1 00:00:02,120 --> 00:00:05,240 Speaker 1: This is Bloomberg Daybreak Weekend, our global look at the 2 00:00:05,240 --> 00:00:07,800 Speaker 1: top stories in the coming week from our Daybreak anchors 3 00:00:07,840 --> 00:00:10,319 Speaker 1: all around the world. Straight Ahead on the program, a 4 00:00:10,360 --> 00:00:13,920 Speaker 1: look at a wave of new books that show capitalism. 5 00:00:13,280 --> 00:00:14,680 Speaker 2: May not be doomed. 6 00:00:14,960 --> 00:00:16,680 Speaker 1: I'm Nathan Hager in Washington. 7 00:00:16,880 --> 00:00:19,480 Speaker 3: I'm Caroline Hepger here in London, where we work out 8 00:00:19,480 --> 00:00:24,560 Speaker 3: Bloomberg Intelligence's best ideas for European stocks in twenty twenty six. 9 00:00:24,880 --> 00:00:28,080 Speaker 2: I'm Doug Krisner looking at the outlook for Asian equity 10 00:00:28,080 --> 00:00:29,720 Speaker 2: markets in twenty twenty six. 11 00:00:30,400 --> 00:00:34,400 Speaker 4: That's all straight ahead on Bloomberg Daybreak Weekend. I'm Bloomberg 12 00:00:34,440 --> 00:00:38,160 Speaker 4: eleven three year in New York, Bloomberg ninety nine to one, Washington, DC, 13 00:00:38,680 --> 00:00:43,800 Speaker 4: Bloomberg ninety two nine Boston, DAB Digital Radio, London, Syrias 14 00:00:43,960 --> 00:00:47,440 Speaker 4: XM one twenty one, and around the world on Bloomberg Radio, 15 00:00:47,520 --> 00:00:50,040 Speaker 4: dot Com and the Bloomberg Business opp. 16 00:00:54,760 --> 00:00:57,560 Speaker 1: Good day to you. I'm Nathan Hager. We begin today's 17 00:00:57,560 --> 00:01:00,120 Speaker 1: program with a look at some new books that argue 18 00:01:00,120 --> 00:01:04,200 Speaker 1: capitalism isn't doomed, just misaligned, and then fixing it may 19 00:01:04,240 --> 00:01:09,120 Speaker 1: mean rebalancing the relationships among markets, states, and workers. It's 20 00:01:09,160 --> 00:01:12,080 Speaker 1: the subject of a Bloomberg Opinion piece titled The Five 21 00:01:12,160 --> 00:01:15,600 Speaker 1: Forces That Broke Capitalism and One Fix, and we are 22 00:01:15,680 --> 00:01:19,080 Speaker 1: joined by that piece as author. He's John Author's columnists 23 00:01:19,120 --> 00:01:22,120 Speaker 1: for Bloomberg Opinion. It's great to have you with us, John, 24 00:01:22,240 --> 00:01:25,520 Speaker 1: because I'm always down for a good book recommendation, and 25 00:01:25,760 --> 00:01:28,080 Speaker 1: there are a lot of books out right now on 26 00:01:28,360 --> 00:01:30,240 Speaker 1: the crises of capitalism. 27 00:01:30,360 --> 00:01:30,560 Speaker 2: Yeah. 28 00:01:30,560 --> 00:01:34,000 Speaker 1: I think you've sifted through what like a dozen of these, yes, 29 00:01:34,560 --> 00:01:38,040 Speaker 1: So can you pick out any themes in particular that 30 00:01:38,440 --> 00:01:40,560 Speaker 1: stand out from some of these tomes? 31 00:01:41,319 --> 00:01:44,880 Speaker 5: Well. First of all, that popular phrase involving Sherlock Holmes 32 00:01:44,959 --> 00:01:47,560 Speaker 5: might come up here, but capitalism is in a crisis. 33 00:01:48,320 --> 00:01:52,040 Speaker 5: Nobody seems to disagree with that. But the key points 34 00:01:52,040 --> 00:01:56,240 Speaker 5: that keep coming in is that capitalism has reinvented itself 35 00:01:56,840 --> 00:01:59,680 Speaker 5: on many occasions. It's an amorphous beast and that is 36 00:01:59,720 --> 00:02:03,000 Speaker 5: why has survived as long as it has, and the 37 00:02:03,040 --> 00:02:07,760 Speaker 5: odds are that it will eventually do that again. Another 38 00:02:08,200 --> 00:02:13,280 Speaker 5: key point that keeps coming through is that capitalism is 39 00:02:13,320 --> 00:02:17,600 Speaker 5: always an ever a partnership between the state and markets. 40 00:02:18,480 --> 00:02:22,520 Speaker 5: Markets can't work unless you have somebody acting as a 41 00:02:22,600 --> 00:02:26,720 Speaker 5: tough referee at the very least, which needs to be 42 00:02:27,240 --> 00:02:32,720 Speaker 5: some kind of a politically legitimate state, so you always 43 00:02:32,960 --> 00:02:38,440 Speaker 5: do actually need government. And the different models of capitalism 44 00:02:38,480 --> 00:02:44,080 Speaker 5: that have worked have involved different basic compacts between the 45 00:02:44,120 --> 00:02:47,040 Speaker 5: government and the markets. 46 00:02:48,080 --> 00:02:51,520 Speaker 1: So let's walk through some of the crises that capitalism 47 00:02:51,560 --> 00:02:55,200 Speaker 1: has gone through in the past. I think from what 48 00:02:55,360 --> 00:02:59,480 Speaker 1: you've been reporting, there's been like four different forms of 49 00:02:59,520 --> 00:03:02,920 Speaker 1: capitalism in just this last century, right well. 50 00:03:04,080 --> 00:03:06,359 Speaker 5: Depending on exactly how you define what we have at 51 00:03:06,360 --> 00:03:10,120 Speaker 5: the moment. Capital there's one of the most interesting books, 52 00:03:10,120 --> 00:03:12,600 Speaker 5: but also one I have to warn anyone out there, 53 00:03:12,680 --> 00:03:16,480 Speaker 5: is an extremely long book. It's thirteen hundred pages, oh, 54 00:03:16,680 --> 00:03:20,919 Speaker 5: just called Capitalism by Sven Becket, who is a history 55 00:03:20,960 --> 00:03:25,399 Speaker 5: professor at Harvard, and this is basically a life's project. 56 00:03:26,919 --> 00:03:30,280 Speaker 5: So there were many different precursors, but what you can 57 00:03:30,320 --> 00:03:34,640 Speaker 5: truly recognize as capitalism comes together from a confluence of 58 00:03:34,680 --> 00:03:40,040 Speaker 5: factors in Britain with the industrial Revolution at the beginning 59 00:03:40,080 --> 00:03:44,520 Speaker 5: of the nineteenth century, and then really becomes its first 60 00:03:45,080 --> 00:03:49,640 Speaker 5: clearly defined form after Britain wins the wars against Napoleon 61 00:03:49,760 --> 00:03:53,560 Speaker 5: and starts on the century of British dominance, so that 62 00:03:53,600 --> 00:03:57,880 Speaker 5: you have industrial might behind it and then you have 63 00:03:58,000 --> 00:04:01,080 Speaker 5: trade with the colonies to internationalize it, because capitalism always 64 00:04:01,160 --> 00:04:04,760 Speaker 5: needs to be able to expand, and that was a 65 00:04:04,800 --> 00:04:08,960 Speaker 5: model of fairly lais a fair version of capitalism that 66 00:04:09,600 --> 00:04:14,400 Speaker 5: was adopted by Americans and used by Americans through the 67 00:04:14,440 --> 00:04:20,400 Speaker 5: Gilded Age to eventually eclipse overtake the of the UK 68 00:04:20,560 --> 00:04:24,800 Speaker 5: at their own game. There was a lot of inequality. 