Insights on US-China Trade Relations and Market Outlook

Welcome to Brendan. Um, we met about 18 months ago. He was one of the speakers at our our market outlook event at the

start of the year and Brendan's uh based in New York and couldn't be better timing for coming coming over here. Um,

we've just had the US China um trade ceasefire, 90-day pause on the the tariffs. Um, before we go to Brendan,

and I promise it'll be worth the wait, I want to just hear from the audience, um, with the blue and red cards, do you

think this 90day pause is a shortterm effect, uh, in in blue or with your red card, if you think it's going to have a

longerterm positive impact on the the two economies? Looks like red. Okay. Interesting. Um Brendan, why don't we we

hand over to you? What what's been happening? Talk talk talk us through the the latest. Well, I mean, first first

and foremost, thank you so much for be back um in the beautiful city you call home at that event. It was uh it was

really a very pessimistic time um that that you know the Chinese market you know had three years of um double digit

negative return and since January of last year you know you know it feels like the market's flat you that that

you've had these you know kind of rips followed by dips that that the market rallies and it

feels like two steps forward and two steps back. But but the reality is the the the market, you know, out of January

of last year, it it rallied out of that and it faded. And then in September, we had the big uh Chinese stimulus uh

really geared to real estate and addressing the real crisis they're having there. I mean the market rallied

and then it faded and then we had deepsek in January and the market rallied and then we had liberation day

and the market fell and then it started to come back and so so net net you you'd say you know gosh the the market is is

flat or down but but it's up a lot. It's up over 50%. And again, it might not feel that way because of this two steps

forward, two steps. It feels like two steps forward, two steps back, but it's really two steps forward, one back. And

and and that's where if you're actively rebalancing between these moves, it's it's actually been a a really good

environment. Uh and and again that's where the one the one investor who loves China are technical analysts because

they they would say higher highs and higher lows is an uptrend. I mean I mean and that is what what's happening and um

you know around you know around the trade war and this 90-day truce. I was thinking you know you know being here in

Singapore you know you know Lie Kuan Yu and Donald Trump have nothing in common. I mean, literally nothing other than

maybe one thing, which is they're pro business. And Donald Trump is pro business. And you know, he he acts

irrationally on purpose because rational people don't know how to deal with a crazy person. You know,

he uses chaos to his advantage. He he associates with some you know nefanderalls you know

you know I'd like to see Peter Navaro's degree from Harvard because that you know strategies that replicate the you

know what caused the great depression or the 1929 stock market crash like who who would rationally but but but the

hawks are they have a place they have a case uh that if you're going to negotiate like when John Bolton said

that the United States should actively u use nuclear weapons on Iran and and then when the US went to Iran he Trump

brought I mean can you imagine being the Iranians and John Bolton walks in as part of your negotiating I mean it's

it's it's a tactic um and I think I think you're seeing the pivot that You know, Tim Cook went and

met with Donald Trump and said, you know, an iPhone in the US is going to quadruple in price and and what what

immediately happened? Trump, the tariffs on electronics were lowered. You know, three weeks ago, the CEOs of Walmart,

Target, and Home Depot went and met with Donald Trump and and lo and behold, what happens? You know, a trip to

Switzerland. And obviously I don't know what they said but my assumption is they would say that they said you know we are

going to run out of the cheap stuff from China Americans love by you know at some point in June. Twothirds of the US

economy is consumption expenditures. And who who has more to lose in a trade war? the economy that's twothirds geared to

the consumer or the Chinese economy which which I think you know um export-driven manufacturing is not

they're they're far less dependent today uh particularly to the US than they are in the past and and that explains you

know both sides do need each other and and I'm I'm I'm at you know I'm hopeful this 90 days leads to you know I I call

it a positive path and and a positive path, you know, could have, I think, farreaching implications and I think is

arguably underestimated by by markets. I think there's a lot to unpack there. Uh, and I'm excited to to dive into it with

you uh over the course of this evening. Um, why don't we focus on that that tariff truce um for now um zooming out a

little from the 90 days. Um, what do you think President Trump's end game plan here is?

I think the there are several strategic industries that Donald Trump wants to see to bring it back, you know, and and

and you know, are you going to bring back rare earth processing? Um, you know, smelting, you

know, no. I mean, there's no appetite. you know, you know, Americans outsource their pollution to people in China, to

people in India, uh, and that way we have great blue skies, but are you going to bring back lung cancer and asthma?

