March 26, 2025 • 27 mins
After underperforming for years, Chinese stocks are on a tear, rising more than 16% so far this year and outpacing many regional and global markets. The advance is led by growing optimism that technological breakthroughs like DeepSeek and a sustained pivot to consumption by Chinese officials will help boost demand.
But there are questions about the sustainability of the rally. Have fundamentals for China really improved? And are investors ready to ditch US exceptionalism and Europe’s revival to invest in China equities? If the 2015 market rally and pullback is any guide, investors should brace for a near-term correction, even though equities have entered a bull market in the next 3-5 years, according to Winnie Wu, chief China strategist and co-head of China equity research at Bank of America. She joins John Lee and Katia Dmitrieva on the Asia Centric podcast.
See omnystudio.com/listener for privacy information.
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
Chinese equities are on a tear, and it's led by
technology breakthroughs like Deep six AI model and BYD's super
fast charging EV battery are reminders of China's innovation. Today
we're sitting here and of March, the Hangsang China Enterprises
Index that tracks mainland equity is listed in Hong Kong,
(00:23):
is up almost twenty percent this year, ranking it among
the best performing around the world.
Speaker 2 (00:29):
But we've had false stans before. Some investors are questioning
whether things have really changed. China's property market remains weak.
Officials are still struggling with deflation. The pivot to consumption
to lead growth has yet to bear fruit, and now
we have the onset of US tariffs. You're listening to
(00:51):
Age Eccentric from Bloomberg Intelligence. I'm John Lee in Hong Kong.
Speaker 1 (00:55):
And I'm Katydmitriva, also in Hong Kong.
Speaker 2 (00:58):
Today's guest is Winnie Wu. He is the chief China
equity strategist and co head of China Equity research for
Bank of America Securities. We need welcome to the show.
Speaker 1 (01:08):
Thank you very much for having me so, Winnie, I
guess the first question is given the topic, what actually
is the leading Chinese stocks right now. Why have we
seen this rally?
Speaker 3 (01:20):
I think the rally to some extent is a continuation
of last year. Right September October we saw a big
round of China rally and that was mainly driven by
the policy pivoting policy stimulus, that people are getting more
optimistic about China monitary, physical easing, that they're going to
do more and prioritize growth over other things. But more importantly,
(01:43):
this year's rally are driven by two additional factors. One
is the technological breakthrough right Deep Seek clearly was a
big while to the global investors. That changed a lot
of the consensus understanding of the future of AI, the
global competitive landscape of AI, and also the perception of
(02:04):
whether China's private sector is still competitive and innovative right,
whether the animal spirit it still exists in China. So
I think, you know, this technology breakthrough is a very
big factor. But the other thing is also the understanding
geopolitics and the so called policy certainty, policy visibility. You know,
for the past there's a lot of criticism on China
(02:26):
lack of policy visibility, the lack of policy direction clarity.
But I think this year actually people feel China's policy
visibility is better that we know if say, you know,
consumption deflation, if the export grows, weakens, right, if economy struggles,
Chinese regulator are going to do more, and they've vowed
(02:48):
several times, you know, from September October last year to
January to the reason m PC they said they're going
to launch more policy to support economies.
Speaker 4 (02:56):
So people actually are getting a bit.
Speaker 3 (02:57):
More confident about the policy put for China, whereas on
the US side, whether there's tariffs, no tarriffs, ten percent,
twenty percent, arriffs on what and who is actually quite confusing.
And also other non tariff barriers, including some of the
Chip band's export controls, are also leading to a lot
of confusion.
Speaker 4 (03:17):
Sort of a flip.
Speaker 1 (03:19):
It's a flip from what we've seen in recent or
past years with US and China than.
Speaker 3 (03:23):
Totally so to that extent, the policy discount on China
has largely reduced and the equity risk of premium on
China because of you know, China has no innovation, has
no future, have no growth in the AI era, that's
also completely reversed.
Speaker 2 (03:40):
So we have to ask, is this time really different
for Chinese equities because we've had quite a few false
starts before.
Speaker 1 (03:48):
Yeah, and we've had false even with the government with
a certainty. I mean these policies, are they really that certain?
Speaker 3 (03:55):
I mean, I think market always have ups and downs, right,
And we always say that from equity market perspective, market
leads fundamental in terms of the GDP cycle, in terms
of the earning cycle, but it typically leads by a
couple quotas.
Speaker 4 (04:10):
It doesn't lead by twelve months.
Speaker 3 (04:12):
So from our perspective, the way to evaluate whether this
rally is sustainable it's always are we seeing the fundamental
turnaround in the foreseeable future? This time around, I think
the technological breakthrough is very significant in the sense that
hopefully it stopped the so called downward spiral that market
worried about in the past few years. That you know,
(04:34):
every segment in the economy from local government to big
corporate to general household or in the sort of deleveraging
the risking balance sheet recession type of mode. I think
that deep Seak really helps signal reversal of the sentiment
of the morale. After the breakthrough of deep Seak, we
saw local government are getting more pro growth, right, you
(04:56):
know there's a healthy competition between the higher tiers cities
like shang Gan. People are asking, hey, why the deep
Sea Unitary robotics are both based in Haunjo, Why it's
not changing, why it's not Beijing, why it's not showing
high So the local government are shifting their focus to
more on how do we promote future growth? After deep Sea,
we see the leading internet companies which in the past
(05:18):
few years we're very much focused on efficiency, games, buy bags,
increasing playout to now doing capex investing for the future,
which is very encouraging and even at individual household level. Previously,
the perception is all the smart young kids or rich
entrepreneurs are or fleeing.
Speaker 4 (05:37):
Away from China.
Speaker 3 (05:39):
But the breakthrough of deep Sea and Unitary are very encouraging,
inspiring in the sense that the founder teams are very
much homegrown talents. Many of the funders never been to
Western education. So suddenly the smartest kids in the Chinese
university like Beta, like Picking university like Tin. They see
a future, right they can do something really cool staying
in China rather than you know, trying to flee the
(06:01):
country or just working for the governmental soe s a right.
