WEBVTT - Can China's Stimulus Efforts Work? 0:00:02.440 --> 0:00:05.439 Good morning, and welcome to the Bloomberg Daybreak Asia podcast. 0:00:05.600 --> 0:00:08.200 I'm Doug Prisner. Here are the stories we're following today. 0:00:10.119 --> 0:00:12.479 Joining us now is Helen ju As. She is the 0:00:12.560 --> 0:00:16.640 chief investment Officer also a managing director at NF Trinity. 0:00:17.040 --> 0:00:19.400 Helen joins us from our studios in Hong Kong. It's 0:00:19.400 --> 0:00:21.720 always a pleasure to have the chance to visit with you. Helen. 0:00:22.040 --> 0:00:23.919 Talk to me a little bit about the way in 0:00:24.000 --> 0:00:28.600 which you understand these stimulus measures that have been unleashed 0:00:28.640 --> 0:00:31.960 by the Chinese government and how they may have a 0:00:32.000 --> 0:00:34.479 significant impact on growth. I mean, the market seems to 0:00:34.560 --> 0:00:37.440 be debating the efficacy here. I mean there may have 0:00:37.479 --> 0:00:40.800 been a little bit of enthusiasm initially, but as time 0:00:40.840 --> 0:00:43.599 went on, the equity markets seemed to say, hmm, we're 0:00:43.600 --> 0:00:45.480 a little skeptical. Are you skeptical? 0:00:46.960 --> 0:00:49.640 Look, I think the market's been very skeptical for quite 0:00:49.640 --> 0:00:52.440 a long time, and justifiably so. Right so, most of 0:00:52.440 --> 0:00:54.640 the last year and a half it's been about deflation 0:00:55.000 --> 0:00:59.760 and market drating and just generally speaking, vicious feedback loops 0:00:59.800 --> 0:01:04.240 every where because of the weaker property market. As a 0:01:04.280 --> 0:01:07.920 result of the policy tightening, property prices went down, so 0:01:08.280 --> 0:01:12.080 wealth effect when negative consumption started to suffer, and you know, 0:01:12.120 --> 0:01:14.080 as a result, that kind of all fed itself and 0:01:14.200 --> 0:01:17.160 equity markets reacted accordingly. I think what the policy makers 0:01:17.200 --> 0:01:19.360 are trying to do in this particular case is, rather 0:01:19.480 --> 0:01:22.240 than have piecemeal little bits of policies here and there, 0:01:22.600 --> 0:01:26.760 to actually, you know, take a whatever it takes type 0:01:26.800 --> 0:01:29.399 of approach for once. And this has been a big 0:01:29.440 --> 0:01:32.840 bazooka in terms of policy package. You have not just 0:01:33.040 --> 0:01:35.320 you know, rate cuts and so on, but also fiscal 0:01:35.440 --> 0:01:36.640 you have property policies. 0:01:36.680 --> 0:01:37.479 You also have a. 0:01:37.520 --> 0:01:41.760 Coin corresponding capital market stimulus where they basically have put 0:01:42.120 --> 0:01:46.120 a floor to the overall domestic a share market. Obviously, 0:01:46.160 --> 0:01:48.640 it's going to take time for things to reverse and 0:01:48.720 --> 0:01:51.960 to inflect into hopefully virtus feedback loops. That's probably going 0:01:52.040 --> 0:01:53.960 to take easily three to six months. So the market 0:01:53.960 --> 0:01:57.240 got initially very excited and kind of went vertical. I 0:01:57.240 --> 0:01:59.440 don't think the policy makers want that either, because that's 0:01:59.440 --> 0:02:01.840 a little bit too extreme, and so I think a 0:02:01.840 --> 0:02:04.160 little bit of a retlacement is good. But I think 0:02:04.200 --> 0:02:06.120 the next leg is going to be dependent on whether 0:02:06.360 --> 0:02:08.440 the policy impact starts to show through, and I think 0:02:08.440 --> 0:02:10.000 that will gradually start to happen. 0:02:10.080 --> 0:02:12.360 So what's the house view at and F trinity. Do 0:02:12.400 --> 0:02:14.520 you think this is an opportunity or are you holding 0:02:14.560 --> 0:02:17.000 back and maybe adopting kind of a wait and see approach. 