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Speaker 1: Welcome to the Daybreak Asia podcast. I'm Doug Krisner. China

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Speaker 1: seems to be at a crossroads these days, and Beijing

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Speaker 1: seems to be acutely aware of that fact. The challenges

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Speaker 1: are many, although I think it's fair to say that

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Speaker 1: a lack of confidence appears to be the most significant hurdle.

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Speaker 1: Just yesterday, we learned that consumption unexpectedly slowed in November

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Speaker 1: as the effect of some recent economic stimulus faded, and

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Speaker 1: officials have been signaling stronger stimulus to boost consumption. This

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Speaker 1: is a major shift in the government's thinking. Let's take

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Speaker 1: a closer look now with where things stand in China

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Speaker 1: with Joe Nie. He is Greater China Chairman at mckinzian Company.

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Speaker 1: Mister Ni joins us from our studios in Hong Kong.

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Speaker 1: Thank you for taking the time to chat with us.

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Speaker 1: I'm curious about your analysis given the dynamics in the

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Speaker 1: Chinese economy. If you had to pinpoint one thing that

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Speaker 1: really needs to change in order for China to thrive,

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Speaker 1: what would it be?

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Speaker 2: First all, thank you for having me here. I think

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Speaker 2: that confidence in China definitely is the number one topic,

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Speaker 2: and I think that that has been pray for the

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Speaker 2: last two years. I do think that we are moving

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Speaker 2: from a you know, I would say the last two

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Speaker 2: decades of you know, kind of breakneck growth right into

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Speaker 2: all of a sudden in the last two or three years,

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Speaker 2: there seems to be the recognition and maybe a you know,

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Speaker 2: a acceptance that growth going forward, it's going to be

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Speaker 2: very different from the context from before. But what you

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Speaker 2: have is that in the past couple of years that

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Speaker 2: actually has been quite a lot of supply, right whether

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Speaker 2: this is going to be industrial production, whether these are

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Speaker 2: you know, flats being built. I think that the engine

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Speaker 2: that have powered China in the past two decades didn't

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Speaker 2: actually stop until quite recently. So all of a sudden

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Speaker 2: you have this massive i would say supply demand that

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Speaker 2: needs to be recalibrated, and there needs to be an

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Speaker 2: expectation management from corporates right into citizens in the government

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Speaker 2: that we're going into a period of much more moderate

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Speaker 2: growth like the rest of the world has been seeing.

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Speaker 2: So I do think that that actually has been part

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Speaker 2: of the period where you know, all of a sudden,

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Speaker 2: you know, you lose a bit of confidence. You see

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Speaker 2: a lot in China now is the most massive savers

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Speaker 2: in the world, like thirty five percent of private savings

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Speaker 2: right now savings rates and so people are very uncertain

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Speaker 2: in this period of recalibration, and I think that's what

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Speaker 2: you're seeing. So the hesitance to do anything and to

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Speaker 2: invest and to spend is pervasive in the economy right now.

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Speaker 1: When you hear the term over capacity, is that app

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Speaker 1: does it help describe a little bit of what's happening

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Speaker 1: on the industrial side.

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Speaker 2: Well, I think that, you know, we actually have been

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Speaker 2: you know, in seeing in China in the past two

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Speaker 2: decades where they feel like if I actually have the

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Speaker 2: capacity to build and I have the you know, efficiency

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Speaker 2: to do something that is you know, more more valuable

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Speaker 2: money in the rest of the world, I can export

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Speaker 2: my products. I think that that equation have changed a

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Speaker 2: little bit now that there has been a lot more

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Speaker 2: I would say industrial protectionism around the world that will

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Speaker 2: change that equation. Now when you change it, I think

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Speaker 2: that you know, you know, the factories in China need

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Speaker 2: to you know, get used to that. But unfortunately, in

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Speaker 2: the past two years, they actually have been building, you know,

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Speaker 2: to cater for that demand. And I think that what

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Speaker 2: you're seeing right now is there's no not a lot

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Speaker 2: of new capacity being put on right now, but you're

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Speaker 2: seeing a little bit of digestion of the past two

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Speaker 2: years of capacity has been built. So I do think

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Speaker 2: that it is an oversupply in the sense of a

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Speaker 2: slowing demand what you see around the world and in China.

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Speaker 2: But at the same time, the saving grace is that

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Speaker 2: I would say that the investment has been really really

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Speaker 2: melted in the past twelve to eighteen months, so the

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Speaker 2: new capacity is going to be much lower.

