Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: Welcome to the Bloomberg Daybreak Asia podcast. I'm Doug Chrisner.
Speaker 2: In the last US session, we had a rally in
Speaker 2: chip makers, led by Intel. Those shares jumped sixteen percent
Speaker 2: on reports that Intel could be broken up in a
Speaker 2: deal involving TSMC and Broadcom. And in a moment we'll
Speaker 2: take a look at the price action in the States
Speaker 2: with Jim Thorn. He is chief market strategist at Wellington
Speaker 2: Alta's Private wealth. But let's begin in Hong Kong. Joining
Speaker 2: us now is Jason Lu. He is head of APAC
Speaker 2: Equity and Derivative Strategy at BNP Periba. Jason, thanks for
Speaker 2: joining us. I'd like to start with the story on
Speaker 2: what we saw yesterday in Chinese tech stocks. According to
Speaker 2: what I was reading, much of this move higher was
Speaker 2: tied to President Chi Jinping's public meeting with some leaders
Speaker 2: of big tech in China. What do you make of
Speaker 2: what's been happening?
Speaker 3: Sure, thanks for having me on. Certainly yesterday's rally, it's
Speaker 3: quite impressive, especially on the back of already a very
Speaker 3: strong rally. So I think what we need to do
Speaker 3: is perhaps take a look back at what has happened
Speaker 3: over the past week, because I think all of these
Speaker 3: are a little bit interconnected. You could argue that everything
Speaker 3: started around deepsey our one model, because they originally announced
Speaker 3: a V three back in December, but with lesser kind
Speaker 3: of global popularity. So I think the success of deep
Speaker 3: cr Run has fundamentally changed investor perception on Chinese equity
Speaker 3: and tech in particular, where there's now an understanding that
Speaker 3: Chinese tech company can be competent globally and perhaps operating
Speaker 3: at a much lower cost than the global peers. I
Speaker 3: think the President She's meeting it's also a continuation of
Speaker 3: that thing because previously President She held a similar meeting
Speaker 3: with a high level private enterpainse As entrepreneurs back in
Speaker 3: twenty eighteen, and some local observer attributed this to the
Speaker 3: rally that we have seen subsequently in the market. And
Speaker 3: so the way we interpret the latest situation is that
Speaker 3: I think the policy makers in China have also realized
Speaker 3: the power or the breakthrough that some of these recent
Speaker 3: technology announcement has came through, and it greatly increased the
Speaker 3: confidence in the market. And so I think President She's
Speaker 3: meeting together with several high level officials further confirmed that
Speaker 3: the Chinese policy makers are now very much embracing these
Speaker 3: technological breakthrough and so we should anticipate further policy support
Speaker 3: for the private enterprise, and that perhaps, like you said,
Speaker 3: contributed to the further rally that we've seen yesterday.
Speaker 2: I'm trying to understand whether or not the enthusiasm is
Speaker 2: more tied to artificial intelligence and by extension, cloud computing.
Speaker 2: Maybe we can put that under the umbrella of software
Speaker 2: more so than on the hardware side. Do you think
Speaker 2: that's fair.
Speaker 3: I think at this stage the rally, certainly investors are
Speaker 3: becoming more selective on how they are positioning. We have
Speaker 3: seen a similar transition like in the US. You may
Speaker 3: recall that when the CHGPT phenomenon first started, I think
Speaker 3: most investors were solely focusing on the hardware side of
Speaker 3: things because there's just so much demand on AI data
Speaker 3: center and now we're gradually moving to software. So what
Speaker 3: is happening in China at the moment is this very
Speaker 3: condensed version of what we experience in US and to
Speaker 3: some extend in Europe over the past one to two years.
Speaker 3: I think if some of you who have experienced these
Speaker 3: new Chinese AI, you would notice that there's still a
Speaker 3: little bit of that bottleneck when it comes to processing speeds.
Speaker 3: So perhaps the cloud computing has been raised to a
Speaker 3: higher urgency because they desperately need more bandwidth to handle
Speaker 3: this surprising demand globally as well. The other thing worth
Speaker 3: noting is from a index composition perspective, because there is
Speaker 3: a significant difference in terms of the index composition of
Speaker 3: the companies listed in the Hong Kong market versus the
Speaker 3: China onshore market. The best example is that a lot
Speaker 3: of these well known Chinese internet companies are only listed
Speaker 3: in Hong Kong, and some of them do have ADR listing,
Speaker 3: whereas in the onshore market, the major large cap industries
Speaker 3: tends to be overexposed to traditional industry like financials and
Speaker 3: consumer staples, which may have exacerbated that kind of difference
Speaker 3: in terms of price action that you're observing in Hong
Speaker 3: Kong relative to the China onshore market.
