Last week, China had its annual NPC meeting in Beijing, laying out a growth target for the year of about five percent and boosting planned spending by the most in three decades. Shortly afterwards, President Trump spoke to Congress, defending tariffs and reminding investors that China's goals won't be so easy to reach.
And don't forget announcements by Europe and also China to increase their defense spending. These rapid fire developments are almost becoming the norm, and it's becoming harder for many investors to make big decisions. But one set of investors seem to be thriving in this chaos. And then macro hedge funds.
You're listening to Asia Centric and today we want to unpack how investors should be thinking about this new era. We're speaking with kaal Bin, CEO of Kaifeng Investment Management, which oversees about one point three billion dollars in assets. The macro hedge fund made a seventy six percent return last year, not too shabby. Ben, welcome to the show.
Really glad to be here. Thanks about having me.
Thanks for being here. Now I want to start with the NPC. It just happened, and I know it's on your mind. It's definitely on our minds. Interesting to get your thoughts as a macro investor. First of all, big question, do you think officials will be able to reach five percent? Why?
Why not?
I think they will. The first thing is that the four percent budget as you mentioned, plus one point eight trillion dollars special treasury bond plus a four point four trillion special local government bound all take out amount to twelve trillion R and B. That's about eighty percent of GP. Is quite significant. And the other thing is you need to spend them wisely, and spending area seems to be focused on to upgrades and two keys they called liang
shin in Chinese. The two upgrades include the first one is a industrial equipment upgrade and the second one is consumer products upgrade. The former is linked to the use of more efficient equipment which is also greener, and the letter is similar to cash for clunkers. Basically, they want consumers to consume and that's an area China is a lack of inter economic growth. But more important, I think is the exclusion of the other two keys. The first
key is called execution of key National strategies. A second is the capacity building in key areas of national security. Essentially, they are investment high technologies in the competition with the US. And the important thing of this is that we have actually seen some estimates puts the multiplier at the two point eight to three point five. This is in contrast to the old ways of infrastructure spending where the multiplier has dropped to point eight from one twenty.
So more bang, they're getting more bang for their book.
Yeah, I believe that. So if we say it's got two point eight two three point five multiplier, effect eight hundred billion of this spending translate to two point four trilling. That's still significant. Beijing has been very concerned in terms of the government spending for the last few years, and as far as I remember, even back in twenty sixteen, while I was in Beijing talking two officials, they were
reluctant to open the tap. They basically argue that I don't know where to spend because they don't get a multiplier. But recently Deepsek changed the situation. With Deepsey coming out, Beijing seemed to be more confident in terms spending this area. And so that's why you guys a high multiplier.
But can this spending, even with the higher multipliers, you say, counteract the impact of tariffs and this sort of growing protectionism we're seeing globally.
There's I mean, the tariffs is definitely highway for China, but I think that people tend to overestimate the tariff's impact on China's growth. We have seen it in twenty eighteen. It tend to be that if I want to put tariffs on the other country, I would do the one which hurts the other country the most and it's best for me, right, And that's what Trump did in the first term. So whatever new terriffsy put in there is going to be less impactful. And the tariff has actually
lowered China's export to the US. The one number I think a lot of people don't talk about is China's total exports to the US. It's a two pout six, only eight percent of China's GDP. I mean not saying that's not significant, it's a significant. But and let's say the terriff is so high China does not directly export to you as I need more nothing. Let's say that's
a s creme case. That's two one eight percent of GDP off China's So China can really increase the pascal spending if that it's the case, and the China does have the room to do the pascal spending unlike many pear and China is a really leverage.
Under that, So you're basically saying that China is less exposed to exports and the domestic economy is much more important. And I wanted to talk about the consumer sector, and you mentioned cash for clunkers, But has authorities done enough to boost consumer spending?
Uh, the government they do not want to do the US style, you know, flowers of the economy with all the liquidity, you with the massive leverage built up, and they were quite slow right after the pandemic. They could have done more. But since September last year they did do a lot more than before. Incrementally they have been giving copounds cash to consumers. But during the pandemic some local government tried to provide the cash and the copounds.
