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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 appetite for risk across

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Speaker 1: the Asia Pacific has been reduced somewhat by a spike

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Speaker 1: in trade tensions between the US and Europe. We're seeing

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Speaker 1: equity markets in Tokyo, Sydney and soul in retreat now.

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Speaker 1: Europe's willingness to resist President Trump's demands when it comes

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Speaker 1: to Greenland seems to have raised the stakes noticeably, and

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Speaker 1: many markets now are pricing in the case that this

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Speaker 1: confrontation could escalate. For a closer look at what we're

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Speaker 1: seeing in markets, let's bring in Bloomberg's Winnie. Sue. Winnie

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Speaker 1: is our Asia equities reporter. She joins us from our

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Speaker 1: studios in Hong Kong. Thank you for being here. So

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Speaker 1: aside from the US Europe trade story, we had a

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Speaker 1: couple of key data points for China that were released

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Speaker 1: on Monday, and if you don't mind, I'd like to

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Speaker 1: start here. The GDP number for the fourth quarter an

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Speaker 1: annual growth rate of four and a half percent, and

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Speaker 1: that means that China was successful in achieving its annual

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Speaker 1: growth target of five percent. For all of last year.

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Speaker 1: Am I right?

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Speaker 2: Yeah, So, actually, like you mentioned, you know, they were

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Speaker 2: able to meet that five percent target. We thought that

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Speaker 2: tariff was going to be a kind of a big

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Speaker 2: headwind for China, but actually it turns out that not

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Speaker 2: so much. It does have a lot of strength when

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Speaker 2: it comes to the manufacturing capabilities, and that's why, you know,

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Speaker 2: we saw that they were able to meet that target.

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Speaker 2: But I think the highlight this time around the numbers

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Speaker 2: were what you mentioned around the fourth quarter numbers. Yes,

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Speaker 2: it did come as expected four point five percent, but

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Speaker 2: that was actually the slowest since twenty twenty two, since

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Speaker 2: the end of COVID. I think the interesting part is

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Speaker 2: that the fourth quarter numbers, it did come as expected

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Speaker 2: when it comes to the four point five percent growth

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Speaker 2: year over year, but that was actually the slowest growth

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Speaker 2: since late twenty twenty two. And the combination of the

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Speaker 2: softer retail numbers which came slightly below estimate, and then

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Speaker 2: the stronger than expected industrial output numbers, that combination really

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Speaker 2: goes to show how China still have a big imbalance

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Speaker 2: problem when it comes to stronger manufacturing capabilities versus very

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Speaker 2: weak domestic demand. So all that data together goes to

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Speaker 2: show that and this time around that has more implication

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Speaker 2: for equity investors because they're seeing the divergence in the

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Speaker 2: economic data to signal potentially a divergence in the China story.

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Speaker 2: You know, investors telling us that this might signal the

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Speaker 2: two Chinas that they need to kind of balance when

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Speaker 2: it comes to how they invest in the equity space

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Speaker 2: as well.

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Speaker 1: So the retail sales data and the industrial production data

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Speaker 1: were part of the monthly activity data for December, and

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Speaker 1: also we learned that fixed asset investment was down at

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Speaker 1: a rate of about three point eight percent from last year.

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Speaker 1: And my sense is that that is probably the more

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Speaker 1: worrisome development, right.

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Speaker 2: So you can see it from two sides of the equation.

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Speaker 2: The three point eight percent decline, like you mentioned, why

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Speaker 2: it was worrisome is because it was the first time

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Speaker 2: we saw an annual decline in that number in the past,

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Speaker 2: maybe over three decades or so. But part of the

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Speaker 2: other equation is that because of this push for anti involution,

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Speaker 2: that we have so much excess capacity this time around

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Speaker 2: that when the companies and factories were able to cut

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Speaker 2: down on those investments. That's actually part of the government's

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Speaker 2: effort to push for that. So yes, the investment site

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Speaker 2: is slightly weaker, but it is part of kind of

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Speaker 2: curbing the access capacity.

