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Speaker 1: Bloomberg Audio Studios, podcasts, radio news.

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Speaker 2: This is the Bloomberg Daybreak Asia podcast. I'm Brian Curtis,

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Speaker 2: along with Doug Krisner. Join us each day for the

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Speaker 2: stories making news and moving markets in the Asia Pacific.

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Speaker 2: You can subscribe to the show anywhere you get your

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Speaker 2: podcasts and always on Bloomberg Radio, the Bloomberg Terminal, and

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Speaker 2: the Bloomberg Business App.

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Speaker 1: Let's get to Japanese Prime Minister Fumiyo Kishida. He's in Washington,

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Speaker 1: d C. Aiming to strengthen ties with the United States.

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Speaker 1: Joining us for a closer look is Bloomberg's Isabelle Reynolds,

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Speaker 1: our Tokyo bureau chief from our studios in the Japanese capital.

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Speaker 1: Good of you to join us, Isabel. I'm curious to

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Speaker 1: begin with. How much of the focus do you think

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Speaker 1: is going to be on boosting chies against a research

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Speaker 1: in China. Oh?

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Speaker 3: Yes, I think that's very much going to be the

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Speaker 3: overarching theme of this particular bilasterial meeting. We already know

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Speaker 3: from pre briefings from the US side that what they're

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Speaker 3: going to talk about is things like having their militaries

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Speaker 3: work more closely together, setting up this defense Council, which

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Speaker 3: we'll look into defense procurement and how they can work

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Speaker 3: more closely together on that, and even having Japanese shipyard

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Speaker 3: workers work on US naval vessels, which will be a

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Speaker 3: new development and very much showing that in terms of

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Speaker 3: the military and security, there's no daylight between the two

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Speaker 3: of them and they're going to work ever, ever more

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Speaker 3: closely together.

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Speaker 2: So that's one important angle. The other angle that we've

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Speaker 2: been championing this morning is the Japanese Prime Minister calling

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Speaker 2: for increased US investment in Japan. Is that something relatively new.

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Speaker 2: I mean, you would think that they would always be

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Speaker 2: pressing for that, but I guess at this time where

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Speaker 2: you're talking about artificial intelligence and high levels of tech

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Speaker 2: and keeping China at bay, it takes on new importance.

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Speaker 3: Yes, yes, yeah, absolutely right. I think Japan does have

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Speaker 3: concerns about being left behind in these kind of issues

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Speaker 3: on these new development areas, and seeing that the US

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Speaker 3: is kind of surging ahead, it's trying to sort of

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Speaker 3: catch up on the coattails there, and we saw this

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Speaker 3: huge investment from Microsoft two point nine billion dollars into Japan,

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Speaker 3: which it will be marched up as a good success

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Speaker 3: for Keisha Doo on this particular visit. So yeah, I mean,

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Speaker 3: you know, business ties are always a theme of these visits,

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Speaker 3: but I think one of the reasons why it's more

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Speaker 3: of a focus this time also is because of the

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Speaker 3: whole Nipbon steel fuss. Yeah yeah, you know, why is

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Speaker 3: the US so concerned about an ally investing in one

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Speaker 3: of their companies? And I think Keisha is very concerned

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Speaker 3: to try and make it plain that, you know, hey,

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Speaker 3: we both invest in each other's countries. This is healthy,

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Speaker 3: this is beneficial, there's nothing to fear here.

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Speaker 1: But it's also an election year for President Biden, and

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Speaker 1: in Pennsylvania particularly, I think he has to pay attention

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Speaker 1: to what the United steel Workers are saying. That's fair thing.

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Speaker 1: Can you think the Prime Minister can understand that idea?

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Speaker 3: Oh yes, very much so. I think the Japanese do understand.

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Speaker 3: And that's why, from our understanding from Japanese officials, Kisha

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Speaker 3: I won't even be raising it directly with the President.

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Speaker 3: So what he's going to do instead is go and

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Speaker 3: visit this Toyota factory in North Carolina, according to media reports,

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Speaker 3: and that will sort of in a more subtle way,

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Speaker 3: underscore the point. Look, we've been doing this for a

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Speaker 3: long time. We've been investing in the US for a

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Speaker 3: long time. It's creating jobs. We've created a million jobs

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Speaker 3: in the US, so you should be welcoming US.

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Speaker 2: I like the job as a journalist. You get to

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Speaker 2: ask dumb questions and be proud of it. I'm curious, Isabelle,

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Speaker 2: from your long stay in Japan about Japanese opinions of

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Speaker 2: America and also from what you know about you know,

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Speaker 2: because this Nippon Steel it doesn't sit very well in

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Speaker 2: one sense, how do Americans view Japan at the moment?