But I still believe that given at the national level, and the multiplier should definitely be much bigger than the infrastrust spending. If you ask me that whether that's enough, I don't really know the answer. I think that's so far the evidence looks to be good. I think the important thing is whether China government or Beijing had the will. If there's a will, there's a way. But of course you need to have the room, and China definitely hads
the room in terms of physical leverage. And also they have not done q They can do the que as well. If they won't, I think that's what's most like to happen, rather than that's the one time they are always say they will. Given Actually, the head of a NDRC mentioned there's a special program for consumption in the press conference. We don't know whether that is, and the rumor says, okay is going to be another few hundred billion R and B if that comes out. I think that's definitely enough.
Yeah, seems like they're hyper focused on the consumer this time. I mean even in the speech, right, that was one of the first things out of the premier's mouth on the consumer. As a hedge fund, how do you translate this thinking and your view of what's going to happen in China and the Chinese economy this year into action? What are you investing in?
So we are in a transition, you know, we are not really like trying to say, Okay, you are really bullish on China's economics, say no, no, no, we are not really bullish in the sense that we don't see China growing at six percent, seven or whatever is it used to be. Actually, we are structly bullish on certain parts of the economy and we're being cautious in other parts of the economy. I mentioned the multiplier for instruct spending
is very long now, and the government knows that. That's why the government not eager to save property now, the eager to spend a lot on infrastructure, and that translates to low demand for commodities. So we are generally short on the community side, but we're generally more bullish equities because the government transition from infstruct spending to consumers, and the consumer demand can drive the demand for products, and the products may translate into corporate profits because a lot
of the consumers are willing to spend. That translates into potential for stock pus rally.
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Now?
Okay, I need to be totally clear here. You know, we have two accounts. The highly leverage account is seventy plus and the other one the lower leverage that's close to forty percent, and it's still good. But I want to be still good as well. We basically have two books in both the last same a lot one books that were called a China replication. Remember we define our fund ads are China focus like Global Macro the China replication. What we did there is exactly what I just described.
Last year. We were short commodities and we were long China equities and unfortunately we were number one opportunistic in terms of long China equities last year. Which equities we were long the Hongsung tag. We were long China's five hundred. Basically we were long index. We don't do individual equities anymore, and even more fortunate our exposure in long equities towards relatively large in September.
Oh wow, good timing.
Yeah. The reason for it in the sense that what do we see is that China's growth or Chinese economy was definitely not as strong as it used to be. But what do we see in more troubling is the perception of China. It's terrible. There's a disconnect China definitely. Oh yes, China is not going as well. But it's China that bad all one says.
No.
Actually, I think what need to change is the perception of China. Everybody looks for that big stimulus, right, but we are not looking for that big stimulus. Word we are looking for is the perception change. And we see like August last year the Olympics. The Olympics got China on the world stage and people see, okay, it's the country athletes look at quite normal and they did well. And I was also making the argument that into this
world of social media, perception changed very quickly. In December, you have TikTok refugee to Shogunhu to later random and that had DeepC right, all of a sudden, the perception on China really changed, right. I think that's what it's a driving the stock market up. And of course the septembers China's a policy change also affected people's perception.
And it sounds like you're still quite positive on Chinese equities.
Yeah, opposition is similar right now in the sense we're still a long Chine equities, infrastructure, property sensitive commodities. And the other thing we did welllast year was I saw that Japan definitely is going to raise the interest rate because the infliction was really going up. So last year we were shouting gdb's and they also made the right argument. Last year. We were arguing that the US race was going nowhere last year, and so we treated the US
rates well last year. Well, at the beginning of last year, when US race was quite low, a lot of people think by in the US bound, they's a really good trade. It turned out to be not right last year the US race basically when the up came down and went up again. And I'm quite lucky in terms of trying to think about the Trump's chance of winning or losing. Each of the last three elections. So I was thinking that Trump's chance of winning last year was much higher
than the market price in. So we did some Trump triderarily, especially the raids of steepeners and the resteeping the work, and also some Asian currencies. We think they're actually quite good Asian currencies where the treating dynamics will be very different from ten years ago or nineteen ninety seven. Yeah, so that's right. Now, it's a market to mispress in some of that.
