Speaker 1: We're taking a closer look at the markets with a
Speaker 1: focus on China and Hong Kong, with Sophia Ortekasta Bloomberg
Speaker 1: Chief China Markets correspondent. So, Sophia, let's talk first about
Speaker 1: these four x reserve adjustments made by the PBOC. Do
Speaker 1: you think that this will do much more than just
Speaker 1: delay the decline in the yuan? Yeah? I mean this
Speaker 1: is really about managing the pace of declines rather than
Speaker 1: stopping the decline. This is also kind of unraveling what
Speaker 1: the pbo C did when the UN was on was
Speaker 1: strengthening too quickly. Um. And then you know, this is
Speaker 1: rolling back some of those measures. What happens on September
Speaker 1: fift when this cut comes into effect is that you'll
Speaker 1: you'll get more dollars available on shore and that essentially
Speaker 1: should narrow the yield advantage that the dollar has over
Speaker 1: the UN and make it less attractive to short uan dollar.
Speaker 1: But really, you know, seven per dollars just to matter
Speaker 1: or of time. It also doesn't really matter. Um, you
Speaker 1: know when when when the yuan did wee can pass
Speaker 1: that level? A few years ago, I was covering it
Speaker 1: and it was such a psychological level because it hadn't
Speaker 1: happened in so long, had it happened since the global
Speaker 1: financial crisis, that the pace of weakness accelerated when we
Speaker 1: broke that. But I don't really see that happening now.
Speaker 1: It's it's happened before the world didn't end, and and
Speaker 1: China is really managing the currency weakness right now. Seven
Speaker 1: seems a natural barrier. Um. We did break through one
Speaker 1: forty on dollar yen and there's been all kinds of
Speaker 1: volatility in the FX markets. Um, in your gut, do
Speaker 1: you see it on the week side of seven? On
Speaker 1: the week's side of seven wouldn't surprise me. And I
Speaker 1: don't think it will be too concerning for authorities. I mean,
Speaker 1: that's the key thing. This is a very tightly managed currency.
Speaker 1: The fixing limits the yuan's moves against the dollar two
Speaker 1: percent on in either direction. But also the key thing here,
Speaker 1: Brian is is October sixteenth. That's when the Party Congress starts.
Speaker 1: It's the biggest event of the decade, says Cities Economics team,
Speaker 1: And that's really what people are watching for. And all
Speaker 1: expectations are that things will be stable in markets and
Speaker 1: in the economy until then. We do have UM the
Speaker 1: eco data do next week for August. And also the
Speaker 1: PBC has a chance to cut interest rates again next week.
Speaker 1: Let's see if that happens. That could give market some direction. Yeah,
Speaker 1: that's the thing. We heard again yesterday that there was
Speaker 1: more stimulus coming. But it's the boy cried wolf scenario. Really,
Speaker 1: I mean people have heard this many many times, but
Speaker 1: it does seem that it's a bit more acute at
Speaker 1: the moment to try to get some support to the economy. Yeah,
Speaker 1: and and and Brian, the economy will only really improve
Speaker 1: if there's a significant and sustainable policy easing in terms
Speaker 1: of COVID lockdown measures in terms of zero COVID. It's
Speaker 1: not really about steamers because monetary support will be limited
Speaker 1: by this. The transmission mechanism is broken when you have
Speaker 1: of China's GDP currently locked down. So you say it's
Speaker 1: the boy cried wolf. I agree, but it's also a
Speaker 1: problem of the boy is crying wolf. But but when
Speaker 1: when China does roll out supportive measures and stimulus measures,
Speaker 1: they won't really work. So it might make sense to
Speaker 1: hold that firepower until we have some easy of the lockdown.
Speaker 1: But it's even more problematic because if you think about
Speaker 1: how sometimes you know people when they haven't spent for
Speaker 1: a while and they've been constrained, they've been locked down
Speaker 1: as it were, that there will be a lot of
Speaker 1: pent up demand to spend later that may not happen
Speaker 1: in this case because of of the reverse wealth effect,
Speaker 1: particularly with the property market. Yes, exactly, And I think
Speaker 1: that's the one thing that policymakers kind of didn't factor in,
Speaker 1: which is human behavior and sentiment. You can't control that.
Speaker 1: You can't change sentiment like this. You can't just flip
Speaker 1: the switch on that. It doesn't matter if you know,
Speaker 1: if you throw stimulus at the economy, if you prop
Speaker 1: up markets, um, it's it's that kind of behavior that
Speaker 1: will really to find where China's economy will go and
Speaker 1: how it will recover. Retails spending is looking very weak.
Speaker 1: The domestic economy was already pretty weak um during the
Speaker 1: pandemic before we even had um these more aggressive COVID
Speaker 1: lockdowns and the property market, that's where the majority of
Speaker 1: household wealth is. And if you see that, you know
Speaker 1: your biggest asset is a depreciating asset. You're not going
Speaker 1: to go out and spend. And if at the moment
Speaker 1: you're trying to attract foreign investment. You know, we have
Speaker 1: this saying, Um, you know, once bitten twice shy, what
Speaker 1: about five times bitten? How shy would you be on
Speaker 1: the sixth effort? And I'm referring to the many constraints
Speaker 1: that we've seen, uh and albeit for what policymakers think
Speaker 1: are good reasons, but if you look at regulation alone,
Speaker 1: that has also been kind of stultifying. That is for me, Um.
Speaker 1: You know, I was in London for for ten days
Speaker 1: over the summer, and when I'm talking to foreign investors there,
Speaker 1: it really is the biggest thing that's that's stopping people
Speaker 1: from investing in China. The thing is, Brian, China is
Speaker 1: an economy that's too big to ignore. So people still
Speaker 1: want to be invested in China's story. They want to
Speaker 1: do so via other equity markets though that's that's that's
Speaker 1: where you don't have the exposure to China's The regulation
Speaker 1: We could go on forever. It's always a pleasure with
Speaker 1: you me asking the silly questions and you with the
Speaker 1: brilliant answers. Sophia. Thank you. Sophia Orto Acosta, Bloomberg Chief
Speaker 1: China Markets correspondent,