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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. Welcome to the Daybreak

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Speaker 1: Asia podcast. I'm Doug Chrisner. The Japanese equity market is

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Speaker 1: back online after a three day weekend and the knee

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Speaker 1: k is at record high levels. Now a portion of

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Speaker 1: these gains seem to be tied to reports on Prime

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Speaker 1: Minister taka Ichi being set to call a snap lower

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Speaker 1: House election that would likely increase her ruling LDP seat count.

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Speaker 1: Joining me now for a closer look at markets in

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Speaker 1: the Asia Pacific is Bloomberg Markets Live strategist Mark Cranfield.

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Speaker 1: Mark is on the line from Singapore. Thank you so

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Speaker 1: much for being with us. Give me a sense of

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Speaker 1: what's driving the price action in Tokyo right now.

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Speaker 2: Japanese markets who are doing pretty well even before there

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Speaker 2: was talk about the Japanese election, but that really has

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Speaker 2: helped spur additional gains. They're on holiday yesterday, so that's

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Speaker 2: why you're seeing a big catch up today. But certainly

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Speaker 2: through the futures market, we saw the indications that we

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Speaker 2: were going to have a very strong start with the market.

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Speaker 2: So it looks as though Japan will probably have for

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Speaker 2: general elections in the middle of February. You can expect that,

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Speaker 2: my mister tachich using a strong position it appears in

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Speaker 2: the polls, will really reinforce spending plans, which will be

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Speaker 2: good for the Japanese economy, will further boost the equity market,

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Speaker 2: and at the same time, there won't be much of

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Speaker 2: an incentive for them to try and talk up the

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Speaker 2: Japanese yen, which is pretty weak on a global basis,

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Speaker 2: at least until the election is out of the way,

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Speaker 2: So investors in equity market will probably continue to enjoy

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Speaker 2: the benefit of a fairly weak currency while it's looking

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Speaker 2: good for stocks at the same time. So that's why

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Speaker 2: you're seeing such a good move today. And of course

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Speaker 2: in the background, there's still this ongoing tech story, particularly

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Speaker 2: AI driven, which Japan has companies who are benefiting from that,

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Speaker 2: just as they are in Korea and other parts of

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Speaker 2: a as well.

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Speaker 1: So a large stimulus package combined with perhaps less in

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Speaker 1: the way of trying to intervene in the currency market

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Speaker 1: to deal with the end weakness that you described, where

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Speaker 1: does that leave the Bank of Japan. They've got a

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Speaker 1: rate decision next week.

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Speaker 2: There is no expectation at all from people in the

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Speaker 2: financial market, so the Bank of Japan will change policy

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Speaker 2: in the near term, so it's almost a dead meeting

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Speaker 2: even before it it starts, although there will be forecasts

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Speaker 2: that the Bank of Japan will upgrade some of their

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Speaker 2: forecasts out the outlooks for the rest of the year,

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Speaker 2: which will be important, of course, especially on the inflation front,

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Speaker 2: because they've been talking about wanting to get inflation down

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Speaker 2: to two percent. It's been stubbornly high around the three

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Speaker 2: percent level, but there are signs that it's beginning to soften,

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Speaker 2: and if the Bank of Japan sounds confident that they

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Speaker 2: can get it down to the two percent level, in

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Speaker 2: a way, that's a double edged sword because they want

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Speaker 2: to raise interest rates to the neutral level, but if

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Speaker 2: inflation is starting to go down, they won't get the

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Speaker 2: support from politicians to raise rates early. So a little

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Speaker 2: bit of a problem for the Bank of Japan there,

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Speaker 2: but in the past they've usually been pretty straightforward. If

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Speaker 2: they see the chance to revise inflation lower, they will

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Speaker 2: do so. So by the time the dust are settled

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Speaker 2: on next week's Bank of Japan meeting, people will probably

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Speaker 2: think that we're still a very long way from achieving

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Speaker 2: mutual interest rates in Japan.

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Speaker 1: So the big story that we're dealing with here in

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Speaker 1: the States today key Republican lawmakers basically speaking out against

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Speaker 1: this grand jury investigation of FED. Shared J. Powell, What

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Speaker 1: have the ramifications of this investigation done to markets in

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Speaker 1: the APEC.

