Speaker 1: Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg
Speaker 1: Daybreak Asia podcast. I'm Doug Krisner. You can join Brian
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Speaker 2: In our studios in Hong Kong is Julia Wong, executive
Speaker 2: director and global market strategists at JP Morgan Private Bank.
Speaker 2: To take a closer look at markets. We mentioned that
Speaker 2: we saw a lot of selling today. So Julia, at
Speaker 2: the moment, geopolitics and higher rates and possibly the Fed
Speaker 2: not doing what we thought it might do. They're sort
Speaker 2: of carrying the day. But earnings are nigh Will that
Speaker 2: change things? And do you see does JP Morgan Asset
Speaker 2: or Private Bank see this as a good dip to buy?
Speaker 3: Thanks for having me, so I think that you know
Speaker 3: you're absolutely right the over the long run, earnings growth
Speaker 3: matter more for the equity market. Uh, And we don't
Speaker 3: really see that being a hurdle for equities. In fact,
Speaker 3: we do think that the equity market is exiting what
Speaker 3: we call all rolling earnings recession. Uh And there are
Speaker 3: more sectors points to see positive earning growth this year,
Speaker 3: So we do think that it's from an earnings perspective,
Speaker 3: is actually bottoming out and there are more expansions ahead
Speaker 3: for the equity market. So that is our medium to
Speaker 3: longer term view.
Speaker 2: Uh.
Speaker 3: So we do think that the you know, the the
Speaker 3: geopolitical worries, there's back and forth in terms of fat expectations.
Speaker 3: Fat ratcut expectations are sort of near term hurdles in
Speaker 3: the market we have to get through. It could take
Speaker 3: a couple a few more weeks or if not a
Speaker 3: few more months. So I think that you know, for
Speaker 3: investors who are looking to you know, embrace the next
Speaker 3: technology way in terms of artificial intelligence, who are looking
Speaker 3: to position for longer term secular growth both in technology
Speaker 3: as well as in sectors like healthcare, we do advocate
Speaker 3: starting to build positions as the market pullback, but just
Speaker 3: be mindful that you know, these are volatilities that the
Speaker 3: market will have to go through and there are you know,
Speaker 3: there could be periods of volatilities ahead as well.
Speaker 1: Julia, I know you as a pretty as stud economist.
Speaker 1: Later today, for China. We're going to get the monthly
Speaker 1: activity data. Retail sales is going to be very important
Speaker 1: in terms of trying to get a sense of where
Speaker 1: the Chinese consumer is right now. Do you can you
Speaker 1: offer some insight.
Speaker 3: Well, the times consumers are probably still I think rather cautious.
Speaker 3: I do think that there's a marginal There's been some
Speaker 3: marginal evidence that you know, they've been uh, saving less
Speaker 3: and spending a bit more, but that's on the back
Speaker 3: of a significant accumulation of savings the last couple of years.
Speaker 3: So I think it's very slow bottoming out process. I think,
Speaker 3: you know, if we do out into the broader issues,
Speaker 3: there really is a lack of confidence, which is weighing
Speaker 3: weighing on demand, and so we talk about the Chinese
Speaker 3: economy at the moment is being rather imbalanced. There's more
Speaker 3: supply than there is demand, manufacturing production, and everything is
Speaker 3: too reasonably good. And that's why I think some of
Speaker 3: the indicators that tend to reflect or pick up on
Speaker 3: these things more like GDP, like industrial production, like investment,
Speaker 3: this would continue to be quite good, but there is
Speaker 3: really a death stuff demand and that's because confidence is
Speaker 3: still quite low. So we do need to see that
Speaker 3: kind of pickup before we can see a more balanced recovery.
Speaker 2: So not so bullish on China. Perhaps you can call
Speaker 2: that neutral on China at the moment, but you continue
Speaker 2: to like Japan. Japan has had a good run and
Speaker 2: people were buying on yen weakness for a long time.
