WEBVTT - Tencent Earnings, US July Inflation Data Seals Fed Cut Bets 0:00:02.480 --> 0:00:10.440 Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg 0:00:10.520 --> 0:00:13.720 Daybreak GISIA podcast. I'm Doug Prisner. You can join Brian 0:00:13.800 --> 0:00:16.640 Curtis and myself for the stories, making news and moving 0:00:16.680 --> 0:00:19.560 markets in the APEC region. You can subscribe to the 0:00:19.600 --> 0:00:23.080 show anywhere you get your podcast and always on Bloomberg Radio, 0:00:23.320 --> 0:00:28.200 the Bloomberg Terminal, and the Bloomberg Business app. Let's take 0:00:28.200 --> 0:00:30.319 a closer look now at the ten said story and 0:00:30.440 --> 0:00:32.960 also while we're add it, look ahead to the earnings 0:00:32.960 --> 0:00:35.280 from Ali Baba. Robert Lee is with us. He is 0:00:35.280 --> 0:00:38.960 Bloomberg Intelligence senior analyst, joining us from our studios in 0:00:39.000 --> 0:00:41.519 Hong Kong. Robert, thank you so much. Talk to me 0:00:41.560 --> 0:00:45.120 about the way in which you saw the ten cent results. 0:00:45.159 --> 0:00:47.080 What do we know now that we didn't before? 0:00:48.560 --> 0:00:52.360 Okay, thanks for having me on. Good question. Expectations into 0:00:52.400 --> 0:00:54.800 ten Cents results were quite high. It was well known 0:00:54.800 --> 0:00:59.000 that their gaming business was seeing a renaissance, largely driven 0:00:59.040 --> 0:01:02.440 by you know, very stellar strength coming through one particularly 0:01:02.960 --> 0:01:07.080 particular title called d NF Mobile, and indeed that's what 0:01:07.120 --> 0:01:09.720 they delivered on so the gaming on the gaming front, 0:01:09.760 --> 0:01:13.000 they actually came in the head of expectations and that 0:01:13.080 --> 0:01:16.160 they adjusted operating income level they were seven percent head 0:01:16.360 --> 0:01:20.280 benefiting from a low attacks rate. Overall, they were close 0:01:20.360 --> 0:01:22.360 to twenty percent ahead at the bottom line, so these 0:01:22.400 --> 0:01:26.880 were very strong numbers. So whilst expectations were high, you know, 0:01:26.920 --> 0:01:30.399 they did smash on most metrics. I think the only 0:01:30.640 --> 0:01:34.319 area of potential medium term concern is their fintech business. 0:01:34.760 --> 0:01:38.479 Fintech which they're lumping with their cloud computing business. Cloud 0:01:38.520 --> 0:01:41.240 is quite small for them. By the way, did miss 0:01:41.280 --> 0:01:43.840 expectations on the top line for the second quarter on 0:01:43.880 --> 0:01:46.319 the row and there are you know, read a cross 0:01:46.360 --> 0:01:49.640 to the state of consumer health within the Chinese economy there. 0:01:49.760 --> 0:01:52.800 But again I think that was anticipated, well known and 0:01:52.840 --> 0:01:55.360 that business actually beat at the margin level due to 0:01:55.400 --> 0:01:59.120 a mixshift and with some cost cutting. So overall, you know, 0:01:59.240 --> 0:02:00.160 I think they were good numb. 0:02:00.360 --> 0:02:02.600 These days, when you talk about the cloud, you talk 0:02:02.600 --> 0:02:06.240 about artificial intelligence usually, is that the case with ten Cent? 0:02:07.760 --> 0:02:08.040 Now? 0:02:08.400 --> 0:02:11.280 Yeah, I think compare and contrast with a lot of 0:02:11.280 --> 0:02:13.799 their local peers or even peers you know in the 0:02:13.880 --> 0:02:16.240 US or whatever parts of the world they've really been playing. 