Bloomberg Daybreak: Asia EditionOn today's episode, Asian equities declined at the open Thursday after President Donald Trump’s latest trade salvo scuppered demand for riskier investments. Shares of Toyota Motor Corp. and Hyundai Motor Co. were among automakers slumping in Asia after Trump unveiled a new 25% tariff on all automobiles imported into the United States. We speak with Mary Nicola, Bloomberg MLIV Strategist in Singapore.
Plus - a look at how this expanding global trade war is being digested by Wall Street. Robert Schein, Chief Investment Officer at Blanke Schein Wealth Management, joins the program.
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Welcome to the Daybreak Asia podcast. I'm Doug Chrisner. Transportation stocks in Asia are slumping. That's after President Trump on veiled tariffs on foreign made autos. This is a key reason for the weakness that we had stateside in the US equity market. And in a moment, we'll be hearing from Robert Shine. He is the chief investment officer at Blankie Shine Wealth Management. But we begin in the Lion City and joining us now is friend of the program, Mary Nicolas. She is Bloomberg Markets Live strategist, joining us from our studios in Singapore. It's all about tariffs, isn't it.
It is?
And I'm looking at the stocks right now in Toyota down more than three percent, Hondai Motor off more than two and a half percent. I found it interesting that you wrote earlier on the Markets Live blog there's essentially no sign of leniency.
Well, that's the thing, because essentially what we heard is especially from Hyundai. Hyundai has been praised by President Trump for building a factory and expanding investment in the US. Yet we haven't heard anything, and so you would think that when President Trump said that there's leniency, that the markets would get excited. However, it doesn't look like there's much in terms of give that we've seen, so for example, we haven't seen that. Sure, he's mentioned the idea of leniency, but what has happened as a result, Because we know that Japan and Korea would be one of the hardest hits, especially in this region, at least as a result of these auto tariffs.
I'm wondering if anything could change next week when we get the reciprocal tariffs. Is that likely do you think? Or not so much?
You know, I think the main thing is there's just going to be this huge sigh of relief in terms of some degree if there's a lot of tension being built up or that April second deadline, and I think there's going to be a little bit of relief of that there's something and we know what it is. Right in terms of implementation, that always tends to be a little bit more muddy, but at least we get some clarity in terms of what are the reciprocal tariffs and who's going to be the most affected.
You know, President Trump has been described as being transactional, and I thought it was very interesting today that he said that he would consider lowering tariff rates in post on China to secure Beijing support for a sale of the US operations of TikTok to an American company. This seems to kind of plant the thin end of the wedge into the idea that this is all really a.
Negotiation, absolutely, and I think that was very clear in the comments that he made about TikTok. So if the Chinese authorities show any sort of budge, they could see some signs of relief. But at the end of the day, I think there's alway. Is the factor of you know what if there's more and how far will it go? And I think that's the key issue that was going to come up in terms of like the the transactions over and over is how much leeway and how much given can go in these negotiations.
Which brings us to the China story and the fact that Beijing might not have a lot of leverage against the US right now. One of the bright spots, though I think we can't agree mary, has been the high tech space in China, particularly after the kind of deep seek moment. What are we seeing right now in the behavior of Chinese equities.
Absolutely, and I think one of the things is that everyone has gotten very excited about China equities and that's taken a while to really come through. And it's not it's more than just policy right now. It's about the tech and invation. It's about their ability to come through and to make these developments and significant developments despite what has some of the obstacles that have come their way. So there's still a lot of support for the tech industry and likely to continue. I think the problem is now is that a lot of it has been already baked in. Valuations aren't enough to keep this going. So what it will need is more improvement on a company outlooks, more innovation in terms of news about robotics and AI to really drive that rally and to keep it a lot more sustainable.
But there are some dark clouds and I think we have to acknowledge them. In the US session, we had TD Cowen pointing out that Microsoft is abandoning some new data center projects in the US and Europe, so that may turn people away from putting new money to work in the SEMIS. And then, as you know, the chairman of Ali Baba jod Tsai was talking about a possible bubble in AI data center. So I think there's got to be a little bit of caution that pointed out here right, there's.
General caution for US tech, but I think it's because the China story is quite new, especially with deep seek that only came up in the start of this year. But the tech, the US tech industry and innovation has been a story that has carried US stocks for quite some time. And of course now everyone's rethinking it because of valuations, because of the cracks and US exceptionalism, and because China is becoming a real competitor. So I think for now, especially with China, it really comes down to what are the improvements we see on company outlooks, and what do we see on the improvement especially coming through from the government and on policy implementation, to really drive that next leg higher in the rally.
There's a bit of a concern I think that the FED may have to given the fact that these tariffs may be inflationary, that the FED may have to go on hold even if there is a little bit of economic weakness just because of the inflation concern. Is that a concern that you share or do you think the FED would opt to lower rates in the face of economic weakness.
