May 24, 2024 • 25 mins
Featuring:
Rebecca Choong Wilkins, Bloomberg Asia Government & Politics Correspondent
Minmin Low, Bloomberg China Correspondent
Sean Taylor, CIO and Portfolio Manager at Matthews Asia
Quincy Crosby, Chief Global Strategist at LPL Financial
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Episode Transcript
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Speaker 1 (00:00):
Bloomberg Audio Studios, Podcasts, radio news. This is the Bloomberg
Daybreak Asia podcast. I'm Doug Krisner. You can join Brian
Curtis and myself for the stories, making news and moving
markets in the APAC region. You can subscribe to the
show anywhere you get your podcast and always on Bloomberg Radio,
(00:23):
the Bloomberg Terminal, and the Bloomberg Business app.
Speaker 2 (00:27):
So, China started its most expensive military drills in a
year around Taiwan, and Taiwan scrambled jets and put its
own missile, naval and land units on alert yesterday. It
all comes just a few days after ly Ching Doe
was sworn in as the new president for Taiwan, and
so joining us for some discussion of this is Rebecca
(00:48):
Chong Wilkins, Bloomberg Asia Government and Politics Correspondent. So it
sounds a little scary, but then this is a dance
that we've seen in the past. Between these two.
Speaker 3 (01:00):
Dance that we've seen in the past, and it is
worth saying that actually, by and large, for the last
year or so, Beijing has been quite restrained in its
activity around Taiwan, particularly during for example, the Taiwan elections themselves,
they haven't been extremely aggressive in the way that we saw,
for example, when the then speaker US Speaker Nancy Pelosi
(01:24):
visited Taiwan back in August twenty twenty two. The main
difference that experts have pointed to between the Chinese response
to Pelosi's visits and this time around, for example, is
that we have seen more of these military drills and
activity around closer to the mainland Chinese shore, so in
the waters around Mutsu, Wuta, Kimmen and so on, and
(01:49):
so it's sort of an escalation of that gray zone
area a part of how they try and sort of
increase some of the areas in which they are carrying
out exercises.
Speaker 1 (02:00):
What about the intensity around this show of force, is
it more or less than what we have seen in
the past, The number of ships involved, let's say as
an example, and.
Speaker 3 (02:11):
Well, it's sort of by and large similar. I mean,
it depends specifically whether you're looking at ships or specific
types of activities and so on. But the sort of
high we've never seen. Chribes military held so many exercises
in so many locations around Taiwan for the last year,
So it's sort of the expansiveness which is I think
more of note this year, And as Brian was saying,
(02:35):
you know, this is really very much about sending an
explicit signal to Lei ching Tour, to the ruling power,
about you know, the punishment for what they perceived.
Speaker 4 (02:48):
To be separatist acts.
Speaker 3 (02:50):
They also blasted leiching Te's inaugural address, for example, accusing
him of sending the dangerious signals of independence.
Speaker 2 (03:00):
Yeah, it's one of these things where you have a
feeling that I think you even mentioned it's setting the
tone a little bit. China is for Leichingda. But you know,
to be honest, he's been pretty reasonable in his approach,
at least over the past many months in the run
up to the inauguration and after the election. And I
wonder how much difference there really is between Leichingda and
(03:25):
President sig Wan.
Speaker 3 (03:27):
Yes, I think that's a really good point. And in
some ways he has also been quite sort of careful
and muted in some of his own language as well,
something of a sort of continuity candidate, particularly of course
when it comes to this issue around China. He has also,
it's worth said, sort of emphasized several times his desire
(03:47):
to maintain the status Quo to maintain the peace around
the island of Taiwan. So it's not to say as
if that he lot to sort of implied that he
has been ratcheting up language per se on his side either.
Speaker 1 (04:00):
All right, Rebecca, thank you so much for making time
to chat with us. I know it's a busy day
for you in Hong Kong. Rebecca Chung Wilkins of Bloomberg
Asia Government and Politics reporter, helping us understand a little
bit more about Chinese military drills around Taiwan.
Speaker 2 (04:23):
China, Japan, and South Korea are set to hold their
first summit in more than four years, and joining us
now in our studios is minmn Low, Bloomberg China correspondent,
minmn Thanks very much for joining us here in the studios.
So these three countries are not easy partners, and of
course there will be a kind of quiet or invisible participant,
(04:47):
I suppose the United States. Let's talk a little bit
about what you see as some of the key possible deliverables.
Speaker 5 (04:54):
Yeah, I think Chips is going to be top of
the table. As you mentioned, these very tough relationships to navigate.
They haven't had a summit since twenty nineteen, and that's
partly because of the pandemic, but also because of resistance
among these three countries to meet, partly due to this
warming relations that Korea and Japan has with US. But
(05:16):
I think what took on increased urgency for Beijing to
get these meetings going this time is that Korea, Japan,
and the US held their first trilateral summit in Camp
David in August of last year. That really set off
alarm bells ringing in Beijing because those three countries are
affirming commitments to each other's security and economy. So premierly
he's going to use this trip to really shore up
(05:38):
China's security, and I'm talking about both military and economic security,
because Washington has been callding Korea and Japan to increase
their limits of chip making equipment exports to China at
a time when China already faces this wall of restrictions
from the US, from the Dutch, and now Korea is
the largest source of chips for China, and Japan is
(06:00):
the largest source of silicon wafers for China. So a
lot is at stake here.