0:02:17.919 --> 0:02:19.560 I think you have to kind of move ahead of 0:02:19.560 --> 0:02:21.720 the market. You know, waiting and seeing doesn't really help 0:02:21.760 --> 0:02:24.920 these days because markets respond so quickly, right So if 0:02:24.960 --> 0:02:26.880 you do have really positive data, you could see the 0:02:26.880 --> 0:02:30.399 ashare market, you know, practically limit up day after day. 0:02:30.440 --> 0:02:33.079 So I'm not saying that's going to happen right away, 0:02:33.200 --> 0:02:36.639 but we do think that after the retlacement, it's probably 0:02:36.680 --> 0:02:39.280 a decent level to get into the domestic ashare market, 0:02:39.400 --> 0:02:42.040 even some Hong Kong China stocks as well. We think 0:02:42.040 --> 0:02:43.760 the risk reward is better than a lot of other 0:02:43.800 --> 0:02:46.400 markets that have already performed very well, where expectations are 0:02:46.520 --> 0:02:50.360 very high, and you know, valuation and positioning is quite 0:02:50.639 --> 0:02:54.280 stretched as well. So relative to before, I think China 0:02:54.440 --> 0:02:56.800 is definitely a decent risk reward at this point. 0:02:56.880 --> 0:02:59.520 So are you focused primarily on equities when you're talking 0:02:59.560 --> 0:03:01.880 about side here? I'm wondering whether or not there are 0:03:01.919 --> 0:03:04.519 opportunities in credit is At the same time. 0:03:05.280 --> 0:03:07.639 I think It's difficult, right, because basically, if you look 0:03:07.639 --> 0:03:10.280 at the China tenure, we're looking at two point one percent, 0:03:10.360 --> 0:03:12.840 which is very very low by global standard and by 0:03:12.919 --> 0:03:16.320 historical standard. And the PBOC has made it very clear 0:03:16.440 --> 0:03:18.440 that they think that the ten year is too low 0:03:18.919 --> 0:03:22.600 and that there should be a proper ye curve in China. 0:03:22.720 --> 0:03:25.440 That's a lot steper, and I think there's going to 0:03:25.440 --> 0:03:28.760 be a lot more mof bond issues coming up, so 0:03:28.880 --> 0:03:33.360 more supply. So I actually am fairly negative on China CGB. 0:03:33.600 --> 0:03:35.480 I think that there's going to be an upward move 0:03:35.520 --> 0:03:37.440 in terms of the CGB yield over the next six 0:03:37.440 --> 0:03:39.760 to twelve months if data starts to improve. And on 0:03:39.800 --> 0:03:43.160 the credit side, as you know, there aren't so many 0:03:44.160 --> 0:03:47.000 credits that foreign investors like to look at because of 0:03:47.760 --> 0:03:51.960 more kind of immature rating systems and so on and 0:03:52.000 --> 0:03:53.960 so forth. So most of the activity, at least for 0:03:53.960 --> 0:03:57.040 foreign investors has been on CGB and on policy banks 0:03:57.200 --> 0:03:59.080 rather than the domestic credit market. 0:03:59.240 --> 0:04:03.160 Is there anything that you've identified thematically that you expect 0:04:03.240 --> 0:04:08.360 will outperform kind of conventional wisdom here industries or segments 0:04:08.360 --> 0:04:10.600 of the economy in which to invest. 0:04:11.440 --> 0:04:14.800 Well, I think if the push towards stabilizing the property 0:04:14.800 --> 0:04:17.839 market and property prices is effective. I think the most 0:04:17.880 --> 0:04:21.840 evident and media beneficiary is probably property, but there are 0:04:21.880 --> 0:04:24.599 not that many investable names remaining. I don't think so 0:04:24.720 --> 0:04:27.200 much the property supply chain because I think the policy 0:04:27.200 --> 0:04:30.719 makers care more about price stability rather than huge volume recovery. 0:04:31.160 --> 0:04:33.279 And I think it's going to be more secondhand market 0:04:33.320 --> 0:04:35.760 activity rather than firsthand, so it's not going to lift 0:04:35.760 --> 0:04:39.480 the demand for construction materials necessarily. But if property prices 0:04:39.480 --> 0:04:42.680 can stabilize, the biggest beneficiary is going to be consumption 0:04:43.240 --> 0:04:46.239 and so consumer stocks have debrated hugely since the beginning 0:04:46.279 --> 0:04:48.279 of this year, and internet stocks are trading at very 0:04:48.320 --> 0:04:50.719 reasonable valuations as well. I think if they can go 0:04:50.800 --> 0:04:54.080 from negative growth to stable to maybe slightly positive growth, 0:04:54.120 --> 0:04:56.280 I think the evaluation multiple can move up quite a bit. 0:04:56.560 --> 0:04:59.360 So consumption and internet I think would be two very 0:04:59.360 --> 0:05:02.880 interesting areas to watch for the coming period. Another area 0:05:02.920 --> 0:05:07.080 would probably be industrials and cyclicals. You know, if manufacturing 0:05:07.120 --> 0:05:09.840 and other areas start to show some inflection as well. 0:05:10.160 --> 0:05:14.080 Relatively speaking, if you look at defensives or central SOE 0:05:14.320 --> 0:05:16.240 yield needs that have already performed very well, in the 0:05:16.320 --> 0:05:18.839 last couple of years, those are probably likely to be 0:05:18.960 --> 0:05:20.000 more funding sources. 