China Detains Bankers, Tightens Grip on Key EV Tech | Bloomberg: The China Show 9/12/2024
Half an hour away from the opens in Hong Kong, Shenzhen and Shanghai are watching the China show. I'm Yvonne Mann with David English. Good morning. Let's get to your top stories today. Stocks across the Asia-Pacific on the up led by. There you go. Japan following this tech fueled rally on Wall Street. Bond traders and bets on a half point
Fed rate cut next week. That's after the latest U.S. CPI prints. Now, signs of division in the EU over tariffs on China, with Germany joining Spain in opposing extra duties on Chinese imports. Plus, an exclusive with the operator of Chinese hotpot chain Haidi Lun plans to expand further to overseas markets, including into the United States. A quick look at the market action. Well, it really at first was that CPI print in the US, that was actually some upside surprise given that it was probably the one of the most anticipated data prints out there.
But that again, we saw basically a bit of a reversal thanks to what we've been seeing with the tech rally as well. So that video story really helping Asia here this morning. Take a look at how the Nikkei, how Taipei is doing. We're seeing gains of more than 2% at the get go. So certainly the tech rally is certainly in play here today. And we are watching, of course, there is going to be an ECB meeting coming up later on today as well, expected to cut once again. The big question is, are we going to see
another one in October? We take a look at Euro dollar. We're just talking around that 110 level here right now, 142 levels for dollar yen. But certainly what we've been seeing in the Treasury market is yields ticking higher just on the back of that hotter CPI print as well. You're seeing that across Asia, Brent, also be a bit of steady here, but we did see a bit of a bump here. Well, the biggest gains in about two weeks or so on concerns around a friend, Francine, which made its way into the Gulf of Mexico. So certainly that's one to watch with Brent now at $70.
And still we've been talking about tariffs, what it comes from India, Vietnam, the like here, and whether that has any impact on China. But certainly that's one thing we're watching. But steel futures in China are slightly elevated here this morning.
You take a look. What else we're watching out for is when it comes to the tech space. Right. So the fact that in video, despite all this kind of, I guess, worries about where there is going to be 25, 50 basis point cut from the Fed, it seems like that inflation pretty solidified. It probably is going to be 25, more than 50. That's still helped Nvidia in some way because we saw the shares rising 8% and you're seeing that across the Asia chip making space here this morning. TSMC just coming online here, we're up about three and a half percent.
Equinix is up close to 6% in Seoul right now. The approach to the open in China is this obviously we've been talking about, you know, obviously we saw a bit of a movement, a bit of strength in the currency after that U.S. presidential debate here as well. Futures are pointing a little bit more positive, but 210 year Chinese ten year yield, I believe we're back to those kind of record lows when it comes to that where we are on yields in seven, 1273 for the currency.
But yeah, we're talking about junk bonds, right? That slide that we've been seeing, I think we've been down for eight days now, eight days. So we went from I think on the average price on the Bloomberg high yield dollar index went from about 87, $0.88. We're now down to about $0.85 as well. So while we are getting maybe a slight widening in spreads there, you're also getting and the other thing we're tracking today is a rally that's really been, again, unrelenting this week, up three days. I think we're now have to 11 to 210 handle on the Chinese ten year yield. That's certainly one thing we'll be tracking very closely today. We are in the window for some credit
numbers which could come out as early as today. We might get them going into the weekend. We talked about tariffs and EVs. We'll look at some of the metals and
steel makers, of course, on the back of news out of India, targeting some of the moves coming out of Vietnam and shipments out of Vietnam and also and also China as well. And yeah, on top of all that, we'll see what happens with this equity market given the sort of tailwinds we are getting out of Wall Street, particularly though that seems to be more a Japanese story more than anything at this point in time, more of a chip story, to be more specific there as well. Yeah. Going into, again, this Fed conversation, right? So up until recently we were closer to 50 than 25.
We're now close to 25 than we ever have been. I guess when since the that Jay Powell speech at Jackson Hole, we said it's time to cut rates. Yeah, we thought this was going to be a quiet CPI print, but not really the fact that we are seeing prices actually pick up. I think it's the first upside surprise
since March that certainly did wake up the market here. And as you mention about bond pricing and what bond traders are pricing in now, putting away those dreams, I guess, of a 50 basis point cut to bed. Now, Citi actually the ones that were the ones that really willing to stick their neck out and then call for a 50 basis point cut next week, They have also dialed back. Right. They're saying maybe we don't need a deeper cut in September. They still think, though, the Fed could cut a total of about 125 basis points this year as well. Let's bring in our my strategist, Mark Granville, joining us out of Singapore. You know, it seems like there's been a
verdict now after this inflation print that it's more at 25 than 50 for the Fed next week Mark. But how can the Fed keep markets happy with just a 25 basis point cut? Yeah, don't be so hasty. There's still the dot plots to come. I mean, if the Fed actually wanted to change the narrative, that's where they couldn't do it. No, I mean, seriously, I'm sure the consensus by now is very much in favor of 25 basis points. And it would be a shock if the Fed now
deviates from that. But don't forget, they are going to give us a whole new set of dot plots. And we've we've had a range of three rate cuts priced in at the beginning of the year, a 2 to 1 rate cut from the Fed in the last dot plot session. So who knows how many they're going to see. Just in the latest one, and particularly for 2025, that's really where people will be looking very closely to see whether the Fed expectations are anywhere close to this amazing series of rate cuts, which are priced in by traders looking for something like 200 basis points worth of cuts. So it's certainly a plus. They're going to be much more interesting than usual coming up at this meeting. But I think it is going to be pretty
tough for equity investors to get very excited when they see that the Fed only does 25, assuming that's what happens, only 25 basis points. I mean, realize that the Fed probably wants to maintain that kind of pace through the end of the year, which means we're not going to get 100 basis points this year with a lot of people are looking for recently, we're going to get something smaller than that. So I think expectations again in the market are probably a bit misplaced compared to the Fed, but there's always a possibility they use the DOT plots as their way out and give us that big rate cut after all. Mark, our viewers are probably already seeing that right now. I want to get your thoughts on this before we get to open air And the rally we did see in chips and in video said to be O.J. and we're seeing dollar yen right now paring some of the well coming down a little bit.
