December 26, 2025 • 38 mins
Bloomberg Daybreak Weekend with Host Nathan Hager take a look at some of the stories we'll be tracking in the coming week.
- John Authers, Bloomberg Opinion Columnist, discusses the five forces that broke Capitalism
- Tim Craighead, Bloomberg Intelligence Bloomberg Intelligence Global Chief Content Officer, describes the European stocks to watch in 2026
- John Lee, Bloomberg Intelligence APAC content manager, looks at what we can expect from Asian stocks in 2026
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Episode Transcript
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Speaker 1 (00:02):
This is Bloomberg Daybreak Weekend, our global look at the
top stories in the coming week from our Daybreak anchors
all around the world. Straight Ahead on the program, a
look at a wave of new books that show capitalism.
Speaker 2 (00:13):
May not be doomed.
Speaker 1 (00:14):
I'm Nathan Hager in Washington.
Speaker 3 (00:16):
I'm Caroline Hepger here in London, where we work out
Bloomberg Intelligence's best ideas for European stocks in twenty twenty six.
Speaker 2 (00:24):
I'm Doug Krisner looking at the outlook for Asian equity
markets in twenty twenty six.
Speaker 4 (00:30):
That's all straight ahead on Bloomberg Daybreak Weekend. I'm Bloomberg
eleven three year in New York, Bloomberg ninety nine to one, Washington, DC,
Bloomberg ninety two nine Boston, DAB Digital Radio, London, Syrias
XM one twenty one, and around the world on Bloomberg Radio,
dot Com and the Bloomberg Business opp.
Speaker 1 (00:54):
Good day to you. I'm Nathan Hager. We begin today's
program with a look at some new books that argue
capitalism isn't doomed, just misaligned, and then fixing it may
mean rebalancing the relationships among markets, states, and workers. It's
the subject of a Bloomberg Opinion piece titled The Five
Forces That Broke Capitalism and One Fix, and we are
(01:15):
joined by that piece as author. He's John Author's columnists
for Bloomberg Opinion. It's great to have you with us, John,
because I'm always down for a good book recommendation, and
there are a lot of books out right now on
the crises of capitalism.
Speaker 2 (01:30):
Yeah.
Speaker 1 (01:30):
I think you've sifted through what like a dozen of these, yes,
So can you pick out any themes in particular that
stand out from some of these tomes?
Speaker 5 (01:41):
Well. First of all, that popular phrase involving Sherlock Holmes
might come up here, but capitalism is in a crisis.
Nobody seems to disagree with that. But the key points
that keep coming in is that capitalism has reinvented itself
on many occasions. It's an amorphous beast and that is
why has survived as long as it has, and the
(02:03):
odds are that it will eventually do that again. Another
key point that keeps coming through is that capitalism is
always an ever a partnership between the state and markets.
Markets can't work unless you have somebody acting as a
tough referee at the very least, which needs to be
(02:27):
some kind of a politically legitimate state, so you always
do actually need government. And the different models of capitalism
that have worked have involved different basic compacts between the
government and the markets.
Speaker 1 (02:48):
So let's walk through some of the crises that capitalism
has gone through in the past. I think from what
you've been reporting, there's been like four different forms of
capitalism in just this last century, right well.
Speaker 5 (03:04):
Depending on exactly how you define what we have at
the moment. Capital there's one of the most interesting books,
but also one I have to warn anyone out there,
is an extremely long book. It's thirteen hundred pages, oh,
just called Capitalism by Sven Becket, who is a history
professor at Harvard, and this is basically a life's project.
(03:26):
So there were many different precursors, but what you can
truly recognize as capitalism comes together from a confluence of
factors in Britain with the industrial Revolution at the beginning
of the nineteenth century, and then really becomes its first
clearly defined form after Britain wins the wars against Napoleon
(03:49):
and starts on the century of British dominance, so that
you have industrial might behind it and then you have
trade with the colonies to internationalize it, because capitalism always
needs to be able to expand, and that was a
model of fairly lais a fair version of capitalism that
was adopted by Americans and used by Americans through the
(04:14):
Gilded Age to eventually eclipse overtake the of the UK
at their own game. There was a lot of inequality.
You need to read Dickens or Steinbeck to see the
kinds of problems that could arise. And it only really fails,
it really collapses in nineteen twenty nine with the Great Crash,
(04:36):
and then with the depression. From that you get capitalism
two point zero eventually emerges the elements of that, you know,
the post war settlement at Bretton Woods, the New Deal.
Kines is the motivating figure on this. Described often very
wrongly in the US as a socialist, Kines was a
liberal and he continued to be a very active political
(04:59):
member of the Liberal Party at a time when the
Labour Party in Britain was actually in power, and it
certainly would have behooved him to become labor So despite
what some people may say about Kines, he was a capitalist,
but one that certainly believed in much more of a
role for government than other capitalists do. This model again,
particularly in the environments after the war works very well
(05:22):
for a while, gives us the GI Bill, gives us
the Marshall Plan, and it's based around the US dollar,
with the US dollar itself being linked to gold, and
it falls apart when the America realizes it can no
longer afford all the new society welfare stated is built
for itself, and it's a misadventure in Vietnam, and so
(05:42):
Richard Nixon ends the tie to gold. And then you
get a new version which we would all I think
naturally connect with Ronald Reagan and Margaret that neoliberalism giving
markets much more of a role in a globalized capitalism
with low so low barriers to trade, free flow of capital,
(06:04):
and financialization, which again helps when the Cold War works
wonderfully well, but again collapses under its own weight with
the global financial crisis. So we are now in a
situation analogous to the thirties or the seventies when there
was an intense intellectual ferment. You can certainly see an
(06:29):
analog to that in the amount that intellectuals are pounding
out different ideas of how capitalism might be made to
work now, thinking.
Speaker 1 (06:40):
With John Arthur's s Bloomberg opinion calmness about the crises
in capitalism that have built up over the last century,
leading now to a time where it seems like capitalism
is really being disrupted by artificial intelligence, while at the
same time the response from the government is protectionism. It
(07:00):
seems like those two ideas really butt up against each other.
Speaker 5 (07:05):
Yes, and that is the issue. It will resolve itself
in another ten or twenty years. It will be obvious
what was going to win. We had Obama tried as
what you might call a kind of return to candian
Ish capitalism, which people didn't want. The Tea Party revolt
was about limited state going back to more of a
laysafe air version. That didn't really take hold either. And
(07:29):
then you had the World Economic Forum, the whole idea
of ESG capitalism, of stakeholders becoming more benevolent, taking a
broader interest in their ownership of companies. That's also a
model that's now I think, been decisively defeated by Donald Trump.
So we now have this return to something that is
(07:50):
barely even capitalism at all, of mercantilism treating the world
as a zero sum game, and the US government basically
deciding it can behave like China has been behaving for
a while and intervene in the private sector at will.
You could call that state capitalism crony capitalism, but it's
plainly a model that has had appealed and that it
(08:11):
has worked at times for a while. But then you
also have with any form of capitalism, it needs to
be able to grow, otherwise it won't keep enough people
happy with it. The best chance of growing is if
you can somehow or other improve productivity. That was part
of why Britain had its generations in the sun, because
(08:33):
it worked out before anybody else had to boost the
productivity of mills and factories in the Industrial Revolution. Now,
the argument now is that AI may actually be not
like one of these periodic crises within capitalism that I
was talking about, like the thirties and the seventies or
the GFC. It could be more like another industrial revolution.
(08:56):
It'll change the nature of work, the change what capital
can do as profoundly as that did, and that would
be wonderful at one level, and that that would promise
if you can get that much more productive to create
the money create the wealth that would enable you to
deal with the inequalities that many people find unbearable. The
(09:19):
problem is that it would do that by you know,
it's a very common estimate I now gather for as
many a seventy percent of jobs not to be needed anymore.