0:05:20.240 --> 0:05:22.440 So when you look at the States, two things come 0:05:22.480 --> 0:05:25.839 to mind for me. One is what's going on with 0:05:25.880 --> 0:05:29.960 the FED and interest rate policy. Secondarily is the US 0:05:30.120 --> 0:05:33.640 presidential election. Let's talk about the FED first. In your 0:05:33.680 --> 0:05:37.560 expectations for many more rate cuts, we had a very 0:05:37.560 --> 0:05:39.919 strong reading on retail sales here in the US, and 0:05:39.960 --> 0:05:42.400 maybe it was another one of those data points where 0:05:42.400 --> 0:05:45.880 the market struggled to rate price FED easing this year. 0:05:46.200 --> 0:05:49.160 Are you comfortable with two more twenty five basis point 0:05:49.200 --> 0:05:51.400 rate cuts? Does that fit into your thinking? 0:05:52.120 --> 0:05:52.360 Yeah? 0:05:52.600 --> 0:05:57.279 Look, you know, look, the overall volatility in terms of 0:05:57.400 --> 0:06:00.560 rates has been still pretty crazy this year, right, Expectations 0:06:00.560 --> 0:06:02.920 has been shifting all over the map because of the 0:06:03.040 --> 0:06:06.000 volatility and the fundamental data. But certainly over the last 0:06:06.040 --> 0:06:09.279 couple of months, aside from that very bad NFP print 0:06:09.440 --> 0:06:12.080 in the beginning of October and in the beginning of September, 0:06:12.279 --> 0:06:14.440 all the other data has been much stronger, and obviously 0:06:14.480 --> 0:06:18.240 the latest employment numbers were blowout positive. So I would 0:06:18.279 --> 0:06:21.400 say the likelihood of a fifty basis point further cut 0:06:21.600 --> 0:06:24.919 in November is pretty much close to zero now, so 0:06:25.200 --> 0:06:28.039 two twenty five basis point cuts remaining I think makes sense. 0:06:28.360 --> 0:06:30.760 But going into next year, whether there's actually going to 0:06:30.800 --> 0:06:33.279 be four more cuts as the market currently prices, I 0:06:33.279 --> 0:06:36.400 think it's going to be still data dependent. At this point, 0:06:36.400 --> 0:06:39.000 it looks like, you know, perhaps not, but I think 0:06:39.040 --> 0:06:42.159 we're definitely closer to the base case versus where we 0:06:42.200 --> 0:06:44.960 have been earlier this year, when the market was shifting 0:06:45.000 --> 0:06:47.240 from anywhere between like one hundred and sixty basis points 0:06:47.240 --> 0:06:49.479 of cuts this year to like only thirty basis points 0:06:49.480 --> 0:06:51.320 of cuts this year. So now we're kind of somewhere 0:06:51.320 --> 0:06:54.040 in between, in a more reasonable range, I would say. 0:06:54.120 --> 0:06:56.200 So when you listen to the rhetoric from each of 0:06:56.240 --> 0:06:59.600 the two campaigns in the US, the candidates running for president, 0:07:00.120 --> 0:07:02.560 is it cause you to kind of think about what 0:07:02.600 --> 0:07:05.720 the future may hold in terms of US policy, whether 0:07:05.800 --> 0:07:09.400 it's on trade visa VI tariffs, or whether it's something 0:07:09.440 --> 0:07:12.280 that may produce a little bit more inflation in the 0:07:12.360 --> 0:07:15.640 United States. How are you thinking about the US election 0:07:15.680 --> 0:07:17.360 when it comes to your investment strategy. 