Again, paring some of the early weakness coming through. Futures are now dropping, as I said, 0.2% here. Hawkish commentary, Mark out of one of the BOJ board members you're talking about. And this is a speech that's being taken right now effectively saying that they will be needing to raise interest rates to 1% by the end of the outlook period is is that of next week.
Sorry, Mark, is that a 1% by the end of the year story? Mark, just your thoughts on how hawkish we can further tilt here on this story. I think, first of all, you have to take it in the context. Mr. Tamura is probably the most hawkish person by his track record within the BOJ, so I wouldn't be a complete surprise that he's speaking like that. Having said that, 1% is probably way above expectations of most people. I think if you look at the average
surveys, they are thinking that the Bank of Japan would raise the short term rate to somewhere between 0.5 and 75 basis points. So 1% is certainly on the very high end of anybody's expectation. So for them to achieve that would mean probably a longer series of raising rates than anybody is currently expecting.
And that is certainly a positive for the Japanese yen, a bit of a headwind for Japanese equities. So traders will probably have to look at it with a bit of a nuance there that, yes, this man, this gentleman is probably very hawkish, but he may be raising an important point about the neutral rate and that has been mentioned by a few other people. But the neutral rate for Japan could be closer to 1% than most people are expecting. So that's that's very much something which is not priced into markets. And that could if we get a relatively
hawkish press conference next week from Mr. Awada, that would certainly feed into it. And it could mean that we see Japanese yields go quite a bit higher before the end of the year. And Mark, I want to get your take on
this tech rally that we saw. I mean, there was news from our sources that open air is in talks for to raise six and a half billion dollars from investors and that would put a valuation that's close to 50 billion. I mean, how significant is that headline for stocks? For an equity investor that is absolutely massive and no wonder the whole tech sector. I mean, of course there was some positive news from Oracle, and NVIDIA is still talking up the demand for its chips as well. But for any equity investor, when you
see a leap in valuations like that, it's happy days. It's Christmas coming early so open. I still a private company that 150 is almost double from the previous estimate of 86 billion.
That's an incredible leap and it upgrades everybody. Everybody in the tech sector has to be reevaluated. If a company like that can have such an amazing valuation, it still has to be seen. Of course, they haven't. They haven't raised the money yet. But you can see how people are extrapolating if they can achieve that kind of valuation.
What does it mean for India? What does it mean for Apple? What does it mean for the other people in the sector as well? It's very, very good news if they can achieve that kind of multiple. Mark thank you Mark right fielder and Lester I just showed you guys out of Singapore and yeah perfect timing to bring in our next guest the last day of the CITIC CLSA Investors Forum, which brings together senior executives and investors in Hong Kong. Let's bring in Lawrence Blanco, technical analyst. CLSA is certainly based in Sydney and it
talks charts like out of his head sitting down. Got to love it. But now he's in person. So we're going to kind of try to milk him as much as we can. And it's always great to talk to you about stuff like this.
Yeah, we talked about the tech rally really kind of being, you know, boosted by what this opening news and stuff. But I'm sure there's a lot of questions that you're fielding right now about where this U.S. rally is going to go. Is there a sense that you're getting it there's a top that's being formed, or do you think what we're seeing in September is just seasonal? Yeah, I mean, that's a big question.
That's continue. Look, is this the major reversal that you've seen since you bottomed in October 2022, or is this just a typical seasonal kind of. There's a few things that we're going through looking at into market analysis as well as momentum and breadth.
And to be simple, a conclusion is as long as we hold above the April and August lows in the S&P and the SOX index in particular, we think that this is a typical seasonal correction. It's nothing out of the ordinary. The unfortunate part is that the seasonal volatility actually in an election year continues into November and which tends to bottom in October if you look at the average seasonal. But in election year, it does extend towards November. The other points, while we think we should still give benefit of that to the upside is that credit spreads have narrowed since that 5th of August lows. And what we've seen historically of 20% more declines is that credit spreads tend to widen as S&P makes a new important peak. So we saw that in January 2022. So we're not seeing that major
divergence yet. And that's why our base case is seasonal correction, that trading range that you seen develop. Now it's a platform for a year end rally. Yeah, I think we put that spread on a chart.
So that's the top and the S&P at the bottom here as well. So just elaborate of course, visually, what do you expect to happen with this chart? Yes. So to get more bearish, what we would expect to see is really that a surge in credit spreads and widening of credit spreads. And that would typically be a signal from the credit market that there's a liquidity event brewing beneath the surface.
Typically, the equity market takes a bit of time to digest that. So the S&P tends to make a new high. Well, those credit spreads widen, and we haven't seen that sort of explosion. We had that, you know, one week of higher credit spreads and then they come back again. So so that's what's giving us some confidence that this is typical seasonal correction and then takes us into part of your well, some of the thesis that you put out there is, you know, the levels to watch below, which correct me if I'm wrong, all bets are off and what what those levels are.
