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Speaker 1: This is the Bloomberg Daybreak Asia podcast. I'm Brian Curtis,

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Speaker 1: along with Doug Krisner join us each day for the

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Speaker 1: stories making news and moving markets in the Asia Pacific.

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Speaker 1: You can subscribe to the show anywhere you get your podcasts,

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Speaker 1: and always on Bloomberg Radio, the Bloomberg Terminal, and The

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Speaker 1: Bloomberg Business. James Mager joins us Bloomberg Senior reporter in

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Speaker 1: Beijing for the reopening of the China markets and a

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Speaker 1: deeper look at the Chinese economy. James, it seems like

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Speaker 1: a little bit of a damp squib this morning. The

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Speaker 1: CSI three hundred only up about two tenths of one percent.

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Speaker 1: One can only imagine there's still a lot of skepticism

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Speaker 1: about the durability of the recovery in China and perhaps

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Speaker 1: a little disappointment on the PBOC actions on Sunday.

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Speaker 2: Your take, I think that's correct. We did see a

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Speaker 2: big rebound in consumers spending over the holidays. Lots of

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Speaker 2: people were traveling, the largest number of people traveling since

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Speaker 2: at least twenty nineteen. So, you know, this is good

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Speaker 2: news in that people were concerned, but it's not great

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Speaker 2: news that you know, people went home for the holidays.

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Speaker 2: You know, that's what you should expect them to do.

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Speaker 2: And so the fact that, you know, there was a

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Speaker 2: lot of hope that this might mean that there would

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Speaker 2: be a recovery in the stock market, but I think

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Speaker 2: people are looking through this and looking at the broader

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Speaker 2: economic challenges which is not going to be fixed by

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Speaker 2: one strong holiday season. And you know, you see, the

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Speaker 2: halling market is still in a slump. As you said,

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Speaker 2: the PBOC didn't actually do anything over the weekend. We

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Speaker 2: may see some action and interest rates tomorrow. With the LPR,

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Speaker 2: there is expectation that that will actually be cut, especially

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Speaker 2: if you see a cut in the five year LPR,

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Speaker 2: that would be that would be beneficial for home loan or

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Speaker 2: people wanted to take out new mortgages. But I think, yeah,

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Speaker 2: markets have reacted very you weekly so far today to

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Speaker 2: this data, and I think that's you.

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Speaker 1: Know, James, I think you know what you mentioned about

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Speaker 1: the five year LPR, and that's almost in essence part

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Speaker 1: of the problem, because even the expectation is going to

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Speaker 1: cut five basis.

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Speaker 2: Points, right, I mean, yeah, I think nothing, that is nothing,

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Speaker 2: and you know, there's still quite high. Real rates are

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Speaker 2: very high because China is inflation right now. So even

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Speaker 2: if you were to cut rates to zero, people will

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Speaker 2: still be paying a positive rate on their on their mortgages. So,

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Speaker 2: you know, the expectations for action are very much in

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Speaker 2: the government's court, and all the things that we're seeing,

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Speaker 2: all the things that've been done so far this year

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Speaker 2: and last year have been sort of around the around

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Speaker 2: the margins very small, and you know, it's unclear to

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Speaker 2: me what exactly would be enough. Can the PBOC, Can

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Speaker 2: the government actually do enough to really turn this around

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Speaker 2: and to totally change the narrative, But at least so far,

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Speaker 2: they haven't done anywhere near enough to as you know,

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Speaker 2: to to fix what the unhappiness that stock investor has

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Speaker 2: been showing.

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Speaker 3: To say nothing of the deflationary pressures that are happening

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Speaker 3: across the entire economy. So we were talking a moment

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Speaker 3: ago about this uptick and consumer spending during the holiday.

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Speaker 3: What do we know about the prices that can consumers

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Speaker 3: were paying in this period relative to a year ago.

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Speaker 2: I mean, inflation is inflation is negative right now, consumer

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Speaker 2: installationia is negative. Business producer prices are very falling a lot,

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Speaker 2: and I think the big drivers for that. Food prices

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Speaker 2: are down, food demand is weak. You also obviously demand

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Speaker 2: for a production for construction goods and these kinds of

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Speaker 2: things is also very weak. So people are paying less

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Speaker 2: than they were a year ago. So that probably means

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Speaker 2: that spending was even greater, like actual people were buying more,

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Speaker 2: but they were just paying less for it than they were.

