April 10, 2024 • 20 mins
Featuring:
Isabel Reynolds, Bloomberg Tokyo Bureau Chief, joins the program from Tokyo to discuss the Japanese Prime Minister's visit to the US.
Mark Konyn, CIO of AIA Group, sits down with us to discuss his perspective on APAC markets.
Daniel Lam, Head of Equity Strategy at Standard Chartered Wealth Solutions, joins us in the Hong Kong studio to talk China markets and Asia market plays.
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Episode Transcript
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Speaker 1 (00:00):
Bloomberg Audio Studios, podcasts, radio news.
Speaker 2 (00:09):
This is the Bloomberg Daybreak Asia podcast. I'm Brian Curtis,
along with Doug Krisner. Join us each day for the
stories making news and moving markets in the Asia Pacific.
You can subscribe to the show anywhere you get your
podcasts and always on Bloomberg Radio, the Bloomberg Terminal, and
the Bloomberg Business App.
Speaker 1 (00:27):
Let's get to Japanese Prime Minister Fumiyo Kishida. He's in Washington,
d C. Aiming to strengthen ties with the United States.
Joining us for a closer look is Bloomberg's Isabelle Reynolds,
our Tokyo bureau chief from our studios in the Japanese capital.
Good of you to join us, Isabel. I'm curious to
begin with. How much of the focus do you think
(00:48):
is going to be on boosting chies against a research
in China. Oh?
Speaker 3 (00:53):
Yes, I think that's very much going to be the
overarching theme of this particular bilasterial meeting. We already know
from pre briefings from the US side that what they're
going to talk about is things like having their militaries
work more closely together, setting up this defense Council, which
we'll look into defense procurement and how they can work
(01:14):
more closely together on that, and even having Japanese shipyard
workers work on US naval vessels, which will be a
new development and very much showing that in terms of
the military and security, there's no daylight between the two
of them and they're going to work ever, ever more
closely together.
Speaker 2 (01:33):
So that's one important angle. The other angle that we've
been championing this morning is the Japanese Prime Minister calling
for increased US investment in Japan. Is that something relatively new.
I mean, you would think that they would always be
pressing for that, but I guess at this time where
you're talking about artificial intelligence and high levels of tech
(01:55):
and keeping China at bay, it takes on new importance.
Speaker 3 (01:59):
Yes, yes, yeah, absolutely right. I think Japan does have
concerns about being left behind in these kind of issues
on these new development areas, and seeing that the US
is kind of surging ahead, it's trying to sort of
catch up on the coattails there, and we saw this
huge investment from Microsoft two point nine billion dollars into Japan,
(02:19):
which it will be marched up as a good success
for Keisha Doo on this particular visit. So yeah, I mean,
you know, business ties are always a theme of these visits,
but I think one of the reasons why it's more
of a focus this time also is because of the
whole Nipbon steel fuss. Yeah yeah, you know, why is
the US so concerned about an ally investing in one
(02:41):
of their companies? And I think Keisha is very concerned
to try and make it plain that, you know, hey,
we both invest in each other's countries. This is healthy,
this is beneficial, there's nothing to fear here.
Speaker 1 (02:51):
But it's also an election year for President Biden, and
in Pennsylvania particularly, I think he has to pay attention
to what the United steel Workers are saying. That's fair thing.
Can you think the Prime Minister can understand that idea?
Speaker 3 (03:04):
Oh yes, very much so. I think the Japanese do understand.
And that's why, from our understanding from Japanese officials, Kisha
I won't even be raising it directly with the President.
So what he's going to do instead is go and
visit this Toyota factory in North Carolina, according to media reports,
and that will sort of in a more subtle way,
underscore the point. Look, we've been doing this for a
(03:24):
long time. We've been investing in the US for a
long time. It's creating jobs. We've created a million jobs
in the US, so you should be welcoming US.
Speaker 2 (03:33):
I like the job as a journalist. You get to
ask dumb questions and be proud of it. I'm curious, Isabelle,
from your long stay in Japan about Japanese opinions of
America and also from what you know about you know,
because this Nippon Steel it doesn't sit very well in
one sense, how do Americans view Japan at the moment?
Speaker 3 (03:56):
How do Americans view Japan at the moment?
Speaker 2 (03:58):
Oh?
