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Speaker 1: Bloomberg Audio Studios, podcasts, radio news.

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Speaker 2: This is the Bloomberg Daybreak Aisia podcast. I'm Doug Krisner.

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Speaker 2: You can join Brian Curtis and myself for the stories,

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Speaker 2: making news and moving markets in the APAC region. You

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Speaker 2: can subscribe to the show anywhere you get your podcast

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Speaker 2: and always on Bloomberg Radio, the Bloomberg Terminal, and the

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Speaker 2: Bloomberg Business app.

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Speaker 3: Joining us now is Mark Matthews, Managing Director and head

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Speaker 3: of Asia Research at Julius. Bear with us in our

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Speaker 3: studios in Singapore. Mark, look at you in our studios

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Speaker 3: at seven in the morning.

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Speaker 4: Excellent.

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Speaker 3: Well, listen, you know we've had this rally in tech

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Speaker 3: shares that has helped trim the drop of the little

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Speaker 3: mini correction that we had to only two point seven

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Speaker 3: percent now, So is the correction over?

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Speaker 1: I don't know, but I would say that the consensus

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Speaker 1: was looking for earnings growth back in the beginning of

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Speaker 1: this year for the fourth quarter of last year to

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Speaker 1: be slightly negative, and the actual earnings growth for that

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Speaker 1: quarter turned about out to be four percent, and so

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Speaker 1: going into the first quarter, the consensus was only looking

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Speaker 1: for about a three percent earnings growth and I could

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Speaker 1: be wrong, but I think we might be on track

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Speaker 1: to be close to double that because these with the

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Speaker 1: exception of Netflix and Meta, generally, these big tech companies

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Speaker 1: have been coming up with good results.

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Speaker 2: It's kind of interesting too when you consider the rates environment.

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Speaker 2: Obviously we have a higher neutral rate now with the

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Speaker 2: economy able to support earnings growth, even though rates remain elevated.

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Speaker 2: Putting aside for the moment that really kind of tepid

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Speaker 2: reading on first quarter GDP, how would you assess the

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Speaker 2: American economy right now? Do you think it's pretty strong?

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Speaker 3: Well?

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Speaker 1: I don't think we can put that first quarter GDP aside,

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Speaker 1: actually because it was an important number, and if you

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Speaker 1: exclude inventories and exports, which are volatile series, the number

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Speaker 1: would have been two point eight percent. So I think

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Speaker 1: the economy is strong, and I think that's the reason

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Speaker 1: why market rates are high. I would say we don't

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Speaker 1: see the ten year going back to you know, five

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Speaker 1: percent thereabouts where it got to October last year, but

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Speaker 1: I think it will stay high as long as the

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Speaker 1: economy is running hot. And we're looking for the ten

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Speaker 1: year at about four point five percent in three months,

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Speaker 1: which definitely offers competition for stocks The only thing I

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Speaker 1: would say is just thinking back to the nineteen nineties,

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Speaker 1: the ten year yield was always over five percent, and

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Speaker 1: the stock market managed just fine. Not everybody wants to

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Speaker 1: own bonds.

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Speaker 3: Yeah, we're back to the old normal in a sense.

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Speaker 3: But you know, if growth remains reasonably strong, doesn't have

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Speaker 3: to be very strong in the US, but reasonably strong.

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Speaker 3: It seems that, you know, the companies are doing their

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Speaker 3: thing and it's helping us offset these higher rates in

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Speaker 3: that Now. In terms of China, because we had that

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Speaker 3: pretty solid GDP, Bloomberg Economics is raising its forecast on

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Speaker 3: China's growth for this year, but it still sees China's

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Speaker 3: missing the target five percent, but it has raised it.

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Speaker 3: It sees a lot of aggressive government investment mark and

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Speaker 3: it says, you know that that could catalyze some sort

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Speaker 3: of stronger recovery. It's not jumping up and down, but

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Speaker 3: it looks like the environment is sort of okay in

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Speaker 3: China at the moment. I note that you are tactically bullish.

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Speaker 1: Why. One of the reasons is precisely what you just said, Brian,

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Speaker 1: that the economy is either in my opinion, slowly troughing

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Speaker 1: or beginning to rise. I know there were a few

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Speaker 1: weak numbers for March, like retail sales, but there were

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Speaker 1: other numbers that were strong, like fixed asset investment. And

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Speaker 1: to my mind, the most important thing is what's going

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Speaker 1: on the property market, and what I've noticed there is

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Speaker 1: transaction volumes are rising, and price discovery between buyers and

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Speaker 1: sellers usually signals that prices are finding some kind of equilibrium.