So I think you know, this time is different in
the sense that the technological breakthrough hopefully signals a buttoning
of the downward spiral and starts a more upward spiral
going forward. That there's more animal sperit, there's more entrepreneurship,
there's more appetite for investment. But having said that, technological
(06:25):
breakthrough is a little bit random in timing, right why
is it January?
Speaker 4 (06:29):
Why are they not March?
Speaker 3 (06:31):
But the short term impact of this breakthrough broader economy
on corporate earnings, on the problems we discussed earlier, deflation,
job employment, in our property market, the short term impacts
too insignificant.
Speaker 4 (06:46):
That's why when.
Speaker 3 (06:47):
Equity market rallies too hard, when equity market run too
much ahead of the fundamental, we could still see pullbacks,
or sometimes significant pullbacks. So I'm not saying that you
know market wouldn't go back. In fact, our report last
week we're saying, hey, hcim as said, China rallied thirty
percent in two months, so investors need to be mindful
(07:09):
of the potential correction in the future. But having said that,
our view is still that this is probably a structural
bull market that we are seeing. The correction dips in
the structural rally in the next three five year horizon,
and on.
Speaker 1 (07:23):
The structural part of it, because obviously this has to
continue if you're betting on Chinese stocks, then I guess
the question that is, you know, is there enough government
support behind it, because a lot of it will depend
on both government support of the sector in general, but
also consumption.
Speaker 3 (07:41):
Yeah. Absolutely, on the government support side. It appears that
government is kind of still evaluating the situation. Yes, we
got ten percent tariffs in February and in March, and
we might get more in April and April. Second, but
exactly how is the impact of these terriffs. I think
(08:02):
this is evaluating because since twenty eighteen, Chinese companies have
been diversifying away from the US market, right, many have
been building up factories in Asian market, in Mexico in
other parts, and they've been you know, exporting more to
say Middle East, more to other Asian economies, more to you.
Speaker 4 (08:21):
Know, global cuts. So how big.
Speaker 3 (08:25):
Is this terriff impact on China's export and export related activities,
in terms of manufacturing compacts, in terms of employment. It
probably still takes a few months to be seen. Also,
I guess you know, market is expecting this meeting between
presidents and President Trump, and in the meeting there might
be more discussion about how the two country can work together, right.
(08:48):
I think both leaders have kind of indicated that it's
in the best interest of the two countries to work
together rather than have a tense relationship. So the upcoming
meeting between the two leaders will also be very important.
I think at this stage, you know, from Chinese policy
maker perspective, it looks like first couple months of micro
(09:08):
data are fine, right, and property market in fact, in
the past five months since October last year, was showing
good trends in terms of better transaction volume, some improvement
in transaction prices, especially in higher tier cities, and even
the recent lend auction lens sell were very strong in
(09:29):
January February, So it doesn't feel like, you know, they're
in a rush to launch the policies. But as I mentioned,
this is probably a policy put So if in the
coming months, let's say, export jobs significantly or activity data
consumption data jobs significantly, then regulator will probably do more.
Speaker 1 (09:49):
Okay, So you're saying that on the consumption front right now,
things are looking okay. And they have these this arsenal
policies in the background that they could deploy if necessary.
But what about the support for the sector. If the
stocks are being driven by deep Seek and this tech moment,
is their government support to back this interest? I mean,
(10:11):
this is a government that's very happy to intervene in
private sector. So is that support there to kind of
keep this rally going.
Speaker 3 (10:19):
I don't think we should beat on government support to
keep the tech rally going. I don't think that's something
Gum will do. So I would say generally speaking, China's
industrial policy has been supporting this hard tech deep tech
right from you know, semiconductor advanced manufacturing to AID. There
is a general policy support and there are state fund
(10:42):
to invest in these related areas. But Deep Seek in
itself was more of an accident. It's not something to
plan for, it's not something government policies support it.
Speaker 4 (10:53):
It's it's really the.
Speaker 3 (10:54):
Innovation by a private sector company, which it was not
so much under radar screen for aio semiconductor or these innovasians. Right,
it was a quant trading company. So yeah, I mean,
I think so far the best performing stocks, their success
are also more because of the bottom up innovation, the competition,
the market forces. I don't think the support is something
(11:17):
that will drive the tech value Asia.
Speaker 4 (11:19):
Another leg up.
Speaker 2 (11:21):
Asia Centric is produced by Bloomberg Intelligence, where more than
five hundred experienced analysts and strategists work around the clock
to bring you timely, world class research. Our coverage spans
two hundred market industries, currencies, commodities, and industries, as well
as over two thousand equities and credits. To learn more
about Bloomberg Intelligence, visit bi go on the Bloomberg terminal.
(11:43):
If you like what you're hear, don't forget to subscribe
and share. I want to draw analogies to the US
led AI rally and China's AI rally. Now, when chat
GPT came out, I think two or three years ago.
A few months later, I remember Nvidia had a bumper
earnings and then US analysts were raising earnings estimates quite aggressively.
(12:06):
Now in China's equity driven rally, are we starting to
see Chinese equity analysts raise estimates.
Speaker 3 (12:14):
Yes, but marginal compared to the type of multiple expansion
that's expected. Right when I look at our analyst earnings
result on some of the biggest tech companies, reported result
is typically earning's upgrade its single digit, but po upgrade
will be high double digit, so a lot of its
multiple expansion. So in my recent report, I showed the
(12:38):
valuation gap between the Magnificent and seven the US big
tech versus the top ten Chinese tech companies. Beginning of
the year or end of last year, the Magnificent sevens
pe multiple were trading at something like one hundred twenty
one hundred and thirty percent premium to the Chinese tech names.
Within two three months now the value gap is narrowed
(13:01):
to only thirty percent, So a lot of the China
tech rally was more by multiple expansion, not so much
of earnings. But you know, to be fair, they were
training at a very depressed valuation multiple to start with.
Speaker 2 (13:13):
Right now and this rally. Do you think that most
investors caught this rally because it was really quick. If
you look at Ali Barber's share price, I think it
went up sort of sixty eighty percent in the space.