Like, I don't think so. So, so, so they've said there are a few strategic industries where, you know, the supply

chain issues, you know, from COVID, steel, aluminum, semiconductors, um, are going to be made in America and

and some of that's for national defense purposes, but but there's a whole host of stuff that you just couldn't do it in

the United States. just labor costs, energy costs, the environmental consequences, and and so this

broad-based bring it all back is is just a misnomer. Um I think it's part of that distraction technique. Um so yes, you're

going to see these key strategic industries. Um but otherwise, I I and then I'm sorry, healthcare is the other

one. Um a lot of medicines. Um and and that's where it's actually it's kind of funny that there are a few Chinese

particularly WooiTech uh they actually have manufacturing facilities in the United States and and when that headline

came out they actually rallied on the news and and then I think the the thing that is missed is you know can Chinese

companies manufacture in the US you know CL's CEO offered President Biden to build a factory and and Biden said

no. Um and and I think you know what a big beautiful trade deal might look like could actually involve you know paving

the way for some of these man some of the Chinese manufacturers to actually do it in the US.

I guess only time will tell. um you teased a little on um the impact of these uh these tariffs, this ongoing

trade war between the the two countries. Um before we dive into that and at danger of becoming a game show host,

let's get those cards out again. Um which of the two countries do you think will be most severely

impacted by these these trade war talks uh extending? Blue for the US and red for

China. Looks like a pretty strong answer for for blue. I I guess they read your newsletter

maybe. And uh yeah, I mean I mean this is some of the work we've done and and and you know part of the problem is um

if you publicly profess that you don't read um it means you don't do a lot of

research. So I think uh going into the trade war probably should have done a little

research from the US side but I I think I think the Chinese government did a lot of research going into it and um in

general uh China's dependence on the US um has declined pretty dramatically. uh more importantly is is just in

general China is is so much less geared to export-driven manufacturing where I think I think the average American

thinks all 1.4 billion people in China are sitting around and making these and and they all end up in the US. I mean I

I I and and and that's just not true that that the um percentage of China's GDP geared to export driven

manufacturing has gone from 36% uh down to 19%. So it's 19% of China's but what we did was then say let let's

strip out things that don't really require manufacturing. So like agriculture or you know if you're just

mining coal and you know and so that that gets China's uh so there's actually this economic term the value of export

manufacturing. So that's that's 12 and a uh I'm sorry 11 1.5% of China's GDP is this value added manufacturing and then

the US is about 15% um of where China's exports go which means you're looking at less than 3% of

China's GDP is is explicitly geared to the US. Now, now yes, there's trade that comes through here in Singapore or Hong

Kong. Uh, so I think it it's probably a little bit bigger, but but you contrast that with the US where twothirds of of

of GDP is driven by um consumer consumption, which which means the US is at significant risk. The the other

factor um is that that that the trade war is is it's it's very specific on goods. Um, and a a good is by definition

something like, you know, using my phone again, that this was made, you know, this was made in China, uh, by a US

company, you know, manufactured by a Taiwanese company, um, and then put on a boat or a plane. And so this is

considered a Chinese export, even though all of the money goes to a company based in Certino, California. And so that's

where this is um there's two elements of that. One is a good is something put on a plane or a boat. Um and it doesn't

include things that don't require that like financial services or lawyers. And so so so services are not included. And

why is that is because the US is the largest exporter of services globally. So Trump it it's a goods trade war. It's

not a goods and services trade war because then people like like you know you know China could say well why are we

allowing Goldman Sachs or Morgan Stanley in in China or all these law firms. Um you know um so so that's not going to

you know Trump doesn't want that to come up. The other thing is is similar to to this is that that I think part of the

the misnomer is that the Chinese government considers this a US export e even though though this is made in

China, it's made by a US firm and and if you take the Nike factories, you know, you take um all the

US companies that run manufacturing in China, um and then sell that in China or or

then it ends up in broader Asia, there is no trade deficit. And and and it's it's such a simple like

calculation. Um but but that that that is again it's the details that um you know again it's a goods trade war and

that's where I think it's part of why the the Trump is pivoting to um to resolve this or starting down that path

is because there's a lot more levers China could pull. I mean, you know, going after

services, going after the US companies that manufacture um that that becomes highly problematic and and then that's

part of, you know, um you know, if you're worried about, you know, the which stock market has more to lose, I'd

be like, oh, well, you know, what's in the S&P 500? you know, Apple, Tesla, you know, Nvidia,

Qualcomm, you know, my favorite is going down to Texas and telling people from Texas, you know, Exon Mobile makes more

than 10% of their revenue in China. You know, I'm I don't own China is a fallacy because the S&P 500, um, according to

Apollo, uh, it's 1.1 trillion of S&P 500 revenues come out of China. So, so there is no such thing as EMX China or you

know I don't hold China because of uh the US multinational revenues. But it I think that 2.3% number versus

the the 10 and the the even bigger numbers through the S&P that's that's going to be uh quite some cards that

that China are are holding. Um this could of course get a lot messier. Um Kenny uh went through at the start

the the poll we did with you the uh the blue and the the red balls. Um fortunately for me, we won't get my math

degree out. It was a pretty clear win. Um what do you think the outlook for for the US and and Chinese equity markets

is? It's um I don't I don't root for US stocks to go down. I don't I don't view

the world as uh you know this black and white or you know you win I lose. So so hopefully US equities do fine. Um at at

the same time I think I think the an effect that's underestimated and I was in Europe two weeks ago and you know you

know people were like you know I mean these were you know investors would say you know you know our our country fought

with you in two world wars and this is how you're treating us you know you know you know this poor guy Pierre in Canada

you know was, you know, booking his, you know, ticket to Ottawa. He's about to become the, you know, the leader of

