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Speaker 3: China has announced that it will be holding a briefing
Speaker 3: on Saturday morning on fiscal policy. The State Council says
Speaker 3: that the Finance Minister will be introducing moves to strengthen
Speaker 3: fiscal policy, so industrials will be expecting some tangible news.
Speaker 3: Joining us now in our studios as Dan ten Kate
Speaker 3: Bloomberg Asia Eco goov Executive editor. So we know there's
Speaker 3: the potential for some disappointment, Dan, but this is actually
Speaker 3: the Finance Ministry and along with the State Council, this
Speaker 3: is where you would get this kind of information. Are
Speaker 3: we expecting money which from the minister and if so,
Speaker 3: what will some of the details likely be.
Speaker 4: Yeah, well, certainly the markets are anticipating real stimulus, some
Speaker 4: concrete measures, some actual money. We didn't get that earlier
Speaker 4: this week with the NDARC, And as you mentioned, the
Speaker 4: NDRC wouldn't be the body the Chinese agency that would
Speaker 4: necessarily give you those hard details. So the Finance Minister
Speaker 4: is the one in the Chinese system who can deliver
Speaker 4: on that. And you know, the market swings that we've
Speaker 4: seen indicate that there's a real urge to see something
Speaker 4: concrete to keep this rally going.
Speaker 2: Right now, the way we understand things is that the
Speaker 2: growth targets remain intact. Could that change? Do you think
Speaker 2: in any meaningful way?
Speaker 4: Well, pretty much they are. You know, the NDRC, which
Speaker 4: is China's economic planner, they did indicate that they were
Speaker 4: on target to hit that GDP target of about four
Speaker 4: point eight percent. The real problem with Chin China's economy
Speaker 4: right now is these deflationary pressures. So even if you
Speaker 4: hit five percent real growth, if you have deflation of
Speaker 4: one percent, your nominal growth is not growing and so
Speaker 4: overall your economy isn't really moving. In fact, prices are
Speaker 4: just declining and people are getting poorer essentially, So that
Speaker 4: number needs to be put into context in that sense,
Speaker 4: and what economists are looking for is something to get
Speaker 4: the private sector moving again and to get a bit
Speaker 4: of inflation to get investment going and to kind of
Speaker 4: reverse this decline that we've seen, to prevent this sort
Speaker 4: of Japan style deflation that could really eat gains in
Speaker 4: wealth over time.
Speaker 3: It seems urgent from a market point of view, and
Speaker 3: it may seem urgent from consumers who are disappointed, and
Speaker 3: of course the authorities don't want people out in the streets.
Speaker 3: But we just had a guest on that said, you know,
Speaker 3: maybe expect a little little bit more patience here. The
Speaker 3: authorities don't want these kind of rapid gains that we've
Speaker 3: seen in markets, So I wonder if investors are getting
Speaker 3: themselves a little bit too far out over their skis.
Speaker 4: Yeah, there's definitely a mismatch between official thinking in Beijing
Speaker 4: and investors at the moment. And you know, volatility is
Speaker 4: something that Chinese authorities never really like that. What they
Speaker 4: would prefer is just kind of a slow and steady
Speaker 4: climb up to the top. But you know, with the
Speaker 4: big headlines flying on the Bloomberg terminal, et cetera, the
Speaker 4: big market swings that we're used to in the world today,
Speaker 4: that's just not the case. And we've seen you know,
Speaker 4: a thirty percent jump over the past couple of Weeks's
Speaker 4: that's getting way ahead of your skis in some sense
Speaker 4: for what the authorities can deliver.
Speaker 2: So we're just coming back from the Golden Week holiday.
Speaker 2: Have we been able to look at any high frequency
Speaker 2: data to see how consumers were behaving in that period.
Speaker 4: Yeah, there, you know the consumers, it's not as much
Speaker 4: as you would want. And I think that that's kind
Speaker 4: of the problem here, is that the Chinese consumer is
Speaker 4: not delivering in a way that is really going to
Speaker 4: make people of confidence in China's growth at the moment.
Speaker 4: And that's you know, we're seeing people just tighten their
Speaker 4: belts across the board. We've seen, you know, bankers having
Speaker 4: to give up bonuses, we've seen salary cuts, We've seen
Speaker 4: prices following, restaurants giving details or deals on food and basics. So,
Speaker 4: you know, Chinese people right now, they are very cautious
Speaker 4: on spending. You know, the hope from the government was
Speaker 4: in part that the stock market gains would make people
Speaker 4: feel a bit richer and help this elusive concept of
Speaker 4: confidence in the consumer. But you know that is fleeting.
