WEBVTT - Arm Holdings Reports, Previewing China's April Trade Data

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<v Speaker 2>Armholding shares stumbled around eight percent after the chip designer

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<v Speaker 2>gave what was termed a lukewarm revenue forecast. And what

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<v Speaker 2>we say in our story is that this could raise

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<v Speaker 2>concerns that AI spending is slowing. And we're joined here

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<v Speaker 2>by Kunjohn Sabani, Bloomberg Intelligence Senior Semiconductor analyst on the earning.

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<v Speaker 2>So we got a couple of things going there, the

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<v Speaker 2>broader market and then ARM itself. First of all, did

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<v Speaker 2>you read the forecast as somewhat lukewarm?

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<v Speaker 3>I did. And the thing is, though we don't think

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<v Speaker 3>the AI story for ARM had significant impact here, the

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<v Speaker 3>likely drivers of sort of the myths versus what the

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<v Speaker 3>street had. We're coming from networking and industrial IoT, which

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<v Speaker 3>are not the AI markets, and this weakness has been

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<v Speaker 3>very publicly has been visible across all other semiconductor companies

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<v Speaker 3>coming into this earning. So this is something you know,

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<v Speaker 3>market driven, not AI specific to ARM.

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<v Speaker 1>So when you look at their exposure to the soft

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<v Speaker 1>the smartphone industry, I mean, how does that look to you,

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<v Speaker 1>coin John, Again, the long.

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<v Speaker 3>Term story remains intact. Their percentage share of their V

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<v Speaker 3>nine architecture, which have doubled. The royalty versus the prior

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<v Speaker 3>gen continues to go up each quarter, growing five percent.

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<v Speaker 3>The total person is the royalties every quarter, which we

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<v Speaker 3>think they'll continue, and the biggest beneficiary that penetration coming

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<v Speaker 3>from actually the smartphone markets. So most of the premium

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<v Speaker 3>in fact, almost one hundred percent of the premium smartphones

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<v Speaker 3>run on our architecture, and that is the segment that

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<v Speaker 3>is seeing relatively robust strength over the rest of the

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<v Speaker 3>smartphone market. So they're really benefiting that the unit growth

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<v Speaker 3>is slowing, yes, but they are getting corresponding esp increases

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<v Speaker 3>again due to higher royalties there.

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<v Speaker 2>So the reason I asked you whether or not the

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<v Speaker 2>revenue forecast was luke warm was that it was beyond

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<v Speaker 2>the midpoint. It just wasn't over the high end of

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<v Speaker 2>the range that they gave so you know, I think

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<v Speaker 2>some people would say, well, it was sort of within

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<v Speaker 2>the range, but we have to say that the stock

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<v Speaker 2>maybe is not the best way to read really the

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<v Speaker 2>health of the company, because stock was already up forty

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<v Speaker 2>one percent this year following eight or nine percent. You know,

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<v Speaker 2>is not the end of the world.

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<v Speaker 3>Is it. I know you exactly got it right. Look,

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<v Speaker 3>it was not that bad of a miss. What you

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<v Speaker 3>have going is a combination of two things. Like you said,

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<v Speaker 3>you know what we've seen this earning season, these high

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<v Speaker 3>flying AI stocks who have benefited and from rich multiples

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<v Speaker 3>because of their AI story, have just been priced for perfection,

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<v Speaker 3>where every quarter investors are setting up high expectations of

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<v Speaker 3>significant beats and rays and when that meets reality that look,

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<v Speaker 3>which was again not AI driven, This is what you

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<v Speaker 3>are seeing in terms of stock reaction, bringing them slightly

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<v Speaker 3>back to earth and back close to reality.

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<v Speaker 1>So we know that ARM is roughly ninety percent owned

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<v Speaker 1>by soft Bank, and we had news tonight that soft

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<v Speaker 1>Bank is in talks now to acquire this a British

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<v Speaker 1>chip startup called Graphcore. Do you know anything about graph Core?