69 00:04:25,120 --> 00:04:27,880 Speaker 5: You need to read Dickens or Steinbeck to see the 70 00:04:28,000 --> 00:04:33,279 Speaker 5: kinds of problems that could arise. And it only really fails, 71 00:04:33,320 --> 00:04:36,520 Speaker 5: it really collapses in nineteen twenty nine with the Great Crash, 72 00:04:36,640 --> 00:04:40,280 Speaker 5: and then with the depression. From that you get capitalism 73 00:04:40,400 --> 00:04:44,000 Speaker 5: two point zero eventually emerges the elements of that, you know, 74 00:04:44,080 --> 00:04:46,720 Speaker 5: the post war settlement at Bretton Woods, the New Deal. 75 00:04:47,760 --> 00:04:53,120 Speaker 5: Kines is the motivating figure on this. Described often very 76 00:04:53,160 --> 00:04:56,000 Speaker 5: wrongly in the US as a socialist, Kines was a 77 00:04:56,080 --> 00:04:59,440 Speaker 5: liberal and he continued to be a very active political 78 00:04:59,480 --> 00:05:02,000 Speaker 5: member of the Liberal Party at a time when the 79 00:05:02,080 --> 00:05:04,200 Speaker 5: Labour Party in Britain was actually in power, and it 80 00:05:04,240 --> 00:05:06,880 Speaker 5: certainly would have behooved him to become labor So despite 81 00:05:06,880 --> 00:05:10,000 Speaker 5: what some people may say about Kines, he was a capitalist, 82 00:05:10,600 --> 00:05:13,719 Speaker 5: but one that certainly believed in much more of a 83 00:05:13,839 --> 00:05:18,120 Speaker 5: role for government than other capitalists do. This model again, 84 00:05:18,640 --> 00:05:22,160 Speaker 5: particularly in the environments after the war works very well 85 00:05:22,240 --> 00:05:24,400 Speaker 5: for a while, gives us the GI Bill, gives us 86 00:05:24,400 --> 00:05:28,840 Speaker 5: the Marshall Plan, and it's based around the US dollar, 87 00:05:28,920 --> 00:05:31,560 Speaker 5: with the US dollar itself being linked to gold, and 88 00:05:31,600 --> 00:05:34,880 Speaker 5: it falls apart when the America realizes it can no 89 00:05:34,960 --> 00:05:38,960 Speaker 5: longer afford all the new society welfare stated is built 90 00:05:38,960 --> 00:05:42,359 Speaker 5: for itself, and it's a misadventure in Vietnam, and so 91 00:05:42,520 --> 00:05:45,359 Speaker 5: Richard Nixon ends the tie to gold. And then you 92 00:05:45,400 --> 00:05:49,479 Speaker 5: get a new version which we would all I think 93 00:05:49,560 --> 00:05:54,719 Speaker 5: naturally connect with Ronald Reagan and Margaret that neoliberalism giving 94 00:05:54,880 --> 00:05:59,599 Speaker 5: markets much more of a role in a globalized capitalism 95 00:05:59,640 --> 00:06:03,960 Speaker 5: with low so low barriers to trade, free flow of capital, 96 00:06:04,800 --> 00:06:09,520 Speaker 5: and financialization, which again helps when the Cold War works 97 00:06:09,839 --> 00:06:15,320 Speaker 5: wonderfully well, but again collapses under its own weight with 98 00:06:15,400 --> 00:06:19,800 Speaker 5: the global financial crisis. So we are now in a 99 00:06:19,839 --> 00:06:24,720 Speaker 5: situation analogous to the thirties or the seventies when there 100 00:06:24,800 --> 00:06:29,840 Speaker 5: was an intense intellectual ferment. You can certainly see an 101 00:06:29,880 --> 00:06:34,080 Speaker 5: analog to that in the amount that intellectuals are pounding 102 00:06:34,120 --> 00:06:37,640 Speaker 5: out different ideas of how capitalism might be made to 103 00:06:37,760 --> 00:06:40,279 Speaker 5: work now, thinking. 104 00:06:40,000 --> 00:06:43,880 Speaker 1: With John Arthur's s Bloomberg opinion calmness about the crises 105 00:06:44,000 --> 00:06:47,240 Speaker 1: in capitalism that have built up over the last century, 106 00:06:47,360 --> 00:06:51,039 Speaker 1: leading now to a time where it seems like capitalism 107 00:06:51,120 --> 00:06:55,440 Speaker 1: is really being disrupted by artificial intelligence, while at the 108 00:06:55,480 --> 00:07:00,599 Speaker 1: same time the response from the government is protectionism. It 109 00:07:00,680 --> 00:07:04,800 Speaker 1: seems like those two ideas really butt up against each other. 110 00:07:05,240 --> 00:07:08,320 Speaker 5: Yes, and that is the issue. It will resolve itself 111 00:07:08,320 --> 00:07:10,440 Speaker 5: in another ten or twenty years. It will be obvious 112 00:07:10,480 --> 00:07:14,080 Speaker 5: what was going to win. We had Obama tried as 113 00:07:14,320 --> 00:07:18,040 Speaker 5: what you might call a kind of return to candian 114 00:07:18,360 --> 00:07:23,000 Speaker 5: Ish capitalism, which people didn't want. The Tea Party revolt 115 00:07:23,080 --> 00:07:25,160 Speaker 5: was about limited state going back to more of a 116 00:07:25,200 --> 00:07:29,920 Speaker 5: laysafe air version. That didn't really take hold either. And 117 00:07:29,960 --> 00:07:32,920 Speaker 5: then you had the World Economic Forum, the whole idea 118 00:07:32,960 --> 00:07:38,680 Speaker 5: of ESG capitalism, of stakeholders becoming more benevolent, taking a 119 00:07:38,720 --> 00:07:41,720 Speaker 5: broader interest in their ownership of companies. That's also a 120 00:07:41,760 --> 00:07:45,400 Speaker 5: model that's now I think, been decisively defeated by Donald Trump. 121 00:07:47,000 --> 00:07:50,200 Speaker 5: So we now have this return to something that is 122 00:07:50,560 --> 00:07:54,640 Speaker 5: barely even capitalism at all, of mercantilism treating the world 123 00:07:54,720 --> 00:07:59,320 Speaker 5: as a zero sum game, and the US government basically 124 00:07:59,360 --> 00:08:01,680 Speaker 5: deciding it can behave like China has been behaving for 125 00:08:01,720 --> 00:08:04,480 Speaker 5: a while and intervene in the private sector at will. 126 00:08:04,600 --> 00:08:08,440 Speaker 5: You could call that state capitalism crony capitalism, but it's 127 00:08:08,520 --> 00:08:11,080 Speaker 5: plainly a model that has had appealed and that it 128 00:08:11,080 --> 00:08:14,360 Speaker 5: has worked at times for a while. But then you 129 00:08:14,480 --> 00:08:18,120 Speaker 5: also have with any form of capitalism, it needs to 130 00:08:18,160 --> 00:08:21,960 Speaker 5: be able to grow, otherwise it won't keep enough people 131 00:08:22,000 --> 00:08:25,080 Speaker 5: happy with it. The best chance of growing is if 132 00:08:25,080 --> 00:08:28,920 Speaker 5: you can somehow or other improve productivity. That was part 133 00:08:28,960 --> 00:08:33,880 Speaker 5: of why Britain had its generations in the sun, because 134 00:08:33,920 --> 00:08:36,280 Speaker 5: it worked out before anybody else had to boost the 135 00:08:36,280 --> 00:08:40,319 Speaker 5: productivity of mills and factories in the Industrial Revolution. Now, 136 00:08:40,360 --> 00:08:45,200 Speaker 5: the argument now is that AI may actually be not 137 00:08:45,360 --> 00:08:50,360 Speaker 5: like one of these periodic crises within capitalism that I 138 00:08:50,360 --> 00:08:52,480 Speaker 5: was talking about, like the thirties and the seventies or 139 00:08:52,480 --> 00:08:56,600 Speaker 5: the GFC. It could be more like another industrial revolution. 140 00:08:56,720 --> 00:08:59,800 Speaker 5: It'll change the nature of work, the change what capital 141 00:08:59,800 --> 00:09:05,800 Speaker 5: can do as profoundly as that did, and that would 142 00:09:05,800 --> 00:09:08,360 Speaker 5: be wonderful at one level, and that that would promise 143 00:09:08,720 --> 00:09:11,480 Speaker 5: if you can get that much more productive to create 144 00:09:11,559 --> 00:09:14,160 Speaker 5: the money create the wealth that would enable you to 145 00:09:14,200 --> 00:09:19,000 Speaker 5: deal with the inequalities that many people find unbearable. The 146 00:09:19,120 --> 00:09:22,520 Speaker 5: problem is that it would do that by you know, 147 00:09:22,800 --> 00:09:25,679 Speaker 5: it's a very common estimate I now gather for as 148 00:09:25,679 --> 00:09:29,200 Speaker 5: many a seventy percent of jobs not to be needed anymore. 149 00:09:30,920 --> 00:09:34,400 Speaker 5: How do you reconcile? Then, any version of capitalism needs 150 00:09:34,720 --> 00:09:37,280 Speaker 5: the consent of people, it needs the consent of states. 151 00:09:37,320 --> 00:09:40,400 Speaker 5: It needs to overlap with some kind of democracy. If 152 00:09:40,400 --> 00:09:43,040 Speaker 5: it means seventy percent unemployment, that's not going to fly. 153 00:09:44,120 --> 00:09:47,760 Speaker 5: So that leads to this fascinating outcum which I now 154 00:09:47,880 --> 00:09:53,960 Speaker 5: understand far better universal basic income or something like it, 155 00:09:54,520 --> 00:09:59,240 Speaker 5: you would have under an AI world. If AI is 156 00:09:59,280 --> 00:10:02,480 Speaker 5: as potent as we think it is, you would have 157 00:10:02,679 --> 00:10:07,040 Speaker 5: to have more redistribution because so many human beings would 158 00:10:07,040 --> 00:10:10,679 Speaker 5: be rendered irrelevant. So how are we going to do that? 159 00:10:11,600 --> 00:10:16,040 Speaker 5: It plainly involves some kind of a more active state 160 00:10:16,320 --> 00:10:20,319 Speaker 5: to oversee that than we have had under near liberalism 161 00:10:20,440 --> 00:10:24,800 Speaker 5: under Thatcher and Reagan's model, Are we prepared to allow 162 00:10:24,840 --> 00:10:27,560 Speaker 5: the current companies that dominate AI to continue to do 163 00:10:27,600 --> 00:10:30,400 Speaker 5: that or do we need to rain them in somehow? 