This is Bloomberg Daybreak Asia for this Friday, May nineteenth in Hong Kong, Thursday May eighteenth in New York and coming up today.
The S and P five hundred hits a nine month high on signs US lawmakers are making progress on debt ceiling talks.
Traders speculate the Fed will keep rates higher for longer as inflation remains elevated.
And Ali Baba is set to explore IPOs for its logistics and grocery arms while spinning off its cloud business.
China key issue on day one of G seven world leaders visit Hiroshima memorial and symbolic gesture of unity. US and Taiwan agree on trade deal and two sides of the debt ceiling debate definitely softening. I'm at Baxter with Global News.
That's all straight Ahead on Bloomberg Daybreak Asia, The business news you need to start your day in just one fifteen minute podcast available on Apples, Spotify, the Bloomberg Business app and everywhere you get your podcasts.
Good morning, I'm Doug Chrisner and I'm Brian Curtiz.
Here are the stories we're following today. US treasure yields rising on speculation that the FED will need to keep interest rates higher for longer as inflation remains elevated. It
comes with some commentary from two FED officials. Now. Dallas FED President Lorie Logan said the case for a rate pause is unclear with high levels of inflation, and she said upcoming data could show that it's appropriate for the FED to skip a meeting before acting on monetary policy, but act it might have to do in the meantime, giving a slightly different position. FED Governor Philip Jefferson said he's watching for any delayed effects from past rate hikes.
History shows that monetary policy works with long and variable lags, and that a year is not a long long enough period for demand to feel the full effects of higher interest rates.
Charjpal has an opportunity to provide more guidance on policy when, as Doug mentioned, he will be speaking at a FED conference in Washington tomorrow. The FED meets next on June thirteenth.
Well after the bell, we heard from Applied Materials the company is expecting sales to decline in the current quarter, though not as sharply as analyst had feared. The story from Bloomberg's Charlie Pellett.
Applied is the biggest maker of semiconductor making machinery. It said fiscal third quarter sales will be about six point one five billion dollars, compared with six point five to two billion a year earlier. Analysts had estimated five point nine to seven billion. Makers of memory chips are struggling with a historic lot of inventory, forcing them to cut spending on equipment upgrades and new factories. That has hurt orders for companies such as Applied Materials, threatening a pandemic
era growth run in New York. Charlie Pellett Bloomberg Daybreak Asia.
Walt Disney says it's dropping plans to relocate two thousand California employees to its new corporate campus building in Florida. It will also close a luxury Star Wars themed hotel at Walt Disney World.
Now.
This comes as the company is involved in a high profile fight with Florida Governor On DeSantis. Tensions have been high since Dessantas signed legislation that took control of a board that oversees municipal services at Disney World. That came after Disney had publicly opposed a state law that limits the discussion of gender issues in public schools. The company has since sued. Let's get more here from Bloomberg's Chris Paul Mary.
Disney sued said that the move to disband the board of that municipal district was wrong. It was Recali Tori Desanta says he's going to fight the suit, and so things just seemed to be escalating. Bob by Her recently said, you know, it doesn't this state care about jobs, doesn't it care about investment, and so, you know, given the unpopularity was moved internally, this was sort of an no brainer for him to just say, all right, well, we're also simultaneously sending a message to Florida.
Disney did not mention the dispute with Dissentis specifically in either the hotel closing announcement or in the note to employees canceling the relocation plan. It only said that conditions had changed since the staff moved to Florida was first announced about two years ago.
Ali Baba said it will explore initial public offerings for both its logistics and its grocery arms, while at the same time spinning off its twelve billion dollar cloud business. The story from Bloomberg's Joan Wong.
This kicks off the first phase of a much anticipated breakup to try and revive anemic revenue growth. The spin off of Ali Baba's cloud division will happen within the next twelve months via a stock dividend distribution to shareholders. The intention is for it to become an independent, publicly listic company. This announcement came after Baba reported single digit
revenue growth for the third consecutive quarters. Try one's largest e commerce company, Adibaba remains a barometer for consumer demand in the country. Its lackluster showing could be an indicator that China's recovery may be taking longer than once anticipated. For now, Adibaba will look to push cost cuts to shore up margins. Ali Baba ADRs fell five percent in New York. In Hong Kong joined One Bloomberg Debrigaisia, and that.
Sets up an interesting session here in Hong Kong. We're watching closely to see how Alibaba trades here well. Relations between China and Australia have taken another positive step, with China announcing that imports of Australian timber will resume after two years of restrictions. Bloomberg's Paul Allen has.
More China halted imports of Australian timber and twenty twenty, a trade worth one point one billion dollars at the time, saying it found pists in some shipments. That discovery, however, coincided with trade strikes against Australian coal, bali wine and seafood. Relations between the two countries sound following Australia's coal for an independent investigation into the origins of COVID nineteen. Since then, the government in Australia has changed, allowing for a reset
of relations. China says Australian exporters have now satisfied the conditions of Chinese customs and what Australia is a trade minister Don Farrell is calling a great outcome. Farrell is hopeful the risk of China's trade restrictions can be lifted this year. Paul Allen, Bloomberg day Break Asia.
