's part of that, That's part of the life.
As an equity investor. I mean, I think where we would be look. One of the big things.
We're looking out for, obviously, is when you see this level of enthusiasm we've got for semiconductors at the moment, are we setting ourselves up for a giant jolly be type experience? And the thing that we when you get a big momentum move like this, we think there's three things to watch for. Stretch valuations, rising volatility, and peaking earnings estimates. So far valuations sort of mixed, price to earnings low actually, but anything else high price, the sales
price to boom. The companies are making so much money, they're earning the valuations. Most of the memory stocks are still on digit multiples. Volatility, Yes, going up, earningamentum so strong.
I got to do a sales job here. Yeah. One hundred and fourteen percent of Americans go to Saint Andrews up in Scotland's right because that's where the Prince of Wales met the Princess of Coxine. Give us a sales job and you were. University of Durham. It's spectacular, isn't it.
The history.
Look, it's a great university in an absolutely beautiful town. If you haven't visited Durham, anyone visiting the UK, it is Durham. Yes, you can see the city in a day. There's a Norman cathedral, a Norman castle. It's just a beautiful place to visit.
It leads worldwide in Arabic studies.
I believe this one too.
Yeah, this is great, Paul, Thank you so much. Foquency with a small bank, JP Morgan, asset Manager, Global Ahead of Equities. Wonderful for you to visit us, stay with us. More from Bloomberg Surveillance coming up after.
This you're listening to the Blue Blomberg Surveillance Podcast. Catch us live weekday afternoons from seven to ten am Eastern Listen on Apple Karplay and Android Otto with the Bloomberg Business app, or watch us live on YouTube.
She is definitive out of Michigan with her view of China. We look back to the giants of Jonathan Spence, orable Shell, and so wonderfully all of that has been taken by Elizabeth Economy holding court at the Hoover Institution, Hargrove, Senior Fellow, this of course at Stanford University. I'm really taken back, Elizabeth by the cursory review of President Xi and his moment in China. You wrote of a third revolution, Ji Jimping and the new Chinese state. How's he doing?
Okay, So we're starting off with the big, big question.
Look, I think Shedenping is doing very well given Shedenping's ambitions. I think if you look at what he started off to do, you know when he came into power back at the end of twenty twelve, and you fast forward to today, you know he has consolidated power in his own hands. He's increased the role of the party. He certainly has set out major Chinese ambitions on the global stage and has made progress on achieving them. He wanted China to be a leading technology and economic power on
the global stage, and he's achieved that as well. So I think when he looks back again, according to his own metrics, he's done extremely well.
I've studied the geography of Taiwan. How does a pro like you respond to his stridency over Taiwan being the major issue? How does that is it ninety miles? I don't know. It's like from here, it's like from here to downtown Elizabeth economy. How do you respond to the Chinese discussion of Taiwan.
So I'm actually quite relieved by the fact that, yes, Tgenping has raised this as sort of the central issue for Beijing, which we already knew. But the response from the United States has been very muted, and so all we've seen thus far coming out of the summit is a statement by the Chinese side. There's been no acknowledgment by the US side that we take this on board and somehow are going to change our position or our approach to Taiwan. And I think that's something that many
people in the national security space. Many in Congress, even probably members of the president's own cabinet, were concerned about So I think it's fine that she didn'tin raises this as the number one issue for China.
What's critical is how we then address.
It, Elizabeth.
Typically when a US president goes to China in particular, the expectations are fairly high that there's going to be some material agreements, some material discussions. Do we have any of those expectations for this summit? We haven't heard much so far.
I mean, I'm actually pretty pleased by what's come out.
I think we went in with sort of three big buckets of issues. You know, First, we wanted some mechanisms for stabilizing the relationship, and I think here the two countries were aligned, and there's the talk about the Board of Trade and the Board of Investment. I think Board of Trade is further along than the Board of Investment. But basically this is going to be an area where the two sides will come together and try to make progress in nonsensitive areas of trade.
So fine, check that box.
Second, I think you know, the President wanted big short term purpose purchases, and I think you know we've seen, there's going to be soybeans, there's going to be planes, there's going.
To be beef, maybe energy. He'll get these big purchases.