164 00:10:31,440 --> 00:10:36,080 Speaker 5: And then who is actually going to decide how to 165 00:10:36,160 --> 00:10:40,600 Speaker 5: share out the wealth. Andrew Yang, the presidential candidate, referred 166 00:10:40,640 --> 00:10:43,240 Speaker 5: to it as the freedom dividend, the idea that everybody 167 00:10:43,280 --> 00:10:47,600 Speaker 5: would be given a basic income. There is a Victor 168 00:10:47,640 --> 00:10:50,800 Speaker 5: Schwetz of Macquarie who wrote one of the books I've 169 00:10:50,840 --> 00:10:54,320 Speaker 5: been there writing about suggests that it would be more 170 00:10:54,360 --> 00:11:00,840 Speaker 5: of a compensation payment for irrelevance. And there are fascinating 171 00:11:00,920 --> 00:11:03,400 Speaker 5: arguments on either side about this that may be enforced 172 00:11:03,960 --> 00:11:07,280 Speaker 5: idleness will allow us to go away and write novels, 173 00:11:07,679 --> 00:11:12,520 Speaker 5: performing plays, do yoga, plates or whatever, that this could 174 00:11:12,600 --> 00:11:16,400 Speaker 5: be a spur to great creativity into the finding of 175 00:11:16,440 --> 00:11:20,000 Speaker 5: new jobs. But obviously you can also imagine it turning 176 00:11:20,000 --> 00:11:23,560 Speaker 5: into something quite dystopian. But it does raise the issue 177 00:11:23,559 --> 00:11:26,120 Speaker 5: if you're going to create a technology that means that 178 00:11:26,280 --> 00:11:28,240 Speaker 5: we don't have a use for half of the people 179 00:11:28,240 --> 00:11:30,920 Speaker 5: who might want to work, what else are you going 180 00:11:30,960 --> 00:11:34,000 Speaker 5: to do, Because that's not a fair system that people 181 00:11:34,040 --> 00:11:36,720 Speaker 5: will go along with unless you find some way to 182 00:11:36,760 --> 00:11:41,880 Speaker 5: deal with that. If AI succeeds as hoped, then it 183 00:11:41,960 --> 00:11:46,800 Speaker 5: really could deal with a lot of the issues of scarcity. 184 00:11:46,880 --> 00:11:49,240 Speaker 5: That it does turn us into a position of abundance 185 00:11:49,720 --> 00:11:52,400 Speaker 5: that we really can create enough for us all to 186 00:11:52,400 --> 00:11:56,040 Speaker 5: get by happily. But at the cost of that is 187 00:11:56,080 --> 00:12:01,120 Speaker 5: that it would require a massive reimagining of what we 188 00:12:01,200 --> 00:12:05,960 Speaker 5: want a state to do, what we the people want 189 00:12:06,720 --> 00:12:10,360 Speaker 5: to arrange our society. You can put it say, this 190 00:12:10,480 --> 00:12:14,720 Speaker 5: is a democratic state that's ultimately chosen by us somehow 191 00:12:14,800 --> 00:12:19,000 Speaker 5: or other. There is a relationship between what people decide 192 00:12:19,000 --> 00:12:22,480 Speaker 5: in elections and what markets decide in markets in buying 193 00:12:22,480 --> 00:12:26,280 Speaker 5: and selling, and you need to find a way to 194 00:12:26,360 --> 00:12:30,720 Speaker 5: reconcile those two, which will almost certainly be different from 195 00:12:30,760 --> 00:12:32,760 Speaker 5: any model of capitalism we've had so far. 196 00:12:33,440 --> 00:12:36,920 Speaker 1: Our thanks to John Arthur's columnist for Bloomberg Opinion, and 197 00:12:36,960 --> 00:12:39,840 Speaker 1: coming up on Bloomberg Daybreak weekend, we discuss a fresh 198 00:12:39,880 --> 00:12:43,840 Speaker 1: perspective on European stocks for the new year. I'm Nathan Hager, 199 00:12:43,960 --> 00:12:57,719 Speaker 1: and this is Bloomberg. This is Bloomberg Daybreak weekend. Our 200 00:12:57,760 --> 00:12:59,920 Speaker 1: glob will look ahead of the top stories for invest 201 00:13:00,240 --> 00:13:02,920 Speaker 1: in the coming week. I'm Nathan Hager in Washington. Up 202 00:13:03,000 --> 00:13:05,360 Speaker 1: later in the program we'll look at how equity markets 203 00:13:05,360 --> 00:13:08,440 Speaker 1: may fare in Asia next year. But first twenty twenty 204 00:13:08,480 --> 00:13:11,760 Speaker 1: five has seen explosive growth of tech stocks, the toll 205 00:13:11,840 --> 00:13:14,600 Speaker 1: of tariffs and the hunt for rare earths. In Europe, 206 00:13:14,600 --> 00:13:19,040 Speaker 1: the benchmark Eurostock six hundred index has seen significant outperformance, 207 00:13:19,080 --> 00:13:21,520 Speaker 1: with record highs both for that index and the foot 208 00:13:21,559 --> 00:13:24,160 Speaker 1: see one hundred in London. So what's in store for 209 00:13:24,280 --> 00:13:27,200 Speaker 1: stock pickers in twenty twenty six. Let's get more on 210 00:13:27,240 --> 00:13:30,840 Speaker 1: that now from Bloomberg Daybreak Europe banker Caroline Hepger in London. 211 00:13:31,000 --> 00:13:34,520 Speaker 3: Nathan, if you're thinking of some New Year's resolutions, perhaps 212 00:13:34,600 --> 00:13:37,880 Speaker 3: Bloomberg Intelligence can give you a helping hand. The team 213 00:13:37,920 --> 00:13:40,760 Speaker 3: who track thousands of companies all over the world have 214 00:13:40,880 --> 00:13:43,760 Speaker 3: come up with fifty if the most interesting stocks to 215 00:13:43,840 --> 00:13:46,480 Speaker 3: watch that you can resolve to keep your eye on 216 00:13:46,559 --> 00:13:48,000 Speaker 3: over the next twelve months. 217 00:13:48,160 --> 00:13:48,600 Speaker 5: And Jolie. 218 00:13:48,640 --> 00:13:52,600 Speaker 3: We now to discuss is Bloomberg Intelligence's director of Equity Research, 219 00:13:52,679 --> 00:13:53,520 Speaker 3: Tim Craighead. 220 00:13:53,679 --> 00:13:55,840 Speaker 6: Great to see you, Tim, pleasure to be here. 221 00:13:56,120 --> 00:13:58,400 Speaker 3: How did you come up with the ideas to begin with? 222 00:13:59,080 --> 00:14:00,880 Speaker 3: I suppose how do you think going to be helpful 223 00:14:00,920 --> 00:14:01,400 Speaker 3: to people? 224 00:14:01,640 --> 00:14:05,480 Speaker 6: Yeah, So these fifty ideas, which we do as a 225 00:14:05,520 --> 00:14:09,680 Speaker 6: little annual effort, are part of a broader group of 226 00:14:09,720 --> 00:14:14,280 Speaker 6: what we call focus ideas. And these are ideas that 227 00:14:14,360 --> 00:14:18,440 Speaker 6: have three pillars. One, we have a high conviction fundamental view, 228 00:14:19,360 --> 00:14:23,920 Speaker 6: whether it be revenue, earnings, margins, a new product, whatever. Secondly, 229 00:14:24,160 --> 00:14:27,440 Speaker 6: it's different from what the market thinks. It's out of consensus. 230 00:14:28,120 --> 00:14:31,560 Speaker 6: And thirdly, there are catalysts ahead that we think will 231 00:14:31,600 --> 00:14:36,360 Speaker 6: affect change in market sentiment, and these fifty all have 232 00:14:36,560 --> 00:14:39,960 Speaker 6: catalysts coming up that are important. In twenty twenty six, 233 00:14:40,080 --> 00:14:42,960 Speaker 6: we think market sentiment will change. 234 00:14:43,560 --> 00:14:47,360 Speaker 3: Interesting. So the selection is global, but I want to 235 00:14:47,360 --> 00:14:52,000 Speaker 3: focus in mostly on European companies and thinking about twenty 236 00:14:52,040 --> 00:14:56,240 Speaker 3: twenty five, the strength of European stocks has really caught 237 00:14:56,280 --> 00:15:00,440 Speaker 3: many people by surprise. Is that thought to can continue 238 00:15:00,560 --> 00:15:03,800 Speaker 3: into twenty twenty six overall for the European markets? 