Speaker 3 (03:59):
Yeah, well both of us, right, yeah. I mean I
think most people who really who are looking at this issue,
I mean, I'm not necessarily that they're sure that the
person on the street would know about this Nippon Steel
deal and what's going on. But for the people who do,
I think they understand the electoral situation. They know how
sort of toxic and you know, very divided the atmosphere
(04:20):
can become before a US election, So they're not necessarily
sort of blaming America or seeing it as undermining the relationship.
As a whole. But I think there is a slight
concern about how this might portray the relationship outside the
two countries. So how how will China portray this if
the two of them are perceived to be, you know,
(04:41):
in conflict over this issue.
Speaker 1 (04:42):
One of the things that I was struck by too
is the Biden administration enacted very recently an unexpected moratorium
on liquefied natural gas. Help me understand, because Japan is
a big energy importer. Did this come as a big
surprise to Japan?
Speaker 3 (04:56):
Yes, Well, what we've been told is that Japan was
not hold in advance that this announcement was coming. So
it must have been a very big shock to Japan,
which is very reliant on L and G and the
US has been one of its big sources in recent years.
So that has been raised at Japan's Tequisad's meetings with
(05:17):
business executives already. It's something that he wants to continue
to work on, and I think that is something that
he will raise with Biden this time, because that's not
something it's not just one individual company, it's Japan's economy
as a whole that relies on these sources of energy.
So he can't afford to let that one slide.
Speaker 2 (05:35):
So we've talked about the military angle. Oh, I wanted
to ask you briefly. Australia came out yesterday and said, well, yes,
but Japan would not be formally invited to join ALCUS.
What's the issue there? Right?
Speaker 3 (05:48):
Yes, I think there are a number of issues going on.
I think possibly there's a difference in temperature between the
US and the Australia and the UK on this issue.
One issue is that obviously the first part, the first
pillar of ORCUS, has not been going very smoothly. You know,
there's been a delay in the production of submarines, which
was the first purpose of ORCUS. So I think from
(06:10):
some people's point of view, you know, bringing someone else
and moving on into other projects doesn't really make sense
when you're not getting on very well with your initial project.
So I don't think it's any kind of alienation towards Japan.
I think it's more about what's the most efficient way
to get on with these projects.
Speaker 1 (06:26):
Isabelle, Before we let you go, I have to ask
about how well Prime Minister Keishada is performing at home.
What do we know about what the polls are saying
about Kishida's.
Speaker 3 (06:36):
Popularity, It's worse than it's ever been. He's had these
massive scandals over the past few months, kind of through
no fall to his own, but he's perceived as having
failed to sort of clamp down on them, and now
that he's relatedly tried to do that, it's had no
effect on public opinion. And the latest polls show him
at I think twenty three percent in the NHK pole,
(06:57):
which is the lowest since he took office.
Speaker 1 (06:59):
It's always a asure. Thank you for making time to
chat with us, Isabelle Reynolds there Bloomberg's Tokyo bureau chief
joining us from our studios in the Japanese capital is
to go ahead, I'm sorry.
Speaker 2 (07:10):
Can I mention something that would make us both feel old?
Can you believe? I mean, Paul Simon is going to
play for Kishada? Oh Simon's Paul Simon's eighty two? Does
that make you feel old?
Speaker 4 (07:20):
Yes?
Speaker 1 (07:21):
Honesting, I'm not quite there yet, but I'm not harming.
Speaker 2 (07:33):
We have a few minutes to spend with Mark Conan
Cio of AIA group and kind of legend here in
Hong Kong from the fun industry. Mark, thanks very much.
For coming into our studios. It's been a pretty good
environment for risk assets here over the past many months.
It hasn't been without a wall of worry to climb,
(07:53):
for sure. A lot of people are concerned about whether
or not inflation is now rearing its ugly head. Before
we get into specific questions here and there, just give
me your overall feel about the climate at the moment.
Speaker 5 (08:05):
In terms of investing, I think still leaning into the
rally in risk assets. Concerns obviously that the US economy
is running a little too hot, but in the short
term that we're play into the hands of those who
are willing to take the risk and to benefit from
equity markets.
Speaker 1 (08:21):
So does that mean you want to be more exposed
at this point to the US and Japan, let's say,
and underweight to China.
Speaker 5 (08:29):
Well, we're certainly constructed. Still. On the US, we see
a broadening out of the market as we get beyond
the Magnificent seven, and there are reasons to believe that
that is already underway. Japan, we are positive as well.