Speaker 2: But now we've got real yen weakness and dollar strength
Speaker 2: and they're not buying.
Speaker 4: Why No.
Speaker 3: I think if you look at investor positions, there are
Speaker 3: still many investors are shorty, they're boring again, and they're
Speaker 3: buying Japanese assets. So I think that actually there there
Speaker 3: is a decent chunk composition in that. I do think that,
Speaker 3: you know, we talk about the near term, it's worth
Speaker 3: remembering just how far we've come in terms of dollars yen, right,
Speaker 3: you know, we were much much lower in terms of
Speaker 3: the level just a couple of months ago. So I
Speaker 3: do think that some of the structural factors driving young
Speaker 3: weaknesses are better understood now, so such as inter sure differential,
Speaker 3: such as the fact that Japan's trade deficit you know,
Speaker 3: looks to be persisting. So as these become better understood,
Speaker 3: and in the face of all these geopolitical tension and
Speaker 3: dollar spike. I think it possibly it's reasonable to expect
Speaker 3: that the government might try to interven, And that's why
Speaker 3: we also don't advocate taking a spectative position to be
Speaker 3: short yen at this point. With a longer term perspective,
Speaker 3: I think yen is still going to be a care currency.
Speaker 1: We had a portfolio manager we quoted in the Bloomberg
Speaker 1: story today from over a t rowe price saying that
Speaker 1: the end will continue to drop, maybe another ten percent,
Speaker 1: to levels not seen since the nineteen nineties, and he
Speaker 1: really points the finger at the Bank of Japan and
Speaker 1: the BOJ being reluctant to raise rates in a significant fashion.
Speaker 1: Does this particular person have a point right now that
Speaker 1: there is so much conservative thinking at the BOJ that
Speaker 1: we could see even more yen weakness.
Speaker 3: So I think that, you know, he has a point
Speaker 3: in terms of the structural factors driving yen weakness, which
Speaker 3: I also agree with, and I don't think that will
Speaker 3: reverse any time soon. I don't, however, think necessarily that
Speaker 3: the BOJ is the real corporate of it, because I
Speaker 3: think that they are justified in thinking about inflation not
Speaker 3: only as a cyclical problem, but as a structural problem
Speaker 3: for Japan. Japan hasn't had inflation for twenty thirty years,
Speaker 3: so you know, if you think about an average inflation target,
Speaker 3: they have a long way to catch up. So I
Speaker 3: think they's justified for them to take a more longer
Speaker 3: term approach as they try to engineer just return to
Speaker 3: reflation story and overlook a little bit of the near
Speaker 3: term inflation squeeze, and because ultimately what matters is whether
Speaker 3: the economy can move to a new equilibrium in terms
Speaker 3: of productivity growth, and that takes time and some patients awards,
Speaker 3: some patients of the central bank.
Speaker 2: One quick call on inflation. In the US, UBS strategists
Speaker 2: are saying that the FED hiking rates to six and
Speaker 2: a half percent is a real risk. Can you see that.
Speaker 3: We don't see that happening. I think the main difference
Speaker 3: between now and twenty twenty two is that FED fount
Speaker 3: rate is a five point three You know, pcees running
Speaker 3: at two point eight percent, so the gap in terms
Speaker 3: of real rate is already two hundred and fifty basis point.
Speaker 3: So even if inflation becomes dicky at this level, even
Speaker 3: if there are some bumps in the road, there's a
Speaker 3: decent buffer for free in terms of real rate, the fact doesn't.
Speaker 2: Happen absolutely, Julia, thank you so much for joining us.
Speaker 2: Julia Wong, executive director at JP Morgan Private Bank. The
Speaker 2: closer look at Apple now, Apple iPhone shipment slid nearly
Speaker 2: ten percent last quarter. It was the steepest drop in
Speaker 2: sales for Apple since the pandemic. Joining us now is
Speaker 2: Vlad Savov, Bloomberg Tech editor. To discuss this further. A
Speaker 2: while back, Flad, we had Apple sales in China down
Speaker 2: about a third, but then all smartphones were down a third.