Speaker 4: As we've seen, markets can rise and they can fall
Speaker 4: very quickly as well.
Speaker 3: Dan, it's a little tricky because it seemed like, you know,
Speaker 3: this has been such a long period of declient since
Speaker 3: twenty twenty one, that you needed sort of a shock
Speaker 3: in all moment, and then when you get it, then
Speaker 3: you know when the response is so dramatic that you
Speaker 3: feel that authorities want to go a little bit slower.
Speaker 3: You can kind of feel their pain a little bit.
Speaker 3: You would think that just incremental announcements of positive moves
Speaker 3: on the market would be what the doctor ordered. And
Speaker 3: we did get a little bit more this morning, in
Speaker 3: addition to the announcement about the fiscal stimulus coming via
Speaker 3: the Finance Minister, about the PBOC and its swamp facility
Speaker 3: to start app accepting applications today from funds and insurance
Speaker 3: companies and securities where these institutions can borrow against their
Speaker 3: holdings and can buy backstock and that sort of thing.
Speaker 3: Is this something that you're getting positive vibes from from investors?
Speaker 4: Well, definitely, the moves on from the Chinese authorities, particularly
Speaker 4: the PBOC to cut rates and that monetary stimulus and
Speaker 4: to signal like support for stocks in general have have
Speaker 4: been seen as positive signals. But I think what people
Speaker 4: are waiting for is this fiscal firepower from the government,
Speaker 4: and that has yet to come, and that's why there
Speaker 4: was some disappointment earlier this week, and that's why there's
Speaker 4: high hopes for this weekend that the Finance minister will deliver.
Speaker 2: You mentioned earlier the possibility of China kind of mirroring
Speaker 2: what happened in Japan over three decades beginning in the
Speaker 2: late nineteen eighties early nineteen nineties. Do you think that's
Speaker 2: underneath I mean, the fear of that kind of outcome
Speaker 2: really underneath the motivation for a lot of the stimulus
Speaker 2: that we have seen.
Speaker 4: Yeah, the Chinese authorities have definitely studied the case in Japan,
Speaker 4: and there's a lot of different views about whether China
Speaker 4: is actually heading there or not. There's some key differences
Speaker 4: among them. The fact that China is not as wealthy
Speaker 4: as Japan was back in the day. Some acconas will
Speaker 4: tell you that makes China's situation even potentially worse. But
Speaker 4: what we're seeing more broadly from China is that they're
Speaker 4: trying to deflate the property bubble while also maintaining some
Speaker 4: growth in these bigger sectors like evs and solar panels
Speaker 4: and kind of new energy type of stuff. And that's
Speaker 4: why you see these dueling narratives about how China's domestic
Speaker 4: economy is falling off a cliff. But at the same time,
Speaker 4: China is taking over the world on all these major
Speaker 4: manufacturing things and increasing trade tensions all around the globe.
Speaker 4: And so that's really the conundrum is here, is how
Speaker 4: do they successfully land the plane there and get back
Speaker 4: to stable growth.
Speaker 3: The Polar Bureau has pledged to stop housing market declines.
Speaker 3: How would you assess the progress on that front?
Speaker 4: They still have more to do. I mean, the measures
Speaker 4: that they've released to buy unsold housing in particular have
Speaker 4: not really caught fire yet, so there's a lot of
Speaker 4: room to expand that we might hear more about that
Speaker 4: on Saturday. What we're very clear on is that the
Speaker 4: authorities view the drag on property sector as really too much.
Speaker 4: It's kind of they do want to deflate the property sector,
Speaker 4: but they don't want it dragging on GDP so much.
Speaker 4: So all the gains that you're seeing in these other
Speaker 4: sectors are being way offset. So the view is, okay,
Speaker 4: if you could put a if you could stop the
Speaker 4: bleeding on the property sector, not necessarily even boosted that much,
Speaker 4: but just stop the downward spiral, then you could stabilize
Speaker 4: the economy and the GDP number will look.
Speaker 2: Better very quickly. Dan, do you think there's the possibility
Speaker 2: that China could scale back a little bit on its
Speaker 2: defense spending to have more ammunition u pun intended to
Speaker 2: apply on the overall economy.
Speaker 4: It's unlikely they would. I mean, they haven't really significantly
Speaker 4: boosted defense spending as a proportion of GDP over the years,
Speaker 4: and China's expenditures on defense are very opeque anyway, so
Speaker 4: it would be very difficult to tell whether if they're
Speaker 4: in fact doing that speakin.