We see some opportunities there as the economy continues to
make progress and a headway. China, we've cut out underweight
(08:50):
and we are starting to see the sort of so
called early green shoots of some form of recovery. We've
got a little bit of fiscal support, but it's meager
in the con text of what's required. And we see
the tremendous overhang of the problems in the property sector
which are causing depletion in consumption confidence. So although we're
(09:11):
seeing some movement, we're seeing a little bit of revision
of earnings up. It's a little bit early to be
calling a big overweight on China.
Speaker 2 (09:19):
We had a longstanding South Korean discount where investors had
some other considerations to a certain degree with South Korea
visit in North Korea. In China, it seems like we've
we've kind of adopted now as something of a Chinese discount.
You mentioned some of the more kind of tangible issues,
(09:40):
the property crist has, slow down in the economy, difficulty
coming out of COVID and all that, but there is
also this kind of regulatory overhang in that discount. How
permanent is that China discount?
Speaker 5 (09:50):
Well, it's a bit of disaster myopia, where the further
you get away from from that period of intense uncertainty,
that the more confidence will we built up internationaltionally, and
we're still too close to when that occurred for international
investors yet to be convinced that things are more stable,
but great efforts are being made on the mainland to
(10:12):
portray a position of increased stability. We saw Janet Yellen
recently there and provide some indication that there's a move
towards normalcy in the bilateral relationship between the two countries. Similarly,
we've had a lot of visitors through Hong Kong in
the last week or so, attending international investor conferences, and
(10:33):
there seems to be some sense that China is now
worth a look. We've seen the southbound allocations coming out
of China as positive. It's good to see them, the
resumption of those flows. And as I say, we're starting
to see some earnings improvement in the internet sector, in
manufacturing less so elsewhere, and our focus really is on
(10:55):
at this point in a prolonged recovery on the state
owned enterprises that are likely to benefit from being aligned
with where the policy is heading.
Speaker 1 (11:04):
Mark. As you know, next week we get the monthly
Activity dead and I'm particularly interested in the print on
retail sales. What is your sense right now of where
Chinese consumers stand.
Speaker 5 (11:16):
Very depleted in terms of confidence. You know, the blow
that many people suffered in the urban areas during the pandemic.
Coming out of the pandemic, and then uncertainty around policy,
the confusion around geopolitics, the weakness on the currency, the deflation,
the cut in rates, all of these have compounded upon sentiment,
(11:38):
and I think it's going to take a little bit
longer for people to recover from that and for us
to see a significant improvement within consumption. That's at an
aggregate level. But of course within that picture there are
those that are prospering, that are able to offer a
relative advantage and are continuing to make progress. But as
I say, from an equity point of view, it's much
(11:59):
more focused now on manufacturing in internet plays.
Speaker 2 (12:03):
In the past, we saw the Chinese consumers spend rather
vigorously abroad, particularly in Europe, with luxury items. You know,
I'm not sure that the Chinese consumer is ready to
take on the same sort of mantle that the American
consumer has in terms of powering the economy. But is
that out there for the future at some point in China.
Speaker 5 (12:22):
Well, that's certainly the way in which policy was being
framed prior to the pandemic that the dependency on low
cost manufacturers, the need to move up the value chain
meant that a shift towards greater dependency on domestic activity
domestic consumption was going to replace that dependency on the
export markets. Exports so far this year have surprised on
(12:44):
the upside for China, as we've seen the rest of
the world has perhaps continued to grow more vigorously than
was expected. China has benefited from that. But that transition
towards more of a domestic focus for the economy is
certainly a long term policy aim. But think in the
near term, until confidence recovers, we're not going to see
(13:04):
a significant move in that.
Speaker 2 (13:06):
Direct And how's Mark Conan's confidence at the.
Speaker 5 (13:08):
Moment, still looking for catalysts to move back vigorously into
equity markets across the region. Of course, Taiwan and Korea
have benefited from this big ai push and other economies
in the region will benefit later on in the year
as a result.
Speaker 2 (13:24):
All right, Mark, thank you very much for joining us
here live in our studios. Mark Conan, cio of AIA
Group with us here in Hong Kong. This has Blumburg.
We talked about the Fed. We talked about the CPI
report coming out tomorrow morning in the United States and
(13:47):
how this might affect markets. Joining us for some discussion
of that. As Daniel Lamb, head of Equity Strategy at
Standard Chartered Wealth Solutions, Daniel, inflation has gone from nine
percent to three percent and the FED funds rate has
stayed at five and a half percent. Now, the Fed
knows a change needs to come at some point in
(14:08):
the near future, but it's a little worried about optics
should it be.
