This is the Bloomberg Daybreak Asia podcast. I'm Brian Curtis along with Doug Krisner join us each day for the stories, making news and moving markets in the Asia Pacific. You can subscribe to the show anywhere you get your podcasts and always on Bloomberg Radio, the Bloomberg Terminal, and the Bloomberg Business app. Joining us now is Market's live strategist
Mark Cranfield. Do with us here on the program, Mark, we are looking at the China markets and we know that this big move by the banks is partially trying to jolt investors out of their torpor and help the property market. As you look at markets this morning, you'll see some red numbers here. Will it work well?
I think there's a little bit of disappointment that although the five year loan rate was cut by a little bit more than people had expected, there was no change in the one year and we also China skip doing the one year medium term facility at the weekend as well. So what we haven't seen is any short term interest rates being lowered. And in terms of markets, especially equity markets and bomb markets, they're really a bit more interested in what happens with short term rates and long term rates.
So that's probably part of the disappointment as to why Chinese equities are a little bit soft in early trading so far.
Do you really believe that rate policy is going to reinvigorate the investor in the Chinese market, right? Is it going to take something more than that at this point? I mean, given the kind of desperation that people have been feeling.
It's only one of many things. I mean, as you suggest, I mean, on its own, no, it probably will not turn around the Chinese markets very dramatically. It needs to be in conjunction with another and a lot of other moves as well. And of course you've got these big things like more fixes for the property market, more factors which support the lending to the right sectors of the economy as well, and you can see that've been in buying stocks via ETFs and all those kind of things
will have to continue. It's not going to be interest rates on their own. It has to be some sort of a coordinated approach, and investors need to really feel the love. They need to sense that the Chinese government is pulling out all the stops to try and improve the outlook.
We've seen some pretty solid gains in Taiwan and also Tokyo, but for the rest of the region it's really not been all that attractive. How much is China holding back the rest of the region.
Not too much now, I suspect if we had this discussion eighteen months ago, we probably yes. But if you look at the way the world has moved on, particularly you just look at the performances through twenty twenty three as the year war on, China was becoming less of a factor for the rest of the world, even for the rest of Asia as well. So increasingly investors are isolating China as a special case. So either you're interested
in China or you're not. But whatever view you have there doesn't really affect your outlook for the rest of the equity market, which is a good and a bad thing. I mean, it's interesting in terms of emerging markets because China had been such a huge waiting in emerging markets, but now, of course it's shrunk anyway, because market caps have got so much smaller. So now people have to have two views. They have to have an emerging market view and a China view.
I'm curious to get your take on something we were talking about yesterday. Foreign direct investment into China last year increasing by the smallest amount since the early nineteen nineties. Is this a reliable indicator that you want to kind of play in some way? Maybe it's the longer view here, and what the story that it's telling right now is not a good one?
It isn't and it probably also tells you quite a lot about some of the political differences that China is encountering with other countries, people putting on restrictions, trade restrictions and other barriers to entry. So that obviously will reflect it to some extent. It will also be because maybe people are not so optimistic on the growth outlook for China.
There'll be a number of factors which affect it. That won't necessarily stop people from putting money into China, because you also, there are so many equities listed in China, and there are a number of very positive stories as well, particularly related to AI and certain parts of the tech world. But you need to be a very good stock picker, and some people are not willing to do all that
much homework to find those selective stocks. But yes, it's probably a slight negative, but it won't change the views of many people who look at specific sectors of China.
If your view is correct, mark that investors are separating China out from the rest of the region. Would Southeast Asia be a good target for investors to look at in that they didn't have a particularly good year last year, while you did see some gains in some of the other markets, particularly in the west and also as mentioned with Tokyo and Taiwan. Or is Southeast Asia really just too small to attract a lot of interest foreign investors?
Not too small? But I think I've been in Asia long enough to understand that it's very risky to blanket Southeast Asia as one trade So you really have to go country by country. And there are some encouraging stories. So for example Indonesia, they appear to have got through these elections very smoothly without any trouble. This looks as there's going to be a gentle handover to the next presidency.
That is a very much a positive because in the past Indonesia has suffered from messy handovers from one president to the next. So international investors will look at that. It's a huge market and Indonesia certainly has some potential. Now if you look on the other side. Just today we had the Thailand Prime minister trying to intervene in the currency. That's not a good thing. Foreign investors don't
like to see politicians getting involved in monetary policy. So you have contrast there in South Asia.
So to go to your example of Indonesia and something that you were talking about a moment ago, where it's very much a stock pickers market versus going in and buying an index. Would you apply the same kind of rationale or the same approach when putting money to work in Indonesia?
