April 9, 2024 • 23 mins
Featuring:
Wendy Cutler, Vice President at the Asia Society Policy Institute and former acting deputy U.S. trade representative, on Yellen's China visit.
Joshua Crabb, Head of Asia Pacific Equities at Robeco, with his market outlook.
Vlad Savov, Bloomberg Tech Editor in Hong Kong, on TSMC receiving $11.6 billion in grants from the US.
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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):
Joining us now is Wendy Kutler, vice president at the
Asia Society Policy Institute and a former acting Deputy US
Trade Representative. MS Keller. Thank you very much for joining us. So,
Jannet Yellen's trip really didn't produce any specific agreements to
lower tensions on trade and investment, but it does seem
(00:50):
the mood is a little better. Is that just smoking
mirrors or is it real?
Speaker 3 (00:55):
No?
Speaker 4 (00:55):
I think that's a correct assessment. There's clearly more engagement
China at senior levels but also at the staff levels
at the Treasury Department and other economic agencies. So that's positive.
But as your other story indicated, there are serious concerns
on the horizon, particularly the over capacity in China's manufacturing industries,
(01:19):
which are grave concern not only to the US, but
to other countries including Europe, South Africa, Brazil and others
around the world.
Speaker 1 (01:32):
Yeah, definitely, the EU is moving closer. It would seem
to imposing additional tariffs on Chinese evs. I don't know
the way you can call it dumping necessarily, that used
to be the term we applied in the old days
when it came to these types of trade tensions. But
I'm curious as to whether or not you think Beijing
is marking a little time here until the dust settles
(01:54):
with respect to the presidential election. What do you think?
Speaker 4 (01:58):
Well, I think that is a concern because Secretary Yellen
announced kind of a new intensive engagements on balanced economy
looking at the supply and demand factors, and given past
experience with China, this could serve as an excuse by
China just to delay, delay, delay, keep talking, don't take
(02:20):
any actions. So I hope when she returns and reports
on progress made and what she's heard in Beijing to
the President that serious consideration will be taken in terms
of how the US should respond to potential export surges
(02:40):
by China in products like electric vehicles and batteries and
clean energy.
Speaker 2 (02:45):
Well, the EV sector is really an interesting playing field
to look at because China has actually innovated there and
it has worked very hard to get a lead in
the industry. But yes, it is selling vehicles very cheaply
in particularly in Europe, and it is helped by subsidies
in government aid. There's not really much doubt. I suppose
(03:07):
in some ways both sides are right and both sides
are wrong, and it depends on how you actually see
globalization as to how you figure out who's right here.
Speaker 4 (03:17):
Well, I look at it more like fair trade and
unfair trade. And unfair trade to me is based on subsidies,
financial assistance, low cost loans, incentives for battery procurement from
local companies. All of this has been used by China
to propel their electric vehicle sector. So no doubt they're
(03:40):
competitive now, but their competitiveness is based on a lot
of government money spent over a series of years to
propel them on the global stage.
Speaker 1 (03:51):
It's interesting because after Yellen made her remarks later in
the day, we heard from the Vice Finance Minister Leol Minh.
He was saying that China is going to rely on
market forces to remove any excess in terms of capacity. Now,
whether that suggests that Beijing is willing to stomach stomach
what could be bankruptcy and some kind of consolidation as
(04:15):
a remedy to this situation. Do you think that's likely?
Or is Beijing going to dig in a little bit,
given everything that it's dealing with in terms of economic
sluggishness right now, and try to prop up companies for
as long as it can.
Speaker 4 (04:29):
Well, they have an important decision to make. I think
they heard Secretary Yellen's message very clearly, and so now
they need to decide whether they continue and just export
NonStop or take a pause and implement some policies not
only to restrain domestic production but also to promote domestic demand.
(04:51):
And the domestic demand part of the equation is just
an area and not really addressed by their economic policies.
Speaker 2 (05:00):
Ms Keller. We on purpose ran those two stories TSMC
getting eleven point six billion dollars in grants and loans
from the United States right next to the ev story.
You know, if you're on the Chinese side and you
see that, I mean, isn't that industrial policy, isn't that subsidy?
Speaker 4 (05:20):
Well it is, but our policies are in response to
China's policies, and let's keep in mind, five to ten
to twenty billion dollars is nowhere in the ballpark of
the hundreds of billions of dollars that China has put
into this industry to promote it and to make it
a global competitor.
Speaker 1 (05:40):
I want to change gears because Prime Minister of fum
Yo Kishida is going to be in the US first
date to visit this week, and obviously one topic is
going to be Nippon Steele's attempt to buy US Deal.
Kishida will be addressing a joint session of Congress on Thursday,
and the following day US Deal shareholders are set to
vote on this fourteen billion dollar takeover. Do you think
(06:02):
it's right for the US to object to this based
on grounds of Well, I don't know whether national security
even enters into it. Certainly it feels a little protectionistic,
does it not.
Speaker 4 (06:16):
Well, first, I don't think this issue is going to
come up during the summit. I think that given all
of the issues that the US and Japan are cooperating on,
the Nipon steel issue is really minor in the larger landscape.
Speaker 2 (06:35):
Well, I want to ask you a question. This kind
of laced with you know, all kinds of hyperbole. I
suppose the US China tussle at the moment is like
playing marbles compared to what the AI tussle might be
is sort of compared to like Russian roulette.