Speaker 1 (06:05):
It's kind of interesting too the timing. We just had
the inauguration of the President of Taiwan. And now it
was only earlier yesterday that China escalated military exercises around Taiwan.
Do you think there's going to be much in the
way of conversation around activity in the South China Sea,
particularly as it relates to trade routes in and around Taiwan.
Speaker 5 (06:27):
Yeah, definitely, there's going to be conversations about security issues
in both the East and South China Sea, because again Korea, Japan,
and US they have been holding these joint drills in
the East China Sea where China has disputed territorial claims
of Japan over the Senkaku or Teoyu islands, depending on
who you speak to, they have different names for these islands.
(06:47):
And as you said, Taiwan isn't focus as well, because
Japan had sent its largest ever delegation to the inauguration
so far to present lighting this inauguration, and obviously Beijing
is anger by it. We saw that, you know, huge
military drills yesterday, that's going to be on the table.
And in North Korea as well, the perennial issue that's
(07:08):
a concern for South Korea with the missile program as
well as there's allegations of that aid weapons for eight
exchange with Moscow that both Pyong Young and Moscow have denied.
But you can bet that Korea and Japan they're going
to push Beijing to really use its leaverage over Kim
Jong un to kind of rain Kyong Young in.
Speaker 4 (07:25):
Yeah.
Speaker 2 (07:25):
That's the interesting thing is that, you know, we often
think about countries in Asia getting caught in the middle
between the two superpowers, but in some ways, you know,
it gives them South Korea and Japan some opportunity here
to extract some benefits from both sides, in other words,
kind of playing one off the other to their own benefit.
Speaker 5 (07:44):
Yeah, exactly, And we kind of see this geopolitical dynamics
really shifting fundamentally in these last four years since the
three countries last met, because if you look at trade,
China is still the largest trading partner for Korea and Japan,
but if you look at new andsments, that's already declined
from Korea and Japan in recent times, and Korea's exports
(08:05):
to the United States had overtaken its exports to China
for the very first times in almost twenty years. So
that's quite a big shift there, and I think Beijing
will be using this trip to really kind of, you know,
convence its neighbors to realign their foreign policy away from
the US.
Speaker 1 (08:23):
Well, when you mentioned trade, one of the things that
Chinese President Chijinping mentioned when he was in the US
at the end of last year was the fact that
foreign direct investment from the United States is critical. Is
he making the same case to South Korea and Japan
that China essentially needs a lot more in the way
of investment.
Speaker 5 (08:43):
For sure, as I mentioned just now, you look at
the numbers, new investments has been declining I think the
past couple of years, and China's domestic economy is not
really revving up fast enough with the property crisis. Domestic
spending is not really picking up. So China is really
relying a lot on export driven growth and also from
(09:03):
investment from foreign companies coming to invest and expand in China.
So that's going to be a pitch that premierly will
want to make to his counterparts in Korea and Japan.
And look, China has this saying in Chinese it's called
twin wong shihan. It translates to basically, your teeth will
be cold if your lips die. So what it means
(09:24):
is really that your closer neighbors are much more important
than your allies far away. And I think that's what
Premier will be there to tell his counterparts in Korean Japan.
Speaker 2 (09:32):
So we talked a little bit about the US and
this discussion, and I mentioned that they were an invisible
player in all of this. To what extent is the
US putting pressure on South Korea and Japan to confront China,
and to what extent do the countries either embrace or
reject it.
Speaker 5 (09:50):
Yeah, I think that's really a big factor in this relationship.
And time is of the essence here because Washington is
said to be pushing to reach a deal with Korea
on those clubs on semi conductor exports by June before
the G seven meeting, and then after that, the Korean
and Japanese leaders are said to be considering a trip
to the US to have a summit again with President
(10:13):
Joe Biden that's possibly taking place in July. So right
now this trip is really critical. There's a lot of
negotiations going on between Beijing, Korean and Japan to really
kind of you know shift, you know, get them to
re are in their policy away from the US at
this time.
Speaker 1 (10:28):
Are we to read anything into the fact that President
she is not in attendance that instead Premier Lea Chung
is going in his place.
Speaker 5 (10:37):
Yeah, that's also something that's quite interesting because he will
be meeting with a premier, will be meeting with Prime
Minister of Japan and the President of Korea, but Premier
League is kind of like one rank below presidency and
he's kind of taking this meeting in Presidency's place. I
think that also speaks to the souring relations that has
(11:00):
kind of taken place over the last four years because
China and Japan, their relations have not been going very well,
especially after that nuclear wastewater dump into the ocean. China
has been placing the seafood band on Japan Korea as
well with the you know, the chips threatening to kind
of hold back on these chips. We saw Korea just
recently announced I think it was nineteen billion dollars in
(11:22):
funds to boaster their own domestic chip supply chain. So
there's been this race intensifying chips race across the globe,
and that's something that's very sensitive takes.
Speaker 2 (11:34):
Yeah, yeah, very Ie stakes Man Man, thanks so much
for coming into our studios and for providing some insights
and what to expect from these three sides here as
they get ready to meet men mean Low, Bloomberg China correspondent.
We're joined in our studios by Sean Taylor, Asia, CIO
(11:55):
and portfolio manager at Matthews Asia. Sean, thanks very much
for coming into our studios. Pleasure to see you again.