How do you reconcile? Then, any version of capitalism needs
the consent of people, it needs the consent of states.
It needs to overlap with some kind of democracy. If
(09:40):
it means seventy percent unemployment, that's not going to fly.
So that leads to this fascinating outcum which I now
understand far better universal basic income or something like it,
you would have under an AI world. If AI is
as potent as we think it is, you would have
(10:02):
to have more redistribution because so many human beings would
be rendered irrelevant. So how are we going to do that?
It plainly involves some kind of a more active state
to oversee that than we have had under near liberalism
under Thatcher and Reagan's model, Are we prepared to allow
(10:24):
the current companies that dominate AI to continue to do
that or do we need to rain them in somehow?
And then who is actually going to decide how to
share out the wealth. Andrew Yang, the presidential candidate, referred
to it as the freedom dividend, the idea that everybody
would be given a basic income. There is a Victor
(10:47):
Schwetz of Macquarie who wrote one of the books I've
been there writing about suggests that it would be more
of a compensation payment for irrelevance. And there are fascinating
arguments on either side about this that may be enforced
idleness will allow us to go away and write novels,
(11:07):
performing plays, do yoga, plates or whatever, that this could
be a spur to great creativity into the finding of
new jobs. But obviously you can also imagine it turning
into something quite dystopian. But it does raise the issue
if you're going to create a technology that means that
we don't have a use for half of the people
(11:28):
who might want to work, what else are you going
to do, Because that's not a fair system that people
will go along with unless you find some way to
deal with that. If AI succeeds as hoped, then it
really could deal with a lot of the issues of scarcity.
That it does turn us into a position of abundance
(11:49):
that we really can create enough for us all to
get by happily. But at the cost of that is
that it would require a massive reimagining of what we
want a state to do, what we the people want
to arrange our society. You can put it say, this
(12:10):
is a democratic state that's ultimately chosen by us somehow
or other. There is a relationship between what people decide
in elections and what markets decide in markets in buying
and selling, and you need to find a way to
reconcile those two, which will almost certainly be different from
(12:30):
any model of capitalism we've had so far.
Speaker 1 (12:33):
Our thanks to John Arthur's columnist for Bloomberg Opinion, and
coming up on Bloomberg Daybreak weekend, we discuss a fresh
perspective on European stocks for the new year. I'm Nathan Hager,
and this is Bloomberg. This is Bloomberg Daybreak weekend. Our
(12:57):
glob will look ahead of the top stories for invest
in the coming week. I'm Nathan Hager in Washington. Up
later in the program we'll look at how equity markets
may fare in Asia next year. But first twenty twenty
five has seen explosive growth of tech stocks, the toll
of tariffs and the hunt for rare earths. In Europe,
the benchmark Eurostock six hundred index has seen significant outperformance,
(13:19):
with record highs both for that index and the foot
see one hundred in London. So what's in store for
stock pickers in twenty twenty six. Let's get more on
that now from Bloomberg Daybreak Europe banker Caroline Hepger in London.
Speaker 3 (13:31):
Nathan, if you're thinking of some New Year's resolutions, perhaps
Bloomberg Intelligence can give you a helping hand. The team
who track thousands of companies all over the world have
come up with fifty if the most interesting stocks to
watch that you can resolve to keep your eye on
over the next twelve months.
Speaker 5 (13:48):
And Jolie.
Speaker 3 (13:48):
We now to discuss is Bloomberg Intelligence's director of Equity Research,
Tim Craighead.
Speaker 6 (13:53):
Great to see you, Tim, pleasure to be here.
Speaker 3 (13:56):
How did you come up with the ideas to begin with?
I suppose how do you think going to be helpful
to people?
Speaker 6 (14:01):
Yeah, So these fifty ideas, which we do as a
little annual effort, are part of a broader group of
what we call focus ideas. And these are ideas that
have three pillars. One, we have a high conviction fundamental view,
whether it be revenue, earnings, margins, a new product, whatever. Secondly,
(14:24):
it's different from what the market thinks. It's out of consensus.
And thirdly, there are catalysts ahead that we think will
affect change in market sentiment, and these fifty all have
catalysts coming up that are important. In twenty twenty six,
we think market sentiment will change.
Speaker 3 (14:43):
Interesting. So the selection is global, but I want to
focus in mostly on European companies and thinking about twenty
twenty five, the strength of European stocks has really caught
many people by surprise. Is that thought to can continue
into twenty twenty six overall for the European markets?
Speaker 6 (15:03):
Yeah, it's interesting. You know, there's this old phrase about
US exceptionalism, and you look the last fifteen years, the
US market's are outperformed broadly speaking, but in twenty twenty five,
the US wasn't that exceptional. All markets were exceptional. In fact,
if you look Europe, you look at emerging markets, you
look at the US as well, and you know, the
(15:27):
European market for the past twelve eighteen months has in
fact done as you said, markedly well interestingly, it's been
for a very different reason than say what we saw
in the US. There it was all earnings driven. Valuation
did did rise a little bit. You know, it is
(15:49):
a lofty market multiple now at twenty plus times forward earnings, Europe,
interestingly at only fourteen to fifteen times at this point.
The gain has been all valuation. You know, quite often
we talked about how cheap Europe is relative to the US.
That discount has narrowed, and this whole move that we
(16:12):
saw in Europe this year has been, like I said,
because evaluation rise. Twenty twenty six we think is a
different game. We don't foresee a big multiple expansion from here.
We need earnings and if tariffs are a backburner that
was yesterday's story. If economic recovery slowly comes about in
(16:33):
twenty six, we think that there is earnings growth to
come through. That's what's really needed to drive the market
higher from here.
Speaker 3 (16:42):
So you've picked about seventeen European companies. Many of them
are industrials that you've got sort of on your radar.
Why and what do you think is going to drive
that sector in twenty six.
Speaker 6 (16:56):
It's interesting with industrials probably more than any other group.
It's a really diverse set of actors, if you want
to think about it that way. Acs, big Spanish engineering company.
It's on the list because it owns a company called
Turner Construction, which is the US's largest contractor building data centers.
(17:20):
It's an AI play. In contrast, you look at Alstam.
You know it's trains and train equipment. It's all about
a new integrated signaling system across Europe that they're putting
in place that we think is driving revenue going forward.
So drastically different. Keon they make forklifts, but they have
(17:40):
electric forklifts, and distribution centers are going through a change
with decarbonization, electrification, and it plays right into Kon said
EXO is that really an industrial well from a classification perspective,
it is. It's food service for hospitals and schools and
you know corporate cafeterias. They've had two years of negative
(18:04):
earnings trends. A new CEO is in. We think there's
a change afoot to improve what's been pretty low retention
of existing clients, and that's really where they fall down
relative to peers. So it's a very broad group of different,
very specific ideas.
Speaker 3 (18:23):
European financials have been really big winners in twenty twenty five.
I suppose can that continue. I wonder whether it's based
also on the idea of the center bank of the ECB,
maybe a pivot on European interest RAITs.
Speaker 6 (18:39):
So a couple of thoughts here. Three European financials are
on this list, but I'll put it in some broader context.
One is Danskabank, it's you know, Scandinavian bank. We do
see growth picking up there. They've been constrained on what
they can pay in dividends because of a regulatory issue
from a couple of years back. Now is over. We
(19:01):
think dividends and payouts are going to be improving. Same
thing with a company called OTP Bank, which is Hungarian
where earnings are doing well. We think growth is going
to be good and they're going to increase their dividends.
Not on this list, but also a focus idea is
Barclay's and that is that plays right into the story
you're talking in our broader European banks team does think
(19:24):
you know a potential ECB shift the other direction. You
know you've got a steepening yield curve. You know you
borrow shorter term, you lend longer term that's good for
net interest margins. They think that the European Bank Group
is pretty positive.
