September 29, 2023 • 36 mins
The troubles facing highly indebted property developers in China have dominated conversations about the Asian nation’s economy and markets this year. Yet according to Rayliant Global Advisors’ Jason Hsu, there’s an important distinction between this housing crisis and previous ones elsewhere: The developers are the ones who are over-leveraged—not households. And that difference is guiding policymakers’ response.
Hsu, chief investment officer of Rayliant and a co-founder of Research Affiliates, joined the What Goes Up podcast to discuss China and other emerging markets.
“Chinese households are not levered when it comes to real estate,” he says. “They’re not levered because they can buy their first home with money down—and they pay quite a bit money down—and they generally have to sort of have enough income to cover the payment. That bankruptcy you’re seeing in the developer sector is very engineered. On the household side, there’s not a balance-sheet crisis, because they’re not buying real estate on leverage. So they really don’t think there’s a meaningful problem there.”
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Episode Transcript
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Speaker 1 (00:14):
Hello, and welcome to What Goes Up, a weekly markets podcast.
My name is Mike Reagan. I'm a senior editor at Bloomberg.
Speaker 2 (00:21):
Numble Down, a hare across asset reporter with Bloomberg.
Speaker 1 (00:24):
And this week on the show, well, as China heads
into its Golden Week holiday, there won't be much celebrating
in the real estate sector. Chinese property stocks are trading
near the lowest level since two thy and eleven, and
concerns are growing about more defaults among developers. How did
the housing market in the world's second largest economy get
(00:46):
so out of whack and what will it take to
fix it and help Chinese stocks catch a bit again.
We'll get into it with a fund manager who focuses
on China and emerging markets. But first a programming note, Well,
we've been going strong for four and a half years,
but What Goes Up will be going on hiatus after
this episode, as the Bloomberg podcast team works on some
(01:07):
exciting news shows, so keep an ear out for them,
and as always, tweet to us at the handle at
podcasts on x so let us know what you think
of the shows. Well, Dona, is it still tweeting now
that the thing's called.
Speaker 2 (01:20):
X does anybody? Does anybody even call it X?
Speaker 1 (01:24):
Elon?
Speaker 2 (01:25):
Does Elon? But who else?
Speaker 3 (01:26):
You know?
Speaker 2 (01:27):
I never say, like, let me check my ex app.
Speaker 1 (01:30):
But do you X a post? Do you X a post?
Speaker 3 (01:33):
Yeah?
Speaker 2 (01:34):
Huh, I haven't heard.
Speaker 1 (01:35):
You wouldn't have the answers. I thought you'd have the answer.
Speaker 2 (01:37):
I'm not a hip millennial, but our guests this week
he might be active on X slash Twitter. I'm not sure,
but he's definitely been on the podcast before and I'm
happy to welcome him back. It's Jason Sue, chief investment
officer at Rilliant Global Advisors. Jason, thank you so much
for joining us, super glad. I wanted to start out
(01:57):
with asking you to tell us a bit about yourself
because you have a very interesting background having worked with
Rob are Not in the past, and you guys have,
as Mike said, we're going to be focusing on internationally
in this episode, so you guys have a presence in
a lot of places around the globe. So tell us
a bit about yourself.
Speaker 3 (02:16):
Well, as you mentioned, you know, I started research affiliates
with Rob or Not. That's nearly twenty years ago now.
I spun out in twenty sixteen, to focus primarily on
emerging markets, and of course, you know, when you think
about emerging markets, you can't ignore China's a lot of
my research, a lot of you know, our qual models
are built to create alpha in China. You know, today
(02:37):
we got ETFs in the US that gets your exposure
to China, to EMX China and actually more broadly the
global markets. Basically just tells you the power of the
quantitative methods when it comes to alpha generation across the globe.
You know, today I am talking to everyone from Dubai
and that's because the Middle East has a almost opposite
(03:01):
of the US as a meaningful fascination, and it's probably
from a strategic allocation perspective, very overweight China.
Speaker 4 (03:08):
So that's why I'm out here.
Speaker 1 (03:09):
That might be our first guest tuning in from Dubai.
That's a that's a first for us.
Speaker 2 (03:14):
Well, Donna, yeah, I've never been over there. So I
was asking Jason before we started taping, like what's it like,
and he said it's very humid, which I didn't expect.
Speaker 1 (03:25):
Well, Jason, let's get into this whole problems with the property,
real estate sector in China. I mean, you know, my
sort of Layman's understanding of it is that China's developers
just built entirely, way too many apartments than what's really needed.
You know, how did that happen? And how bad is it?
(03:49):
Do you think the debt problems of the developers who
are having trouble selling all these apartments?
Speaker 3 (03:55):
Yeah, So when you think about kind of apartments in China, right,
if we think about it from kind of the US perspective,
which is, well, you buy it to either live in
it or you rent it out to collect the yield,
then you're absolutely right that there is an overbuilding of
apartments in China because there are lots and lots of
apartments that are owned but not lived in and not rented,
(04:16):
so it's very unproductive. But if you're a Chinese, and
I'll give you kind of a funny anecdote, So I
bought a few apartments in China very early on, so
they're quite cheap at the time, and I go, oh,
you know, they're kind of empty, so let me rent
it out. When people realize that, they kind of look
at me funny and go, Jason, are you in financial trouble?
Why would you rent out your place to someone else
(04:36):
for money. So Chinese don't think of apartment as like
a fixing cume, right, that produces a income for you.
They think of it more like I would say how
Indians think of gold, right. So it's more of a
store of value. So they're perfectly happy holding an apartment,
leaving it empty, believing it holds value. Does it always
go up, frankly doesn't enter into their psyche. Now it's
(04:58):
been lucky that's been going up. But they really see
it as a store value, right, just something that's solid
they can look at, they can point to, and oftentimes
they brag about. From that perspective, there's an enormous demand
when it comes to the Chinese appetite to buy property,
and that demand is purely almost like collecting, right. It
is not for consumption and it is not for investing.
(05:20):
So I think that's just sort of useful to understand that.
And I guess you know your question about well, you know,
are the developers in trouble because maybe the Chinese are
cooling off on their preference the whole you know, wealth
in real estate. I would say the Chinese developers are
mostly in trouble, not because somehow Chinese investors I think
(05:42):
what's more an issue is a lot of them have
simply geared up way too hot. Your country garden you're China,
evergraam that that went.
Speaker 4 (05:49):
Under last year.
Speaker 3 (05:50):
They simply borrow way too much debt and they were
hoarding land and hoarding apartments and not selling them fast
enough to pay down the debt. They're just borrowing more
to hoar more land. And I think they just irritated
Beijing a little too much. And I would say these
are not a real state related triggering a bankruptcy, but
almost a policy engineered bankruptcy target at real state developers
(06:16):
that have simply become two gear to liver it up. Yeah.
Speaker 1 (06:20):
I wanted to ask you about that because there's always
sort of this assumption in the West that Beijing can
come to the rescue anytime it wants for a problem
like this. I don't know how true that is, but
in this case, you know, they have done some things
on the margin to try to show up the housing market,
that eased some of the mortgage restrictions. They're lowering the
(06:44):
reserve requirements for the banks. Is that all they can do?
I mean, to your point, are they actually really holding
off on sort of a Big bazooka fix for this
because they do want to ring some of that excess
leverage out of the market. Now, how do you view
the policy response to this at what the goals of
(07:04):
it are?
Speaker 3 (07:06):
Yeah, I was a In fact, I think the government
doesn't think right now there is a meaningful problem in
a real estate sector other than you know, consumers seem
to be disappointed about how real estate is performing and
therefore that lack of confidence maybe causing them to not consume.
So the government realized, ah, you know, the most reliable
channel for wealth effect, which is basically real estate appreciating
(07:29):
that has coused household to be willing to increase consumption.
That channel has temporarily gone away, So you know, they
recognize that. But of course, the bigger problem they're trying
to contain originally was they didn't want real estate price
to get more expensive because it wasn't a social I mean,
it wasn't becoming a financial problem. It's becoming a social problem. Right,
homes are too expensive for you hen people to buy.
(07:49):
But from a financial problem perspective, if you look at
the household sector, right, Chinese household are not levered when
it comes to real estate if the allo pers are
very levered, but the household which is more important, right,
they're not lever because they can buy their first home
with money down and they paid quite a bit of
money down and they generally have to sort of have
enough income to cover the payment. If they want to
(08:12):
buy a second house, it's got to be all cash, right,
So most Chinese, and if you live next to the
Chinese in your neighborhood, you realize they buy real estate
all cash. And that's how they buy real estate in
China as well, So you don't run into financial problem
when you buy.
Speaker 4 (08:22):
Real estate all cash.