Speaker 2: But that's not the case here. Here you have overall
Speaker 2: global sales Apple shipments down nearly ten percent last quarter,
Speaker 2: and for the rest of the industry you had a
Speaker 2: gain of seven point eight percent. What has gone wrong
Speaker 2: at Apple.
Speaker 5: Well, it's an interesting question. One way to look at
Speaker 5: it is it may be a matter of a cyclical
Speaker 5: matter that just runs over many years. When you look
Speaker 5: back to the pandemic, the iPhone was actually the most
Speaker 5: resilient smartphone among any so when we had especially in China,
Speaker 5: the world's biggest smallphone market, is the one to keep
Speaker 5: the closest eye on Android. Rivusudi iPhone would down double
Speaker 5: digits every single month for over a year, whereas the
Speaker 5: iPhone was rather sustaining its momentum. Now the trend has reversed,
Speaker 5: and there are a number of reasons for this. I mean,
Speaker 5: one of them is when Huawei was hit with sanctions,
Speaker 5: everyone else in the Chinese market invested really heavily, brought
Speaker 5: a lot of inventory, seven conductors, et cetera. They wanted
Speaker 5: to grab that Huawei market share, and they did to
Speaker 5: a great extent, but they did overspend. They had a
Speaker 5: lot of inventory which took months to clear. So now
Speaker 5: those exact companies because of their aggressive pricing to shift
Speaker 5: that inventory and now coming back and ramping up their shipments.
Speaker 5: So just in relative terms, that's why they are on
Speaker 5: the up. Whereas Apple, because it has been sustaining things, maybe,
Speaker 5: as I say, it has a bit more of a
Speaker 5: down cycle at the moment. That's let's say the positive
Speaker 5: the upweight way to look at it from Apple's perspective.
Speaker 1: Yeah, we're citing data hear from the market tracker IDC
Speaker 1: in terms of first quarter growth. One of the things
Speaker 1: that I was just stupefied by Transhan. I hadn't even
Speaker 1: heard of this company, shipments were up eighty five percent,
Speaker 1: and when I did a little bit of research, I
Speaker 1: guess Trenson sells heavily into African markets.
Speaker 3: Is that right?
Speaker 5: That's right. It's very much a budget oriented company. It
Speaker 5: has several brands which even if I record him at
Speaker 5: the moment, I'll forget him in a minute. I mean,
Speaker 5: I'm being a bit dismissive. But the company does a
Speaker 5: good job. This is the other thing. Just because you're
Speaker 5: a budget oriented company, that doesn't mean that it doesn't
Speaker 5: take a lot of expertise and operational efficiency to make
Speaker 5: that work. Not everybody does it. Not everybody turns a profit,
Speaker 5: and that company is doing it. It's now number four
Speaker 5: in the world. Oppo, which is one of the big
Speaker 5: brands over here in China, it's kind of been slumping,
Speaker 5: whereas Shami, on the other hand, it has rebounded. Shami
Speaker 5: is a really interesting company because it's co founder Leijun
Speaker 5: has dedicated all his attention to the EV project, which
Speaker 5: is boosted the share price, whereas the smartphone companies sally
Speaker 5: rebounding just as well.
Speaker 2: Is really adding to the difficulties of other EV makers
Speaker 2: in China. I don't want to go that direction. I
Speaker 2: want to go back to Apple because that's the focus
Speaker 2: of this discussion flat and Apple, you know, has never
Speaker 2: really been first in a lot of things, but it
Speaker 2: eventually got there by extremely good quality in its output,
Speaker 2: and so it brings to mind AI. So you've had
Speaker 2: Google and Microsoft and other companies like Nvidia and broad
Speaker 2: Common others really take advantage of, you know, making announcements
Speaker 2: and getting started on artificial intelligence. Not so much Apple.