239 00:15:03,920 --> 00:15:06,440 Speaker 6: Yeah, it's interesting. You know, there's this old phrase about 240 00:15:06,600 --> 00:15:09,920 Speaker 6: US exceptionalism, and you look the last fifteen years, the 241 00:15:10,000 --> 00:15:14,680 Speaker 6: US market's are outperformed broadly speaking, but in twenty twenty five, 242 00:15:16,040 --> 00:15:21,120 Speaker 6: the US wasn't that exceptional. All markets were exceptional. In fact, 243 00:15:21,120 --> 00:15:23,720 Speaker 6: if you look Europe, you look at emerging markets, you 244 00:15:23,760 --> 00:15:27,120 Speaker 6: look at the US as well, and you know, the 245 00:15:27,160 --> 00:15:31,520 Speaker 6: European market for the past twelve eighteen months has in 246 00:15:31,560 --> 00:15:37,640 Speaker 6: fact done as you said, markedly well interestingly, it's been 247 00:15:37,720 --> 00:15:40,160 Speaker 6: for a very different reason than say what we saw 248 00:15:40,160 --> 00:15:44,960 Speaker 6: in the US. There it was all earnings driven. Valuation 249 00:15:46,600 --> 00:15:49,240 Speaker 6: did did rise a little bit. You know, it is 250 00:15:49,280 --> 00:15:55,360 Speaker 6: a lofty market multiple now at twenty plus times forward earnings, Europe, 251 00:15:55,720 --> 00:15:59,840 Speaker 6: interestingly at only fourteen to fifteen times at this point. 252 00:16:00,440 --> 00:16:04,640 Speaker 6: The gain has been all valuation. You know, quite often 253 00:16:04,680 --> 00:16:07,800 Speaker 6: we talked about how cheap Europe is relative to the US. 254 00:16:08,440 --> 00:16:12,200 Speaker 6: That discount has narrowed, and this whole move that we 255 00:16:12,280 --> 00:16:14,640 Speaker 6: saw in Europe this year has been, like I said, 256 00:16:14,680 --> 00:16:18,040 Speaker 6: because evaluation rise. Twenty twenty six we think is a 257 00:16:18,040 --> 00:16:23,320 Speaker 6: different game. We don't foresee a big multiple expansion from here. 258 00:16:23,400 --> 00:16:28,520 Speaker 6: We need earnings and if tariffs are a backburner that 259 00:16:28,640 --> 00:16:33,560 Speaker 6: was yesterday's story. If economic recovery slowly comes about in 260 00:16:33,640 --> 00:16:36,960 Speaker 6: twenty six, we think that there is earnings growth to 261 00:16:37,040 --> 00:16:39,840 Speaker 6: come through. That's what's really needed to drive the market 262 00:16:39,880 --> 00:16:40,640 Speaker 6: higher from here. 263 00:16:42,040 --> 00:16:47,320 Speaker 3: So you've picked about seventeen European companies. Many of them 264 00:16:47,600 --> 00:16:51,520 Speaker 3: are industrials that you've got sort of on your radar. 265 00:16:52,400 --> 00:16:54,760 Speaker 3: Why and what do you think is going to drive 266 00:16:54,840 --> 00:16:56,360 Speaker 3: that sector in twenty six. 267 00:16:56,440 --> 00:17:00,240 Speaker 6: It's interesting with industrials probably more than any other group. 268 00:17:00,800 --> 00:17:04,960 Speaker 6: It's a really diverse set of actors, if you want 269 00:17:05,000 --> 00:17:10,000 Speaker 6: to think about it that way. Acs, big Spanish engineering company. 270 00:17:10,400 --> 00:17:13,000 Speaker 6: It's on the list because it owns a company called 271 00:17:13,040 --> 00:17:19,880 Speaker 6: Turner Construction, which is the US's largest contractor building data centers. 272 00:17:20,480 --> 00:17:24,520 Speaker 6: It's an AI play. In contrast, you look at Alstam. 273 00:17:24,800 --> 00:17:28,199 Speaker 6: You know it's trains and train equipment. It's all about 274 00:17:28,240 --> 00:17:32,879 Speaker 6: a new integrated signaling system across Europe that they're putting 275 00:17:32,960 --> 00:17:36,200 Speaker 6: in place that we think is driving revenue going forward. 276 00:17:36,320 --> 00:17:40,840 Speaker 6: So drastically different. Keon they make forklifts, but they have 277 00:17:40,920 --> 00:17:45,840 Speaker 6: electric forklifts, and distribution centers are going through a change 278 00:17:45,880 --> 00:17:51,400 Speaker 6: with decarbonization, electrification, and it plays right into Kon said 279 00:17:51,440 --> 00:17:55,200 Speaker 6: EXO is that really an industrial well from a classification perspective, 280 00:17:55,240 --> 00:18:00,200 Speaker 6: it is. It's food service for hospitals and schools and 281 00:18:00,280 --> 00:18:04,680 Speaker 6: you know corporate cafeterias. They've had two years of negative 282 00:18:04,760 --> 00:18:09,320 Speaker 6: earnings trends. A new CEO is in. We think there's 283 00:18:09,359 --> 00:18:13,879 Speaker 6: a change afoot to improve what's been pretty low retention 284 00:18:14,560 --> 00:18:17,120 Speaker 6: of existing clients, and that's really where they fall down 285 00:18:17,160 --> 00:18:20,800 Speaker 6: relative to peers. So it's a very broad group of different, 286 00:18:21,200 --> 00:18:22,720 Speaker 6: very specific ideas. 287 00:18:23,359 --> 00:18:27,639 Speaker 3: European financials have been really big winners in twenty twenty five. 288 00:18:27,840 --> 00:18:31,520 Speaker 3: I suppose can that continue. I wonder whether it's based 289 00:18:31,600 --> 00:18:35,640 Speaker 3: also on the idea of the center bank of the ECB, 290 00:18:35,840 --> 00:18:38,840 Speaker 3: maybe a pivot on European interest RAITs. 291 00:18:39,119 --> 00:18:43,000 Speaker 6: So a couple of thoughts here. Three European financials are 292 00:18:43,040 --> 00:18:45,639 Speaker 6: on this list, but I'll put it in some broader context. 293 00:18:46,680 --> 00:18:51,800 Speaker 6: One is Danskabank, it's you know, Scandinavian bank. We do 294 00:18:51,880 --> 00:18:55,480 Speaker 6: see growth picking up there. They've been constrained on what 295 00:18:55,480 --> 00:18:58,320 Speaker 6: they can pay in dividends because of a regulatory issue 296 00:18:58,359 --> 00:19:01,480 Speaker 6: from a couple of years back. Now is over. We 297 00:19:01,520 --> 00:19:05,000 Speaker 6: think dividends and payouts are going to be improving. Same 298 00:19:05,040 --> 00:19:08,040 Speaker 6: thing with a company called OTP Bank, which is Hungarian 299 00:19:08,400 --> 00:19:11,159 Speaker 6: where earnings are doing well. We think growth is going 300 00:19:11,200 --> 00:19:13,399 Speaker 6: to be good and they're going to increase their dividends. 301 00:19:14,840 --> 00:19:17,480 Speaker 6: Not on this list, but also a focus idea is 302 00:19:17,520 --> 00:19:20,800 Speaker 6: Barclay's and that is that plays right into the story 303 00:19:20,840 --> 00:19:24,359 Speaker 6: you're talking in our broader European banks team does think 304 00:19:24,880 --> 00:19:28,159 Speaker 6: you know a potential ECB shift the other direction. You 305 00:19:28,160 --> 00:19:31,160 Speaker 6: know you've got a steepening yield curve. You know you 306 00:19:31,240 --> 00:19:34,399 Speaker 6: borrow shorter term, you lend longer term that's good for 307 00:19:34,480 --> 00:19:38,359 Speaker 6: net interest margins. They think that the European Bank Group 308 00:19:38,480 --> 00:19:39,760 Speaker 6: is pretty positive. 309 00:19:40,160 --> 00:19:43,840 Speaker 3: Okay, so one to watch in terms of banks. But 310 00:19:44,760 --> 00:19:50,000 Speaker 3: we can't exclude artificial intelligence, which I have learnt such 311 00:19:50,040 --> 00:19:53,960 Speaker 3: a tremendous amount. When I think back to Janu twenty 312 00:19:54,000 --> 00:19:58,840 Speaker 3: twenty five, downloading half a dozen brand new AI apps 313 00:19:58,960 --> 00:20:02,120 Speaker 3: to figure out whether they could help my work, my research, 314 00:20:02,240 --> 00:20:05,480 Speaker 3: my life, and I think that's what everybody else was 315 00:20:05,520 --> 00:20:09,680 Speaker 3: doing around the world. How will artificial intelligence help a 316 00:20:09,760 --> 00:20:15,000 Speaker 3: European market that is largely without big tech names. 