Speaker 4 (14:13):
Well, they are concerned ultimately about a repeat of what
happened in the nineteen eighties, right because they did that time,
They did cut prematurely and then inflation came back in
a big way. So, you know, I do believe that
they would need to be, you know, treading cautious water here,
and while they really want to cut rates, they need
(14:36):
to be really watching out for inflation to come off
more decisively before they can, you know, possibly cut rates.
Speaker 1 (14:44):
I was shocked this morning when I opened my Bloomberg
and discovered that State Street was making a call for
a fifty basis point rate cut as soon as June
and the chief investment officer at the firm was saying,
there's a lot to suggest that this is still a
very fragile economy. Yes, it has signs of being resilient
(15:06):
on the surface, but maybe there's something more going on
under the hood that should be concerning you. Do you
share that perspective? I mean, is there something that are
that you may be worried about under the surface of
economic activity.
Speaker 4 (15:22):
Not that I'm aware of. I do believe that the
economy is actually, you know, quite resilient, judging from you know,
the rebound in them and also you know the strong
NFP numbers. So you know, if I were to pick size,
I would think that it would be cutting probably somewhere
between two to three times or even less, tooling towards
(15:43):
the two time cut. You know, that's where I would
stand for this year.
Speaker 2 (15:47):
So we often hear questions to guests, you know, well,
what happens if the fat only cuts, you know, one
time instead of three, you know that's got to be
a negative, right, Well, that's just one input. Right, If
you have growth stronger than we thought, and if you
have earnings stronger than we thought, and companies more efficient
in their operations, that's three positives to go with one negative.
(16:10):
I mean, you have to consider the math in this.
You can't just keep saying that if rates don't go down,
oh that's a game changer.
Speaker 4 (16:17):
Right, correct, And I do agree with that. I believe
that while you know, investors are powering back on you know,
this expectations of rate cuts, there could be some volatility
in the market, but it would probably be some rotation
within the sectors, right I mean net on the headline
(16:37):
S and P five hundred, perhaps some mile pullback, but
nothing major. You will get some opportunities, you know, in
the growth sectors because the earnings expectations is really high,
so they could pull back, you know, sometime later in
this quarter. That's entirely possible. And given the situation the
rate cuts, yeah, that's that's possible. And then the money
(16:58):
is probably going to be rotating into the more traditional sectors,
you know, like industrials and also like energy. Okay, so
you could see that.
Speaker 1 (17:08):
So what are clients in Asia saying to you about
where they want to be exposed right now? Is it?
Are they exploring the opportunities that may be presented in China?
I mean, given the fact that valuations are so tremendously low,
and if you want to do your homework maybe on
a company by company basis, there are opportunities. Are people
saying that to you.
Speaker 4 (17:30):
Yes, people are looking at the state owned enterprises with
high different us in China because the high different you
would give them, you know, some sort of return. And
also the fact that the government is encouraging the management
of the state owned enterprises to boost the market capitalization
(17:52):
and there was announced two months ago and so far
the sooees have been doing pretty well. Of course, you know,
given uncertainties in the on the tech side of things,
that you know is an extra plus for this stay
own enterprises.
Speaker 2 (18:07):
So it's a great program, I think for us to
talk about, you know, areas that maybe don't get mentioned
all that much. So key key ways of unlocking value.
How do guests tell me yesterday that look for companies
that own businesses in India that have really really grown
and it actually in some cases the business in India
(18:27):
is about the same size as the home business, the
parent business back home. And it's just kind of a
way to find unlocked value. Give me an idea of
Daniel Lam's approach to finding something that others don't know.
Speaker 4 (18:43):
Well, the India story is certainly something to look at.
You know, the market is there's long term pluses, right,
long long term pluses because one of the biggest differences
between India and the other markets is the demographics. Right,
demographic is actually very favorable. Seventy percent of the of
(19:06):
the working population. Of the populations on the working side,
young people like the young people. Yeah, so those India
is certainly looking good. I would say that Korea market
is following the footsteps of Japan. That's also very important
to watch because they are having this value up program.
You know, you've see how well Japan has done over
(19:27):
the last two years, so that could be the next up, right, all.
Speaker 2 (19:31):
Right, all right, Daniel, out of time, Unfortunately, I will
get you back soon. Thanks very much for joining us.