Speaker 2: I'm hoping you can give me a little bit of
Speaker 2: insight into what's happening with the robotics industry in China
Speaker 2: and whether or not it's a place to look at
Speaker 2: closely when making the choice of putting capital to work.
Speaker 3: You mentioned about robotics, and certainly we have seen in
Speaker 3: industry trade shows and some of these promotional video in
Speaker 3: the social media that the Chinese companies are making very
Speaker 3: good progress. And in fact, at the so called Spring
Speaker 3: Festival Gala, which is one of the most watched show
Speaker 3: by the Chinese kind of consumer, one of the segment
Speaker 3: actually feature a robot doing a tradition Chinese stands, which
Speaker 3: actually gather a lot of attention. And going back to
Speaker 3: your earlier point about President She's meeting with private entrepreneur.
Speaker 3: One of the entrepreneurs actually is the CEO of that
Speaker 3: particular robotic company that was featured at the Spring Festival Galas.
Speaker 3: So certainly, from a policy making standpoint, there seems to
Speaker 3: be a lot of policy support, I think when it
Speaker 3: comes to investing, however, there's also this divide between private
Speaker 3: market versus public market. A lot of these robotic companies
Speaker 3: are still in the startup phase, so I think most
Speaker 3: of the opportunity happens to be in the private space.
Speaker 3: But we have indeed seen investors trying to ask the
Speaker 3: question what are the suppliers? And I think that is
Speaker 3: one area that for the listed market. People are also
Speaker 3: focusing on at the moment, trying to understand that supply
Speaker 3: chain dynamics, because there's a lot of understanding about the
Speaker 3: ev supply chain. I think we're still at the stage
Speaker 3: of understanding a lot of these robotics supply chain as well.
Speaker 2: I think we can agree Jason that the one thing
Speaker 2: that continues to hold back economic activity in China and
Speaker 2: investment for that matter, is the property market. And we're
Speaker 2: getting indications maybe that there's some type of nationalization when
Speaker 2: it comes to China's VUNKA, and I'm wondering whether that
Speaker 2: would send a signal that policymakers in Beijing are really
Speaker 2: trying to do a lot more to bring stability not
Speaker 2: only did the property market. Maybe it's a little bit
Speaker 2: more than stability, it's something where it looks as though
Speaker 2: a solid floor has been put under the market. Is
Speaker 2: that too much to say?
Speaker 3: I think that's a great question, because it is true
Speaker 3: that the AI development today will not resolve the property
Speaker 3: situation in the near term, but it does play a
Speaker 3: part of this overall confidence positive feedback loop. Because part
Speaker 3: of the reason why the Chinese property market is struggling
Speaker 3: is because in consumer as a whole lacking confidence not
Speaker 3: just about their own job prospect, but perhaps to the
Speaker 3: economic development as well. So if part of that confidence
Speaker 3: can be raised thanks to the technological breakthrough, it certainly
Speaker 3: helped kind of change the narrative. I think it's also
Speaker 3: worth keeping in mind that the Chinese household in aggregate
Speaker 3: has actually increased their savings over the years. In fact,
Speaker 3: according to PBOC data as off end of last year,
Speaker 3: the Chinese household as a group actually have one hundred
Speaker 3: and fifty trillion women be worth of savings, and so
Speaker 3: there's certainly some dry powder in the bank account, but
Speaker 3: I think they just don't feeling confident enough to deploy
Speaker 3: that capital into the property market. And so if indeed,
Speaker 3: like you mentioned, there is some resolution of some of
Speaker 3: the troubled property developer, it can certainly play the other
Speaker 3: part of rebuilding that confidence. But our view is that
Speaker 3: this process may take a little bit longer because there's
Speaker 3: still a lot of excess infantry to be digest. But
Speaker 3: if there's indeed a change in the feedback loop when
Speaker 3: it comes to confidence and consumer kind of spending, I
Speaker 3: think this will certainly allow the broader market kid to
Speaker 3: think about the evaluation rerating even further because currently it's
Speaker 3: very much concentrated on the technology sector.
Speaker 2: I want to talk a little bit about trade because
Speaker 2: on Tuesday we had President Trump saying that he is
Speaker 2: planning tariffs on auto, semiconductor and pharmaceutical imports of around
Speaker 2: twenty five percent. Maybe much of that is targeted toward
Speaker 2: Mexico Canada. Certainly China has to be involved in a
Speaker 2: portion of it. Now we know that the Trump administration
Speaker 2: has already placed an additional ten percent tariff, a blanket
Speaker 2: tariff on all Chinese goods. How do you understand the
Speaker 2: risk right now of US tariffs holding back the export
Speaker 2: economy in China.
