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Speaker 1: This is Bloomberg Daybreak Asia for this Friday, May nineteenth

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Speaker 1: in Hong Kong, Thursday May eighteenth in New York and

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Speaker 1: coming up today.

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Speaker 2: The S and P five hundred hits a nine month

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Speaker 2: high on signs US lawmakers are making progress on debt

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Speaker 2: ceiling talks.

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Speaker 1: Traders speculate the Fed will keep rates higher for longer

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Speaker 1: as inflation remains elevated.

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Speaker 2: And Ali Baba is set to explore IPOs for its

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Speaker 2: logistics and grocery arms while spinning off its cloud business.

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Speaker 3: China key issue on day one of G seven world

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Speaker 3: leaders visit Hiroshima memorial and symbolic gesture of unity. US

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Speaker 3: and Taiwan agree on trade deal and two sides of

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Speaker 3: the debt ceiling debate definitely softening. I'm at Baxter with

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Speaker 3: Global News.

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Speaker 4: That's all straight Ahead on Bloomberg Daybreak Asia, The business

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Speaker 4: news you need to start your day in just one

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Speaker 4: fifteen minute podcast available on Apples, Spotify, the Bloomberg Business

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Speaker 4: app and everywhere you get your podcasts.

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Speaker 2: Good morning, I'm Doug Chrisner and I'm Brian Curtiz.

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Speaker 1: Here are the stories we're following today. US treasure yields

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Speaker 1: rising on speculation that the FED will need to keep

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Speaker 1: interest rates higher for longer as inflation remains elevated. It

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Speaker 1: comes with some commentary from two FED officials. Now. Dallas

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Speaker 1: FED President Lorie Logan said the case for a rate

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Speaker 1: pause is unclear with high levels of inflation, and she

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Speaker 1: said upcoming data could show that it's appropriate for the

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Speaker 1: FED to skip a meeting before acting on monetary policy,

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Speaker 1: but act it might have to do in the meantime,

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Speaker 1: giving a slightly different position. FED Governor Philip Jefferson said

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Speaker 1: he's watching for any delayed effects from past rate hikes.

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Speaker 5: History shows that monetary policy works with long and variable lags,

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Speaker 5: and that a year is not a long long enough

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Speaker 5: period for demand to feel the full effects of higher

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Speaker 5: interest rates.

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Speaker 1: Charjpal has an opportunity to provide more guidance on policy when,

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Speaker 1: as Doug mentioned, he will be speaking at a FED

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Speaker 1: conference in Washington tomorrow. The FED meets next on June thirteenth.

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Speaker 2: Well after the bell, we heard from Applied Materials the

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Speaker 2: company is expecting sales to decline in the current quarter,

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Speaker 2: though not as sharply as analyst had feared. The story

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Speaker 2: from Bloomberg's Charlie Pellett.

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Speaker 6: Applied is the biggest maker of semiconductor making machinery. It

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Speaker 6: said fiscal third quarter sales will be about six point

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Speaker 6: one five billion dollars, compared with six point five to

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Speaker 6: two billion a year earlier. Analysts had estimated five point

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Speaker 6: nine to seven billion. Makers of memory chips are struggling

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Speaker 6: with a historic lot of inventory, forcing them to cut

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Speaker 6: spending on equipment upgrades and new factories. That has hurt

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Speaker 6: orders for companies such as Applied Materials, threatening a pandemic

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Speaker 6: era growth run in New York. Charlie Pellett Bloomberg Daybreak Asia.

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Speaker 1: Walt Disney says it's dropping plans to relocate two thousand

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Speaker 1: California employees to its new corporate campus building in Florida.

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Speaker 1: It will also close a luxury Star Wars themed hotel

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Speaker 1: at Walt Disney World.

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Speaker 4: Now.

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Speaker 1: This comes as the company is involved in a high

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Speaker 1: profile fight with Florida Governor On DeSantis. Tensions have been

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Speaker 1: high since Dessantas signed legislation that took control of a

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Speaker 1: board that oversees municipal services at Disney World. That came

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Speaker 1: after Disney had publicly opposed a state law that limits

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Speaker 1: the discussion of gender issues in public schools. The company

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Speaker 1: has since sued. Let's get more here from Bloomberg's Chris

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Speaker 1: Paul Mary.