Speaker 1 (06:54):
Is that true?
Speaker 2 (06:55):
I mean, are we going into a very very difficult environment.
Speaker 4 (06:59):
Look, environment has been difficult for a long time, and
we shouldn't fool ourselves that just with these engagement and
trips by cabinet officers and senior leadership between the two
countries that the tensions are going to go away. All
that said, we need to remain engaged with China, and
so I think Secretary Yellen's trip was very important, not
(07:22):
only to send important messages and convey concerns to China,
but also define areas where we can cooperate. And with
respect to artificial intelligence, I believe that there are aspects
of AI where not only we should cooperate, but we
need to cooperate to mitigate the potential risks of AI.
Speaker 1 (07:44):
MIS and Mss Cutler very quickly in terms of the TikTok,
whether or not we get a bill here through Congress
that would force di vestiture away from the Chinese parent
bike dance. What's your view on that.
Speaker 4 (07:57):
My view is that this is a very complicated issue,
but I think the US is on solid ground to
want to restrict the activities of TikTok, you know, if
not just for reciprocal reasons. If you look at the
ability of our comparable companies to operate in China, there's
(08:17):
no opportunity for them to operate. So I think it's
very hypocritical for China to complain about what we're doing
on TikTok when they don't let our big tech companies
operate in their countries.
Speaker 2 (08:28):
Many thanks, Wendy Cutler, or vice president at the Asia
Society Policy Institute. With us, we'll please to say that
Joshua Crab, head of Asia Pacific Equities at Robiko, is
with us here, live in our studios, so Joshua, pretty
(08:51):
interesting time here. We do have the US inflation data
this week that might color trading a little bit and
might also color whether we get two or three cuts
this year, and some are even saying, with US economy
this strong, we may not get any rate cuts. First,
before we get to some individual picks and regions and
sectors and such, how do you feel generally about risk assets.
Speaker 5 (09:11):
At the moment.
Speaker 3 (09:14):
Well, I think it depends on which risk assets we're
talking about. I think if we, you know, look at
the US market, for example, it's a very narrow market
led by small number of stocks we all know, very
very high valuations and very very high expectations.
Speaker 5 (09:27):
That's at one end of the spectrum.
Speaker 3 (09:29):
Bring it back to Asia, I think you have you know,
a number of markets here that have quite good long
term or medium term sort of growth prospects in Vietnam,
in Indonesia, in the Philippines, et cetera. And then you
have places like China which maybe don't have as strong
a long term growth but have very very cheap valuations.
So I think risk assets are actually quite dispersed at
(09:50):
the moment.
Speaker 1 (09:51):
When you look at China. One of the things that
we're going to be paying very close attention to this
week is the PPI CPI data midweek is in a
period of stagnant deflation to the degree that we should
really be worried about the economy and putting more money
to work in markets, whether it's the real estate market
(10:12):
or the equity market.
Speaker 3 (10:14):
Yeah, So, I mean, I think I think that sort
of it depends with you on look backward or forward.
I think looking backwards, that's absolutely the case. Clearly we've
seen we've seen that environment. But it's always a question
of where we're you know, looking forward, what that sort
of changes. So we have very very low expectations on growth,
we have very low expectations on things like inflation, et
cetera at this point in time. But if we look forward,
I think, you know, and this is interesting to us.
(10:36):
It's like, you know, for example, you know, companies had
been missing quite a lot of being missing earnings, but
the expectations can get so low that even in a
weak environment, they start to beat. And you already have
sort of quite low valuations that sort of sit with that.
Speaker 5 (10:48):
So I guess from my perspective.
Speaker 3 (10:50):
The question is here is okay, so maybe maybe we
don't have a great growth environment. A lot of those
negatives are now in the price, So how do we
make money in that market? And you know, I think
this is where it's interesting mireseing some some of the
is now starting to beat. Now they're not beating because
things are wonderful. They're beating because the expectations have got
that low. But also the valuations are low. You're seeing
increase things like buybacks, diffidends, privatizations, and that to us
(11:12):
is sort of when you start to see a bottomy
out of a market. Now for US, that really is
stock specific for now, so you really need to dive
into the stock.
Speaker 2 (11:19):
Level, Joshua, despite what you said at the top, but
we have actually seen quite a broadening out in the
US market, and you know, we only have to debate
that now. But if you look at Asia markets like
Korea or Japan, are we seeing the same sort of
activity with a broadening or has it really just solidly
been that way in Asia.
Speaker 3 (11:39):
It's a little bit different depending on the market. I
think Japan and Career are interesting ones to sort of
use as a showcase because I think they've been a
bit different. There's a different driver of that, and in
Japan that's been going on for some time around you know, restructuring, reorganization,
more shareholder friendly policies, and we've started to see that eken.
Speaker 5 (11:56):
A little bit in Korea as well.
Speaker 3 (11:58):
So if we bring that back to Japan, I think
you have had a number of stocks which are sort
of caught up in that sort of AI sort of
aura that have done very, very well, you've had a
number of the very large cap companies which is often
correlated with that, that have done very well as well. But
outside of that, over a sort of longer period, we've seen,
you know, some of the things like the financials do well.
