April 25, 2024 • 21 mins
Featuring:
Youkyung Lee, Bloomberg Asia Stocks Reporter, joins us from Seoul to discuss market attitudes around SK Hynix earnings.
Fan Cheuk Wan, Asia CIO of HSBC Global Private Banking and Wealth, sits down with us in Hong Kong to discuss her markets perspectives.
Masa Takeda, Portfolio Manager of the Hennessy Japan Fund, joins us from Hong Kong to talk about the Yen, and the potential for BOJ intervention.
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:02):
Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg
Daybreak Aisia podcast. I'm Doug Krisner. You can join Brian
Curtis and myself for the stories, making news and moving
markets in the APAC region. You can subscribe to the
show anywhere you get your podcast and always on Bloomberg Radio,
(00:23):
the Bloomberg Terminal, and the Bloomberg Business app.
Speaker 2 (00:27):
Well.
Speaker 3 (00:27):
South Korea's economic growth accelerated to a pace faster than
most optimistic forecasts had been around. Good news to President
Yun sukyul. A bit late though, given the election setback,
but anyway, GDP advancing one point three percent in the
three months through March versus the previous quarter. According to
the Bank of Korea, the economy grew three point four
(00:49):
percent year on year, beating the forecast of two and
a half percent. Now in that environment, as k Heinez said,
it expects full recovery in the memory market in chips,
and also that AI demand was spurring the chip maker
to its fastest revenue expansion since at least twenty ten.
Joining us now for some discussion is Yu Kung Lee,
(01:09):
Bloomberg Asia Stocks Reporter. On a closer look at heinez here.
So I guess the best news here really for general
investors would be that at least this company expects full
recovery in the memory market.
Speaker 4 (01:23):
Yeah, that's right. Well, the best news is also might
be the best opportunity to sell the news, and that's
how the markets are seemed to be interpreting the latest
positive string of announcement from eske Heinis. The company reported
a blue out earnings, Yes, and that demonstrates that the
chip industry is in full recovery after years of slump
and downturn, and thanks to this strong demand coming from
(01:47):
the AI and not just the AI. Some of the
silver lining the eskehihneys highlighted also included us forecasting bullish
demand for traditional membership, which means that the demand for
smart phone and personal computer might be also finally recovery
going toward the end of this year. So there's a there. Also,
there are a lot of positive announcements from the company
(02:10):
from today's earnings results.
Speaker 1 (02:12):
Yeah, you might talked about kind of buy the rumors,
sell the news. Yesterday the stock was up my more
than five percent. So when we look at the memory
chip market, I mean, if the company says to you
maybe we are entering a full recovery cycle. Are they
taking into consideration what the competitors are dealing with right
(02:33):
now or is this pretty much from the company's point
of view.
Speaker 4 (02:37):
So when you talk about that in the memoryship, they
are definitely taking into account what the competitors are doing.
There's pretty much three memoryship supplier in the world when
it comes to dram the maturity of the memboryship. There's
SAMs and Electronics, there's ESK Heighnis that, there's the US
company Micron Technology, and all three of them have been
in a have been reporting pretty bad results last year,
(03:00):
but all three of them are expected to report pretty
solid earnings this year and thanks that's thanks to the
industry wide recovery that's helping the membership demand for all
these three companies.
Speaker 3 (03:15):
The announcement this week that Heinex would spend fifteen billion
dollars in South Korea on a new plant, what does
that actually mean for the company.
Speaker 4 (03:26):
Sure, so that displays strong confidence coming from SKA Heinix
that is pretty confident there will be strong demand. Ford
is a high end membership called HPM that is a
crucial for AI accelerators such as the ones made by Nvidia.
So that was a really kind of type of news.
(03:46):
That is that may be seen as a positive, but
also for some investors. Typically the membership industry is very
vulnerable to the supply and demand situation, So therese upcoming
increase in up could also be a negative news to
some investor because that could raise concern about potential supply,
(04:08):
although that may be a lot down on the road.
So there is this is not all all the all
the positive good news. There's also some some source of worry.
Speaker 1 (04:18):
Brian was talking about that positive print on GDP walk
about economics time. How is the South Korean economy performing?
You're in the capital, right, you have kind of a
viewpoint on what's happening in a major urban center, but
you're very much wired into other pockets of the country
and where manufacturing sites are set up for things like
(04:42):
not only semiconductors, but automobiles as well. How is the
economy performing in South Korea?