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Speaker 1: So property is the largest asset of Chinese people. If

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Speaker 1: the price stops falling, it will be a great boost

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Speaker 1: to sentiment. And yes, we are tactically bullish on that market.

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Speaker 1: It is up fifteen percent from the low in late January,

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Speaker 1: it's still down forty percent from its peak in twenty

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Speaker 1: twenty one. It's a very inexpensive market, hangsaying on eight

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Speaker 1: times versus the long term average of eleven times, and

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Speaker 1: every negative has a positive. And in the case of

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Speaker 1: the Chinese stock market today, all the problems that the

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Speaker 1: China has gone through over the last few years, one

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Speaker 1: of the positives you can take out of that is

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Speaker 1: it's forced state owned enterprises to become better run, and

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Speaker 1: so also the regulators are borrowing a page from Japan's book.

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Speaker 1: But whatever is happening. Companies are becoming more efficient, they're

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Speaker 1: increasing dividends and buybacks, and that's not something I think

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Speaker 1: that's imbued in prices currently.

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Speaker 2: A big question though, in my mind, is the persistent

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Speaker 2: weakness of the Chinese currency right now offshore we're just

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Speaker 2: under on the strong side of seven spot two seven

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Speaker 2: against the greenback. Yes, much of this is a strong

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Speaker 2: dollar story. But will China continue to benefit from a

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Speaker 2: cheap currency or a less expensive currency as a way

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Speaker 2: of sustaining the export driven part of the economy.

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Speaker 1: It's certainly something that is being talked a lot about

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Speaker 1: in the context of the Japanese yen. And you can

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Speaker 1: China keep the renmn b where it is where when

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Speaker 1: the yen is is where it is, I think they

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Speaker 1: will not allow it to go down a lot more,

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Speaker 1: or at least if it goes down in a very

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Speaker 1: slow and orderly fashion. And the reason I say that

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Speaker 1: is because they are worried about capital outflow. And as

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Speaker 1: much as they sealed, they've sealed all the you know,

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Speaker 1: the doors as much as they can. If you remember

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Speaker 1: twenty fifteen when there was a mini devaluation and the

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Speaker 1: panic that caused. I don't think they want to repeat

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Speaker 1: of that. So so you could look at you know,

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Speaker 1: when a currency goes down in one of two ways.

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Speaker 1: Either you could say, oh, it's already gone down, I

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Speaker 1: won't sell anymore, it's already cheap enough, or you could

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Speaker 1: or you could say, oh it's gone down. That means

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Speaker 1: it's going to go down even more, and you panic

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Speaker 1: and you just get out whatever way you can. I

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Speaker 1: think most Chinese would be kind of the second way.

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Speaker 1: They would panic, and I think the government knows that

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Speaker 1: and for that reason it won't let the currency go down.

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Speaker 3: Well, that kind of leads me into a question I

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Speaker 3: put to Mark Luceini earlier about how with the FED tight,

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Speaker 3: Asian central banks will likely tighten policy to protect their currencies,

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Speaker 3: which on it's a little different with Japan, it's a

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Speaker 3: little bit different. But for other Asian markets that might

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Speaker 3: not be good for Asian equities, but it might be

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Speaker 3: pretty good for local currency bonds.

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Speaker 4: Do you see it that way, and if so, what

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Speaker 4: do you like?

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Speaker 1: Well, we like dollar denominated Asian investment grade bonds and

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Speaker 1: the reason is that they have a higher yield than

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Speaker 1: their US counterparts. Yield on average for our portfolios, I

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Speaker 1: think is about six point eight percent now, and the

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Speaker 1: duration is about half what the US investment grade bonds are.

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Speaker 1: So US investment grade bonds have an average duration of

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Speaker 1: around eight years seven or eight years, and here in

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Speaker 1: Asia it's more like four and a half.

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Speaker 2: Mark. Before we let you go, you mentioned Japan earlier,

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Speaker 2: and i'd like to get your views on what's happening,

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Speaker 2: not just with BOJ but whether or not there continues

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Speaker 2: to be opportunity in the equity market.

