WEBVTT - Larry Hu on the Markets (Audio)

0:00:00.080 --> 0:00:03.320
<v Speaker 1>Our guest is Larry Who, head of China Economics at

0:00:03.400 --> 0:00:06.760
<v Speaker 1>McQuary Group. Larry, lots of time to talk about China

0:00:06.920 --> 0:00:09.040
<v Speaker 1>and the Asia Pacific, but I do want to ask

0:00:09.080 --> 0:00:11.680
<v Speaker 1>you about these comments from FED officials. And I don't

0:00:11.680 --> 0:00:13.360
<v Speaker 1>think we want to make too much of it, but

0:00:13.760 --> 0:00:16.759
<v Speaker 1>they're talking about, you know, being somewhat concerned about what's

0:00:16.800 --> 0:00:21.200
<v Speaker 1>happening globally, and they also, uh you know, are saying

0:00:21.239 --> 0:00:25.599
<v Speaker 1>that they they're concerned about financial conditions. Could there be

0:00:25.680 --> 0:00:27.520
<v Speaker 1>one reason why we're seeing a little bit of a

0:00:28.080 --> 0:00:32.080
<v Speaker 1>let up in some of the risk off tone in markets. Yes,

0:00:32.159 --> 0:00:35.479
<v Speaker 1>I definitely I think now, you know, as a as

0:00:35.520 --> 0:00:39.879
<v Speaker 1>Antina economist, you know, for China faced a lot of uncertainties,

0:00:40.040 --> 0:00:44.680
<v Speaker 1>but of course on the FED hiking cycle under the Titan,

0:00:44.800 --> 0:00:47.960
<v Speaker 1>the financial condition globally definitely is a head wind of

0:00:48.000 --> 0:00:50.879
<v Speaker 1>faced by China today, which gonna you know, I want

0:00:50.920 --> 0:00:54.160
<v Speaker 1>hand the impact the market, the risk epetite. Also you're

0:00:54.160 --> 0:00:58.000
<v Speaker 1>not going to impact China exports later on. What is

0:00:58.000 --> 0:01:00.560
<v Speaker 1>happening to is this very strong dull and that is

0:01:00.600 --> 0:01:03.200
<v Speaker 1>fading through into Asian currencies. We got do you want there?

0:01:03.200 --> 0:01:07.240
<v Speaker 1>A fourteen year low inviting more aggressive pushback from authorities

0:01:07.240 --> 0:01:09.840
<v Speaker 1>in China. What are you expecting to say from the

0:01:09.880 --> 0:01:13.679
<v Speaker 1>central bank? Uh? Well, you know, I would say so

0:01:13.680 --> 0:01:17.600
<v Speaker 1>far that intervention has been pretty mild because the weakness

0:01:17.640 --> 0:01:21.560
<v Speaker 1>of UN is mainly driven by the strong dollar. If

0:01:21.560 --> 0:01:25.040
<v Speaker 1>you look at the UN against a basket of currency,

0:01:25.400 --> 0:01:29.000
<v Speaker 1>it has remained pretty steady so far this year. But

0:01:29.160 --> 0:01:31.440
<v Speaker 1>of course, you know, if you are in the UN

0:01:31.520 --> 0:01:35.000
<v Speaker 1>continue to weaken, we're probably going to see more intervention,

0:01:35.440 --> 0:01:40.240
<v Speaker 1>more powerful intervention from policy makers. You know. For for instance,

0:01:40.959 --> 0:01:44.039
<v Speaker 1>they can roll out, they can use the so called

0:01:44.160 --> 0:01:48.680
<v Speaker 1>counter cyclical factor, which means that you know, fixing because

0:01:48.680 --> 0:01:52.160
<v Speaker 1>the daily fixing a bitter stronger than usual to send

0:01:52.200 --> 0:01:56.120
<v Speaker 1>the market a very strong signal that PBOC one uh

0:01:56.360 --> 0:02:00.480
<v Speaker 1>no a step a stable UN instead of a sharper depreitiation.

0:02:00.960 --> 0:02:03.720
<v Speaker 1>So this has been a really strong risk off market.

