Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: This is the Bloomberg Daybreak Asia podcast. I'm Brian Curtis
Speaker 2: along with Doug Krisner, join us each day for the
Speaker 2: stories making news and moving markets in the Asia Pacific.
Speaker 2: You can subscribe to the show anywhere you get your
Speaker 2: podcasts and always on Bloomberg Radio, the Bloomberg Terminal, and
Speaker 2: the Bloomberg Business App.
Speaker 3: Let's bring in our guest. Rebecca Waalser is with us.
Speaker 3: She is president at Wallser Wealth Management, joining us here
Speaker 3: at the Interactive Broker Studio in New York.
Speaker 4: Thanks for dropping by, so glad to be here, deg
Speaker 4: thanks for having me.
Speaker 3: Are we talking about a soft landing now? When you
Speaker 3: look at kind of what the FED is signaling and
Speaker 3: then the data that we had today, particularly the second
Speaker 3: quarter GDP.
Speaker 5: Number, Oh gosh.
Speaker 4: I hate to be such a contrarium, but I wish
Speaker 4: I could say yes, Doug, but I just don't see it.
Speaker 5: I wish I did.
Speaker 4: I know, the retail numbers are great, but I'm looking
Speaker 4: at the forward guidance of the consumer, and the consumer
Speaker 4: is really telling us that they are out of cash
Speaker 4: to spend. I know, retail sales have been good, But
Speaker 4: that's always historical data, right, So we're looking forward and
Speaker 4: we're seeing the consumers. We have the highest credit card
Speaker 4: balances one point three trillion in the history of our country.
Speaker 4: Our delinquency rates are astronomically accelerating. Our car delinquency rates
Speaker 4: are accelerating. So, Doug, the stories aren't matching up with
Speaker 4: the GDP numbers showing such good, strong consumer spending versus
Speaker 4: where we know the consumer is right now.
Speaker 5: So that's what I'm talking about the future.
Speaker 3: Okay. So the equity market then should be pretty worried
Speaker 3: when it comes to earnings, right, I believe so.
Speaker 4: And I do think that we've had some, you know,
Speaker 4: mag seven not great numbers this season, and in Video
Speaker 4: was great, I'm not a double beat, absolutely great, but
Speaker 4: the guidance was still you know, saying are we it
Speaker 4: was it was a reassurance that their market has got
Speaker 4: a long runway. But Doug, when you look at the guidance,
Speaker 4: people are still wondering, how is this going to be monetized?
Speaker 4: And if these other commercial buyers of in video chips
Speaker 4: for AI are not able to get a return non
Speaker 4: investment fast enough, are they going to be keeping pouring
Speaker 4: the billions and billions that are going to envy that
Speaker 4: are giving us these crazy, astronomical three thousand percent growth
Speaker 4: in five years.
Speaker 3: The autumn can be very rough for the equity market.
Speaker 3: We're a week away from September. Are you braced for
Speaker 3: some downside?
Speaker 5: Absolutely? I mean, this is this is the most shallow
Speaker 5: depth that we have seen.
Speaker 4: I mean, look at the concentration of mag seven in
Speaker 4: the Nasdaq, in the S and P five hundred. This
Speaker 4: is awful concentration in it. So if anything goes wrong,
Speaker 4: I mean, you look at the Middle East, and you
Speaker 4: look at Russia, Ukraine, and you look at all the
Speaker 4: things geopolitically that are.
Speaker 5: Going on in the middle of an election season, in
Speaker 5: the middle.
Speaker 4: Of you know, we've got all of these pandemics who
Speaker 4: has declared a new pandemic of impocs. So you have
Speaker 4: so many factors that any one of them pops off.
Speaker 4: When you have such a weak economy fund the fundamentals
Speaker 4: are so weak, then you should expect a really unfortunately
Speaker 4: an oversized response to anything that is on the outbum
Speaker 4: that will be affecting it.
Speaker 3: So you mentioned the election, I'm curious as to how
Speaker 3: that's affected your thinking. On markets these days.
Speaker 4: Yeah, I mean I think that obviously with a Trump
Speaker 4: administration we would be more business friendly. I mean, we
Speaker 4: don't really know where Kamala's positions are economically. I'm really
Speaker 4: looking forward to this nine o'clock interview. I'm hoping that
Speaker 4: she actually does go more into the economics of her plans, because,
Speaker 4: you know, Doug her first kind of things that she's
Speaker 4: talking about our price controls, and all of us are
Speaker 4: racing and saying, where is this coming from? This is
Speaker 4: not anything that we were expecting to hear. So for me,
Speaker 4: we're really looking for more details on what is her
Speaker 4: economic positions.