That's what and and I'll probably focus on the Sox index the most important US index that has been the leader of the 2022 lows. It carries obviously a theme in that. But basically you're looking very simply at the April and August lows which sit at around the 4288 to 4290 area. If it did break below that, I think any amateur chartists would come up with a definition of a head and shoulders. And all that simply is is a change in trend from higher highs and higher lows to lower highs and low and low.
So that's why breaking below 4288 4290 is critical because that would confirm head and shoulders top and that's the all bets are off level. If investors did want to hedge the downside you know preempt if we do see a breakdown if you got a far more bearish view for markets now you can look at out of the money put options with a strike on the on the Sox index at 3100. So you're really taking a big bet that if you break below that that 4280 or downside risk is over 20%. So I think that's one way to hedge it. It's still relatively cheap because it's so far out of the money. But if markets did break down in a meaningful way, that's how far you could see the decline. And I guess, you know, we've been
talking about what the Fed's going to do, but the most cleanest way to express that right now is really on dollar yen. What do you see in terms of positioning now? It's quite interesting. I mean, if you look at the position at the end of July, speculators are net short and 52% open interest. Now, that was the largest net short
position that you've seen in the end of the past decade that's been totally unwound. And speculators are now actually netting along the yen at 12% of total open interest. So we think that frothy part of positioning is out of the way. I can't give you a number on the actual carry trade, but as far as where, you know, CTAs and positioning is that that positioning has been unwound.
So we we're really looking for the yen, dollar yen, that is to stabilize here. And from a pure chart perspective, you've seen one 4141 as a support area from the early January-February lows. We've tested that recently after the 5th of August lows. So you've made that technical double bottom and we're looking for a bounce back to the 146 148 area. So stability in the yen, which I think is a positive. Markets hate fast moving macro are the yields or currencies.
And I think we're really seeing that slow down and consolidate between 140 and 148 basically. Which brings to mind then so the the violent moves are behind us as. The point we're trying to make because we're still seeing it in in Japan, for example, isn't the equity in the equity markets. Yeah. Yeah, I mean, it's quite interesting. So if we look at that Japan move and you don't see this often. It was a 15% decline within a five day
period. And we go back in history, we've only seen seven of those events since World War Two. What you tend to see is a sharp rebound after such a violent decline, and then the market goes into a consolidation pattern. So you do see shorter price swings, but it does start to settle down in a range. And for the Nikkei itself, you know, we're looking at 34000 to 35000 as a support area and resistance around 39,000. So I think investors should look at a period of consolidation between those levels as constructive on a longer term basis as you sort of repair that initial damage done done in the sharp decline. All right, Laurence, so I'm more with
you coming up, little bit more about China. The next break there after this break from CLSA. But we're taking a look when it comes to this relative reference rate, seven 1214, pretty much in line with estimates here this morning. We're also coming down to the open of trade in Shanghai, Shenzhen and Hong Kong. This is the to show.
Welcome back. You're watching the China show. A different flavor today, of course, as we go into the open today. So we have been blessed by his presence. He's normally based out of Sydney. Lawrence Blacker still with us, technical analyst at CLSA.
We're now standing by and we're looking at the chart specifically and this is you do this a lot. That's a key takeaway, of course, in the conference you guys have been looking at here. The question we've been grappling with is and when this is Chinese market bottom right. And a lot of that had to do with what's
been happening in Internet, for example. So what you have this is one of your charts. It's it's K web. So which is tech focused as well. You have momentum here. Yeah. And one of the dark indicators up here, correct? This is it, Dragon Ball Z in my head, I don't understand what's going on here, so just help us understand.
It looks messy, but it's very basic about first the process set up and then we look at momentum and we'll look at the demand indicator. So let's just start off with the price action, the recovery of the October 22 lows over a 60% rally. But since that January 23 peak, we've barely settled in a trading range where supports the bottom end of the range is giving you support around 20 to $23. Yeah, and the upper boundary of being resistance has been 32 to $35. Now within this volatile trading range, you've had opportunities for tactical rebounds and trading opportunities and that's really what we're highlighting currently in the chart.
One of the first things that we look at is the rate of change of the decline with which the RSI is looking at. And you can see the new lows that we made basically in August. The momentum indicator was at a higher level. So think of that as the rate of change or the delta of of the trend. It is slowing and typically you get slowing momentum before you get a price turn. So that's the first point. While we think it's a bottom fishing
buy, the second point is that the market indicators now there's a few highlights on that chart that you can see there. You know, they've been pretty good in timing these tactical lows. Demark indicators are looking for points of exhaustion and trend. Yeah. So we've got a combination of slowing down side IndyMac exhaustion signal that we're really looking for a tactical rebound in K Webb from this $25 area back towards the lower thirties. Okay. I think we're going to zoom in and that guys can be zoom in on that as well.
So what is the number we're looking at here as far as so we're looking at the first signs of exhaustion. And what you're seeing is that is starting to show up. Yeah, we've got two signs of exhaustion. We've got the Mark 13, which you can see here, and you've got the RSI at a higher level than it was with the momentum move down in June. So that's the two key indications of giving us a signal that the Kay price action is about to mean reverting trade back to the top of the range.
Right. And it gets for some of our viewers. K we have, of course, is the one listed in the U.S. iteration of that. I think one index is the HS tech index in Hong Kong. So if this one starts to rebalance, how does that get funded? You know, some of the popular trades that we've been told, you know, go into banks, go into some of these income strategies, dividends is a good example of that.
Have you seen any of that sort of start to unwind because this might be starting to be? Yeah, absolutely. One of the ETFs that we tracked just to represent that dividend trade is the ping on one, right? Yeah, that's right. Yeah. So let's set it up guys if you, you see what we'll see. Yeah. This is, this is where the money's coming from. So it's been a great relative. Outperformer.
