WEBVTT - Previewing the Fed's June Decision, APAC Economic Data 0:00:02.480 --> 0:00:10.480 Bloomberg Audio Studios, Podcasts, radio news. This is the Bloomberg 0:00:10.520 --> 0:00:13.720 Daybreak Asia podcast. I'm Doug Krisner. You can join Brian 0:00:13.800 --> 0:00:16.640 Curtis and myself for the stories, making news and moving 0:00:16.680 --> 0:00:19.560 markets in the APEC region. You can subscribe to the 0:00:19.600 --> 0:00:23.080 show anywhere you get your podcast and always on Bloomberg Radio, 0:00:23.320 --> 0:00:26.080 the Bloomberg Terminal, and the Bloomberg Business app. 0:00:27.360 --> 0:00:30.400 Well, we've gotten a few surprises in terms of economic 0:00:30.560 --> 0:00:33.360 data out of both the China and Japan over the 0:00:33.360 --> 0:00:35.880 past couple of months. For instance, we had to pick 0:00:36.000 --> 0:00:38.519 up in Japan's exports. We also had to pick up 0:00:38.520 --> 0:00:41.720 in Chinese exports. Joining us now for some discussion about 0:00:41.760 --> 0:00:45.680 what we're doing is Chen Wong, chief Asia Pacific Economists 0:00:45.760 --> 0:00:49.520 at the Vanguard Group with us live here on the program. 0:00:50.080 --> 0:00:53.519 So we looked at those export numbers from China and 0:00:53.520 --> 0:00:56.600 we decided that maybe we shouldn't read too much in 0:00:56.680 --> 0:01:00.840 At least Bloomberg Economics was saying that some c factors 0:01:00.840 --> 0:01:03.440 at play there, and a few a few other reasons 0:01:03.760 --> 0:01:06.560 to think that way. What about your take on the 0:01:06.640 --> 0:01:09.080 latest with the Chinese economy. 0:01:09.400 --> 0:01:13.280 Well, I think the exports actually has been did a 0:01:13.440 --> 0:01:17.200 very key growth driver for China you know, over the 0:01:17.720 --> 0:01:20.840 you know, past several months, right, you know. So one thing, 0:01:20.880 --> 0:01:25.080 I definitely think there is a you know pickup in 0:01:25.160 --> 0:01:28.480 terms of a global a global consumer demands, right you know, 0:01:28.720 --> 0:01:33.360 or capital spending. You know, this is actually reflected not 0:01:33.520 --> 0:01:38.360 just in China's export number, but also general export oriented 0:01:39.280 --> 0:01:40.800 you know, Asian economies. 0:01:40.880 --> 0:01:41.080 Right. 0:01:41.680 --> 0:01:44.000 On the other hand, I also feel like there is 0:01:44.120 --> 0:01:47.360 a push for China right to you know, export is 0:01:47.480 --> 0:01:50.760 exacts a capacity right China's industry policy made in China 0:01:50.760 --> 0:01:55.040 twenty twenty five, they made so much investment and production pickup, 0:01:55.080 --> 0:01:58.280 but domestic demand is really weak, so they have to 0:01:58.320 --> 0:02:02.040 rely more on the exports that right to, you know, 0:02:02.480 --> 0:02:06.559 to absorb those excess capacity. So I think that's where 0:02:06.600 --> 0:02:11.320 the exports is pretty strong, especially in volume terms. I 0:02:11.360 --> 0:02:14.880 think it's growing like ten to fifteen percent in volume 0:02:15.000 --> 0:02:18.480 terms about this year, even though the extra price actually 0:02:18.560 --> 0:02:22.600 is you know, deep in deflation. I don't think this 0:02:22.720 --> 0:02:28.359 is sustainable. There is no like unlimited demand for China products. Right. 0:02:28.400 --> 0:02:30.760 And also there's going to be three tensions you know 0:02:30.840 --> 0:02:34.720 down the road. US already impost tariff and then you know, 0:02:35.240 --> 0:02:38.280 Europeans joined in suits and you know, we see that 0:02:38.360 --> 0:02:41.480 Turkey is also imposing tariff on China's CV as well, 0:02:41.560 --> 0:02:43.880 So I think this is not something that's going to 0:02:43.919 --> 0:02:45.000 sustain down the road. 0:02:45.320 --> 0:02:48.359 What about the deflation story. We'll get inflation data for 0:02:48.520 --> 0:02:52.040 China in the week ahead. Factory gate inflation is expected 0:02:52.080 --> 0:02:54.760 to do slow to one and a half percent. That 0:02:54.800 --> 0:02:57.360 would be the smallest drop in prices since February twenty 0:02:57.400 --> 0:03:01.400 twenty three. But it's deflation nonetheless. Is your sense that 0:03:01.440 --> 0:03:04.080 we're beginning to find the bottom right now? Or is 0:03:04.160 --> 0:03:09.600 there risk that this deflationary trend turns into doo a 0:03:09.639 --> 0:03:10.840 deflationary trap? 0:03:12.320 --> 0:03:12.480 Right? 