Speaker 3 (19:40):
Okay, so one to watch in terms of banks. But
we can't exclude artificial intelligence, which I have learnt such
a tremendous amount. When I think back to Janu twenty
twenty five, downloading half a dozen brand new AI apps
to figure out whether they could help my work, my research,
(20:02):
my life, and I think that's what everybody else was
doing around the world. How will artificial intelligence help a
European market that is largely without big tech names.
Speaker 6 (20:14):
It is very true. So a couple of thoughts here.
You know, we do have ASML here. It is not
a focus idea right now, it has been and we
think about it. That's the pure play. S A P
is a focus idea, not on this list. We like it,
but it's a it's sort of a secondary play on
(20:35):
AI and how that's driving cloud software. The big elements
from a European perspective are twofold.
Speaker 2 (20:45):
One.
Speaker 6 (20:45):
Are there secondary enabling type companies that you can take
advantage of. I mentioned ACS earlier, the infrastructure play that's
a classic case. And point a third way, which is
even more indirect, But frankly, we think is the real,
longer lasting item is companies across different businesses actually implementing
(21:08):
AI to drive either revenue or efficiencies or margins. We
just published a new C suite level survey where we
talked to six hundred companies in depth across nine different
industry groups, and it was all about what are you
doing to take advantage of AI? And it was quite
constructive from the standpoint of a There are revenue opportunities,
(21:30):
there are efficiency opportunities. It's not about cutting workforce at
this point. There's been some announcements, some of which might
have been sort of using this as a scapegoat, but
that's not the primary aim for AI, far from it.
So I think it's going to be one of those
back behind the scene opportunities to drive better earnings in
(21:54):
Europe from an implementation vantage point.
Speaker 3 (21:57):
Okay, so that on artificial intelligency, I wonder if the
surprises will continue in AI in the year ahead. Well,
there's also Farmer, which has been very much dancing on
the point of that Trump tariff pin. But you've picked
outs and biotech names to think.
Speaker 6 (22:16):
About indeed, and in those biotech names, you know they
happen to be, you know, us as they are. But
it goes in. There's a number of names on the
list that are new product innovation type stories. And you know,
we actually have had a European biotech recently on our
focus ideas revolution but you know, kind of did what
(22:39):
we expected it to do, and you know, we've taken
it step back. But Bridge Bio has a new a
new drug to deal with dwarfism, which actually is a
much bigger problem than you are, much bigger ailement than
you might think, especially for kids in getting them on something.
(23:02):
This is an oral therapy, it's easier to take and
you know it's great. There's another al needum if I
pronounce it correctly, that is a new therapy for thickening
heart walls, which again you don't think is a common issue,
but it's a big revenue opportunity for this little biotech company.
(23:24):
And you know, you broadly speaking in pharma, it's a
really interesting area we're quite focused on as we look
into twenty twenty six because we are past the scare
of Trump pricing policies. We're past the concern about tariff
this or that, it seems, and as we look ahead,
there's a massive wave of new product development in areas
(23:45):
like oncology that are the big European pharma companies are
quite exposed to think Astrosenica as a case in point,
it's probably the best new product positioned company across global
pharma in our humble opinion, our pharma analyst's opinion. So
interesting companies ahead. The other item to watch out for
(24:07):
is there's also the biggest patent cliff coming up in
the next two years facing global pharma. It's as much
of a US as it is a European issue. They're
really interesting dynamics in the area of a pharma.
Speaker 3 (24:22):
Yeah, very interesting with drug discoveries, as you say. And lastly,
you're toasting perhaps a good year ahead for Tiaccio.
Speaker 6 (24:30):
Why Yeah, really interesting because I like Scotch and I'm
just joking all the way I do. They've suffered a
couple of years of negative earnings revisions, too much inventory
in the US. China was a big market, growing market.
It's faltered. We think things have been cleaned out. There's
(24:51):
a new CEO who's starting. We think that there's a
recalibration new initiatives and if there is a broad backdrop
of a bettery economy in twenty twenty six US European.
It's a pretty good backdrop for Diagio.
Speaker 3 (25:07):
Okay, I might stick to grapes myself. Wonderful. We have
some fresh ideas with twenty twenty six to power us
through the months ahead. Tim, thank you so much forgiving
me some of your time. Tim Craighead is Bloomberg Intelligence,
is a director of equity Research. Thank you, And I'm
Caroline Hebge here in London, and you can catch us
every weekday morning for Bloomberg Daybreak you at beginning at
(25:30):
six am in London. That's one am on Wall Street.
Speaker 1 (25:34):
Nathan, Thanks Caroline, And coming up on Bloomberg day Break Weekend,
we'll look ahead to what's in store for Asian equity
markets in twenty twenty six. I'm Nathan Hagar and this
is Bloomberg. This is Bloomberg day Break Weekend, our global
(25:57):
look ahead of the top stories for investors in the
coming week. I'm Nathan Hager in Washington. Turning to Asia now,
where many equity markets appear set for a dynamic new year.
For more, let's get to Doug Krisner, host of the
Daybreak Asia podcast Nathan.
Speaker 2 (26:11):
In the last year, many questions loomed over the Asian
equity markets. One dealt with the outlook for artificial intelligence.
We remember well the Deep Seek moment. It suggested China
was closing the gap in the AI race with the US. Now,
the AI trade also raised questions over valuations, and at
the same time, there was a lot of anxiety over
(26:32):
how Asian exporters would be impacted by US tariff policy.
And then when it comes to China, of course, questions
surrounding the property market as well as the story on
domestic demand. So as we head into the new year,
let's consider the outlook for Asian stocks. I'm joined by
Bloomberg's John Lee. He is Research content manager for the APEC.
(26:54):
John joins us from our studios in Hong Kong. Thank
you for being here. So I just highlighted a few
of the concerns and it seems a number of these
issues were also on the mines of US investors. As
if there were parallel concerns.
Speaker 7 (27:09):
Yeah, there definitely was parallels. Now, the biggest driver for
Asian equities was same as the US as the artificial
intelligence or AI trade. And if you look at the
markets that really did well, like South Korea, Taiwan, Japan,
and China. It's all because of the companies that were
leaved to the AI theme. So I'm talking about companies
(27:30):
like sk Heinich, Samson Electronics, TIERSMC, so that was a
big theme. There were other things as well. Defense was
a big issue in Asia, especially with the continuation of
the Russia Ukraine War, so some of the biggest outperformers
were defense stocks as well, like you had Mitsubishi Heavy
and Hanua Aerospace.
Speaker 2 (27:49):
I'm curious about participation. Do you have a sense of
whether the gains were primarily due to retail investors or
whether institutions were helping to drive these advances.
Speaker 7 (28:02):
That's an interesting question. We've done some analysis and the
initial jump up in the share prices, especially in Korea,
which was the biggest outperformer this year, was led by
domestic institutions, and then the second leg was driven by
foreigners coming back into the markets, but they were reducing
their underweight positions, and recently we've seen some participation by
(28:26):
retail investors.
Speaker 2 (28:27):
I'm wondering about the flows. I know there has been
a lot of Asian participation in US markets contributing to
the gains that we have seen for US stocks. Do
you expect some of that capital to be repatriated back
to Asia as we look ahead to the new year.
Speaker 7 (28:44):
We do believe so, but having said that, we haven't
really seen significant signs of that happening now. If you
look at Asian capital investing overseas, for example, since COVID,
Korean retail investors poured in over one hundred billion dollars
of money into US stocks, predominantly you know the mag seven,
(29:07):
and we've only started to see them repatriate money, but
not insignificant size. They've pulled back about a billion so far,
so there's still a lot more to go.
Speaker 2 (29:16):
Let's move away from the Asia Pacific and look at India.
Speaker 4 (29:20):
Now.
Speaker 2 (29:20):
The game that we saw for the nifty to fifty
was not nearly as strong as for markets in the
Asia Pacific. What is your sense of what's happening with
the market in India right now?