Speaker 4 (04:48):
So, the South Korea economy is very sensitive to global
trades and global demand, especially the global demand for the
tech and consumer electronics because chips count for the huge
part of the South Korea exports and to today's growth
results also show pretty strong exports growth from the chip
makers that is helping the growth for the for the
(05:09):
entire nation. However, this may not be entirely a great
news for the stock investors, because we are also seeing
speculations that the central bank in South Korea Bank of
Korea may be considering delaying its own rate cuts because
the economy is doing well. This is just like what's
happening in the US, and the FED made postpone as
(05:32):
raycut to the later this year, and that may also
widen the interest rate gap between the US and South Korea.
So the South Korea Central Bank may not be reducing
interest rate as soon as investors expected. So the GDP
is not all good news.
Speaker 3 (05:48):
That may not be a bad thing. I mean, there
are some of us who believe that no rate cuts
at all is actually the most bullish move for central
banks this year, just in that once you start getting
the cut, it's usually because growth is turned down or
unemployment has started to move up. This is a pretty
good environment that we're in. If you look at these
(06:08):
stock chart of Heinez, it's amazing from the lower left
to the upper right. Noting though that it did sell
off ten percent before yesterday's big bounce on the Capex
move And like you said at the very beginning, and
I'd like to hear more thoughts on this, maybe the
best is already in.
Speaker 4 (06:26):
Sure. So if you look at the earnings outlook and
the fundamentals of Esquhiinis, there are may be more legs
for the rally in the share prices which is hovering
near the highest level in twenty four years. And you
see the similar movements for the in the share prices
of other chip makers Nvidia, TSMC, Samsung, they are either
(06:47):
near their peaks or breaking their peaks, and then in
recent weeks they've been falling more than ten percent into.
Speaker 2 (06:56):
The correction level.
Speaker 3 (06:57):
So that's why this season is going to be really
interesting to see whether or not the earnings is strong
enough to get everybody powered higher. YUKIONG Lee joins us
Bloomberg Asia Stocks reporter from Seoul. We're joined by fanchuk
One Asia CIO of HSBC Global Private Banking and Wealth
(07:20):
to take a closer look at markets, and we have
had a lot of up and down here of late.
We talked about the big drop in Meta shares today,
but we also had Texas instruments surging, Tesla surging. We
also had gains in Visa. So it's very much day
in and day out a different picture on how the
equity market might be performing. I suppose a lot of
(07:42):
that is tied up into the individual companies and what
they're doing, and also the forecast on interest rates. I
note that you believe that the big central banks are
on track to start cutting interest rates this year. You're
sticking by that.
Speaker 5 (07:56):
Yeah, we still expect Divado Macas central banks will start
with the Montreal easing cycle later this year, but of
course market reprising for slower fed rate cuts have gone
quite far. Uh and now to the points that now
market actually push out the rate cut expectations in the
(08:19):
US towards the Q four this year, and in some
forecasts project no rate cut. We think these have gone
too far. So at XSBC, we currently still expect free
US interest rate cut this year, but the risks are
clearly skewed towards a later start, so we may see
(08:43):
the fat cuts to come in the second half of
the year. It's compared with our current projection of a
June start, so we think the reprising have already taken place,
and importantly, we think there's very high probability that the
European Central Bank will kick start with monetary yeasing in June,
(09:08):
and there's also debate whether there would be another July
rate cut.
Speaker 2 (09:13):
So with.
Speaker 5 (09:15):
Interest rate sign code turning, we still thinks that is
important for investor to put in cash to work because
investment risky asset should deliver better total return compared with cash.
When central bank now reversing the monetary cycle.
Speaker 1 (09:37):
Fun I want to ask about you. Yeah, well, I
want to There's a couple of things there. One, I mean,
if the ECB begins to ease, then maybe risk assets
in Europe are a bye. But I'm also, as long
as we're talking about central bank action, curious on the
Bank of Japan's decision, which is happening Friday. What's your
sense of what's going on not only with the economy
(10:00):
in Japan and the rate of inflation, but whether or
not it's an opportune time to put more money to
work in Japanese equities.