0:03:12.760 --> 0:03:16.200 I think it's an interesting story about China's you know, 0:03:16.280 --> 0:03:19.720 inflation with deflation story. Right. So when you look at 0:03:19.840 --> 0:03:23.400 China's growth, you know, at this moment when they have 0:03:23.560 --> 0:03:27.360 such a big investment boom, production boom, right, it immediately 0:03:27.919 --> 0:03:31.839 lived up is demand for you know, capital goods, commodity, 0:03:31.960 --> 0:03:36.320 especially industry metals. So on that front is actually inflationary, right, 0:03:36.360 --> 0:03:39.880 That's why China's commodity impults actually has been holding up 0:03:40.360 --> 0:03:43.200 in spite of the property down tern But on the 0:03:43.280 --> 0:03:47.960 other other hand, when you have so much production capacity 0:03:48.080 --> 0:03:51.760 and domestic demand is pretty weak, then you know, this 0:03:51.880 --> 0:03:55.960 kind of supply pressure is generating you know, a significant 0:03:56.520 --> 0:04:00.520 deflationary pressure as well. Right, So I think the is 0:04:00.600 --> 0:04:03.640 somewhat mixed. But you know, overall, if you look at 0:04:03.640 --> 0:04:06.920 the CPI, you know you would have say, yes, you know, 0:04:07.000 --> 0:04:09.760 the hat my CPI is probably likely to you know 0:04:09.800 --> 0:04:12.880 who were around, you know, zero positive. But if you 0:04:12.880 --> 0:04:16.000 look at the whole goods CPI, it's still likely to 0:04:16.040 --> 0:04:18.480 be in the deflation of territory. 0:04:20.120 --> 0:04:25.040 Well, in China, the policy is basically directed at the 0:04:25.080 --> 0:04:26.160 state sector. 0:04:26.080 --> 0:04:27.640 More than the consumer sector. 0:04:27.680 --> 0:04:30.760 I mean, that's been what we've been seeing, and it 0:04:30.920 --> 0:04:34.839 sort of raises a question about whether dungshall pings to 0:04:34.839 --> 0:04:38.760 get rich is glorious still holds in China because the 0:04:38.800 --> 0:04:42.440 policies don't. I mean, I think it's probably cynical to 0:04:42.520 --> 0:04:46.320 say that Chijinping doesn't want people to get rich. 0:04:46.360 --> 0:04:49.279 He wants the state owned enterprises to get rich. But 0:04:49.520 --> 0:04:51.600 you know, that's some of the things that you hear 0:04:51.640 --> 0:04:52.120 from people. 0:04:53.400 --> 0:04:56.080 Well, I think over the past several years you do 0:04:56.320 --> 0:05:00.800 see a shift right in terms of China's policy priority, 0:05:00.920 --> 0:05:03.960 right in terms of their goals. So instead of saying, oh, 0:05:04.200 --> 0:05:06.320 you know, we allow some people to get rich. First. 0:05:06.480 --> 0:05:09.719 Now you do see more emphasis on you know, like 0:05:10.200 --> 0:05:12.920 so called common prosperity, right, you know, you just want 0:05:13.080 --> 0:05:17.760 to make you know, like there's more emphasis on income equality, 0:05:18.560 --> 0:05:23.039 national security, you know, many other things. Right, So I 0:05:23.120 --> 0:05:25.400 definitely see there is a shift in terms of the 0:05:25.400 --> 0:05:29.480 policy goes, you know, instead of the growth rate itself, 0:05:29.480 --> 0:05:34.160 but also on growth quality. So I do see that's changing. 0:05:34.640 --> 0:05:36.760 And also I think on the other hand, from a 0:05:36.800 --> 0:05:40.560 technical perspective, right, when the government want to support the 0:05:40.720 --> 0:05:45.479 overall growth picture, then you know, pusting up investment is 0:05:45.520 --> 0:05:50.000 actually much faster, much more effective than you you know, 0:05:50.080 --> 0:05:53.760 trying to stimulate up the consumption when consumers are lacking 0:05:53.800 --> 0:05:56.080 the confidence when they get the money, they would rather 0:05:56.200 --> 0:05:57.520 just say rather than spend. 