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<v Speaker 1>And then kind of give me a sense, give us

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<v Speaker 1>a sense of what's going on with soft Bank as

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<v Speaker 1>it relates to semiconductors.

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<v Speaker 3>I don't cover graph course I might not be the

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<v Speaker 3>most modest person to talk about it. I can just

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<v Speaker 3>quickly allude to it is one of you know it,

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<v Speaker 3>Graphcore is an AI sort of chip or a massive

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<v Speaker 3>chip manufacturing company, and it would make sense, right. Software

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<v Speaker 3>always is looking to invest in the next sort of

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<v Speaker 3>gen AI, whether it's some semi conductors or a hardware companies,

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<v Speaker 3>So that align with that strategy. That makes sense.

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<v Speaker 2>ARM has something of an unusual role in the semiconductor

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<v Speaker 2>industry in that it licenses instructions that software uses to

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<v Speaker 2>communicate with chips. Walk us through a little bit about

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<v Speaker 2>what makes ARM unique.

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<v Speaker 3>Yeah, what makes this unique is it has this unique

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<v Speaker 3>position within the industry where almost every player needs ARM,

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<v Speaker 3>and it has a friendly relationship, which is not what

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<v Speaker 3>you see across the board. Give you an example, most

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<v Speaker 3>of the semiconductor companies use ARMS IP, so they are

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<v Speaker 3>their customers and they prefer ARM. You know, that's good

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<v Speaker 3>for ARM. Most of these semiconductor companies customers and customers,

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<v Speaker 3>which are your cloud guys, your hyperscalers, also are ARMS customers.

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<v Speaker 2>So it.

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<v Speaker 3>Enjoys this really friendly sort of neutral position within the

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<v Speaker 3>ecosystem which no other company has, and to be honest,

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<v Speaker 3>in a lot of market there is no other option,

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<v Speaker 3>like for example, smartphones, they have one hundred percent share.

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<v Speaker 3>When you think about anything not X eighty six architecture,

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<v Speaker 3>whether it's in PCs, whether it's in server CPO, there's

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<v Speaker 3>only one name almost which is ARMED. So it just

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<v Speaker 3>has this really good unique positioning across the ecosystem.

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<v Speaker 1>Do you think that there is still a little bit

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<v Speaker 1>I want to say market access but maybe a little

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<v Speaker 1>too much enthusiasm when it comes to semiconductors visa VI

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<v Speaker 1>artificial intelligence, or do you think the market has it

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<v Speaker 1>about right?

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<v Speaker 3>I think from a fundamental perspective, most of the estimates

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<v Speaker 3>the market has it right. I can't speak to allusion

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<v Speaker 3>because here Bloomberg Intelligence, we don't give price target, so

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<v Speaker 3>I leave that up to it if the market has

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<v Speaker 3>it right when it comes to the richness of the

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<v Speaker 3>multiples that the some of these names are trading.

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<v Speaker 2>Atkonjohn, thanks so much for joining us, Kunjohn Sabani, Bloomberg Intelligence,

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<v Speaker 2>Senior Semiconductor analyst. Taking a closer look at ARM earnings,

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<v Speaker 2>well China's trade data for April are likely to show

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<v Speaker 2>exports and imports swinging back to year on year increases

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<v Speaker 2>after being negative in the last print. Joining us now

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<v Speaker 2>is Eric Ju, Bloomberg economist on China and Hong Kong. Eric,

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<v Speaker 2>why why do we swing back to positive?

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<v Speaker 4>I think so far this year we have seen some

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<v Speaker 4>improving size on export and the March was actually, you know,

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<v Speaker 4>probably a one off blip because we had a very

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<v Speaker 4>strong growth lust and the much last year, so that's

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<v Speaker 4>a very challenging basis fat. So we saw drop in

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<v Speaker 4>the exports last months, but I think now the basil

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<v Speaker 4>fat would be more favorable for April, and usually on

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<v Speaker 4>seasonal you know factors, April would typically you know pick

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<v Speaker 4>up slightly from March. So both factors will support a

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<v Speaker 4>better headline in April, and we would expect to see

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<v Speaker 4>a small increase young year. So in this year's albunctionmen.