And then finally, and I think this is the most important area, the bigger strategic areas so Iran, Ai and again on the Taiwan front. No acknowledgement on our side that we're prepared to change our position, but we did get the Chinese to acknowledge on Iran that they want the Straight or wormos open. They don't think Iran should profit once the Straight is open, and they don't think you're wrong should have a nuclear weapon. So we have to see whether or not we can make China actually
translate that agreement into action to pressure pressure Iran. But I think it's a very positive, very positive turn of events.
We welcome all of you across America, around the world. It is Bloomberg Surveillance on YouTube. Subscribe to Bloomberg Podcast Air a Marie Horden coming up from Beijing. But we're thrilled to bring you. Elizabeth Economy of Stanford University and their Hoover Institution. Her book years ago, The River Runs Black, was a definitive graduate school study that was hugely successful on the environmental impact of China. Liz, in your wonderful effort of a few years ago, the world according to China,
you close with a China reset. How does China reset after President Trump?
So, I think the thing to bear in mind with this and the sort of meeting between presidency and President Trump is that I think Secretary of State Rubio really defined the relationship pretty well when he said, look, we're going to look for areas of cooperation, but we each have our own areas of interest. They're going to conflict, They're going to continue to conflict, and we want to manage the relationship.
And so I think the.
Goal here is largely the same as it's been, you know, for two decades or more, which is sort of a managed competition, managed strategic competition. The only question is whether or not the conflict they're sort of greater occupies a greater amount of space than the areas of cooperation.
You know, we're going to continue.
To have a lot of frictions, and President she is going to continue to do just what presidentc wants to advance Chinese interests how he defines Chinese national interests, irrespective of whatever the United states says or does during this summit.
Elizabeth, I think for many of our viewers, many of our listeners, President she is the only leader that they've are known in China. Give us just a sense of what his position is today. How do you think about that position three, five, ten years from now.
So, I mean, what makes presidency different from a number of leaders who have come before him in China is just the degree of power that he's managed to consolidate into his own hands and the extent to which he's managed to translate the vision for China both at home and on the global stage that you know, he articulated fourteen years ago.
I think critically, he's.
Coming upon you know, what will be probably his fourth five year term as General Secretary of the Communist Party, likely president of the country, and so you know, this is he's you know.
People will say he's president for life.
I think he will step back probably and won't have a fifth five year term, but will remain as sort of chairman of the party so he can continue to exert control. But really the degree to which he's concer validated power I think was unexpected by people either outside China or frankly inside China.
I look, Liza, where we are, and I go back to our misjudgment of our intelligence of the Soviet Union years ago. Do we have intelligence on China? Or are we as blind looking at Beijing, Shanghai and the rest. There's submarine threat, et cetera. Are we as blind as we were with Gorbashev?
I mean, I think are we as blind?
I think the challenge now is Chijinping has made China more opaque rather than less of paque as his tenure has progressed. So it takes more effort to sort of get inside China to understand what's happening. It's also more difficult because we don't have as many journalists on the ground. It's much harder for scholars and students to go to China to spend time to do research. So our intelligence in that respect is more challenging than it was, you know,
a decade and a half ago. At the same time, I think we do see evidence if you look closely enough, we do see evidence of fractures within Chinese society. We see the evidence of it in the fact that the Chinese consumer is not buying. You know that there's a sort of the lie flat movement, the youth saying we don't want to work, the high rates of youth unemployment, concerns over what AI is going to do to labor in China, just as there are concerns in the United States.
So you have to spend more time and more energy looking and maybe have a little more expertise to get at what's going on inside China outside of the incredible skyrocking exports and the technology accomplishments and everything that we're kind of sort of fed on a daily basis from the Chinese media and frankly from our own media. But it's there if you look look for it. You know, we can get at the impatience, but it's tough, Liz.
Thank you so much, Elizabeth. Economy that we were institutions. Stay with us. More from Bloomberg Surveillance coming up after this.
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Mark Howard with us and we start strong with Multi Asset Strategiest BMP at.
Peterbut I love your note.
You're getting ready for the bmb barer By Global Markets Conference, and the tone out there has shifted. In what way is it shifted?