0:02:16.280 --> 0:02:19.000 I would describe it the long game in AI. It's 0:02:19.040 --> 0:02:21.919 been conspicuous. You know, the lack of comment on AI 0:02:22.160 --> 0:02:25.400 in their earnings release is really conspicuous compared to a 0:02:25.400 --> 0:02:28.120 lot of others. I mean, absolutely, they're investing in AI, 0:02:28.160 --> 0:02:31.200 They've got a cloud business. There's a lot of steady 0:02:31.600 --> 0:02:34.800 investment going on there, but their focus is more on 0:02:34.919 --> 0:02:38.000 areas they can generate a more immediate return. So I 0:02:38.040 --> 0:02:41.079 think actually that's to their benefit. And given the way 0:02:41.120 --> 0:02:43.680 we see that the whole AI and cloud story evolving 0:02:43.760 --> 0:02:46.400 at the moment, and particularly in China, there are price 0:02:46.440 --> 0:02:49.359 wars in both sectors, I might add, which some people 0:02:49.400 --> 0:02:52.040 may not be aware of. So I think in taking 0:02:52.040 --> 0:02:54.760 a sort of longer term view, in taking a sort 0:02:54.760 --> 0:02:57.160 of slow and steady pace and not being caught up 0:02:57.200 --> 0:03:00.480 with the hype and hyperbole, I think that really been 0:03:00.520 --> 0:03:02.760 to that benefit. And they're clearly delivering in the other 0:03:03.160 --> 0:03:04.359 coueries of the business. 0:03:05.040 --> 0:03:06.799 You were talking a moment ago about the weakness and 0:03:06.840 --> 0:03:09.760 the Chinese consumer. That really shouldn't come as much of 0:03:09.760 --> 0:03:11.840 a surprise, but I'm curious as to whether or not 0:03:11.880 --> 0:03:16.160 there are variations across different demographics. I mean, if I'm 0:03:16.240 --> 0:03:19.560 talking about gaming, I'm thinking in my own mind that 0:03:19.600 --> 0:03:21.880 you're looking a little bit at the younger crowd, and 0:03:22.600 --> 0:03:25.120 maybe they have a little bit more spending capacity. I 0:03:25.160 --> 0:03:30.000 don't know. I mean, is there some differentiation across the demographics. 0:03:31.280 --> 0:03:33.480 Again, we could talk about this for a long time. 0:03:33.760 --> 0:03:36.000 There are a few contradictory factors here, because I think 0:03:36.000 --> 0:03:39.160 it's well known the level of youth unemployment is in 0:03:39.240 --> 0:03:42.560 China is actually quite high. However, I think, you know, 0:03:43.040 --> 0:03:45.640 and as the father of a teenage son myself, I 0:03:45.640 --> 0:03:48.480 think he would spend his last dime on games. You know, 0:03:48.560 --> 0:03:51.080 games is probably the sole focus of his life at 0:03:51.120 --> 0:03:53.920 the moment. You know, he is dating that he's a 0:03:53.920 --> 0:03:56.040 bit ahead of his dating games. So once he discovers 0:03:56.400 --> 0:03:59.320 the other members of the opposite sex, perhaps things will change. 0:03:59.480 --> 0:04:04.280 But I think, yeah, gaming is a major pastime in China, 0:04:04.400 --> 0:04:07.480 as with much of Asia, and yes it is mainly 0:04:07.960 --> 0:04:11.280 a younger demographic, but there are the odd people sort 0:04:11.280 --> 0:04:13.520 of closer to our age that indulge in it as well. 0:04:14.480 --> 0:04:17.240 But the slowdown on the Chinese consumer side has been 0:04:17.279 --> 0:04:21.039 known for some time, and I think how Tencent compares 0:04:21.279 --> 0:04:24.000 or contrast with Ali Barbar is Ali Baba as far 0:04:24.040 --> 0:04:26.840 more exposed to big tick, the purchase of big ticket items, 0:04:27.120 --> 0:04:30.960 whereas a lot of Tencent's fintech business is more revolves 0:04:30.960 --> 0:04:34.480 around day to day spend, spending on lunches, coffees, taxes, 0:04:34.520 --> 0:04:37.479 that type of thing, and you might argue that's less 0:04:37.480 --> 0:04:40.880 discretioning nature, it's more essential and therefore should hold up 0:04:40.880 --> 0:04:44.560 a little bit better in relative terms in a consumer 0:04:44.880 --> 0:04:47.360 in a slow and consumer environment. So again, it doesn't 0:04:47.360 --> 0:04:51.240 make it immune from slow in consumer strength, but as 0:04:51.240 --> 0:04:53.320 I said, I think it makes it slightly more resilient. 0:04:53.520 --> 0:04:55.080 But from our point of view, the key thing is 0:04:55.080 --> 0:04:56.920 the margin on that side was ahead. 0:04:57.040 --> 0:04:59.799 So I'm glad you brought up Ali Baba because tomorrow 0:04:59.839 --> 0:05:02.159 more in US before the Opening Bill, will get the 0:05:02.240 --> 0:05:04.919 numbers the ADRs will trade, I guess before the shares 0:05:04.960 --> 0:05:07.919 in Hong Kong. Is there anything that we should know 0:05:08.040 --> 0:05:11.680 about what Baba has been up to and what we 0:05:11.760 --> 0:05:12.680 may learn tomorrow? 