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<v Speaker 1>So when you look at exports, Eric, there are two components.

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<v Speaker 1>In my mind, one is kind of the overall global

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<v Speaker 1>economy and the extent to which they're a strong external demand.

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<v Speaker 1>And in the case of China right now, as though

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<v Speaker 1>it's been struggling with a weak currency. When you're dealing

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<v Speaker 1>with an export part of the economy a week currency

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<v Speaker 1>is going to be a big benefit.

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<v Speaker 4>Right, It's some benefit, but I won't say it's a

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<v Speaker 4>big benefit because I think even from policy makers view,

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<v Speaker 4>I think that the fundamental think driving export was still

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<v Speaker 4>the external demand. It's not really the currency issue unless

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<v Speaker 4>you have very you know, a big depression in UM.

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<v Speaker 4>But I think it's marginally it's going to help, but

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<v Speaker 4>I think it's not a fundamental driver.

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<v Speaker 2>We saw a big jump in South Korea's exports, right,

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<v Speaker 2>is that sort of presage what's happening here?

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<v Speaker 4>Yeah, but you have to remember South Korea, it's kind

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<v Speaker 4>of different in terms structure of the exports. You know,

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<v Speaker 4>for health career, it's more on the chips, I think

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<v Speaker 4>their strands this year it's it's more driven by a

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<v Speaker 4>big rebound in the chips shouldment. But I think China

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<v Speaker 4>is a more broad, you know, a goods basket, so

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<v Speaker 4>I think it's more depending on the overall you know,

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<v Speaker 4>a stabiliation of the manufacturing in demand.

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<v Speaker 1>So when we look at Chinese imports, how is domestic

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<v Speaker 1>demand right now?

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<v Speaker 4>I think if you look at iports so far this year,

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<v Speaker 4>it's it's still so so so we haven't seen a

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<v Speaker 4>very clear sign that domes demanded picking up. So we

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<v Speaker 4>still expect a small year on year creamy imports in April.

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<v Speaker 4>But overall we'll say we haven't seen a very good

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<v Speaker 4>sign of some coming point in the domestic demand. I

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<v Speaker 4>think that's still something is confusing departy makers. They have

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<v Speaker 4>to do more, you know, to try to estimulate domestic demand.

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<v Speaker 2>We've heard a lot from the United States and from

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<v Speaker 2>Europe about overcapacity in various industries in China. I'm interested

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<v Speaker 2>in your take on that and the impact that it

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<v Speaker 2>has on, say, the domestic economy.

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<v Speaker 4>Yeah, and I think for this question, I think there

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<v Speaker 4>are two sides both arguments, I think, But from a

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<v Speaker 4>e commics view, I think sometimes it's it's it's not

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<v Speaker 4>really about overcapacity because right, it's it's just a free

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<v Speaker 4>trade that's a two hundred years of theory. Right, It's

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<v Speaker 4>not like every country producing based on your domest demand. Right,

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<v Speaker 4>we have a free trade word. So if there's a

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<v Speaker 4>demand outside of countries, so that doesn't mean you cannot produce,

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<v Speaker 4>You still can produce.

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<v Speaker 1>Well, I hear what you're saying, although we just were

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<v Speaker 1>talking about this new move from the government in China,

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<v Speaker 1>new rules drafted it slowing the expansion of the domestic

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<v Speaker 1>battery industry. So, I mean, I hear what you're saying

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<v Speaker 1>in terms of free trade, but are there perhaps segments

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<v Speaker 1>of the manufacturing economy in China that that have a

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<v Speaker 1>strong issue here when it comes to overtire past.