We've seen the industrials, and I think that's been the
standout sector because they're the ones where we are seeing
(12:19):
those unwine year cross shareholdings, that rationalization of business, and
the increase in things like buybacks.
Speaker 1 (12:24):
So I hear what you're saying when you're talking about
having to really drill down into specific names. But if
we can talk about industry groups. You just mentioned the
financials there maybe some of the industrial names. What are
the areas that you want to avoid in China industries specifically,
sorry in.
Speaker 5 (12:41):
China or Japan in China, Okay.
Speaker 3 (12:44):
So the way I would sort of from an industry perspective,
I think that you know, things like the export market,
for example, has been and think things like export and
real estate has been a big driver of the economy
for decades. Right, And if we sort of look forward
about what needs to happen in China, as we need
to see more focus on the consumer, right, we need
(13:04):
to see more focus on sort of what's happening internally.
We need to see more focus on moving to higher
value add in the manufacturing sector.
Speaker 5 (13:10):
So that's that for US is where you need to look.
Speaker 3 (13:13):
Now you have to be careful because you know the
rest of the market knows this as well. So some
of these stocks are trading at two higher premiums relative.
But we think that is the area where what needs
to change in China for it to go back onto
a better growth trajectory than what we've seen.
Speaker 2 (13:28):
Well, it needs to get you know, the discount sort
of set aside by investors. For one thing, you have
a discount on South Korea, which you've had long standing
in place, and China now as well. For instance, this year,
you know some of the market we talked about the
Nike and also the Taiaks in Taiwan up eight and
(13:48):
a half to nine to ten percent year to date,
similar to what we've seen from the S and P
five hundred. The cost be actually lower, the cost be
down one point seven percent US dollar terms. So is
Korea one that can can be different for the rest
of this year?
Speaker 5 (14:03):
I think it can.
Speaker 3 (14:04):
And this is where things like the election are really
going to matter. You know, you talked about, you know,
the career discount, and there are a number of reasons
for that, but one of the ones that I think
is most relevant and can have the biggest impact in
the short term is shareholder policies, right, And it's a
bit like Japan. You know, we haven't seen a lot
of dividends, you don't see a lot of buyerbacks, you
don't see a lot of these type of activities. But
(14:25):
a bit like Japan, there is a bit of a
mindset change happening. We've talked about this for decad for
the best part of a decade, but I think there
are a number of you know, impacts happening at the
same time here. Right, you've got the pension schemes locally
not putting money and needing to take money out. Now
you've got a stock exchange which is quite focused on
bringing up the valuations of these companies. And then I
think you've also got a you know, sort of a
(14:45):
national element. Like the Japanese have done this, we can
do this as well. So I think there are a
number of these influencers coming at the same time. So
if the election stays, if the current party stays in power.
This continues to be a push. I think then you
find the management teams that actually are really going to
affect change. And yes, I think there can be some
great opportunities to make money, but probably more alpha than
I would say look at the individual market, because some
(15:06):
companies won't.
Speaker 2 (15:07):
All right, Yeah, some good tips there, Joshua, thanks very
much for coming into our studios with us live here,
Joshua crabhead of Asia Pacific Equities at Robiko, lad Savov,
Bloomberg Tech editor with us in our studios here in
(15:27):
Hong Kong. It's nice to have you back in here.
So this is a big deal. You got three plants
by TSMC, and we just mentioned that whopping sixty five
billion dollars in total investments, the US helping out with
some subsidies I suppose. And this is also a very
high tech plant that we're talking about here, this third
fabrication site, because they will have next generation two nanometer
(15:50):
process technology. When is that likely to come to fruition.
Speaker 6 (15:55):
Well, it's an interesting question, and one way to look
at it is also to the specific challenges that TSMC
has in building its chip making facilities in the US.
It isn't Taiwan, which is where TSMC has built up
its lead as the world's leading ship maker. It is
in Japan where TSMC just inaugurated its new plant ahead
of time. Because Japanese construction is largely uncontested around the world.
(16:20):
The Japanese very proud of how quickly they build their
fab TSMC, for its part, its first facility has been delayed,
has been subject to delays. Part of it is TSMC
has said this, it's the lack of qualified labor. It's
also running to issues with labor unions. In the United States.
It isn't as smooth sailing as it has been in
Taiwan and Japan, So some of this is I mean,
(16:43):
it's a very optimistic, very positive outlook at the moment,
with both the nation and the company putting their best
foot forward, putting a lot of money into it. But
it is going to depend on the smooth operation of
construction and development as we go along.
Speaker 1 (16:57):
Yeah, definitely, And I think it's a big concerned that
there is a delay here in a presidential election year
where the administration would probably like to see a little
bit more in the way of progress. Is there anything
that you think the administration can do to improve the
timeline here or is this outside the control of the
White House.
Speaker 6 (17:17):
Well, I think the measures of the White House has
taken so far significant more than significance. I mean, when
you compare it to the rest of the world. I
mentioned Japan, they're putting in much smaller sums of money.
When you look at the US, they're kind of uncontested
in the amount of money that they can in both
in grants and in loans to these companies. It's six
(17:37):
point seven billion dollars in grants to TSMC. That's part
of what's enticed TSMC to step up into its investments.