0:05:13.760 --> 0:05:16.080 Okay, very briefly, I mean strategically, they were going to 0:05:16.080 --> 0:05:18.120 spin off their businesses a year ago that ended a 0:05:18.120 --> 0:05:22.400 one hundred and eighty degree about turn on that they 0:05:22.440 --> 0:05:25.280 have been putting huge effort into try and stabilize and 0:05:25.320 --> 0:05:28.520 regrow their market share, having come under you know, intense 0:05:28.560 --> 0:05:34.520 competition from low cost disruptors like Sheen and Timu. So absolutely, 0:05:35.240 --> 0:05:38.719 I would imagine we should see evidence of them, as 0:05:38.720 --> 0:05:41.400 I said, stabilizing or regaining some share, but at what 0:05:41.480 --> 0:05:44.159 cost to the margin. So I think that's the big 0:05:44.279 --> 0:05:46.760 risk point or danger point that people should focus on there. 0:05:47.720 --> 0:05:51.560 You know, it's it's intensely competitive, and again given the 0:05:51.600 --> 0:05:55.360 backdrop of slow and consumer growth, so there's a risk 0:05:55.440 --> 0:05:58.640 that they could miss on margin front. And also from 0:05:58.680 --> 0:06:02.120 their strategic point of view, they AI and cloud computing 0:06:02.200 --> 0:06:04.440 as the core drivers of their future growth. As I 0:06:04.480 --> 0:06:07.159 mentioned a moment ago, both those sectors are locked in 0:06:07.240 --> 0:06:09.880 pretty vicious price wars at the moment, so again there's 0:06:09.920 --> 0:06:11.760 a potential negative margin impact there. 0:06:12.120 --> 0:06:14.520 It's very interesting because we were talking about kind of 0:06:14.560 --> 0:06:17.520 the e commerce side of the business. I'm equally curious 0:06:17.560 --> 0:06:20.800 about what's going on with digital media and entertainment at 0:06:20.800 --> 0:06:23.480 Ali Baba. Since we were talking kind of about the 0:06:24.200 --> 0:06:28.240 game market in China. Is the same trend going to 0:06:28.320 --> 0:06:31.160 show up when you're talking about kind of the pullback 0:06:31.200 --> 0:06:33.120 and spending, is it going to show up in digital 0:06:33.120 --> 0:06:34.560 media and entertainment as well? 0:06:36.000 --> 0:06:38.200 So I guess again sort of focus more on the 0:06:38.240 --> 0:06:41.159 game front or even some of the streaming service. So 0:06:41.200 --> 0:06:44.440 there's a company called it which is essentially the Netflix 0:06:44.480 --> 0:06:48.120 of China. You may say, yes, but these en markets 0:06:48.720 --> 0:06:50.840 have built out very rapidly in the last ten to 0:06:50.920 --> 0:06:53.200 fifteen years, and there there are a sort of saturated 0:06:53.279 --> 0:06:55.440 point at the moment. So the growth out look with 0:06:55.520 --> 0:07:00.160 Annam isn't particularly you know, bullish, I would say, And 0:07:00.200 --> 0:07:04.760 again they are subject to slow in consumer So we 0:07:04.839 --> 0:07:08.200 are seeing heightened levels of competition in those sectors as 0:07:08.279 --> 0:07:12.000 companies fight it out again to either retain their market 0:07:12.040 --> 0:07:14.840 share or build market share, and I think, you know, 0:07:14.920 --> 0:07:17.239 to the detriment of margin again, So that's a trend 0:07:17.280 --> 0:07:20.120 we're seeing on that media and entertainment side as well. 0:07:21.040 --> 0:07:22.480 So I guess the question is, you know, where are 0:07:22.560 --> 0:07:24.560 real growth drivers in China at the moment. I think 0:07:24.600 --> 0:07:28.240 AI will ultimately evolve into one, but you know, given 0:07:28.280 --> 0:07:30.040 we're locked in a price or at the moment, no 0:07:30.080 --> 0:07:32.000 one's going to make profit this year or next in it. 0:07:32.200 --> 0:07:33.680 Yeah, I don't know if you saw this in the 0:07:33.760 --> 0:07:36.920 US station, we learned that Michael Burry further increased his 0:07:36.960 --> 0:07:39.800 stake in Ali Baba while at the same time interestingly 0:07:40.160 --> 0:07:45.560 reducing his overall equity portfolio in half. That's quite a 0:07:45.680 --> 0:07:49.800 dramatic cut. Did that happen during Q two very quickly? Here, Robert, 0:07:50.080 --> 0:07:52.680 When we talked about ten Cent in the past and 0:07:52.760 --> 0:07:55.040 Ali Baba, there was always this looming cloud of a 0:07:55.040 --> 0:07:57.920 little bit more on the regulatory front. Is that dissipated 0:07:57.960 --> 0:07:59.080 completely very quickly? 