317 00:20:14,520 --> 00:20:17,439 Speaker 6: It is very true. So a couple of thoughts here. 318 00:20:17,920 --> 00:20:21,119 Speaker 6: You know, we do have ASML here. It is not 319 00:20:21,240 --> 00:20:25,520 Speaker 6: a focus idea right now, it has been and we 320 00:20:25,560 --> 00:20:28,600 Speaker 6: think about it. That's the pure play. S A P 321 00:20:29,000 --> 00:20:32,120 Speaker 6: is a focus idea, not on this list. We like it, 322 00:20:32,400 --> 00:20:35,040 Speaker 6: but it's a it's sort of a secondary play on 323 00:20:35,480 --> 00:20:41,879 Speaker 6: AI and how that's driving cloud software. The big elements 324 00:20:41,880 --> 00:20:44,919 Speaker 6: from a European perspective are twofold. 325 00:20:45,000 --> 00:20:45,240 Speaker 2: One. 326 00:20:45,880 --> 00:20:50,360 Speaker 6: Are there secondary enabling type companies that you can take 327 00:20:50,400 --> 00:20:55,280 Speaker 6: advantage of. I mentioned ACS earlier, the infrastructure play that's 328 00:20:55,320 --> 00:21:01,199 Speaker 6: a classic case. And point a third way, which is 329 00:21:01,240 --> 00:21:03,640 Speaker 6: even more indirect, But frankly, we think is the real, 330 00:21:03,760 --> 00:21:08,920 Speaker 6: longer lasting item is companies across different businesses actually implementing 331 00:21:08,920 --> 00:21:13,000 Speaker 6: AI to drive either revenue or efficiencies or margins. We 332 00:21:13,160 --> 00:21:17,399 Speaker 6: just published a new C suite level survey where we 333 00:21:17,440 --> 00:21:21,200 Speaker 6: talked to six hundred companies in depth across nine different 334 00:21:21,240 --> 00:21:23,919 Speaker 6: industry groups, and it was all about what are you 335 00:21:24,080 --> 00:21:27,000 Speaker 6: doing to take advantage of AI? And it was quite 336 00:21:27,040 --> 00:21:30,720 Speaker 6: constructive from the standpoint of a There are revenue opportunities, 337 00:21:30,880 --> 00:21:35,880 Speaker 6: there are efficiency opportunities. It's not about cutting workforce at 338 00:21:35,880 --> 00:21:39,120 Speaker 6: this point. There's been some announcements, some of which might 339 00:21:39,119 --> 00:21:42,159 Speaker 6: have been sort of using this as a scapegoat, but 340 00:21:42,480 --> 00:21:46,719 Speaker 6: that's not the primary aim for AI, far from it. 341 00:21:46,840 --> 00:21:49,680 Speaker 6: So I think it's going to be one of those 342 00:21:49,960 --> 00:21:54,640 Speaker 6: back behind the scene opportunities to drive better earnings in 343 00:21:54,680 --> 00:21:56,919 Speaker 6: Europe from an implementation vantage point. 344 00:21:57,440 --> 00:22:01,080 Speaker 3: Okay, so that on artificial intelligency, I wonder if the 345 00:22:01,119 --> 00:22:05,439 Speaker 3: surprises will continue in AI in the year ahead. Well, 346 00:22:05,520 --> 00:22:09,600 Speaker 3: there's also Farmer, which has been very much dancing on 347 00:22:09,720 --> 00:22:14,320 Speaker 3: the point of that Trump tariff pin. But you've picked 348 00:22:14,359 --> 00:22:16,520 Speaker 3: outs and biotech names to think. 349 00:22:16,320 --> 00:22:20,560 Speaker 6: About indeed, and in those biotech names, you know they 350 00:22:20,560 --> 00:22:23,199 Speaker 6: happen to be, you know, us as they are. But 351 00:22:23,520 --> 00:22:25,639 Speaker 6: it goes in. There's a number of names on the 352 00:22:25,760 --> 00:22:32,239 Speaker 6: list that are new product innovation type stories. And you know, 353 00:22:32,240 --> 00:22:36,040 Speaker 6: we actually have had a European biotech recently on our 354 00:22:36,040 --> 00:22:39,119 Speaker 6: focus ideas revolution but you know, kind of did what 355 00:22:39,160 --> 00:22:41,320 Speaker 6: we expected it to do, and you know, we've taken 356 00:22:41,359 --> 00:22:47,600 Speaker 6: it step back. But Bridge Bio has a new a 357 00:22:47,640 --> 00:22:52,480 Speaker 6: new drug to deal with dwarfism, which actually is a 358 00:22:52,560 --> 00:22:56,479 Speaker 6: much bigger problem than you are, much bigger ailement than 359 00:22:56,520 --> 00:23:02,000 Speaker 6: you might think, especially for kids in getting them on something. 360 00:23:02,080 --> 00:23:04,600 Speaker 6: This is an oral therapy, it's easier to take and 361 00:23:05,280 --> 00:23:11,000 Speaker 6: you know it's great. There's another al needum if I 362 00:23:11,040 --> 00:23:15,840 Speaker 6: pronounce it correctly, that is a new therapy for thickening 363 00:23:15,920 --> 00:23:19,480 Speaker 6: heart walls, which again you don't think is a common issue, 364 00:23:20,040 --> 00:23:23,560 Speaker 6: but it's a big revenue opportunity for this little biotech company. 365 00:23:24,000 --> 00:23:26,560 Speaker 6: And you know, you broadly speaking in pharma, it's a 366 00:23:26,600 --> 00:23:29,720 Speaker 6: really interesting area we're quite focused on as we look 367 00:23:29,760 --> 00:23:34,080 Speaker 6: into twenty twenty six because we are past the scare 368 00:23:34,160 --> 00:23:39,040 Speaker 6: of Trump pricing policies. We're past the concern about tariff 369 00:23:39,080 --> 00:23:42,040 Speaker 6: this or that, it seems, and as we look ahead, 370 00:23:42,200 --> 00:23:45,720 Speaker 6: there's a massive wave of new product development in areas 371 00:23:45,840 --> 00:23:49,520 Speaker 6: like oncology that are the big European pharma companies are 372 00:23:49,760 --> 00:23:53,520 Speaker 6: quite exposed to think Astrosenica as a case in point, 373 00:23:53,720 --> 00:23:57,600 Speaker 6: it's probably the best new product positioned company across global 374 00:23:57,640 --> 00:24:02,760 Speaker 6: pharma in our humble opinion, our pharma analyst's opinion. So 375 00:24:03,200 --> 00:24:07,520 Speaker 6: interesting companies ahead. The other item to watch out for 376 00:24:07,680 --> 00:24:11,600 Speaker 6: is there's also the biggest patent cliff coming up in 377 00:24:11,640 --> 00:24:14,840 Speaker 6: the next two years facing global pharma. It's as much 378 00:24:14,840 --> 00:24:17,440 Speaker 6: of a US as it is a European issue. They're 379 00:24:17,520 --> 00:24:21,720 Speaker 6: really interesting dynamics in the area of a pharma. 380 00:24:22,000 --> 00:24:26,639 Speaker 3: Yeah, very interesting with drug discoveries, as you say. And lastly, 381 00:24:26,720 --> 00:24:30,240 Speaker 3: you're toasting perhaps a good year ahead for Tiaccio. 382 00:24:30,600 --> 00:24:34,680 Speaker 6: Why Yeah, really interesting because I like Scotch and I'm 383 00:24:34,680 --> 00:24:39,119 Speaker 6: just joking all the way I do. They've suffered a 384 00:24:39,160 --> 00:24:43,560 Speaker 6: couple of years of negative earnings revisions, too much inventory 385 00:24:43,600 --> 00:24:46,439 Speaker 6: in the US. China was a big market, growing market. 386 00:24:46,480 --> 00:24:51,600 Speaker 6: It's faltered. We think things have been cleaned out. There's 387 00:24:51,640 --> 00:24:54,919 Speaker 6: a new CEO who's starting. We think that there's a 388 00:24:54,960 --> 00:25:00,679 Speaker 6: recalibration new initiatives and if there is a broad backdrop 389 00:25:00,720 --> 00:25:04,560 Speaker 6: of a bettery economy in twenty twenty six US European. 390 00:25:05,320 --> 00:25:07,639 Speaker 6: It's a pretty good backdrop for Diagio. 