Speaker 3 (08:23):
It might be a bad investment, right, You might buy
something it never goes up, right, It has no yield
if you don't rent it, so it might not be
a great investment, but doesn't become a financial crisis. So
I think the government's okay with where real estate is today, right,
price isn't going up that bankruptcy you're seeing a developer
sector is very engineered. You know, on the household side,
there's not a balance sheet crisis because they're not buying
(08:44):
real estate on levers, so they really don't think there's
a meaningful problem there.
Speaker 4 (08:48):
Now.
Speaker 3 (08:48):
Of course they wish the Chinese household would have found
like another store of value or another asset that's more
productive that the government could sort of help manage and
create a wealth.
Speaker 4 (09:00):
They're hoping the stock market can be.
Speaker 3 (09:02):
That, but you know, it remains to be seen if
they can get all of that money, that unproductive money
into in real estate into the more productive long term
investment in stock market.
Speaker 2 (09:10):
So say more about the consumer and the state of
the Chinese consumer, is that another facet that's under pressure
right now in China.
Speaker 3 (09:19):
I think that is the biggest problem right the consumers
China and Bay I guess Paging specifically has been hoping
that China wouldn't just be explore oriented economy where everyone
just works so really hard in the factory and shook
everything overseas and then you know, never spend money. Right.
That's been a bit of a sort of traditional, uh,
(09:40):
you know, Chinese mentality when it comes to working excessively,
saving excessively, and not consuming enough. So it's too dependent
on our export. So gradually domestic consumptions has actually picked
up quite a bit more, seeing GDP going from you know,
thirty six percent export today only about sixteen percent export.
So consumption has sort of picked up, but more recently
(10:00):
consumption gone fairly flat. And part of that was COVID, Right.
I mean, when Americans came out of COVID, we go, yes,
we saved up money. We haven't been spending money, so
let's go spend money. Right, the rebnge spending. When Chinese
got at COVID, they go, my god, now that was horrible.
So that's save more money so we can self ensure.
Speaker 4 (10:17):
Right.
Speaker 3 (10:18):
It was a complete different mentality, right, So Chinese after
any major crisis and disaster, they just go and save
more money. So part of was that, and of course
part of was I think disappointment with how Beijing has
both managed, you know, the COVID lockdown and opening up,
and also disappointment with how poorly GDB has performed post COVID.
So again, both of those has caused I think consumer
(10:40):
to go into a weight and see mode. So you're
not seeing people spending money. It's not because they don't
have money. Right, there's about thirty trillion dollars not even
renting BIA dollars equivalent of household savings and bank accounts
and sort of quasi bank accounts in money markets. Trust products,
but they're just not spending money.
Speaker 4 (11:00):
It's a confidence issue.
Speaker 2 (11:01):
Thirty trillion.
Speaker 3 (11:03):
Yeah, wow, they save a lot of money.
Speaker 1 (11:12):
You launched the Ralliant Quantinmental China ETF. I guess it
was at the end of twenty twenty, and it's been
a bit of a rocky launch. It's down about forty
two percent from the launch. Talk to us a little
bit about the strategy, you know, how you pick stocks
for that ETF and and why you know why this
early couple of years of it have been so rough.
Speaker 3 (11:35):
Yeah, So, you know, the beta has been a major
major headway. You know, I think we launch a product
at the time where we believe, oh, you know, as
trying to gets incorporated more into the sort of MSCI basket,
there's going to be sort of natural flow going into
the ascid claus and people are going to start to
get more curious about, oh, can you directly invest in
(11:56):
China rather than just buying Ali Baba as an American
ADR made me that's looking at the next Audibaba right,
an unknown firm listed on shore. So you know, we
launched an onshore product that focused on issuers, and of
course we ran headlong into essentially three years of turbulence
all the way from the COVID lockdown to really government
(12:16):
uh you know, experimental experimenting with policies of you know,
how to manage e commerce platform companies.
Speaker 4 (12:23):
H and I would say huge imping.
Speaker 3 (12:24):
As he's marching in this third term, there's just a
lot of uncertainty with regard to what will that look like, right, well,
Beijing after power consolidation, uh still kind of pursue the
same kind of pro growth policy from the previous.
Speaker 4 (12:37):
Eras or would there be a majorship? Right So there's
just a lot of uncertainty.
Speaker 3 (12:41):
And I think so early signs has not really you know,
caused people to develop confidence. And certainly you got the
China US tension that started with you know, President Trump
and continued to present by them. So we ran into
a lot of sort of beta headwinds, unexpected of course,
but it is I would say, part for the core
when it comes to investing in emerging markets. You know,
(13:03):
this is China. Now, If it's not China, I'm sure
there are many many other emerging countries that also run
into such your political tensions you know with someone you know,
beal with China, beal with the US and also their
own domestic election cycle can can play heavily into sort
of the betahead wind as well. But I would say
part for the course for EM investing.
Speaker 2 (13:22):
So can you talk about how you're making sense of
what else is happening in the emerging market space? Because
emerging market stocks gave up their gains for the year,
So any gains that we had had up until I
think it was a couple of days ago, actually they
gave up all of those gains. I'm wondering what the
biggest pain point for emerging market stocks has been this year.
(13:46):
Is it what's going on in the US in terms
of rising interest rates? Is it China?
Speaker 1 (13:51):
Is it?
Speaker 2 (13:52):
You know, a multiple of those factors weighing on EM stocks.
How are you making sense of what's going on?
Speaker 4 (13:59):
Yeah? You basically have the perfect storm.
Speaker 3 (14:02):
So you know, our quant data process looks all the
way from kind of the micro bottoms up and then
you know, taking into account kind of all the macro
data and unfortunately you got everything going against you. Right
kind of on a fundamental side, right, EM is still
so dependent on DM consumption, right, So when.
Speaker 4 (14:19):
EM is performing poorly, oftentimes it's because EM is looking to.
Speaker 3 (14:25):
D M to drive consumption growth, so they can explore right,
you know, EM is very much a raw resource exporting
manufacturer good exporting. So Europe has clearly been weak and
most of the manufacturer in EM has been sort of
forecasting a US hard landing, so they weren't aggressively seeking
to build capacity, and so you got you got that
(14:45):
going against EM. And then of course you have the
dollar at record high yield and so you know, EM
have historically dependent on a lot of global capital and
now you have this global capital flight away from EM
back to the dollar because they're dollars, safety and yield
there is just so much more attractive. So it's pulling
Calta away from some of the capital poor economy. So
(15:08):
that's a that's a that's a major headwind as well.
So you kind of got a fundamental against you. Now
you've got kind of the financing, the liquidity part against you.
And from a sentiment perspective, you know, EM sentiment is
more fragile by local stock markets are shallow.
Speaker 4 (15:22):
So when we you.
Speaker 3 (15:23):
Know, when our quant scores look at sort of sentiment scores,
what we've seen is sort of you know, as floor
of a sentiments score across the board for EM, not
just for China, but really across the board for EM
and not just domestic flows, but even you know, more
long term institutional global folks are showing very poor sentiment.
Speaker 2 (15:41):
Where do you see opportunities in EM right now? Then
how are you thinking about the broader landscape?
Speaker 4 (15:48):
So I would say, you know, short term versus long term.
Speaker 3 (15:51):
Short term, I would say the interesting and fun place
are really all the French shoring themes, and then you
know those could could last all the way from a
few months path maybe you.
Speaker 4 (16:01):
Know a year or two.
Speaker 3 (16:03):
Uh, so you know, you have you know, Mexico now
being I think front and center for a lot of
people thinking, hey, you know, friend shorwing Mexico is an
obvious candidate as an EM economy that's big enough and
obviously close enough to to the US for that theme
to really thrive investment in the in New Mexico, India obviously,
you know, Vietnam, you know, being where a lot of
(16:26):
Chinese entrepreneurs and the factories have moved production to. And
so that friend showing exercise has sort of pushed a
lot of foreign direct investments from China, you know, and
from Chinese into Vietnam. So I would say there are
a lot of opportunities around the French shoring concept. That's
kind of the short term and obviously we saw a
major rally for for India before it pulled back more
(16:47):
recently as well. In the long run, I would say
in the long run, where I think the opportunities are UH,
it'll continue to be the explot oriented and high value
add economies. You know, you're China, You're in the UH,
and increasingly so your your Vietnam, your Indonesia is more
foreign direct investments, you know, lead China to to go
to these smaller economies They're going to follow kind of
(17:10):
the Japan, South Korea, Taiwan, and of course the China
model of exporting UH and then through exporting, improving corporate profits,
improving GDD growth UH. And I'm probably a bit more
mixed about purely resource based EM economy because they seem
to go through these boom bus cycles are just driven
by commodities prices and have commodity devices could sustain the
(17:32):
current high level due to your political tension, but without
really strong on value add I'm a little you know,
less fond of a pure resource oriented em economy. So
very fond of the the Asian EM because you can
see all of them are climbing the productivity curve, and
the French showing is certainly going to accelerate the process.