0:08:00.080 --> 0:08:00.280 Okay. 0:08:00.320 --> 0:08:02.920 Buzzword of the year has been new productive forces. The 0:08:03.000 --> 0:08:05.880 Chinese government looks to the tech sector as a major 0:08:05.920 --> 0:08:09.400 driver of future economic growth. Ali Baba and Tencent are 0:08:09.440 --> 0:08:13.600 the two largest companies with bi edance and Huawei's. 0:08:13.040 --> 0:08:13.920 Way as well. 0:08:13.920 --> 0:08:16.760 They're stalwarts of the economy. There therefore need to be 0:08:16.800 --> 0:08:20.200 on good relations with them. Therefore, the regulatory environment and 0:08:20.280 --> 0:08:22.560 outlook is more stable and should remain that way. 0:08:23.320 --> 0:08:25.400 Robert, it's always a pleasure. Thanks for making time to 0:08:25.480 --> 0:08:27.800 chat with us here on debreak Asia. That is Robert Lee, 0:08:27.880 --> 0:08:31.560 a Bloomberg Intelligence senior analyst, joining us from Hong Kong. 0:08:31.920 --> 0:08:34.360 Looking at what we heard today from ten Cent and 0:08:34.480 --> 0:08:45.120 what we may hear tomorrow from Ali Baba. Let's bring 0:08:45.120 --> 0:08:48.160 in Kyu Jin, she's in Beijing. Good of you to 0:08:48.240 --> 0:08:50.280 join us, aren't you normally based in London? 0:08:51.640 --> 0:08:53.480 I am except for the summer holidays. 0:08:53.600 --> 0:08:56.720 All right, are you having a good summer in China? 0:08:56.920 --> 0:08:58.920 Very hot as you can imagine. 0:08:59.000 --> 0:09:00.960 So what's your view on the economy? How well is 0:09:00.960 --> 0:09:03.160 it doing? Just anecdotally. 0:09:04.440 --> 0:09:09.640 Anecdotally and whether it's in the data or anecdotes or 0:09:09.679 --> 0:09:13.360 micro level or macro level, it's all doing pretty pretty 0:09:13.400 --> 0:09:17.280 poorly compared to China's economic potential. 0:09:17.600 --> 0:09:20.000 So you're based in London, and I'm sure you're being 0:09:20.760 --> 0:09:22.640 very good about keeping up with a lot of the 0:09:22.840 --> 0:09:26.400 economic indicators. Is it worse than you imagine? 0:09:28.320 --> 0:09:33.320 It is getting even worse than we had previous expected. 0:09:33.400 --> 0:09:36.680 And of course I speak frequently to policymakers and to entrepreneurs, 0:09:37.160 --> 0:09:40.240 and I spend a third of my time in China, 0:09:40.360 --> 0:09:41.240 so you. 0:09:41.240 --> 0:09:42.520 Feel that on the ground. 0:09:43.559 --> 0:09:47.760 It's particularly frustrating, given that I still believe there are 0:09:47.760 --> 0:09:50.599 lots of things that can be done to save the economy, 0:09:50.679 --> 0:09:52.960 to put the economy on a very normal path, which 0:09:53.080 --> 0:09:56.200 is going to be pretty good, given that there's so 0:09:56.280 --> 0:10:00.679 much untapped potential. I mean, China's nowhere near done with 0:10:00.960 --> 0:10:05.120 economic reforms or economic growth, moving it along to the 0:10:05.320 --> 0:10:09.239 kind of more rich income status. I think the approximate 0:10:09.360 --> 0:10:12.559 factors which we talk about is really real estate dragging. 0:10:12.200 --> 0:10:14.160 Down investment, dragging down confidence. 0:10:14.760 --> 0:10:17.840 But I think there's also been a deeper issue at 0:10:17.840 --> 0:10:20.400 the heart of this, which is a shift away from 0:10:20.480 --> 0:10:24.880 economics as front and center objective into other issues like 0:10:24.960 --> 0:10:27.720 national security and social considerations. 