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<v Speaker 4>I think it's it's sometimes it's also you know, even

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<v Speaker 4>within China there could be some over compathitive problem, you know,

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<v Speaker 4>UV or batteries, because I heard from industry that the

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<v Speaker 4>domest demand for electrick vehicle is really you know, it's

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<v Speaker 4>close to four So every producer that are trying to

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<v Speaker 4>go outside because there's no much more demand new demand

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<v Speaker 4>left in China. So I think in terms of that,

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<v Speaker 4>you can say, yeah, we are producing more than what

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<v Speaker 4>domestic consumers can buy, but there's still a big, huge

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<v Speaker 4>overseas market. But the thing is now they face more

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<v Speaker 4>and more trade proper frictions on that front.

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<v Speaker 2>Yeah, the reason I asked you just briefly is that

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<v Speaker 2>I wonder whether or not it kind of adds to

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<v Speaker 2>deflationary considerations when you overproduce at home.

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<v Speaker 4>Yeah, it's uh, but I think the disflationary story. I

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<v Speaker 4>think we did look at the inflation data well decompos

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<v Speaker 4>into supply or demand factors. I think since the second

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<v Speaker 4>half of this year, the weak inflation was still mostly

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<v Speaker 4>driven by the weak demand side. It's not supply side.

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<v Speaker 4>So I think it's still for China, it's the main

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<v Speaker 4>reason is to people are not willing to spend. The

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<v Speaker 4>consumption is too two week.

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<v Speaker 2>Thanks very much for joining us here in our studios,

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<v Speaker 2>Eric Juwe Bloomberg economists covering China and Hong Kong. Joining

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<v Speaker 2>us now on the program is Julia Wong, executive director

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<v Speaker 2>and global market strategists at JP Morgan Private Bank. Julia,

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<v Speaker 2>thanks very much for coming into our studios. So when

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<v Speaker 2>in a bull market, it would take a brave person

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<v Speaker 2>I suppose to say, well it's over now we're going

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<v Speaker 2>the other direction. But I put this question to you,

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<v Speaker 2>are are traders at the moment are we seeing from

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<v Speaker 2>the caution in markets? Are they driven more by FOMO

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<v Speaker 2>than they are about having confidence in the fundamentals?

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<v Speaker 5>Well, I think that if you think about the incredible

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<v Speaker 5>gains for the aquity market in the US and also

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<v Speaker 5>you know some parts of the world, since basically late

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<v Speaker 5>last year is you know, many markets were up ten

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<v Speaker 5>twenty percent over the last three four months, so I

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<v Speaker 5>think that it was it was it was natural, almost expected,

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<v Speaker 5>a healthy adjustment as we had, you know, into April

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<v Speaker 5>to have to see a pullback in resentiment. We saw

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<v Speaker 5>some rebalancing our flows. We saw some investors adjusting their

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<v Speaker 5>positions here and they're just to make sure they're not

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<v Speaker 5>overly uh, you know, attached to one one sector or

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<v Speaker 5>one theme. But we do think that the fundamental thesis

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<v Speaker 5>for equities have not really changed and they're still quite positive.

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<v Speaker 5>You know, you talked about the fat. The fat is

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<v Speaker 5>you know, maybe they're not going to cut so soon,

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<v Speaker 5>but they're not hiking. The direction of monetropolo still unchanged,

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<v Speaker 5>so that factor is still there. And then you have

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<v Speaker 5>the structural changes in the global economy artificial intelligence. I mean,

0:13:45.000 --> 0:13:46.800
<v Speaker 5>you can debate the speed and who's going to Wigan

0:13:46.800 --> 0:13:49.320
<v Speaker 5>and who's going to lose, but the structural change is there.