391 00:25:07,960 --> 00:25:12,239 Speaker 3: Okay, I might stick to grapes myself. Wonderful. We have 392 00:25:12,280 --> 00:25:15,080 Speaker 3: some fresh ideas with twenty twenty six to power us 393 00:25:15,119 --> 00:25:18,240 Speaker 3: through the months ahead. Tim, thank you so much forgiving 394 00:25:18,240 --> 00:25:21,520 Speaker 3: me some of your time. Tim Craighead is Bloomberg Intelligence, 395 00:25:21,600 --> 00:25:24,880 Speaker 3: is a director of equity Research. Thank you, And I'm 396 00:25:24,920 --> 00:25:27,280 Speaker 3: Caroline Hebge here in London, and you can catch us 397 00:25:27,320 --> 00:25:30,880 Speaker 3: every weekday morning for Bloomberg Daybreak you at beginning at 398 00:25:30,920 --> 00:25:33,960 Speaker 3: six am in London. That's one am on Wall Street. 399 00:25:34,160 --> 00:25:37,800 Speaker 1: Nathan, Thanks Caroline, And coming up on Bloomberg day Break Weekend, 400 00:25:37,840 --> 00:25:40,240 Speaker 1: we'll look ahead to what's in store for Asian equity 401 00:25:40,240 --> 00:25:43,520 Speaker 1: markets in twenty twenty six. I'm Nathan Hagar and this 402 00:25:43,960 --> 00:25:57,320 Speaker 1: is Bloomberg. This is Bloomberg day Break Weekend, our global 403 00:25:57,359 --> 00:25:59,679 Speaker 1: look ahead of the top stories for investors in the 404 00:25:59,680 --> 00:26:03,200 Speaker 1: coming week. I'm Nathan Hager in Washington. Turning to Asia now, 405 00:26:03,240 --> 00:26:06,520 Speaker 1: where many equity markets appear set for a dynamic new year. 406 00:26:06,800 --> 00:26:08,840 Speaker 1: For more, let's get to Doug Krisner, host of the 407 00:26:08,920 --> 00:26:11,040 Speaker 1: Daybreak Asia podcast Nathan. 408 00:26:11,119 --> 00:26:14,159 Speaker 2: In the last year, many questions loomed over the Asian 409 00:26:14,200 --> 00:26:18,080 Speaker 2: equity markets. One dealt with the outlook for artificial intelligence. 410 00:26:18,320 --> 00:26:22,159 Speaker 2: We remember well the Deep Seek moment. It suggested China 411 00:26:22,280 --> 00:26:25,800 Speaker 2: was closing the gap in the AI race with the US. Now, 412 00:26:25,840 --> 00:26:30,120 Speaker 2: the AI trade also raised questions over valuations, and at 413 00:26:30,119 --> 00:26:32,440 Speaker 2: the same time, there was a lot of anxiety over 414 00:26:32,520 --> 00:26:36,320 Speaker 2: how Asian exporters would be impacted by US tariff policy. 415 00:26:36,960 --> 00:26:39,680 Speaker 2: And then when it comes to China, of course, questions 416 00:26:39,720 --> 00:26:43,119 Speaker 2: surrounding the property market as well as the story on 417 00:26:43,200 --> 00:26:46,400 Speaker 2: domestic demand. So as we head into the new year, 418 00:26:46,480 --> 00:26:49,480 Speaker 2: let's consider the outlook for Asian stocks. I'm joined by 419 00:26:49,520 --> 00:26:53,560 Speaker 2: Bloomberg's John Lee. He is Research content manager for the APEC. 420 00:26:54,000 --> 00:26:57,080 Speaker 2: John joins us from our studios in Hong Kong. Thank 421 00:26:57,119 --> 00:26:59,760 Speaker 2: you for being here. So I just highlighted a few 422 00:26:59,760 --> 00:27:02,720 Speaker 2: of the concerns and it seems a number of these 423 00:27:02,760 --> 00:27:05,960 Speaker 2: issues were also on the mines of US investors. As 424 00:27:06,000 --> 00:27:08,959 Speaker 2: if there were parallel concerns. 425 00:27:09,880 --> 00:27:12,480 Speaker 7: Yeah, there definitely was parallels. Now, the biggest driver for 426 00:27:12,560 --> 00:27:16,440 Speaker 7: Asian equities was same as the US as the artificial 427 00:27:16,440 --> 00:27:19,159 Speaker 7: intelligence or AI trade. And if you look at the 428 00:27:19,240 --> 00:27:23,840 Speaker 7: markets that really did well, like South Korea, Taiwan, Japan, 429 00:27:24,160 --> 00:27:27,800 Speaker 7: and China. It's all because of the companies that were 430 00:27:27,920 --> 00:27:30,840 Speaker 7: leaved to the AI theme. So I'm talking about companies 431 00:27:30,880 --> 00:27:35,600 Speaker 7: like sk Heinich, Samson Electronics, TIERSMC, so that was a 432 00:27:35,600 --> 00:27:38,399 Speaker 7: big theme. There were other things as well. Defense was 433 00:27:38,440 --> 00:27:41,480 Speaker 7: a big issue in Asia, especially with the continuation of 434 00:27:41,480 --> 00:27:44,680 Speaker 7: the Russia Ukraine War, so some of the biggest outperformers 435 00:27:44,760 --> 00:27:47,720 Speaker 7: were defense stocks as well, like you had Mitsubishi Heavy 436 00:27:48,040 --> 00:27:49,439 Speaker 7: and Hanua Aerospace. 437 00:27:49,760 --> 00:27:53,479 Speaker 2: I'm curious about participation. Do you have a sense of 438 00:27:53,520 --> 00:27:57,639 Speaker 2: whether the gains were primarily due to retail investors or 439 00:27:57,720 --> 00:28:00,959 Speaker 2: whether institutions were helping to drive these advances. 440 00:28:02,480 --> 00:28:05,600 Speaker 7: That's an interesting question. We've done some analysis and the 441 00:28:05,680 --> 00:28:10,280 Speaker 7: initial jump up in the share prices, especially in Korea, 442 00:28:10,320 --> 00:28:13,040 Speaker 7: which was the biggest outperformer this year, was led by 443 00:28:13,080 --> 00:28:17,080 Speaker 7: domestic institutions, and then the second leg was driven by 444 00:28:17,359 --> 00:28:21,879 Speaker 7: foreigners coming back into the markets, but they were reducing 445 00:28:21,880 --> 00:28:26,600 Speaker 7: their underweight positions, and recently we've seen some participation by 446 00:28:26,760 --> 00:28:27,640 Speaker 7: retail investors. 447 00:28:27,880 --> 00:28:30,720 Speaker 2: I'm wondering about the flows. I know there has been 448 00:28:30,760 --> 00:28:35,240 Speaker 2: a lot of Asian participation in US markets contributing to 449 00:28:35,280 --> 00:28:38,160 Speaker 2: the gains that we have seen for US stocks. Do 450 00:28:38,200 --> 00:28:42,080 Speaker 2: you expect some of that capital to be repatriated back 451 00:28:42,080 --> 00:28:44,040 Speaker 2: to Asia as we look ahead to the new year. 452 00:28:44,360 --> 00:28:47,760 Speaker 7: We do believe so, but having said that, we haven't 453 00:28:47,840 --> 00:28:51,680 Speaker 7: really seen significant signs of that happening now. If you 454 00:28:51,720 --> 00:28:56,520 Speaker 7: look at Asian capital investing overseas, for example, since COVID, 455 00:28:57,160 --> 00:29:01,320 Speaker 7: Korean retail investors poured in over one hundred billion dollars 456 00:29:01,920 --> 00:29:06,920 Speaker 7: of money into US stocks, predominantly you know the mag seven, 457 00:29:07,480 --> 00:29:10,800 Speaker 7: and we've only started to see them repatriate money, but 458 00:29:10,880 --> 00:29:14,240 Speaker 7: not insignificant size. They've pulled back about a billion so far, 459 00:29:14,880 --> 00:29:16,280 Speaker 7: so there's still a lot more to go. 460 00:29:16,680 --> 00:29:20,120 Speaker 2: Let's move away from the Asia Pacific and look at India. 461 00:29:20,240 --> 00:29:20,400 Speaker 4: Now. 462 00:29:20,400 --> 00:29:22,479 Speaker 2: The game that we saw for the nifty to fifty 463 00:29:22,600 --> 00:29:25,800 Speaker 2: was not nearly as strong as for markets in the 464 00:29:25,840 --> 00:29:28,400 Speaker 2: Asia Pacific. What is your sense of what's happening with 465 00:29:28,480 --> 00:29:29,840 Speaker 2: the market in India right now? 466 00:29:29,920 --> 00:29:33,320 Speaker 7: Yeah, So India is an interesting market because that was 467 00:29:33,360 --> 00:29:36,960 Speaker 7: the one market where foreigners were overweight heading into the 468 00:29:37,000 --> 00:29:40,160 Speaker 7: beginning of this year. It's got a great domestic growth story, 469 00:29:40,200 --> 00:29:43,160 Speaker 7: it's got a young population and you know, the government 470 00:29:43,280 --> 00:29:47,200 Speaker 7: is improving its infrastructure. But having said that, it's really 471 00:29:47,320 --> 00:29:51,040 Speaker 7: lagged some of the North Asian markets because it doesn't 472 00:29:51,080 --> 00:29:53,239 Speaker 7: really have the AI theme behind it. This comes as 473 00:29:53,280 --> 00:29:55,560 Speaker 7: a surprise to many global investors. Like if you look 474 00:29:55,600 --> 00:29:58,880 Speaker 7: at the you know, India's got a lot of talented engineers. 