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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.

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Speaker 2: Welcome to the Bloomberg day Break Asia Podcast. I'm Doug Chrisner.

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Speaker 2: It's going to be a holiday shortened week in the

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Speaker 2: Asia Pacific. Many jurisdictions will be celebrating the Lunar New

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Speaker 2: Year holiday, and coming up, we'll be talking markets with

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Speaker 2: Michael Dyer of MNG Investments in Hong Kong. But we

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Speaker 2: begin in the real estate market. I think it's fair

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Speaker 2: to say that Hong Kong's commercial real estate sector has

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Speaker 2: been going through one of its worst slumps in history,

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Speaker 2: and some folks are saying there is simply no end

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Speaker 2: in sight. Joining us now for a closer look is

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Speaker 2: Adril Chan. He is chair of Hong Long Properties. Joining

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Speaker 2: us from our studios in Hong Kong. Adriel, thanks for

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Speaker 2: making time to chat with us. When I think of

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Speaker 2: markets that are in distress, I immediately think of the

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Speaker 2: move to revalue assets. How has that been happening for you? Thanks, Doug.

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Speaker 1: Revaluations, I mean they have to happen when markets change.

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Speaker 1: I mean these are unfortunately just the accounting rules. That

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Speaker 1: being said, when you revalue you can do it more conservatively,

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Speaker 1: or you can do it more aggressively, and so I

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Speaker 1: think that the approach that we've take is always taken,

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Speaker 1: is always to be more conservative. That being said, the

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Speaker 1: cause for the big dip in our underlying profit is

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Speaker 1: primarily those revaluations, and so we have to do them,

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Speaker 1: and unfortunately that's where we are today.

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Speaker 2: So you had that twenty five percent drop an annual profit. Right,

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Speaker 2: that's right. When you look at the various sectors that

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Speaker 2: you're involved in, whether it's shopping malls or office buildings,

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Speaker 2: how is the weakness distributed?

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Speaker 1: So offices have been pretty weak both in Hong Kong

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Speaker 1: and made then China. Residential definitely super soft in the mainland,

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Speaker 1: a little bit less soft in Hong Kong. We did

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Speaker 1: manage to sell through some of our apartments here in

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Speaker 1: Hong Kong, and retail is feel it feels like it's

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Speaker 1: bottom out here in Hong Kong. If you strip out

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Speaker 1: some of these one offs adjusted leases that we'd signed

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Speaker 1: during the year, we're actually only down three percent, even

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Speaker 1: though if you look at the numbers, its shows nine.

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Speaker 1: But in Hong Kong, like for like is only down

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Speaker 1: three percent. So we're feeling actually like we found the

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Speaker 1: bottom in mainland China. Retail is down about four percent,

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Speaker 1: so a little bit more. But that being said, if

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Speaker 1: you listen to all the talk around China retail about consumption,

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Speaker 1: about sentiment, you'd think that it would be down a

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Speaker 1: lot more, but we're actually only down four So I'd

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Speaker 1: say that it's a solid set of results, but definitely

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Speaker 1: looking for a little bit more growth this year.

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Speaker 2: So in order to become more competitive in this environment,

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Speaker 2: are you challenged with maybe having to spend some capital

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Speaker 2: to renovate to be a little bit more competitive.

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Speaker 1: Absolutely, I mean you hit the nail on the head

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Speaker 1: when there's a downturn. One of the best things you

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Speaker 1: can do is invest in yourself. So that's something that

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Speaker 1: we've been doing. We have upgrades in some of our

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Speaker 1: key malls in mainland China, and that's something that we're

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Speaker 1: doing to stay competitive, but also taking advantage of lower sales,

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Speaker 1: not lower foot traffic because foot traffic generally is actually up,

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Speaker 1: but lower sales to make some of these improvements to

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Speaker 1: the physical assets.

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Speaker 2: So is there cash on hand or do you find

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Speaker 2: yourself going to either banks or going to the market

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Speaker 2: to get financing.

