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Speaker 2: This is the Bloomberg Daybreak Aisia podcast. I'm Doug Prisner.
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Speaker 3: It is time to check in with Bloomberg Opinion. We're
Speaker 3: joined by opinion columnist Schuli n who is writing about
Speaker 3: wang Ka, the Chinese developer that recently had its credit
Speaker 3: rating cut too junk Shuley, thanks very much for joining us.
Speaker 3: So there's a debt swap plan that is being considered,
Speaker 3: but it doesn't change the fact, does it that there's
Speaker 3: just no clarity on future sales here for these developers.
Speaker 4: That's absolutely that's absolutely right, Brian, And that's why the
Speaker 4: Chinese cover and is perhaps nudging it's a state owned
Speaker 4: banks to consider a death swap. The thing with one
Speaker 4: cur is until basically this Monday, it was an investment
Speaker 4: graded real estate developer and it's not anything like a
Speaker 4: China Evergrant or country Garden. It has a professional management
Speaker 4: and its balance sheet is fairly sound. However, because China's
Speaker 4: physical market is doing so badly that even one who's
Speaker 4: sales is being dragged down and it just looks like
Speaker 4: it may not be able to make the next bond
Speaker 4: repayment schedule.
Speaker 2: Yeah, so you're facing a liquidity crunch. Do you think
Speaker 2: there will be some type of reorganization to try to
Speaker 2: remove some of that stress?
Speaker 4: Well, investors probably hope not, because restricting usually means a
Speaker 4: very very little returns to the investments. But at this
Speaker 4: point you will have to because with one cur right.
Speaker 4: Last year, try this property market was doing very badly,
Speaker 4: but it was doing not too bad. It's a contracted
Speaker 4: sales was down only ten percent because it was taking
Speaker 4: some market share away from the likes of Country Garden
Speaker 4: and the evergrants. But this year, in the first two
Speaker 4: months this year, we are seeing a forty percent drop
Speaker 4: from one year ago. That just shows that at this
Speaker 4: point it's not just about this or that developer, but
Speaker 4: about the overall market. Chinese households are just not willing
Speaker 4: to go into the primary property sales, and some of
Speaker 4: them are going into the secondary sales, in which case
Speaker 4: the developers are not getting any benefits.
Speaker 3: Right, you say that a government bailout of one would
Speaker 3: actually be good for the government to explain.
Speaker 4: Well, because just like Hong Kong, the Chinese government local governments,
Speaker 4: they rely heavily on land sales. Lens sales can account
Speaker 4: for up to one third of their total revenue. So
Speaker 4: what we're seeing is that the Chinese local government's revenue
Speaker 4: from lens sales is already down one third from it's
Speaker 4: twenty twenty one high.
Speaker 1: Right, So if one still.
Speaker 4: Goes down and the no developers are left in China,
Speaker 4: then how are they going to sell their land?
Speaker 1: It is a big fiscal problem.
Speaker 4: Like I think, if at this rate, even the likes
Speaker 4: of One can now survive, that means there will be
Speaker 4: no private sector developers left and the local governments can
Speaker 4: sell any land.
Speaker 2: So if you're talking about a bailout, everyone is whole.
Speaker 3: Right.
Speaker 2: We're not talking about a cash infusion, maybe in a
Speaker 2: little bit of state sponsored reorganization to kind of get
Speaker 2: things more in line, but you're talking about a full
Speaker 2: blown rescue of the company.
Speaker 4: Well, some one possibility is what Chinese government did to
Speaker 4: the distressed local governments, basically allowing one to issue that
Speaker 4: and a substantially to to refinance its public that a
Speaker 4: substantially lower rates, that's one possibility.
Speaker 2: So that would be a sort of restructuring.
Speaker 1: Then right, well it is.
Speaker 4: It's a restructuring of that, but it's not a restructuring
Speaker 4: of the company's business operations.
Speaker 3: Now you say that that one cub you know has
Speaker 3: a strong past and equality management, and then it's closely
Speaker 3: intertwined with shen Xen. Why does that make a.
Speaker 1: Difference, Well, it's kind of one symbolic.