Daniel Lamb, head of Equity Strategy at Standard Chartered Wealth Solutions.
Speaker 1 (19:40):
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 Bloomer Terminal, and the
(20:01):
Bloomberg Business app.
Speaker 3 (20:07):
Mm hmm
Bloomberg Audio Studios, podcasts, radio news.
Speaker 2 (00:09):
This is the Bloomberg Daybreak Asia podcast. I'm Brian Curtis,
along with Doug Krisner. Join us each day for the
stories making news and moving markets in the Asia Pacific.
You can subscribe to the show anywhere you get your
podcasts and always on Bloomberg Radio, the Bloomberg Terminal, and
the Bloomberg Business App.
Speaker 1 (00:27):
Let's get to Japanese Prime Minister Fumiyo Kishida. He's in Washington,
d C. Aiming to strengthen ties with the United States.
Joining us for a closer look is Bloomberg's Isabelle Reynolds,
our Tokyo bureau chief from our studios in the Japanese capital.
Good of you to join us, Isabel. I'm curious to
begin with. How much of the focus do you think
(00:48):
is going to be on boosting chies against a research
in China. Oh?
Speaker 3 (00:53):
Yes, I think that's very much going to be the
overarching theme of this particular bilasterial meeting. We already know
from pre briefings from the US side that what they're
going to talk about is things like having their militaries
work more closely together, setting up this defense Council, which
we'll look into defense procurement and how they can work
(01:14):
more closely together on that, and even having Japanese shipyard
workers work on US naval vessels, which will be a
new development and very much showing that in terms of
the military and security, there's no daylight between the two
of them and they're going to work ever, ever more
closely together.
Speaker 2 (01:33):
So that's one important angle. The other angle that we've
been championing this morning is the Japanese Prime Minister calling
for increased US investment in Japan. Is that something relatively new.
I mean, you would think that they would always be
pressing for that, but I guess at this time where
you're talking about artificial intelligence and high levels of tech
(01:55):
and keeping China at bay, it takes on new importance.
Speaker 3 (01:59):
Yes, yes, yeah, absolutely right. I think Japan does have
concerns about being left behind in these kind of issues
on these new development areas, and seeing that the US
is kind of surging ahead, it's trying to sort of
catch up on the coattails there, and we saw this
huge investment from Microsoft two point nine billion dollars into Japan,
(02:19):
which it will be marched up as a good success
for Keisha Doo on this particular visit. So yeah, I mean,
you know, business ties are always a theme of these visits,
but I think one of the reasons why it's more
of a focus this time also is because of the
whole Nipbon steel fuss. Yeah yeah, you know, why is
the US so concerned about an ally investing in one
(02:41):
of their companies? And I think Keisha is very concerned
to try and make it plain that, you know, hey,
we both invest in each other's countries. This is healthy,
this is beneficial, there's nothing to fear here.
Speaker 1 (02:51):
But it's also an election year for President Biden, and
in Pennsylvania particularly, I think he has to pay attention
to what the United steel Workers are saying. That's fair thing.
Can you think the Prime Minister can understand that idea?
Speaker 3 (03:04):
Oh yes, very much so. I think the Japanese do understand.
And that's why, from our understanding from Japanese officials, Kisha
I won't even be raising it directly with the President.
So what he's going to do instead is go and
visit this Toyota factory in North Carolina, according to media reports,
and that will sort of in a more subtle way,
underscore the point. Look, we've been doing this for a
(03:24):
long time. We've been investing in the US for a
long time. It's creating jobs. We've created a million jobs
in the US, so you should be welcoming US.
Speaker 2 (03:33):
I like the job as a journalist. You get to
ask dumb questions and be proud of it. I'm curious, Isabelle,
from your long stay in Japan about Japanese opinions of
America and also from what you know about you know,
because this Nippon Steel it doesn't sit very well in
one sense, how do Americans view Japan at the moment?
Speaker 3 (03:56):
How do Americans view Japan at the moment?
Speaker 2 (03:58):
Oh?
Speaker 3 (03:59):
Yeah, well both of us, right, yeah. I mean I
think most people who really who are looking at this issue,
I mean, I'm not necessarily that they're sure that the
person on the street would know about this Nippon Steel
deal and what's going on. But for the people who do,
I think they understand the electoral situation. They know how
sort of toxic and you know, very divided the atmosphere
(04:20):
can become before a US election, So they're not necessarily
sort of blaming America or seeing it as undermining the relationship.
