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Speaker 1: Ten minutes share before the top of the hour. This

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Speaker 1: is Bloomberg Daybreak Asia and Bryan Curtis with Juliet Sally

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Speaker 1: and our guest is Laura Wong, chief China equity strategist

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Speaker 1: at Morgan Stanley. Laura, thanks very much for joining us.

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Speaker 1: So it's a tough environment. They're both domestically and externally

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Speaker 1: for China. Thus the earnings of Chinese companies. Uh, it's

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Speaker 1: been kind of a rocky period. How do things shape up,

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Speaker 1: Let's say over the coming quarter. That's absolutely right. Um,

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Speaker 1: we look at the second quarters earning season and it

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Speaker 1: has been the worst since the outbreak of COVID. At

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Speaker 1: the beginning of looking at the third quarter, we would

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Speaker 1: be expecting a disappointing earning season. Again. This is because

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Speaker 1: if we think about what happened in the third quarter,

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Speaker 1: we actually had an unexpected slowdown in the housing market

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Speaker 1: as well as unexpected resurgence of the omicron spread in

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Speaker 1: on shore China. We have about thirteen percent of the

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Speaker 1: overall China GDP under some sort of down, which would

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Speaker 1: have significant impact on corporate earnings. We're about to see

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Speaker 1: just how about the economy has been hit with the

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Speaker 1: data dam coming through and disturbing hour's time as well.

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Speaker 1: But do things change meaningfully after the Party Congress and

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Speaker 1: does that change your view on how investable China is?

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Speaker 1: We are not expecting drastic changes overnight after the Party

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Speaker 1: Congress from a policy continuity perspective, and frankly speaking, uh,

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Speaker 1: some of these policies that investors have been hoping for,

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Speaker 1: such as boosts to infrastructure and stabilization measures for the

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Speaker 1: housing market have been gradually rolled into the market already.

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Speaker 1: And on the COVID relaxation from I think the setup

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Speaker 1: for preparation on that front also needs to take a

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Speaker 1: stage of the approach. That being said, I think a

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Speaker 1: couple of things are pointing towards around October November for

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Speaker 1: a better reassessment. This is because number one, whether there

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Speaker 1: could be a clearer roadmap about exit from the COVID

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Speaker 1: zero policy, and second, whether the earnings expect actation would

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Speaker 1: travel after the third quarters earning season. And then last

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Speaker 1: but not least, whether the PC will be inspection about

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Speaker 1: the a d R. All the dispute could yield a

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Speaker 1: positive result after the inspection process in Hong Kong. So

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Speaker 1: we know that COVID is is a major constraint and

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Speaker 1: the property crisis. The property downturn is another COVID can

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Speaker 1: be solved in essence, I suppose by policy can property?

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Speaker 1: Is there a policy um gold wind there? Well? I

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Speaker 1: think um. From investors perspective, the more easy, the better right.

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Speaker 1: But from the policy maker's perspective, Um, the housing is

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Speaker 1: for living but not for speculation. That is the guideline

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Speaker 1: that has been in place for several years. So probably

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Speaker 1: more stabilization stage for the housing market rather than a

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Speaker 1: reversal of all the de leveraging policies as well as

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Speaker 1: the non speculation policies would be more ideal. We already

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Speaker 1: saw a stabilization effort in terms of trying to complete

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Speaker 1: the unfinished projects and also the guaranteed a bound issuance

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Speaker 1: provided by the government for a number of selected developers.

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Speaker 1: So I think, um, it would be great if we

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Speaker 1: can see some early signs of civilization after September and October.

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Speaker 1: Historically these months would be proven to be a good

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Speaker 1: seasons for housing sales. Laura, I know you're China equity strategist,

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Speaker 1: but wanting to get your thoughts on on what we

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Speaker 1: have been seeing with the defend defension I should say,

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Speaker 1: of of their weakness in the Juan and just how

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Speaker 1: much further the dollar yuan can advance and the impact

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Speaker 1: that he's here on China exports and the flow through

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Speaker 1: into markets. Yeah, so the uh Morgan Stanley actually has

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Speaker 1: been expecting a rather depreciation trajectory for U and versus

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Speaker 1: U s starters, and we are forecasting cmy versus U

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Speaker 1: s D hitting seven in the third quarter, which is

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Speaker 1: exactly what's happening right now. Um. That being said, we

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Speaker 1: don't believe that the depreciation pressure is particularly getting out

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Speaker 1: of control, given the trade supplus is still quite significant

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Speaker 1: here to date. Um. And more most importantly, I think

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Speaker 1: the reason for the weakness in recent weeks is more

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Speaker 1: driven by the strengthening of the US daughter rather than

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Speaker 1: the weakness of the UN, because UN has been rather

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Speaker 1: stable versus its trade basket. So I think the impact

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Speaker 1: on on the trade front or would be relatively neutral

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Speaker 1: at this stage. So we're talking about the data that's

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Speaker 1: coming and retail sales may pick up just a little bit.