Speaker 1 (17:52):
I like that expression, friendshuring. It's a lot more UH
friendly expression than the rest of the world is at
each other throats, you know, friendsuring is the positive side
of that, I guess. But Jason, I'm glad you brought
up the dollar because one of the things I wanted
to ask you about is, you know, the really severe
(18:12):
weakness in the Chinese currency lately. Uh it's even been
sort of testing that two percent trading band that the
People's Bank of China sets every day. I mean, is
there a risk of the PBOC sort of losing control
of the exchange rate? Where do they always have enough
sort of firepower to keep it in that you know
(18:33):
range that they wanted in.
Speaker 3 (18:35):
Yes, I would say the PBOC is pretty mixed when
it comes to managing the remming bet. You know, part
of the PBOC clearly understands that it is still an
export oriented economy and for you know, stimulating the export sector,
which is really great for domestic employment. And obviously the
key cities that have thrived because of manufacturing, like a
(18:57):
weaker remming Bee helped, right, So I understand. And now,
of course it doesn't like to be labeled as a
currency manipulator, doesn't want sanctioned that.
Speaker 4 (19:04):
Comes with that.
Speaker 3 (19:05):
So this is sort of perfect time as the dollar
increased rates and then have strengthen, you know, for rending
be too weakend it's really it's certainly weakening at the
perfect time when China is experiencing sort of deflation, right,
And so I don't think the PBOC minds it now.
Of course, the PBOC is sort of you know, constantly
watching to see if intervention is necessary. Again, I mean
(19:26):
from an intervention perspective, given that person of China has
a sort of massive dollar reserve and you know, other
currency reserve, and given that increasingly, you know, China has
been successful in marketing renming b as a viable reserve
certainly for for clearing, uh for for some of the
energy related resource.
Speaker 4 (19:46):
Remming Bee in the position it is in right now,
it doesn't.
Speaker 3 (19:49):
Really have a an issue much like you know, the
Latin currency when they're trying to defend a peg, right,
you don't you just don't have that issue because of
the reserve they have, and also the reserve status that
rending be is increasingly achieving.
Speaker 2 (20:02):
Jason, I'm curious how you think investors are thinking about
EM opportunities right now, because we've had, barring the last
couple of weeks, maybe we've had really strong performances from
US large cap tech companies so far this year, and
so I'm just wondering how you think people in general
are thinking about investing in EM versus investing in large
(20:27):
cap US tech companies, or even to make it maybe
more relevant to the last couple of weeks, investing in
shorter dated bonds or cash like instruments where you can
maybe get you know, north of five percent. Some of
the yields are like five and a half percent currently.
Speaker 3 (20:45):
I mean historically people bought EM because they say, hey,
I'm happy you take some risks if this allows me
to buy kind of foundational components for growth. You look
at EM, I go, yes, a young, hungry workforce, and
that's got a drive growth. Right.
Speaker 4 (21:00):
Hey, it's an indefficient market, so you.
Speaker 3 (21:02):
Know that's got to provide lots of opportunity, uh for
for growth because you know, capital is dearth in those markets.
So if you can go supply capital, you can return
you know, a fantastic return. But I would say more recently, uh,
you kind of have you know, those thesis going against
you a little bit in that of people are now
looking at US and say, oh, you know, if the
US is going to be at ground zero of the
(21:23):
AI innovation, right, I mean, maybe that's where I go
buy growth. Right, Maybe growth is not about buying you know, young,
lesser skilled labor cheap, but it might be buying AI
technology that.
Speaker 4 (21:35):
Will replace you know that that that that labor.
Speaker 3 (21:38):
Now, I think that thesis is wrong because you know,
most of our AI is replacing American white color worker
rather than factory workers, right, because we don't actually have
very functioning robots, right, we just have chat GPT that
can write law bries. You know, that's not what we're
getting the Chinese factory workers do. But be as I may,
I think there's just a lot of now believe that, oh,
if I want to buy growth, maybe I should just
(21:58):
dump a lot of money into video and that I'll
by growth that way. I don't need to take the
risk of em And certainly historically there's a lot on
fixed incomes are right, you also have a lot of
people going to uh EM fixed income for the higher
you knowing that they're taking currency risks, they're taking a
lot of these government mismanagement risks. But today you look
at how much the dollars yielding at, it's harder to
(22:20):
make that case. So you kind of got a bit
of a double m against EM right now. The two
key pieces, you know, growth uh and that additional yield
US seems to be making that available through the large
cap tech and then just the dollar treasury yielding at
the you know, five five and a half percent, So
rather tough as a headwind for EM in the short run.
(22:41):
Right in the short run, I mean we expect, we
fully expect, you know, the US interest rate is going
to get cut because we owe you know, thirty four
trillon dollars, so we prefer to owe thirty four trillion dollars.
Speaker 4 (22:50):
At zero interest rate than six percent.
Speaker 3 (22:52):
So you imagine that's going to get cut, and the
attractiveness of the EM currency and yield is going to
come back. You also expect that we'll quickly realize, you know,
there's tech growth, but then there's a lot of manufacturing
that's needed to produce that tech. So EM is still
going to be important driver. So in the long run,
I think those thesis are true. But short run, you know,
past perform and tends to draw a lot of flow,
(23:13):
so you as is that the best performance?
Speaker 1 (23:15):
You know, Jase, I know you've done some work looking
at whether it would make sense to sort of carve
China out of the emerging market stock indexes, you know,
as China decoupling from the US and maybe even the
other emerging markets. Talk to us a little bit about
your thinking around that. You know, where we going to
hear more and more about sort of E M X
(23:36):
China type of funds. What's your take on, you know,
the notion of EM indexes that exclude China.
Speaker 3 (23:44):
You know, Mike, when I originally did the research, you know,
my my rationale for exiting out China was more about, well,
China is so big inside EM, right, so if you
don't exil China, then China has a bad year. EM
as a bad year, so you're not getting a lot
of diversication benefit.
Speaker 4 (24:00):
Take out China.
Speaker 3 (24:00):
Chinnea's not very correlated with the rest of EM, so
you got more flexibility correlation benefit is better, and then
it just seems to make sense. It's like, how we
took us out of global acuity, so people did us
and global us, right, that makes sense.
Speaker 1 (24:15):
China is what close to half of the like the
MSCI em indux stuff like that.
Speaker 3 (24:19):
You know, when before it declined forty percent, it was
about and so you know that I thought was like
a very academically uh defensible reason, but you know, no
one paid attention to that. But today people are liking
that concept because they sort of have a sort of
bad taste in their mouth. It's like, ah, you know,
China's fallen too much. If I've taken China out of
(24:40):
my EM, I EM would have done better. Right, So
there's a little exposed regret. And there's also I think
a lot of value judgments. And again you know I'm I'm,
I'm you know, perfectly happy or people both invest and
impost some kind of ESG.
Speaker 4 (24:53):
Value judgment in their portfolio.
Speaker 3 (24:54):
So it makes sense, right, like take China l It
gives you that flexibility, right, you can be you can
be an e investors and say, oh, China doesn't come
you know, you know the fact that government is communists,
so that's not consistently.
Speaker 4 (25:05):
Yeah, okay, that's fine.
Speaker 3 (25:07):
You could be like a contrarian investor and say, wow,
you know everyone hates China, so I'm good buy China,
and that could work as well.
Speaker 4 (25:13):
So you take China out of EM.
Speaker 3 (25:15):
It allows people to sort of ask allocate whether because
you know, they really like China or they really hate China,
and they don't just have to do it within the
context on EM basket.
Speaker 2 (25:40):
Jis and I can't even imagine all of the things
you have to be keeping up with in the world
to be able to formulate some of these thoughts. Like
I'm thinking about some of the elections that are coming
up in major EM countries, lots of stuff happening in Argentina,
et cetera. I'm wondering how you're thinking about the remainder
of this year and whether or not you see more
(26:01):
volatility if there are some opportunities to be buying, you know,
different EM stocks.
Speaker 3 (26:08):
So we really like EM again, the short term is
it's hard to predict, and my guess is for the
rest of the year, sentiment will remain negative. The volatility
will be there, but you know, you know, most of
our clients are large institutions. So at least I can
tell you for institutions to build a position too. You know,
(26:28):
the dollar cost averaging into a position is a great
way to invest.
Speaker 4 (26:33):
For the long run and form a valuation perspective. EM
is cheap.
Speaker 3 (26:36):
You know, you can't expect to go into EM and
immediately see it sort of turn around and start recovering.
But you can probably bet on in ten years if
you buy at such a cheap level, if your willingness
is like no short term fluctuation, you're gonna do plenty well.
Speaker 4 (26:53):
Right.