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Speaker 2: When we first broke yesterday. Initially there was weakness in

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Speaker 2: particularly in US assets. US dollar was a bit weaker,

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Speaker 2: so equity futures take it really on the chin, although

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Speaker 2: they recovered during New York trading, and site weakness in treasuries,

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Speaker 2: but a steepening of the curve which seems to have

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Speaker 2: stayed for the time being. What it means from global

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Speaker 2: investors they're looking at this and thinking that the Federal

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Speaker 2: Reserve decision later this month is going to be even

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Speaker 2: more difficult to care than usual. I mean, the Fed

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Speaker 2: has been pretty split if you look at the last

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Speaker 2: two decisions. Although they lowered interest rates, it was not

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Speaker 2: a unanimous vote by any means. Some people were looking

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Speaker 2: for bigger cuts, some didn't want any at all. It

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Speaker 2: looks as though we've had feder Williams today speaking out

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Speaker 2: in defense of Jerome Pound, saying that the Centia banks

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Speaker 2: should be allowed to continue regardlessly. They shouldn't be interfered

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Speaker 2: with in terms of these external factors, just get on

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Speaker 2: with their job of focusing on inflation and the job sector.

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Speaker 2: So it looks as though Federal Reserve officials are willing

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Speaker 2: to push back. That would probably mean that they're less

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Speaker 2: inclined to lower interest rates at the next meeting. So

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Speaker 2: from a market's point of view, they're not going to

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Speaker 2: get the kind of boost that they've seen from the

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Speaker 2: previous meetings. So in all, it may well backfire. If

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Speaker 2: the authorities are taking on the Federal Reserve, they may

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Speaker 2: not be helping from the Manati policy point of view.

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Speaker 1: Yeah, we heard from former New York Fed Bank President

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Speaker 1: Bill Dudley today and he was saying that Powell will

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Speaker 1: have a tough time backing for the rate cuts because

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Speaker 1: people will ask is he doing it because the economy

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Speaker 1: needs it or because President Trump wants it. So the

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Speaker 1: issue of Fed independence right now is still very much

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Speaker 1: front and center. And I'm wondering about the overall de

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Speaker 1: risking that may be taking place with respect to US assets.

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Speaker 1: Despite the fact that in the equity market today we

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Speaker 1: did have the Dow and the S and P extending

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Speaker 1: fresh records and it's.

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Speaker 2: Not just that the rest of the world is starting

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Speaker 2: to look a lot more attractive. If you look just

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Speaker 2: here in Asia, I had Korea in equities, Japanese equities,

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Speaker 2: Chinese stocks ordering extremely well. They're all identifying themselves with

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Speaker 2: positive stories at home. Some of that money is starting

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Speaker 2: to leak abroad into the Asian markets. It would do

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Speaker 2: so the same into Europe as well, so there are alternatives,

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Speaker 2: and on a relative basis, some of these markets are

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Speaker 2: cheaper than the United States as well, so global investors

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Speaker 2: have got other places to put their money. These days,

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Speaker 2: it's no longer a story. Two years ago, the story

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Speaker 2: was much clearer if you weren't in the United States

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Speaker 2: and you weren't really going to enjoy great returns. That's

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Speaker 2: not the case anymore. There are other places people can go,

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Speaker 2: and you can see some of these companies like TSMC

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Speaker 2: in Taiwan, Samsung. We're expecting very good numbers out of

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Speaker 2: the Chinese tech companies as well. So there are plenty

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Speaker 2: of other companies making very large profits, doing well in

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Speaker 2: the AI space. They can take away funds from the

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Speaker 2: United States.

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Speaker 1: So you mentioned the Chinese equity markets. We've been seeing

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Speaker 1: kind of record turnover and by many accounts I mean

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Speaker 1: continued strength in the Chinese hardware tech in particular. Is

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Speaker 1: this all related to the AI trade.

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Speaker 2: It's also because the government is getting behind it as well.

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Speaker 2: It is of course related to AI, but also because

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Speaker 2: the Chinese authorities are helping to boost lending into those

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Speaker 2: areas and they're putting their weight behind it as well.