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Speaker 1: So you alluded to this idea of protectionism, and I

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Speaker 1: want to explore this a little bit if I can.

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Speaker 1: The threats here are being made by the incoming Trump

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Speaker 1: administration in the US tariffs on imported Chinese goods, and

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Speaker 1: I'm aware of how many of the companies doing business

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Speaker 1: in China have already begun to reconfigure their supply chains.

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Speaker 1: Do you think the tension between Washington and Beijing that

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Speaker 1: we're likely to see after the first of the year

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Speaker 1: is going to begin to shift trade flows in a

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Speaker 1: major way or is this something that will probably get

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Speaker 1: worked out through negotiation. How would you evaluate that?

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Speaker 2: Well, Doug, this is not news, right, This has been

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Speaker 2: going on for the last few years. If you are

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Speaker 2: a Chinese manufacturer, right or anyone who's the export business,

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Speaker 2: you have been dealing with actually a shifting trade in

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Speaker 2: the past few years. In fact, I would say that

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Speaker 2: three or four years ago they were much less. I

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Speaker 2: would say, ready for the tariffs and for all the

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Speaker 2: trade shifts that's going on right China plus one is

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Speaker 2: a well documented strategy by both moultinationals as well as

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Speaker 2: Chinese companies. So what you see when China, you know,

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Speaker 2: exports the US have dropped from you know, until now

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Speaker 2: only fifteen percent of US imports are from China, you see.

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Speaker 2: You know, correspondingly, the Chinese trade is going to Southeast Asia.

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Speaker 2: M right now is the largest trading partner right to China.

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Speaker 2: You see actually a lot more Chinese. We call it

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Speaker 2: the global self trade that's going on. So I absolutely

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Speaker 2: think that the trade patterns are being reconfigured, and that

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Speaker 2: has been going on. So I would say with a

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Speaker 2: new insturgy coming in, you know, I think it's a

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Speaker 2: continuation of what we're seeing. Would that be a celebration,

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Speaker 2: a concidition, I don't know, but I think that it's

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Speaker 2: certainly not news. And I think at this time, I

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Speaker 2: think that everyone is in some ways much more prepared,

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Speaker 2: you know, for the uncertainty of this happened.

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Speaker 1: I have to ask you about high technology, particularly as

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Speaker 1: it relates to artificial intelligence. One of the things we

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Speaker 1: know that the Biden administration has done is to restrict

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Speaker 1: Chinese access to specific semiconductors and other equipment they may

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Speaker 1: be used kind of in the pursuit of artificial intelligence.

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Speaker 1: Where is China right now in the race for AI?

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Speaker 2: Think in the I would say high tech world, especially

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Speaker 2: in AI and semi inductors. I think it's very clear

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Speaker 2: that you know it's going to be a very domestic

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Speaker 2: game in China. I would say that in the past

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Speaker 2: couple of years there has been a big ramp up

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Speaker 2: in terms of Chinese local R and D investment, especially

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Speaker 2: I would say, into semiconductors and into you know, AI,

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Speaker 2: into areas where they foresee that it would very likely

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Speaker 2: be a world where you know, it will be China

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Speaker 2: for China, and I think that it won't be able

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Speaker 2: to access many of these I would say leading technologies. Uh.

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Speaker 2: In the US, I think that that self sufficiency drive

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Speaker 2: is motivating quite a lot of capital and internal I

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Speaker 2: would say talent that actually has been really you know,

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Speaker 2: thinking that well, you know, in some ways it's opportunity

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Speaker 2: because before there's a reliance right on, you know, the

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Speaker 2: areas that we didn't need to invest in. However, I

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Speaker 2: think that in investment have been raving. Oh see, that's

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Speaker 2: probably the area where you see the most influence of

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Speaker 2: capital within China in these sectors.

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Speaker 1: Right now, mister and I will leave it there. Thank

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Speaker 1: you so much for making time to talk with us.

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Speaker 1: Joe and I is Greater China chairman at Mackenzie and Company.