0:10:27.960 --> 0:10:30.040 One of the things that I was just thinking about 0:10:30.040 --> 0:10:32.120 today this move on the part of the central bank 0:10:32.160 --> 0:10:35.600 to do what may have been called in the version 0:10:35.600 --> 0:10:37.480 that we got in the United States and in Europe, 0:10:37.600 --> 0:10:42.960 quantitative easing. How well is that working, or maybe why 0:10:43.000 --> 0:10:43.600 isn't it. 0:10:45.240 --> 0:10:47.600 Well? If you look at the Chinese economy, it's not 0:10:47.720 --> 0:10:50.840 so the overall economy. That's to say, it's not as 0:10:50.920 --> 0:10:55.080 sensitive to interest rate cuts, and so there's room to cut, 0:10:55.120 --> 0:10:57.720 and you know you can do that further. But monetary 0:10:57.720 --> 0:11:01.280 policy has been less and less effective over the last 0:11:01.360 --> 0:11:04.160 few years, and part of the reason comes bound back 0:11:04.200 --> 0:11:06.600 to a fundamental institutional. 0:11:05.960 --> 0:11:07.520 Constraint, which is the financial system. 0:11:07.520 --> 0:11:10.160 If you look at the structure of financial system, many 0:11:10.200 --> 0:11:14.439 institutions are state related, state bank dominant, and they prefer 0:11:14.520 --> 0:11:17.600 to land to state enterprises. So when you actually get 0:11:17.640 --> 0:11:21.120 to get the credit to where it's most needed, and 0:11:21.240 --> 0:11:23.480 the interest rate cuts, the real economy. That's to say, 0:11:23.480 --> 0:11:26.520 the private enterprise, small medium firms, their cost of capital 0:11:26.640 --> 0:11:29.880 is extremely high, so it doesn't really work for them, 0:11:29.960 --> 0:11:33.200 but they are the ones that need or are sensitive 0:11:33.240 --> 0:11:34.440 to these interest rate costs. 0:11:35.120 --> 0:11:36.760 Is there a real risk if there's going to be 0:11:36.800 --> 0:11:40.960 a protracted problem with deflation and the type of situation 0:11:41.080 --> 0:11:43.960 that it will be extremely difficult from which to emerge. 0:11:45.200 --> 0:11:49.160 Well, Currently the deflation is primarily driven by food prices 0:11:49.520 --> 0:11:54.640 to a certain extent, and we're not seeing the kind 0:11:54.679 --> 0:12:00.400 of the repeated patterns of ultimate deflationary trends quite some yet. Yes, 0:12:01.360 --> 0:12:04.360 if this prolongs, prolongs for a more period of time, 0:12:04.440 --> 0:12:07.680 longer period of time, then there could be an overall 0:12:07.880 --> 0:12:11.600 level of deflation, which the government is trying to counter. 0:12:11.640 --> 0:12:14.000 If you look at more specifically the service sector that's 0:12:14.040 --> 0:12:18.960 actually doing pretty okay, there's a greater demand in services. 0:12:19.320 --> 0:12:22.160 If you look at the recent performance of the Chinese economy, 0:12:22.200 --> 0:12:27.400 whatever has to do with outward oriented economic sectors like exports, 0:12:27.400 --> 0:12:31.640 like manufacturing, like high tech, it's doing okay. Wherever it's 0:12:31.679 --> 0:12:34.960 related to internal demand issues, it's much much weaker. I 0:12:34.960 --> 0:12:39.640 wouldn't worry about deflation just yet. But again, a longer 0:12:39.679 --> 0:12:41.959 and more sustained period of time that becomes a real problem. 0:12:42.120 --> 0:12:44.960 Should we be concerned about a lost generation of young 0:12:45.000 --> 0:12:45.800 people in China? 0:12:47.880 --> 0:12:50.839 Possibly, but I would say that that's also global phenomenon 0:12:50.920 --> 0:12:56.920 as well. The high unemployment rate currently is still a cyclical, 0:12:57.040 --> 0:13:00.559 potentially a cyclical phenomenon. I think that if you look 0:13:00.600 --> 0:13:03.920 at the number of jobs that are available, there are 0:13:04.000 --> 0:13:07.240 still many, many jobs available in manufacturing, something like twenty 0:13:07.240 --> 0:13:10.640 five million until twenty twenty five, hundreds of thousands of 0:13:10.720 --> 0:13:15.199 talent gap in semiconductors. But there's really a skill education mismatch. 