Speaker 5 (10:07):
Yeah, we are bullish on Japanese equity, so we stay
overweight on Japanese dog We don't think the BOJ will
for the increase interest rate in this week's meeting. But
given the growing expectations for slower fat rate cuts, and
(10:27):
this also created room for the BOJ to raise interest
rate earlier than expected. So currently we expect the BILJ
will likely raise interest rate again in the third quarter
of this year and we project two more rate hike
in twenty twenty five. And given the significant weakness in
(10:50):
the end and now yen hits more than three decades low,
so the BILJ would also have the incentive to raise
policy rates before the end of this year. Uh and
this would also help to curb the extreme weakness in
the end.
Speaker 3 (11:09):
What do you like most about what Japanese companies bring
to the table at the moment.
Speaker 5 (11:14):
I think this more sustainable refras trend in Japan would
both well for corporate earnings outlook and the Japanese equity
market is substantially exposed to the tech cycle. Given the
global AI investment boom is also driving strong capital expenditure
(11:35):
spending in Japan on digitalization, automation and AI technology to
mitigate the structure had went from aging demographic so Japan
is also a very attractive play on the AI investment boom.
(11:55):
And on the other hand, the accelerating corporate government reforms
also so prompt more listed companies to introduce corporate actions
to enhance shareholders value, including increase in diffidend payout and
share buyback. So this will well for our OE enhancement
(12:15):
in the medium term. So there are actually a multiple
driver upon equity market in Japan misfund.
Speaker 1 (12:23):
So much of what happens in the APEC region is
driven by economic activity. In China. We know that and
clearly the economy is struggling. We're waiting for some type
of turn. Maybe it's happened, and we won't know that
clearly for a few months. Now, what's your sense on
China and whether or not there are opportunities to put
(12:44):
capital to work there.
Speaker 5 (12:46):
We currently have neutral allocation to China equities, but we
adop a most selective positioning given that the recovery out
of remain divergence. So the property market stress remain a
key on the economy. But looking at the Q one
China GDP report, infrastructure spending actually came in better than expected.
(13:09):
On the other hand, industrial protection growth and retail sales
actually came in weaker than consensus estimate. So this is
clearly a mixed picture in terms of the recovery outlook,
So this would imply divergent corporate earnings performance. So we
see more resilient financial performance from the surface consumption sector.
Speaker 3 (13:33):
So you have to be a stock picker, yes.
Speaker 5 (13:35):
And focus on the resilient sector.
Speaker 3 (13:39):
Yeah. I want to go back to a comment you
made at the beginning of our conversation, which I think
a lot of people would take heart from. I mean,
they would say, you're right that right now there's the
risk of fewer interest rate cuts than more, and so
as a money manager, you have to be very cognizant
of that. So that would augur for being pretty careful here.
(14:00):
You said that you think it's a great time to
take advantage put money to work in the stock market.
How do you reconcile those two thoughts.
Speaker 5 (14:08):
Yeah, we actually don't think a lower start of the
FED rate cut is a negative development because the key
reason accounting for this trend is stronger than expected US
growth and this has been reflected in earnings expectation. We
expect our market projection for US earnings growth to further improve,
(14:33):
so this will actually support further broadening of the US
equity rati in our opinion.
Speaker 3 (14:38):
All right, thanks very much, Ms Vanchukwan there Asacio of
HSBC Global Private Banking and Wealth. Us A Takeda, portfolio
manager of the Hennessey Japan Fund. We talked about a
number of issues that we would raise with you. Massa Takaida,
(15:03):
thank you very much for being with us. Let's start
off with possible intervention. Would it be a little weird
for the Ministry of Finance to intervene in these two
days when the BOJ is meeting.
Speaker 6 (15:15):
Well, it's hard to say what and when the bog
might do something, but I do think that chief Jpy
Japanese yen is here to stay because of several reasons
such as real interest rates still negative for Japanese in
I think, what's one of the few currencies, if not
the only one.
Speaker 2 (15:35):
With negative interest rates.
Speaker 6 (15:37):
And also trade balance that has structurally changed in the
last twenty years, so there's a very there's so much
less purchase nowadays.
Speaker 1 (15:48):
So tomorrow it's not just the BOJ meeting, although that's
clearly center stage. Tokyo April CPI data and I'm curious,
can you help me understand what the inflation story is
right now in Japan?