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Speaker 1: Joining us here on the Daybreak Asia podcast. Welcome back

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Speaker 1: to the Bloomberg Daybreak Asia Podcast. I'm Doug Krisner. We're

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Speaker 1: less than two days away from the fed's final policy

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Speaker 1: decision of the year, and most officials have preached patients

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Speaker 1: and data dependence, although if you talk to folks in

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Speaker 1: the marketplace, they are widely expecting another rate cut. Joining

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Speaker 1: us now for a closer look is Chuck Camello. He

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Speaker 1: is president and CEO of Essex Financial Group, joining us

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Speaker 1: from just outside of New York City and Connecticut. Chuck,

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Speaker 1: thanks for being with us. I'm curious as to whether

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Speaker 1: or not your view is aligned with what the market

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Speaker 1: expects that we're going to in fact get this twenty

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Speaker 1: five basis point rate cut this week.

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Speaker 3: Well, thank you so much for having me. Yeah, listen

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Speaker 3: that that certainly seems to be the case. I mean,

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Speaker 3: the last number I saw was a ninety seven percent

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Speaker 3: probability that they were going to cut by twenty five

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Speaker 3: basis points in this upcoming meeting. So that is what

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Speaker 3: the expect what the expectation is. But I you know,

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Speaker 3: but it's it's not a ninety seven percent certainly is

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Speaker 3: a huge number when you peel back where the economy is,

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Speaker 3: where jobs are, it's it's You could certainly make the

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Speaker 3: argument that like standing pat right now would not be

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Speaker 3: a bad idea either.

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Speaker 1: But isn't the bigger issue where the FED goes from here?

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Speaker 3: Oh well, one hundred percent. I think where the FED

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Speaker 3: goes from here as long as things go according to

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Speaker 3: their plan and stay on the same trajectory is lower.

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Speaker 3: But you know, you've got to and they've always been

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Speaker 3: very data dependent. But you know, there's potentially some bigger

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Speaker 3: changes coming down the pike with President Trump coming into office.

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Speaker 3: Into office talks about tariff, talk about deportation, which could

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Speaker 3: have an effect on the labor market, which and again

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Speaker 3: all the government spending, all of which is very inflationary.

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Speaker 3: And we just saw the most recent you know, CPI

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Speaker 3: number and the PPI number coming at a little bit

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Speaker 3: hotter than expected, just a little bit. But you know,

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Speaker 3: their nightmare scenario is have to raise rates. So again,

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Speaker 3: there's plenty of people that think they should stand pat

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Speaker 3: We certainly do think that the trend longer term is

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Speaker 3: the rates to keep coming down. But listen, getting from

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Speaker 3: getting from nine to two point eight was I won't

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Speaker 3: say easy, but it was easier. It's this last bit

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Speaker 3: to try to bring it down to two that is

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Speaker 3: going to be really difficult, and I think the jury

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Speaker 3: still out whether they can actually pull it off.

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Speaker 1: Friday, we're going to get the FEDS preferred measure of

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Speaker 1: underlying inflation, that's the PCE so core PCEE from what

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Speaker 1: I've been reading, will probably if you talk to the economists,

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Speaker 1: do you look at our survey, we're thinking maybe a

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Speaker 1: gain of two tens to one percent. The other thing

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Speaker 1: that's going to be interesting to see is whether or

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Speaker 1: not consumers spending holds up well, that it's still solid

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Speaker 1: and income growth also does well in terms of some

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Speaker 1: of the gains that we have seen recently. If you

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Speaker 1: look at kind of the broader economy where the consumer

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Speaker 1: is concerned, how would you evaluate it.

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Speaker 3: I think overall, the consumers in really good shape, and

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Speaker 3: you know, the most recent retail sales number bear that out.

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Speaker 3: But you know, the big thing right now that's really

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Speaker 3: helping the consumer has been the market and this, you know,

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Speaker 3: the wealth effect that of the US consumer or the majority.

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Speaker 3: I suld said the majority that a good chunk of

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Speaker 3: the US consumer feels. What I mean by that is

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Speaker 3: in Q three there was a two point nine percent

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Speaker 3: increase which equates to four point eight trillion dollars in

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Speaker 3: net worth for the US consumers, which brings it to

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Speaker 3: almost one hundred and sixty nine trillion dollars. Most of

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Speaker 3: that most of that four point eight trillion in Q

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Speaker 3: three came from the equity market. So you know, so

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Speaker 3: the part of the US consumer, again it's a bifurcated

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Speaker 3: consumer base. Those consumers, the more you know, higher net

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Speaker 3: worth mass affluent type consumer is doing just fine and

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Speaker 3: it's feeling really good. But there's a lot of people

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Speaker 3: in this country that don't own stocks and aren't feeling

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Speaker 3: the benefit of that, and that's where you're seeing again

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Speaker 3: one chunk of the population doing really, really well and

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Speaker 3: one still struggling. And again, for that part of the

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Speaker 3: population in this country that's struggling, the absolute worst thing

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Speaker 3: is inflation. And that's why I think it's the Fed's

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Speaker 3: nightmare scenario to have to raise rates. But here's the thing.