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Speaker 2: But you know, this is still not a great situation

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Speaker 2: to be in.

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Speaker 1: Yeah, that was exactly my next point, which that's a

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Speaker 1: little bit of comfort, but really not much in the

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Speaker 1: larger scheme of things that units are Probably volume is up,

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Speaker 1: but prices still down.

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Speaker 2: Correct, I mean, so box office was up for example,

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Speaker 2: but again I mean, you know, the last four years

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Speaker 2: of being the box officer is shut in twenty twenty,

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Speaker 2: so you know, the people wondn't go to the movies

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Speaker 2: early in twenty twenty two because everyone had COVID, and

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Speaker 2: so to the comparison to say, great, but the box

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Speaker 2: office is really good this year. It's the strongest it's

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Speaker 2: been in years. Is really really poor comparison, and it's

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Speaker 2: not actually strong, it's just strong compared to the very

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Speaker 2: lean years we've been having over the last few years,

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Speaker 2: especially twenty twenty, twenty twenty, then again and then twenty

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Speaker 2: twenty two, twenty tway three was a little the last,

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Speaker 2: you know, the one we've just had is better, but

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Speaker 2: it's not incredibly strong.

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Speaker 3: So if we're trying to improve sentiment. You've talked about

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Speaker 3: the interest rate picture. We've also talked about how a

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Speaker 3: weak equity market tends to negatively impact investor psychology. We

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Speaker 3: talked earlier in the show today about the fact that

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Speaker 3: maybe the national team will step in and do more buying,

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Speaker 3: particularly of the ETF space. Is there anything that you

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Speaker 3: have heard in your travels and reporting on the economy

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Speaker 3: and markets in China, anything that you've heard that is

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Speaker 3: perhaps a novel policy prescription that perhaps can turn this around.

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Speaker 2: It's not a policy prescription per se, but I think

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Speaker 2: the interesting thing that I saw over the holidays was

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Speaker 2: that secondhand home sales really were quite strong. And you

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Speaker 2: saw last year actually the amount of money going to

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Speaker 2: the second hand home market was larger than the primary

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Speaker 2: the new home market for the first time I think

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Speaker 2: on record, And so I think what's happening is that

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Speaker 2: people are you know, people are rightly concerned if they

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Speaker 2: buy a new home it won't be delivered. They'll pay

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Speaker 2: a bunch of money, they'll take it a mortgage, and

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Speaker 2: then the company that's meant to give them to sell

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Speaker 2: them the home to build the home will go bankrupt

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Speaker 2: and they won't get their house. Yeah, but if you

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Speaker 2: buy a secondhand home, there's much more demand for that,

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Speaker 2: and prices are falling a lot and fall a lot,

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Speaker 2: much more of the secondary market than they have with

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Speaker 2: the primary markets. That the government is making sure that

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Speaker 2: primary prices at fall, So secondary home sales are actually

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Speaker 2: doing pretty well.

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Speaker 3: Okay, we'll leave it there. Always a pleasure, James, thanks

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Speaker 3: for making time for James Meger from our bureau in

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Speaker 3: Beijing here on Debreak Casual.

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Speaker 1: Well. Joining us now in the studios in Hong Kong

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Speaker 1: is Jason Lloyd, who's head of APAC Equity and Derivative

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Speaker 1: Strategy at BNP Parrabad. Jason, thanks for coming on into

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Speaker 1: our studios here. So we had this holiday news really

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Speaker 1: on Friday morning from the state media, and we saw

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Speaker 1: a huge bounce in Hong Kong, so we know that

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Speaker 1: there's some energy there. But Hong Kong is not exactly

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Speaker 1: domestic China. Hangksng index is up two and a half percent.

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Speaker 1: When we look at the futures this morning trading in Singapore,

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Speaker 1: we don't see a huge bounce at all. Is caution

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Speaker 1: going to end up being the byword even for domestic

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Speaker 1: trading in China?

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Speaker 4: Well, thanks for having me on the show today, Brian.

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Speaker 4: As you mentioned earlier, I think over the weekend you

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Speaker 4: have seen the PBOC did not change its policy rate,

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Speaker 4: and I think some of the capital injection may have

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Speaker 4: been a little bit modest compared to market expectations. So

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Speaker 4: that's certainly is one side of the story. I think

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Speaker 4: the other side of the story is that when you

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Speaker 4: look at the travel data, while it's very encouraging on

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Speaker 4: a percentage in terms of number of trips, I think

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Speaker 4: if you look at it from a glass half empty perspective,

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Speaker 4: then some of the poor average number may have been

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Speaker 4: a little bit doesn't follow the same kind of magnitude.