Speaker 7 (29:29):
Yeah, So India is an interesting market because that was
the one market where foreigners were overweight heading into the
beginning of this year. It's got a great domestic growth story,
it's got a young population and you know, the government
is improving its infrastructure. But having said that, it's really
lagged some of the North Asian markets because it doesn't
(29:51):
really have the AI theme behind it. This comes as
a surprise to many global investors. Like if you look
at the you know, India's got a lot of talented engineers.
It's also you know, a lot some of the biggest
US tech companies are led by Indian of origin. But
if you look at the Indian stocks, they don't have
like they're not really into the hardware space. And there's
(30:13):
also some concerns that AI could be an impact and
negative impact to some of the large companies that offer
things like IT services. So there's been a debate in
financial markets as to whether India actually is a beneficiary
you know, of AI or not.
Speaker 2 (30:33):
So how closely correlated is the equity market in India
with the overall economy.
Speaker 7 (30:39):
It's very closely correlated. So India has slowed down somewhat
this hip and we still expect over the medium term
that it's still going to be the fastest growing major
economy in the world. So you know, maybe of the
last ten years was growing at say eight and a
half percent GDP, and we think it's going to grow
at about like seven to seven and a half percent
going forward.
Speaker 2 (31:00):
Let's change gears and look at China, where there seems
to have been a great deal of cross currents. Now
we know that the export economy is holding up reasonably well.
It's domestic demand that remains the problem. How do you
view the outlook for the Chinese economy in twenty twenty six?
Would you call it upbeat?
Speaker 7 (31:19):
I think the short answer is yes. And you've seen
that across the board. Many economists have recently upgraded their
GDP forecasts, like we did as well at Bloomberg Economics
maybe a few months ago. We're expecting, you know, GDP
to slow down to four point two percent in twenty
twenty six, and we've recently, you know, upgraded that to
(31:39):
like four point four five and I think that's been
reflected by other cell side brokers as well. But as
you sort of mentioned, but it's mostly due to the
strong exports rather than the domestic picture.
Speaker 2 (31:51):
What about the market for initial public offerings of Chinese
firms in the new year, do you expect it will
be more heated than it was toward the end of
twenty twenty five?
Speaker 7 (32:01):
So most of the IPOs have happened in Hong Kong,
and you know Hong Kong right now, I think it's
still the case. It's leading the world in IPOs this year.
And we spoke to Hong Kong Exchange and they've got
over three hundred companies on the backlog waiting to list
(32:22):
on the exchange. So it's it's a massive backlog and
eighty to ninety percent of those companies are mainland companies.
Speaker 2 (32:29):
But when it comes to deploying the funds raised by
those IPOs, how is that capital being put to work?
Speaker 7 (32:35):
Yeah, it's being deployed for the overseas operations because they've
you know, there's capital controls in you know, mainland China,
so it's a great way for them to raise funds
offshore for their offshore expansion.
Speaker 2 (32:48):
What about the relationship between the US and China At
several moments during the past year, this was very, very heated. Obviously,
Tariff's a big part of that story. There was also
the story on export controls from the US side and
from the Chinese side, restrictions on rare earths. Do you
have a sense of how this relationship, the one between
(33:09):
Washington and Beijing will develop in twenty twenty six and
the way in which you expected to affect markets going forward.
Speaker 7 (33:18):
It's hard to say. I would say that, you know,
the relationship does seem to be thawing somewhat. It's been
a few it's been a few months where there's been
you know, like there's been some tariff scared so things
seem to be you know, improving slightly. Having said that,
you know, if you look at what's happened to you know,
the share prices and the markets, they've really shrugged off
(33:41):
a lot of the concerns regarding taroffs. If you remember
at the beginning of this year, you know, China, Korea,
Japan was supposed to be the markets that were most
impacted negatively by taros, but that's actually done extremely well.
So in one way, I think the risk has been subsided.
Speaker 2 (33:59):
There's no mistaking the deflation problem that China has right now.
It's definitely undermining the confidence and the property market still,
and I'm wondering whether or not that could show up
in a meaningful way to erode confidence in the Chinese
equity market.
Speaker 7 (34:16):
Well, you're right, like the domestic picture still looks subdued,
you know, property prices are still forecast to four We've
got property prices falling by about two percent, and the
authorities are aware of this deflationary issue. They've implemented some
measures you might have heard of, like the anti involution push,
(34:38):
and that's really like a measure to stop the cutthroat
competition amongst a lot of these companies. And we're starting
to see some abatement in terms of price competition. We
can talk about the material sector for a start, so
there is some green shoots that you know, this could
alleviate the deflationary concerns.
Speaker 2 (34:58):
But there are still the issue of overcapacity which the
government has to address.
Speaker 7 (35:03):
Right. Oh, yeah, it's true, and there's still too much
like competition in many sectors, like the electric vehicle sector
is like a classic example, you know, like there's still
too many competitions in most industries. That's their way of
trying to improve the competitive landscape. But it's still too
(35:23):
early to say whether it's.
Speaker 4 (35:25):
Going to work or not.
Speaker 2 (35:25):
It seems like China has been very effective in becoming
less reliant on the United States as a market and
pushing for other relationships, whether in Asia or Africa or
parts of South America. Even So the US is still
reliant on Chinese manufacturing, isn't it.
Speaker 7 (35:43):
Well, we could just look at the trade figures. The
trade surplus in China has broken, you know, like one
trillion dollars by the end of November, so it's been
really strong and I think that's almost the record. So
this has come when exports of the US has fallen,
and they've been able to offset that by exporting more
(36:05):
to Southeast Asia, Africa, and Latin America, so that you know,
the numbers speak for themselves. That have been very successful
in you know, offsetting the reduction in US exports to
other markets.
Speaker 2 (36:17):
When it comes to the notion of more policy stimulus
from Beijing, I'm curious about what Bloomberg Intelligence is saying
about the new year. Should markets hope for a shot
in the arm.
Speaker 7 (36:28):
Yeah, So we don't think there's going to be like
a big bang stimulus, you know. So that's that's the
short answer. I think you we'll see, you know, little
measures here and there. You saw measures like the cash
for clunkers earlier this year. But if you look at
you know, the measures, there could be some there could
be some move away from sort of monetary policy more
(36:49):
towards fiscal policy expansion, but don't expect something, you know,
like a big bang going forward.
Speaker 2 (36:55):
I'm wondering about the conversations around a forecast for twenty
twenty s that may be a little outside consensus.
Speaker 7 (37:04):
I'm not sure if it's a big surprise. But the
major issue right now, and it's a global issue, and
we hear this all the time, is you know, are
we in a AI bubble or not. There's still a
lot of concerns of whether there's been you know, the
infrastructure spend, especially with the mag seven in the US.
I would say in Asia, especially with the Chinese tech companies,
(37:27):
they're spending a lot less in terms of you know,
data center capex than their American peers, so they're spending
roughly one tenth So I think the risk is somewhat
less in Asia regarding that. But that's you know, there's
other themes as well that could you know, pop up
next year. I was discussed earlier that this year has
(37:50):
been you know, I guess like the big themes has
been like AI defense, humanoid robotics. We think next year,
based on our thematics analyst, humuloid robotics could get another
you know, could come into the spotlight again and also
Space as well, especially with Elon Musk announcing that he's
looking to ipo SpaceX, so some of the company's leavers
(38:13):
to the space theme could get some you know emphasis.
Speaker 2 (38:17):
Next to you, John will leave it there. Thank you
so very much, Bloomberg's John Lee. He is Research content
manager for the APEX joining from Hong Kong, and I'm
Doug Prisner. You can catch us weekdays for the Daybreak
Asia podcast. It's available wherever you get your podcast. Nathan,
Thanks Doug.
Speaker 4 (38:34):
Man.