As a whole. But I think there is a slight
concern about how this might portray the relationship outside the
two countries. So how how will China portray this if
the two of them are perceived to be, you know,
(04:41):
in conflict over this issue.
Speaker 1 (04:42):
One of the things that I was struck by too
is the Biden administration enacted very recently an unexpected moratorium
on liquefied natural gas. Help me understand, because Japan is
a big energy importer. Did this come as a big
surprise to Japan?
Speaker 3 (04:56):
Yes, Well, what we've been told is that Japan was
not hold in advance that this announcement was coming. So
it must have been a very big shock to Japan,
which is very reliant on L and G and the
US has been one of its big sources in recent years.
So that has been raised at Japan's Tequisad's meetings with
(05:17):
business executives already. It's something that he wants to continue
to work on, and I think that is something that
he will raise with Biden this time, because that's not
something it's not just one individual company, it's Japan's economy
as a whole that relies on these sources of energy.
So he can't afford to let that one slide.
Speaker 2 (05:35):
So we've talked about the military angle. Oh, I wanted
to ask you briefly. Australia came out yesterday and said, well, yes,
but Japan would not be formally invited to join ALCUS.
What's the issue there? Right?
Speaker 3 (05:48):
Yes, I think there are a number of issues going on.
I think possibly there's a difference in temperature between the
US and the Australia and the UK on this issue.
One issue is that obviously the first part, the first
pillar of ORCUS, has not been going very smoothly. You know,
there's been a delay in the production of submarines, which
was the first purpose of ORCUS. So I think from
(06:10):
some people's point of view, you know, bringing someone else
and moving on into other projects doesn't really make sense
when you're not getting on very well with your initial project.
So I don't think it's any kind of alienation towards Japan.
I think it's more about what's the most efficient way
to get on with these projects.
Speaker 1 (06:26):
Isabelle, Before we let you go, I have to ask
about how well Prime Minister Keishada is performing at home.
What do we know about what the polls are saying
about Kishida's.
Speaker 3 (06:36):
Popularity, It's worse than it's ever been. He's had these
massive scandals over the past few months, kind of through
no fall to his own, but he's perceived as having
failed to sort of clamp down on them, and now
that he's relatedly tried to do that, it's had no
effect on public opinion. And the latest polls show him
at I think twenty three percent in the NHK pole,
(06:57):
which is the lowest since he took office.
Speaker 1 (06:59):
It's always a asure. Thank you for making time to
chat with us, Isabelle Reynolds there Bloomberg's Tokyo bureau chief
joining us from our studios in the Japanese capital is
to go ahead, I'm sorry.
Speaker 2 (07:10):
Can I mention something that would make us both feel old?
Can you believe? I mean, Paul Simon is going to
play for Kishada? Oh Simon's Paul Simon's eighty two? Does
that make you feel old?
Speaker 4 (07:20):
Yes?
Speaker 1 (07:21):
Honesting, I'm not quite there yet, but I'm not harming.
Speaker 2 (07:33):
We have a few minutes to spend with Mark Conan
Cio of AIA group and kind of legend here in
Hong Kong from the fun industry. Mark, thanks very much.
For coming into our studios. It's been a pretty good
environment for risk assets here over the past many months.
It hasn't been without a wall of worry to climb,
(07:53):
for sure. A lot of people are concerned about whether
or not inflation is now rearing its ugly head. Before
we get into specific questions here and there, just give
me your overall feel about the climate at the moment.
Speaker 5 (08:05):
In terms of investing, I think still leaning into the
rally in risk assets. Concerns obviously that the US economy
is running a little too hot, but in the short
term that we're play into the hands of those who
are willing to take the risk and to benefit from
equity markets.
Speaker 1 (08:21):
So does that mean you want to be more exposed
at this point to the US and Japan, let's say,
and underweight to China.
Speaker 5 (08:29):
Well, we're certainly constructed. Still. On the US, we see
a broadening out of the market as we get beyond
the Magnificent seven, and there are reasons to believe that
that is already underway. Japan, we are positive as well.
We see some opportunities there as the economy continues to
make progress and a headway. China, we've cut out underweight
(08:50):
and we are starting to see the sort of so
called early green shoots of some form of recovery. We've
got a little bit of fiscal support, but it's meager
in the con text of what's required. And we see
the tremendous overhang of the problems in the property sector
which are causing depletion in consumption confidence. So although we're
(09:11):
seeing some movement, we're seeing a little bit of revision
of earnings up. It's a little bit early to be
calling a big overweight on China.
