May 14, 2024 • 22 mins
Featuring:
Jonathan Garner, Chief Asia and EM Strategist at Morgan Stanley, with his outlook on APAC markets.
Mark Gurman, Bloomberg Chief Global Technology Correspondent, discussing Apple's plan to roll out its Vision Pro headset to some international markets.
Victoria Bills, Chief Investment Strategist at Banrion Capital Management, joins the program to share her perspective on equities.
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Episode Transcript
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Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, radio news.
Speaker 2 (00:10):
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 (00:28):
Jonathan Gardner with US Chief Asia and em strategist at
Morgan Stanley, joining us from the line city of Singapore. Jonathan,
thanks for taking the time to chat with us. I
was noting earlier that the MSCI China Index since that
January low is up about twenty seven percent. A lot
of this may be due to some rotation into cheaper valuations.
(00:49):
Would you chase this move or do you think it's
pretty much run its course?
Speaker 3 (00:53):
Well, in a word, we wouldn't chase the move. We
wrote a note on that last week, myself, Laura Wang,
and the team. I think it's important to remember just
how volatile China equities are now relative to the rest
of global equities. They're about two and a half times
as volatile, and we've seen some of these short bursts
of performance within an overall secular bear market on a
(01:14):
number of occasions in the past. I think the reason
that the bear market ultimately resumes is the very weak
fundamentals that exist in China. And over the weekend we
had some really quite bad numbers on the inflation side
and the money supply and lending side, which really for
US confirm our thesis that it's still trapped in debt deflation.
Speaker 2 (01:36):
And you have US Gina relations as well, that sort
of looms. Jennet Yellen gave kind of tacit confirmation that
higher US tariffs and Chinese products are coming, Jonathan. She said,
basically she hoped China wouldn't retaliate. Doubtful she'd be talking
about that if this wasn't coming. But even if they
do retaliate on the Chinese side, does this have real
(01:59):
teeth for investors or is it more symbolic for both
sides Domestic audiences.
Speaker 3 (02:05):
Well, the China equity market is driven mainly by a
domestic consumer stocks the big major internet e commerce names,
so it doesn't have a lot of exporters directly in
the index, though there are some large firms in the
ashare market in things like electric vehicles and battery technology.
So what really matters for the domestic stock market is
(02:26):
just ultimately how weak the consumer continues to be. And
there's plenty of evidence that the consumer's paying down mortgage
debt for the first time ever. Big ticket spending is diminished,
and so people they're out and about and spending, but
much more on smaller ticket items. And we just think
this is in stark contrast to some other parts of
our coverage universe, for example India, where the trends are
(02:47):
almost completely different.
Speaker 1 (02:49):
We were talking earlier on the program about the move
on the part of Beijing to begin selling the first
round of ultra long special sovereign bonds. I think the
sale will begin on Friday, and we're looking at the
first tranche of about one hundred and thirty eight billion.
Do you think there's going to be strong demand for
something like this.
Speaker 3 (03:06):
Well, I'm not a bond market expert, but what I
would say is that that number is not very large
in relation to the size of the Chinese economy, which
is around about eighteen trillion dollars, and we don't think
that it represents an aggregate net fiscal stimulus. Rather, what's
happening is the central government is in a sense backstopping
some of the provincial local government debt to stop a
(03:28):
sort of cascading default cycle spreading out of the property developers.
And that's the context in which this bond insurance is happening.
It's not a net fiscal injection into the economy.
Speaker 2 (03:40):
Jonathan, I wanted to ask you briefly about rate cuts.
We haven't had a lot of action on that front.
Bloomberg Economics is saying that without rate cuts, the PBOC
is just pushing on a string.
Speaker 4 (03:53):
It needs to be sooner rather than later.
Speaker 2 (03:56):
Is that another thing that doesn't really affect equity flows
that much or does it?
Speaker 5 (04:00):
Well?
Speaker 3 (04:01):
It is actually really key points. I'm glad you mentioned
it in this sense. It's quite reminiscent of what was
going on in Japan thirty years ago in the early
part of their debt deflation bust. That the authorities are
looking back with regret at the amount of leveraging up
in the prior decade or so, and they're not choosing
to flood the system with liquidity at this occasion. There
(04:23):
is an important difference, however, with Japan that may partly
explain this behavior, and that is that ultimately China is
not a developed market sovereign. It is ultimately an em
sovereign in terms of its credit rating. And were it
to slash interest rates, let's say, to zero, or try
to launch a QE program, it would unlock probably currency weakness,
(04:43):
currency declines. And that's why those kinds of policies haven't
been open to typical em in for example, that the past,
whereas for develop markets, including for Japan, Japan was ultimately
able to reflate because it found a path substantially neg
of real interest rates finally over the last decade, but
that may not be open to China.
Speaker 1 (05:05):
So there's no way then that you see China repeating
that kind of the lost three decades that Japan was
miird in where you get in just so deeply entrenched
in a deflationary cycle and just stagnant activity.