So I'm curious, do we want a strong growth profile
here for the United States and the global economy or
do we want it's like a weaker data so that
we can feel comfortable that inflation will.
Speaker 6 (12:15):
Recede well with it, you know, if we want it,
it's it's not happening. The growth profile is really expanding.
I think, you know, you're beginning to see some real
cyclical pick up across you know, not just the US,
but across Europe and finally be seeing some pick up
in Asia and in China as well. So it's a
(12:36):
pretty good environment, you know, for for risky assets. But
it's obviously going to be you know, disappointing for those
who think that rates will be cut sooner.
Speaker 4 (12:45):
What is it?
Speaker 1 (12:45):
Does it create a bit of a nervousness on your part?
I mean, volatility may be in store here because every
day this push pull on will the Fed cut before
the end of the year, will will they remain steady
as she goes for a while longer. What concerns you
the most right now in the current environment.
Speaker 6 (13:04):
Well, I suppose the three main things. You know, what's
the implications if the FED doesn't cut this year, and
that has a bit of an implication on Latin America
and parts of Asia that are relying on rates to
be cut. The second is what happens with the yen,
because that's putting pressure on other currencies, and you know,
the volatility there's not been that good. And then the
(13:27):
third is the cyclical pickup in China and if people
got enough money in China and a market they've ignored
for a long time.
Speaker 2 (13:34):
The tricky thing is that if we do see a
little bit of a weaker environment and inflation coming down
a little and the FED were to start cutting interest rates,
although the dollar would likely weaken and that might take
some pressure off of Asian currencies, but you know, you
might get this almost like melt up in risk assets, right,
and you know that creates its own sorts of difficulties.
Speaker 6 (13:58):
Absolutely spot on if you look back in history when
you've seen what we call and pick up in in
sort of global growth and leading into better earnings, and
these are more cyclical earnings as opposed to structural from AI, etc.
We've never had fed cup it's always been hiking to that.
Speaker 2 (14:16):
So can can we just sort of ask for gardening
leave for the fed. Can they just take like about
six months off and and just you know, don't do
any anything stupid?
Speaker 6 (14:24):
I think so.
Speaker 1 (14:25):
Well.
Speaker 6 (14:25):
I suppose they could restrict the balance sheet and restrict
some of the you know, they you know, they could
cut some liquidity out to slow down some of the
some of the growth. But it also doesn't it also
seems it doesn't matter who will be the president in
terms of fiscal policy will continue and the market will
be you know, flooded with with more liquidity.
Speaker 1 (14:45):
So where are you finding opportunities given everything that we're
talking about right now? Are there things that you find
attractive in the current market environment?
Speaker 6 (14:55):
Yeah, I mean, in terms of the APAC region, we
think that the the people investors are broadening out. You know,
obviously in the US they're broadening out from the from
the top seven to the wider market we've seen quite
a decent recovery in Europe. Japan continues to be a
very interesting story because the earnings are delivering, and actually
the weaker yen does help, even though Japanese companies aren't
(15:18):
as sensitive to yen, but it does help the sentiment
in the market. But investors buy earnings and earnings are
delivering in career. In Taiwan, we're getting the same. We're
really seeing the macro data improve, the export data is improving.
Maybe the weekly one is helping. You've got the Ai
structural theme happening and some cyclical themes happening so hard
(15:41):
where semiconductor's doing very well. You've still got India looking okay.
I mean it's sort of consolidated into an election, but
I think after that, though, you know, the Indian story
is pretty good. And then finally in Asia, we've actually
got China looking better, well better than it has been
in the last four years. And I think some of
the measures that we're in anounced on Friday in China
(16:01):
are quite positive and they all help global growth.
Speaker 2 (16:05):
Let's talk a little bit about Japan, because we did
get some national inflation numbers today that were a little
softer good news to some, but maybe not such good
news to the Bank of Japan. Obviously, the Bank of
Japan is still kind of hoping to get a little bit,
you know, to be able to normalize policy and get
out of this, you know, ultra loose monetary policy. Do
(16:26):
we want a little higher inflation or do we want
to just to stay steady there.
Speaker 6 (16:30):
I think we want to stay steady. I mean, I
think you know that the problem is it's getting you know,
they really the companies need to stop to put wage
growth up, and I think that's probably going to be
the main sort of driver of consumption. I think the
market at the moment's factoring in two interest rate hikes.
I expect it's only going to be one. However, we
(16:53):
did have an x BOJ policy member today saying that
it could be three. But I think it's going to
be going to be slow. But when we had the
first hike in Japan, they also bought and there was
also more liquidity put in, So in one way they hike,
but on the other way they kept the liquidity going.
So you know, I think, you know, I'm more focused
(17:14):
on the liquidity side on the Q East side in Japan,
which is probably driving growth and the actual level of
interest rates.
Speaker 2 (17:21):
Okay, I give you about fifteen seconds. What do you
like about Japan from an equity standpoint?
Speaker 6 (17:25):
Quick, domestic earnings and also some of the cyclical side
that's picking up a plus.
Speaker 2 (17:32):
Thank you very much, Sean, nice, quick, succinct answer there,
Sean Taylor, Asia, CIO and portfolio manager at Matthew's Asia.
We look at markets now with Quincy Crosby, Chief Global
Strategist at LPL Financial. Quincy, thank you very much for
(17:56):
being with us. So a little bit of a sell
off here in the market today. The market will show
us in a day or two that good news is
indeed good news, not bad, true or false.
