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Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.

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Speaker 2: Welcome to the Daybreak Asia Podcast. I'm Dan Schwartzman. Doug

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Speaker 2: Chrisner has the day off. Asian equities opened higher tracking

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Speaker 2: Friday's games in US stocks. That helped intensify bets for

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Speaker 2: a strong finish to the year. Hopes for a year

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Speaker 2: and rally have grown as dip buyers late last week

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Speaker 2: helped equities recover from a slide driven by doubts over

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Speaker 2: AI exuberants and the scope for Federal reserve easing. From

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Speaker 2: more on the market action, we turned to Vasu Menen,

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Speaker 2: Managing director for Investment Strategy at OCBC.

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Speaker 3: He spoke to Bloomberg Xenna Belt rulers.

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Speaker 4: I think one of the key questions for investors' big

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Speaker 4: questions is always setting up with Santa Culs rally.

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Speaker 5: Well, you know that's a hot one because we've had

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Speaker 5: a very strong rally already so far this year. Global

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Speaker 5: equities up something like nineteen percent if I'm not mistaken,

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Speaker 5: US equity sixteen percent, and if you look at Asia

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Speaker 5: in Europe and China for example, in US dollar terms,

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Speaker 5: they've gone up more than twenty five percent each. So

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Speaker 5: we've had very strong rally. I wouldn't be surprised if

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Speaker 5: we close the year on a slightly higher note. But

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Speaker 5: I think twenty twenty six is going to be a

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Speaker 5: challenging year, but we remain positive on the outlook for

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Speaker 5: twenty twenty six. We think that at the end of

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Speaker 5: twenty twenty six, markets will be higher than what they

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Speaker 5: eye the end of twenty twenty five. But the next

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Speaker 5: couple of weeks, as you said, the center class close.

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Speaker 5: Really that's a hard one to predict. But I wouldn't

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Speaker 5: be surprised with the market's at clear hand and the

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Speaker 5: year on a higher note, because you know, we've had

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Speaker 5: quite a number of tailwinds helping the markets to actually

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Speaker 5: scale new heights in recent days and weeks.

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Speaker 4: Yeah, let's talk about the state of play this year,

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Speaker 4: because we've got a chart actually where we can see

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Speaker 4: just a share underperformance of US equities versus their global

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Speaker 4: peers in twenty twenty five. We don't see that too often,

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Speaker 4: I think really three times in the last decade or so.

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Speaker 4: Do you see also that being replicated next year, or

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Speaker 4: do you think that you can actually see US stocks

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Speaker 4: starting to outpace those from elsewhere?

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Speaker 5: Well, I wantn't be surprised if US stocks continue to

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Speaker 5: underperform other regions. My own sense is that, you know,

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Speaker 5: fund managers, global fund managers appear to be more receptive

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Speaker 5: to opportunities in Asia ex Japan, in Japan, in Europe.

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Speaker 5: And I think that is also born out in the

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Speaker 5: valuation data, you know. And I was looking at the

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Speaker 5: evaluation data on Bloomberg terminals before I came for the show.

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Speaker 5: And if you look at the MSCI USA Index or

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Speaker 5: the S and P find Index, which measures the U

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Speaker 5: stock market in terms of forward P ratio, it's trading

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Speaker 5: close to two times standard deviation over a tenure history.

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Speaker 5: In comparison, if you look at Asia ex Japan, you

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Speaker 5: look at Europe for example, they're trading below one standard divation.

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Speaker 5: So in terms of evaluations, you know, you see better

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Speaker 5: value in other regions outside the US. So I wouldn't

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Speaker 5: be surprised if the US stock market continues to underperform

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Speaker 5: in twenty twenty six as money rotates out of the

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Speaker 5: US into other regions.

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Speaker 4: Yeah, which you mentioned some of those challenges that stocks

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Speaker 4: might have next year, which are the big ones that

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Speaker 4: you're looking at?

