PDD's Warning Drags China Tech Stocks Down | Bloomberg: The China Show 8/27/2024
Half an hour away from the opens in Hong Kong, Shenzhen and Shanghai are watching the China show. I'm Yvonne Man with David in glass. Good morning. Let's get to your top stories today. Chinese tech stocks will be in focus at the open this hour after timaru's parent ptt falling the most on record after the company warning of slowing sales ahead.
Now, broadly speaking, stocks across the region are under pressure after big US tech drags in Wall Street, a heads up in video earnings. We're also looking at Brent crude and energy prices surging above $81 following a Libyan export ban. And Canada announcing terrorism, trying to make TVs, aluminum and also steel, prompting a warning from Beijing on economic and trade ties.
All right. There's a few jitters in these markets here right now. You take a look at what the Wall Street session did. It really it was the Max seven and really tech that led to that drag. When it comes to U.S. markets, U.S. futures are still in negative territory. We're feeling that here in the Asia Pacific.
And we're watching as markets like Taiwan open up the semiconductor space. Certainly very much something we're watching given what we saw with the stocks index yesterday. There are some nerves leading up to this in video earnings on Wednesday in the U.S., Dave. So that certainly is what is wobbling right now.
And really we're seeing a little bit not much movement in treasuries, though, and we're watching Brent, markets. As Dave mentioned, they're given some of the threats to supply in Libya. There's also geopolitical tensions we're seeing, Brent still holding still around the $81 level there. Shanghai crude is also following through. We're seeing upside about two and a half percent or more this morning. Flip the board. The dollar is flat this morning.
It's not so much that much of a story, but really what we're hearing in earnings, whether it's in video, whether it's PDT, we're also watching the Asia Semiconductor stocks as well. Just given what we saw with the chip stocks in the U.S., TSMC is just coming online. We're slightly seeing some downside there in Taipei.
But Aventis, a disco, sees some pretty sharp declines when it comes to some of these Japanese chip stocks. This morning, you take a look at how the approach to the open is looking like as well. We talked about that plunge of 29% in one day. Now, as I go, a dragon did this, but that PTT plunge definitely sent their rivals like Alibaba and JD lower overnight as well. So we're watching that in the Hong Kong open today whether we see some sort of follow through but they're basically pretty warning about the revenue growth will inevitably dwindle. That was the sort of the warning about
the consumer that is weighing on this market here today, too. Yeah, you know, I'm looking at initial pricing right now. And, you know, I should note this could change in the next few minutes or so. But Alibaba is now being quoted below $80 right now and we close at 83, 84.
So that's about it. That's a that's a 5% move, give or take. We'll see how this progresses. And of course, it goes into what we're tracking here today. I'll use the past tense bullish break. We were on the verge of that on the Hang Seng China index. And I'm guessing some of that, the drag we'll be getting from the big tech today, we'll push that back a couple of more days. We did get a massive move yesterday. Just keep in mind in Hong Kong property
on the back of this sort of Fed rate cut conversations, we might be giving that back as well. In terms of data coming through today. Trade numbers from Hong Kong later today, industrial profit numbers coming out of China in 27 minutes from now. And speaking of earnings and nongfu spring. All right. Some of the other companies set to report later today. Right now, in terms of sectors to watch, we talked about oil up nearly 8% on Brent over the last three or four sessions. We're looking at energy. We're looking at Shanghai crude
contracts on the back of the conversations and tariffs from Canada on things like steel and aluminum that those sectors are to watch, of course, and of course, e-commerce for very obvious reasons, given the warning and the warning signs and all of these downgrades coming through. The price targets for for PTT, as Juan is pointing out, 30% drop overnight and we are likely to see that going into this Tuesday session Don. All right. Let's get more on those numbers and bring in our tech reporter, Annabel Jewellers. Annabel, it's it's a dramatic drop, the most on record on the stock. What do you think was what worried the market the most? And what we heard from the PTT head was really the repeated warnings about the outlook. I mean, you think about the competitive
environment within China, you've already got these established players, you've got the new entrants in this space and all of them are really trying to reach consumers and get them to dip into their wallets at a time when they've already been cautious for for a variety of economic reasons. And so the co-founder, Chen Lei, stressing that the current trajectory of the company isn't sustainable and saying that multiple times really made investors very nervous. You take a look here at that share price reaction. As you say, that huge drop that we saw, the biggest on record. But think about the context of PD as
well, because it has seen quite a tremendous run up in its share price at one point, actually even overtaking Alibaba in market cap, you saw its founder becoming the wealthiest man in China as well for a brief around two week stint. But still he did do it. And really that optimism around PD and its tamer platform in particular that now seems to have changed quite substantially. As I said, the co-founder Chen Lei, saying that competition, it's here to stay. It's only going to become more intense,
not only domestically but also internationally. You've got other players like Wal-Mart, Amazon, They're trying to keep pace as well. And Bill, what is there a regulatory angle to that we need to sort of highlight as we try and form, I don't know, an opinion of where this goes longer term. Certainly it really plays into it. You've got all of these concerns,
particularly in the EU, around the rise of these low cost players and the influence that they have on the competitive market there. What makes teams really stand alone or stand apart model is that it connects factories directly with customers and it cuts out middlemen in the process and as a result it can offer lower prices. And so that has been a real concern, particularly in the EU, where they've got a duty free threshold for online purchases of around €150, around 160 USD. That's what's now possibly being reviewed. And the main focus of that is these Chinese e-commerce giants like Tae Moo AliExpress XI, and that's according to people that have been familiar with the matter, but certainly something that could also weigh on Paddy's outlook at the same time that you've also got other players that are trying to catch up to its model. As I said, it's got that distinctive
model and we've actually seen Amazon, for instance, looking to offer something similar on its platform as well. So you've not only got the regulatory risk, you've got also that that risk that the more established players also start to offer similar versions. And I think leading up to some of the earnings from some of the tech giants we got last week or so, Belle, was that there was a theme that was emerging that the incumbents were fighting back the likes of Alibaba. JD In this whole e-commerce fight is there's this sort of what we're hearing now that the thesis is really changing around some of these e-commerce names. Yes, certainly.