You know, it's interesting, it depends how the FED sees it. So J. Powell had mentioned that he sees tariffs as inflationary. It's a one off adjustment and then we won't see anything coming through afterwards. So it would suggest that yes, they'll see what happens and they'll take more of a wait and see approach. So I think two one to two cuts still make sense, especially with how tariffs are going. But in terms it's still we still have to remember that the Fed has a dual mandate. So if they see that the labor market is really weakening significantly, they'll see that that's going to have implications on inflation and we'll have to become a little bit more aggressive in terms of easing.
What else are you really kind of talking about in your en live writing today? Is there anything that you want to tease out here?
Yeah, Actually, there's been a lot of interesting idiosyncratics things coming up in Asia. So for example in Indonesia where we're seeing that a significant downside to the equity markets and largely coming through from growth concerns domestically and fiscal concerns as well. So and and we're seeing the implications on the currency as well. So the currency has been UH at the weakest that we've seen in a very long time, and we're seeing and that is becoming more of an issue because of the fact that you're seeing cracks and US exceptionalism. The Chinese recovery isn't a strong just yet, So the question is becomes more scrutinized into how em unfolds, and these idiosyncratic issues become even more concerning for places like Indonesia in terms of their ability to entice foreign investors to keep buying into their bond markets or their equity market. So I think one of the main things to watch, especially with all this uncertainty, especially around tariffs, is some of the idiosyncratic risks that we're seeing out of emerging markets and the broader implications given the weak global risk appetite.
What are you looking at in the week ahead? Is there anything that you're paying especially close attention to?
Labor market? Absolutely, I think that's going to be the pivotal point because everyone's been so focused on inflation, and of course the April second deadline. We can't escape tariffs. I think that's one thing we know so far in the first three months of this year. So the tariffs and I think the labor market is going to be especially important.
Mary Nicola there, Bloomberg Markets Live Strategists joining us from Singapore here on the Daybreak Gasia podcast. Welcome back to the Daybreak Asia Podcast. I'm Doug Krisner. So the US equity market was in retre in the last session on some concern over the impact of the trade war. We had the S and P five hundred down a little more than one percent, and then after the bell, President Trump imposed tariffs on imported autos. This is a twenty five percent levy on all cars not made in the US. It's going to go into effect April. Second, let's take a closer look now at market action with our guest Robert Shine. He is the chief investment officer at Blankey Shine Wealth Management, on the line from Palm Desert, California. Thanks for taking the time to chat with us, Robert.
I'd like to.
Begin by getting your assessment on the impact of tariffs. Do we really know at this point whether it's going to be completely negative.
That's the question that markets investors and everyone's trying to sift through. I think this short term volatility will have long term opportunity for investors that do take advantage of. What we're seeing is all of this uncertainty that's playing out, and you know, we've seen it the first term of President Trump when the US and China they imposed Phase one, then they went to Phase two, then they went to Phase three, and then Trump removed it, and then they finally got a deal.
Done towards the end.
But that was, you know, over a couple of year period of time, and markets actually ended up higher over that period of time. And if you look at the S and P, there were bouts of time where the S and P did test some lows, but not lower lows. So, you know, if we look at the first term during President Trump, there was a lot of volatility when he went for the tariffs, you know, and fair trade practices, but it turned out to be a positive.
It's interesting. One member of the FED today was saying that it's not clear whether or not we're going to have an inflationary impact from these tariffs proving to be temporary. I'm referring here to the head of the Saint Louis FED, ALBERTU Mussalom. He said secondary effects could prompt the Fed hold rate steady for longer. Does he have a point there? Could there be an inflationary impact of the tariffs.
He absolutely is of a point, and that is the biggest I would say concern of the overall market, which is putting. You know, we came into the year thinking we're going to get two to maybe three interest rate cuts, so some relief and some more sort of you know, wind in the sale to keep this rally going.
Now, it's just.
The opposite of saying, wait a minute, the tariffs impact on prices are an unknown, a question mark, So what does that actually mean. That means that the Federal Reserve obviously is keeping an eye on the labor market, which seems to be holding in there. So far, so good. But more importantly, it's the if they lower interest rates, they are going to invite inflation, adding more fuel to the fire. Is the overall concern, not only for the Federal Reserve but for investors as well. Markets are playing that out and it's only time will tell. Traditionally, tariffs should be a one time a fact where it's you know, sort of a speed bump. You pay your toll. But then again, I go back to what I said earlier. You know, tariffs are you know, could be imposed and then they could be taken away months even years later, depending upon how things are going.
If you look at the tape today, the chip makers were the big losers, in Vidia and Gang. I'm looking at the Philadelphia Semiconductor index down about three point three percent today. We had analyst over at TD Cowen today saying that Microsoft is abandoning new data center projects not just in the US, but Europe as well, and that seemed to create this negative sentiment toward the chip stocks. Where are you right now in terms of the thesis on AI that the buildout is going to continue or maybe now we're reaching a point of capacity, starting to kind of reach a near term peak.