475 00:29:59,240 --> 00:30:01,320 Speaker 7: It's also you know, a lot some of the biggest 476 00:30:01,440 --> 00:30:06,560 Speaker 7: US tech companies are led by Indian of origin. But 477 00:30:06,600 --> 00:30:08,920 Speaker 7: if you look at the Indian stocks, they don't have 478 00:30:09,200 --> 00:30:13,440 Speaker 7: like they're not really into the hardware space. And there's 479 00:30:13,480 --> 00:30:18,880 Speaker 7: also some concerns that AI could be an impact and 480 00:30:19,000 --> 00:30:22,120 Speaker 7: negative impact to some of the large companies that offer 481 00:30:22,160 --> 00:30:26,080 Speaker 7: things like IT services. So there's been a debate in 482 00:30:26,120 --> 00:30:30,000 Speaker 7: financial markets as to whether India actually is a beneficiary 483 00:30:31,080 --> 00:30:32,520 Speaker 7: you know, of AI or not. 484 00:30:33,040 --> 00:30:37,160 Speaker 2: So how closely correlated is the equity market in India 485 00:30:37,240 --> 00:30:38,640 Speaker 2: with the overall economy. 486 00:30:39,560 --> 00:30:43,960 Speaker 7: It's very closely correlated. So India has slowed down somewhat 487 00:30:44,000 --> 00:30:46,880 Speaker 7: this hip and we still expect over the medium term 488 00:30:46,920 --> 00:30:50,040 Speaker 7: that it's still going to be the fastest growing major 489 00:30:50,240 --> 00:30:52,560 Speaker 7: economy in the world. So you know, maybe of the 490 00:30:52,600 --> 00:30:54,800 Speaker 7: last ten years was growing at say eight and a 491 00:30:54,840 --> 00:30:57,400 Speaker 7: half percent GDP, and we think it's going to grow 492 00:30:57,400 --> 00:30:59,320 Speaker 7: at about like seven to seven and a half percent 493 00:30:59,360 --> 00:31:00,000 Speaker 7: going forward. 494 00:31:00,360 --> 00:31:03,240 Speaker 2: Let's change gears and look at China, where there seems 495 00:31:03,280 --> 00:31:06,080 Speaker 2: to have been a great deal of cross currents. Now 496 00:31:06,080 --> 00:31:09,360 Speaker 2: we know that the export economy is holding up reasonably well. 497 00:31:09,920 --> 00:31:13,520 Speaker 2: It's domestic demand that remains the problem. How do you 498 00:31:13,640 --> 00:31:16,760 Speaker 2: view the outlook for the Chinese economy in twenty twenty six? 499 00:31:16,760 --> 00:31:17,960 Speaker 2: Would you call it upbeat? 500 00:31:19,240 --> 00:31:21,640 Speaker 7: I think the short answer is yes. And you've seen 501 00:31:21,680 --> 00:31:26,320 Speaker 7: that across the board. Many economists have recently upgraded their 502 00:31:26,320 --> 00:31:29,440 Speaker 7: GDP forecasts, like we did as well at Bloomberg Economics 503 00:31:30,000 --> 00:31:32,840 Speaker 7: maybe a few months ago. We're expecting, you know, GDP 504 00:31:33,040 --> 00:31:36,120 Speaker 7: to slow down to four point two percent in twenty 505 00:31:36,200 --> 00:31:39,360 Speaker 7: twenty six, and we've recently, you know, upgraded that to 506 00:31:39,480 --> 00:31:41,480 Speaker 7: like four point four five and I think that's been 507 00:31:41,520 --> 00:31:46,800 Speaker 7: reflected by other cell side brokers as well. But as 508 00:31:46,920 --> 00:31:48,920 Speaker 7: you sort of mentioned, but it's mostly due to the 509 00:31:48,960 --> 00:31:51,560 Speaker 7: strong exports rather than the domestic picture. 510 00:31:51,920 --> 00:31:55,320 Speaker 2: What about the market for initial public offerings of Chinese 511 00:31:55,320 --> 00:31:57,440 Speaker 2: firms in the new year, do you expect it will 512 00:31:57,480 --> 00:32:00,240 Speaker 2: be more heated than it was toward the end of 513 00:32:00,240 --> 00:32:01,160 Speaker 2: twenty twenty five? 514 00:32:01,520 --> 00:32:04,520 Speaker 7: So most of the IPOs have happened in Hong Kong, 515 00:32:05,160 --> 00:32:09,000 Speaker 7: and you know Hong Kong right now, I think it's 516 00:32:09,080 --> 00:32:13,440 Speaker 7: still the case. It's leading the world in IPOs this year. 517 00:32:14,040 --> 00:32:17,760 Speaker 7: And we spoke to Hong Kong Exchange and they've got 518 00:32:18,000 --> 00:32:22,400 Speaker 7: over three hundred companies on the backlog waiting to list 519 00:32:22,840 --> 00:32:25,760 Speaker 7: on the exchange. So it's it's a massive backlog and 520 00:32:26,120 --> 00:32:28,960 Speaker 7: eighty to ninety percent of those companies are mainland companies. 521 00:32:29,120 --> 00:32:32,320 Speaker 2: But when it comes to deploying the funds raised by 522 00:32:32,360 --> 00:32:35,480 Speaker 2: those IPOs, how is that capital being put to work? 523 00:32:35,840 --> 00:32:39,360 Speaker 7: Yeah, it's being deployed for the overseas operations because they've 524 00:32:39,440 --> 00:32:42,480 Speaker 7: you know, there's capital controls in you know, mainland China, 525 00:32:42,760 --> 00:32:45,160 Speaker 7: so it's a great way for them to raise funds 526 00:32:45,240 --> 00:32:47,800 Speaker 7: offshore for their offshore expansion. 527 00:32:48,440 --> 00:32:51,400 Speaker 2: What about the relationship between the US and China At 528 00:32:51,480 --> 00:32:55,640 Speaker 2: several moments during the past year, this was very, very heated. Obviously, 529 00:32:55,800 --> 00:32:58,560 Speaker 2: Tariff's a big part of that story. There was also 530 00:32:58,640 --> 00:33:02,280 Speaker 2: the story on export controls from the US side and 531 00:33:02,400 --> 00:33:05,600 Speaker 2: from the Chinese side, restrictions on rare earths. Do you 532 00:33:05,680 --> 00:33:08,920 Speaker 2: have a sense of how this relationship, the one between 533 00:33:09,040 --> 00:33:13,080 Speaker 2: Washington and Beijing will develop in twenty twenty six and 534 00:33:13,160 --> 00:33:17,720 Speaker 2: the way in which you expected to affect markets going forward. 535 00:33:18,200 --> 00:33:20,400 Speaker 7: It's hard to say. I would say that, you know, 536 00:33:20,440 --> 00:33:25,160 Speaker 7: the relationship does seem to be thawing somewhat. It's been 537 00:33:25,240 --> 00:33:27,200 Speaker 7: a few it's been a few months where there's been 538 00:33:27,760 --> 00:33:30,520 Speaker 7: you know, like there's been some tariff scared so things 539 00:33:30,560 --> 00:33:35,000 Speaker 7: seem to be you know, improving slightly. Having said that, 540 00:33:35,280 --> 00:33:37,600 Speaker 7: you know, if you look at what's happened to you know, 541 00:33:37,640 --> 00:33:41,480 Speaker 7: the share prices and the markets, they've really shrugged off 542 00:33:41,560 --> 00:33:45,200 Speaker 7: a lot of the concerns regarding taroffs. If you remember 543 00:33:45,200 --> 00:33:49,560 Speaker 7: at the beginning of this year, you know, China, Korea, 544 00:33:49,680 --> 00:33:51,800 Speaker 7: Japan was supposed to be the markets that were most 545 00:33:51,880 --> 00:33:55,680 Speaker 7: impacted negatively by taros, but that's actually done extremely well. 546 00:33:55,880 --> 00:33:59,240 Speaker 7: So in one way, I think the risk has been subsided. 547 00:33:59,480 --> 00:34:03,280 Speaker 2: There's no mistaking the deflation problem that China has right now. 548 00:34:03,880 --> 00:34:07,480 Speaker 2: It's definitely undermining the confidence and the property market still, 549 00:34:08,200 --> 00:34:10,680 Speaker 2: and I'm wondering whether or not that could show up 550 00:34:10,719 --> 00:34:13,960 Speaker 2: in a meaningful way to erode confidence in the Chinese 551 00:34:13,960 --> 00:34:14,720 Speaker 2: equity market. 