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Speaker 1: So it kind of makes me think about what what

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Speaker 1: is the key to getting domestic consumption going again. I

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Speaker 1: know that over the past half year or so the

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Speaker 1: Chinese consumers have very much slowed down their spending and

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Speaker 1: there are a lot of reasons for it. Is there

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Speaker 1: a catalyst that you can see that might stimulate some

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Speaker 1: action here. I think relaxation of the COVID zero policy

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Speaker 1: and the associated restriction measures would be a major catalyst

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Speaker 1: from a consumption boost perspective, and of course how to

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Speaker 1: stabilize and rebuild consumers confidence in the general economy would

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Speaker 1: also be extremely important. We are expecting only two point

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Speaker 1: eight percent GDP grows this year versus five point five

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Speaker 1: percent set by the government at the beginning of this year,

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Speaker 1: so that has been a quite major decline in terms

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Speaker 1: of you know, resetting your expectation by the general public.

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Speaker 1: So that would be that would be quite important. Yeah,

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Speaker 1: the rest of the world very much moving away from COVID.

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Speaker 1: How do you change the mindset of that when even

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Speaker 1: we're not going to see some kind of policy change

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Speaker 1: to dynamic zero. Just getting people out and about and

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Speaker 1: believing that they're safe to do that, and I guess

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Speaker 1: getting more vaccinations as well to to boost the economy. Yeah,

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Speaker 1: vaccination is extremely important and of particularly for the elderly

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Speaker 1: age group right. Uh. Currently the vaccination racial for that

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Speaker 1: age group above sixty years old is around sixty six

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Speaker 1: percent with the third job included. Um I duly, if

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Speaker 1: the country can boost that above, that would provide much

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Speaker 1: higher protection for the elderly people, and the potential rollout

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Speaker 1: of the medication as well as other treatment would be

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Speaker 1: helpful as well. And then to your point, the education

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Speaker 1: for the general public to to be better prepared for

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Speaker 1: and to to to get them prepared and to embrace

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Speaker 1: a potential relaxation UM, that would be that would also

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Speaker 1: take time for years and years and years. Investors in

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Speaker 1: China have played policy by the government. So my next

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Speaker 1: question really is probably just gauging your insights on where

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Speaker 1: the government's going here, but in terms of sectors or companies,

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Speaker 1: So what looks good over the next six months um.

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Speaker 1: In terms of sector preference, we actually like materials UM.

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Speaker 1: But within materials, if you look closer at it, we

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Speaker 1: have recommending investors to trim exposure to the cyclical materials

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Speaker 1: because of the housing slowdown and some extreme weather conditions

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Speaker 1: which had curbed the activity on the infrastructure side. UH. Instead,

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Speaker 1: we like new materials such as lysium and lab developed diamond,

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Speaker 1: and then we also like information technology, not Internet, but

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Speaker 1: information technology, given their very attractive relative valuation versus the

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Speaker 1: broad market, and also given the top down policy support

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Speaker 1: in terms of tech localization. Okay, well go ahead, Julia. Yeah,

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Speaker 1: I'm just gonna say a very very quick one. When

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Speaker 1: do we see the cs I three hundred back at

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Speaker 1: five thousand? That that is a tough question. Um, not

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Speaker 1: in the next six months, because our target price by

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Speaker 1: June next year is around forty three hundred. But we

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Speaker 1: do prefer Asia market versus offshore given the onshore credit

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Speaker 1: grows pick up. That's supports liquidity for the Asian market. Yeah,

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Speaker 1: let's see as three here at forty seven as we

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Speaker 1: get ready for trading today, So pop to the upside

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Speaker 1: to five thousand. May We may have to wait until

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Speaker 1: twenty twenty four for that anyway, Laura, thank you very much,

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Speaker 1: Laura Long Morgan Stanley