Speaker 3: That's a good question because if you look back at
Speaker 3: the Chinese economic growth over the past few years, export
Speaker 3: has played a very very important part. But at the
Speaker 3: same time, China also has the benefit of going through
Speaker 3: the trade war one point zero. So our observation is
Speaker 3: that both policymakers and the corporate them seems to be
Speaker 3: better prepared, at least initially. So when you saw the
Speaker 3: ten percent tariff implementation. When we speak with our clients,
Speaker 3: when we speak with our corporate I think they are
Speaker 3: actually saying that they have some plan to deal with
Speaker 3: that initial wave. So from our research perspective, we do
Speaker 3: think that there will be a second round of teriff
Speaker 3: high potentially in the second half of the year as well,
Speaker 3: So there will be some incremental headwind, but at least
Speaker 3: based on what we observe initially, the market, the corporates,
Speaker 3: and the policy maker seems to be well prepared for
Speaker 3: that initial wave. I think what could be a little
Speaker 3: bit trickier for the rest of the region is that
Speaker 3: markets like Japan, Corea, and Taiwan may not be fully
Speaker 3: prepared for these type of terriffs. You mentioned about pharmaceutical
Speaker 3: chips and all those Those are also very important industry
Speaker 3: for those markets as well, and so we think there
Speaker 3: could be some interesting divergence starting to develop across those
Speaker 3: market depending on how prepared they are or how sensitive
Speaker 3: they are to these and new rounds of terariff when
Speaker 3: it comes to the broader Asian equity market.
Speaker 2: It's a very good point, Jason, Thank you so much
Speaker 2: for lending your perspective. Jason Leu there head of APAC
Speaker 2: Equity and Derivative Strategy at BNP Pariba, joining us from
Speaker 2: Hong Kong here on the Daybreak Gaisia Podcast. Welcome back
Speaker 2: to the Daybreak Gaisia Podcast. I'm Doug Prisner. So the
Speaker 2: US equity market returned from the holiday and set a
Speaker 2: record high. We had a rally among chip makers, also
Speaker 2: a bit of optimism tied to the potential for the
Speaker 2: end of war in Ukraine. We had the S and
Speaker 2: P picking up just two tens at one percent. That
Speaker 2: was enough for a record at sixty one twenty nine.
Speaker 2: Joining me now for a closer look at the action
Speaker 2: Jim Thorne. He is the chief market strategist at Wellington
Speaker 2: ALTUS Private Wealth. Jim joins us from Toronto. Good of
Speaker 2: you to make time to chat with us. What did
Speaker 2: you make of today's price section.
Speaker 1: I think we're just you know, climbing the walla worry
Speaker 1: and it just seems to me that we're having this
Speaker 1: rolling bull market where a section or a sector takes
Speaker 1: a breather and another one comes to the forefront. Today
Speaker 1: it was, you know, semiconductors. I think we're going to
Speaker 1: get a nice bid going into the Navidia earnings call.
Speaker 1: And you know now that all the fears of the
Speaker 1: deep seek, you know, popping of the AI bubble is over.
Speaker 1: You know, Semi's can run here. And I also think
Speaker 1: at the same point in time, very interesting things happening
Speaker 1: in the Ukraine. And you know, Doug, you know, I
Speaker 1: think the cornerstone to President's Trump second term is going
Speaker 1: to be peace and a piece dividend coming back. And
Speaker 1: you know, Ukraine, We're going to get a deal there,
Speaker 1: and I honestly think that we're going to get a
Speaker 1: deal in China. And so I think, you know, investors
Speaker 1: have to start looking at the fact that the cornerstone
Speaker 1: to President's Trump economic policy is peace throughout the world.
Speaker 2: Well, Jim, I'm wondering if you are as optimistic about
Speaker 2: President Trump's trade policy today. Even he floated the idea
Speaker 2: of twenty five percent tariffs on autos, pharmaceuticals, and semiconductors.
Speaker 2: Maybe we'll get some clarity by the time that April
Speaker 2: second has arrived. That's when he said he would possibly
Speaker 2: make an announcement. You're speaking to me from Toronto. I
Speaker 2: know that the Canadians are very upset about these proposed tariffs.
Speaker 2: I mean, is this a net positive? Do you think
Speaker 2: will it lead to some kind of constructive negotiations where
Speaker 2: there will be a win win, Yeah? To the DOUG.