Canada, but because he was leaned proTrump, Carney got elected. And you're seeing that play out in Australia. So,

so national pride, you know, is is not unique to the United States. And and I think there's a lot of people are voting

with their dollar, you know, with their dollars. uh that there's about 17 trillion of foreign capital invested in

the US stock market and and I don't think that goes to zero, but I think people are taking profits and it's it's

coming out and it's it's going to it's going to go back into European equities. It's going to go back into emerging

markets or Singapore stocks or Chinese stocks. you know, uh, Tuesday night MSCI,

uh, the big index provider, they they they've got a their big index rebalance at the end of the month. And, you know,

my little joke is like, you know, everyone has a favorite finance book, but the most important one is MSCI's

index methodology because it dictates almost 17 trillion of active and passive assets. and and at the end of this month

there's this big rebalance and at the start of the year the US was 66% of global equities and now it's under

62. You know, China's went from 24% of EM to over 29%. So, so and and then so, so it's it's a little bit it's I think

it really is happening that that investors for national pride reasons are moving some some piece of money out of

out of US equities. I think further a field is is if the Fed cuts rates, the dollar weakens and that becomes a

headwind for foreign investors and the US dollar, you know, as well as US stocks have done for the last 16 years.

The US dollar has been a huge tailwind and and if the Fed starts cutting, the dollar is going to fall.

you know, the real risk to US equities um is that at what point do people care about, you know, the the debt, the US

government debt at 36 trillion and and being in DC last week there there's no there's no fiscal conservatives in

either party. I mean, forget Doge, it's it's a rounding error, you know, you know, it's spend spend spend and that

number is only going to go up. you know, you know, this uh I mean, I I'll benefit from, you know, Trump's tax bill, but my

my kids will pay for it. So, so anyway, at some point, you know, that music stops, but but I think I think, you

know, you see money coming back for China. I think it's, you know, the deepseek moment. um that you know it

proved that you know China can can innovate and and if they can innovate as well as the US you know you're still

paying 40 times for Nvidia you know sales versus you know Alibaba at 14 times next year's earnings I mean that's

that's that's the no that's just where the valuation game you know comparison comes in and China is is very

inexpensive good to know someone also has the MSCI index methodology on their their

nightstand. Um, just 200 pages. It's a it's a light read to 207. Uh, but no, if if if you have trouble sleeping, just

pull it out and you'll be out cold fast. It's uh Yeah, you you mentioned their uh valuation. U maybe we we can talk a

little more on on that. Um and perhaps as well any any thoughts on on DeepSeek? Yeah. Yeah. I mean, I think I think you

know, you know, I think the deepseek moment shows um you know, a just you know, you had a um you know, as much as

Trump is a business person, business interests had no no place in the Biden White House. Um there's no

communication, no dialogue with China. There was no effort. It was a stated policy to try to hurt China

economically, technologically, and and it completely backfired. I mean, I feel bad for Apple

that, you know, they created, you know, Tim Cook's worst nightmare, which is Huawei now makes better phones. You

know, the Promate 60 Plus is a better phone than an iPhone. Um, but also, if you're going to curb exports of

semis, the, you know, they figured it out how to do it without it. And so that that just is a crack in the pillar of

American exceptionalism. Um and and it it forces the valuation comparison between the two

markets. And so I think yeah, I think I think that's a little bit of what's happening is this revaluation of like

and of course I'm jinxing myself because Alibaba's financial results were a little off. Um but but the stock has

done really really well. you know, 10 cent and JD on Wednesday and Tuesday had had good numbers. Um, and and that just

for again it it it provides the fundamental basis for why, you know, cheap China tech maybe versus expensive

US tech. Um, and I I actually was looking at this um is that you know you know Alibaba it's too bad like um they

did 997 billion RMBB for their calendar year. So they just missed doing a

trillion. Um but that's double from 2020. But the stock is still

$120 below 120 US. It was 250 and and today it's at you know it

was at 130 yesterday. It's selling off but but you know how is it that revenue could it went from 509 billion to almost

a trillion to almost doubled and the stock is down. But it's it's even, you know, 10 cent, you know, revenues

doubled and the stock's flat. But but some of the other names, you know, Quashu and Billy Billy have doubled

revenue and their stock went from 250 to 50 and 120 to 20. I mean so you know yeah I just feel like um you know an

element is just um you know obviously there were policy errors in China you know zero COVID the real estate crisis

um internet regulation and to earn back that trust that scar tissue um which you know I've felt personally

and professionally it's going to take time which is why why yeah I think it's I'm constructive but I I think it'll

take time for investors to come back into uh the China space and and you know that's probably a good thing.