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Speaker 1: Well, we are net debt right now, so we're at

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Speaker 1: about thirty three thirty four percent geared. So unfortunately, we

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Speaker 1: don't have as much cash on hand as we'd like

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Speaker 1: or as we did several years ago. That being said,

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Speaker 1: you know, we just signed a ten year, sorry a

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Speaker 1: five year, ten billion Hong Kong dollar syndicated loan here

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Speaker 1: from the Hong Kong main than China and Singapore banks,

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Speaker 1: and that syndication was I think a strong vote of

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Speaker 1: confidence for our finances, for our balance sheet, and indeed

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Speaker 1: for our P and L. So you know, we do

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Speaker 1: have to go out and raise money for some of this.

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Speaker 1: That being said, I think it's been relatively easier for

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Speaker 1: us than the broader market.

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Speaker 2: I'm wondering whether or not you feel the need to

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Speaker 2: expand into other types of commercial real estate. We've talked

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Speaker 2: about malls, we've talked about office, maybe a little bit

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Speaker 2: of residential in there as well. But the build out

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Speaker 2: that we are seeing right now globally in terms of

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Speaker 2: artificial intelligence is on the server farm side. Are you

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Speaker 2: tempted at all to get into the service space.

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Speaker 1: I have to be honest, I did look into that.

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Speaker 1: You know, we had a lot of people approaching us

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Speaker 1: a couple of months and years ago looking at the

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Speaker 1: opportunities to build out AI data centers or even traditional

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Speaker 1: data centers. But I think that our core competency really

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Speaker 1: is on that retail, which is high touch, high human interaction,

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Speaker 1: and I think that what we've decided strategically is to

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Speaker 1: stick to the knitting and do what we know best.

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Speaker 2: So we've talked a lot about trade tensions between the

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Speaker 2: US and China, and I'm wondering, I know it's not

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Speaker 2: your Baileywick necessarily, but maybe you can give me a

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Speaker 2: events of what's happening in warehousing and logistics.

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Speaker 1: So in mainland China, warehousing logistics is actually in a

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Speaker 1: way great business because of the strength of that online

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Speaker 1: sales market. There's just so much being done online. What

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Speaker 1: we're seeing shift to offline is really the services and

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Speaker 1: the experiential service segment of retail. So logistics I think

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Speaker 1: will continue to do well. That being said, I have

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Speaker 1: to say it feels like we're probably getting close to equilibrium,

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Speaker 1: at least in the mainland China market. Unless there's big

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Speaker 1: shifts in demographics or in geography of where people live

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Speaker 1: and choose to live, then I don't think that there

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Speaker 1: is really good reason to see that expand.

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Speaker 2: Is there something that you could see the government doing

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Speaker 2: to help your business? Is there something that you would

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Speaker 2: like to see?

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Speaker 1: So the word on everybody's lips these days is stimulus,

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Speaker 1: and that's specifically consumption stimulus. If they were to do that,

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Speaker 1: if the Chinese government were to offer either kind of

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Speaker 1: vouchers or rebates or something along that those lines, I

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Speaker 1: think malls and retailers would be the first to benefit.

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Speaker 1: That is something that everybody's watching very closely. They've done

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Speaker 1: it for mobile phones, for trade ins already, and we're

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Speaker 1: looking to see if anything else comes this way. Obviously,

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Speaker 1: anything in interest rates make a difference for investment. But

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Speaker 1: the keyword is really on consumer spending.

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Speaker 2: So you mentioned a moment ago when you're in a downturn,

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Speaker 2: it's a perfect opportunity to invest in yourself. We touched

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Speaker 2: on renovation. I'm wondering about new construction. Where are you there?

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Speaker 1: So new construction is usually heavy, heavy CAPEX, buying land

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Speaker 1: and building it from scratch. I think it's safe to

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Speaker 1: say that we're being extremely conservative on that front. That

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Speaker 1: being said, you know, there's other ways to invest in

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Speaker 1: real estate rather than buying greenfield land and building new buildings,

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Speaker 1: and you know, we have to be and flexible in

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Speaker 1: a market like today's, especially when it comes to CAPEX deployment.

