Bloomberg Audio Studios, podcasts, radio news. Let's talk more now about how the country plans to navigate this trade environment and the market as well. Of course, the son of Vis CEO and founder of Rock Creek Group of Sunny. You know, we have to wait and see if this market reaction holds, but for now it appears the market wasn't expecting anything this, you know, seismic. Let's say, we have, you know, quite a strong move in currencies and equities
at their session lows. What is now your base case on trade for August first.
Yeah, absolutely right, Vanni.
The market expected something closer to fifteen to seventeen percent in terms of the average tariffs that would be getting sometime end of July ninth or some point later. So the twenty five number is a little bit up there versus the seventeen percent. So I think the market is
gradually getting adjusted to this. But the fact that there's this choppiness and there's this uncertainty about one the dates to the amounts three to some of our most important trading partners like Japan and Korea, does create a lot of impact, I think, on the markets going forward, and we should expect the choppiness that we've seen over the last few days to probably continue, maybe not April scale, but certainly to continue.
There will be bouts of volativity already, you know, the vexes up to just around eighteen. So nothing panicky just yet, but you know, we need to keep an eye on that, right, and we obviously need to watch for Japan's response. But what would you be doing in this environment given that there's only perhaps so much that Japan can do now.
So I think one thing is that, you know, if we assumed that we would go back to that sort of average, even seventeen percent, even that is a very large tax on consumers, right because at the end of the day, the consumers will be having a large share of that.
So with that scenario, if you're assuming.
That US growth will be a little bit slower based on that, we have to obviously wait to see what the earnings reports are that are coming out.
But what has been happening already.
The kind of outflows that we saw from the US equity markets did continue in Q two, as we saw in the numbers that came out last week about thirty some billion that came out of US equities. Some of that went into small caps. Some of that went into international markets. Bond markets saw a flow. Interest rates could be coming down sooner, potentially in September money. We thought that they might be coming down later in at the
end of the year in twenty twenty five. Now there's a scenario if we're slowing down, potentially we might see interest rates come down, which also has impacts on the dollar. So what does that say in general dollarsification away from US assets over time?
Not one big swoop, but over time.
Yeah, we're seeing the tenure yield now at four thirty eight seventy three. It had been dropping ever so slightly just after we got the guitar off announcement, but it's back at the level it was at before those letters went out. And bear in mind these are just letters, right, We're waiting for a lot more before we know what's actually going to happen. We had Med Faber on last week and he made the point that, look, valuations are
very very rich right here. Perhaps you can have listened to what he had to say.
Could just last fifteen years come on the show, say by SPI go away, right, But here we are and US stocks are now expensive. We came into this year, we tracked forty five countries US stocks for the first time. We've been tracking this for I think a decade. US stocks ranked the most expensive stock market in the world.
So if we are the most expensive stock market in the world, and yeah, sure, breath has been improving and so on, nevertheless, we are at these levels and we're potentially going to get some detrimental tariff impact. You know, where is there to hide?
So US stock market is what about two thirds or a little bit more than two thirds of the total stock market about you know, ten years ago it was maybe in excess of fifty percent, So it is sort of the overwhelming part of the market Europe, you know, added together Japan we just talked about Japan. The rest of the world really are the rest of the equity.
Markets what we saw some of us.
Remember what happened to Japan when japan stock market reached a very big high and it took a very long time, and then it collapsed because of very bad economic policies. I'm not suggesting that's going to happen here, but I'm suggesting that US equity share in people's portfolios has started to go down aunt slightly and every institutional investment committee is looking now at looking at other asset classes, be it European securities. They might have obviously better price earnings ratios,
especially if they are oriented towards domestic markets. Japanese stocks that are oriented towards domestic markets, emerging market stocks similarly, So I think people are starting to look at those kinds of assets. Bonds in other countries similarly as well as gold. Gold is already reached two thousand, but it could be you know, reaching a point under four thousand because central banks that saw US dollar as a safe
haven may not be seeing it the safe haven. And little kids are taking their mothers to Cosco.
To buy buy gold bars.
So you see that people who never thought about anything but the US dollars, from the kid on the street to the central banks, are starting to think while the US dollars are going to be predominant, they will stay predominant in their portfolios will not have the same size,
So I think that will be important. And one last point is people are doing FX hedging, particularly institutions, so that even if they are despite rich earning price earnings ratios, they want to stay in certain US DOOC special will benefit from Ai. They are doing the fx he edging to reduce their US dollar exposure.
I've Sanda.
Last time you were on, which is April, you were saying that Vietnam would be an important one to watch for the impact that we have on China, whether it you know, pick the US over China or what China would do in response. Do you have any further thoughts now that we have some kind of a deal with Vietnam on what this means for China's relationship with its partners.
Bearing in mind that we had Trump put in these letters about transhipments and he's obviously, you know, cracking down on that now as well.
Now, I think transshipments is going to be a very big deal. I think Vietnam is it beneficiary. As you said, they did make one of the first trade deals and they will continue to benefit. But the size of the Vietnamese market at the same time, let's just be frank, is not huge. Even if it expands, it's still going to be a tiny market, So it's not going to be life changing for anyone. China has surprisingly been quiet
in the last few weeks. You know, it was sort of very bustering in the in the early days it's been quieter, so it will be very interesting to see how whether a letter is going to China. Particular, we saw that ten percent extra potential tariffs on countries that are negotiating together as part of the Brick Group, so that will be interesting to see whether the letter to China has the twenty five plus a ten or whatever other numbers come up.
All right, we have to leave there about our thanks to your Sana Vishla's CEO and founder of Rock Creek Group. And I just want to point out that the ADRs of Japanese automakers are now at session low as well, Toyota and Honda down three plus percent a piece