Speaker 3 (13:25):
And in two months.
Speaker 2 (13:26):
In two months now, institutional investors, it's pretty much too
quick to catch this rally. What's your sense?
Speaker 3 (13:34):
Yeah, I mean, I guess you know, hatch fund investors
probably respond much more quickly.
Speaker 4 (13:39):
I think for long.
Speaker 3 (13:40):
Only investor it is really hard, partly because, like you mentioned,
the China rally happened very very rapidly, and it's a
very narrow rally. It's basically a handful of tech stocks
that's done really really well. I mean even ten cent
end the performed during the tech rally, and even if
you overweight China Tech, if you are not in those
few names that done exceptionally well, you might still end
(14:03):
up perform. Also, I know some like Greater China Fund
that would have Taiwanese stocks in the portfolio a right
TSMC would be one of the big positions again this year,
unless you are one hundred percent in China Tech, you
would end up performed again because China alone was the
best performing market. So I think a lot of investors,
(14:26):
especially lonely investors, are having a sort of challenging time
in terms of trying to outperform the rally. But nonetheless,
China market going up with increasing interest and hopefully more
fund the inflow is still a good scene for the market.
Speaker 1 (14:41):
Did you feel that energy You were just at a
tech conference? Was it in Taiwan?
Speaker 4 (14:46):
Yeah?
Speaker 1 (14:46):
Yeah, you're at a Tech Conference in Taiwan. Can you
kind of take us behind the scenes of that. What
were people saying, what were they discussing.
Speaker 3 (14:54):
Yeah, so this is our twenty eighth Asian Tech conference,
and this year we again had nearly record high number
of investors and corporate attending. So the interest level certainly
still very very high. I think generally people are still
very Polish, very confident on the future of AI. Right.
The deep seek actually kind of democratized the technology so
(15:16):
that there will be more application signarios, you know, more
smaller companies are able to leverage AI and have AI demands.
So there is this general optimism on the future of AI,
you know, Agente tic Ai, Agi whatever, super AI. But
on the other side, I think from an equity market perspective.
Speaker 4 (15:34):
They are all more mixed feeling.
Speaker 3 (15:36):
About the stock performance in the sense that whether it's
the US tech names or Taiwanese tech names, when you
speak to the corporate the guidance remain very positive, very confident.
Speaker 4 (15:47):
But when I look at their.
Speaker 3 (15:48):
Share prices, share prices actually struggle to suffered suffered from
multiple de rating, right, which is kind of the opposite
to the Chinese tech stocks. So at this level what
do we do right reduce the exposure to US tech
Taiwanese tech to trade the rally of China tech or
do we hold on to our position of the US
taiwan tech. That's really a quite challenging question.
Speaker 4 (16:11):
What's the answer.
Speaker 3 (16:12):
I don't think there's a concise answer, but I would
say so far based on the past few days sentiment,
it tend to be let's hold on to our US
and Taiwanese tack and do not trace the stocks that
already went up eighty percent in two months. And I
think the final part of the conference is there's this
concern about or discussion debate about how countries, especially like
(16:36):
US China should or can work together in the AI
era right, because AI brings a lot of opportunities benefit
but it does bring risks and challenges as well. So
you know, the two biggest players US and China in
this changing world, if they can work together in terms
of managing the risk, setting the standard, cooperate, it will
(16:58):
probably benefit the broad their human society. On the other side,
the concern is if the two countries are more in
a sort of competitive mood rather than working with each other,
then it might not be the best usage of resources
might not be the best for promoting innovation and might
not be the best for managing risks. In fact, one
(17:19):
of their experts said, managing the risk in AI is
almost managing like nuclear related risk. Country nation states are
not your biggest enemy because countries are generally going to
be responsible of how they use their weapons or resources
or their powers. The real danger are those like rogue actors,
(17:40):
right that.
Speaker 4 (17:41):
They could really go on extreme.
Speaker 3 (17:43):
And take advantage or manipulate the capability the powers. So
the big countries should really work together to prevent the
risk from these rogue actors rogue players, rather than fighting
with each other on country level.
Speaker 2 (17:56):
When you wanted to take a step back, sounds like
you were structurally on China, and that's sort of like
a medium term view. But you did come out with
the report recently and you did suggest it could be
a market correction.
Speaker 3 (18:10):
You explain, yeah, so again, you know, market price is
reflective earnings and multiple as our earlier conversation went through.
So far, we see some improvement in earnings in tech
related names, but there's still broader level many other company sectors,
their earnings still struggle, and we'll probably see more of
(18:32):
that in the coming weeks of the earning season, and
with the uncertainty of terriffs trade wards in the coming quarters,
things my need to go worse and before the governor
stepping with bigger stimulars to put the floor and before
the company further adjust their business model to handle. So
coming quarters chances are China's nominal GDP growth will still
(18:56):
struggle and the pressure many corporates earnings were still structural pressure.
Whereas equity market, inspired by the tech breakthrough inspired by
the policy, certainty already pricing a lot of positive news
and had a very sharp rally, to the extent that
valuation multiple of MSI China Index is now trading at
twelve times forward pe, which was the previous peak in
(19:19):
October seventh, last year's level, which was the peak at
post reopening high in January level January twenty twenty three level.
So we are a bit cootious that at this valuation multiple,
which looks fair to us right, good news are being pricing.
So the policy put the technological breakthrough the potentially structural
upcycle in the next few years, whereas the near term
(19:42):
challenges has largely been overlooked in the past couple of
months and one good news are in the price, bad
news are not. Then what could potentially come next is
markets start to pricing these negative news is especially the
challenging and fundamental things in terms of the macro data,
in terms of the earning data. And also we are
(20:04):
facing this event of April second, right, this global reciprocal tariff.
For what does it mean for China? We still need
to evaluate. So that's why we would advise the investor
for the short term to take a more courtious view
and having the evaluation to wait. Stock market probably need
to take a pause, wait for the fundamental to catch
up before the sheer prices can a new highs.