Speaker 2 (09:19):
We had a longstanding South Korean discount where investors had
some other considerations to a certain degree with South Korea
visit in North Korea. In China, it seems like we've
we've kind of adopted now as something of a Chinese discount.
You mentioned some of the more kind of tangible issues,
(09:40):
the property crist has, slow down in the economy, difficulty
coming out of COVID and all that, but there is
also this kind of regulatory overhang in that discount. How
permanent is that China discount?
Speaker 5 (09:50):
Well, it's a bit of disaster myopia, where the further
you get away from from that period of intense uncertainty,
that the more confidence will we built up internationaltionally, and
we're still too close to when that occurred for international
investors yet to be convinced that things are more stable,
but great efforts are being made on the mainland to
(10:12):
portray a position of increased stability. We saw Janet Yellen
recently there and provide some indication that there's a move
towards normalcy in the bilateral relationship between the two countries. Similarly,
we've had a lot of visitors through Hong Kong in
the last week or so, attending international investor conferences, and
(10:33):
there seems to be some sense that China is now
worth a look. We've seen the southbound allocations coming out
of China as positive. It's good to see them, the
resumption of those flows. And as I say, we're starting
to see some earnings improvement in the internet sector, in
manufacturing less so elsewhere, and our focus really is on
(10:55):
at this point in a prolonged recovery on the state
owned enterprises that are likely to benefit from being aligned
with where the policy is heading.
Speaker 1 (11:04):
Mark. As you know, next week we get the monthly
Activity dead and I'm particularly interested in the print on
retail sales. What is your sense right now of where
Chinese consumers stand.
Speaker 5 (11:16):
Very depleted in terms of confidence. You know, the blow
that many people suffered in the urban areas during the pandemic.
Coming out of the pandemic, and then uncertainty around policy,
the confusion around geopolitics, the weakness on the currency, the deflation,
the cut in rates, all of these have compounded upon sentiment,
(11:38):
and I think it's going to take a little bit
longer for people to recover from that and for us
to see a significant improvement within consumption. That's at an
aggregate level. But of course within that picture there are
those that are prospering, that are able to offer a
relative advantage and are continuing to make progress. But as
I say, from an equity point of view, it's much
(11:59):
more focused now on manufacturing in internet plays.
Speaker 2 (12:03):
In the past, we saw the Chinese consumers spend rather
vigorously abroad, particularly in Europe, with luxury items. You know,
I'm not sure that the Chinese consumer is ready to
take on the same sort of mantle that the American
consumer has in terms of powering the economy. But is
that out there for the future at some point in China.
Speaker 5 (12:22):
Well, that's certainly the way in which policy was being
framed prior to the pandemic that the dependency on low
cost manufacturers, the need to move up the value chain
meant that a shift towards greater dependency on domestic activity
domestic consumption was going to replace that dependency on the
export markets. Exports so far this year have surprised on
(12:44):
the upside for China, as we've seen the rest of
the world has perhaps continued to grow more vigorously than
was expected. China has benefited from that. But that transition
towards more of a domestic focus for the economy is
certainly a long term policy aim. But think in the
near term, until confidence recovers, we're not going to see
(13:04):
a significant move in that.
Speaker 2 (13:06):
Direct And how's Mark Conan's confidence at the.
Speaker 5 (13:08):
Moment, still looking for catalysts to move back vigorously into
equity markets across the region. Of course, Taiwan and Korea
have benefited from this big ai push and other economies
in the region will benefit later on in the year
as a result.
Speaker 2 (13:24):
All right, Mark, thank you very much for joining us
here live in our studios. Mark Conan, cio of AIA
Group with us here in Hong Kong. This has Blumburg.
We talked about the Fed. We talked about the CPI
report coming out tomorrow morning in the United States and
(13:47):
how this might affect markets. Joining us for some discussion
of that. As Daniel Lamb, head of Equity Strategy at
Standard Chartered Wealth Solutions, Daniel, inflation has gone from nine
percent to three percent and the FED funds rate has
stayed at five and a half percent. Now, the Fed
knows a change needs to come at some point in
(14:08):
the near future, but it's a little worried about optics
should it be.