0:02:03.840 --> 0:02:06.920
<v Speaker 1>There's a couple of huge pivots that are out there,

0:02:07.160 --> 0:02:09.640
<v Speaker 1>um that will happen at some point, but when we

0:02:09.680 --> 0:02:14.400
<v Speaker 1>don't know. One is China perhaps easing up on COVID zero.

0:02:14.720 --> 0:02:18.160
<v Speaker 1>Maybe the experiment that we see in Hong Kong is

0:02:18.160 --> 0:02:21.640
<v Speaker 1>is a forerunner to that. And the second big pivot

0:02:21.680 --> 0:02:24.399
<v Speaker 1>would be that the Fed says, Okay, we can take

0:02:24.400 --> 0:02:27.160
<v Speaker 1>a pause here. Which of those two do you think

0:02:27.240 --> 0:02:31.679
<v Speaker 1>happens first? And about when? Well, that's a that's a

0:02:31.760 --> 0:02:35.880
<v Speaker 1>very hard to connect. The vailability is pretty it is

0:02:35.919 --> 0:02:40.320
<v Speaker 1>pretty low. But our house view is that um, the

0:02:40.360 --> 0:02:44.400
<v Speaker 1>FED probably gonna pause um in first quarter next year

0:02:44.840 --> 0:02:49.200
<v Speaker 1>and probably you know, given the US economy slow down quickly.

0:02:49.680 --> 0:02:52.880
<v Speaker 1>On the for China side, my base case is that

0:02:52.880 --> 0:02:56.280
<v Speaker 1>we're going to see some gradually losing in zero COE

0:02:56.280 --> 0:03:00.520
<v Speaker 1>policy after the Party Congress. Uh no China and likely

0:03:00.560 --> 0:03:04.800
<v Speaker 1>to live with the COVID overnight. Which but but I

0:03:04.800 --> 0:03:08.200
<v Speaker 1>think they still can you know, losing a beta on

0:03:08.280 --> 0:03:11.919
<v Speaker 1>the margin, you know, regarding the current zero COVID policy.

0:03:12.320 --> 0:03:15.040
<v Speaker 1>And I actually I think there there is a certain

0:03:15.080 --> 0:03:18.080
<v Speaker 1>payor could happen, which means that the China could China

0:03:18.160 --> 0:03:22.200
<v Speaker 1>policy action means policy easy and could have been more decisive. Larry,

0:03:22.200 --> 0:03:24.679
<v Speaker 1>we've been talking about a lot of the headwinds that

0:03:24.760 --> 0:03:27.200
<v Speaker 1>the China economy is facing. And we know about property,

0:03:27.240 --> 0:03:30.240
<v Speaker 1>we know about COVID. You're also saying the population and

0:03:30.280 --> 0:03:35.200
<v Speaker 1>the aging population is something we should be watching closely. Uh, Well,

0:03:35.240 --> 0:03:38.640
<v Speaker 1>that's more about the long term structural thing, right, so

0:03:39.080 --> 0:03:42.320
<v Speaker 1>I would say the long term structural easier for China

0:03:42.680 --> 0:03:45.920
<v Speaker 1>is I think the two biggest one is that, as

0:03:45.920 --> 0:03:49.080
<v Speaker 1>you said, one is the aging population and the other

0:03:49.360 --> 0:03:51.920
<v Speaker 1>is where the China could have moved into a new

0:03:51.960 --> 0:03:56.120
<v Speaker 1>growth model which less driven by investment. Right. But I

0:03:56.160 --> 0:03:59.640
<v Speaker 1>would say the cyclical part, as you mentioned, mainly from

0:03:59.640 --> 0:04:03.440
<v Speaker 1>the zero COVID side. On property side, Larry, we talked

0:04:03.440 --> 0:04:06.200
<v Speaker 1>about the Macau opening a little bit yesterday. Yeah, it's

0:04:06.200 --> 0:04:10.000
<v Speaker 1>not a huge thing, but announcing that group tours would

0:04:10.000 --> 0:04:14.040
<v Speaker 1>be um would be facilitated as soon as November, and