0:07:18.480 --> 0:07:21.480 Well, certainly people think that if Trump wins, that is 0:07:21.520 --> 0:07:24.200 going to be more proactive for US fiscal policy and 0:07:24.480 --> 0:07:27.680 US domestic growth, but at the same time it's going 0:07:27.720 --> 0:07:29.920 to bring a lot of uncertainties and tail risk to 0:07:30.120 --> 0:07:34.200 non US markets, especially in emerging markets China, etc. If 0:07:34.240 --> 0:07:37.600 Harris wins, then probably the dollar will sell off, the 0:07:37.680 --> 0:07:40.080 yield will come down a little bit. There's going to 0:07:40.080 --> 0:07:43.880 be more fiscal austerity, but also a lot less potential 0:07:44.000 --> 0:07:46.600 risks in terms of trade and huge deviations from the 0:07:46.600 --> 0:07:50.040 Biden administration stands on a lot of these other countries. Right, 0:07:50.080 --> 0:07:53.840 So I would say the Harris scenario would be more 0:07:54.200 --> 0:07:57.520 positive for non US markets, and the Trump scenario will 0:07:57.520 --> 0:08:00.040 probably be able to extend the US market rally a 0:08:00.080 --> 0:08:02.760 little bit more and relatively strengthen the dollar, which then 0:08:02.920 --> 0:08:06.520 comparatively speaking hurts performance of other markets. But that said, 0:08:06.560 --> 0:08:09.160 I think that Trump win has been more or less 0:08:09.160 --> 0:08:12.280 the market's default assumption for quite some time, So even 0:08:12.320 --> 0:08:14.320 if it happens, I don't see that the market's going 0:08:14.360 --> 0:08:17.200 to have a huge move. But if let's say Democrats, 0:08:17.600 --> 0:08:19.640 you know, win the White House and maybe you know, 0:08:19.720 --> 0:08:23.960 one of the you know, basically take over part of 0:08:24.000 --> 0:08:25.960 Congress as well, then I think, you know, there is 0:08:26.000 --> 0:08:28.640 more of a retlacement potential for the market, because that's 0:08:28.680 --> 0:08:32.160 not the default assumption we've had over the past few months. 0:08:32.160 --> 0:08:34.199 Hard to believe that we're about three weeks out from 0:08:34.200 --> 0:08:36.400 that event. I know and was there. 0:08:36.520 --> 0:08:37.920 Okay, time has flown by. 0:08:37.920 --> 0:08:40.440 It really has, Helen. It's always a pleasure. Thanks so much, 0:08:40.679 --> 0:08:53.200 Helen Ju, Chief Investment Officer, also Managing director at NF Trinity. 0:08:55.320 --> 0:08:58.640 Joining us now is pay Chian lu Asia, economist at 0:08:58.640 --> 0:09:02.680 Fidelity International US from the Lion City of Singapore. Peychen, 0:09:02.800 --> 0:09:04.920 thank you for making time to chat with us. Can 0:09:04.960 --> 0:09:08.040 we talk about the way in which you understand the 0:09:08.120 --> 0:09:12.160 policy rollout that authorities in China have been kind of 0:09:12.960 --> 0:09:17.400 rolling out in various stages and targeting various aspects of 0:09:17.400 --> 0:09:21.240 the economy. First, what do we know about how policy 0:09:21.320 --> 0:09:23.400 is targeting the property market, which I think we can 0:09:23.480 --> 0:09:26.560 agree is the primary trouble spot. 0:09:27.559 --> 0:09:30.800 Thanks for having me today, Dog, I think before we 0:09:30.840 --> 0:09:34.600 dive deeper into the property sector specifically, I would love 0:09:34.640 --> 0:09:37.120 to take a step back to think about why you 0:09:37.200 --> 0:09:40.720 have such set of policy right now and how this 0:09:40.840 --> 0:09:43.960 policy is rolled out. I think potentially the policy trigger 0:09:44.280 --> 0:09:48.120 was probably multifolds. Over the summer, we have experienced a 0:09:48.200 --> 0:09:54.160 lot more troubled headlines about fiscal conditions in China as 0:09:54.200 --> 0:09:59.680 well as the unemployment issue, not mentioning the property sector 0:09:59.679 --> 0:10:03.760 that mentioned has always been on top of investor's mind 0:10:03.840 --> 0:10:07.000 and is running on a weaker momentum. So putting all 0:10:07.040 --> 0:10:10.760 this together, I think the economy does need an additional 0:10:10.800 --> 0:10:15.560 set of policy boosts to stabilize, and that's why we 0:10:15.720 --> 0:10:19.720 had such a great concerted effort from the policy maker 0:10:20.080 --> 0:10:23.800 to stabilize the growth momentum. And more specifically in terms 0:10:23.840 --> 0:10:27.040 of how the policy has been delivered in the property sector, 0:10:27.200 --> 0:10:30.120 I think that all goes back to the political pivot 0:10:30.520 --> 0:10:33.600 where they mentioned about stopping the decline of the sector 0:10:33.920 --> 0:10:37.400 and stabilize it. So following through with that, we have 0:10:37.440 --> 0:10:40.160 seen a lot more policy coming out from both supply 0:10:40.240 --> 0:10:43.439 and demand side. On the supply side, they're basically trying 0:10:43.480 --> 0:10:49.920 to reduce supplies by stopping new construction and digest excessive inventories. 