Speaker 1 (20:26):
Again, I'm wondering how much the US in this case
because you had mentioned this earlier, but this idea of
the flip in sentiment between certainty in the US versus China,
and I wonder given the reciprocal tariffs and just tariffs
in general, and investors looking at the stock market trying
to figure out what's going on in the US. We've
seen this erosion of American exceptionalism and the American exceptionalism
(20:47):
trade and I wonder how much of that might be
able to create a bit of a buffer and in
fact help Chinese equities because we've seen that with European
stocks too. It sounds like everyone is just leave. It's
there's that sucking sound. Is money leaving the US.
Speaker 2 (21:01):
And I think there was a survey by your firm
that suggests record money is leaving the US.
Speaker 3 (21:05):
Yes, yeah, I think that played out a year to
date already to some extent. And that's why the European stocks,
the China stocks are doing so well. Right the reverse
of fund flow two years ago in twenty twenty two,
twenty twenty three, it's about sell China by USAI, selled
China by Japan, sell China by India. Now, you know,
(21:27):
when people start to reduce their concentration on US that
many other markets actually benefit, especially European and China market.
But having said that, you know, US remains to be
a very very big part of global investors benchmark. Right
so within MSAI world, US is still like sixty three
sixty four.
Speaker 4 (21:43):
Percent of the benchmark.
Speaker 3 (21:45):
China, after the reason of our performance, is still only
three to four percent of the benchmark. So from any
global or US investor perspective, it's still essentially critical to
get the US market right, and after the big sale
of these US big tax stocks, I think the question
is at this level, do we continue to sell US
(22:07):
to long China or do we take away and see
mode right way to see you know, will the fat
cut rate in May? And does the federate cut helps
with the US stock market? Also together with the US
dollar index, right the DXY we can't from one O
night to one O five within the first two three
months of the year. But it looks like dollar index
(22:30):
is also kind of stable light thing, so that might
slow down the fund outflow from US to other market.
But finally, I think our US rategy review is also
when you sell US equity, you don't necessarily need to
go to international equities. You might go buy bond or
you might stay with US money market found. So I
think the first big wave of money leaving US to
(22:52):
buy international including China equities, probably played out with the
narrow evaluation gap between US and China tax stocks. I
suspect will see a period of pause and reevaluation and
waiting for the clarity on the US policies. And also
two tome extent on the US economy. Right, it is
the US economy, consumer space remains sound and solid, or
(23:16):
is the US economy really heading to recessions? So investors
need to evaluate those before they take the next big
step of rotating away from the US equities.
Speaker 2 (23:27):
You did mention Europe, and it's quite interesting because China's
had a fantastic rally, but it feels like China's almost
been overshadowed by events in Europe like the bundjiolds of skyrocketed.
Everyone's buying German defense stocks, infrastructure. If you do get
this switch out of US, do you think investors will
prefer Europe or China?
Speaker 3 (23:49):
I think, from my understanding, going to Europe will be
an easier call for the US investor. One is partly because,
again from a benchmark perspective, European market, if you add
up you know, the Germany, the UK, you know, the
French market at the market within the MSAI World Index
is actually a bigger part of the index than China,
(24:10):
which is only you know, three to four percent. So
from an index risk perspective, it's important to get European
market right. But also secondly, for the European market there's
less concern of like the tail risks, say Sunction risk.
Earlier this month, I was speaking to a COO of
a global long the investor, and he's interested in the
(24:31):
China Deep six story. He's interested in the China Internet names,
which he used to have big position in. But now
for him, the concern is still like what if some
of these internet stocks got added down to various lists? Right?
We saw Tencent add on to the Defense Department's list
in January this year, and from the narrative in US,
(24:53):
it's still that US capital should not be funding the
indigenous development of China's technology a icon and computing. So
you know, among the US investors, there's still this concern
that some of the best technology companies in China might
be added on to various lists which give them sort
of some reputation risk, or if it adds on to
(25:14):
one of the investment band then it's a huge risk
for them. So that's some of the concerns holding back
US investor from buying or chasing the China tech rally.
Speaker 2 (25:25):
I did want to ask you about humanoid or robotic stocks.
What's going on there? It seems to be some of
the hottest stocks of being in this sector. Can you
tell us is what are these companies that make these
humanoid robots.
Speaker 3 (25:38):
Well, you know, I'm not supposed to recommend individual stocks.
Our second analysis does put out the report. I think
one is manufacturing has been China's strengths. Right, China has
a very complete suite along the old supply chain of manufacturing.
So when China is ready to produce these humanoid robots,
China probably has the most complete upstream, downstream component equipment,
(26:02):
everything together and in a very cost efficient way of
producing them in volume at affordable costs. So there is
a natural advantage. And I think you know the reason
breakthrough in deep Seek in Ai and some of China's
robotic company like uned Trees Robots was doing a big
dancing in the Spring Festival gala in China, which which
(26:25):
was pretty impressive, so that made people also more excited
about the theme. But having said that, from a pure
stock market perspective, the feedback from investors is this theme
has been.
Speaker 4 (26:36):
Again in China market.
Speaker 3 (26:38):
People tend to play a three five year theme in
like three five weeks, so many of the stocks already
went up multiple times before they even start to produce robots.
So against stock market probably got overly excited on some
of these names.
Speaker 1 (26:55):
Great, well, it's been very wide range conversation.
Speaker 4 (26:57):
It's been great. Thanks so much for taking so much
for having me.
Speaker 1 (27:00):
Thanks weing you've been listening to Asia Soundrek from Bloomberg Intelligence.
Speaker 2 (27:04):
I'm Carte Btriva on Hong Kong and I'm John Lee,
also in Hong Kong. You can find our episodes on
Apple Podcasts, Spotify, or wherever you get your podcasts. His
podcast was also produced and edited by Clara Chen.
Speaker 4 (27:16):
Thanks for listening, See you next time.