0:04:14.520 --> 0:04:18.600
<v Speaker 1>although it may not affect the casino names themselves, so

0:04:18.760 --> 0:04:21.640
<v Speaker 1>those stocks rebounded. So I know you're an economist. I

0:04:21.680 --> 0:04:25.440
<v Speaker 1>only mentioned that because it shows you that people, investors,

0:04:25.480 --> 0:04:28.760
<v Speaker 1>everybody is waiting on some sign that we're going to

0:04:29.080 --> 0:04:32.360
<v Speaker 1>get some loosening. Now. I know that you're thinking that

0:04:32.560 --> 0:04:35.160
<v Speaker 1>COVID zero it's impossible for them to change that. They

0:04:35.160 --> 0:04:37.400
<v Speaker 1>can do other things like they did with Macau. Are

0:04:37.400 --> 0:04:41.120
<v Speaker 1>you looking for other measures to really increase the animal

0:04:41.160 --> 0:04:45.279
<v Speaker 1>spirits in China? Yeah, definitely. I would say that I

0:04:45.320 --> 0:04:48.440
<v Speaker 1>think that they're gonna change zero COVID one day, but

0:04:48.520 --> 0:04:51.080
<v Speaker 1>they're just in a gradual way, right, in the sense

0:04:51.120 --> 0:04:52.680
<v Speaker 1>that the Chinese is not going to live with the

0:04:52.720 --> 0:04:56.360
<v Speaker 1>COVID overnight because it takes a lot of more to

0:04:56.360 --> 0:04:59.000
<v Speaker 1>towards that, for instance at the East, and there's some

0:04:59.200 --> 0:05:02.080
<v Speaker 1>changing p and the tone, right, But I do think

0:05:02.160 --> 0:05:05.719
<v Speaker 1>that you know, as you said, um, some loosening in

0:05:05.839 --> 0:05:09.719
<v Speaker 1>zero COVID is very important to the animal spirit because

0:05:09.760 --> 0:05:13.039
<v Speaker 1>that's closely related to the consumption side in China, and

0:05:13.160 --> 0:05:17.200
<v Speaker 1>you know, consumption accounts for fifty of China economy. That's

0:05:17.200 --> 0:05:19.920
<v Speaker 1>a big and so far this year it has no growth. Right,

0:05:19.960 --> 0:05:22.680
<v Speaker 1>that's a big drag to the Chinese economy. That's not

0:05:22.720 --> 0:05:25.000
<v Speaker 1>likely to really change the needle until next year, though,

0:05:25.000 --> 0:05:27.440
<v Speaker 1>what are your forecast for three when we see the

0:05:27.480 --> 0:05:33.160
<v Speaker 1>likes of Goldman slashing there forecasts for China's growth, Well,

0:05:33.560 --> 0:05:36.920
<v Speaker 1>at this moment, I expect trying to grow fivepon five

0:05:36.960 --> 0:05:40.200
<v Speaker 1>percent for next year. I think in large part because

0:05:40.480 --> 0:05:44.279
<v Speaker 1>the base this year is very low, and I think

0:05:44.279 --> 0:05:46.760
<v Speaker 1>of trying to could do more in losing zero COVID

0:05:46.800 --> 0:05:50.159
<v Speaker 1>policy to boost the consumption and do more to support

0:05:50.279 --> 0:05:53.279
<v Speaker 1>the property sector. But of course for next year, the

0:05:53.320 --> 0:05:55.920
<v Speaker 1>vliability is pretty low. It really depends on what are

0:05:55.920 --> 0:05:59.440
<v Speaker 1>they gonna do after the Party Congress. Yeah, the Party

0:05:59.480 --> 0:06:02.839
<v Speaker 1>Congress coming up, and a story that we haven't really

0:06:02.880 --> 0:06:05.440
<v Speaker 1>talked about too much, but I think it's something we

0:06:05.480 --> 0:06:08.120
<v Speaker 1>need to at least raise today and perhaps with you

0:06:08.200 --> 0:06:11.560
<v Speaker 1>as best. She jumping hasn't been seen in public for

0:06:11.640 --> 0:06:15.320
<v Speaker 1>about ten days or so. Any significance at all, Well,

0:06:15.400 --> 0:06:19.640
<v Speaker 1>I don't have strong in insight sound on this cue,

0:06:19.839 --> 0:06:22.600
<v Speaker 1>and we're probably we're going to continue to watch why

0:06:22.800 --> 0:06:27.839
<v Speaker 1>he gonna appear again and looking to to the Party Congress.