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Speaker 1: So the issue with the property mark it was also

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Speaker 1: front and center, and yesterday with the data on new

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Speaker 1: home prices for December, both new homes and existing home

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Speaker 1: prices were down month on month. When is this going

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Speaker 1: to turn around? Is there any sense that the property

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Speaker 1: market is in the process at least of putting in

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Speaker 1: a bottom.

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Speaker 2: Well, the property crisis is still that problem that has

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Speaker 2: been dragging on on the Chinese economy for a long time,

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Speaker 2: and like you mentioned, I think what we've been hearing

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Speaker 2: and seeing so far is that although we're not seeing

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Speaker 2: further decline, that the client rate is slightly slower and

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Speaker 2: it seems to be bottoming already, but it's just showing

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Speaker 2: very little sign of recovery from now, so we don't

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Speaker 2: know at what point it's really going to turn around

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Speaker 2: and at what pace it's going to turn around. But

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Speaker 2: it's just the good side of it is that ideally

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Speaker 2: this is pretty much putting a floor to kind of

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Speaker 2: the property crisis from going further down. But because the

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Speaker 2: property crisis is still a drag on the economy. That's why,

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Speaker 2: even though people are talking about how this new five

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Speaker 2: year plan is going to be focusing a lot on

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Speaker 2: boosting domestic demand until we see a turnaround in the

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Speaker 2: property situation, that's going to still keep foreign investors, specifically

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Speaker 2: from pouring more money into the Chinese market, and that's

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Speaker 2: a key concern that they've been flagging.

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Speaker 1: Can we talk about Japan for a moment, because we

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Speaker 1: learned officially now that Prime Minister Takeichi has called for

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Speaker 1: an early election. It'll happen next month, and at the

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Speaker 1: same time, I think she's promising a temporary sales tax

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Speaker 1: cut on food if she wins her fresh mandate and

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Speaker 1: kind of creates a maybe a more robust coalition. Are

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Speaker 1: people feeling that we're likely to get more stimulus out

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Speaker 1: of Japan as a result of this, Yeah.

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Speaker 2: Exactly, And that's why we're seeing how markets have been

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Speaker 2: moving in the past few sessions cross asset wise, and

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Speaker 2: that's specifically clear when it comes to the bond space.

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Speaker 2: We're talking about ten year yield, twenty year yield hitting

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Speaker 2: fresh highs or hitting its highest levels since nineteen ninety

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Speaker 2: nine ish, and that's because of as you mentioned, expectation

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Speaker 2: for stimulus, which means bigger physical budget, and that's why

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Speaker 2: it's hurting the bond space, and also the yen has

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Speaker 2: been weakening. But when it comes to the stock side,

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Speaker 2: we're also seeing that expectation playing out right because Topics

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Speaker 2: Nikit they have hitting these record highs on those expectations. Yes,

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Speaker 2: recently in the past few sessions, a bit weaker on

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Speaker 2: that global geopolitical risk, so over a bit of a

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Speaker 2: risk of mood. But when you look at sectors specifically

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Speaker 2: yesterday or even today right now, we're seeing very strong

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Speaker 2: performance when it comes to food sector. We're talking about

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Speaker 2: supermarket chains, retaels, and these sectors that will really be

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Speaker 2: benefiting from Takaichi's further stimulus and that cut when it

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Speaker 2: comes to the food tex So seems like markets are

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Speaker 2: taking that, taking that in and pricing that in right now.

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Speaker 1: So it's interesting that you mentioned the weakness in the

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Speaker 1: Japanese currency. I saw a note today from analyst over

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Speaker 1: at City Group in Tokyo, and they were saying that

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Speaker 1: the Bank of Japan will probably raise interest rates three

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Speaker 1: times this year, double the current level. I think we're

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Speaker 1: at seventy five basis points on the policy rate right now,

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Speaker 1: that would be the case if that's the caveat the

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Speaker 1: end continues to weaken. Now we have a BOJ decision

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Speaker 1: on Friday. Any chance that we're going to get a

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Speaker 1: rate hike this time around, Well, that.

