Speaker 1: This is Bloomberg Business Week. I'm Carole Masser and I'm
Speaker 1: Bloomberg Quick Takes Tim Stanivik. We're here every day bringing
Speaker 1: you the latest news from the world to business and finance,
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Speaker 1: You can also listen to our radio show at two
Speaker 1: pm Eastern Time on Bloomberg Radio or watch us on
Speaker 1: YouTube search Bloomberg Global News. We actually have a perfect
Speaker 1: guest to talk about what's going on over in Europe specifically,
Speaker 1: and and lots more in terms of his own local economy.
Speaker 1: Nice to have with us, and and actually here in
Speaker 1: studio is Martin Shanahan. He's the CEO at i D
Speaker 1: a Ireland. It's Ireland's government agency. They are responsible for
Speaker 1: the attraction and development of f D. I were talking
Speaker 1: about foreign direct investment into that country. So nice to
Speaker 1: have you in studio with Tim and myself. How are you.
Speaker 1: I'm good, Thanks Carl. That's great to be back here.
Speaker 1: With yourself in time. It's been nothing two years that
Speaker 1: it is here in personal even though I know we've
Speaker 1: spoken over various platforms in the meantime. Yeah, it's you know,
Speaker 1: I suppose it's been a bizarre two years and we
Speaker 1: thought we were just coming out of those bizarre two
Speaker 1: years and now we're back into a whole new level
Speaker 1: of challenge. But but but I'm good. I'm back in
Speaker 1: traveling and back in in the US here for the
Speaker 1: week of Evince associated with Saint Patrick's Day. UM, I
Speaker 1: was down. I get tangled in a parade over the weekend,
Speaker 1: walking the dogs. I was down in New York Stock Exchange.
Speaker 1: This morning for Ireland Day, we rang the bell. It
Speaker 1: was so Yeah, we're very much out on the road
Speaker 1: doing what we did previously, promoting hardening Ireland as a
Speaker 1: location for investment. And we want to talk about investments
Speaker 1: going in and your economy. Got to ask you that
Speaker 1: when I think it's prone to talk about what's going
Speaker 1: on in Europe UM following the Russian invasion subsequent war,
Speaker 1: do you think and what's the take and the conversations
Speaker 1: you all are having with political and government leaders, in
Speaker 1: business leaders um about the responses so far by NATO
Speaker 1: and the United States against Russia. Have they gone far enough? So? So,
Speaker 1: I think firstly, and you know, our thoughts are with
Speaker 1: the people of Ukraine at this time. This This is
Speaker 1: you know, first and foremost a humanitarian story exactly, and
Speaker 1: I suppose Ireland's response has been primarily humanitarian, albeit that
Speaker 1: we are also obviously together with our European colleagues, EU colleagues,
Speaker 1: and we've taken sanctions against Russia, as has the US,
Speaker 1: and you know, those global sanctions are the most severe
Speaker 1: we've seen for any country, and um, you know, we
Speaker 1: hope they will have the desired impact. At the moment
Speaker 1: in Europe, what we're seeing obviously are the Ukrainian population
Speaker 1: spilling across borders out of necessity. I think there has
Speaker 1: been a very warm and generous response from the people
Speaker 1: of Europe Ireland. Is it a sea change in terms
Speaker 1: of are we seeing a new geopolitical division in our
Speaker 1: world potentially going forward longer term? Obviously we hope not.
Speaker 1: But but I think that the situation is very challenging clearly,
Speaker 1: and you know, we will, Ireland will play it's part.
Speaker 1: We have seen five thousand Ukrainian refugees arrive at our
Speaker 1: borders in the last two weeks. And again for your guests,
Speaker 1: Ireland is the furthest away probably a European country, you know,
Speaker 1: we're on the western edge of Europe. But but but
Speaker 1: we've taken you know, our our position is that Ukrainians
Speaker 1: are welcome in Ireland. They can come in. They don't
Speaker 1: require visa's paperwork at this point. They can arrive, they
Speaker 1: will receive all of the supports that Ireland can offer,
Speaker 1: whether that's healthcare, they will provide with social security numbers,
Speaker 1: they can work in Ireland immediately, and we will, you know,
Speaker 1: support and our expectation is we will have many more
Speaker 1: in the coming weeks. It is a human hearing crisis,
Speaker 1: as you mentioned, it's also a crisis with global implications
Speaker 1: in terms of geopolitical markets, and we're certainly seeing that
Speaker 1: play out in global markets right now, whether we're talking
Speaker 1: markets in the United States, in Europe or even other
Speaker 1: markets around the world. What about for your job when
Speaker 1: it comes to attracting foreign direct investment, does it make
Speaker 1: you at all concerned that the cell of of Ireland
Speaker 1: is going to be more difficult given its proximity, Given
Speaker 1: that it's in the you've given that, it's it's proximity
Speaker 1: to Ukraine. Yeah, so, I mean I think a couple
Speaker 1: of things. Firstly, and you know, undoubtedly this is has
Speaker 1: made probably Europe less attractive for FDI. I think this
Speaker 1: will also impact on the global flows of foreign direct
Speaker 1: investment as investors become more cautious and they take time
Speaker 1: to make decisions. And obviously FDI had already global flows
Speaker 1: I had already been heavily impacted by the COVID pandemic
Speaker 1: and are only recovering now from the pre COVID level,
Speaker 1: so so so that there's going to be a continuation.
Speaker 1: I think of that caution, then Europe potentially slightly less
Speaker 1: attractive than it was. I think within Europe again, Ireland
Speaker 1: is the supposed to the most geographically distant from you know,
Speaker 1: Eastern Europe. Well what I think in so far as
Speaker 1: there was any kind of you know plus here, you know,
Speaker 1: it just gives us more stability, you know what I
Speaker 1: meaning that we're not in the direct region. So you know,
Speaker 1: it was already a really competitive world for foreign direct investment.