It's been a popular trend for domestic administers and even overseas investors have been positioning in the S&P banks as well as the energy names. But yeah, we had the slowing upside momentum. So this was max momentum to the upside. We then had a marginal new high here
through July. We had a low momentum reading and you can see the two tops active have in July and August at the same level, so defined as a double top pattern, $32. And then yesterday we actually saw the break down from that and that was the close below the 5th of August low. So we have now this tactical top in place that gives us a downside target of $24. So we've seen 12 to 14% downside in this move. And it's not too dissimilar to, you know, the same names which we've seen corrections of 20 to 30%.
That was the crowded long position on the on the tech side that has unwound. And within the Hong Kong, China side, you know, this is a crowded long position that we've seen come into pressure and unwound. I mean, just to add a bit more color as far as the other side of this trade, this has been the long side. If you look at the Hong Kong healthcare index or if you look at the renewable index, you also starting to see a bounce there. So, you know, it's that pair trade where
people have been long dividend yielding stocks, they've been short health care, they've been short tech, they've been short the renewables and that's getting squeezed. And it's a mean reversion trade on that. And we think that's probably got another month to to to unwind. But as far as percentage terms, you can see here, you know, at the index level it's between 12 to 20% depending which index you look at. So yeah, it's a positioning correction that's unwinding in Hong Kong, China, and it looks like that could continue based on some of targets there.
Laurence Guys, that's your tactical trade, that's your third. So 2 to 3 month outlook there. Thank you so much. Lawrence Blanco there, of course, here with us to talk us through all these all these charts and, of course, some of the tactical opportunities behind that are starting to show up, not just in price in some of the charts here. I love it. I love it. It was a great one. Thanks so much, Lawrence, for coming to town and showing us all about, of course, the free market in Hong Kong.
We're seeing some upside, about 4/10 of 1% here this morning. China is doing this 712, not a whole. Lot of movement, but futures are edging higher this morning. This is Bloomberg. Right. Welcome back to just under 4 minutes away from the opening bell. And so a couple of things, right? Because it declines. We had midweek.
We closed below the 200 day moving average and Hang Seng index. We didn't quite get there on the CPI index. As you can see, we probably are below or above both those levels right now going into the open today. And as you can see, we are poised for a modest rally ahead of the Thursday open. In terms of movers here this morning,
we're watching some of these insurers. It was some signs that we're seeing from China there that they support foreign insurers to enter the domestic market. That was according to CCTV aiming to promote development of the industry there. So you are seeing likes of up some 2% here this morning. Chip stocks in Focus has given that a video surge that we saw overnight there. And there you go. The rally seems to continue here in Asia.
The open is next. This is Bloomberg. Welcome back. You're watching the China show or kind on the open of markets. And it seems to be, at least when it comes to that debate, whether the Fed's going to cut by 25 or 50 next week. It seems to have settled a little bit that maybe it's more about that 25 basis points, then deeper cuts after that, higher than expected U.S. inflation print. So nevertheless, though, it was really
the tech rally in the U.S. that really helped wipe out some of those initial disappointments in the market. And that's why you're seeing that rally here take place in Asia. And interestingly enough, the catalyst in the public tech markets was the deal in the private markets that reported deal with. Okay, I yeah 150 billion and my Cranfield pointing out you know if you're an equity investor be very very happy Christmas come early Christmas that's come in September on top of what you're seeing already in the Philippines Christmas has come early also in markets in the United States. Speaking of green and red, there we go. Mostly green on your screens tend to 1%
of the upside on the CSI 300, we've been bobbing around to 3179 levels. Silver You want to watch that? We did get very close about two days ago, close about 3200. And this is where we are currently. Seattle. More on that story in a moment because we're getting some commentary coming out of UBS and what the company is doing and how that's helping the broader lithium space with some of the stocks Slim it up yesterday. In fact, flip the boards. Have a look at Hong Kong here very, very quickly. We are in the window for data. Credit numbers are coming through as
soon as today. Industrial production numbers are coming out of Hong Kong later today. Keeping our eye on that. And I believe also FDI, We are in the window for those figures as well.
Okay. Very quickly. So we're it's it's it's the day after the US presidential debate. And now that the dust has settled and we did see initial reaction to that debate yesterday and how that showed up in China was, you know, with Kamala Harris being perceived as the winner of that debate.
You know, some of the green energy stocks did very well yesterday, still doing well today. Some of the tariffs, India, 30%, not just in China, Vietnam as well. So we're looking at some of the steel makers there. More on that in a moment. But I talked about this gang, Fung in Tianjin, lithium flat today, limit up yesterday, Seattle cutting production, which could help, of course, alleviate some of the over supply issues we're seeing in that part of the lithium lithium market there. Yeah.
So that certainly is helping in terms of what we're hearing. There's a Bloomberg scoop out there that just came out just a few minutes ago. Deal in China are finding themselves in the crosshairs of authorities now. We know at least three investment bankers have been detained since August, while some state backed brokerages are said to have asked staff to hand in passports and seek permission for travel. Let's go to our chief North Asia correspondent, Stephen Engle joining us now. What more do we know on this story,
Steve? Oh, I know this is going to be one of the most read stories on the Bloomberg terminal in Asia Pacific today because this is dear to many of our clients. And obviously what's happening in mainland China has sent a bit of a pall and chill across the investment banking community, not, you know, dimension, of course, what's happened to the brokerages over the last few years. There's been multiple stresses essentially since Xi Jinping really launched common prosperity over the last three years. We'll get to some of those pressures. But this is the latest we're hearing from sources that investment bankers are essentially in the crosshairs right now. At least three top investment bankers from different securities firms have been detained by authorities since last month. So since August, one of them used to oversee deal making at Haitong securities, allegedly fled the country about two weeks ago, has since been arrested and repatriated.
