March 12, 2025 • 29 mins
Investors are pricing in several interest rate cuts from the Federal Reserve this year as growth slows and risks of a recession rise, but Gao Bin says they may be getting ahead of themselves. The CEO of Kaifeng Investment Management says the cuts will likely come -- but not until 2026. He's also taking a counter-narrative view on China, believing that consumer and tech companies will drive growth in 2025.
Gao's macro hedge fund netted returns of more than 70% last year on these calls. He also discusses the outlook for China's economy this year, his favorite and least favorite equities and why running his fund out of Hong Kong rather than New York or London provides an edge as Asia's influence on financial markets grows.
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:01):
Last week, China had its annual NPC meeting in Beijing,
laying out a growth target for the year of about
five percent and boosting planned spending by the most in
three decades. Shortly afterwards, President Trump spoke to Congress, defending
tariffs and reminding investors that China's goals won't be so
easy to reach.
Speaker 2 (00:21):
And don't forget announcements by Europe and also China to
increase their defense spending. These rapid fire developments are almost
becoming the norm, and it's becoming harder for many investors
to make big decisions. But one set of investors seem
to be thriving in this chaos. And then macro hedge funds.
Speaker 1 (00:41):
You're listening to Asia Centric and today we want to
unpack how investors should be thinking about this new era.
We're speaking with kaal Bin, CEO of Kaifeng Investment Management,
which oversees about one point three billion dollars in assets.
The macro hedge fund made a seventy six percent return
last year, not too shabby. Ben, welcome to the show.
Speaker 3 (01:04):
Really glad to be here. Thanks about having me.
Speaker 1 (01:06):
Thanks for being here. Now I want to start with
the NPC. It just happened, and I know it's on
your mind. It's definitely on our minds. Interesting to get
your thoughts as a macro investor. First of all, big question,
do you think officials will be able to reach five percent? Why?
Speaker 4 (01:21):
Why not?
Speaker 3 (01:22):
I think they will. The first thing is that the
four percent budget as you mentioned, plus one point eight
trillion dollars special treasury bond plus a four point four
trillion special local government bound all take out amount to
twelve trillion R and B. That's about eighty percent of GP.
(01:43):
Is quite significant. And the other thing is you need
to spend them wisely, and spending area seems to be
focused on to upgrades and two keys they called liang
shin in Chinese. The two upgrades include the first one
is a industrial equipment upgrade and the second one is
(02:05):
consumer products upgrade. The former is linked to the use
of more efficient equipment which is also greener, and the
letter is similar to cash for clunkers. Basically, they want
consumers to consume and that's an area China is a
(02:25):
lack of inter economic growth. But more important, I think
is the exclusion of the other two keys. The first
key is called execution of key National strategies. A second
is the capacity building in key areas of national security. Essentially,
they are investment high technologies in the competition with the US.
(02:49):
And the important thing of this is that we have
actually seen some estimates puts the multiplier at the two
point eight to three point five. This is in contrast
to the old ways of infrastructure spending where the multiplier
has dropped to point eight from one twenty.
Speaker 1 (03:11):
So more bang, they're getting more bang for their book.
Speaker 3 (03:13):
Yeah, I believe that. So if we say it's got
two point eight two three point five multiplier, effect eight
hundred billion of this spending translate to two point four trilling.
That's still significant. Beijing has been very concerned in terms
of the government spending for the last few years, and
(03:33):
as far as I remember, even back in twenty sixteen,
while I was in Beijing talking two officials, they were
reluctant to open the tap. They basically argue that I
don't know where to spend because they don't get a multiplier.
But recently Deepsek changed the situation. With Deepsey coming out,
Beijing seemed to be more confident in terms spending this area.
(03:57):
And so that's why you guys a high multiplier.
Speaker 1 (04:00):
But can this spending, even with the higher multipliers, you say,
counteract the impact of tariffs and this sort of growing
protectionism we're seeing globally.
Speaker 3 (04:10):
There's I mean, the tariffs is definitely highway for China,
but I think that people tend to overestimate the tariff's
impact on China's growth. We have seen it in twenty eighteen.
It tend to be that if I want to put
tariffs on the other country, I would do the one
(04:32):
which hurts the other country the most and it's best
for me, right, And that's what Trump did in the
first term. So whatever new terriffsy put in there is
going to be less impactful. And the tariff has actually
lowered China's export to the US. The one number I
think a lot of people don't talk about is China's
(04:55):
total exports to the US. It's a two pout six,
only eight percent of China's GDP. I mean not saying
that's not significant, it's a significant. But and let's say
the terriff is so high China does not directly export
to you as I need more nothing. Let's say that's
a s creme case. That's two one eight percent of
(05:16):
GDP off China's So China can really increase the pascal
spending if that it's the case, and the China does
have the room to do the pascal spending unlike many
pear and China is a really leverage.
Speaker 2 (05:31):
Under that, So you're basically saying that China is less
exposed to exports and the domestic economy is much more important.
And I wanted to talk about the consumer sector, and
you mentioned cash for clunkers, But has authorities done enough
to boost consumer spending?
Speaker 3 (05:50):
Uh, the government they do not want to do the
US style, you know, flowers of the economy with all
the liquidity, you with the massive leverage built up, and
they were quite slow right after the pandemic. They could
have done more. But since September last year they did
(06:13):
do a lot more than before. Incrementally they have been
giving copounds cash to consumers. But during the pandemic some
local government tried to provide the cash and the copounds.
But I still believe that given at the national level,
and the multiplier should definitely be much bigger than the
(06:36):
infrastrust spending. If you ask me that whether that's enough,
I don't really know the answer. I think that's so
far the evidence looks to be good. I think the
important thing is whether China government or Beijing had the will.
If there's a will, there's a way. But of course
you need to have the room, and China definitely hads
the room in terms of physical leverage. And also they
(06:58):
have not done q They can do the que as well.
If they won't, I think that's what's most like to happen,
rather than that's the one time they are always say
they will. Given Actually, the head of a NDRC mentioned
there's a special program for consumption in the press conference.
