WEBVTT - Hopes for Year-End Rally Grow, Moore Threads Chips Unveiled

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<v Speaker 1>Bloomberg Audio Studios, Podcasts, Radio News.

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<v Speaker 2>Welcome to the Daybreak Asia Podcast. I'm Dan Schwartzman. Doug

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<v Speaker 2>Chrisner has the day off. Asian equities opened higher tracking

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<v Speaker 2>Friday's games in US stocks. That helped intensify bets for

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<v Speaker 2>a strong finish to the year. Hopes for a year

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<v Speaker 2>and rally have grown as dip buyers late last week

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<v Speaker 2>helped equities recover from a slide driven by doubts over

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<v Speaker 2>AI exuberants and the scope for Federal reserve easing. From

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<v Speaker 2>more on the market action, we turned to Vasu Menen,

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<v Speaker 2>Managing director for Investment Strategy at OCBC.

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<v Speaker 3>He spoke to Bloomberg Xenna Belt rulers.

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<v Speaker 4>I think one of the key questions for investors' big

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<v Speaker 4>questions is always setting up with Santa Culs rally.

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

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<v Speaker 5>a very strong rally already so far this year. Global

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<v Speaker 5>equities up something like nineteen percent if I'm not mistaken,

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<v Speaker 5>US equity sixteen percent, and if you look at Asia

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<v Speaker 5>in Europe and China for example, in US dollar terms,

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<v Speaker 5>they've gone up more than twenty five percent each. So

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

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<v Speaker 5>we close the year on a slightly higher note. But

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<v Speaker 5>I think twenty twenty six is going to be a

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<v Speaker 5>challenging year, but we remain positive on the outlook for

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<v Speaker 5>twenty twenty six. We think that at the end of

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<v Speaker 5>twenty twenty six, markets will be higher than what they

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<v Speaker 5>eye the end of twenty twenty five. But the next

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<v Speaker 5>couple of weeks, as you said, the center class close.

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

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<v Speaker 5>be surprised with the market's at clear hand and the

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<v Speaker 5>year on a higher note, because you know, we've had

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<v Speaker 5>quite a number of tailwinds helping the markets to actually

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<v Speaker 5>scale new heights in recent days and weeks.

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<v Speaker 4>Yeah, let's talk about the state of play this year,

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<v Speaker 4>because we've got a chart actually where we can see

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<v Speaker 4>just a share underperformance of US equities versus their global

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

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<v Speaker 4>I think really three times in the last decade or so.

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<v Speaker 4>Do you see also that being replicated next year, or

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<v Speaker 4>do you think that you can actually see US stocks

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<v Speaker 4>starting to outpace those from elsewhere?

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<v Speaker 5>Well, I wantn't be surprised if US stocks continue to

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<v Speaker 5>underperform other regions. My own sense is that, you know,

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<v Speaker 5>fund managers, global fund managers appear to be more receptive

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<v Speaker 5>to opportunities in Asia ex Japan, in Japan, in Europe.

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<v Speaker 5>And I think that is also born out in the

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<v Speaker 5>valuation data, you know. And I was looking at the

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<v Speaker 5>evaluation data on Bloomberg terminals before I came for the show.

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<v Speaker 5>And if you look at the MSCI USA Index or

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<v Speaker 5>the S and P find Index, which measures the U

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<v Speaker 5>stock market in terms of forward P ratio, it's trading

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<v Speaker 5>close to two times standard deviation over a tenure history.

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<v Speaker 5>In comparison, if you look at Asia ex Japan, you

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

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<v Speaker 5>So in terms of evaluations, you know, you see better

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<v Speaker 5>value in other regions outside the US. So I wouldn't

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<v Speaker 5>be surprised if the US stock market continues to underperform

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<v Speaker 5>in twenty twenty six as money rotates out of the

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<v Speaker 5>US into other regions.

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<v Speaker 4>Yeah, which you mentioned some of those challenges that stocks

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<v Speaker 4>might have next year, which are the big ones that

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<v Speaker 4>you're looking at?