Speaker 1: I think it's just become more challenging in terms of
Speaker 1: I suppose the the economic impacts on Ireland though, of
Speaker 1: the Russian invasion of Ukraine. I think the first thing is,
Speaker 1: you know, we're not directly exposed. You know, even if
Speaker 1: I look at our own portfolio of foreign direct investment companies,
Speaker 1: there are there are eight Russian companies, you know, operating
Speaker 1: in Ireland. There are very few, if any Ukrainian companies
Speaker 1: operating in Ireland, so that direct exposure doesn't exist. But
Speaker 1: what what will happen, and what is clear is there's
Speaker 1: going to be indirect impacts. And those indirect impacts are
Speaker 1: going to come in a number of ways. They're going
Speaker 1: to come through increased energy prices and we're already seeing that.
Speaker 1: And you know, and even though Ireland isn't directly exposed
Speaker 1: again because we get our gas from the gas field
Speaker 1: off the shores of Ireland and from the UK, prices
Speaker 1: in general are going to increase as you know, blind
Speaker 1: demand issues kick in. We're going to see supply chain
Speaker 1: issues potentially, and we're already against seeing some of that
Speaker 1: coming out of both Russia and Ukraine. Aircraft leasing an
Speaker 1: issue Ireland, you know, is heavily obviously exposed in aircraft
Speaker 1: leasing because we have some of the largest aircraft vestors
Speaker 1: in the world. And and you're going to see so
Speaker 1: you're gonna see a lot of indirect impacts coming through.
Speaker 1: We're going to continue along these lines, and we're going
Speaker 1: to continue with Martin Shanahan, CEO at IDA Ireland. He
Speaker 1: is in studio with us right here at Bloomberg Headquarters.
Speaker 1: This is Bloomberg Business Week, and this is Bloomberg Radio.
Speaker 1: This is Bloomberg Business Week with Carol Matter in Bloomberg
Speaker 1: Quick takes him Stan on Bloomberg Radio. We're here with
Speaker 1: Martin Shanahan. He's CEO at I d A Ireland. This
Speaker 1: is the agency responsible for really upbringing in for direct
Speaker 1: investment into the country. He's here in our Interactive Brokers studio.
Speaker 1: So the global corporate tax rate, you guys have been
Speaker 1: a haven. Maybe is that the that is not a
Speaker 1: fair all right? But the question okay, because of your
Speaker 1: low global corporate tax rate, you've got Google, Apple, Meta, uh, Facebook,
Speaker 1: of course, UM, so many I think TikTok has just
Speaker 1: been has gone into Ireland because of your low global
Speaker 1: corporate tax rates. I will not use that h word. Um,
Speaker 1: but you guys last fall are now all in on
Speaker 1: a global minimum corporate tax rate of now fift It's
Speaker 1: been twelve and a half percent in Dublin and in Ireland. Um,
Speaker 1: why the change. Yeah, the change results because there's a
Speaker 1: global agreement and you know what you had to do it,
Speaker 1: didn't you Well, we were the last interet I think,
Speaker 1: as you know, and because and we wanted certainty. We
Speaker 1: wanted to certainty about what rate we would be going
Speaker 1: to and that's why it took so long, because you know,
Speaker 1: there was wording there which said, you know, at least
Speaker 1: fifteen percent. Ireland wanted to know at what rate exactly
Speaker 1: we would be um setting our rate at, which was
Speaker 1: whatever the you know, the most competitive rate was going
Speaker 1: to be. So when true discussions at the o e
Speaker 1: c D it became apparent that fift was going to
Speaker 1: be the minimum, and it was became apparent that everybody
Speaker 1: was going to leave at once. Then that provided the
Speaker 1: context for Ireland to enter the agreement. And you know,
Speaker 1: Ireland just to be absolutely Ireland is not a taxhaven.
Speaker 1: It never has been a tax We have a competitive
Speaker 1: rate of taxation to encourage businesses, both Irish business international
Speaker 1: businesses to be there and and some can, but it
Speaker 1: would be incorrect and and obviously they have a definition
Speaker 1: of what that is and and meets Ireland meets none
Speaker 1: of the crisis definitely brings corporate companies, big corporate companies
Speaker 1: to you guys, certainly is one of the factors. Undoubtedly,
Speaker 1: as well as the very high rates of education and talent.
Speaker 1: Both are the Irish talent and the talent that we
Speaker 1: have attracted it from elsewhere, the pro enterprise policies, the stability,
Speaker 1: so even post you know, it was known all out
Speaker 1: last year we're likely to go into the agreement, we
Speaker 1: have continued to see even though we're increasing the rate
Speaker 1: for companies over seven in frontever absolutely not and in fact,
Speaker 1: you know, we gained market share of FDN and to
Speaker 1: Europe during twenty one in the midst of the pandemic.
Speaker 1: And that's because again I think, you know, when companies
Speaker 1: were much more cautious about the investment decisions that are made,
Speaker 1: they couldn't travel and so on, they decided to go
Speaker 1: with stability and track record. And you know, we have
Speaker 1: seventeen hundred companies from across the globe operating in Ireland,
Speaker 1: many of the global brand names that you have mentioned,
Speaker 1: but also companies internationalizing for the first time out of
Speaker 1: the US, out of other countries, and they're choosing Ireland.
Speaker 1: To forty nine companies invested in Ireland last year, to
Speaker 1: be fair, and I'll give you this that in an
Speaker 1: environment that we are in today, where you realize you
Speaker 1: can be in a market and things can change pretty
Speaker 1: pretty rapidly, you do look for stability. Stability in terms
Speaker 1: of setting up your international operations. Yeah, to that end, Martin,
Speaker 1: I'm wondering about what you need to go out and
Speaker 1: sell to potential investors who are thinking and considering Ireland
Speaker 1: now that the tax rate that there is parody and
Speaker 1: one from one country to another. You talked about education,
Speaker 1: you talked about skill level, but but what is the
Speaker 1: number one selling point right now, and that there is
Speaker 1: parody on the tax level. The number one conversation that
Speaker 1: we are having with clients, and this has been the case,
Speaker 1: I would say for at least five years, it's talent, talent, talent, talent.