Speaker 3: With yeah, Dan, Thanks very much, Dan ten K, Bloomberg
Speaker 3: Asia Eco Gov Executive Editor. Let's get to our guest,
Speaker 3: you Ting Shao, macro strategists at State Street Global Markets.
Speaker 3: You think there are a lot of headwinds or rather
Speaker 3: tailwinds for US equities At the moment. It seems to
Speaker 3: be telling a pretty positive story, but the valuations are high.
Speaker 3: That seems to be one of the biggest blocks. If
Speaker 3: history is your guide, you might not feel very comfortable
Speaker 3: at these levels. So how do we justify these these
Speaker 3: levels of valuation? Right?
Speaker 1: So, I think given where we are in the US
Speaker 1: equity space, there's still a lot of i think positivity
Speaker 1: from the investor sentiment perspective, given that we are still
Speaker 1: in this world where you know, earnings might quite a
Speaker 1: bit and or the US said, you know, earning still
Speaker 1: look to be quite resilient, and now that you are
Speaker 1: entering this support of recounting cycle that overall is a
Speaker 1: very friendly environment for equity. So even though you know,
Speaker 1: valuation looks a bit a bit stressed, you don't really
Speaker 1: see signs of things start to crack. So there's really not,
Speaker 1: in our views, a lot of reasons to pull back
Speaker 1: from this point.
Speaker 2: Let's talk a little bit about China. It's hard to
Speaker 2: ignore the amountain of stimulus measures that the government has
Speaker 2: unveiled recently and the enthusiasm short lived as it may
Speaker 2: have been in the equity space long term. Now are
Speaker 2: you positive on China? Do you believe that this stimulus
Speaker 2: is represents a pivot point.
Speaker 1: Yeah. I think what we've seen so far is definitely
Speaker 1: showing there is a sense of urgency from authorities, and
Speaker 1: it is a bit of a pivot point when it
Speaker 1: comes to you know, the last year and a half
Speaker 1: of these meal measures we've seen versus what we've seen
Speaker 1: this time around of more coordinated, more comprehensive combination policies
Speaker 1: to really at least, you know, stabilize the sentiment, arrest
Speaker 1: the weakening momentum. So I think to really achieve the
Speaker 1: growth target at this point for the year, it's really
Speaker 1: we are well in line to achieve that, but you know,
Speaker 1: looking beyond that, we still need to see more, uh,
Speaker 1: you know, data to really confirm on the macro side,
Speaker 1: things that are recovering, especially from consumers and on real
Speaker 1: estate side as well. So I think fiscal policy is
Speaker 1: going to help, uh, you know, to really make this
Speaker 1: rally more sustainable and really translate more into recovery on
Speaker 1: the macro side. Of course, we will have the Ministry
Speaker 1: of Finance briefing. It's upcoming this Saturday, so you know,
Speaker 1: more details to be revealed by then.
Speaker 3: Do you think that that's kind of a make or
Speaker 3: break moment in that there was some disappointment after the NDRs. See,
Speaker 3: you know, we know that that that's not the the
Speaker 3: uh uh the source perhaps of new stimulus and the
Speaker 3: Ministry of Finance actually is, but it seems like investors,
Speaker 3: you know, they may be if if this, if they don't,
Speaker 3: if he doesn't deliver on Saturday, you wonder what might.
Speaker 1: Happen right right, There is definitely quite a bit of
Speaker 1: disappointment out of the d r C briefing, where you know,
Speaker 1: market was very excited going into it, hoping there's more
Speaker 1: you know, to come after the Golden wik Holiday. Of course,
Speaker 1: so I think to understand, you know, you do need
Speaker 1: more as the people have it arguing on the physical side,
Speaker 1: there needs, you know, to be done on the measures.
Speaker 1: But I think whether it will be to make it
Speaker 1: or break in a moment, we probably wouldn't be that
Speaker 1: extreme because I think one thing that when need to
Speaker 1: keep in mind is from the authority's perspective, they don't
Speaker 1: necessarily want to think to see things moving too quickly
Speaker 1: in one direction or the other. The very massive rally
Speaker 1: we've seen, you know, does show that, you know, there
Speaker 1: is this very entrenched parish underweight in the Chinese space,
Speaker 1: which is why you see a lot of the shortcovering
Speaker 1: you know, the rally into it. But they don't necessarily
Speaker 1: want to see things going up twenty thirty percent in
Speaker 1: the you know, in a span of one week and
Speaker 1: that's not really sustainable, not very healthy either.