I mean, you were speaking, for instance, last week saying that can the elephants dance again? But is is it Alibaba? Is it Tencent that once again can be more competitive? Certainly they've really made that effort to streamline their operations, to cut down on costs, to refocus on their core competencies. And that really starts to be paying off, perhaps didn't show up entirely in the latest Alibaba numbers, but still, it does seem like they are turning more positive once again. Still, though, actually, if you if you talk to our Bloomberg intelligence team, they're saying that they can still manage 20% revenue growth on the year going into 2027.
That's their faces. If they can continue to add to their e market or rather e-commerce market share via the new app outside of mainland China. So they're still optimistic on them being able to attract more merchants, more customers, even if they need to see margin growth in the nearer term and also on their expanding global ecosystems. That's another positive factor. So Bloomberg Intelligence is more popular or rather more positive on the outlook. But still, of course, it does seem that
the the investor sentiment is shifting slightly around the more established players. Bill, thank you so much. Bill. At about this hour, a tech reporter in Sydney. Yes, And as Bill is pointing out, while
the outlook longer term might be somewhat still rosy, we need to deal short term with likely the market crunch we'll see today from, of course, the like and bottom of your screens. We are likely going to get a drop at the of a sharp drop at the open. In the name of the likes of Alibaba and also JD JD dot com right. From one top story to another. Canadian Prime Minister Justin Trudeau has announced new tariffs on Chinese made EVs aluminum and also steel, joining Western allies in taking steps to protect domestic manufacturers. We will be introducing a 100% tariff on
Chinese made electric vehicles and a 25% tariff on Chinese steel and aluminum. But actors like China have chosen to give themselves an unfair advantage in the global marketplace. For more details on the story, our China correspondent Mimi Lo is here with us. Yeah. What do we know? Yeah, well, 100% tariffs on EVs, 25% on steel. Does that sound familiar?
I feel like we just talk about that a couple of months ago is similar to what the Biden administration has announced on Chinese products. And not surprising here because Canada is an export driven economy. It sells three quarters of its exports to the US, so it's aligning very closely to the U.S. here. The Canadian tariffs will target not just fully electric vehicles, but also some hybrids as well as trucks, buses, delivery vans, pretty much closing off the entire sector to Chinese producers who still currently don't have a foothold in Canada. So this is a productive move here. And the Canadian government is also looking to restrict incentives for EVs to those that are made in countries that have a free trade agreement with Canada. So obviously, China is not on that list, but Canada does have a free trade agreement with Mexico and with the US. So could Mexico be that final gateway
for Chinese producers to enter North America? That's a big question. And Biden is planning to build a plant there. They said they're not planning to export from Mexico. And you saw that put there. The finance minister of Canada was saying that China's Chinese overcapacity is driven by their abysmal record on environmental and label labor standards, saying that Canada will not allow a policy where that is built upon abuses of Chinese worker and pollution on China. But obviously, China has hit back, saying that its overcapacity, rather its capacity is driven by domestic technological innovation and domestic competition here. Yeah, View is national security adviser Jake Sullivan. I mean, after speaking with Trudeau,
he's heading actually to Beijing today. What's on the agenda there? Yeah, well, obviously, these tariffs, the investment restrictions, the unilateral sanctions are going to be on the agenda. US China has been very angered by US actions to rally its allies, to take these concerted actions to limit or curtail China's rise as Beijing sees it.
And of course there is Taiwan, China's red line. China's foreign ministry said that this is something that they want to raise, especially after the US has been repeatedly provoking China when it comes to Taiwan by increasing military backing, repeatedly saying that they are going to come into Taiwan's defense in the event of a Chinese attack. And for Jake Sullivan, his agenda will likely also include raising the issue of Chinese backing for Russia amid the Ukraine war. The US has been accusing China of selling those dual use equipment that could aid Russia in the battlefield and soften the impact of those sanctions on Russia. But again, this is Jake Sullivan, likely
to be his last trip before the US election. So U.S. officials have downplayed any sort of concrete breakthroughs that can come out of this because there's so much uncertainty over whether there'll be a change of administration in November. And U.S. officials have said that he will not be speaking on behalf of the next the next administration, that this is just a part of a series of regular meetings between the two sides to maintain communication, to keep up that pledge that President Biden made at the end of last year.
All right. And think it would be low. There are China correspondent with the latest when it comes to tariffs in Canada. And still ahead, we're talking all things fixed income with another fed officials signaling that the central bank is on track for rate cuts. We have analysis from a union
investment. Coming up next, we're going down the open of trade in Shanghai and Hong Kong. This is the China show. Well, to my mind, we've been on this path of ready to adjust policy rates for several months. We just need to get a little more confidence that inflation was truly on its path to 2%.
And I wanted to see the labor market come into balance, but I think that's completely happened. And the risk to our goals are now balanced in the time to adjust Policy is upon us. And that was the San Francisco Fed president, Mary Daly backing, of course, Chair Jay Powell's outlook and calls here for coming rate cuts. Let's talk about the implications here in fixed income. Is everything priced in at this point?