Speaker 6 (16:03):
Well, so it's been trending above two percent for I
think the last two years now, And initially in twenty
twenty two.
Speaker 2 (16:13):
I thought that Japanese inflation would be transient.
Speaker 6 (16:16):
But as time went by, I came to realize that
there's a little much structural element to it. So at
first it was the you know, the Fed raising rates
and appreciated Japanese yen and increased import prices.
Speaker 2 (16:33):
But now it seems like the botton is being.
Speaker 6 (16:35):
Passed to more structural reasons, like you know, labor shortage
arising from shrinking population. So our feeling is that Japan's
inflation will stay higher for longer.
Speaker 3 (16:49):
Yeah, and with inflation high and the currency week, they
kind of feed off each other, I suppose, and it's
not good for people. I mean you probably heard me
say Japan Airlines CEO's who go to Tori said, it's
a big problem. Who is it the most big the problem?
Who is it the biggest for?
Speaker 6 (17:08):
Well, definitely how sports are feeling the pinch and also
you know importers. But I think, you know, as Japan
is now finally coming out of decades long deflation, I
think this should start virtual cycle where you have higher
(17:31):
inflation which leads to higher interest rate nominal interest rate,
while the overall monitor policy is still being accommodated, and
that should change the consumer's mindset and that should produce
a positive feedback loops.
Speaker 2 (17:46):
So I think the trend we're generally moving in the
right direction.
Speaker 1 (17:49):
So what does it mean massive for the equity market
in Japan.
Speaker 6 (17:55):
Well, obviously, if you have negative interest rates, that's good
for equities. Although as an investor, we were also focus
We always focus on, you know, companies with durable economic modes,
with strong pricing power, and so we are macroagnostic and
benchmark agnostic.
Speaker 3 (18:17):
So some of the governess changes that people speak so
highly of for Japan, things like being able to offer
dividends and and allowing more buybacks and and making better
governance decisions, is that something that you see can be sustainable.
Speaker 2 (18:35):
Yeah, I think so.
Speaker 6 (18:35):
I mean, I think the key thing is not the
shareholder shareholder return policies. I think that it's about raising
awareness around you know, returns on capital, cost.
Speaker 2 (18:51):
Of equity and so on.
Speaker 6 (18:53):
Because they had they hadn't, there was there was no
capitalism in a Western sense, you know, ten, fifteen, twenty
years ago, and now with the government initiatives and activists
and even mister Buffett or Bookshire halfway. I think companies
are becoming more and more conscious about, you know, improving
(19:15):
capital efficiency, and I think that's sustainable thanks to all
these external pressures.
Speaker 3 (19:21):
Masa.
Speaker 1 (19:21):
We have talked on this show a great deal about
how companies are diversifying manufacturing and supply chain operations away
from China, resharing of semiconductor manufacturing, let's say here in
the United States. How is Japan benefiting from this drive
if at all?
Speaker 6 (19:39):
Oh, yeah, definitely. So first of all, it may create
extra demand coming from other parts of the world, you know,
by moving away from China, although that might create supply
glood at some distant point in time. But Japan and
Japan is definitely benefiting from being in a geopolitically neutral position.
Speaker 2 (20:06):
And then also, you know, Japan is.
Speaker 6 (20:08):
Now cheap country, so you know, it's smcs of the world.
They can hire high quolitic engineers, are very affordable cost
and also the cost of construction is everything is is
becoming quite quite attractive in terms of the cheapness.
Speaker 3 (20:25):
Mars, you're a PM for the Hennessy Japan Fund. You
mentioned a number of companies in your list, companies like
Mitsubishi Electric and Hitachi. What's your best pick at the moment?
Speaker 6 (20:36):
Why, well, right now, I think that some of the financials.
And by the way, it's not Mitsubishi Electric. We have
our Mitsubishi Corporation and MITTSBECI EFH Financial Group. But we
like insurance companies in Japan because it's polygopolistic, three players
(20:57):
controlling only not only three player s contry in ninety
percent of the market.
Speaker 3 (21:02):
Yeah, all right, well we'll put that as as a
jumping off point for our next discussion. Masticated their portfolio
manager at Hennessey Japan Fund.
Speaker 1 (21:12):
This has been the Bloomberg Daybreak Asia podcast, bringing you
the stories, making news and moving markets in the Asia Pacific.