Speaker 3 (05:18):
Well, I think there is a recentably high chance that
China can remain in difficulties for the foreseeable future. We
are in year four of this if you date the
beginning of it to early twenty twenty one, when leverage
peaked in the overall economy and property prices peaked, and
there was also a mini stock market bubble, and there's
very little sign that the macro is actually turning around again.
(05:39):
I just want to emphasize these numbers. At the weekend
PPI minus two and a half CPI essentially zero aggregate
financing negative month or month. That's very unusual.
Speaker 4 (05:51):
I wanted to finish up on.
Speaker 2 (05:53):
I know you look back at the last fifteen or
twenty years or so of investing in these markets, and
you drew some conclude in about thirty or forty seconds
some what are among those chief among your observations.
Speaker 3 (06:07):
I think it's really about the importance of quality in
investing in an asset class that is quite volatile. So
if you find business models that have superior are we
and strong balance sheets versus their industry peers, and you
control for valuation, that's really the answer to successful investing
in a difficult top down environment that you often find
in EM.
Speaker 1 (06:28):
Jonathan will leave it there. It's a pleasure today have
you on the program and benefit from your insight. Jonathan
Garner is a chief Asia and EM strategist at Morgan Stanley.
Speaker 4 (06:44):
Well.
Speaker 2 (06:44):
Apple is getting set to sell its Vision pro in
markets outside the United States, trying to see whether the
roughly thirty five hundred dollars mixed reality headset has brought appeal.
Joining us in our studios is Mark German, Bloomberg, Chief
correspondent on Global Technology. So this is really the biggest,
(07:05):
biggest device, or the newest big device for Apple in
a period of time from your own channel, checks Mark,
what are you seeing? I mean, are people going to
be willing to pay thirty five hundred bucks for this?
Speaker 5 (07:17):
Yeah?
Speaker 6 (07:17):
Thank you for having me. It's awesome to be here
with you in Hong Kong. The Vision Pro. Like you said,
it's Apple's first major new product release in nearly a
decade since the Apple Watch came out in twenty fifteen,
and at thirty five hundred dollars with limited applications technology
that has very early appeal. It's a very much an
early adopter device. It did really well out of the gate.
(07:38):
I'm talking about the first two weeks or so when
people who wanted to get the device lined up for it,
the first pre orders arrived, the first people walking into
Apple Source to try it out and buy it. But
since then it has really tapered out.
Speaker 5 (07:50):
Right.
Speaker 6 (07:50):
You normally see this when a new iPhone comes out,
you get a ton of sales and it tapers a
little bit, but there is still quite a bit of
demand over the life cycle of the product. But I'd
say Vision Pro sales have completely fallen flat. Some stores
told me that they've had as many returns over the
last three months as they've had purchases over the first
two weeks. There are other stores who tell me they're
(08:12):
only selling, you know, one to two or three units
per week. Some stories telling me they don't even sell
one Vision Pro within one particular week. It's unclear for
ninety nine point nine nine percent of people why you
need one.
Speaker 5 (08:24):
Of these things.
Speaker 1 (08:25):
Yeah, the so are Apple devotees, right, I mean that
the early adopters. When you look at the distribution of innovation,
is this device manufactured by fox Conn? Are they the
main manufacturing powerhouse behind the Vision Pro?
Speaker 6 (08:40):
No, the vision Pro is actually not produced by fox Conn.
It's produced by Quanta. Sorry, it's it's produced by lux
Share luck Share Precision based in Taiwan, I believe, and
lux Share Precision they have been working with Apple for
some number of years on this device. The plan for
(09:01):
Apple is to move some production over time to fox
Con to sort of differentiate with a cheaper model at
some point, and fox Conn likely would get in on that.
Maybe there'll be more suppliers like Quanta in the future
as well, but it's still very early days for this product.
And obviously, as we're talking about, the next big thing
for the Vision Pro is expansion mark.
Speaker 2 (09:22):
You mentioned in your story that it takes as much
as four days to be trained up on this thing,
so it's obviously a niche product. Is this meant to
be like a lost Leader or do they actually expect
to sell a lot of these?
Speaker 4 (09:37):
What's the essential purpose of this?
Speaker 6 (09:39):
You know, it's funny. When they initially were planning to
release the Vision Pro, they were looking at a price
point around three thousand dollars and that basically put it
as no margin, and the idea was to get people
in the ecosystem, eventually, bring the bill of materials down
over time, get the cost down over time to build,
and then make a profit. But they priced it at
(10:01):
thirty five hundred dollars and then you have a two
hundred dollars up charge per additional storage capacity, and the
margins on flash for Apple for storage is probably north
of seventy percent, and so they're making a margin on this,
so they are making some money, but it's going to
take at the current rate of the amount of people
purchasing this product, is going to take them a decade
(10:22):
to make a return on their investment. So they're certainly
going to have to get the price down get more
people buying it to get back on their investment.
Speaker 5 (10:28):
Here.
Speaker 1 (10:29):
The last time that Brian and I were speaking with you, Mark,
you were giving us information. You're reporting on open Ai
striking a deal with Apple for the iPhone. Looks like
you were spot on there. What do we know?
