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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.
And now one of our main stories, China and Russia promising to intensify cooperation encountering the US. Russian President Putin is in Beijing for a state visit. Now, mister Putin and Chinese President She have warned of growing nuclear tension between their countries and the United States. We spoke earlier with JP Morgan Chase CEO Jamie Diamond. He says, despite geopolitical tensions, the US needs to engage fully and deeply with China.
China is not a natural eneer of the United States. A lot of their own problems. So you know, to me, we could work together as best we can and then we have common interest climate, anti nuclear.
Deforation, JP Morgan Chase CEO Jamie Diamond. Now, despite these heightened tensions, he is moving with caution in China. By the way, he was speaking earlier with Bloomberg's friends in Laqua at JP Morgan Chase's Global Markets conference in Paris.
Brian, let's bring in John Leu, Bloomberg executive editor in Beijing for a discussion about this. So, John, I'm curious whether or not you know, we see the relationship between Russia and China as transactional in nature, that's what many analysts say, or one of shared values and warm bonds.
I think there's I think there's a little bit of both. I think there's no denying that the relationship serves both China and Russia well. At this point in time. There is a long history between these two countries. Part of that history was quite tense. There was a conflict back in the sixties and seventies between China and Russia. There's
a long border that the two countries share. More recently, I think the fact that both of them have major differences with the United States and with the Western general that has pushed the two together and has been a big reason why the relationship is strengthened in the recent past.
Is the dependency on one another pretty much balanced, or does someone have the upper hand. Let's say, does China essentially have the upper hand in this relationship with Russia?
Economically, China is the much bigger player on the global stage. It is technologically and when it comes to electric cars, when it comes to batteries, all sorts of these things. China is more advanced when it comes to technology and know how, and so in this relationship, especially given the fact that Russia is essentially cut off from the global economy in many ways because of the war in Ukraine,
has to depend on China. It doesn't really have another choice, and so if you look at it from that perspective, China has advantages in that relationship.
Vladimir Putin described a relationship as one of the main stabilizing forces in the international arena. Many in the West would probably scoffit that a little bit, But what about global South.
I think the global South is I would call it sitting on the fence at this moment. Obviously, from mister Putin's perspective, the war he's prosecuting. The prosecuting in Ukraine, he would argue as legitimate protecting Russian rights. Obviously, there are many the United States of the West at large who would object to that, who would say no, it
is he who is the aggressor. I think for the Global South, they are more interested in economic development, how to improve the living standards of their populations, and this war, I think is having some real down side effects that are not good for that that effort, and so there is a real interest in seeing some way to put it into the conflict.
So if the Global South is sitting on the sidelines, and then I think it's basically the European Union and the US against China and Russia. I mean, am I right in that? And in what is the kind of the level of tension that exist? Are we stalemated here or is something going to give in one way or the other?
I think the China, the way that I have heard the Chinese position on Ukraine described, is sitting on the fence but leaning very significantly pro Russia. And so what you have seen is China providing rhetorical support, China providing things that are dual use technology, so things that have a civilian but also potentially a military use. What we have not seen is China is not like North Korea
or Iran, providing weapons for the Russian war effort. And so it is I think certainly Putin and she have a very strong relationship in Beijing is trying to support Russia, does not want to see Russia fall apart. Is it is it explicitly US West versus Russia and China. I think that's a little bit hard to say at the moment.
So we know that there's a lot of symbolism at play here, and we've talked a little bit about that. Also some practical considerations, some contracts signed, some agreements made. You know, I don't want to put you on the spot and go into a lot of detail on this, but if you could just in broad strokes talk a little bit about what they are achieved in that area.
So there, the two economies are becoming ever more integrated, and that is partly because they fit because Russia produces a lot of energy commodities that China needs in China has a lot of consumer manufactured goods that China that Russia now needs to import because it cannot from anywhere else, and so they fit economically, but also because of the war, because Russia is dependent more on China economically than ever before, the two countries have become much more integrated so we've
seen agreements when it comes to agricultural products to AI to all sorts of industries, and I think that will continue. And you actually heard mister Putin talking about how ninety percent of trade between the two countries now is being done in ruble and and emphasizing that that now protects them against a third country of the United States.