This is on top of that big saga with Bao Fun. Yeah, at Renaissance, of course, who is said to be now helping authorities investigate certain malfeasance in the business. Of course, we all know that the authorities through state media have lashed out at the financial sector and bankers for leading a hedonistic lifestyle and sort of living, you know, among the financial elite. Again, common prosperity, taking a wide swath here in this regulatory crackdown.
You mentioned, Yvonne, about handing in passports. This is common for senior bankers at state owned or state backed financial companies. They have to hand in their travel documents. Now, it seems like it's, you know, permeating to lower ranking and traders, I don't want to say traders are lower ranking, but you know what I mean. Essentially, Haitong and other Zoe brokerages recently this according to the sources we're asked to ask, to ask their investment bankers to hand in their passports.
And also they have to seek permission for all business and travel plans. Some employees have been told that regulators are scrutinizing their IPO deals as well as other capital raising activity. So, yeah, this this is going to be a well read story today. I was actually going to ask you the whys. Do we know what they're being detained for, I would assume. Because this is being investigated by
the anti-graft authorities. So there is allegations, I would assume, of malfeasance of some sort with those IPOs or other capital raising by companies. Again, these dealmakers are in the crosshairs right now. We already know and I alluded to it earlier about the cutting of fees. I mean, I think what was it? CITIC Securities slashed basic salaries by up to 15% for some bankers earlier this year and may cut senior banker banker compensation bonuses by more than 40%. So there are multiple crackdowns and investigations, if you will, in this area at a time. Let's let's face it.
Dealmaking is way down and profit at brokerages is way down high tong. Of course, Haitong and Guotai Junan Securities. There's the big story that Minimum was talking about, I believe, last week. You know, looking to have this mega-merger to create a financial giant. I don't know how this dovetails necessarily, but again, to give more oversight, perhaps into perceived malfeasance at these companies. But Haitong, on August 28th reported a 75% drop in first half profit.
So they're suffering because deal making and and trading for stocks and everything is down. But now, in addition to some of these investigations and I was just in Shanghai last week, I talked to bankers, including Amundi, Europe's biggest asset manager. You know, again, they're not saying the mood is bad, but you can kind of tell they're just kind of waiting it out there in the long run.
That's what everybody's saying. We're in it for the long run. But there are definite stresses right now and they're feeling it. Yeah. Not to mention some of the clawbacks, too, on top of the the capping of bonuses and salaries, too. This is a story that we'll keep on top of.
So fantastic. Thank you so much to Stephen Engle, chief North Asia correspondent here on the latest Bloomberg scoop as far as this story is concerned right now to geopolitics and tariffs. So Germany is joining Spain in calling for the EU to drop its plan to impose extra tariffs on Chinese made EVs by China. Correspondent Ben Mellow is here with us to talk us through this.
The latest opposition amendment here. Yeah, so this is quite a surprising move because Spain is one of those countries along with Italy and France, that had voted for these EU tariffs. But now it seems like after the prime Minister visited China for four days and met with president see, he's changing his mind, calling on the EU to reconsider these tariffs. And soon after that we have a German government spokesperson welcoming that move. So this raises the prospect of China maybe successfully convincing its European partners to maybe walk back those tariffs before the deadline of the decision in October.
Now, you might be wondering why is Spain suddenly changing its mind? Well, China has so far retaliated by opening up probes into EU pork and dairy, and Spain is the largest pork exporter to China. They sold .5 billion worth of pork to China last year, $50 million worth of dairy to China last year. And Spain is also the second largest carmaker in the EU. So they need a market for their cars overseas. And at the same time, the Spanish prime
minister was in China to seek investments from China to beef up its own domestic TV industry in Spain. So all of these could have factored into the considerations that we're also hearing when it comes to India. According to Reuters, imposing tariffs on Chinese steel imports tells a bit more about what that entails. I mean, Vietnam seems to be part of that story, too. Yeah.
So India is now imposing tariffs of between 12 and 30% on some steel products from from China and Vietnam. And this comes amid those warnings by Chinese steel makers about a prolonged winter ahead amid this week domestic demand. So a lot of Chinese steel makers are really trying to beef up export to ship their surplus overseas. And you've seen prices slumping as a result, and that's crimping on margins of overseas Steel Producer If you look at Tata Steel, their revenue was down 7% in the second quarter, GSW profits in the second quarter it was down over 60%. So India is now joining a list of other countries, including the US, Canada, Mexico, Chile, Brazil, for instance, that are imposing tariffs on Chinese steel. And there are more to come in Asia as well as South Korea. Indonesia is said to be mulling
more tariffs on Chinese steel as well. Remember Lower China correspondent there with the latest when it comes to these tariffs as well. We have more on geopolitics coming up. The Stimson Center joins us to discuss
the US presidential debate and what it means for the future of U.S. policy on China. This is Bloomberg. Well, let's be clear that the Trump administration resulted in a trade deficit, one of the highest we've ever seen in the history of America. He invited trade wars. You want to talk about his deal with
China? What he ended up doing is under Donald Trump's presidency, he ended up selling American chips to China to help them improve and modernize their military. First of all, they bought their chips from Taiwan. We hardly make chips anymore because of philosophies like they have and policies like they have. I don't say her because she has no policy. Everything that she believed three years ago and four years ago is out the window. She's going to my philosophy now.
In fact, I was going to send her a MAGA hat. U.S. Vice President Kamala Harris and former President Donald Trump. They're sparring over China and trade policy at Tuesday's debate in Pennsylvania.
