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Speaker 1: Let's get over to our guests for this half hour

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Speaker 1: blata On chairman or chair of Dalton Investments to talk

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Speaker 1: about the latest on the markets and Bleater actually want

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Speaker 1: to start with the tank Can survey for the third

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Speaker 1: quarter that we've just had out of Japan, that Large

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Speaker 1: Manufacturing index coming in at eight. The survey was for ten.

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Speaker 1: We've got a very weak end. Of course, why is

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Speaker 1: this not benefiting Chinese exporters and manufacturers? Um? First, thanks

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Speaker 1: for having me back, Paul. Um. The tank and survey

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Speaker 1: is reflecting the weakness that Prime Minister Kashita said he

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Speaker 1: would address, and it is the reason that Kuroda, who's

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Speaker 1: the bj A governor, and the finance minister are working

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Speaker 1: together to try and stimulate the Japanese economy. So I

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Speaker 1: think that it's not I know, the estimates were off,

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Speaker 1: but it's not surprising that the Japanese economy is still

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Speaker 1: weak given what's happened, um with you know, with the

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Speaker 1: whole world economy. Yeah, there was one segment of that

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Speaker 1: index that did outperform, and that was the Large non

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Speaker 1: Manufacturing index read of fourteen. There the survey was for thirteen.

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Speaker 1: Why why the bright spot? So that's interesting to us.

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Speaker 1: We don't try and predict macro trends, and not even

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Speaker 1: specifically sector trends. What we try and do is look

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Speaker 1: at one company at a time, and when we look

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Speaker 1: at individual companies, we actually see bright spots because when

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Speaker 1: you look at Japanese projection for the next year's earnings,

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Speaker 1: you typically see very conservative estimates are revenues from abroad.

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Speaker 1: So for instance, in Toyota's case, the last projection they

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Speaker 1: had of dollar sales were at one fourteen dollar in

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Speaker 1: and as we know, dollian is more like one right now.

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Speaker 1: So um, we believe there's upside for a number of

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Speaker 1: Japanese companies based on their future sales. If they have

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Speaker 1: significant sales, they are denominated in dollars. So you know,

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Speaker 1: the way I look at it, the conservey as a survey,

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Speaker 1: and it may not be accurate. It may be that

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Speaker 1: the future will are able to be better than the

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Speaker 1: survey suggests. Yeah, when you imagine that those numbers might

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Speaker 1: start to turn around, that the survey might start to

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Speaker 1: like to catch up with some of what you see

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Speaker 1: is going on in Japan. We're hopeful that next year,

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Speaker 1: perhaps by the spring or so, will start to see

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Speaker 1: some stronger numbers UM the because she just onund won

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Speaker 1: a significant majority through the last round of elections and

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Speaker 1: as a clear path to be able to implement his

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Speaker 1: policies for three years. And he went to Guildhall and

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Speaker 1: then to the New York Stock Exchange and essentially said

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Speaker 1: to the world of investors, I am going to stimulate

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Speaker 1: the Japanese economy. Hold me accountable. We're going to change

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Speaker 1: you know, the one thing that we all know about

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Speaker 1: the Japanese economist which has been problematic, which is labor practices,

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Speaker 1: this life lifetime employment UM that they've had. And he

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Speaker 1: specifically said that we're moving to a merit based employment

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Speaker 1: system and will encourage more women into the workforce. So,

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Speaker 1: you know, these are things that I think we should

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Speaker 1: try and take him at his word because he can

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Speaker 1: actually do something about it. UM and Japan tends to

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Speaker 1: be a society that listens to people in charge, and

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Speaker 1: so we're hopeful that something material will come out of

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Speaker 1: his his efforts. Yeah, reform in Japan, of course notoriously

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Speaker 1: difficult to achieve, and also inflation traditionally been notoriously low.

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Speaker 1: The science that's starting to turn around now, but no

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Speaker 1: sign of change in policy from the Bank of Japan.

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Speaker 1: Do you imagine that that's going to remain the same

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Speaker 1: until the end of Governor Corota's term, Yes, I do. Um.

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Speaker 1: The way Kuroda Sun puts it is that the inflation

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Speaker 1: they're seeing in Japan is entirely due to the weekend.

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Speaker 1: In other words, it's important inflation and the domestic economy

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Speaker 1: is still weak. So what would be the point of

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Speaker 1: tightening when it's not the domestic demand that's the problem.