Chinese equities are on a tear, and it's led by
technology breakthroughs like Deep six AI model and BYD's super
fast charging EV battery are reminders of China's innovation. Today
we're sitting here and of March, the Hangsang China Enterprises
Index that tracks mainland equity is listed in Hong Kong,
(00:23):
is up almost twenty percent this year, ranking it among
the best performing around the world.
Speaker 2 (00:29):
But we've had false stans before. Some investors are questioning
whether things have really changed. China's property market remains weak.
Officials are still struggling with deflation. The pivot to consumption
to lead growth has yet to bear fruit, and now
we have the onset of US tariffs. You're listening to
(00:51):
Age Eccentric from Bloomberg Intelligence. I'm John Lee in Hong Kong.
Speaker 1 (00:55):
And I'm Katydmitriva, also in Hong Kong.
Speaker 2 (00:58):
Today's guest is Winnie Wu. He is the chief China
equity strategist and co head of China Equity research for
Bank of America Securities. We need welcome to the show.
Speaker 1 (01:08):
Thank you very much for having me so, Winnie, I
guess the first question is given the topic, what actually
is the leading Chinese stocks right now. Why have we
seen this rally?
Speaker 3 (01:20):
I think the rally to some extent is a continuation
of last year. Right September October we saw a big
round of China rally and that was mainly driven by
the policy pivoting policy stimulus, that people are getting more
optimistic about China monitary, physical easing, that they're going to
do more and prioritize growth over other things. But more importantly,
(01:43):
this year's rally are driven by two additional factors. One
is the technological breakthrough right Deep Seek clearly was a
big while to the global investors. That changed a lot
of the consensus understanding of the future of AI, the
global competitive landscape of AI, and also the perception of
(02:04):
whether China's private sector is still competitive and innovative right,
whether the animal spirit it still exists in China. So
I think, you know, this technology breakthrough is a very
big factor. But the other thing is also the understanding
geopolitics and the so called policy certainty, policy visibility. You know,
for the past there's a lot of criticism on China
(02:26):
lack of policy visibility, the lack of policy direction clarity.
But I think this year actually people feel China's policy
visibility is better that we know if say, you know,
consumption deflation, if the export grows, weakens, right, if economy struggles,
Chinese regulator are going to do more, and they've vowed
(02:48):
several times, you know, from September October last year to
January to the reason m PC they said they're going
to launch more policy to support economies.
Speaker 4 (02:56):
So people actually are getting a bit.
Speaker 3 (02:57):
More confident about the policy put for China, whereas on
the US side, whether there's tariffs, no tarriffs, ten percent,
twenty percent, arriffs on what and who is actually quite confusing.
And also other non tariff barriers, including some of the
Chip band's export controls, are also leading to a lot
of confusion.
Speaker 4 (03:17):
Sort of a flip.
Speaker 1 (03:19):
It's a flip from what we've seen in recent or
past years with US and China than.
Speaker 3 (03:23):
Totally so to that extent, the policy discount on China
has largely reduced and the equity risk of premium on
China because of you know, China has no innovation, has
no future, have no growth in the AI era, that's
also completely reversed.
Speaker 2 (03:40):
So we have to ask, is this time really different
for Chinese equities because we've had quite a few false
starts before.
Speaker 1 (03:48):
Yeah, and we've had false even with the government with
a certainty. I mean these policies, are they really that certain?
Speaker 3 (03:55):
I mean, I think market always have ups and downs, right,
And we always say that from equity market perspective, market
leads fundamental in terms of the GDP cycle, in terms
of the earning cycle, but it typically leads by a
couple quotas.
Speaker 4 (04:10):
It doesn't lead by twelve months.
Speaker 3 (04:12):
So from our perspective, the way to evaluate whether this
rally is sustainable it's always are we seeing the fundamental
turnaround in the foreseeable future? This time around, I think
the technological breakthrough is very significant in the sense that
hopefully it stopped the so called downward spiral that market
worried about in the past few years. That you know,
(04:34):
every segment in the economy from local government to big
corporate to general household or in the sort of deleveraging
the risking balance sheet recession type of mode. I think
that deep Seak really helps signal reversal of the sentiment
of the morale. After the breakthrough of deep Seak, we
saw local government are getting more pro growth, right, you
(04:56):
know there's a healthy competition between the higher tiers cities
like shang Gan. People are asking, hey, why the deep
Sea Unitary robotics are both based in Haunjo, Why it's
not changing, why it's not Beijing, why it's not showing
high So the local government are shifting their focus to
more on how do we promote future growth? After deep Sea,
we see the leading internet companies which in the past
(05:18):
few years we're very much focused on efficiency, games, buy bags,
increasing playout to now doing capex investing for the future,
which is very encouraging and even at individual household level. Previously,
the perception is all the smart young kids or rich
entrepreneurs are or fleeing.
Speaker 4 (05:37):
Away from China.
Speaker 3 (05:39):
But the breakthrough of deep Sea and Unitary are very encouraging,
inspiring in the sense that the founder teams are very
much homegrown talents. Many of the funders never been to
Western education. So suddenly the smartest kids in the Chinese
university like Beta, like Picking university like Tin. They see
a future, right they can do something really cool staying
in China rather than you know, trying to flee the
(06:01):
country or just working for the governmental soe s a right.
So I think you know, this time is different in
the sense that the technological breakthrough hopefully signals a buttoning
of the downward spiral and starts a more upward spiral
going forward. That there's more animal sperit, there's more entrepreneurship,
there's more appetite for investment. But having said that, technological
(06:25):
breakthrough is a little bit random in timing, right why
is it January?
Speaker 4 (06:29):
Why are they not March?
Speaker 3 (06:31):
But the short term impact of this breakthrough broader economy
on corporate earnings, on the problems we discussed earlier, deflation,
job employment, in our property market, the short term impacts
too insignificant.
Speaker 4 (06:46):
That's why when.