Speaker 2: What is the house view, it's stayed straight on Chinese
Speaker 2: equities right now.
Speaker 1: We are neutral at this point. We were underweight going
Speaker 1: into the simials measure, and I think for a lot
Speaker 1: of people that's similar views as well. I think that
Speaker 1: they've definitely surprised to the upside when it comes to
Speaker 1: the overall combination of measures. But in our views, you know,
Speaker 1: we think at the moment, you know, to chase the rally,
Speaker 1: you need to see more. But you know, they have
Speaker 1: done quite a bit and that is warranted adopt great
Speaker 1: from underway to neutral.
Speaker 3: The other one that's a little tricky to figure out
Speaker 3: is the Japan market. The nick A is pushing forty
Speaker 3: thousand again. Now it seems like there's been a little
Speaker 3: bit of pressure on the BOJ and so the BOJ
Speaker 3: has pulled back on normalizing just yet. But do you
Speaker 3: have a positive view on Japan or not so much?
Speaker 1: I think on the BOJ MITRO policy side, you know,
Speaker 1: we think even though they're taking a bit of a
Speaker 1: pause on the monetary policy normalization, the crucial matter is
Speaker 1: we are still in this world where Japan is the
Speaker 1: outlier with energy tenk space which is still on the
Speaker 1: hiking paths when everyone else has started to cut, so
Speaker 1: that you know, looking ahead, we are likely to get
Speaker 1: more you know normalization, whether it's the end of this
Speaker 1: year or heading into next year, because inflation is coming back,
Speaker 1: you know, even though growth is not that strong at
Speaker 1: the moment, there's definitely signs of inflation start to come
Speaker 1: back to Japan and becoming more sustainable in the system.
Speaker 1: So that does warrant the further normalization of policy and
Speaker 1: a higher rate than that where we are at the
Speaker 1: moment as the terminal. So for the currency side, as
Speaker 1: a result of that, we are you know, in a
Speaker 1: case and that we think potentially there could be more
Speaker 1: strengths that coming into the end. So as a result
Speaker 1: of that, you know that is going to you know,
Speaker 1: both a little bit less well for the equity space,
Speaker 1: and also you know, keep in mind you also have
Speaker 1: quite a lot of this money that potentially can be
Speaker 1: repatriated back into the Japan market once you start to
Speaker 1: see JGB picking up and restart to go up, so
Speaker 1: that there can be some rotation in that aspect as well.
Speaker 3: All right, you think, thanks very much for joining us,
Speaker 3: You team Shao, macro strategist at State Street Global Markets,
Speaker 3: a closely look at markets. The next three days could
Speaker 3: be very very interesting in Hong Kong and China. Joining
Speaker 3: us now is Paul Dobson, Bloomberg Executive Editor for Asia
Speaker 3: Markets in our studios in Singapore. So we had this
Speaker 3: announcement yesterday that the Finance Ministry will address the public
Speaker 3: on Saturday morning and we'll talk about strengthening fiscal policy.
Speaker 3: So that's one very big thing. Also today, as of today,
Speaker 3: the PBOC has set up this swap facility to allow
Speaker 3: insurance companies and securities firms and funds to borrow to
Speaker 3: get liquidity against their holdings to buy back shares. And
Speaker 3: if you're looking for something that is tangible in the market,
Speaker 3: I mean a lot of stimulus will help the economy,
Speaker 3: but is it tangible in markets? This swap facility could
Speaker 3: be tangible in markets. Paul, So, I guess the question
Speaker 3: is are we at a turning point here in interpreting
Speaker 3: how serious they are about stimulus?
Speaker 2: Hi?
Speaker 5: Hi that, Brian, I think it's the right question. I
Speaker 5: don't know if I have a good answer for you,
Speaker 5: because we still don't have enough details. And that's what
Speaker 5: the streets is really crying out for now. We heard
Speaker 5: from policymakers over the past few days saying they're willing
Speaker 5: to listen to the markets in the marketplace. What companies want,
Speaker 5: what people and traders and investors need, What they need
Speaker 5: is more finds. They're stimulus not just to support the market,
Speaker 5: but to support the underlying economy, to bring back that
Speaker 5: consumer confidence to revive the property market. And we have
Speaker 5: seen some signs and hints and clues as to it,
Speaker 5: but really what we want to know is how big
Speaker 5: is this package going to be, How extensive is it
Speaker 5: going to be in order for people to really be
Speaker 5: to convince and to carry on buying into this massive
Speaker 5: upswing that we've seen over the past few weeks of
Speaker 5: trading around the holiday. So that's where the market is
Speaker 5: so nervous right now. It's very interesting to see that
Speaker 5: this briefing is going to take place on a Saturday
Speaker 5: while markets are closed. Maybe that keeps things a little
Speaker 5: bit calmer for them to give those announcements and make
Speaker 5: sure that they're properly explained. But the market is still
Speaker 5: wondering whether we will actually get any figures from that,
Speaker 5: whether it's the Finance Ministry, that is the right place
Speaker 5: to to announce those numbers which are so crucial on
Speaker 5: which people are waiting to hear.
