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Speaker 1: This is Bloomberg Surveillance. With all the polls coming out,

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Speaker 1: we have to bond the risk, so I have a

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Speaker 1: bremang or whether, of course it's a brexfit. The economy's

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Speaker 1: radar growth of potential output is slower than it's been

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Speaker 1: in our generation. Europe has enough on its plate without Brexit,

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Speaker 1: thank you very much. The last thing Europe needs is

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Speaker 1: a Brexit crisis on top of everything else. Bloomberg Surveillance

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Speaker 1: your link to the world of economics, finance, and investment

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Speaker 1: on Bloomberg Radio. Good morning at seven am on Wall Street.

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Speaker 1: One pm in Frankfurt, where optimism reigns. Never mind Brexit,

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Speaker 1: never mind the FED. Germany's icol measure of business sentiment

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Speaker 1: unexpectedly rises hits one oh seven point seven, the strongest

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Speaker 1: in five months. It is at risk on morning. Stocks

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Speaker 1: are higher around the world, bond yields are rising. In Europe,

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Speaker 1: the stock six hundred is up by three points right now,

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Speaker 1: one percent on the day. The docks in Germany, where

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Speaker 1: everybody is so happy, hundred earty points higher one point

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Speaker 1: three percent. The euro is relatively stable one eleven forty two,

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Speaker 1: hardly moving at all. Uh this morning, the German two

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Speaker 1: year note. We could point out uh at negative fifty

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Speaker 1: one basis points was earlier today at negative forty nine,

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Speaker 1: getting a little bit of a lift along with US

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Speaker 1: bond yields. Right now, the tenure note yield one point

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Speaker 1: eight six percent, the five year one point four one,

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Speaker 1: and the two years up to ninety three basis points.

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Speaker 1: This morning, equity futures in the U, S, S and

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Speaker 1: P features up eight points four tents. It's a four

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Speaker 1: tense game for Dowie Meni future sixty four points. Nasaki

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Speaker 1: Meti futures up twenty four tenths of eight percent. The

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Speaker 1: good feelings even extend to emerging markets. The m s

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Speaker 1: c I Emerging Markets Index is up this morning by

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Speaker 1: one point six per cent. All this even as the

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Speaker 1: markets price in and now better than fifty percent chance

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Speaker 1: of a FED rate increase by the end of July.

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Speaker 1: And that is not what happened earlier this year when

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Speaker 1: the Fed was talking about rate moves. What's different now?

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Speaker 1: We asked the man who would know. Adrian Mowat is

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Speaker 1: chief Emerging Marquity uh AT market equity strategist for a

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Speaker 1: JP Morgan. Thank you for joining us this morning from

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Speaker 1: out what's the difference. Why, all of a sudden are

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Speaker 1: our investors sanguine about a FED rate when they were

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Speaker 1: so worried about it in January. Yeah. I think we've had,

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Speaker 1: you know, obviously incredible worries about the FED move back

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Speaker 1: when we had lift off. Now what happened in January.

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Speaker 1: I thought it was very interesting. We had a lot

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Speaker 1: of volatility and currency insorran commodities and inequity markets, but

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Speaker 1: we didn't have much volatility and currency markets in the

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Speaker 1: m and so this this idea which the I m

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Speaker 1: F was proposing that when the FED raises rates, money

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Speaker 1: would come out of emerging markets hasn't proved to be

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Speaker 1: the case. Let's also put this in context. We're talking

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Speaker 1: about the FED moving by twenty five basis points. Uh,

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Speaker 1: you know, that's not a lot of carry. And I

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Speaker 1: think they're really the story here is the FED moves

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Speaker 1: rates up. That's a good news story in that they're

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Speaker 1: confident in the economy. If the dollar doesn't rally, which

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Speaker 1: we don't think it will on the FED move, then

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Speaker 1: that's good for em uh and it's also probably good

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Speaker 1: for US financials to have slightly high in that interest margins. Well,

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Speaker 1: that's what the FED was hoping people would think. But

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Speaker 1: nobody was thinking that late last year, early this year. Well,

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Speaker 1: that's absolutely rights. But I suppose you you know, you

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Speaker 1: had zero interest rates for an eight year period, and

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Speaker 1: so there was understandable that people would be nervous about

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Speaker 1: the change. You know, we had to go back to

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Speaker 1: two thousand and four for the last time the FED

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Speaker 1: had lift off. Thoma's like trying to get your kids

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Speaker 1: deed spinach or something. Yeah, that was the last night.

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Speaker 1: Good morning Surveillance. Thrilled that you're with us this morning.