Then I saw you on Bloomberg TV, and you have a counter consensus view. You think the market is underpricing US rate cuts next year. Yes, can you sort of explain more to the listener.
I don't really know what's going to happen to yesterdays this year. I actually invented a term. I coined the term. I call it the Poker rule. The Poker rule is essentially a combination of Powell with a Voker.
Okay, so former FED chairman Paul Volker from the seventies eighties and then current FED Chairman Dron Powell.
Right, you think that Powell is facing similar problems Volk was facing inflation. Inflation was now that high, right, Volker was facing like fifteen percent inflation. Well right now it's still like a four or five. So in discussing the poker rule, I argued one thing, I don't think the market it's current in the sense if you look at Powell, it's very different from the fat governor we used to have. They were all economists, where Powell is a lawyer by education,
by training. Right, So what's the difference between economists and lawyer. Economists tend to be you know, tough minded guys. They have a theory and they have a bias. A Hakage governor is always hawkish governor. A Dolfwish governor is always doltish governor. Walker is a very hawkish grispand and the Brananki are very dolwish. But low Yeer's very different. Lawyer does not use their theory to project what's going to happen. Lawyer looks at evidence.
Gotcha. So economists kind of have this bias hawkish or dubbish. They lean either way. But Powell is a bit different from that. He needs to have data presented to him, so maybe could take a bit more time to act.
Yeah, so this year, what evidence do we have evidence is that inflation is still elevated. I this is the infliction level. I think it's very reluctant to cut ry. But the market pricing harmony right now, pricing more than three cuts, and also the teriff's treating big or small. It's the inflationary So in this environment, I think the market means pricing the fad in the sense that they're pricing too many cuts. However, nothing priced in next year,
but for next year. Remember the fat governor change. I think Trump definitely taking someone who's lawyer and who's faithfully execute his view. That means lower interest rate. So I think the next fat government comes in in May next year, the race is going to be cut much lower. And they may ask me, okay, what if the inflication remains high, Well, we have seen that episode before. The fat can make an argument, Oh, you know, the infliction induced the better
terrific high. The terriff is a one time price high, so it's a transitory.
What about the chances of a very recession though, I mean this is all assuming that there won't be a session this year, which I mean I don't think any economists are pricing in necessarily, but the risk has definitely gone up.
Yeah, with the equity price drop. Now, I've seen some analysts calling for recession risk rising from ten percent to twenty percent something like that. I think that the Trump's terriffs, it's going to definitely increase the chance of a recession next year. So this year is somewhat like a stackflation in the sense that you increase the tariff, the invlasion goes up, the economy weaken somewhat in the stack deflation time the second part of poker we're coming to play.
I argue that with the inflation at this stage, Powell is unlikely to cut interestry. There's an angle. Powell is a close land the term, and he had done great job in the Siviny economy during pandemic, and it also raised the interest rate high enough without causing a collapse of US economy. I know he deserves the full credit and his close to his end term. He doesn't want, you know, make a mistake into the cutting too much.
I think that the market need to price in cut, but shouldn't be all in this year and nothing next year, right, it should be spread out. Basically, what we're doing now is that we are buying the well, We're not exactly. Buying butt is similar. We are buying the two year point of the US Treasury. Or let's say we are betting that two year point rates are going to go lower and we're bet one year point actually go higher.
So in the sense we are doing a one year two year cuting technical term one year three flatner right now from under this year under next year. The market is only pricing in uh last night it was only seven basis point, so people say, okay, there'll be no cut next year. Okay, So you're basically betting that rates will come down a lot more than the market expects in twenty twenty six. And just for the listeners out there, this is not investment advice, though I don't.
Know if retail investors can express their views in rates, but I wanted to sort of change the topic a bit.