0:06:27.880 --> 0:06:30.600
<v Speaker 1>I mean you've mentioned what you think could potentially be

0:06:30.680 --> 0:06:32.520
<v Speaker 1>a little bit of an easy in some of those

0:06:32.600 --> 0:06:35.919
<v Speaker 1>dynamic zero COVID zero policies. What else is is really

0:06:35.960 --> 0:06:38.800
<v Speaker 1>needed in terms of a tangible move here we mentioned

0:06:38.800 --> 0:06:41.600
<v Speaker 1>the property sector, but just really trying to bring the

0:06:41.600 --> 0:06:46.760
<v Speaker 1>economy up. Well, I think what what really needed at

0:06:46.760 --> 0:06:49.159
<v Speaker 1>this moment of two things. Why is zero COE policy

0:06:49.200 --> 0:06:53.200
<v Speaker 1>which related to consumption, and the other is I will

0:06:53.279 --> 0:06:58.400
<v Speaker 1>say probably an escalation of policy stimulus from here right

0:06:58.480 --> 0:07:01.200
<v Speaker 1>so far this year you will give the downward pressure

0:07:01.720 --> 0:07:04.440
<v Speaker 1>we do see. You know, China policy makers throw out

0:07:04.440 --> 0:07:06.760
<v Speaker 1>the more and the more policy easing, but so far

0:07:06.839 --> 0:07:11.119
<v Speaker 1>they have largely played catch up instead of be pretty

0:07:11.240 --> 0:07:15.640
<v Speaker 1>very proactive. It's it's pretty it's a bit different from

0:07:15.680 --> 0:07:18.760
<v Speaker 1>what they did in the past, right So I so,

0:07:18.760 --> 0:07:22.760
<v Speaker 1>so I would think that after the Party Congress, probably

0:07:22.760 --> 0:07:25.280
<v Speaker 1>they're going to have the time under the freedom and

0:07:25.360 --> 0:07:28.640
<v Speaker 1>to do more in terms of policy easing from here. Yeah.

0:07:28.720 --> 0:07:32.440
<v Speaker 1>We even our headline from Bloomberg Intelligence is that the

0:07:32.480 --> 0:07:35.160
<v Speaker 1>Communist Party Congress is limited a little bit by the FEDS.

0:07:35.200 --> 0:07:36.920
<v Speaker 1>So let me ask you a question I posed before

0:07:36.920 --> 0:07:41.000
<v Speaker 1>the break. What's the FED going to break next? Uh?

0:07:41.360 --> 0:07:45.800
<v Speaker 1>Give you three choices? Okay, Basically what's looming is corporate

0:07:45.880 --> 0:07:49.840
<v Speaker 1>earnings and secondly jobs and then the U. S economy itself.

0:07:51.040 --> 0:07:53.600
<v Speaker 1>Uh well, no, I don't. I don't really have no

0:07:53.680 --> 0:07:56.640
<v Speaker 1>strong insights on the US economy, so probably I cannot

0:07:56.640 --> 0:07:59.720
<v Speaker 1>give you the exact an answer. But for me, I

0:07:59.720 --> 0:08:03.000
<v Speaker 1>think of for China probably under the main impact is

0:08:03.040 --> 0:08:05.000
<v Speaker 1>on exports. So I think in the next six to

0:08:05.120 --> 0:08:08.520
<v Speaker 1>twelve months, is Tchina exports going to continue to trend down? Alright?

0:08:08.640 --> 0:08:10.520
<v Speaker 1>Great to have you with us. Larry Larry who head

0:08:10.600 --> 0:08:13.200
<v Speaker 1>of China Economics at McQuary Group in our Hong Kong

0:08:13.240 --> 0:08:14.360
<v Speaker 1>studio alongside Brian