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Speaker 2: This is the Bloomberg Daybreak Asia podcast. I'm Brian Curtis
Speaker 2: along with Doug Krisner. Join us each day for the
Speaker 2: stories making news and moving markets in the Asia Pacific.
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Speaker 1: So here in the States, today, we had those US
Speaker 1: listed shares in JD dot Com rallying by around sixteen percent.
Speaker 1: Several factors were play, not the least of which a
Speaker 1: three billion dollar stock buyback plan. JD reported a modest
Speaker 1: beat on both revenue and profit. And let's take a
Speaker 1: closer look now with our own Katherine Limb, Bloomberg Intelligence,
Speaker 1: Senior analyst on Asia, Consumer and Tech, joining us from
Speaker 1: our studios in Singapore. Catherine, it's always a pleasure. Let's
Speaker 1: begin on the e commerce side here. What did you
Speaker 1: hear from JD that would allow the market to believe
Speaker 1: that this company has really turned a corner.
Speaker 3: Well, you know, the results itself was a little less overwhelming.
Speaker 3: It's two percent marginal bid as you've actually mentioned earlier itself.
Speaker 3: I think it was more of a relief that the
Speaker 3: company is giving back cash to its shareholders via a
Speaker 3: twenty two percent hiken dividends as well as an extension
Speaker 3: of their three billion share buyback program. Now just bear
Speaker 3: in mind that previously they had in place a three
Speaker 3: billion and now they're going to start another new three
Speaker 3: billion for the next three years. So not much of
Speaker 3: a new news coming out from there. But really I
Speaker 3: think it is a relief that it's probably you know,
Speaker 3: syncing into the markets, particularly since we've heard so much
Speaker 3: about the competition and the company is going hits on
Speaker 3: with Ali Baba.
Speaker 2: Yeah, the competition is fierce, for sure. The executives did
Speaker 2: seem pretty confident this year, saying that they could take
Speaker 2: market leadership. And I see in your comments that both
Speaker 2: the dividend and the and the and the buyback shows
Speaker 2: that you don't really have to worry too much about
Speaker 2: a cash drain. Is that how sustainable? Is that kind
Speaker 2: of feeling?
Speaker 3: Well, you know, there are many parts again to JD's
Speaker 3: dot COM's overall reported numbers, and really if you look
Speaker 3: at the numbers itself, we had a twelve percent drop
Speaker 3: in the retail profits. That is the e commerce side
Speaker 3: of things, and the you know, the bum up really
Speaker 3: came from the logistics side of the business, which is
Speaker 3: a good and good to have, particularly since you know,
Speaker 3: the business, the logistics business will continue to enjoy economies
Speaker 3: of scale as it actually goes bigger. So you're going
Speaker 3: to have to actually these two forces coming together, which
Speaker 3: then I guess what JD dot Com really is, you know,
Speaker 3: can lean on the logistics business to help offset you know,
Speaker 3: the profit drag coming from the competition. So net Net
Speaker 3: I think, you know, they're in a fairly neutral position.
Speaker 3: I would say, we'll have to see whether they succeed
Speaker 3: in getting that market share back from Ali Baba and not.
Speaker 3: Let's not forget PDD and doing.
Speaker 1: Yeah Prian grow duo. I mean, so let's talk a
Speaker 1: little bit about the Chinese consumer because I'm looking at
Speaker 1: what really drove a lot of the revenue gains electronics
Speaker 1: and home appliance. Is what does this tell us about
Speaker 1: the appetite for durable goods in China.
Speaker 3: Well, you know, electronics and home appliances, that has always
Speaker 3: been a strong category for JD dot Com. They started
Speaker 3: off in that business and that had also triggered earlier
Speaker 3: talks about them, you know, looking to actually acquire Curast
Speaker 3: in London. So that's that bit of that, and I think,
Speaker 3: you know for it when it comes to electronics and
Speaker 3: home appliance, let's not forget that there's a lot of
Speaker 3: actually there's a lot of price cuttings going on in
Speaker 3: China right now. With getting seeing a lot of the subsidies,
Speaker 3: et cetera, it's probably going to be less of you know,
Speaker 3: there's going to be less of an impact on home
Speaker 3: appliance given that we're going to step into Women's Day tomorrow.