Speaker 3 (26:53):
And then, like I said early in a program like
the world's always like the twin engine, right, like kind
of you us as the head of DM really innovating.
So it's driving growth through innovation, and EM is achieving
growth through imitation. Right, So you got innovation and imitation.
Those are two amazing engines that keep the world going.
And then you should you know, have both.
Speaker 1 (27:15):
You know, Jason, you touched briefly on the trade tensions
between the US and China. I'm wondering how you're thinking
about that going forward. I mean, what is sort of
the status there? It seems to me like kind of
a stalemate, a standoff, but is there a path towards reconciliation?
You know, where does this relationship go?
Speaker 3 (27:37):
So, yeah, there's a lot of you know, bickering back
and forth. I tend to see the US China relationship
as a abusive code dependent marriage, right, Like if you
think about it, right, Like, the US is the world's
biggest consumer, right, and we run a massive trade deficit,
and that just means someone must be a big producer.
(28:01):
We can't all be consuming, right, Someone's got to make stuff,
and we can't all be borrowing. Someone's got to let, right,
Like US consumes and we borrow from foreign countries, and
China needs to be the willing partner to produce and
lend us money to consume, So we can't break away
from each other, right, and then we're both too big. Right.
Speaker 4 (28:18):
It's not like US can.
Speaker 3 (28:19):
Go replace China with Vietnam and say, hey, we'll give
you the Chinese deal, right where you do all of
our manufacturing and lend money to us. Because Vietnam's got
what a population of sixty million, right, China's got you
one point three billion people. So just the math of
the two conage being so large, and they almost are
like the perfect fit for each other well.
Speaker 1 (28:39):
Jason Sue. He is the chairman and chief investment Officer
at Ralliant Global Advisors. Always great to catch up with you, Jason,
and hear how you're thinking about the world. You've got
such a great way of explaining everything, and as Wodanna said,
you've got your eye all over the world, which we
really appreciate. But we can't let you go quite yet.
(29:02):
We do have a tradition on the podcast of sharing
the craziest things we've seen in markets this week, Pildatta,
let's start with you.
Speaker 2 (29:11):
I have a good one that I found on X
Mine is about Taylor Swift and Travis Kelcey. Okay, yeah,
I know you. You prefer the Swift a separate Swift
Kelsey pairing on the Eagles, probably this one. This one's
more important to the world of pop culture and swifties
(29:31):
like me. But just to show you the Taylor Swift effect,
this is This is a tweet from Joe Panpliano. Taylor,
as we as the entire world knows now, was at
the Kansas City Chiefs game over the weekend. She was
in a box with Travis Kelcey's mom and a bunch
(29:52):
of friends and they were having a really great time
x slash. Twitter went wild and people everywhere went wild
for this. Anyway, after you know, Taylor Swift visited him
at this game, he gained more than three hundred thousand
social media followers. Wow, he saw They saw a four
hundred percent increase in merchandise sales, and his jersey became
(30:16):
one of the top five selling jerseys in the NFL.
The NFL changed their Twitter X well, I can't say
X honestly, their their X description to say, like Taylor
Swift was here, like it just the impact was mind
blowing to me.
Speaker 1 (30:35):
My wife has a conspiracy theory that ratings were going
down for the NFL games and they needed they needed
to bring it in.
Speaker 2 (30:42):
And I've heard this conspiracy theory before. I'm not in.
I don't buy into it, but I like it.
Speaker 1 (30:48):
I like it. That's a good as far as conspiracy
theories go. That's it. That's a good.
Speaker 2 (30:51):
One four hundred percent increase in merchandise sales.
Speaker 1 (30:54):
That's that's your market angle.
Speaker 3 (30:56):
I guess, yeah, exactly, I need to hire Taylor Swift
to sell my et.
Speaker 1 (31:05):
You got to make a friendship bracelet with the checker
symbol on it. Jason, that's what That's what Kelsey did.
You made a friendship bracelet with her number. Who would
have thought that would work?
Speaker 2 (31:13):
Well?
Speaker 1 (31:14):
How about you, Jason, you see anything crazy in the
last week or so.
Speaker 3 (31:18):
I mean, it's a long running theme for me. And
because I have such a grudge against Nvidia.
Speaker 4 (31:23):
I saw this on X. I saw this on X
but it.
Speaker 3 (31:26):
May have been on there for a while. I'm in
the Middle East. I'm a little out of touch, right.
Someone actually said, like, Nvidia maybe a bit of a
Ponzi scheme because apparently they bought a company who's like
the biggest buyer of their chips, and like, if you
work out the accounting, all of their sales growth was
driven by you know this other company. So there there
may be some funky, weird thing going on. But in
(31:47):
full disclosure, right, my big, big grudge against Nvidia is
not because I got a short position in it.
Speaker 4 (31:53):
And got my clocks clean, none of that.
Speaker 3 (31:56):
It's because my mom bought Nvidia and one hundred bucks
a share it went up to two point fifty on
that crazy upgrade, and I.
Speaker 4 (32:03):
Said, Mom, this this makes no sense.
Speaker 3 (32:04):
You could sell it, right, It reminds me of Cisco
during a tech bubble where everyone says, oh, of course
everyone would need to buy a router, and you know,
Cisco will own the world. And so you know, that's
kind of seemed narrative. I hear about video, So I
told my mom son video he makes us a good game,
and of course then it goes to.
Speaker 4 (32:20):
Like four hundred and fifty. So every time my mom sees.
Speaker 3 (32:22):
Me, right, he's like, I have an idiot for a son.
Untold in video falls below two fifty, I'm going to
be like putting a X curse.
Speaker 4 (32:33):
On that stock.
Speaker 1 (32:35):
That's hilarious. Well that's kind of I think very indicative
of uh, the mania that takes over. That just doesn't
seem to make sense. Now, I credit in video has
got a decent a very good book case. But uh,
you know what are your mom's not performing you you know,
you know, you know something, something's out of whack with markets.
(32:55):
I love that story. That's hilarious. Uh, all right, your mine,
vil donna. Do you know what the highest denomination Federal
Reserve Bill is? In other words, the highest denomination currency
paper currency is right.
Speaker 2 (33:11):
Now, one hundred bucks.
Speaker 1 (33:12):
Did you know during the Great depression, and prior to that,
I assume too, there were bills denominated in ten thousand.
There were ten thousand dollars banknotes available. They never circulated publicly.
They were basically just used to transfer funds between various
Federal Reserve banks. But this is according to a story
(33:36):
in the New York Post, one of them that was
printed in nineteen thirty four just came up for auction,
and the picture on it is President Abe Lincoln's Treasury
Secretary Salmon P. Chase. The question for you to game
show consstants right now is what do you think this
(33:56):
ten thousand dollars bill from night teen thirty four, pristine condition,
sold for at the Long Beach Currency Expo.
Speaker 2 (34:07):
You can't use it, right, you know?
Speaker 1 (34:10):
That's a third good question.
Speaker 2 (34:11):
You would just have it like to hang on your wall.
Speaker 1 (34:14):
That's a very good question. I assume I'd have to
zoom in on the picture and see if it says
legal tender for all debts, blah blah blah. That's a
good question. I don't know. I will tell you this,
for what it's sold for, you would not want to
spend it. That's one hint to the value that I
have for.
Speaker 3 (34:31):
I'm going to guess it's below two point three million,
which is I think what the Tom Brady baseball car fetch.
Speaker 4 (34:37):
It can't be more valuable than that.
Speaker 3 (34:39):
I'm gonna I'm for a crazy number out there.
Speaker 4 (34:42):
Half a million dollars.
Speaker 1 (34:43):
Half a million dollars? All right, vill Donna, what's your
bid for a ten thousand dollars Salmon p Chase bill
from nineteen thirty four?
Speaker 2 (34:52):
I literally have no guess what like at all, So
I'm just gonna go with ten thousand.
Speaker 1 (34:57):
Ten thousand. You think it's just sold.
Speaker 2 (34:59):
For part Yeah, I'm just going with that.
Speaker 1 (35:01):
Yeah, all right. Jason. It's a shame your mom's not
here because you just got some redemption here. You're very
close four hundred and eighty thousand. Wow, yeah, Wow. Apparently
it's a big This is a huge collector's market is
old bills of high denominations like this. Who knew you
learned something new?
Speaker 2 (35:20):
Usually I have like at least a little bit of
like a feeling toward what something might be, you know,
even if I'm wildly off. But on this one, I
had absolutely nothing. I just would not even know. Your
hint didn't help at all for what it sold for
you wouldn't want to spend it.
Speaker 3 (35:38):
Yeah, you know, because there's no there's no NFC options now,
so people need something to collect.
Speaker 1 (35:44):
Yeah, all right. Jason Seu of Ralliant Global Advisors, thank
you so much for your friend.