Speaker 3: Now, speaking of the economy, how do you think the
Speaker 3: FED has been doing it kind of getting away from
Speaker 3: ultra tight monetary policy. We got an indication pretty strong
Speaker 3: one last week from Feedshair J. Powell. We're looking at
Speaker 3: a rate cut as soon as the September meeting. It
Speaker 3: could be as much as fifty basis points, although I
Speaker 3: don't think when you look at what the market is telegraphing,
Speaker 3: it's more likely twenty five. How do you feel about
Speaker 3: raid cuts going into the end of the year. Is
Speaker 3: it possible that we get a total of one hundred
Speaker 3: basis points and cuts.
Speaker 4: Well, I think that would be difficult if we only
Speaker 4: get a twenty five in September on September eighteenth, So
Speaker 4: we'll see.
Speaker 5: But I don't think the Fed.
Speaker 4: Is going to go to a fifty point cut swing
Speaker 4: as fast as September one because it's so close to
Speaker 4: the election and that can kind of be couch as
Speaker 4: political by.
Speaker 5: People that don't appreciate that.
Speaker 4: But two, it also really dug sends a more fundamental
Speaker 4: message to the global economy that something is wrong fundamentally underlying.
Speaker 4: And if you look at we had the largest second
Speaker 4: largest retraction of jobs eight hundred and eighteen thousand last Wednesday,
Speaker 4: and we already that's on top of all of the
Speaker 4: diminutions that we had monthly, all the corrections. This is
Speaker 4: the second most corrected BLS that we've had since two
Speaker 4: thousand and eight and two thousand and nine. So obviously
Speaker 4: those numbers were just coming in way over, you know,
Speaker 4: too extreme, and they were brought back down as they
Speaker 4: were corrected.
Speaker 5: All over the months.
Speaker 4: But then the annual correction almost took another million job
Speaker 4: away from last year. So that is where you're seeing
Speaker 4: PAL come back in insane labor is definitely now a concern.
Speaker 4: We're seeing the softness and so he's looking at a cut.
Speaker 4: But if we have to go to a fifty basis
Speaker 4: point cut, that is signaling that there's something even more
Speaker 4: alarming going on.
Speaker 3: Where are you seeing opportunity in markets these days?
Speaker 4: You know, obviously the hate to say it, but the
Speaker 4: breadth or the long term runway that we really do
Speaker 4: think is there is the AI tech space and that's
Speaker 4: why the.
Speaker 5: Whole world is invested in it. So there is common
Speaker 5: sense there.
Speaker 4: But you know, you have to look at if we're
Speaker 4: going to go into recessionary worldwide kind of period, where
Speaker 4: are recessionary places And that's always going to be your consumer,
Speaker 4: you know, defensive your staples, your utilities, you know, your commodities.
Speaker 4: So we would look at if we start to see
Speaker 4: really moving towards more weakening economic data, then we would
Speaker 4: look at more defensive positions.
Speaker 3: Are you worried about recession at all?
Speaker 6: I am?
Speaker 4: I am, because you know you look at Germany and
Speaker 4: they're manufacturing is PRESHI level. You look at China and
Speaker 4: we know what's happened there. You just mentioned yourself. Japan
Speaker 4: is slowing. Everything is slowing globally, and really, if you think.
Speaker 5: About it from my perspective, it starts kind of in.
Speaker 4: The East with the Asian exporters, and then it also
Speaker 4: moves to Europe, the European Zone, which we know how
Speaker 4: that is going with Germany, and it really then comes
Speaker 4: to America. So these have already kind of been going
Speaker 4: through the slow down and it's now coming to us.
Speaker 5: And we are the world's reserve.
Speaker 4: Currency, which helps us, you know, export our inflation as
Speaker 4: much as we possibly can. But there is a day, Doug,
Speaker 4: that we have to we have to pay the piper too.
Speaker 3: So if we can agree then that places like Asia
Speaker 3: and Europe have been slowing for a while, maybe there's
Speaker 3: opportunity in those markets. What do you think, Well, can.
Speaker 4: Telpany tell you that I don't recommend anybody go out
Speaker 4: and borrow yin and buy and do investments and dollars
Speaker 4: if you guess the garage trade that we know came
Speaker 4: up in August, the fifth is far from being over with.
Speaker 4: So be careful, just be be cautious because right now
Speaker 4: if we go into a kind of global financial and
Speaker 4: you have to understand too, Doug, this is the first
Speaker 4: time that we are really seeing global economic interplace so
Speaker 4: vastly that as China, you know, potentially collapses as Japan.