Speaker 3: So it's all about the cosmetic frenzy out there, but
Speaker 3: price cuts, low price affudibility that is likely still got
Speaker 3: a hole in China for the rest of twenty twenty four.
Speaker 2: Yeah, part of Doug's question about how healthy is the consumer,
Speaker 2: they actually did say that they felt that consumption recovery
Speaker 2: would be further strengthened this year. So that's one company
Speaker 2: to Doug's question. And if we could sort of put
Speaker 2: together the earnings from Ali Baba and JD and others,
Speaker 2: you put it all together, do you feel confident that
Speaker 2: the consumer will be back this year?
Speaker 3: Well, I guess that really depends on your definition of
Speaker 3: where we are expecting them to go back to. Are
Speaker 3: we expecting them to do more impulse buying as what
Speaker 3: we have seen, you know, prior to the COVID, I
Speaker 3: don't think so, really facing a more rational shoppers and
Speaker 3: probably more discerning in their spending. With also seen that
Speaker 3: continued trend that you know, the consumers would like to
Speaker 3: actually spend more on travel, leisure activities versus you know,
Speaker 3: your discretionary goods, and you know, particularly you're super high
Speaker 3: and luxury, they're just not buying as much as they
Speaker 3: used to before.
Speaker 1: So, Catherine, you were talking a moment ago about price
Speaker 1: cuts discounts on electronics and home appliances. I'm thinking that's
Speaker 1: going to create margin pressure here? Is this something that
Speaker 1: JD addressed.
Speaker 3: Now that's an interesting point because I think right now
Speaker 3: in China you're looking at you know, the entire supply
Speaker 3: chain right now, you know, seeing a surplus of you know, inventories.
Speaker 3: They are also manufacturers are getting more operating efficiency and
Speaker 3: in a position to actually lower costs. And what's happening
Speaker 3: is that you know, some of them are passing their
Speaker 3: margins and profits through to the consumers. So in a
Speaker 3: case of JD dot Com. No doubt there is still
Speaker 3: going to be a drag on down margins, particularly as
Speaker 3: they tried to actually win back more users from Ali
Speaker 3: Baba and PDD via incentives and pots that we continue
Speaker 3: to actually see on their platform.
Speaker 2: Yeah, all right, Catherine, thanks so much. I like that point, Doug,
Speaker 2: that Catherine made about it depends what consumers go back to,
Speaker 2: because they were spending really crazily over the past. I
Speaker 2: think I told you before that when I first came here,
Speaker 2: the Americans and the Europeans were the rich tourists in Asia.
Speaker 2: Then in the eighties it became the Japanese for sure,
Speaker 2: and then after you moved a little bit later on
Speaker 2: you had the Chinese, and the Chinese were buying up
Speaker 2: properties with all cash and spending on luxury goods and
Speaker 2: lined up outside the Louis Vuitton stores like fifty to
Speaker 2: eighty people in line to get in this store. I
Speaker 2: don't think we're going back to that well again. One
Speaker 2: of the featured stories this morning on the Bloomberg Terminal,
Speaker 2: China is targeting it's one hundred and seventy million migrant
Speaker 2: workers to help shore up the economy, and part of
Speaker 2: that has to do with the Houko system joining us
Speaker 2: now is shule N Bloomberg opinion columnists. The only problem
Speaker 2: with this, Shulely, is that reforming the Houko system is
Speaker 2: a little bit about freedom and giving workers and people
Speaker 2: a little more access to go where they want and
Speaker 2: to still collect their benefits. Do you believe that this
Speaker 2: is something that can make a measurable impact on the
Speaker 2: Chinese economy and can it happen anytime soon?