Speaker 1: It is those companies and those countries that can attract,
Speaker 1: retain and grow talent are the ones that are going
Speaker 1: to be such. I have to jump in here, Carol
Speaker 1: and I were part of a Bloomberg Live event last
Speaker 1: week work Shifting, where we focused on the future of work,
Speaker 1: and the theme was how difficult it is to attract
Speaker 1: and retain talent here in the United States in a
Speaker 1: post COVID world. How would you characterize it in Ireland
Speaker 1: right now? Is it tough for companies to attract and
Speaker 1: retain that talent? There are talent challenges everywhere. I would
Speaker 1: say relatively, our Land does very well because of that
Speaker 1: education system I mentioned earlier. You know, we have really
Speaker 1: high participation rates in third level. We have really tried
Speaker 1: to align the output from our education system with the
Speaker 1: needs of enterprise. But crucially we have remained open and welcoming.
Speaker 1: Say immigrate, are you gout? You guys are welcoming. Yes,
Speaker 1: absolutely so, your full mobility within the European Union. And
Speaker 1: then you can where the skills aren't available within the
Speaker 1: European Union, you can bring in a talent from outside
Speaker 1: of the European Union. That is, you know, the a
Speaker 1: key selling point Martin. How does the economic global economic
Speaker 1: environment look. We've just got about forty seconds. Yeah, it
Speaker 1: looks very challenging and uncertain, to be honest, I mean
Speaker 1: it has been a very challenging two years, we were
Speaker 1: just I suppose, seeing some stability and across the globe economically,
Speaker 1: we were seeing those global FDI flows recover. And obviously
Speaker 1: the recent developments in Eastern Europe have certainly, um you know,
Speaker 1: created a whole new level of challenge which we weren't
Speaker 1: dealing with up to that. Is there any talk of
Speaker 1: recession or is there talk about recession in your home countries?
Speaker 1: You look at at the moment at predictions are for
Speaker 1: about five percent growth this year, So elsewhere do you
Speaker 1: get Listen, I think we're in un chartered territory at
Speaker 1: the moment, so I you know, I think most recent
Speaker 1: predictions from kind of the international institutions are sowing still
Speaker 1: positivity for European Union. But let's be honest, you know,
Speaker 1: everything could change in coming weeks. We're very serious and
Speaker 1: watching what's going on in Ukraine, but every once in
Speaker 1: a while we need something on a little bit of
Speaker 1: a lighter, lighter fair And I gotta say, I was
Speaker 1: walking around in my hometown and ran into a St.
Speaker 1: Patty's Day parade. You are actually headed to the White House,
Speaker 1: are you are? Your Your group is yes. So this
Speaker 1: week every year you know, we're we're, we're. You know,
Speaker 1: there's a huge governmental presence in the US and indeed
Speaker 1: across the globe bringing the Irish message. I mean this
Speaker 1: year that the plan was very much a celebrity, celebratory message.
Speaker 1: I think post COVID it would be the first time
Speaker 1: two years exactly. This is the first time in two years.
Speaker 1: Having said that, somewhat tempered obviously given what's happening in Ukraine.
Speaker 1: So it is a message I think, still a celebratory
Speaker 1: message after two years of of COVID where Ireland came
Speaker 1: through that, you know, I think it relatively well, but
Speaker 1: also solidarity with Ukraine obviously in the context where we
Speaker 1: find yourself. We will be down in d C later
Speaker 1: in the week. Uh. Normally the Prime Minister of the
Speaker 1: Theater gets to meet with President of the Day and
Speaker 1: President Biden has again UM will again host at such
Speaker 1: a meeting on Thursday, so the theatock will meet with
Speaker 1: them and I will be in the White House for
Speaker 1: the traditional Shamrock reception. What's the message that you're hoping
Speaker 1: to get across that day. Yeah, I think the focus
Speaker 1: on on Thursday is likely to be on on three things.
Speaker 1: Undoubtedly Ukraine and developments. There will be I think on
Speaker 1: the on the agenda, very high on the agenda, the
Speaker 1: very strong bonds between Ireland and the US, and you
Speaker 1: know how we continue to build them. I mean they
Speaker 1: are extraordinary strong. And then Todly braggit in the Northern
Speaker 1: Protine call. I think it's likely to come up with one.
Speaker 1: Are you gonna have corn, beef and cabin listen, We'll
Speaker 1: have to see. I'm just saying, Martin Shanahan, safe travels.
Speaker 1: We always appreciate that you make time for us. He
Speaker 1: is the CEO at i D A Ireland. Here on
Speaker 1: Bloomberg Radio, you're listening to Bloomberg Business Week with Carol
Speaker 1: Masser and Bloomberg Quick Takes Tim Stinovic on Bloomberg Radio.
Speaker 1: So this next story, it is one of the most
Speaker 1: right on the Bloomberg. It's also the Bloomberg Big Take,
Speaker 1: and it is in the upcoming new issue of Bloomberg
Speaker 1: Business Week. It'll be out later this week. It's really
Speaker 1: the story everyone is and needs to read. It's about
Speaker 1: the eighteen minutes of trading chaosk to him that broke
Speaker 1: the nickel market. Makes me think of the tin crisis
Speaker 1: of the mid nineteen eighties. I don't know about you guys,
Speaker 1: unforgettable moment exactly that ten crisis that I knew so
Speaker 1: little about, and I read Jack Farchis story in Business Week.
