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Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.

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Speaker 2: Welcome to the Daybreak Asia Podcast. I'm Dan Schwartzman. Doug

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Speaker 2: Prisner has the day off. We begin with markets and

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Speaker 2: the week ahead, Asian stocks swung between gains and losses

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Speaker 2: following modest US gains on Friday, with investors turning their

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Speaker 2: focus to a slew of economic data ahead of an

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Speaker 2: expected Federal Reserve interest rate cut this month. The September

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Speaker 2: PCE Index will be released after a long delay, which

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Speaker 2: is the Fed's preferred inflation gauge, and over the weekend,

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Speaker 2: in China, factory activity improved but remained in contraction in November,

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Speaker 2: extending its streak of declines to a record as a

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Speaker 2: country's economic slow down deepens. For more on what the

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Speaker 2: data released in Beijing means for the Chinese economy, we

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Speaker 2: heard from Iliana Jane, economist at Westpac International. She spoke

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Speaker 2: to Bloomberg's Sherry On in April.

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Speaker 3: Honk, So, we are watching a number of delayed economic

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Speaker 3: indicators out of the US infleetion numbers this week. Pmis

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Speaker 3: across Asia as well, but talk to us about what

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Speaker 3: you're watching most closely.

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Speaker 4: So at the moment we're really focused on what's going

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Speaker 4: on in China. We saw some of the PMI numbers

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Speaker 4: come out over the weekend, and as you mentioned, there's

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Speaker 4: been a slow down in factory activity. But what caught

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Speaker 4: my attention was really the service's side. We saw some

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Speaker 4: weakness there as well. Now this is really important because

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Speaker 4: we saw comments from authorities noting that they wanted consumption

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Speaker 4: to be a big driving force for GDP over the

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Speaker 4: next five years, and that weakness and services certainly isn't

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Speaker 4: going to help. We've seen that consumers in China have

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Speaker 4: not fared particularly well given the weakness in real estate

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Speaker 4: prices and what that's meant for household wealth and the

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Speaker 4: confidence there. And so for authorities to achieve their vision

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Speaker 4: of having consumption be a bigger part of GDP growth

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Speaker 4: within China, they'll have to rebuild that. They'll have to

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Speaker 4: rebuild that confidence among households.

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Speaker 3: How can they go about doing so, you think.

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Speaker 1: So?

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Speaker 4: I think firstly it's all about stimulus, but having very

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Speaker 4: targeted stimulus response, So putting a floor under real estate

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Speaker 4: price falls, and that's something that they've been working on

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Speaker 4: over the last year, and also creating an alternative asset

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Speaker 4: class that consumers feel comfortable investing into to preserve their wealth. Lastly,

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Speaker 4: of course, is putting through more stimulus to help stimulate

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Speaker 4: domestic growth domestic demand there as well.

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Speaker 1: Who will be the most effected across Asia? Given the

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Speaker 1: weakness that we're seeing in China.

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Speaker 4: It's a very interconnected region, so it's hard to say

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Speaker 4: if any particular country is going to be affected. Right now,

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Speaker 4: most market watchers are looking at Japan and China tensions

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Speaker 4: and being a little bit concerned about Japan. In Japan,

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Speaker 4: we can see that they've now got tensions with China

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Speaker 4: and that's already seen a drop in tourist numbers within Japan.

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Speaker 4: China is Japan's biggest export partner, followed by the US,

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Speaker 4: which again they're also having trade tensions there. So for

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Speaker 4: Japan it looks like a pretty difficult trade outlook for

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Speaker 4: twenty twenty six.

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Speaker 1: Will that derail the Bank of Japan.

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Speaker 4: For the Bank of Japan, they're looking at factors both

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Speaker 4: domestically and internationally. So, like I said, on the international front,

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Speaker 4: things aren't looking too good given both tensions with their

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Speaker 4: two biggest trade partners, alongside the global slowdown in growth.