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Speaker 7: Disney sued said that the move to disband the board

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Speaker 7: of that municipal district was wrong. It was Recali Tori

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Speaker 7: Desanta says he's going to fight the suit, and so

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Speaker 7: things just seemed to be escalating. Bob by Her recently said,

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Speaker 7: you know, it doesn't this state care about jobs, doesn't

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Speaker 7: it care about investment, and so, you know, given the

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Speaker 7: unpopularity was moved internally, this was sort of an no

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Speaker 7: brainer for him to just say, all right, well, we're

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Speaker 7: also simultaneously sending a message to Florida.

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Speaker 1: Disney did not mention the dispute with Dissentis specifically in

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Speaker 1: either the hotel closing announcement or in the note to

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Speaker 1: employees canceling the relocation plan. It only said that conditions

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Speaker 1: had changed since the staff moved to Florida was first

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Speaker 1: announced about two years ago.

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Speaker 2: Ali Baba said it will explore initial public offerings for

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Speaker 2: both its logistics and its grocery arms, while at the

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Speaker 2: same time spinning off its twelve billion dollar cloud business.

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Speaker 2: The story from Bloomberg's Joan Wong.

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Speaker 8: This kicks off the first phase of a much anticipated

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Speaker 8: breakup to try and revive anemic revenue growth. The spin

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Speaker 8: off of Ali Baba's cloud division will happen within the

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Speaker 8: next twelve months via a stock dividend distribution to shareholders.

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Speaker 8: The intention is for it to become an independent, publicly

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Speaker 8: listic company. This announcement came after Baba reported single digit

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Speaker 8: revenue growth for the third consecutive quarters. Try one's largest

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Speaker 8: e commerce company, Adibaba remains a barometer for consumer demand

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Speaker 8: in the country. Its lackluster showing could be an indicator

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Speaker 8: that China's recovery may be taking longer than once anticipated.

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Speaker 8: For now, Adibaba will look to push cost cuts to

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Speaker 8: shore up margins. Ali Baba ADRs fell five percent in

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Speaker 8: New York. In Hong Kong joined One Bloomberg Debrigaisia, and that.

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Speaker 1: Sets up an interesting session here in Hong Kong. We're

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Speaker 1: watching closely to see how Alibaba trades here well. Relations

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Speaker 1: between China and Australia have taken another positive step, with

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Speaker 1: China announcing that imports of Australian timber will resume after

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Speaker 1: two years of restrictions. Bloomberg's Paul Allen has.

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Speaker 9: More China halted imports of Australian timber and twenty twenty,

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Speaker 9: a trade worth one point one billion dollars at the time,

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Speaker 9: saying it found pists in some shipments. That discovery, however,

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Speaker 9: coincided with trade strikes against Australian coal, bali wine and seafood.

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Speaker 9: Relations between the two countries sound following Australia's coal for

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Speaker 9: an independent investigation into the origins of COVID nineteen. Since then,

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Speaker 9: the government in Australia has changed, allowing for a reset

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Speaker 9: of relations. China says Australian exporters have now satisfied the

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Speaker 9: conditions of Chinese customs and what Australia is a trade

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Speaker 9: minister Don Farrell is calling a great outcome. Farrell is

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Speaker 9: hopeful the risk of China's trade restrictions can be lifted

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Speaker 9: this year. Paul Allen, Bloomberg day Break Asia.

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Speaker 1: I'm Brian Curtis along with Doug Christner and Doug I

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Speaker 1: want to ask you a question here. It's a rhetorical question.

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Speaker 1: If you could answer it, I'd vote for you for president. Maybe.

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Speaker 1: To what degree is Ali Baba a key man risk story. Now,

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Speaker 1: we know that there's been a lot of action, regulatory

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Speaker 1: action and such on a lot of these tech companies,

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Speaker 1: but Baba is really kind of stumbling here. It had

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Speaker 1: a modest sales miss, It had a little bit of

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Speaker 1: weakness in cloud revenue, the first decline ever on year

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Speaker 1: on year terms. And I know you can explain away

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Speaker 1: a lot, but it does seem like with jack Ma

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Speaker 1: out of the picture, the company has stumbled a little.

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Speaker 1: And you wonder whether or not you know that's going

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Speaker 1: to be the case at other Chinese tech companies.

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Speaker 2: So one of the criticisms I think is that the

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Speaker 2: company may be a little bloated and maybe it's become

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Speaker 2: a little inefficient. Maybe that argues for some type of reorganization,

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Speaker 2: which seems to be what the company is doing right now.

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Speaker 2: The other thing that I wonder about is the extent

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Speaker 2: to which there is a lot more competition facing this

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Speaker 2: company in a way that it had not encountered previously.

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Speaker 6: Yeah.