I'm Brian Curtis along with Doug Christner and Doug I want to ask you a question here. It's a rhetorical question. If you could answer it, I'd vote for you for president. Maybe. To what degree is Ali Baba a key man risk story. Now, we know that there's been a lot of action, regulatory action and such on a lot of these tech companies, but Baba is really kind of stumbling here. It had a modest sales miss, It had a little bit of weakness in cloud revenue, the first decline ever on year
on year terms. And I know you can explain away a lot, but it does seem like with jack Ma out of the picture, the company has stumbled a little. And you wonder whether or not you know that's going to be the case at other Chinese tech companies.
So one of the criticisms I think is that the company may be a little bloated and maybe it's become a little inefficient. Maybe that argues for some type of reorganization, which seems to be what the company is doing right now. The other thing that I wonder about is the extent to which there is a lot more competition facing this company in a way that it had not encountered previously.
Yeah.
Absolutely. A good example is another story we have today that may Twan will launch an app in Hong Kong, and it's an example of a Chinese company wanting to do business outside Hong Kong, and it's actually killed Ali Baba on the food delivery service business in Chine. It's by far number one, So that's kind of an example of that. What else is really big today? Well, we've got a good tone to the market and another really
strong day for tech. I heard you guys chatting in the previous show about a big tech and what's happening. I have an interesting point. The valuations are just getting back to the twenty nineteen levels before you had AI really sweeping through here. So think about that. Can you argue that there's a lot more room to run given that interesting positioning?
It could be the case.
And what was interesting today, Brian, we had a spike in yield and that didn't really hold back the tech group. And if you look at what the yield did, particularly on the two year, in terms of creating some dollar strength, we have the dollar on a tear and a great deal of weakness as we get set for trading in Japan in the end. Right now with a one thirty eight handle, that's pretty hard to believe.
Yeah, I mentioned that dollar strength though. We'll put that to Belita Own who's coming up shortly, Chairman of Adulton Investments and always good to have her on the program. Now it's time for Global News. The G seven meetings have kicked off, with the US saying China will be the key issue. Ed Baxter has Global News in the nine to sixty newsroom.
Yeah right, Brian, Now, US is saying starting with geopolitical security concerns, but also competition. National Security Council spokesman John Kirby and speaking with Bloomberg's Amory hor Durn says, yeah, China.
The G seven leaders will absolutely spend quite a bit of time here, as you would expect they would certainly here in Japan talking about the challenges that the PRC represents. They will think, I'm convinced of it that you'll see at the end of those discussions that they'll all speak with one voice about about how we need to treat that particular competition from not just from a security perspective, from an economic perspective, from a diplomatic perspective.
Kirby says G seven will represent one voice. The group expected also to turn the heat on Russia regarding Ukraine. Meanwhile, President Biden, addressing Japan's Prime Minister Fumio Keisha, I think the.
Quote is we face the most one of the most complex environments in recent history, security environments, and I couldn't get any more. But I'm proud that the United States and Japan are facing it together.
So on China, Bloomberg's Andre Hordern and Hiroshima says, if there's any sticky agreement, it is there.
We can see a bit more tension between these leaders, especially between the Europeans and the United States on how much they want to The new vogue word is d risk not decoupled from China, and we do if the administration wants to put forward some sort of path about economic coersion when it comes to China, about making sure these countries are aligned on a multilateral approach.
Anne Marie says the G seven leaders going to the Hiroshia Memorial later in the day huge for Prime Minister Kishia. It is, of course his hometown. China has blasted the US on what it calls coercive diplomacy. At the G seven, US and Taiwan have agreed on a trade initiative and a bid for closer ties. This is the first tangible result under an initiative announced last year. It will streamline customs, reduce wait times for trucks and vessels and improve regulation.
Some better news today from both sides on the debt ceiling talks in the US House, Speaker Kevin McCarthy.
Where we were a week ago and where we are today is a much better place because of you. We've got the right people in the room discussing it in a very professional manner, with all the knowledge and all the background from all the different leaders of what they want. I said, I know, and I can see where a deal can come.
Together, and many a Democratic Senator Kirsten Cinema also saying those people on both sides are great and that she's glad that they're in place. As for the issue of some kind of work requirement for some entitlements, well, I'm bloomberg today, she said, sure, let's look at it.
The reality is, in our country we've long had modest work requirements for some entitlement programs and continuing those makes relevant sense.
So we shall see. On the PGA leader board, Bryce En de Chambeau is sitting on top. He's the only one at four under to this point, and he's through his round today, followed at by Scheffler and Connors at three under, two under grouped up Bradley Streika, Scott Cole and at one under Justin Sue. We'll continue to follow that for you Global newspower by more than twenty seven hundred journalists and analysts in over one hundred and twenty countries.
In San Francisco, I'm at Baxter and this is Bloomberg.