Until yesterday, officially TSMC had only planned two plants. Now
that they made the announcements, it's free plans. It's more
than sixty five billion dollars. Previously it was more than
forty billion dollars. So what the US is doing is
it's putting in the investment directly, it's leveraging it to
(17:59):
get your investment from the likes of TSMC and Edwin,
who you cited earlier. He mentioned Samson is in the running.
Samson also stepped off his investment because the way that
the US has structured its subsidies and support. Is the
more you put in, the more you will get out
of us. And moreover, it's worth saying they have various
benchmarks that they're going to have as TSMC goes through
(18:21):
with the development. They're not just going to unload the
money in TSMC's theoretical bank account and leave them to it,
which I think shows also a bit of foresight and
a bit of some of the lessons learned maybe from
the experience with Fox Cone in Wisconsin previously.
Speaker 2 (18:35):
And Heine's also looking to get some funding. I'm curious, though,
what you think this little bit of a black eye
that the US doesn't have the same quality tech workers.
It may just be the numbers because the US has
so many demands on its well educated engineers and tech workers.
But is this something that will have to change for
(18:56):
this third fabrication site to actually, you know, make any progress.
Speaker 1 (19:03):
Well, I would imagine what are.
Speaker 2 (19:05):
We seeing on the US side to you know, to
increase the number of these types of workers to be available.
Speaker 6 (19:10):
I would imagine TSMC would very much welcome that. Let's
put it in those terms. But I should also mention
there is one company I don't want to mention the
company necessarily, but they do their production in China and
then they do specific production for military purposes for the
US in Finland. And what it told me is that
the cost of labor is two to three times. It
makes the product two to three times more expensive to
(19:31):
produce the same product that they do in China in Finland.
It's just simply the case that for the qualification and
the cost, Asia is uncontested as far as labor force goes.
So the US is dealing with an issue that most
of Europe is dealing with. Likewise, so I am sure that.
I mean, there are politicians, there are members of the
administration who are pushing to improve things like immigration measures
(19:55):
to encourage more people to come over. But likewise, this
is an international competition. And Japan, again I keep mentioning it,
it has its own initiatives to bring its own semiconductor
engineers back from places like the US so that they
can support Japan's own chip making endeavors.
Speaker 1 (20:11):
It's interesting that you make that point because if you
look at the history of the semiconductor industry, I mean,
these products were developed in the United States. Hong Kong
at one point was a major place of assembly Japan
as well, and then it migrated obviously to Taiwan. And
now we're talking about China trying to create greater runway
(20:33):
for advanced chips. But in terms of the companies that
are going to benefit downstream, and I'm thinking about ASML
in particular. This company undoubtedly, no matter where you slice it,
just by virtue of the fact that they own so
much of the high end manufacturing technology, they will also
be a big beneficiary in this build up, will they not?
Speaker 3 (20:53):
Oh?
Speaker 6 (20:54):
Absolutely? And the fun part for ASMOS don't have to
do anything. The entire thing is just falling into their
lab because likely, as you say, the extreme ultra violet
machines which are the key to doing the most advanced
of making today until somebody invents an alternative, and that's
nowhere on the horizon. ASMO is the only provider of those.
So the more that the likes of Japan, the US,
(21:15):
China too, but ASMO can't explot those to China. The
more that nations INDIAU throw into that conversation as well.
The more that nations, the more that companies like TSMC
and Samsung or is in hot competition with each other,
the more that they invest. The more that they put in,
the more the likes of ASML benefit. And again I
keep coming back to Japan, but it's worth mentioning there
are so many companies that are rising triple. I mean,
(21:37):
we covered one just recently, Towa Corp. In Japan, which
quintuple the share price simply because it provides compound compound
moding that Heiniz and Samsung use in their advanced AI memory.
Speaker 2 (21:50):
Somehow, in Japan, they're they're finding workers that you know,
don't demand too much. So it is some of this
nearly twelve billion dollars of funding in these round of
loans and grants to TSMC, will some of that actually
be there to support hiring, to pay better salaries to
people in order to attract them.
Speaker 6 (22:10):
That's a good question that we should ask TSMC, I
would say, and let's not say that anybody's asking too much.
It may very well be, I mean, given the different
costs of living in various places, it may be very
reasonable prices that people are looking for. And again we're
not just looking for unqualified labor. A lot of this
is advanced engineering and advanced skill. And one of the secrets,
(22:31):
so to speak of TSMC's leadership is the fact that
it has people with decades and decades of experience of
running these chip making factories.
Speaker 1 (22:38):
No doubt about that. And I think Intel, which will
obviously also participate in these grants from the US Chips Act,
has said that it will, as a part of its investment,
increase training so that they are looking at kind of
carving out their own workforce and maybe creating a fast track.
I don't know whether it's clearly not a college degree,
(22:59):
but it's did the type of technical degree that would
be required for anyone who's working in one of these fabs.
Speaker 2 (23:06):
Yeah, you know, Doug, we got an extra chair here
in our studios for Vlad, and I think he has
designs on it. Do you think Lad you're gonna hang
out with us for a while?
Speaker 6 (23:16):
Always ready for him? Brian, Yeah, Yeah.
Speaker 2 (23:19):
He talks to me when we're getting coffee, you know, like, hey,
let's do something on the radio.
Speaker 1 (23:23):
There you go, I said.