We don't know whether that is, and the rumor says,
okay is going to be another few hundred billion R
(07:22):
and B if that comes out. I think that's definitely enough.
Speaker 1 (07:26):
Yeah, seems like they're hyper focused on the consumer this time.
I mean even in the speech, right, that was one
of the first things out of the premier's mouth on
the consumer. As a hedge fund, how do you translate
this thinking and your view of what's going to happen
in China and the Chinese economy this year into action?
What are you investing in?
Speaker 3 (07:47):
So we are in a transition, you know, we are
not really like trying to say, Okay, you are really
bullish on China's economics, say no, no, no, we are not
really bullish in the sense that we don't see China
growing at six percent, seven or whatever is it used
to be. Actually, we are structly bullish on certain parts
of the economy and we're being cautious in other parts
(08:10):
of the economy. I mentioned the multiplier for instruct spending
is very long now, and the government knows that. That's
why the government not eager to save property now, the
eager to spend a lot on infrastructure, and that translates
to low demand for commodities. So we are generally short
on the community side, but we're generally more bullish equities
(08:34):
because the government transition from infstruct spending to consumers, and
the consumer demand can drive the demand for products, and
the products may translate into corporate profits because a lot
of the consumers are willing to spend. That translates into
potential for stock pus rally.
Speaker 2 (08:54):
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(09:17):
you like what you're here, don't forget to subscribe and
share in You guys, you made seventy six percent return
last year. Can you tell us what home runs did
you make last year? And then what do you like?
Speaker 4 (09:30):
Now?
Speaker 3 (09:31):
Okay, I need to be totally clear here. You know,
we have two accounts. The highly leverage account is seventy
plus and the other one the lower leverage that's close
to forty percent, and it's still good. But I want
to be still good as well. We basically have two
books in both the last same a lot one books
that were called a China replication. Remember we define our
(09:52):
fund ads are China focus like Global Macro the China replication.
What we did there is exactly what I just described.
Last year. We were short commodities and we were long
China equities and unfortunately we were number one opportunistic in
terms of long China equities last year. Which equities we
(10:16):
were long the Hongsung tag. We were long China's five hundred.
Basically we were long index. We don't do individual equities anymore,
and even more fortunate our exposure in long equities towards
relatively large in September.
Speaker 2 (10:32):
Oh wow, good timing.
Speaker 3 (10:33):
Yeah. The reason for it in the sense that what
do we see is that China's growth or Chinese economy
was definitely not as strong as it used to be.
But what do we see in more troubling is the
perception of China. It's terrible. There's a disconnect China definitely.
Oh yes, China is not going as well. But it's
(10:53):
China that bad all one says.
Speaker 2 (10:55):
No.
Speaker 3 (10:56):
Actually, I think what need to change is the perception
of China. Everybody looks for that big stimulus, right, but
we are not looking for that big stimulus. Word we
are looking for is the perception change. And we see
like August last year the Olympics. The Olympics got China
on the world stage and people see, okay, it's the
(11:17):
country athletes look at quite normal and they did well.
And I was also making the argument that into this
world of social media, perception changed very quickly. In December,
you have TikTok refugee to Shogunhu to later random and
that had DeepC right, all of a sudden, the perception
on China really changed, right. I think that's what it's
(11:39):
a driving the stock market up. And of course the
septembers China's a policy change also affected people's perception.
Speaker 2 (11:48):
And it sounds like you're still quite positive on Chinese equities.
Speaker 3 (11:52):
Yeah, opposition is similar right now in the sense we're
still a long Chine equities, infrastructure, property sensitive commodities. And
the other thing we did welllast year was I saw
that Japan definitely is going to raise the interest rate
because the infliction was really going up. So last year
we were shouting gdb's and they also made the right argument.
(12:12):
Last year. We were arguing that the US race was
going nowhere last year, and so we treated the US
rates well last year. Well, at the beginning of last year,
when US race was quite low, a lot of people
think by in the US bound, they's a really good trade.
It turned out to be not right last year the
US race basically when the up came down and went
up again. And I'm quite lucky in terms of trying
(12:34):
to think about the Trump's chance of winning or losing.
Each of the last three elections. So I was thinking
that Trump's chance of winning last year was much higher
than the market price in. So we did some Trump triderarily,
especially the raids of steepeners and the resteeping the work,
and also some Asian currencies. We think they're actually quite
(12:56):
good Asian currencies where the treating dynamics will be very
different from ten years ago or nineteen ninety seven. Yeah,
so that's right. Now, it's a market to mispress in
some of that.
Speaker 2 (13:07):
Then I saw you on Bloomberg TV, and you have
a counter consensus view. You think the market is underpricing
US rate cuts next year. Yes, can you sort of
explain more to the listener.
Speaker 3 (13:20):
I don't really know what's going to happen to yesterdays
this year. I actually invented a term. I coined the term.
I call it the Poker rule. The Poker rule is
essentially a combination of Powell with a Voker.
Speaker 1 (13:34):
Okay, so former FED chairman Paul Volker from the seventies
eighties and then current FED Chairman Dron Powell.
Speaker 3 (13:42):
Right, you think that Powell is facing similar problems Volk
was facing inflation. Inflation was now that high, right, Volker
was facing like fifteen percent inflation. Well right now it's
still like a four or five. So in discussing the
poker rule, I argued one thing, I don't think the
market it's current in the sense if you look at Powell,
(14:02):
it's very different from the fat governor we used to have.
They were all economists, where Powell is a lawyer by education,
by training. Right, So what's the difference between economists and lawyer.
Economists tend to be you know, tough minded guys. They
have a theory and they have a bias. A Hakage
(14:23):
governor is always hawkish governor. A Dolfwish governor is always
doltish governor. Walker is a very hawkish grispand and the
Brananki are very dolwish. But low Yeer's very different. Lawyer
does not use their theory to project what's going to happen.
Lawyer looks at evidence.
Speaker 1 (14:38):
Gotcha. So economists kind of have this bias hawkish or dubbish.
They lean either way. But Powell is a bit different
from that. He needs to have data presented to him,
so maybe could take a bit more time to act.