Yeah, I think you probably would have to, because you'd have to try to engage which sectors have already over extended or which ones have got catch up value. And for that you probably need to have quite a lot of local value. So you would certainly need to consult somebody on the ground who's been watching that market very
closely to get a real sense. You could, of course take a risk and just go across the whole index, but you will probably find your performance is not as good as it might be if you knew which sectors had the undervalue compared to other sectors.
Now let's take a broader look here. I'm going to say that I think it's only a matter of time before you see Hong Kong and China stocks start to
rebound because so much has been discounted. So let's say that if that premise is true, will it be hurt by a potential pullback in the US because of inflation fears and also because of valuation levels and the size of the recent rally, or in a sense, will it be helped by that people will actually take money out of US equities and plow into some of these Hong Kong China stocks.
Well.
Based on what we've seen in the past year or so, I should think a pullback in US markets actually will be a good thing for several markets around the world, because America seems to suck a tremendous amount of investment capital from other places, So maybe it will start to go back into other parts.
Of the world.
That would certainly tighten financial conditions maybe a little bit, and the FED might like that. When you look at the path of Fed policy, there's been a fair amount of aggressive betting that we could get as much as maybe one hundred basis points in easing this year. The market seems to be rethinking that in a major way. After those heart readings on inflation in the States last week, both CPI and PPI. What is your view on Fed action this year?
Well, the Faith do their for a reason. They try to give the market an indication of where they think interest rates so heading for the rest of the year, and it's very clear their dot plots have a medium target of three rate cuts. Some FED members only see two rate cuts. Well, the market is gradually coming closer to the FED view of where interest rates are going.
Of course, the Fed may revise those dot plots when they meet in March or June, but for the time being, the market is at disconnect with where the Fed is telling them they're going. So eventually the market has to get in line.
We had David Einhorn on in an extensive interview on Bloomberg and he was saying that markets are kind of broken now, that value just doesn't work. There's a lot of reasons behind it. We don't have time to go into that, but are there some pockets of areas where you see value. You're not recommending somebody buy it, but you're looking and saying, you know, this has been this has really been driven to an extent in one direction.
I think there's always contrarian plays around the world on a general basis, on a regional basis, on a specific basis, and it's probably that is exactly the kind of time when you see something like in the US when the Magnificent Seven stocks dragged so much a part of the investing money going in one direction. That means a lot of people are being left behind. So if you're a contrarian who can take the time to study from the bottom up, you will always find something which has been
left behind. And that would apply to any part of the world. I'm sure there are dislocations like that everywhere you look, but you need to do the homework.
Okay, I'm taking notes here from Cranfield. Short the megacap, then go along in the rgon on China stocks. Both have been bombed out too much in one way. Now I'm just joking, folks. He is a Bloomberg Markets Live strategist Mark Cranfield, analyzing the markets but not recommending anything. But it's always good to take a look and a listener programs like this where you get some ideas. Mark, thank you very much for joining us, and that is
Mark Cranfield with US Live. This is Bloomberg. Our guest is Eric, you lumbering economists covering China and Hong Kong. So we had this adjustment in the five year loan prime rate, Eric, and the market reaction isn't great. This is something that may take a while to play out. What's your initial assessment.
Yeah, I think if you look at both one year five year, actually I think it's a mixed signal this morning. So the five year cut is bigger than expected, and it's the biggest ever I think on record, So clear to signal that the government is worrying about housing market. You know, five years linked to the mortgage rate, so it's clear signal that the housing market is still deepening the declients and the government wants to, you know, step up with more supporting measures. But it's the same time.
But you have to remember that last year when PBC cut to the MF in August, actually banks held the five year rate. So so part of the twenty five Yeah, the headline number is big, but part of it probably that's just catch up you know, of last August, so it's not every of the twenty five points then new cut, I would say.
So when you get a cut like this. The magnitude obviously is we just said it's greater than expected. Is there a lag period some a period of time where you would really kind of expect to see an impact in the real estate market.
Obviously if you look at to what we had at the second half of the last year, lots of measured by the government, you know, trying to relax from purchase down lowering the down payment, even including lower and market rates in big cities. It's I would say it's helping on the margin, but don't really change the big picture, right. We still if you look at the macro housing market data until December, what's the official data we have the latest,
the market downto and is still deepening. There's no big sign of the market turning around it anytime soon. So I think that the big problem now is not really the market rates are too high, right, It's not really the big factor. Yeah, it's preventing.