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Speaker 4: So I can understand that the market will want you to

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Speaker 4: look at it from a more negative the lens if

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Speaker 4: they choose to. I think at this moment, what is

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Speaker 4: more important for us, it's the forward looking policy measures. Yes,

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Speaker 4: looking forward, I think the LPR decision tomorrow will be

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Speaker 4: an important one, but also I think the market will

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Speaker 4: look forward to the so called two Session where the

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Speaker 4: National People Congress will meet and they will issue some

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Speaker 4: of the growth target. That will give the market a

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Speaker 4: little bit more visibility for the rest of the year.

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Speaker 3: So, Jason, what's the house view at Benprepa about right

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Speaker 3: now on the Chinese equity market?

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Speaker 2: Sure?

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Speaker 4: Our view is that we maintain a neutral stance on

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Speaker 4: the overall equity market. The main reason is because if

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Speaker 4: you look at the price action over the past twelve

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Speaker 4: to eighteen months, it has been extremely sensitive to policies,

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Speaker 4: and so far we haven't had enough policy clarity in

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Speaker 4: terms of how much commitment the government wants to really

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Speaker 4: stimulate growth. Because I think over the recent months there's

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Speaker 4: been a lot of discussion regarding is the government really

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Speaker 4: willing to commit to a five percent growth? It is

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Speaker 4: likely that we'll see a scenario where the government issue

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Speaker 4: an official target of five percent, but then the market

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Speaker 4: will question what are the credible policy package that can

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Speaker 4: get us there? So I think that is why we

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Speaker 4: maintain a neutral stand. That being said, oh sorry, go ahead, no,

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Speaker 4: no you go. Sure, that being said, we do see

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Speaker 4: a little bit more thematic opportunities. So beyond the index level,

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Speaker 4: we start to see things, for example, like buybacks and dividends,

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Speaker 4: and even some of the ETF purchases are starting to

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Speaker 4: take hold. And this is part of a much longer

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Speaker 4: path of capital market structural reform that we think can

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Speaker 4: be a lot more interesting over the medium to long term.

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Speaker 1: So it seems like investors, on the one hand, might

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Speaker 1: be saying they're not happy with policy, and you just

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Speaker 1: expressed some concerns about policy making. Is really that some

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Speaker 1: of these if looked through the prism of long term planning,

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Speaker 1: might be quite sound, but that they're just being rushed

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Speaker 1: through too much in the short term and that is

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Speaker 1: disrupting markets.

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Speaker 4: I think that's a very fair question, because if you

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Speaker 4: look back at what happened over the past six weeks,

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Speaker 4: feeling much longer because of the price action. But if

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Speaker 4: you recall that the narrative starting into twenty twenty four

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Speaker 4: is that twenty twenty three was a very challenging year.

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Speaker 4: Starting in twenty twenty four, there will be more policy action.

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Speaker 4: Hopefully we grow better from a low base. I think

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Speaker 4: to start the year there was relatively limited discussion regarding

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Speaker 4: the actual policy support and if you recall back in January,

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Speaker 4: the PBUC also did not change its interest rate, despite

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Speaker 4: the fact that there's been a lot of pre communication

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Speaker 4: heading into that event. So I think that really triggered

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Speaker 4: the beginning of this kind of downward spiral in sentiment

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Speaker 4: and really took the government and some of the stay

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Speaker 4: back funds a lot of effort to stay the market

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Speaker 4: sentiment heading into the Chinese New Year. So I would say,

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Speaker 4: right now we are gradually resetting the expectation, just back

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Speaker 4: to the start of the year.

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Speaker 3: So if you're moving away, let's forget the indexes for

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Speaker 3: a moment. If your tactical on selected names, I'm wondering

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Speaker 3: about the hedging strategies that you're using, because I note

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Speaker 3: that you're not only the head of the equity side,

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Speaker 3: but the derivative side as well. So is it almost

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Speaker 3: necessary that you put some type of derivative strategy on

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Speaker 3: top of any kind of equity trade if you're playing China.