Speaker 2 (23:24):
This is the Bloomberg Daybreak Asia podcast, bringing to 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
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and always on Bloomberg Radio, the Bloomberg Terminal, and the
(23:46):
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):
Joining us now is Wendy Kutler, vice president at the
Asia Society Policy Institute and a former acting Deputy US
Trade Representative. MS Keller. Thank you very much for joining us. So,
Jannet Yellen's trip really didn't produce any specific agreements to
lower tensions on trade and investment, but it does seem
(00:50):
the mood is a little better. Is that just smoking
mirrors or is it real?
Speaker 3 (00:55):
No?
Speaker 4 (00:55):
I think that's a correct assessment. There's clearly more engagement
China at senior levels but also at the staff levels
at the Treasury Department and other economic agencies. So that's positive.
But as your other story indicated, there are serious concerns
on the horizon, particularly the over capacity in China's manufacturing industries,
(01:19):
which are grave concern not only to the US, but
to other countries including Europe, South Africa, Brazil and others
around the world.
Speaker 1 (01:32):
Yeah, definitely, the EU is moving closer. It would seem
to imposing additional tariffs on Chinese evs. I don't know
the way you can call it dumping necessarily, that used
to be the term we applied in the old days
when it came to these types of trade tensions. But
I'm curious as to whether or not you think Beijing
is marking a little time here until the dust settles
(01:54):
with respect to the presidential election. What do you think?
Speaker 4 (01:58):
Well, I think that is a concern because Secretary Yellen
announced kind of a new intensive engagements on balanced economy
looking at the supply and demand factors, and given past
experience with China, this could serve as an excuse by
China just to delay, delay, delay, keep talking, don't take
(02:20):
any actions. So I hope when she returns and reports
on progress made and what she's heard in Beijing to
the President that serious consideration will be taken in terms
of how the US should respond to potential export surges
(02:40):
by China in products like electric vehicles and batteries and
clean energy.
Speaker 2 (02:45):
Well, the EV sector is really an interesting playing field
to look at because China has actually innovated there and
it has worked very hard to get a lead in
the industry. But yes, it is selling vehicles very cheaply
in particularly in Europe, and it is helped by subsidies
in government aid. There's not really much doubt. I suppose
(03:07):
in some ways both sides are right and both sides
are wrong, and it depends on how you actually see
globalization as to how you figure out who's right here.
Speaker 4 (03:17):
Well, I look at it more like fair trade and
unfair trade. And unfair trade to me is based on subsidies,
financial assistance, low cost loans, incentives for battery procurement from
local companies. All of this has been used by China
to propel their electric vehicle sector. So no doubt they're
(03:40):
competitive now, but their competitiveness is based on a lot
of government money spent over a series of years to
propel them on the global stage.
Speaker 1 (03:51):
It's interesting because after Yellen made her remarks later in
the day, we heard from the Vice Finance Minister Leol Minh.
He was saying that China is going to rely on
market forces to remove any excess in terms of capacity. Now,
whether that suggests that Beijing is willing to stomach stomach
what could be bankruptcy and some kind of consolidation as
(04:15):
a remedy to this situation. Do you think that's likely?
Or is Beijing going to dig in a little bit,
given everything that it's dealing with in terms of economic
sluggishness right now, and try to prop up companies for
as long as it can.
Speaker 4 (04:29):
Well, they have an important decision to make. I think
they heard Secretary Yellen's message very clearly, and so now
they need to decide whether they continue and just export
NonStop or take a pause and implement some policies not
only to restrain domestic production but also to promote domestic demand.
(04:51):
And the domestic demand part of the equation is just
an area and not really addressed by their economic policies.
Speaker 2 (05:00):
Ms Keller. We on purpose ran those two stories TSMC
getting eleven point six billion dollars in grants and loans
from the United States right next to the ev story.
You know, if you're on the Chinese side and you
see that, I mean, isn't that industrial policy, isn't that subsidy?
Speaker 4 (05:20):
Well it is, but our policies are in response to
China's policies, and let's keep in mind, five to ten
to twenty billion dollars is nowhere in the ballpark of
the hundreds of billions of dollars that China has put
into this industry to promote it and to make it
a global competitor.
Speaker 1 (05:40):
I want to change gears because Prime Minister of fum
Yo Kishida is going to be in the US first
date to visit this week, and obviously one topic is
going to be Nippon Steele's attempt to buy US Deal.
Kishida will be addressing a joint session of Congress on Thursday,
and the following day US Deal shareholders are set to
vote on this fourteen billion dollar takeover. Do you think
(06:02):
it's right for the US to object to this based
on grounds of Well, I don't know whether national security
even enters into it. Certainly it feels a little protectionistic,
does it not.
Speaker 4 (06:16):
Well, first, I don't think this issue is going to
come up during the summit. I think that given all
of the issues that the US and Japan are cooperating on,
the Nipon steel issue is really minor in the larger landscape.
Speaker 2 (06:35):
Well, I want to ask you a question. This kind
of laced with you know, all kinds of hyperbole. I
suppose the US China tussle at the moment is like
playing marbles compared to what the AI tussle might be
is sort of compared to like Russian roulette.
Speaker 1 (06:54):
Is that true?