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Speaker 1: Yes, I think there is, and the currencies related to that.

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Speaker 1: I must say, the way the yen has been dropping

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Speaker 1: has to be a concern to the authorities, but I

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Speaker 1: think the overall direction is probably lower. It makes Japan

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Speaker 1: extremely competitive. For example, minimum wage in Japan, which is

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Speaker 1: eight hundred yen is five US dollars. That's less than

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Speaker 1: a third of California. So I think that it's become

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Speaker 1: a very competitive economy. And they have the best brand

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Speaker 1: names in Asia, and many of those companies that have

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Speaker 1: good brand names have returns on equity in the high

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Speaker 1: teens or above. I do believe it is a market

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Speaker 1: that will continue to do well.

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Speaker 3: Yes, yeah, And in twenty seconds, Korea maybe doing some

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Speaker 3: of the same things with governance.

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Speaker 1: Yes they are. They don't have nearly the same kind

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Speaker 1: of returns on equity or brand names that the Japanese do.

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Speaker 1: Must be, it's not a market. We spend a lot

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Speaker 1: of time looking at it because our clients don't have

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Speaker 1: single stock access.

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Speaker 3: Yeah, all right, well, thank you very much, Mark, I

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Speaker 3: jumped you to the head of the line, and thank

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Speaker 3: you very much for joining us here live on the program.

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Speaker 3: Mark Matthews, Managing director and head of Asia Research at

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Speaker 3: Julius Bear. Elon Musk making a surprise trip to China.

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Speaker 3: He's trying to get approval for driver assistant software in

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Speaker 3: the country, something that a lot of analysts think might

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Speaker 3: help the carmakers decline in revenues, and he immediately met

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Speaker 3: with Premier Lee Chiang. We bring in Danny Lee now

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Speaker 3: Bloomberg Asia Transport reporter. There is some connection with Lee

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Speaker 3: Chiang in that when he was the Chinese Communist Party

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Speaker 3: Secretary for Shanghai, he helped Tesla set up that plant

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Speaker 3: there in Shanghai. Is this a close relationship.

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Speaker 5: Yeah, absolutely, This is a meeting of two allies. And

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Speaker 5: of course that Elil Musk, who is stay fairly friendly

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Speaker 5: with China, and so this meeting is so important for

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Speaker 5: Tesla because of the fundamental value of the idea that

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Speaker 5: his initiative on rolling out of so called full self

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Speaker 5: driving will actually help the company and China's critical part

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Speaker 5: of that market, where in terms of electric vehicles, this

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Speaker 5: is you know, electric vehicles being a pop steller. Everyone

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Speaker 5: likes to tech if your drive, So therefore this could

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Speaker 5: be a potential gold mine. But those are regulatory hurdles

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Speaker 5: that EEL must really need to have become So a

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Speaker 5: meeting with Premier league challenge. Yeah, very very important.

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Speaker 2: Absolutely, Danny. Let's take a closer look at what you're

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Speaker 2: referring to, I mean, the sensitivities around some of the

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Speaker 2: cameras that are part of the full self driving system.

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Speaker 2: That's a big objection I would imagine on the part

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Speaker 2: of Beijing, right.

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Speaker 5: Yes, that and also just fundamentally dated because as we've

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Speaker 5: known for some time now, China is cracking down on

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Speaker 5: data data showing where the data leaves China and goes

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Speaker 5: to and so you know going data from the Chinese

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Speaker 5: United States for example, is clearly oft sensitive issue. So

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Speaker 5: this meeting go from eln Musk and then this meeting,

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Speaker 5: maybe we'll see some movement on all self driving in

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Speaker 5: China in the near future, because that would be the

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Speaker 5: clear object and outcome of this visit in particular. And

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Speaker 5: so you know, with ETL. Musk visiting China, especially only

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Speaker 5: a week after deferring his India trip, it clearly shows

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Speaker 5: his priorities, particularly after recent Turmo for Tesla's.

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Speaker 3: It's pretty interesting how mister Musk operates because we thought

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Speaker 3: that he might turn up at the auto show China

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Speaker 3: instead all of a sudden he was going to go

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Speaker 3: to India, and then the India trip got postponed and

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Speaker 3: then you know, right away he turns up back in China,

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Speaker 3: so that that's pretty interesting. And also it's interesting that

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Speaker 3: Chinese policymakers, if you look at the report and CCTV,

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Speaker 3: they're talking about how, you know, this shows how it

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Speaker 3: should should work between US China relations.

