Speaker 1: Welcome to the Bloomberg Daybreak Asia Podcast. I'm Doug Chrisner.
Speaker 1: So it's New Year's Eve, the final day of trading
Speaker 1: in twenty twenty four across the Eightpac region, and when
Speaker 1: markets return from the holiday, there will be no shortage
Speaker 1: of new forces to confront. Joining me now for a
Speaker 1: look ahead is Vishnu Varathan, head of Economics and Strategy
Speaker 1: at Misoho Securities, joining us from Singapore. Vishnu, Happy New
Speaker 1: Year to you. It's always a pleasure to benefit from
Speaker 1: your insight. I think we can agree that right across
Speaker 1: the APAC, twenty twenty four has been a year of
Speaker 1: dramatic events, and certainly when you look at things like
Speaker 1: the end carry trade, when you look at what happened
Speaker 1: in China, a struggling economy, additional stimulus, and a lot
Speaker 1: of equity market volatility, I'm curious as to whether you
Speaker 1: think twenty twenty five will be a similar story.
Speaker 2: At twenty twenty five has the potential to be just
Speaker 2: as dramatic. Maybe the reasons for that might differ, but
Speaker 2: I think you know, if someone thought that this is
Speaker 2: just platooing off, then that's probably not going to play out.
Speaker 2: And one example, and I won't drawn on about this
Speaker 2: is the Japanese ye and I think for a while
Speaker 2: their markets thought we're over the carry trade volatility, primarily
Speaker 2: because there would be greater convergence between you know, US
Speaker 2: and Japanese raids. Whereas two big things have changed. One
Speaker 2: is the FED is now far less dubbish, you know,
Speaker 2: the delta there has been hawkish, whereas in contrast, the
Speaker 2: BOG is far more guarded about tightening, and the tariffs
Speaker 2: will have a negative impact on the end, which might
Speaker 2: induce more on and off territory and certainly volatility around it.
Speaker 2: So that's that's one example.
Speaker 1: So do you think in both of those cases maybe
Speaker 1: they share in common the possibility of a minor policy error.
Speaker 1: In the case of the FED that maybe that first
Speaker 1: rate cut was too generous, and in the case of
Speaker 1: the Bank of Japan, maybe the boj has waited too
Speaker 1: long to titan.
Speaker 2: I think in many cases the trouble is if we
Speaker 2: were to, you know, in isolation, look at each of
Speaker 2: the central banks, the moves appear to be reasonable, but
Speaker 2: the dilemma for them is their policy moves are not
Speaker 2: in a vacuum and certainly depend a lot on what
Speaker 2: goes on elsewhere, primarily driven by the FED. So the
Speaker 2: moment the FED started on you know, much earlier, the
Speaker 2: Cocomo rate hikes, you know, get their fast, take it slow,
Speaker 2: after which, you know, US exceptionalism persisted, that inherently created
Speaker 2: you know, huge policy dilemmas for central banks elsewhere. The
Speaker 2: only question is the positioning that allowed them to stand that.
Speaker 2: And I think for the BOJ, markets are going to
Speaker 2: continue to have a problem because the boj's time horizon
Speaker 2: when they give signals and references are far longer than
Speaker 2: what markets perceive uh and and you know take it
Speaker 2: to be elsewhere uh in the developed world, And I
Speaker 2: think that's going to lead to a lot more miscommunication,
Speaker 2: which translates into mispricing from policy.
Speaker 1: Well, does that necessarily mean that we'll see persistent dollar
Speaker 1: strength and a much weaker Japanese currency going forward.