Speaker 3 (06:47):
Equity market rallies too hard, when equity market run too
much ahead of the fundamental, we could still see pullbacks,
or sometimes significant pullbacks. So I'm not saying that you
know market wouldn't go back. In fact, our report last
week we're saying, hey, hcim as said, China rallied thirty
percent in two months, so investors need to be mindful
(07:09):
of the potential correction in the future. But having said that,
our view is still that this is probably a structural
bull market that we are seeing. The correction dips in
the structural rally in the next three five year horizon,
and on.
Speaker 1 (07:23):
The structural part of it, because obviously this has to
continue if you're betting on Chinese stocks, then I guess
the question that is, you know, is there enough government
support behind it, because a lot of it will depend
on both government support of the sector in general, but
also consumption.
Speaker 3 (07:41):
Yeah. Absolutely, on the government support side. It appears that
government is kind of still evaluating the situation. Yes, we
got ten percent tariffs in February and in March, and
we might get more in April and April. Second, but
exactly how is the impact of these terriffs. I think
(08:02):
this is evaluating because since twenty eighteen, Chinese companies have
been diversifying away from the US market, right, many have
been building up factories in Asian market, in Mexico in
other parts, and they've been you know, exporting more to
say Middle East, more to other Asian economies, more to you.
Speaker 4 (08:21):
Know, global cuts. So how big.
Speaker 3 (08:25):
Is this terriff impact on China's export and export related activities,
in terms of manufacturing compacts, in terms of employment. It
probably still takes a few months to be seen. Also,
I guess you know, market is expecting this meeting between
presidents and President Trump, and in the meeting there might
be more discussion about how the two country can work together, right.
(08:48):
I think both leaders have kind of indicated that it's
in the best interest of the two countries to work
together rather than have a tense relationship. So the upcoming
meeting between the two leaders will also be very important.
I think at this stage, you know, from Chinese policy
maker perspective, it looks like first couple months of micro
(09:08):
data are fine, right, and property market in fact, in
the past five months since October last year, was showing
good trends in terms of better transaction volume, some improvement
in transaction prices, especially in higher tier cities, and even
the recent lend auction lens sell were very strong in
(09:29):
January February, So it doesn't feel like, you know, they're
in a rush to launch the policies. But as I mentioned,
this is probably a policy put So if in the
coming months, let's say, export jobs significantly or activity data
consumption data jobs significantly, then regulator will probably do more.
Speaker 1 (09:49):
Okay, So you're saying that on the consumption front right now,
things are looking okay. And they have these this arsenal
policies in the background that they could deploy if necessary.
But what about the support for the sector. If the
stocks are being driven by deep Seek and this tech moment,
is their government support to back this interest? I mean,
(10:11):
this is a government that's very happy to intervene in
private sector. So is that support there to kind of
keep this rally going.
Speaker 3 (10:19):
I don't think we should beat on government support to
keep the tech rally going. I don't think that's something
Gum will do. So I would say generally speaking, China's
industrial policy has been supporting this hard tech deep tech
right from you know, semiconductor advanced manufacturing to AID. There
is a general policy support and there are state fund
(10:42):
to invest in these related areas. But Deep Seek in
itself was more of an accident. It's not something to
plan for, it's not something government policies support it.
Speaker 4 (10:53):
It's it's really the.
Speaker 3 (10:54):
Innovation by a private sector company, which it was not
so much under radar screen for aio semiconductor or these innovasians. Right,
it was a quant trading company. So yeah, I mean,
I think so far the best performing stocks, their success
are also more because of the bottom up innovation, the competition,
the market forces. I don't think the support is something
(11:17):
that will drive the tech value Asia.
Speaker 4 (11:19):
Another leg up.
Speaker 2 (11:21):
Asia Centric is produced by Bloomberg Intelligence, where more than
five hundred experienced analysts and strategists work around the clock
to bring you timely, world class research. Our coverage spans
two hundred market industries, currencies, commodities, and industries, as well
as over two thousand equities and credits. To learn more
about Bloomberg Intelligence, visit bi go on the Bloomberg terminal.
(11:43):
If you like what you're hear, don't forget to subscribe
and share. I want to draw analogies to the US
led AI rally and China's AI rally. Now, when chat
GPT came out, I think two or three years ago.
A few months later, I remember Nvidia had a bumper
earnings and then US analysts were raising earnings estimates quite aggressively.
(12:06):
Now in China's equity driven rally, are we starting to
see Chinese equity analysts raise estimates.
Speaker 3 (12:14):
Yes, but marginal compared to the type of multiple expansion
that's expected. Right when I look at our analyst earnings
result on some of the biggest tech companies, reported result
is typically earning's upgrade its single digit, but po upgrade
will be high double digit, so a lot of its
multiple expansion. So in my recent report, I showed the
(12:38):
valuation gap between the Magnificent and seven the US big
tech versus the top ten Chinese tech companies. Beginning of
the year or end of last year, the Magnificent sevens
pe multiple were trading at something like one hundred twenty
one hundred and thirty percent premium to the Chinese tech names.
Within two three months now the value gap is narrowed
(13:01):
to only thirty percent, So a lot of the China
tech rally was more by multiple expansion, not so much
of earnings. But you know, to be fair, they were
training at a very depressed valuation multiple to start with.
Speaker 2 (13:13):
Right now and this rally. Do you think that most
investors caught this rally because it was really quick. If
you look at Ali Barber's share price, I think it
went up sort of sixty eighty percent in the space.
Speaker 3 (13:25):
And in two months.
Speaker 2 (13:26):
In two months now, institutional investors, it's pretty much too
quick to catch this rally. What's your sense?
Speaker 3 (13:34):
Yeah, I mean, I guess you know, hatch fund investors
probably respond much more quickly.
Speaker 4 (13:39):
I think for long.
Speaker 3 (13:40):
Only investor it is really hard, partly because, like you mentioned,
the China rally happened very very rapidly, and it's a
very narrow rally. It's basically a handful of tech stocks
that's done really really well. I mean even ten cent
end the performed during the tech rally, and even if
you overweight China Tech, if you are not in those
few names that done exceptionally well, you might still end
(14:03):
up perform. Also, I know some like Greater China Fund
that would have Taiwanese stocks in the portfolio a right
TSMC would be one of the big positions again this year,
unless you are one hundred percent in China Tech, you
would end up performed again because China alone was the
best performing market. So I think a lot of investors,
(14:26):
especially lonely investors, are having a sort of challenging time
in terms of trying to outperform the rally. But nonetheless,
China market going up with increasing interest and hopefully more
fund the inflow is still a good scene for the market.