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Speaker 5: Do you think, well, you know, one of the key

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Speaker 5: challenges I think we'll be looking out for in twenty

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Speaker 5: twenty six would be how Trum deals with the Federal

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Speaker 5: Reserve and FAT independence. I think that's going to come

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Speaker 5: to the forefront as Jerome Powell steps down in May

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Speaker 5: and as Lisa Cooks you know, trial in Supreme Court.

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Speaker 5: You know, the outcome will actually also determine market perception

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Speaker 5: about fat independence. So FED independence is going to be

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Speaker 5: quite critical, we think in twenty twenty six, and how

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Speaker 5: Trum deals with it, I think will be quite important.

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Speaker 5: And of course the US midterm elections at the end

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Speaker 5: of next year. In the run up to it, you

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Speaker 5: could see jee political risks go up, a greater US

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Speaker 5: China tension. That could also, you know, figure on how

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Speaker 5: the markets performed. But overall, we think there are more

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Speaker 5: tail winds that than hit winds in twenty twenty six,

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Speaker 5: and the markets should still end the year on a

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Speaker 5: higher note despite volatility. As you saw in twenty twenty five,

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Speaker 5: twenty twenty five is a very volatile year, but still

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Speaker 5: the markets ended are going to end the year on

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Speaker 5: a pretty strong note. I think you're going to see

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Speaker 5: the same story player in twenty twenty six. There will

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Speaker 5: be challenges and hit winds, as I mentioned, but I

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Speaker 5: think the markets will be able to overcome them and

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Speaker 5: still close on a higher note at the end of

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Speaker 5: next year.

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Speaker 4: Do you think markets are fully appreciated as well that

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Speaker 4: risk that we at least see maybe the end of

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Speaker 4: easing cycles even the start of tightening cycles once again.

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Speaker 4: I mean that's the fact that we've been talking about

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Speaker 4: maybe being a little bit underappreciated by investors right now.

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Speaker 5: Well, I think yes, it is starting to come to

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Speaker 5: the forefront to some extent. The markets are starting to

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Speaker 5: worry about the bang of Canada, the RBA, you know,

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Speaker 5: the ECB even you know, possibly hiking rate. But I

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Speaker 5: think it's still a bit premature. It looks like, you know,

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Speaker 5: the FAT will probably continue to cut inter strates in

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Speaker 5: twenty twenty six at least one time. And I think

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Speaker 5: the FAT is a key part of the whole global equation,

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Speaker 5: and the FAT we think is going to continue easy.

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Speaker 5: I don't think the FAT is going to tighten anytime soon.

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Speaker 5: And other central banks, like the ECB for example, they

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Speaker 5: have signal, but I don't think they're ready to tighten

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Speaker 5: anytime yet. I think that could be a story that

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Speaker 5: could come into play in the second half of twenty

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Speaker 5: twenty six, but even then, I don't think there's a

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Speaker 5: lot of latitude for central banks to tighten in a

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Speaker 5: big way because there are global hit wins as far

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Speaker 5: as you know economic growth is concerned, So there could be,

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Speaker 5: you know, some signals from central banks, but whether they're

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Speaker 5: ready to move and derail the global economic recovery and

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Speaker 5: financial market recovery, I think I'm not sure if they

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Speaker 5: are ready to do that right now, But in any case,

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Speaker 5: I think it's more story for the latter half of

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Speaker 5: twenty twenty six.

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Speaker 4: What's your expectation around China as well?

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Speaker 3: For next year?

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Speaker 4: We've seen again those issues or concerns around the economic

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Speaker 4: weakness coming to the forefront for equities once again. But

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Speaker 4: at the same time, obviously the dominant theme for this

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Speaker 4: year has been that tech and innovation led story, and

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Speaker 4: you see the cities side three hundred for instanceuff around

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Speaker 4: forty percent so far or on an analyzed basis. But still,

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Speaker 4: what's your expectation for where we go for next year?

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Speaker 5: Well, we are positive in China. China is one of

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Speaker 5: our stronger conviction calls. We're positive on EGYX Japan and

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Speaker 5: within EASYX, China is one of our strong conviction calls.