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Speaker 4: Sure, that's a great question. In fact, when we look

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Speaker 4: at our client interaction from a derivative standpoint, clients are

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Speaker 4: very active when it comes to China related derivative both

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Speaker 4: for the domestic market as well as the Hong Kong

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Speaker 4: listed market. On the domestic side, I think some of

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Speaker 4: your colleagues may have reported in recent weeks that the

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Speaker 4: futures were trading at a steep discount compared to its

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Speaker 4: fair value, which attracted quite a bit of attention from

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Speaker 4: global investor in terms of how do you take advantage

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Speaker 4: of some of those mispricing on the Hong Kong side.

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Speaker 4: If you look at the options market on each CI,

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Speaker 4: for example, you will notice that despite that bearish sentiment

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Speaker 4: to start the year, the relative pricing between calls and

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Speaker 4: puts are still quite skewed to the other side, meaning

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Speaker 4: that investor are willing to spend little bit of premium

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Speaker 4: to capture the upside risk without risking the entire principle.

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Speaker 4: So I think we feel that investor want to have

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Speaker 4: something on on the upside just in case, because one

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Speaker 4: of the lessons from twenty twenty three is that despite

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Speaker 4: the general downward trend, there has been three or four

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Speaker 4: episodes of very concentrated five to ten percent rally and

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Speaker 4: so we have seen the derivetic position in reflecting those

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Speaker 4: kinds of opportunistic trading.

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Speaker 1: Yeah, that's pretty interesting. So the skew a little bit

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Speaker 1: to puts on China, but the skew a little bit

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Speaker 1: toward calls on Hong Kong. Is that effectively what you said?

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Speaker 4: I think that seems to be the case when we

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Speaker 4: look at the relative pricing on a volatility on the

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Speaker 4: China side. It's more has to do with the fact

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Speaker 4: that you have a very big supply demand imbalance on

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Speaker 4: the future, especially when it comes to the small micap indicies,

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Speaker 4: which created a rather unusual miss pricing opportunities for investor

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Speaker 4: to take advantage of.

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Speaker 3: One of the things we've been talking about recently has

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Speaker 3: been on the part of the national team building larger

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Speaker 3: positions in whether it's ETFs or you know, straight vanilla equities.

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Speaker 3: Do you think there's a real risk if the national

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Speaker 3: team were to take on, you know, additional positions in

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Speaker 3: the market.

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Speaker 4: Sure. I think that is one of the big questions

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Speaker 4: that a lot of investors are asking at the moment

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Speaker 4: because historically the so called national team they tend to

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Speaker 4: behave in a relatively opaque manner. I think the most

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Speaker 4: recent example that was very high profile is back in

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Speaker 4: twenty fifteen twenty sixteen, where a group of a national

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Speaker 4: team as well as security House group together to try

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Speaker 4: to rescue the market, but the result was a little

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Speaker 4: bit mixed. I think this time around what is different

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Speaker 4: is in terms of the vehicle of choice. Back in

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Speaker 4: twenty fifteen twenty sixteen, there was a lot more stockpicking involved,

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Speaker 4: whereas this time around it seems that they are focusing

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Speaker 4: on ETF. So perhaps their learning some of their experience

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Speaker 4: from other central banks over the recent years in terms

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Speaker 4: of how to stabilize the market. And I will note

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Speaker 4: that the Central Waging which is the unit that purchased

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Speaker 4: those fund publicly, actually made two announcements over the past

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Speaker 4: six months. So back in October twenty third they simply

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Speaker 4: mentioned that we have been starting to buy ETF, but

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Speaker 4: they issue another statement on February six which had three

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Speaker 4: key points. They say they will expand the scope of

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Speaker 4: the underlier, they will intensify the buying, and they will

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Speaker 4: also continue to stabilize the market. So this seems to

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Speaker 4: suggest that they have now evolving their mandate compared to

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Speaker 4: a few months ago. And I think the challenge to

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Speaker 4: gauge that is that, unlike some of the other central

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Speaker 4: banks where they actually have daily or weekly disclosure, the

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Speaker 4: buying from the Central waging or some of the related parties.

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Speaker 4: You can only see from the etfun flow perspective, and

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Speaker 4: you can only infer what they are doing, and so

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Speaker 4: I think that is the difference.

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Speaker 1: Jason. We've always tried to read policy in China, but

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Speaker 1: that was more from the standpoint of where the government

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Speaker 1: was deploying capital. Now it's almost like it's policy considerations.

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Speaker 1: You know, who do they like and who don't they like.