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Speaker 2: Note seems to be quite an interesting forecast. They are

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Speaker 2: because actually, at least for the upcoming one this week,

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Speaker 2: for the economists we've surveyed, all of them are saying

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Speaker 2: that we will The Bank of Japan will likely keep

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Speaker 2: the raids steady, especially just because we just had a

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Speaker 2: rate high in the previous meeting. So the Bank of

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Speaker 2: Japan is likely going to take a more cautious stance

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Speaker 2: and take it slow as they kind of look at

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Speaker 2: the economic data and look at kind of the uncertainties

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Speaker 2: around the political front. But like you mentioned, for them

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Speaker 2: one two things that they're very concerned. One is around

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Speaker 2: kind of the weakness around the Japanese yend. So that's

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Speaker 2: why Governor Uda is likely going to be very careful

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Speaker 2: with his wordings so that he doesn't cause a Suddain

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Speaker 2: weakness or sell off in the currency. But at the

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Speaker 2: same time, inflation has been something that they're closely watching.

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Speaker 2: Right we just talked about that tax cut around food.

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Speaker 2: Why is that? That's because foods has been the biggest

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Speaker 2: part that's been driving Japan's recent inflation. Inflation right now

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Speaker 2: is above the two percent target that the Bank of

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Speaker 2: Japan has set, and that's why we do have more

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Speaker 2: expectation for rate hikes to come in the next few

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Speaker 2: decision meetings to come, but unlikely in this upcoming one.

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Speaker 1: We'll leave it there. Thank you so very much for

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Speaker 1: joining us. It's very much always a pleasure with Winnie Sue,

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Speaker 1: Asia Equities reporter joining from our studios in Hong Kong

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

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Speaker 1: Daybreak Asia Podcast. I'm Doug Prisner. In South Korea, the

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Speaker 1: benchmark Cosby is down today after a twelve day winning streak.

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Speaker 1: Chip makers are leading this decline given some trade tensions

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Speaker 1: between the US and Europe. Samsung and sk Heinez are down,

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Speaker 1: as our shares in Hondai Motor. But despite the pullback,

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Speaker 1: there to be a little bit of underlying optimism. We

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Speaker 1: had the chance to catch up with Chung on Po,

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Speaker 1: the CEO of Korea Exchange Post, spoke through an interpreter

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Speaker 1: to Bloomberg's Yukyung Lee, and the discussion began with Chung

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Speaker 1: talking about his outlook for South Korean equities.

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Speaker 3: I think the costp can extend beyond five thousand and

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Speaker 3: towards six thousand. Since the year before last, we have

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Speaker 3: made efforts to increase shareholder returns through various programs which

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Speaker 3: have been supported by the government through policies and legislative revisions. Recently,

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Speaker 3: South Korea's main industries such as chip, defense and shipbuilding

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Speaker 3: have been more competitive, which appears to have led to

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Speaker 3: a new value up for the Korean stock market. It's

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Speaker 3: nearing five thousand, but I think beyond that, even six

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Speaker 3: thousand is possible.

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Speaker 4: Now, let's talk about trading our extensions. So Career Exchange

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Speaker 4: that this week that is going to extend trading hours

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Speaker 4: to twenty four starting the end of twenty twenty seven,

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Speaker 4: and it's going to introduce twelve hour trading starting this June.

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Speaker 4: Why does Career Exchange have to pursue this extension of

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Speaker 4: trading hours?

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Speaker 3: Checking it in light of these global trends and also

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Speaker 3: to attract foreign investors, I believe expanding trading hours is inevitable.

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Speaker 3: While monitoring the transition to twenty four hour trading in

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Speaker 3: the US this year. We believe we should move to

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Speaker 3: a twenty four hour trading system ourselves by at least

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Speaker 3: the end of next year. Doing so would help attract

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Speaker 3: overseas investors and ensure greater alignment with global market standards.