552 00:34:16,320 --> 00:34:19,880 Speaker 7: Well, you're right, like the domestic picture still looks subdued, 553 00:34:20,320 --> 00:34:24,359 Speaker 7: you know, property prices are still forecast to four We've 554 00:34:24,360 --> 00:34:28,480 Speaker 7: got property prices falling by about two percent, and the 555 00:34:28,560 --> 00:34:34,160 Speaker 7: authorities are aware of this deflationary issue. They've implemented some 556 00:34:34,360 --> 00:34:38,239 Speaker 7: measures you might have heard of, like the anti involution push, 557 00:34:38,440 --> 00:34:41,839 Speaker 7: and that's really like a measure to stop the cutthroat 558 00:34:42,239 --> 00:34:46,280 Speaker 7: competition amongst a lot of these companies. And we're starting 559 00:34:46,280 --> 00:34:50,279 Speaker 7: to see some abatement in terms of price competition. We 560 00:34:50,320 --> 00:34:52,759 Speaker 7: can talk about the material sector for a start, so 561 00:34:53,680 --> 00:34:56,680 Speaker 7: there is some green shoots that you know, this could 562 00:34:57,000 --> 00:34:59,400 Speaker 7: alleviate the deflationary concerns. 563 00:34:58,960 --> 00:35:01,640 Speaker 2: But there are still the issue of overcapacity which the 564 00:35:01,680 --> 00:35:02,920 Speaker 2: government has to address. 565 00:35:03,040 --> 00:35:07,160 Speaker 7: Right. Oh, yeah, it's true, and there's still too much 566 00:35:07,560 --> 00:35:10,800 Speaker 7: like competition in many sectors, like the electric vehicle sector 567 00:35:10,880 --> 00:35:13,839 Speaker 7: is like a classic example, you know, like there's still 568 00:35:13,880 --> 00:35:18,520 Speaker 7: too many competitions in most industries. That's their way of 569 00:35:18,600 --> 00:35:23,879 Speaker 7: trying to improve the competitive landscape. But it's still too 570 00:35:23,920 --> 00:35:25,160 Speaker 7: early to say whether it's. 571 00:35:25,080 --> 00:35:25,640 Speaker 4: Going to work or not. 572 00:35:25,920 --> 00:35:28,680 Speaker 2: It seems like China has been very effective in becoming 573 00:35:28,800 --> 00:35:31,560 Speaker 2: less reliant on the United States as a market and 574 00:35:31,640 --> 00:35:35,840 Speaker 2: pushing for other relationships, whether in Asia or Africa or 575 00:35:35,920 --> 00:35:40,040 Speaker 2: parts of South America. Even So the US is still 576 00:35:40,200 --> 00:35:43,440 Speaker 2: reliant on Chinese manufacturing, isn't it. 577 00:35:43,680 --> 00:35:46,080 Speaker 7: Well, we could just look at the trade figures. The 578 00:35:46,200 --> 00:35:50,399 Speaker 7: trade surplus in China has broken, you know, like one 579 00:35:50,520 --> 00:35:55,120 Speaker 7: trillion dollars by the end of November, so it's been 580 00:35:55,239 --> 00:35:58,120 Speaker 7: really strong and I think that's almost the record. So 581 00:35:58,680 --> 00:36:01,720 Speaker 7: this has come when exports of the US has fallen, 582 00:36:02,280 --> 00:36:05,160 Speaker 7: and they've been able to offset that by exporting more 583 00:36:05,200 --> 00:36:08,759 Speaker 7: to Southeast Asia, Africa, and Latin America, so that you know, 584 00:36:08,840 --> 00:36:11,759 Speaker 7: the numbers speak for themselves. That have been very successful 585 00:36:12,360 --> 00:36:15,759 Speaker 7: in you know, offsetting the reduction in US exports to 586 00:36:15,800 --> 00:36:16,440 Speaker 7: other markets. 587 00:36:17,360 --> 00:36:20,760 Speaker 2: When it comes to the notion of more policy stimulus 588 00:36:20,800 --> 00:36:24,360 Speaker 2: from Beijing, I'm curious about what Bloomberg Intelligence is saying 589 00:36:24,400 --> 00:36:27,279 Speaker 2: about the new year. Should markets hope for a shot 590 00:36:27,360 --> 00:36:27,799 Speaker 2: in the arm. 591 00:36:28,440 --> 00:36:30,200 Speaker 7: Yeah, So we don't think there's going to be like 592 00:36:30,239 --> 00:36:34,480 Speaker 7: a big bang stimulus, you know. So that's that's the 593 00:36:34,520 --> 00:36:37,360 Speaker 7: short answer. I think you we'll see, you know, little 594 00:36:37,400 --> 00:36:40,239 Speaker 7: measures here and there. You saw measures like the cash 595 00:36:40,239 --> 00:36:43,280 Speaker 7: for clunkers earlier this year. But if you look at 596 00:36:43,400 --> 00:36:46,439 Speaker 7: you know, the measures, there could be some there could 597 00:36:46,480 --> 00:36:49,480 Speaker 7: be some move away from sort of monetary policy more 598 00:36:49,520 --> 00:36:53,440 Speaker 7: towards fiscal policy expansion, but don't expect something, you know, 599 00:36:53,480 --> 00:36:55,160 Speaker 7: like a big bang going forward. 600 00:36:55,640 --> 00:36:59,520 Speaker 2: I'm wondering about the conversations around a forecast for twenty 601 00:36:59,560 --> 00:37:02,919 Speaker 2: twenty s that may be a little outside consensus. 602 00:37:04,200 --> 00:37:05,960 Speaker 7: I'm not sure if it's a big surprise. But the 603 00:37:06,520 --> 00:37:09,960 Speaker 7: major issue right now, and it's a global issue, and 604 00:37:10,000 --> 00:37:12,600 Speaker 7: we hear this all the time, is you know, are 605 00:37:12,640 --> 00:37:16,640 Speaker 7: we in a AI bubble or not. There's still a 606 00:37:16,640 --> 00:37:19,080 Speaker 7: lot of concerns of whether there's been you know, the 607 00:37:19,160 --> 00:37:21,920 Speaker 7: infrastructure spend, especially with the mag seven in the US. 608 00:37:22,640 --> 00:37:26,960 Speaker 7: I would say in Asia, especially with the Chinese tech companies, 609 00:37:27,000 --> 00:37:30,040 Speaker 7: they're spending a lot less in terms of you know, 610 00:37:30,320 --> 00:37:33,800 Speaker 7: data center capex than their American peers, so they're spending 611 00:37:34,080 --> 00:37:37,960 Speaker 7: roughly one tenth So I think the risk is somewhat 612 00:37:38,040 --> 00:37:43,280 Speaker 7: less in Asia regarding that. But that's you know, there's 613 00:37:43,360 --> 00:37:46,160 Speaker 7: other themes as well that could you know, pop up 614 00:37:46,239 --> 00:37:50,080 Speaker 7: next year. I was discussed earlier that this year has 615 00:37:50,120 --> 00:37:52,399 Speaker 7: been you know, I guess like the big themes has 616 00:37:52,400 --> 00:37:58,879 Speaker 7: been like AI defense, humanoid robotics. We think next year, 617 00:37:59,239 --> 00:38:03,440 Speaker 7: based on our thematics analyst, humuloid robotics could get another 618 00:38:03,600 --> 00:38:05,919 Speaker 7: you know, could come into the spotlight again and also 619 00:38:06,040 --> 00:38:09,879 Speaker 7: Space as well, especially with Elon Musk announcing that he's 620 00:38:09,920 --> 00:38:13,640 Speaker 7: looking to ipo SpaceX, so some of the company's leavers 621 00:38:13,719 --> 00:38:17,920 Speaker 7: to the space theme could get some you know emphasis. 622 00:38:17,920 --> 00:38:19,600 Speaker 2: Next to you, John will leave it there. Thank you 623 00:38:19,680 --> 00:38:23,040 Speaker 2: so very much, Bloomberg's John Lee. He is Research content 624 00:38:23,160 --> 00:38:26,759 Speaker 2: manager for the APEX joining from Hong Kong, and I'm 625 00:38:26,760 --> 00:38:29,240 Speaker 2: Doug Prisner. You can catch us weekdays for the Daybreak 626 00:38:29,239 --> 00:38:33,640 Speaker 2: Asia podcast. It's available wherever you get your podcast. Nathan, 627 00:38:33,840 --> 00:38:34,439 Speaker 2: Thanks Doug. 628 00:38:34,600 --> 00:38:34,799 Speaker 4: Man. 629 00:38:34,880 --> 00:38:37,520 Speaker 1: That does it for this edition of Bloomberg day Break Weekend. 630 00:38:37,760 --> 00:38:40,640 Speaker 1: Join us again Monday morning at five am Wall Street 631 00:38:40,640 --> 00:38:43,160 Speaker 1: Time for the latest sun markets, overseas and all the 632 00:38:43,200 --> 00:38:45,800 Speaker 1: news you need to start your day. I'm Nathan Hager. 633 00:38:45,920 --> 00:38:48,960 Speaker 1: Stay with us. Top stories and global business headlines are 634 00:38:49,000 --> 00:38:51,200 Speaker 1: coming up right now.