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<v Speaker 5>Do you think, well, you know, one of the key

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<v Speaker 5>challenges I think we'll be looking out for in twenty

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<v Speaker 5>twenty six would be how Trum deals with the Federal

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<v Speaker 5>Reserve and FAT independence. I think that's going to come

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<v Speaker 5>to the forefront as Jerome Powell steps down in May

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<v Speaker 5>and as Lisa Cooks you know, trial in Supreme Court.

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<v Speaker 5>You know, the outcome will actually also determine market perception

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<v Speaker 5>about fat independence. So FED independence is going to be

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<v Speaker 5>quite critical, we think in twenty twenty six, and how

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<v Speaker 5>Trum deals with it, I think will be quite important.

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<v Speaker 5>And of course the US midterm elections at the end

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<v Speaker 5>of next year. In the run up to it, you

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<v Speaker 5>could see jee political risks go up, a greater US

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<v Speaker 5>China tension. That could also, you know, figure on how

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<v Speaker 5>the markets performed. But overall, we think there are more

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<v Speaker 5>tail winds that than hit winds in twenty twenty six,

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<v Speaker 5>and the markets should still end the year on a

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<v Speaker 5>higher note despite volatility. As you saw in twenty twenty five,

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<v Speaker 5>twenty twenty five is a very volatile year, but still

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<v Speaker 5>the markets ended are going to end the year on

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<v Speaker 5>a pretty strong note. I think you're going to see

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<v Speaker 5>the same story player in twenty twenty six. There will

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<v Speaker 5>be challenges and hit winds, as I mentioned, but I

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<v Speaker 5>think the markets will be able to overcome them and

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<v Speaker 5>still close on a higher note at the end of

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<v Speaker 5>next year.

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<v Speaker 4>Do you think markets are fully appreciated as well that

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<v Speaker 4>risk that we at least see maybe the end of

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<v Speaker 4>easing cycles even the start of tightening cycles once again.

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<v Speaker 4>I mean that's the fact that we've been talking about

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<v Speaker 4>maybe being a little bit underappreciated by investors right now.

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<v Speaker 5>Well, I think yes, it is starting to come to

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<v Speaker 5>the forefront to some extent. The markets are starting to

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<v Speaker 5>worry about the bang of Canada, the RBA, you know,

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<v Speaker 5>the ECB even you know, possibly hiking rate. But I

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

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<v Speaker 5>the FAT will probably continue to cut inter strates in

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<v Speaker 5>twenty twenty six at least one time. And I think

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<v Speaker 5>the FAT is a key part of the whole global equation,

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<v Speaker 5>and the FAT we think is going to continue easy.

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

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<v Speaker 5>And other central banks, like the ECB for example, they

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

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<v Speaker 5>anytime yet. I think that could be a story that

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<v Speaker 5>could come into play in the second half of twenty

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

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<v Speaker 5>lot of latitude for central banks to tighten in a

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<v Speaker 5>big way because there are global hit wins as far

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<v Speaker 5>as you know economic growth is concerned, So there could be,

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<v Speaker 5>you know, some signals from central banks, but whether they're

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<v Speaker 5>ready to move and derail the global economic recovery and

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<v Speaker 5>financial market recovery, I think I'm not sure if they

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<v Speaker 5>are ready to do that right now, But in any case,

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<v Speaker 5>I think it's more story for the latter half of

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<v Speaker 5>twenty twenty six.

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<v Speaker 4>What's your expectation around China as well?

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<v Speaker 3>For next year?

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<v Speaker 4>We've seen again those issues or concerns around the economic

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<v Speaker 4>weakness coming to the forefront for equities once again. But

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<v Speaker 4>at the same time, obviously the dominant theme for this

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<v Speaker 4>year has been that tech and innovation led story, and

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<v Speaker 4>you see the cities side three hundred for instanceuff around

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<v Speaker 4>forty percent so far or on an analyzed basis. But still,

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<v Speaker 4>what's your expectation for where we go for next year?

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<v Speaker 5>Well, we are positive in China. China is one of

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<v Speaker 5>our stronger conviction calls. We're positive on EGYX Japan and

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<v Speaker 5>within EASYX, China is one of our strong conviction calls.