Speaker 2: But now you have the WWDC coming in June. Is
Speaker 2: that going to be the beginning of a new push
Speaker 2: for Apple to the upside?
Speaker 5: Well, it's the beginning of the AI story, shall we say,
Speaker 5: or let's say the reboots of it, because Apple Serrie
Speaker 5: Digital Assistant is supposed to be some version of AI.
Speaker 5: But again what we refer to his AI today is
Speaker 5: the generative AI, the chat GPT class. So Apple really
Speaker 5: hasn't given the world a narrative around that. It has
Speaker 5: had again a rally in a share price just because
Speaker 5: there was indication that it's indicated integrating more AI processing
Speaker 5: and its chip in. Tim Cook has spoken repeatedly saying
Speaker 5: AI is going to be a priority.
Speaker 2: But our own.
Speaker 5: Reporting at Bloomberg says that Apple is looking to contract
Speaker 5: Google for its Gemini AI model for the coming generation
Speaker 5: of iPhones. It is fair to say that Apple has
Speaker 5: been quite flat footed. It's playing catch up. Just as
Speaker 5: you said, Brian, there were smartphones many many years before
Speaker 5: the iPhone, and then the iPhone came in and it
Speaker 5: said the standard. It defined what a smartphone is for
Speaker 5: all of us today. So absolutely no reason to rule
Speaker 5: Apple out, but it is the case that the company's
Speaker 5: playing catch up and it needs to show some evidence
Speaker 5: that it's closing the gap.
Speaker 1: In June, well, they're doing some business in India. We
Speaker 1: know that, right The last figure that we had for
Speaker 1: Apple sales in India was pretty pretty strong.
Speaker 3: Yeah.
Speaker 5: Absolutely. And the other thing that Apple's doing is shifting
Speaker 5: it's iphl manufacturer into India. That doubled this past fiscal
Speaker 5: year ending in March, and it had tripled the previous one.
Speaker 5: So India in the space of a couple of years
Speaker 5: has gone from just a percentage of iFilm manufacturing to
Speaker 5: fourteen percent. And as I mentioned, because the iPhone had
Speaker 5: been so steady, one way to call it is steady,
Speaker 5: the other way to call it a stagnant it's very
Speaker 5: easy to say all this manufacturing has gone out of
Speaker 5: China to go into India. It isn't additional to manufacturing
Speaker 5: in China.
Speaker 2: So Tim Coulk spent a lot of time in China
Speaker 2: here just recently. I'm wondering whether or not that's a
Speaker 2: kind of push to reinforce among Chinese officials that Apple's
Speaker 2: here to stay in China.
Speaker 5: Literally, that's something that he literally put out there. He
Speaker 5: declared his love for China on his most recent trip.
Speaker 5: He has been on free public visits to the country
Speaker 5: in the past year. It's increasingly common for him to
Speaker 5: be in China. It's supposed to be reassuring. One way
Speaker 5: to read it is the other way, because if you're
Speaker 5: really sure in something, you don't need to go and
Speaker 5: attend to it on such a regular basis.
Speaker 1: I guess he was just in Hanoi as well, or
Speaker 1: maybe he's still in Vietnam, and so that's another manufacturing
Speaker 1: site for them that they want to be able to fortify.
Speaker 5: Yeah, I think he's just hang out in Asia and
Speaker 5: just back to the US. It's a busy time, and yes,
Speaker 5: he's hanging out with influences and YouTubers in Vietnam, and
Speaker 5: there is the prospect for him to announce fresh investments
Speaker 5: in there as well.
Speaker 2: All right, lad, out of time, unfortunately, but a great session.
Speaker 2: Thank you, Lad's have all Bloomberg chech editor.
Speaker 1: Let's go to Tesla next. The company is cutting more
Speaker 1: than ten percent of its workforce. That's roughly fourteen thousand jobs.