Speaker 4: I think the microworkers have had a really really tough
Speaker 4: time in the last four years, especially during the COVID era, right,
Speaker 4: and then like allowing them to move around more freely
Speaker 4: that will help the political stability in the society. I mean,
Speaker 4: they really had a very tough time.
Speaker 1: So if you're talking about things like access to housing
Speaker 1: and medical care as well as education resources, this is
Speaker 1: a long term vision here. I mean, I think the
Speaker 1: government is trying to target some type of transformation. Am
Speaker 1: I right on that?
Speaker 4: Yes? And let's keep in mind that the China's micro
Speaker 4: workers have been going to the cities for like three decades, right,
Speaker 4: some of them are already hitting their retirement age. Believe
Speaker 4: it or not, China is getting old. Some of them
Speaker 4: are in their sixties, and even so they don't have
Speaker 4: any retirement money because whatever they have earned they have
Speaker 4: sent back to their villagers to support their children and grandchildren.
Speaker 4: And again, the last four years have been very tough time.
Speaker 4: And then everybody in China knows about that, and we
Speaker 4: read about news articles of interviews of microworkers saying, you know,
Speaker 4: I'm in my sixties, I'm still working minimum wage. What
Speaker 4: am I going to do with the future. So this way,
Speaker 4: it's just a way to help appease the Chinese society
Speaker 4: and make people feel a little bit better about the government,
Speaker 4: if that makes sense. And by the way, the Chinese
Speaker 4: government is also increasing the pension funds for retirees by
Speaker 4: a slight amount for the farmers, right, you know, this.
Speaker 2: Is the type of thing that actually a lot of
Speaker 2: critics have been calling for for a long time. It
Speaker 2: is about freedom though, as I mentioned earlier, it is
Speaker 2: about giving people more choice in what they do. And
Speaker 2: when you think about President c Jinping and what his
Speaker 2: priorities are, it's national security and control and that sort
Speaker 2: of thing. You wonder if you know they're sort of
Speaker 2: competing ideologies or efforts.
Speaker 4: No, I don't necessarily see it that way. I mean,
Speaker 4: like China has built all these infrastructure, right, like, what's
Speaker 4: the use of all this infrastructure and the returns on
Speaker 4: the asset if you don't let people move about and
Speaker 4: the go about it the trends and the UH and
Speaker 4: the flights, et cetera. So I don't see it that way.
Speaker 4: And also it helps local governments boost their competitive animal
Speaker 4: spirit if I may say, uh, you know, the best
Speaker 4: cities will attract the best labor supply and the and
Speaker 4: as a result they can sell more land. So allowing
Speaker 4: migrant workers to move around more freely, it actually helped
Speaker 4: boost competition across China.
Speaker 1: So to Brian's initial point about the impact that it
Speaker 1: will have on the overall economy in China, do you
Speaker 1: have a sense of that, I mean, is it going
Speaker 1: to be significant in the impact?
Speaker 4: I think it's hard to say. I mean, the services
Speaker 4: sector is uh is a little bit weak, right, Like
Speaker 4: the government is spending a lot of money on the
Speaker 4: higher manufacturing, leaving the services sector behind. So perhaps more
Speaker 4: freedom of labor movement will boost that naturally without the
Speaker 4: government spending a lot of money on it.
Speaker 2: And sorry to bring up the Orwellian side of it
Speaker 2: a couple of times in this interview. But you know,
Speaker 2: that's what we've been dealing with in China, and I
Speaker 2: know that you understand that better than even we do.
Speaker 4: I still think, you know, like the government is quite
Speaker 4: okay with you know, freedom of movements, right, like a
Speaker 4: freedom of expression perhaps is censored, but not movements.