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Speaker 3: By and large, the equity market's very strong, a lot

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Speaker 3: of bullish sentiment. It's certainly done extremely well since the election,

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Speaker 3: and that is just you know, the US consumer drives

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Speaker 3: two thirds of the US economy, and that part of

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Speaker 3: things right now is doing extremely well. But if that

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Speaker 3: does go sideways, then that's going to be a major

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Speaker 3: major headwind.

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Speaker 1: You were talking about the chance that the FED may

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Speaker 1: have to consider some of the economic policies of the

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Speaker 1: Trump administration, and I think with that there potential inflationary implications,

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Speaker 1: whether it's restrictions on immigration, whether it's the tariff issue.

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Speaker 1: The other thing we have to talk about at some point,

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Speaker 1: tax cuts. But I was struck today by this announcement

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Speaker 1: from SoftBank Group that it plans to invest one hundred

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Speaker 1: billion dollars in the US over the next four years.

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Speaker 1: Generally speaking, when you look at what we're hearing coming

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Speaker 1: from the incoming administration, how do you think it's going

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Speaker 1: to set up the economy to perform not only in

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Speaker 1: twenty twenty five maybe, but over the next four years.

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Speaker 3: I think there's an awful lot of tailwinds behind the

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Speaker 3: US economy right now, you know, So that that announcement

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Speaker 3: today from SoftBank also you know, mentioned one hundred thousand

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Speaker 3: new jobs in AI and infrastructure construction, et cetera. But

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Speaker 3: you know, the there certainly is a palpable sort of

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Speaker 3: feeling of optimism across the country. You know, now the

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Speaker 3: election is over, the feeling that the economy will be

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Speaker 3: more unleashed. You know, I certainly don't want to get political,

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Speaker 3: but you know, the regulatory environment over the past four

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Speaker 3: years was challenging, you know, for US business, and I

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Speaker 3: think the feeling is that now there's a lot of

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Speaker 3: wind in the sales and there's tremendous optimism moving forward. Listen,

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Speaker 3: there may be too much optimism. We might have pulled

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Speaker 3: some of that forward. So I think we're going to

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Speaker 3: see and run the risk of seeing a lot of

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Speaker 3: volatility in Q one and Q two in next year.

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Speaker 3: But you know, overall that that feeling in the US

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Speaker 3: right now is very positive in just about any place

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Speaker 3: you look.

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Speaker 1: So in terms of an investment strategy, are there corners

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Speaker 1: of the market that you want to be focused on primarily?

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Speaker 3: Yeah, well see it's a great question. So obviously, you

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Speaker 3: know tech continues to work. You know, it's been overvalued

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Speaker 3: for you know, forty percentage points of total return for

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Speaker 3: quite some time, right, so you don't own it at

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Speaker 3: your own peril. But I think there's also opportunities in

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Speaker 3: areas you know that haven't done as well when you

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Speaker 3: look more longer term. You know, healthcare is getting is

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Speaker 3: in a tough spot right now. That is a I

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Speaker 3: think the jury is still out on things like that, energy,

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Speaker 3: small caps, mid caps. You know, there's a lot of

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Speaker 3: different areas and again, yes, technology has run, but these

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Speaker 3: are world class companies doing unbelievable things, you know, with

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Speaker 3: tremendous free cash flow and still a lot of room

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Speaker 3: to run. I mean you look at you know, broad

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Speaker 3: Coom over the past you know, five six, seven trading

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Speaker 3: days the run up, it's at as different areas as

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Speaker 3: different areas, right and a lot of and in video

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Speaker 3: has done nothing over that period. Of time other than

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Speaker 3: come down. So there's a lot of different areas to go.

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Speaker 3: But I think what we're trying to share with our

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Speaker 3: clients is listen, there's no doubt right now valuations are

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Speaker 3: stretched and extremely stretched in certain areas. So again, you

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Speaker 3: leg into this market. Dollar cost averaging is a great thing, right,

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Speaker 3: spread this money out because again we do truly feel

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Speaker 3: that you certainly will see some volatility as we get

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Speaker 3: into Q one.