Got it. Yeah, we we have a long-term focus in our in our core portfolios and I think that's something that's that's

needed with this particular story, right? the the fundamentals continue to look good. Um, but the the rally in

terms of how long it it it lasts and it can leave us uh questioning at times, I guess. Yeah. What what do you

think um could be the the real catalysts here in the the short to medium term for for China? I mean I think I think this

rerating is happening and and I think I think it's it's it's starting you know I I mean and I can try to show I you know

a it's um with the companies themselves. So so Alibaba they they reported that they

spent $12 billion buying back their own stock. They bought back 150 million ADRs in the calendar year. But but you see

that from all of the companies in the space and and why I think that's interesting is because these are tech

entrepreneurs and you know the founder of all of the companies we hold um you know KB's you know China internet funds

our flagship fund but you know all of those companies the founder is the CEO and and so if you thought your company

was about to you I call it a thelma and Louise go off a cliff you know you'd be hoarding cash not buying buying back

stock. So, so they think their company is cheap. And I think I think that's why they're buying back stock handover fist.

The other other real buyer of Chinese equities, particularly the growth names, are are Chinese investors in China that

that we can track their activity through uh the Hong Kong stock exchange. This called Southbound Stock Connect. and and

yeartodate investors in China have bought just about 80 billion US of of Chinese stocks in Hong Kong and they're

disproportionately buying the growth stocks. And you can see that's year-to date it's double what they did in 22 and

23. Um, and again, I think some of that might be because if if if the Chinese government a is is going to offset a

trade war, they they have to raise domestic consumption. And so I think I think this

rerating process is happening. I think it's happening with investors in Asia. it's happening with investors in Europe,

investors in the commodity world that you know if if you if you're an institution in Mexico or or Chile or the

Middle East, you you know China really really well. Um but I think why I think it's early days

um is is that particularly in the US, China is still uninvestable. Um, and and this is from a firm. It's from a New

Zealand firm, a New Zealand based firm called CPPley Fund Research. They they give away a lot of info for free on

their website, but but they looked at at what are professional investors doing with China. And so they looked at uh

335 active funds that have a global uh mandate. And and they w those funds have about 1.2 two trillion and 25% of those

funds had zero China and that and that's with like K web is up like 50% and they have zero China and and

that's because the geopolitical narrative for a US professional investor makes makes China uninvestable like the

media narrative and the geopolitical that if if I'm a portfolio manager how do I walk in and say, "I'm going to buy

China." And and then it's like, "Well, no, no. The Wall Street Journal and Bloomberg News are telling you like

World War III is about to happen." or and and and and you can't, you know, if if if you're a

pension, sure, you have an MBA or a CFA, but your your board of directors, you know, probably gets their

China news from Fox News, you know, and and and that's part of why I think this if if we can get this positive path of

the US and China actually doing a deal, Trump will change the narrative of China in the US and and and that's a big

pool of capital um irregardless of whether or not other institutions are going to move

a lot sooner. Um and and that's where I think people really underestimate you know the the outcomes

of this positive path uh really about a huge pool of capital which is US institutional money coming

back into China. But you know I I mentioned I was in DC last week and uh you know you the the political view of

China is toxic. I mean it's it's really negative and and you know meet you know trying to meet with institutions in the

area you know you know you know they wanted nothing to do you know it was um persona nongradatus uh and then I'd be

like oh yeah you're out of China yeah but your number one position is Apple you know like yeah sure like you you're

you're you know so there's a lot of hypocrisy and uh yeah that's where I think um uh Bank of America's chief

strategy ist at the beginning of the year. Uh this um he put out a great piece. It was called sell the hubris or

uh yes um uh sell the ego and buy the hubris and um you know sell sell the US and buy

China and I yeah so I think I think this this these numbers reverting back is is significant capital coming back into the

space. That money is not going to buy ProChina or ICBC. It's going to buy the growth stocks. You know, that's, you

know, my belief. Makes a lot of sense. I'm inclined to agree. I think that chart on the right

definitely surprises me, especially when I look at K web and our our China exposure in our portfolio this this

year. Um before we kind of open up to the floor, maybe just zooming out uh a little bit post the uh trade truce

um markets rallied. Is

this optimism too too soon? What what do we see in terms of the the medium term? It's um you know you unfortunately we

can't predict the future. So, so, so the stock market is a outward-looking probability, right? It's it's basically

encompassing in all these different views and and I think I think you know the market reaction, you know, has to be

noticed by Trump that that the market wants a trade deal. um and certainly corporate executives who have his ear,

you know, want a trade deal and you know, he'll negotiate, you know, a great deal for for the American people. But,

um, you know, ultimately, you know, I think and then I think from the China side, it's, you know, it's, you know,

from being in, you know, my my take, you know, is that China really wants to address the real estate crisis. I mean,

I think that is and so you you if you can get, you know, put the trade deal, get that over with, you can really pivot

on what you really care about, which is a, you know, a real problem with with real estate in China today.