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Speaker 3: How do Americans view Japan at the moment?

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Speaker 2: Oh?

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Speaker 3: Yeah, well both of us, right, yeah. I mean I

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Speaker 3: think most people who really who are looking at this issue,

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Speaker 3: I mean, I'm not necessarily that they're sure that the

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Speaker 3: person on the street would know about this Nippon Steel

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Speaker 3: deal and what's going on. But for the people who do,

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Speaker 3: I think they understand the electoral situation. They know how

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Speaker 3: sort of toxic and you know, very divided the atmosphere

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Speaker 3: can become before a US election, So they're not necessarily

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Speaker 3: sort of blaming America or seeing it as undermining the relationship.

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Speaker 3: As a whole. But I think there is a slight

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Speaker 3: concern about how this might portray the relationship outside the

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Speaker 3: two countries. So how how will China portray this if

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Speaker 3: the two of them are perceived to be, you know,

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Speaker 3: in conflict over this issue.

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Speaker 1: One of the things that I was struck by too

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Speaker 1: is the Biden administration enacted very recently an unexpected moratorium

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Speaker 1: on liquefied natural gas. Help me understand, because Japan is

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Speaker 1: a big energy importer. Did this come as a big

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Speaker 1: surprise to Japan?

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Speaker 3: Yes, Well, what we've been told is that Japan was

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Speaker 3: not hold in advance that this announcement was coming. So

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Speaker 3: it must have been a very big shock to Japan,

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Speaker 3: which is very reliant on L and G and the

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Speaker 3: US has been one of its big sources in recent years.

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Speaker 3: So that has been raised at Japan's Tequisad's meetings with

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Speaker 3: business executives already. It's something that he wants to continue

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Speaker 3: to work on, and I think that is something that

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Speaker 3: he will raise with Biden this time, because that's not

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Speaker 3: something it's not just one individual company, it's Japan's economy

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Speaker 3: as a whole that relies on these sources of energy.

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Speaker 3: So he can't afford to let that one slide.

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Speaker 2: So we've talked about the military angle. Oh, I wanted

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Speaker 2: to ask you briefly. Australia came out yesterday and said, well, yes,

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Speaker 2: but Japan would not be formally invited to join ALCUS.

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Speaker 2: What's the issue there? Right?

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Speaker 3: Yes, I think there are a number of issues going on.

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Speaker 3: I think possibly there's a difference in temperature between the

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Speaker 3: US and the Australia and the UK on this issue.

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Speaker 3: One issue is that obviously the first part, the first

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Speaker 3: pillar of ORCUS, has not been going very smoothly. You know,

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Speaker 3: there's been a delay in the production of submarines, which

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Speaker 3: was the first purpose of ORCUS. So I think from

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Speaker 3: some people's point of view, you know, bringing someone else

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Speaker 3: and moving on into other projects doesn't really make sense

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Speaker 3: when you're not getting on very well with your initial project.

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Speaker 3: So I don't think it's any kind of alienation towards Japan.

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Speaker 3: I think it's more about what's the most efficient way

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Speaker 3: to get on with these projects.

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Speaker 1: Isabelle, Before we let you go, I have to ask

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Speaker 1: about how well Prime Minister Keishada is performing at home.

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Speaker 1: What do we know about what the polls are saying

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Speaker 1: about Kishida's.

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Speaker 3: Popularity, It's worse than it's ever been. He's had these

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Speaker 3: massive scandals over the past few months, kind of through

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Speaker 3: no fall to his own, but he's perceived as having

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Speaker 3: failed to sort of clamp down on them, and now

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Speaker 3: that he's relatedly tried to do that, it's had no

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Speaker 3: effect on public opinion. And the latest polls show him

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Speaker 3: at I think twenty three percent in the NHK pole,

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Speaker 3: which is the lowest since he took office.

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Speaker 1: It's always a asure. Thank you for making time to

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Speaker 1: chat with us, Isabelle Reynolds there Bloomberg's Tokyo bureau chief

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Speaker 1: joining us from our studios in the Japanese capital is

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Speaker 1: to go ahead, I'm sorry.

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Speaker 2: Can I mention something that would make us both feel old?

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Speaker 2: Can you believe? I mean, Paul Simon is going to

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Speaker 2: play for Kishada? Oh Simon's Paul Simon's eighty two? Does

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Speaker 2: that make you feel old?

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Speaker 4: Yes?