Speaker 3 (14:52):
Yeah, so this year, what evidence do we have evidence
is that inflation is still elevated. I this is the
infliction level. I think it's very reluctant to cut ry.
But the market pricing harmony right now, pricing more than
three cuts, and also the teriff's treating big or small.
It's the inflationary So in this environment, I think the
(15:13):
market means pricing the fad in the sense that they're
pricing too many cuts. However, nothing priced in next year,
but for next year. Remember the fat governor change. I
think Trump definitely taking someone who's lawyer and who's faithfully
execute his view. That means lower interest rate. So I
(15:35):
think the next fat government comes in in May next year,
the race is going to be cut much lower. And
they may ask me, okay, what if the inflication remains high, Well,
we have seen that episode before. The fat can make
an argument, Oh, you know, the infliction induced the better
terrific high. The terriff is a one time price high,
so it's a transitory.
Speaker 1 (15:56):
What about the chances of a very recession though, I
mean this is all assuming that there won't be a
session this year, which I mean I don't think any
economists are pricing in necessarily, but the risk has definitely
gone up.
Speaker 3 (16:08):
Yeah, with the equity price drop. Now, I've seen some
analysts calling for recession risk rising from ten percent to
twenty percent something like that. I think that the Trump's terriffs,
it's going to definitely increase the chance of a recession
next year. So this year is somewhat like a stackflation
(16:29):
in the sense that you increase the tariff, the invlasion
goes up, the economy weaken somewhat in the stack deflation
time the second part of poker we're coming to play.
I argue that with the inflation at this stage, Powell
is unlikely to cut interestry. There's an angle. Powell is
a close land the term, and he had done great
(16:52):
job in the Siviny economy during pandemic, and it also
raised the interest rate high enough without causing a collapse
of US economy. I know he deserves the full credit
and his close to his end term. He doesn't want,
you know, make a mistake into the cutting too much.
I think that the market need to price in cut,
but shouldn't be all in this year and nothing next year, right,
(17:15):
it should be spread out. Basically, what we're doing now
is that we are buying the well, We're not exactly.
Buying butt is similar. We are buying the two year
point of the US Treasury. Or let's say we are
betting that two year point rates are going to go
lower and we're bet one year point actually go higher.
So in the sense we are doing a one year
(17:36):
two year cuting technical term one year three flatner right
now from under this year under next year. The market
is only pricing in uh last night it was only
seven basis point, so people say, okay, there'll be no
cut next year. Okay, So you're basically betting that rates
will come down a lot more than the market expects
(17:57):
in twenty twenty six. And just for the listeners out there,
this is not investment advice, though I don't.
Speaker 4 (18:03):
Know if retail investors can express their views in rates,
but I wanted to sort of change the topic a bit.
Speaker 2 (18:11):
You're a macro hedge fund based in Hong Kong. Now,
Hong Kong is home to a lot of hedge funds,
but they're mostly equity long short and when you think
of macro hedge funds, you think of you know, Stanley
Drunken Miller, you know George Soros, litile spaking. They're always
based in New York, maybe in London. What's it like
being a macro guy in Hong Kong?
Speaker 3 (18:33):
That feels good. I think it's interesting for the Asia
macro hatch fund quite a few false starts in ninety seven.
You have Asian financial crisis. It's supposed to be a
perfect time for you know, a macro hatch fund, right,
and then you seven which is not Asia LAD, is
the US LAD and Asia cutter factors as well. But
(18:56):
I think that's interesting is if you look at you know,
Sorrows Drugler, they are quite close to the center backs,
or at least they understand the fat the BOE much
better than I would say a guy here, Yes, so
a guy like us here, we are proud of ourselves
(19:18):
for understanding PBOC or even BOJ better than those guys.
Speaker 2 (19:24):
Right.
Speaker 3 (19:25):
The interesting thing is that BOJ didn't matter for a
long time. Japan was like the last decades, the people
who it doesn't matter either, Well, Beijing's policy matters to
manufacturing part of the economy. For a long time, it
did not matter to financial part of the global economy.
Back in twenty sixteen twenty seventeen, I wrote a piece
(19:48):
to my masts basically arguing that twenty to fifteenths R
and B depegging from the US dollar was going to
have huge impact in ten years, not at that moment.
So in ten year's time I argued that decisions out
of Beijing will be as important as, if not more important,
(20:14):
than decisions out of Washington, New York, Tokyo, London, Berlin, Brussels.
We are witnesses right now. Not Bejing decisions definitely affects
the global financial market, not just Chinese market anymore so.
Being a microphone in this region, we have a certain
(20:35):
information advantage. Instance of that, or you call it the
analytics advantage. We understand China much better than most microphounds
sitting in London and sitting in New York. Beijin used
to be relatively transparent. That's going to the direction of
more transparency, but over the last few years it seems
(20:55):
to be becoming less transparent. So the yin free information
symmetry for those guys sitting in London in New York.
For US, we also get less information, but at least
we are still better connected or closer to understand what's
happening than those guys in London New York. That's something
(21:16):
we think it's our advantage.
Speaker 1 (21:18):
What do you think they get wrong? You know, you're
saying that the folks in New York, in London, what
do you think they're getting wrong about the PBOC and
about China right now?
Speaker 3 (21:25):
So for example December in the Central Work Economic Conference
and they said, okay, we're going to lose the Montreal policy.
What happened. Yes, that means they may cut a triple
r the cut interest rate. And if you look at
the ripple market versus the official rate, the marketing market
is quite tight right now. The reform market is somewhere
around one point eight to two percent. Well, the official
(21:47):
seven day PBOC rate is one point five percent. This
divergence is actually quite high. If the cutting interest rates,
the rate should be one two percent. So we are
looking at, you know, really lose Montibal percent says the
market price of two percent. And the arybody's arguing, okay,
this is the temper phenomenon Chinese New Year. The money
tied after Chinese New Year, the red remained high. The
(22:10):
reason for other the you know, one is that the
economy is not that bad, so they're not in a hurry.
And the other one is the people who have mentioned
quite a few times the long term Chinese government bound rate.