Speaker 4 (18:09):
Well, you know today's that we had a video which
is certainly good news. But we also had the SMT
Global Flash Report, and that was good news except for
one thing which is bad news, really bad news, and
that was the prices are going up and they're trying
to pass it along to customers.
Speaker 1 (18:31):
Where does that leave the Fed?
Speaker 4 (18:34):
That leaves the Fed scratching his head and wondering when
is this going to end? They've got a report coming
out next Friday, which is their favorite supposedly favorite indication
for inflation, that's the personal consumption expenditures index. If that
comes in cooler on the super core, this will be
(18:54):
a catalyst for the market. But what you had now
is in market that was overbought to begin with. And
obviously Nvidia, you know, came in just fantastic top bottom guidance,
but you couldn't fight It showed that you could not
fight that price is paid data. The market just saw
(19:16):
that and said, are we really going to see a
rake cut this year?
Speaker 2 (19:21):
Yeah, we did see UBS David Lefkowitz raise his S
and P five hundred year in target to fifty five
hundred from five thousand, and I raised this because he
cited four key positive drivers solid earnings growth, disinflation, the
FED pivot, and surging artificial intelligence investment. So it's just
(19:42):
another reminder that, yeah, maybe disinflation is a little in
question here, although you know, we we have had a
lot of different data points to digest, but on balance,
you do have some good news there. So is that
how you break it down, Quincy, or do you have
have a couple of metrics that mean more than anything else?
Speaker 4 (20:03):
No, we do that. I mean, we're never bullish or Barish.
We're always pragmatic and we're very conservative with a small
fee in the way that we invest. What we do
see earnings holding up, and we also see for example,
you know, other sectors that we've gone We've gone long
and overweight for example industrials. So it isn't just about
(20:28):
the big big seven names or six names whatever, but
the industrials are doing well. Financials have also done well.
The question is can they continue to do well alongside
the mega tech when when the market believes that that's
where you need to go if things slow down. What
(20:49):
we know is that money flows directly into those big
tech names because as a defense mechanism with their strong
balance sheets, their ability to make money regardless of the environment,
perhaps less but at least safe. Despite the fact that
they were initially characterized with long duration that is sort
(21:10):
of evaporated. So again it has it's been nice. I
would have to say that we have seen breath pick
up in the market, and as I said, we went
long industrials, which we feel very comfortable with.
Speaker 1 (21:25):
Hey, Quincy, when the year began, would you have bet
that the American economy would have held up as well
as it has in the face of higher interest rates.
I mean, this is pretty stunning.
Speaker 4 (21:35):
It is stunning. But what we do know is that,
you know, we lived with these rates, these kinds of
rates for many years. What changed was that many of
us in private equity firms, venture capital folks with mortgages
were able to go in and buy things at very
low rates, almost sometimes negative rates. And then suddenly you
(22:00):
jump that quickly, and that jump really has been difficult.
But there's still, at least in the consumer side of things,
a cohort that has their houses, they have pensions, they
have money, and they bought their houses with a very
low interest rate that they don't want to leave those houses.
(22:21):
They're there, they want to wait. But that group still
has money. Those are the baby boomers, and that becomes
difficult to the FED because the FED is watching the
lower wage journer under tremendous pressure. You've heard Cheerman Powell
mention it so many times, not just in this period
but before COVID when he actually said, we are going
(22:44):
to do whatever we can do to get this group
to have jobs, jobs at pay. Well, well, they've got
the jobs, but the inflation, the higher credit rates, rates
are hurting them dramatically. So the question then becomes, would
he be boys to cut rates if this group becomes
(23:04):
even more battles with higher rates.
Speaker 2 (23:10):
Yeah, it's a little bit of a conundrum because you
know that they would like to support jobs, but they
certainly don't want to cut rates too early and have
inflation spike back up again because that hurts the little guy,
probably just as much as as job losses. So it's
a little bit of a tricky environment. But then, you know,
(23:30):
I mean, we're we're trying to invest money and we're
buying companies, you know, and so let's talk a little
bit about how companies are faring, not so much the
average consumer. How are companies faring in your view and
which ones do you like?
Speaker 4 (23:47):
Well, they're faring very well, you know. That is what
you know outside from the US. Global investors always point
to about the US. The companies know how to manage.
They watch their operating margins, and when those margins deteriorate,
they are very fast to cut costs. And actually that's
(24:10):
where they start cutting, you know, labor, They typically go
right there because that's usually what they have to start cutting.
Capital expenditures come down. But when we look at through
this earning season. The margins have been healthy, the companies
have done well. They're surprise to the upside, and again
(24:31):
I mean we have to be pragmatic about it. The
big mega techniques are responsible for the major portion of
earnings in the S and P five hundred, and they've
been doing well. Even when they're bad, they do well.
Speaker 1 (24:45):
Quincy thirty seconds. The market that is your most favored
to in which to put capital to work offshore right
now is Japan.
Speaker 2 (24:56):
That was quick, Quincy, thank you very much for joining us.
UNC Crosby, Chief Global Strategist at LPL Financial.
Speaker 1 (25:05):
This has been the Bloomberg Daybreak Asia podcast, bringing you
the stories making news and moving markets in the Asia Pacific.