Speaker 4: I'm not saying it's collapsing, but I'm saying, as these
Speaker 4: things happen, we are so dependent now as they're the
Speaker 4: exporters and we are the importers, that what happens with
Speaker 4: them is going to come to us.
Speaker 5: We just have to be very cautious.
Speaker 3: So do you like the bond market there if you're
Speaker 3: a little concerned about growth going forward and the FED
Speaker 3: is going to cut rates. We don't know by the magnitude,
Speaker 3: but are you seeing opportunity in the bond market?
Speaker 4: I mean, I think that the bond market always does
Speaker 4: well in a period where there's less interference by central
Speaker 4: bank policy. So that's where we have to see where
Speaker 4: are the central bank policies taking us. We know they're
Speaker 4: implementing Basal three, and that's why we've seen all of
Speaker 4: this gold purchases by all of these central banks around
Speaker 4: the world. How does that impact what the central banks
Speaker 4: are going to be doing? But you're looking at the
Speaker 4: like just even here in the Federals Serve here we're
Speaker 4: in a negative interest rate situation. We're normally having the
Speaker 4: FED send the Treasury interest on a monthly basis. That
Speaker 4: is costing us money right now, so the Fed's balance
Speaker 4: sheet at seven trillion, it still needs to come down
Speaker 4: to your point earlier said, how are we slowing down
Speaker 4: the tightening? Well, we reduce quantitative tightening from some ninety
Speaker 4: billion to some much less sixty billion less, and that
Speaker 4: has helped our economies be sustainable. But now are at
Speaker 4: the point of cuts, and so I would be more
Speaker 4: concerned about yields in the short term.
Speaker 3: Just want to point out that everything that the FED
Speaker 3: earns on its balance sheet is deposited at the Fed's
Speaker 3: account in the US Treasury. So it's a way the
Speaker 3: government can make a little bit of money in the margin.
Speaker 5: Right, That's right.
Speaker 3: Let's do some walk about economics. You're based in Florida.
Speaker 3: How is the economy and in Florida holding up?
Speaker 4: I mean, I think that for us, you know, I'm
Speaker 4: in Central Florida, Tampa, and we're still seeing just a
Speaker 4: massive amount of relocations. Business wise, you know, we still
Speaker 4: I mean, our property in the commercial space is actually
Speaker 4: really tight. Our inventory's low as far as the you know,
Speaker 4: retail and consumer housing that has the inventory is ticked up,
Speaker 4: just like it has across the country, but we are
Speaker 4: still seeing a really tight commercial retail availability. So that
Speaker 4: is really just because of the pure a lot of
Speaker 4: businesses relocating to the state of Florida, state of Texas
Speaker 4: from other states that are maybe more restrictive and more expensive.
Speaker 3: Miami in particular too.
Speaker 4: Do you get down to Miami Ago, I do, absolutely,
Speaker 4: and it is it is just Florida just feels like
Speaker 4: a different part of the country right now. Everyone else
Speaker 4: seems to be slowing down, and I just know Florida, Texas, Arizona,
Speaker 4: these countries are really growing their net, you know, businesses,
Speaker 4: which is which is great, but it is a problem
Speaker 4: in between moving office spaces and it has been quite
Speaker 4: a challenge in Tampa just securing office space and doing
Speaker 4: a build out because of how much activity is going on.
Speaker 1: It's crazy.
Speaker 5: It's like we're living in two different worlds.
Speaker 3: Rebecca A delight to have you on the program here
Speaker 3: in New York. Rebecca Walls are president at Walls Are
Speaker 3: Wealth Management. Joining us here on that daybreak Asia, Let's
Speaker 3: bring in our guest. Thomas Todd joins us. Thomas is
Speaker 3: head of a pack investment strategy at black Rock. He
Speaker 3: joins us from our studios in Hong Kong. Good of
Speaker 3: you to drop by. I hope you're doing well. Are
Speaker 3: you still constructive on markets generally speaking?
Speaker 7: Hey Doug, how are you doing? Good to be back? Yeah,
Speaker 7: I mean, I think for the for the most part,
Speaker 7: there are some some shifts that we've been making over
Speaker 7: the last month, particularly around the US market, not essentially
Speaker 7: telling investors to to to sell out of positions, but
Speaker 7: maybe take some rotation and beta off the table. I mean,
Speaker 7: the US economy looks relatively strong. There's a little bit
Speaker 7: concerned about the labor market and perhaps that weakening, but
Speaker 7: earnings growth across most sectors has done pretty well. I think,
Speaker 7: you know, in terms of taking the bit off, it's
Speaker 7: more about the rotation trade, which we see continuing, particularly
Speaker 7: into some of those those small caps and companies that
Speaker 7: are more more aligned and more sensitive to to FED
Speaker 7: funds rate in terms of borrowing.