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Speaker 5: And as you said, you know, I mean the Chinese

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Speaker 5: economy is not doing fantastically well in twenty twenty five,

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Speaker 5: that was a story as well. You know, the economy

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Speaker 5: fears a great deal of challenges. But look at the

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Speaker 5: stock market is done exceptionally well. THEMSCAI China Index is

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Speaker 5: up thirty percent a year to date. I mean, so

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Speaker 5: it's I'll perform the US and a big We almost

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Speaker 5: double the performance of the US stock market in terms

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Speaker 5: of thesca USA Index. So we think that you know,

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Speaker 5: China will contrough to perform in twenty twenty six.

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Speaker 3: As well.

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Speaker 5: The potential for fiscal stimulus, monetary stimulus evaluations that are expensive,

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Speaker 5: and Chinese households have a huge amount of savings, you know,

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Speaker 5: more than twenty trillion US dollars in savings. That's got

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Speaker 5: to find a home and that could and not just that,

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Speaker 5: I think global fund managers are also starting to put

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Speaker 5: the put more money into China. And so put all

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Speaker 5: that together, it means that you know, the Chinese stock

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Speaker 5: market has mobsite again. It will not be a straight

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Speaker 5: line climb. It'll be volatile, but you know, we think

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Speaker 5: that you know this mobsite.

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Speaker 2: That was Vasumnen, Managing director for Investment Strategy at OCBC,

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Speaker 2: speaking to Bloomberg's Annabelt Rulers.

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Speaker 3: Coming up on the Daybreak Gasia podcast, we.

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Speaker 2: Get an outlook on Chinese equities well here from Yan Wang,

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Speaker 2: macro chief EM and China strategist at Alpine. Welcome back

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Speaker 2: to the Daybreak Asia podcast. I'm Dan Schwartzman. Doug Chrisner

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Speaker 2: has the day off. More threats technology introduced a new

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Speaker 2: generation of chips to reduce dependence on nvidious hardware comes

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Speaker 2: as Chinese ship makers are in the spotlight as authorities

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Speaker 2: push forward with efforts to develop a world class semiconductor sector.

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Speaker 2: And we get a macro outlook on the markets from

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Speaker 2: Yen Wang, macro chief EM and China strategist at Alpine.

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Speaker 3: He spoke to Bloomberg's David and Glass.

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Speaker 6: I know, and let me just make reference to your

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Speaker 6: note about six weeks ago, first or second week of

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Speaker 6: November where you did observe a course China is hot again.

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Speaker 6: You've been on this whirlwind global tour speaking to investors,

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Speaker 6: including I should mention of course here Hong Kong, China

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Speaker 6: and Singapore. What's your overall sense of what people are

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Speaker 6: looking for in the Chinese story going into next year.

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Speaker 7: I think the biggest takeaway is that global investors are

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Speaker 7: becoming more interested in China again. In twenty three and

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Speaker 7: twenty twenty four, China was deemed as uninvestable. Back then,

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Speaker 7: the economy was bad, Jeo political solution was bad, the

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Speaker 7: market was not reperforming, so people were not really tested

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Speaker 7: in China at all. But in my recent trips, in

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Speaker 7: my meetings with clients with investors, I can get the

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Speaker 7: science that investors are becoming more interested on China. China

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Speaker 7: is back on the radar, and I think this is

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Speaker 7: a very important change because people are still very very

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Speaker 7: underwe China, and so if they are interested in China

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Speaker 7: racing reacing exposure from a very low starting point, I

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Speaker 7: think that that can drive a lot of captalin flow

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Speaker 7: into the Chinese aputy market. So I think the biggest

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Speaker 7: question mark, obviously is the market that's gone up a lot, right,

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Speaker 7: So actually the market bottomed February twenty twenty four, so

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Speaker 7: the market has been rising for over two years, almost

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Speaker 7: two years. So the question is whether investors should chase

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Speaker 7: the market because they didn't really have any exposure at all.

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Speaker 7: So now the market just keep rising. So I think

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Speaker 7: the biggest concern is why going into twenty two, twenty six,

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Speaker 7: whether the boot market can can continue.

