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