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Speaker 4: But they've got plenty of domestic concerns as well. So,

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Speaker 4: for example, wages in Japan, while they have grown in

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Speaker 4: nominal terms, in real terms, they've gone backwards through most

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Speaker 4: of twenty twenty five. That's going to be a that's

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Speaker 4: really hampered consumer confidence across Japan and has meant that

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Speaker 4: Japanese households maybe don't feel as comfortable engaging engaging in

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Speaker 4: discretionary spending. At the same time, we've seen inflation be

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Speaker 4: quite high, driven by food prices, and while that has

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Speaker 4: meant that the headline number for inflation has been quite strong,

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Speaker 4: it's again it's another thing that households are concerned about

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Speaker 4: when they see prices of staple goods such as rice

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Speaker 4: increase quite dramatically. On the upside, however, we did see

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Speaker 4: a fiscal package announced by Japanese government, and when we

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Speaker 4: get a few more details around how that will be

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Speaker 4: delivered and when that would be delivered, that will definitely

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Speaker 4: be a tailwind for growth for twenty twenty six for

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Speaker 4: the country.

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Speaker 3: Helena, Aside from Japan, where else in the region do

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Speaker 3: you think looks vulnerable In terms of China potentially exporting

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Speaker 3: a bit of its teppit growth to other parts of Asia.

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Speaker 4: So we've definitely seen that is redirecting a lot of

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Speaker 4: the exports it's been sending to the US to other

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Speaker 4: parts of Asia. And while that has been quite good

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Speaker 4: for its redirection, it hasn't fully made up for the

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Speaker 4: demand that the US takes on. So when we're thinking

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Speaker 4: about regional growth, when we're thinking about growth in China,

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Speaker 4: the US is still a very key factor for that.

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Speaker 4: So the outlook for the US there is very important.

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Speaker 1: What about when it comes to Australia where you are,

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Speaker 1: because of course we have seen horn prices extending gains

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Speaker 1: and inflationary pressures could make it difficult for the IBA

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Speaker 1: to act.

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Speaker 4: Yeah, certainly so, we saw a pretty high number last

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Speaker 4: week on inflation. However, when we look under the hood,

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Speaker 4: under that inflation print, a lot of the price increases

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Speaker 4: came from either energy prices, which were mostly base effects,

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Speaker 4: but also a lot of administrative prices, so prices that

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Speaker 4: increase due to policy impacts. Now, if I was the RBA,

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Speaker 4: look from their perspective, they're not these sorts of prices

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Speaker 4: aren't likely to persist for a long period of time,

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Speaker 4: and they're not indicative of demand side pressure. They are

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Speaker 4: simply policy related price increases. So as such, well, inflation

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Speaker 4: is quite high right now, it's unlikely to persist through

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Speaker 4: the course of next year. We are anticipating that inflation

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Speaker 4: comes down to the middle of the target band by

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Speaker 4: the middle of next year, and that'll give the RBA

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Speaker 4: confidence to start cutting rates from May of next year.

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Speaker 3: Leanna, how much does what the FED does or is

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Speaker 3: going to do matter for these other Asia central banks,

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Speaker 3: because it does seem like maybe they are a little

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Speaker 3: less synchronized going into the first half of next year.

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Speaker 1: Yeah, certainly.

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Speaker 4: And look, there has been a lot of times in

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Speaker 4: history where these Asian central banks have been quite synchronized

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Speaker 4: with what the FED does. But right now, when you

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Speaker 4: look at statements from a lot of regional central banks,

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Speaker 4: whether it be the Bank of Korea, the Reserve Bank

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Speaker 4: of India, a lot of it's focused on the domestic

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Speaker 4: side of things. They're looking at domestic demand and how

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Speaker 4: that's fearing. They're looking at inflation, and there has been

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Speaker 4: diverging instances of food inflation across different economies, and so

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Speaker 4: what we think for next year, a lot of these

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Speaker 4: Asian central banks are going to be focused on the

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Speaker 4: domestic picture. Alongside that international picture, and they're probably not

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Speaker 4: going to take as much que from the FED as

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Speaker 4: perhaps they have in previous previous hiking cutting cycles.