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Speaker 1: Absolutely. A good example is another story we have today

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Speaker 1: that may Twan will launch an app in Hong Kong,

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Speaker 1: and it's an example of a Chinese company wanting to

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Speaker 1: do business outside Hong Kong, and it's actually killed Ali

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Speaker 1: Baba on the food delivery service business in Chine. It's

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Speaker 1: by far number one, So that's kind of an example

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Speaker 1: of that. What else is really big today? Well, we've

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Speaker 1: got a good tone to the market and another really

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Speaker 1: strong day for tech. I heard you guys chatting in

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Speaker 1: the previous show about a big tech and what's happening.

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Speaker 1: I have an interesting point. The valuations are just getting

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Speaker 1: back to the twenty nineteen levels before you had AI

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Speaker 1: really sweeping through here. So think about that. Can you

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Speaker 1: argue that there's a lot more room to run given

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Speaker 1: that interesting positioning?

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Speaker 6: It could be the case.

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Speaker 2: And what was interesting today, Brian, we had a spike

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Speaker 2: in yield and that didn't really hold back the tech group.

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Speaker 2: And if you look at what the yield did, particularly

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Speaker 2: on the two year, in terms of creating some dollar strength,

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Speaker 2: we have the dollar on a tear and a great

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Speaker 2: deal of weakness as we get set for trading in

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Speaker 2: Japan in the end. Right now with a one thirty

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Speaker 2: eight handle, that's pretty hard to believe.

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Speaker 1: Yeah, I mentioned that dollar strength though. We'll put that

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Speaker 1: to Belita Own who's coming up shortly, Chairman of Adulton

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Speaker 1: Investments and always good to have her on the program.

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Speaker 1: Now it's time for Global News. The G seven meetings

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Speaker 1: have kicked off, with the US saying China will be

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Speaker 1: the key issue. Ed Baxter has Global News in the

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Speaker 1: nine to sixty newsroom.

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Speaker 3: Yeah right, Brian, Now, US is saying starting with geopolitical

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Speaker 3: security concerns, but also competition. National Security Council spokesman John

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Speaker 3: Kirby and speaking with Bloomberg's Amory hor Durn says, yeah, China.

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Speaker 10: The G seven leaders will absolutely spend quite a bit

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Speaker 10: of time here, as you would expect they would certainly

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Speaker 10: here in Japan talking about the challenges that the PRC represents.

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Speaker 10: They will think, I'm convinced of it that you'll see

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Speaker 10: at the end of those discussions that they'll all speak

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Speaker 10: with one voice about about how we need to treat

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Speaker 10: that particular competition from not just from a security perspective,

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Speaker 10: from an economic perspective, from a diplomatic perspective.

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Speaker 3: Kirby says G seven will represent one voice. The group

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Speaker 3: expected also to turn the heat on Russia regarding Ukraine. Meanwhile,

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Speaker 3: President Biden, addressing Japan's Prime Minister Fumio Keisha, I think the.

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Speaker 11: Quote is we face the most one of the most

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Speaker 11: complex environments in recent history, security environments, and I couldn't

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Speaker 11: get any more. But I'm proud that the United States

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Speaker 11: and Japan are facing it together.

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Speaker 3: So on China, Bloomberg's Andre Hordern and Hiroshima says, if

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Speaker 3: there's any sticky agreement, it is there.

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Speaker 12: We can see a bit more tension between these leaders,

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Speaker 12: especially between the Europeans and the United States on how

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Speaker 12: much they want to The new vogue word is d

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Speaker 12: risk not decoupled from China, and we do if the

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Speaker 12: administration wants to put forward some sort of path about

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Speaker 12: economic coersion when it comes to China, about making sure

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Speaker 12: these countries are aligned on a multilateral approach.

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Speaker 3: Anne Marie says the G seven leaders going to the

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Speaker 3: Hiroshia Memorial later in the day huge for Prime Minister Kishia.

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Speaker 3: It is, of course his hometown. China has blasted the

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Speaker 3: US on what it calls coercive diplomacy. At the G seven,

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Speaker 3: US and Taiwan have agreed on a trade initiative and

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Speaker 3: a bid for closer ties. This is the first tangible

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Speaker 3: result under an initiative announced last year. It will streamline customs,

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Speaker 3: reduce wait times for trucks and vessels and improve regulation.

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Speaker 3: Some better news today from both sides on the debt

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Speaker 3: ceiling talks in the US House, Speaker Kevin McCarthy.