Thanks, Brendan. Um, we've covered a lot of ground from from tariffs to to AI and and real estate. Um, we're going to take

this opportunity to to open the floor for for questions. Um, if there's anything you you would like to ask,

Kenny has a a mic, so just pop your hand up and he'll he'll run over to you. On another note, why don't I start for

the audience, right? Because we already had some questions written. So, I'll just start off a easy one for both of

you. What is your outlook for the USD and whether you think the rates will continue to

slide? Brenda um you since since the global financial crisis the the S&P 500 is up like

1100% and and the US dollar is up like over 40% since April of 2011. So so you know if if if US stocks robbed the bank

the US dollar was driving the getaway car. you know, it's it's just this huge tailwind that that helps US stocks. And

I think it it's also fueled the dollar strength versus the Singapore dollar or versus the REMI or obviously the Hong

Kong dollar is pegged, but but you know, the the dollar's outperformed every currency globally for the last 10 years.

I mean, it's beaten the Swiss Frank, you know, you name it, the dollar's beaten it. And so as as foreign foreign

investors, it's it's such a huge tailwind to have dollar denominated assets and and and I think that can I

think and that can change a just because interest rate differentials determines foreign currencies in my

opinion. And I think as the Fed eventually cuts, you know, because the economy is slowing, um, that that

that currency tailwind becomes a headwind. Uh, that that that foreign investors are going to run into a

problem that, you know, regardless of what US equities do, if just because they're in dollars, you're losing money.

That's problematic. And and then again, I think you it's kind of funny on you know, if you visited New York out on 6th

Avenue, you know, you know, they they would have the debt the dollar debt clock and and I noticed that that they

moved it. It's it's in between Fifth and Sixth on like 45th Street. I mean, and it's on the side of this building in

like a weird angle, so it's kind of hidden is what I'm saying. And um you know you know the Chuck Prince the

former CEO of Cityroup you know they said you know you know with all these mortgages I mean this was in 2007 you

know all this mortgage stuff housing prices like why are you still doing all these home loans and he famously said

well you you have to keep dancing while the music's playing and and at some point you know there will be a Liz Trust

moment of like this debt all of a sudden people well care about it and you know the thing is yeah the Doge stuff is

great but it's there's four you know Medicare, Medicaid, Social Security and defense and increasingly interest on US

debt. Um and and no one's there's no fiscal conservatives and Donald Trump is not a fiscal conservative. Um and at

some point people will care. you know, the bond market, the bond vigilantes, um, will create a big issue at some

point because of the the size and scale of 36 trillion of US government debt, you know, up from zero

um, you know, 26 years ago, right? Yeah, I'm I'd say I'm inclined to agree. I think something I'd I'd add as well,

particularly for a Singapore-based um, investor group. uh look this year already we've seen the the sing dollar

appreciate 5% against the the US dollar if we look at interest rate differentials we we can just map out

where that's going to continue to to go and I think one thing for us that has been important you know we we have sing

dollar denominated portfolios that are generally invested in USD denominated uh assets and ETFs and so on is we have to

be thoughtful around that when we're we're going through performance. Um, but certainly inclined to agree. Uh, you

mentioned Liz Trust. 90 days does sound like quite a long time now. Do we have a a live question? Um, if not

or are there any more in the Q&A box? Oh, we have one over there. Yeah. Hi. Yeah. So, just on my name is

Mark. So just on China again uh I mean we hear a lot of anecdotal evidence of like uh you know unemployment empty

malls and you know and in the cities and everything uh consumption spending is down uh you know with this kind of

economic backdrop. Yeah. And then now there's tariffs even though it's brought down there still going to be 30% on uh

Chinese goods. Uh with this kind of backdrop how could we see a meaningful economic recovery in China? uh and with

that you know a market uh recovery you see so you know for this year and beyond. Yeah I think um in January

um you know I was in Shanghai and um you know Mark one the what surprised me was the only thing

anyone wanted to talk about in Shanghai was real estate. uh that that you know this blue line the

top line is consumer confidence in China and and you can see even during zero COVID consumer confidence actually

stayed stayed high and and what killed um consumer confidence in China was uh the government implementing you know

they call it the three arrows where they were you know a they were looking at the the big levered real estate developers

the Everrand and country gardens. But but also the government is very worried about uh this infatuation with real

estate investing that um you know Chinese citizens have a very very small amount of their savings in stocks you

know relative to u bank deposits the bond market but particularly real estate and and the this this real estate

crackdown u it it it's it's really material ly impacted households, the household

balance sheets, you know, in Shanghai, you know, everyone was talking about real estate. I was like, "Yeah, but you

know, I see all these cranes." And people are like, "Listen, you're in Pudong, right? You're in the, you know,

the richest part of of China, the one of the richest part of the world. then you know there's no problem building in