When it comes to oil, we know that a fair amount of oil from Russia is going to China, but I don't think we can ignore the fact that a lot of Iranian crude has made its way to China for refining, and this has been a real source spot for the Treasury Department. With the possibility of sanctions being imposed on Chinese financial institutions, can you imagine a world john where something like that would unfold.
I think the Chinese financial institutions, especially the big global players, have been extremely cautious about how how they deal with Russian interest, Russian companies, Iranian companies, any any any entity that is sanctioned, because the last thing they want to be is cut off from the US dollar markets around the world, and that that would be that would be extremely harmful to their well being. And so they are
being very careful. That does not rule out that there are some companies in China who are less integrated with the global economy and global markets who would take that risk. I think this is an ongoing issue and will continue to be as long as the United States and China cannot agree on what is the what is the best way forward for the world at.
Large, John, I wanted to just spend a minute talking about the IMF and its criticism of the United States really on a number of levels, surging debt, trade restrictions, and some of these policies that are aimed at China any in the FED. So I'm curious, you know, the the IMF is is basically saying, why can't we all get along? Is the IMF mostly in blame with the US or does it share some of that blame for China?
I think I think over the last thirty years, in the more recent past, we lived through a period of global economic integration of free trade where goods, capital and talent, people for the most part, were able to move very freely around the world. That is coming to an end, and I think that is becoming more obvious by the day. And you heard we interviewed Emmanuel Maccron, the President of France, and he talked about how now the US is anti
w World Trade Organization, China's anti World Trade Organization. It's only Europe that's still supporting the W two. So I think a lot of people are feeling that way that what used to be the world order, the way the global economy worked, is now changing. And I think the mf's complaint about US policy reflects.
That we have the new president, that of Taiwan that will be inaugurated next week, and we know, as you said to us the last time we had a chance to visit, John, that this is obviously the hot spot when you look at US China. Is there something that Russia Ukraine has taught China about how to approach a situation like Taiwan very quickly?
I think the Ukraine situation probably is going to make Beijing more cautious about any considerations about military options because that has not worked out the way that the Russians vision that about Vladimir Putin. The vision has not been a quick war executed swiftly. And Taiwan, unlike Ukraine, is an island, it is protected by the United States. It would be a much more challenging proposition than I think Ukraine has been.
John, thanks so much for taking out the time to be with us, John Liu, Bloomberg Executive Editor in Beijing. Let's get to our guests. An it'sa NIP head of fixed income research for Asia at upp I. So we had some FED speak today and they hit some familiar notes there with higher for longer on rates. The FED maybe in a little bit of a tricky position here. I want to get your views on this because they didn't want to overreact after about three months of harder
inflation readings. Now we just got a little softer inflation reading and they probably will feel some pressure not to overreact to this either, so they'll have to kind of maintain this positioning of higher for longer for at least a time. How does that affect your approach to fixed income?
Basically, we reckon that the inflation it's going to be sticky going forward, even though we see one figure on the core CPI which has been seems to be lower. But I think for fat themselves one figure may not be good enough really to determine the trend. They need to monitor more the labor market since showing some sort of weakness from the non vane perio number last time. But then again, you know, one figure doesn't mean anything, So I think FED would be patients and at the
same time they will monitor the data. What we feel would be cut could happen in December this year rather than you know, like the market sort of consensus of saying July we reckon that. You know, FED would more need more time to look at that, so most likely there will only be one cut December twenty twenty four. Can we talk.
About China now? There is so much going on there, especially where the property market is concerned. One of our Bloomberger reporters pushed out a story talking about the government in Beijing planning to hold a meeting today with key officials to discuss remedies. And today, from what I understand, is the day that we're going to have the ultra long bonds sold into the market. I think it's about one hundred and thirty eight billion. How do you expect this sale to go? Well?