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Speaker 4: What do you make of the politics of this?

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Speaker 5: Yeah, I mean it's an extraordinary time, particularly just coming

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Speaker 5: hot off the heels of the US looking to get TikTok,

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Speaker 5: the vestors from Byke Dance, and they have this separation.

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Speaker 5: And so with someone like your Musk backing the likes

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Speaker 5: of TikTok staying with doing Chinese hands for example, Clearly

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Speaker 5: Mask has his stare out and that is kind of

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Speaker 5: mark out of how he wants to pursue business because

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Speaker 5: clearly anything that China does in the US have and

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Speaker 5: disagreements if delay the risks, particularly given China is Tessa's

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Speaker 5: biggest foreign market.

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Speaker 2: We were talking about Tesla's full self driving and the

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Speaker 2: hurdles that the company is likely going to encounter in

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Speaker 2: the China market. But when you get a look at

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Speaker 2: what's happening right now with the Chinese manufacturers and how

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Speaker 2: they're using advanced driver assistance systems, is that becoming a

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Speaker 2: lot more common right now.

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Speaker 5: Or Tesla it needs to maintain some kind of competitive

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Speaker 5: a bunch on the technology something that Chinese drivers discerning.

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Speaker 5: Chinese drivers want more technology and particularly at.

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Speaker 6: At less costs.

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Speaker 5: So but Tesla this is critical because it's been trumpting

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Speaker 5: its own version of effectively this assisted or ton the

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Speaker 5: style driving. Other Chinese makers or bbs have this in

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Speaker 5: trial at the moment, and it's tested to kind of

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Speaker 5: catch up in a market like China is a big

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Speaker 5: playground for it to test and potentially deliver some of

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Speaker 5: the results and analysis of that globally.

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Speaker 3: Yeah, all right, Danny, thank you so much for joining

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Speaker 3: us here. Danny Lee Bloomberg Asia Transport reporter. Joining us

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Speaker 3: now on the program is Dave dagl Cio of Twin

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Speaker 3: Focus with us live here on the program. So Dave,

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Speaker 3: nice to have you with us. It's good to have

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Speaker 3: a big, sort of lofty discussion about markets. You know,

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Speaker 3: at the beginning of the week, we have slightly different

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Speaker 3: theories out there. I mean, why we had this risk

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Speaker 3: off period, and part of that is fed hawkishness and

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Speaker 3: tighter and sticky inflation, also tighter liquidity, high valuations also

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Speaker 3: in some people's minds, and then of course geopolitics. But

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Speaker 3: it seems pretty clear that for the reversal, the big

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Speaker 3: rally that we got at the end of the week,

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Speaker 3: that came down two earnings. So my question to you

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Speaker 3: is is the die cast on this being a strong

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Speaker 3: earning season or you know, will it be a little

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Speaker 3: bit more of some good some bad.

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Speaker 7: The market is up. We had one of the greatest

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Speaker 7: non recessionary rallies of all time. I think a pause

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Speaker 7: made sense. We had, you know, he had some play

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Speaker 7: expectations move up a little bit. That's not good news obviously, geopolitics.

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Speaker 6: Going the wrong way.

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Speaker 7: What is working in the favor though, of earnings is that,

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Speaker 7: you know, leading economic indicators are stabilizing here.

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Speaker 6: This is a surprise to the market. So I think

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Speaker 6: it does matter, and I do think on average the

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Speaker 6: earning vestments will be up into the right. I worry

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Speaker 6: more about the second half of the year.

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Speaker 7: At some of the commodity pressers and some of the

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Speaker 7: unheedged positions begin to roll in.

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Speaker 2: Brian mentioned sticky inflation, and at this point it's unclear

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Speaker 2: as to whether or not we're going to even get

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Speaker 2: any rate cuts this year from the Fed. Are you

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Speaker 2: concerned about that, that pivot that the FED has had

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Speaker 2: to engineer here, tightening at least expectations for rate cuts.

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Speaker 7: Yeah, boy, I think the FED is you know, like

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Speaker 7: my straight a student kid that just got two f's.

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Speaker 5: On his test.