Speaker 1: You're hearing Joe Webber, editor at Bloomberg business Week. He's
Speaker 1: with us in the Bloomberg Interactive Broker studio. Jack Varchie
Speaker 1: is senior Energy and Commodities reporter for Bloomberg News. He
Speaker 1: joins us on the phone from London in all seriousness, Joel, Um,
Speaker 1: that's a superlative that I think last week and this
Speaker 1: week we were using and are using because of how
Speaker 1: big of a crisis this was, Yes, and basically remains.
Speaker 1: You know, a week ago the nickel market basically came
Speaker 1: to to an utter and complete halt um that basically remains.
Speaker 1: We don't know exactly how that's gonna end yet, um,
Speaker 1: But you know, for me, like all of a sudden,
Speaker 1: like we published a big nickel feature like a month ago,
Speaker 1: wasn't a month ago, It seems like forever. Uh. And
Speaker 1: that one was obviously about this huge scandal involving Singapore, right,
Speaker 1: and now we have a tycoon in China all wrapped
Speaker 1: up in this one jack, Who who is he? And
Speaker 1: what are the stakes here? His name is san Juanda
Speaker 1: and I'm sorry I probably miss brounced that, uh, but
Speaker 1: he is the owner of a company called Singshan uh
Speaker 1: and and in many ways he's quite an impressive figure. Um,
Speaker 1: you know, starting out from from pretty much nothing, he
Speaker 1: built this company, Tingshan into what is now by far
Speaker 1: the world's largest producer of both nickel and stainless steel.
Speaker 1: And he's really introduced some technologies and some techniques that
Speaker 1: have pretty pretty much revolutionized both the nickel and the
Speaker 1: stainless steel market. Um. But the issue that's that's that's
Speaker 1: come along is that the last few weeks he found
Speaker 1: himself with this big short position in the nickel market,
Speaker 1: and he's been squeezed and squeeze to a point where
Speaker 1: his his short covering and his bank short covering has
Speaker 1: caused the nickel price despike two in a little over
Speaker 1: twenty four hours. And the thing is we care about it.
Speaker 1: I mean, it really caught all of our attention because
Speaker 1: this is a commodity that, as you write, touches the
Speaker 1: entire global economy. It's important. Yeah, that's right. I mean,
Speaker 1: you know, we talk about short squeezes, and I think
Speaker 1: everyone remembers, you know, the stories about Game Stop and
Speaker 1: that kind of thing last year. But it's a bit
Speaker 1: different when you have a short squeeze in a commodity
Speaker 1: than in an equity, because this means the price of
Speaker 1: nicol going up, and nicol is in stainless steel, and
Speaker 1: stainless steel is in all of our homes. You know.
Speaker 1: I'm pretty sure that all of you there have cutlery
Speaker 1: in your cutlery drawer that's made of stainless steel, and
Speaker 1: lots of other things in the white goods around your house. Um.
Speaker 1: It's also crucial for electric vehicles because an awful lot
Speaker 1: of the batteries that are using electric vehicles contain a
Speaker 1: lot of nickel. The London Medical Exchange, the London Metal Exchange,
Speaker 1: excuse me, is an integral part treatment a well, and
Speaker 1: the metal exchange might after and and that's a that's
Speaker 1: a big question is the future Jack, as I read
Speaker 1: in your piece of the London Medal Exchange, Um, how
Speaker 1: does it play into the story and its status after this? Yeah,
Speaker 1: I think it's very uncertain. I mean, the big thing
Speaker 1: that has caught a lot of people's attention more than
Speaker 1: just the twice volatility, which is really extraordinary. I mean,
Speaker 1: it's hard to overstate, you know, you don't see commodity
Speaker 1: prices moving two d in twenty four hours. I think
Speaker 1: it's probably the most extreme moves that I've seen in
Speaker 1: my career, and that most of the people, including some
Speaker 1: of an awful lot older than me, has seen there. Um.
Speaker 1: But the thing that has really caused a lot of
Speaker 1: controversy is that after the price moved on Tuesday morning,
Speaker 1: in this period, there's eighteen minutes that we write about
Speaker 1: in the piece, um from you know, around fifty houses
Speaker 1: of the time all the way out to a hundred
Speaker 1: dollars of the time in the space of a few minutes. Uh,
Speaker 1: the MMY suspended trading in exchange, and then they decided
Speaker 1: to cancel those trades that took place on the Tuesday mornings.
Speaker 1: That's about four billion dollars worth of trade that they're
Speaker 1: just canceled. Um. Now, there's an awful lot of investors,
Speaker 1: heads funds, uh they wanted to play as golden facts
Speaker 1: among them who are very cross about this and have
Speaker 1: been complaining to the ELLEMY and saying you can't just
Speaker 1: can't do that. You know, if you want an exchange
Speaker 1: and people trade, you can't decide that then as the fact,
Speaker 1: just the cancel of trade and a lot of people
Speaker 1: saying that they might no longer trade on the enemy
Speaker 1: after this, because how can you have faith that you
Speaker 1: can trade on the exchange and your contract will be
Speaker 1: honored if the exchange can come along and cancel it
Speaker 1: after the fact. And obviously, Jack, one of the things
Speaker 1: that makes this different is that there's a physical element
Speaker 1: to how how Nickel trades, right, um, So so talk
Speaker 1: to us about your reporting uh today actually right, because
Speaker 1: we think there may be a way out of this yet. Yeah,
Speaker 1: we've moved We've moved forward quite a bit today, I think,
Speaker 1: um in terms of beginning to see how the situation
Speaker 1: might be resolved and we might begin to see the
Speaker 1: me Nicol market reopen. Um. So Mr Shang of seeing
Speaker 1: Shan has reached a deal with m with his banks,
Speaker 1: with the banks that which he held his his short
Speaker 1: bet in Nickel led by JP Morgan, that they will
Speaker 1: give him a standstill so they won't ask him to
Speaker 1: pay up his margin calls. They won't make any further
Speaker 1: margin calls on whom um they're putting together alone facility
Speaker 1: for him and essentially to allow him to hold on
Speaker 1: to this short position not to be squeezed any further
Speaker 1: um and they're hoping that the price will then go
Speaker 1: down to a more normal level. And uh, these billions
Speaker 1: of dollars of losses that he's sitting on at the moment,
Speaker 1: applied to fifty valgy dollars, nickel will then get much smaller.