Speaker 1: I'm a trained economists, I have a PhD. And I'm
Speaker 1: also American living up here in Toronto, so okay, it's
Speaker 1: kind of I have a very interesting view. First. First look,
Speaker 1: the post World War two era is over right to
Speaker 1: use an economic term, you know, the Raccardian trade theory
Speaker 1: of comparative advantage no longer works if China, in India
Speaker 1: and Europe are going to practice mercantilist trade policies, and
Speaker 1: mister Trump is right to implement tariffs. Having said that, DOUG,
Speaker 1: only fourteen percent of goods and services total, fourteen percent
Speaker 1: of the total goods and services in the United States
Speaker 1: are imported, So we're going to work through this. It's
Speaker 1: going to be a shock, it's not going to be inflationary.
Speaker 1: Nobody should be surprised. But as I say up here
Speaker 1: to my Canadian friends, I really don't think mister Trump
Speaker 1: is talking about tariffs to protect Wisconsin cheese. I think
Speaker 1: we really have to start thinking about this in the
Speaker 1: geostrategic space where mister Trump wants to have security for
Speaker 1: the United States and he does not want to have
Speaker 1: business as usual. So I look at it as a
Speaker 1: very positive My target for the S and P five
Speaker 1: hundred this year is seven thousand. I think by the
Speaker 1: end of President Trump's second term we could be up
Speaker 1: to fourteen thousand. Mister Trump gets his piece, we have
Speaker 1: a really good shot of getting the golden age that
Speaker 1: mister Trump is talking. So I'm constructive and I take
Speaker 1: the noise of the terriffs as just at a negotiation point.
Speaker 2: Well, it's interesting that you don't feel as though even
Speaker 2: the potential for teriffs would be inflationary right now. The
Speaker 2: FED is still on hold when it comes to drawing
Speaker 2: a conclusion on that front. We've heard from a number
Speaker 2: of policy makers. The FED is clearly not in a
Speaker 2: rush to cut interest rates. Do you think there is
Speaker 2: a risk that we do on the rate front remain
Speaker 2: higher for much longer?
Speaker 1: I think the risk DUG is a hard landing in
Speaker 1: twenty six and so if we use, if we DOGE
Speaker 1: is going to be more successful than people think. We're
Speaker 1: transitioning from an economy that is hooked on government spending
Speaker 1: to an economy where the private sector takes the lead,
Speaker 1: typically DUG. When that happens, we get an air pocket
Speaker 1: for growth after World War One, after World War two,
Speaker 1: So look up here in Canada, the lag for monetary
Speaker 1: policies about two years, and this economy appears much more
Speaker 1: interest rate sensitive. Back in the States, it's around three years.
Speaker 1: So what I find so frustrating, Doug, is, you know,
Speaker 1: we're talking about they should be normalizing to two seventy five,
Speaker 1: and yet what do we hear continually is that if
Speaker 1: the FED cuts rates now today, that is going to
Speaker 1: affect inflation today. It's not if it's three years, Doug,
Speaker 1: We're talking late twenty seven and into twenty eight, which
Speaker 1: I think the Fed is on the wrong side of history. Again,
Speaker 1: they should be normalizing. And what we talk to our
Speaker 1: clients at Wellington is the fact that we've got to
Speaker 1: expect a growth scare coming into twenty six and into
Speaker 1: twenty seven.
Speaker 2: So we talked about the possibility that inflation will prove
Speaker 2: sticky here in the US. But what about where you
Speaker 2: are in Canada consumer prices reaccelerating for the first time
Speaker 2: in three months. Does that concern you in the slow.
Speaker 1: No, Because, as an old economics professor, interest rate hikes
Speaker 1: in particular points of the cycle are inflationary. So if
Speaker 1: you take out mortgage interest costs up here that's the
Speaker 1: Bank of can Or rate hikes. Over nine months, inflation
Speaker 1: is negative one point three percent, and over six months
Speaker 1: it's it's negative three percent. We're following China into deflation.
Speaker 1: And if you look at the United States, you do
Speaker 1: the same thing. Take out shelter right and you're you're
Speaker 1: below target. And so you know there are unique times
Speaker 1: in the cycle where right hikes are inflationary and when
Speaker 1: inflation is driven by shelter costs, which it is, and
Speaker 1: you go, I think the thirty year I mean, when
Speaker 1: I was living in DC for fifteen years, I had
Speaker 1: a one to seventy five mortgage. Right A mortgage right
Speaker 1: now I think I checked today is seven percent a
Speaker 1: jumbo is. I think seven point thirty's that's going to
Speaker 1: create inflation in the housing market in the FED. The
Speaker 1: countertuite of move that the FED should be doing right now,
Speaker 1: which is frustrating is the fact that they should be
Speaker 1: cutting rates to bring inflation down, bring the cost of
Speaker 1: housing down, inflation will fall.