Speaker 4 (14:13):
Well, they are concerned ultimately about a repeat of what
happened in the nineteen eighties, right because they did that time,
They did cut prematurely and then inflation came back in
a big way. So, you know, I do believe that
they would need to be, you know, treading cautious water here,
and while they really want to cut rates, they need
(14:36):
to be really watching out for inflation to come off
more decisively before they can, you know, possibly cut rates.
Speaker 1 (14:44):
I was shocked this morning when I opened my Bloomberg
and discovered that State Street was making a call for
a fifty basis point rate cut as soon as June
and the chief investment officer at the firm was saying,
there's a lot to suggest that this is still a
very fragile economy. Yes, it has signs of being resilient
(15:06):
on the surface, but maybe there's something more going on
under the hood that should be concerning you. Do you
share that perspective? I mean, is there something that are
that you may be worried about under the surface of
economic activity.
Speaker 4 (15:22):
Not that I'm aware of. I do believe that the
economy is actually, you know, quite resilient, judging from you know,
the rebound in them and also you know the strong
NFP numbers. So you know, if I were to pick size,
I would think that it would be cutting probably somewhere
between two to three times or even less, tooling towards
(15:43):
the two time cut. You know, that's where I would
stand for this year.
Speaker 2 (15:47):
So we often hear questions to guests, you know, well,
what happens if the fat only cuts, you know, one
time instead of three, you know that's got to be
a negative, right, Well, that's just one input. Right, If
you have growth stronger than we thought, and if you
have earnings stronger than we thought, and companies more efficient
in their operations, that's three positives to go with one negative.
(16:10):
I mean, you have to consider the math in this.
You can't just keep saying that if rates don't go down,
oh that's a game changer.
Speaker 4 (16:17):
Right, correct, And I do agree with that. I believe
that while you know, investors are powering back on you know,
this expectations of rate cuts, there could be some volatility
in the market, but it would probably be some rotation
within the sectors, right I mean net on the headline
(16:37):
S and P five hundred, perhaps some mile pullback, but
nothing major. You will get some opportunities, you know, in
the growth sectors because the earnings expectations is really high,
so they could pull back, you know, sometime later in
this quarter. That's entirely possible. And given the situation the
rate cuts, yeah, that's that's possible. And then the money
(16:58):
is probably going to be rotating into the more traditional sectors,
you know, like industrials and also like energy. Okay, so
you could see that.
Speaker 1 (17:08):
So what are clients in Asia saying to you about
where they want to be exposed right now? Is it?
Are they exploring the opportunities that may be presented in China?
I mean, given the fact that valuations are so tremendously low,
and if you want to do your homework maybe on
a company by company basis, there are opportunities. Are people
saying that to you.
Speaker 4 (17:30):
Yes, people are looking at the state owned enterprises with
high different us in China because the high different you
would give them, you know, some sort of return. And
also the fact that the government is encouraging the management
of the state owned enterprises to boost the market capitalization
(17:52):
and there was announced two months ago and so far
the sooees have been doing pretty well. Of course, you know,
given uncertainties in the on the tech side of things,
that you know is an extra plus for this stay
own enterprises.
Speaker 2 (18:07):
So it's a great program, I think for us to
talk about, you know, areas that maybe don't get mentioned
all that much. So key key ways of unlocking value.
How do guests tell me yesterday that look for companies
that own businesses in India that have really really grown
and it actually in some cases the business in India
(18:27):
is about the same size as the home business, the
parent business back home. And it's just kind of a
way to find unlocked value. Give me an idea of
Daniel Lam's approach to finding something that others don't know.
Speaker 4 (18:43):
Well, the India story is certainly something to look at.
You know, the market is there's long term pluses, right,
long long term pluses because one of the biggest differences
between India and the other markets is the demographics. Right,
demographic is actually very favorable. Seventy percent of the of
(19:06):
the working population. Of the populations on the working side,
young people like the young people. Yeah, so those India
is certainly looking good. I would say that Korea market
is following the footsteps of Japan. That's also very important
to watch because they are having this value up program.
You know, you've see how well Japan has done over
(19:27):
the last two years, so that could be the next up, right, all.
Speaker 2 (19:31):
Right, all right, Daniel, out of time, Unfortunately, I will
get you back soon. Thanks very much for joining us.
Daniel Lamb, head of Equity Strategy at Standard Chartered Wealth Solutions.
Speaker 1 (19:40):
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 Bloomer Terminal, and the
(20:01):
Bloomberg Business app.
Speaker 3 (20:07):
Mm hmm
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