Speaker 1: And here will he will be able to make money
Speaker 1: from his business producing nicols stainless and loans that could
Speaker 1: allow element nicol market to reopen at some point in
Speaker 1: the coming days. We still don't know when that's gonna happen.
Speaker 1: All Right, We're gonna have to leave it. There are
Speaker 1: a lot in this story. It really helps explain what happened,
Speaker 1: and I mean it was something that happened with a
Speaker 1: lot of superlatives that we talked about last week. Our
Speaker 1: thanks to Bloomberg New Senior Energy and Commodities reporter Jack Forcie,
Speaker 1: and of course, our thanks to Joel Webber, editor of
Speaker 1: Bloomberg Business Week. This is Bloomberg Business Week with Carol
Speaker 1: Messer and Bloomberg Quick Takes Tim Stinovic on Bloomberg Radio.
Speaker 1: A lot of stories in China today. We've talked about
Speaker 1: the panic selling that we're seeing gripping Chinese stocks, the
Speaker 1: biggest plunge since OH eight, widespread lockdowns in China due
Speaker 1: to COVID infections, how they could affect half of the
Speaker 1: country's GDP. Also questions about the relationship between China and Russia.
Speaker 1: And then of course an interesting weekend column, his Saturday
Speaker 1: column by Andy Brown. Yeah, and really really fascinating one.
Speaker 1: Andy Brown is editorial director at the Bloomberg New Economy.
Speaker 1: He's what isn't the Bloomberg Interactive at Broker Studio. Andy,
Speaker 1: When I started this, uh, this piece, I had no
Speaker 1: idea where it was gonna go. H. South Korea, Yeah,
Speaker 1: this is this is a big one. Why do we
Speaker 1: need to keep an eye on South Korea when it
Speaker 1: comes to a new front in the Cold War? Well,
Speaker 1: because South Korea is the key ally of the United
Speaker 1: States in Asia, and they've got a new president uns
Speaker 1: yule and Um. He is a China hook. And on
Speaker 1: the campaign trail, he made two promises. Firstly that he
Speaker 1: was going to align his foreign policy much more closely
Speaker 1: with Japan and with the United States. And secondly suggested
Speaker 1: that he would try to seek full membership of the Quad,
Speaker 1: which links the United States, India, Japan, and Australia. And
Speaker 1: the common thread in all these and other regional endeavors
Speaker 1: in Asia is resistance to China. And the question now becomes,
Speaker 1: We've seen the beginning of a full fledged Cold War
Speaker 1: in Europe with pitting NATO against against Russia, and are
Speaker 1: we going to see a second front in Asia? So,
Speaker 1: for for the South Korean government, it's much more about
Speaker 1: China than it is about North Korea. UH, it's about
Speaker 1: both UH. And for the United States and its allies
Speaker 1: in Asia, there are clearly a number of security threats.
Speaker 1: North Korea and it's new and it's nuclear weapons are
Speaker 1: a immediate doomsday threat to South Korea and North Asia.
Speaker 1: Indeed now increasingly as they produce I C B m's
Speaker 1: threat to the mainland United States as well. But China
Speaker 1: is very very much a part of the equation too.
Speaker 1: So as you watch what's going on right now in Ukraine,
Speaker 1: and we're also trying to figure out where China is
Speaker 1: on all of this, do you think that we are
Speaker 1: beginning to see kind of the world divided up in
Speaker 1: a very different way and a longer term, no doubt
Speaker 1: about it. Well, certainly Europeans are starting to think about
Speaker 1: an authoritarian axis anchored in the west by by in Moscow,
Speaker 1: and in the east in Beijing. And there are clear
Speaker 1: parallels between what's happening in Europe and what's now happening
Speaker 1: in Asia, which is that democracies and middle size countries
Speaker 1: are standing up to authoritarians and saying, you know, no,
Speaker 1: we're not going to be pushed around, We're going to
Speaker 1: be defending our freedoms. Can China afford because who buys
Speaker 1: all of the Chinese goods folks in the US? Right,
Speaker 1: Like overwhelmingly it's an expert. So can China afford to
Speaker 1: keep its relationship with Russia? Like what's how do you feel? Like?
Speaker 1: It's such a tricky one that they're straddling and increasingly
Speaker 1: that's what happens when you straddle right, Like it's like
Speaker 1: at some point you've even got to jump to a side,
Speaker 1: right exactly. And uh, And they are eventually sooner actually
Speaker 1: rather than later, going to have to make a decision.
Speaker 1: But look, you know, clearly from an economic perspective, they
Speaker 1: can't afford to lose Europe, which is clearly a massive
Speaker 1: market but also a source of technology, and same with
Speaker 1: the United States. On the other hand, there worldview is
Speaker 1: very much aligned with Russia, where you have two autocrats
Speaker 1: who are trying to remake the world. Putin is trying
Speaker 1: to redraw the map of Europe and she Jimping is
Speaker 1: trying to do the same thing. Uh In Asian and
Speaker 1: as they say, Middle Powers are pushing back increasingly vigorously.
Speaker 1: But shi Jingping has fair to say, a lot more leverage.
Speaker 1: I mean, it is the second biggest economy in the world,
Speaker 1: and like Carol said, the United States and much of
Speaker 1: the quote unquote Western world is inextricably bound due to
Speaker 1: supply chains and you know where we get our our
Speaker 1: goods from. Yeah, well, I think that was always the assumption.