Speaker 1 (38:34):
That does it for this edition of Bloomberg day Break Weekend.
Join us again Monday morning at five am Wall Street
Time for the latest sun markets, overseas and all the
news you need to start your day. I'm Nathan Hager.
Stay with us. Top stories and global business headlines are
coming up right now.
This is Bloomberg Daybreak Weekend, our global look at the
top stories in the coming week from our Daybreak anchors
all around the world. Straight Ahead on the program, a
look at a wave of new books that show capitalism.
Speaker 2 (00:13):
May not be doomed.
Speaker 1 (00:14):
I'm Nathan Hager in Washington.
Speaker 3 (00:16):
I'm Caroline Hepger here in London, where we work out
Bloomberg Intelligence's best ideas for European stocks in twenty twenty six.
Speaker 2 (00:24):
I'm Doug Krisner looking at the outlook for Asian equity
markets in twenty twenty six.
Speaker 4 (00:30):
That's all straight ahead on Bloomberg Daybreak Weekend. I'm Bloomberg
eleven three year in New York, Bloomberg ninety nine to one, Washington, DC,
Bloomberg ninety two nine Boston, DAB Digital Radio, London, Syrias
XM one twenty one, and around the world on Bloomberg Radio,
dot Com and the Bloomberg Business opp.
Speaker 1 (00:54):
Good day to you. I'm Nathan Hager. We begin today's
program with a look at some new books that argue
capitalism isn't doomed, just misaligned, and then fixing it may
mean rebalancing the relationships among markets, states, and workers. It's
the subject of a Bloomberg Opinion piece titled The Five
Forces That Broke Capitalism and One Fix, and we are
(01:15):
joined by that piece as author. He's John Author's columnists
for Bloomberg Opinion. It's great to have you with us, John,
because I'm always down for a good book recommendation, and
there are a lot of books out right now on
the crises of capitalism.
Speaker 2 (01:30):
Yeah.
Speaker 1 (01:30):
I think you've sifted through what like a dozen of these, yes,
So can you pick out any themes in particular that
stand out from some of these tomes?
Speaker 5 (01:41):
Well. First of all, that popular phrase involving Sherlock Holmes
might come up here, but capitalism is in a crisis.
Nobody seems to disagree with that. But the key points
that keep coming in is that capitalism has reinvented itself
on many occasions. It's an amorphous beast and that is
why has survived as long as it has, and the
(02:03):
odds are that it will eventually do that again. Another
key point that keeps coming through is that capitalism is
always an ever a partnership between the state and markets.
Markets can't work unless you have somebody acting as a
tough referee at the very least, which needs to be
(02:27):
some kind of a politically legitimate state, so you always
do actually need government. And the different models of capitalism
that have worked have involved different basic compacts between the
government and the markets.
Speaker 1 (02:48):
So let's walk through some of the crises that capitalism
has gone through in the past. I think from what
you've been reporting, there's been like four different forms of
capitalism in just this last century, right well.
Speaker 5 (03:04):
Depending on exactly how you define what we have at
the moment. Capital there's one of the most interesting books,
but also one I have to warn anyone out there,
is an extremely long book. It's thirteen hundred pages, oh,
just called Capitalism by Sven Becket, who is a history
professor at Harvard, and this is basically a life's project.
(03:26):
So there were many different precursors, but what you can
truly recognize as capitalism comes together from a confluence of
factors in Britain with the industrial Revolution at the beginning
of the nineteenth century, and then really becomes its first
clearly defined form after Britain wins the wars against Napoleon
(03:49):
and starts on the century of British dominance, so that
you have industrial might behind it and then you have
trade with the colonies to internationalize it, because capitalism always
needs to be able to expand, and that was a
model of fairly lais a fair version of capitalism that
was adopted by Americans and used by Americans through the
(04:14):
Gilded Age to eventually eclipse overtake the of the UK
at their own game. There was a lot of inequality.
You need to read Dickens or Steinbeck to see the
kinds of problems that could arise. And it only really fails,
it really collapses in nineteen twenty nine with the Great Crash,
(04:36):
and then with the depression. From that you get capitalism
two point zero eventually emerges the elements of that, you know,
the post war settlement at Bretton Woods, the New Deal.
Kines is the motivating figure on this. Described often very
wrongly in the US as a socialist, Kines was a
liberal and he continued to be a very active political
(04:59):
member of the Liberal Party at a time when the
Labour Party in Britain was actually in power, and it
certainly would have behooved him to become labor So despite
what some people may say about Kines, he was a capitalist,
but one that certainly believed in much more of a
role for government than other capitalists do. This model again,
particularly in the environments after the war works very well
(05:22):
for a while, gives us the GI Bill, gives us
the Marshall Plan, and it's based around the US dollar,
with the US dollar itself being linked to gold, and
it falls apart when the America realizes it can no
longer afford all the new society welfare stated is built
for itself, and it's a misadventure in Vietnam, and so
(05:42):
Richard Nixon ends the tie to gold. And then you
get a new version which we would all I think
naturally connect with Ronald Reagan and Margaret that neoliberalism giving
markets much more of a role in a globalized capitalism
with low so low barriers to trade, free flow of capital,
(06:04):
and financialization, which again helps when the Cold War works
wonderfully well, but again collapses under its own weight with
the global financial crisis. So we are now in a
situation analogous to the thirties or the seventies when there
was an intense intellectual ferment. You can certainly see an
(06:29):
analog to that in the amount that intellectuals are pounding
out different ideas of how capitalism might be made to
work now, thinking.
Speaker 1 (06:40):
With John Arthur's s Bloomberg opinion calmness about the crises
in capitalism that have built up over the last century,
leading now to a time where it seems like capitalism
is really being disrupted by artificial intelligence, while at the
same time the response from the government is protectionism. It
(07:00):
seems like those two ideas really butt up against each other.
Speaker 5 (07:05):
Yes, and that is the issue. It will resolve itself
in another ten or twenty years. It will be obvious
what was going to win. We had Obama tried as
what you might call a kind of return to candian
Ish capitalism, which people didn't want. The Tea Party revolt
was about limited state going back to more of a
laysafe air version. That didn't really take hold either. And
(07:29):
then you had the World Economic Forum, the whole idea
of ESG capitalism, of stakeholders becoming more benevolent, taking a
broader interest in their ownership of companies. That's also a
model that's now I think, been decisively defeated by Donald Trump.
So we now have this return to something that is
(07:50):
barely even capitalism at all, of mercantilism treating the world
as a zero sum game, and the US government basically
deciding it can behave like China has been behaving for
a while and intervene in the private sector at will.
You could call that state capitalism crony capitalism, but it's
plainly a model that has had appealed and that it
(08:11):
has worked at times for a while. But then you
also have with any form of capitalism, it needs to
be able to grow, otherwise it won't keep enough people
happy with it. The best chance of growing is if
you can somehow or other improve productivity. That was part
of why Britain had its generations in the sun, because
(08:33):
it worked out before anybody else had to boost the
productivity of mills and factories in the Industrial Revolution. Now,
the argument now is that AI may actually be not
like one of these periodic crises within capitalism that I
was talking about, like the thirties and the seventies or
the GFC. It could be more like another industrial revolution.
(08:56):
It'll change the nature of work, the change what capital
can do as profoundly as that did, and that would
be wonderful at one level, and that that would promise
if you can get that much more productive to create
the money create the wealth that would enable you to
deal with the inequalities that many people find unbearable. The
(09:19):
problem is that it would do that by you know,
it's a very common estimate I now gather for as
many a seventy percent of jobs not to be needed anymore.
How do you reconcile? Then, any version of capitalism needs
the consent of people, it needs the consent of states.
It needs to overlap with some kind of democracy. If
(09:40):
it means seventy percent unemployment, that's not going to fly.