Speaker 3: I have to ask you about the AI trade because
Speaker 3: we were kind of breaking down the Nvidia result yesterday
Speaker 3: after the bell of course, and the fact that the
Speaker 3: revenue forecast was a little disappointing to some who have
Speaker 3: been very optimistic about the rate of sales growth continuing.
Speaker 3: I mean, when you look at some of these AI stocks,
Speaker 3: are you still a buyer of the thesis? Are you
Speaker 3: still willing to put new money to work in these names?
Speaker 3: Or maybe it's getting a little topy here? What do
Speaker 3: you think? Yeah? I think not just now.
Speaker 7: You know, Navidia is obviously the kind of the poster
Speaker 7: child for that trade, and in terms of the AI story,
Speaker 7: obviously it's a long term story, you know. I think
Speaker 7: what's basically happened is, you know, we've had a lot
Speaker 7: of rhetoric around what AI means for productivity, gains, et cetera.
Speaker 7: It's very hard to quantify that the initial phase of
Speaker 7: that investment leg was around basically buying hardware and chips
Speaker 7: makers semiconductors, that that was kind of the first rotation
Speaker 7: we've seen. And then we have investors looking at, Okay,
Speaker 7: what's what's the actual next leg of this? Is it cybersecurity?
Speaker 7: You know, where do we where do we go after this?
Speaker 7: So I think, you know, we're looking at it as
Speaker 7: a longer term thematic. It always concerns me when the
Speaker 7: entire market is looking at the earnings, the earnings calls
Speaker 7: of a single company in the S and P five hundred,
Speaker 7: So I think in terms of concentration risks, they are there.
Speaker 7: But I think that the AI story is more of
Speaker 7: a long term but probably it's one to revisit the
Speaker 7: next year.
Speaker 3: Are you equally as cautious on some of those high
Speaker 3: bandwidth memory chip makers less sk Heinex in South Korea
Speaker 3: along with Samsung. Are you cautious? Well, we don't.
Speaker 7: I mean I don't look particularly at single stocks, but certainly,
Speaker 7: you know, if you look at their their holdings or
Speaker 7: their waitings in the South Korean Stock Index COSTP or
Speaker 7: the or the Taiwan Stock Index, it is a little
Speaker 7: bit concerning. You know, there's about they're about twenty five
Speaker 7: percent of both, and when we look at the general portfolio,
Speaker 7: it is we are talking about how do we take
Speaker 7: some of the growth exposure, the tech exposure away from
Speaker 7: that and moving into Q moving to Q four and
Speaker 7: also into next year. It's about, you know, looking for
Speaker 7: economies that are more driven by domestic factors rather than
Speaker 7: than global factors as we move into into US election.
Speaker 7: So South Korea Taiwan are not in that bucket. It's
Speaker 7: more kind of India and Japan, at least on the
Speaker 7: on the larger exposure.
Speaker 3: You read my mind, I was wondering about Japan and
Speaker 3: the domestic demand story there, But the retail sales number
Speaker 3: that we just had for July was very disappointing. Half
Speaker 3: of what the market's looking for here? Is there something
Speaker 3: to be concerned about now?
Speaker 7: You know, in terms of the in terms of the
Speaker 7: next leg of the structural bull story in Japan, it
Speaker 7: is about the domestic consumer. You know, you have to
Speaker 7: bear in mind that you know, for forty years they've
Speaker 7: had basically zero inflation or disinflation, and so it's going
Speaker 7: to take a little bit of time for that consumer
Speaker 7: mindset to change. We are seeing some signs that we're
Speaker 7: getting more investing through NISA programs and things like that,
Speaker 7: but you know, there is a lot of money sitting
Speaker 7: on the sideline in Japan, somewhere around seven trillion US
Speaker 7: dollars in cash, and you know, inflation is going up.
Speaker 7: The stock market did have a brief drop, and I
Speaker 7: think I think if you look the foreign investor positioning,
Speaker 7: it's kind of the index money kind of moved out
Speaker 7: very quickly, and now it's kind of more of an
Speaker 7: active story finding those companies with actual earnings growth that
Speaker 7: benefit from structural reform. So it will take some time,
Speaker 7: and there is a lot of faith being put in
Speaker 7: that consumer story, but I think that transition is going
Speaker 7: to take a little bit of time. But we're still
Speaker 7: we're still bulls on Japan.