Fiona, time is here with us on set. Fixed income CIO at a union investment. Good morning and nice to see you. I mean, if we could start off the start of the Fed and this this coming rate cut and let's hope it comes. Has been, I think, well flagged and well watched by markets.
And I'm wondering, when you look at a Treasury curve, do you think is there still value right now, the Treasury curve, or has all of these things been priced in? I think I would like to look at it from a more medium of we are like, what is the inflation expectation and that we will come will way components. So now we have a core inflation in the mid to to high 2%. Right. And the real rate if you look at our historical it will be around 020. 5%. So I would think that for this whole
rate normalization cycle for the next two years, the term they should be around 3 to 3%. Then it come to the Treasury, right? When we have a term only terminal rate leaders, the Treasury for the two year can be swinging too low three and the ten year can be met three to high three. Right. So usually up before the rate cuts or when we have the weaker, then the curve will steepen. So we have been doing that for the last month and it has been mobilizing. So we would assume a still more steepening to come. So I guess some people will look at usually how many rate cuts we have in September and then this year. I always think that is a better to look
at it in a medium term of view. And from the point of investor, that is a time to invest in bond, which you still have a high yield carry which is going to still have the rate normalization. So you said this whole debate about whether a 25, 50 basis points, don't think about that at all. How important is it to actually talk about the pace of these cuts? Yeah, I think the guest poll housed in the the the Jackson Hole speech have confirmed that September will be the start of the easing cycle. And and he shift the focus from
inflation to a labour market. So then the labour market data is very important and will have more signal from the number to be announced on six of September. Right. Right. And that will determine whether a 25 or 50 basis point for September. But I think the market has also pricing
30% chance of a 50 basis point for big in September. So it won't be a big surprise on either one's if they give us a. Yeah. Okay. Well, I guess let me take it back then to the medium term.
Right. You mentioned if if neutral is at three based on real rate average, that's ten cuts from now. Right. About ten cuts. Markets have price about six or seven. So my question is, what do we do? We go back to three. Given that inflation has come back and I guess the historical average is somewhat pulled lower because we didn't have inflation for 15 years. So the assumption I just mentioned is
wrong. Two one half and high two, Right. Okay. So actually this quite I think is quite reasonable is not even to the target of 2%. Okay. So I think that is still quite well is say in terms of the about 100 basis point rate cuts for the next two years.
Okay. Just given the Fed pricing and we've seen basically spreads in Asia, bonds, dollar bonds tighten the last few weeks or so. Where are the best places to really look at these higher yields now? Yeah, I think there are actually still places that we can look at in Asian bond because there is still quite divergent in terms of credit spread within different sector and rating.
So you see a quite a lot a lot of spread tightening maybe in single sector, but in the triple B sector they are still quite y opportunity in terms of spreads, especially some of the issuer that we issued this year, they they come in wide. So these are the pockets of opportunities that we can tap into. Yeah. Yeah. I notice you're also constructive and positive still on, you know, Chinese tech e-commerce and certainly there is yield on the table. And I'm wondering not sure if you saw the news overnight. You know PD the stock drop 30% and
questions now whether. E-commerce in China is as healthy as we you know, we were thinking two days ago. Does that change your your call on credit in Chinese tech? Because I think is quite different if you look at it from a credit fixed income investor, Pontville, because we don't we just look at growth. What is most important is their leverage ratio. And we see most of these TMT companies
have a cash that is actually more than that debt in the where we are a healthy position. So as long as their financial ratios stay in that way, then we are still where we constructive. Yeah. In other sectors that you look at across Asia that you think are still opportunities I think Asian high yield is still with the one also have opportunities. If we look at Asian high yield the average rating is double B compared with the U.S. single PE. We actually have over 70% of the high yields in WB rating compared with the 50% in the U.S. and we have a record low default rate.
If you take our Chinese property is below 1% lower than the 2% in the U.S.. Yeah, and actually it now is very diverse whereas of high in the Asian high U we have the largest countries is actually India and India. You have a lot of industry to choose from whether it is we view about energy or some infrastructure like our ports and total role.
And as well we have some non band financials. So and the most important thing is Asia did not have the intense, very high cycle in the developed markets because of their low inflation. So they can refinance in their local bond market and Bangalore markets which enable them to call callback early tender many of their U.S. dollar bonds and make the supply very tight. And so we have a much more resilient markets compare if we have a macro volatility, just like what we see in the last month, we actually see investor come in to buy and they they even tap into the issuer from the issuer directly so that they can lock in some good opportunity to buy when you have the lower mark to market in prices. Fiona thank you for your insight there at fixed income CIO at BMA Union Investment. As we expected, we are seeing quite a
dramatic movement when it comes to some of these tech stocks here today after that warning from PTT and their earnings. And there you go, Alibaba, JD, both falling some 4% or more quite shows down a little bit less, but we're still talking about 1% losses there. So we'll countdown down to that open. Coming up. This is what the pre market on Hong Kong is looking like here today.
Obviously, HS tech is going to be in a bit of trouble here this morning. And we're watching very closely what's been going on with KGB's. Is the PEOC losing a little bit of traction now in their way to restrain some of these bomb balls out there are 216 four your Chinese ten year but got the Hang Seng down about three quarters of 1%.
This is Bloomberg. Okay. The big story, of course, is in e-commerce and in tech and some of the changes here, too, on the back to the PDT story. Yeah, we've seen actually several
downgrades on the stock already in the 80 hours. Cut to neutral at Citi, Alicia Yap and her team say, look, the firm struggled to reconcile whether what's really leading to this cautious tone is it intensified competition. Is it a shift of consumer patterns or anything else? So the optical raised a buy at HSBC and Jim Property Services also raised a buy there at the bank as well.