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<v Speaker 5>And as you said, you know, I mean the Chinese

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<v Speaker 5>economy is not doing fantastically well in twenty twenty five,

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<v Speaker 5>that was a story as well. You know, the economy

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<v Speaker 5>fears a great deal of challenges. But look at the

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<v Speaker 5>stock market is done exceptionally well. THEMSCAI China Index is

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<v Speaker 5>up thirty percent a year to date. I mean, so

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<v Speaker 5>it's I'll perform the US and a big We almost

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<v Speaker 5>double the performance of the US stock market in terms

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<v Speaker 5>of thesca USA Index. So we think that you know,

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<v Speaker 5>China will contrough to perform in twenty twenty six.

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<v Speaker 3>As well.

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<v Speaker 5>The potential for fiscal stimulus, monetary stimulus evaluations that are expensive,

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<v Speaker 5>and Chinese households have a huge amount of savings, you know,

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<v Speaker 5>more than twenty trillion US dollars in savings. That's got

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<v Speaker 5>to find a home and that could and not just that,

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<v Speaker 5>I think global fund managers are also starting to put

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<v Speaker 5>the put more money into China. And so put all

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<v Speaker 5>that together, it means that you know, the Chinese stock

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<v Speaker 5>market has mobsite again. It will not be a straight

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

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<v Speaker 5>that you know this mobsite.

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<v Speaker 2>That was Vasumnen, Managing director for Investment Strategy at OCBC,

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<v Speaker 2>speaking to Bloomberg's Annabelt Rulers.

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<v Speaker 3>Coming up on the Daybreak Gasia podcast, we.

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<v Speaker 2>Get an outlook on Chinese equities well here from Yan Wang,

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<v Speaker 2>macro chief EM and China strategist at Alpine. Welcome back

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<v Speaker 2>to the Daybreak Asia podcast. I'm Dan Schwartzman. Doug Chrisner

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<v Speaker 2>has the day off. More threats technology introduced a new

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<v Speaker 2>generation of chips to reduce dependence on nvidious hardware comes

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<v Speaker 2>as Chinese ship makers are in the spotlight as authorities

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<v Speaker 2>push forward with efforts to develop a world class semiconductor sector.

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<v Speaker 2>And we get a macro outlook on the markets from

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<v Speaker 2>Yen Wang, macro chief EM and China strategist at Alpine.

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<v Speaker 3>He spoke to Bloomberg's David and Glass.

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<v Speaker 6>I know, and let me just make reference to your

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<v Speaker 6>note about six weeks ago, first or second week of

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<v Speaker 6>November where you did observe a course China is hot again.

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<v Speaker 6>You've been on this whirlwind global tour speaking to investors,

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<v Speaker 6>including I should mention of course here Hong Kong, China

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<v Speaker 6>and Singapore. What's your overall sense of what people are

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<v Speaker 6>looking for in the Chinese story going into next year.

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<v Speaker 7>I think the biggest takeaway is that global investors are

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<v Speaker 7>becoming more interested in China again. In twenty three and

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<v Speaker 7>twenty twenty four, China was deemed as uninvestable. Back then,

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<v Speaker 7>the economy was bad, Jeo political solution was bad, the

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<v Speaker 7>market was not reperforming, so people were not really tested

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<v Speaker 7>in China at all. But in my recent trips, in

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<v Speaker 7>my meetings with clients with investors, I can get the

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<v Speaker 7>science that investors are becoming more interested on China. China

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<v Speaker 7>is back on the radar, and I think this is

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<v Speaker 7>a very important change because people are still very very

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<v Speaker 7>underwe China, and so if they are interested in China

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<v Speaker 7>racing reacing exposure from a very low starting point, I

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<v Speaker 7>think that that can drive a lot of captalin flow

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<v Speaker 7>into the Chinese aputy market. So I think the biggest

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

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<v Speaker 7>So actually the market bottomed February twenty twenty four, so

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<v Speaker 7>the market has been rising for over two years, almost

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<v Speaker 7>two years. So the question is whether investors should chase

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

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<v Speaker 7>So now the market just keep rising. So I think

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<v Speaker 7>the biggest concern is why going into twenty two, twenty six,

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<v Speaker 7>whether the boot market can can continue.