Speaker 6 (10:42):
Yeah, So about two months ago, I reported that Apple
had held discussions with open Ai about integration into the iPhone,
and then about three weeks ago it appeared that Google
was in the lead for a deal with Apple on
Ai with Gemini integration into the new iPhone this year,
and I reported that talks are back on with open Ai,
(11:02):
and then just last week they reached the deal. And
so open Ai will be part of the iOS eighteen
launch later this year, and we'll be supporting features like
a chatbot. Whether that's integration into Siri, into the Spotlight
search in the phone is to be seen, but open
Ai is going to be a part of the new
version of iOS, alongside large language models in GENAI tech
(11:24):
from Apple itself.
Speaker 2 (11:25):
I suppose it doesn't rule out a deal with Gemini
of Google down the road. But in terms of AI
and its application, if we go back here to the
Vision Pro, is there any AI functionality in this?
Speaker 5 (11:40):
Yeah?
Speaker 6 (11:40):
I mean they say that the Vision Pro uses a
lot of artificial intelligence to do on device processing, to
mirror your eyes to create a virtual representation of you,
And sure that is AI, but that's not the AI
we're talking about the AI or anyone cares about right now.
I would anticipate they get some GENAI features onto the
Vision Pro, maybe a couple of features this year, but
I would say that's probably more of a next year
(12:01):
thing or the year after. The priority first and foremost
is to get jenai based into the iPhone, then the iPad,
than the Mac, then the Apple Watch, and then I
would say Vision Pro comes last, probably alongside the Apple
TV and the App Store. There. The big news I
think though, regarding the Vision Pro itself is expansion. So
it's been in the US now for about three and
(12:22):
a half months, and so they're now bringing in employees
from its retail stores in Asia and in Europe and
Australia to come to the US to learn how to
sell the Vision Pro, how to pitch the Vision Pro
to customers. And so you'll see the Vision Pro launch
after early June in places like Japan, Korea, China, Hong Kong, Singapore.
(12:46):
You'll see France, You'll see Germany, Australia, and I anticipate
you'll see Canada and the UK at some point this year.
Speaker 1 (12:52):
As you know Marca, China is a big market when
it comes to gaming. Is there an intersection here between
the gaming environment and the Vision Pro? Very quick?
Speaker 6 (13:00):
I think the Vision Pro most interesting market for the
Vision Pro is probably China because of the gaming interest there.
But Apple really needs to boost its gaming capabilities for
the device before it really will take off there.
Speaker 4 (13:11):
The Apple Watch had a slow start.
Speaker 2 (13:13):
Does the Vision Pro eventually get there or does this
one fail?
Speaker 6 (13:17):
I think the first model the Vision Pro, will be
recalled as a failure, but I think if they get
the price down in half, it'll ultimately be a very
successful product for Apple.
Speaker 2 (13:25):
All right, Mark, thank you very much for coming in.
We could talk a whole half hour. I suppose even longer.
Mark German, Bloomberg chief correspondent on global technology. Joining us
now for a closer look at markets is Victoria Bill's
chief investment strategist at Bantery and Capital Management. Victoria, thank
(13:49):
you for joining us. We're seeing a lack of direction
in US equities for sure. Elsewhere as well, what's rally
the most of late has been and Hong Kong equities,
US utilities and staples, So hard to find a thread
through that other than you know, those are the most
(14:09):
bombed out sectors late last year, and people have been
selling megacap tech and have been buying there.
Speaker 4 (14:17):
When are we going to get some direction?
Speaker 2 (14:20):
Yeah?
Speaker 5 (14:20):
Direction, honestly is very hard to come by these days.
I think a lot of what we are seeing in
the market right now is just if we try to
create a single thread. There's a lot of noise when
it comes to what the markets are looking at. For example,
ETFs are a very common resp solution for the comment
for the average investor and for the average consumer investor,
(14:44):
and whether that's ETFs or whether that's through volatility trades particularly,
there's a lot of noise in terms of what we're
seeing just from the consumer side of the market now.
If we're looking at fundamentals, or if we're looking at
different types of industries in particular, I think a lot
of the common threads that we should be looking towards
are within the technology sector, specifically within AI, web three,
(15:08):
machine learning, and so those are a lot of things
that I'm looking for to or the things that I'm
looking to when it comes to market direction at this time.
Speaker 1 (15:16):
So talk to us a little bit about the way
that you play artificial intelligence. Is it through a company
like a chip maker, let's say Nvidia obviously maybe to
a lesser extent some of the memory chip manufacturers, like
if Samsung, or do you go to a company like
Alphabet or Microsoft, or are there upstarts maybe publicly traded
(15:37):
companies small market cap focused on AI that could be
acquisition targets. I'm trying to understand the way that you
evaluate and put money to work in this space.