Visit the Bloomberg Podcast channel on YouTube to get more
episodes of this and other shows from Bloomberg. Subscribe to
the podcast on Apple, Spotify, or anywhere else you listen,
and always on Bloomberg Radio, the Bloomberg Terminal, and the
(21:32):
Bloomberg Business app.
Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg
Daybreak Aisia podcast. I'm Doug Krisner. You can join Brian
Curtis and myself for the stories, making news and moving
markets in the APAC region. You can subscribe to the
show anywhere you get your podcast and always on Bloomberg Radio,
(00:23):
the Bloomberg Terminal, and the Bloomberg Business app.
Speaker 2 (00:27):
Well.
Speaker 3 (00:27):
South Korea's economic growth accelerated to a pace faster than
most optimistic forecasts had been around. Good news to President
Yun sukyul. A bit late though, given the election setback,
but anyway, GDP advancing one point three percent in the
three months through March versus the previous quarter. According to
the Bank of Korea, the economy grew three point four
(00:49):
percent year on year, beating the forecast of two and
a half percent. Now in that environment, as k Heinez said,
it expects full recovery in the memory market in chips,
and also that AI demand was spurring the chip maker
to its fastest revenue expansion since at least twenty ten.
Joining us now for some discussion is Yu Kung Lee,
(01:09):
Bloomberg Asia Stocks Reporter. On a closer look at heinez here.
So I guess the best news here really for general
investors would be that at least this company expects full
recovery in the memory market.
Speaker 4 (01:23):
Yeah, that's right. Well, the best news is also might
be the best opportunity to sell the news, and that's
how the markets are seemed to be interpreting the latest
positive string of announcement from eske Heinis. The company reported
a blue out earnings, Yes, and that demonstrates that the
chip industry is in full recovery after years of slump
and downturn, and thanks to this strong demand coming from
(01:47):
the AI and not just the AI. Some of the
silver lining the eskehihneys highlighted also included us forecasting bullish
demand for traditional membership, which means that the demand for
smart phone and personal computer might be also finally recovery
going toward the end of this year. So there's a there. Also,
there are a lot of positive announcements from the company
(02:10):
from today's earnings results.
Speaker 1 (02:12):
Yeah, you might talked about kind of buy the rumors,
sell the news. Yesterday the stock was up my more
than five percent. So when we look at the memory
chip market, I mean, if the company says to you
maybe we are entering a full recovery cycle. Are they
taking into consideration what the competitors are dealing with right
(02:33):
now or is this pretty much from the company's point
of view.
Speaker 4 (02:37):
So when you talk about that in the memoryship, they
are definitely taking into account what the competitors are doing.
There's pretty much three memoryship supplier in the world when
it comes to dram the maturity of the memboryship. There's
SAMs and Electronics, there's ESK Heighnis that, there's the US
company Micron Technology, and all three of them have been
in a have been reporting pretty bad results last year,
(03:00):
but all three of them are expected to report pretty
solid earnings this year and thanks that's thanks to the
industry wide recovery that's helping the membership demand for all
these three companies.
Speaker 3 (03:15):
The announcement this week that Heinex would spend fifteen billion
dollars in South Korea on a new plant, what does
that actually mean for the company.
Speaker 4 (03:26):
Sure, so that displays strong confidence coming from SKA Heinix
that is pretty confident there will be strong demand. Ford
is a high end membership called HPM that is a
crucial for AI accelerators such as the ones made by Nvidia.
So that was a really kind of type of news.
(03:46):
That is that may be seen as a positive, but
also for some investors. Typically the membership industry is very
vulnerable to the supply and demand situation, So therese upcoming
increase in up could also be a negative news to
some investor because that could raise concern about potential supply,
(04:08):
although that may be a lot down on the road.
So there is this is not all all the all
the positive good news. There's also some some source of worry.
Speaker 1 (04:18):
Brian was talking about that positive print on GDP walk
about economics time. How is the South Korean economy performing?
You're in the capital, right, you have kind of a
viewpoint on what's happening in a major urban center, but
you're very much wired into other pockets of the country
and where manufacturing sites are set up for things like
(04:42):
not only semiconductors, but automobiles as well. How is the
economy performing in South Korea?