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Speaker 1: Yeah, I'm glad you mentioned Broadcom. Over the last two days,

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Speaker 1: I believe the stock is up thirty eight percent. It's

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Speaker 1: now into that trillion dollar market cap club. Given the

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Speaker 1: gains that we have seen here in the US, I'm

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Speaker 1: wondering whether you want to be diversified just a little

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Speaker 1: bit offshore. Is that saying too much?

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Speaker 3: Well, you know, it's it's a that's a tough sell,

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Speaker 3: you know. I heard I heard someone say, you know,

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Speaker 3: you know, the United States is innovate. You know, the

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Speaker 3: Europes A regulate and you know right now, if you

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Speaker 3: look at sort of the the EFHA market over the

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Speaker 3: past one year, you know that's up. The MSCI EFA

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Speaker 3: indexes up about eleven point three five percent over you know,

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Speaker 3: the trailing twelve compared to thirty for the S and

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Speaker 3: P five hundred and thirty six for Nasdaq. Listen, there

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Speaker 3: are some great opportunities overseas, but you know, it's been

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Speaker 3: a drag on a portfolio. And I think that is

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Speaker 3: also where active management really really is important, so that

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Speaker 3: you know you're you're not just buying everything, You're buying

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Speaker 3: the best of breed companies. We always say, especially it's

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Speaker 3: underperformed for so long, it's always worth while having some

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Speaker 3: international ten fifteen percent maybe, But right now, the US

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Speaker 3: has been so dominant for so long, it's it's hard

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Speaker 3: to see that changing, especially with the regulatory and political

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Speaker 3: climate in Europe.

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Speaker 1: So if you're convinced that there is some risk that

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Speaker 1: the FED may have to adjust its rate of rate

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Speaker 1: cuts to a slower pace, do you want to avoid

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Speaker 1: the bond market right now?

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Speaker 3: No? I don't. I don't think you avoid it. And

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Speaker 3: again with with the FED, I think you're probably just

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Speaker 3: more of them being in more of a weight and see,

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Speaker 3: you know, wait and see positions, you know, so I

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Speaker 3: think I think you get to twenty five, you know,

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Speaker 3: coming up this week, and then you know, I do

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Speaker 3: believe given all the different inputs that they're looking at

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Speaker 3: that they certainly are well served by saying now we're

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Speaker 3: going to pause and just sort of see how this

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Speaker 3: works out. Right, It's it's you know, it's long lags

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Speaker 3: of monetary policy. But with the bond market, listen, you know,

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Speaker 3: I think the best thing to do in the bond

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Speaker 3: market is to diversify, right, whether it's short, intermediate, long,

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Speaker 3: and especially for the depending upon the client, private credit

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Speaker 3: has really provided a nice a nice return and a

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Speaker 3: nice income stream for those clients where that's appropriate for

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Speaker 3: But no, I think you don't avoid it because we

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Speaker 3: do think that the longer term trend for the FED

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Speaker 3: is lower. So people that are sitting in cash, sitting

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Speaker 3: in money markets, right, that's going to come down. You've

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Speaker 3: already seen it in money markets. You're going to see

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Speaker 3: it in treasuries. But you know, there's nothing wrong with

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Speaker 3: having some portion of money in treasuries and then ladder out,

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Speaker 3: whether it's true mutual funds or through individual securities or ETFs,

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Speaker 3: a nice diversified bond portfolio. And there's some great managers,

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Speaker 3: great active managers out there, both on the mutual fund

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Speaker 3: side or ETF side that can build a really solid

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Speaker 3: long term fixed income portfolio.

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Speaker 1: Chuck, believe it there. It's always a pleasure. Thanks for

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Speaker 1: catching up with us. Chuck Camello as president. He's also

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Speaker 1: the CEO at Essex Financial Group. Joining us here on

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Speaker 1: the Daybreak Asia Podcast. Thanks for listening to today's episode

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Speaker 1: of the Bloomberg Daybreak Asia Edition podcast. Each weekday, we

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Speaker 1: look at the story shaping markets, finance, and geopolitics in

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Speaker 1: the Asia Pacific. You can find us on Apple, Spotify,

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Speaker 1: the Bloomberg Podcast YouTube channel, or anywhere else you listen.

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Speaker 1: Join us again tomorrow for insight on the market moves

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Speaker 1: from Hong Kong to Singapore and Australia. I'm Doug Chrisner,

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Speaker 1: and this is Bloomberg