Speaker 5 (15:49):
I think there's a a few different ways or a
few different scenarios of which you can talk about or
do all of the companies that you're talking about. So,
whether that's a data play when it comes to Meta
or Alphabet, data is a crucial component when it comes
to AI and machine learning, and especially when we think
about like the transference of that data and information from
(16:10):
larger computer systems to individuals, individuals stant hands or even
through like individual means, if you want to do a
computer or a microchip or a GPU play, I would
say that that's definitely a Nvidia or even a Samsung company.
The thing about Navidia is that they manufacture majority of
(16:32):
the GPU chips that are used in AI as well
as in sorry I'm thinking I'm blinking out in the
world right now, but sorry crypto plays as well. So
when we're thinking about companies that are within those spaces,
those are some of the primary industries that we're looking at.
And then the other thing that I like to think
about is machine learning. And so again we're looking at
(16:54):
Navidia or even Samsung a lot of the chips that
they're creating right now, and especially if we talk about
Samsung or even Nvidia, Samsung particularly the they're hopefully going
to like further their partnership with Nvidia and provide some
of the some of the chips that they're using for
their Web three and AI plays. So Samsung only has
(17:15):
an upboards or upworts tailwinds to gain from continuing to
partner with companies such as Nvidia right now, well.
Speaker 2 (17:22):
There's so many derivative bets on this. So we mentioned
that companies like Nvidia and Broadcom are well off their highs,
so people have been selling that and they've been buying
into some of these derivative plays, even utilities. You know
that raises a few eyebrows, but you know, these data
centers need a ton of electrification, so you know people
have even spread there. They're buying HVAC companies because you know,
(17:44):
you need cooling systems for all the all the power
that AI needs.
Speaker 4 (17:48):
So there's been a lot of bets. I'm wondering.
Speaker 2 (17:51):
You know, some of those companies have gone up even
more in the last month or two than the NVIDIAs
of the world. So I'm thinking that maybe now money
flows back into the peer plays because have already spread out.
Speaker 5 (18:03):
I mean, that's definitely it. I remember back in last
year in November, I was very much pro super Microcomputer,
and that company was originally in the small cap like
small cap index, but now it's trading at almost triple
or double what I would recommend in terms of a
price for purchase. So when it comes to small cap
(18:25):
plays or even companies that are like I would say,
more fairly priced in this arena, there's a very slim
picking in terms of companies that you could look at
to get into the AI world. And going off of
what you were saying earlier, a lot of this requires
like a lot of manufacturing power in order to create
these microchips in order to create these processors semiconductor processors
(18:48):
as well, which helped to process that data. So I
honestly that's where the larger plays come in, because these
are the companies that are well equipped in order to
create those processes and create that data, create that information.
Speaker 1 (19:01):
Brian raised an interesting point. They're talking about the demand
for electricity to power a lot of this processing, whether
it's you know, a server farm or you know individual
companies that are set up to kind of run AI applications.
Is that a play that interests you in any way?
I know it may sound boring to put money to
(19:21):
work into utility, but maybe it's not a utility. Maybe
it's something connected to a form of energy that attracts you.
Speaker 5 (19:29):
Oh. Absolutely, The thing is like energy is going to
be the energy is the number one resource when we
think about the play that's going to be in the
AI and machine learning space, Like these are very high
energy intensive processes in order to not only just create
these microchips, but also to run them and operate them.
(19:49):
So whether you're thinking about crypto mining, that is a
very energy intensive sector. But the chips, for example, that
Nvidia creates for like GPU process as saying, those have
additional cooling factors that allow for them to not process
as much energy. But with the crypto having that happened
last month, essentially what happens is that the supply of crypto,
(20:12):
for example, has now gone down, so that means but
still continuing with the demand.
Speaker 2 (20:17):
That we have.
Speaker 5 (20:18):
So therefore the logical explanation is that either these crypto
mining companies need to add more additional computers and processors
in order to meet that demand, or it's just kind
of you're just going to resign yourself to the fact
that maybe you're not going to be able to mine
as much crypto as you might have been able to
in the past.
Speaker 2 (20:35):
But let's get to the broader market briefly. People are
worried about, you know what's out there. The market near
all time highs would seem to be telling us that
six to nine months out things will still be okay.
It's the nervous commentators that are suggesting that stagflation is
a risk this year. The market seems to be saying, sure,
anything's possible. Stagflation is not happening anytime soon. Your thoughts
(20:58):
on that, I.
Speaker 5 (21:00):
Thinks stiflation is happening anytime soon. I think that again,
labor markets remain pretty strong, and while inflation rates are
pretty high, but there's no reason to believe that CPI
and PPI particularly won't come near or close to the
consensus that we currently have right now. When we think
about what the Fed is doing, we're basically in a
process right now, or in a race to try and
(21:21):
temper inflation or temper consumer sentiments in order to basically
combat that inflation. What we've seen, however, is that consumer
savings has gone down overall for the past quarter. I
believe consumer spending has also gone up. And then the
other part of that is that wages have also have
not matched savings, but they're basically they're not outpacing consumer spending.
(21:46):
So what we're seeing, so the overarching message of that
is that what the FED is doing is working.
Speaker 2 (21:52):
Okay, Victoria, thank you so much for being with us here.