So that leads to this fascinating outcum which I now
understand far better universal basic income or something like it,
you would have under an AI world. If AI is
as potent as we think it is, you would have
(10:02):
to have more redistribution because so many human beings would
be rendered irrelevant. So how are we going to do that?
It plainly involves some kind of a more active state
to oversee that than we have had under near liberalism
under Thatcher and Reagan's model, Are we prepared to allow
(10:24):
the current companies that dominate AI to continue to do
that or do we need to rain them in somehow?
And then who is actually going to decide how to
share out the wealth. Andrew Yang, the presidential candidate, referred
to it as the freedom dividend, the idea that everybody
would be given a basic income. There is a Victor
(10:47):
Schwetz of Macquarie who wrote one of the books I've
been there writing about suggests that it would be more
of a compensation payment for irrelevance. And there are fascinating
arguments on either side about this that may be enforced
idleness will allow us to go away and write novels,
(11:07):
performing plays, do yoga, plates or whatever, that this could
be a spur to great creativity into the finding of
new jobs. But obviously you can also imagine it turning
into something quite dystopian. But it does raise the issue
if you're going to create a technology that means that
we don't have a use for half of the people
(11:28):
who might want to work, what else are you going
to do, Because that's not a fair system that people
will go along with unless you find some way to
deal with that. If AI succeeds as hoped, then it
really could deal with a lot of the issues of scarcity.
That it does turn us into a position of abundance
(11:49):
that we really can create enough for us all to
get by happily. But at the cost of that is
that it would require a massive reimagining of what we
want a state to do, what we the people want
to arrange our society. You can put it say, this
(12:10):
is a democratic state that's ultimately chosen by us somehow
or other. There is a relationship between what people decide
in elections and what markets decide in markets in buying
and selling, and you need to find a way to
reconcile those two, which will almost certainly be different from
(12:30):
any model of capitalism we've had so far.
Speaker 1 (12:33):
Our thanks to John Arthur's columnist for Bloomberg Opinion, and
coming up on Bloomberg Daybreak weekend, we discuss a fresh
perspective on European stocks for the new year. I'm Nathan Hager,
and this is Bloomberg. This is Bloomberg Daybreak weekend. Our
(12:57):
glob will look ahead of the top stories for invest
in the coming week. I'm Nathan Hager in Washington. Up
later in the program we'll look at how equity markets
may fare in Asia next year. But first twenty twenty
five has seen explosive growth of tech stocks, the toll
of tariffs and the hunt for rare earths. In Europe,
the benchmark Eurostock six hundred index has seen significant outperformance,
(13:19):
with record highs both for that index and the foot
see one hundred in London. So what's in store for
stock pickers in twenty twenty six. Let's get more on
that now from Bloomberg Daybreak Europe banker Caroline Hepger in London.
Speaker 3 (13:31):
Nathan, if you're thinking of some New Year's resolutions, perhaps
Bloomberg Intelligence can give you a helping hand. The team
who track thousands of companies all over the world have
come up with fifty if the most interesting stocks to
watch that you can resolve to keep your eye on
over the next twelve months.
Speaker 5 (13:48):
And Jolie.
Speaker 3 (13:48):
We now to discuss is Bloomberg Intelligence's director of Equity Research,
Tim Craighead.
Speaker 6 (13:53):
Great to see you, Tim, pleasure to be here.
Speaker 3 (13:56):
How did you come up with the ideas to begin with?
I suppose how do you think going to be helpful
to people?
Speaker 6 (14:01):
Yeah, So these fifty ideas, which we do as a
little annual effort, are part of a broader group of
what we call focus ideas. And these are ideas that
have three pillars. One, we have a high conviction fundamental view,
whether it be revenue, earnings, margins, a new product, whatever. Secondly,
(14:24):
it's different from what the market thinks. It's out of consensus.
And thirdly, there are catalysts ahead that we think will
affect change in market sentiment, and these fifty all have
catalysts coming up that are important. In twenty twenty six,
we think market sentiment will change.
Speaker 3 (14:43):
Interesting. So the selection is global, but I want to
focus in mostly on European companies and thinking about twenty
twenty five, the strength of European stocks has really caught
many people by surprise. Is that thought to can continue
into twenty twenty six overall for the European markets?
Speaker 6 (15:03):
Yeah, it's interesting. You know, there's this old phrase about
US exceptionalism, and you look the last fifteen years, the
US market's are outperformed broadly speaking, but in twenty twenty five,
the US wasn't that exceptional. All markets were exceptional. In fact,
if you look Europe, you look at emerging markets, you
look at the US as well, and you know, the
(15:27):
European market for the past twelve eighteen months has in
fact done as you said, markedly well interestingly, it's been
for a very different reason than say what we saw
in the US. There it was all earnings driven. Valuation
did did rise a little bit. You know, it is
(15:49):
a lofty market multiple now at twenty plus times forward earnings, Europe,
interestingly at only fourteen to fifteen times at this point.
The gain has been all valuation. You know, quite often
we talked about how cheap Europe is relative to the US.
That discount has narrowed, and this whole move that we
(16:12):
saw in Europe this year has been, like I said,
because evaluation rise. Twenty twenty six we think is a
different game. We don't foresee a big multiple expansion from here.
We need earnings and if tariffs are a backburner that
was yesterday's story. If economic recovery slowly comes about in
(16:33):
twenty six, we think that there is earnings growth to
come through. That's what's really needed to drive the market
higher from here.
Speaker 3 (16:42):
So you've picked about seventeen European companies. Many of them
are industrials that you've got sort of on your radar.
Why and what do you think is going to drive
that sector in twenty six.
Speaker 6 (16:56):
It's interesting with industrials probably more than any other group.
It's a really diverse set of actors, if you want
to think about it that way. Acs, big Spanish engineering company.
It's on the list because it owns a company called
Turner Construction, which is the US's largest contractor building data centers.
(17:20):
It's an AI play. In contrast, you look at Alstam.
You know it's trains and train equipment. It's all about
a new integrated signaling system across Europe that they're putting
in place that we think is driving revenue going forward.
So drastically different. Keon they make forklifts, but they have
(17:40):
electric forklifts, and distribution centers are going through a change
with decarbonization, electrification, and it plays right into Kon said
EXO is that really an industrial well from a classification perspective,
it is. It's food service for hospitals and schools and
you know corporate cafeterias. They've had two years of negative
(18:04):
earnings trends. A new CEO is in. We think there's
a change afoot to improve what's been pretty low retention
of existing clients, and that's really where they fall down
relative to peers. So it's a very broad group of different,
very specific ideas.
Speaker 3 (18:23):
European financials have been really big winners in twenty twenty five.
I suppose can that continue. I wonder whether it's based
also on the idea of the center bank of the ECB,
maybe a pivot on European interest RAITs.
Speaker 6 (18:39):
So a couple of thoughts here. Three European financials are
on this list, but I'll put it in some broader context.
One is Danskabank, it's you know, Scandinavian bank. We do
see growth picking up there. They've been constrained on what
they can pay in dividends because of a regulatory issue
from a couple of years back. Now is over. We
(19:01):
think dividends and payouts are going to be improving. Same
thing with a company called OTP Bank, which is Hungarian
where earnings are doing well. We think growth is going
to be good and they're going to increase their dividends.
Not on this list, but also a focus idea is
Barclay's and that is that plays right into the story
you're talking in our broader European banks team does think
(19:24):
you know a potential ECB shift the other direction. You
know you've got a steepening yield curve. You know you
borrow shorter term, you lend longer term that's good for
net interest margins. They think that the European Bank Group
is pretty positive.
Speaker 3 (19:40):
Okay, so one to watch in terms of banks. But
we can't exclude artificial intelligence, which I have learnt such
a tremendous amount. When I think back to Janu twenty
twenty five, downloading half a dozen brand new AI apps
to figure out whether they could help my work, my research,
(20:02):
my life, and I think that's what everybody else was
doing around the world. How will artificial intelligence help a
European market that is largely without big tech names.
