Bloomberg Audio Studios, Podcasts, Radio News.
Welcome to the Daybreak Asia Podcast. I'm Dan Schwartzman. Doug Chrisner has the day off. Asian equities opened higher tracking Friday's games in US stocks. That helped intensify bets for a strong finish to the year. Hopes for a year and rally have grown as dip buyers late last week helped equities recover from a slide driven by doubts over
AI exuberants and the scope for Federal reserve easing. From more on the market action, we turned to Vasu Menen, Managing director for Investment Strategy at OCBC.
He spoke to Bloomberg Xenna Belt rulers.
I think one of the key questions for investors' big questions is always setting up with Santa Culs rally.
Well, you know that's a hot one because we've had a very strong rally already so far this year. Global equities up something like nineteen percent if I'm not mistaken, US equity sixteen percent, and if you look at Asia in Europe and China for example, in US dollar terms, they've gone up more than twenty five percent each. So we've had very strong rally. I wouldn't be surprised if
we close the year on a slightly higher note. But I think twenty twenty six is going to be a challenging year, but we remain positive on the outlook for twenty twenty six. We think that at the end of twenty twenty six, markets will be higher than what they eye the end of twenty twenty five. But the next couple of weeks, as you said, the center class close.
Really that's a hard one to predict. But I wouldn't be surprised with the market's at clear hand and the year on a higher note, because you know, we've had quite a number of tailwinds helping the markets to actually scale new heights in recent days and weeks.
Yeah, let's talk about the state of play this year, because we've got a chart actually where we can see just a share underperformance of US equities versus their global peers in twenty twenty five. We don't see that too often, I think really three times in the last decade or so. Do you see also that being replicated next year, or do you think that you can actually see US stocks starting to outpace those from elsewhere?
Well, I wantn't be surprised if US stocks continue to underperform other regions. My own sense is that, you know, fund managers, global fund managers appear to be more receptive to opportunities in Asia ex Japan, in Japan, in Europe. And I think that is also born out in the valuation data, you know. And I was looking at the evaluation data on Bloomberg terminals before I came for the show.
And if you look at the MSCI USA Index or the S and P find Index, which measures the U stock market in terms of forward P ratio, it's trading close to two times standard deviation over a tenure history. In comparison, if you look at Asia ex Japan, you look at Europe for example, they're trading below one standard divation. So in terms of evaluations, you know, you see better
value in other regions outside the US. So I wouldn't be surprised if the US stock market continues to underperform in twenty twenty six as money rotates out of the US into other regions.
Yeah, which you mentioned some of those challenges that stocks might have next year, which are the big ones that you're looking at?
Do you think, well, you know, one of the key challenges I think we'll be looking out for in twenty twenty six would be how Trum deals with the Federal Reserve and FAT independence. I think that's going to come to the forefront as Jerome Powell steps down in May and as Lisa Cooks you know, trial in Supreme Court. You know, the outcome will actually also determine market perception
about fat independence. So FED independence is going to be quite critical, we think in twenty twenty six, and how Trum deals with it, I think will be quite important. And of course the US midterm elections at the end of next year. In the run up to it, you could see jee political risks go up, a greater US China tension. That could also, you know, figure on how
the markets performed. But overall, we think there are more tail winds that than hit winds in twenty twenty six, and the markets should still end the year on a higher note despite volatility. As you saw in twenty twenty five, twenty twenty five is a very volatile year, but still the markets ended are going to end the year on a pretty strong note. I think you're going to see
the same story player in twenty twenty six. There will be challenges and hit winds, as I mentioned, but I think the markets will be able to overcome them and still close on a higher note at the end of next year.
Do you think markets are fully appreciated as well that risk that we at least see maybe the end of easing cycles even the start of tightening cycles once again. I mean that's the fact that we've been talking about maybe being a little bit underappreciated by investors right now.
Well, I think yes, it is starting to come to the forefront to some extent. The markets are starting to worry about the bang of Canada, the RBA, you know, the ECB even you know, possibly hiking rate. But I think it's still a bit premature. It looks like, you know, the FAT will probably continue to cut inter strates in twenty twenty six at least one time. And I think the FAT is a key part of the whole global equation, and the FAT we think is going to continue easy.
I don't think the FAT is going to tighten anytime soon. And other central banks, like the ECB for example, they have signal, but I don't think they're ready to tighten
anytime yet. I think that could be a story that could come into play in the second half of twenty twenty six, but even then, I don't think there's a lot of latitude for central banks to tighten in a big way because there are global hit wins as far as you know economic growth is concerned, So there could be, you know, some signals from central banks, but whether they're ready to move and derail the global economic recovery and financial market recovery, I think I'm not sure if they
are ready to do that right now, But in any case, I think it's more story for the latter half of twenty twenty six.
What's your expectation around China as well?
For next year?
We've seen again those issues or concerns around the economic weakness coming to the forefront for equities once again. But at the same time, obviously the dominant theme for this year has been that tech and innovation led story, and you see the cities side three hundred for instanceuff around forty percent so far or on an analyzed basis. But still, what's your expectation for where we go for next year?