Basically, the the long bonds, Oh, it's more targeting for the infrastructure projects. From what we reckon, we reckon, it could receive, you know, pretty good response. The main reason we'll be there has been sort of like limited supply on the long end for a while, so anything that put out at the moment would definitely help to set the benchmark curve and at the same time, you know,
for people to be able to invest longer. Talking about the property market, the measures that they you know, trying to put up, it's basically trying to clear a few things. First will be to look at the inventory level, because I think that's the top focus that they have. Will be sort of lower the inventory level that at the moment. The other will be trying to restore the confidence of the buyer and also to stabilize the price of the property. So I think they need to target it, you know,
in different ways in order to stabilize the market. But at this point we reckon, you know, we still would look at what's going on and what's the policy they're going to come up. We still reckon that those defaulted property developer would still continue with their restructuring because of the quidity tight So.
On the story that we moved about officials meeting with various sectors of the market trying to push local governments to buy up some of these unsold homes. Obviously the developers who are beneficiary in their stocks jumps, what do you think about their credit? I mean, is there is there sort of a sneaky time to make some money.
There in a way? I think you know their target is basically to clear inventory. At the moment, we still need to see what the plans look like. In particular, they're saying that they're all they are you going to buy from a properly developer at this counter prices? And what sort of this counter prices would that have a spill over impact to this secondary market as well on other properties. So we don't know yet. So we need to look at the plan and how it's going to
fund it through s OE, through LGV. So I think there's a lot of questions still on what sort of plan they're going to come up equities and bonds. I will look at it in a different way because for developers who are unable to make payments, those deforce it, I think they would still continue with the restructuring. But those that have been surviving I think definitely would be a good move for them to improve their liquid to say so, we get the.
Data at the top of the hour of the monthly activity data for April. I'm wondering if there's a house view from UBP on what we're likely to see, especially where the consumer is concerned.
We reckon that it could you know, sort of like stabilize a little bit in particular on the consumption side, but were not particularly you know, like looking at a significant jump in terms of the consumption. But we think that it's going to be sort of like you know, neutral going forward.
So we've talked quite a lot about China today. Where else in Asia would you see value in credit or indeed in sovereigns.
Well, we have to look at, you know, where the fat would go right at the moment, we reckon like December will be the time that is going to get rigged cut, So fixing income we look at it would be more for carrey rather than for capital gain.
For Asia.
We like some of the short data Hong Kong corporates, some of the local banks here in which they're giving you around like six percent yel which is not too bad. And we also like some of the Korean corporates and also banks, but they are just around like five point three five point five percent, which is not too exciting, but good for carry. We also like some of the Japanese insurance company, but they are a little bit longer integration.
We still prefer IG three to five years. But then one thing that I you know, we recently increase exposure with short data high yield because we reckon that credit spread would be resilient. So it's you know, would be good to look at some of the Indian high yield at this stage.
Okay, Well, Anita, thanks very much, not only for the discussion but for coming into our studios here. We appreciate it and it's a nip. Head of fixed income research for Asia at ubp.
Our guest is adri Go, a head of set allocation for Standard Chartered Wealth Management Group. Audrea joins us from the line city of Singapore. Good of you to stop by final trading day of the week. A couple of things seem to be positive for risk assets right now. In the States, I think the market is kind of increasingly confident in this idea of a genuine soft landing.
And from the China side, we're getting indications that officials are really kind of trying to address the property problem and maybe maybe the economy will feel some sense of fortification. Are you apt to belong risk assets right now?
Yes, we are quite constructive in terms of all week to our equity markets relative to bonds. We continue to believe that the soft lending narrative is actually very much in play, given that even from a US well data
point has been disappointing in recent months. For example, they are few reasonably supportive of not too hot not too cold economy that shouldn't figure any additionary heights by the fact, for that matter, So if you look at the latest industrial production or even sales scrow for that matter, it's
thought somewhat in April. But having said that, labor markets will continue to be charging along quite nicely, so that really feeds into the narrative of a soft lending which should then support risk assets in our view, and on China itself and the cooking of a China is dat point is actually starting to improve, nbs being economic surprises actually holding up better relative to the US, which is why in the short term some funds throw are rotating out from the US into China as well.