Of course, stocks in Focus are watching out for earnings, Earnings, earnings, Yes. And two sports is coming out later today. Petro China reported yesterday and trip.com a couple of a couple of hours back, about 2 hours back. And actually quite a big beat there as far as Trip.com is concerned.
As you can see, that is being reflected in the stock price in the early going for called but 9 HKD. Citi to the upside here going into the open today we're looking at tech and really circling back to the e-commerce space where the interest tech index there we got on your screens as expected really feeling the brunt of that warning out of the company overnight. The opening bell 3 minutes away. This is the China show.
Welcome back. Our watching the China show might be a bit dicey here today. If you take a look at what the tech sector is doing, not just in Hong Kong, but really globally. Speaking of video. Earnings are on tap on Wednesday in the U.S. So there's a bit of, I guess, nerves
letting into that, a lot of whether they can actually deliver once again. But also when you take a look at when it comes to HS tech and it's pretty that story that overnight that really is sending some shockwaves across the e-commerce space in particular so Alibaba JD.com already some steep declines in the pre Dave. Yeah and it didn't last very long while these the reign of the billionaire founder at the top of China's rich list because of a 30% drop I think like two weeks yeah two tweets at the top.
The other thing that didn't last long was that positive breakout out of Hong Kong yesterday with the Hang Seng China index actually was poised to well before today, poised to actually open above the 100 day moving average. The Hang Seng is there. Let's see if that holds, of course, as support today in terms of data that comes out should be out any time now. In fact, you have industrial numbers just show profits specifically coming out today and also Hong Kong trade numbers in terms of earnings we did get from Trip.com, we are still yet to get and to sports, really another snapshot
of consumer, the health of the consumer there as well. And there we go. Industrial profits numbers are now up 3.6%. That's year on year, year to date. Okay. Let me just rephrase that. It's it's it's simpler. So this is a gen to July number, up about 4%. Okay.
So July is up 4% year on year. January to July is down about three points. Okay. You to the average there. Okay.
The open in Hong Kong is looking like this. And of course, they're within that space. We're looking at tech, a sector 1.4, only down 1.1 right now. So we are paring some of the early, early pressure. Alibaba, bottom of your screens, certainly within tech you focus in on e-commerce I quite show Alibaba JD dot com a lot of this companies that are you know sort of have similar overlap with when pinduoduo and there you go JD.com down about 4% in the early goings but very very briefly movers of course to tell you about. So we had news of course, out of Canada
and tariffs there. So we're looking at some of this EV place trip.com also. And as you can see, going against the grain and this is a good news story within the China earnings story, this big beat out of trip.com, as you can see, bottom of your screens. 725 the estimates were almost a full up, a full two renminbi per ads lower than what it come up with. Yeah, and certainly the story raises a lot of questions on really where this consumption story goes.
You know, are we really seeing signs of recovery? Doesn't seem like it, just given what we're hearing from the earnings so far. Let's let's get the economist's perspective and bring in Grace O'Neill, senior China economist at Jp morgan. Yeah, the consumption story still seems to be the same, that we're still talking about dwindling sort of what people are looking at in terms of the spending and the like here.
GDP forecasts for most of you and your peers have basically been very close to not even they're close to the 5% target. You've recently had to revise yours as well. Yeah, indeed. We have seen a pretty volatile number this year. You had a good first quarter, but that quickly began to lose momentum going into a second quarter, which is quite similar to what we saw last year.
What is different is that this year the government actually came in to recognize the weakness in momentum and started to come through with policy support from about May onwards. The problem is that for some of these measures, either they are seen as not enough such as that for the housing sector or the feet through to the real economy is seen to be quite slow and modest, such as the support for infra. We saw infrastructure investment weakening to a two year low by July at 2% growth.
And then on the consumption side, even though policy is recommending further support for consumption. If you look at household income, expectation and confidence, it still remains on the soft side. I guess the good news is that for July you did see a little bit of pick up in retail sales, but the overall momentum remains somewhat soft.
So as a result, we have been revising our forecasts. Our latest growth forecast for the year as a whole is 4.6%. So that is somewhat below the government's growth target of 5%, even though we do expect the policy support measures to gradually come through to the economy, that's probably more of a late third quarter or fourth quarter story. So that's probably not enough to bring
back growth momentum to say 5%. Yeah, I think you're you're not alone. I mean, most of your other peers also have a forecast of of below 5%. What kind of drag do you still expect from the property sector overall in terms of growth? And what is the best case scenario than if some of these measures that they're putting in place start start to take effect? Yeah, to be very fair, some of the demand side easing measures have been pretty notable so far, especially in through the course of this year. The problem is that household sentiments
in terms of their income outlook, in terms of their job stability remain somewhat on the south side and people still have yet to see signs of bottoming and recovery in prices as a whole. So they are kind of holding back in terms of potential home buyers. The government has come up with a pretty interesting program to push for destocking or a reduced inventory in the market by encouraging local governments, local authorities to take over the unsold finished stocks so as to help to clear the market. And the people see came up with a 300 billion reading facility to help to support the funding of that. The problem is that the progress on that
front is still very, very slow, partly because of the diverging incentives from different players. So the developers are not very keen to cut prices, but then the local authorities are concerned about rental return and return on their project. So in that regard, there has still to be more push from the policy side, especially from the central government, probably with a more co-ordinated central government LAT program going forward. Yeah, we've been crunching the numbers at Bloomberg about how budget spending has been and basically we've seen land sales see a record fall. Does the government need to then raise
the budget deficit in order to borrow more? Yeah, that is not in our baseline forecast at this moment. What we are seeing is that if you look at so far this year and the fiscal support has been laid out quite clearly at the NPC, but the progress has been rather slow, especially if you look at, say, the the speed of special local bond issuance that's significantly behind the regular pattern and that partly reflects concerns such as the lack of viable investment projects on the ground. So in that regard, what we have seen is the government, central government has been pushing for acceleration in the issuance of special local government bonds, which has been happening. And then with widening in the usage of the proceeds from these funds. So support of equipment, upgrades of consumption subsidies and even some proposal to help with the destocking in the housing sector. So still we see the room going forward
to better and more efficiently utilise the fiscal room that has been planned but that has not been implemented so far. Is is the gradualist approach working so far? Is gradually working, but in a very somewhat slower than expected pace, which is why our forecast is below the government's around 5% target, which basically means that if they are really very keen to see growth at around 5%, then you probably need to see some further policy kick up. But at the same time, I think there is the concern of you need to have more room, potentially more room for policy support going into 2025 given the still very much uncertain geopolitical outlook, trade policies and so on. So in that sense, from the government's perspective, they probably also need to consider not just for 2024, but the what I was about to say, I mean, the other side there is is there actually merit to focus on high quality growth and not simply address some of the short term problems because of everything else that's going on. For example, it's not as if the economy is crashing. Exactly.
