WEBVTT - Sam Le Cornu on the Markets (Radio)

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<v Speaker 1>Hong Kong is pushing for this full reopening, whether or

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<v Speaker 1>not that last. Let's discuss all that with Sam Lacorner,

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<v Speaker 1>co founder and CEO of Stonehornet Global Partners with us

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<v Speaker 1>in our Hong Kong studio. So Sam, a lot to

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<v Speaker 1>discuss on the global front, but let's start with Hong Kong.

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<v Speaker 1>Because the dismantling of hotel quarantine business is now pushing

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<v Speaker 1>for a full reopening. How much does this thing? How

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<v Speaker 1>much does this change things for Hong Kong? Yeah, good morning.

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<v Speaker 1>It's one of those things where it's definitely a step

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<v Speaker 1>in the right direction. Um. I still think that there

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<v Speaker 1>is the communication and what's required for a full unconditional reopening.

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<v Speaker 1>Just having discussions over the weekend and people come in

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<v Speaker 1>to Hong Kong in the near future. Um, there's still

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<v Speaker 1>things that were required to be done. So I think

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<v Speaker 1>that COVID is essentially obviously coming down here in Hong Kong.

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<v Speaker 1>You can see that with the statistics. But the economy

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<v Speaker 1>has been hurt, has been hurt in China as well. UM,

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<v Speaker 1>and a whole reopening, I think we'll remove some of

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<v Speaker 1>the anxiety that's caused with the lockdowns that have been

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<v Speaker 1>in place when it comes to mainland China stock investors

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<v Speaker 1>very much looking to capitalize on any potential policy shifts

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<v Speaker 1>at the Communist Party Congress next month. Do you think

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<v Speaker 1>it is likely we will see a pivot away from

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<v Speaker 1>dynamic zero and of course how much that changes the

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<v Speaker 1>outlook for China's economy. Yeah. The twentie Party Congress is

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<v Speaker 1>the most important media in China for the last decade.

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<v Speaker 1>It is so fundamentally important for the politic borrow to

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<v Speaker 1>get the right people in. And there's an arm wrestle

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<v Speaker 1>within the Communist Party at the moment in terms of

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<v Speaker 1>opening up and those who are sort of leaning towards

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<v Speaker 1>the historical sort of ideologies as well. So something like

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<v Speaker 1>COVID has been devastating to the to the underlying macro

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<v Speaker 1>economy and lifting it is something which they need to prioritize,

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<v Speaker 1>and in fact, economic policy needs to be prioritized over

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<v Speaker 1>sort of political sort of internal issues that they're facing

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<v Speaker 1>at the moment. So this, this this meeting cannot come

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<v Speaker 1>too soon. It's such a fundamentally important one. And then

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<v Speaker 1>they really have to get on with it because the

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<v Speaker 1>economy is faltering. It's not just the COVID policy. It's

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<v Speaker 1>a proper to crisis as well. Where do you look for,

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<v Speaker 1>I guess, kind of exposure to stocks that might either

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<v Speaker 1>benefit from the reopening or some support for the policy

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<v Speaker 1>of the property sector. It's a really good question. The

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<v Speaker 1>property sector is something which has been induced. So they

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<v Speaker 1>have the three Red Lines policy trying to get property

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<v Speaker 1>developers to de leverage starting from about three years ago.

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<v Speaker 1>So you'd expect them to have a firm grip on this,

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<v Speaker 1>but I think they've underestimated the issue. And the issue,

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<v Speaker 1>I say is consumer confidence. The policies that China is

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<v Speaker 1>putting in place a really supply side there. There's plenty

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<v Speaker 1>of abundant liquidity. They're lowing the various loan prim rates

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<v Speaker 1>and mini term lending facilities, so adding the liquidity and

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<v Speaker 1>cutting cutting interest rates, but people still aren't going out

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<v Speaker 1>and spending, and they're certainly not purchasing property at this point.

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<v Speaker 1>And that's a really issue because the oversupply is something

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<v Speaker 1>like about two million to two million rather units of

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<v Speaker 1>of unfinished inventory, and unless that clears, you're not going

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<v Speaker 1>to have people come out because they're worried that the

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<v Speaker 1>property price is going to continue to decline. So it's

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<v Speaker 1>a really tricky one at the moment for China. And

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<v Speaker 1>do we continue to see weakness in say the MSCR

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<v Speaker 1>China Index, which is down about quarter versus a loss

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<v Speaker 1>of less than five percent for global stocks. Yeah, it's

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<v Speaker 1>fundamental valuations are the most important thing. And you know

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<v Speaker 1>with the Hangsing Index at a round about eight een thousand,

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<v Speaker 1>and it's it's just one of those things where you're

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<v Speaker 1>at sort of two thousand and eleven lows and you

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<v Speaker 1>can pick up these tech names and Chinese sort of

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<v Speaker 1>internet names at record low valuations. So that's the most

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<v Speaker 1>important thing is to try to put everything into the perspective.

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<v Speaker 1>Obviously there's a lot of negative sentiment, there's a lot

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<v Speaker 1>of issues in regards to consumer confidence. But we're seeing

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<v Speaker 1>that these valuations are almost at record lows, and that's

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<v Speaker 1>what we're focusing our attention on. A lot of the

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<v Speaker 1>fair hikes. Momentum is really boosting dollar as we know.