Enjoyed it, Victoria Bills, chief investment strategist, said vander and
Capital Management.
Speaker 1 (22:02):
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
(22:22):
Bloomberg Business app.
Bloomberg Audio Studios, Podcasts, radio news.
Speaker 2 (00:10):
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 (00:28):
Jonathan Gardner with US Chief Asia and em strategist at
Morgan Stanley, joining us from the line city of Singapore. Jonathan,
thanks for taking the time to chat with us. I
was noting earlier that the MSCI China Index since that
January low is up about twenty seven percent. A lot
of this may be due to some rotation into cheaper valuations.
(00:49):
Would you chase this move or do you think it's
pretty much run its course?
Speaker 3 (00:53):
Well, in a word, we wouldn't chase the move. We
wrote a note on that last week, myself, Laura Wang,
and the team. I think it's important to remember just
how volatile China equities are now relative to the rest
of global equities. They're about two and a half times
as volatile, and we've seen some of these short bursts
of performance within an overall secular bear market on a
(01:14):
number of occasions in the past. I think the reason
that the bear market ultimately resumes is the very weak
fundamentals that exist in China. And over the weekend we
had some really quite bad numbers on the inflation side
and the money supply and lending side, which really for
US confirm our thesis that it's still trapped in debt deflation.
Speaker 2 (01:36):
And you have US Gina relations as well, that sort
of looms. Jennet Yellen gave kind of tacit confirmation that
higher US tariffs and Chinese products are coming, Jonathan. She said,
basically she hoped China wouldn't retaliate. Doubtful she'd be talking
about that if this wasn't coming. But even if they
do retaliate on the Chinese side, does this have real
(01:59):
teeth for investors or is it more symbolic for both
sides Domestic audiences.
Speaker 3 (02:05):
Well, the China equity market is driven mainly by a
domestic consumer stocks the big major internet e commerce names,
so it doesn't have a lot of exporters directly in
the index, though there are some large firms in the
ashare market in things like electric vehicles and battery technology.
So what really matters for the domestic stock market is
(02:26):
just ultimately how weak the consumer continues to be. And
there's plenty of evidence that the consumer's paying down mortgage
debt for the first time ever. Big ticket spending is diminished,
and so people they're out and about and spending, but
much more on smaller ticket items. And we just think
this is in stark contrast to some other parts of
our coverage universe, for example India, where the trends are
(02:47):
almost completely different.
Speaker 1 (02:49):
We were talking earlier on the program about the move
on the part of Beijing to begin selling the first
round of ultra long special sovereign bonds. I think the
sale will begin on Friday, and we're looking at the
first tranche of about one hundred and thirty eight billion.
Do you think there's going to be strong demand for
something like this.
Speaker 3 (03:06):
Well, I'm not a bond market expert, but what I
would say is that that number is not very large
in relation to the size of the Chinese economy, which
is around about eighteen trillion dollars, and we don't think
that it represents an aggregate net fiscal stimulus. Rather, what's
happening is the central government is in a sense backstopping
some of the provincial local government debt to stop a
(03:28):
sort of cascading default cycle spreading out of the property developers.
And that's the context in which this bond insurance is happening.
It's not a net fiscal injection into the economy.
Speaker 2 (03:40):
Jonathan, I wanted to ask you briefly about rate cuts.
We haven't had a lot of action on that front.
Bloomberg Economics is saying that without rate cuts, the PBOC
is just pushing on a string.
Speaker 4 (03:53):
It needs to be sooner rather than later.
Speaker 2 (03:56):
Is that another thing that doesn't really affect equity flows
that much or does it?
Speaker 5 (04:00):
Well?
Speaker 3 (04:01):
It is actually really key points. I'm glad you mentioned
it in this sense. It's quite reminiscent of what was
going on in Japan thirty years ago in the early
part of their debt deflation bust. That the authorities are
looking back with regret at the amount of leveraging up
in the prior decade or so, and they're not choosing
to flood the system with liquidity at this occasion. There
(04:23):
is an important difference, however, with Japan that may partly
explain this behavior, and that is that ultimately China is
not a developed market sovereign. It is ultimately an em
sovereign in terms of its credit rating. And were it
to slash interest rates, let's say, to zero, or try
to launch a QE program, it would unlock probably currency weakness,
(04:43):
currency declines. And that's why those kinds of policies haven't
been open to typical em in for example, that the past,
whereas for develop markets, including for Japan, Japan was ultimately
able to reflate because it found a path substantially neg
of real interest rates finally over the last decade, but
that may not be open to China.
Speaker 1 (05:05):
So there's no way then that you see China repeating
that kind of the lost three decades that Japan was
miird in where you get in just so deeply entrenched
in a deflationary cycle and just stagnant activity.
Speaker 3 (05:18):
Well, I think there is a recentably high chance that
China can remain in difficulties for the foreseeable future. We
are in year four of this if you date the
beginning of it to early twenty twenty one, when leverage
peaked in the overall economy and property prices peaked, and
there was also a mini stock market bubble, and there's
very little sign that the macro is actually turning around again.