Speaker 2: Poll as you know, I mean, has been stuck in
Speaker 2: this deflationary trap for some time. But I'm wondering whether
Speaker 2: or not historically you can look at a period of
Speaker 2: time and maybe make an analogy. Is there a time
Speaker 2: when regulators' authorities in Beijing essentially through everything and the
Speaker 2: kitchen sink at the problem to try to pivot and
Speaker 2: turn a very bad sentiment into something that is a
Speaker 2: lot more positive.
Speaker 5: Yeah, I mean, yeah, there's a track record of it.
Speaker 5: And I think people are almost as worried about how
Speaker 5: that has led to a kind of overheating of the
Speaker 5: markets that then turned into a bubble that then burst
Speaker 5: as they are about the possibility of under delivery, which
Speaker 5: is what has been the theme over the last few years.
Speaker 5: So you know, think about some of those previous stimulus
Speaker 5: bursts that we've seen going way back into the early
Speaker 5: part of this millennium, and some of the booms and
Speaker 5: bus cycles that we've seen so throw in the kitchen
Speaker 5: sink at it will nearly are all going for you know,
Speaker 5: growth based on exports and that kind of thing, old
Speaker 5: old Willstonmias building white elephant projects. That's not really what
Speaker 5: people want to see. Yes, it will provide that temporary
Speaker 5: sugar rush, but it's not going to be sustainable. And okay,
Speaker 5: so speculators will rush in and jump onto the bandwagon
Speaker 5: and push those asset prices higher. But what the rest
Speaker 5: of the world. What you know, international investors, you've taken
Speaker 5: their money out of China over the past few years,
Speaker 5: want to see is more of a conviction to long
Speaker 5: term economic reform and growth, not just in terms of manufacturing,
Speaker 5: which has been extremely successful, but also in terms of
Speaker 5: consumer and pushing that narrative.
Speaker 3: Well, Paul, the market seems a little out of step
Speaker 3: with what the economy has produced over the past three
Speaker 3: or four years because we've seen such a huge dark
Speaker 3: cloud over over markets in China that you know, you
Speaker 3: have a situation where for Hong Kong, for instance, Hangsing
Speaker 3: Index down from more than thirty one thousand, creating down
Speaker 3: around the fifteen sixteen thousand level, the CSI three hundred,
Speaker 3: you know, down in the three thousands when it was
Speaker 3: well up over fifty five hundred at one point. So
Speaker 3: it does seem that, you know, a lot of this
Speaker 3: is self inflicted. I mean, they came out with some
Speaker 3: very very powerful anti private sector policies over the past
Speaker 3: three years, and maybe this is just a little bit
Speaker 3: kind of writing the ship a bit.
Speaker 5: Yes, yeah, writing the ship a little bit. The valuations
Speaker 5: are still relatively low, even after the rally that we've
Speaker 5: seen in the past few weeks. I think that that's
Speaker 5: really the key to their longer term trajectory. So much
Speaker 5: of our reporting over the last year year and a
Speaker 5: half has been about international investors, you know, US pension funds,
Speaker 5: index trackers, emerging market investors looking at ways of reducing
Speaker 5: their holdings of China, lowering the benchmark waiting that they're
Speaker 5: using to follow China in emerging market indexes, or just
Speaker 5: you know, kind of deciding that it's too risky and
Speaker 5: you know, taking holdings all the way to zero. If
Speaker 5: China wants to bring that international money back, it's got
Speaker 5: to create a much more stable regulatory framework, much more reliable,
Speaker 5: and much more long term for that sustainable investment flow
Speaker 5: to come back here.
Speaker 3: Yeah, and to get consumers feeling at least a little
Speaker 3: bit comfortable for spending their hard earned dollars. Paul, thanks
Speaker 3: so much for joining us. Paul Dobson, Bloomberg Executive Editor
Speaker 3: for Asia Markets.
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