Speaker 2: It certainly is the far greater risk for the first
Speaker 2: half of the year, at least, beyond which I think
Speaker 2: a lot will come down to a whether you know,
Speaker 2: US exceptionalism continues to defy gravity. Our side bet is
Speaker 2: it might not because of consumer strains uh and and
Speaker 2: how a lot of the policies may not be unequivocally
Speaker 2: reflationary to the point where it's it's super good for
Speaker 2: growth and and for that reason, we do see a
Speaker 2: case to be made whether the FED could start cutting
Speaker 2: back and that could allow the dollar to mellow at
Speaker 2: most of a soft lending but not crash. The yen
Speaker 2: is going to hinge a lot more on a fat convergence,
Speaker 2: so they're going to wait for the you know, the
Speaker 2: yen's problem has always been it's it's a bog problem, right,
Speaker 2: but it's got a fat solution. And so the fat
Speaker 2: solution will start taking shape, but that the tariff outcomes
Speaker 2: will have a huge bearing, and so it necessarily needs
Speaker 2: to be the case that the bite is you know,
Speaker 2: the bark is worse than the bite, and we end
Speaker 2: up with a negotiated outcome rather than going nuclear on it.
Speaker 2: And that's where I think we could see that narrative
Speaker 2: changing and a lot more relief coming for the bog
Speaker 2: as things start to converge globally rather than you know,
Speaker 2: apprasively diverge.
Speaker 1: Well, let's take a closer look at what that means
Speaker 1: for China, especially whether or not tariffs are ultimately kind
Speaker 1: of a bargaining ploy here, a way to get what
Speaker 1: the US, specifically the Trump administration would like to extract
Speaker 1: from Beijing. Talk to me about how you're viewing the
Speaker 1: macro picture in China right now now, especially when you
Speaker 1: begin to discount the impact of potential potential tariffs.
Speaker 2: Well, I think the tariff situation for for China, there
Speaker 2: are two thoughts around it.
Speaker 3: One is, China has you know, done its homework.
Speaker 2: They've watched this, they've watched the prequel, and so they're
Speaker 2: in a far stronger position to negotiate. And I also
Speaker 2: think the current administration is not just going to roll
Speaker 2: over and concede all ground. As much as they are
Speaker 2: intent on and on you know, coming to a negotiated compromise, UH,
Speaker 2: they're not going to do this in a fashion that
Speaker 2: looks like they've you know, thrown in the towel either.
Speaker 2: So China will have a lot more to negotiate with UH.
Speaker 2: And they also have got Plan B in place already.
Speaker 2: They've already started diversifying, which is why if you look
Speaker 2: at China's share of global exports, it's not declined. And
Speaker 2: for that reason, I think that is where UH the
Speaker 2: execution on the part of the US administration.
Speaker 3: Can you know and and and the thought behind.
Speaker 2: And it will be very important. I think to a
Speaker 2: large extent, the ability to strike particular compromises is silver
Speaker 2: lining here. I think China is willing to concede a
Speaker 2: lot of grounds, but they're very clear on their strategic
Speaker 2: goals and objectives which they probably will not relent on.
Speaker 1: So if Beijing is surprised, let's say, by a deterioration
Speaker 1: further deterioration in the domestic economy, does that necessarily erode
Speaker 1: some of the leverage that you perceive authorities in China
Speaker 1: may have at the moment.
Speaker 3: That's That's a wonderful question and something that bugs me.
Speaker 2: So, you know, the basic premise of economics is to oversimplify.
Speaker 3: Something has got to give, And.
Speaker 2: If you want to look at it that way, my
Speaker 2: sense is what has got to give is Beijing needs
Speaker 2: to really lower his hurdles in terms of their worries
Speaker 2: about moral hazards, competing factions in the political sphere, so
Speaker 2: on and so forth. And to some extent, I think
Speaker 2: the central government needs to almost issue a blank check.
Speaker 2: Does that create problems for the future, you bet, But
Speaker 2: does it then stop the wolf at the door. It
Speaker 2: gives them a lot more breathing space where they need it.
Speaker 2: And I think this is where the prioritization of key
Speaker 2: tech industries, the new engines of growth will probably start
Speaker 2: to reveal itself whether it has really got the kind
Speaker 2: of prominence that people make it out to have from
Speaker 2: China's growth mantra.
Speaker 1: So, do you think authorities in China are misjudging the
Speaker 1: impact that deflation is having and what a problem it
Speaker 1: is and how difficult it is to kind of extract
Speaker 1: an economy from that state.