(05:39):
I just want to emphasize these numbers. At the weekend
PPI minus two and a half CPI essentially zero aggregate
financing negative month or month. That's very unusual.
Speaker 4 (05:51):
I wanted to finish up on.
Speaker 2 (05:53):
I know you look back at the last fifteen or
twenty years or so of investing in these markets, and
you drew some conclude in about thirty or forty seconds
some what are among those chief among your observations.
Speaker 3 (06:07):
I think it's really about the importance of quality in
investing in an asset class that is quite volatile. So
if you find business models that have superior are we
and strong balance sheets versus their industry peers, and you
control for valuation, that's really the answer to successful investing
in a difficult top down environment that you often find
in EM.
Speaker 1 (06:28):
Jonathan will leave it there. It's a pleasure today have
you on the program and benefit from your insight. Jonathan
Garner is a chief Asia and EM strategist at Morgan Stanley.
Speaker 4 (06:44):
Well.
Speaker 2 (06:44):
Apple is getting set to sell its Vision pro in
markets outside the United States, trying to see whether the
roughly thirty five hundred dollars mixed reality headset has brought appeal.
Joining us in our studios is Mark German, Bloomberg, Chief
correspondent on Global Technology. So this is really the biggest,
(07:05):
biggest device, or the newest big device for Apple in
a period of time from your own channel, checks Mark,
what are you seeing? I mean, are people going to
be willing to pay thirty five hundred bucks for this?
Speaker 5 (07:17):
Yeah?
Speaker 6 (07:17):
Thank you for having me. It's awesome to be here
with you in Hong Kong. The Vision Pro. Like you said,
it's Apple's first major new product release in nearly a
decade since the Apple Watch came out in twenty fifteen,
and at thirty five hundred dollars with limited applications technology
that has very early appeal. It's a very much an
early adopter device. It did really well out of the gate.
(07:38):
I'm talking about the first two weeks or so when
people who wanted to get the device lined up for it,
the first pre orders arrived, the first people walking into
Apple Source to try it out and buy it. But
since then it has really tapered out.
Speaker 5 (07:50):
Right.
Speaker 6 (07:50):
You normally see this when a new iPhone comes out,
you get a ton of sales and it tapers a
little bit, but there is still quite a bit of
demand over the life cycle of the product. But I'd
say Vision Pro sales have completely fallen flat. Some stores
told me that they've had as many returns over the
last three months as they've had purchases over the first
two weeks. There are other stores who tell me they're
(08:12):
only selling, you know, one to two or three units
per week. Some stories telling me they don't even sell
one Vision Pro within one particular week. It's unclear for
ninety nine point nine nine percent of people why you
need one.
Speaker 5 (08:24):
Of these things.
Speaker 1 (08:25):
Yeah, the so are Apple devotees, right, I mean that
the early adopters. When you look at the distribution of innovation,
is this device manufactured by fox Conn? Are they the
main manufacturing powerhouse behind the Vision Pro?
Speaker 6 (08:40):
No, the vision Pro is actually not produced by fox Conn.
It's produced by Quanta. Sorry, it's it's produced by lux
Share luck Share Precision based in Taiwan, I believe, and
lux Share Precision they have been working with Apple for
some number of years on this device. The plan for
(09:01):
Apple is to move some production over time to fox
Con to sort of differentiate with a cheaper model at
some point, and fox Conn likely would get in on that.
Maybe there'll be more suppliers like Quanta in the future
as well, but it's still very early days for this product.
And obviously, as we're talking about, the next big thing
for the Vision Pro is expansion mark.
Speaker 2 (09:22):
You mentioned in your story that it takes as much
as four days to be trained up on this thing,
so it's obviously a niche product. Is this meant to
be like a lost Leader or do they actually expect
to sell a lot of these?
Speaker 4 (09:37):
What's the essential purpose of this?
Speaker 6 (09:39):
You know, it's funny. When they initially were planning to
release the Vision Pro, they were looking at a price
point around three thousand dollars and that basically put it
as no margin, and the idea was to get people
in the ecosystem, eventually, bring the bill of materials down
over time, get the cost down over time to build,
and then make a profit. But they priced it at
(10:01):
thirty five hundred dollars and then you have a two
hundred dollars up charge per additional storage capacity, and the
margins on flash for Apple for storage is probably north
of seventy percent, and so they're making a margin on this,
so they are making some money, but it's going to
take at the current rate of the amount of people
purchasing this product, is going to take them a decade
(10:22):
to make a return on their investment. So they're certainly
going to have to get the price down get more
people buying it to get back on their investment.
Speaker 5 (10:28):
Here.
Speaker 1 (10:29):
The last time that Brian and I were speaking with you, Mark,
you were giving us information. You're reporting on open Ai
striking a deal with Apple for the iPhone. Looks like
you were spot on there. What do we know?