One of the trends that we saw of late was buyers being more attracted now to used homes rather than new homes. A couple of reasons. They can get a bigger discount there, and plus they're not buying from the developer then, so I'm just curious whether or not we think that we just really need to see lower prices and once we see and that's not the end of the world. I mean, that's just something that markets do. I mean, you get a repricing and prices come down,
people will come back in. That takes time and it means probably lower stock prices for the developers.
Yeah, but the thing is nobody knows when to the bottom right people, if who is buying, they would expect the price to go down even further. So unless they really need a house right now, they can just hold hold off until later. And another factor you mentioned why people are more interesting second home is get the risks that they'll worry. If I buy a new apartment, it's probably well the developer being able to deliver it, right, that's a key risk, So they have to be very careful.
What is the one thing that you're going to be looking at in a week ahead. I mean, now we're coming back from the lunar New Year. We've talked about some of the high frequency data that was stronger than expected. Is there a data point that you're keeping your eye on this week?
I think next week probably the most important in the channels PMI data, both official and enter tighting PMI. But you know, given the seisonal factors, we would expect PMI to show some weakness. It's understandable. We have a long holiday in February. Although the consumption data looks good holiday spanding, but we actually we had a closer look at the data. It's probably a bit not as strong as the headline suggests because we have one more day d year at holiday.
And also if you look at the spanding per capture by every travel alerts, it's actually still quite relatively low, if compared to pre COVID level or even a few years ago. So that means, yeah, more people are traveling, but they're not really you know, spending every person.
So you calm, you're measured. But let's do a little swash buckling here, because you're talking about falling prices and it seemingly calls for a catalyst. Okay, so if you're swashed buckling, what's a catalyst? What can be a catalyst?
I think people are looking forward in a few weeks. It's the coming National People's Congress, right, the usual, and you're gathering, so we would like to hear what's the plan of the gunment for this year and especially the key focus will be the fiscal budget this year. So are they really, you know, going to have a larger deficit.
They're willing to spend more, whatever you want spending, but I think that the key thing and now the consumer's household, you know, corporates, their low confidence, they're not willing to spend. So the only way to proper economy is the gum needs to spend. So that's a key thing I think.
I know you're an economist watching, but I'm going to go out on a limb here, because there was a Bank of America survey the one of the most popular trades continues to be being short China. Do you think that's increasingly risky that at some point we're going to get the big bazooka that's going to create a big squeeze.
Yeah.
I cannot come at the market. It's a decision. But I think markets have been quite disappointed over the past year since the reopening. Everybody expecting some bazookap but they never delivered. And I'm cautiously optimistic that the government is willing to, you know, have a big splash bazoo cup, but I think more you know, incremental or whatever you called small steps or some easing. It's still going to
going to be seen this year. But if anyone expecting, you know, like for tralling they have done in the past, I don't think that's that's that's like.
Okay, final question probably time, if time permits. What what part of the Hong Kong or the Chinese economy is actually working right now? What's looking good?
I think some sectors like electrical vehicles right some some high tech sectors, chips, you know, some sectors the government is willing to it's a so called restructuring. They're moving away from property, but they're moving you know, those resources into this that the what they believed would to be the future growth engines for China. But they're growing fast. But we also did some an acid but so far the share of like EV is still readily small so
compared to property market. So I think this will still take time for them to grow. But right now we have to you know, it's a period that in the transition period, we have to suffer some pain from the property market down siding.
Eric, thanks very much for joining us here in our studios. Eric Q. Bloomberg economist looks at China and Hong Kong.
Let's take a look at global fixed income now with our guests too, how Chao had to fixed income for Asia? At Robico joining us from our studios in Singapore. Nice of you to stop by, Thanks for joining us, Thank you for having me. Yeah, we've been talking about the decision and of the big banks in China to cut a long primarate the five year by twenty five basis points. A bit of a surprise. Did it take you by surprise?
I mean a little bit in terms of timing, But I think you know, the situation is just, yeah, looking pretty dire, and a lot of the other policies are not, you know, stimulating the market. But that is actually in line with the fact that we expect it's a general econop malae that that is a problem in China and that can't be fixed by pure monetary policy.
I'm afraid, I feel about liquidity and whether or not some developers will have to sell assets to create more internal liquidity. Uh and if not, where else could it come from?
I mean they can, but I think that it needs to actually come from sales, and that's what's really going to be that's been the difficulty, which is why I think these policies are meant to stimulate demand, and demand is very weak for all the reasons. I think your previous guess has talked about the this this is a this is an adjustment that's going to take several years, and I don't think that the market nor the policy makers can expect that, you know, some changes in policy
rates will change that. But however, having said that, it's been near, you know, more than two years of this uh this property allies and hopefully we're hitting some bottom, although I think a rebound, a quick rebound is probably not on the cards at the moment.