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Speaker 1: Honesting, I'm not quite there yet, but I'm not harming.

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Speaker 2: We have a few minutes to spend with Mark Conan

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Speaker 2: Cio of AIA group and kind of legend here in

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Speaker 2: Hong Kong from the fun industry. Mark, thanks very much.

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Speaker 2: For coming into our studios. It's been a pretty good

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Speaker 2: environment for risk assets here over the past many months.

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Speaker 2: It hasn't been without a wall of worry to climb,

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Speaker 2: for sure. A lot of people are concerned about whether

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Speaker 2: or not inflation is now rearing its ugly head. Before

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Speaker 2: we get into specific questions here and there, just give

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Speaker 2: me your overall feel about the climate at the moment.

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Speaker 5: In terms of investing, I think still leaning into the

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Speaker 5: rally in risk assets. Concerns obviously that the US economy

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Speaker 5: is running a little too hot, but in the short

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Speaker 5: term that we're play into the hands of those who

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Speaker 5: are willing to take the risk and to benefit from

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Speaker 5: equity markets.

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Speaker 1: So does that mean you want to be more exposed

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Speaker 1: at this point to the US and Japan, let's say,

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Speaker 1: and underweight to China.

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Speaker 5: Well, we're certainly constructed. Still. On the US, we see

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Speaker 5: a broadening out of the market as we get beyond

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Speaker 5: the Magnificent seven, and there are reasons to believe that

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Speaker 5: that is already underway. Japan, we are positive as well.

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Speaker 5: We see some opportunities there as the economy continues to

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Speaker 5: make progress and a headway. China, we've cut out underweight

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Speaker 5: and we are starting to see the sort of so

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Speaker 5: called early green shoots of some form of recovery. We've

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Speaker 5: got a little bit of fiscal support, but it's meager

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Speaker 5: in the con text of what's required. And we see

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Speaker 5: the tremendous overhang of the problems in the property sector

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Speaker 5: which are causing depletion in consumption confidence. So although we're

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Speaker 5: seeing some movement, we're seeing a little bit of revision

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Speaker 5: of earnings up. It's a little bit early to be

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Speaker 5: calling a big overweight on China.

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Speaker 2: We had a longstanding South Korean discount where investors had

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Speaker 2: some other considerations to a certain degree with South Korea

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Speaker 2: visit in North Korea. In China, it seems like we've

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Speaker 2: we've kind of adopted now as something of a Chinese discount.

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Speaker 2: You mentioned some of the more kind of tangible issues,

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Speaker 2: the property crist has, slow down in the economy, difficulty

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Speaker 2: coming out of COVID and all that, but there is

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Speaker 2: also this kind of regulatory overhang in that discount. How

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Speaker 2: permanent is that China discount?

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Speaker 5: Well, it's a bit of disaster myopia, where the further

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Speaker 5: you get away from from that period of intense uncertainty,

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Speaker 5: that the more confidence will we built up internationaltionally, and

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Speaker 5: we're still too close to when that occurred for international

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Speaker 5: investors yet to be convinced that things are more stable,

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Speaker 5: but great efforts are being made on the mainland to

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Speaker 5: portray a position of increased stability. We saw Janet Yellen

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Speaker 5: recently there and provide some indication that there's a move

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Speaker 5: towards normalcy in the bilateral relationship between the two countries. Similarly,

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Speaker 5: we've had a lot of visitors through Hong Kong in

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Speaker 5: the last week or so, attending international investor conferences, and

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Speaker 5: there seems to be some sense that China is now

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Speaker 5: worth a look. We've seen the southbound allocations coming out

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Speaker 5: of China as positive. It's good to see them, the

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Speaker 5: resumption of those flows. And as I say, we're starting

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Speaker 5: to see some earnings improvement in the internet sector, in

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Speaker 5: manufacturing less so elsewhere, and our focus really is on

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Speaker 5: at this point in a prolonged recovery on the state

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Speaker 5: owned enterprises that are likely to benefit from being aligned

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Speaker 5: with where the policy is heading.

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Speaker 1: Mark. As you know, next week we get the monthly

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Speaker 1: Activity dead and I'm particularly interested in the print on

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Speaker 1: retail sales. What is your sense right now of where

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Speaker 1: Chinese consumers stand.

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Speaker 5: Very depleted in terms of confidence. You know, the blow

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Speaker 5: that many people suffered in the urban areas during the pandemic.