0:05:58.120 --> 0:06:01.039 Yeah, that's particularly true where you young people are concerned. 0:06:01.040 --> 0:06:04.040 I would imagine when you're dealing with an unemployment rate 0:06:04.400 --> 0:06:06.920 that is so high in China. 0:06:07.080 --> 0:06:11.520 Indeed, I think, you know, we see this new unemployment 0:06:11.680 --> 0:06:15.640 new use unemployment rate number, right, fifteen percent, still high. 0:06:15.760 --> 0:06:18.520 But even you know, I think we shouldn't just focus 0:06:18.520 --> 0:06:22.880 on one indicator to gauge the overall labor market condition. 0:06:23.040 --> 0:06:25.400 I think in China what is more concerning for the 0:06:25.480 --> 0:06:32.039 young generation, it's actually the declining labor force participation participation rate. Right, 0:06:32.080 --> 0:06:34.960 So when you see that they are not confident about 0:06:35.000 --> 0:06:39.160 the future, about the labor market or you know, job prospect, 0:06:39.600 --> 0:06:43.520 then they become discouraged and they stay home prepared for 0:06:44.000 --> 0:06:48.080 civil servant exam or graduate program exam. Right, So they 0:06:48.120 --> 0:06:51.960 literally just drop out from the labor market. So I 0:06:51.960 --> 0:06:54.400 mean that just show you the sentiment in the labor 0:06:54.480 --> 0:06:56.239 market is pretty weak. 0:06:56.720 --> 0:06:59.320 So miss Wong, do you think that the government should 0:06:59.320 --> 0:07:02.080 and could do more more on messaging to build up 0:07:02.160 --> 0:07:05.719 hope in the Chinese dream? 0:07:05.960 --> 0:07:09.279 Yeah, I mean, I think the key here is really 0:07:09.800 --> 0:07:12.200 when you look at the economy right and look at 0:07:12.280 --> 0:07:15.160 the labor market. I think ultimately the most important thing 0:07:15.280 --> 0:07:19.400 is still about overall economic growth. Right, So when you 0:07:19.560 --> 0:07:24.160 have a stronger economic economy, then obviously that's gonna you know, 0:07:24.200 --> 0:07:28.680 create more jobs and bring more hope and income to consumers. Right, 0:07:28.960 --> 0:07:32.560 So in that way, you can actually build a positive 0:07:32.600 --> 0:07:35.560 self fulfilling cycle. But then you know, going back to 0:07:35.600 --> 0:07:37.920 say what they can really do, Number one, I think 0:07:37.960 --> 0:07:41.480 they can really they need to be more aggressive, right 0:07:41.480 --> 0:07:44.280 in terms of the government intervention in the economy to 0:07:44.320 --> 0:07:47.760 engineer a decisive turning point. And second, I think the 0:07:47.840 --> 0:07:51.800 private sector bring the animal spirit back. Private sector is 0:07:51.880 --> 0:07:52.600 really the key. 0:07:52.880 --> 0:07:55.800 Yeah, that would be great, great to see for sure, 0:07:55.840 --> 0:07:57.800 and thank you so much for joining us Chian Wong, 0:07:58.160 --> 0:08:02.440 chief Asia specific economist at Vanguard Group with us. So 0:08:02.600 --> 0:08:06.360 a very interesting picture, and we have James Abate, Managing 0:08:06.440 --> 0:08:10.720 director and chief investment Officer at Center Asset Management to help. 0:08:10.640 --> 0:08:12.600 Us clear up the picture a little bit. 0:08:12.680 --> 0:08:15.640 James, thanks very much. So a sort of big reaction 0:08:15.840 --> 0:08:19.120 to the jobs report in the treasury market, not so 0:08:19.200 --> 0:08:21.840 much in the stock market. And I mentioned in our 0:08:21.960 --> 0:08:24.440 in our papers review just a few moments ago that 0:08:24.440 --> 0:08:29.960 Bloomberg Intelligence says rates, while important, are not actually factoring 0:08:29.960 --> 0:08:32.839 in as much as artificial intelligence is. 0:08:32.880 --> 0:08:36.480 Your thoughts on the overall environment, Well, let's. 0:08:36.280 --> 0:08:38.600 Just look at the employment report. As