Speaker 1: It's not like US companies could isolate China the way
Speaker 1: it isolated Russia. That's right. And the assumption I think
Speaker 1: that China has always made is that, you know, it's
Speaker 1: market is so big that Western countries and Western companies
Speaker 1: could never afford to to to sacrifice that that gives
Speaker 1: them enormously rich. And indeed it does, but I'm sure
Speaker 1: they will have been very surprised to have seen in
Speaker 1: Europe how countries like Germany, like Switzerland are prepared to sacrifice,
Speaker 1: make pay deep, deep economic costs in order to stand
Speaker 1: up for their freedom and liberties, or to see another
Speaker 1: Asian country like South Korea right like increasingly, it's interesting
Speaker 1: the pushback against China, where I think, I don't know
Speaker 1: whether there's it. A few years ago, everybody would be
Speaker 1: much more fearful to do so. Is that fair or
Speaker 1: not necessarily? Well, yes, and the pushback is coming as
Speaker 1: China becomes more and more assertive in the region. There's
Speaker 1: countries I mean, in a sense what Ukraine has allowed
Speaker 1: people to look into the future and see the potential
Speaker 1: for conflict in Asia um with of course Taiwan being
Speaker 1: the prime target of of China's efforts to redraw them
Speaker 1: map of Asia. But you have We've talked with you
Speaker 1: about this, and you say, we shouldn't assume that what's
Speaker 1: happening with Russia Ukraine that the same would happen with
Speaker 1: China to Wan. Taiwan not immediately, so it's timing for
Speaker 1: several very good reasons, at least that an invasion of
Speaker 1: Taiwan is an enormously more complex and costly endeavored than
Speaker 1: a land invasion of of Ukraine. Plus, of course it
Speaker 1: would blow up the global economy because Taiwan and southern
Speaker 1: China generally, that part of the Western Pacific is where
Speaker 1: all the high tech supply chains intersect. What's the what's
Speaker 1: the tight rope that Shijin Ping has to to walk
Speaker 1: right now, especially at a time when COVID is leading
Speaker 1: to the shutdown of entire provinces and in Carol's been
Speaker 1: talking about this for weeks. At this point, the decline
Speaker 1: and value of equities and company is listed in China
Speaker 1: has just dropped. It's all it's all going wrong for
Speaker 1: she jumping now that it looks as though Omi crown
Speaker 1: may have started to break out. You know, have thousands
Speaker 1: of cases in China, and if that breaks out into
Speaker 1: the general population, with a vaccine that doesn't work very
Speaker 1: well against omikron, and with a population that has almost
Speaker 1: no natural immunity, it could be a it would be
Speaker 1: a real disaster. Um As you say, the economy is
Speaker 1: turning south, it's slowing quite rapidly. A lot of this
Speaker 1: is self inflicted, She jimpin cracking down on big tech
Speaker 1: as well as going after the reigning and the access
Speaker 1: is in the property market. And now on top of
Speaker 1: all this, you have Ukraine, which is going to of
Speaker 1: course is increasing dramatically increasing inflation around the world through
Speaker 1: energy and through food. Ukraine is China's bread basket. Well,
Speaker 1: this is what's interesting. I know I message you last week.
Speaker 1: Was it the second in command stepping down or planning
Speaker 1: to retire in China? And I asked you, is this significant?
Speaker 1: And I'm not going to say his name because I'll
Speaker 1: Chinese premier this is lately le Ka Chan, thank you,
Speaker 1: And I asked you, is this significant and what does
Speaker 1: this mean for President G's future? Well, he made this
Speaker 1: remark as he's stepping down, where he says, you know,
Speaker 1: we really must keep the door open, open door policy,
Speaker 1: which made you sort of think does he know something
Speaker 1: that we don't, because it's very clear that what part
Speaker 1: of China's response to what's happening in the Ukraine is
Speaker 1: to harden its own economy against sanctions, to look inward,
Speaker 1: to become more dependent on its own technology, uh and
Speaker 1: to retreat and that that is going to accelerate a
Speaker 1: trend that we've been seeing in China for the last
Speaker 1: two or three years. Do we you know the headline
Speaker 1: that crossed about um the potential or that that Russia
Speaker 1: asked China to help it out in terms of military
Speaker 1: Do you have a take on that? Do you have
Speaker 1: a thought on that? China has got a very big,
Speaker 1: momentous decision to take. Is it going to go all
Speaker 1: the way with Putin? Is it going to follow him
Speaker 1: regardless of what he does, how many atrocities he commits,
Speaker 1: how many cities he flattens in Ukraine? Or is China
Speaker 1: going to be in some way part of the solution.
Speaker 1: They're never going to abandon Russia. There's certainly not going
Speaker 1: to talk their certainly not going to be prepared to
Speaker 1: see Putin toppled in Russia. That would be a terrible signal,
Speaker 1: of course for she jumping himself. But are they going
Speaker 1: to be part of the solution in terms of things
Speaker 1: like providing humanitarian aid to Ukrainian refugees or indeed to
Speaker 1: help in a mediation role, although I'm highly skeptical that
Speaker 1: they're in a position to do that. Which route do
Speaker 1: you think they'll take? Andy? I really don't know, because
Speaker 1: so much of it is this, This decision is increasingly
Speaker 1: occurring in the mind of one person in China, and
Speaker 1: that is She Jin Ping, and we don't have insights
Speaker 1: into how he's thinking. Um. If I had to, if
Speaker 1: I would say that the chances of China deciding that
Speaker 1: it's going to go all in and become a peacemaker
Speaker 1: in in in the conflict UM is actually quite small. Okay.
Speaker 1: I know I ask you this a lot when we
Speaker 1: have our discussions, but I do think about our audience
Speaker 1: and and and in terms of how the plays out
Speaker 1: for investors who are listening because I am curious about
Speaker 1: the new world order in terms of companies pulling out
Speaker 1: of Russia, and would they at some point maybe start
Speaker 1: to think about pulling out of China. Um, what is
Speaker 1: your thoughts when it comes to the investment audience and
Speaker 1: how they see it or how they should be thinking
Speaker 1: about it. Well, clearly, the stakes in China are exponentially higher.