So when we talk about high quality growth, there are various ways of interpreting that. I think so far in terms of what the policies that we have seen is to focus on coal technology, industry, upgrade, green economy, big data and so on. Those are strategic new industries that typically focus on the manufacturing industry side of things and enhancing China's production capacity.
We have seen that in the macro numbers. We have seen that in the industry data. I guess the concern here is more like when you talk about more sustained, high quality growth. What about the other side of the picture, the consumers, the household income side of things, the private confidence side of things? That is the area where we are still seeing pretty much kind of a lagging behind in terms of growth momentum in addition to the still struggling housing sector. So that's where we are still thinking that policy needs to step up further. Also, when it comes to the bond market, I'm just wondering, I mean, the weaker economy is why we're seeing this bond rally almost show exuberance in some ways. Do you think what the PBOC is doing? Are they are they losing traction to trying to restrain what these bond bulls are really kind of betting on right now? Yeah, I think that's a very interesting issue right now. I think when when we kind of talk to
investors about investing in China domestically, internationally, it seems that, yeah, the CHP market is one area that there is consensus that that is still interested. There's still a lot of interest, but that's basically refreshing reflecting the macro trend of a still rather softer than expected growth. On ongoing concern about lack of pricing power, as well as the need for the macro policy to continue, especially on monetary policy front, to continue to ease interest rates in a way the central bank is getting somewhat concerned in that the market might have run ahead of itself. Yeah, and it is concerned about potential financial risks down the road if interest rates will begin to come back. They kind of keep to refer to what happened in the US first quarter last year in terms of the regional bank crisis and what that might happen if there is too much concentration of market focus on the Treasury, especially on the long end.
Speaking of that, there's a story out in the Bloomberg today, and one call is that when the Fed starts cutting rates, that rate differential shrinks. And all this money that Chinese corporates have parked outside in higher yielding assets suddenly comes back into China and drives the currency stronger. Is that a possibility, do you think? There is always the investor interest on that front, given how much we have seen the private sector, especially the corporate sector, hoarding US dollars in the past two years or so. Yeah, and our strategists are seeing some pretty meaningful amount of excess of US dollar holding by the corporate sector. I guess the the issue, though, is that firstly, it depends on how much they fat is going to cut rate and the rate differential is still has yet to meaningfully narrow from here.
The other is that there is still forward looking concern about, again, geopolitical risk trade policies, concerns which might pose some medium term a drag on the CNY going forward. So I guess that the overall situation is not as clear and therefore corporates still seem to be quite cautious in how they will allocate their assets in yen asset or US dollar assets. Grace, it's it's nice to see you. Yeah. Thank you. Grace Aung there, senior China economist
at Jp morgan, 12 minutes into the session and we're looking at the clients across these cash markets. More on the gyrations in the equity market just ahead. This is more of a. All right. Welcome back to the China Show.
Some good news. Trip.com shares are on the up, as you can see, up 5% reporting earnings a couple of hours back here, adjusted earnings for the second quarter per ads, as you can see, beating estimates here. Let's bring in Angela Connelly, our senior research analyst at Bloomberg Intelligence, for a closer look at what was the major what were the major drivers for the company? I think it's all about the Chinese traveling outside Germany abroad, because domestically I think people are still traveling, but perhaps spending is still kind of pressured. But it looks like people are still willing to get visas and travel to outside. So that's the one driving of the whole consumption. So it looks like as they show during the
earnings call, is that the GMV per traveler on the platform was actually the same as last year. Why? We are concerned about a consumption downgrade in China. So I think it's actually a very different number from what we expected before. Yeah, I mean, these numbers basically defy this whole kind of consumption downgrade story in some ways. How are these Chinese travelers affording these? Yes. So it looks like when they travel inside China, they try to go to cheaper destinations like Songdo and other places. But when they go to overseas, maybe
their budget is a bit better. And it looks like if you check out the numbers of what the revenue growth of by segment, the ticketing was only up by 1% year on year, while the accommodation was up much more than that. So that is like probably the air flights are becoming less expensive now. So people are allocating more budgets for like accommodations, like hotels when they go to outside. So I think of this type of like a mix is
helping consumers a bit because they can spend less money on flights. Okay. Okay. Yeah, Yeah. You save on that same one. Always help accommodation, right. Any insights on in terms of overseas
travel? I think it looks like people are still also willing to go to China because the company has been highlighting the China inbound. Tourism was also working out pretty well. But I think a still, though, a major driver from our perspective is China's up on tourism. They said that the flights was recovering to 80% of pre-pandemic levels already. Why are the like, you know, ticket prices are still elevated compared to pre-pandemic levels. So I think it's a still expensive, but people are still willing to go outside, which is love sounds pretty good. While our restaurants are still
suffering. So maybe they want to eat less, but they still want to go out and learn something new. Yeah, eat less, fly more. Yeah, that's pretty loud. That's only pray. And so I think Angela li, there are Bloomberg Intelligence senior research analyst for gaming and hospitality, some of the big corporate stories we're following out of China today. IBM is said to be shutting down a hardware research team in China, in part due to geopolitical tensions between the world's two largest economies. A source says the team focuses on
servers and storage, and the cuts will affect less than 1000 employees. We're told the job functions will be relocated to other countries, including India. And Taiwanese dumpling changing. Tai Fong is closing over a dozen stores in mainland China amid slowing consumer spending. Cities affected include Beijing, Tianjin and Shiyan. The firm says the decision was in part due to the expiration of its business license.
