Bloomberg Daybreak: Asia EditionTracking the Catalysts for Asian Market Outflows
On today's episode, we explore what's driving outflows from Asian markets as a global trade war accelerates. Vivek Subramanyam, Founder and CEO of TH Global Capital, joins the program from London. Plus - reaction to a cooler-than-forecast US inflation print that helped Wall Street rebound from two days of heavy losses linked to tariff concerns. We speak with Burns McKinney, Managing Director & Senior Portfolio Manager at NFJ Investment Group.
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Welcome to the Bloomberg Daybreak Asia podcast. I'm Doug Chrisner. President Trump's tariffs on US imports of steel and aluminum have sparked retaliation both from the European Union and Canada as well. Markets are now bracing for those reciprocal tariffs from the Trump administration. They are set to be announced April to second. So how are em investors setting up before then? Joining me now is vvck Supermanium. He is founder also the CEO of th Global Capital. Joining us from London. Vveck, thank you so much for making time to chat with us. I think all major Asian markets have seen outflows into the month of March. South Korea, Taiwan. Outflows in those jurisdictions seem to have accelerated a bit in recent weeks, and I'm wondering whether that's all about tariffs or that there's something else afoot.
Look, I think clearly the developments over the last few days have spooked markets, particularly the significant sell off in the US. Our view is is that and of course there also flows have within em have been interesting. You know, last year everybody wrote wrote of China and then with the rise of Deep Seek, lots of capital flowed into China and out of India, and.
We think that in general, you know, this too, this too will pass.
As far as uh, the impact of tariffs is concerned, yes, we're in for a few months of months of pain, but really, you know, what we are focused on is is actually, you know, finding opportunity in in this this Spain, because valuations are a lot more attractive.
I'm wondering whether the opportunities are in China. I mean, you mentioned the deep Seek story, but we also have to recognize the Annual Congress that just concluded, and it seems as though leadership confirmed what people were hoping for expansionary fiscal policy. Does that cause you to become a little bit more bullish on the China story, Well.
Look, the Hangsang Tech Index has risen by thirty five percent a year to date.
So those have been significant gains.
And you know, obviously the rise of Chinese e I models have boosted market sentiment, as have presidencies engagement with business leaders, including Jakmar, which have improved investor confidence. Continued reforms and stimulus also are expected, and there have been flows to China from other emerging markets. What we need to see going forward is you know, first of all, EI developments like Deep Seek haven't yet significantly impacted earnings, and you know we now need to need.
To see but that positive impact.
And you know, actual numbers, the expectations really are just two to three percent EPs upgrades.
And also you know, more confidence.
And charities needed on China's regulatory policy towards big tech and the tech sector as a whole.
So next week we'll have the earnings from ten Cent. How do you evaluate the larger companies, whether it's a ten Cent or even Ali Bob, Are there opportunities there? And I'm thinking as it relates to AI some of the cloud computing that those companies are involved in.
Yeah, there are certainly opportunities, especially because you know a lot of software in China is still on prem and the migration to the cloud is a key opportunity and that is essential for EI.
So in general, we.
Believe that you know, the easy money has been made in China and obviously the developments are great for the Chinese tech sector, but we'll need to actually see follow through action over the next year based on the fundamentals.
You mentioned a moment ago that money was moving away from India and back to China. How do you evaluate the Indian market right now?
Right so, you know, India, we believe is one of the most attractive em markets, if not the most attractive market. We believe that it remains less exposed to trade risks than smaller export heavy economies, given that it's it's quite insulated, it's it's very domestic oriented. The economic outlook for India is, you know, really the GDP growth forecast it was seven point eight percent last year. It's it's expected to be six point four percent in the current tier and then gradually accelerating from next year to six point five percent. It remains the fastest growing large economy, outperforming you know, peers like the US which are growing at you know, over two percent, and Eurozone in China which is growing at for four and a half percent. A lot of key indicators have picked up in India and we believe that the worst is either behind us or will be behind us in the next two to three months. The Nifty index is roughly twenty to five hundred. You know, there could be some downside to say twenty k or nineteen five hundred. That's our technical view is that nineteen five hundred is probably where the bottom is and we expect that to be reached in the next you know, two to three months.
Obviously, don't hold us to it.
Okay, hard to call the bottom, but we think that we've got into an attractive zone in India where I should start nibbling and perhaps loading up as the next couple of months past.
So what are the industries in India that you want to have exposure to right now? Is it the banking compoundent, is it more tech related or focused on the consumer? Which is it?
The key themes you know that we are focusing on India are financials which should grow you know, higher than GDP growth rates. And there's you know, there are a lot of many attractive companies there. Obviously, you know, the last couple of decades have produced some some stupendous winners and financials in India, for example Bad Judge Finance, which was one thousand, seven hundred bagger over that the last you know, twenty odd years, and also stallwarts like ed SDFC Bank, and we see that you know, in spaces like housing finance, the non banking financial sector and selectively banks. There are some some exciting companies out there. There's also the digitization team. India is going through a massive phase of digitization and there are plays around that and that includes you know, payments and an e commerce adoption and also selectively consumer discretionary FEVERC.