Speaker 1: Let's take a look under the hood. I know I
Speaker 1: couldn't resist with our own Ed Ludlow, co host of
Speaker 1: lumber Technology, Ed's joining us from San Francisco. Is this
Speaker 1: something more than a company that is struggling with softer demand?
Speaker 4: I think it is something more than that. It's been
Speaker 4: a long day, long night. It's been a long twenty
Speaker 4: four hours. But you know something you said there more
Speaker 4: than ten percent. You know, it kind of got lost
Speaker 4: in the kind of cadence of headlines that we broke.
Speaker 4: But what I'm hearing now is that the cuts in
Speaker 4: certain teams is a lot deeper than ten percent. In
Speaker 4: many cases, it's near it to twenty percent. And as
Speaker 4: we reported, it seems to be largely coincidental timing. But
Speaker 4: there were two very prominent executives at Tesla that handed
Speaker 4: in their resignation last night, and they would have known
Speaker 4: full well these cuts were coming. So and I think
Speaker 4: the stock cloak down more than five percent, So there's
Speaker 4: a lot there there.
Speaker 2: We're journalists, so we like to have a certain sobriety,
Speaker 2: but then we're radio hosts and so we like to
Speaker 2: stir things up a little bit.
Speaker 4: So inputting to hit me with it.
Speaker 2: This is not necessarily throwing in the white tell. It's
Speaker 2: not really the tail between the legs. But it is
Speaker 2: the year of efficiency for Tesla. Is that right?
Speaker 4: Yeah, Yeah, that's a really good way of putting it.
Speaker 4: Like you know, oftentimes in the bottom technology when a
Speaker 4: company announces big layoffs. You know, it's never pleasant to
Speaker 4: talk about people losing their jobs, but you'll see the
Speaker 4: stock go up, and you'll see the stock go up
Speaker 4: because investors it is a sign of cost discipline, and
Speaker 4: obviously reducing your cost base has impact on the bottom line.
Speaker 4: This time, Tesla shares with down five percent and very much.
Speaker 4: This time. It's kind of a compounding effect of negative
Speaker 4: headlines that we've had. In the first quarter, Tesla missed
Speaker 4: deliveries by a very big margin. The data suggests that
Speaker 4: Tesla is facing increasing competition from domestic players in China.
Speaker 4: So cutting this with the added negative headline that Drew Baglino,
Speaker 4: who has been at that company for eighteen years and
Speaker 4: was one of only four named executive officers on Tesla's
Speaker 4: management team, that he resigned and there's deep layoffs. I
Speaker 4: think it just added to a downward trend that this
Speaker 4: company and literally its soccers seen so far in twenty
Speaker 4: twenty four.
Speaker 1: So, ed, how is this going to impact a product
Speaker 1: line right now? Do we know that?
Speaker 2: Yeah?
Speaker 4: Reading the memo that Elon Musk sent to employees around
Speaker 4: the world last night, you know he's attributing the need
Speaker 4: to cut BA to a their people in duplicate roles
Speaker 4: because they grew too fast, but also productivity and cost discipline.
Speaker 4: And as you guys know, Tesla's narrative right now is
Speaker 4: it's between two waves of growth. Wave one has been
Speaker 4: gone driven by Model three and Model Y and Wave
Speaker 4: two we're a little bit confused about. But it's either
Speaker 4: a twenty five thousand dollars ev or it's a ROBOTAXI,
Speaker 4: depending on whether Elon Musk is right or Reuter's that
Speaker 4: reported the twenty five thousand dollar v was dead last week.
Speaker 4: And you know amid losing some pretty important intellectual capital
Speaker 4: in those executive departures. I think Elon's just trying to
Speaker 4: rein it in. You know, what I'm hearing is that
Speaker 4: he's kind of clear in house and making sure that
Speaker 4: he has the people in place that he wants to
Speaker 4: get this next phase of growth going.