Speaker 4 (04:48):
So, the South Korea economy is very sensitive to global
trades and global demand, especially the global demand for the
tech and consumer electronics because chips count for the huge
part of the South Korea exports and to today's growth
results also show pretty strong exports growth from the chip
makers that is helping the growth for the for the
(05:09):
entire nation. However, this may not be entirely a great
news for the stock investors, because we are also seeing
speculations that the central bank in South Korea Bank of
Korea may be considering delaying its own rate cuts because
the economy is doing well. This is just like what's
happening in the US, and the FED made postpone as
(05:32):
raycut to the later this year, and that may also
widen the interest rate gap between the US and South Korea.
So the South Korea Central Bank may not be reducing
interest rate as soon as investors expected. So the GDP
is not all good news.
Speaker 3 (05:48):
That may not be a bad thing. I mean, there
are some of us who believe that no rate cuts
at all is actually the most bullish move for central
banks this year, just in that once you start getting
the cut, it's usually because growth is turned down or
unemployment has started to move up. This is a pretty
good environment that we're in. If you look at these
(06:08):
stock chart of Heinez, it's amazing from the lower left
to the upper right. Noting though that it did sell
off ten percent before yesterday's big bounce on the Capex
move And like you said at the very beginning, and
I'd like to hear more thoughts on this, maybe the
best is already in.
Speaker 4 (06:26):
Sure. So if you look at the earnings outlook and
the fundamentals of Esquhiinis, there are may be more legs
for the rally in the share prices which is hovering
near the highest level in twenty four years. And you
see the similar movements for the in the share prices
of other chip makers Nvidia, TSMC, Samsung, they are either
(06:47):
near their peaks or breaking their peaks, and then in
recent weeks they've been falling more than ten percent into.
Speaker 2 (06:56):
The correction level.
Speaker 3 (06:57):
So that's why this season is going to be really
interesting to see whether or not the earnings is strong
enough to get everybody powered higher. YUKIONG Lee joins us
Bloomberg Asia Stocks reporter from Seoul. We're joined by fanchuk
One Asia CIO of HSBC Global Private Banking and Wealth
(07:20):
to take a closer look at markets, and we have
had a lot of up and down here of late.
We talked about the big drop in Meta shares today,
but we also had Texas instruments surging, Tesla surging. We
also had gains in Visa. So it's very much day
in and day out a different picture on how the
equity market might be performing. I suppose a lot of
(07:42):
that is tied up into the individual companies and what
they're doing, and also the forecast on interest rates. I
note that you believe that the big central banks are
on track to start cutting interest rates this year. You're
sticking by that.
Speaker 5 (07:56):
Yeah, we still expect Divado Macas central banks will start
with the Montreal easing cycle later this year, but of
course market reprising for slower fed rate cuts have gone
quite far. Uh and now to the points that now
market actually push out the rate cut expectations in the
(08:19):
US towards the Q four this year, and in some
forecasts project no rate cut. We think these have gone
too far. So at XSBC, we currently still expect free
US interest rate cut this year, but the risks are
clearly skewed towards a later start, so we may see
(08:43):
the fat cuts to come in the second half of
the year. It's compared with our current projection of a
June start, so we think the reprising have already taken place,
and importantly, we think there's very high probability that the
European Central Bank will kick start with monetary yeasing in June,
(09:08):
and there's also debate whether there would be another July
rate cut.
Speaker 2 (09:13):
So with.
Speaker 5 (09:15):
Interest rate sign code turning, we still thinks that is
important for investor to put in cash to work because
investment risky asset should deliver better total return compared with cash.
When central bank now reversing the monetary cycle.
Speaker 1 (09:37):
Fun I want to ask about you. Yeah, well, I
want to There's a couple of things there. One, I mean,
if the ECB begins to ease, then maybe risk assets
in Europe are a bye. But I'm also, as long
as we're talking about central bank action, curious on the
Bank of Japan's decision, which is happening Friday. What's your
sense of what's going on not only with the economy
(10:00):
in Japan and the rate of inflation, but whether or
not it's an opportune time to put more money to
work in Japanese equities.
Speaker 5 (10:07):
Yeah, we are bullish on Japanese equity, so we stay
overweight on Japanese dog We don't think the BOJ will
for the increase interest rate in this week's meeting. But
given the growing expectations for slower fat rate cuts, and
(10:27):
this also created room for the BOJ to raise interest
rate earlier than expected. So currently we expect the BILJ
will likely raise interest rate again in the third quarter
of this year and we project two more rate hike
in twenty twenty five. And given the significant weakness in
(10:50):
the end and now yen hits more than three decades low,
so the BILJ would also have the incentive to raise
policy rates before the end of this year. Uh and
this would also help to curb the extreme weakness in
the end.