Let's talk a little more about that and bring in unison, senior fellow and co-director of the East Asia program and director of the China Program at the Stimson Center. It's great to have you on the program. We were just talking in the break here on, you know, what your what you took out of this overall debate. We didn't we didn't get a whole lot when it came to China policy. But did we get much clarity from both of these candidates on what direction the U.S. is taking on this? Well, we can certainly see certain tendencies, right? We see that Kamala Harris is much more keen on export control. So her talking about Trump exporting
chips to China, I think as a pretty clear sign that she is likely to continue the Biden administration's policy, the high tech export control and the restrictions towards China. In comparison, what we saw from former President Trump is this emphasis on tariffs. And we know that earlier this year he has vowed that if he is elected again, he will levy another 60% on tariffs on all the imports from from China. Based on what he said last night. I think he's very likely to fulfill that commitment if he is indeed elected. So we see this election as we see this election debate, as the two candidates trying to tell the constituency and tell the voters what their policy platforms will be and what they are inclined to be to focus on. But for there to be a consensus on
winner or a loser, I don't think there is a consensus here in the United States. Hmm. David here. Johnson Just to I guess, at the risk of oversimplifying a very complex issue here, what I hear you saying is if it's Donald Trump, the chances of a trade war are higher. If it's Kamala Harris that takes the White House, it's a trip wire that we have to talk about with China. Would that be a, I guess, an accurate
rough representation of what the two different paths they might take based on what they said last night does? That's a pretty accurate description, although I would say that for Kamala Harris, the odds that I would call it a tech war rather than a cheap war, because while a lot of people are to see that ship was the story of yesterday. But if you listen to what she said about the high tech restriction and what the United States needs to focus on, it will be much broader than just the chips. And I mean, we've read a lot of we talked about this about who Beijing prefers as a candidate or as president. Some say it doesn't really matter, given it's almost like a bi partisan sort of issue when it comes to China. But does this only just, you know, force China to continue on its own foreign policy goals, which is supply chains, security, solidarity in the Global South, for example? Absolutely. Because when China looks at this
election, I think it does have this preference, despite the fact that the the bipartisan consensus on China here in the United States, while we know that the great power competition is here to stay as a theme of U.S. national security strategy. However, how their security is implemented, the style it is implemented, whether there is predictability or certainty or a desire for stability in the bilateral relations, that's significantly different between Kamala Harris and Donald Trump. We saw that the Biden administration has pursued this strategy of extreme competition, but at the same time, we also saw Washington tried quite desperately, I would say, to reach out to China to build a guardrail to prevent the competition from evolving into a confrontation. And I think that means for Beijing predictability and certainty and also a desire for bottom lines. By the way, is Donald Trump is simply does not exist.
So I think the anticipation of the high level of volatility, high level of instability is is much higher under a potential Trump administration, at least in the in the Chinese assessment. So in that sense, I do think that Beijing has a preference. But still, both administration and both candidates are going to be tough on China. So for China, there is nothing very little that China can do to change or influence the result of this election. The best a Beijing can do is to prepare for the worst and pursue its own course is on national security as well as its own foreign strategy, regardless of who is he and who is elected this November.
And I'm curious from your very unique perspective there in the U.S., how is that? Okay, let's call it let's call it bullet proofing, the bullet proofing strategy China is undertaking. To your point there of, you know, this this is a reality that's here to stay.
I'm curious how China's response is being perceived in the United States. What are what are you seeing on the ground there? Well, it depends on which part of the response you're talking about. During the trade war under the Trump administration, we saw that China tried it as though to retaliate. Right. Whenever U.S. announces additional tariffs on Chinese products. We saw that Beijing tried as much as it
could to retaliate in kind or in the same proportionality, which is really hard because China runs a larger trade surplus, which means that the level or the degree that China pursues these tariffs is not going to be is it simply does not have as much space as the United States does. Then under the Biden administration, we saw that China also responded to this extreme competition strategy. Was China's own basically pursued to build up its strength in the global South, to build up its leadership, and also to compete more vigorously, for example, in the, you know, in the high tech space. So I would say that regardless of who is elected, Beijing will respond to any perceived provocation or transgression comes from comes from Washington. But in Washington's view, the fact that
China's economy has slowed down and the fact that that China has encountered these difficulties in terms of its exports, in terms of its economic reinvigoration, I think a lot of people here see that as a victory or a success of the U.S. growth strategy or the U.S. competitive strategy against China. Whether that is true is subjects of debate. And I know that even economists have
have a lot of different opinions. But at a minimum, I think in the United States, a lot of people sees is competitive strategy as working and as effective. There's a lot of uncertainty about what the American strategy is around Taiwan, for example, or just global security. The flashpoint being South China Sea right now.
And I'm just wondering, how do you see that playing out? Is the U.S. really to go, you know, aggressively in defending its allies here on in those regions and really going against this China aggression? I think here in Washington, the view is that the US has been defending the status quo. U.S. has been defending the reality on the ground, whether it is Taiwan Strait, whether it is Taiwan or in a second Thomas show unrelated to Philippines claim in the South China Sea. So that's a fundamental element in the U.S. decision making towards is towards China in the West Pacific.
But we also know that a fundamental clash between U.S. and China. Why is this centered on why? Specific is because China sees West Pacific as China's doorstep and as a direct the periphery of China's national security. This also happens to be an area where U.S. has have a presence in terms of its security presence and also in terms of the presence of U.S. security allies.