I will push back a little not a personal view, but just an observation that revenue for some of these big companies like Ali, Baba, Tencent, and JD dot Com. We're only up around six to seven percent. You know, that's a far cry from what those companies used to be doing. And in terms of equities in the US, you know, we're sort of back to what we thought we had before, which is disinflation. We had this spook in the first three months, and now we're back to
something that was already factored into markets. The market's already gained a lot, so you know, they're probably not a big catalyst from disinflation because we knew it, we planned on it, we expected it. And in terms of growth, growth looks like it's going to stumble a little bit here in the short term. So are you concerned at all that, you know, we might actually have a little bit of trouble gaining inequities even while the environment seems okay.
Well, I think there's room for other parts of the equity market to catch up, whether is it you know, from the US tech broadening out into other parts of other sector sectors in the US, or whether is it from the US into other parts of the markets, for
example in China in Asia. So we do see room for that to happen if you think about so, I think the the fundamental construct behind US equities is really solid when we've just been through the firs Q earning season and more than tutters of the companies have outperform their estimates. And more importantly, we have also seen analysts revising up their earliest estimates for this year and into next year as well. So that's quite a strong fundamental
backdrop supporting US equities. Yes, you're right, they could take a breeder in the short term because they have done pretty well to date so far, which is why in the near term we do see some signs of funds actually rotating our US which has performed well into some of the laggots. And here we talk about China as whereas Asia where data point are maybe not as disupporting
as before but starting to stabilize. But above all, positioning is light and they are also quite cheap from evaluation perspective.
Adre where are you guiding clients right now into what markets?
So we are still await in terms of the US market. So that's our largest or wait that we have. In addition to that as well, we are also constructive on Japanese aquities and we see the recent consolidation in Japanese equities because of a stronger year as a we're buying opportunity for investors to consider buying on debs. So those
are the two key markets that we like. But above all we are constructed on global equities as a whole because we do see the business cycle continuing and extending, given that romanetary policy is probably said to turn easier over the last half of this competuvity a year and half a goal where it was all about itat heights.
Yeah, one good thing with this inflation might be a lower dollar. I know there's so many inputs in the currencies, it's kind of hard to figure these things. But if the dollar does weekend, is that particularly good for Asia and even more so for Southeast Asia.
Yeah, certainly there would be one additional catalyst for Asian markets China markets to perform is via lower US dollar as well as lower a US bord views as well. So that normally has a positive effect in terms of fund throws into this part of the world. In terms of the dollar, this year we have a more of a ringebound view because it is an election year and depending on the policy to be enlected by the incoming new president, the dollar may react quite differently, which is why.
But this year we actually believe the expect the dollar to probably treat in a range until we get more charity in terms of what the new policies might be from the next president.
We've been talking a lot on this show about artificial intelligence today. How are you feeling about the AI trade these days? Is it pretty much stretched so finally that there may be limited upside from here?
No, we're still like the AI trade. We do think that there's still room for it to continue. In fact, one of the key driver for AI is to really enhance productivity for some of the range. Media worker for example, mid the market worker for example, which is an area which I think is underappreciated by the market because if the thing about it, instead of thirty minutes to write a report, we can spend on ten minutes. So it's a great productivity booster.
Okay, a big booster. We'll leave it there. A great weekend to you, Audrey Audrey Gough, head of Asset Allocation at Standard Chartered Wealth managementoint US from Singapore.
This is the Bloomberg Daybreak Asia podcast, bringing to the stories making news and moving markets in the Asia Pacific. Visit the Bloomberg Podcast channel on YouTube to get more episodes of this and other shows from Bloomberg. Subscribe to the podcast on Apple, Spotify, or anywhere else you listen and always on Bloomberg Radio, the Bloomberg Terminal, and the Bloomberg Business app.