It's too low. They did not say specifically too low,
but they talked about it many times. If you look
at thertainy year, China's garment bomb right now, it's one
(22:32):
point eighty percent. Japan is two point three four percent.
This makes no sense, right, and we understand why it's happening.
Who's buying it? Why is going that way? I don't
think that the guy's sitting in londoness And actually it's
as a matter of fact, we're talking to some investors
and they said, yeah, you argue that the long term
of China rates is going to be higher, but this
(22:55):
has been going lower for the last one year and
in the bloom of TV. I think that the whole
asking me that the low long term rate, does that
signal that people are quite passimistic about China. Well, I say, okay,
interpret that way, but that's not exactly the right price
for the China's long term growth. This is a two low.
(23:16):
So I actually want to position for China reads higher.
The question is the number one? Is one? The second?
And what's trigger?
Speaker 2 (23:25):
Right?
Speaker 1 (23:25):
Yeah, what's going to say in how many years and
how many years.
Speaker 3 (23:28):
I mean for me, like we we have some position
there as well, and we don't think this is the
moment a way of back like this isn't going to
go back to three percent and run them soon, but
we want to watch for inflation for girls of whether
there's the girls will continue with the girls continue, Let's
say the inflation the forecasted the government the lower the
infliction target two percent. But people interpret that, Okay, you
(23:50):
know there's a good for a bound that it is
bad for bomb because the government of Taketi is three
percent last year. There's no way that we're going to
reach it last year, right, It's more like a this
year they lowered it to more appropriate two percent. It's okay,
we one two percent, right, and they were doing things
to reach that two percent. The two things one is
(24:10):
that the encouraged consumption and the other one they are
doing some sort of now they call it a different
name called anti involution, anti anti involution, called the fundation.
And remember back in twenty sixteen theres something called supply
side reform. This is similar this basically, okay, we have
so many companies competing for the same market, so the
(24:32):
overcompetition leads to involution and that's not good for the price,
and they will have this low inflation or close to
zero inflation. I wouldn't call it inflation because it's still positive.
It's a low. So we want to move away from
that situation. So they are introducing measures to deal with
(24:53):
this evolution problem and that can potentially get the price higher.
Let's go back twenty sixteen. The supply sided reform managed
to reach the CPI from around one point five two
around two percent basically from the end of twenty fifteen
to twenty sixteen, the inflation the CPI one top oft
point five.
Speaker 1 (25:13):
And you think they're going to be able to do
it again.
Speaker 3 (25:15):
Well, the definitely they're trying. They don't really like this
deflation country environments. On demand side, they are trying to
get more money to consumers, and on the supply side
they are saying, okay, there are old competition, no company
is making profit, and so you want to deal with it.
And the way they deal each sector differently. We don't
know exactly which sector they're going to do, but the
(25:36):
market is talking about they are going to cut fifteen
million tons of steel output. They can don't believe in it,
but you know, we have tried, like the last couple
of years, but they see year. I don't know, it's
not because it looks like they are more determined.
Speaker 2 (25:49):
Right.
Speaker 1 (25:50):
So we've been talking about a lot of themes here.
We're talking about around the world, China, Us, Trump, she
and talking about how you're playing all this, how you're
inting as a result. So one of the things, you
had a great year last year, what about so far
this year? Because there's so much going on. February was
not great for a lot of hedge funds. How about
(26:11):
for you guys?
Speaker 3 (26:12):
Yeah, past the opposite. We did not do well in January,
but in February we did really well. We made up
all the losses in January and basically we'll all return
in February in magnitude double the over January loss.
Speaker 4 (26:26):
That's why you're getting on TV, and that's why that's
what you're doing.
Speaker 1 (26:31):
Well, you must know what he's talking about.
Speaker 3 (26:34):
Well, knocking on the wood, is it difficult?
Speaker 2 (26:37):
Is micro investing back?
Speaker 3 (26:39):
Yeah? Yeah, definitely. I mean, like the whole invention in
the world, it's moving from a location to strategy allocation.
By that, I mean you could light on and simply
by US stocks in the US bond and you would
do really well in twenty ten, but the twenty twenties
that will not work. Twenty twenty is going to you
(26:59):
need to figure out this strategy. Strategy micro. And if
we go back to last nineteen ninety, it's really interesting.
Nineteen ninety two year two thousand, the macro did really well,
the US equity did really well, and ybog the market
and the commodity did almost nothing. From two thousand to
twenty ten, the US actually went nowhere two thousand, two
(27:21):
thousand and two, twenty seven up and the two thousand
and nine bargain and the commodity rather hard emote. The
market did well, and the micro did well as well,
but from twenty teen twenty twenty, the macro were terrible.
You could simply buy the US stock and do nothing.
Speaker 2 (27:37):
Like give six seven.
Speaker 3 (27:38):
Yeah, that's because there's a massive printing money because of
two and eight and the US was printing, the European
was printing, and then Japan started printing when Abbey Body
in Crawda right, and those are massive printing drove up
the US risk assets. But twenty twenty we'll have information
(27:58):
there's less money slashing around and just so there'll be
more volatility. The trouble for macurie mashing is that you know,
in that strong equity world, everyone makes money because most
of the actually invest a lot. Right, in a period
where macri masting is good, not all macuri masure will
make money because basically this is the environment where volatility
(28:21):
is high. Right, I see a think that more than
fifty percent of macro in measures will make money and
someone will make it really big. But the risk is
also high.
Speaker 2 (28:30):
Well, it's a great way to.
Speaker 1 (28:33):
Making money, but risks are high.
Speaker 4 (28:34):
Yeah they say winners it grins and you can see
a smile on your face.
Speaker 3 (28:38):
Yeah, well, what's the Well, we're a very traditional micro
so months the months fluctuation is as high and it's
really for for investors who have a tolerance for risks.
Speaker 1 (28:48):
Really interesting conversation today. Thanks so much for joining.
Speaker 3 (28:51):
Us, Thanks more having me, and it's a really good
at pleasure.
Speaker 1 (28:55):
You've been listening to Asia Centric from Bloomberg Intelligence. I'm
Cottadmitri but in Hong.