you mentioned, two 0:08:38.720 --> 0:08:41.520 hundred and seventy two thousand jobs were added, which was 0:08:41.559 --> 0:08:44.920 way above expectations. I think more importantly to the FED 0:08:45.440 --> 0:08:47.640 was the fact that wages were up four point one 0:08:47.720 --> 0:08:50.840 percent from a year ago, and in reaction to that, 0:08:50.880 --> 0:08:53.440 we saw the ten year yield move up to four 0:08:53.480 --> 0:08:57.040 point four percent, and in essence, what this did is, 0:08:57.240 --> 0:09:00.880 obviously the FED is meeting this week, there's no cut 0:09:00.880 --> 0:09:03.480 on the table for this month. July's cut is off 0:09:03.520 --> 0:09:05.640 the table. In terms of what the market is pricing 0:09:05.679 --> 0:09:09.040 in September is now fifty to fifty in November seems 0:09:09.080 --> 0:09:13.320 to be the only indicative cut. Obviously, the only wildcard 0:09:13.400 --> 0:09:16.640 we have is the CPI released this Wednesday. But I 0:09:16.679 --> 0:09:18.680 think you know, one of the key points that you 0:09:18.720 --> 0:09:21.560 pointed out as well was the fact that it's very 0:09:21.600 --> 0:09:25.840 difficult to reconcile the Payrolls report to the Employment Household Survey, 0:09:25.920 --> 0:09:30.240 which indicated that yes, the unemployment rate rose to four 0:09:30.280 --> 0:09:33.920 percent and the participation rate fell to sixty two point 0:09:34.000 --> 0:09:37.200 five percent. So you know, the household survey showed four 0:09:37.240 --> 0:09:40.199 hundred and eight thousand jobs lost, which is seven hundred 0:09:40.280 --> 0:09:42.600 thousand jobs difference to the Establishment survey. 0:09:43.480 --> 0:09:45.719 What does that do in terms of the way you're 0:09:45.760 --> 0:09:48.319 approaching markets right now? If you look at the bond market, 0:09:48.360 --> 0:09:53.120 I mean, clearly it's kind of a very hawkish tone 0:09:53.160 --> 0:09:56.679 in terms of the implication for FED policy. Maybe we're 0:09:56.760 --> 0:09:59.040 lucky we get two rate cuts this year, but that 0:09:59.080 --> 0:10:01.880 big spike and yield definitely sending a message but what 0:10:01.920 --> 0:10:03.880 does it do you do your strategy? How are you 0:10:03.920 --> 0:10:04.800 approaching markets? 0:10:04.840 --> 0:10:05.040 Now? 0:10:05.880 --> 0:10:08.520 Yeah, I think you know, we've got We went into 0:10:08.520 --> 0:10:11.000 the year under the assumption that the FED was not 0:10:11.120 --> 0:10:14.280 going to cut rates unless it was in reaction to 0:10:15.040 --> 0:10:19.800 some type of financial or geopolitical crises. And we stick 0:10:19.920 --> 0:10:23.640 by that, and you know, we survey, you know, all 0:10:23.760 --> 0:10:26.760 the companies that we invest in and look at. I 0:10:26.760 --> 0:10:29.880 think one of the key things for US is looking 0:10:29.920 --> 0:10:34.080 at the consumer, because the manufacturing sector remains in slight 0:10:34.160 --> 0:10:37.319 contraction or even stall speed if you want to call 0:10:37.320 --> 0:10:40.360 it that no recession, but vulnerable to some type of 0:10:40.400 --> 0:10:43.240 demand shock. And you could even argue on a positive 0:10:43.280 --> 0:10:46.640 side that the cyclical economy's bottom but not yet entered 0:10:46.640 --> 0:10:50.199 into an upturn. But more importantly, the consumer, which dominates 0:10:50.240 --> 0:10:55.400 the US economy, we're starting to see, you know, stress, 0:10:55.559 --> 0:10:58.440 and particularly when you're looking at a lot of value 0:10:58.480 --> 0:11:02.960 seeking behavior in lower and middle income consumers at this 0:11:03.000 --> 0:11:06.120 point in time. Deutsche Bank had their Global Consumer Conference 0:11:06.160 --> 0:11:09.400 this week and you know, Spice Company McCormick used the 0:11:09.520 --> 0:11:12.319 term that I'm going to continue to use, which said 0:11:12.640 --> 0:11:17.000 financial anxiety in the last couple of months has really 0:11:17.120 --> 0:11:20.000 spiked in the United States, and it's something that they're 0:11:20.040 --> 0:11:21.680 paying a lot of attention to. And that was a 0:11:21.720 --> 0:11:24.800 consistent theme that we saw with all the companies that 0:11:24.840 --> 0:11:26.000 are consumer facing. 