If you saw the revenue generated by what Navidia has had committed from just the mag seven and I mean that's really the driver of what Navidia or even the semiconductors if.
You will at home.
You know, they pledged so much capital and so many, so many billions of dollars that was absolutely head scratching, you know, for Microsoft to take a moment and reassess how much they actually need, you know, to invest is not uncommon. That's that's actually prudent business move. But what I would say and submit for consideration, we are in the early innings of the AI race ARMS race, and so you're going to have the trickle down effect. And by the way, there are four hundred and ninety three other S and P five hundred companies they're going to have to start joining the race. So there's a lot of capacity and opportunity to be reinvesting in the semiconductors from just not only the S and P five hundred, but all the way down the you know, the value stack of all the companies that want to stay competitive for the future.
What about the lower cause Chinese AI models that utilize a lot less computing power, is that a negative let's say for the buildout of some of these data centers.
Yeah, we're going to see I mean every eighteen months everything doubles in terms of you know, memory, storage capacity and technology.
That's not you know, for a chip that comes out today and you know there's more efficient way of doing it for tomorrow or like you just pointed out, a better way of using you know, getting more production with less is always going to be in the DNA of the capital structure of the economy, and that's the way we need it for more growth moving forward. But yeah, short term that it remains to be seen as it relates to how it plays out, it wouldn't shock me that more and more next you know, next month, next week, and even next year, we're going to get We're going to be able to do more with less. All across the technology spectrum.
Let's talk a little bit about the macro in terms of ECO data. Today we learned that factory orders for business equipment unexpectedly declined in February, and at the same time today, an update to the Atlanta Fed's GDP now tracker still shows contraction in Q one by around one point eight percent. Are you worried about recession?
Not so much.
Recession right now, but I could see, you know, what we ideally, I think what we should have seen play out. I think markets would have liked this a little bit better, which is the sequence of what the Trump policy is playing is doing right now. They should have positioned and you know they know better than we do, but they should have positioned the big beautiful tax bill, the extension of twenty seventeen tax cuts as well as maybe a little bit more what they wanted to get because they have congressional support, you have momentum post election. Instead, they went for tariffs, and we understand why they're trying to offset all the ads that they want and make it sort of revenue neutral as much as possible both in the short and the long term and healthy wise fiscally.
That's very responsible.
But getting to point A to point B, that's putting businesses on pause, that's putting consumers on pause. That delay could cause or lead into a potential slow down in what we're seeing a consumer behavior, and that's playing out in the data.
In the short term. That's okay. Long term, yeah, we.
Could you know, basically lull ourselves into a recession because everyone's just sitting on their hands.
Now, what gets us past that?
We do need that bill of extension of We just need certainty, We need the tax cuts to continue. We need to see what else is going to happen with policy measures. Again, is there going to be business owner incentives inside that tax bill? Therefore you'll see capital goods in capital spending pick up again. So you know, we could touch you know, slow down but we could reaccelerate really quickly. We do have a strong economy. All we need is certainty in terms of policy. So I think Congress needs to get you know, to work. I know they have been working, but I think they need to get it done sooner than later, sooner than Memorial Day.
I think that would be the key.
I'm glad you mentioned the consumer there tomorrow will get the February numbers on retail sales. We know that some of the sentiment indicators, both from the Conference Board and the University of Michigan have been depressed. Would it surprise you if these numbers on retail sales were a big miss.
It wouldn't surprise me. But again, I wouldn't bet against the US consumer. Again, we could see one month slow down and maybe a pause. If it's two or three months, that's a trend that's concerning. So but you know, given all the uncertainty, the trade talks, the nightly headlines, and given some geopolitical headlines that we've had to deal with over the last thirty forty five days, if it comes out to be a weaker number, that shouldn't be a major surprise. If we see multiple months in a row and that trend is negative. That's where we have the issue.
So we've talked about a lot of things. How does this kind of coalesce in your mind in terms of coming up with an investment strategy.
You know, the balance in diversification has won out. We always keep dry powder, but it's working for us, and you know, treasures are still paying us four percent. We expected that, so we added some dry powder again, allocated to some fixed income early on at the very beginning of the year, and now quite honestly, we're taking advantage of some great dislocation. Markets were over valued coming into the beginning year. So for markets to pull back by five or even ten percent, that's not unheard of. That's actually that that's a commonplace that should happen for a healthy market.
But don't just sit there.
Take advantage of some high quality companies, dividend compounders, companies that will be there not only in the next six to twelve months, but for the long term, because you're gonna you know, you're gonna this this opportunity. I think the headlines and the uncertainty are going to create a lot of opportunity moving forward for investors.
So don't miss out, all right, Robert, we'll leave it there. Thank you so much. Robert Shine there. He is the chief investment Officer at Blankie Shine Wealth Management. Joining from Palm Desert, California, 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