Speaker 2: Yeah, I guess so. Well, it's it is interesting to
Speaker 2: think about how quickly this can be implemented. We also
Speaker 2: know that in terms of the individual traveler schemes, for instance,
Speaker 2: more people are being allowed to travel to Hong Kong.
Speaker 2: Do you think that that eventually makes a difference for
Speaker 2: Hong Kong?
Speaker 4: So far it doesn't. And then local news media has
Speaker 4: reported on that because I mean, like a lot of
Speaker 4: the city city's residents they cannot really travel to Hong
Speaker 4: Kong individually, but they have to do it through a
Speaker 4: tool group, right, But essentially they have been coming to
Speaker 4: Hong Kong individually anyhow, because the two group will say, okay,
Speaker 4: let me just design a package with only two people.
Speaker 4: That's a tour, right. So there has been a roundabout
Speaker 4: way and this is like not really meaningful.
Speaker 1: To be honest, So let me take the other side
Speaker 1: of the trade. Surely, what could possibly go wrong with
Speaker 1: this plan, the.
Speaker 4: Mainland Chinese government's plan or the Hong Kong.
Speaker 1: Main the mainland plan.
Speaker 4: Well, everyone wants to go to the biggest cities like
Speaker 4: Shanghai and Beijing, and then these cities will be very
Speaker 4: crowded and we will see that, you know, the big
Speaker 4: cities of Shanghai Beijing will say okay, too many of
Speaker 4: my grown workers will have to kick them out. And
Speaker 4: we're going to see that again from ten years ago,
Speaker 4: we had that kind of episodes.
Speaker 2: Right, surely does does rapid urbanization lead to more pollution
Speaker 2: in a sense and hurt the fight against climate change?
Speaker 5: I think.
Speaker 4: In the biggest cities, like I'm from Shanghai, and if
Speaker 4: you look at the air quality in Shanghai, it's getting
Speaker 4: much much better. Like the government is doing a fairly
Speaker 4: good job at the environmental protection. And then let's be honest,
Speaker 4: the economy is not so great. There are so not
Speaker 4: so many factories turning out.
Speaker 2: Things fairly positive. Shule renn Today love it. Thanks very
Speaker 2: much Shuley for joining us here on the program. Shuly
Speaker 2: Ren Bloomberg Opinion colonists with this live let's take a
Speaker 2: closer look at markets now. Our guest in studios with
Speaker 2: US in Hong Kong is Ekaterina Biggos, who's Chief investment
Speaker 2: officer on Core Investments for Asia ex Japan at AXA
Speaker 2: Investment Managers. Ekaterina, we have lots of time to talk
Speaker 2: about China. I just wanted to ask you about FED
Speaker 2: Chief J Powell and the commentary about interest rates. We
Speaker 2: know he didn't really say all that much. He didn't
Speaker 2: rock the boat for sure. Everyone knows that the Fed
Speaker 2: wants to be careful on this front, but that cuts
Speaker 2: could be coming. I think everyone also knows that the
Speaker 2: FED funds rate that was in place to deal with
Speaker 2: inflation at more than eight percent probably isn't the right
Speaker 2: level now that you have core inflation down under three percent.
Speaker 2: So I'm not sure what ACCES is projecting. But will
Speaker 2: we see these cuts coming anytime soon?
Speaker 4: Yeah?