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<v Speaker 1>Is there a concern that we could see a reprise

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<v Speaker 1>of financial crisis level stress for Asian currencies? Yeah, it's

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<v Speaker 1>a great question. Um, we've been looking through that and

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<v Speaker 1>Asia in itself, there are the vast majority of m

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<v Speaker 1>c I Asia extrapan in current account surpluses, so it's

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<v Speaker 1>not essentially the same as it was at seven. And

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<v Speaker 1>also if you look at the excess foreign debts, so

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<v Speaker 1>US denominated debt as much lower as well. But whenever

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<v Speaker 1>you have a situation like this, where there's a bit

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<v Speaker 1>of a crisis and confidence, you will see a rush

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<v Speaker 1>to quality, and that's the US dollar, you know, the

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<v Speaker 1>international trade exchange rates, so there are pockets of concern.

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<v Speaker 1>The rupee in India has depreciated to all timeloads. You've

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<v Speaker 1>got some other markets which are more commodity based, like

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<v Speaker 1>in Indonesia, but they are running a slight current account surplus,

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<v Speaker 1>and other countries which are benefiting from the manufacturing sectors,

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<v Speaker 1>such as the Vietnamese Dong, is holding up relatively well.

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<v Speaker 1>So across Asia, you'd expect emerging markets to have a

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<v Speaker 1>big sell off in currencies. We're seeing that, but not

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<v Speaker 1>to the extent that you'd expect. You say, global tightening

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<v Speaker 1>is tough, but it is necessary. Do you agree with

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<v Speaker 1>what Raphael Bostick told CBS that the US economy still

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<v Speaker 1>is strong because of that strong labor market. And I

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<v Speaker 1>guess to that point, how much of a downturn could

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<v Speaker 1>we see. I think it's a little bit more than that.

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<v Speaker 1>I think the the US market is strong because there's confidence,

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<v Speaker 1>and that confidence comes because people are happy to have

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<v Speaker 1>their capital there. Um, that's where China is really failing.

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<v Speaker 1>If anything. I think the US has underestimated China for

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<v Speaker 1>for a period of time, and now China's underestimated the US.

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<v Speaker 1>And what you have is a real disruption in that confidence.

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<v Speaker 1>So the US market will continue to be strong. They're

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<v Speaker 1>bringing jobs home. Obviously the inflation effect is an impact,

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<v Speaker 1>but long term, I think you'll see more people happy

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<v Speaker 1>to do business in the US, and the US I

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<v Speaker 1>think are winning over these sort of supplied chain constraints

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<v Speaker 1>and disruptions that are occurring through tariff and protectionism, et cetera.

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<v Speaker 1>These policies are essentially working and their weakening China. So

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<v Speaker 1>we're we wait and look to see what concessions China

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<v Speaker 1>will make and what the new era of China will

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<v Speaker 1>look like. So perhaps a bigger global headwind then is

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<v Speaker 1>the energy crisis, and of course what we've been seeing

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<v Speaker 1>in the UK as well. How much of a of

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<v Speaker 1>a reaction could we see from from what we saw

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<v Speaker 1>in the pound and these tax cuts the implications more

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<v Speaker 1>globally there. Yeah, so I think the supply issues are

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<v Speaker 1>going to continue. Um, you know, we still need a

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<v Speaker 1>lot more money spent renewable energy. China's got their own

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<v Speaker 1>policies essentially they look to do like the new goals

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<v Speaker 1>and new measures and the national determined contributions and and

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<v Speaker 1>favoring solar is their big area. Um. But I just

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<v Speaker 1>feel that right now that the China has the economy

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<v Speaker 1>has so many other issues that if they're not prioritizing

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<v Speaker 1>these things, um, and over time, you know, um, we'll

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<v Speaker 1>see what happens. The the issue with the fossil fuels,

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<v Speaker 1>so you look at oil, gas, coal win particular, which

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<v Speaker 1>is used in I p p s have all gone

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<v Speaker 1>up significantly, but now are starting to drop off a

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<v Speaker 1>little bit. So we'll see where they settle. And obviously

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<v Speaker 1>what's happening in the Europe is a big issue on

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<v Speaker 1>these underlying commodities. So are you of the class that

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<v Speaker 1>is granting more momentum that the school of thought? I

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<v Speaker 1>should say that we should be looking now at cuts

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<v Speaker 1>to three growth forecast for China as well. I mean,

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<v Speaker 1>forget two which we know is not going to meet

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<v Speaker 1>anywhere near their growth target three also look very shaky.

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<v Speaker 1>It depends what they do after the Congress meeting. So

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<v Speaker 1>it really depends on what policies they have, on what

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<v Speaker 1>their priority is as well. So they need to focus

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<v Speaker 1>on economic policy right now. China is at a massive

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<v Speaker 1>crossroads and they have the control to make the right decisions.

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<v Speaker 1>Um And they need to obviously see and and work

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<v Speaker 1>out where do they sit in this new world aura

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<v Speaker 1>order that they were the export nation of the world.

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<v Speaker 1>Are they entered the w t O in two thousand

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<v Speaker 1>and one, but now they're moving up the supply chain

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<v Speaker 1>and putting out sophisticated capital goods. What did look like

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<v Speaker 1>in the future and what policies will help them in

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<v Speaker 1>an export nation? Um So it really depends, like I've

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<v Speaker 1>never seen it, this, this sort of like a two

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<v Speaker 1>way Yeah, alright, Sam, always a pleasure. Thank you. Sam

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<v Speaker 1>Lacanu is co founder and ce I O of Stonehorn

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<v Speaker 1>Global Partners with us in our Hong Kong studio here

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<v Speaker 1>on Bloomberg Daybreak Asia