0:11:26.920 --> 0:11:31.680 I'm curious what do they mean by financial anxiety? Is 0:11:31.880 --> 0:11:35.600 do they mean just general economic people feeling comfortable about, 0:11:35.679 --> 0:11:38.720 you know, their job and their money and that sort 0:11:38.760 --> 0:11:42.400 of thing. Where do they mean actually tied to markets 0:11:42.440 --> 0:11:45.000 and to for instance, their returns. 0:11:46.520 --> 0:11:49.320 You know, when you look at antidotal information, right you 0:11:49.400 --> 0:11:54.720 see IRA hardship withdrawal spiking higher. When you look at 0:11:55.200 --> 0:12:00.240 adjustable rate mortgages, they're resetting now because many buyers who 0:12:00.360 --> 0:12:03.240 use the justle rate mortgages and bought in twenty twenty 0:12:03.280 --> 0:12:07.880 one or on that three year maturity schedule of resetting 0:12:08.280 --> 0:12:10.920 what the rate is I think across the board what 0:12:10.960 --> 0:12:13.959 you're starting to see, whether it's particularly in the lower 0:12:14.240 --> 0:12:18.280 and middle income consumer some degree where the rise in 0:12:18.400 --> 0:12:23.040 interest rates has created like this frog boiling in a 0:12:23.040 --> 0:12:25.559 pot of water, and it's just starting now to get 0:12:25.600 --> 0:12:27.800 to a temperature with the consumers starting to feel that 0:12:27.880 --> 0:12:29.240 anxiety that we touched upon. 0:12:29.520 --> 0:12:31.200 So if you're right, I mean we're going to get 0:12:31.240 --> 0:12:33.800 the I think University of Michigan sentiment figures at the 0:12:33.880 --> 0:12:36.200 end of this week. Say you're right, James, and the 0:12:36.240 --> 0:12:39.680 FED is going to begin factoring that into its decision making. 0:12:40.080 --> 0:12:42.360 They want to see a soft lending I would imagine, 0:12:42.640 --> 0:12:46.120 is inflation at a point that is within the comfort 0:12:46.200 --> 0:12:49.320 zone where the FED could justify cutting interest rates right now, 0:12:50.120 --> 0:12:50.640 not yet. 0:12:50.720 --> 0:12:53.680 I think they could only justify a rate cut with 0:12:53.960 --> 0:12:58.520 inflation elevated above their two percent target. If you saw 0:12:59.080 --> 0:13:04.040 let's say, another regional bank issue, a real estate issue 0:13:04.440 --> 0:13:08.000 that manifested itself in the banking sector. Everything at the 0:13:08.080 --> 0:13:10.040 end of the day always makes us way into the 0:13:10.040 --> 0:13:12.960 financial services sector in terms of stress. So I think 0:13:12.960 --> 0:13:17.319 the FED can only use that justification to actually cut 0:13:17.400 --> 0:13:21.200 rates in the face of north of two percent inflation. 0:13:22.320 --> 0:13:24.920 I mentioned Bloomberg Intelligence. I got to go back to 0:13:24.960 --> 0:13:28.280 this because this is slightly different angle. They actually referred 0:13:28.320 --> 0:13:31.360 to AI as kind of driving things, but they said 0:13:31.480 --> 0:13:35.640 it's clearly now well extended and almost hinting that it 0:13:35.679 --> 0:13:38.839 was overvalued. And so a lot of people seeing what 0:13:39.200 --> 0:13:43.480 Nvidia has done, they're clearly worried about this. But you know, 0:13:43.520 --> 0:13:45.880 if you kind of refer back to nineteen ninety nine, 0:13:46.120 --> 0:13:48.160 we did get a warning from Cisco, but it still 0:13:48.160 --> 0:13:50.600 took a while and we haven't had a warning yet 0:13:50.640 --> 0:13:53.760 from Nvidia. Are you comfortable, at least if you're playing 0:13:54.440 --> 0:13:58.200 tech to carry on until you get a warning. 