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Speaker 1: So we're looking at all the options that are in

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Speaker 1: the market. It is really a buyer's market right now

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Speaker 1: in the mainland, so a lot of interesting stuff has

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Speaker 1: come up. That being said, you know, we haven't beiten

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Speaker 1: quite just yet, and we'll continue to keep an eye

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Speaker 1: on that.

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Speaker 2: Adrill, We'll leave it there. Thank you so much for

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Speaker 2: joining us. Interesting conversation with Adril Chan. He is chair

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Speaker 2: of Hong Long Properties. Joining us from our studios in

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Speaker 2: Hong Kong here on the Daybreak Asia podcast. Welcome back

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Speaker 2: to the Daybreak Asia Podcast. I'm Doug Prisner. It is

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Speaker 2: expected to be a relatively quiet week in Asia. Much

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Speaker 2: of the region will be on holiday celebrating the Lunar

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Speaker 2: New Year, and that would include China, Hong Kong and

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Speaker 2: South Korea. It's the Year of the Snake and it

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Speaker 2: symbolizes wisdom, secrecy and transformation. Things begin on the two,

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Speaker 2: twenty ninth. Joining us now for a look at market

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Speaker 2: action in the APEC is Michael Dyer. He is Investment

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Speaker 2: Director of Equities and multi Asset at MNG Investments. Michael

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Speaker 2: joining from our studios in Hong Kong. Thanks for making

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Speaker 2: time to chat with us. When I think of the

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Speaker 2: lunar New Year festivities, I think about consumers. What are

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Speaker 2: your expectation for consumers spending? Broadly speaking across the region.

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Speaker 3: We see the year of this Snake being an important

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Speaker 3: one for China in terms more of the policy rather

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Speaker 3: than the consumer. It has been weak. But what we're

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Speaker 3: really looking to for the rest of the year or

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Speaker 3: going into the new year, is how policy is going

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Speaker 3: to affect the market, and that's right, really been sort

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Speaker 3: of priced out by evaluations today.

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Speaker 2: When you talk about policy, are you speaking about the

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Speaker 2: possibility of tariffs from the US on Chinese goods? Are

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Speaker 2: you talking about policy on the mainland?

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Speaker 3: Talking about policy on the mainland there. We don't have

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Speaker 3: a better crystal ball than anyone else for understanding what's

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Speaker 3: going to be happened there, but we do see that

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Speaker 3: the markets have largely waned from where they were in

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Speaker 3: say September last year and priced out a lot of

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Speaker 3: any action by the PBOC or Ministry of Finance in

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Speaker 3: terms of supporting the market. So as a value led

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Speaker 3: investor in the region, we see potential for upside surprise there.

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Speaker 2: Last week, Beijing directed some of the long term investors

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Speaker 2: in China that would include some of the big insurance companies,

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Speaker 2: to increase their exposure to Chinese equities. Maybe it's a

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Speaker 2: way to stabilize the market. Do you think it's something

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Speaker 2: that's going to have durability.

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Speaker 3: Look, we see the Chinese authorities and the stock market

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Speaker 3: being increasingly aligned from where we're at today, So from

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Speaker 3: the corporate level through to the government, there's a need

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Speaker 3: to really drive returns for shareholders and make it more

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Speaker 3: of attractive investment opportunity. The government needs a dividends from

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Speaker 3: the companies. They need to see growth in the economy.

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Speaker 3: From there, we need to see a ground well support

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Speaker 3: for that. So we wouldn't bet on particular measures happening

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Speaker 3: from the government to support that. We do see as

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Speaker 3: part of a broader package that is at these levels

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Speaker 3: of prices attractive entry point.