0:10:50.120 --> 0:10:53.320 And on the demand side, definitely more relaxation of the 0:10:53.360 --> 0:10:57.400 previous restrictive policies to stimulate domestic demand. 0:10:57.720 --> 0:10:59.720 So what is your sense in terms of the time 0:10:59.760 --> 0:11:02.040 that it's going to take. And I know some of 0:11:02.040 --> 0:11:04.000 them have not even been rolled out yet. I mean, 0:11:04.160 --> 0:11:05.960 but do you have a sense of how long it 0:11:06.000 --> 0:11:08.720 will take for these policies to have a significant impact. 0:11:10.240 --> 0:11:13.440 Well, I think it largely depends on where we are 0:11:13.480 --> 0:11:16.320 looking at in terms of policy aultimate goals. In terms 0:11:16.320 --> 0:11:19.800 of stabilization, I wouldn't think we need so long to 0:11:19.840 --> 0:11:24.120 stabilize the growth momentum, especially on the real activity side. 0:11:24.360 --> 0:11:27.160 So some of the policy that's been delivered on the margins, 0:11:27.200 --> 0:11:34.240 such as equipment upgrading, trading of home appliances, as well 0:11:34.280 --> 0:11:38.080 as additional investments. All these set of policies are set 0:11:38.160 --> 0:11:41.560 to stabilize the real activity growth momentum in a fairly 0:11:41.640 --> 0:11:45.000 quickly manner. So in Q one Q two twenty twenty five, 0:11:45.440 --> 0:11:47.480 I would think that we will be able to see 0:11:47.520 --> 0:11:51.840 some marginal sequential improvement in real activity sector, but the 0:11:51.880 --> 0:11:55.720 structural issues are more long term. I think it's probably 0:11:55.720 --> 0:11:59.640 going to take a longer time horizon to resolve significantly. 0:12:00.120 --> 0:12:02.400 But that being said, I think we're still waiting for 0:12:02.440 --> 0:12:06.400 more details to assess the actual impact and scale of 0:12:06.440 --> 0:12:07.199 these policies. 0:12:07.400 --> 0:12:09.840 But if one of the problems has been this lack 0:12:09.880 --> 0:12:13.680 of confidence sentiment has been so weak, is it the 0:12:13.720 --> 0:12:16.480 property market that's going to turn that around? Is it 0:12:16.559 --> 0:12:20.240 equity prices being at higher levels that will will necessarily 0:12:20.280 --> 0:12:22.920 improve sentiment and the outlook for the future. 0:12:24.559 --> 0:12:27.720 I think it's hard to pinpoint a specific trigger that 0:12:27.920 --> 0:12:32.440 will turn around economic confidence or in a sudden There's 0:12:32.480 --> 0:12:36.920 no magic bullet over here, given that on a downside 0:12:38.040 --> 0:12:43.120 downward shift of the economy, many factors played out unfavorably 0:12:43.400 --> 0:12:48.520 earlier during the post pandemic recovery. So looking forward, I 0:12:48.559 --> 0:12:51.480 think we probably need to see quite a few things 0:12:51.600 --> 0:12:56.560 stabilizing or recovering before we see a much more significant 0:12:56.559 --> 0:13:01.880 improvement in the confidence of the economy general. So from 0:13:01.920 --> 0:13:05.320 a sector or a big picture wise, we probably need 0:13:05.360 --> 0:13:08.520 to see physical conditions to improve so that the local 0:13:08.559 --> 0:13:13.880 government have more ammunition to spend. Private sector enterprises need 0:13:13.920 --> 0:13:18.040 to see more favorable or favorable policies in order to 0:13:18.280 --> 0:13:22.160 be more comfortable in expanding their carepax and investments, and 0:13:22.200 --> 0:13:27.800 a consumer sector, perhaps a combination of household income improvement 0:13:28.280 --> 0:13:31.800 as well as the wealth impact from property sector being stabilizing, 0:13:32.160 --> 0:13:34.679 are both very helpful for us to see the confidence 0:13:34.800 --> 0:13:36.160 coming back to the economy. 