Speaker 1 (14:41):
Did you feel that energy You were just at a
tech conference? Was it in Taiwan?
Speaker 4 (14:46):
Yeah?
Speaker 1 (14:46):
Yeah, you're at a Tech Conference in Taiwan. Can you
kind of take us behind the scenes of that. What
were people saying, what were they discussing.
Speaker 3 (14:54):
Yeah, so this is our twenty eighth Asian Tech conference,
and this year we again had nearly record high number
of investors and corporate attending. So the interest level certainly
still very very high. I think generally people are still
very Polish, very confident on the future of AI. Right.
The deep seek actually kind of democratized the technology so
(15:16):
that there will be more application signarios, you know, more
smaller companies are able to leverage AI and have AI demands.
So there is this general optimism on the future of AI,
you know, Agente tic Ai, Agi whatever, super AI. But
on the other side, I think from an equity market perspective.
Speaker 4 (15:34):
They are all more mixed feeling.
Speaker 3 (15:36):
About the stock performance in the sense that whether it's
the US tech names or Taiwanese tech names, when you
speak to the corporate the guidance remain very positive, very confident.
Speaker 4 (15:47):
But when I look at their.
Speaker 3 (15:48):
Share prices, share prices actually struggle to suffered suffered from
multiple de rating, right, which is kind of the opposite
to the Chinese tech stocks. So at this level what
do we do right reduce the exposure to US tech
Taiwanese tech to trade the rally of China tech or
do we hold on to our position of the US
taiwan tech. That's really a quite challenging question.
Speaker 4 (16:11):
What's the answer.
Speaker 3 (16:12):
I don't think there's a concise answer, but I would
say so far based on the past few days sentiment,
it tend to be let's hold on to our US
and Taiwanese tack and do not trace the stocks that
already went up eighty percent in two months. And I
think the final part of the conference is there's this
concern about or discussion debate about how countries, especially like
(16:36):
US China should or can work together in the AI
era right, because AI brings a lot of opportunities benefit
but it does bring risks and challenges as well. So
you know, the two biggest players US and China in
this changing world, if they can work together in terms
of managing the risk, setting the standard, cooperate, it will
(16:58):
probably benefit the broad their human society. On the other side,
the concern is if the two countries are more in
a sort of competitive mood rather than working with each other,
then it might not be the best usage of resources
might not be the best for promoting innovation and might
not be the best for managing risks. In fact, one
(17:19):
of their experts said, managing the risk in AI is
almost managing like nuclear related risk. Country nation states are
not your biggest enemy because countries are generally going to
be responsible of how they use their weapons or resources
or their powers. The real danger are those like rogue actors,
(17:40):
right that.
Speaker 4 (17:41):
They could really go on extreme.
Speaker 3 (17:43):
And take advantage or manipulate the capability the powers. So
the big countries should really work together to prevent the
risk from these rogue actors rogue players, rather than fighting
with each other on country level.
Speaker 2 (17:56):
When you wanted to take a step back, sounds like
you were structurally on China, and that's sort of like
a medium term view. But you did come out with
the report recently and you did suggest it could be
a market correction.
Speaker 3 (18:10):
You explain, yeah, so again, you know, market price is
reflective earnings and multiple as our earlier conversation went through.
So far, we see some improvement in earnings in tech
related names, but there's still broader level many other company sectors,
their earnings still struggle, and we'll probably see more of
(18:32):
that in the coming weeks of the earning season, and
with the uncertainty of terriffs trade wards in the coming quarters,
things my need to go worse and before the governor
stepping with bigger stimulars to put the floor and before
the company further adjust their business model to handle. So
coming quarters chances are China's nominal GDP growth will still
(18:56):
struggle and the pressure many corporates earnings were still structural pressure.
Whereas equity market, inspired by the tech breakthrough inspired by
the policy, certainty already pricing a lot of positive news
and had a very sharp rally, to the extent that
valuation multiple of MSI China Index is now trading at
twelve times forward pe, which was the previous peak in
(19:19):
October seventh, last year's level, which was the peak at
post reopening high in January level January twenty twenty three level.
So we are a bit cootious that at this valuation multiple,
which looks fair to us right, good news are being pricing.
So the policy put the technological breakthrough the potentially structural
upcycle in the next few years, whereas the near term
(19:42):
challenges has largely been overlooked in the past couple of
months and one good news are in the price, bad
news are not. Then what could potentially come next is
markets start to pricing these negative news is especially the
challenging and fundamental things in terms of the macro data,
in terms of the earning data. And also we are
(20:04):
facing this event of April second, right, this global reciprocal tariff.
For what does it mean for China? We still need
to evaluate. So that's why we would advise the investor
for the short term to take a more courtious view
and having the evaluation to wait. Stock market probably need
to take a pause, wait for the fundamental to catch
up before the sheer prices can a new highs.
Speaker 1 (20:26):
Again, I'm wondering how much the US in this case
because you had mentioned this earlier, but this idea of
the flip in sentiment between certainty in the US versus China,
and I wonder given the reciprocal tariffs and just tariffs
in general, and investors looking at the stock market trying
to figure out what's going on in the US. We've
seen this erosion of American exceptionalism and the American exceptionalism
(20:47):
trade and I wonder how much of that might be
able to create a bit of a buffer and in
fact help Chinese equities because we've seen that with European
stocks too. It sounds like everyone is just leave. It's
there's that sucking sound. Is money leaving the US.
Speaker 2 (21:01):
And I think there was a survey by your firm
that suggests record money is leaving the US.