Visit the Bloomberg Podcast channel on YouTube to get more
episodes of this and other shows from Bloomberg. Subscribe to
the podcast on Apple, Spotify, or anywhere else you listen,
and always on Bloomberg Radio, the Bloomberg Terminal, and the
(25:26):
Bloomberg Business app.
Bloomberg Audio Studios, Podcasts, radio news. This is the Bloomberg
Daybreak Asia podcast. I'm Doug Krisner. You can join Brian
Curtis and myself for the stories, making news and moving
markets in the APAC region. You can subscribe to the
show anywhere you get your podcast and always on Bloomberg Radio,
(00:23):
the Bloomberg Terminal, and the Bloomberg Business app.
Speaker 2 (00:27):
So, China started its most expensive military drills in a
year around Taiwan, and Taiwan scrambled jets and put its
own missile, naval and land units on alert yesterday. It
all comes just a few days after ly Ching Doe
was sworn in as the new president for Taiwan, and
so joining us for some discussion of this is Rebecca
(00:48):
Chong Wilkins, Bloomberg Asia Government and Politics Correspondent. So it
sounds a little scary, but then this is a dance
that we've seen in the past. Between these two.
Speaker 3 (01:00):
Dance that we've seen in the past, and it is
worth saying that actually, by and large, for the last
year or so, Beijing has been quite restrained in its
activity around Taiwan, particularly during for example, the Taiwan elections themselves,
they haven't been extremely aggressive in the way that we saw,
for example, when the then speaker US Speaker Nancy Pelosi
(01:24):
visited Taiwan back in August twenty twenty two. The main
difference that experts have pointed to between the Chinese response
to Pelosi's visits and this time around, for example, is
that we have seen more of these military drills and
activity around closer to the mainland Chinese shore, so in
the waters around Mutsu, Wuta, Kimmen and so on, and
(01:49):
so it's sort of an escalation of that gray zone
area a part of how they try and sort of
increase some of the areas in which they are carrying
out exercises.
Speaker 1 (02:00):
What about the intensity around this show of force, is
it more or less than what we have seen in
the past, The number of ships involved, let's say as
an example, and.
Speaker 3 (02:11):
Well, it's sort of by and large similar. I mean,
it depends specifically whether you're looking at ships or specific
types of activities and so on. But the sort of
high we've never seen. Chribes military held so many exercises
in so many locations around Taiwan for the last year,
So it's sort of the expansiveness which is I think
more of note this year, And as Brian was saying,
(02:35):
you know, this is really very much about sending an
explicit signal to Lei ching Tour, to the ruling power,
about you know, the punishment for what they perceived.
Speaker 4 (02:48):
To be separatist acts.
Speaker 3 (02:50):
They also blasted leiching Te's inaugural address, for example, accusing
him of sending the dangerious signals of independence.
Speaker 2 (03:00):
Yeah, it's one of these things where you have a
feeling that I think you even mentioned it's setting the
tone a little bit. China is for Leichingda. But you know,
to be honest, he's been pretty reasonable in his approach,
at least over the past many months in the run
up to the inauguration and after the election. And I
wonder how much difference there really is between Leichingda and
(03:25):
President sig Wan.
Speaker 3 (03:27):
Yes, I think that's a really good point. And in
some ways he has also been quite sort of careful
and muted in some of his own language as well,
something of a sort of continuity candidate, particularly of course
when it comes to this issue around China. He has also,
it's worth said, sort of emphasized several times his desire
(03:47):
to maintain the status Quo to maintain the peace around
the island of Taiwan. So it's not to say as
if that he lot to sort of implied that he
has been ratcheting up language per se on his side either.
Speaker 1 (04:00):
All right, Rebecca, thank you so much for making time
to chat with us. I know it's a busy day
for you in Hong Kong. Rebecca Chung Wilkins of Bloomberg
Asia Government and Politics reporter, helping us understand a little
bit more about Chinese military drills around Taiwan.
Speaker 2 (04:23):
China, Japan, and South Korea are set to hold their
first summit in more than four years, and joining us
now in our studios is minmn Low, Bloomberg China correspondent,
minmn Thanks very much for joining us here in the studios.
So these three countries are not easy partners, and of
course there will be a kind of quiet or invisible participant,
(04:47):
I suppose the United States. Let's talk a little bit
about what you see as some of the key possible deliverables.
Speaker 5 (04:54):
Yeah, I think Chips is going to be top of
the table. As you mentioned, these very tough relationships to navigate.
They haven't had a summit since twenty nineteen, and that's
partly because of the pandemic, but also because of resistance
among these three countries to meet, partly due to this
warming relations that Korea and Japan has with US. But
(05:16):
I think what took on increased urgency for Beijing to
get these meetings going this time is that Korea, Japan,
and the US held their first trilateral summit in Camp
David in August of last year. That really set off
alarm bells ringing in Beijing because those three countries are
affirming commitments to each other's security and economy. So premierly
he's going to use this trip to really shore up
(05:38):
China's security, and I'm talking about both military and economic security,
because Washington has been callding Korea and Japan to increase
their limits of chip making equipment exports to China at
a time when China already faces this wall of restrictions
from the US, from the Dutch, and now Korea is
the largest source of chips for China, and Japan is
(06:00):
the largest source of silicon wafers for China. So a
lot is at stake here.
Speaker 1 (06:05):
It's kind of interesting too the timing. We just had
the inauguration of the President of Taiwan. And now it
was only earlier yesterday that China escalated military exercises around Taiwan.
