WEBVTT - Jun Li on the Markets (Radio)

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<v Speaker 1>All right, let's get to our guess now. Generally is

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<v Speaker 1>ce IO for Power Sustainable Investment Management joining us from Shanghai.

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<v Speaker 1>So a lot to talk about when we look at

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<v Speaker 1>the towards the Party Congress and whether or not we

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<v Speaker 1>could see a change in COVID zero policy. But also

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<v Speaker 1>wanted to start with the sell off that we are

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<v Speaker 1>seeing in chip makers this route spreading to t s

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<v Speaker 1>MC Samsung after the US curbs on China. Does this

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<v Speaker 1>just increase some of the head winds around China businesses um,

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<v Speaker 1>That definitely is a factor. I think the U s

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<v Speaker 1>sanction on the China chip industry does have a very

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<v Speaker 1>fundamental and potentially long term impact on the development of

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<v Speaker 1>the chip industry in China, and also major suppliers to

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<v Speaker 1>the Chinese players also got hurt, like t SMC and

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<v Speaker 1>the leading chip makers in the US. So where we

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<v Speaker 1>are analyzing the situation, we think it is pretty severe

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<v Speaker 1>because in the only constraints chip exports to China, it

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<v Speaker 1>also constrains the equipment providers are provided to the Chinese

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<v Speaker 1>chipmaking industries, which will negatively impact the fabulous capacity increase

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<v Speaker 1>in China. We had anticipated very fast expansion of the

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<v Speaker 1>chip industry in China now things may get worse than that.

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<v Speaker 1>And also um there is a very restrictive terms on

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<v Speaker 1>U S citizens participating in the chipmaking industries in China.

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<v Speaker 1>So overall we see a very big negative factor on

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<v Speaker 1>the overall chip industries globally. So I'm wondering, I think

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<v Speaker 1>that would be the intent of the Biden administration right

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<v Speaker 1>to curtail growth in certain industries like military surveillance or

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<v Speaker 1>artificial intelligence. Are there companies in China now whose growth

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<v Speaker 1>depends on access to these high technology I mean cutting

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<v Speaker 1>edge chips that are and maybe that's now in question.

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<v Speaker 1>Is that the way you're viewing it. I think a

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<v Speaker 1>Bidence uh administration's intent is really to cut the development

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<v Speaker 1>of for example, military use of the most advanced chips

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<v Speaker 1>and also AI development in general in China, despite the

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<v Speaker 1>fact that these areas require the most advanced chips and

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<v Speaker 1>AI trips. I think some other industries that's used by

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<v Speaker 1>electric vehicles, et cetera may also be actively impacted. That

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<v Speaker 1>is what investors are concerned about, because you will need

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<v Speaker 1>to have database data centers, you will need to have

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<v Speaker 1>UH the AI systems to facilitate the future development of

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<v Speaker 1>the electric vehicles for example, and other related industries for

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<v Speaker 1>the general public. Let's talk about what we're saying elsewhere

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<v Speaker 1>in the China economy, and as I mentioned, we're looking

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<v Speaker 1>ahead to whether or not there could be a pivot

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<v Speaker 1>away from dynamic zero. But we're still got a lot

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<v Speaker 1>of weaknesses in the property sector and real estate market pressure.

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<v Speaker 1>You're looking at real estate sales which declined over the

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<v Speaker 1>Golden Week holidays. So what does that tell us in

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<v Speaker 1>terms of adjusting some of these earnings grow its potential

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<v Speaker 1>for Yeah, I think real estate is a very big sector. Historically,

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<v Speaker 1>the growth of real estate really supported strong economic growth

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<v Speaker 1>in China in the past ten to twenty years. However,

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<v Speaker 1>I think given currently we have a lot of pressure

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<v Speaker 1>and the leveraging on the real estate sector, we see

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<v Speaker 1>a big drag on economic growth. The Golden Week, at

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<v Speaker 1>the top thirty cities registered the nective real estate sales

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<v Speaker 1>due to the fact that UM, a lot of buyers