Speaker 6 (20:14):
It is very true. So a couple of thoughts here.
You know, we do have ASML here. It is not
a focus idea right now, it has been and we
think about it. That's the pure play. S A P
is a focus idea, not on this list. We like it,
but it's a it's sort of a secondary play on
(20:35):
AI and how that's driving cloud software. The big elements
from a European perspective are twofold.
Speaker 2 (20:45):
One.
Speaker 6 (20:45):
Are there secondary enabling type companies that you can take
advantage of. I mentioned ACS earlier, the infrastructure play that's
a classic case. And point a third way, which is
even more indirect, But frankly, we think is the real,
longer lasting item is companies across different businesses actually implementing
(21:08):
AI to drive either revenue or efficiencies or margins. We
just published a new C suite level survey where we
talked to six hundred companies in depth across nine different
industry groups, and it was all about what are you
doing to take advantage of AI? And it was quite
constructive from the standpoint of a There are revenue opportunities,
(21:30):
there are efficiency opportunities. It's not about cutting workforce at
this point. There's been some announcements, some of which might
have been sort of using this as a scapegoat, but
that's not the primary aim for AI, far from it.
So I think it's going to be one of those
back behind the scene opportunities to drive better earnings in
(21:54):
Europe from an implementation vantage point.
Speaker 3 (21:57):
Okay, so that on artificial intelligency, I wonder if the
surprises will continue in AI in the year ahead. Well,
there's also Farmer, which has been very much dancing on
the point of that Trump tariff pin. But you've picked
outs and biotech names to think.
Speaker 6 (22:16):
About indeed, and in those biotech names, you know they
happen to be, you know, us as they are. But
it goes in. There's a number of names on the
list that are new product innovation type stories. And you know,
we actually have had a European biotech recently on our
focus ideas revolution but you know, kind of did what
(22:39):
we expected it to do, and you know, we've taken
it step back. But Bridge Bio has a new a
new drug to deal with dwarfism, which actually is a
much bigger problem than you are, much bigger ailement than
you might think, especially for kids in getting them on something.
(23:02):
This is an oral therapy, it's easier to take and
you know it's great. There's another al needum if I
pronounce it correctly, that is a new therapy for thickening
heart walls, which again you don't think is a common issue,
but it's a big revenue opportunity for this little biotech company.
(23:24):
And you know, you broadly speaking in pharma, it's a
really interesting area we're quite focused on as we look
into twenty twenty six because we are past the scare
of Trump pricing policies. We're past the concern about tariff
this or that, it seems, and as we look ahead,
there's a massive wave of new product development in areas
(23:45):
like oncology that are the big European pharma companies are
quite exposed to think Astrosenica as a case in point,
it's probably the best new product positioned company across global
pharma in our humble opinion, our pharma analyst's opinion. So
interesting companies ahead. The other item to watch out for
(24:07):
is there's also the biggest patent cliff coming up in
the next two years facing global pharma. It's as much
of a US as it is a European issue. They're
really interesting dynamics in the area of a pharma.
Speaker 3 (24:22):
Yeah, very interesting with drug discoveries, as you say. And lastly,
you're toasting perhaps a good year ahead for Tiaccio.
Speaker 6 (24:30):
Why Yeah, really interesting because I like Scotch and I'm
just joking all the way I do. They've suffered a
couple of years of negative earnings revisions, too much inventory
in the US. China was a big market, growing market.
It's faltered. We think things have been cleaned out. There's
(24:51):
a new CEO who's starting. We think that there's a
recalibration new initiatives and if there is a broad backdrop
of a bettery economy in twenty twenty six US European.
It's a pretty good backdrop for Diagio.
Speaker 3 (25:07):
Okay, I might stick to grapes myself. Wonderful. We have
some fresh ideas with twenty twenty six to power us
through the months ahead. Tim, thank you so much forgiving
me some of your time. Tim Craighead is Bloomberg Intelligence,
is a director of equity Research. Thank you, And I'm
Caroline Hebge here in London, and you can catch us
every weekday morning for Bloomberg Daybreak you at beginning at
(25:30):
six am in London. That's one am on Wall Street.
Speaker 1 (25:34):
Nathan, Thanks Caroline, And coming up on Bloomberg day Break Weekend,
we'll look ahead to what's in store for Asian equity
markets in twenty twenty six. I'm Nathan Hagar and this
is Bloomberg. This is Bloomberg day Break Weekend, our global
(25:57):
look ahead of the top stories for investors in the
coming week. I'm Nathan Hager in Washington. Turning to Asia now,
where many equity markets appear set for a dynamic new year.
For more, let's get to Doug Krisner, host of the
Daybreak Asia podcast Nathan.
Speaker 2 (26:11):
In the last year, many questions loomed over the Asian
equity markets. One dealt with the outlook for artificial intelligence.
We remember well the Deep Seek moment. It suggested China
was closing the gap in the AI race with the US. Now,
the AI trade also raised questions over valuations, and at
the same time, there was a lot of anxiety over
(26:32):
how Asian exporters would be impacted by US tariff policy.
And then when it comes to China, of course, questions
surrounding the property market as well as the story on
domestic demand. So as we head into the new year,
let's consider the outlook for Asian stocks. I'm joined by
Bloomberg's John Lee. He is Research content manager for the APEC.
(26:54):
John joins us from our studios in Hong Kong. Thank
you for being here. So I just highlighted a few
of the concerns and it seems a number of these
issues were also on the mines of US investors. As
if there were parallel concerns.
Speaker 7 (27:09):
Yeah, there definitely was parallels. Now, the biggest driver for
Asian equities was same as the US as the artificial
intelligence or AI trade. And if you look at the
markets that really did well, like South Korea, Taiwan, Japan,
and China. It's all because of the companies that were
leaved to the AI theme. So I'm talking about companies
(27:30):
like sk Heinich, Samson Electronics, TIERSMC, so that was a
big theme. There were other things as well. Defense was
a big issue in Asia, especially with the continuation of
the Russia Ukraine War, so some of the biggest outperformers
were defense stocks as well, like you had Mitsubishi Heavy
and Hanua Aerospace.
Speaker 2 (27:49):
I'm curious about participation. Do you have a sense of
whether the gains were primarily due to retail investors or
whether institutions were helping to drive these advances.
Speaker 7 (28:02):
That's an interesting question. We've done some analysis and the
initial jump up in the share prices, especially in Korea,
which was the biggest outperformer this year, was led by
domestic institutions, and then the second leg was driven by
foreigners coming back into the markets, but they were reducing
their underweight positions, and recently we've seen some participation by
(28:26):
retail investors.
Speaker 2 (28:27):
I'm wondering about the flows. I know there has been
a lot of Asian participation in US markets contributing to
the gains that we have seen for US stocks. Do
you expect some of that capital to be repatriated back
to Asia as we look ahead to the new year.
Speaker 7 (28:44):
We do believe so, but having said that, we haven't
really seen significant signs of that happening now. If you
look at Asian capital investing overseas, for example, since COVID,
Korean retail investors poured in over one hundred billion dollars
of money into US stocks, predominantly you know the mag seven,
(29:07):
and we've only started to see them repatriate money, but
not insignificant size. They've pulled back about a billion so far,
so there's still a lot more to go.
Speaker 2 (29:16):
Let's move away from the Asia Pacific and look at India.
Speaker 4 (29:20):
Now.
Speaker 2 (29:20):
The game that we saw for the nifty to fifty
was not nearly as strong as for markets in the
Asia Pacific. What is your sense of what's happening with
the market in India right now?
Speaker 7 (29:29):
Yeah, So India is an interesting market because that was
the one market where foreigners were overweight heading into the
beginning of this year. It's got a great domestic growth story,
it's got a young population and you know, the government
is improving its infrastructure. But having said that, it's really
lagged some of the North Asian markets because it doesn't
(29:51):
really have the AI theme behind it. This comes as
a surprise to many global investors. Like if you look
at the you know, India's got a lot of talented engineers.