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Speaker 13: Where we were a week ago and where we are

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Speaker 13: today is a much better place because of you. We've

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Speaker 13: got the right people in the room discussing it in

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Speaker 13: a very professional manner, with all the knowledge and all

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Speaker 13: the background from all the different leaders of what they want.

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Speaker 13: I said, I know, and I can see where a

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Speaker 13: deal can come.

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Speaker 3: Together, and many a Democratic Senator Kirsten Cinema also saying

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Speaker 3: those people on both sides are great and that she's

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Speaker 3: glad that they're in place. As for the issue of

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Speaker 3: some kind of work requirement for some entitlements, well, I'm

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Speaker 3: bloomberg today, she said, sure, let's look at it.

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Speaker 12: The reality is, in our country we've long had modest

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Speaker 12: work requirements for some entitlement programs and continuing those makes

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Speaker 12: relevant sense.

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Speaker 3: So we shall see. On the PGA leader board, Bryce

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Speaker 3: En de Chambeau is sitting on top. He's the only

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Speaker 3: one at four under to this point, and he's through

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Speaker 3: his round today, followed at by Scheffler and Connors at

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Speaker 3: three under, two under grouped up Bradley Streika, Scott Cole

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Speaker 3: and at one under Justin Sue. We'll continue to follow

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Speaker 3: that for you Global newspower by more than twenty seven

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Speaker 3: hundred journalists and analysts in over one hundred and twenty countries.

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Speaker 3: In San Francisco, I'm at Baxter and this is Bloomberg.

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Speaker 1: Hi everybody, I'm Brian Curtis, along with Rashad's Salama. This

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Speaker 1: is Bloomberg Daybreak Asia. As mentioned, our guest is Balita Ong,

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Speaker 1: chairman of Dalton Investments. Balita, we talked about dollar strength

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Speaker 1: here of late and yields moving back up again doesn't

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Speaker 1: seem to have really set back the equity markets, but

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Speaker 1: how long can that last.

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Speaker 14: It's good to be back. Dollar strength is for the

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Speaker 14: US not a problem. It's just a problem for everybody

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Speaker 14: else because of the potential impact on inflation. Dollar strength

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Speaker 14: in fact helps countries that are largely exporters and can

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Speaker 14: boost growth for them through growth and exports. So it's

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Speaker 14: a matter of which countries are suffering the most from

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Speaker 14: inflation where it presents the bigger problems. In the case

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Speaker 14: of China for example, for now, or Japan, where inflation

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Speaker 14: has been you know, at zero for decades but is

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Speaker 14: finally coming up. Perhaps it's not such a big problem currently,

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Speaker 14: but the reality is that the dollar strength is here

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Speaker 14: now and is here because of the significant still significant,

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Speaker 14: very significant interest rate differential. But the fact is that

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Speaker 14: the US budget deficit is enormous and that will over

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Speaker 14: time put pressure on the strength of the dollar. That

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Speaker 14: plus the you know, geopolitical issues that really make you

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Speaker 14: wonder how much you should keep in dollars if you're

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Speaker 14: a country that has to be conservative about its reserves

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Speaker 14: because given them what was done with Russian reserves. You know,

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Speaker 14: if you're a country that worries about having your reserves

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Speaker 14: taken over by the US, then you might want to diversify.

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Speaker 15: Belita, And it's quite out at you because we do

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Speaker 15: seem to have also the the dollar gold relationship reinstated

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Speaker 15: that I should i say an inverse relationship that they

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Speaker 15: do have.

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Speaker 14: It's true, I personally think that gold makes a logical

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Speaker 14: as a logical alternative to the dollar, given the state

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Speaker 14: of the world today and given no obvious successor to

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Speaker 14: the dollar as a reserve currency. But you know, day

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Speaker 14: to day fluctuations or even weeks awak fluctuations are for

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Speaker 14: me and for us at Dalton impossible to predict, and

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Speaker 14: gold is not actually an area that we invest in.

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Speaker 14: It's just not in our wheelhouse.

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Speaker 1: So we noted the dollar strength along with yields popping

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Speaker 1: back up again, it suggests that perhaps the bets are

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Speaker 1: in the process of getting raised. A lot on whether

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Speaker 1: the FED hikes in June.