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Speaker 2: That was Ileana Jane, economists at Westbak International speaking with

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Speaker 2: Bloomberg sherry On and April Hang. Coming up, we will

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Speaker 2: head to the FII Priority Asia Summit where we will

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Speaker 2: hear from Rishi Kapor, vice chair and CIO at Investcorp.

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Speaker 2: Welcome back to the Daybreak GAJA podcast. I'm Dan Schwartzman.

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Speaker 2: Christner has the day off. FII Priority Asia Summit is

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Speaker 2: taking place in Tokyo and it brings together key leaders

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Speaker 2: and policy makers from Saudi Arabia and Japan. The summit's

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Speaker 2: focused will be on robotics, AI trade and global supply chains.

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Speaker 2: And we had the chance to hear from Rishi Kapor,

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Speaker 2: vice chair and CIO of Investcorp. He spoke to Bloomberg's

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Speaker 2: sherry On in April.

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Speaker 3: Hunk, we've just been talking about Japan and some of

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Speaker 3: the stimulus needs and the push talk to us about

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Speaker 3: what you are seeing there.

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Speaker 5: Well, Hi, good morning and thank you for having me.

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Speaker 5: I think what we are clearly seeing from our vantage

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Speaker 5: point as a global private markets focused investment firmat Investcorp.

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Speaker 5: Is the emergence of this corridor, if I may call it,

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Speaker 5: that off capital flow, trade flow and investment flow between

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Speaker 5: Japan and the Middle East, routing itself through and via

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Speaker 5: India in particular, but Asia and broadly speaking, and that

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Speaker 5: corridor of bidirectional trade and capital and investment flow is

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Speaker 5: really what is very interesting for firms like ours to

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Speaker 5: tap into because for the first time, it's like I said,

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Speaker 5: it's bidirectional, and more importantly, it's also opening up a

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Speaker 5: world of opportunity for us to deploy capital behind in

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Speaker 5: areas and sectors of high conviction and potentially high return

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Speaker 5: in the future.

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Speaker 3: Appreciate Is this flow through the corridors that you speak

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Speaker 3: of going to be agnostic of the BOJS path? Do

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Speaker 3: investors need to see hike for more conviction?

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Speaker 5: I think that's a great question, And to be honest,

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Speaker 5: I think the Boj's path is actually one of the

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Speaker 5: underpinnings for this corridor to emerge and cement itself the

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Speaker 5: way I described it, because for the longest of times,

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Speaker 5: for many decades, the growth trajectory for Japan in general

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Speaker 5: was relatively muted in terms of nominal GDP and with

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Speaker 5: the emergence of some degree of acceptable normalized inflation in

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Speaker 5: the Japanese economy, whilst a continuing relatively low interest rate

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Speaker 5: environment behind, it means that the prospect for strong attractive

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Speaker 5: returns for equity investors in private markets but also arguably

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Speaker 5: in public markets are very strong over a medium to

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Speaker 5: long term horizon. And that's really what is giving rise

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Speaker 5: to that increasing investor interest. That is of course supplemented

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Speaker 5: beyond what the BOJ does by the emergence of a

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Speaker 5: large set of opportunities within certain sectors, many of them

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Speaker 5: related to technology and innovation, but also related to energy

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Speaker 5: transition and infrastructure both digital and physical, that support this

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Speaker 5: increase in interest for capital flows between the Middle East

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Speaker 5: and Japan. And I think, last but not least, the

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Speaker 5: work that the BOJ is doing in terms of enhancing

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Speaker 5: governance in particular and regulatory reform is an important pillar

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Speaker 5: of how we see this market evolvent.

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Speaker 1: How does the weakness of the Japanese yen factor into

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Speaker 1: your calculations on investments in Japan.

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Speaker 5: Well, you know, look, the weakness of the Japanese yen

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Speaker 5: today obviously provides an attractive entry point for new investment

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Speaker 5: activity into Japan. But the key over here is what

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Speaker 5: happens in the future. If the yen continues to be

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Speaker 5: that would obviously not be a great thing for a

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Speaker 5: foreign investor denominated in a different currency. So I think

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Speaker 5: some degree of expected policy stability around the currency as

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Speaker 5: we look out over a medium term horizon would be

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Speaker 5: greatly helpful and positively impactful for investors as they consider

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Speaker 5: investment opportunities in Japan facilitated by the current dy and weakness.