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<v Speaker 6>What in your sense, what do you suspect will be

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<v Speaker 6>the so so we know about the lack of inflation story,

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<v Speaker 6>we know about you know, liquidity, abundant liquidity that has

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<v Speaker 6>managed to offset most, if not all, of the former story.

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<v Speaker 6>And I'm curious to see, curious to hear what you

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<v Speaker 6>think in terms of the big question mark and what

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<v Speaker 6>resolves itself going into going into next year.

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<v Speaker 7>Well, I think I think really the biggest change since

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<v Speaker 7>last year is probably, uh, you've just begun to realize

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<v Speaker 7>China is a you know, it's almost imperative to invest

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<v Speaker 7>in this kind of true world. Right, So for example,

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<v Speaker 7>you know, you mentioned the Chinese chip makers, So all

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<v Speaker 7>of a sudden, you see Chinese companies are making very

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<v Speaker 7>advanced chips.

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<v Speaker 8>You know, a few years ago, that's unthinkable.

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<v Speaker 7>So regardless of this, uh, this story, regardless of the

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<v Speaker 7>cyclic profile of the Chinese economy, now you do have

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<v Speaker 7>two systems a parallel to each other.

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<v Speaker 8>One is the US system. The other is the Chinese system.

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<v Speaker 7>So I think now people began to realize that every

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<v Speaker 7>investor has had so much exposure to the US market,

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<v Speaker 7>but has so little exposure to the Chinese market. So

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<v Speaker 7>I think this kind of you know, very lopsided allocation

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<v Speaker 7>is one of the most important incentives for investors to

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<v Speaker 7>look at China. You know, for example, at the beginning

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

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<v Speaker 7>really began to draw a global investors' attention on China,

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<v Speaker 7>not just focusing on the weaker part of the economy,

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<v Speaker 7>not just the real estate market deflation, but also there

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<v Speaker 7>are a lot of growth sectors.

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<v Speaker 8>So I think that's really.

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<v Speaker 7>Driving a lot of attentions, also a lot of capital inflows.

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<v Speaker 6>And it's that distinction visible between the groups of investors

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<v Speaker 6>that are more familiar with the Chinese market, let's call

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<v Speaker 6>it domestic players of course, the home bias. And how

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<v Speaker 6>does that story, how is the appreciation of that story,

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<v Speaker 6>how does it change as you look further away from China.

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<v Speaker 7>Yeah, so I think the China uninvestable story was mainly

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<v Speaker 7>concentrated in the US among US investors and some European investors,

0:12:31.600 --> 0:12:36.559
<v Speaker 7>so because because you know, most of it was because

0:12:36.559 --> 0:12:41.559
<v Speaker 7>of geo political tensions, geopolitical environment, and for European investors

0:12:42.120 --> 0:12:46.240
<v Speaker 7>the China's role in the US Russia Russia Ukraine War,

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<v Speaker 7>China was deemed very unfriendly.

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<v Speaker 8>I think that was the like I.

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<v Speaker 7>Remember in those years when I was talking to the investors,

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<v Speaker 7>even though these investors they didn't share the gloomy views

0:12:59.640 --> 0:13:03.600
<v Speaker 7>on China, but they were concerned about so called reputational.

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<v Speaker 8>Risk of investing in China.

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<v Speaker 7>So I think now this this is gradually changing in

0:13:08.840 --> 0:13:12.760
<v Speaker 7>Asia in em vessages are vestage view on China have

0:13:12.840 --> 0:13:14.400
<v Speaker 7>always been more nuanced.

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<v Speaker 6>Yeah, okay, so the the the common denominator going into

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<v Speaker 6>next year globally and you have an em mandate too,

0:13:24.040 --> 0:13:29.000
<v Speaker 6>is it does seem like the tailwinds from easy monetary

0:13:29.040 --> 0:13:31.719
<v Speaker 6>policy will will will somewhat not be as big a

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<v Speaker 6>part of the conversation next year as most central banks

0:13:34.960 --> 0:13:37.920
<v Speaker 6>either pause or have ended their their easing cycle. How

0:13:37.960 --> 0:13:41.280
<v Speaker 6>do we distill the tailwinds coming through out of loser

0:13:41.320 --> 0:13:43.200
<v Speaker 6>policy and what does that mean for you know, the

0:13:43.200 --> 0:13:45.880
<v Speaker 6>weaker dollar story which has helped and you know, the

0:13:45.960 --> 0:13:47.760
<v Speaker 6>appetite for EMS sets next year.