US-Japan security alliance is seen as a pillar of the regional security architecture in the U.S. view. So I would say these two very different goals and aspirations coming to this region, regardless of whether it's Taiwan Strait or South China Sea or even you go up, go north, there is East China Sea as well as Korean Peninsula. It is a fundamental clash between two different visions about what this region should be and what the security architecture in the region should look like. Yeah. And it's almost the same analogy that you have with Russia and Russia's perception that NATO's, of course, coming in to its doorstep. So we could be here for a longer time. Let's do this again, please.
Students and their senior fellow co-director of the East Asia program and director of the China Program at the Stimson Center. Let's get your China brief now. And we're looking at some reactions in China to the debate, of course, that took place this time yesterday between Kamala Harris and Donald Trump. And there's been really no commentary on state media so far, but the debate quickly becoming a very key trending topic, as expected on social media platforms. Many reactions and we will focus on the candidates views on China, one of which is, well, whoever wins will be tough for China. Trump might well be more destructive Now.
Democrats victory will be more impactful on China in the long run, whereas, of course, Trump's impact will be only short term. It could affect us negatively to others. War. Commenting on the debate itself, and we're a pretty split when it comes to who actually won this debate. Harris is so good, one user said at the debate. She appeals to emotions and enlightens with reason. It seems that Trump was caught off guard. Another one.
Can you believe that Trump is close to 80? Look at how he debates and how fast he reacts. Another one saying, look, this debate was great to watch, providing so much relief after the bitter loss of China's soccer team. So, yes, that was maybe more entertaining to watch than a big loss like that. Meanwhile, we were seeing some interesting items in the financial papers. A front page article on the Securities Times zeroes in on China's economic challenges and kind of task of expanding domestic demand arduous and difficult.
It calls for urgency in implementing new measures, including reducing households and businesses, debt burden and boosting government spending. Yeah, and we'll get more insights into the Chinese consumer in the next hour. We'll hear from the CEO of the overseas operator of. You might have heard about it, of course, Heidi loud That's the hotpot chain catcher exclusive with super Hi international CEO Young Lee Trend coming up next. This is morning.
Welcome back. So it's it's really again, this is a story that's re-emerge time and time again, a chip story that's either led declines and some days leading gains on others, like today, TSMC and some of the related names onshore in China and some of the names there on your screen. And then, of course, and of course, also listed here, up about 2%. Right. The macro story, though, is we were in
between this US CPI print, which was a reminder that it's not going to be smooth sailing all the way down as far as the inflation story goes. And of course that big ECB meeting later today, that's a story there. Very quickly, of course, Chinese markets are slightly bad and we'll talk more on these equity markets with Timo from Goldman Sachs, who joins us in a couple of minutes. Welcome back to the China show. Here's a look at the a half hour into the session. It looks like know Asia is joining in on this rally that we saw in the U.S. So we kind of pushed away the CPI
concerns out of the U.S. and it really wasn't very able help lift the whole tech sector. And that's why we are seeing a rally about 6/10 of 1% in Hong Kong as well here today Dave. Yeah, the chip space and the open air deal reported deal at 150 valuation, bill billion valuation helping things along there.
The Asia-Pacific benchmark up about 1.2%. So obviously part of that is Hong Kong. A lot of that today is what we're seeing in Japan. We were up over 3% at one point.
So 2.9 is four coming off highs of today on the Nikkei, 2 to 5, 12 month point. The chip story showing up in markets like Korea, as you can see on your screens, up 1.2. Taiwan is also doing very well at about 2.8% there. We also have a rate decision coming out as well. So we're in between this US CPI prints
and the ECB later today. Where could they follow up? And if they do follow up with the first cut that they deliver, did they then follow up in October? Is the other question there, which I guess we'll get more clarity on a bit later on to ten intense on your screens. We're getting a little bit of a rebound as far as energy prices are concerned. But yet the headline on Brent was the dip below $70 a barrel this week.
Right. How do things look? Equity market rise across sector groups. And I think we've talked a lot already about what's happening in I.T. and tech, and that's really leading one
2.8%. MSCI I.T. index, first row left most side, some money coming out of real estate. But then again, it looks to be sort of a healthy, broad based rally as far as market breath is concerned. S&P futures unchanged following the move up overnight, the Bloomberg Asia dollar index. And we almost forgot the commentary coming through from arguably the most hawkish member of the BOJ early on giving Yen Bulls some reason to to buy into the yen today. So we're coming off of high dollar yen
as well, he said. We have to bring rates up to 1% percent by the end of this cycle. I don't know what he meant by this, but he is the most hawkish move. Yeah, so just bear that in mind as well.
Let's bring in Timo chief, Asia Pacific regional equity strategist at Goldman Sachs. He's back in Hong Kong, so we got to get him back to you. It's always a pleasure to have you here. You know, it's so interesting, right? Well, it seems like we thought this inflation was going to be pretty tame. And then there you go. Now I've got to say bye bye bye to a 50 basis point cut next week. Can stocks still rally if it's just 25 basis points? So quick answer is yes. I think they probably rally more with 25
than with 50. Why? Because 50 might be a signal that growth is weaker. And so markets are really trading the growth shock rather than the market knows the Fed is going to cut. Yeah. So and the futures are pricing is the magnitude of cut rather than will it happen. And I think the the the big ask here is
a moderate degree of rate cuts. While growth is still decent, albeit maybe decelerating, the US is a very good backdrop for equity markets, but a larger rate cut. But because in the event that we going into recession etc. would be negative because then markets are trading in the growth shock rather than the rate relief.
And that's what the bid ask is, by the way, that that's entirely consonant in the data. If I could just share one thing. We looked at all the times the Fed has cut started to cut a cycle going back for the modern financial history for Asian equity markets. 35 years there's been eight times the Fed cut. If you look three months after the Fed cut, the range of performed market performance is -22 plus to average zero. Basically what do you do in there? But if you had just one variable, which is was the US in recession or not in recession, the data divides into four neat groups each.