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Speaker 5: As you said, I'm.

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Speaker 1: Sure you've seen opportunities both in China and India, right

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Speaker 1: We continue to see the economic slump in China in

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Speaker 1: the economic data that we're getting recently. What are the

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Speaker 1: opportunities in these two countries and do you have a

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Speaker 1: ratio of how much of your investments go into these

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Speaker 1: two economies?

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Speaker 5: Well, today, look Asia and aggregate including the Middle East

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Speaker 5: is a relatively modest part of our overall portfolio, about

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Speaker 5: ten percent, but it's ten percent from a very small,

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Speaker 5: very low level over a very very short period of time,

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Speaker 5: so it's growing really fast. Now. As we look out

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Speaker 5: into the future, it would not be surprising at all

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Speaker 5: for us to see a continued growth trajectory in our

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Speaker 5: inment investment portfolio in Asia, including India, Japan, and China,

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Speaker 5: all of these economies, by the way, you know, there

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Speaker 5: are certain macro characteristics that one can debate all day long,

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Speaker 5: but what is more important is the micro characteristics. Choosing

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Speaker 5: the right sectors where there is going to be a

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Speaker 5: flow of capital, there's going to be an appropriate balance

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Speaker 5: of risk and reward, and where one can expect to

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Speaker 5: generate some attractive returns over a medium term horizon. As

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Speaker 5: I said earlier, in Japan, those sectors relate to business services,

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Speaker 5: technology infrastructure. In China, the energy transition is a very

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Speaker 5: interesting theme, as is domestic consumption. India is almost all

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Speaker 5: about domestic consumption across a variety of sectors, so you know,

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Speaker 5: we see a lot of opportunity there. And last but

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Speaker 5: not least, in the Middle East. You know, just the

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Speaker 5: very significant impulse that the local governments are providing to

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Speaker 5: the build out of regional infrastructure and enhancing domestic consumption

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Speaker 5: as well as consumer services provides a very interesting backdrop

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Speaker 5: for investment as well.

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Speaker 3: Rishie, what would you say is the biggest risk for

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Speaker 3: both public and private markets in twenty twenty six.

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Speaker 5: I mean, from our vantage point, we think some of

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Speaker 5: the key risks in twenty twenty six from public and

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Speaker 5: private markets really are going to be around the degree

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Speaker 5: of stability or uncertainty related to interest rates, particularly in

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Speaker 5: the US, because there is a bit of a tussle

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Speaker 5: right now between you know, whether the FED in particular

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Speaker 5: is more worried about the inflationary impulse resulting from slightly

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Speaker 5: more sticky inflation, sticky in wage inflation in particular, but

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Speaker 5: also the impulse from tariffs to inflation, and on the

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Speaker 5: flip side, the slowing employment growth is the opposite side

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Speaker 5: of that same coin. And I think that degree of

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Speaker 5: uncertainty around the future trajectory of interest rates is probably

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Speaker 5: an overarching concern for US because to a large extent,

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Speaker 5: what the markets have underwritten or discanunted currently is a

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Speaker 5: continued trajectory of lower interest rates. To the extent that

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Speaker 5: doesn't manifest itself at the levels that the market is anticipating,

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Speaker 5: that could be somewhat problematic for market levels.

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Speaker 2: That was Rishi Kapor invest Corp Wevice chair in CIO

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Speaker 2: speaking to Bloomberg's sherry On in April. Honk from the

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Speaker 2: FII prior to Asia Summit.

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Speaker 6: Thanks for listening to today's episode of the Bloomberg Daybreak

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Speaker 6: Asia Edition podcast. Each weekday, we look at the story

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Speaker 6: shaping markets, finance, and geopolitics in the Asia Pacific. You

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Speaker 6: can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel,

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Speaker 6: or anywhere else you listen. Join us again tomorrow for

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Speaker 6: insight on the market moves from Hong Kong to Singapore

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Speaker 6: and Australia. I'm Doug Prisner, and this is Bloomberg