Speaker 3: A few hours before Jay Powell spoke at the Jackson
Speaker 3: Hole Symposium, we heard from the governor of the bojks
Speaker 3: way to talking about the possibility, the likelihood that the
Speaker 3: Bank of Japan would continue to raise interest rates. We
Speaker 3: see a rate hike between now and the end of
Speaker 3: the year from the BOJ.
Speaker 7: I think, so yeah, I mean, I don't think it's
Speaker 7: going to come in September, but I think October is
Speaker 7: definitely a possibility. Inflation is trending up, and so, you know,
Speaker 7: I think that's definitely a possibility. In terms of the
Speaker 7: JPY movement, it's very basic. But we also have to
Speaker 7: understand that the BOJ moves in increments of ten BIPs
Speaker 7: and the Fed moves in increments of twenty five BIPs.
Speaker 7: So net you know, I think that there's there's still
Speaker 7: a possibility that we get some repricing on four rate
Speaker 7: cuts this year, So I do think that the end
Speaker 7: will continue to appreciate, but we could see a little
Speaker 7: bit of a depreciation going into end of year.
Speaker 3: To what extent would we have a much better Japanese
Speaker 3: economy if the Chinese economy we're doing better than it is.
Speaker 7: I mean, I don't think it's that it's that relevant.
Speaker 7: I mean, you're currently again moving into US election cycle.
Speaker 7: We're looking at those economies that are more exposed to
Speaker 7: China trade, China growth and US trade and US growth,
Speaker 7: and basically trying to find economies that are more domestically driven.
Speaker 7: Japan is obviously a big exporter, but one of the
Speaker 7: one of the things that we're looking at in Japan
Speaker 7: now is basically moving away from those broad export driven
Speaker 7: indexes topic for example, more into kind of the granular,
Speaker 7: high divinend type of exposure. So the trade with China
Speaker 7: is important, but it's again we're kind of more focused
Speaker 7: on the domestic story here.
Speaker 3: So if it's the domestic story, then you avoid China
Speaker 3: at all cost I would imagine, right.
Speaker 7: Well, I mean, I think for the most part, foreign
Speaker 7: investors have been avoiding China at all costs. But actually
Speaker 7: China is very much driven by the domestic domestic retail.
Speaker 7: That's kind of the issue is that that.
Speaker 3: Growth hasn't been there at all.
Speaker 7: So until that picks up, I think foreign investors are
Speaker 7: just going to stay on the sideline when it comes
Speaker 7: to when it comes to China equities.
Speaker 3: Tom, It's always a pleasure to have you on the program.
Speaker 3: Thank you so much. Thomas Ta ahead of APAC Investment
Speaker 3: Strategy at Blackrock, joining us from our studios in Hong Kong.
Speaker 3: Here on daybreak Asia, Let's go to Singapore. Bring in
Speaker 3: Bloomberg's marrying Nicola, who is one of the m lives
Speaker 3: in the APAC region. I was looking at the M
Speaker 3: Live blog right on the Bloomberg terminal and I see
Speaker 3: that you had a posting earlier in the day. What
Speaker 3: was the genesis behind this? What caused you to write
Speaker 3: about the subject matter that you unpacked today.
Speaker 1: Yeah, I think the main thing, especially with what we've
Speaker 1: seen with the equity markets, we've been so focused on
Speaker 1: in Vidia and how in Nvidia plays out into the
Speaker 1: rest of the markets. But the key thing here is
Speaker 1: that even though we had a weekday because in Vidia
Speaker 1: dragged down the S and P five hundred, most stocks
Speaker 1: advanced and you're seeing this broad based rally and a
Speaker 1: sign of a more sustainable rally because now the focus
Speaker 1: is not only shifting, is shifting from the Magnificent seven
Speaker 1: to the rest of the four ninety three, and that
Speaker 1: actually bodes very well for a more sustainable and broad
Speaker 1: based rally.
Speaker 3: Do you think that the pivot on the part of
Speaker 3: the FED chairman last Friday had a lot to do
Speaker 3: with what you're describing here in terms of a broadening
Speaker 3: where the market can feel that they're some wind at
Speaker 3: its back.
Speaker 1: Well, it also helps too that Q two earnings were
Speaker 1: quite strong for the rest of the four ninety three.
Speaker 1: I think that's another key important factor to consider. So
Speaker 1: it's actually that fundamentals are working in their favor as well.
Speaker 1: Of course, the fact that the FED is pivoting and
Speaker 1: we're looking for cuts to come as soon as September
Speaker 1: is another one. But I think the fact that the
Speaker 1: fundamentals are also playing in favor and valuations are actually
Speaker 1: looking better and brighter for the four ninety three says
Speaker 1: says something for equities.