Speaker 6 (10:42):
Yeah, So about two months ago, I reported that Apple
had held discussions with open Ai about integration into the iPhone,
and then about three weeks ago it appeared that Google
was in the lead for a deal with Apple on
Ai with Gemini integration into the new iPhone this year,
and I reported that talks are back on with open Ai,
(11:02):
and then just last week they reached the deal. And
so open Ai will be part of the iOS eighteen
launch later this year, and we'll be supporting features like
a chatbot. Whether that's integration into Siri, into the Spotlight
search in the phone is to be seen, but open
Ai is going to be a part of the new
version of iOS, alongside large language models in GENAI tech
(11:24):
from Apple itself.
Speaker 2 (11:25):
I suppose it doesn't rule out a deal with Gemini
of Google down the road. But in terms of AI
and its application, if we go back here to the
Vision Pro, is there any AI functionality in this?
Speaker 5 (11:40):
Yeah?
Speaker 6 (11:40):
I mean they say that the Vision Pro uses a
lot of artificial intelligence to do on device processing, to
mirror your eyes to create a virtual representation of you,
And sure that is AI, but that's not the AI
we're talking about the AI or anyone cares about right now.
I would anticipate they get some GENAI features onto the
Vision Pro, maybe a couple of features this year, but
I would say that's probably more of a next year
(12:01):
thing or the year after. The priority first and foremost
is to get jenai based into the iPhone, then the iPad,
than the Mac, then the Apple Watch, and then I
would say Vision Pro comes last, probably alongside the Apple
TV and the App Store. There. The big news I
think though, regarding the Vision Pro itself is expansion. So
it's been in the US now for about three and
(12:22):
a half months, and so they're now bringing in employees
from its retail stores in Asia and in Europe and
Australia to come to the US to learn how to
sell the Vision Pro, how to pitch the Vision Pro
to customers. And so you'll see the Vision Pro launch
after early June in places like Japan, Korea, China, Hong Kong, Singapore.
(12:46):
You'll see France, You'll see Germany, Australia, and I anticipate
you'll see Canada and the UK at some point this year.
Speaker 1 (12:52):
As you know Marca, China is a big market when
it comes to gaming. Is there an intersection here between
the gaming environment and the Vision Pro? Very quick?
Speaker 6 (13:00):
I think the Vision Pro most interesting market for the
Vision Pro is probably China because of the gaming interest there.
But Apple really needs to boost its gaming capabilities for
the device before it really will take off there.
Speaker 4 (13:11):
The Apple Watch had a slow start.
Speaker 2 (13:13):
Does the Vision Pro eventually get there or does this
one fail?
Speaker 6 (13:17):
I think the first model the Vision Pro, will be
recalled as a failure, but I think if they get
the price down in half, it'll ultimately be a very
successful product for Apple.
Speaker 2 (13:25):
All right, Mark, thank you very much for coming in.
We could talk a whole half hour. I suppose even longer.
Mark German, Bloomberg chief correspondent on global technology. Joining us
now for a closer look at markets is Victoria Bill's
chief investment strategist at Bantery and Capital Management. Victoria, thank
(13:49):
you for joining us. We're seeing a lack of direction
in US equities for sure. Elsewhere as well, what's rally
the most of late has been and Hong Kong equities,
US utilities and staples, So hard to find a thread
through that other than you know, those are the most
(14:09):
bombed out sectors late last year, and people have been
selling megacap tech and have been buying there.
Speaker 4 (14:17):
When are we going to get some direction?
Speaker 2 (14:20):
Yeah?
Speaker 5 (14:20):
Direction, honestly is very hard to come by these days.
I think a lot of what we are seeing in
the market right now is just if we try to
create a single thread. There's a lot of noise when
it comes to what the markets are looking at. For example,
ETFs are a very common resp solution for the comment
for the average investor and for the average consumer investor,
(14:44):
and whether that's ETFs or whether that's through volatility trades particularly,
there's a lot of noise in terms of what we're
seeing just from the consumer side of the market now.
If we're looking at fundamentals, or if we're looking at
different types of industries in particular, I think a lot
of the common threads that we should be looking towards
are within the technology sector, specifically within AI, web three,
(15:08):
machine learning, and so those are a lot of things
that I'm looking for to or the things that I'm
looking to when it comes to market direction at this time.
Speaker 1 (15:16):
So talk to us a little bit about the way
that you play artificial intelligence. Is it through a company
like a chip maker, let's say Nvidia obviously maybe to
a lesser extent some of the memory chip manufacturers, like
if Samsung, or do you go to a company like
Alphabet or Microsoft, or are there upstarts maybe publicly traded
(15:37):
companies small market cap focused on AI that could be
acquisition targets. I'm trying to understand the way that you
evaluate and put money to work in this space.
Speaker 5 (15:49):
I think there's a a few different ways or a
few different scenarios of which you can talk about or
do all of the companies that you're talking about. So,
whether that's a data play when it comes to Meta
or Alphabet, data is a crucial component when it comes
to AI and machine learning, and especially when we think
about like the transference of that data and information from
(16:10):
larger computer systems to individuals, individuals stant hands or even
through like individual means, if you want to do a
computer or a microchip or a GPU play, I would
say that that's definitely a Nvidia or even a Samsung company.