Do you think there's going to be much in the
way of conversation around activity in the South China Sea,
particularly as it relates to trade routes in and around Taiwan.
Speaker 5 (06:27):
Yeah, definitely, there's going to be conversations about security issues
in both the East and South China Sea, because again Korea, Japan,
and US they have been holding these joint drills in
the East China Sea where China has disputed territorial claims
of Japan over the Senkaku or Teoyu islands, depending on
who you speak to, they have different names for these islands.
(06:47):
And as you said, Taiwan isn't focus as well, because
Japan had sent its largest ever delegation to the inauguration
so far to present lighting this inauguration, and obviously Beijing
is anger by it. We saw that, you know, huge
military drills yesterday, that's going to be on the table.
And in North Korea as well, the perennial issue that's
(07:08):
a concern for South Korea with the missile program as
well as there's allegations of that aid weapons for eight
exchange with Moscow that both Pyong Young and Moscow have denied.
But you can bet that Korea and Japan they're going
to push Beijing to really use its leaverage over Kim
Jong un to kind of rain Kyong Young in.
Speaker 4 (07:25):
Yeah.
Speaker 2 (07:25):
That's the interesting thing is that, you know, we often
think about countries in Asia getting caught in the middle
between the two superpowers, but in some ways, you know,
it gives them South Korea and Japan some opportunity here
to extract some benefits from both sides, in other words,
kind of playing one off the other to their own benefit.
Speaker 5 (07:44):
Yeah, exactly, And we kind of see this geopolitical dynamics
really shifting fundamentally in these last four years since the
three countries last met, because if you look at trade,
China is still the largest trading partner for Korea and Japan,
but if you look at new andsments, that's already declined
from Korea and Japan in recent times, and Korea's exports
(08:05):
to the United States had overtaken its exports to China
for the very first times in almost twenty years. So
that's quite a big shift there, and I think Beijing
will be using this trip to really kind of, you know,
convence its neighbors to realign their foreign policy away from
the US.
Speaker 1 (08:23):
Well, when you mentioned trade, one of the things that
Chinese President Chijinping mentioned when he was in the US
at the end of last year was the fact that
foreign direct investment from the United States is critical. Is
he making the same case to South Korea and Japan
that China essentially needs a lot more in the way
of investment.
Speaker 5 (08:43):
For sure, as I mentioned just now, you look at
the numbers, new investments has been declining I think the
past couple of years, and China's domestic economy is not
really revving up fast enough with the property crisis. Domestic
spending is not really picking up. So China is really
relying a lot on export driven growth and also from
(09:03):
investment from foreign companies coming to invest and expand in China.
So that's going to be a pitch that premierly will
want to make to his counterparts in Korea and Japan.
And look, China has this saying in Chinese it's called
twin wong shihan. It translates to basically, your teeth will
be cold if your lips die. So what it means
(09:24):
is really that your closer neighbors are much more important
than your allies far away. And I think that's what
Premier will be there to tell his counterparts in Korean Japan.
Speaker 2 (09:32):
So we talked a little bit about the US and
this discussion, and I mentioned that they were an invisible
player in all of this. To what extent is the
US putting pressure on South Korea and Japan to confront China,
and to what extent do the countries either embrace or
reject it.
Speaker 5 (09:50):
Yeah, I think that's really a big factor in this relationship.
And time is of the essence here because Washington is
said to be pushing to reach a deal with Korea
on those clubs on semi conductor exports by June before
the G seven meeting, and then after that, the Korean
and Japanese leaders are said to be considering a trip
to the US to have a summit again with President
(10:13):
Joe Biden that's possibly taking place in July. So right
now this trip is really critical. There's a lot of
negotiations going on between Beijing, Korean and Japan to really
kind of you know shift, you know, get them to
re are in their policy away from the US at
this time.
Speaker 1 (10:28):
Are we to read anything into the fact that President
she is not in attendance that instead Premier Lea Chung
is going in his place.
Speaker 5 (10:37):
Yeah, that's also something that's quite interesting because he will
be meeting with a premier, will be meeting with Prime
Minister of Japan and the President of Korea, but Premier
League is kind of like one rank below presidency and
he's kind of taking this meeting in Presidency's place. I
think that also speaks to the souring relations that has
(11:00):
kind of taken place over the last four years because
China and Japan, their relations have not been going very well,
especially after that nuclear wastewater dump into the ocean. China
has been placing the seafood band on Japan Korea as
well with the you know, the chips threatening to kind
of hold back on these chips. We saw Korea just
recently announced I think it was nineteen billion dollars in
(11:22):
funds to boaster their own domestic chip supply chain. So
there's been this race intensifying chips race across the globe,
and that's something that's very sensitive takes.
Speaker 2 (11:34):
Yeah, yeah, very Ie stakes Man Man, thanks so much
for coming into our studios and for providing some insights
and what to expect from these three sides here as
they get ready to meet men mean Low, Bloomberg China correspondent.
We're joined in our studios by Sean Taylor, Asia, CIO
(11:55):
and portfolio manager at Matthews Asia. Sean, thanks very much
for coming into our studios. Pleasure to see you again.
So I'm curious, do we want a strong growth profile
here for the United States and the global economy or
do we want it's like a weaker data so that
we can feel comfortable that inflation will.
Speaker 6 (12:15):
Recede well with it, you know, if we want it,
it's it's not happening. The growth profile is really expanding.