Pudong but you go to a tier four or tier five city you're talking about a 50 60 70% draw down from the highs and if

that's your retirement fund and and you lose 70% you're you're becoming exceedingly

conservative exceedingly fast and that's that's why the government has made a real policy you know starting in

September tember, you had this real policy shift toward uh towards stabilizing real estate, you

know, trying to incentivize and and you're seeing the tier one cities are actually showing um um an an

improvement, but but that that's like rich cities like Beijing and Shanghai and Shenzen and and if you go to these

lower tier cities, it's still a very very uh debilitating situation and and and so we've seen you know the

government you know focused on real estate and then they are trying to raise domestic consumption to offset you know

I think uh you know they weren't exactly sure what what Trump was going to do so they've been they've been stimulating to

try to raise domestic consumption uh but they've been doing it kind of incrementally and and I think now that

now that Trump has kind of shown his hand that that he was going to negotiate really hard. You're you're seeing an

increased push. Um and I don't know if I have it in here. Yeah. Anyway, like you know the the the the level of savings in

China is is actually and you know obviously the Chinese people save very you know significantly but but it's it's

way above trend even for even for the Chinese citizens. And how do you you got to get some of that money out of bank

accounts and um get it in. And so that's where you're seeing these consumer subsidies on auto, which includes EV and

hybrid, home appliances, uh consumer electronics, um and that and and then JD

really spoke about that in their earnings on Tuesday that um that their uh home appliance and uh electronic

sales went up 17% year-over-year. So, so it is actually working and obviously you see that in in the auto and EV space

just with BYD and um you know a whole host of others. So, so yeah, I think I think I think the the the government is

is very much geared to addressing this issue out of necessity and and it's arguably still um early in that process.

So, so you know it's kind of funny like um because everyone asked about you know uh China's GDP I'm like well it did 5%

you know the US did like two you know like you know five is pretty good versus two you know the the value now that

China's economy is the second largest in the world I'm like the value of 5% growth is so much larger than 20 years

ago when it was growing at 20%. But but you know we're we're you know our brains are kind of wired on

this this percent change versus if we look at the value of change u it's it's it's it's a much better situation in my

opinion. Hi, undervalued stocks both markets China and US which areas

well in in in the in the you know the US I mean obviously the the overvalued part of the US market is has been the the mag

seven the tech stocks and and and and there there is a reason for that which is the the earnings per share growth the

revenue of those companies over the last 10 years has just been absolutely incredible.

So this American exceptionalism is built on a fundamental case. The question just becomes um you know you know just you

know with with with part of that thesis was you need these super high-end Nvidia chips, you're going to need more data

centers. You're going to need more energy. And and what Deep Seek did is is basically say, you know, maybe that's

not not purely true. I I just I still think there's going to be a lot of AI in, you know, globally. I don't think

that's changing. It's just saying like maybe you just don't need to pay as much for it. Um so, so within the US, the

real driver has just been, you know, a very small segment. You know, the the average stock in the US has not done

very well. Um and and maybe you're going to see a little bit of a rotation there. um within China the way you know the way

we think about China is you have this onshore market the Shanghai and Shenzen and and kind of to Mark's question on

you know that market has done not well because because that market is 95% owned by investors in China and the stock

market is like a a barometer of consumer confidence and it's basically saying thumbs down so so Shanghai and Shenzen

is has has really underperformed um the offshore market where you have more of the a lot of these technology

companies. Uh you're starting to see this pickup since January of last year. So, you know, you know, it's it's self-

serving and highly biased that that I lean more toward China tech versus US tech just from a pure valuation and and

the rerating of China, I would argue, has a lot further to go relative to that the expectations on the US stocks, it's

just a high bar. It doesn't mean they you can't exceed that bar, but but if you don't, then you've got a real

problem. And I I think I think that's that's um yeah, I think that's that's kind of been the issue of why, you know,

up until I think it was maybe on Tuesday, uh you know, the US market was negative year to date. Um and and some

of that I think is investors just doing that math of well how how can Nvidia you know trade at 40 times

sales and you know just again that Alibaba at 14 times next year's earnings. It's I mean that that's a

crazy disparity minus five in sing dollars for the S&P 500. Um

Yeah. So two questions. So one is what's going on with healthcare in US? So I mean it looks like even with optimism

that's probably one of those sector which continues to be in red. Uh which supposed to be a defensive sector. So

maybe you can comment on that. I think second thing on China I think as you mentioned with this whole trust policy

issues China seen as not investable. Uh even this whole stimulus hasn't worked. But I think there's also one big thought

that the data coming out of China is not very trustworthy. So you being a China expert, how do you see data coming out

of China? How do you you know look at it? Do you trust it? And what you think will change you know the the China go?