0:13:36.240 --> 0:13:38.960 Where does that leave China in trying to reach that 0:13:39.080 --> 0:13:39.800 growth target? 0:13:39.840 --> 0:13:45.040 Then, I think with the coordinated policy efforts, China might 0:13:45.080 --> 0:13:49.000 be closer to five percent grows for twenty twenty four, 0:13:49.880 --> 0:13:52.440 and looking beyond twenty twenty four, I think in twenty 0:13:52.480 --> 0:13:57.040 twenty five the next few quarters, stabilization is still going 0:13:57.080 --> 0:14:01.200 to be the key momentum key saying that we're looking 0:14:01.240 --> 0:14:04.360 at far rather than a very strong reflation. So in 0:14:04.480 --> 0:14:07.840 terms of growth momentum, we still expect China to focus 0:14:07.880 --> 0:14:12.079 a lot more on the quality of growth, whereas stabilizing 0:14:12.080 --> 0:14:15.480 its growth momentum somewhere between four point five to five 0:14:15.520 --> 0:14:19.640 percent to allow it to gradually settle in a slower range. 0:14:19.880 --> 0:14:22.360 Is there anything that you can see that might put 0:14:22.400 --> 0:14:24.760 a dent into one of the bright spots of the 0:14:24.840 --> 0:14:29.800 Chinese economy, which is the exports the manufacturing of certain 0:14:29.840 --> 0:14:34.520 goods that have been in many respects targeting the European market, 0:14:34.720 --> 0:14:37.760 the American market. Is there anything that you can see 0:14:38.080 --> 0:14:41.200 that may disrupt that positivity? 0:14:42.280 --> 0:14:45.160 Well, I think from a medium term perspective, China has 0:14:45.240 --> 0:14:49.000 been upgrading supply chain significantly over the past few decades, 0:14:49.840 --> 0:14:52.880 So from that perspective, I don't really see much of 0:14:52.880 --> 0:14:58.480 a structural challenge of China's expot composition going forward. But 0:14:58.600 --> 0:15:04.040 that being said cyclically, expots given is more excellent demand 0:15:04.240 --> 0:15:07.440 driven in nature, slow down in the US economy, the 0:15:07.440 --> 0:15:11.720 European economy, and to some extent, US and Asian blocks 0:15:12.000 --> 0:15:16.440 will all affect China's ex performances. Given that we all 0:15:16.480 --> 0:15:20.000 see that the US economy has been slowing gradually, even 0:15:20.040 --> 0:15:22.520 though soft lending remains our base case, but we still 0:15:22.560 --> 0:15:25.280 think sequential slow down it's going to weigh on the 0:15:25.320 --> 0:15:29.600 performance of China's sector going forward. 0:15:29.920 --> 0:15:32.400 I'm going to answer my own question, and I think 0:15:32.440 --> 0:15:35.480 the issue of tariffs might be one of the stumbling 0:15:35.520 --> 0:15:38.040 blocks for the export economy in China. Would you agree 0:15:38.080 --> 0:15:38.240 with that? 0:15:39.880 --> 0:15:42.560 Well, I think that largely depends on how the teriffs 0:15:42.560 --> 0:15:46.160 are implemented and what kind of scale we're looking at, 0:15:46.760 --> 0:15:50.800 So that's all uncertain at this stage. But if we 0:15:50.840 --> 0:15:55.080 think about the generally protective stunts, that's definitely going to 0:15:55.200 --> 0:16:00.560 hurt China's expot performance, especially around the time of implementitious 0:16:00.920 --> 0:16:04.280 but zoom me out to a longer term horizon, that's 0:16:04.360 --> 0:16:07.000 just going to continue to push China to upgrade itself 0:16:07.600 --> 0:16:12.400 in a global supply chain diversification in term of a 0:16:12.480 --> 0:16:16.200 supply chain, so that leads China more integrated with the 0:16:16.200 --> 0:16:16.960 rest of the world. 0:16:17.320 --> 0:16:19.680 Paychen, thank you so much for making time to chat 0:16:19.720 --> 0:16:23.520 with us. I enjoyed the conversation. Paychen Lu Asia economist 0:16:23.520 --> 0:16:27.760 at Fidelity International. Joining us on the Daybreak Asia podcast. 0:16:35.800 --> 0:16:38.120 Joining us now is George Marris. He is the chief 0:16:38.120 --> 0:16:41.560 investment officer also the global head of Equities at Principal 0:16:41.600 --> 0:16:45.280 Asset Management. George joining us from our studios in Hong Kong. 0:16:45.800 --> 0:16:47.760 Can we start by looking at the story in China? 