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Speaker 2: What about the threat of tariffs from the US, even

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Speaker 2: if it's ten percent above and beyond what China is

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Speaker 2: already dealing with from the US, does this have the

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Speaker 2: potential to do much harm?

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Speaker 3: I think that's a stock level discussion. I mean the

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Speaker 3: noise around tariffs and Trump is going to be very

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Speaker 3: pronounced over the next month for sure, even through the

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Speaker 3: rest of the year. And the way you know is

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Speaker 3: dealing with it is or modeling it really is to

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Speaker 3: have some kind of probability versus some kind of amount

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Speaker 3: for that tariff, and both of those numbers are very unknown,

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Speaker 3: right so whether there's a seventy five percent of a

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Speaker 3: twenty percent tariff, the market doesn't really know yet, So

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Speaker 3: we're going to be waiting and seeing, looking at what

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Speaker 3: it means for individual company earnings, and then taking our

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Speaker 3: queue from there.

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Speaker 2: So if we take Trump at his word, he's dialing

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Speaker 2: back on a lot of the green initiatives that were

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Speaker 2: put in place under the Biden administration. To what extent

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Speaker 2: is that a negative for some of the big manufacturers

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Speaker 2: that are involved in those industries, be it solar, be

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Speaker 2: it wind on the mainland.

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Speaker 3: Again, I mean, I think what Trump's doing on the

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Speaker 3: green agenda is very telegraphed from what he promised coming

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Speaker 3: into office. We don't think it changes too much in

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Speaker 3: terms of what's happening within China. These are effectively market

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Speaker 3: leaders in those industries. They've invested heavily in building that capability,

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Speaker 3: in building that ip and we still see them as

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Speaker 3: attractive alignment with what China wants to achieve in the

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Speaker 3: next ten to twenty years.

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Speaker 2: Thematically, what interest you right now in terms of putting

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Speaker 2: money to work in Chinese firms in China?

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Speaker 3: Really it continues to be a bottom up story. We're

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Speaker 3: trying to look for areas where we think the nois

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Speaker 3: has really obscured the the sentiment around things. So the

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Speaker 3: base level, what we're looking for is companies which are

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Speaker 3: increasingly focused on their shareholders. We've seen careers moving through that,

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Speaker 3: and China's doing it almost by stealth in the sense

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Speaker 3: that it's not necessarily talked about as a broad initiative,

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Speaker 3: but we asked, I mean to see companies deliver more

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Speaker 3: in terms of return. There it find makes us find

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Speaker 3: some interesting areas in terms of we like stocks across

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Speaker 3: the board in terms of industrials, there's a couple of

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Speaker 3: areas there that we like, but generally it's on a

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Speaker 3: stock by stock.

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Speaker 2: Basis mentioned Japan there very briefly, let's talk a little

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Speaker 2: bit about what's going on. We got that twenty five

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Speaker 2: basis point hike in the policy rate last week. We

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Speaker 2: don't really have a lot in terms of guidance in

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Speaker 2: terms of where interest rates are going from here. What

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Speaker 2: would your expectations be about the next move on the

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Speaker 2: part of the BOJ.

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Speaker 3: That we think that they're going to be very telegraphed

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Speaker 3: actually in what they're doing. We see room from another

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Speaker 3: hike before the end of the year. I think that's

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Speaker 3: probably what the market consensus is, and we wouldn't disagree

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Speaker 3: with that. Our general view on Japan from a top

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Speaker 3: down perspective is it's going to remain noisy. From a

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Speaker 3: macro point of view, We've got political certain level of

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Speaker 3: political instability and infighting there. We've got concerns around it

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Speaker 3: a week again and again. Obviously what the BOJ is doing,

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Speaker 3: all those will attracted headlines. But the real story is

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Speaker 3: this continual self help and focus on shareholder returns from companies,

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Speaker 3: which becomes a little bit tiring to investors because they

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Speaker 3: hear it again and again and again. But it's the

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Speaker 3: most pervasive driving force in Japan right now. Valuations are reasonable,

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Speaker 3: but really what we can see for the next five

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Speaker 3: years is earnings growth delivered by onwinding of cross shareholdings.