0:13:15.679 --> 0:13:20.240 These young children our study a lot, their parents spend 0:13:20.280 --> 0:13:22.800 a lot of money financing their education. They can't find 0:13:22.800 --> 0:13:25.640 the jobs they want because structure of the economy is 0:13:25.679 --> 0:13:28.040 not geared towards them. To open up the service sectors 0:13:28.360 --> 0:13:33.280 promote vocational training education, and I think we can avoid that. 0:13:33.880 --> 0:13:36.080 You were talking a moment ago about the government spending 0:13:36.080 --> 0:13:39.320 heavily on kind of military hardware and the like. I 0:13:39.360 --> 0:13:42.360 know you're an economist by training, but to what extent 0:13:43.040 --> 0:13:46.760 is geopolitics now becoming a factor, not just in terms 0:13:46.760 --> 0:13:50.280 of building up military hardware, but in the possibility that 0:13:50.320 --> 0:13:52.520 we could be looking at or China could be looking 0:13:52.600 --> 0:13:54.120 at some new tariffs from the US. 0:13:56.240 --> 0:14:00.440 All of that, Joe political ships have really shaped the 0:14:00.520 --> 0:14:04.960 direction of the Chinese economy, focusing on high tech. And 0:14:05.040 --> 0:14:07.679 this is not just the military aspect of it, but 0:14:07.720 --> 0:14:12.200 also the pursuit of technological independence because there's an existential 0:14:12.240 --> 0:14:15.400 fear not only the Chinese government also Chinese enterprises that 0:14:15.400 --> 0:14:18.200 they will be cut off from the critical components that 0:14:18.240 --> 0:14:21.760 are needed, that they need, and so there's been a 0:14:21.880 --> 0:14:25.880 focus on a high tech and innovation. Of course that 0:14:26.000 --> 0:14:28.800 is not big enough despite its success in China to 0:14:28.960 --> 0:14:33.360 offset the real estate downball and of course. 0:14:33.280 --> 0:14:35.760 Terrafs that's going to be a looming theme. 0:14:36.200 --> 0:14:41.240 But we're seeing lots of trade organization from dam to 0:14:41.400 --> 0:14:44.360 Mexico and other potential places to counter some of. 0:14:44.320 --> 0:14:45.320 That trade tension. 0:14:45.600 --> 0:14:50.080 Great conversation, Thank you so much, Kayu Jin from Beijing 0:14:50.360 --> 0:14:52.080 joining us here. We'll have to have you back for 0:14:52.160 --> 0:14:55.840 some more conversation. And her book is The New China Playbook. 0:14:55.880 --> 0:14:57.840 It's a worthwhile read. You can get that at your 0:14:57.880 --> 0:15:10.360 local bookstore. Jamie Bathmurray is chief financial officer at Creative Planning, 0:15:10.440 --> 0:15:13.240 joining us from Kansas City. So are you a Chiefs fan, 0:15:13.240 --> 0:15:15.640 I would I would hope, I would imagine that the 0:15:15.680 --> 0:15:16.920 answer is yes, right. 0:15:17.680 --> 0:15:21.000 Oh, absolutely, born and raised, lived all over the world, 0:15:21.000 --> 0:15:23.960 lived in Asia. But being a NC Chiefs fan hearing 0:15:23.960 --> 0:15:27.680 the Taylor swift is juicing the revenue by thirty percent, 0:15:27.800 --> 0:15:28.720 yet you have to love it. 0:15:29.000 --> 0:15:31.360 Yeah, that's right. So when you look at the equity 0:15:31.400 --> 0:15:33.920 trade right now, what's going to juice the returns for 0:15:33.960 --> 0:15:34.760 the equity market? 0:15:36.360 --> 0:15:38.960 Yeah, I mean what typically juices the returns? 0:15:38.960 --> 0:15:43.120 I mean keeping calm and carrying on and taking advantage 0:15:43.440 --> 0:15:46.920 of volatility brought on by others in their panic selling. 0:15:47.320 --> 0:15:51.400 I mean specifically in the Asian markets. Obviously the dislocation 0:15:51.520 --> 0:15:56.240 that occurred last Monday in the carry trade, the yin 0:15:56.360 --> 0:16:00.160 carry trade, and really, you know what happened then is 0:16:00.360 --> 0:16:03.119 what's kind of at the core of our overall investment philosophy, 0:16:03.200 --> 0:16:06.080 that the traders, the short term traders, are punished, but 0:16:06.720 --> 0:16:10.040 long term investors can actually benefit from it, using to 0:16:10.240 --> 0:16:14.240 volatility to actually rebalance move money from more conservative assets 0:16:14.240 --> 0:16:18.000 into aggressive assets, not making a specific market call, but 0:16:18.120 --> 0:16:21.800 just that redeployment from a conservative bucket to an aggressive bucket. 