Speaker 4 (35:50):
Thanks Mike, Thanks Madonna, thank you, Jason.
Speaker 1 (36:02):
Well, thank you for listening to What goes Up. While
we're on hiatus. You can follow or subscribe to What
goes Up to stay tuned for updates. We'll be dropping
information about what's next here in this feed. You can
also follow Bloomberg Podcasts at podcast on x. What Goes
Up as produced by Stacy Wang. Our head of podcasts
(36:24):
is Sage Bauman. Thanks for listening.
Hello, and welcome to What Goes Up, a weekly markets podcast.
My name is Mike Reagan. I'm a senior editor at Bloomberg.
Speaker 2 (00:21):
Numble Down, a hare across asset reporter with Bloomberg.
Speaker 1 (00:24):
And this week on the show, well, as China heads
into its Golden Week holiday, there won't be much celebrating
in the real estate sector. Chinese property stocks are trading
near the lowest level since two thy and eleven, and
concerns are growing about more defaults among developers. How did
the housing market in the world's second largest economy get
(00:46):
so out of whack and what will it take to
fix it and help Chinese stocks catch a bit again.
We'll get into it with a fund manager who focuses
on China and emerging markets. But first a programming note, Well,
we've been going strong for four and a half years,
but What Goes Up will be going on hiatus after
this episode, as the Bloomberg podcast team works on some
(01:07):
exciting news shows, so keep an ear out for them,
and as always, tweet to us at the handle at
podcasts on x so let us know what you think
of the shows. Well, Dona, is it still tweeting now
that the thing's called.
Speaker 2 (01:20):
X does anybody? Does anybody even call it X?
Speaker 1 (01:24):
Elon?
Speaker 2 (01:25):
Does Elon? But who else?
Speaker 3 (01:26):
You know?
Speaker 2 (01:27):
I never say, like, let me check my ex app.
Speaker 1 (01:30):
But do you X a post? Do you X a post?
Speaker 3 (01:33):
Yeah?
Speaker 2 (01:34):
Huh, I haven't heard.
Speaker 1 (01:35):
You wouldn't have the answers. I thought you'd have the answer.
Speaker 2 (01:37):
I'm not a hip millennial, but our guests this week
he might be active on X slash Twitter. I'm not sure,
but he's definitely been on the podcast before and I'm
happy to welcome him back. It's Jason Sue, chief investment
officer at Rilliant Global Advisors. Jason, thank you so much
for joining us, super glad. I wanted to start out
(01:57):
with asking you to tell us a bit about yourself
because you have a very interesting background having worked with
Rob are Not in the past, and you guys have,
as Mike said, we're going to be focusing on internationally
in this episode, so you guys have a presence in
a lot of places around the globe. So tell us
a bit about yourself.
Speaker 3 (02:16):
Well, as you mentioned, you know, I started research affiliates
with Rob or Not. That's nearly twenty years ago now.
I spun out in twenty sixteen, to focus primarily on
emerging markets, and of course, you know, when you think
about emerging markets, you can't ignore China's a lot of
my research, a lot of you know, our qual models
are built to create alpha in China. You know, today
(02:37):
we got ETFs in the US that gets your exposure
to China, to EMX China and actually more broadly the
global markets. Basically just tells you the power of the
quantitative methods when it comes to alpha generation across the globe.
You know, today I am talking to everyone from Dubai
and that's because the Middle East has a almost opposite
(03:01):
of the US as a meaningful fascination, and it's probably
from a strategic allocation perspective, very overweight China.
Speaker 4 (03:08):
So that's why I'm out here.
Speaker 1 (03:09):
That might be our first guest tuning in from Dubai.
That's a that's a first for us.
Speaker 2 (03:14):
Well, Donna, yeah, I've never been over there. So I
was asking Jason before we started taping, like what's it like,
and he said it's very humid, which I didn't expect.
Speaker 1 (03:25):
Well, Jason, let's get into this whole problems with the property,
real estate sector in China. I mean, you know, my
sort of Layman's understanding of it is that China's developers
just built entirely, way too many apartments than what's really needed.
You know, how did that happen? And how bad is it?
(03:49):
Do you think the debt problems of the developers who
are having trouble selling all these apartments?
Speaker 3 (03:55):
Yeah, So when you think about kind of apartments in China, right,
if we think about it from kind of the US perspective,
which is, well, you buy it to either live in
it or you rent it out to collect the yield,
then you're absolutely right that there is an overbuilding of
apartments in China because there are lots and lots of
apartments that are owned but not lived in and not rented,
(04:16):
so it's very unproductive. But if you're a Chinese, and
I'll give you kind of a funny anecdote, So I
bought a few apartments in China very early on, so
they're quite cheap at the time, and I go, oh,
you know, they're kind of empty, so let me rent
it out. When people realize that, they kind of look
at me funny and go, Jason, are you in financial trouble?
Why would you rent out your place to someone else
(04:36):
for money. So Chinese don't think of apartment as like
a fixing cume, right, that produces a income for you.
They think of it more like I would say how
Indians think of gold, right. So it's more of a
store of value. So they're perfectly happy holding an apartment,
leaving it empty, believing it holds value. Does it always
go up, frankly doesn't enter into their psyche. Now it's
(04:58):
been lucky that's been going up. But they really see
it as a store value, right, just something that's solid
they can look at, they can point to, and oftentimes
they brag about. From that perspective, there's an enormous demand
when it comes to the Chinese appetite to buy property,
and that demand is purely almost like collecting, right. It
is not for consumption and it is not for investing.
(05:20):
So I think that's just sort of useful to understand that.
And I guess you know your question about well, you know,
are the developers in trouble because maybe the Chinese are
cooling off on their preference the whole you know, wealth
in real estate. I would say the Chinese developers are
mostly in trouble, not because somehow Chinese investors I think
(05:42):
what's more an issue is a lot of them have
simply geared up way too hot. Your country garden you're China,
evergraam that that went.
Speaker 4 (05:49):
Under last year.
Speaker 3 (05:50):
They simply borrow way too much debt and they were
hoarding land and hoarding apartments and not selling them fast
enough to pay down the debt. They're just borrowing more
to hoar more land. And I think they just irritated
Beijing a little too much. And I would say these
are not a real state related triggering a bankruptcy, but
almost a policy engineered bankruptcy target at real state developers
(06:16):
that have simply become two gear to liver it up. Yeah.
Speaker 1 (06:20):
I wanted to ask you about that because there's always
sort of this assumption in the West that Beijing can
come to the rescue anytime it wants for a problem
like this. I don't know how true that is, but
in this case, you know, they have done some things
on the margin to try to show up the housing market,
that eased some of the mortgage restrictions. They're lowering the
(06:44):
reserve requirements for the banks. Is that all they can do?
I mean, to your point, are they actually really holding
off on sort of a Big bazooka fix for this
because they do want to ring some of that excess
leverage out of the market. Now, how do you view
the policy response to this at what the goals of
(07:04):
it are?
Speaker 3 (07:06):
Yeah, I was a In fact, I think the government
doesn't think right now there is a meaningful problem in
a real estate sector other than you know, consumers seem
to be disappointed about how real estate is performing and
therefore that lack of confidence maybe causing them to not consume.
So the government realized, ah, you know, the most reliable
channel for wealth effect, which is basically real estate appreciating
(07:29):
that has coused household to be willing to increase consumption.
That channel has temporarily gone away, So you know, they
recognize that. But of course, the bigger problem they're trying
to contain originally was they didn't want real estate price
to get more expensive because it wasn't a social I mean,
it wasn't becoming a financial problem. It's becoming a social problem. Right,
homes are too expensive for you hen people to buy.
(07:49):
But from a financial problem perspective, if you look at
the household sector, right, Chinese household are not levered when
it comes to real estate if the allo pers are
very levered, but the household which is more important, right,
they're not lever because they can buy their first home
with money down and they paid quite a bit of
money down and they generally have to sort of have
enough income to cover the payment. If they want to
(08:12):
buy a second house, it's got to be all cash, right,
So most Chinese, and if you live next to the
Chinese in your neighborhood, you realize they buy real estate
all cash. And that's how they buy real estate in
China as well, So you don't run into financial problem
when you buy.
Speaker 4 (08:22):
Real estate all cash.
Speaker 3 (08:23):
It might be a bad investment, right, You might buy
something it never goes up, right, It has no yield
if you don't rent it, so it might not be
a great investment, but doesn't become a financial crisis. So
I think the government's okay with where real estate is today, right,
price isn't going up that bankruptcy you're seeing a developer
sector is very engineered. You know, on the household side,
there's not a balance sheet crisis because they're not buying
(08:44):
real estate on levers, so they really don't think there's
a meaningful problem there.
Speaker 4 (08:48):
Now.