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<v Speaker 8>Yeah, I think I think the dollar is a big story.

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<v Speaker 7>I think if the dollar continues to weaken, then obviously

0:13:57.040 --> 0:14:01.600
<v Speaker 7>global investors interest down e ms as will will increase,

0:14:03.320 --> 0:14:05.600
<v Speaker 7>so I think that can still be a factor. On

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<v Speaker 7>the other hand, I think the fact will continuity to ease.

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<v Speaker 7>We believe the US inflation will continue to fall, so

0:14:10.520 --> 0:14:13.040
<v Speaker 7>that will allow the fact to ease. And then it's

0:14:13.040 --> 0:14:15.040
<v Speaker 7>still a lot of EM countries that are real interest

0:14:15.080 --> 0:14:17.640
<v Speaker 7>rates are still very very high, right so I don't

0:14:17.640 --> 0:14:24.000
<v Speaker 7>think the mindring easying tailwind will diminish much next year,

0:14:24.160 --> 0:14:28.040
<v Speaker 7>especially for a lot of high yielding EM countries, especially

0:14:28.080 --> 0:14:31.200
<v Speaker 7>like in Latin and South Africa in China.

0:14:31.600 --> 0:14:33.800
<v Speaker 8>In China, the mind rue easing may.

0:14:33.640 --> 0:14:37.200
<v Speaker 7>Not be a big story, but a lot of the

0:14:37.240 --> 0:14:41.400
<v Speaker 7>major headwinds that we have had this year will diminish,

0:14:41.760 --> 0:14:44.240
<v Speaker 7>right So, in housing has been in such a long

0:14:44.560 --> 0:14:48.840
<v Speaker 7>deep slump, consumer confidence has been so weak for so long,

0:14:49.480 --> 0:14:53.119
<v Speaker 7>uh and Chinese exports to the US this year contracted

0:14:53.160 --> 0:14:53.760
<v Speaker 7>a lot.

0:14:54.240 --> 0:14:56.920
<v Speaker 8>So these are really the major headwinds for.

0:14:56.880 --> 0:14:59.960
<v Speaker 7>The Chinese economy this year, but most likely going into

0:15:00.120 --> 0:15:05.760
<v Speaker 7>next year, all these three negative factors will either stabilize

0:15:05.840 --> 0:15:07.000
<v Speaker 7>or even improve.

0:15:07.360 --> 0:15:10.240
<v Speaker 8>So I think on the China front, I.

0:15:10.200 --> 0:15:14.960
<v Speaker 7>Don't really think mindory policy easing will play an important

0:15:15.080 --> 0:15:17.960
<v Speaker 7>role because you know, the problem now is demand for

0:15:18.040 --> 0:15:20.440
<v Speaker 7>loans is very weak. It's not the prime it's not

0:15:20.560 --> 0:15:25.360
<v Speaker 7>interest rate is not affordable. It's demand it's weak. But

0:15:25.800 --> 0:15:31.040
<v Speaker 7>if these three headwinds will gradually turn into some kind

0:15:31.080 --> 0:15:33.840
<v Speaker 7>of tail wind, then I think the Chinese economy will

0:15:33.840 --> 0:15:34.680
<v Speaker 7>perform a lot better.

0:15:36.520 --> 0:15:38.600
<v Speaker 6>That's a big gift and I'm glad we end on that.

0:15:38.680 --> 0:15:40.680
<v Speaker 6>Can I just ask you a little bit more on

0:15:41.160 --> 0:15:43.600
<v Speaker 6>the housing market and consumer confidence. We know if that

0:15:43.640 --> 0:15:46.640
<v Speaker 6>goes away, it doesn't matter if the PBOC is tightening

0:15:46.640 --> 0:15:48.840
<v Speaker 6>interest rates. You know, the market will rally if those

0:15:48.840 --> 0:15:52.600
<v Speaker 6>two things recover. What gives you the confidence, apartment based

0:15:52.600 --> 0:15:56.160
<v Speaker 6>effects that the housing market and consumer confidence will be

0:15:56.200 --> 0:15:58.960
<v Speaker 6>a better story in twenty twenty six, right.