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Speaker 1: A lot of nuance in the market. Bloomberg Surveillance, Bruce

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Speaker 1: you buy invest goo uh INVESTI believes it's time to

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Speaker 1: say goodbye to the traditional six de forty stock bond allocations.

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Speaker 1: Say hello two alternatives is a core part of modern portfolios.

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Speaker 1: Learn more and investco dot com slash Oh, it's Adrian

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Speaker 1: Mahoi where it's JP Morgan out of Hong Kong. Thrilled

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Speaker 1: that you're in our New York studios. Um. What I

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Speaker 1: love about the granularity of the JP Morgan call and

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Speaker 1: looking at your Bloomberg up on the screen, you can

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Speaker 1: see it's a it's a granular. I can't use Adrian screen, folks.

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Speaker 1: A font is so small and wouldn't you even to

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Speaker 1: be able to see it with my glasses on? But

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Speaker 1: the font leads you to India. I'm fascinated by your

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Speaker 1: overweight in India. Why is that? Yes, So what we've

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Speaker 1: got in India also true in Indonesia is you've got

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Speaker 1: a very rapid increase in the working age population. You're

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Speaker 1: combining that with a government that's moving aheads and making

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Speaker 1: the economy more efficient, increasing the opportunities for companies to

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Speaker 1: invest to create jobs. Uh so we we think it's

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Speaker 1: quite reasonable for this economy to be growing at a

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Speaker 1: compounded rate of seven p or annum. We live in

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Speaker 1: a very very low growth world. That type of story

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Speaker 1: is quite unique. How is there seven percent different from

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Speaker 1: China's whatever percent? Because it's driven without increasing your debt

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Speaker 1: to GDP to an unsustainable level. So this is this

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Speaker 1: is an organic growth rate different from China because remember

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Speaker 1: China's got a contracting working in the population. Well within there,

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Speaker 1: I mean in the old days. Listen to me, for

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Speaker 1: I felt like an old person this morning, John Tucker.

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Speaker 1: I'm sorry for that. Well you were, thank you, Um

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Speaker 1: in the old days, you bought Mexico, you bought telmex

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Speaker 1: in India, but you buy three stocks, three big companies,

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Speaker 1: or do you have to be more granular. It's there's

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Speaker 1: a lot of depth to this market. So what we

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Speaker 1: would be promoting at the moment is buying building materials,

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Speaker 1: so cement companies and we've got a nice insolidation story there.

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Speaker 1: We would be buying consumer discretionaries, particularly autos. So you

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Speaker 1: can buy two willow manufacturers, you can buy car come

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Speaker 1: and these we're seeing truck sales growing double digit. That's

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Speaker 1: usually a very good sign in terms of corporate capex.

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Speaker 1: So you have large truck manufacturers in India. Also, you've

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Speaker 1: got some quite unique sectors. They have a large pharmaceutical

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Speaker 1: sector in India which has been very successful in the

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Speaker 1: generics area. And they also have these the IIC software

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Speaker 1: companies which are a great success story in India. Explain

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Speaker 1: to us how the how the capital markets differ in

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Speaker 1: India there there they are much more used for companies

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Speaker 1: to actually raise money as instead of in China's speculative

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Speaker 1: accounts savings accounts. That's for analogy. Yes, so there is

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Speaker 1: a difference between some of the onshore Indian market versus

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Speaker 1: the ashare market in China, so you've got a recently

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Speaker 1: mature investor base. So my clients onshore in India are

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Speaker 1: large insurance companies, pension funds, mutual funds which in invest

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Speaker 1: in stocks with a three to five year horizon. It's

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Speaker 1: it's the sort of type of investor that you would

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Speaker 1: expect to find in the United States. It's a nice

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Speaker 1: diverse group of investors as well, so we don't have

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Speaker 1: the same sort of speculative momentum element that we've seen

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Speaker 1: in the Asian market in the last twenty four months.

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Speaker 1: Over the last ten years, I just did a quick

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Speaker 1: Bloomberg plug and chug which shows if you're rupy based,

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Speaker 1: you made eleven percent I believe it is over the

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Speaker 1: last ten years per year, not a bad return, but

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Speaker 1: with courrency depreciation with a dollar it comes down to

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Speaker 1: seven percent. How do you amend that or how do

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Speaker 1: you do that responsibly? If you're a developed market based

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Speaker 1: currency person, do your hedge or do you just go

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Speaker 1: flight go in? You have to you have to go

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Speaker 1: on a hedge because the hedging costs are too hot exactly,

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Speaker 1: so you have to part of your strategy has to

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Speaker 1: be thinking about what the rupee is going to do.