Speaker 2 (06:55):
I mean, are we going into a very very difficult environment.
Speaker 4 (06:59):
Look, environment has been difficult for a long time, and
we shouldn't fool ourselves that just with these engagement and
trips by cabinet officers and senior leadership between the two
countries that the tensions are going to go away. All
that said, we need to remain engaged with China, and
so I think Secretary Yellen's trip was very important, not
(07:22):
only to send important messages and convey concerns to China,
but also define areas where we can cooperate. And with
respect to artificial intelligence, I believe that there are aspects
of AI where not only we should cooperate, but we
need to cooperate to mitigate the potential risks of AI.
Speaker 1 (07:44):
MIS and Mss Cutler very quickly in terms of the TikTok,
whether or not we get a bill here through Congress
that would force di vestiture away from the Chinese parent
bike dance. What's your view on that.
Speaker 4 (07:57):
My view is that this is a very complicated issue,
but I think the US is on solid ground to
want to restrict the activities of TikTok, you know, if
not just for reciprocal reasons. If you look at the
ability of our comparable companies to operate in China, there's
(08:17):
no opportunity for them to operate. So I think it's
very hypocritical for China to complain about what we're doing
on TikTok when they don't let our big tech companies
operate in their countries.
Speaker 2 (08:28):
Many thanks, Wendy Cutler, or vice president at the Asia
Society Policy Institute. With us, we'll please to say that
Joshua Crab, head of Asia Pacific Equities at Robiko, is
with us here, live in our studios, so Joshua, pretty
(08:51):
interesting time here. We do have the US inflation data
this week that might color trading a little bit and
might also color whether we get two or three cuts
this year, and some are even saying, with US economy
this strong, we may not get any rate cuts. First,
before we get to some individual picks and regions and
sectors and such, how do you feel generally about risk assets.
Speaker 5 (09:11):
At the moment.
Speaker 3 (09:14):
Well, I think it depends on which risk assets we're
talking about. I think if we, you know, look at
the US market, for example, it's a very narrow market
led by small number of stocks we all know, very
very high valuations and very very high expectations.
Speaker 5 (09:27):
That's at one end of the spectrum.
Speaker 3 (09:29):
Bring it back to Asia, I think you have you know,
a number of markets here that have quite good long
term or medium term sort of growth prospects in Vietnam,
in Indonesia, in the Philippines, et cetera. And then you
have places like China which maybe don't have as strong
a long term growth but have very very cheap valuations.
So I think risk assets are actually quite dispersed at
(09:50):
the moment.
Speaker 1 (09:51):
When you look at China. One of the things that
we're going to be paying very close attention to this
week is the PPI CPI data midweek is in a
period of stagnant deflation to the degree that we should
really be worried about the economy and putting more money
to work in markets, whether it's the real estate market
(10:12):
or the equity market.
Speaker 3 (10:14):
Yeah, So, I mean, I think I think that sort
of it depends with you on look backward or forward.
I think looking backwards, that's absolutely the case. Clearly we've
seen we've seen that environment. But it's always a question
of where we're you know, looking forward, what that sort
of changes. So we have very very low expectations on growth,
we have very low expectations on things like inflation, et
cetera at this point in time. But if we look forward,
I think, you know, and this is interesting to us.
(10:36):
It's like, you know, for example, you know, companies had
been missing quite a lot of being missing earnings, but
the expectations can get so low that even in a
weak environment, they start to beat. And you already have
sort of quite low valuations that sort of sit with that.
Speaker 5 (10:48):
So I guess from my perspective.
Speaker 3 (10:50):
The question is here is okay, so maybe maybe we
don't have a great growth environment. A lot of those
negatives are now in the price, So how do we
make money in that market? And you know, I think
this is where it's interesting mireseing some some of the
is now starting to beat. Now they're not beating because
things are wonderful. They're beating because the expectations have got
that low. But also the valuations are low. You're seeing
increase things like buybacks, diffidends, privatizations, and that to us
(11:12):
is sort of when you start to see a bottomy
out of a market. Now for US, that really is
stock specific for now, so you really need to dive
into the stock.
Speaker 2 (11:19):
Level, Joshua, despite what you said at the top, but
we have actually seen quite a broadening out in the
US market, and you know, we only have to debate
that now. But if you look at Asia markets like
Korea or Japan, are we seeing the same sort of
activity with a broadening or has it really just solidly
been that way in Asia.
Speaker 3 (11:39):
It's a little bit different depending on the market. I
think Japan and Career are interesting ones to sort of
use as a showcase because I think they've been a
bit different. There's a different driver of that, and in
Japan that's been going on for some time around you know, restructuring, reorganization,
more shareholder friendly policies, and we've started to see that eken.
Speaker 5 (11:56):
A little bit in Korea as well.
Speaker 3 (11:58):
So if we bring that back to Japan, I think
you have had a number of stocks which are sort
of caught up in that sort of AI sort of
aura that have done very, very well, you've had a
number of the very large cap companies which is often
correlated with that, that have done very well as well. But
outside of that, over a sort of longer period, we've seen,
you know, some of the things like the financials do well.
We've seen the industrials, and I think that's been the
standout sector because they're the ones where we are seeing
(12:19):
those unwine year cross shareholdings, that rationalization of business, and
the increase in things like buybacks.