Speaker 2 (29:00):
Kong, and I'm John Lee, also in Hong Kong. And
this podcast was produced and edited by Clara Chen.
Speaker 1 (29:06):
You can find more episodes on Apple Podcasts, Spotify, or
wherever you listen. See you guys next week.
Last week, China had its annual NPC meeting in Beijing,
laying out a growth target for the year of about
five percent and boosting planned spending by the most in
three decades. Shortly afterwards, President Trump spoke to Congress, defending
tariffs and reminding investors that China's goals won't be so
easy to reach.
Speaker 2 (00:21):
And don't forget announcements by Europe and also China to
increase their defense spending. These rapid fire developments are almost
becoming the norm, and it's becoming harder for many investors
to make big decisions. But one set of investors seem
to be thriving in this chaos. And then macro hedge funds.
Speaker 1 (00:41):
You're listening to Asia Centric and today we want to
unpack how investors should be thinking about this new era.
We're speaking with kaal Bin, CEO of Kaifeng Investment Management,
which oversees about one point three billion dollars in assets.
The macro hedge fund made a seventy six percent return
last year, not too shabby. Ben, welcome to the show.
Speaker 3 (01:04):
Really glad to be here. Thanks about having me.
Speaker 1 (01:06):
Thanks for being here. Now I want to start with
the NPC. It just happened, and I know it's on
your mind. It's definitely on our minds. Interesting to get
your thoughts as a macro investor. First of all, big question,
do you think officials will be able to reach five percent? Why?
Speaker 4 (01:21):
Why not?
Speaker 3 (01:22):
I think they will. The first thing is that the
four percent budget as you mentioned, plus one point eight
trillion dollars special treasury bond plus a four point four
trillion special local government bound all take out amount to
twelve trillion R and B. That's about eighty percent of GP.
(01:43):
Is quite significant. And the other thing is you need
to spend them wisely, and spending area seems to be
focused on to upgrades and two keys they called liang
shin in Chinese. The two upgrades include the first one
is a industrial equipment upgrade and the second one is
(02:05):
consumer products upgrade. The former is linked to the use
of more efficient equipment which is also greener, and the
letter is similar to cash for clunkers. Basically, they want
consumers to consume and that's an area China is a
(02:25):
lack of inter economic growth. But more important, I think
is the exclusion of the other two keys. The first
key is called execution of key National strategies. A second
is the capacity building in key areas of national security. Essentially,
they are investment high technologies in the competition with the US.
(02:49):
And the important thing of this is that we have
actually seen some estimates puts the multiplier at the two
point eight to three point five. This is in contrast
to the old ways of infrastructure spending where the multiplier
has dropped to point eight from one twenty.
Speaker 1 (03:11):
So more bang, they're getting more bang for their book.
Speaker 3 (03:13):
Yeah, I believe that. So if we say it's got
two point eight two three point five multiplier, effect eight
hundred billion of this spending translate to two point four trilling.
That's still significant. Beijing has been very concerned in terms
of the government spending for the last few years, and
(03:33):
as far as I remember, even back in twenty sixteen,
while I was in Beijing talking two officials, they were
reluctant to open the tap. They basically argue that I
don't know where to spend because they don't get a multiplier.
But recently Deepsek changed the situation. With Deepsey coming out,
Beijing seemed to be more confident in terms spending this area.
(03:57):
And so that's why you guys a high multiplier.
Speaker 1 (04:00):
But can this spending, even with the higher multipliers, you say,
counteract the impact of tariffs and this sort of growing
protectionism we're seeing globally.
Speaker 3 (04:10):
There's I mean, the tariffs is definitely highway for China,
but I think that people tend to overestimate the tariff's
impact on China's growth. We have seen it in twenty eighteen.
It tend to be that if I want to put
tariffs on the other country, I would do the one
(04:32):
which hurts the other country the most and it's best
for me, right, And that's what Trump did in the
first term. So whatever new terriffsy put in there is
going to be less impactful. And the tariff has actually
lowered China's export to the US. The one number I
think a lot of people don't talk about is China's
(04:55):
total exports to the US. It's a two pout six,
only eight percent of China's GDP. I mean not saying
that's not significant, it's a significant. But and let's say
the terriff is so high China does not directly export
to you as I need more nothing. Let's say that's
a s creme case. That's two one eight percent of
(05:16):
GDP off China's So China can really increase the pascal
spending if that it's the case, and the China does
have the room to do the pascal spending unlike many
pear and China is a really leverage.
Speaker 2 (05:31):
Under that, So you're basically saying that China is less
exposed to exports and the domestic economy is much more important.
And I wanted to talk about the consumer sector, and
you mentioned cash for clunkers, But has authorities done enough
to boost consumer spending?
Speaker 3 (05:50):
Uh, the government they do not want to do the
US style, you know, flowers of the economy with all
the liquidity, you with the massive leverage built up, and
they were quite slow right after the pandemic. They could
have done more. But since September last year they did
(06:13):
do a lot more than before. Incrementally they have been
giving copounds cash to consumers. But during the pandemic some
local government tried to provide the cash and the copounds.
But I still believe that given at the national level,
and the multiplier should definitely be much bigger than the
(06:36):
infrastrust spending. If you ask me that whether that's enough,
I don't really know the answer. I think that's so
far the evidence looks to be good. I think the
important thing is whether China government or Beijing had the will.
If there's a will, there's a way. But of course
you need to have the room, and China definitely hads
the room in terms of physical leverage. And also they
(06:58):
have not done q They can do the que as well.
If they won't, I think that's what's most like to happen,
rather than that's the one time they are always say
they will. Given Actually, the head of a NDRC mentioned
there's a special program for consumption in the press conference.
We don't know whether that is, and the rumor says,
okay is going to be another few hundred billion R
(07:22):
and B if that comes out. I think that's definitely enough.
Speaker 1 (07:26):
Yeah, seems like they're hyper focused on the consumer this time.
I mean even in the speech, right, that was one
of the first things out of the premier's mouth on
the consumer. As a hedge fund, how do you translate
this thinking and your view of what's going to happen
in China and the Chinese economy this year into action?