0:13:49.360 --> 0:13:52.280
<v Speaker 5>So we still think that. And of course the economy globally,

0:13:52.720 --> 0:13:54.720
<v Speaker 5>particularly in the US, continue to hold up and the

0:13:54.760 --> 0:13:56.680
<v Speaker 5>rest of the world is a little bit softer, but

0:13:56.720 --> 0:13:59.320
<v Speaker 5>it's not quite recessionary. So we do think that the

0:13:59.400 --> 0:14:01.840
<v Speaker 5>overall map backdrop it's still there, and that's why we

0:14:01.880 --> 0:14:04.960
<v Speaker 5>do think that the risk asset equity market in particular

0:14:05.000 --> 0:14:07.440
<v Speaker 5>will probably recover from this consolidation phase.

0:14:07.720 --> 0:14:09.880
<v Speaker 1>Julia, can we talk a little bit about what's happening

0:14:09.880 --> 0:14:12.000
<v Speaker 1>to the Chinese equity markets. I mean, this has been

0:14:12.040 --> 0:14:15.360
<v Speaker 1>a pretty remarkable recovery so far. This here, how are

0:14:15.400 --> 0:14:17.360
<v Speaker 1>you reading this? What do you understand it's about?

0:14:19.040 --> 0:14:23.400
<v Speaker 5>So we think it's a tactical recovery from an oversold position.

0:14:23.640 --> 0:14:26.480
<v Speaker 5>So if you think about coming into the year, Chinese

0:14:26.480 --> 0:14:29.960
<v Speaker 5>market were down. You know, Homesong market was down to

0:14:30.360 --> 0:14:33.960
<v Speaker 5>nearly below fifteen thousand in late January, when the rest

0:14:34.000 --> 0:14:36.720
<v Speaker 5>of the world was powering ahead, and of course then

0:14:36.880 --> 0:14:40.400
<v Speaker 5>the investor were after three months of very strong gains

0:14:40.400 --> 0:14:42.680
<v Speaker 5>in the US and the rest of the world, investors

0:14:42.720 --> 0:14:46.240
<v Speaker 5>wanted to take some position away to diversify, and China

0:14:46.400 --> 0:14:49.360
<v Speaker 5>meantime did not fall further because the economy seems like

0:14:49.360 --> 0:14:51.760
<v Speaker 5>it was holding up, even though we debate the the

0:14:51.960 --> 0:14:55.200
<v Speaker 5>sustainability of that. So I think that led to a

0:14:55.280 --> 0:14:58.880
<v Speaker 5>return of flows to this part of the world, which

0:14:58.920 --> 0:15:03.040
<v Speaker 5>is the reason, alongside and demanding valuation that drove over

0:15:03.080 --> 0:15:06.480
<v Speaker 5>recovery in markets. So we do agree that, you know,

0:15:06.560 --> 0:15:09.920
<v Speaker 5>the recovery probably was overdue. It was an oversold market

0:15:09.960 --> 0:15:13.440
<v Speaker 5>in January. But we do think that fundamentally the economy

0:15:13.440 --> 0:15:16.080
<v Speaker 5>still does face challenges. There are still uncertainty you had,

0:15:16.880 --> 0:15:20.280
<v Speaker 5>So we do think that it's probably the rally. Probably

0:15:20.400 --> 0:15:24.480
<v Speaker 5>most of that probably already happened, and that's where we are.

0:15:24.720 --> 0:15:27.920
<v Speaker 2>So it's not on your conviction call list. You're talking

0:15:27.920 --> 0:15:31.760
<v Speaker 2>about buying on the dip in Japanese equities and US

0:15:31.760 --> 0:15:34.320
<v Speaker 2>equities as well. And then as you already talked about

0:15:34.440 --> 0:15:38.840
<v Speaker 2>some of the secular themes like artificial intelligence and semiconductors,

0:15:39.240 --> 0:15:42.320
<v Speaker 2>let's pivot quickly to Japan, although I do actually let

0:15:42.320 --> 0:15:44.280
<v Speaker 2>me ask you about Hong Kong first, and then perhaps

0:15:44.360 --> 0:15:47.200
<v Speaker 2>you can pivot if Doug is willing. There was an