You're a macro hedge fund based in Hong Kong. Now, Hong Kong is home to a lot of hedge funds, but they're mostly equity long short and when you think of macro hedge funds, you think of you know, Stanley Drunken Miller, you know George Soros, litile spaking. They're always based in New York, maybe in London. What's it like being a macro guy in Hong Kong?
That feels good. I think it's interesting for the Asia macro hatch fund quite a few false starts in ninety seven. You have Asian financial crisis. It's supposed to be a perfect time for you know, a macro hatch fund, right, and then you seven which is not Asia LAD, is
the US LAD and Asia cutter factors as well. But I think that's interesting is if you look at you know, Sorrows Drugler, they are quite close to the center backs, or at least they understand the fat the BOE much better than I would say a guy here, Yes, so a guy like us here, we are proud of ourselves for understanding PBOC or even BOJ better than those guys.
Right.
The interesting thing is that BOJ didn't matter for a long time. Japan was like the last decades, the people who it doesn't matter either, Well, Beijing's policy matters to manufacturing part of the economy. For a long time, it did not matter to financial part of the global economy. Back in twenty sixteen twenty seventeen, I wrote a piece to my masts basically arguing that twenty to fifteenths R and B depegging from the US dollar was going to have huge impact in ten years, not at that moment.
So in ten year's time I argued that decisions out of Beijing will be as important as, if not more important, than decisions out of Washington, New York, Tokyo, London, Berlin, Brussels. We are witnesses right now. Not Bejing decisions definitely affects the global financial market, not just Chinese market anymore so. Being a microphone in this region, we have a certain information advantage. Instance of that, or you call it the
analytics advantage. We understand China much better than most microphounds sitting in London and sitting in New York. Beijin used to be relatively transparent. That's going to the direction of more transparency, but over the last few years it seems to be becoming less transparent. So the yin free information symmetry for those guys sitting in London in New York. For US, we also get less information, but at least we are still better connected or closer to understand what's
happening than those guys in London New York. That's something we think it's our advantage.
What do you think they get wrong? You know, you're saying that the folks in New York, in London, what do you think they're getting wrong about the PBOC and about China right now?
So for example December in the Central Work Economic Conference and they said, okay, we're going to lose the Montreal policy. What happened. Yes, that means they may cut a triple r the cut interest rate. And if you look at the ripple market versus the official rate, the marketing market is quite tight right now. The reform market is somewhere around one point eight to two percent. Well, the official seven day PBOC rate is one point five percent. This
divergence is actually quite high. If the cutting interest rates, the rate should be one two percent. So we are looking at, you know, really lose Montibal percent says the market price of two percent. And the arybody's arguing, okay, this is the temper phenomenon Chinese New Year. The money tied after Chinese New Year, the red remained high. The reason for other the you know, one is that the economy is not that bad, so they're not in a hurry.
And the other one is the people who have mentioned quite a few times the long term Chinese government bound rate. It's too low. They did not say specifically too low, but they talked about it many times. If you look at thertainy year, China's garment bomb right now, it's one point eighty percent. Japan is two point three four percent. This makes no sense, right, and we understand why it's happening.
Who's buying it? Why is going that way? I don't think that the guy's sitting in londoness And actually it's as a matter of fact, we're talking to some investors and they said, yeah, you argue that the long term of China rates is going to be higher, but this has been going lower for the last one year and in the bloom of TV. I think that the whole asking me that the low long term rate, does that
signal that people are quite passimistic about China. Well, I say, okay, interpret that way, but that's not exactly the right price for the China's long term growth. This is a two low. So I actually want to position for China reads higher. The question is the number one? Is one? The second? And what's trigger?
Right?
Yeah, what's going to say in how many years and how many years.