Speaker 1: The Chinese economy is ten times bigger than the Russian economy.
Speaker 1: The Chinese human market is the most important market in
Speaker 1: the world. Is a rule of thumb, half of everything
Speaker 1: sold in the world is sold in China. Nevertheless, companies
Speaker 1: too are responsible answerable. Two different stakeholders and I think
Speaker 1: China will have been very surprised and quite shocked at
Speaker 1: seeing the exodus of all of these big brands from
Speaker 1: from from Russia, even though sure it's much easier for
Speaker 1: them to exit, nevertheless also costly. All right, well, this
Speaker 1: is why you're Saturday newsletter is a must read. Andy,
Speaker 1: thank you so much, so much going on, and we
Speaker 1: really appreciate it. Our editorial director for Bloomberg New Economy
Speaker 1: joining us in studio. Yeah, but you let me drive? No,
Speaker 1: no, no no, who's going home? I'll I want to drive?
Speaker 1: Its good question? Drive is the drive to the globe?
Speaker 1: On Bloomberg Radio, Mike, folks, just about two minutes left,
Speaker 1: really eleven minutes left in today's trading session. We are
Speaker 1: just bouncing around. Are loads of the session, as Charlie mentioned,
Speaker 1: slight gain in the Dow Jones Industrial average, but a
Speaker 1: lot of pressure on those tech names NASDAC really that
Speaker 1: underperformer down one point nine percent. Great to have with us,
Speaker 1: Sarah Ponzac, she's senior wealth strategy associated over at UBS
Speaker 1: Private Wealth Management Management, a former Bloomberg News and Media colleague.
Speaker 1: Our friend. Also, yeah, part of the family. I think
Speaker 1: we're going to say easily. She is on the phone
Speaker 1: from Lord of Now Florida. Sarah, it is so great
Speaker 1: to have you here with that's how are you. I'm
Speaker 1: doing well. It's so great to be back with you.
Speaker 1: And yes, definitely, uh still part of the family. I'm
Speaker 1: glad to hear that. That's so good to hear, Sarah. Yeah,
Speaker 1: we love having you. Hey, help us make sense of
Speaker 1: what's going on here. I mean, at one point today
Speaker 1: the S and P five hundred hit a level that
Speaker 1: we last saw in May of Um, we're watching stocks
Speaker 1: fall to new lows and China as well. Um, how
Speaker 1: do you take it all in, Sarah? So, the market
Speaker 1: is certainly dealing with a lot of cross currents top
Speaker 1: of mine. Right now, you have investors in markets focus
Speaker 1: on the geo political stress between Russia and Ukraine. And
Speaker 1: on top of all of that, it is that week
Speaker 1: which we know has been coming for quite a long
Speaker 1: time now, but the Federal Reserve is expected to raise
Speaker 1: interest rates for the first time, and we see that
Speaker 1: rippling through the markets once again today. I mean, you
Speaker 1: see the NAZAC, for example, back in a bear market,
Speaker 1: down more than we see tex stocks and high value
Speaker 1: Asian companies really taking the brunt of the selling. But
Speaker 1: to your question of how do you make sense of
Speaker 1: it all? How do you take it all in? And
Speaker 1: this is something that we've been really reminding our clients
Speaker 1: of because if you zoomed out and you look at
Speaker 1: the past couple of years, ever since March when when
Speaker 1: COVID really said markets crashing and then they just came
Speaker 1: right back up, we've all been spoiled and we've all
Speaker 1: been made to feel as though markets only trend in
Speaker 1: one direction when we all know the reality is it's
Speaker 1: not true. And there's a statistic that that we've really
Speaker 1: been gravitating too lately, and and that is if you
Speaker 1: actually look at the SMP five hundreds average intra year
Speaker 1: decline going back for decades, that amount is actually a
Speaker 1: decline of four The SMP five hundred hasn't even fallen
Speaker 1: that amount. That's here. Granted we're very close to that number,
Speaker 1: but we haven't quite hit that yet. And if you
Speaker 1: actually look at history, okay, well then what's happened after that?
Speaker 1: Do we continue to fall? Usually eighty percent of those
Speaker 1: years the index actually ended higher. So it just goes
Speaker 1: to show that volatility is very uncomfortable doesn't feel normal
Speaker 1: when you're in the midst of it, especially after the
Speaker 1: past couple of years, but that can help the cut
Speaker 1: it in perspective that you know, you can't have award
Speaker 1: without risk. Yeah, the interesting part is right, and we've
Speaker 1: talked a lot about you know this, Sarah, that in
Speaker 1: um an environment, especially when the Fed starts to raise rates,
Speaker 1: typically that ends up being good for stocks. The problem
Speaker 1: is the outliers. We just talked with um Martin Shatahan
Speaker 1: over in Ireland, who's responsible for bringing in foreign direct
Speaker 1: investment into his his country. Nobody had this on their radar,
Speaker 1: that the that in terms of the Russian invasion into
Speaker 1: Ukraine and the amount of volatility and now questions about
Speaker 1: the outlook for the rest of the year, like all
Speaker 1: of a sudden, We've really got to figure out how
Speaker 1: this this changes things, How does that factor in? What
Speaker 1: are the questions that you know your clients over at
Speaker 1: e b S are are asking. You're absolutely right, this
Speaker 1: muddy is the outlook because not only do we have
Speaker 1: a federal reserve that is now going to be increasing
Speaker 1: interest rates, but at the same time, when we think
Speaker 1: about the Russian invasion of Ukraine, that has major implications
Speaker 1: for global growth. That has major implications for the inflation outlook.