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Speaker 1: Maybe that's a little kind of crude, but when you

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Speaker 1: see what happened with Ali Baba and ten said, who

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Speaker 1: are some of the new players that may be in

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Speaker 1: favor of policymakers.

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Speaker 4: I think that is indeed one of the challenges when

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Speaker 4: they look at Chinese equity market. I understand that. I

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Speaker 4: think a lot of the media have pointed out the

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Speaker 4: fact that the Hong Kong China market is down forty

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Speaker 4: fifty percent from this recent peak. A big part of

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Speaker 4: that is due to these crackdown in select industry. So

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Speaker 4: if we look into twenty twenty four, one of the

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Speaker 4: new phrases, I think Bloomberg also reported that is so

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Speaker 4: called high quality growth. Now there's no official definition of

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Speaker 4: high quality growth, but our interpretation that it involves in

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Speaker 4: the high tech supply chain self sustainability type of investments.

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Speaker 4: So in that sense, I think a lot of the

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Speaker 4: renewable energy supply chain, a lot of the so called

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Speaker 4: high tech capital equipment, they will continue to benefit. And

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Speaker 4: I think that is one of our investment fsis is

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Speaker 4: that while the overall economy may remain under pressure, you

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Speaker 4: have the subset of what we call upstream and midstream

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Speaker 4: industry that will likely benefit from these kind of government policy.

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Speaker 2: That's great stuff.

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Speaker 1: Really thanks a lot, Jason for coming into our studios.

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Speaker 1: We appreciate it. On early Monday morning, Jason Ley, head

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Speaker 1: of APAC Equity and Derivative Strategy at BNP Parabot. Joining

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Speaker 1: us is our colleague Paul Dobson Bloolberg, Executive editor for

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Speaker 1: Asian Markets. So a lot of attention on China today,

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Speaker 1: at least a day or two to shine in the sun.

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Speaker 1: I suppose it's like this. I mean, the China spending

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Speaker 1: up from pre pandemic levels gets your attention, but so

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Speaker 1: does the slow down in FDI and all the other

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Speaker 1: ills of the economy. And we're not seeing other markets

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Speaker 1: really all that buoyant this morning. How do you read

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Speaker 1: the mood at the moment.

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Speaker 5: Paul, Yeah, I would say that the mood is the

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Speaker 5: main markets reopen, should be cautiously optimistic. Perhaps we had

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Speaker 5: a better week last week in the offshore markets, the

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Speaker 5: ADRs in the US and the Hong Kong gages as well,

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Speaker 5: which boats well. And I think that the economic data,

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Speaker 5: the real time economic data that we have on spending

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Speaker 5: and travel seems relatively benign and positive. Ah And that

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Speaker 5: really is the thing that it's needed more than anything

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Speaker 5: else to turn around the economy right now, a recovery

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Speaker 5: or a rebuilding of consumer confidence. Now, this is a

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Speaker 5: very small step, and you know, it may have been

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Speaker 5: a particularly good reason a particularly good year for many

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Speaker 5: other reasons as well, but nonetheless it does give some hope,

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Speaker 5: and so you would expect that there would be some

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Speaker 5: pretty good gains at the start. But let's see how

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Speaker 5: much follow through we get through the rest of the

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Speaker 5: week once that sort of initial philip is done and dusted.

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Speaker 3: And if there is follow through, whether it's lasting. You know,

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Speaker 3: going into the weekend, there was a little bit of

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Speaker 3: speculation that perhaps I realized that this was not the

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Speaker 3: mainstream bet, that maybe the PBOC would tweak its key

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Speaker 3: policy rate as a way of incentivizing people maybe to

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Speaker 3: take on a little bit more risk. That didn't happen.

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Speaker 3: The one year policy loan rate was held at two

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Speaker 3: and a half percent. But what we're learning now is

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Speaker 3: that maybe the big banks in China will cut rates

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Speaker 3: in the coming week. Do you think that's likely.

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Speaker 5: It seems like it's a possibility. It was certainly mentioned

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Speaker 5: in the local media the official media today is being

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Speaker 5: a potential thing that we will see happen. They created

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Speaker 5: some space recently with chripple R cuts to open a

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Speaker 5: little bit of room for banks to lower those rates further.

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Speaker 5: So that's in the cars. I think on both of

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Speaker 5: these measures or metrics, what's quite important is that limited

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Speaker 5: room that there is in which the authorities have to

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Speaker 5: operate with the loan prime rate in the bank rates.