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Speaker 3: As a transition, we plan to start twelve hour trading

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Speaker 3: from June.

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Speaker 4: The one's weakness has been a big concern for South

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Speaker 4: Korean authority, and once South Korean stop become a lot

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Speaker 4: more attractive than now and have retail investor come back

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Speaker 4: to the domestic market, do you think that can help

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Speaker 4: stop one's weakness.

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Speaker 3: I think it would absolutely help From a macroeconom perspective.

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Speaker 3: Despite career running a sizeable current account surplus, I believe

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Speaker 3: the fundamental reason the one continues to weaken lies in

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Speaker 3: the capital account. The first factor is the outflow of

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Speaker 3: foreign currency driven by corporate overseas investment. The second is

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Speaker 3: capital outflows stemming from domestic investors investments in overseas assets. Together,

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Speaker 3: these flows have been a key driver of the weakness

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Speaker 3: in the ONE. In that context, the impact of portfolio

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Speaker 3: investment on the exchange rate, often exemplified by so called

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Speaker 3: global ant investors, could begin to normalize its domestic investors

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Speaker 3: return to the local market, and more importantly, is foreign

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Speaker 3: investors increase their investments in Korea. I believe that process

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Speaker 3: could serve as a catalyst for stabilizing the currency exchange rate.

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Speaker 4: When you said a few years, South Korea would be

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Speaker 4: able to get an upgrade to the DM invex with

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Speaker 4: the MSCI, and how how soon a few years do

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Speaker 4: you mean?

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Speaker 3: I think the president aims to join the Developed Market

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Speaker 3: League within his tenure, so that appears to be the

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Speaker 3: final target that South Korea should pursue. It might take

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Speaker 3: a few years, as it takes one or two years

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Speaker 3: before the final reclassification is determined after joining the watch

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Speaker 3: list first. Even if we start the process right now,

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Speaker 3: the procedure will take several years.

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Speaker 4: And there are also concerns that the upgrade to the

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Speaker 4: DM in this would actually trigger funds ouslows. What's your

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Speaker 4: thoughts about these concerns that the upgrade may not be

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Speaker 4: necessarily a good thing for the South Korean stock market.

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Speaker 3: Fundamentally, global capital is far larger than domestic capital. It's

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Speaker 3: so large the two are hardly comparable. If Korea is

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Speaker 3: reclassified from an emerging market to a developed market, there

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Speaker 3: will be mandatory allocation requirements for global capital. Therefore, I

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Speaker 3: believe that inflow of capital will be substantially greater than

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Speaker 3: the outflow.

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Speaker 4: Let's talk about some of the issues related to Korea discounts.

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Speaker 4: So one of the priorities that the Care Exchange have

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Speaker 4: is delisting the so called zombie firms in market accelerating

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Speaker 4: the delisting process. Why is this important to resolve Korea discounts?

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Speaker 3: About twenty eight hundred companies are listed in South Korea.

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Speaker 3: In the US, about fifty five hundred companies are listed

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Speaker 3: on the New York Stock Exchange and the NASDAQ. The

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Speaker 3: USGDP is about fifteen times bigger than South Korea, while

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Speaker 3: the market capitalization is thirty times larger, but the number

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Speaker 3: of listed firms is only two times bigger. If you

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Speaker 3: do the math, the market cap of individual firms in

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Speaker 3: South Korea is about one fifteenth. In that sense, we

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Speaker 3: think too many companies are listed in South Korea. In

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Speaker 3: the future, these zombie firms must be forced out quickly

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Speaker 3: to restore market trust. These unprofitable companies are easy targets

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Speaker 3: of stock price manipulations and other unfair trades to enhance

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Speaker 3: confidence in our domestic stock markets. We should do speedy

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Speaker 3: work on routing out zombie firms.

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Speaker 1: That is Chung On Poe, the CEO of the Korea Exchange,

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Speaker 1: speaking to Bloomberg's Yukyun Lee 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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Speaker 1: can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel,

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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 Dereg Prisner, and this is Bloomberg