Before I let you go, I know you're in London there, so I'd like to get your take on the movement of money into European markets one and Two, how are people in the UK feeling right now about it seems to be a global trade war.
I think people in the UK are feeling feeling pretty good about you know, Stama's recent visit to the US and you know what seemed like a diplomatic win, and we are feeling somewhat insulated.
You know, as a result. Also, of course, you know, Europe.
European markets seemed to have done decently in recent months, so you know, certainly seems like a glimmer of hope or more for Europe after a long phase of underperformance.
A long phase, I think that's an understatement. VVCK thank you so much for joining us. VVAK Supermanium, founder CEO of th H Global Capital, Joining from London here on the Daybreak Asia podcast. Welcome back to the Daybreak Asia Podcast. I'm Doug Krisner. Most of the equity market gained ground today after two days of heavy losses, and today's advance followed a cool reading on consumer prices. Even so, I think it's important to point out the risk of inflation rearing back up. We have seen a series of tariffs and as a result, prices are expected to rise on a variety of goods that could test the resilience of American consumers and, by extension, the broader economy for a closer look. Joining me now is Burns McKinney. He is Managing director also senior portfolio manager at NFJ Investment Group. Burns on the line from Dallas, Texas. How are you feeling about the price action over the last couple of days, Burns?
A lot of what we're seeing in the last couple of days just really, I hate to say it, but a lot of us getting back to policymakers. You know, one way we like to think about the Trump presidency is that you know, and this is going back to the way it was twenty sixteen during Trump one point zero, but you have sort of imagine the angels on the shoulders. You have the good Trump and the bad Trump. On one side, you have the things that the market likes, like tax cuts and deregulation, and then on the other side you have tariffs and trade wars. And you know, early, I think, you know, shortly after the inauguration, investors were focused a bit more on the potential for tax cuts, But of late the narrative has really shifted to tariffs as as well as just the uncertainty around those tariffs. I think that one of the things that the.
Market doesn't like. It doesn't like uncertainty as much as anything.
And you know, if you have you know, tariff and positions and then reprieved and tariff and reprieve.
Yeah, I've been kind of laughing.
I haven't seen a thing this on again off against since Ross and Creacial on friends. But the markets definitely don't like that a whole lot.
You know, after the election, I think many in the market were of the view that the threat of tariffs were nothing more than a negotiating strategy. But now it seems like we're into something that's much more ideological. Does that concern you?
It absolutely does I think that again, tariffs can be useful as a as a tool or negotiating tactic, but you know, it really is a means to an end rather than an end in and of itself. And yeah, I noted that. You know, one of the things that you know, you think, well, what are the impacts? And you know, one of the macro effects is that uncertainty that I was just speaking of may lead companies to pause capital investments and slow down acquisitions and slow down hiring.
And of course, you know, really.
The biggest factor is how does this impact FED policy? And you know, the question that investors have is, you know, whether the FED is focused a little bit more on the inflationary impacts of the tariffs, which you might cause it to pause interest rate cuts for longer, or whether it's focused on the longer term impacts that may slow future growth. I think that the FED is in weight and see mode and trying to be data dependent, so we don't necessarily expect a cut in the near term. But that's really the place where investors should probably focus on, is the impact on the FED.
That's interesting to me because I think markets right now are still fully pricing in the first quarter point rate cut in June, and I think you total, there's about sixty seven basis points of easing that has been factored in for all of this here. But you're of the view that the Fed is still going to kind of just drop back and adopt more of a wait and see approach.
Is that it?
You know, we don't expect one in the near term, but probably June is I think what is being priced in. I think, you know, two to three cuts this year is probably what would be expected. And that's a great example of exactly how the market is viewing this, because you know, as recently as a month ago, markets were only pricing in one cut, and so now I think that you know, what that is telling us is that the markets are actually focusing a bit more on the economic growth and the slowing of economic growth of tariffs, more so than even the inflationary impacts. But you know, in general, I think that you know, one investors can look at is that tariffs, if you look at history, they can be you know, stagflationary, and I think that that's one of the ring you know, and the fact that investors are starting to price in a little bit higher likelihood of a recession. Now it's still less than fifty percent, but you know, there's certainly a weight and see mode and it's very very difficult to predict what's going on. You could get a boost in the markets if we you know, if the call it the Trump put comes back into play, as the president maybe looks at the stock market as a scoreboard to help influence policy decisions.
So it seems though that the health of the labor market is really the next great test for the growth story, right.
That is, and you know, at least the good news there is that the labor market has stayed solid. You know, you had you know what, one hundred and fifty thousand jobs last month, is down a little bit from some of the recent months. But yeah, nevertheless, I think one of the things that the economy can can stand on is the fact that, you know, you're still looking at unemployment covering pretty close to four percent, and we saw just yesterday that the number of job openings had crept up, and so that we're at a place now where the number of job openings is pretty close to equal to the number of those seeking you know, filing unemployment, which is again down from where it's been in recent years in the post COVID surge, but it really puts us in a place that we're probably even better off there than we.