Speaker 3: So if you were to compare and contrast the games
Speaker 3: that we have seen for the US equity market versus
Speaker 3: let's say the US bond market, not just treasuries, but
Speaker 3: corporate bonds as well. What do we know about that relationship.
Speaker 1: Yeah, Interestingly, we've had over the past few years that
Speaker 1: there's been this positive correlation right between bonds and equities,
Speaker 1: so as especially, and they haven't usually there's a negative
Speaker 1: correlation where the stocks when they underperform, bonds outperform. However,
Speaker 1: over the last year, sometimes when you see, you know,
Speaker 1: the bonds underperforming, equities are also underperforming. And we've seen
Speaker 1: an underperformance in bonds for quite some time. So now
Speaker 1: we're seeing that the comeback of that negative correlation coming
Speaker 1: into play, which is actually supportive because if you're a manager,
Speaker 1: you know, like I was at some point, and you're
Speaker 1: managing sixty forty now your gains are being buffered. So
Speaker 1: let's say you've got some losses in the equity markets,
Speaker 1: and the recent losses, they're being somewhat buffered by the
Speaker 1: fact that you've been gaining on duration and on bonds.
Speaker 1: So we have seen a bonds gaining traction as a
Speaker 1: result of the FED and it's a question of does
Speaker 1: that continue because or is everything already priced in?
Speaker 3: So when you're describing what the expectations are for cuts
Speaker 3: and interest rates from the Fed. I think I'd like
Speaker 3: to talk about the dollar here and get your views
Speaker 3: on whether or not you're expecting much more in the
Speaker 3: way of dollar weakness. We've seen a fair amount already,
Speaker 3: I think, down about four percent since Jackson Hole. Is
Speaker 3: this something we can expect more of more dollar weakness?
Speaker 3: And then what made that do to some of the
Speaker 3: em currencies that you track closely there in Singapore.
Speaker 1: Yeah, I feel that the dollar is always and forever
Speaker 1: about rate differentials, and if rate differentials are still working
Speaker 1: in the favor of the dollar, it's hard to see
Speaker 1: the dollar week in too much. And that's where it
Speaker 1: comes in where if let's say the FED goes aggressive
Speaker 1: and starts hiking and starts cutting grates a lot more
Speaker 1: aggressively than we expect, then sure the dollar is going
Speaker 1: to struggle. But if it takes a more methodical and
Speaker 1: cautious approach, it's hard for there to see further weakness
Speaker 1: in the dollar if their nominal yields are still above
Speaker 1: several currencies within G ten and as well within emerging markets.
Speaker 3: When you look at what some of your colleagues are
Speaker 3: writing on the M Blog M Live Blog today. Is
Speaker 3: there anything that was kind of jumped off the page
Speaker 3: so to speak to you, anything that's interesting.
Speaker 1: Yeah, you know, one of my colleagues actually wrote about,
Speaker 1: you know, rising EM rate expectations and the ability and
Speaker 1: that being an underpinning for EM currencies and the fact
Speaker 1: that as the FED prepares to cut that's going to
Speaker 1: be supportive for EM and I think it supports you know,
Speaker 1: a lot of the high carry so a lot of
Speaker 1: the emerging market currencies with higher yields. I think it
Speaker 1: doesn't bode as well for a lot of the currencies
Speaker 1: with lower yields, and a lot of them are in Asia.
Speaker 3: You know, it was interesting we were talking about the
Speaker 3: tariff's story as it relates to some of the Chinese
Speaker 3: electric vehicles a moment ago. Do you think the tariffs
Speaker 3: have the potential to play a big role in holding
Speaker 3: back some of the growth in China going forward?
Speaker 1: I think so. I think it carries a lot of
Speaker 1: reluctance for companies to invest in private companies to invest.
Speaker 1: I think that's been and we've seen demand has been
Speaker 1: exceptionally sluggish. Exporters, multinationals are hoarding, onto, onto, onto cash
Speaker 1: onto onto US dollars, and a lot of it has
Speaker 1: to do with the fact of there is this overhang
Speaker 1: of what is happening within the markets about tariffs, and
Speaker 1: I think if that continues to linger, you will see
Speaker 1: that that's going to have broader implications on the on
Speaker 1: the Chinese equity markets and on the currency as well.
Speaker 3: Daybreak Asia. That's Mary Niccolo. Let's bring in our guest,
Speaker 3: Yu Chian Ding, head of China Autos Research at HSBC
Speaker 3: Chian High Securities, and Yu Chian joins us from our
Speaker 3: studios inh good of you to stop by, Thanks so much.