0:16:47.800 --> 0:16:50.400 We've had this enormous flood of stimulus that the market 0:16:50.400 --> 0:16:53.120 has tried to understand. Some of this we know will 0:16:53.160 --> 0:16:56.920 be delayed. The equity market seemed at one point to 0:16:56.960 --> 0:16:59.720 be strongly convinced it was going to matter. But I 0:16:59.760 --> 0:17:01.880 think if you look at equity trading now, George, we're 0:17:01.920 --> 0:17:04.320 down roughly ten percent from the high that we put 0:17:04.359 --> 0:17:08.480 in in early October. So maybe the investment community has 0:17:08.520 --> 0:17:11.879 become a little disinhearted or at least skeptical. Is that 0:17:11.920 --> 0:17:12.679 the way you read it? 0:17:13.040 --> 0:17:16.280 For sure? I think the reaction after kind of the 0:17:16.280 --> 0:17:21.280 initial surprise has been one of continued retrenchment. And what's 0:17:21.280 --> 0:17:24.720 been interesting is, irrespective of the policy, when it comes 0:17:24.760 --> 0:17:29.359 at first comes out there's enthusiasm, and then it seems 0:17:29.359 --> 0:17:32.359 like this chorus that says that's not enough, it's not enough, 0:17:32.760 --> 0:17:35.080 and that's certainly impacted markets negatively. 0:17:35.840 --> 0:17:37.840 One of the things that I'm wondering about is the 0:17:37.880 --> 0:17:41.160 extent to which sentiment can be turned on a dime. 0:17:41.640 --> 0:17:44.920 This seems to be a challenge that's going to require 0:17:45.400 --> 0:17:48.919 years to kind of correct. Is that a fair statement. 0:17:50.280 --> 0:17:54.120 In many ways? For sure, because we've had such negativity 0:17:54.680 --> 0:17:58.119 coming emanating from China. We all understand the structural issues 0:17:58.119 --> 0:18:01.199 that it confronts. We understand the political tensions, and we 0:18:01.240 --> 0:18:05.080 also understand that for the last five plus years, the 0:18:05.200 --> 0:18:08.439 rule of law with respect to treating shareholder capital and 0:18:08.440 --> 0:18:12.080 foreign capital has been a little bit opaque, and we 0:18:12.160 --> 0:18:13.920 need to get past that. And so I think there's 0:18:13.960 --> 0:18:17.040 a notion of the government has to show you willingness 0:18:17.560 --> 0:18:19.919 further commitment to doing things, so you've got to just 0:18:20.000 --> 0:18:22.960 climb this wall of skepticism that's out there. So you'll 0:18:22.960 --> 0:18:25.119 need to see continued actions out of there to finally 0:18:25.119 --> 0:18:27.560 get the markets to break free. 0:18:27.960 --> 0:18:31.560 What about the latest measures to address the problems in 0:18:31.720 --> 0:18:34.640 the property market. Yesterday we had news that China will 0:18:34.680 --> 0:18:38.520 nearly double its loan quota to so called white list 0:18:38.680 --> 0:18:41.840 property projects. Is this going to have an impact you think. 0:18:42.640 --> 0:18:46.240 I don't know whether or not this particular policy is 0:18:46.359 --> 0:18:50.119 the policy that breaks or that sets the structure up 0:18:50.160 --> 0:18:52.040 with respect to real estate. We all understand that from 0:18:52.040 --> 0:18:55.800 a structural perspective, Chinese property is a huge problem, has 0:18:55.840 --> 0:18:57.200 been for a long period of time. It needs to 0:18:57.200 --> 0:18:59.520 get settled. What I would actually say is, I think 0:18:59.600 --> 0:19:03.240 what's more, what's more intriguing is the fact that we've 0:19:03.240 --> 0:19:06.840 seen multiple measures over the past year, and certainly over 0:19:06.840 --> 0:19:09.919 the past month to address the real estate market in 0:19:09.960 --> 0:19:13.199 a much more systematic and truly structural way than we've 0:19:13.200 --> 0:19:16.080 seen in the past. I think this just latest, this 0:19:16.200 --> 0:19:19.400 latest you know, measure with respect to white property white 0:19:19.440 --> 0:19:23.000 list property is a further example of the government's commitment 0:19:23.040 --> 0:19:25.840 to making this right. And I think it's that, frankly, 0:19:25.880 --> 0:19:28.760 that compounding of all these different policies that's more important 0:19:29.119 --> 0:19:31.640 than just the last policy in and of itself. 