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Speaker 1: And what you tend to find with the z M

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Speaker 1: currencies is they have suspect, they have a long period

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Speaker 1: of relative stability, and then they'll tend to jump. Um. Now,

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Speaker 1: if you think about the strategy of the Indian government,

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Speaker 1: they want to really encourage manufacturing, so I think they

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Speaker 1: will run a competitive, real effective exchange rate policy, so

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Speaker 1: they'll the currency will weaken in line with inflation differentials.

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Speaker 1: So think about you know, their inflation targets four percent,

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Speaker 1: so you should be getting a sort of two to

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Speaker 1: three percent difference with the US, assuming that the Fed

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Speaker 1: can meet its inflation target. Obviously, for anyone studying for

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Speaker 1: cf A level two or three with exam micas in

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Speaker 1: like you know, Taylor Riggs are a great Taylor Riggs

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Speaker 1: studying the exams like in six days that was just

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Speaker 1: your clinic on international equity investment. You can send a

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Speaker 1: check made out to Michael McKeon. We run our own

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Speaker 1: tutoring service. That's our own schweezers On Schweezer, We're gonna

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Speaker 1: get rich off of Taylor as she studies. See beyond India,

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Speaker 1: UM to chime. Is China over now? I mean, is

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Speaker 1: it is just the risk too much of the volatility

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Speaker 1: and the uncertainty about where the government is going with

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Speaker 1: the economy that you don't want. If you can get

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Speaker 1: the returns in India, why by China. Look, well, we're

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Speaker 1: overweight China as well as India. I think views on

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Speaker 1: China are overly pessimistic. So we do have some serious

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Speaker 1: structural issues, particularly the debt levels in the economy, but

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Speaker 1: I think there's a gross misunderstanding of what's actually going

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Speaker 1: on in this economy. It's the world's second large economy.

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Speaker 1: You know, We've got one point three five billion people.

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Speaker 1: There are a hundred and twenty six connurbations in China

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Speaker 1: with more than a million people in them. And I'm

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Speaker 1: always amazed of the confidence that people have when they

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Speaker 1: make projections on China, the confidence that people have in

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Speaker 1: a bearish view on the Chinese real estate market. A

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Speaker 1: hundred and twenty six different connurbations with more than a

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Speaker 1: million people in Well, what's great about it is guys

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Speaker 1: like mego, yes, I went to China, and that's the

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Speaker 1: Hong Kong You're port said, is the Mandarin Hotel right

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Speaker 1: in your office. Then they go back to the airport

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Speaker 1: and I went to China. I mean, it's not that way.

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Speaker 1: There's there's a lot going on. It's not that way.

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Speaker 1: And the sixth the key to the China story now

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Speaker 1: is the household sector. So remember the Chinese households have

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Speaker 1: been saving their income. If you look at household debt

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Speaker 1: to GDP and China, it's twenty six percent mortgage debt

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Speaker 1: to GDP is um. The Chinese government, I think, is

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Speaker 1: being very good at controlling asset inflation in the property markets.

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Speaker 1: So when property prices start rising rapidly, the down payments increase.

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Speaker 1: You know, it's very good counter cyclical policy. And we've

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Speaker 1: got a really bullish story in Chinese property. We're gonna

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Speaker 1: come back and talk about that. This is wonderful edge

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Speaker 1: moah with us is we look at China as well.

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Speaker 1: Futures up seven this morning. There's our savellance brought you

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Speaker 1: by Palisades Douty. Visit Palisades douty dot com. Here's Michael

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Speaker 1: Barre within his headlines my time, Thank you very much.

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Speaker 1: Authority is a new Mexico have used the word riot

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Speaker 1: to describe an anti Donald Trump demonstration outside a campaign rally.

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Speaker 1: What He's say. Demonstrators through burning T shirts, plastic bottles

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Speaker 1: and other items at police officers last night. Several officers

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Speaker 1: were injured. Police fired pepper spray and smoke grenades. How

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Speaker 1: Speaker ball Ryan has said he is telling confidence he

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Speaker 1: is ready to end the standoff with Donald Trump as

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Speaker 1: according to two people close to Ryan, aid to the lawmakers,

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Speaker 1: saying he's worried the split has sharpened divisions in the

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Speaker 1: Republican Party. Global News twenty four hours a day, powered

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Speaker 1: by our two hundred journalists more than a hundred fifty

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Speaker 1: news bureaus around the world. I'm Michael Barr and Michael,

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Speaker 1: thanks so much. Another dash to fifty on oil. We're

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Speaker 1: not there, Brent crew a barrel up sixty four cents

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Speaker 1: gold south by eight dollars and ounce on support. I

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Speaker 1: would say well, Christopheronas Trtigas suggesting he would be a

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Speaker 1: buyer of gold. Here. This is Bloomberg's surveillance. Bloomberg Surmounces

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Speaker 1: brought to you by Mercedes Ben's outstanding offers are in full.