What are you investing in?
Speaker 3 (07:47):
So we are in a transition, you know, we are
not really like trying to say, Okay, you are really
bullish on China's economics, say no, no, no, we are not
really bullish in the sense that we don't see China
growing at six percent, seven or whatever is it used
to be. Actually, we are structly bullish on certain parts
of the economy and we're being cautious in other parts
(08:10):
of the economy. I mentioned the multiplier for instruct spending
is very long now, and the government knows that. That's
why the government not eager to save property now, the
eager to spend a lot on infrastructure, and that translates
to low demand for commodities. So we are generally short
on the community side, but we're generally more bullish equities
(08:34):
because the government transition from infstruct spending to consumers, and
the consumer demand can drive the demand for products, and
the products may translate into corporate profits because a lot
of the consumers are willing to spend. That translates into
potential for stock pus rally.
Speaker 2 (08:54):
Asian Centric is produced by Bloomberg Intelligence were more than
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(09:17):
you like what you're here, don't forget to subscribe and
share in You guys, you made seventy six percent return
last year. Can you tell us what home runs did
you make last year? And then what do you like?
Speaker 4 (09:30):
Now?
Speaker 3 (09:31):
Okay, I need to be totally clear here. You know,
we have two accounts. The highly leverage account is seventy
plus and the other one the lower leverage that's close
to forty percent, and it's still good. But I want
to be still good as well. We basically have two
books in both the last same a lot one books
that were called a China replication. Remember we define our
(09:52):
fund ads are China focus like Global Macro the China replication.
What we did there is exactly what I just described.
Last year. We were short commodities and we were long
China equities and unfortunately we were number one opportunistic in
terms of long China equities last year. Which equities we
(10:16):
were long the Hongsung tag. We were long China's five hundred.
Basically we were long index. We don't do individual equities anymore,
and even more fortunate our exposure in long equities towards
relatively large in September.
Speaker 2 (10:32):
Oh wow, good timing.
Speaker 3 (10:33):
Yeah. The reason for it in the sense that what
do we see is that China's growth or Chinese economy
was definitely not as strong as it used to be.
But what do we see in more troubling is the
perception of China. It's terrible. There's a disconnect China definitely.
Oh yes, China is not going as well. But it's
(10:53):
China that bad all one says.
Speaker 2 (10:55):
No.
Speaker 3 (10:56):
Actually, I think what need to change is the perception
of China. Everybody looks for that big stimulus, right, but
we are not looking for that big stimulus. Word we
are looking for is the perception change. And we see
like August last year the Olympics. The Olympics got China
on the world stage and people see, okay, it's the
(11:17):
country athletes look at quite normal and they did well.
And I was also making the argument that into this
world of social media, perception changed very quickly. In December,
you have TikTok refugee to Shogunhu to later random and
that had DeepC right, all of a sudden, the perception
on China really changed, right. I think that's what it's
(11:39):
a driving the stock market up. And of course the
septembers China's a policy change also affected people's perception.
Speaker 2 (11:48):
And it sounds like you're still quite positive on Chinese equities.
Speaker 3 (11:52):
Yeah, opposition is similar right now in the sense we're
still a long Chine equities, infrastructure, property sensitive commodities. And
the other thing we did welllast year was I saw
that Japan definitely is going to raise the interest rate
because the infliction was really going up. So last year
we were shouting gdb's and they also made the right argument.
(12:12):
Last year. We were arguing that the US race was
going nowhere last year, and so we treated the US
rates well last year. Well, at the beginning of last year,
when US race was quite low, a lot of people
think by in the US bound, they's a really good trade.
It turned out to be not right last year the
US race basically when the up came down and went
up again. And I'm quite lucky in terms of trying
(12:34):
to think about the Trump's chance of winning or losing.
Each of the last three elections. So I was thinking
that Trump's chance of winning last year was much higher
than the market price in. So we did some Trump triderarily,
especially the raids of steepeners and the resteeping the work,
and also some Asian currencies. We think they're actually quite
(12:56):
good Asian currencies where the treating dynamics will be very
different from ten years ago or nineteen ninety seven. Yeah,
so that's right. Now, it's a market to mispress in
some of that.
Speaker 2 (13:07):
Then I saw you on Bloomberg TV, and you have
a counter consensus view. You think the market is underpricing
US rate cuts next year. Yes, can you sort of
explain more to the listener.
Speaker 3 (13:20):
I don't really know what's going to happen to yesterdays
this year. I actually invented a term. I coined the term.
I call it the Poker rule. The Poker rule is
essentially a combination of Powell with a Voker.
Speaker 1 (13:34):
Okay, so former FED chairman Paul Volker from the seventies
eighties and then current FED Chairman Dron Powell.
Speaker 3 (13:42):
Right, you think that Powell is facing similar problems Volk
was facing inflation. Inflation was now that high, right, Volker
was facing like fifteen percent inflation. Well right now it's
still like a four or five. So in discussing the
poker rule, I argued one thing, I don't think the
market it's current in the sense if you look at Powell,
(14:02):
it's very different from the fat governor we used to have.
They were all economists, where Powell is a lawyer by education,
by training. Right, So what's the difference between economists and lawyer.
Economists tend to be you know, tough minded guys. They
have a theory and they have a bias. A Hakage
(14:23):
governor is always hawkish governor. A Dolfwish governor is always
doltish governor. Walker is a very hawkish grispand and the
Brananki are very dolwish. But low Yeer's very different. Lawyer
does not use their theory to project what's going to happen.
Lawyer looks at evidence.
Speaker 1 (14:38):
Gotcha. So economists kind of have this bias hawkish or dubbish.
They lean either way. But Powell is a bit different
from that. He needs to have data presented to him,
so maybe could take a bit more time to act.
Speaker 3 (14:52):
Yeah, so this year, what evidence do we have evidence
is that inflation is still elevated. I this is the
infliction level. I think it's very reluctant to cut ry.
But the market pricing harmony right now, pricing more than
three cuts, and also the teriff's treating big or small.