Yeah. Yeah. on on US healthcare. Um, you know, it's it's an area where I think there was a lot of optimism that Doge

um that there's a lot of fraud and waste um and and and President I think President Trump brought up a good point.

You know, why why does why do Americans pay five to 10 times more for the same drug? Um and and so I think there's a

lot of scrutiny um of the intermediaries that are tacking on a lot of costs within the

health care system. Um and and I think you know the you know this unfortunate murder of this you know United

Healthcare CEO um you know some of the public reaction I thought was very disconcerting. I mean

this poor guy you know was just doing his job but but it shows the animosity to

um you know these big health care providers and um ultimately I think there well be a strong examination of

the amount of costs embedded in that system that leads to the US having the most expensive healthcare in the world

but not necessarily the best. Um, and I think that's why that's that's really weighed on the space in terms of of you

know the you know China's you know people's view is um you know capital flows to where it's treated best and and

when you crack down on internet companies when you put online education companies out of

business you know there's a lot of global investors were on the wrong side of that and we can

rationalize why it was done and then you throw in things like the real estate crisis which has weighed on you know

domestic consumption in China um you include things like you know uh zerocoid policy and again we can rationalize why

these things were all done I mean there's there's a reason it just it just from a investor perspective it's just an

added risk. But I I do think the geopolitical is a very significant headwind that you know following

Russia's invasion of Ukraine. it only raised you know what what's what's the China Taiwan endgame and um you know I

think the the supply chain issues during co um you know raises this this issue of you know what what should be what are

the things we re you know we really have a necessity and you know should they be made so I think all of these these

issues you know in culmination against the backdrop of just you know just own US stocks and you know

you you never lose um and and I think that's where you know that that element is arguably changing a little bit but

then you know investors are going to have to earn you know China will have to earn back the confidence of investors

and um people need to be able to make money there and and capital well flow back I I really do believe that but

there's significant you know scar tissue I call it um there's a lot of uh mistrust but but at the same time I

think it is happening you know last November um I I saw um Howard Marx speak here in

Singapore and you know he said you know I'm a value investor and so I like cheap stuff and China's cheap so I'm a buyer

um and he said you know we we owned Everrand debt and when they defaulted, I got one of their buildings. Like I, you

know, Oak Tree now owns a bill, you know, an Everrand building. So he was like, "Rule of law." He's like, you

know, they proved it. So So it it's it's a slow process and um I think I think you know the the volatility in the space

is something that you have to take into account. Um you know you you know there's ways I think to mitigate that.

um you can harvest that that volatility you know you can take advantage of it but but you can also active rebalance I

mean you know you know just I know we're getting close to end but but one I did meet you know I was able to meet with a

uh an institutional investor uh while I was in Washington DC um who's owned us you know owns us and you know

he was like he was like you know it's kind of easy like you know you you buy stuff when it blows up and and then you

you sell it down. You know, you buy low and sell high and and he was like, you know, we we've had this position in K

Webb and then the market really rallied and you so he's like, I I I just brought it back down to my original, you know,

weight and then it fell. So, I bought more and then it rallied. I brought it back down and then it you know I you

know I added to it and then it rallied and and and you know he was like it's actually one of our best performing

positions just by actively rebalancing this position you know these you sell the rips and buy the dips but

but but he you know you have to instead of chasing it you know instead of chasing the returns you know he's he's

he's waiting for these um opportunistic situ situation which you know I think um you know within the the scythe models

you're probably active rebalancing uh frequently right that's that's that's that's the last free alpha right the

last free is you know rebalancing really allows you to forces you to take profits and and and ultimately this unique

period of you know diversification not working because US stocks were the only game in town you know if if that's over.

You know, you know, I think it brings back um, you know, brings back asset allocation, which um, you know, arguably

didn't work for a long time. I think we have time just for one more before we wrap up. Uh, can you give

some feedback about the automobile sectors uh, versus the BYD Tesla and the Toyota how they are

performing? how you see BA uh playing a role in uh destroying the uh the game players market. Yeah. Yeah. I think um I

mean um um I think it was December of last year. uh went to Shenzhen when uh uh went and

met with Tencen and then went cross town to BYD and uh uh they would not let me drive a car which I was kind of

disappointed. Um you know they've got this big showroom where they you know they have all of their models which are

based on demographics and you know how much they cost. So you had the $150,000 SUV and then all the way down to uh you

know their version of like a VW bug and you know um you know so so it's it's it's it's a it's a fascinating I mean

it's a exceedingly wellrun company. When I met with them they were like you know they're like since 2018 they're like our

