Speaker 1: Hong Kong is pushing for this full reopening, whether or
Speaker 1: not that last. Let's discuss all that with Sam Lacorner,
Speaker 1: co founder and CEO of Stonehornet Global Partners with us
Speaker 1: in our Hong Kong studio. So Sam, a lot to
Speaker 1: discuss on the global front, but let's start with Hong Kong.
Speaker 1: Because the dismantling of hotel quarantine business is now pushing
Speaker 1: for a full reopening. How much does this thing? How
Speaker 1: much does this change things for Hong Kong? Yeah, good morning.
Speaker 1: It's one of those things where it's definitely a step
Speaker 1: in the right direction. Um. I still think that there
Speaker 1: is the communication and what's required for a full unconditional reopening.
Speaker 1: Just having discussions over the weekend and people come in
Speaker 1: to Hong Kong in the near future. Um, there's still
Speaker 1: things that were required to be done. So I think
Speaker 1: that COVID is essentially obviously coming down here in Hong Kong.
Speaker 1: You can see that with the statistics. But the economy
Speaker 1: has been hurt, has been hurt in China as well. UM,
Speaker 1: and a whole reopening, I think we'll remove some of
Speaker 1: the anxiety that's caused with the lockdowns that have been
Speaker 1: in place when it comes to mainland China stock investors
Speaker 1: very much looking to capitalize on any potential policy shifts
Speaker 1: at the Communist Party Congress next month. Do you think
Speaker 1: it is likely we will see a pivot away from
Speaker 1: dynamic zero and of course how much that changes the
Speaker 1: outlook for China's economy. Yeah. The twentie Party Congress is
Speaker 1: the most important media in China for the last decade.
Speaker 1: It is so fundamentally important for the politic borrow to
Speaker 1: get the right people in. And there's an arm wrestle
Speaker 1: within the Communist Party at the moment in terms of
Speaker 1: opening up and those who are sort of leaning towards
Speaker 1: the historical sort of ideologies as well. So something like
Speaker 1: COVID has been devastating to the to the underlying macro
Speaker 1: economy and lifting it is something which they need to prioritize,
Speaker 1: and in fact, economic policy needs to be prioritized over
Speaker 1: sort of political sort of internal issues that they're facing
Speaker 1: at the moment. So this, this this meeting cannot come
Speaker 1: too soon. It's such a fundamentally important one. And then
Speaker 1: they really have to get on with it because the
Speaker 1: economy is faltering. It's not just the COVID policy. It's
Speaker 1: a proper to crisis as well. Where do you look for,
Speaker 1: I guess, kind of exposure to stocks that might either
Speaker 1: benefit from the reopening or some support for the policy
Speaker 1: of the property sector. It's a really good question. The
Speaker 1: property sector is something which has been induced. So they
Speaker 1: have the three Red Lines policy trying to get property
Speaker 1: developers to de leverage starting from about three years ago.
Speaker 1: So you'd expect them to have a firm grip on this,
Speaker 1: but I think they've underestimated the issue. And the issue,
Speaker 1: I say is consumer confidence. The policies that China is
Speaker 1: putting in place a really supply side there. There's plenty
Speaker 1: of abundant liquidity. They're lowing the various loan prim rates
Speaker 1: and mini term lending facilities, so adding the liquidity and
Speaker 1: cutting cutting interest rates, but people still aren't going out
Speaker 1: and spending, and they're certainly not purchasing property at this point.
Speaker 1: And that's a really issue because the oversupply is something
Speaker 1: like about two million to two million rather units of
Speaker 1: of unfinished inventory, and unless that clears, you're not going
Speaker 1: to have people come out because they're worried that the
Speaker 1: property price is going to continue to decline. So it's
Speaker 1: a really tricky one at the moment for China. And
Speaker 1: do we continue to see weakness in say the MSCR
Speaker 1: China Index, which is down about quarter versus a loss
Speaker 1: of less than five percent for global stocks. Yeah, it's
Speaker 1: fundamental valuations are the most important thing. And you know
Speaker 1: with the Hangsing Index at a round about eight een thousand,
Speaker 1: and it's it's just one of those things where you're
Speaker 1: at sort of two thousand and eleven lows and you
Speaker 1: can pick up these tech names and Chinese sort of
Speaker 1: internet names at record low valuations. So that's the most
Speaker 1: important thing is to try to put everything into the perspective.
Speaker 1: Obviously there's a lot of negative sentiment, there's a lot
Speaker 1: of issues in regards to consumer confidence. But we're seeing
Speaker 1: that these valuations are almost at record lows, and that's
Speaker 1: what we're focusing our attention on. A lot of the
Speaker 1: fair hikes. Momentum is really boosting dollar as we know.