0:15:47.200 --> 0:15:49.880
<v Speaker 2>interesting story that we looked at today that's tied to

0:15:49.880 --> 0:15:54.280
<v Speaker 2>a conference that is actually today that Hong Kong is organizing,

0:15:54.320 --> 0:15:59.040
<v Speaker 2>Hong Kong Exchanges and Clearing is organizing with the Saudidol

0:15:59.240 --> 0:16:02.880
<v Speaker 2>group and they're looking for, you know, some extra support

0:16:02.920 --> 0:16:05.200
<v Speaker 2>for the Hong Kong market. Do you see Hong Kong

0:16:05.360 --> 0:16:09.720
<v Speaker 2>as having the ability perhaps to move ahead if China doesn't.

0:16:11.440 --> 0:16:14.840
<v Speaker 5>I think from an economic cycle perspective, is increasingly tied

0:16:15.200 --> 0:16:18.600
<v Speaker 5>to China's economic cycle, so I think that. But I

0:16:18.600 --> 0:16:21.440
<v Speaker 5>do think from a market structure perspective, there are all

0:16:21.480 --> 0:16:24.880
<v Speaker 5>these longer term adjustments that you know, the regulators here

0:16:24.960 --> 0:16:27.160
<v Speaker 5>can make that will make that will you know, further

0:16:27.320 --> 0:16:30.880
<v Speaker 5>make the market more resilient. I do think that these are, however,

0:16:30.960 --> 0:16:34.080
<v Speaker 5>quite long term, and they're probably not the factor that

0:16:34.160 --> 0:16:36.600
<v Speaker 5>really explained why the market rebounded the way it did.

0:16:37.360 --> 0:16:40.160
<v Speaker 5>I do think that to see a more sustain the

0:16:40.200 --> 0:16:42.920
<v Speaker 5>recovery in the market from in this part of the world,

0:16:42.960 --> 0:16:46.720
<v Speaker 5>you do need to see a turnaround in China's growth

0:16:46.720 --> 0:16:51.040
<v Speaker 5>outlook or a clarity or turnaround in China's policy direction,

0:16:51.160 --> 0:16:53.160
<v Speaker 5>and neither of these two things have really changed at

0:16:53.160 --> 0:16:53.560
<v Speaker 5>this point.

0:16:53.720 --> 0:16:55.640
<v Speaker 1>Before we get to Japan, and we'll get there in

0:16:55.680 --> 0:16:57.720
<v Speaker 1>a moment, I want to talk about the earnings that

0:16:57.760 --> 0:17:00.680
<v Speaker 1>were likely to get next week Big Now Games out

0:17:00.680 --> 0:17:03.680
<v Speaker 1>of China tencent Ali Baba JD dot com by do

0:17:04.440 --> 0:17:06.919
<v Speaker 1>what what is your sense of what we're likely to

0:17:07.000 --> 0:17:07.840
<v Speaker 1>get next week?

0:17:09.359 --> 0:17:09.880
<v Speaker 3>So I'm not.

0:17:10.040 --> 0:17:12.560
<v Speaker 5>Equity expert by far, but I think that you know

0:17:12.680 --> 0:17:14.879
<v Speaker 5>from what we can what we can see from a

0:17:15.600 --> 0:17:19.280
<v Speaker 5>broad perspective, I do think that investors sentiment towards big

0:17:19.320 --> 0:17:22.159
<v Speaker 5>tech in China has already warmed quite a bit or

0:17:22.320 --> 0:17:24.919
<v Speaker 5>particularly you know, you mentioned Tens and all these big names.