Speaker 3: Can we talk about the disappointment that we saw yesterday
Speaker 3: and some of those EV makers. What's happening with the
Speaker 3: EV makers in China right now?
Speaker 6: Yeah, thank you for having me. I would say for
Speaker 6: the first twenty five days of August that the EV
Speaker 6: penetration in China breaking fifty five percent, So EV is
Speaker 6: now materially the majority of the mix in China. But
Speaker 6: in terms of the earning season, there's a lot of
Speaker 6: expection expectation play too, So when we talk about stocks,
Speaker 6: I would say that's a little bit different. Last night,
Speaker 6: the ad R EV stocks had a strong rebound, although
Speaker 6: the other day it was a little bit of roller coaster.
Speaker 6: I think the second quarter print so far we've got
Speaker 6: from the EV makers are generally strong, but the marketing expectation,
Speaker 6: the market focus that has been pretty much hinged on
Speaker 6: the second half. Our look, some of the company didn't
Speaker 6: talk much, so the market got a little bit disappoint
Speaker 6: and it overshoot the night before last night, but it
Speaker 6: rebounded last night. So I would say generally we are
Speaker 6: sailing into a high season in September and October, and
Speaker 6: the China government has doubled down the trading subsidy on
Speaker 6: the EV side and also on the ice side by
Speaker 6: the end of July. We're seeing more follow up policy
Speaker 6: coming in August. So we believe the double down of
Speaker 6: the policy support and also the high season, coupled with
Speaker 6: a strong new model supply pipeline into September and October,
Speaker 6: should boost the marginal improvement from the whole sector perspective,
Speaker 6: especially benefiting the ones with the new model coming, such
Speaker 6: as byd X, Pond and Neil.
Speaker 1: Just a quick This is very from Singapore. Just a
Speaker 1: quick question for you. So we've seen a lot of
Speaker 1: discussion about tariffs on the Chinese auto industry. How is
Speaker 1: this affecting some of the investment the ambition of some
Speaker 1: of these automakers.
Speaker 6: Yes, Indeed, the global trade environment is challenging and complicated.
Speaker 6: I would say from the China export perspective, currently EV
Speaker 6: is the highlight, but it's only about twenty five percent
Speaker 6: of the mix. What do we expect given the product
Speaker 6: strengths and the competitiveness of the whole industry, that there
Speaker 6: should be more gross opportunity down the road. But the
Speaker 6: emerging market such as ZM, South America and the Mid
Speaker 6: the East could be the key focus in a come
Speaker 6: in in the coming years, while in some developed market,
Speaker 6: given the terraff barrier, it could be proved to be
Speaker 6: a little difficult. So again there's a still room to go,
Speaker 6: but it's more emerging market focused on the China EV side.
Speaker 3: So you could make the case then that the teriff
Speaker 3: really is a response to very low pricing. And you
Speaker 3: could also make the case that China right now, given
Speaker 3: a lot of the overcapacity, and I use that term cautiously,
Speaker 3: I know it's up for debate, but that China is
Speaker 3: attempting to kind of export some of the overcapacity to
Speaker 3: markets offshore the United States or maybe areas of Latin America,
Speaker 3: parts of Europe as well. Do you think there's going
Speaker 3: to be a lot more forced consolidation within the EV
Speaker 3: manufacturing space in China because of this issue of so
Speaker 3: called overcapacity.
Speaker 6: Great question, but a couple of them. So let's break
Speaker 6: it down. So I would say, actually, the China EV
Speaker 6: is not a competing on low pricing OVISE market. Taking
Speaker 6: BID for example, I so European pricing is almost twice
Speaker 6: as of US as what is in China. In the
Speaker 6: rest of the globe is also having a high premium
Speaker 6: over fifty percent versus China pricing, so it's not really
Speaker 6: competing on the low price. And another aspect about the
Speaker 6: China EV going globe is part of the part of
Speaker 6: the production has now been localized. It's not just made
Speaker 6: in China ship shipped abroad. BID just completed the Thailand
Speaker 6: plant and they're going to open the Brazil plant next year,
Speaker 6: in Anesia plant the year after. They're also building a
Speaker 6: two plant in Europe in Turkey and Hungary. So the
Speaker 6: localization should mitigate part of the tariff risk because they
Speaker 6: want to be more committed to the local market. So
Speaker 6: these are the two angles with the contact into the
Speaker 6: broader China TV condition debate. And also consolidation is more
Speaker 6: like a domestic topic. Yes, we do see the domatic
Speaker 6: consolidation happening in China. If we are talking about the
Speaker 6: top ten EV makers, consolidation rate is increasing from seventy
Speaker 6: percent two years ago to close to eighty percent, So
Speaker 6: we do see the consolidation happen. Small players got phased out,
Speaker 6: squeezed out, there's less brand left. Still the status quo
Speaker 6: is is still too much and we're in meido of this.