I think, you know, you're beginning to see some real
cyclical pick up across you know, not just the US,
but across Europe and finally be seeing some pick up
in Asia and in China as well. So it's a
(12:36):
pretty good environment, you know, for for risky assets. But
it's obviously going to be you know, disappointing for those
who think that rates will be cut sooner.
Speaker 4 (12:45):
What is it?
Speaker 1 (12:45):
Does it create a bit of a nervousness on your part?
I mean, volatility may be in store here because every
day this push pull on will the Fed cut before
the end of the year, will will they remain steady
as she goes for a while longer. What concerns you
the most right now in the current environment.
Speaker 6 (13:04):
Well, I suppose the three main things. You know, what's
the implications if the FED doesn't cut this year, and
that has a bit of an implication on Latin America
and parts of Asia that are relying on rates to
be cut. The second is what happens with the yen,
because that's putting pressure on other currencies, and you know,
the volatility there's not been that good. And then the
(13:27):
third is the cyclical pickup in China and if people
got enough money in China and a market they've ignored
for a long time.
Speaker 2 (13:34):
The tricky thing is that if we do see a
little bit of a weaker environment and inflation coming down
a little and the FED were to start cutting interest rates,
although the dollar would likely weaken and that might take
some pressure off of Asian currencies, but you know, you
might get this almost like melt up in risk assets, right,
and you know that creates its own sorts of difficulties.
Speaker 6 (13:58):
Absolutely spot on if you look back in history when
you've seen what we call and pick up in in
sort of global growth and leading into better earnings, and
these are more cyclical earnings as opposed to structural from AI, etc.
We've never had fed cup it's always been hiking to that.
Speaker 2 (14:16):
So can can we just sort of ask for gardening
leave for the fed. Can they just take like about
six months off and and just you know, don't do
any anything stupid?
Speaker 6 (14:24):
I think so.
Speaker 1 (14:25):
Well.
Speaker 6 (14:25):
I suppose they could restrict the balance sheet and restrict
some of the you know, they you know, they could
cut some liquidity out to slow down some of the
some of the growth. But it also doesn't it also
seems it doesn't matter who will be the president in
terms of fiscal policy will continue and the market will
be you know, flooded with with more liquidity.
Speaker 1 (14:45):
So where are you finding opportunities given everything that we're
talking about right now? Are there things that you find
attractive in the current market environment?
Speaker 6 (14:55):
Yeah, I mean, in terms of the APAC region, we
think that the the people investors are broadening out. You know,
obviously in the US they're broadening out from the from
the top seven to the wider market we've seen quite
a decent recovery in Europe. Japan continues to be a
very interesting story because the earnings are delivering, and actually
the weaker yen does help, even though Japanese companies aren't
(15:18):
as sensitive to yen, but it does help the sentiment
in the market. But investors buy earnings and earnings are
delivering in career. In Taiwan, we're getting the same. We're
really seeing the macro data improve, the export data is improving.
Maybe the weekly one is helping. You've got the Ai
structural theme happening and some cyclical themes happening so hard
(15:41):
where semiconductor's doing very well. You've still got India looking okay.
I mean it's sort of consolidated into an election, but
I think after that, though, you know, the Indian story
is pretty good. And then finally in Asia, we've actually
got China looking better, well better than it has been
in the last four years. And I think some of
the measures that we're in anounced on Friday in China
(16:01):
are quite positive and they all help global growth.
Speaker 2 (16:05):
Let's talk a little bit about Japan, because we did
get some national inflation numbers today that were a little
softer good news to some, but maybe not such good
news to the Bank of Japan. Obviously, the Bank of
Japan is still kind of hoping to get a little bit,
you know, to be able to normalize policy and get
out of this, you know, ultra loose monetary policy. Do
(16:26):
we want a little higher inflation or do we want
to just to stay steady there.
Speaker 6 (16:30):
I think we want to stay steady. I mean, I
think you know that the problem is it's getting you know,
they really the companies need to stop to put wage
growth up, and I think that's probably going to be
the main sort of driver of consumption. I think the
market at the moment's factoring in two interest rate hikes.
I expect it's only going to be one. However, we
(16:53):
did have an x BOJ policy member today saying that
it could be three. But I think it's going to
be going to be slow. But when we had the
first hike in Japan, they also bought and there was
also more liquidity put in, So in one way they hike,
but on the other way they kept the liquidity going.
So you know, I think, you know, I'm more focused
(17:14):
on the liquidity side on the Q East side in Japan,
which is probably driving growth and the actual level of
interest rates.
Speaker 2 (17:21):
Okay, I give you about fifteen seconds. What do you
like about Japan from an equity standpoint?
Speaker 6 (17:25):
Quick, domestic earnings and also some of the cyclical side
that's picking up a plus.
Speaker 2 (17:32):
Thank you very much, Sean, nice, quick, succinct answer there,
Sean Taylor, Asia, CIO and portfolio manager at Matthew's Asia.
We look at markets now with Quincy Crosby, Chief Global
Strategist at LPL Financial. Quincy, thank you very much for
(17:56):
being with us. So a little bit of a sell
off here in the market today. The market will show
us in a day or two that good news is
indeed good news, not bad, true or false.