our revenues doubled and the stock is flat. uh or it was 2019 and I was like well listen in 2018 when the world

discovered BYD because of uh Buffett you know BYD went up like 250%. So I was like you know you got to put in but I

was like listen you're you're a Chinese company and and you know investors don't own China. I actually had this exact

same conversation with 10 cents management. They're like you know we're doing so well but the stock isn't doing

anything. And I was like, well, you're a Chinese company like, you know, no one, you know, so so BYD, I think ultimately

um um you know, is is a real winner. And uh you know, I think I think you know, they do face extraordinary competition

within China. Uh that, you know, every provincial government has said like, "Oh my gosh, look what the Shenzen

government did. Uh so we're going to replicate that." And that's that over capacity issue is a potential issue for

BYD. And it's interesting that even uh yesterday the the government actually they called in JD and Meduan where JD is

like we're going to do restaurant delivery and and we're going to subsidize it and and the regulators

actually said you know we're not going to let you destroy Meduan and yourself like like

kind of like what we saw with DD and Uber in China you know they basically bankrupted themselves and and I I think

the Chinese government is getting a little bit of of of aware of like, you know, it's great there's other EV makers

in China besides BYD, but we can't let them kill a leader. And um I think BYD and CL, the battery maker. Um I really

do think those are, you know, kind of must own stocks or, you know, hold them within a fund or strategy.

Um and and I do think that um an un an un underappreciated element of of what this US China positive path

could be is, you know, BYD already has a factory in the US. They don't really publicize it, you know, especially under

Biden. It's in California. It's outside of Sacramento. They make EV buses for the state of California. Uh but it shows

a Chinese company can manufacture in the United States and and if why why wouldn't you know the you know the US

subsidizes Japanese South Korean automakers you know if if it or German automakers

uh why why not why not let a Chinese automaker in the United States or or at a minimum you know allow them to join JV

with Ford and GM and and CL wanted to do that and Biden said no. Uh that in in January the CEO and found you know the

CEO of CL said I offered to build a factory in Michigan and the Biden government wouldn't let me do it. Um and

and so I think I think there is an ability and desire for Chinese companies to actually manufacture more locally.

You know BYD is building a factory down in um in Brazil. Neo is building a factory in Hungary. So, so it's it's

it's it's feasible and I think that's um that that element is, you know, really

underappreciated, you know, that and for the Chinese companies, they they want to be outside of China, you know, because

because your supply chain problem driven by zero COVID was their revenue problem. And and so, you know, the the China plus

one strategy is really driven by um by Chinese companies going to Vietnam or Indonesia, Malaysia. You know, you know,

I don't know. Aman Aman's going to get married. Uh I'm going to out him here. I'm going to take some liberty, but you

know, Aman is marrying a um a woman from Mexico City. And you know when I I actually went to I was in Mexico City

and I walked into it's called the Sheran Angel. It's right near the big central square in Sheridan. And I literally

walked in into this the lobby and every person in the lobby was an Asian and you know I went to the guy at

the desk to check in. I was like what the heck is going on? I was just like there's literally 150 Japanese, South

Korean, Chinese, Singapore, Hong Kong. I was like, what is going on? And uh this was like two, three years ago. And you

know, he said um because of Tesla's factory in Monteray, these are all Japanese, South

Korean, and Chinese auto and auto parts makers coming to to build in Mexico. uh that they want they because they

couldn't get their stuff to the US, they're going to put their factories up in Monteray and that

way you can just hop over the border and and so again I think um yeah it's why you know you know I'm I'm you know you

know again I'm I'm just really hopeful this positive path takes place and and you know you could see some really some

things out of the ordinary and um at the downdraft I would say one, it shouldn't matter because non US investors are

already reallocating back into the space and and at a bare bare minimum, you know, Aman will have a great wedding in

Mexico City and uh we should all celebrate that. She'll be thrilled she came up uh a

scythe client long before I worked here, but I don't think she's shown up. She was threatening it.

Uh we're we're out of time, so we we won't be able to go to the BYD showroom a little earlier on this this road, but

if this was a morning event, maybe um before I I close and and thank Brendan for his his time, just wanted to share

some of the ways that you can access China and crane shares through Scythe, of course, we we covered our our

flagship core portfolios. Um they have exposure to China and indeed KWE, which Brendan talked us through earlier on. um

within our thematic portfolios as well. We've partnered with Crane Shares and we're very thankful for that partnership

on our China growth portfolio and of course on our brokerage platform. All the crane shares ETFs are available. Um

with that Brendan, thank you for your your time today. Thank you to the audience for your participation and I

believe dinner's been served. Okay. Well, thank thank you man and thank you for everybody and certainly yeah we

should work on the scythe uh crane chairs BYD visit. We're happy to set happy to arrange that expensive Yeah.