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Speaker 5: Coming out of the pandemic, and then uncertainty around policy,

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Speaker 5: the confusion around geopolitics, the weakness on the currency, the deflation,

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Speaker 5: the cut in rates, all of these have compounded upon sentiment,

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Speaker 5: and I think it's going to take a little bit

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Speaker 5: longer for people to recover from that and for us

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Speaker 5: to see a significant improvement within consumption. That's at an

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Speaker 5: aggregate level. But of course within that picture there are

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Speaker 5: those that are prospering, that are able to offer a

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Speaker 5: relative advantage and are continuing to make progress. But as

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Speaker 5: I say, from an equity point of view, it's much

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Speaker 5: more focused now on manufacturing in internet plays.

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Speaker 2: In the past, we saw the Chinese consumers spend rather

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Speaker 2: vigorously abroad, particularly in Europe, with luxury items. You know,

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Speaker 2: I'm not sure that the Chinese consumer is ready to

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Speaker 2: take on the same sort of mantle that the American

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Speaker 2: consumer has in terms of powering the economy. But is

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Speaker 2: that out there for the future at some point in China.

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Speaker 5: Well, that's certainly the way in which policy was being

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Speaker 5: framed prior to the pandemic that the dependency on low

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Speaker 5: cost manufacturers, the need to move up the value chain

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Speaker 5: meant that a shift towards greater dependency on domestic activity

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Speaker 5: domestic consumption was going to replace that dependency on the

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Speaker 5: export markets. Exports so far this year have surprised on

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Speaker 5: the upside for China, as we've seen the rest of

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Speaker 5: the world has perhaps continued to grow more vigorously than

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Speaker 5: was expected. China has benefited from that. But that transition

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Speaker 5: towards more of a domestic focus for the economy is

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Speaker 5: certainly a long term policy aim. But think in the

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Speaker 5: near term, until confidence recovers, we're not going to see

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Speaker 5: a significant move in that.

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Speaker 2: Direct And how's Mark Conan's confidence at the.

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Speaker 5: Moment, still looking for catalysts to move back vigorously into

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Speaker 5: equity markets across the region. Of course, Taiwan and Korea

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Speaker 5: have benefited from this big ai push and other economies

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Speaker 5: in the region will benefit later on in the year

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Speaker 5: as a result.

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Speaker 2: All right, Mark, thank you very much for joining us

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Speaker 2: here live in our studios. Mark Conan, cio of AIA

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Speaker 2: Group with us here in Hong Kong. This has Blumburg.

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Speaker 2: We talked about the Fed. We talked about the CPI

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Speaker 2: report coming out tomorrow morning in the United States and

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Speaker 2: how this might affect markets. Joining us for some discussion

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Speaker 2: of that. As Daniel Lamb, head of Equity Strategy at

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Speaker 2: Standard Chartered Wealth Solutions, Daniel, inflation has gone from nine

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Speaker 2: percent to three percent and the FED funds rate has

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Speaker 2: stayed at five and a half percent. Now, the Fed

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Speaker 2: knows a change needs to come at some point in

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Speaker 2: the near future, but it's a little worried about optics

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Speaker 2: should it be.

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Speaker 4: Well, they are concerned ultimately about a repeat of what

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Speaker 4: happened in the nineteen eighties, right because they did that time,

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Speaker 4: They did cut prematurely and then inflation came back in

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Speaker 4: a big way. So, you know, I do believe that

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Speaker 4: they would need to be, you know, treading cautious water here,

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Speaker 4: and while they really want to cut rates, they need

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Speaker 4: to be really watching out for inflation to come off

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Speaker 4: more decisively before they can, you know, possibly cut rates.

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Speaker 1: I was shocked this morning when I opened my Bloomberg

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Speaker 1: and discovered that State Street was making a call for

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Speaker 1: a fifty basis point rate cut as soon as June

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Speaker 1: and the chief investment officer at the firm was saying,

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Speaker 1: there's a lot to suggest that this is still a

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Speaker 1: very fragile economy. Yes, it has signs of being resilient

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Speaker 1: on the surface, but maybe there's something more going on

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Speaker 1: under the hood that should be concerning you. Do you

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Speaker 1: share that perspective? I mean, is there something that are

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Speaker 1: that you may be worried about under the surface of

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Speaker 1: economic activity.

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Speaker 4: Not that I'm aware of. I do believe that the

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Speaker 4: economy is actually, you know, quite resilient, judging from you know,

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Speaker 4: the rebound in them and also you know the strong

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Speaker 4: NFP numbers. So you know, if I were to pick size,

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Speaker 4: I would think that it would be cutting probably somewhere

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Speaker 4: between two to three times or even less, tooling towards

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Speaker 4: the two time cut. You know, that's where I would

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Speaker 4: stand for this year.