Speaker 4 (18:09):
Well, you know today's that we had a video which
is certainly good news. But we also had the SMT
Global Flash Report, and that was good news except for
one thing which is bad news, really bad news, and
that was the prices are going up and they're trying
to pass it along to customers.
Speaker 1 (18:31):
Where does that leave the Fed?
Speaker 4 (18:34):
That leaves the Fed scratching his head and wondering when
is this going to end? They've got a report coming
out next Friday, which is their favorite supposedly favorite indication
for inflation, that's the personal consumption expenditures index. If that
comes in cooler on the super core, this will be
(18:54):
a catalyst for the market. But what you had now
is in market that was overbought to begin with. And
obviously Nvidia, you know, came in just fantastic top bottom guidance,
but you couldn't fight It showed that you could not
fight that price is paid data. The market just saw
(19:16):
that and said, are we really going to see a
rake cut this year?
Speaker 2 (19:21):
Yeah, we did see UBS David Lefkowitz raise his S
and P five hundred year in target to fifty five
hundred from five thousand, and I raised this because he
cited four key positive drivers solid earnings growth, disinflation, the
FED pivot, and surging artificial intelligence investment. So it's just
(19:42):
another reminder that, yeah, maybe disinflation is a little in
question here, although you know, we we have had a
lot of different data points to digest, but on balance,
you do have some good news there. So is that
how you break it down, Quincy, or do you have
have a couple of metrics that mean more than anything else?
Speaker 4 (20:03):
No, we do that. I mean, we're never bullish or Barish.
We're always pragmatic and we're very conservative with a small
fee in the way that we invest. What we do
see earnings holding up, and we also see for example,
you know, other sectors that we've gone We've gone long
and overweight for example industrials. So it isn't just about
(20:28):
the big big seven names or six names whatever, but
the industrials are doing well. Financials have also done well.
The question is can they continue to do well alongside
the mega tech when when the market believes that that's
where you need to go if things slow down. What
(20:49):
we know is that money flows directly into those big
tech names because as a defense mechanism with their strong
balance sheets, their ability to make money regardless of the environment,
perhaps less but at least safe. Despite the fact that
they were initially characterized with long duration that is sort
(21:10):
of evaporated. So again it has it's been nice. I
would have to say that we have seen breath pick
up in the market, and as I said, we went
long industrials, which we feel very comfortable with.
Speaker 1 (21:25):
Hey, Quincy, when the year began, would you have bet
that the American economy would have held up as well
as it has in the face of higher interest rates.
I mean, this is pretty stunning.
Speaker 4 (21:35):
It is stunning. But what we do know is that,
you know, we lived with these rates, these kinds of
rates for many years. What changed was that many of
us in private equity firms, venture capital folks with mortgages
were able to go in and buy things at very
low rates, almost sometimes negative rates. And then suddenly you
(22:00):
jump that quickly, and that jump really has been difficult.
But there's still, at least in the consumer side of things,
a cohort that has their houses, they have pensions, they
have money, and they bought their houses with a very
low interest rate that they don't want to leave those houses.
(22:21):
They're there, they want to wait. But that group still
has money. Those are the baby boomers, and that becomes
difficult to the FED because the FED is watching the
lower wage journer under tremendous pressure. You've heard Cheerman Powell
mention it so many times, not just in this period
but before COVID when he actually said, we are going
(22:44):
to do whatever we can do to get this group
to have jobs, jobs at pay. Well, well, they've got
the jobs, but the inflation, the higher credit rates, rates
are hurting them dramatically. So the question then becomes, would
he be boys to cut rates if this group becomes
(23:04):
even more battles with higher rates.
Speaker 2 (23:10):
Yeah, it's a little bit of a conundrum because you
know that they would like to support jobs, but they
certainly don't want to cut rates too early and have
inflation spike back up again because that hurts the little guy,
probably just as much as as job losses. So it's
a little bit of a tricky environment. But then, you know,
(23:30):
I mean, we're we're trying to invest money and we're
buying companies, you know, and so let's talk a little
bit about how companies are faring, not so much the
average consumer. How are companies faring in your view and
which ones do you like?
Speaker 4 (23:47):
Well, they're faring very well, you know. That is what
you know outside from the US. Global investors always point
to about the US. The companies know how to manage.
They watch their operating margins, and when those margins deteriorate,
they are very fast to cut costs. And actually that's
(24:10):
where they start cutting, you know, labor, They typically go
right there because that's usually what they have to start cutting.
Capital expenditures come down. But when we look at through
this earning season. The margins have been healthy, the companies
have done well. They're surprise to the upside, and again
(24:31):
I mean we have to be pragmatic about it. The
big mega techniques are responsible for the major portion of
earnings in the S and P five hundred, and they've
been doing well. Even when they're bad, they do well.
Speaker 1 (24:45):
Quincy thirty seconds. The market that is your most favored
to in which to put capital to work offshore right
now is Japan.
Speaker 2 (24:56):
That was quick, Quincy, thank you very much for joining us.
UNC Crosby, Chief Global Strategist at LPL Financial.
Speaker 1 (25:05):
This has been the Bloomberg Daybreak Asia podcast, bringing you
the stories making news and moving markets in the Asia Pacific.
Visit the Bloomberg Podcast channel on YouTube to get more
episodes of this and other shows from Bloomberg. Subscribe to
the podcast on Apple, Spotify, or anywhere else you listen,
and always on Bloomberg Radio, the Bloomberg Terminal, and the
(25:26):
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