Speaker 3 (08:48):
Of course they wish the Chinese household would have found
like another store of value or another asset that's more
productive that the government could sort of help manage and
create a wealth.
Speaker 4 (09:00):
They're hoping the stock market can be.
Speaker 3 (09:02):
That, but you know, it remains to be seen if
they can get all of that money, that unproductive money
into in real estate into the more productive long term
investment in stock market.
Speaker 2 (09:10):
So say more about the consumer and the state of
the Chinese consumer, is that another facet that's under pressure
right now in China.
Speaker 3 (09:19):
I think that is the biggest problem right the consumers
China and Bay I guess Paging specifically has been hoping
that China wouldn't just be explore oriented economy where everyone
just works so really hard in the factory and shook
everything overseas and then you know, never spend money. Right.
That's been a bit of a sort of traditional, uh,
(09:40):
you know, Chinese mentality when it comes to working excessively,
saving excessively, and not consuming enough. So it's too dependent
on our export. So gradually domestic consumptions has actually picked
up quite a bit more, seeing GDP going from you know,
thirty six percent export today only about sixteen percent export.
So consumption has sort of picked up, but more recently
(10:00):
consumption gone fairly flat. And part of that was COVID, Right.
I mean, when Americans came out of COVID, we go, yes,
we saved up money. We haven't been spending money, so
let's go spend money. Right, the rebnge spending. When Chinese
got at COVID, they go, my god, now that was horrible.
So that's save more money so we can self ensure.
Speaker 4 (10:17):
Right.
Speaker 3 (10:18):
It was a complete different mentality, right, So Chinese after
any major crisis and disaster, they just go and save
more money. So part of was that, and of course
part of was I think disappointment with how Beijing has
both managed, you know, the COVID lockdown and opening up,
and also disappointment with how poorly GDB has performed post COVID.
So again, both of those has caused I think consumer
(10:40):
to go into a weight and see mode. So you're
not seeing people spending money. It's not because they don't
have money. Right, there's about thirty trillion dollars not even
renting BIA dollars equivalent of household savings and bank accounts
and sort of quasi bank accounts in money markets. Trust products,
but they're just not spending money.
Speaker 4 (11:00):
It's a confidence issue.
Speaker 2 (11:01):
Thirty trillion.
Speaker 3 (11:03):
Yeah, wow, they save a lot of money.
Speaker 1 (11:12):
You launched the Ralliant Quantinmental China ETF. I guess it
was at the end of twenty twenty, and it's been
a bit of a rocky launch. It's down about forty
two percent from the launch. Talk to us a little
bit about the strategy, you know, how you pick stocks
for that ETF and and why you know why this
early couple of years of it have been so rough.
Speaker 3 (11:35):
Yeah, So, you know, the beta has been a major
major headway. You know, I think we launch a product
at the time where we believe, oh, you know, as
trying to gets incorporated more into the sort of MSCI basket,
there's going to be sort of natural flow going into
the ascid claus and people are going to start to
get more curious about, oh, can you directly invest in
(11:56):
China rather than just buying Ali Baba as an American
ADR made me that's looking at the next Audibaba right,
an unknown firm listed on shore. So you know, we
launched an onshore product that focused on issuers, and of
course we ran headlong into essentially three years of turbulence
all the way from the COVID lockdown to really government
(12:16):
uh you know, experimental experimenting with policies of you know,
how to manage e commerce platform companies.
Speaker 4 (12:23):
H and I would say huge imping.
Speaker 3 (12:24):
As he's marching in this third term, there's just a
lot of uncertainty with regard to what will that look like, right, well,
Beijing after power consolidation, uh still kind of pursue the
same kind of pro growth policy from the previous.
Speaker 4 (12:37):
Eras or would there be a majorship? Right So there's
just a lot of uncertainty.
Speaker 3 (12:41):
And I think so early signs has not really you know,
caused people to develop confidence. And certainly you got the
China US tension that started with you know, President Trump
and continued to present by them. So we ran into
a lot of sort of beta headwinds, unexpected of course,
but it is I would say, part for the core
when it comes to investing in emerging markets. You know,
(13:03):
this is China. Now, If it's not China, I'm sure
there are many many other emerging countries that also run
into such your political tensions you know with someone you know,
beal with China, beal with the US and also their
own domestic election cycle can can play heavily into sort
of the betahead wind as well. But I would say
part for the course for EM investing.
Speaker 2 (13:22):
So can you talk about how you're making sense of
what else is happening in the emerging market space? Because
emerging market stocks gave up their gains for the year,
So any gains that we had had up until I
think it was a couple of days ago, actually they
gave up all of those gains. I'm wondering what the
biggest pain point for emerging market stocks has been this year.
(13:46):
Is it what's going on in the US in terms
of rising interest rates? Is it China?
Speaker 1 (13:51):
Is it?
Speaker 2 (13:52):
You know, a multiple of those factors weighing on EM stocks.
How are you making sense of what's going on?
Speaker 4 (13:59):
Yeah? You basically have the perfect storm.
Speaker 3 (14:02):
So you know, our quant data process looks all the
way from kind of the micro bottoms up and then
you know, taking into account kind of all the macro
data and unfortunately you got everything going against you. Right
kind of on a fundamental side, right, EM is still
so dependent on DM consumption, right, So when.
Speaker 4 (14:19):
EM is performing poorly, oftentimes it's because EM is looking to.
Speaker 3 (14:25):
D M to drive consumption growth, so they can explore right,
you know, EM is very much a raw resource exporting
manufacturer good exporting. So Europe has clearly been weak and
most of the manufacturer in EM has been sort of
forecasting a US hard landing, so they weren't aggressively seeking
to build capacity, and so you got you got that
(14:45):
going against EM. And then of course you have the
dollar at record high yield and so you know, EM
have historically dependent on a lot of global capital and
now you have this global capital flight away from EM
back to the dollar because they're dollars, safety and yield
there is just so much more attractive. So it's pulling
Calta away from some of the capital poor economy. So
(15:08):
that's a that's a that's a major headwind as well.
So you kind of got a fundamental against you. Now
you've got kind of the financing, the liquidity part against you.
And from a sentiment perspective, you know, EM sentiment is
more fragile by local stock markets are shallow.
Speaker 4 (15:22):
So when we you.
Speaker 3 (15:23):
Know, when our quant scores look at sort of sentiment scores,
what we've seen is sort of you know, as floor
of a sentiments score across the board for EM, not
just for China, but really across the board for EM
and not just domestic flows, but even you know, more
long term institutional global folks are showing very poor sentiment.
Speaker 2 (15:41):
Where do you see opportunities in EM right now? Then
how are you thinking about the broader landscape?
Speaker 4 (15:48):
So I would say, you know, short term versus long term.
Speaker 3 (15:51):
Short term, I would say the interesting and fun place
are really all the French shoring themes, and then you
know those could could last all the way from a
few months path maybe you.
Speaker 4 (16:01):
Know a year or two.
Speaker 3 (16:03):
Uh, so you know, you have you know, Mexico now
being I think front and center for a lot of
people thinking, hey, you know, friend shorwing Mexico is an
obvious candidate as an EM economy that's big enough and
obviously close enough to to the US for that theme
to really thrive investment in the in New Mexico, India obviously,
you know, Vietnam, you know, being where a lot of
(16:26):
Chinese entrepreneurs and the factories have moved production to. And
so that friend showing exercise has sort of pushed a
lot of foreign direct investments from China, you know, and
from Chinese into Vietnam. So I would say there are
a lot of opportunities around the French shoring concept. That's
kind of the short term and obviously we saw a
major rally for for India before it pulled back more
(16:47):
recently as well. In the long run, I would say
in the long run, where I think the opportunities are UH,
it'll continue to be the explot oriented and high value
add economies. You know, you're China, You're in the UH,
and increasingly so your your Vietnam, your Indonesia is more
foreign direct investments, you know, lead China to to go
to these smaller economies They're going to follow kind of
(17:10):
the Japan, South Korea, Taiwan, and of course the China
model of exporting UH and then through exporting, improving corporate profits,
improving GDD growth UH. And I'm probably a bit more
mixed about purely resource based EM economy because they seem
to go through these boom bus cycles are just driven
by commodities prices and have commodity devices could sustain the
(17:32):
current high level due to your political tension, but without
really strong on value add I'm a little you know,
less fond of a pure resource oriented em economy. So
very fond of the the Asian EM because you can
see all of them are climbing the productivity curve, and
the French showing is certainly going to accelerate the process.
Speaker 1 (17:52):
I like that expression, friendshuring. It's a lot more UH
friendly expression than the rest of the world is at
each other throats, you know, friendsuring is the positive side
of that, I guess. But Jason, I'm glad you brought
up the dollar because one of the things I wanted
to ask you about is, you know, the really severe
(18:12):
weakness in the Chinese currency lately. Uh it's even been
sort of testing that two percent trading band that the
People's Bank of China sets every day. I mean, is
there a risk of the PBOC sort of losing control
of the exchange rate? Where do they always have enough
sort of firepower to keep it in that you know
(18:33):
range that they wanted in.