0:17:25.560 --> 0:17:28.000
<v Speaker 5>There are things that we know, like gaming, for example,

0:17:28.040 --> 0:17:30.439
<v Speaker 5>the regulatory process worked a little better. So all of

0:17:30.480 --> 0:17:33.879
<v Speaker 5>that gradually has you know, dripped through to market and

0:17:33.920 --> 0:17:36.560
<v Speaker 5>probably are enterprice at this point. So we do think

0:17:36.560 --> 0:17:39.960
<v Speaker 5>that earnings, of course are important, but you know, we

0:17:40.000 --> 0:17:43.440
<v Speaker 5>do need to see a sustained turnaround in their guidance

0:17:43.640 --> 0:17:46.520
<v Speaker 5>over the next few years of the market to do

0:17:46.600 --> 0:17:48.240
<v Speaker 5>even better from where it is today.

0:17:49.040 --> 0:17:52.000
<v Speaker 2>Okay, to Japan, we we do have a little bit

0:17:52.040 --> 0:17:54.320
<v Speaker 2>of a mix in the market. I've heard recently a

0:17:54.400 --> 0:17:58.920
<v Speaker 2>few commentators saying that they don't really buy into, you know,

0:17:58.960 --> 0:18:01.840
<v Speaker 2>the structural reform and the whole bull market story on

0:18:01.960 --> 0:18:04.760
<v Speaker 2>Japan that you know, they've made all these improvements and such.

0:18:05.200 --> 0:18:09.080
<v Speaker 2>Others are sticking with that and see a lot of

0:18:09.119 --> 0:18:11.200
<v Speaker 2>potential for the Japanese market going forward.

0:18:11.280 --> 0:18:14.080
<v Speaker 5>Your thoughts there, Yeah, so I think that there are

0:18:14.080 --> 0:18:16.760
<v Speaker 5>two big structural changes. One is actually what's happened in

0:18:16.760 --> 0:18:21.040
<v Speaker 5>the global economy, the global supply chain shifts the rival

0:18:21.119 --> 0:18:23.359
<v Speaker 5>of AI, and as I said earlier, we can debate

0:18:23.400 --> 0:18:25.440
<v Speaker 5>the pace of it, but it probably is a secular

0:18:25.520 --> 0:18:28.240
<v Speaker 5>change that will be with us for next five, ten,

0:18:28.560 --> 0:18:31.040
<v Speaker 5>type or even a decade. So that's one thing that

0:18:31.119 --> 0:18:33.960
<v Speaker 5>japan industry is just in a position to benefit from.

0:18:34.000 --> 0:18:36.399
<v Speaker 5>They didn't create this, but you know, they're on the

0:18:36.480 --> 0:18:39.439
<v Speaker 5>supply chain, they're monopolies, they can benefit from it. The

0:18:39.520 --> 0:18:42.040
<v Speaker 5>second thing is we do think the reflation story is

0:18:42.640 --> 0:18:46.400
<v Speaker 5>taking hold. There is a rise in household and business

0:18:46.400 --> 0:18:49.320
<v Speaker 5>expectations for prices and wage growth for the first time

0:18:49.359 --> 0:18:50.960
<v Speaker 5>in thirty years. You can see that in the range

0:18:51.040 --> 0:18:53.200
<v Speaker 5>of data. So I think that this will take time

0:18:53.240 --> 0:18:55.720
<v Speaker 5>to play play out. It's not a one night or

0:18:55.840 --> 0:18:58.080
<v Speaker 5>you know, even one year story. But they move away

0:18:58.119 --> 0:19:02.720
<v Speaker 5>from reflation since seems surreal. So for those two reasons,

0:19:02.760 --> 0:19:04.760
<v Speaker 5>both of which are very structural and are not so

0:19:04.920 --> 0:19:07.159
<v Speaker 5>tied with the day to day moving the effects market

0:19:07.560 --> 0:19:09.920
<v Speaker 5>or resentiment, we do think that Japan is an investable

0:19:10.000 --> 0:19:12.639
<v Speaker 5>market again for thirty years, and that's a very different

0:19:12.680 --> 0:19:15.080
<v Speaker 5>position from where it was in the last decade. So

0:19:15.200 --> 0:19:19.560
<v Speaker 5>globally invested in so underweight this market, but suddenly it's investible,

0:19:19.600 --> 0:19:21.280
<v Speaker 5>So we think that this is this is a real

0:19:21.320 --> 0:19:22.480
<v Speaker 5>shift that's happening.