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Speaker 6: What in your sense, what do you suspect will be

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Speaker 6: the so so we know about the lack of inflation story,

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Speaker 6: we know about you know, liquidity, abundant liquidity that has

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Speaker 6: managed to offset most, if not all, of the former story.

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Speaker 6: And I'm curious to see, curious to hear what you

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Speaker 6: think in terms of the big question mark and what

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Speaker 6: resolves itself going into going into next year.

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Speaker 7: Well, I think I think really the biggest change since

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Speaker 7: last year is probably, uh, you've just begun to realize

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Speaker 7: China is a you know, it's almost imperative to invest

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Speaker 7: in this kind of true world. Right, So for example,

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Speaker 7: you know, you mentioned the Chinese chip makers, So all

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Speaker 7: of a sudden, you see Chinese companies are making very

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Speaker 7: advanced chips.

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Speaker 8: You know, a few years ago, that's unthinkable.

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Speaker 7: So regardless of this, uh, this story, regardless of the

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Speaker 7: cyclic profile of the Chinese economy, now you do have

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Speaker 7: two systems a parallel to each other.

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Speaker 8: One is the US system. The other is the Chinese system.

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Speaker 7: So I think now people began to realize that every

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Speaker 7: investor has had so much exposure to the US market,

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Speaker 7: but has so little exposure to the Chinese market. So

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Speaker 7: I think this kind of you know, very lopsided allocation

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Speaker 7: is one of the most important incentives for investors to

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Speaker 7: look at China. You know, for example, at the beginning

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Speaker 7: of the year, we had deep sick moments. That's when

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Speaker 7: really began to draw a global investors' attention on China,

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Speaker 7: not just focusing on the weaker part of the economy,

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Speaker 7: not just the real estate market deflation, but also there

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Speaker 7: are a lot of growth sectors.

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Speaker 8: So I think that's really.

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Speaker 7: Driving a lot of attentions, also a lot of capital inflows.

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Speaker 6: And it's that distinction visible between the groups of investors

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Speaker 6: that are more familiar with the Chinese market, let's call

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Speaker 6: it domestic players of course, the home bias. And how

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Speaker 6: does that story, how is the appreciation of that story,

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Speaker 6: how does it change as you look further away from China.

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Speaker 7: Yeah, so I think the China uninvestable story was mainly

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Speaker 7: concentrated in the US among US investors and some European investors,

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Speaker 7: so because because you know, most of it was because

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Speaker 7: of geo political tensions, geopolitical environment, and for European investors

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Speaker 7: the China's role in the US Russia Russia Ukraine War,

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Speaker 7: China was deemed very unfriendly.

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Speaker 8: I think that was the like I.

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Speaker 7: Remember in those years when I was talking to the investors,

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Speaker 7: even though these investors they didn't share the gloomy views

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Speaker 7: on China, but they were concerned about so called reputational.

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Speaker 8: Risk of investing in China.

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Speaker 7: So I think now this this is gradually changing in

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Speaker 7: Asia in em vessages are vestage view on China have

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Speaker 7: always been more nuanced.

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Speaker 6: Yeah, okay, so the the the common denominator going into

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Speaker 6: next year globally and you have an em mandate too,

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Speaker 6: is it does seem like the tailwinds from easy monetary

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Speaker 6: policy will will will somewhat not be as big a

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Speaker 6: part of the conversation next year as most central banks

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Speaker 6: either pause or have ended their their easing cycle. How

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Speaker 6: do we distill the tailwinds coming through out of loser

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Speaker 6: policy and what does that mean for you know, the

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Speaker 6: weaker dollar story which has helped and you know, the

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Speaker 6: appetite for EMS sets next year.

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Speaker 8: Yeah, I think I think the dollar is a big story.

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Speaker 7: I think if the dollar continues to weaken, then obviously

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Speaker 7: global investors interest down e ms as will will increase,

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Speaker 7: so I think that can still be a factor. On

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Speaker 7: the other hand, I think the fact will continuity to ease.