Speaker 1 (12:24):
So I hear what you're saying when you're talking about
having to really drill down into specific names. But if
we can talk about industry groups. You just mentioned the
financials there maybe some of the industrial names. What are
the areas that you want to avoid in China industries specifically,
sorry in.
Speaker 5 (12:41):
China or Japan in China, Okay.
Speaker 3 (12:44):
So the way I would sort of from an industry perspective,
I think that you know, things like the export market,
for example, has been and think things like export and
real estate has been a big driver of the economy
for decades. Right, And if we sort of look forward
about what needs to happen in China, as we need
to see more focus on the consumer, right, we need
(13:04):
to see more focus on sort of what's happening internally.
We need to see more focus on moving to higher
value add in the manufacturing sector.
Speaker 5 (13:10):
So that's that for US is where you need to look.
Speaker 3 (13:13):
Now you have to be careful because you know the
rest of the market knows this as well. So some
of these stocks are trading at two higher premiums relative.
But we think that is the area where what needs
to change in China for it to go back onto
a better growth trajectory than what we've seen.
Speaker 2 (13:28):
Well, it needs to get you know, the discount sort
of set aside by investors. For one thing, you have
a discount on South Korea, which you've had long standing
in place, and China now as well. For instance, this year,
you know some of the market we talked about the
Nike and also the Taiaks in Taiwan up eight and
(13:48):
a half to nine to ten percent year to date,
similar to what we've seen from the S and P
five hundred. The cost be actually lower, the cost be
down one point seven percent US dollar terms. So is
Korea one that can can be different for the rest
of this year?
Speaker 5 (14:03):
I think it can.
Speaker 3 (14:04):
And this is where things like the election are really
going to matter. You know, you talked about, you know,
the career discount, and there are a number of reasons
for that, but one of the ones that I think
is most relevant and can have the biggest impact in
the short term is shareholder policies, right, And it's a
bit like Japan. You know, we haven't seen a lot
of dividends, you don't see a lot of buyerbacks, you
don't see a lot of these type of activities. But
(14:25):
a bit like Japan, there is a bit of a
mindset change happening. We've talked about this for decad for
the best part of a decade, but I think there
are a number of you know, impacts happening at the
same time here. Right, you've got the pension schemes locally
not putting money and needing to take money out. Now
you've got a stock exchange which is quite focused on
bringing up the valuations of these companies. And then I
think you've also got a you know, sort of a
(14:45):
national element. Like the Japanese have done this, we can
do this as well. So I think there are a
number of these influencers coming at the same time. So
if the election stays, if the current party stays in power.
This continues to be a push. I think then you
find the management teams that actually are really going to
affect change. And yes, I think there can be some
great opportunities to make money, but probably more alpha than
I would say look at the individual market, because some
(15:06):
companies won't.
Speaker 2 (15:07):
All right, Yeah, some good tips there, Joshua, thanks very
much for coming into our studios with us live here,
Joshua crabhead of Asia Pacific Equities at Robiko, lad Savov,
Bloomberg Tech editor with us in our studios here in
(15:27):
Hong Kong. It's nice to have you back in here.
So this is a big deal. You got three plants
by TSMC, and we just mentioned that whopping sixty five
billion dollars in total investments, the US helping out with
some subsidies I suppose. And this is also a very
high tech plant that we're talking about here, this third
fabrication site, because they will have next generation two nanometer
(15:50):
process technology. When is that likely to come to fruition.
Speaker 6 (15:55):
Well, it's an interesting question, and one way to look
at it is also to the specific challenges that TSMC
has in building its chip making facilities in the US.
It isn't Taiwan, which is where TSMC has built up
its lead as the world's leading ship maker. It is
in Japan where TSMC just inaugurated its new plant ahead
of time. Because Japanese construction is largely uncontested around the world.
(16:20):
The Japanese very proud of how quickly they build their
fab TSMC, for its part, its first facility has been delayed,
has been subject to delays. Part of it is TSMC
has said this, it's the lack of qualified labor. It's
also running to issues with labor unions. In the United States.
It isn't as smooth sailing as it has been in
Taiwan and Japan, So some of this is I mean,
(16:43):
it's a very optimistic, very positive outlook at the moment,
with both the nation and the company putting their best
foot forward, putting a lot of money into it. But
it is going to depend on the smooth operation of
construction and development as we go along.
Speaker 1 (16:57):
Yeah, definitely, And I think it's a big concerned that
there is a delay here in a presidential election year
where the administration would probably like to see a little
bit more in the way of progress. Is there anything
that you think the administration can do to improve the
timeline here or is this outside the control of the
White House.
Speaker 6 (17:17):
Well, I think the measures of the White House has
taken so far significant more than significance. I mean, when
you compare it to the rest of the world. I
mentioned Japan, they're putting in much smaller sums of money.
When you look at the US, they're kind of uncontested
in the amount of money that they can in both
in grants and in loans to these companies. It's six
(17:37):
point seven billion dollars in grants to TSMC. That's part
of what's enticed TSMC to step up into its investments.
Until yesterday, officially TSMC had only planned two plants. Now
that they made the announcements, it's free plans. It's more
than sixty five billion dollars. Previously it was more than
forty billion dollars. So what the US is doing is
it's putting in the investment directly, it's leveraging it to
(17:59):
get your investment from the likes of TSMC and Edwin,
who you cited earlier. He mentioned Samson is in the running.