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Speaker 14: Your thoughts there, I personally, I don't think the FED

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Speaker 14: will hike in June. We have seen a moderation in

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Speaker 14: the rhetoric from the FED governors, and we have seen

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Speaker 14: significant progress and inflation from you know, a peak of

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Speaker 14: what was at nine point one percent in June until

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Speaker 14: the as print was about right around five percent. We've

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Speaker 14: also seen some weakness in the labor numbers and in

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Speaker 14: some way to moderation, and clearly the bank failures have

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Speaker 14: led to tighter credit conditions. So with all that going on,

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Speaker 14: I think it makes sense for the FED to take

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Speaker 14: a pause. Interest rates have gone up five percent in

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Speaker 14: a year and it does take time for that to

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Speaker 14: flow through to the real economy, and we are seeing

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Speaker 14: the impact now. You know, all this depends on what

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Speaker 14: happens before the June meeting. If we get a further

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Speaker 14: moderation of the inflation numbers. I think it's very likely

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Speaker 14: that the federal hole pad for now.

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Speaker 15: Benita when you look at then how you actually navigate

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Speaker 15: all this? Is there any playbook for having a particular

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Speaker 15: type of portfolio given where the economy is? I know

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Speaker 15: every situation is unique, but certainly, you know, is there

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Speaker 15: anything out here with you know, when you've got a

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Speaker 15: low unemployment middle too high inflation at the same time

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Speaker 15: and rising interest rate environment.

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Speaker 14: So we invest one company at a time, and it's

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Speaker 14: based on the merits of the company, so strong balance sheet,

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Speaker 14: strong cash flows, well managed, long track record of operations.

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Speaker 14: And where you find all that and have found it

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Speaker 14: for a long time is Japan. The issue with Japan

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Speaker 14: always has been that, you know, the Japanese companies kept

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Speaker 14: cash in the company and didn't give it back to shareholders.

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Speaker 14: And that's cost almost a decade now of corporate governance reform.

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Speaker 14: But finally, with recent announcement in January by the Tokyo

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Speaker 14: Stock Exchange putting down strict criteria and a timeline as

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Speaker 14: to when Japanese companies have to improve their financial ratios,

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Speaker 14: we are seeing a return of foreign investors into Japan

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Speaker 14: and the marketers you know, has been very strong this

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Speaker 14: year up between you know, fourteen and sixteen percent dependent

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Speaker 14: the index you're looking at. So where bullish on Japan?

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Speaker 1: Yeah, it's the second best performer of the big markets

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Speaker 1: in Asia after Taiwan. And I was ready to feed

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Speaker 1: into a question about that because it has popped pretty well,

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Speaker 1: and we've seen that in Europe in relation to other benchmarks.

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Speaker 1: The gains are kind of already in but you think

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Speaker 1: that there's still more momentum there.

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Speaker 14: Well, you think it's a long runway because Japanese companies

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Speaker 14: are still very cheap and the change in behavior by

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Speaker 14: management and the improvement that needs to be seen is

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Speaker 14: still very far away. It's a very long runway. So,

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Speaker 14: for example, the Tokyotok Exchange, one of the requirements for

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Speaker 14: listing in the prime section is a focus on price

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Speaker 14: to book, and they're requiring price to book be more

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Speaker 14: than one, and about half the companies that would be

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Speaker 14: eligible for the Prime section and the main section are

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Speaker 14: below one, which is astonishing when you think about it.

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Speaker 14: How can it be that the Japanese market as a

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Speaker 14: whole has no debt and actually has a net cash,

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Speaker 14: and how can it be that so many companies trade

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Speaker 14: with the price to book of below one. That just

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Speaker 14: doesn't make any sense. But yet that's the way it's

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Speaker 14: been for a long time. So it's a long it's

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Speaker 14: a long runway.

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Speaker 15: Very quickly gives us sense to some of your topics.

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Speaker 14: We like the companies in Japan that meet, you know,

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Speaker 14: the basic requirements that we have in terms of filtering

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Speaker 14: the attractiveness of a company. But we also like companies

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Speaker 14: that are in strategic spaces. So for instance, ri and

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Speaker 14: I is a long term favorite of ours. It makes

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Speaker 14: uh environmentally friendly gas heaters uh and it's a leader

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Speaker 14: in the world in that in that product. We like

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Speaker 14: Bagtaka Fuji, which is not as well known as company,

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Speaker 14: but it's a pretty standard sort of chip distributor in Japan.

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Speaker 14: But it has this wonderful growth area which is ignored,

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Speaker 14: which has to do with services provided to companies. So

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Speaker 14: so you know, companies like that are still very reasonably priced.

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Speaker 1: Excellent, Thank you very much, Belita Belita Ang, chairman of

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Speaker 1: Dalton Investment. This is Bloomberg Daybreak Asia, your morning brief

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