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Speaker 7: We believe the US inflation will continue to fall, so

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Speaker 7: that will allow the fact to ease. And then it's

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Speaker 7: still a lot of EM countries that are real interest

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Speaker 7: rates are still very very high, right so I don't

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Speaker 7: think the mindring easying tailwind will diminish much next year,

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Speaker 7: especially for a lot of high yielding EM countries, especially

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Speaker 7: like in Latin and South Africa in China.

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Speaker 8: In China, the mind rue easing may.

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Speaker 7: Not be a big story, but a lot of the

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Speaker 7: major headwinds that we have had this year will diminish,

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Speaker 7: right So, in housing has been in such a long

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Speaker 7: deep slump, consumer confidence has been so weak for so long,

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Speaker 7: uh and Chinese exports to the US this year contracted

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Speaker 7: a lot.

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Speaker 8: So these are really the major headwinds for.

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Speaker 7: The Chinese economy this year, but most likely going into

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Speaker 7: next year, all these three negative factors will either stabilize

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Speaker 7: or even improve.

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Speaker 8: So I think on the China front, I.

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Speaker 7: Don't really think mindory policy easing will play an important

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Speaker 7: role because you know, the problem now is demand for

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Speaker 7: loans is very weak. It's not the prime it's not

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Speaker 7: interest rate is not affordable. It's demand it's weak. But

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Speaker 7: if these three headwinds will gradually turn into some kind

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Speaker 7: of tail wind, then I think the Chinese economy will

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Speaker 7: perform a lot better.

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Speaker 6: That's a big gift and I'm glad we end on that.

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Speaker 6: Can I just ask you a little bit more on

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Speaker 6: the housing market and consumer confidence. We know if that

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Speaker 6: goes away, it doesn't matter if the PBOC is tightening

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Speaker 6: interest rates. You know, the market will rally if those

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Speaker 6: two things recover. What gives you the confidence, apartment based

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Speaker 6: effects that the housing market and consumer confidence will be

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Speaker 6: a better story in twenty twenty six, right.

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Speaker 7: I think the consumer story is probably easier to tell

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Speaker 7: because if we look at over the past two years,

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Speaker 7: there was this kind of uh self feeding vicious circle

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Speaker 7: between the corporate sector and the consumer sector. Uh the

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Speaker 7: corporate sector was not hiring, so consumer confidence was weak,

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Speaker 7: and then consumer confidence week demand was weak, then corporate

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Speaker 7: sector was not hiring. So now you have this kind

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Speaker 7: of you know, very vicious circle between these two self feeding.

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Speaker 7: But now we are beginning to see some evidence that

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Speaker 7: corporate sector hiens intention began to improve so across the board.

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Speaker 7: You know, even when I was in China talking to

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Speaker 7: some uh some to uh to the business community, my

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Speaker 7: senses confidence is slightly better than my previous trips. So

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Speaker 7: I think if that changes, I think I do think

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Speaker 7: there are high hodds of this being changed. Uh, then

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Speaker 7: the visious feedback between the corporate sector and consumer sector

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Speaker 7: will begin to uh to to to reverse. So I

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Speaker 7: think that's to me, I think that's a kind of

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Speaker 7: higher odds event. On the housing sector. The simple fact

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Speaker 7: is the housing sector KaiA has contracted for over four years.

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Speaker 7: Housing stars have contracted by over seventy eighty percent. So

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Speaker 7: nothing false forever, right, So I think that's why we

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Speaker 7: even we not consider this kind of you know, basic fact.

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Speaker 7: I suspect we are very close. We are a lot

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Speaker 7: closer to the bottom.

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Speaker 2: That was Ian Wang MACROCHIVM and China strategist at Alpine

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Speaker 2: speaking to Bloomberg's David and Glass.

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Speaker 9: Thanks for listening to today's episode of the Bloomberg Daybreak

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Speaker 9: Asia edition podcast. Each weekday, we look at the story

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Speaker 9: shaping markets, finance, and geopolitics in the Asia Pacific. You

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Speaker 9: can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel,

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Speaker 9: or anywhere else you listen. Join us again tomorrow for

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Speaker 9: insight on the market moves from Hong Kong to Singapore

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Speaker 9: and Australia. I'm Doug Prisoner and this is Bloomberg

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Speaker 7: M