Speaker 4: It went to it went public in Chanchang nineteen ninety one,
Speaker 4: and Chanchhan was basically the first city that adopted the
Speaker 4: private home ownership in China. Right before that, like you know,
Speaker 4: all the Chinese they lived in those crabby housing provided
Speaker 4: by the state owned employers, et cetera. So Hinxhuan was
Speaker 4: a pilot city for this new home ownership model, and
Speaker 4: one was a pioneer in that pilot city. So if
Speaker 4: one goes down, it's quite symbolic in the sense that
Speaker 4: you know, then shall pains a sudden tour is getting reversed.
Speaker 2: So it's almost like we're looking at the end of
Speaker 2: privatization of property developers in China is going to be
Speaker 2: state sponsored.
Speaker 1: Yes, absolutely.
Speaker 3: What's tricky though, is that when you look at Evergrand
Speaker 3: with the liquidator here in Hong Kong trying to sell
Speaker 3: assets in China, it's a mess. I mean, certainly the
Speaker 3: government doesn't want that.
Speaker 1: Again right.
Speaker 4: Evergrand is a complete different story. But the problem with
Speaker 4: liquidators in Hong Kong is they like Evergrand, the company
Speaker 4: that the shell company that is to those dollar bounds.
Speaker 4: It is a shell company and it didn't have a
Speaker 4: lot of operating assets overseas. So the liquidators in Hong Kong,
Speaker 4: their best case scenario is basically to call back whatever
Speaker 4: ever Grand has outside of mainland China when you go
Speaker 4: into mainland China are way down the packing ordering herself quite.
Speaker 3: Absolutely, all right, Julie, thank you Bloomberg Opinion Colin Shuleyren.
Speaker 3: You can find her pieces on the terminal by typing
Speaker 3: OPI N go.
Speaker 2: Mark Cranfield, he is our m live strategist. If you
Speaker 2: have a Bloomberg terminal, the function is m l I
Speaker 2: V than the green go key. Mark doesn't seem to
Speaker 2: be moving the needle here. On expectations that we're going
Speaker 2: to see fed raid cuts sometime midyear, right.
Speaker 5: Well, people are waiting for the dot plots the next
Speaker 5: week FOMC. That's really the big issue, and you've heard
Speaker 5: a variety of FED voices over the past couple of weeks.
Speaker 5: Obviously they're in a blackout now, so there won't be
Speaker 5: any comments this week, but you can see there's a
Speaker 5: divergence between different people in the FED. We even had
Speaker 5: Neil Kashkai saying that maybe only one rate cut is
Speaker 5: necessary this year. There's a number of people that think
Speaker 5: only two cuts is necessary. And then at the moment
Speaker 5: the dot plots, officially, they still show a median of
Speaker 5: three cuts. So another CPI number, which has come in
Speaker 5: slightly above Foe Coast obviously puts into question the whole
Speaker 5: outlook for the dot plots, and that's what traders are
Speaker 5: waiting to see, whether or not they drop the number
Speaker 5: to two cuts for this year. Would they leave it
Speaker 5: at three or do we even have even maybe dropping
Speaker 5: even to one, But certainly a change to only two
Speaker 5: rate cuts this year is a distinct possibility, and that's
Speaker 5: keeping everyone a little bit on edge.
Speaker 3: It seemed like this report, the CPI report, was a
Speaker 3: little bit like the Jobs report, and that there was
Speaker 3: something in there for both the bulls and the bearers.
Speaker 3: In the end, the equity market shows to kind of
Speaker 3: set it aside and to rally on it. Is that
Speaker 3: because wasn't anything all that surprising in the data? Or
Speaker 3: is it more just that equities are moving more on
Speaker 3: earnings than on the FED and macro.