I mean for me, like we we have some position there as well, and we don't think this is the moment a way of back like this isn't going to go back to three percent and run them soon, but we want to watch for inflation for girls of whether there's the girls will continue with the girls continue, Let's say the inflation the forecasted the government the lower the
infliction target two percent. But people interpret that, Okay, you know there's a good for a bound that it is bad for bomb because the government of Taketi is three percent last year. There's no way that we're going to reach it last year, right, It's more like a this year they lowered it to more appropriate two percent. It's okay, we one two percent, right, and they were doing things
to reach that two percent. The two things one is that the encouraged consumption and the other one they are doing some sort of now they call it a different name called anti involution, anti anti involution, called the fundation. And remember back in twenty sixteen theres something called supply
side reform. This is similar this basically, okay, we have so many companies competing for the same market, so the overcompetition leads to involution and that's not good for the price, and they will have this low inflation or close to zero inflation. I wouldn't call it inflation because it's still positive. It's a low. So we want to move away from that situation. So they are introducing measures to deal with this evolution problem and that can potentially get the price higher.
Let's go back twenty sixteen. The supply sided reform managed to reach the CPI from around one point five two around two percent basically from the end of twenty fifteen to twenty sixteen, the inflation the CPI one top oft point five.
And you think they're going to be able to do it again.
Well, the definitely they're trying. They don't really like this deflation country environments. On demand side, they are trying to get more money to consumers, and on the supply side they are saying, okay, there are old competition, no company is making profit, and so you want to deal with it. And the way they deal each sector differently. We don't know exactly which sector they're going to do, but the market is talking about they are going to cut fifteen
million tons of steel output. They can don't believe in it, but you know, we have tried, like the last couple of years, but they see year. I don't know, it's not because it looks like they are more determined.
Right.
So we've been talking about a lot of themes here. We're talking about around the world, China, Us, Trump, she and talking about how you're playing all this, how you're inting as a result. So one of the things, you had a great year last year, what about so far this year? Because there's so much going on. February was not great for a lot of hedge funds. How about for you guys?
Yeah, past the opposite. We did not do well in January, but in February we did really well. We made up all the losses in January and basically we'll all return in February in magnitude double the over January loss.
That's why you're getting on TV, and that's why that's what you're doing.
Well, you must know what he's talking about.
Well, knocking on the wood, is it difficult?
Is micro investing back?
Yeah? Yeah, definitely. I mean, like the whole invention in the world, it's moving from a location to strategy allocation. By that, I mean you could light on and simply by US stocks in the US bond and you would do really well in twenty ten, but the twenty twenties that will not work. Twenty twenty is going to you need to figure out this strategy. Strategy micro. And if we go back to last nineteen ninety, it's really interesting.
Nineteen ninety two year two thousand, the macro did really well, the US equity did really well, and ybog the market and the commodity did almost nothing. From two thousand to twenty ten, the US actually went nowhere two thousand, two thousand and two, twenty seven up and the two thousand and nine bargain and the commodity rather hard emote. The market did well, and the micro did well as well, but from twenty teen twenty twenty, the macro were terrible.
You could simply buy the US stock and do nothing.
Like give six seven.
Yeah, that's because there's a massive printing money because of two and eight and the US was printing, the European was printing, and then Japan started printing when Abbey Body in Crawda right, and those are massive printing drove up the US risk assets. But twenty twenty we'll have information there's less money slashing around and just so there'll be more volatility. The trouble for macurie mashing is that you know, in that strong equity world, everyone makes money because most
of the actually invest a lot. Right, in a period where macri masting is good, not all macuri masure will make money because basically this is the environment where volatility is high. Right, I see a think that more than fifty percent of macro in measures will make money and someone will make it really big. But the risk is also high.
Well, it's a great way to.
Making money, but risks are high.
Yeah they say winners it grins and you can see a smile on your face.
Yeah, well, what's the Well, we're a very traditional micro so months the months fluctuation is as high and it's really for for investors who have a tolerance for risks.
Really interesting conversation today. Thanks so much for joining.
Us, Thanks more having me, and it's a really good at pleasure.
You've been listening to Asia Centric from Bloomberg Intelligence. I'm Cottadmitri but in Hong.
Kong, and I'm John Lee, also in Hong Kong. And this podcast was produced and edited by Clara Chen.
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