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Speaker 1: Bloom at your Mercedes Benz Tri state dealers take advantage

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Speaker 1: Today global business news twenty four hours a day at

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Speaker 1: Bloomberg dot com, the Radio plus mobile app and on

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Speaker 1: your radio. This is a Bloomberg Business Flash and I'm

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Speaker 1: Karen Moscow. This updates brought to you by the accountants

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Speaker 1: and advisors at Eisner Amper. Cyber security is on the

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Speaker 1: the Bloomberg SENA fee has filed that can sense solicitation

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Speaker 1: with the U S Securities and Exchange Commission to remove

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Speaker 1: and replace all members of Metivation's board of directors. US

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Speaker 1: dot Index futures, meanwhile, are rising this morning with an

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Speaker 1: S ANDP. E Many Future is up seven points now

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Speaker 1: eveny Future is up fifty nine and nasdak Emny futures

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Speaker 1: up eighteen dacks. In Germany's up one point three per

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Speaker 1: cent ten Your Treasury little change yield one point eight

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Speaker 1: six percent yield on a two year point nine two

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Speaker 1: percent NIMEX Screwed Oil up one point two per cent

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Speaker 1: or fifty seven cents to forty nine nineteen of Barrol

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Speaker 1: Comic School down six tents percent or seven dollars seventy

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Speaker 1: cents at twelve fifty announced the euro a dollar eleven

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Speaker 1: forty six, the N one ten point to three. That's

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Speaker 1: a Bloomberg business flash. Tom and Mike Karen thank you

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Speaker 1: very much for talking with Adrian Mott from a JP Morgan,

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Speaker 1: Chief Emerging Market and Asia Equity Strategist, and Adrian we

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Speaker 1: were talking about China just before the break and the

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Speaker 1: big question a lot of people have at this point

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Speaker 1: is if you get going in or out of China

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Speaker 1: and you're suggesting being overweight, what is China doing with

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Speaker 1: its currency these days? What price are you gonna pay?

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Speaker 1: How do you figure that out? Do you know? I

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Speaker 1: think we're gonna look back on this sort of speculation

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Speaker 1: the Chinese currency in a couple of years time and

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Speaker 1: just wonder what on earth was going on in markets.

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Speaker 1: China's current account surplus continues to rise, which doesn't imply

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Speaker 1: an overvalued currency. You know, China has had a controlled

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Speaker 1: currency and they're gradually moving away from a controlled currency.

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Speaker 1: They've got a they've got a basket, which looks at

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Speaker 1: its trading partners and so they want to remain relatively competitive.

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Speaker 1: But I don't think this is a story of a

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Speaker 1: big devaluation. I've ever seen that before in a current

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Speaker 1: account surplus country. What currency would you use to invest

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Speaker 1: with the Chinese if if they're pushing the basket, is

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Speaker 1: it still a dollar for ex transaction? Well, the basket

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Speaker 1: obviously has a reasonably it's got a big weight to

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Speaker 1: the euro because Europe's a bigger export destination in the

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Speaker 1: United States, and it's also got a waiting towards Japan.

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Speaker 1: But if you're if you're buying into Chinese equities, you

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Speaker 1: are going to use the room ember. You're gonna use

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Speaker 1: the Hong Kong dollar. The eighth share market is very inexpensive.

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Speaker 1: The other thing you can do is use the US dollar.

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Speaker 1: There's plenty of very interesting a d r s traded

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Speaker 1: on the New York Stock Exchange. You know, the MSCI

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Speaker 1: China uh come the end of this month, will bet

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Speaker 1: e commerce companies. You imagine that you've got the world's

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Speaker 1: biggest emerging markets where you've got a massive exposure to

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Speaker 1: the consumer, and you've got exposure to the consumer in

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Speaker 1: the part of consumption that's growing fast in the overall basket.