Speaker 5: I think where you have to take into account when
Speaker 5: you particularly for the US equity market, you have to see, okay,
Speaker 5: what is really driving the US equity market and how
Speaker 5: much whether twenty five basis point rate cut change to
Speaker 5: the picture. Well, whether the Federal Reserve cuts by twenty
Speaker 5: five basis points now in three months, in six months,
Speaker 5: it is not going to make any difference whatsoever to
Speaker 5: the drivers of the US equity market. They've got use
Speaker 5: to having short term interest rates about five percent for
Speaker 5: a long time. They can live with it because the
Speaker 5: underlying US economy is doing so well. As you say,
Speaker 5: earnings in many places are extremely good. And one of
Speaker 5: the other main drivers of the US market right now
Speaker 5: is the AI narrative, and that has got nothing to
Speaker 5: do with interest rates. It doesn't matter whether interest rates
Speaker 5: are five, six seven, They can live with it. The
Speaker 5: AI story is a completely different set all together, and
Speaker 5: as long as people think that that is a strong
Speaker 5: medium term drive of equities, it doesn't really matter what
Speaker 5: interest rates do.
Speaker 2: You're absolutely right about that. I was looking at Oracle
Speaker 2: today the stock hit a record. I was up about
Speaker 2: twelve percent. Yeah, the cloud computing businesses on growing very well.
Speaker 2: But yesterday the company said what it announced quarterally results.
Speaker 2: Demand for that Gen two AI infrastructure is substantially above
Speaker 2: where supply is right now. But in the time that
Speaker 2: we have left with you, I want to get your
Speaker 2: view on the BOJ because we've got these wage increases
Speaker 2: that will be reported through the week. I guess there's
Speaker 2: a very heavy dock at today. The big number will
Speaker 2: be reported on Friday. Do you think we're going to
Speaker 2: get kind of the preponderance of data that's will force
Speaker 2: the boj's hand as soon as next week's meeting.
Speaker 3: Yeah.
Speaker 5: I mean we've had a big story on Bloomberg saying
Speaker 5: that the meeting is too close to cool. I think
Speaker 5: you have to take you face value, and I think
Speaker 5: it's really just a question of whether the bankage or
Speaker 5: paying feel was ready to go all in March or
Speaker 5: whether to do a step by step move so some
Speaker 5: in March and some in April. So what we could see,
Speaker 5: we could see yel curve control removed at the March meeting,
Speaker 5: and probably a message to say no more ETF buying.
Speaker 5: That would be the end of one part of the policy,
Speaker 5: and then they leave exiting negative rates till April or
Speaker 5: till later. They may go all in for March as well.
Speaker 5: I suspect it will be staggered because they're trying to
Speaker 5: limit the impact to financial markets in Japan, and they
Speaker 5: do have the fiscal year end coming up on the
Speaker 5: thirty first of March, so I suspect they won't want
Speaker 5: to cause too many ripples in March, and they will
Speaker 5: leave something on the table for April. But certainly changes
Speaker 5: are coming, and it's going to be over the next
Speaker 5: couple of meetings you'll see the Bank of Japan make
Speaker 5: some very big steps.
Speaker 3: Mark I tipped this a few moments ago. Perhaps you
Speaker 3: can squeeze in a quick answer. The Hanks Hang Tech
Speaker 3: index powering up twenty percent now from its lows. It
Speaker 3: had a big jump yesterday, So technically in a bull market,
Speaker 3: is that in believing in the story from China, from
Speaker 3: the NPC or something else.
Speaker 5: He's probably got more to do with Navidia, Navidia making
Speaker 5: record highs after record hise and just accentuating the whole
Speaker 5: tech and AI story. I mean, who could ignore something
Speaker 5: like a juggernaut like that has global impact, and I
Speaker 5: suspect it's got a lot more to do with that
Speaker 5: than anything going on locally in Asia.
Speaker 2: Yeah, we had Nvidia shares today jumping by more than
Speaker 2: seven percent. So to go back to that AI narrative
Speaker 2: that you were talking about earlier, it's not yet faded.
Speaker 2: Perhaps it won't anytime soon. Mark, It's always a pleasure.
Speaker 2: Thanks for joining us, So, Mark Cranfield, Bloomberg m Live
Speaker 2: strategist joining from Singapore here on daybreak Asion.