So if we're near a bottom, maybe they're a little bit more restructuring. I mean, we've had a couple of attempts at restructuring a couple of these developers and that failed. Haircuts I think would be in order. If you're holding credit here, what's the risk and how do you do you hedge that in some way? Like in the CDs market.
I think restructuring of the companies that need to be restructuring is already kind of there, so I think it's very hard to hedge that risk, and they're very they're going to be very much case by case. I think the biggest problem within the restructing market within the Chinese is that just there is no presidence and then the fact that the participants you know, are not acting in
a concerted manner that actually helps the restructuring process. So it's taking longer, it's probably costing more because there is just no presidence of how to actually deal with you know, these bankruptcy like that we have in more established markets.
Some of the markets are not seeing the same stresses as China. Where are you seeing the best value in credit now throughout your coverage area of Asia?
Yeah, so I think away from China and actually even within the China ig kind of space, the companies that are surviving and stuff, you know, it's actually not too bad for them, and the fundamentals actually holding up quite quite strong. So our investment grade is actually fine. And away from and I mean India Indonesia partially is you know, they're all actually pretty holding up pretty okay. China seems to have its own dynamics, but it's actually just the
Chinese property segment. Right even away from Chinese property, the industrial how your names are actually holding up Okay, financing is available on shore at relatively cheap rates, so netnet things actually away from China. Property for the credit market actually has been pretty good, and spreads are quite tight to reflect that.
It's interesting. I am sure you're aware that we have the main it's from the Australian Central Bank meeting, and I think they considered raising rates earlier. I mean, it would seemed to be a pretty hefty debate. And we're talking about now that the possibility that there's going to be far fewer rate cuts in the US than the
market had been braced for. Do we have to rethink this narrative that we've been talking about with you know, we've beat the inflation dragon and now we can look forward to rate cuts.
I think I was here a month ago, I mean on the TV kind of saying that, you know, I think the market had got far too carried away about the march, you know, rate cuts. I mean I think that the cuts will come. They may just come later, and they will, and I think that's partly going to need as some of the geopolitical issues that are leading to inflatory pressure being a little bit longer and higher than we're expecting but eventually we'll get there, so we probably expect cuts later, but more.
I tend to set aside these, you know, more considerations, because when we thought that we might get a cut in March and markets were doing well, and then when we found out that we probably wouldn't get a rate cut in March, markets were still doing pretty well. It seems like there's a balance between investors caring about growth versus caring about interest rates. Where you fit on that spectrum.
Yeah, so, I mean the rates are they're to support growth, right, So they're actually two of two different size of the argument. Right, So, as long as the economy is staying strong, there's less need to cut, right, And that's actually should be a
positive dynamic. And of course one of the other positive dynamics is that the ability to be able to be slow about those cut, not having to rush them because you're dealing with a disaster in the economy, and I think those are actually very constructive for the economy generally.
Do we need to rethink BOJ policy? Everybody was thinking that the Bank of Japan had the wind at its back, so to speak, move would be to titan. I mean, do we need to rethink that as well.
I mean, I think that Japan is quite unique. I mean, I think again we're looking for what happens with the
wage inflation. I think if we just take a look at the US as an example, we were really worried about wage inflation, and actually we've had wage inflation in the US, and actually it's been quite a good, good, good backdrop actually, and I think maybe here the lesson could be learned is actually maybe not to be too worried and actually higher wages, higher kind of pricing power, particularly as you might look to the domestic consumption that's
been a driver of growth. That shouldn't worry people too much.
And so in Japan, should we not worry about recession, you know, technical recession, but not likely stick.
Yeah, I think it's a technical recession. But I think, you know, there are other things that are going quite well for Japan, particularly as the market looks away from from China, the Japanese market, which has actually not had much of attention, will get more and more attention, and as a diversific trades. So I think there are more stuff to be going and I think the quicker the Bank of Japan starts to normalize rates the more attention that is going to get from the international markets.
We'll leave it there to Hot Chow. Thank you so much for being with us. Enjoyed the conversation very much to how Chow had it fixed income for Asia at Ribko, joining us here on Daybreak Asia. This has been the Bloomberg Daybreak Asia podcast, bringing you the stories making news and moving markets in the Asia Pacific. Visit the Bloomberg Podcast channel on YouTube to get more episodes of this
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