Samson also stepped off his investment because the way that
the US has structured its subsidies and support. Is the
more you put in, the more you will get out
of us. And moreover, it's worth saying they have various
benchmarks that they're going to have as TSMC goes through
(18:21):
with the development. They're not just going to unload the
money in TSMC's theoretical bank account and leave them to it,
which I think shows also a bit of foresight and
a bit of some of the lessons learned maybe from
the experience with Fox Cone in Wisconsin previously.
Speaker 2 (18:35):
And Heine's also looking to get some funding. I'm curious, though,
what you think this little bit of a black eye
that the US doesn't have the same quality tech workers.
It may just be the numbers because the US has
so many demands on its well educated engineers and tech workers.
But is this something that will have to change for
(18:56):
this third fabrication site to actually, you know, make any progress.
Speaker 1 (19:03):
Well, I would imagine what are.
Speaker 2 (19:05):
We seeing on the US side to you know, to
increase the number of these types of workers to be available.
Speaker 6 (19:10):
I would imagine TSMC would very much welcome that. Let's
put it in those terms. But I should also mention
there is one company I don't want to mention the
company necessarily, but they do their production in China and
then they do specific production for military purposes for the
US in Finland. And what it told me is that
the cost of labor is two to three times. It
makes the product two to three times more expensive to
(19:31):
produce the same product that they do in China in Finland.
It's just simply the case that for the qualification and
the cost, Asia is uncontested as far as labor force goes.
So the US is dealing with an issue that most
of Europe is dealing with. Likewise, so I am sure that.
I mean, there are politicians, there are members of the
administration who are pushing to improve things like immigration measures
(19:55):
to encourage more people to come over. But likewise, this
is an international competition. And Japan, again I keep mentioning it,
it has its own initiatives to bring its own semiconductor
engineers back from places like the US so that they
can support Japan's own chip making endeavors.
Speaker 1 (20:11):
It's interesting that you make that point because if you
look at the history of the semiconductor industry, I mean,
these products were developed in the United States. Hong Kong
at one point was a major place of assembly Japan
as well, and then it migrated obviously to Taiwan. And
now we're talking about China trying to create greater runway
(20:33):
for advanced chips. But in terms of the companies that
are going to benefit downstream, and I'm thinking about ASML
in particular. This company undoubtedly, no matter where you slice it,
just by virtue of the fact that they own so
much of the high end manufacturing technology, they will also
be a big beneficiary in this build up, will they not?
Speaker 3 (20:53):
Oh?
Speaker 6 (20:54):
Absolutely? And the fun part for ASMOS don't have to
do anything. The entire thing is just falling into their
lab because likely, as you say, the extreme ultra violet
machines which are the key to doing the most advanced
of making today until somebody invents an alternative, and that's
nowhere on the horizon. ASMO is the only provider of those.
So the more that the likes of Japan, the US,
(21:15):
China too, but ASMO can't explot those to China. The
more that nations INDIAU throw into that conversation as well.
The more that nations, the more that companies like TSMC
and Samsung or is in hot competition with each other,
the more that they invest. The more that they put in,
the more the likes of ASML benefit. And again I
keep coming back to Japan, but it's worth mentioning there
are so many companies that are rising triple. I mean,
(21:37):
we covered one just recently, Towa Corp. In Japan, which
quintuple the share price simply because it provides compound compound
moding that Heiniz and Samsung use in their advanced AI memory.
Speaker 2 (21:50):
Somehow, in Japan, they're they're finding workers that you know,
don't demand too much. So it is some of this
nearly twelve billion dollars of funding in these round of
loans and grants to TSMC, will some of that actually
be there to support hiring, to pay better salaries to
people in order to attract them.
Speaker 6 (22:10):
That's a good question that we should ask TSMC, I
would say, and let's not say that anybody's asking too much.
It may very well be, I mean, given the different
costs of living in various places, it may be very
reasonable prices that people are looking for. And again we're
not just looking for unqualified labor. A lot of this
is advanced engineering and advanced skill. And one of the secrets,
(22:31):
so to speak of TSMC's leadership is the fact that
it has people with decades and decades of experience of
running these chip making factories.
Speaker 1 (22:38):
No doubt about that. And I think Intel, which will
obviously also participate in these grants from the US Chips Act,
has said that it will, as a part of its investment,
increase training so that they are looking at kind of
carving out their own workforce and maybe creating a fast track.
I don't know whether it's clearly not a college degree,
(22:59):
but it's did the type of technical degree that would
be required for anyone who's working in one of these fabs.
Speaker 2 (23:06):
Yeah, you know, Doug, we got an extra chair here
in our studios for Vlad, and I think he has
designs on it. Do you think Lad you're gonna hang
out with us for a while?
Speaker 6 (23:16):
Always ready for him? Brian, Yeah, Yeah.
Speaker 2 (23:19):
He talks to me when we're getting coffee, you know, like, hey,
let's do something on the radio.
Speaker 1 (23:23):
There you go, I said.
Speaker 2 (23:24):
This is the Bloomberg Daybreak Asia podcast, bringing to the
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Visit the Bloomberg Podcast channel on YouTube to get more
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