The thing about Navidia is that they manufacture majority of
(16:32):
the GPU chips that are used in AI as well
as in sorry I'm thinking I'm blinking out in the
world right now, but sorry crypto plays as well. So
when we're thinking about companies that are within those spaces,
those are some of the primary industries that we're looking at.
And then the other thing that I like to think
about is machine learning. And so again we're looking at
(16:54):
Navidia or even Samsung a lot of the chips that
they're creating right now, and especially if we talk about
Samsung or even Nvidia, Samsung particularly the they're hopefully going
to like further their partnership with Nvidia and provide some
of the some of the chips that they're using for
their Web three and AI plays. So Samsung only has
(17:15):
an upboards or upworts tailwinds to gain from continuing to
partner with companies such as Nvidia right now, well.
Speaker 2 (17:22):
There's so many derivative bets on this. So we mentioned
that companies like Nvidia and Broadcom are well off their highs,
so people have been selling that and they've been buying
into some of these derivative plays, even utilities. You know
that raises a few eyebrows, but you know, these data
centers need a ton of electrification, so you know people
have even spread there. They're buying HVAC companies because you know,
(17:44):
you need cooling systems for all the all the power
that AI needs.
Speaker 4 (17:48):
So there's been a lot of bets. I'm wondering.
Speaker 2 (17:51):
You know, some of those companies have gone up even
more in the last month or two than the NVIDIAs
of the world. So I'm thinking that maybe now money
flows back into the peer plays because have already spread out.
Speaker 5 (18:03):
I mean, that's definitely it. I remember back in last
year in November, I was very much pro super Microcomputer,
and that company was originally in the small cap like
small cap index, but now it's trading at almost triple
or double what I would recommend in terms of a
price for purchase. So when it comes to small cap
(18:25):
plays or even companies that are like I would say,
more fairly priced in this arena, there's a very slim
picking in terms of companies that you could look at
to get into the AI world. And going off of
what you were saying earlier, a lot of this requires
like a lot of manufacturing power in order to create
these microchips in order to create these processors semiconductor processors
(18:48):
as well, which helped to process that data. So I
honestly that's where the larger plays come in, because these
are the companies that are well equipped in order to
create those processes and create that data, create that information.
Speaker 1 (19:01):
Brian raised an interesting point. They're talking about the demand
for electricity to power a lot of this processing, whether
it's you know, a server farm or you know individual
companies that are set up to kind of run AI applications.
Is that a play that interests you in any way?
I know it may sound boring to put money to
(19:21):
work into utility, but maybe it's not a utility. Maybe
it's something connected to a form of energy that attracts you.
Speaker 5 (19:29):
Oh. Absolutely, The thing is like energy is going to
be the energy is the number one resource when we
think about the play that's going to be in the
AI and machine learning space, Like these are very high
energy intensive processes in order to not only just create
these microchips, but also to run them and operate them.
(19:49):
So whether you're thinking about crypto mining, that is a
very energy intensive sector. But the chips, for example, that
Nvidia creates for like GPU process as saying, those have
additional cooling factors that allow for them to not process
as much energy. But with the crypto having that happened
last month, essentially what happens is that the supply of crypto,
(20:12):
for example, has now gone down, so that means but
still continuing with the demand.
Speaker 2 (20:17):
That we have.
Speaker 5 (20:18):
So therefore the logical explanation is that either these crypto
mining companies need to add more additional computers and processors
in order to meet that demand, or it's just kind
of you're just going to resign yourself to the fact
that maybe you're not going to be able to mine
as much crypto as you might have been able to
in the past.
Speaker 2 (20:35):
But let's get to the broader market briefly. People are
worried about, you know what's out there. The market near
all time highs would seem to be telling us that
six to nine months out things will still be okay.
It's the nervous commentators that are suggesting that stagflation is
a risk this year. The market seems to be saying, sure,
anything's possible. Stagflation is not happening anytime soon. Your thoughts
(20:58):
on that, I.
Speaker 5 (21:00):
Thinks stiflation is happening anytime soon. I think that again,
labor markets remain pretty strong, and while inflation rates are
pretty high, but there's no reason to believe that CPI
and PPI particularly won't come near or close to the
consensus that we currently have right now. When we think
about what the Fed is doing, we're basically in a
process right now, or in a race to try and
(21:21):
temper inflation or temper consumer sentiments in order to basically
combat that inflation. What we've seen, however, is that consumer
savings has gone down overall for the past quarter. I
believe consumer spending has also gone up. And then the
other part of that is that wages have also have
not matched savings, but they're basically they're not outpacing consumer spending.
(21:46):
So what we're seeing, so the overarching message of that
is that what the FED is doing is working.
Speaker 2 (21:52):
Okay, Victoria, thank you so much for being with us here.
Enjoyed it, Victoria Bills, chief investment strategist, said vander and
Capital Management.
Speaker 1 (22:02):
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
(22:22):
Bloomberg Business app.
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