0:13:59.240 --> 0:14:01.560 Well, having been in one of the very few people 0:14:01.559 --> 0:14:03.880 who are still managing money today and managing money back 0:14:03.920 --> 0:14:06.840 in the nineties, not only managing US equities, but also 0:14:06.880 --> 0:14:10.240 I was head of global sector funds, including running three 0:14:10.240 --> 0:14:13.800 different technology funds at that point in time. You know, 0:14:13.840 --> 0:14:16.960 for now in Vidia has a monopoly on semiconductor chips 0:14:17.440 --> 0:14:21.040 that's needed for the computational power for AI. I think 0:14:21.200 --> 0:14:25.000 what contrasts today versus back in the late nineteen nineties 0:14:25.280 --> 0:14:29.120 is that all the presentations I recall anyway that you know, 0:14:29.120 --> 0:14:32.800 we're industrial in their nature, they stress return on investment. 0:14:33.280 --> 0:14:38.400 You looked at enterprise resource planning ERP systems like SAP Oracle. 0:14:38.920 --> 0:14:42.720 You know, all the presentations back then were justifying what 0:14:42.760 --> 0:14:45.760 the return on investment would be for companies who undertook this. 0:14:45.920 --> 0:14:49.440 I think Silicon Valley feels like it's in this fake 0:14:49.520 --> 0:14:53.360 it till you make it. You know, mantra that's still 0:14:54.200 --> 0:14:56.280 in place, and you know, one of the key things 0:14:56.280 --> 0:14:59.200 for us that when we talked about AI in our 0:14:59.240 --> 0:15:01.920 insight piece Spring and Summer, is that we wanted to 0:15:01.960 --> 0:15:05.119 really try to understand what the efficacy of these investments 0:15:05.120 --> 0:15:07.400 being made today and what are we going to start 0:15:07.440 --> 0:15:10.680 to see chief financial officers you know, exert more and 0:15:10.760 --> 0:15:13.680 more influence on budgeting in a way from you know, 0:15:13.760 --> 0:15:15.920 this field of dreams, build it and they will come 0:15:16.000 --> 0:15:18.720 kind of mindset. And that's the thing that we're really 0:15:18.720 --> 0:15:21.120 focused in on in terms of, you know, looking at 0:15:21.120 --> 0:15:24.360 AI systems that are using proprietary data versus open source 0:15:24.600 --> 0:15:28.040 and trying to understand at what point will people you know, 0:15:28.200 --> 0:15:30.920 genuinely start to look at this and say, hey, where 0:15:31.040 --> 0:15:33.400 what is the return on investment that we're getting from 0:15:33.760 --> 0:15:36.440 all this money that we're plowing out. And unfortunately for 0:15:36.520 --> 0:15:41.320 other tech companies like Salesforce and Accenture, the consulting guys, 0:15:41.880 --> 0:15:45.480 AI is hoovering up all the IT budgets for almost 0:15:45.520 --> 0:15:47.440 every company out there, and it's it's causing a lot 0:15:47.440 --> 0:15:50.480 of segmental stress within the technology sector. 0:15:51.040 --> 0:15:53.760 Yeah, for sure, I mean software in particular, are a 0:15:53.800 --> 0:15:57.280 lot of those companies are down quite significantly twenty five percent. 0:15:57.360 --> 0:15:59.640 Even so it's. 0:15:59.440 --> 0:16:02.480 It's you say, it's hoovering up a lot of business. James, 0:16:02.520 --> 0:16:05.800 thanks for joining us again. James Abote, Managing Director, Chief 0:16:05.880 --> 0:16:16.640 investment Officer, Center Asset Management. Joining us now on the 0:16:16.680 --> 0:16:20.880 program is Redmond Wong, chief China strategist at Saxo, with 0:16:20.960 --> 0:16:24.760 us to take a closer look at well China in particular. 0:16:25.520 --> 0:16:27.480 So Redmond, thank you for being with us. We know 0:16:27.520 --> 0:16:31.480 that China is relying on exports and manufacturing and sales 0:16:31.520 --> 0:16:35.160 abroad to offset some of the weak consumer spending. So 0:16:35.280 --> 0:16:38.680 far it seems to be working to a small degree. 0:16:39.080 --> 0:16:41.080 Is this the right policy in your view? 0:16:42.840 --> 0:16:47.480 Hi, fans by doctor and I think, yeah, expot seems 0:16:47.800 --> 0:16:51.080 just have been, uh you know, doing pretty all relative 0:16:51.160 --> 0:16:53.920 well with us to pick up in the domestic consumption. 