Speaker 1: Is there a concern that we could see a reprise
Speaker 1: of financial crisis level stress for Asian currencies? Yeah, it's
Speaker 1: a great question. Um, we've been looking through that and
Speaker 1: Asia in itself, there are the vast majority of m
Speaker 1: c I Asia extrapan in current account surpluses, so it's
Speaker 1: not essentially the same as it was at seven. And
Speaker 1: also if you look at the excess foreign debts, so
Speaker 1: US denominated debt as much lower as well. But whenever
Speaker 1: you have a situation like this, where there's a bit
Speaker 1: of a crisis and confidence, you will see a rush
Speaker 1: to quality, and that's the US dollar, you know, the
Speaker 1: international trade exchange rates, so there are pockets of concern.
Speaker 1: The rupee in India has depreciated to all timeloads. You've
Speaker 1: got some other markets which are more commodity based, like
Speaker 1: in Indonesia, but they are running a slight current account surplus,
Speaker 1: and other countries which are benefiting from the manufacturing sectors,
Speaker 1: such as the Vietnamese Dong, is holding up relatively well.
Speaker 1: So across Asia, you'd expect emerging markets to have a
Speaker 1: big sell off in currencies. We're seeing that, but not
Speaker 1: to the extent that you'd expect. You say, global tightening
Speaker 1: is tough, but it is necessary. Do you agree with
Speaker 1: what Raphael Bostick told CBS that the US economy still
Speaker 1: is strong because of that strong labor market. And I
Speaker 1: guess to that point, how much of a downturn could
Speaker 1: we see. I think it's a little bit more than that.
Speaker 1: I think the the US market is strong because there's confidence,
Speaker 1: and that confidence comes because people are happy to have
Speaker 1: their capital there. Um, that's where China is really failing.
Speaker 1: If anything. I think the US has underestimated China for
Speaker 1: for a period of time, and now China's underestimated the US.
Speaker 1: And what you have is a real disruption in that confidence.
Speaker 1: So the US market will continue to be strong. They're
Speaker 1: bringing jobs home. Obviously the inflation effect is an impact,
Speaker 1: but long term, I think you'll see more people happy
Speaker 1: to do business in the US, and the US I
Speaker 1: think are winning over these sort of supplied chain constraints
Speaker 1: and disruptions that are occurring through tariff and protectionism, et cetera.
Speaker 1: These policies are essentially working and their weakening China. So
Speaker 1: we're we wait and look to see what concessions China
Speaker 1: will make and what the new era of China will
Speaker 1: look like. So perhaps a bigger global headwind then is
Speaker 1: the energy crisis, and of course what we've been seeing
Speaker 1: in the UK as well. How much of a of
Speaker 1: a reaction could we see from from what we saw
Speaker 1: in the pound and these tax cuts the implications more
Speaker 1: globally there. Yeah, so I think the supply issues are
Speaker 1: going to continue. Um, you know, we still need a
Speaker 1: lot more money spent renewable energy. China's got their own
Speaker 1: policies essentially they look to do like the new goals
Speaker 1: and new measures and the national determined contributions and and
Speaker 1: favoring solar is their big area. Um. But I just
Speaker 1: feel that right now that the China has the economy
Speaker 1: has so many other issues that if they're not prioritizing
Speaker 1: these things, um, and over time, you know, um, we'll
Speaker 1: see what happens. The the issue with the fossil fuels,
Speaker 1: so you look at oil, gas, coal win particular, which
Speaker 1: is used in I p p s have all gone
Speaker 1: up significantly, but now are starting to drop off a
Speaker 1: little bit. So we'll see where they settle. And obviously
Speaker 1: what's happening in the Europe is a big issue on
Speaker 1: these underlying commodities. So are you of the class that
Speaker 1: is granting more momentum that the school of thought? I
Speaker 1: should say that we should be looking now at cuts
Speaker 1: to three growth forecast for China as well. I mean,
Speaker 1: forget two which we know is not going to meet
Speaker 1: anywhere near their growth target three also look very shaky.
Speaker 1: It depends what they do after the Congress meeting. So
Speaker 1: it really depends on what policies they have, on what
Speaker 1: their priority is as well. So they need to focus
Speaker 1: on economic policy right now. China is at a massive
Speaker 1: crossroads and they have the control to make the right decisions.
Speaker 1: Um And they need to obviously see and and work
Speaker 1: out where do they sit in this new world aura
Speaker 1: order that they were the export nation of the world.
Speaker 1: Are they entered the w t O in two thousand
Speaker 1: and one, but now they're moving up the supply chain
Speaker 1: and putting out sophisticated capital goods. What did look like
Speaker 1: in the future and what policies will help them in
Speaker 1: an export nation? Um So it really depends, like I've
Speaker 1: never seen it, this, this sort of like a two
Speaker 1: way Yeah, alright, Sam, always a pleasure. Thank you. Sam
Speaker 1: Lacanu is co founder and ce I O of Stonehorn
Speaker 1: Global Partners with us in our Hong Kong studio here
Speaker 1: on Bloomberg Daybreak Asia