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Speaker 2: They've shown that these are key areas for the development

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Speaker 2: of the Chinese economy, and when things are aligned in

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Speaker 2: that way in China, that usually works out pretty well.

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Speaker 2: So people won't ignore the positive signals which are coming

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Speaker 2: out from Beijing in that respect. But of course the

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Speaker 2: companies still need to show they can make money, which

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Speaker 2: for the time being they are doing so, and there's

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Speaker 2: a lot of optimism. You can see companies like Ali Baba.

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Speaker 2: The stock is performing extremely well, and this is a

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Speaker 2: company that was almost written off just a couple of

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Speaker 2: years ago.

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Speaker 1: And a lot of strength continuing in the South Korean

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Speaker 1: equity market, with the COSTPIY up by more than one

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Speaker 1: percent in the early going here today, is this a

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Speaker 1: trend that you expect to continue. Coming back to the

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Speaker 1: tech trade.

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Speaker 2: It's getting pretty rich by any measure, when you look

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Speaker 2: at the incredible performance of the cost but the chip

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Speaker 2: story in particular is still very strong. Might be hard

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Speaker 2: for international investors to be throwing new money at these

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Speaker 2: kind of levels. They'd probably like to see a bit

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Speaker 2: of a correction first, and it would probably help if

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Speaker 2: the Korean currency was a little bit stronger as well.

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Speaker 2: There hasn't been much of a turnaround there, but certainly

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Speaker 2: any kind of pullback in these markets, career would be

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Speaker 2: right near the top of the list where people want

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Speaker 2: to get back involved. Japan wouldn't be far behind either.

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Speaker 1: What are you looking at between let's say now in

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Speaker 1: the end of the week, that really has the potential

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Speaker 1: to drive a lot of the price action.

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Speaker 2: Really, the bond markets have been quite modest in their

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Speaker 2: reactions so far to this fallout from the investigation into

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Speaker 2: the Federal Reserve, but curve steepening would take a lot

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Speaker 2: of people by surprise there in other asset classes. If

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Speaker 2: it becomes more serious by the end of the week.

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Speaker 2: If if we see long term yields in the US

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Speaker 2: start to tick up quite a bit higher, that would

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Speaker 2: really spill over Japanese long end of the market's having

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Speaker 2: a pretty bad day to day. There's some local factors

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Speaker 2: for that, but where Japanese yields go, US treasuries are

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Speaker 2: often heading in the same direction, it would spill over

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Speaker 2: to Europe pretty easily. So by the end of the

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Speaker 2: week we could certainly other situation where G ten long

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Speaker 2: term yields are rising fast and equity markets won't be

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Speaker 2: able to ignore that. So really they need to get

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Speaker 2: a handle on what's happening there. If they can't get

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Speaker 2: sentiment to be improved in the bond market in the US,

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Speaker 2: it could be dangerous across asset markets.

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Speaker 1: Do you see a little bit less volatility between let's

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Speaker 1: say now in the end of the week in the

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Speaker 1: currency space, we talked about the end weakness a moment ago.

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Speaker 1: In the early Monday session in the APAC region there

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Speaker 1: was dollar weakness as well. Are things going to be

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Speaker 1: a little bit more stable here in the next two days?

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Speaker 2: Do you think it depends where the action is elsewhere?

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Speaker 2: A lot of focus of course, in the Asian time

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Speaker 2: zone there's been on precious metals, where has some incredible

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Speaker 2: action in gold and silver and platting, and people have

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Speaker 2: been spending a lot of time trading those unless on currencies,

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Speaker 2: So it's really is there something else to trade? Is

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Speaker 2: there a bigger story somewhere else, or if the bond market,

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Speaker 2: or the equity market or the precious metals have a

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Speaker 2: bigger story than the FX will certainly stay calm, but

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Speaker 2: if not attention, we'll be switched back into this. Plenty

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Speaker 2: of local stories there, whether it's the Chinese or one

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Speaker 2: the Japanese, and all of those things in their own

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Speaker 2: right and get people excited, but for the time being

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Speaker 2: there taking a second place because you've got biggest stories elsewhere.