Speaker 6: And I think the stance that Joonpower has taken it's
Speaker 6: not a surprise for us. As we drafted our outlook
Speaker 6: for twenty twenty four and with the rally that was
Speaker 6: seen in raids into the year end twenty twenty three,
Speaker 6: we've said that the market is running ahead of itself,
Speaker 6: so the rallying rates was overdone. So the expectations were
Speaker 6: the cuts or priced in for as soon as March
Speaker 6: and certainly more than what the FED dot plot was suggesting,
Speaker 6: And certainly that was an indication that some market participants
Speaker 6: thought that the economy US economy still has a risk
Speaker 6: to potentially enter into recession and slow down. Our view
Speaker 6: was that the US economy, supported by still strong consumer
Speaker 6: and with some recovery and investment in twenty twenty four
Speaker 6: supported by the Cheap and Inflation Reduction Act, is going
Speaker 6: to stay more resilient twenty twenty four. So our view
Speaker 6: was from the beginning of the year that the FED
Speaker 6: will have scope to normalize and get retraded and normalize
Speaker 6: monitory policy in twenty twenty four to be in line
Speaker 6: to where the growth is for the US at this stage,
Speaker 6: instead of cutting rates aggressively, which is more applicable for
Speaker 6: a slow down growth environment.
Speaker 1: Speaking of growth, we've got a target now for the
Speaker 1: Chinese economy is roughly five percent this year that coming
Speaker 1: out of the NPC. What's your takeaway with all the
Speaker 1: other kind of points that we heard in terms of
Speaker 1: economic policy or ways to stimulate and try to encourage
Speaker 1: a little bit more demand. Are you confident now that
Speaker 1: maybe things are at a point where we can say
Speaker 1: the bottom is in and we're going to see some
Speaker 1: kind of recovery going forward, or is it just simply
Speaker 1: too soon to make that call.
Speaker 5: Yeah, it is a combination.
Speaker 6: Making that call is a bit too soon, But certainly
Speaker 6: the five percent target, it's a bit ambitious considering that
Speaker 6: we have less favorable base effects that we had.
Speaker 5: In twenty twenty four.
Speaker 6: I mean, clearly the policy makers are choosing gradualism over
Speaker 6: a kind of speedy measures to support the economy. So
Speaker 6: we might say the market anticipated or expected to have
Speaker 6: much more aggressive measures and suddenly disappointed to some degree,
Speaker 6: particularly the fact that you was a supply centric fiscal stimulus.
Speaker 6: What does it mean is that investment is still staying
Speaker 6: in focus to lift and grow the economy for twenty
Speaker 6: twenty four, and investment is focused on infrastructure, urban ripertalization,
Speaker 6: and certainly some places like technology development is coming as
Speaker 6: a top task for twenty and twenty four. Consumption or
Speaker 6: the measures directed to consumption were there on a periphery,
Speaker 6: but somewhat disappointing considering that consumption is a way to
Speaker 6: remove some of the slack in the economy that we're seeing,
Speaker 6: or they access manufacturing capacity that we see in the economy.
Speaker 6: So again nothing surprising, somewhat disappointing, and again the measure
Speaker 6: is ambitious, but it's all now centered around implementation of
Speaker 6: some of the measures, and certainly down the line whatever
Speaker 6: they're going to use the monetary policy as a way
Speaker 6: to support the economy as well.
Speaker 2: You do hear a lot from investors. It's a sort
Speaker 2: of hue and cry that they don't seem to be
Speaker 2: too concerned about growth, and that the policy makers at
Speaker 2: the very top, led by Cigenping, are all about self
Speaker 2: defense now and national security and self reliance and all
Speaker 2: of that. But that's still something as an investor that
Speaker 2: you can play. So would your message or should the
Speaker 2: message be to investors, wake up, this is what they
Speaker 2: want to do. Just go find something that will benefit
Speaker 2: as a result.
Speaker 6: Yeah, And I think the point we do have to
Speaker 6: look as often as the investors above kind of the headlines,
Speaker 6: and we look at the direction of travel and the
Speaker 6: ambitions for China is certainly to evolve or become more
Speaker 6: technological advanced. That's important in terms of upgrading the manufacturing
Speaker 6: and in terms of productivity growth. So the ambitions for
Speaker 6: China to become a lot more technological advance, I think
Speaker 6: it's going to support some of the sectors. And I
Speaker 6: think the focus on that is important and the emphasis
Speaker 6: that they put into the current package on that, I
Speaker 6: think it's something to investors need to bear in mind.