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Speaker 1: It's an incredibly appealing benchmark. That everyone is so caught

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Speaker 1: up in the macro call in China that they're not

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Speaker 1: doing the homework on the micro. Well. Within their homework

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Speaker 1: is accounting. Do you trust? And I say this with

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Speaker 1: great respect for JP M. Morgan? Do you trust the

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Speaker 1: accounting of emerging market companies? Is PwC over there the

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Speaker 1: same as p WC here? I guess it's the rude question,

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Speaker 1: look there. I think the answer to that is one

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Speaker 1: should be suspicious of all counts, and one should you

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Speaker 1: should do your analysis just checking that it is it's

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Speaker 1: reasonable the numbers that you're looking at. We do see

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Speaker 1: accountants in uh In, Hong Kong and China not signing

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Speaker 1: off on accounts because they're uncomfortable with it. So I

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Speaker 1: think the the accounting practice is doing a good job.

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Speaker 1: One major issue out there on the horizon for next

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Speaker 1: month with China is msci's decision about a shares whether

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Speaker 1: to include them in the Emerging Market Index. What's your feeling.

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Speaker 1: I mean, we could see enormous flows in and out

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Speaker 1: of stocks is as people try to rebalance portfolios if

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Speaker 1: they if they go in so the idea that MSc

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Speaker 1: I have is to have a five percent free float factor.

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Speaker 1: So by including five percent of the free float of

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Speaker 1: a SHIAS, that would be one point one percent of

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Speaker 1: MSCI emerging markets. So I think it's a slightly more

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Speaker 1: modest move. If they did the full inclusion, then it

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Speaker 1: would be about eighteen percent of emerging market, so that

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Speaker 1: would be more dramatic. I think it's a fifty fifty

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Speaker 1: call on whether they do include. The biggest issue clients

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Speaker 1: have with including a shares is this problem that companies

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Speaker 1: can ask to suspend their shares. You know, if you're

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Speaker 1: buying equities, it's crucial that their liquid equities that you

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Speaker 1: don't get trapped in them. There's a lot of mining

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Speaker 1: stocks involved. And I get the mobile angles well, ten Cent, China, Morbile,

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Speaker 1: China Construction, something like China Telecom. I don't get it.

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Speaker 1: I mean the dividend growth isn't there the dividends? Okay?

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Speaker 1: So what again, are you buying these stocks for the

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Speaker 1: macro play e M one oh one from twenty years

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Speaker 1: ago or is there a different reason? Well, I we're

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Speaker 1: not particularly keen on the mobile sector in China at

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Speaker 1: this point, competition is very intense. You know, the government's

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Speaker 1: got a strong view about these companies investing heavily and

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Speaker 1: having a great network, which may not be great for

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Speaker 1: the shareholders. So you know, we're we're looking more into

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Speaker 1: the commerce names. We quite like insurance where there's very

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Speaker 1: good growth in premium. We'd be promoting real estate companies

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Speaker 1: and select construction companies as well. Bob I, I'm not

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Speaker 1: cleared with compliance for escaping through the door immediately. LEGII,

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Speaker 1: thank you so much. Wonderful to have your please gonna

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Speaker 1: hear from Hong Kong. Don't forget, folks, Bloomberg Radio Asian coverage.

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Speaker 1: It is important. It can start your Asian day across

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Speaker 1: all Hong Kong and Singapore and across so many time

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Speaker 1: zones of Asia. Bloomberg Radio Asian coverage that's a web

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Speaker 1: based and digital and is proving most conformative about the Asia.

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Speaker 1: Morning from New York and from Hong Kong. Features of

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Speaker 1: eight dalfinage is up six to Mike. Is anyone speaking today?

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Speaker 1: The President in Tokyo, But the president is speaking, Yeah,

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Speaker 1: we have more fed speak today. Patrick Harker, who spoke

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Speaker 1: the other night. We kind of know how he feels.

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Speaker 1: Uh Neil cash Cary is speaking on the economy eleven

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Speaker 1: o'clock this morning, twelve basically, and Rob Kapelan from Dallas

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Speaker 1: is speaking as well. So it was good to speak

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Speaker 1: for Mr Kutcha Lakota yesterday. Yes, we were polite. We

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Speaker 1: didn't bring up Mr kush Carring. That would have been well.

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Speaker 1: You know, uh Yana retired, so he can he can't

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Speaker 1: talk about it. He could be gracious. You've been very

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Speaker 1: gracious this morning about your Pittsburgh Penguins. I have. It's

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Speaker 1: very exciting. Scarlett Food joined us an how heart I

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Speaker 1: did well. Lund Quist, I think should go to an

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Speaker 1: expansion team. I should see the Las Vegas. The Las

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Speaker 1: Vegas lund Quist is what it would I mean. No,

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Speaker 1: it's very exciting for those of you worldwide. Game seven

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Speaker 1: of the Eastern Hockey Finals. It would take too long

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Speaker 1: to explain, but it's very exciting this end of Maine.

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