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Speaker 5: You know, bank margins are already under quite a lot

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Speaker 5: of pressure, so there's only so far and so much

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Speaker 5: that they can do with the MLF that we had

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Speaker 5: at the weekend. The concern is that they would trigger

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Speaker 5: more currency weakness or more capital outflows, and that's something

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Speaker 5: that they also want to avoid. So in both cases,

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Speaker 5: the space is reasonably tight and there needs to be

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Speaker 5: a strong case or a compelling reason to do more.

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Speaker 5: We just did have that chip all our cut and

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Speaker 5: that's supposed to be helping, and so I guess they'll

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Speaker 5: want to watch and see how that feeds through into

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Speaker 5: the economy before.

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Speaker 1: Well, and the apparent pickup, the apparent pickup in spending

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Speaker 1: indicates things are working even without a cut in interest rate.

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Speaker 1: So I suppose one could read some caution is okay there,

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Speaker 1: and what we're talking about with the stock market gains

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Speaker 1: today would be mostly domestic. I would think foreign investors

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Speaker 1: remain pretty jaded about China, although you do see pockets

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Speaker 1: of interest. I'm kind of curious about whether or not

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Speaker 1: there's a way to read this that perps because Japan,

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Speaker 1: you know, has seen such gains and the US has

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Speaker 1: seen such gains that maybe just maybe a little bit

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Speaker 1: of foreign money might take a.

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Speaker 5: Punt as possible. But the overwhelming sort of mood from

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Speaker 5: the international community is that there are those better opportunities elsewhere. Right,

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Speaker 5: like you said, Japan looks great, India looks great, the US.

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Speaker 5: Why would you put your money anywhere else right now

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Speaker 5: when the technocs are going so crazy unless you're looking

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Speaker 5: at the relative valuations, So it might be the sort

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Speaker 5: of longer term investors that are keener in some ways,

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Speaker 5: and yet with so much policy uncertainty still there and

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Speaker 5: the growth outlook looking you know, still longer term, pretty

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Speaker 5: modest by recent standards, and that disinflationary impulse still hanging

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Speaker 5: over the market as well, there are reasons why international

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Speaker 5: investors are concerned. And that's what we've seen in the

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Speaker 5: FDI numbers are the the you know, kind of spending

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Speaker 5: by businesses basically into the economy shrunk continually for several

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Speaker 5: years now, the lowest in thirty years, and I think

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Speaker 5: that's more of a sign of kind of you know,

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Speaker 5: the US general retrenchment from China's markets in general, sort

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Speaker 5: of stay away mentality. So yes, of course there'll be

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Speaker 5: some suspecative deflows that would like to try and jump

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Speaker 5: on any big moves that we see, but like you said,

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Speaker 5: I think the domestic investor is the key player here

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Speaker 5: at the moment.

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Speaker 3: I thought it was very interesting the latest survey of

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Speaker 3: global money managers from Bank of America shows that going

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Speaker 3: short Chinese stocks is still very popular, maybe becoming more so.

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Speaker 3: And this has been the second most crowded trade. We

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Speaker 3: know for months now, and I'm wondering, at what point

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Speaker 3: do you get hurt if you step in and aggressively

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Speaker 3: short China.

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Speaker 5: Well, the last two weeks would have been pretty painful

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Speaker 5: given the Golden Dragon. I think in the US had

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Speaker 5: gains of five percent two weeks in a row. So so,

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Speaker 5: but maybe people are seeing lads as an opportunity to

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Speaker 5: reload those short bets again and still see more scope

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Speaker 5: for weakness in the Chinese markets. And I think because

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Speaker 5: of those international outflows, which has been such a persistent theme,

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Speaker 5: that would put you in that mentality. But maybe, you know,

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Speaker 5: kind of it doesn't take much to get China's markets excited,

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Speaker 5: and when we see big ruddies they come exceptionally hard

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Speaker 5: and fast, so the short sellers will want to be

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Speaker 5: wary of that as well.

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Speaker 1: All Right, Paul, thanks very much for joining us. Paul Dobson,

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Speaker 1: Bloomberg Executive Editor for Asia Markets.

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Speaker 3: This has been the Bloomberg Daybreak Asia podcast, bringing you

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Speaker 3: the stories making news and moving markets in the Asia Pacific.

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