Speaker 6: During the process of consolidation, it could be a temporary
Speaker 6: value destroyed for the space. But when we reach the inflection,
Speaker 6: the pricing environment should be able to get better. But
Speaker 6: we're still in meido of this, and some of our
Speaker 6: EV companies Leader talked about twenty six could be the
Speaker 6: consolidation year, so we are now righting medea of that.
Speaker 6: But it is happening in China.
Speaker 1: So tariff's socide. What do you think is the biggest
Speaker 1: risk for earnings growth for these auto companies?
Speaker 6: I would say generally the tariff in certain markets such
Speaker 6: as US and Europe is in full discussion, so we
Speaker 6: know where the risk is where the debate. The company
Speaker 6: has their strategy formed out, more emergent market driven already,
Speaker 6: and for the for the places with the tariff, the
Speaker 6: local plant has been building. Of course, there will be
Speaker 6: higher execution costs and longer execution time, but that's the way,
Speaker 6: that's the proper way to mitigate the risk to the
Speaker 6: most and also build the business into the midterm for longer.
Speaker 6: So generally, I would say it's largely priced ing with
Speaker 6: the current market expectation for what has been announced was
Speaker 6: in the news enterprise, and for the rest I think
Speaker 6: I would stress that the localization plan has been in
Speaker 6: progress that should help the potential tariff risk should there.
Speaker 3: More so, we've talked a lot about in terms of
Speaker 3: what the foreign markets would be for some of these
Speaker 3: Chinese v EV makers. Let's talk a little bit about
Speaker 3: what's happening domestically in China and the extent to which
Speaker 3: some of the European manufacturers are being squeezed out. Is
Speaker 3: that going to continue at a pretty healthy clip?
Speaker 6: I would say the consolidation coupled with electrification or the
Speaker 6: ev transition of the two themes so different OEMs tackling
Speaker 6: that with different strategy. Of course, if you have a
Speaker 6: strong EV pipeline from the pricing perspective, that should be
Speaker 6: able to remain relatively more dynamic. I would argue some
Speaker 6: of the incumbency company the ice the ice makers probably
Speaker 6: under the near term pressure because the consumers prefers EV
Speaker 6: and the consumers prefers advanced the software experience. For the ones,
Speaker 6: the model is not up to the ballpark market average
Speaker 6: competition requirement. The market share losing in the short term
Speaker 6: or the pricing discount is probably something we would expect
Speaker 6: in order. So I think it's largely about the product strategy,
Speaker 6: whether you get whether you can get the right EV
Speaker 6: product right. Maybe you get it in the next generation,
Speaker 6: but against the very strong competition and very strong model
Speaker 6: supply the Ropert Doope time, probably pricing is is it
Speaker 6: something you have to you have to you have to
Speaker 6: pay for the need.
Speaker 1: Mary, just one last question, is you know you seem
Speaker 1: quite optimistic. What are some of the risks that you
Speaker 1: see besides the tariffs?
Speaker 6: Of course, I would say two sides what we discussed.
Speaker 6: I'm also concerned, of course the trade environment is is
Speaker 6: is quite important for the overseas expansion. The footprint and
Speaker 6: uh uh the local execution and domestically the competition, the
Speaker 6: pricing pressure might continue for.
Speaker 5: A while, although we would argue.
Speaker 6: The pricing uh, the pricing pressure is online off, there's
Speaker 6: a finality, there's a model supply cycle, there's a different
Speaker 6: strategy coming from the leaders, so there's a mixture of
Speaker 6: things and and and on top of that, I would argue, uh,
Speaker 6: the demand side of the of the of the risk
Speaker 6: is constantly tangible. So if the demand is working their
Speaker 6: way out, the pricing should be easy. But if there's
Speaker 6: limited demand, you will see the OEMs will trying to
Speaker 6: pete more aggressively for the limited pie.
Speaker 3: So maybe lower interest rates helps things out. We'll have
Speaker 3: to wait and say.
Speaker 6: You.
Speaker 3: Chanding, head of China Autos Research at HSBC Chianhai Securities,
Speaker 3: joining us from our studios in Hong Kong. Here on
Speaker 3: Daybreak Asia.
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