Speaker 2: I was looking at a survey today from Bank of America.
Speaker 2: It found that global stocks have become the most popular
Speaker 2: asset class among investors and BAA strategist Michael Hartnett was
Speaker 2: saying that investors are long stalks, short everything else. If
Speaker 2: that is true, are you a little concerned that maybe
Speaker 2: the boat is somewhat lopsided.
Speaker 1: No, I think you've got the demographics of the of
Speaker 1: the millennials, in the younger generation just entering into family
Speaker 1: formation and saving years. So we're in a secular bull market.
Speaker 1: So no, I don't see that. And I think, you know,
Speaker 1: when you look at action in Ali Baba and the
Speaker 1: action in the Chinese market or in the hand saying,
Speaker 1: or you look at action in the you know, the
Speaker 1: Europe and the EUROSOC fifty, you're getting good action. And
Speaker 1: what I just keep saying to clients is, you know,
Speaker 1: first off, I think the United States is the place
Speaker 1: to invest. I think technology is the place to be.
Speaker 1: I think mister Trump is going to usher in four
Speaker 1: years of really solid economic growth and it's really about
Speaker 1: not owning cash, right. And so I had a big
Speaker 1: discussion today about Ali Baba, and you know, she is
Speaker 1: doing this big pivot, and I don't think we should
Speaker 1: be could be surprised that that China and mister Trump
Speaker 1: come up with an early deal. China has to cut
Speaker 1: a deal, and so do you know, do you want
Speaker 1: to buy the k web right or do you want
Speaker 1: to buy Ali Baba? And typically for acid allocators in
Speaker 1: North America, you know your exposure to you know, China
Speaker 1: or to emerging markets out of the end. Maybe it's
Speaker 1: five percent, maybe it's ten percent. So I'm advocating to
Speaker 1: do that. But I still think to the preponderance or
Speaker 1: the significant portion of your portfolio should be focused on
Speaker 1: secular growth names in the United States because that's the
Speaker 1: place where all the action is.
Speaker 2: But Jim, I'm wondering if there is one thing that
Speaker 2: concerns you to the extent that it would kind of
Speaker 2: reverse your optimism. Is there one thing that you're worried
Speaker 2: about and you're looking at very closely, Where if the
Speaker 2: needle on that whatever it happens to me, moves, you're
Speaker 2: going to change your strategy.
Speaker 1: Well, it's never saying never, right, I mean, you've got
Speaker 1: to check your biases at the door and continually, you know,
Speaker 1: change your thesis if something major happens. I mean, I
Speaker 1: think in the United States, it's fine, right, I think
Speaker 1: you've got the set. You know, you've got to dynamite cabinet.
Speaker 1: I mean, it's you're talking Howard Ludnik just got voted in.
Speaker 1: You've got percent I mean, Treasury secretary is a superstar, right,
Speaker 1: You've got Elon Musk doing doge and you're finding waste
Speaker 1: I mean, Doug. My non consensus view coming into this
Speaker 1: year is that they would find more waste and cut
Speaker 1: the deficit quicker right, which is a complete and total
Speaker 1: non consensus call. So I'm happy with the United States
Speaker 1: up here north of the border. I'm worried about the
Speaker 1: liberals getting in. And I really think that those countries
Speaker 1: that don't understand that we are in this generation historic
Speaker 1: pivot away from progressive left policies too much more towards
Speaker 1: the center, and I would say towards economic policies coming
Speaker 1: out of the University of Chicago and Milton Friedman, you know,
Speaker 1: a libertarian small government, big private sector for those countries
Speaker 1: that do not understand that they're going to be left behind.
Speaker 2: Jim, we'll leave it there. Thank you for joining us.
Speaker 2: Jim Thorn there. He is the chief market strategist at
Speaker 2: Wellington Alta's Private Wealth. Joining us from Toronto here on
Speaker 2: the Daybreak Asia podcast. Thanks for listening to today's episode
Speaker 2: of the Bloomberg Daybreak Asia Edition podcast. Each weekday, we
Speaker 2: look at the story shaping markets, finance, and geopolitics in
Speaker 2: the Asia Pacific. You can find us on Apple, Spotify,
Speaker 2: the Bloomberg Podcast YouTube channel, or anywhere else you listen.
Speaker 2: Join us again tomorrow for insight on the market moves
Speaker 2: from Hong Kong to Singapore and Australia. I'm Doug Chrisner,
Speaker 2: and this is Bloomberg