Speaker 3 (18:35):
Yes, I would say the PBOC is pretty mixed when
it comes to managing the remming bet. You know, part
of the PBOC clearly understands that it is still an
export oriented economy and for you know, stimulating the export sector,
which is really great for domestic employment. And obviously the
key cities that have thrived because of manufacturing, like a
(18:57):
weaker remming Bee helped, right, So I understand. And now,
of course it doesn't like to be labeled as a
currency manipulator, doesn't want sanctioned that.
Speaker 4 (19:04):
Comes with that.
Speaker 3 (19:05):
So this is sort of perfect time as the dollar
increased rates and then have strengthen, you know, for rending
be too weakend it's really it's certainly weakening at the
perfect time when China is experiencing sort of deflation, right,
And so I don't think the PBOC minds it now.
Of course, the PBOC is sort of you know, constantly
watching to see if intervention is necessary. Again, I mean
(19:26):
from an intervention perspective, given that person of China has
a sort of massive dollar reserve and you know, other
currency reserve, and given that increasingly, you know, China has
been successful in marketing renming b as a viable reserve
certainly for for clearing, uh for for some of the
energy related resource.
Speaker 4 (19:46):
Remming Bee in the position it is in right now,
it doesn't.
Speaker 3 (19:49):
Really have a an issue much like you know, the
Latin currency when they're trying to defend a peg, right,
you don't you just don't have that issue because of
the reserve they have, and also the reserve status that
rending be is increasingly achieving.
Speaker 2 (20:02):
Jason, I'm curious how you think investors are thinking about
EM opportunities right now, because we've had, barring the last
couple of weeks, maybe we've had really strong performances from
US large cap tech companies so far this year, and
so I'm just wondering how you think people in general
are thinking about investing in EM versus investing in large
(20:27):
cap US tech companies, or even to make it maybe
more relevant to the last couple of weeks, investing in
shorter dated bonds or cash like instruments where you can
maybe get you know, north of five percent. Some of
the yields are like five and a half percent currently.
Speaker 3 (20:45):
I mean historically people bought EM because they say, hey,
I'm happy you take some risks if this allows me
to buy kind of foundational components for growth. You look
at EM, I go, yes, a young, hungry workforce, and
that's got a drive growth. Right.
Speaker 4 (21:00):
Hey, it's an indefficient market, so you.
Speaker 3 (21:02):
Know that's got to provide lots of opportunity, uh for
for growth because you know, capital is dearth in those markets.
So if you can go supply capital, you can return
you know, a fantastic return. But I would say more recently, uh,
you kind of have you know, those thesis going against
you a little bit in that of people are now
looking at US and say, oh, you know, if the
US is going to be at ground zero of the
(21:23):
AI innovation, right, I mean, maybe that's where I go
buy growth. Right, Maybe growth is not about buying you know, young,
lesser skilled labor cheap, but it might be buying AI
technology that.
Speaker 4 (21:35):
Will replace you know that that that that labor.
Speaker 3 (21:38):
Now, I think that thesis is wrong because you know,
most of our AI is replacing American white color worker
rather than factory workers, right, because we don't actually have
very functioning robots, right, we just have chat GPT that
can write law bries. You know, that's not what we're
getting the Chinese factory workers do. But be as I may,
I think there's just a lot of now believe that, oh,
if I want to buy growth, maybe I should just
(21:58):
dump a lot of money into video and that I'll
by growth that way. I don't need to take the
risk of em And certainly historically there's a lot on
fixed incomes are right, you also have a lot of
people going to uh EM fixed income for the higher
you knowing that they're taking currency risks, they're taking a
lot of these government mismanagement risks. But today you look
at how much the dollars yielding at, it's harder to
(22:20):
make that case. So you kind of got a bit
of a double m against EM right now. The two
key pieces, you know, growth uh and that additional yield
US seems to be making that available through the large
cap tech and then just the dollar treasury yielding at
the you know, five five and a half percent, So
rather tough as a headwind for EM in the short run.
(22:41):
Right in the short run, I mean we expect, we
fully expect, you know, the US interest rate is going
to get cut because we owe you know, thirty four
trillon dollars, so we prefer to owe thirty four trillion dollars.
Speaker 4 (22:50):
At zero interest rate than six percent.
Speaker 3 (22:52):
So you imagine that's going to get cut, and the
attractiveness of the EM currency and yield is going to
come back. You also expect that we'll quickly realize, you know,
there's tech growth, but then there's a lot of manufacturing
that's needed to produce that tech. So EM is still
going to be important driver. So in the long run,
I think those thesis are true. But short run, you know,
past perform and tends to draw a lot of flow,
(23:13):
so you as is that the best performance?
Speaker 1 (23:15):
You know, Jase, I know you've done some work looking
at whether it would make sense to sort of carve
China out of the emerging market stock indexes, you know,
as China decoupling from the US and maybe even the
other emerging markets. Talk to us a little bit about
your thinking around that. You know, where we going to
hear more and more about sort of E M X
(23:36):
China type of funds. What's your take on, you know,
the notion of EM indexes that exclude China.
Speaker 3 (23:44):
You know, Mike, when I originally did the research, you know,
my my rationale for exiting out China was more about, well,
China is so big inside EM, right, so if you
don't exil China, then China has a bad year. EM
as a bad year, so you're not getting a lot
of diversication benefit.
Speaker 4 (24:00):
Take out China.
Speaker 3 (24:00):
Chinnea's not very correlated with the rest of EM, so
you got more flexibility correlation benefit is better, and then
it just seems to make sense. It's like, how we
took us out of global acuity, so people did us
and global us, right, that makes sense.
Speaker 1 (24:15):
China is what close to half of the like the
MSCI em indux stuff like that.
Speaker 3 (24:19):
You know, when before it declined forty percent, it was
about and so you know that I thought was like
a very academically uh defensible reason, but you know, no
one paid attention to that. But today people are liking
that concept because they sort of have a sort of
bad taste in their mouth. It's like, ah, you know,
China's fallen too much. If I've taken China out of
(24:40):
my EM, I EM would have done better. Right, So
there's a little exposed regret. And there's also I think
a lot of value judgments. And again you know I'm I'm,
I'm you know, perfectly happy or people both invest and
impost some kind of ESG.
Speaker 4 (24:53):
Value judgment in their portfolio.
Speaker 3 (24:54):
So it makes sense, right, like take China l It
gives you that flexibility, right, you can be you can
be an e investors and say, oh, China doesn't come
you know, you know the fact that government is communists,
so that's not consistently.
Speaker 4 (25:05):
Yeah, okay, that's fine.
Speaker 3 (25:07):
You could be like a contrarian investor and say, wow,
you know everyone hates China, so I'm good buy China,
and that could work as well.
Speaker 4 (25:13):
So you take China out of EM.
Speaker 3 (25:15):
It allows people to sort of ask allocate whether because
you know, they really like China or they really hate China,
and they don't just have to do it within the
context on EM basket.
Speaker 2 (25:40):
Jis and I can't even imagine all of the things
you have to be keeping up with in the world
to be able to formulate some of these thoughts. Like
I'm thinking about some of the elections that are coming
up in major EM countries, lots of stuff happening in Argentina,
et cetera. I'm wondering how you're thinking about the remainder
of this year and whether or not you see more
(26:01):
volatility if there are some opportunities to be buying, you know,
different EM stocks.
Speaker 3 (26:08):
So we really like EM again, the short term is
it's hard to predict, and my guess is for the
rest of the year, sentiment will remain negative. The volatility
will be there, but you know, you know, most of
our clients are large institutions. So at least I can
tell you for institutions to build a position too. You know,
(26:28):
the dollar cost averaging into a position is a great
way to invest.
Speaker 4 (26:33):
For the long run and form a valuation perspective. EM
is cheap.
Speaker 3 (26:36):
You know, you can't expect to go into EM and
immediately see it sort of turn around and start recovering.
But you can probably bet on in ten years if
you buy at such a cheap level, if your willingness
is like no short term fluctuation, you're gonna do plenty well.
Speaker 4 (26:53):
Right.
Speaker 3 (26:53):
And then, like I said early in a program like
the world's always like the twin engine, right, like kind
of you us as the head of DM really innovating.
So it's driving growth through innovation, and EM is achieving
growth through imitation. Right, So you got innovation and imitation.
Those are two amazing engines that keep the world going.
And then you should you know, have both.
Speaker 1 (27:15):
You know, Jason, you touched briefly on the trade tensions
between the US and China. I'm wondering how you're thinking
about that going forward. I mean, what is sort of
the status there? It seems to me like kind of
a stalemate, a standoff, but is there a path towards reconciliation?