0:19:22.640 --> 0:19:25.920
<v Speaker 1>Julia, how do you understand the reliance that Japan has

0:19:25.960 --> 0:19:28.520
<v Speaker 1>on a strong Chinese economy? Is that still the case

0:19:28.600 --> 0:19:29.000
<v Speaker 1>right now?

0:19:30.320 --> 0:19:33.040
<v Speaker 5>So if you look at bilateral trade, you know, China

0:19:33.119 --> 0:19:37.000
<v Speaker 5>is to the biggest trade partner for Japan. Japan is

0:19:37.080 --> 0:19:40.359
<v Speaker 5>maybe third or fifth biggest trade partner for China. So

0:19:40.560 --> 0:19:43.280
<v Speaker 5>bilateral trade is strong, and China imports a lot of

0:19:43.680 --> 0:19:47.960
<v Speaker 5>robotics in high end equipment from Japan. And while China

0:19:48.040 --> 0:19:50.560
<v Speaker 5>has this long term goal to be self sufficient and

0:19:50.640 --> 0:19:53.760
<v Speaker 5>move up the value chain, in the process through which

0:19:53.800 --> 0:19:56.560
<v Speaker 5>they get there, they rely a lot on Japanese technologies

0:19:56.600 --> 0:19:59.720
<v Speaker 5>and businesses. So I think that the ties will stay

0:20:00.320 --> 0:20:02.800
<v Speaker 5>and that is actually a small positive for Japan as well,

0:20:02.880 --> 0:20:06.119
<v Speaker 5>because that's you know, an area of demand that they

0:20:06.119 --> 0:20:07.440
<v Speaker 5>will see for the next couple of years.

0:20:07.480 --> 0:20:09.720
<v Speaker 2>So if you really boil it down with what's happening

0:20:09.720 --> 0:20:12.160
<v Speaker 2>in China, is it's safe to say that we've seen

0:20:12.160 --> 0:20:15.800
<v Speaker 2>a cyclical upturn, but we still have secular headwinds.

0:20:17.760 --> 0:20:19.600
<v Speaker 5>That's one way to one way to put it. I

0:20:19.600 --> 0:20:23.840
<v Speaker 5>think cyclical stability is another way to put it. In

0:20:23.840 --> 0:20:26.800
<v Speaker 5>a sense. The stability allows investor to take the tail

0:20:26.880 --> 0:20:29.240
<v Speaker 5>risk off the table or at least reduce the probability

0:20:29.280 --> 0:20:32.159
<v Speaker 5>of that happening. Together with what's happening globally with the

0:20:32.200 --> 0:20:36.160
<v Speaker 5>diversification of flows, is what I think drove the market recovery.

0:20:36.200 --> 0:20:39.160
<v Speaker 5>But we think that the concerns, you know, next six

0:20:39.200 --> 0:20:41.760
<v Speaker 5>to twelve months are you know, housing market is still

0:20:41.800 --> 0:20:45.000
<v Speaker 5>declining by sharp right every month, and there is a

0:20:45.040 --> 0:20:47.800
<v Speaker 5>constraint of what policymakers can do on a stimulus front.

0:20:48.000 --> 0:20:50.160
<v Speaker 5>All of these are still concerns.

0:20:49.880 --> 0:20:52.280
<v Speaker 2>All right, Julia, thanks very much for joining us. Julia Wong,

0:20:52.400 --> 0:20:56.080
<v Speaker 2>Executive director of Global Market Strategist at JP Morgan Private Bank.

0:20:57.880 --> 0:21:00.800
<v Speaker 1>This has been the Bloomberg Daybreak Asia podcast, bringing you

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