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<v Speaker 1>do not have enough confidence in the future outlook. So

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<v Speaker 1>um this may continue for a while. We believe that

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<v Speaker 1>this is still the weakness in the Chinese economic growth

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<v Speaker 1>for the next two months, and then we love to

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<v Speaker 1>see more policies or stimulus to support the real estate

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<v Speaker 1>market in China. These may include, you know, the lowering

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<v Speaker 1>of the mortgage rates and the lowering of the triple

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<v Speaker 1>our rates to support liquidity. However, looking into the earning growth,

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<v Speaker 1>due to the real estate market weakness as well as

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<v Speaker 1>the COVID zero policy which constrained traffic UH and the

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<v Speaker 1>consumptions of the people in China UH, the earning growth

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<v Speaker 1>in the second quarter was really weak. We see milder

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<v Speaker 1>recovery for the third quarter to twenty two, but looking

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<v Speaker 1>into future, we are anticipating a mild recovery from there

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<v Speaker 1>as well. UM, but there are still uncertainties, like I said,

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<v Speaker 1>depending on the COVID zero policies and also depending on

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<v Speaker 1>how strongly the Chinese government will support the resting market.

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<v Speaker 1>So a mild or modest recovery of the Chinese consumer,

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<v Speaker 1>A big deal of risk that remains where the property

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<v Speaker 1>market is concerned, and very strong headwind when it comes

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<v Speaker 1>to technology visa vi A semiconductor. So there is a

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<v Speaker 1>lot to be negative on when you look at China overall.

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<v Speaker 1>How are you able to put money to work in

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<v Speaker 1>the Chinese market right now? Are there areas or themes

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<v Speaker 1>that you feel represent value or strategy that makes sense. Yeah,

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<v Speaker 1>I think, like you mentioned, there are a lot of

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<v Speaker 1>bad news for the Chinese economy, for the equity market,

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<v Speaker 1>I think things are looking difficult globally as well. Uh so,

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<v Speaker 1>but it is fair to say that both the Asian

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<v Speaker 1>market and a share market trading at very low valuation. UH.

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<v Speaker 1>They are at very low levels at this moment. So

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<v Speaker 1>looking into the future, I think investors are looking for

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<v Speaker 1>more certainties, things like domestic consumption. Like I mentioned, UH,

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<v Speaker 1>this year is a really low based due to COVID.

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<v Speaker 1>Next year, if things get better, if the COVID policy

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<v Speaker 1>gets relaxed a little bit, you will easily see improvement

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<v Speaker 1>from here. We are also see investors interested into high

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<v Speaker 1>yield companies in the areas of utilities, etcetera. UH. And

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<v Speaker 1>also we see investors getting into the value stocks as well.

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<v Speaker 1>We just saw China September retail passenger vehicle sales rights

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<v Speaker 1>twenty one percent year on year, according to UH data

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<v Speaker 1>from authorities the p c A. I mean, we know

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<v Speaker 1>that's coming off a very low base from from the

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<v Speaker 1>prior year, but is that an encouraging sign on consumption?

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<v Speaker 1>I think definitely. It is electric vehicle and the auto

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<v Speaker 1>cells is another big aspect of the economic growth, so

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<v Speaker 1>it is good to see uh continuous growth from that sector.

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<v Speaker 1>Like you mentioned, it is from a very low base

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<v Speaker 1>from a prior year, and also it is driven by

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<v Speaker 1>policies such as tax cuts for the automobile buyers. Looking

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<v Speaker 1>into the future, we think the Chinese government will continue

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<v Speaker 1>to support the growth of the automobile industry, which is

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<v Speaker 1>pretty much domestic consumption driven and it's related to a

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<v Speaker 1>lot of uh O E M s and suppliers that

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<v Speaker 1>are all China manufacturers. Alright, June, great to have you

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<v Speaker 1>with us on on day brac Asia Today. Jun Lee

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<v Speaker 1>is c IO for Power Sustainable Investment Management, joining us

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<v Speaker 1>from Shanghai.