0:15:59.160 --> 0:16:02.160
<v Speaker 7>I think the consumer story is probably easier to tell

0:16:02.720 --> 0:16:07.480
<v Speaker 7>because if we look at over the past two years,

0:16:07.720 --> 0:16:11.080
<v Speaker 7>there was this kind of uh self feeding vicious circle

0:16:11.160 --> 0:16:14.560
<v Speaker 7>between the corporate sector and the consumer sector. Uh the

0:16:14.600 --> 0:16:18.160
<v Speaker 7>corporate sector was not hiring, so consumer confidence was weak,

0:16:18.480 --> 0:16:21.400
<v Speaker 7>and then consumer confidence week demand was weak, then corporate

0:16:21.440 --> 0:16:23.840
<v Speaker 7>sector was not hiring. So now you have this kind

0:16:23.880 --> 0:16:26.800
<v Speaker 7>of you know, very vicious circle between these two self feeding.

0:16:27.840 --> 0:16:30.240
<v Speaker 7>But now we are beginning to see some evidence that

0:16:30.320 --> 0:16:35.600
<v Speaker 7>corporate sector hiens intention began to improve so across the board.

0:16:35.720 --> 0:16:37.680
<v Speaker 7>You know, even when I was in China talking to

0:16:37.760 --> 0:16:41.960
<v Speaker 7>some uh some to uh to the business community, my

0:16:42.160 --> 0:16:46.440
<v Speaker 7>senses confidence is slightly better than my previous trips. So

0:16:46.520 --> 0:16:50.040
<v Speaker 7>I think if that changes, I think I do think

0:16:50.080 --> 0:16:53.160
<v Speaker 7>there are high hodds of this being changed. Uh, then

0:16:53.200 --> 0:16:56.400
<v Speaker 7>the visious feedback between the corporate sector and consumer sector

0:16:56.720 --> 0:17:00.680
<v Speaker 7>will begin to uh to to to reverse. So I

0:17:00.680 --> 0:17:03.320
<v Speaker 7>think that's to me, I think that's a kind of

0:17:04.480 --> 0:17:08.200
<v Speaker 7>higher odds event. On the housing sector. The simple fact

0:17:08.359 --> 0:17:11.840
<v Speaker 7>is the housing sector KaiA has contracted for over four years.

0:17:12.600 --> 0:17:16.439
<v Speaker 7>Housing stars have contracted by over seventy eighty percent. So

0:17:16.640 --> 0:17:20.639
<v Speaker 7>nothing false forever, right, So I think that's why we

0:17:20.960 --> 0:17:24.240
<v Speaker 7>even we not consider this kind of you know, basic fact.

0:17:24.840 --> 0:17:27.879
<v Speaker 7>I suspect we are very close. We are a lot

0:17:27.960 --> 0:17:29.000
<v Speaker 7>closer to the bottom.

0:17:29.280 --> 0:17:32.840
<v Speaker 2>That was Ian Wang MACROCHIVM and China strategist at Alpine

0:17:32.880 --> 0:17:34.600
<v Speaker 2>speaking to Bloomberg's David and Glass.

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<v Speaker 9>Thanks for listening to today's episode of the Bloomberg Daybreak

0:17:40.160 --> 0:17:43.520
<v Speaker 9>Asia edition podcast. Each weekday, we look at the story

0:17:43.600 --> 0:17:47.960
<v Speaker 9>shaping markets, finance, and geopolitics in the Asia Pacific. You

0:17:48.000 --> 0:17:52.080
<v Speaker 9>can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel,

0:17:52.200 --> 0:17:55.240
<v Speaker 9>or anywhere else you listen. Join us again tomorrow for

0:17:55.359 --> 0:17:58.840
<v Speaker 9>insight on the market moves from Hong Kong to Singapore

0:17:59.240 --> 0:18:03.000
<v Speaker 9>and Australia. I'm Doug Prisoner and this is Bloomberg

0:18:10.080 --> 0:18:10.119
<v Speaker 7>M