The Chinese market has seen a price war among restaurants to lure increasingly frugal consumers. And Nike's Jordan Brand says it's bringing several of its top sponsored NBA stars on a tour of China and a new push into a key growth market. Luca, I saw I see this real gigantic millions on a Jayson Tatum of all signature sneakers with the Jordan brand. The players will attend events in Beijing and Shanghai as Nike looks to revitalize its business in China, and Expo says is looking for a factory site in Europe as it seeks to mitigate the impact of planned EU import tariffs. The CEO, Herschel Pung, told us exclusively They're in the initial stages of selecting a site. He says the EDI maker wants to build capacity in areas with relatively low labor risks and expands partnership with Volkswagen to help the company grow its gross margin in the second quarter from -3.9% a year ago.
How does one day change Oliver? Volkswagen has more strength on globalization, quality manufacturing and supply chains. We have more advantage on artificial intelligence software and electrical and electronic structure. So I hope we learn from Volkswagen strength to make up our shortcomings. Right. And speaking of big interviews, coming up is the biggest one, arguably globally in the next, what, two days or so. The Boss and video Jensen Huang will be sitting down exclusively with Bloomberg Television after they report the second quarter results. Bloomberg Technology special coverage
begins 6:30 a.m. Thursday. If you're watching out of Hong Kong, that's about 630 in the evening, of course, if you're watching out of the East coast. Plenty more ahead. This is Bloomberg.
Well, San Francisco Fed President Mary Daly says it's now appropriate for the Fed to begin easing policy. She told Bloomberg why it's hard to foresee anything preventing a rate cut next month. Well, to my mind, we've been on this path of ready to adjust policy rates for several months. We just need to get a little more confidence that inflation was truly on its path to 2%. And I wanted to see the labor market come into balance. But I think that's completely happened. And the risks to our goals are now
balanced in the time to adjust Policy is upon us. Is there anything that could derail a cut in September? To my mind, that would be hard to imagine at this point. I do see that adjusting policy is appropriate. We don't want to get ourselves into a situation where we're keeping policy highly restrictive into a slowing economy. And remember, every time inflation comes down, the policy gets more restrictive. And I think that's a recipe, if you will, for over tightening and injuring the labor market in growth. Well, the chairman and basically the
Open Market Committee said coming out of the meeting that the downside risks are greater to unemployment than to inflation. How big are the downside risks to employment right now? Well, that's the very important question. And so we definitely have to keep that in mind, because, as you know, the labor market, when it starts to adjust, often has adjusted abruptly and significantly. But right now, we don't see any signs of that. You look at initial claims for unemployment insurance, you look at early indications of layoffs. They're just not present.
And so that's not giving us any signs that there's a deterioration. Importantly, as you know, the Reserve Bank president spent a considerable amount of time talking to contacts, businesses, workers. We're really not hearing signs that that firms are poised for layoffs.
What they are doing is managing headcount, making sure that they really want to refill a job before they do it. But at this point, I don't see any warning signs of weakness. But we want to make sure that we are adjusting policy as we go so that it's ready for the economy we have and for the economy we're likely to get and ensure that we don't end up in that situation where we see real weakness. Right. There we go. Mary Daly, the Fed president and San
Francisco Fed president speaking with Mike Key, of course, there on the outlook for rates moving forward. Might have to do with the move we're seeing in the Japanese currency of late and the drop in the US dollar against the Japanese currency. We are getting some comments coming through and quite honestly, nothing groundbreaking coming through. The finance minister who is speaking in Tokyo, a couple of things here that they continue to watch the impacts on the Japanese economy. Okay.
That they're hoping for a debate on fiscal policy. And this is might be interesting, of course, as we move into perhaps the next risk to watch as it pertains to the Japanese macro story, because that LDP election that is set to happen, of course, this time next month is at about the same time as the BOJ meeting taking place. So watch out for that and mark your calendars now, I guess. Yeah. So I mean, I guess we're coming a little bit more on what's driving this yen strength of late, but what's really driving this this high tech story is what we're hearing from Alibaba.
Do they have a reaction to that after we heard from PD that that record drop in the 80 hours overnight is certainly sending some jitters across the e-commerce space about just how strong or weak this consumption story is. Alibaba is down 4.6. JD Dal comes down some 5% trip that we talked about. That's the bright spot in this market
today, a pretty basket of beat when it comes to the earnings there. And Petro China as well up some 2%. Yep. Looking at the broader read on these cash markets, we're down to the Hang Seng index. More coming up next.
