Speaker 1: All right, let's get to our guess now. Generally is
Speaker 1: ce IO for Power Sustainable Investment Management joining us from Shanghai.
Speaker 1: So a lot to talk about when we look at
Speaker 1: the towards the Party Congress and whether or not we
Speaker 1: could see a change in COVID zero policy. But also
Speaker 1: wanted to start with the sell off that we are
Speaker 1: seeing in chip makers this route spreading to t s
Speaker 1: MC Samsung after the US curbs on China. Does this
Speaker 1: just increase some of the head winds around China businesses um,
Speaker 1: That definitely is a factor. I think the U s
Speaker 1: sanction on the China chip industry does have a very
Speaker 1: fundamental and potentially long term impact on the development of
Speaker 1: the chip industry in China, and also major suppliers to
Speaker 1: the Chinese players also got hurt, like t SMC and
Speaker 1: the leading chip makers in the US. So where we
Speaker 1: are analyzing the situation, we think it is pretty severe
Speaker 1: because in the only constraints chip exports to China, it
Speaker 1: also constrains the equipment providers are provided to the Chinese
Speaker 1: chipmaking industries, which will negatively impact the fabulous capacity increase
Speaker 1: in China. We had anticipated very fast expansion of the
Speaker 1: chip industry in China now things may get worse than that.
Speaker 1: And also um there is a very restrictive terms on
Speaker 1: U S citizens participating in the chipmaking industries in China.
Speaker 1: So overall we see a very big negative factor on
Speaker 1: the overall chip industries globally. So I'm wondering, I think
Speaker 1: that would be the intent of the Biden administration right
Speaker 1: to curtail growth in certain industries like military surveillance or
Speaker 1: artificial intelligence. Are there companies in China now whose growth
Speaker 1: depends on access to these high technology I mean cutting
Speaker 1: edge chips that are and maybe that's now in question.
Speaker 1: Is that the way you're viewing it. I think a
Speaker 1: Bidence uh administration's intent is really to cut the development
Speaker 1: of for example, military use of the most advanced chips
Speaker 1: and also AI development in general in China, despite the
Speaker 1: fact that these areas require the most advanced chips and
Speaker 1: AI trips. I think some other industries that's used by
Speaker 1: electric vehicles, et cetera may also be actively impacted. That
Speaker 1: is what investors are concerned about, because you will need
Speaker 1: to have database data centers, you will need to have
Speaker 1: UH the AI systems to facilitate the future development of
Speaker 1: the electric vehicles for example, and other related industries for
Speaker 1: the general public. Let's talk about what we're saying elsewhere
Speaker 1: in the China economy, and as I mentioned, we're looking
Speaker 1: ahead to whether or not there could be a pivot
Speaker 1: away from dynamic zero. But we're still got a lot
Speaker 1: of weaknesses in the property sector and real estate market pressure.
Speaker 1: You're looking at real estate sales which declined over the
Speaker 1: Golden Week holidays. So what does that tell us in
Speaker 1: terms of adjusting some of these earnings grow its potential
Speaker 1: for Yeah, I think real estate is a very big sector. Historically,
Speaker 1: the growth of real estate really supported strong economic growth
Speaker 1: in China in the past ten to twenty years. However,
Speaker 1: I think given currently we have a lot of pressure
Speaker 1: and the leveraging on the real estate sector, we see
Speaker 1: a big drag on economic growth. The Golden Week, at
Speaker 1: the top thirty cities registered the nective real estate sales
Speaker 1: due to the fact that UM, a lot of buyers
Speaker 1: do not have enough confidence in the future outlook. So
Speaker 1: um this may continue for a while. We believe that
Speaker 1: this is still the weakness in the Chinese economic growth
Speaker 1: for the next two months, and then we love to
Speaker 1: see more policies or stimulus to support the real estate
Speaker 1: market in China. These may include, you know, the lowering
Speaker 1: of the mortgage rates and the lowering of the triple
Speaker 1: our rates to support liquidity. However, looking into the earning growth,
Speaker 1: due to the real estate market weakness as well as
Speaker 1: the COVID zero policy which constrained traffic UH and the
Speaker 1: consumptions of the people in China UH, the earning growth
Speaker 1: in the second quarter was really weak. We see milder
Speaker 1: recovery for the third quarter to twenty two, but looking
Speaker 1: into future, we are anticipating a mild recovery from there
Speaker 1: as well. UM, but there are still uncertainties, like I said,
Speaker 1: depending on the COVID zero policies and also depending on
Speaker 1: how strongly the Chinese government will support the resting market.
Speaker 1: So a mild or modest recovery of the Chinese consumer,
Speaker 1: A big deal of risk that remains where the property
Speaker 1: market is concerned, and very strong headwind when it comes
Speaker 1: to technology visa vi A semiconductor. So there is a
Speaker 1: lot to be negative on when you look at China overall.
Speaker 1: How are you able to put money to work in
Speaker 1: the Chinese market right now? Are there areas or themes
Speaker 1: that you feel represent value or strategy that makes sense. Yeah,
Speaker 1: I think, like you mentioned, there are a lot of
Speaker 1: bad news for the Chinese economy, for the equity market,
Speaker 1: I think things are looking difficult globally as well. Uh so,
Speaker 1: but it is fair to say that both the Asian
Speaker 1: market and a share market trading at very low valuation. UH.
Speaker 1: They are at very low levels at this moment. So
Speaker 1: looking into the future, I think investors are looking for
Speaker 1: more certainties, things like domestic consumption. Like I mentioned, UH,
Speaker 1: this year is a really low based due to COVID.
Speaker 1: Next year, if things get better, if the COVID policy
Speaker 1: gets relaxed a little bit, you will easily see improvement
Speaker 1: from here. We are also see investors interested into high
Speaker 1: yield companies in the areas of utilities, etcetera. UH. And
Speaker 1: also we see investors getting into the value stocks as well.
Speaker 1: We just saw China September retail passenger vehicle sales rights
Speaker 1: twenty one percent year on year, according to UH data
Speaker 1: from authorities the p c A. I mean, we know
Speaker 1: that's coming off a very low base from from the
Speaker 1: prior year, but is that an encouraging sign on consumption?
Speaker 1: I think definitely. It is electric vehicle and the auto
Speaker 1: cells is another big aspect of the economic growth, so
Speaker 1: it is good to see uh continuous growth from that sector.
Speaker 1: Like you mentioned, it is from a very low base
Speaker 1: from a prior year, and also it is driven by
Speaker 1: policies such as tax cuts for the automobile buyers. Looking
Speaker 1: into the future, we think the Chinese government will continue
Speaker 1: to support the growth of the automobile industry, which is
Speaker 1: pretty much domestic consumption driven and it's related to a
Speaker 1: lot of uh O E M s and suppliers that
Speaker 1: are all China manufacturers. Alright, June, great to have you
Speaker 1: with us on on day brac Asia Today. Jun Lee
Speaker 1: is c IO for Power Sustainable Investment Management, joining us
Speaker 1: from Shanghai.