Speaker 3 (11:09):
What do you like most about what Japanese companies bring
to the table at the moment.
Speaker 5 (11:14):
I think this more sustainable refras trend in Japan would
both well for corporate earnings outlook and the Japanese equity
market is substantially exposed to the tech cycle. Given the
global AI investment boom is also driving strong capital expenditure
(11:35):
spending in Japan on digitalization, automation and AI technology to
mitigate the structure had went from aging demographic so Japan
is also a very attractive play on the AI investment boom.
(11:55):
And on the other hand, the accelerating corporate government reforms
also so prompt more listed companies to introduce corporate actions
to enhance shareholders value, including increase in diffidend payout and
share buyback. So this will well for our OE enhancement
(12:15):
in the medium term. So there are actually a multiple
driver upon equity market in Japan misfund.
Speaker 1 (12:23):
So much of what happens in the APEC region is
driven by economic activity. In China. We know that and
clearly the economy is struggling. We're waiting for some type
of turn. Maybe it's happened, and we won't know that
clearly for a few months. Now, what's your sense on
China and whether or not there are opportunities to put
(12:44):
capital to work there.
Speaker 5 (12:46):
We currently have neutral allocation to China equities, but we
adop a most selective positioning given that the recovery out
of remain divergence. So the property market stress remain a
key on the economy. But looking at the Q one
China GDP report, infrastructure spending actually came in better than expected.
(13:09):
On the other hand, industrial protection growth and retail sales
actually came in weaker than consensus estimate. So this is
clearly a mixed picture in terms of the recovery outlook,
So this would imply divergent corporate earnings performance. So we
see more resilient financial performance from the surface consumption sector.
Speaker 3 (13:33):
So you have to be a stock picker, yes.
Speaker 5 (13:35):
And focus on the resilient sector.
Speaker 3 (13:39):
Yeah. I want to go back to a comment you
made at the beginning of our conversation, which I think
a lot of people would take heart from. I mean,
they would say, you're right that right now there's the
risk of fewer interest rate cuts than more, and so
as a money manager, you have to be very cognizant
of that. So that would augur for being pretty careful here.
(14:00):
You said that you think it's a great time to
take advantage put money to work in the stock market.
How do you reconcile those two thoughts.
Speaker 5 (14:08):
Yeah, we actually don't think a lower start of the
FED rate cut is a negative development because the key
reason accounting for this trend is stronger than expected US
growth and this has been reflected in earnings expectation. We
expect our market projection for US earnings growth to further improve,
(14:33):
so this will actually support further broadening of the US
equity rati in our opinion.
Speaker 3 (14:38):
All right, thanks very much, Ms Vanchukwan there Asacio of
HSBC Global Private Banking and Wealth. Us A Takeda, portfolio
manager of the Hennessey Japan Fund. We talked about a
number of issues that we would raise with you. Massa Takaida,
(15:03):
thank you very much for being with us. Let's start
off with possible intervention. Would it be a little weird
for the Ministry of Finance to intervene in these two
days when the BOJ is meeting.
Speaker 6 (15:15):
Well, it's hard to say what and when the bog
might do something, but I do think that chief Jpy
Japanese yen is here to stay because of several reasons
such as real interest rates still negative for Japanese in
I think, what's one of the few currencies, if not
the only one.
Speaker 2 (15:35):
With negative interest rates.
Speaker 6 (15:37):
And also trade balance that has structurally changed in the
last twenty years, so there's a very there's so much
less purchase nowadays.
Speaker 1 (15:48):
So tomorrow it's not just the BOJ meeting, although that's
clearly center stage. Tokyo April CPI data and I'm curious,
can you help me understand what the inflation story is
right now in Japan?
Speaker 6 (16:03):
Well, so it's been trending above two percent for I
think the last two years now, And initially in twenty
twenty two.
Speaker 2 (16:13):
I thought that Japanese inflation would be transient.
Speaker 6 (16:16):
But as time went by, I came to realize that
there's a little much structural element to it. So at
first it was the you know, the Fed raising rates
and appreciated Japanese yen and increased import prices.