It's also you know, a lot some of the biggest
US tech companies are led by Indian of origin. But
if you look at the Indian stocks, they don't have
like they're not really into the hardware space. And there's
(30:13):
also some concerns that AI could be an impact and
negative impact to some of the large companies that offer
things like IT services. So there's been a debate in
financial markets as to whether India actually is a beneficiary
you know, of AI or not.
Speaker 2 (30:33):
So how closely correlated is the equity market in India
with the overall economy.
Speaker 7 (30:39):
It's very closely correlated. So India has slowed down somewhat
this hip and we still expect over the medium term
that it's still going to be the fastest growing major
economy in the world. So you know, maybe of the
last ten years was growing at say eight and a
half percent GDP, and we think it's going to grow
at about like seven to seven and a half percent
going forward.
Speaker 2 (31:00):
Let's change gears and look at China, where there seems
to have been a great deal of cross currents. Now
we know that the export economy is holding up reasonably well.
It's domestic demand that remains the problem. How do you
view the outlook for the Chinese economy in twenty twenty six?
Would you call it upbeat?
Speaker 7 (31:19):
I think the short answer is yes. And you've seen
that across the board. Many economists have recently upgraded their
GDP forecasts, like we did as well at Bloomberg Economics
maybe a few months ago. We're expecting, you know, GDP
to slow down to four point two percent in twenty
twenty six, and we've recently, you know, upgraded that to
(31:39):
like four point four five and I think that's been
reflected by other cell side brokers as well. But as
you sort of mentioned, but it's mostly due to the
strong exports rather than the domestic picture.
Speaker 2 (31:51):
What about the market for initial public offerings of Chinese
firms in the new year, do you expect it will
be more heated than it was toward the end of
twenty twenty five?
Speaker 7 (32:01):
So most of the IPOs have happened in Hong Kong,
and you know Hong Kong right now, I think it's
still the case. It's leading the world in IPOs this year.
And we spoke to Hong Kong Exchange and they've got
over three hundred companies on the backlog waiting to list
(32:22):
on the exchange. So it's it's a massive backlog and
eighty to ninety percent of those companies are mainland companies.
Speaker 2 (32:29):
But when it comes to deploying the funds raised by
those IPOs, how is that capital being put to work?
Speaker 7 (32:35):
Yeah, it's being deployed for the overseas operations because they've
you know, there's capital controls in you know, mainland China,
so it's a great way for them to raise funds
offshore for their offshore expansion.
Speaker 2 (32:48):
What about the relationship between the US and China At
several moments during the past year, this was very, very heated. Obviously,
Tariff's a big part of that story. There was also
the story on export controls from the US side and
from the Chinese side, restrictions on rare earths. Do you
have a sense of how this relationship, the one between
(33:09):
Washington and Beijing will develop in twenty twenty six and
the way in which you expected to affect markets going forward.
Speaker 7 (33:18):
It's hard to say. I would say that, you know,
the relationship does seem to be thawing somewhat. It's been
a few it's been a few months where there's been
you know, like there's been some tariff scared so things
seem to be you know, improving slightly. Having said that,
you know, if you look at what's happened to you know,
the share prices and the markets, they've really shrugged off
(33:41):
a lot of the concerns regarding taroffs. If you remember
at the beginning of this year, you know, China, Korea,
Japan was supposed to be the markets that were most
impacted negatively by taros, but that's actually done extremely well.
So in one way, I think the risk has been subsided.
Speaker 2 (33:59):
There's no mistaking the deflation problem that China has right now.
It's definitely undermining the confidence and the property market still,
and I'm wondering whether or not that could show up
in a meaningful way to erode confidence in the Chinese
equity market.
Speaker 7 (34:16):
Well, you're right, like the domestic picture still looks subdued,
you know, property prices are still forecast to four We've
got property prices falling by about two percent, and the
authorities are aware of this deflationary issue. They've implemented some
measures you might have heard of, like the anti involution push,
(34:38):
and that's really like a measure to stop the cutthroat
competition amongst a lot of these companies. And we're starting
to see some abatement in terms of price competition. We
can talk about the material sector for a start, so
there is some green shoots that you know, this could
alleviate the deflationary concerns.
Speaker 2 (34:58):
But there are still the issue of overcapacity which the
government has to address.
Speaker 7 (35:03):
Right. Oh, yeah, it's true, and there's still too much
like competition in many sectors, like the electric vehicle sector
is like a classic example, you know, like there's still
too many competitions in most industries. That's their way of
trying to improve the competitive landscape. But it's still too
(35:23):
early to say whether it's.
Speaker 4 (35:25):
Going to work or not.
Speaker 2 (35:25):
It seems like China has been very effective in becoming
less reliant on the United States as a market and
pushing for other relationships, whether in Asia or Africa or
parts of South America. Even So the US is still
reliant on Chinese manufacturing, isn't it.
Speaker 7 (35:43):
Well, we could just look at the trade figures. The
trade surplus in China has broken, you know, like one
trillion dollars by the end of November, so it's been
really strong and I think that's almost the record. So
this has come when exports of the US has fallen,
and they've been able to offset that by exporting more
(36:05):
to Southeast Asia, Africa, and Latin America, so that you know,
the numbers speak for themselves. That have been very successful
in you know, offsetting the reduction in US exports to
other markets.
Speaker 2 (36:17):
When it comes to the notion of more policy stimulus
from Beijing, I'm curious about what Bloomberg Intelligence is saying
about the new year. Should markets hope for a shot
in the arm.
Speaker 7 (36:28):
Yeah, So we don't think there's going to be like
a big bang stimulus, you know. So that's that's the
short answer. I think you we'll see, you know, little
measures here and there. You saw measures like the cash
for clunkers earlier this year. But if you look at
you know, the measures, there could be some there could
be some move away from sort of monetary policy more
(36:49):
towards fiscal policy expansion, but don't expect something, you know,
like a big bang going forward.
Speaker 2 (36:55):
I'm wondering about the conversations around a forecast for twenty
twenty s that may be a little outside consensus.
Speaker 7 (37:04):
I'm not sure if it's a big surprise. But the
major issue right now, and it's a global issue, and
we hear this all the time, is you know, are
we in a AI bubble or not. There's still a
lot of concerns of whether there's been you know, the
infrastructure spend, especially with the mag seven in the US.
I would say in Asia, especially with the Chinese tech companies,
(37:27):
they're spending a lot less in terms of you know,
data center capex than their American peers, so they're spending
roughly one tenth So I think the risk is somewhat
less in Asia regarding that. But that's you know, there's
other themes as well that could you know, pop up
next year. I was discussed earlier that this year has
(37:50):
been you know, I guess like the big themes has
been like AI defense, humanoid robotics. We think next year,
based on our thematics analyst, humuloid robotics could get another
you know, could come into the spotlight again and also
Space as well, especially with Elon Musk announcing that he's
looking to ipo SpaceX, so some of the company's leavers
(38:13):
to the space theme could get some you know emphasis.
Speaker 2 (38:17):
Next to you, John will leave it there. Thank you
so very much, Bloomberg's John Lee. He is Research content
manager for the APEX joining from Hong Kong, and I'm
Doug Prisner. You can catch us weekdays for the Daybreak
Asia podcast. It's available wherever you get your podcast. Nathan,
Thanks Doug.
Speaker 4 (38:34):
Man.
Speaker 1 (38:34):
That does it for this edition of Bloomberg day Break Weekend.
Join us again Monday morning at five am Wall Street
Time for the latest sun markets, overseas and all the
news you need to start your day. I'm Nathan Hager.
Stay with us. Top stories and global business headlines are
coming up right now.
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