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Speaker 2: So we often hear questions to guests, you know, well,

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Speaker 2: what happens if the fat only cuts, you know, one

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Speaker 2: time instead of three, you know that's got to be

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Speaker 2: a negative, right, Well, that's just one input. Right, If

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Speaker 2: you have growth stronger than we thought, and if you

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Speaker 2: have earnings stronger than we thought, and companies more efficient

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Speaker 2: in their operations, that's three positives to go with one negative.

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Speaker 2: I mean, you have to consider the math in this.

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Speaker 2: You can't just keep saying that if rates don't go down,

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Speaker 2: oh that's a game changer.

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Speaker 4: Right, correct, And I do agree with that. I believe

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Speaker 4: that while you know, investors are powering back on you know,

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Speaker 4: this expectations of rate cuts, there could be some volatility

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Speaker 4: in the market, but it would probably be some rotation

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Speaker 4: within the sectors, right I mean net on the headline

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Speaker 4: S and P five hundred, perhaps some mile pullback, but

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Speaker 4: nothing major. You will get some opportunities, you know, in

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Speaker 4: the growth sectors because the earnings expectations is really high,

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Speaker 4: so they could pull back, you know, sometime later in

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Speaker 4: this quarter. That's entirely possible. And given the situation the

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Speaker 4: rate cuts, yeah, that's that's possible. And then the money

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Speaker 4: is probably going to be rotating into the more traditional sectors,

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Speaker 4: you know, like industrials and also like energy. Okay, so

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Speaker 4: you could see that.

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Speaker 1: So what are clients in Asia saying to you about

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Speaker 1: where they want to be exposed right now? Is it?

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Speaker 1: Are they exploring the opportunities that may be presented in China?

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Speaker 1: I mean, given the fact that valuations are so tremendously low,

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Speaker 1: and if you want to do your homework maybe on

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Speaker 1: a company by company basis, there are opportunities. Are people

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Speaker 1: saying that to you.

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Speaker 4: Yes, people are looking at the state owned enterprises with

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Speaker 4: high different us in China because the high different you

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Speaker 4: would give them, you know, some sort of return. And

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Speaker 4: also the fact that the government is encouraging the management

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Speaker 4: of the state owned enterprises to boost the market capitalization

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Speaker 4: and there was announced two months ago and so far

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Speaker 4: the sooees have been doing pretty well. Of course, you know,

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Speaker 4: given uncertainties in the on the tech side of things,

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Speaker 4: that you know is an extra plus for this stay

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Speaker 4: own enterprises.

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Speaker 2: So it's a great program, I think for us to

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Speaker 2: talk about, you know, areas that maybe don't get mentioned

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Speaker 2: all that much. So key key ways of unlocking value.

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Speaker 2: How do guests tell me yesterday that look for companies

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Speaker 2: that own businesses in India that have really really grown

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Speaker 2: and it actually in some cases the business in India

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Speaker 2: is about the same size as the home business, the

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Speaker 2: parent business back home. And it's just kind of a

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Speaker 2: way to find unlocked value. Give me an idea of

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Speaker 2: Daniel Lam's approach to finding something that others don't know.

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Speaker 4: Well, the India story is certainly something to look at.

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Speaker 4: You know, the market is there's long term pluses, right,

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Speaker 4: long long term pluses because one of the biggest differences

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Speaker 4: between India and the other markets is the demographics. Right,

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Speaker 4: demographic is actually very favorable. Seventy percent of the of

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Speaker 4: the working population. Of the populations on the working side,

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Speaker 4: young people like the young people. Yeah, so those India

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Speaker 4: is certainly looking good. I would say that Korea market

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Speaker 4: is following the footsteps of Japan. That's also very important

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Speaker 4: to watch because they are having this value up program.

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Speaker 4: You know, you've see how well Japan has done over

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Speaker 4: the last two years, so that could be the next up, right, all.

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Speaker 2: Right, all right, Daniel, out of time, Unfortunately, I will

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Speaker 2: get you back soon. Thanks very much for joining us.

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Speaker 2: Daniel Lamb, head of Equity Strategy at Standard Chartered Wealth Solutions.

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Speaker 1: This has been the Bloomberg Daybreak Asia podcast, bringing you

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

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Speaker 1: episodes of this and other shows from Bloomberg. Subscribe to

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Speaker 1: the podcast on Apple, Spotify, or anywhere else you listen

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

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Speaker 1: Bloomberg Business app.

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Speaker 3: Mm hmm