This is Bloomberg. Welcome back to the China show. Here is a look at the ages I a half hour into this session. And as you can see, we are seeing a
pretty sort of sort of day here, modestly lower, down about half of 1%. What to keep in mind is Asia's tech. That's where we're seeing the biggest drag here today. The likes of Alibaba, Judy, are falling here this morning on the back of what we heard from the head, talking about it's inevitable that growth is going to start dwindling for them. What does that mean for the whole e-commerce space? You know, you would think that maybe there's a sign that maybe, you know, Alibaba video game bought a little more market share and that's why you're hearing these teams. Yeah, the team was in the XI and they're saying that.
But then again, and you're actually adding to more worries about this recovery story of a shrinking overall pie. Right. And, you know, I think the market reaction to what wasn't really something out of the blue, a 30% drop in the stock price. Right. And that takes us also into how in video and the chip stocks have been trading going into their earnings season. And you got to wonder whether the bar is
too high. And again, in video, down 2%. Every single stock on the Sox index was down. You're looking at some of these chip stocks trading in the region here. Tokyo electrons down about 2%. So this is partly the drag. You're also looking at drag from Chinese tech. We're looking at declines just about on the benchmark today.
Let's flip the board's place and you have a sense of where we're trading there. You also have a sense of treasuries, two and ten, bottom of your screens still quite depressed, 3 to 1 on your ten year yield. And Brent prices is the other big story we're tracking today, up nearly 8% over three days for paring back.
And certainly the risks brewing not just between Israel and Lebanon. Of course, the latest one was out of Libya and of course, Missouri there. As far as some of the output and the exports are concerned.
And yeah, so we are awash with risks. And certainly when you look at these markets, it doesn't seem repriced for a slowdown when you look at stocks. But when you look at bonds and gold, it seems like we are anyway. We can get to that head scratcher a bit later on. But yeah, to the point you were making earlier on Baba and some of these tech plays here. Yeah. I mean, you just take a look what what they're doing here right now and they really mirror what we saw with the hours overnight.
But it's really the left panel, right PDT Holdings, there you go, dropping some 29%. The biggest drop on Rick. You take a look at Colin Huang, the punitive founder's fortune's his number one richest man in China ranking I think lasted only about two weeks. Yeah talk about now. I believe he's like 40 right now. So just one day the loss of fortunes was that much.
And so you take a look at that and really you're seeing the likes of JD dot com down some 4 to 5% here right now. So it really was about what we heard from team was owner warning of slower revenue growth. Let's bring in Catherine Levitt, Bloomberg intelligence senior analyst. She joins us from Singapore. I mean, the drop was dramatic.
Was it warranted, you think, Catherine? Right. Do you know what? If we take a step back? The company missed revenues by 3% in second quarter and then had an excellent margins rebound in the second quarter. That was actually up 12% above what people were looking at for the operating income. So it wasn't that, but a set of results, a set that, you know, it is the guidance on top of what we have actually seemed to do on the company whereby we seeing increased scrutiny from a regulatory spend standpoint for turmoil as SD company expense overseas, as well as Sheehan tussles with, you know, war on certain patents rights, etc.. I think that's where the bulk of the uncertainty is coming from for. Okay, So why how would you explain the market reaction that why focus on the short term when maybe the medium term story isn't as bad? Well, now, clearly there is a question mark to whether, you know, we will get into a worst case scenarios of any regulatory penalties imposed on Chinese backed platforms like Turbo as regulations changes. And, you know, we are seeing changes to
which, you know, the cross-border e-commerce platforms are selling into overseas markets as well. So, you know, that is where the uncertainty is coming from. For companies like Didi. What does this mean for Alibaba? Does this actually mean that they're there have made an impact in China and overseas and we expect to see more positive news from the company. Right. That's a good question, Yvonne. I guess definitely Alibaba is making a comeback in China, but you know, whether they will be able to actually better in the environment whereby, you know, overall sentiment slows. That remains to be seen. Now, Alibaba is also investing more into
its overseas business, hence the losses that we've seen for IDC. That could potentially widened over the next couple of quarters. So I would say that, you know, they are pretty much in the same boat as. Okay. Catherine Lim in Singapore for us for senior analysts giving us their initial take on this massive slump, of course, in PDA and the guidance coming out of the company. It wasn't just the stock price, of course, And of course, the the the founder, Colin Huang, also took a bit of a hit, as Yvonne is pointing out earlier on in the before the drop in the stock, he was effectively a gold medalist on the rich list, and now he's barely made bronze.
He's now at number four, as you can see on your screens just ahead of Jack Ma. And okay, I'm wearing my glasses, but clearly I'm not Zhongshan, China's number one Mawa tung with ten cent, of course, and Zhang Yiming is its number three. Number four, of course, is calling Huang, who took a big, big beating overnight in terms of net worth. Yep. Tumbling by $14 billion or so.
The biggest one day loss ever. Let's bring in John Howard's Asia CIO, Guy Lombardo, here to tell us a bit more about the whole China story. It seems like there's still a lot of questions on why foreign investors should come back into this market. And I think this is a clear example of
why not maybe. Well, I suspect that the the low hanging fruit, the the easy money is clearly a thing of the past now. And the macro backdrop to a positive or supportive outlook for corporate revenues is clearly under pressure, as we've seen just in the last few days or so. I would hope actually that accelerated monetary easing will provide a little bit of inflation for these margins, these corporate margins, which clearly are under pressure, clearly been subject to compression and actually a little bit of inflation I think will take the pressure off that. But overwhelmingly, I think now this
disinvestment story is shifting to a stock pickers market. You know, there are some five, five and a half thousand listed companies in China. And the days of purchasing a simple sector based or index based ETF clearly are gone. We now have to roll up our sleeves and start digging into the equivalence of their case and Qs to look for to look for value. And I'm pretty sure that in this large universe of names, there will be as many diamonds as there are dogs, if you don't mind me, my inelegant phrase, but but clearly this is a bottom up stock pickers market. I think there's value, but it's going to be hard or harder to find.