Speaker 6: The other themes that China is, of course paying attention
Speaker 6: is likely to benefit is energy transition, and energy transition
Speaker 6: is a scope for China, but also is a scope
Speaker 6: for developed economies. And China still holds a large percentage
Speaker 6: of clint tech production, and also it dominates in terms
Speaker 6: of processing of commodities or rare metals that are part
Speaker 6: of evs and some of the turbanes, wind turbines. So
Speaker 6: the point is that we need to look beyond the
Speaker 6: broader macro store and look at some of the themes
Speaker 6: that are happening in economy, some of the drivers.
Speaker 2: But the thing is that's all top down, isn't it.
Speaker 2: And I think what investors, you know, just to argue
Speaker 2: against the point I made a few moments ago, is investors,
Speaker 2: you know, like those those internet and e commerce companies
Speaker 2: because that was bottom up, that's what people wanted, not
Speaker 2: what the policy makers wanted.
Speaker 5: Yeah, and it seems that there is certainly a shift.
Speaker 6: It's happening, or at least an indication that there's a
Speaker 6: desire for the shift to happen, putting kind of private
Speaker 6: institution of private corporations on the same level playing field
Speaker 6: as the state owned enterprises.
Speaker 5: So I think the scope.
Speaker 6: Is there, and the desire seems to be or the
Speaker 6: messaging seems to be the right message at the moment. Clearly,
Speaker 6: due to the current macrocom environment, sees are doing better.
Speaker 6: They're perceived as being a lot more quality, the dividend
Speaker 6: payouts are much higher, So certainly they're benefiting at the moment.
Speaker 6: But as we look into the second part of the
Speaker 6: year with the themes that I talked about, of the
Speaker 6: drive that I talked about, and with the shift and
Speaker 6: monetary policy, and you have to account for the fact
Speaker 6: that China will have a lot more room to move
Speaker 6: when the FED moves that said, it will provide support
Speaker 6: to the other growth sectors that existing in China economy.
Speaker 5: So I would say it's two stage process.
Speaker 1: But if the focus remains on supply, the risk is
Speaker 1: in maintaining I would argue maintaining over capacity. You talked
Speaker 1: about the EV I mean clearly that seems to be
Speaker 1: a case of a lot of overcapacity, and that has
Speaker 1: kind of a deflationary implication, which is the other trapped
Speaker 1: that China's caught in right now.
Speaker 6: Yeah, and absolutely this is not one point to say
Speaker 6: that there is no precedent a rule book or an
Speaker 6: economic rule book of gearshift from where for where China
Speaker 6: is at the moment and an economic cycle, and certainly
Speaker 6: in the microeconomic challenges that.
Speaker 5: Are also structural.
Speaker 6: So the overcapacity isn't important, and they've on a periphery
Speaker 6: addressed it to some degree through the trading programs. But
Speaker 6: I would expect as we go down the line, there
Speaker 6: will do a lot more measures to support the consumer.
Speaker 6: And one part to consider again relating consumer to investment
Speaker 6: is the consumer confidence is very much related to labor
Speaker 6: market as related to property market. So efforts to revive
Speaker 6: the property market and investment to direct it in the
Speaker 6: property market recovering that will suddenly create the wealth effect
Speaker 6: and we'll bring the consumer confidence.
Speaker 5: And will bring jobs. And I think this is important.
Speaker 6: So again we need to look at what is the
Speaker 6: repercussions of some of those investment measures that China is
Speaker 6: putting in place.
Speaker 2: Hey, Katerina, thank you so much for joining us here
Speaker 2: in our studios. We do appreciate it. Katerina Biggos, Chief
Speaker 2: Investment Officer on Core Investments Asia ex Japan for EXA
Speaker 2: Investment Managers.
Speaker 1: This has been the Bloomberg Daybreak Asia podcast, bringing you
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