WEBVTT - Sofia Horta E Costa on China Markets (Audio)

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<v Speaker 1>We're taking a closer look at the markets with a

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<v Speaker 1>focus on China and Hong Kong, with Sophia Ortekasta Bloomberg

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<v Speaker 1>Chief China Markets correspondent. So, Sophia, let's talk first about

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<v Speaker 1>these four x reserve adjustments made by the PBOC. Do

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<v Speaker 1>you think that this will do much more than just

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<v Speaker 1>delay the decline in the yuan? Yeah? I mean this

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<v Speaker 1>is really about managing the pace of declines rather than

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<v Speaker 1>stopping the decline. This is also kind of unraveling what

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<v Speaker 1>the pbo C did when the UN was on was

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<v Speaker 1>strengthening too quickly. Um. And then you know, this is

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<v Speaker 1>rolling back some of those measures. What happens on September

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<v Speaker 1>fift when this cut comes into effect is that you'll

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<v Speaker 1>you'll get more dollars available on shore and that essentially

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<v Speaker 1>should narrow the yield advantage that the dollar has over

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<v Speaker 1>the UN and make it less attractive to short uan dollar.

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<v Speaker 1>But really, you know, seven per dollars just to matter

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<v Speaker 1>or of time. It also doesn't really matter. Um, you

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<v Speaker 1>know when when when the yuan did wee can pass

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<v Speaker 1>that level? A few years ago, I was covering it

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<v Speaker 1>and it was such a psychological level because it hadn't

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<v Speaker 1>happened in so long, had it happened since the global

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<v Speaker 1>financial crisis, that the pace of weakness accelerated when we

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<v Speaker 1>broke that. But I don't really see that happening now.

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<v Speaker 1>It's it's happened before the world didn't end, and and

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<v Speaker 1>China is really managing the currency weakness right now. Seven

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<v Speaker 1>seems a natural barrier. Um. We did break through one

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<v Speaker 1>forty on dollar yen and there's been all kinds of

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<v Speaker 1>volatility in the FX markets. Um, in your gut, do

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<v Speaker 1>you see it on the week side of seven? On

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<v Speaker 1>the week's side of seven wouldn't surprise me. And I

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<v Speaker 1>don't think it will be too concerning for authorities. I mean,

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<v Speaker 1>that's the key thing. This is a very tightly managed currency.

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<v Speaker 1>The fixing limits the yuan's moves against the dollar two

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<v Speaker 1>percent on in either direction. But also the key thing here,

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<v Speaker 1>Brian is is October sixteenth. That's when the Party Congress starts.

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<v Speaker 1>It's the biggest event of the decade, says Cities Economics team,

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<v Speaker 1>And that's really what people are watching for. And all

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<v Speaker 1>expectations are that things will be stable in markets and

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<v Speaker 1>in the economy until then. We do have UM the

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<v Speaker 1>eco data do next week for August. And also the

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<v Speaker 1>PBC has a chance to cut interest rates again next week.

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<v Speaker 1>Let's see if that happens. That could give market some direction. Yeah,

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<v Speaker 1>that's the thing. We heard again yesterday that there was

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<v Speaker 1>more stimulus coming. But it's the boy cried wolf scenario. Really,

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<v Speaker 1>I mean people have heard this many many times, but

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<v Speaker 1>it does seem that it's a bit more acute at

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<v Speaker 1>the moment to try to get some support to the economy. Yeah,

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<v Speaker 1>and and and Brian, the economy will only really improve

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<v Speaker 1>if there's a significant and sustainable policy easing in terms

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<v Speaker 1>of COVID lockdown measures in terms of zero COVID. It's

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<v Speaker 1>not really about steamers because monetary support will be limited

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<v Speaker 1>by this. The transmission mechanism is broken when you have

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<v Speaker 1>of China's GDP currently locked down. So you say it's

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<v Speaker 1>the boy cried wolf. I agree, but it's also a

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<v Speaker 1>problem of the boy is crying wolf. But but when

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<v Speaker 1>when China does roll out supportive measures and stimulus measures,

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<v Speaker 1>they won't really work. So it might make sense to

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<v Speaker 1>hold that firepower until we have some easy of the lockdown.

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<v Speaker 1>But it's even more problematic because if you think about

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<v Speaker 1>how sometimes you know people when they haven't spent for

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<v Speaker 1>a while and they've been constrained, they've been locked down

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<v Speaker 1>as it were, that there will be a lot of

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<v Speaker 1>pent up demand to spend later that may not happen

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<v Speaker 1>in this case because of of the reverse wealth effect,

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<v Speaker 1>particularly with the property market. Yes, exactly, And I think

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<v Speaker 1>that's the one thing that policymakers kind of didn't factor in,

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<v Speaker 1>which is human behavior and sentiment. You can't control that.

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<v Speaker 1>You can't change sentiment like this. You can't just flip

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<v Speaker 1>the switch on that. It doesn't matter if you know,

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<v Speaker 1>if you throw stimulus at the economy, if you prop

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<v Speaker 1>up markets, um, it's it's that kind of behavior that

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<v Speaker 1>will really to find where China's economy will go and

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<v Speaker 1>how it will recover. Retails spending is looking very weak.

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<v Speaker 1>The domestic economy was already pretty weak um during the

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<v Speaker 1>pandemic before we even had um these more aggressive COVID

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<v Speaker 1>lockdowns and the property market, that's where the majority of

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<v Speaker 1>household wealth is. And if you see that, you know

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<v Speaker 1>your biggest asset is a depreciating asset. You're not going

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<v Speaker 1>to go out and spend. And if at the moment

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<v Speaker 1>you're trying to attract foreign investment. You know, we have

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<v Speaker 1>this saying, Um, you know, once bitten twice shy, what

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<v Speaker 1>about five times bitten? How shy would you be on

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<v Speaker 1>the sixth effort? And I'm referring to the many constraints

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<v Speaker 1>that we've seen, uh and albeit for what policymakers think

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<v Speaker 1>are good reasons, but if you look at regulation alone,

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<v Speaker 1>that has also been kind of stultifying. That is for me, Um.

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<v Speaker 1>You know, I was in London for for ten days

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<v Speaker 1>over the summer, and when I'm talking to foreign investors there,

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<v Speaker 1>it really is the biggest thing that's that's stopping people

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<v Speaker 1>from investing in China. The thing is, Brian, China is

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<v Speaker 1>an economy that's too big to ignore. So people still

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<v Speaker 1>want to be invested in China's story. They want to

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<v Speaker 1>do so via other equity markets though that's that's that's

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<v Speaker 1>where you don't have the exposure to China's The regulation

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<v Speaker 1>We could go on forever. It's always a pleasure with

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<v Speaker 1>you me asking the silly questions and you with the

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<v Speaker 1>brilliant answers. Sophia. Thank you. Sophia Orto Acosta, Bloomberg Chief

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<v Speaker 1>China Markets correspondent,