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Speaker 1: And that makes sense. On top of which, in Japan

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Speaker 1: you have Kshita's son essentially working his hardest to reopen

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Speaker 1: nuclear power plants, which you know, it's a significant step

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Speaker 1: for Japan in terms of being able to contain inflation

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Speaker 1: because they do important energy. UM. So I think that

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Speaker 1: they are taking the right moves to try and resolve

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Speaker 1: this head off any sort of widespread inflation problems. The

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Speaker 1: one thing I would look at is if the labor

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Speaker 1: market starts tightening up more and you start seeing wage inflation,

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Speaker 1: I think that the bo j itself would actually take

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Speaker 1: notice of that. China, of course closed this week for

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Speaker 1: the Golden Week holiday, but I understand you've shifted your

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Speaker 1: waiting towards China. You are already underweight. What's making you

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Speaker 1: more concerned? So the Party Congress is always a very

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Speaker 1: big propaganda event, and it is the period during which

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Speaker 1: government positions are reshuffled and um, there is a recounting

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Speaker 1: of the success of the party and the progress of

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Speaker 1: the country. So we expect to see changes of policies only,

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Speaker 1: you know, several months after all that settled out. But

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Speaker 1: the issue is that in China you have these significant

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Speaker 1: headwinds that are facing it that haven't gone to gone

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Speaker 1: away just because you have any optimistic sounding Party Congress

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Speaker 1: statement that will be published. And specifically, there are issues

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Speaker 1: with the real estate market, which is a very big

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Speaker 1: part of the ecopy, the issues with demography because China

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Speaker 1: is aging very quickly, there are increasing geopolitical tensions um,

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Speaker 1: and then the trade wars or the trade riffs between

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Speaker 1: the East and the West are growing. And none of

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Speaker 1: that's good for China, which has benefited maybe more than

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Speaker 1: anybody else from these last few decades of globalization. So

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Speaker 1: you know, the reality is that the problems China faces

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Speaker 1: are real and then going quay and they have to

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Speaker 1: be dealt with. Yeah, you did mention the upcoming Party

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Speaker 1: Congress and once she Jimping is confirmed for that third term.

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Speaker 1: I mean, there is an anticipation that there's going to

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Speaker 1: be some sort of policy change. I'm just wondering what

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Speaker 1: you're expecting in terms of stimulus and in terms of

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Speaker 1: policy to get China out of this rut. The one

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Speaker 1: thing China needs to do to get out of this

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Speaker 1: rut is to remove the zero COVID policy, and that

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Speaker 1: will not happen until after this Party Congress, so there

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Speaker 1: is hope. I've read a number of sources that believe

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Speaker 1: that the zero COVID policy will be removed come spring

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Speaker 1: next year, and that perhaps by the end of this

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Speaker 1: year they will do a widespread launch of the MR

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Speaker 1: and a vaccine in China. So hopefully we can follow

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Speaker 1: that timeline and things will improve sometime early next year.

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Speaker 1: With that in mind, I mean, can you view this

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Speaker 1: as a buying opportunity. There's some some quality names there

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Speaker 1: that are pretty beaten up at the moment. They really are.

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Speaker 1: I agree with that. The issue we have with China

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Speaker 1: is to do with the philosophy of how we invest.

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Speaker 1: We invest based on looking for good companies that are

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Speaker 1: strong balance sheet, good cash flows run by entrepreneurs who

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Speaker 1: who's interests are aligned with shareholders like us, and in China, unfortunately,

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Speaker 1: the trend is much more towards state owned enterprises, not

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Speaker 1: towards private sector entrepreneurs, which makes it hard for us

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Speaker 1: to find management that we can trust will work in

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Speaker 1: the best interests of minority shareholders like us. So that's

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Speaker 1: a problem for us. And then secondly, the you know,

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Speaker 1: the rules change on a dime in China. So for instance,

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Speaker 1: if you were in the invested in the private education sector, overnight,

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Speaker 1: your business just you know, dropped like a like a stone.

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Speaker 1: So it's very hard for us to operate in an

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Speaker 1: environment like that. Yeah, it's a challenging investing environment generally

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Speaker 1: at the moment. I'm just wondering, with the strong dollar,

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Speaker 1: do you have a more outsized than usual cash allocations

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Speaker 1: so you can be nimble And you're looking at Hyn's

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Speaker 1: at all. I mean, golds cheap quite not quite cheap

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Speaker 1: right now. So we want to invest in companies that

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Speaker 1: we believe will be around for twenty thirty years, that

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Speaker 1: we see a clear path or at least a very

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Speaker 1: um likely path to compound value over time, and gold

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Speaker 1: is not something we can make a bet on with

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Speaker 1: those types of considerations. But what we are seeing is

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Speaker 1: very cheap companies that have that path forward in Japan.

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Speaker 1: And you know, while Japan is slow right now, we

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Speaker 1: finally have the reopening of the economy on October eleven

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Speaker 1: to both foreign tourists and domestic tourists. So no more

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Speaker 1: visas for seventy countries I believe and uh which is

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Speaker 1: was a big deal. And you know, no more quarantines

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Speaker 1: after you get into the country. And with domestic tourists

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Speaker 1: who make up a big part of the economy, um,

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Speaker 1: they start getting discounts. Yep. Very much a relief in

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Speaker 1: Japan that those restrictions are finally starting to ease. Baalita on,

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Speaker 1: Chair of Dalton Investments, thanks so much for joining us

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Speaker 1: today on Bloomberg Daybreak Asia