0:16:22.040 --> 0:16:24.560 When markets have these occasional dislocations like this that we 0:16:24.600 --> 0:16:28.280 haven't seen in several years. It usually works out in 0:16:28.320 --> 0:16:30.400 the short run, and it always works out in the 0:16:30.440 --> 0:16:33.040 long run. And again we're happy to report that it 0:16:33.120 --> 0:16:34.520 did work out in the short run here and we 0:16:34.560 --> 0:16:36.560 had four of the best trading days of the year 0:16:37.040 --> 0:16:39.680 right on the heels of the volatility. So the hot 0:16:39.720 --> 0:16:45.359 dot is it's always keeping calm and carrying on when 0:16:45.560 --> 0:16:49.440 others are dislocated because of fear greed. 0:16:49.640 --> 0:16:52.920 We heard from a former BOJ member in the last week. 0:16:53.000 --> 0:16:55.080 He was saying that the BOJ is probably not going 0:16:55.160 --> 0:16:57.320 to be able to move until next March. So if 0:16:57.360 --> 0:17:01.080 you accept that notion, give mere sense of how well 0:17:01.120 --> 0:17:05.000 the Japanese economy is performing right now and whether or 0:17:05.040 --> 0:17:08.280 not there's a risk that things deteriorate. 0:17:10.920 --> 0:17:13.760 Yeah, I mean being you know, the very you know, 0:17:14.000 --> 0:17:17.520 a localized issue became a very global macro issue. So 0:17:17.560 --> 0:17:19.560 it's kind of forcing the bo j's hand as they 0:17:19.560 --> 0:17:23.320 were finally kind of making an adjustment of this zero 0:17:23.400 --> 0:17:26.399 bound or negative bound interest rate environment that they've been 0:17:26.480 --> 0:17:29.760 they've been in for for decades. You know, it's kind 0:17:29.760 --> 0:17:34.040 of going against the grain of global central banks. You know, 0:17:34.119 --> 0:17:37.600 the need to you know, reduce interest rates, but now 0:17:37.640 --> 0:17:40.000 that kind of been forced to be put on hold. 0:17:40.040 --> 0:17:44.520 So yes, it's really really it can be a challenge. 0:17:44.560 --> 0:17:47.720 It could still out the economy more after we finally 0:17:47.760 --> 0:17:51.000 see momentum and in seeing kind growth and especially growth 0:17:51.000 --> 0:17:53.320 in that the equity markets that we hadn't seen in 0:17:53.400 --> 0:17:54.120 quite some time. 0:17:54.280 --> 0:17:55.520 So so yeah, these. 0:17:55.480 --> 0:17:58.159 Macro concerns are are kind of forcing their hand, pushing 0:17:58.160 --> 0:18:02.320 them into a corner that would lead to further deterioration 0:18:02.440 --> 0:18:03.280 in the overall market. 0:18:03.600 --> 0:18:06.199 And the number of conversations that I've had on this 0:18:06.280 --> 0:18:09.600 program with guests that know Japan very well point to 0:18:09.640 --> 0:18:12.560 the problems in China and they make that connection as 0:18:12.640 --> 0:18:15.080 long as China remains weak, Japan is going to be 0:18:15.119 --> 0:18:18.119 hurt by that. Would you agree with that? Imagine you would. 0:18:19.720 --> 0:18:20.560 To an extent. 0:18:20.800 --> 0:18:24.360 Yes, But you know, again again speaking for our particular 0:18:24.440 --> 0:18:26.560 client base, you know, we manage approximately three hundred and 0:18:26.600 --> 0:18:30.040 fifty billion dollars in assets, and everything we do is 0:18:30.119 --> 0:18:33.960 driven by the historical, empirical data and academic research, and 0:18:34.000 --> 0:18:36.479 so we want that global presence. We're actually encouraging clients 0:18:36.520 --> 0:18:39.840 to stay in the international markets, stay in the emerging markets. 