Speaker 1: And we all know at this point that the Federal
Speaker 1: Reserve is so unilaterally focus on inflation. So the concern
Speaker 1: is that do we see the scenario in which growth
Speaker 1: against the decline, and yet we still see the Federal
Speaker 1: Reserve forced the hike interest rates pretty severely because of
Speaker 1: the inflationary outlook. Now, with that says, though we still
Speaker 1: do believe that the Federal Reserve can pull this off,
Speaker 1: we all know they're stuck at a very very difficult
Speaker 1: position right now. But right now, if you look at
Speaker 1: what the markets pricing, the markets pricing about a hundred
Speaker 1: fifty basis points of interest rates increases this year. Considering
Speaker 1: the fact that interest rates right now are are set
Speaker 1: pretty much as low as you can go unless you
Speaker 1: go negative, monetary policy will still be very accommodated. And
Speaker 1: I know we've been talking about, Tina, there is no
Speaker 1: alternative to equities for quite some time now, you know,
Speaker 1: it's it's still difficult when you see interest rates. If
Speaker 1: they rise to between one and two percent, people are
Speaker 1: still going to need to go out on the risk
Speaker 1: curve and get income from somewhere and where is that
Speaker 1: going to be? So at this point we are telling
Speaker 1: investors to position for a rising interest rates. So if
Speaker 1: we're talking about fixed income, we would say, maybe look
Speaker 1: to areas of the market that have a floating rate structure,
Speaker 1: so that could be senior loans. Also, if you can
Speaker 1: handle illiquidity that we've been looking to private credit for example,
Speaker 1: So these are areas of the market investors or companies
Speaker 1: that make loans to private companies. They have higher interest
Speaker 1: rates typically and they are floating. Great those interest rates rise,
Speaker 1: that doesn't necessarily hurt you quite as much. And on
Speaker 1: the equity side, we're still fans of large cat value.
Speaker 1: Talk about financial energy, conservative expression area industrials for example,
Speaker 1: so areas of the market that still should benefit relatively
Speaker 1: in arising the interest rate environment. Well, and when it
Speaker 1: comes to um the energy markets, I mean we've seen
Speaker 1: you know, tremendous runs sarah in that area certainly over
Speaker 1: the last year or so. I mean, it's up already
Speaker 1: this year, and we get it, we understand why because
Speaker 1: of the volatility, but really the strains on the energy markets.
Speaker 1: Is this a long term play even as we continue
Speaker 1: to see the world move away from fossil fuel. We
Speaker 1: know it's going to take time. It really is pretty
Speaker 1: unbelievable to watch, especially considering the fact that back when
Speaker 1: I was working with the two of you, we were
Speaker 1: talking about oil prices going negatives right and rains right.
Speaker 1: A strange, strange trip. And the way that we look
Speaker 1: at energy markets is we wouldn't say to completely throw
Speaker 1: your portfolio allocation out of whack with a long term
Speaker 1: energy play. The way we more so see it right
Speaker 1: now is if you're looking for a type of hedge
Speaker 1: for your portfolio, what could that hedge be, Well, maybe
Speaker 1: introducing some energy equities, maybe introducing a broad based commodity
Speaker 1: strategy for example, that could help act at a hedge.
Speaker 1: But even the suddenly seen in the past couple of weeks,
Speaker 1: it is really really difficult to forecast energy prices and
Speaker 1: if you're caught on the wrong side of that was
Speaker 1: too high an allocation, that that could throw you off. Sarah,
Speaker 1: client comes to you with some new money to deploy.
Speaker 1: How do you get into the market right now? Do
Speaker 1: you think that it's the type of environment where you
Speaker 1: dollar cost average that there is still room to find value.
Speaker 1: It's going to go lower or do you say this
Speaker 1: is such a great opportunity what we're seeing right now,
Speaker 1: it's time to get in. It is a great question.
Speaker 1: And I would say if if we're talking about equities
Speaker 1: right now, we would still say it makes sense the
Speaker 1: dollar cost average you, especially in the midst of such
Speaker 1: historic volatility that we're seeing right now, you don't want
Speaker 1: to throw a really large chunk of cash into the
Speaker 1: market all at once, so help your self out and
Speaker 1: dollar cost average in at the same time, though, you
Speaker 1: don't want a big chunk of cash sitting and well,
Speaker 1: you don't want to chunk of cash sitting in cash,
Speaker 1: I should say when inflation is running at seven point
Speaker 1: nine percent, highest for forty years, so you know you
Speaker 1: still need to be invested, but you can moderate your
Speaker 1: risks by writing out that investment over a period of time.
Speaker 1: Where don't you want to be? Where don't you want
Speaker 1: to be? That is a great question. Um, So what
Speaker 1: I mean, I would say, we're not fans of sitting
Speaker 1: in cash right now, and just because of inflation right now,
Speaker 1: you have no you have no chance whatsoever. Uh. And
Speaker 1: at the same time, as of right now, we're still
Speaker 1: not a bistic fan of government credit. We feel like
Speaker 1: a very diversified core bond allocation. But if we had
Speaker 1: to really pick one place on the market, we're more
Speaker 1: so focused right now on areas of the market that
Speaker 1: that can out perform a mid rising interest rates. All right,
Speaker 1: We're gonna leave it on that note. It's so great
Speaker 1: to hear your voice, uh, and so great to have
Speaker 1: you joined us. Sarah Han's X, senior wealth strategy associate
Speaker 1: at UBS Private Wealth Management, of course former colleague here
Speaker 1: at Bloomberg. She is joining us on the phone from
Speaker 1: Fort Floaderdale, Florida. We miss her, and we do. I
Speaker 1: can say that right. Yes, you can come back anytime,
Speaker 1: and you will. I love looking up there and seeing
Speaker 1: her on Bloomberg TV too. I agree. I agree. Thanks
Speaker 1: for listening to Bloomberg Business Week. Download the podcast on iTunes, SoundCloud,
Speaker 1: or Bloomberg dot com, and you can also listen to
Speaker 1: our radio show at two pm Eastern on Bloomberg Radio
Speaker 1: or watch us on YouTube. Search to Bloomberg Global News