That reality might also mean that the institutional money, the pension money that we were waiting to come back and the incremental buyer, do they remain on the sidelines while it remains just a tactical trade, while it remains a stock pickers market, in your view? A stock pickers market, David, as well, you know, is both risky and expensive. It costs a lot of money to hire a large cohort of single stock equity analysts to identify value. And of course, then when you put more eggs in a single basket, maybe three or four or five or six stocks that you expect to outperform, the risks are substantially higher than than an ETF, which essentially balances and spreads your risk over a wide number of names. And you've seen the the flows as well as I have the the institutional money. The foreign money is is very much on the sidelines right now.
And I think this is largely driven, as we heard from your analyst previously, by policy risk. We just simply do not know what possible policy is likely to be announced, what it will contain, who it will say, and the impact subsequently on particular sectors and particular stocks. So this is something I think, which is really keeping investors on the sideline for the time being is I mean, in the same way that inflation in the US was a good gauge of margins and when we had inflation, the US, the market actually did quite well is do you think that's a good leading indicator for for Chinese equity markets if and when inflation comes back. That's that that's the time to get back in. I mean, it's I guess it's a tailwind. It's certainly a tailwind if we start to see a little bit more consumption or inflation driven by consumption, retail spending, supporting corporate revenues and ultimately earnings.
And clearly that is a positive thing. But the you know, the backdrop around particularly the property sector is overwhelming right now. And until we get some policy support from government relating to monetary easing and or, you know, additional further meaningful stimulus towards the property sector, I think the the equity markets remain rangebound. All right, John, as you stay with us from about earlier, the Asia CIO.
Coming up, Canada takes aim at China made EVs and steel of tariffs of up to 100%. We have details coming up next. This is Bloomberg. Well, to my mind, we've been on this path of ready to adjust policy rates for several months. We just needed to get a little more confidence that inflation was truly on its path to 2%.
And I wanted to see the labor market come into balance, but I think that's completely happened. And the risk to our goals are now balanced in the time to adjust Policy is upon us. Mary Daly there at the San Francisco Fed president, agreeing with Jay Powell that it is time to cut interest rates. John Woods is still with us, Ansett's CIO at Lombardo. Sue, so September seems to be a done deal. What are we going to obsess over now?
I think the Labor report for August, just before the FOMC meeting in September, I think the big focus will be on the comparison with the July numbers. My sense is that actually the underlying growth in the economy still has some momentum and August will be a little bit better than perhaps the market's anticipating. If it's worse, then I think we could get 50 basis points from the Fed. My sense is, though, and as a House view, it lombardia we're tilting much more towards a slightly more sanguine outlook. So our view is 25 basis points for September, subsequently 25 in November and 25 also in December as well.
Yeah, I'm just looking at some of your conviction calls, your neutral fixed income, your neutral equities or neutral gold with a modest overweight in cash. You're sort of leaning against this risk rally that we're seeing right now. You know, we're letting our strategic asset allocation drive returns right now. But you raised an important point
because, you know, we are concerned about complacency in the market right here, right now. We discussed previously, David, didn't we, that the MSCI world just made a fresh high overnight. The Dow Jones just made a fresh high overnight. Risk on does seem to be very much the state of play in the equity markets. But when I look at gold, when I look at dollar and when I look at ten year bond yields, which have not budged barely from the selloff we saw back in early August, they're telling an altogether different story.
They're talking about safe haven. They're talking about this pivot from clearly inflation to to the labor market and more broadly, the growth trajectory. And our sense is that heading into this heading into this period, particularly with this geopolitical overlay, the the uncertainty around Iran's response and behoves on us frankly, are more strategic weight. And that's where we are comfortable right now. As I say, letting the strategic
benchmark drive returns for the time being. Okay. Safe havens are expensive. Risk assets are expensive. What is it? Cat cash. Do we still talk about. Well, we have we have a modest we have a modest overweight. I mean, four and a half to 5% is clearly not a bad place to be when there are so many uncertainties around core government bond yields.
We are neutral, but clearly offer some value given the recent rally we've seen in there. But I just think a diversified, balanced portfolio with a diversified mix of bonds and equities is clearly the right place to be when we are beset with uncertainty. Typically, the smart portfolio manager will unwind their overweight, will unwind their underweight, will essentially revert to the strategic safety of a benchmark position of a neutral position. And that's where we are right now. How important are these in video earnings? I mean, I know we can't talk specifically about the stock, but is this more important than what the Fed says and what the Fed is going to do in the next few weeks or months? You know, I excluded the performance of Nasdaq from these equity markets that have been posting fresh highs of late. I should have said that the S&P is just
a hair's breadth from a fresh high as well. That's clearly not the case with the Nasdaq. In fact, if you look at the Nasdaq, it does seem I'm not saying rolling over, but it does seem to be stabilizing at these levels. And I think, again, this speaks to the shift from growth to value, this shift from, well, if you will, inflation to are to growth concerns. And to me, that that actually echoes
amongst the tech performance that we've seen, for example, in China as well, that there's probably a thematic view that we can take. But one thing I would notice is China also looking to constrict some of the rare earth inputs into into the production of semiconductors. So I think, you know, that might actually, from a pure supply shock perspective, keep some upward pressure on prices for the time being.
Yeah, Well, on the other note on, you know, we're seeing the say, the equal weighted S&P o
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