You know, where does this relationship go?
Speaker 3 (27:37):
So, yeah, there's a lot of you know, bickering back
and forth. I tend to see the US China relationship
as a abusive code dependent marriage, right, Like if you
think about it, right, Like, the US is the world's
biggest consumer, right, and we run a massive trade deficit,
and that just means someone must be a big producer.
(28:01):
We can't all be consuming, right, Someone's got to make stuff,
and we can't all be borrowing. Someone's got to let, right,
Like US consumes and we borrow from foreign countries, and
China needs to be the willing partner to produce and
lend us money to consume, So we can't break away
from each other, right, and then we're both too big. Right.
Speaker 4 (28:18):
It's not like US can.
Speaker 3 (28:19):
Go replace China with Vietnam and say, hey, we'll give
you the Chinese deal, right where you do all of
our manufacturing and lend money to us. Because Vietnam's got
what a population of sixty million, right, China's got you
one point three billion people. So just the math of
the two conage being so large, and they almost are
like the perfect fit for each other well.
Speaker 1 (28:39):
Jason Sue. He is the chairman and chief investment Officer
at Ralliant Global Advisors. Always great to catch up with you, Jason,
and hear how you're thinking about the world. You've got
such a great way of explaining everything, and as Wodanna said,
you've got your eye all over the world, which we
really appreciate. But we can't let you go quite yet.
(29:02):
We do have a tradition on the podcast of sharing
the craziest things we've seen in markets this week, Pildatta,
let's start with you.
Speaker 2 (29:11):
I have a good one that I found on X
Mine is about Taylor Swift and Travis Kelcey. Okay, yeah,
I know you. You prefer the Swift a separate Swift
Kelsey pairing on the Eagles, probably this one. This one's
more important to the world of pop culture and swifties
(29:31):
like me. But just to show you the Taylor Swift effect,
this is This is a tweet from Joe Panpliano. Taylor,
as we as the entire world knows now, was at
the Kansas City Chiefs game over the weekend. She was
in a box with Travis Kelcey's mom and a bunch
(29:52):
of friends and they were having a really great time
x slash. Twitter went wild and people everywhere went wild
for this. Anyway, after you know, Taylor Swift visited him
at this game, he gained more than three hundred thousand
social media followers. Wow, he saw They saw a four
hundred percent increase in merchandise sales, and his jersey became
(30:16):
one of the top five selling jerseys in the NFL.
The NFL changed their Twitter X well, I can't say
X honestly, their their X description to say, like Taylor
Swift was here, like it just the impact was mind
blowing to me.
Speaker 1 (30:35):
My wife has a conspiracy theory that ratings were going
down for the NFL games and they needed they needed
to bring it in.
Speaker 2 (30:42):
And I've heard this conspiracy theory before. I'm not in.
I don't buy into it, but I like it.
Speaker 1 (30:48):
I like it. That's a good as far as conspiracy
theories go. That's it. That's a good.
Speaker 2 (30:51):
One four hundred percent increase in merchandise sales.
Speaker 1 (30:54):
That's that's your market angle.
Speaker 3 (30:56):
I guess, yeah, exactly, I need to hire Taylor Swift
to sell my et.
Speaker 1 (31:05):
You got to make a friendship bracelet with the checker
symbol on it. Jason, that's what That's what Kelsey did.
You made a friendship bracelet with her number. Who would
have thought that would work?
Speaker 2 (31:13):
Well?
Speaker 1 (31:14):
How about you, Jason, you see anything crazy in the
last week or so.
Speaker 3 (31:18):
I mean, it's a long running theme for me. And
because I have such a grudge against Nvidia.
Speaker 4 (31:23):
I saw this on X. I saw this on X
but it.
Speaker 3 (31:26):
May have been on there for a while. I'm in
the Middle East. I'm a little out of touch, right.
Someone actually said, like, Nvidia maybe a bit of a
Ponzi scheme because apparently they bought a company who's like
the biggest buyer of their chips, and like, if you
work out the accounting, all of their sales growth was
driven by you know this other company. So there there
may be some funky, weird thing going on. But in
(31:47):
full disclosure, right, my big, big grudge against Nvidia is
not because I got a short position in it.
Speaker 4 (31:53):
And got my clocks clean, none of that.
Speaker 3 (31:56):
It's because my mom bought Nvidia and one hundred bucks
a share it went up to two point fifty on
that crazy upgrade, and I.
Speaker 4 (32:03):
Said, Mom, this this makes no sense.
Speaker 3 (32:04):
You could sell it, right, It reminds me of Cisco
during a tech bubble where everyone says, oh, of course
everyone would need to buy a router, and you know,
Cisco will own the world. And so you know, that's
kind of seemed narrative. I hear about video, So I
told my mom son video he makes us a good game,
and of course then it goes to.
Speaker 4 (32:20):
Like four hundred and fifty. So every time my mom sees.
Speaker 3 (32:22):
Me, right, he's like, I have an idiot for a son.
Untold in video falls below two fifty, I'm going to
be like putting a X curse.
Speaker 4 (32:33):
On that stock.
Speaker 1 (32:35):
That's hilarious. Well that's kind of I think very indicative
of uh, the mania that takes over. That just doesn't
seem to make sense. Now, I credit in video has
got a decent a very good book case. But uh,
you know what are your mom's not performing you you know,
you know, you know something, something's out of whack with markets.
(32:55):
I love that story. That's hilarious. Uh, all right, your mine,
vil donna. Do you know what the highest denomination Federal
Reserve Bill is? In other words, the highest denomination currency
paper currency is right.
Speaker 2 (33:11):
Now, one hundred bucks.
Speaker 1 (33:12):
Did you know during the Great depression, and prior to that,
I assume too, there were bills denominated in ten thousand.
There were ten thousand dollars banknotes available. They never circulated publicly.
They were basically just used to transfer funds between various
Federal Reserve banks. But this is according to a story
(33:36):
in the New York Post, one of them that was
printed in nineteen thirty four just came up for auction,
and the picture on it is President Abe Lincoln's Treasury
Secretary Salmon P. Chase. The question for you to game
show consstants right now is what do you think this
(33:56):
ten thousand dollars bill from night teen thirty four, pristine condition,
sold for at the Long Beach Currency Expo.
Speaker 2 (34:07):
You can't use it, right, you know?
Speaker 1 (34:10):
That's a third good question.
Speaker 2 (34:11):
You would just have it like to hang on your wall.
Speaker 1 (34:14):
That's a very good question. I assume I'd have to
zoom in on the picture and see if it says
legal tender for all debts, blah blah blah. That's a
good question. I don't know. I will tell you this,
for what it's sold for, you would not want to
spend it. That's one hint to the value that I
have for.
Speaker 3 (34:31):
I'm going to guess it's below two point three million,
which is I think what the Tom Brady baseball car fetch.
Speaker 4 (34:37):
It can't be more valuable than that.
Speaker 3 (34:39):
I'm gonna I'm for a crazy number out there.
Speaker 4 (34:42):
Half a million dollars.
Speaker 1 (34:43):
Half a million dollars? All right, vill Donna, what's your
bid for a ten thousand dollars Salmon p Chase bill
from nineteen thirty four?
Speaker 2 (34:52):
I literally have no guess what like at all, So
I'm just gonna go with ten thousand.
Speaker 1 (34:57):
Ten thousand. You think it's just sold.
Speaker 2 (34:59):
For part Yeah, I'm just going with that.
Speaker 1 (35:01):
Yeah, all right. Jason. It's a shame your mom's not
here because you just got some redemption here. You're very
close four hundred and eighty thousand. Wow, yeah, Wow. Apparently
it's a big This is a huge collector's market is
old bills of high denominations like this. Who knew you
learned something new?
Speaker 2 (35:20):
Usually I have like at least a little bit of
like a feeling toward what something might be, you know,
even if I'm wildly off. But on this one, I
had absolutely nothing. I just would not even know. Your
hint didn't help at all for what it sold for
you wouldn't want to spend it.
Speaker 3 (35:38):
Yeah, you know, because there's no there's no NFC options now,
so people need something to collect.
Speaker 1 (35:44):
Yeah, all right. Jason Seu of Ralliant Global Advisors, thank
you so much for your friend.
Speaker 4 (35:50):
Thanks Mike, Thanks Madonna, thank you, Jason.
Speaker 1 (36:02):
Well, thank you for listening to What goes Up. While
we're on hiatus. You can follow or subscribe to What
goes Up to stay tuned for updates. We'll be dropping
information about what's next here in this feed. You can
also follow Bloomberg Podcasts at podcast on x. What Goes
Up as produced by Stacy Wang. Our head of podcasts
(36:24):
is Sage Bauman. Thanks for listening.
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