Speaker 3: Joining us now in our studios is Daniel Lamb, head
Speaker 3: of Equity strategy at Standard Chartered Wealth Management. For a
Speaker 3: closer look at markets. Daniel I mentioned that the Hanksan
Speaker 3: Tech indecks passed twenty percent higher from the lows or
Speaker 3: came up twenty percent from the lowest here of late,
Speaker 3: so technically puts it in the bull market. It has people,
Speaker 3: I think scratching their heads. The one thing I might
Speaker 3: say is that in China, the NPC did approve a
Speaker 3: ten percent increase in the budget for science and technology
Speaker 3: up to fifty one point six billion dollars. Is it
Speaker 3: possible that that is part and parcel of these big
Speaker 3: gains we've seen in tech in Hong Kong.
Speaker 6: Thanks, that's part of it, although I believe that more
Speaker 6: of it is the fact that investors, some of the
Speaker 6: investors begin to look for opportunities outside the megacap us
Speaker 6: gross docks. That's what's been happening, connecting all the dots.
Speaker 6: So you've seen that. Of course, within this seven magnificent seven,
Speaker 6: people are trying to narrow that down to six, five
Speaker 6: or four stocks, So that's become a narrow and narrow
Speaker 6: and investors have been branching out to look for opportunities
Speaker 6: outside that set of names. Now, if you're looking at
Speaker 6: a tailwind from say, you know, lower inflation numbers, well
Speaker 6: you're not You're not really getting the full lower inflation
Speaker 6: right because it's still past the sticky So the ten
Speaker 6: year yield becomes, you know, more solid in terms of
Speaker 6: level and maybe grinding higher. So investors are naturally looking
Speaker 6: for other areas to park their money outside the seven stocks,
Speaker 6: at least for the short term, so naturally they're looking
Speaker 6: at you know, like China for example, because it's so
Speaker 6: cheap right in variation, And you said that, yes, it
Speaker 6: rebounded twenty percent from the lows, but you know, buying
Speaker 6: large these stocks are still at a massive discount to
Speaker 6: the counterparts.
Speaker 2: So what are the risk Daniel?
Speaker 6: The risk is that the economy is still not very
Speaker 6: solid in China, right, So you've seen that the latest
Speaker 6: CPI figure in China. Yes, it's kind of stopped the
Speaker 6: deflation trend one print, but is this going to be sustainable?
Speaker 6: I mean, the PPI was still relatively tough, right the
Speaker 6: latest number. So I guess you know, the question now
Speaker 6: is that, you know, if we do see another print
Speaker 6: of CPI being in the positive space in China, then
Speaker 6: this rarey could continue, but it could be just a blip.
Speaker 3: Yeah. I think there's a lot of wisdom in what
Speaker 3: you said, because I noted that the other day when
Speaker 3: you had Netflix selling off ten percent, in the day,
Speaker 3: you had tech stocks going up in Hong Kong. So
Speaker 3: among the companies that had a big balance yesterday was
Speaker 3: shell Me. This is a little puzzling too, I mean,
Speaker 3: up eleven percent, the company saying it will sell electric
Speaker 3: vehicles this month. So it's going into a market which
Speaker 3: itself has been sort of churning down a little bit,
Speaker 3: and you're going in and competing against Tesla and BYD
Speaker 3: and the stock goes up eleven percent.
Speaker 2: Explain that to me, well, basically, I would.
Speaker 5: I would.
Speaker 6: I would say that the the stock's been beaten down
Speaker 6: a lot, right, not just you know the stocks they mentioned,
Speaker 6: but you know, a whole the whole EXHS Tech index, right,
Speaker 6: every single one of them has been beaten down. So
Speaker 6: you know, when there's flow of funds coming, you don't
Speaker 6: need that much for a fund to make them go
Speaker 6: up by ten percent a day, right, because it's so
Speaker 6: beaten down, right, So I would say that, you know,
Speaker 6: in terms of China, the stocks that actually have been
Speaker 6: working even during the direst diarist of time back in February, right,
Speaker 6: are the ones where you know investors could be considering okay.