Speaker 2: At the risk of sounding almost disrespectful, that's my fear.
Speaker 2: I think they do, because my sense is that they're
Speaker 2: looking back and saying, look, we need to put an
Speaker 2: x amount of fiscal stimulus, X amount of money to stimulus,
Speaker 2: and then these would be the economic outcomes based on
Speaker 2: our models before. However, given the chronic confidence deficit after
Speaker 2: the wealth destruction and the huge income shocks from local
Speaker 2: governments being unable to pay, and you know, the whole
Speaker 2: slew of things from conspicous consumption being knocked back in
Speaker 2: terms of bankers base on and so forth.
Speaker 3: So if you've got.
Speaker 2: Both a simultaneous income and balance sheet shock. Then my
Speaker 2: postulation is the growth multipliers have been decimated far beyond
Speaker 2: what the historical models will lead us to believe, so Beijing,
Speaker 2: and that that might partly explain why Beijing continues to
Speaker 2: disappoint with the drip feed of stimulus, because at each
Speaker 2: point they think this should lift it sufficiently such that
Speaker 2: we balance all our constraints and it doesn't.
Speaker 1: Bishnu, before I let you go, if we can take
Speaker 1: a step back and look at the global economy right now,
Speaker 1: I'm curious about the risk, the greatest risk that you
Speaker 1: perceive globally as we look to twenty twenty five.
Speaker 2: For me, one of the greatest risks is a further
Speaker 2: breakdown of diplomacy and trust, which would then lead to
Speaker 2: far worse fiscal outcomes all over because governments would need
Speaker 2: to placate the social fabric and so on and so forth,
Speaker 2: and that's going to lead us down a far greater
Speaker 2: economic turmoil down the road.
Speaker 1: Vishnu, it's always a pleasure. Thank you for being with
Speaker 1: us on this special edition of the Daybreak Asia podcast.
Speaker 1: Happy New Year two. Vishnu Verarathan, head of Economics and
Speaker 1: Strategy at Misoho Securities, joining from Singapore. Here on the
Speaker 1: Daybreak Asia Podcast. Welcome back to a special New Year's
Speaker 1: Eve edition of the Daybreak Asia Podcast. I'm Doug Chrisner.
Speaker 1: We want to end the year with a look at Japan.
Speaker 1: The latest inflation ratings for the month of December really
Speaker 1: support the case for a January rate hike by the
Speaker 1: Bank of Japan. For more, we heard from Ed Rodgers.
Speaker 1: He is the CEO and Chief Investment Officer at Rogers
Speaker 1: Investment Advisors. He spoke with bloomberg'shust Linda Ahman.
Speaker 4: Let's take a water perspective of the Japanese market. We
Speaker 4: had Goldman coming out to say that given the en
Speaker 4: way it is hovering close to one sixty, it is
Speaker 4: probably a sweet spot for investors to be buying into
Speaker 4: Japanese stocks. Do you agree? I do.
Speaker 5: We think everything's on sale in Japan. As you say,
Speaker 5: as you're closing it on one sixty, you know, we've
Speaker 5: got a little ways to go. We've got a month
Speaker 5: to wait and see what the BOJ does in January.
Speaker 5: But the impact of a FED rate cut in the
Speaker 5: Bank of Japan holding SETI is clear. Get impact on
Speaker 5: FX is There's just no way you can deny it,
Speaker 5: so everything's on sale. Will rates normalize? Are we going
Speaker 5: into the Are we finally going into the sort of
Speaker 5: post two thousand and eight financial crisis mode of central
Speaker 5: banks all working in unison and having similar policies. I
Speaker 5: think absolutely we've reached a point where regionalization and specific
Speaker 5: countries are going to be responding according to their specific needs.
Speaker 5: There is not a global approach. There's not a G
Speaker 5: seven approach to interest rates. Central banks are not capable
Speaker 5: given the current global environment, frankly, of working together the
Speaker 5: way they did for much of the last fifteen, ten
Speaker 5: twelve years.