Speaker 2 (16:33):
But now it seems like the botton is being.
Speaker 6 (16:35):
Passed to more structural reasons, like you know, labor shortage
arising from shrinking population. So our feeling is that Japan's
inflation will stay higher for longer.
Speaker 3 (16:49):
Yeah, and with inflation high and the currency week, they
kind of feed off each other, I suppose, and it's
not good for people. I mean you probably heard me
say Japan Airlines CEO's who go to Tori said, it's
a big problem. Who is it the most big the problem?
Who is it the biggest for?
Speaker 6 (17:08):
Well, definitely how sports are feeling the pinch and also
you know importers. But I think, you know, as Japan
is now finally coming out of decades long deflation, I
think this should start virtual cycle where you have higher
(17:31):
inflation which leads to higher interest rate nominal interest rate,
while the overall monitor policy is still being accommodated, and
that should change the consumer's mindset and that should produce
a positive feedback loops.
Speaker 2 (17:46):
So I think the trend we're generally moving in the
right direction.
Speaker 1 (17:49):
So what does it mean massive for the equity market
in Japan.
Speaker 6 (17:55):
Well, obviously, if you have negative interest rates, that's good
for equities. Although as an investor, we were also focus
We always focus on, you know, companies with durable economic modes,
with strong pricing power, and so we are macroagnostic and
benchmark agnostic.
Speaker 3 (18:17):
So some of the governess changes that people speak so
highly of for Japan, things like being able to offer
dividends and and allowing more buybacks and and making better
governance decisions, is that something that you see can be sustainable.
Speaker 2 (18:35):
Yeah, I think so.
Speaker 6 (18:35):
I mean, I think the key thing is not the
shareholder shareholder return policies. I think that it's about raising
awareness around you know, returns on capital, cost.
Speaker 2 (18:51):
Of equity and so on.
Speaker 6 (18:53):
Because they had they hadn't, there was there was no
capitalism in a Western sense, you know, ten, fifteen, twenty
years ago, and now with the government initiatives and activists
and even mister Buffett or Bookshire halfway. I think companies
are becoming more and more conscious about, you know, improving
(19:15):
capital efficiency, and I think that's sustainable thanks to all
these external pressures.
Speaker 3 (19:21):
Masa.
Speaker 1 (19:21):
We have talked on this show a great deal about
how companies are diversifying manufacturing and supply chain operations away
from China, resharing of semiconductor manufacturing, let's say here in
the United States. How is Japan benefiting from this drive
if at all?
Speaker 6 (19:39):
Oh, yeah, definitely. So first of all, it may create
extra demand coming from other parts of the world, you know,
by moving away from China, although that might create supply
glood at some distant point in time. But Japan and
Japan is definitely benefiting from being in a geopolitically neutral position.
Speaker 2 (20:06):
And then also, you know, Japan is.
Speaker 6 (20:08):
Now cheap country, so you know, it's smcs of the world.
They can hire high quolitic engineers, are very affordable cost
and also the cost of construction is everything is is
becoming quite quite attractive in terms of the cheapness.
Speaker 3 (20:25):
Mars, you're a PM for the Hennessy Japan Fund. You
mentioned a number of companies in your list, companies like
Mitsubishi Electric and Hitachi. What's your best pick at the moment?
Speaker 6 (20:36):
Why, well, right now, I think that some of the financials.
And by the way, it's not Mitsubishi Electric. We have
our Mitsubishi Corporation and MITTSBECI EFH Financial Group. But we
like insurance companies in Japan because it's polygopolistic, three players
(20:57):
controlling only not only three player s contry in ninety
percent of the market.
Speaker 3 (21:02):
Yeah, all right, well we'll put that as as a
jumping off point for our next discussion. Masticated their portfolio
manager at Hennessey Japan Fund.
Speaker 1 (21:12):
This has been the Bloomberg Daybreak Asia podcast, bringing you
the stories, making news and moving markets in the Asia Pacific.
Visit the Bloomberg Podcast channel on YouTube to get more
episodes of this and other shows from Bloomberg. Subscribe to
the podcast on Apple, Spotify, or anywhere else you listen,
and always on Bloomberg Radio, the Bloomberg Terminal, and the
(21:32):
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