0:16:54.120 --> 0:16:58.240 So yes, I thank you. This continue to be one 0:16:58.320 --> 0:17:01.320 of the we had the government we'd like to push. 0:17:01.480 --> 0:17:04.800 Of course, there's some pushback from the outside on all 0:17:04.840 --> 0:17:08.720 those allegations of access capacity and so on. But I think, 0:17:09.080 --> 0:17:11.720 but one major thing I need to pinpoin is, uh 0:17:12.200 --> 0:17:16.119 the reconfiguration of the training pattern. I mean, you have 0:17:16.200 --> 0:17:19.040 been seeing the growth example in May you see the 0:17:19.080 --> 0:17:22.399 growth export growth in China and the seventh poor and 0:17:22.600 --> 0:17:25.560 six percent year on year growth. Actually half of it 0:17:25.600 --> 0:17:29.880 is actually of growth growth is actually accounted for by 0:17:29.920 --> 0:17:34.280 the growth to export to Arzian country and in some 0:17:34.320 --> 0:17:36.280 of the Yeah, I think that's the one key things 0:17:36.320 --> 0:17:40.280 they change power of training, Parlor and and and the 0:17:40.760 --> 0:17:42.440 and and and the pattern of trade. 0:17:42.680 --> 0:17:43.080 Redmond. 0:17:43.080 --> 0:17:45.639 I think we can agree that domestic demand in China 0:17:45.680 --> 0:17:49.560 remains weak. Is there a policy prescription that the government 0:17:49.600 --> 0:17:53.240 can use to try to revitalize domestic demand? Do you 0:17:53.240 --> 0:17:55.320 think other than lowering interest rates? 0:17:56.960 --> 0:18:03.119 I think they have tried CLI many front and many policies, 0:18:03.400 --> 0:18:06.000 like for example in the octose and the EV and 0:18:06.040 --> 0:18:09.200 so on, and uh they just you know, roll out 0:18:09.240 --> 0:18:13.399 in late April under one in the training uh subsidies 0:18:13.440 --> 0:18:16.399 and so on. But and also they also encouraging a 0:18:16.480 --> 0:18:20.240 lot of those guys a household home, opliances purchased in 0:18:20.320 --> 0:18:22.560 the in the rural area and all those things. But 0:18:23.200 --> 0:18:25.760 I think the key thing for China, I think pretty 0:18:25.800 --> 0:18:30.080 much is really bringing back the confidence of the product 0:18:30.119 --> 0:18:34.600 sector and also the household expectation of the future income 0:18:34.800 --> 0:18:38.320 and the stability. So I think a lot depends on 0:18:38.800 --> 0:18:42.879 uh more stability especcively on the expectation of the regulatory 0:18:42.920 --> 0:18:48.240 frameword war than on any individual policy or or any 0:18:48.440 --> 0:18:50.680 uh so, I think I think we have I mean, 0:18:51.080 --> 0:18:52.840 I know, I mean, we cannot really hope on any 0:18:52.880 --> 0:18:55.520 one of those is a meeting. But but but it's 0:18:55.520 --> 0:19:00.359 still the July Panety section is still carrying something orton 0:19:01.000 --> 0:19:04.640 uh sec low and I think the market should pay 0:19:04.640 --> 0:19:07.840 attention to it well than just on individual policies. 0:19:08.400 --> 0:19:11.400 Redmond, if you look at artificial intelligence, it has really 0:19:11.480 --> 0:19:14.879 juiced up the US economy more so than Europe and 0:19:14.880 --> 0:19:18.520 more so than Asia. If China were looking for some 0:19:18.560 --> 0:19:20.960 sort of killer app or something to get the animal 0:19:21.040 --> 0:19:23.240 spirits going. This kind of rides on the back of 0:19:23.640 --> 0:19:26.880 Doug's question about policy. But is there something out there 0:19:26.960 --> 0:19:29.679 that might get people excited to start spending again, and 0:19:29.720 --> 0:19:30.680 if so, what would it be. 0:19:32.440 --> 0:19:35.480 I think it's once again, it's really having from the household. 0:19:35.480 --> 0:19:40.120 It's really on the outlook on employment and also on income, 0:19:41.040 --> 0:19:44.679 and so that is I think the key questions really 0:19:44.760 --> 0:19:49.159 for employment and income, what then any subsidies or and 0:19:49.280 --> 0:19:53.919 the policy just for the sake of a boosting consumption. 0:19:54.119 --> 0:19:56.200 So I think I think you know it's in China. 