Speaker 4: What's the approach of the boj It's been sounding davish
Speaker 4: and just wondering if it could be under a lot
Speaker 4: of pressure to make that move given where the yen
Speaker 4: is headed.
Speaker 5: Absolutely there's pressure to make a move, There's no doubt
Speaker 5: about that. I think the biggest if you were to
Speaker 5: prioritize the pressures, though, is to understand what is the
Speaker 5: Federal reserve US Federal reserve policy going to be. The
Speaker 5: sort of hawkish tone of that recent cut of twenty
Speaker 5: five business points, I think many many folks in the
Speaker 5: market who've been in the space for a few decades,
Speaker 5: are really wondering when we're going to have serious dialogue
Speaker 5: about rates going back up again in the United States.
Speaker 5: I know we're expecting two more cuts, but it's hard
Speaker 5: not to view current US policies and what we expect
Speaker 5: over the next one to two three years to not
Speaker 5: be inflationary. So there's a, if you will, a looming
Speaker 5: challenge of Jerome Powell versus the incoming administration, and it's
Speaker 5: hard not to see rates going back up in the
Speaker 5: United States at some point, and maybe sooner rather than later.
Speaker 4: So having said that, Adam, what do you see the
Speaker 4: BOJ doing? How soon do you see that hike coming?
Speaker 4: And what does it mean for the end?
Speaker 5: So we think that there will be a January a
Speaker 5: move in January. I think that rate will go up
Speaker 5: in the in Japan, and I think the BOJ again,
Speaker 5: the Japanese interest in the Japanese economy versus US interest
Speaker 5: in US economy, and the political convergence, if you will,
Speaker 5: that created a global zero interest rate environment. It's gone.
Speaker 5: There has been significant inflation in Japan, some bit good inflation,
Speaker 5: some ait bad inflation. The good inflation is wage inflation.
Speaker 5: We have seen significant rise in wages, which makes the
Speaker 5: BOJ very happy. Some of the external factors over energy
Speaker 5: prices and other things that the bad inflation, if you will,
Speaker 5: is also clearly still present. The consumer driven recovery driven
Speaker 5: by wage increases has not played out fully. We think
Speaker 5: there is more of that to come, and we think
Speaker 5: that Japan will certainly raise rates once and then they'll
Speaker 5: sort of wait and see. The incoming Trump administration will
Speaker 5: take office in January twentieth, the power will change, and
Speaker 5: then we'll start to see what policies really get enacted
Speaker 5: at the US at the national level, We'll see what
Speaker 5: happens in Congress. It's very murky right now. There have
Speaker 5: been a number of appointees that would seem very sort
Speaker 5: of if you're middle of the road and traditionalists in
Speaker 5: their approach to certain things, and there are a number
Speaker 5: of appointees from the Trump administration that might seem to
Speaker 5: be a bit more radical and implementing change. It's a
Speaker 5: little bit hard to tell who's going to win out
Speaker 5: and specifically in this economic policy space where the US
Speaker 5: will land.
Speaker 4: Yeah, despite the markets and the uncertainty in the US,
Speaker 4: I mean, US exceptionalism has continued and people say it
Speaker 4: will continue to persist back in the year ahead in
Speaker 4: twenty twenty five. Given that scenario, AD I mean, I'm
Speaker 4: wondering if how you're assessing the foreign interest in the
Speaker 4: Japanese market in comparison, I mean, if US exceptionalism were
Speaker 4: to continue, I mean, how much interest is there in
Speaker 4: Japan the US side there.