Speaker 2: And as I heard you say in an interview more
Speaker 2: than a year or two ago, that Elon Musk is
Speaker 2: the wild card man. Should we doubt him? I mean
Speaker 2: Mark Zuckerberg pulled it off, didn't he at Meta? Should
Speaker 2: Is this a big challenge now that Elon Musk will
Speaker 2: embrace and he will get this company more efficient and
Speaker 2: more profitable. Yeah?
Speaker 4: I mean I talked about this on air and I
Speaker 4: wrote about it in my column today as well on
Speaker 4: Tech Daily that there are times where Elon Musk is
Speaker 4: just consistent, and this in terms of layoffs is one
Speaker 4: area that Musk is consistent. He did it in twenty
Speaker 4: twenty two where they cut around ten percent of staff.
Speaker 4: He's talked about the impact of rates on demand presently,
Speaker 4: and he's always had this mantra that the leaders of
Speaker 4: each business unit should be aggressive in pursuing cost savings. Basically,
Speaker 4: he says to all of them, get me cents off
Speaker 4: the dollar on every component, shave cost out of every process.
Speaker 4: And he's always done that, and this is him doing
Speaker 4: it again. The difference is that, you know, he's got
Speaker 4: a lot else going on. He's the CEO leader of
Speaker 4: five other companies, and it's just disconcerting when two big
Speaker 4: name executives that are highly competent leave the company at
Speaker 4: the same time. So this time, I think investors and
Speaker 4: Tesla shareholders and Tesla owners as well basically trying to
Speaker 4: wade through it and go is the net result that
Speaker 4: Lance got this or not?
Speaker 1: Well, that goes to the next question. I mean, if
Speaker 1: he's spread himself to friendly, do we need to see
Speaker 1: him kind of remain more laser focused on the Tesla
Speaker 1: problem at the exclusion of some of the other things
Speaker 1: he's got his hands in.
Speaker 2: Yeah.
Speaker 4: Yeah, you know, to the root of your previous question,
Speaker 4: there is an element of key man risk. Tesla now
Speaker 4: literally puts it in its regulatory filings that if anything
Speaker 4: would happen to Elon Musk, you know, horrible to say.
Speaker 4: The easiest example for our globe audience, if Elon Musk
Speaker 4: were to be hit by a bus Tesla would have
Speaker 4: a problem. And that's me paraphrasing. And again it goes
Speaker 4: back to when Drew Baglino resigned or you know, he
Speaker 4: announced he'd left Tesla, but a source told me he
Speaker 4: resigned rather than he was fired. A lot of people
Speaker 4: thought Drew might be next in line potentially to be CEO.
Speaker 4: He'd done eighteen years at Tesla. He leads all energy
Speaker 4: and powertrain activities at the company, or he did until
Speaker 4: last night. So with him out the running, there's now
Speaker 4: only three named executive officers, including Musk. And you wonder
Speaker 4: like if he ever turned around and said, I'm done
Speaker 4: with Tesla for now, I'm moving on to something else.
Speaker 4: Who person might be.
Speaker 2: Ed just in twenty seconds or so? Does this mean
Speaker 2: lower prices across the board for evs and does this
Speaker 2: bring in viability? How viable are these companies?
Speaker 4: Well, the answer is no. I don't think if you
Speaker 4: see job cuts in other ways to save money, that
Speaker 4: you'll continue to see price drops. I think they've cut
Speaker 4: as deep as they can, but you never know. They've
Speaker 4: not been afraid to use price changes as a lever.
Speaker 1: Yeah, so far this year the stock is down thirty
Speaker 1: five percent. Talk about price cuts, and it's always a pleasure.
Speaker 1: Thank very much for making time to chat with us.
Speaker 1: Bloomberg's Ed Ludlow, co host of Bloomberg Technology on the
Speaker 1: Tesla story shares today in the regular session down to
Speaker 1: five point six percent.
Speaker 2: This is the Bloomberg Daybreak Asia podcast, bringing you the
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