It's the inflationary So in this environment, I think the
(15:13):
market means pricing the fad in the sense that they're
pricing too many cuts. However, nothing priced in next year,
but for next year. Remember the fat governor change. I
think Trump definitely taking someone who's lawyer and who's faithfully
execute his view. That means lower interest rate. So I
(15:35):
think the next fat government comes in in May next year,
the race is going to be cut much lower. And
they may ask me, okay, what if the inflication remains high, Well,
we have seen that episode before. The fat can make
an argument, Oh, you know, the infliction induced the better
terrific high. The terriff is a one time price high,
so it's a transitory.
Speaker 1 (15:56):
What about the chances of a very recession though, I
mean this is all assuming that there won't be a
session this year, which I mean I don't think any
economists are pricing in necessarily, but the risk has definitely
gone up.
Speaker 3 (16:08):
Yeah, with the equity price drop. Now, I've seen some
analysts calling for recession risk rising from ten percent to
twenty percent something like that. I think that the Trump's terriffs,
it's going to definitely increase the chance of a recession
next year. So this year is somewhat like a stackflation
(16:29):
in the sense that you increase the tariff, the invlasion
goes up, the economy weaken somewhat in the stack deflation
time the second part of poker we're coming to play.
I argue that with the inflation at this stage, Powell
is unlikely to cut interestry. There's an angle. Powell is
a close land the term, and he had done great
(16:52):
job in the Siviny economy during pandemic, and it also
raised the interest rate high enough without causing a collapse
of US economy. I know he deserves the full credit
and his close to his end term. He doesn't want,
you know, make a mistake into the cutting too much.
I think that the market need to price in cut,
but shouldn't be all in this year and nothing next year, right,
(17:15):
it should be spread out. Basically, what we're doing now
is that we are buying the well, We're not exactly.
Buying butt is similar. We are buying the two year
point of the US Treasury. Or let's say we are
betting that two year point rates are going to go
lower and we're bet one year point actually go higher.
So in the sense we are doing a one year
(17:36):
two year cuting technical term one year three flatner right
now from under this year under next year. The market
is only pricing in uh last night it was only
seven basis point, so people say, okay, there'll be no
cut next year. Okay, So you're basically betting that rates
will come down a lot more than the market expects
(17:57):
in twenty twenty six. And just for the listeners out there,
this is not investment advice, though I don't.
Speaker 4 (18:03):
Know if retail investors can express their views in rates,
but I wanted to sort of change the topic a bit.
Speaker 2 (18:11):
You're a macro hedge fund based in Hong Kong. Now,
Hong Kong is home to a lot of hedge funds,
but they're mostly equity long short and when you think
of macro hedge funds, you think of you know, Stanley
Drunken Miller, you know George Soros, litile spaking. They're always
based in New York, maybe in London. What's it like
being a macro guy in Hong Kong?
Speaker 3 (18:33):
That feels good. I think it's interesting for the Asia
macro hatch fund quite a few false starts in ninety seven.
You have Asian financial crisis. It's supposed to be a
perfect time for you know, a macro hatch fund, right,
and then you seven which is not Asia LAD, is
the US LAD and Asia cutter factors as well. But
(18:56):
I think that's interesting is if you look at you know,
Sorrows Drugler, they are quite close to the center backs,
or at least they understand the fat the BOE much
better than I would say a guy here, Yes, so
a guy like us here, we are proud of ourselves
(19:18):
for understanding PBOC or even BOJ better than those guys.
Speaker 2 (19:24):
Right.
Speaker 3 (19:25):
The interesting thing is that BOJ didn't matter for a
long time. Japan was like the last decades, the people
who it doesn't matter either, Well, Beijing's policy matters to
manufacturing part of the economy. For a long time, it
did not matter to financial part of the global economy.
Back in twenty sixteen twenty seventeen, I wrote a piece
(19:48):
to my masts basically arguing that twenty to fifteenths R
and B depegging from the US dollar was going to
have huge impact in ten years, not at that moment.
So in ten year's time I argued that decisions out
of Beijing will be as important as, if not more important,
(20:14):
than decisions out of Washington, New York, Tokyo, London, Berlin, Brussels.
We are witnesses right now. Not Bejing decisions definitely affects
the global financial market, not just Chinese market anymore so.
Being a microphone in this region, we have a certain
(20:35):
information advantage. Instance of that, or you call it the
analytics advantage. We understand China much better than most microphounds
sitting in London and sitting in New York. Beijin used
to be relatively transparent. That's going to the direction of
more transparency, but over the last few years it seems
(20:55):
to be becoming less transparent. So the yin free information
symmetry for those guys sitting in London in New York.
For US, we also get less information, but at least
we are still better connected or closer to understand what's
happening than those guys in London New York. That's something
(21:16):
we think it's our advantage.
Speaker 1 (21:18):
What do you think they get wrong? You know, you're
saying that the folks in New York, in London, what
do you think they're getting wrong about the PBOC and
about China right now?
Speaker 3 (21:25):
So for example December in the Central Work Economic Conference
and they said, okay, we're going to lose the Montreal policy.
What happened. Yes, that means they may cut a triple
r the cut interest rate. And if you look at
the ripple market versus the official rate, the marketing market
is quite tight right now. The reform market is somewhere
around one point eight to two percent. Well, the official
(21:47):
seven day PBOC rate is one point five percent. This
divergence is actually quite high. If the cutting interest rates,
the rate should be one two percent. So we are
looking at, you know, really lose Montibal percent says the
market price of two percent. And the arybody's arguing, okay,
this is the temper phenomenon Chinese New Year. The money
tied after Chinese New Year, the red remained high. The
(22:10):
reason for other the you know, one is that the
economy is not that bad, so they're not in a hurry.
And the other one is the people who have mentioned
quite a few times the long term Chinese government bound rate.
It's too low. They did not say specifically too low,
but they talked about it many times. If you look
at thertainy year, China's garment bomb right now, it's one
(22:32):
point eighty percent. Japan is two point three four percent.
This makes no sense, right, and we understand why it's happening.