Speaker 5: I said, there's a significant amount of optimism in the
Speaker 5: economic and business space with the incoming administration. But I'd
Speaker 5: also say, as an investor, you look at markets, you
Speaker 5: look at the run up, the significant run up in
Speaker 5: US prices and the leadership, if you will, of the
Speaker 5: Magnificent seven. Japan remains significantly undervalued and on sale the
Speaker 5: United States. It's hard to imagine the next couple of
Speaker 5: years performance mimicking mirroring the last couple of years of performance,
Speaker 5: and the chickens will come home to roost on inflation
Speaker 5: in the United States, and the chickens will come home
Speaker 5: to roost on a what might turn out to be
Speaker 5: a very challenging Congress with regards to well as we
Speaker 5: just recently saw frankly in the what's the debt ceiling
Speaker 5: going to be? What sort of legislation is going to
Speaker 5: get pass the Continuing Resolution to fund the US government.
Speaker 5: It seems there's going to be a significant amount of
Speaker 5: controversy there. So final policy will look like in the
Speaker 5: United States is still very much up in the air
Speaker 5: in our opinion, So until there is clarity on that
Speaker 5: it actually becomes, it would be very unusual for the
Speaker 5: Japanese to make precipitous moves at the boj and responding
Speaker 5: to a policy that they don't even know exactly what
Speaker 5: the policies will look like. You know. A good example
Speaker 5: would be tariffs, you know, and how will tariffs be applied?
Speaker 5: Will will China and Japan be all in the same bucket,
Speaker 5: or will there be some preferential treatment for some allies
Speaker 5: used to be tariffs? This is this is all very
Speaker 5: unclear right now.
Speaker 4: If Japan is under owned, what your investors been looking at?
Speaker 4: What must you own in Japan in twenty twenty five.
Speaker 5: So I think there's some areas that are clear and obvious.
Speaker 5: You know, what's important to the Japanese. What is the
Speaker 5: Japanese government going to support. There's a huge moment of
Speaker 5: opportunity right now in Japan, and I think many many
Speaker 5: people at the Japanese government level and many people at
Speaker 5: the Japanese business level see a potential pivot. We've already
Speaker 5: for the first time in over almost twenty years. Twenty
Speaker 5: years ago, China became Japan's largest trading partner in the world,
Speaker 5: replacing the United States as Japan's largest trading partner. Given
Speaker 5: the geopolitical realities of the day, we think that we
Speaker 5: have now reached the pivot point where we're going to
Speaker 5: go back to seeing the United States as the largest
Speaker 5: trading partner for Japan, and that has some enormous implications.
Speaker 5: How did the United States economies, not just the economies,
Speaker 5: but the political economy work together. What are the very targeted,
Speaker 5: specific goals of the Japanese government in the science and
Speaker 5: technology space in many of the areas where they want
Speaker 5: to exploit certain research and development advantages, in certain areas
Speaker 5: where they've maintained, if you will, significant R and D
Speaker 5: technological innovation leadership, other areas where they've fallen behind semiconductors
Speaker 5: is an obvious example, and then other areas where we
Speaker 5: see explosion of interests, such as in the venture capital,
Speaker 5: early stage risk taking investment space. We think the Japanese
Speaker 5: government is very, very focused and committed to improving the
Speaker 5: overall ecosystem and environment for in making risky investment. So
Speaker 5: in our world, what do we think about venture capital,
Speaker 5: hedge funds, private equity, everything called alternatives. We think is
Speaker 5: going to be dramatically different the opportunity set in Japan
Speaker 5: over the next five to ten years. We also think
Speaker 5: in certain sectors it's clear and obvious where there's Japanese
Speaker 5: government interests, all these interests are converging and creating opportunity
Speaker 5: for investors.
Speaker 1: That was Ed Rogers, the CEO and CIO of Rogers
Speaker 1: Investment Advisors, in conversation with Bloomberg's Hustlinda Ahman, And as
Speaker 1: twenty twenty four comes to a close, we want to
Speaker 1: thank you for listening to the Daybreak Asia podcast. It
Speaker 1: certainly was a year chocked full of consequential stories right
Speaker 1: across the region, and we hope you found our storytelling
Speaker 1: and conversations interesting, perhaps even useful. From all of us
Speaker 1: here at Bloomberg Radio and especially the Daybreak Asia podcast team,
Speaker 1: we wish you a happy, healthy, and prosperous twenty twenty
Speaker 1: five