Were in twenty nineteen. And the consumer has certainly been a workhorse.
So take everything that you've been saying and formulate and investment strategy. What would it look like?
Well, the first thing when we start formulating an investment strategy, especially for longer term investors, the first thing you have to focus on is, you know, what are evaluations right now? If you go back a year ago, markets were in any way climbing a wall of work. You were afraid of a recession with an inverted yield curve. We were afraid of high inflation and uncertain certain election. And as of opening this year, you have you had a lot of multiple expansion, evaluation expansion that drove the markets up to north of twenty percent last year. It's the second big year in a row. Going forward, marks are still probably priced a little bit for complacency. You have, valuation metrics are high. You know, the way we're sort of looking at this year is that if last year was you know, think of a football game, you know, the quarterback through the ball forty yards downfield. You saw the same thing in twenty twenty three. This year and next year might be because of those high evaluations. More like the good old fashion. You know, run the darn ball and you know, three.
Yards and a cloud of dust. I think investors, you certainly.
Don't want to fight an accommodative FED. You don't want to fight tax cuts either, but investors should probably expect more muted returns going forward, and so we wouldn't sell the market, but maybe focus on some areas that might be a little bit more defensive, dividend paying stocks or start you're starting to see perhaps a broadening of returns and maybe a paradigm shift away from some of the megacap tech towards areas like companies that are paying and growing dividends.
I'd like to get your view on the American consumer. Recently we heard from both Delta air Lines American Airlines. They're very concerned about a pullback in travel leisure track and by extension, that did some damage to hotels. Also a company like Airbnb. How do you understand the American consumer right now in terms of their health?
Well, again, you know, job openings are still solid, and so you know, I mean, but at the same time you are starting to see you know, you mentioned some of the travel companies that sounded alarms, you know, Walmart was another one. I think it was a couple of a couple of weeks back, whereas you know, they tend to be a bell weather for consumer spending, and they suggested that it is going to be a little bit softer. That said, I think that the good news there with respect to the consumer is that we're starting from a point of having a little bit of a cushion. You know, the consumer spending has been fairly solid, so the point that you know, if we're seeing signs of softness now, we could be softening to something that after you know, big surges that we've had in twenty twenty two, twenty three, you know, maybe something that's a little bit more long term sustainable going forward.
You know.
Just yeah, if you come out trying to run a marathon five minute mile, you're going to burn up pretty quickly. But if you kind of come out at a little bit more measured pace, it could allow us to maybe push off any sort of hard landing for.
A little bit longer.
So mortgage rates have come in a bit as well, I mean, that's got to be another positive it is.
Yeah, I think that that's certainly a positive. That said, housing valuations are still fairly rich, and so even with lower mortgage rates, which you know, economy certainly needs. Yeah, I think that's something where the economy overall might not necessarily expect to get a big boost from housing, which is certainly a huge part of the economy.
Are you inclined to look offshore given everything that we've been describing here and some of the turbulence that's been associated with kind of the equity market behavior as it relates to questions over the impact of tariffs, where we go in terms of earnings, the inflation story, where the FED is in all of this. I mean, are you inclined to maybe look to a place like Europe or is that trade pretty much already been effectively put to good use.
No, I think there's there's a lot of meat on the bone there as far as the overseas trade. You've had, you know, circumstances where US equities have been you know this, this this concept of US exceptionalism has allowed US equities to perform over five years and and and ten plus years, and that's not necessarily going to be unwound in the span of a month or two. And you know, you have very historically wide valuation discrepancies, whereby you know, places like Europe or even the emerging markets UH trade in line with to even discounts to their historical averages, whereas the US is.
Trading at a premium.
And you know, one of the things that I think might be driving some of that near term outperformance of overseas stocks of late has been that, you know, whereas you know, the U, you know, I think the US is seeing you know, the FED pausing versus you know, in the EU monetary policy may be a little bit easier going forward. And so there's a lot to like there. But it really again starts and finishes with lower I mean, obviously European equities have historically traded in a discount to the United States, but that discounts as wide as we've seen in a long time.
Last question, before I let you go, I'll give you twenty seconds to answer. Will we fall into recession here in the US this year?
The odds are still against it.
The odds now, the odds have been climbing over the last couple of months, and there are fears of hard landing or stagflation, but you know, we're still looking at you know, certainly less than the fifty to fifty chance of a recession this year.
They could see employments fairly solid and the Fed.
You don't want to fight the Fed, and the Fed could revert to easing mode again.
Burn's always a pleasure. Thank you so much, Burns McKinney. There. He is Managing director also Senior portfolio Manager at NFJA Investment Group. Joining from Dallas, Texas here on the Daybreak Asia Podcast. Thanks for listening to today's episode of the Bloomberg Daybreak Asia Edition podcast. Each weekday 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 Prisoner and this is Bloomberg