When the US was not in recession, your average return pretty much after the Fed started cutting plus 9% when three months after the Fed started cutting and you were in recession minus five. So it's all about what is the growth backdrop when the Fed starts cutting. And if we're right that the US economy can still grow and the Fed is starting to ease, that should be a relatively constructive backdrop for equities. So plus nine is is is Asian equities just to clarify that as well? Yeah, all the data I just said was Asian equities, but is broadly true also for the United States equity market itself, which you would imagine. Right. Right. I mean, I was going to ask you that as well. I mean, might this reawaken US
exceptionalism, what that means, of course, for your strategy? Yeah. So the interest is potentially I mean, the US is a very tough benchmark to be and has been for the last decade. Right. I think the sweet spot for Asian equities is sort of in the middle, by which I mean if US growth is super strong and everything is good and dollar strong, then why bother going anywhere else to the US does does great, which is what's been happening for the past decade. If the US is super weak and every time the U.S. equity market falls 10% or more Asian stocks go down maybe to a greater or lesser degree, but they always go down. So US will take everything down with it
if it falls a lot. The sweet spot for Asia is in the middle, where U.S. might be sort of range trading in a sort of okay. But then people would say, okay, let's take some risk elsewhere to make this better growth. So, you know, that's the sort of environment Asia can do.
Well, now you also have to overlay valuation. So U.S. equity markets obviously more expensive than Asia. So if we have an environment where U.S. growth is okay, Fed's cutting rates, dollar might start to weaken somewhat, you know, for obvious reasons. That's a decently constructive backdrop for Asia. And to just put a punchline on this.
If you look at average quarterly return for the regional index, when you are in an environment of stable to lower real U.S. ten year yields and, you know, decent Asian economic growth, your average quarterly return in that intersection of growth and and and and rates is about 3% per quarter. If you look at our full year, 12 month ahead forecast for the Asia Pacific expense index it's about plus 11, 12 divided by four is three. So like our forecasts are roughly in line with a decent not fantastic but like an okay equity market backdrop. There seems to be a bit of a pivot right in Asia to Southeast Asia. I want to get your take on that because I think for the top five markets this month have been in the region 100%, Yvonne, but it's been such an unloved, ignored region. Why why do you think the change in mind?
Okay. So there's a couple of things. One is you're absolutely right. So if you look at the broader index, for those who are not aware, Mexico is the is the Asian index in dollars. And if you plot that up, that's breaking out from a downtrend both in absolute and relative terms. And it's happened even as you correctly said, for a number of individual markets. You've had Indonesia, which got smoked in the second quarter and sort of over traded macro concerns to the downside on currency.
It's had a great quarter. Philippines, which upgraded about three months ago, also has done well. Malaysia upgraded a month ago, has is now the second best performing market. The region up 19%. And Thailand last week is the one that rallied on the value pack fund, kind of a national team support. And we were underweight, happily so because it done terribly. We said, look, don't say in front of that train. So we upgraded to the market weight.
So and even Singapore has done well. So the question is why? And I think a couple of reasons. One, a bit of the bloom has come off the road, so to speak, as far as the tech leadership in North Asia. So Taiwan's done great and, you know, parts of Korea as well. So I think it's been of like, you know, take some money of that trade.
We still like it, by the way. But, you know, it's a come under pressure, makes up and so forth. And so I seem to be in a bit more of a safe haven. Number one. Number two, very, very light positioning, so forth.
And actually, they've been printing good numbers. Earnings have been good. They're less sensitive to the whole sort of, you know, rate dynamic. The currency element is less of a
concern. That might have been back in the time when Bernanke was doing his taper back in 2011. So I just think you're coming off a low base. You have the ingredients for a rally. And then the last point I'll make is in
particular for Malaysia, which we had zero interest in for like six years, I'm getting all these incoming questions. Why Malaysia? It's a data center theme, it's the power theme and so forth. Yeah, And that's something which we've written about and others have have as well. And you know, utilities second best performing sector year to date. Malaysia's is actually a play on that in terms of incoming investment. So if I had to pick within that group in
origin because part of it they just happened to be part of Mxr so just happened to be Southeast Asia. But there seem to be idiosyncratic reasons why. One mark the Malaysia Data Center, Thailand. Of course, you guys, if you had to pick one, your favorite within that group. So we're over Indonesia and I think
that's sort of your you're sort of your base case overweight. If I could be so bold to say that because it's the big market, you've got a much bigger domestic demand story. You've got, you know, I think relative political stability in terms of the transition from Jokowi to Prabowo, the market, I think a bit oversold to the downside, as I said, on currency concerns. But we think that those are overdone.
There's a very strong both domestic demand and domestic infrastructure story. And the other technical factor is that banks make up 62% of the MSCI Jakarta index, and we think the Indonesian banks are the best value creators of the Asian banks. We cover in terms of accretion of book value. So for that bottom up as well as top down reason, that would be our top pick. All right, Tim, more with Tim Mo there, chief Asia-Pacific regional equity strategist at Goldman Sachs. Still ahead, opening his latest funding round set to boost the startup's valuation to 50 billion.
More on that scoop shortly. This is Bloomberg. Welcome back. You're watching a China show still with us here on the set. Normally based out of Singapore, he's here with us in Hong Kong. Again, Timo, chief Asia-Pacific regional
equity strategist, Goldman Sachs. Of course, you guys are having your conference here. Conversation is on China. Just so happens we're done with earnings season. 6000 plus companies terms. Is there a common denominator? Is there a common takeaway I can take awa
2024-09-14 02:44