Speaker 6: So the banks, they have got high dividends and they
Speaker 6: were actually pretty solid during that January February you know,
Speaker 6: dire times, those of course would be underperforming in you know,
Speaker 6: big rebound day like yesterday. But then you know, I
Speaker 6: would argue that you know, for the medium to long
Speaker 6: term investors. They would be the ones that investors could
Speaker 6: be looking at given the fact that you know the
Speaker 6: Sasak said that the SOOE management should have market cap
Speaker 6: management as their KPI i e. They need to boost
Speaker 6: the market caps. So sees are looking pretty good.
Speaker 2: Can we turn to Japan and we've got the BOJ
Speaker 2: meeting next week, We've got the wage data coming through
Speaker 2: the end of this week, and maybe that's the determinant,
Speaker 2: the factor that will let us know whether or not
Speaker 2: the BOJ intends to change policy for the first time
Speaker 2: since two thousand and seven, at least where the policy
Speaker 2: rate is concerned. We've and a negative ten basis points
Speaker 2: for it was like a long, long time eternity. Yet
Speaker 2: are you still seeing opportunities in the Japanese secuity market?
Speaker 6: That's an opportunity. Definitely opportunity because our view is that
Speaker 6: they will be tightening this year, right, may not be
Speaker 6: this time, but eventually they will be tightening this year, right,
Speaker 6: So of course that would lead to volatility in the market.
Speaker 6: Yen's going to strengthen when that time comes or just before,
Speaker 6: and the equities will be selling off right on the
Speaker 6: back of that. But the improvement in the corporates have
Speaker 6: definitely been there. The corporate governance improvement, earnings have been decent.
Speaker 6: Foreign interest has been picking up, you know, since the middle.
Speaker 1: Of last year.
Speaker 6: So you know, all that factors combined means that the
Speaker 6: pullback is a good opportunity for Japan.
Speaker 1: But here's a caveat.
Speaker 6: Caveat is that for the investors, they need to be
Speaker 6: looking to rotate the sectors. So high interest rate, heighten
Speaker 6: manatory policy, right, that can improve the U curve there
Speaker 6: in Japan bank and that like the banks, yeah yeah, yeah, yeah, those,
Speaker 6: So look at those, look at those sectors.
Speaker 3: Given the heavy exposure to robotics and to efficiency levels
Speaker 3: in manufacturing and such. In some ways in the past
Speaker 3: we've talked about the Japanese companies being a sort of
Speaker 3: warrant on global growth, and the fact that Japan has
Speaker 3: been rallying, is there perhaps a little bit of an
Speaker 3: indication in there that you might see the global economy
Speaker 3: hold steady or actually turn around and start to gain again.
Speaker 6: Well, certainly, the no lending probability in the US, for example,
Speaker 6: has been gaining gaining this year. The proberlity of death
Speaker 6: has been rising so you know, we could well see
Speaker 6: that the economy may escape that you know, long long
Speaker 6: pitch recession narrative, right, in which case is certainly you know,
Speaker 6: good for equities. And that's probably the reason why you're
Speaker 6: seeing that, you know, the US market has been pulling
Speaker 6: back and then people buying on dips, and I would
Speaker 6: expect the same to be for Japan and use this
Speaker 6: you know, volatility in the Japanese esa as an opportunity
Speaker 6: to buy Japanese stocks.
Speaker 2: I'm sure it would be a very different world for
Speaker 2: Japanese equities if the Chinese economy were firing on all
Speaker 2: cylinders to what extent very quickly, Daniel, is a weak
Speaker 2: China holding back Japan.
Speaker 6: Yeah, well, in areas like you said, in automation, we've
Speaker 6: seen that because of these slowing Chinese demand, it does
Speaker 6: hurt the you know, the robotics or the automation sector
Speaker 6: for example. Also the fact that you know, slow in
Speaker 6: China perhaps less it's too risks in the Japan and
Speaker 6: that's the lowest the japan domestic comedy. But all that
Speaker 6: can improve if China improves.
Speaker 3: All right, thanks very much, Daniel. We see here here
Speaker 3: today the nick Kay has advanced almost eleven percent. Daniel
Speaker 3: Lamb has been with a set of equity strategy at
Speaker 3: Standard Chartered Wealth Management.
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