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Speaker 7: Yeah, you know, so ten fifteen years of straight as.

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Speaker 7: You give them a hall path on the first one,

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Speaker 7: but the second one you get worried. And the reason

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Speaker 7: I'm worried about the Central Bank is their goal for

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Speaker 7: you know, twenty five ive years has been fighting inflation.

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Speaker 7: And if you had told me, the market would be

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Speaker 7: a couple percent from its all time high. Leading economic

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Speaker 7: indicators are accelerating. The non farm payroll prints were benign,

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Speaker 7: unemployment was low.

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Speaker 6: I would never think we're going to have rate cuts.

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Speaker 7: And so the entire time I've been suspicious of this,

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Speaker 7: I'm glad to see the FED is getting more hawkish.

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Speaker 6: I think that's their role and I think that's what

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Speaker 6: they should do.

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Speaker 4: Well.

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Speaker 3: Things change. I mean, we did have that very long

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Speaker 3: period of near zero interest rates which kind of cost everybody,

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Speaker 3: I suppose by surprise, back from starting around two thousand

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Speaker 3: and seven and eight, and now you have a different paradigm.

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Speaker 3: I mean, if we're stuck now in the high for

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Speaker 3: longer theme, if this is the new normal or the

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Speaker 3: old normal that's come back, do you expect the FED

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Speaker 3: to not only not re cut interest rates for the

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Speaker 3: rest of this year, but maybe even alter the pace

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Speaker 3: of balance sheet reduction.

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Speaker 6: The FED.

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Speaker 7: The Fed's job is more and more of a type

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Speaker 7: rope than it used to be, and what causes them

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Speaker 7: on to the narrow type rope is clearly inflation expectations

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Speaker 7: and the volatility around that. If I was a central banker,

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Speaker 7: particularly the United States, I'd be very worried about what's

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Speaker 7: happening in the five year forward tips market, and that's

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Speaker 7: a good inflation you know barometer, and the US is

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Speaker 7: discounting higher inflation rates, or at least the bond traders.

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Speaker 4: Are so well, that's my point. They could they speed up?

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Speaker 4: Could they? Also? My point is could they also speed.

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Speaker 3: Up the pace of balance sheet reduction if it's that bad,

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Speaker 3: If inflation's this high and is this sticky?

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Speaker 7: I think everything's up up? I would I would? You know,

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Speaker 7: they haven't asked me. I mean I think the you know,

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Speaker 7: the broader question that I would be asking today is

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Speaker 7: you know, you need to give yourself some room so

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Speaker 7: that if you do have an economic problem, you need

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Speaker 7: to cut. And so the policy here of just letting

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Speaker 7: rates list a little bit, even having a little tightening

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Speaker 7: of your balance sheet allows you to respond if we

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Speaker 7: were to have other prices going forward.

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Speaker 6: So just from a margin and.

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Speaker 7: Safety, I'd love to see the FED, the bat size

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Speaker 7: of the balance sheet, etc.

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Speaker 6: Get a little more hawk So.

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Speaker 2: Much of the conversation we've been having here is around

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Speaker 2: artificial intelligence, especially when you look at what broke last

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Speaker 2: week in terms of Microsoft and Alphabet. We've got some

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Speaker 2: earnings this week that may be able to clarify this

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Speaker 2: theme a little more. AMD, which is one of the

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Speaker 2: leading chip makers. I don't know that there is greatly

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Speaker 2: exposed to this space as let's say, a company like Nvidia, clearly,

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Speaker 2: but we're also going to be hearing from Apple. How

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Speaker 2: are you feeling generally about, you know, this theme of

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Speaker 2: artificial intelligence. I mean, we've seen such a dramatic run

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Speaker 2: over the course of the last several months. Is this

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Speaker 2: something that's still has legs? Do you think.

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Speaker 7: I think it has legs and we've never seen anything

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Speaker 7: like this. I want to just you know, go back

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Speaker 7: a year. The estimates were plus or minus you know,

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Speaker 7: you know, twenty billion dollars for Nvidia on the out year.