Who's buying it? Why is going that way? I don't
think that the guy's sitting in londoness And actually it's
as a matter of fact, we're talking to some investors
and they said, yeah, you argue that the long term
of China rates is going to be higher, but this
(22:55):
has been going lower for the last one year and
in the bloom of TV. I think that the whole
asking me that the low long term rate, does that
signal that people are quite passimistic about China. Well, I say, okay,
interpret that way, but that's not exactly the right price
for the China's long term growth. This is a two low.
(23:16):
So I actually want to position for China reads higher.
The question is the number one? Is one? The second?
And what's trigger?
Speaker 2 (23:25):
Right?
Speaker 1 (23:25):
Yeah, what's going to say in how many years and
how many years.
Speaker 3 (23:28):
I mean for me, like we we have some position
there as well, and we don't think this is the
moment a way of back like this isn't going to
go back to three percent and run them soon, but
we want to watch for inflation for girls of whether
there's the girls will continue with the girls continue, Let's
say the inflation the forecasted the government the lower the
infliction target two percent. But people interpret that, Okay, you
(23:50):
know there's a good for a bound that it is
bad for bomb because the government of Taketi is three
percent last year. There's no way that we're going to
reach it last year, right, It's more like a this
year they lowered it to more appropriate two percent. It's okay,
we one two percent, right, and they were doing things
to reach that two percent. The two things one is
(24:10):
that the encouraged consumption and the other one they are
doing some sort of now they call it a different
name called anti involution, anti anti involution, called the fundation.
And remember back in twenty sixteen theres something called supply
side reform. This is similar this basically, okay, we have
so many companies competing for the same market, so the
(24:32):
overcompetition leads to involution and that's not good for the price,
and they will have this low inflation or close to
zero inflation. I wouldn't call it inflation because it's still positive.
It's a low. So we want to move away from
that situation. So they are introducing measures to deal with
(24:53):
this evolution problem and that can potentially get the price higher.
Let's go back twenty sixteen. The supply sided reform managed
to reach the CPI from around one point five two
around two percent basically from the end of twenty fifteen
to twenty sixteen, the inflation the CPI one top oft
point five.
Speaker 1 (25:13):
And you think they're going to be able to do
it again.
Speaker 3 (25:15):
Well, the definitely they're trying. They don't really like this
deflation country environments. On demand side, they are trying to
get more money to consumers, and on the supply side
they are saying, okay, there are old competition, no company
is making profit, and so you want to deal with it.
And the way they deal each sector differently. We don't
know exactly which sector they're going to do, but the
(25:36):
market is talking about they are going to cut fifteen
million tons of steel output. They can don't believe in it,
but you know, we have tried, like the last couple
of years, but they see year. I don't know, it's
not because it looks like they are more determined.
Speaker 2 (25:49):
Right.
Speaker 1 (25:50):
So we've been talking about a lot of themes here.
We're talking about around the world, China, Us, Trump, she
and talking about how you're playing all this, how you're
inting as a result. So one of the things, you
had a great year last year, what about so far
this year? Because there's so much going on. February was
not great for a lot of hedge funds. How about
(26:11):
for you guys?
Speaker 3 (26:12):
Yeah, past the opposite. We did not do well in January,
but in February we did really well. We made up
all the losses in January and basically we'll all return
in February in magnitude double the over January loss.
Speaker 4 (26:26):
That's why you're getting on TV, and that's why that's
what you're doing.
Speaker 1 (26:31):
Well, you must know what he's talking about.
Speaker 3 (26:34):
Well, knocking on the wood, is it difficult?
Speaker 2 (26:37):
Is micro investing back?
Speaker 3 (26:39):
Yeah? Yeah, definitely. I mean, like the whole invention in
the world, it's moving from a location to strategy allocation.
By that, I mean you could light on and simply
by US stocks in the US bond and you would
do really well in twenty ten, but the twenty twenties
that will not work. Twenty twenty is going to you
(26:59):
need to figure out this strategy. Strategy micro. And if
we go back to last nineteen ninety, it's really interesting.
Nineteen ninety two year two thousand, the macro did really well,
the US equity did really well, and ybog the market
and the commodity did almost nothing. From two thousand to
twenty ten, the US actually went nowhere two thousand, two
(27:21):
thousand and two, twenty seven up and the two thousand
and nine bargain and the commodity rather hard emote. The
market did well, and the micro did well as well,
but from twenty teen twenty twenty, the macro were terrible.
You could simply buy the US stock and do nothing.
Speaker 2 (27:37):
Like give six seven.
Speaker 3 (27:38):
Yeah, that's because there's a massive printing money because of
two and eight and the US was printing, the European
was printing, and then Japan started printing when Abbey Body
in Crawda right, and those are massive printing drove up
the US risk assets. But twenty twenty we'll have information
(27:58):
there's less money slashing around and just so there'll be
more volatility. The trouble for macurie mashing is that you know,
in that strong equity world, everyone makes money because most
of the actually invest a lot. Right, in a period
where macri masting is good, not all macuri masure will
make money because basically this is the environment where volatility
(28:21):
is high. Right, I see a think that more than
fifty percent of macro in measures will make money and
someone will make it really big. But the risk is
also high.
Speaker 2 (28:30):
Well, it's a great way to.
Speaker 1 (28:33):
Making money, but risks are high.
Speaker 4 (28:34):
Yeah they say winners it grins and you can see
a smile on your face.
Speaker 3 (28:38):
Yeah, well, what's the Well, we're a very traditional micro
so months the months fluctuation is as high and it's
really for for investors who have a tolerance for risks.
Speaker 1 (28:48):
Really interesting conversation today. Thanks so much for joining.
Speaker 3 (28:51):
Us, Thanks more having me, and it's a really good
at pleasure.
Speaker 1 (28:55):
You've been listening to Asia Centric from Bloomberg Intelligence. I'm
Cottadmitri but in Hong.
Speaker 2 (29:00):
Kong, and I'm John Lee, also in Hong Kong. And
this podcast was produced and edited by Clara Chen.
Speaker 1 (29:06):
You can find more episodes on Apple Podcasts, Spotify, or
wherever you listen. See you guys next week.
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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.