Tom, It's a dichotomy, it's a dispersion of views. But clearly market participants have discounted private credit concerns. That's not that's not front and center for them to the same degree as it was just a month or two ago. They're not overly concerned with the situation the Middle East. You see in the market today not a lot of focus per se on some more strident language coming out of a Visa VI Taiwan. Those are not affecting risk
appetite today. What is affecting risk appetite is uber bullish outlook for AI and the ability to access compute well into the future, which I think there's some questions on, but people are not asking those questions. I think very bullish on earnings. We just came off a fantastic Q one and they're extrapolating that into the future, even though as you just talk about retail sales and real incomes.
Real incomes are starting to come under pressure from the higher inflation we saw earlier this week, and real businesses are coming under some pressure from higher yields. That's why we've seen such a monster wave of new issuance companies getting ahead of higher yields.
Are you able to ask questions this morning?
Are think I'm good shape. I'm looking to discuss you guys have for your global markets conference? Great, great lineup here. How are you guys thinking about the US versus non US? Because we did have a rotation twenty twenty five, non US equity markets really outperformed the US, which did very well, but some of the non US markets did even better. How are you guys thinking about the geographic allocation these days?
Well, I think I think there's a more there's a mixed view on rates outside the US, which affects the relative attractiveness of their equity markets. There's also a lesser connection to the overriding positive, which is the AI tech wave that just does not exist to the same degree in Europe, in Japan, in emerging equity markets. So I think it's there's a constructive tone. We don't see we
don't see recession anywhere around the globe. But and there's usually better valuation parameters, as you know, lower multiples, but the outlook for growth, and frankly, the capital allocation. The capital flow continues to come to the US, and that's the you know, that's the that's the real catalyst. Everybody is getting set up for these big IPOs later this year.
I think Tom might actually be thinking about getting out of the triple all leverage cash thing. He's looking at the thirty year bond five percent, how much creditis Do you think investors should be taking that there? Or can they just hide out in the US treasure market and make a nice gupon.
I think, whether it's treasuries or higher quality corporates. I think last time I was on, I talked about mortgages YEP, another part of the spread market that can get you the required yield to be safe and to get incremental yield over triple leverage cash. Those are all decent opportunities, but don't expect big returns out of a five percent thirty or four and a half percent tenure. Don't expect you know, high yield is it seven percent? Investment grade
is just around five percent. You know, you're not going to get big returns out of those, but you'll have safety.
You and I are going back and forth that we lost a giant this week and Martin Leebowitz I was instrumental in bringing Inside the Yield book back, which was absolutely definitive, folks. I can't say enough about it. I'll do it out on LinkedIn and Twitter. In the set of diversification that we learned from Marty Leebuwitz, what is Mark Howard's diversification lesson right now?
Given this equity madness, Well, Tom, I think it's it's a great message. And you know, I was thinking about what's a what's a word? And it's heading into sailing season, so trimming the sales, but also you know, spreading your risk and being thoughtful about it. So it's by geography, it's by product, by liquidity type, by structure. There are many different variants of that depending on how your portfolio
is constructed. But clearly having a broad footprint and diversification also includes you know, a tilt towards quality in this environment. So that's another part of our recommendation.
Mark this year, we had just had a huge IPO price today service. You know, another AI story. We're going to get some just some monster deals coming down the pipe.
Is that a good thing? Is it a sign of frothiness in the market.
Is it a sign of just a healthy market when you see some where to get just some monster deals from SpaceX, Anthropic, you know, open AI, some of the deals we've never seen in terms of size.
Does that tell you anything about the broader market, do you think?
I think it tells us about the private market and about the blending of the public and private markets and how they're becoming more synonymous with one another. I think that's the bigger statement, to be honest, Paul, the fact that they're coming to the public market and they're really big, you know, it's kind of a I don't think that's such a big deal. I do think though, that the multiples that they're proposing is a big deal, and that to me is what's worried.
I haven't seen any numbers so that I can't wait to see some of these ifspectuses for these big deals because I don't know how they're going to value these companies.
Yeah.
Well, it goes back to the Facebook many years ago, right, and a huge at the time. It was a huge point, but on very low profitability mark.
Thank you so much for coming in today. Good luck with your conferences on Paul, you were mentioning you thought it was a brave list A line up Awesome with bm P Perry by Mark Howard with his senior Multi Asset as Strategist.
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