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Speaker 7: They've now increased by thirty two billion dollars. We've never

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Speaker 7: seen anything like this. The demand frend, the early poll

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Speaker 7: for the capital spending on the front end is truly staggering,

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Speaker 7: and it does look like, you know, Google and Microsoft

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Speaker 7: are going to be early winners from this. The other

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Speaker 7: interesting thing is if if you had just told me

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Speaker 7: what the earnings estimates would do for Microsoft and Nvidia

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Speaker 7: in particular, I wouldn't be surprised where the docks are,

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Speaker 7: so it doesn't look to us that they're either overvalued

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Speaker 7: or undervalued. And I think all that matters is the

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Speaker 7: next direction of earnings. I do think though, that on

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Speaker 7: the margin, investors are looking for acceleration here. This is

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Speaker 7: why SMCI came in a little bit when investors became

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Speaker 7: suspicious they would not accelerate earnings and revenue this quarter

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Speaker 7: with a delayed response to their press release. So, yeah,

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Speaker 7: we're gonna be watching these We're looking for acceleration. If

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Speaker 7: we don't see it, that is concerning.

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Speaker 3: So it's interesting to hear you talk about your fears

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Speaker 3: of higher inflation, yet you know, pretty excited about about AI,

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Speaker 3: and AI is fueling the market. So that's why I

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Speaker 3: opened up with that first question, which is, yeah, we're

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Speaker 3: worrying about inflation, but a look bit the market did

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Speaker 3: on the strength of the earnings. So do you think that,

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Speaker 3: you know, there's a lot of good opportunities here even

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Speaker 3: though the cost is up because inflation is high and

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Speaker 3: rates are high, but that the potential gains in revenue

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Speaker 3: are strong enough to offset that.

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Speaker 7: We're watching, you know, we're watching what we have seen

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Speaker 7: so far, and we got good evidence of this clearly

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Speaker 7: in the last twenty four months, and then we have

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Speaker 7: history over the last you know, hundred years or so,

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Speaker 7: is it?

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Speaker 6: Equities and earnings in particular do pretty good.

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Speaker 7: In inflationary environments. The kneesier can be detrimental to earn

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Speaker 7: the multiple in the short run, but in general they

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Speaker 7: do pretty well. What we've seen so far this quarter

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Speaker 7: is in general companies are powering through slightly higher wage

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Speaker 7: rates and things like that, so our outlook for equities

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Speaker 7: is constructive.

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Speaker 6: We're still cautious in spots.

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Speaker 7: We've advised clients though that to have and out of

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Speaker 7: the money call auction protection in commodities, and we've begun

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Speaker 7: to look there they begin to perform better.

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Speaker 6: The equities in particular are still cheap.

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Speaker 7: Relative to their nav or the long run casital potential

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Speaker 7: a current spot, so we've spent more time there.

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Speaker 2: Dave, how are you feeling about fixed income right now?

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Speaker 2: In a fairly balanced portfolio? What should that ratio be

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Speaker 2: fixed income versus equities?

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Speaker 6: Yeah, on the low side of history. How's that?

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Speaker 5: You know?

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Speaker 7: One of the famous lines from Warren Buffett is what

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Speaker 7: separates good from great investors is the ability to say no.

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Speaker 7: And what we've been talking to clients about is long

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Speaker 7: duration treasuries, investment grade bond, I yield bonds, even a

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Speaker 7: lot of private credit look pretty extended to us unless

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Speaker 7: we have nirvana, which is, you know, getting back into

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Speaker 7: where we were over the last fifteen years, which is

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Speaker 7: no inflationary pressure, is in very low rate. Anything other

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Speaker 7: than that, I think you lose money in bonds, particularly

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Speaker 7: as you stretch out duration.

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Speaker 3: Curious what you might think about Asian markets briefly in

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Speaker 3: twenty seconds or so.

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Speaker 7: Yeah, you know when you're sitting at the Taylor Swift

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Speaker 7: concert and you're waiting for that uber to come, and

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Speaker 7: you just don't know when it's going to come, but

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Speaker 7: it's going to come.

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Speaker 6: I think the Chinese market looks like an uber.

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Speaker 7: After a conference, and it's going to come. Those are

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Speaker 7: good companies there are at very reasonable prices. We're intrigued,

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Speaker 7: we just don't know when.

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Speaker 3: Yeah, yeah, interesting comments, great session today. Dave enjoyed chatting

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Speaker 3: with you, Dave. Dagnio There cio it twin focus.

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Speaker 2: This has been the Bloomberg Daybreak Asia podcast, bringing you

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