0:19:56.280 --> 0:19:58.240 The close you make it always had those cut traffic 0:19:58.320 --> 0:20:01.200 lights of things. I mean, it's the good thing, but 0:20:01.359 --> 0:20:04.959 there's has been the case for for for for years, 0:20:05.040 --> 0:20:08.199 and uh, when the economy doing not that well, they 0:20:08.240 --> 0:20:11.000 we elect we lack a lot of baculatory film world 0:20:11.040 --> 0:20:13.439 and give some green light even to the part sector 0:20:13.520 --> 0:20:16.320 or as you mentioned, to the technology sector and so on. 0:20:16.480 --> 0:20:19.240 So that probably can help as well. 0:20:19.480 --> 0:20:23.800 One of the criticisms UH levied against China and its 0:20:23.840 --> 0:20:27.119 current situation on the part of both the US and 0:20:27.160 --> 0:20:31.400 Europe has been this issue of overcapacity. How how serious 0:20:31.400 --> 0:20:34.520 a problem is over capacity in China and what will 0:20:34.520 --> 0:20:37.760 it take to kind of bring things into balance To 0:20:37.800 --> 0:20:41.520 the extent that the US and Europe are not outraged 0:20:41.560 --> 0:20:42.800 by what China is trying to. 0:20:42.720 --> 0:20:46.679 Do, I think really really need to look at the 0:20:46.720 --> 0:20:49.720 whole things. Is more in the context of dis cover 0:20:50.680 --> 0:20:54.840 global de risking, resawing. 0:20:54.320 --> 0:20:55.160 The soring. 0:20:55.440 --> 0:20:58.560 You know, it's it's basically is what we call is 0:20:58.600 --> 0:21:02.440 a geo economic I mataation trend that has been going 0:21:02.440 --> 0:21:05.760 on since over the last few years. So and so yeah, 0:21:05.760 --> 0:21:08.200 I mean I think China that's certainly because it's in 0:21:08.200 --> 0:21:10.880 industrial policies. I mean, it's one of the focus has 0:21:10.920 --> 0:21:13.560 been over the last few years the industrial policy there definitely, 0:21:13.560 --> 0:21:17.120 of course there might be some misallocation resources. You build 0:21:17.240 --> 0:21:20.760 up capacities in a way that may not be the uh, 0:21:20.800 --> 0:21:23.760 you know, it's what the economy wand needs, but at 0:21:23.800 --> 0:21:26.760 the same time you may also lacking something in other sectors. 0:21:26.760 --> 0:21:29.520 So I would call it's more like a misallocation resources 0:21:29.560 --> 0:21:34.479 more than really access capacity. And so but going back 0:21:34.480 --> 0:21:37.360 to your question external and one, I think this pushback 0:21:37.400 --> 0:21:40.639 would be actually will continue because that's not just in 0:21:40.680 --> 0:21:43.800 the US, but in Europe is actually elevated to not 0:21:43.920 --> 0:21:47.400 just on economic consideration, but it's actually on the national 0:21:47.400 --> 0:21:52.000 security and consideration. So that's why it's the duo economic trend. 0:21:52.119 --> 0:21:53.520 It's not just an economic trend. 0:21:53.840 --> 0:21:56.400 Well, something that would be safe on the national security 0:21:56.480 --> 0:21:59.760 front would just be domestic travel. Could domestic travel get 0:21:59.800 --> 0:22:02.000 things moving a little bit? And if so, how do 0:22:02.080 --> 0:22:03.440 we play that in the markets? 0:22:05.240 --> 0:22:05.320 Uh? 0:22:05.440 --> 0:22:07.679 I mean it's when people have more inc I mean 0:22:07.720 --> 0:22:10.920 it's a domestic trophic Defini is a positive and it's 0:22:11.480 --> 0:22:14.840 but at the same type, I think the boss fundamental 0:22:14.920 --> 0:22:20.760 is still on income and also on expectation. Uh. Then 0:22:21.200 --> 0:22:24.080 you know, just as you know, one or two order 0:22:24.160 --> 0:22:27.520 cover consumption. I mean, but back to the basic I mean, 0:22:27.560 --> 0:22:30.720 the growth uh for economy by the end of the 0:22:30.800 --> 0:22:34.399 day is the capitol accummindation and also more production and 0:22:34.480 --> 0:22:35.359 not just consumption. 0:22:36.320 --> 0:22:38.640 All right, Redmond, thanks so much for joining us here 0:22:38.720 --> 0:22:42.760