0:19:32.000 --> 0:19:34.680 The property market problem is just one aspect of this 0:19:34.720 --> 0:19:38.240 deflationary trap to China is caught in when you study 0:19:38.359 --> 0:19:41.959 periods of severe deflation, and I'm thinking of Japan, and 0:19:42.040 --> 0:19:44.199 I don't know whether the analog is apt or not. 0:19:44.840 --> 0:19:48.000 I mean, is it extremely difficult to break from the 0:19:48.040 --> 0:19:49.199 grip of something like this. 0:19:50.560 --> 0:19:53.359 I think Japan is a fantastic analog with respect to 0:19:53.520 --> 0:19:56.840 understanding that some of the issues confronting China. You've got 0:19:57.160 --> 0:20:00.639 the disinflation in the markets, if not outright deflation. You 0:20:00.760 --> 0:20:06.560 have a demographic situation that is going into population decline. 0:20:07.200 --> 0:20:11.840 That's also a confounding element in how Japan. You know, 0:20:11.920 --> 0:20:14.840 essentially Japan had gone through roughly thirty years of economic 0:20:14.880 --> 0:20:17.720 malaise before the last couple of years we've seen that turnaround. 0:20:17.960 --> 0:20:20.560 I think if I were a Chinese policymaker, I'd be 0:20:20.560 --> 0:20:24.280 paying rapt attention to what Japan did over the last 0:20:24.320 --> 0:20:28.000 couple of years to reignite both markets and their economy. 0:20:28.000 --> 0:20:31.040 And a lot of that is just structural reform across booth, 0:20:31.080 --> 0:20:32.399 government and corporate sector. 0:20:33.240 --> 0:20:36.400 So let's talk a little bit about japan expectations here 0:20:36.480 --> 0:20:39.920 that the boj is going to at some point be 0:20:40.040 --> 0:20:43.000 confronted with having to raise interest rates. Whether it happens 0:20:43.000 --> 0:20:45.000 before the end of the year or maybe sometime in 0:20:45.080 --> 0:20:47.800 Q one of twenty twenty five, that's up for debate. 0:20:47.840 --> 0:20:50.480 But I'm looking at a end that is weakened substantially 0:20:50.520 --> 0:20:52.840 here in the last couple of days right now at 0:20:52.880 --> 0:20:55.960 about one point fifty against the greenback. How much pressure 0:20:56.000 --> 0:20:59.040 does this put on the boj to kind of to 0:20:59.080 --> 0:21:00.200 do something essential? 0:21:01.200 --> 0:21:04.439 You know, The end is a it's complicated because it 0:21:04.480 --> 0:21:08.680 cuts both ways. A week end certainly helps exports in 0:21:08.720 --> 0:21:11.000 Japan's one of the largest exporting economies in the world. 0:21:11.000 --> 0:21:15.160 That certainly drives their own economy, and so a weekend 0:21:15.240 --> 0:21:18.600 is a competitive advantage for them obviously relative to relative 0:21:18.640 --> 0:21:23.520 to peers. On the other side, it is essentially importing 0:21:23.560 --> 0:21:27.399 inflation because it makes foreign goods much more expensive in 0:21:27.480 --> 0:21:31.800 Japanese terms, it is a headwind for domestic Japanese consumption, 0:21:31.960 --> 0:21:36.360 and like China, domestic consumption has to be addressed, right, 0:21:36.400 --> 0:21:38.440 And I think for a lot of these export dominated 0:21:38.440 --> 0:21:43.240 economy economies, not just Japan, but China, Germany, having an 0:21:43.280 --> 0:21:46.680 export driven economy means you're dependent on other countries, particularly 0:21:46.720 --> 0:21:49.000 the US, to be the engine of global growth and 0:21:49.000 --> 0:21:52.879 you're really not generating internally. That's a big structural element 0:21:52.920 --> 0:21:55.240 that has to get fixed. So I think the end 0:21:55.280 --> 0:21:59.560 continuing a weekend does make you know, a Japanese consumption 0:21:59.640 --> 0:22:00.840 story harder to attain. 0:22:01.000 --> 0:22:04.119 What you mentioned the fact that it actually benefits the exporters. 0:22:04.119 --> 0:22:05.720 So would you put money to work in some of 0:22:05.720 --> 0:22:07.200