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Speaker 1: Mark will leave it there. It's always a pleasure. Thanks

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Speaker 1: so much. Bloomberg Markets Live strategist Mark Cranfield joining from

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Speaker 1: Singapore here on the Daybreak Asia podcast. Welcome back to

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Speaker 1: the Daybreak Asia Podcast. I'm Doug Chrisner. We take you

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Speaker 1: now to Shanghai where UBS is hosting the twenty sixth

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Speaker 1: Greater China Conference, and it was there we caught up

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Speaker 1: with Sergio or Mati. He is the CEO of UBS.

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Speaker 1: Armati spoke with Bloomberg Steven Engel and the conversation began

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Speaker 1: with Ermati offering an outlook for UBS's business in China.

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Speaker 3: You know, last year was a quite important year for China.

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Speaker 4: I think that we saw a huge interest coming back

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Speaker 4: on the Chinese market.

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Speaker 3: You know, stock performance was great and we see it today.

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Speaker 4: I mean, we have almost three thousand and six hundred participants.

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Speaker 3: You go through across the.

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Speaker 4: Board from corporates, institutional clients, family offices, and you're not

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Speaker 4: coming from Also all over the world, we see some

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Speaker 4: more interest from overseas, which is indicating.

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Speaker 3: The momentum of the Chinese market.

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Speaker 4: So I think that, you know, we believe this is

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Speaker 4: going to continue the secular trend support in China in

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Speaker 4: terms of growth. An innovation in technology in biotech is

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Speaker 4: easier to stay and investors are realizing that.

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Speaker 5: So what kind of deal flow though, are you starting

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Speaker 5: to see? Is as we are starting to see China

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Speaker 5: get someone erm we talked about the stock market the

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Speaker 5: cs I three hundred of about seventeen percent last year,

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Speaker 5: so it is it's gaining some steam. But also outbound

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Speaker 5: deal flow seems to be growing quite a bit, whether

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Speaker 5: it's investing in factories in Europe or in the global South.

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Speaker 5: It seems like capital is not only coming into China

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Speaker 5: where foreign interest is obviously looking at that rebound, but

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Speaker 5: also the capital is moving abroad.

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Speaker 3: Yeah, I mean, look, you know it's a good mix

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Speaker 3: of businesses.

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Speaker 4: But you know, when you look at, for example, the

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Speaker 4: underweight of international investors to China almost half from around

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Speaker 4: two and a half percent in twenty twenty four to

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Speaker 4: one point three percent or so in twenty twenty five.

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Speaker 3: So this is a significant change.

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Speaker 4: On a year on year basis, and this is the

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Speaker 4: main driver. We continue to see a lot of activity

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Speaker 4: around IPUs, particularly the record IPO issues last year in

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Speaker 4: Hong Kong, which are probably going to stay with us.

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Speaker 3: Also in twenty twenty six, we see a lot of

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Speaker 3: activity across Asia.

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Speaker 4: Inbound and outbound. M and A in Japan is a

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Speaker 4: three folds. So in general, I would say that you

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Speaker 4: will continue the see momentum of you know, a Chinese

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Speaker 4: investors investing abroad, but also you know capital coming into

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Speaker 4: the country.

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Speaker 5: What's going to be your priority on shore for twenty

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Speaker 5: twenty six, last year you got the full one hundred

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Speaker 5: percent securities license.

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Speaker 3: What's going to be the perfect we are we are

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Speaker 3: working on all of this.

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Speaker 4: We also last year we also made a capital incluse

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Speaker 4: in our local entities, and I think this year we

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Speaker 4: are now planning to launch Japan the bond, and so

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Speaker 4: I think that we want to continue to foster, you know, our.

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Speaker 3: Presence in China.

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Speaker 4: We have been in China for mainland China for thirty

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Speaker 4: five years.

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Speaker 3: We have been in On Kong for sixty years.

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Speaker 4: So this is really part of our core business.

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Speaker 3: I mean, if if you.

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Speaker 4: Think about we are managing in the region more than

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Speaker 4: a trillion of assets under plus in wealth management and

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Speaker 4: two hundred and fifteen in asset management. So we want

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Speaker 4: to continue to reinforce that position. But at the same

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Speaker 4: time our leading position in the investment bank across.

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Speaker 3: The board and where we are a leader in the

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Speaker 3: region and.