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Speaker 3: Of increased m and a activity of all these signs,

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Speaker 3: which is a corporate Japan sort of coming back to life.

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Speaker 3: And as we go into the spring wage negotiations there,

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Speaker 3: I think we will see sort of confirmation that the

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Speaker 3: inflation is sort of a sustainable level and reflation in

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Speaker 3: the economy is progressing.

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Speaker 2: So when I'm listening to that, I'm thinking some of

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Speaker 2: the big industrial conglomerates, that's where you want to be

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Speaker 2: in Japan? Is that right?

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Speaker 3: We try not to make big macro bets from it.

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Speaker 3: It's more at the individual company level again, but we

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Speaker 3: are seeing attractive opportunities across the consumer, across industrials, across

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Speaker 3: real estate, across a number of different areas. It really

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Speaker 3: comes down to what the boardroom are doing and how

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Speaker 3: they're engaging with their shareholders.

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Speaker 2: So we were talking about BOJ policy a moment ago.

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Speaker 2: What about the Japanese banks? Is this a place that

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Speaker 2: you want to have exposure to.

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Speaker 3: They've done very well. We had a good level of

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Speaker 3: exposure from them twenty twenty three into the beginning of

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Speaker 3: last year. We've dealt back and then we increased again

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Speaker 3: later last year. So in some of the top names,

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Speaker 3: we do like that Again, it's not just about what's

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Speaker 3: happening with their net interest margin. It's not just happening

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Speaker 3: with what's happening with rates. Is also happening with what

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Speaker 3: they're delivering to shareholders and reducing some of their cross shareholdings,

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Speaker 3: focusing on their core businesses. So, yeah, banks are attractive

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Speaker 3: from here.

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Speaker 2: Before I let you go to get your perspective on

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Speaker 2: South Korea, we've seen a great deal of political turmoil recently.

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Speaker 2: Is this a market that you must have exposure to,

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Speaker 2: especially if you've remained focused on high technology, high bandwidth

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Speaker 2: memory names like sk Heinek, Samsung.

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Speaker 3: Yeah, I think it's attractive from a valuation perspective. Back

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Speaker 3: in August when Japan sold off heavily, Career did sort

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Speaker 3: of in sympathy as well. It hasn't really rebounded in

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Speaker 3: the same way that Japan did, and we've always had

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Speaker 3: concerns around cyclical sort of focus of it, given tariffs,

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Speaker 3: concerns around the politics. Again, similar to the Japan story,

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Speaker 3: we think that that masks some of the value there.

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Speaker 3: It's behind in the sort of value up story where

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Speaker 3: Japan is that's taken many years to get there, but

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Speaker 3: it's starting to show intent that it wants to follow

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Speaker 3: that path to the extent that we can find management

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Speaker 3: teams who really buy into that, not just superficially, but

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Speaker 3: are increasingly focused on that for their shareholders than we

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Speaker 3: are attracted there.

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Speaker 2: Yes, Michael will leave it there. Thank you so much

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Speaker 2: for being with us. Michael Dyer. He is the Investment

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Speaker 2: Director for Equities and Multi Asset at MNG Investments. Joining

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Speaker 2: from Hong Kong here on the Daybreak Asia Podcast. Thanks

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Speaker 2: for listening to today's episode of the Bloomberg Daybreak Asia

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Speaker 2: Edition podcast. Each weekday, we look at the story shaping markets, finance,

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Speaker 2: and geopolitics in the Asia Pacific. You can find us

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Speaker 2: on Apple, Spotify, the Bloomberg Podcast YouTube channel, or anywhere

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Speaker 2: else you listen. Join us again tomorrow for insight on

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Speaker 2: the market moves from Hong Kong to Singapore and Australia.

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Speaker 2: I'm Doug Prisoner and this is Bloomberg