0:18:40.080 --> 0:18:42.320 You're not running from them, not not chasing the hot 0:18:42.359 --> 0:18:46.320 dots of domestic technology. And yes, well while mainland China's 0:18:46.320 --> 0:18:49.360 suffering some policies, you know, the policies that could be 0:18:49.520 --> 0:18:53.640 you know, argued as non growth oriented, they're not the 0:18:53.920 --> 0:18:56.960 alpha dog they were before. I mean you factoring kind 0:18:56.960 --> 0:18:59.199 of you know, the em world is kind of becoming 0:18:59.680 --> 0:19:02.159 more more ulti pooler. And yes, you know mainland Chine 0:19:02.240 --> 0:19:05.440 dominated just a few years ago, but you know, India's 0:19:05.480 --> 0:19:09.320 caught up, got on parody, Taiwan's caught up, gotten parody, 0:19:09.760 --> 0:19:12.720 and so you know, a really healthy kind of diversification 0:19:12.800 --> 0:19:16.399 play within that. And so hopefully even though mainland China's 0:19:16.720 --> 0:19:19.840 set version in Japan being so close to the world's 0:19:19.840 --> 0:19:23.200 second largest economy, I feel like the flows to other 0:19:23.800 --> 0:19:26.439 markets kind of within that segment or at least comfort 0:19:26.480 --> 0:19:30.040 with our investors, and we're encouraging them to maintain or 0:19:30.960 --> 0:19:34.240 extend those positions. We'll hopefully be seeing as the positive 0:19:34.320 --> 0:19:37.760 and not nearly a dependent at mainland China as it 0:19:37.760 --> 0:19:40.280 has been on the path. And again, just the overall 0:19:40.359 --> 0:19:44.720 dynamic of emerging market indexes in those other markets catching up. 0:19:44.960 --> 0:19:47.639 I think his testament to hopefully be able to reduce 0:19:47.680 --> 0:19:48.680 that overall dependence. 0:19:49.040 --> 0:19:51.159 So away from EM, how are you feeling about the 0:19:51.320 --> 0:19:54.120 US And if you could talk to me about the 0:19:54.160 --> 0:19:58.960 proportion of EM relative to let's say, US domestic equities, 0:19:59.000 --> 0:20:00.880 I mean, what's the balance for you right now? 0:20:02.000 --> 0:20:05.840 Yeah, I mean we, as I mentioned, we let the historical, 0:20:05.840 --> 0:20:08.480 empirical data and academic research try to drive all of 0:20:08.480 --> 0:20:12.000 our decision making in the public markets. Really just trying 0:20:12.040 --> 0:20:13.959 to avoid you know, that hot dot chasing. 0:20:14.320 --> 0:20:14.880 You know, it's like. 0:20:14.840 --> 0:20:17.959 That that that that friend that's always wearing the hottest 0:20:17.960 --> 0:20:20.280 trends or you know, working at you know, you know, 0:20:20.359 --> 0:20:23.479 the the hot store of the buckles, you know, and 0:20:23.520 --> 0:20:26.359 you know that late nineties had frosted tips hair and 0:20:26.400 --> 0:20:29.480 then constantly changing. Well, you're just chasing the trend of 0:20:29.520 --> 0:20:32.520 the moment, and you're probably losing out on the accreted 0:20:32.640 --> 0:20:36.359 value of prudence over long run. And so we're telling 0:20:36.440 --> 0:20:39.119 our clients stick with it. Yes, it has been the 0:20:39.200 --> 0:20:44.000 decade of large cap domestic US growth, but again, success 0:20:44.040 --> 0:20:46.960 is measured in decades, not a ten year period, not 0:20:47.000 --> 0:20:47.680 a five year period. 0:20:47.680 --> 0:20:49.560 And I'm shorter than that, and you know, you only 0:20:49.600 --> 0:20:50.640 have to step back to. 0:20:50.600 --> 0:20:52.800 The decade before you kind of the first decade of 0:20:52.800 --> 0:20:56.480 the New millennium where for an entire ten year period, 0:20:56.520 --> 0:20:59.280 the S and P five hundred was down about ten percent, 0:20:59.680 --> 0:21:02.520 you know, large cap growth. Domestic US large cap growth 0:21:02.560 --> 0:21:05.280 was down a full thirty three percent. Yeah, well, emerging 0:21:05.280 --> 0:21:07.480 markets was up almost two hundred percent. Small caps are 0:21:07.560 --> 0:21:09.800 up one hundred percent. So you have to keep calm, 0:21:10.160 --> 0:21:13.000 you know, not chase the hot dot, and make sure 0:21:13.000 --> 0:21:16.919 you have a globally diversified portfolio based upon global market capitalization. 0:21:17.119 --> 0:21:20.280 But to be fair, everyone has their own individual time horizons, 0:21:20.320 --> 0:21:22.640 and we may not have ten years. I may need 0:21:22.680 --> 0:21:25.280