Speaker 3 (21:05):
Yes, yeah, I think that played out a year to
date already to some extent. And that's why the European stocks,
the China stocks are doing so well. Right the reverse
of fund flow two years ago in twenty twenty two,
twenty twenty three, it's about sell China by USAI, selled
China by Japan, sell China by India. Now, you know,
(21:27):
when people start to reduce their concentration on US that
many other markets actually benefit, especially European and China market.
But having said that, you know, US remains to be
a very very big part of global investors benchmark. Right
so within MSAI world, US is still like sixty three
sixty four.
Speaker 4 (21:43):
Percent of the benchmark.
Speaker 3 (21:45):
China, after the reason of our performance, is still only
three to four percent of the benchmark. So from any
global or US investor perspective, it's still essentially critical to
get the US market right, and after the big sale
of these US big tax stocks, I think the question
is at this level, do we continue to sell US
(22:07):
to long China or do we take away and see
mode right way to see you know, will the fat
cut rate in May? And does the federate cut helps
with the US stock market? Also together with the US
dollar index, right the DXY we can't from one O
night to one O five within the first two three
months of the year. But it looks like dollar index
(22:30):
is also kind of stable light thing, so that might
slow down the fund outflow from US to other market.
But finally, I think our US rategy review is also
when you sell US equity, you don't necessarily need to
go to international equities. You might go buy bond or
you might stay with US money market found. So I
think the first big wave of money leaving US to
(22:52):
buy international including China equities, probably played out with the
narrow evaluation gap between US and China tax stocks. I
suspect will see a period of pause and reevaluation and
waiting for the clarity on the US policies. And also
two tome extent on the US economy. Right, it is
the US economy, consumer space remains sound and solid, or
(23:16):
is the US economy really heading to recessions? So investors
need to evaluate those before they take the next big
step of rotating away from the US equities.
Speaker 2 (23:27):
You did mention Europe, and it's quite interesting because China's
had a fantastic rally, but it feels like China's almost
been overshadowed by events in Europe like the bundjiolds of skyrocketed.
Everyone's buying German defense stocks, infrastructure. If you do get
this switch out of US, do you think investors will
prefer Europe or China?
Speaker 3 (23:49):
I think, from my understanding, going to Europe will be
an easier call for the US investor. One is partly because,
again from a benchmark perspective, European market, if you add
up you know, the Germany, the UK, you know, the
French market at the market within the MSAI World Index
is actually a bigger part of the index than China,
(24:10):
which is only you know, three to four percent. So
from an index risk perspective, it's important to get European
market right. But also secondly, for the European market there's
less concern of like the tail risks, say Sunction risk.
Earlier this month, I was speaking to a COO of
a global long the investor, and he's interested in the
(24:31):
China Deep six story. He's interested in the China Internet names,
which he used to have big position in. But now
for him, the concern is still like what if some
of these internet stocks got added down to various lists? Right?
We saw Tencent add on to the Defense Department's list
in January this year, and from the narrative in US,
(24:53):
it's still that US capital should not be funding the
indigenous development of China's technology a icon and computing. So
you know, among the US investors, there's still this concern
that some of the best technology companies in China might
be added on to various lists which give them sort
of some reputation risk, or if it adds on to
(25:14):
one of the investment band then it's a huge risk
for them. So that's some of the concerns holding back
US investor from buying or chasing the China tech rally.
Speaker 2 (25:25):
I did want to ask you about humanoid or robotic stocks.
What's going on there? It seems to be some of
the hottest stocks of being in this sector. Can you
tell us is what are these companies that make these
humanoid robots.
Speaker 3 (25:38):
Well, you know, I'm not supposed to recommend individual stocks.
Our second analysis does put out the report. I think
one is manufacturing has been China's strengths. Right, China has
a very complete suite along the old supply chain of manufacturing.
So when China is ready to produce these humanoid robots,
China probably has the most complete upstream, downstream component equipment,
(26:02):
everything together and in a very cost efficient way of
producing them in volume at affordable costs. So there is
a natural advantage. And I think you know the reason
breakthrough in deep Seek in Ai and some of China's
robotic company like uned Trees Robots was doing a big
dancing in the Spring Festival gala in China, which which
(26:25):
was pretty impressive, so that made people also more excited
about the theme. But having said that, from a pure
stock market perspective, the feedback from investors is this theme
has been.
Speaker 4 (26:36):
Again in China market.
Speaker 3 (26:38):
People tend to play a three five year theme in
like three five weeks, so many of the stocks already
went up multiple times before they even start to produce robots.
So against stock market probably got overly excited on some
of these names.
Speaker 1 (26:55):
Great, well, it's been very wide range conversation.
Speaker 4 (26:57):
It's been great. Thanks so much for taking so much
for having me.
Speaker 1 (27:00):
Thanks weing you've been listening to Asia Soundrek from Bloomberg Intelligence.
Speaker 2 (27:04):
I'm Carte Btriva on Hong Kong and I'm John Lee,
also in Hong Kong. You can find our episodes on
Apple Podcasts, Spotify, or wherever you get your podcasts. His
podcast was also produced and edited by Clara Chen.
Speaker 4 (27:16):
Thanks for listening, See you next time.
Hosts And Creators
John Lee
Tom Corbett
Popular Podcasts
On Purpose with Jay Shetty
I’m Jay Shetty host of On Purpose the worlds #1 Mental Health podcast and I’m so grateful you found us. I started this podcast 5 years ago to invite you into conversations and workshops that are designed to help make you happier, healthier and more healed. I believe that when you (yes you) feel seen, heard and understood you’re able to deal with relationship struggles, work challenges and life’s ups and downs with more ease and grace. I interview experts, celebrities, thought leaders and athletes so that we can grow our mindset, build better habits and uncover a side of them we’ve never seen before. New episodes every Monday and Friday. Your support means the world to me and I don’t take it for granted — click the follow button and leave a review to help us spread the love with On Purpose. I can’t wait for you to listen to your first or 500th episode!
The Breakfast Club
The World's Most Dangerous Morning Show, The Breakfast Club, With DJ Envy And Charlamagne Tha God!
The Joe Rogan Experience
The official podcast of comedian Joe Rogan.