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Speaker 4: In China, Mainland China particularly, and also in asset management

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Speaker 4: through our very successful joint venture with ICBC.

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Speaker 5: What can you tell us about the ranging of that pandamond,

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Speaker 5: the size and timing and the likes.

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Speaker 4: This is still to be determined, but the decision has

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Speaker 4: been taken to issue pandemond.

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Speaker 5: So Onshore versus Hong Kong or Greater China. What's going

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Speaker 5: to be the emphasis on shore as far as hiring.

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Speaker 5: I mean, you're very strong in wealth management obviously asset management.

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Speaker 3: What's going to be the priority.

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Speaker 4: Well, look, this year, I think that our goal is

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Speaker 4: to continue to working with local universities hiring young talents.

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Speaker 4: We employ around oney three hundred people in China is

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Speaker 4: behalf of them are in Shanghai and the rest is

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Speaker 4: in Beijing and the rest in Shenzhen.

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Speaker 3: We're probably going.

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Speaker 4: To have had up around one hundred people this year

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Speaker 4: in China and so but we are you know, as

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Speaker 4: I said, we are also investing not only in seasoned

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Speaker 4: professionals but also in the young generation of.

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Speaker 3: People for the franchise.

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Speaker 5: So obviously you still have some personnel issues on the

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Speaker 5: cost reductions from the integration with credit suites. That's separate

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Speaker 5: from what you're going to plan to hire across Asia

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Speaker 5: and in China.

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Speaker 4: Yeah, Look, when I look at Asia in general, the

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Speaker 4: integration is over, is done.

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Speaker 3: So I think that we.

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Speaker 4: Completed the integration in twenty actually in twenty twenty four,

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Speaker 4: mainly in Asia across the board, the investment bank has

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Speaker 4: been closed and asset management the same.

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Speaker 3: So as I just mentioned, we.

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Speaker 4: Are hiring both in China, but broadly speaking also in Asia.

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Speaker 4: In Japan, for example, we've been expanding our capabilities and.

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Speaker 3: Leveraging. Really the complementarity of.

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Speaker 4: Credits US and UBS together where we not only have

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Speaker 4: a broader footprint in terms of capabilities, but also of

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Speaker 4: geographic footprint.

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Speaker 5: How would you assess how your businesses in Asia are

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Speaker 5: doing versus other regions, whether it's Europe or well.

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Speaker 3: Look, Asia has been growing.

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Speaker 4: Very fast in the last It is probably the biggest

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Speaker 4: engine of growth in nominal terms, is accounting for around

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Speaker 4: a quarter to thirty percent on average in the last

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Speaker 4: five years of our profits. So, as I mentioned, we

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Speaker 4: manage more than a trillion of assets out of the seven.

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Speaker 3: Trillion we manage globally.

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Speaker 4: So it's a growing, steady, growing business which when you

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Speaker 4: look at the engine of growth is well GDP growth

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Speaker 4: is definitely going to help four and a half percent

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Speaker 4: in China is quite important, but is a driver for

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Speaker 4: growth in the entire region.

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Speaker 3: We are selectively gaining some.

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Speaker 4: Market shares in areas where we want to compete. Last,

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Speaker 4: but not least, this monetization, this IPO calendar is very

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Speaker 4: important to our wealth management business because it's really helping

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Speaker 4: us to drive menu money MANU assets into our wealth

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Speaker 4: management franchise.

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Speaker 5: Well, speaking of that IPO pipeline in Hong Kong, it's

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Speaker 5: been quite strong a lot of the new economy companies.

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Speaker 5: But there are also concerns that the new economy companies,

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Speaker 5: whether it's minimags or others, that profitability, just like the

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Speaker 5: AI companies in the United States and Western markets, that

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Speaker 5: sustainability is not necessarily it doesn't have a lot of visibility.

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Speaker 5: But what's your views on whether we're in a bubble

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Speaker 5: and how on that potentially could still last.

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Speaker 3: I don't know if we are in a bubble or not.