Hi everybody, I'm Brian Curtis, along with Rashad's Salama. This is Bloomberg Daybreak Asia. As mentioned, our guest is Balita Ong, chairman of Dalton Investments. Balita, we talked about dollar strength here of late and yields moving back up again doesn't seem to have really set back the equity markets, but how long can that last.
It's good to be back. Dollar strength is for the US not a problem. It's just a problem for everybody else because of the potential impact on inflation. Dollar strength in fact helps countries that are largely exporters and can boost growth for them through growth and exports. So it's a matter of which countries are suffering the most from
inflation where it presents the bigger problems. In the case of China for example, for now, or Japan, where inflation has been you know, at zero for decades but is finally coming up. Perhaps it's not such a big problem currently, but the reality is that the dollar strength is here now and is here because of the significant still significant, very significant interest rate differential. But the fact is that the US budget deficit is enormous and that will over
time put pressure on the strength of the dollar. That plus the you know, geopolitical issues that really make you wonder how much you should keep in dollars if you're a country that has to be conservative about its reserves because given them what was done with Russian reserves. You know, if you're a country that worries about having your reserves taken over by the US, then you might want to diversify.
Belita, And it's quite out at you because we do seem to have also the the dollar gold relationship reinstated that I should i say an inverse relationship that they do have.
It's true, I personally think that gold makes a logical as a logical alternative to the dollar, given the state of the world today and given no obvious successor to the dollar as a reserve currency. But you know, day to day fluctuations or even weeks awak fluctuations are for me and for us at Dalton impossible to predict, and gold is not actually an area that we invest in. It's just not in our wheelhouse.
So we noted the dollar strength along with yields popping back up again, it suggests that perhaps the bets are in the process of getting raised. A lot on whether the FED hikes in June.
Your thoughts there, I personally, I don't think the FED will hike in June. We have seen a moderation in the rhetoric from the FED governors, and we have seen significant progress and inflation from you know, a peak of what was at nine point one percent in June until the as print was about right around five percent. We've also seen some weakness in the labor numbers and in some way to moderation, and clearly the bank failures have
led to tighter credit conditions. So with all that going on, I think it makes sense for the FED to take a pause. Interest rates have gone up five percent in a year and it does take time for that to flow through to the real economy, and we are seeing the impact now. You know, all this depends on what happens before the June meeting. If we get a further moderation of the inflation numbers. I think it's very likely that the federal hole pad for now.
Benita when you look at then how you actually navigate all this? Is there any playbook for having a particular type of portfolio given where the economy is? I know every situation is unique, but certainly, you know, is there anything out here with you know, when you've got a low unemployment middle too high inflation at the same time and rising interest rate environment.
So we invest one company at a time, and it's based on the merits of the company, so strong balance sheet, strong cash flows, well managed, long track record of operations. And where you find all that and have found it for a long time is Japan. The issue with Japan always has been that, you know, the Japanese companies kept cash in the company and didn't give it back to shareholders. And that's cost almost a decade now of corporate governance reform.
But finally, with recent announcement in January by the Tokyo Stock Exchange putting down strict criteria and a timeline as to when Japanese companies have to improve their financial ratios, we are seeing a return of foreign investors into Japan and the marketers you know, has been very strong this year up between you know, fourteen and sixteen percent dependent the index you're looking at. So where bullish on Japan?
Yeah, it's the second best performer of the big markets in Asia after Taiwan. And I was ready to feed into a question about that because it has popped pretty well, and we've seen that in Europe in relation to other benchmarks. The gains are kind of already in but you think that there's still more momentum there.
Well, you think it's a long runway because Japanese companies are still very cheap and the change in behavior by management and the improvement that needs to be seen is
still very far away. It's a very long runway. So, for example, the Tokyotok Exchange, one of the requirements for listing in the prime section is a focus on price to book, and they're requiring price to book be more than one, and about half the companies that would be eligible for the Prime section and the main section are below one, which is astonishing when you think about it.
How can it be that the Japanese market as a whole has no debt and actually has a net cash, and how can it be that so many companies trade with the price to book of below one. That just doesn't make any sense. But yet that's the way it's been for a long time. So it's a long it's a long runway.
Very quickly gives us sense to some of your topics.
We like the companies in Japan that meet, you know, the basic requirements that we have in terms of filtering the attractiveness of a company. But we also like companies that are in strategic spaces. So for instance, ri and I is a long term favorite of ours. It makes uh environmentally friendly gas heaters uh and it's a leader in the world in that in that product. We like Bagtaka Fuji, which is not as well known as company, but it's a pretty standard sort of chip distributor in Japan.
But it has this wonderful growth area which is ignored, which has to do with services provided to companies. So so you know, companies like that are still very reasonably priced.
Excellent, Thank you very much, Belita Belita Ang, chairman of Dalton Investment. This is Bloomberg Daybreak Asia, your morning brief on the stories making news from Hong Kong to Singapore. And Wall Street.
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