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Speaker 4: But of course, when you see this kind of multiples

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Speaker 4: and and and performances, you have to ask yourself, is

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Speaker 4: this a repeat of what we saw in maybe in

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Speaker 4: other times exactly the TMT bubble and so on and

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Speaker 4: so forth. I would say that in general, you know,

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Speaker 4: first of all, our advice is very clear, diversification, no

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Speaker 4: concentration risk around the sector the technology, and is heier

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Speaker 4: to stay.

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Speaker 3: But we should not really mix the two issues.

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Speaker 4: From an investors standpoint of view, it's very important to diversify,

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Speaker 4: not to get into a trap of trying to pick

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Speaker 4: up the right the winner.

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Speaker 3: Or the loser.

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Speaker 4: But and but you know, the truth of the matter

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Speaker 4: is that the first wave was probably around the technology sector.

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Speaker 4: Now we're going to see how embracing and implementing AI

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Speaker 4: can help other parts of the economy become more vibrant

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Speaker 4: and more efficient, and that's probably.

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Speaker 3: Going to be also the next side.

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Speaker 1: Of the story.

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Speaker 5: You also have to you can't discount the fact that

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Speaker 5: most of the deal flows right now or in China,

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Speaker 5: the interest is in these new economy companies. So could

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Speaker 5: you kind of quantify the type of deal flows, whether

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Speaker 5: it's underwriting or other types of businesses or services from

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Speaker 5: the your bank that are tied directly to what has

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Speaker 5: been a priority of central government policymakers here.

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Speaker 3: Well, you know, but this is something that is not

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Speaker 3: really new.

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Speaker 4: I mean, the priorities for the central government around innovation

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Speaker 4: being in technology or or pharma, biotech and so on

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Speaker 4: has been there for a while.

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Speaker 3: So from our standpoint of view, what we.

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Speaker 4: Are helping is in you know, local clients, but also

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Speaker 4: foreign clients to really select the winners.

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Speaker 3: I think is quite impressive how the Chinese companies are able.

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Speaker 4: Not only to be a fast followers, but in some

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Speaker 4: cases set new standards for incumbents in the US. So

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Speaker 4: from my son point of view, this is a big

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Speaker 4: story to stay with us, where we're going to see

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Speaker 4: probably Chinese companies, you know, creating new frontiers of innovation

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Speaker 4: rather than being.

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Speaker 3: A follow er.

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Speaker 5: You've mentioned Japan twice already in the last six or

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Speaker 5: seven minutes. What do you like about the Japanese story

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Speaker 5: right now? Obviously that the market's doing really well, there

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Speaker 5: are some pro growth policies from taki Ichisa on the

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Speaker 5: new Prime minister. What in particular do you like about Japan?

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Speaker 4: Well, I have to say before your end, I was

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Speaker 4: in Japan and after thirty years of you know, I

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Speaker 4: fell for the first time a renewed sense of optimism

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Speaker 4: across the board, and you know, corporates, institutional investor, governments,

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Speaker 4: regulatory bodies looking in a much more positive ways about

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Speaker 4: the future. So I think Japan is the third largest

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Speaker 4: wealth management market in the world in terms of savings,

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Speaker 4: and it's quite clear to me that now that rates

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Speaker 4: are coming up and you know, there is a new

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Speaker 4: paradigm that is there to stay with us, and I

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Speaker 4: do believe that also there you will see Japanese corporate's

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Speaker 4: probably looking to deploy more assets outside Japan, but also

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Speaker 4: a renewed interest from foreign investors into Japan.

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Speaker 1: That was UBS CEO Sergio or Mati speaking with Bloomberg

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Speaker 1: Steven Engel at the UBS Greater China Conference in Shanghai,

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Speaker 1: bringing it to you here on the Daybreak Asia Podcast.

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Speaker 1: Thanks for listening to today's episode of the Bloomberg Daybreak

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Speaker 1: Asia Edition podcast. Each weekday, we look at the story

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Speaker 1: shaping markets, finance, and geopolitics in the Asia Pacific. You

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00:21:54,320 --> 00:21:58,399
Speaker 1: can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel,

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00:21:58,560 --> 00:22:01,560
Speaker 1: or anywhere else you listen. Join us again tomorrow for

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Speaker 1: insight on the market moves from Hong Kong to Singapore

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Speaker 1: and Australia. I'm Doug Prisoner and this is Bloomberg