Well, we are positive in China. China is one of our stronger conviction calls. We're positive on EGYX Japan and within EASYX, China is one of our strong conviction calls. And as you said, you know, I mean the Chinese economy is not doing fantastically well in twenty twenty five, that was a story as well. You know, the economy fears a great deal of challenges. But look at the stock market is done exceptionally well. THEMSCAI China Index is
up thirty percent a year to date. I mean, so it's I'll perform the US and a big We almost double the performance of the US stock market in terms of thesca USA Index. So we think that you know, China will contrough to perform in twenty twenty six.
As well.
The potential for fiscal stimulus, monetary stimulus evaluations that are expensive, and Chinese households have a huge amount of savings, you know, more than twenty trillion US dollars in savings. That's got to find a home and that could and not just that, I think global fund managers are also starting to put the put more money into China. And so put all that together, it means that you know, the Chinese stock market has mobsite again. It will not be a straight
line climb. It'll be volatile, but you know, we think that you know this mobsite.
That was Vasumnen, Managing director for Investment Strategy at OCBC, speaking to Bloomberg's Annabelt Rulers.
Coming up on the Daybreak Gasia podcast, we.
Get an outlook on Chinese equities well here from Yan Wang, macro chief EM and China strategist at Alpine. Welcome back to the Daybreak Asia podcast. I'm Dan Schwartzman. Doug Chrisner has the day off. More threats technology introduced a new generation of chips to reduce dependence on nvidious hardware comes as Chinese ship makers are in the spotlight as authorities push forward with efforts to develop a world class semiconductor sector.
And we get a macro outlook on the markets from Yen Wang, macro chief EM and China strategist at Alpine.
He spoke to Bloomberg's David and Glass.
I know, and let me just make reference to your note about six weeks ago, first or second week of November where you did observe a course China is hot again. You've been on this whirlwind global tour speaking to investors, including I should mention of course here Hong Kong, China and Singapore. What's your overall sense of what people are looking for in the Chinese story going into next year.
I think the biggest takeaway is that global investors are becoming more interested in China again. In twenty three and twenty twenty four, China was deemed as uninvestable. Back then, the economy was bad, Jeo political solution was bad, the market was not reperforming, so people were not really tested in China at all. But in my recent trips, in my meetings with clients with investors, I can get the
science that investors are becoming more interested on China. China is back on the radar, and I think this is a very important change because people are still very very underwe China, and so if they are interested in China racing reacing exposure from a very low starting point, I think that that can drive a lot of captalin flow
into the Chinese aputy market. So I think the biggest question mark, obviously is the market that's gone up a lot, right, So actually the market bottomed February twenty twenty four, so the market has been rising for over two years, almost two years. So the question is whether investors should chase the market because they didn't really have any exposure at all.
So now the market just keep rising. So I think the biggest concern is why going into twenty two, twenty six, whether the boot market can can continue.
What in your sense, what do you suspect will be the so so we know about the lack of inflation story, we know about you know, liquidity, abundant liquidity that has managed to offset most, if not all, of the former story. And I'm curious to see, curious to hear what you think in terms of the big question mark and what resolves itself going into going into next year.
Well, I think I think really the biggest change since last year is probably, uh, you've just begun to realize China is a you know, it's almost imperative to invest in this kind of true world. Right, So for example, you know, you mentioned the Chinese chip makers, So all of a sudden, you see Chinese companies are making very advanced chips.
You know, a few years ago, that's unthinkable.
So regardless of this, uh, this story, regardless of the cyclic profile of the Chinese economy, now you do have two systems a parallel to each other.
One is the US system. The other is the Chinese system.
So I think now people began to realize that every investor has had so much exposure to the US market, but has so little exposure to the Chinese market. So I think this kind of you know, very lopsided allocation is one of the most important incentives for investors to look at China. You know, for example, at the beginning
of the year, we had deep sick moments. That's when really began to draw a global investors' attention on China, not just focusing on the weaker part of the economy, not just the real estate market deflation, but also there are a lot of growth sectors.
So I think that's really.
Driving a lot of attentions, also a lot of capital inflows.
And it's that distinction visible between the groups of investors that are more familiar with the Chinese market, let's call it domestic players of course, the home bias. And how does that story, how is the appreciation of that story, how does it change as you look further away from China.
Yeah, so I think the China uninvestable story was mainly concentrated in the US among US investors and some European investors, so because because you know, most of it was because of geo political tensions, geopolitical environment, and for European investors the China's role in the US Russia Russia Ukraine War, China was deemed very unfriendly.
I think that was the like I.
Remember in those years when I was talking to the investors, even though these investors they didn't share the gloomy views on China, but they were concerned about so called reputational.
Risk of investing in China.
So I think now this this is gradually changing in Asia in em vessages are vestage view on China have always been more nuanced.
Yeah, okay, so the the the common denominator going into next year globally and you have an em mandate too, is it does seem like the tailwinds from easy monetary policy will will will somewhat not be as big a part of the conversation next year as most central banks
either pause or have ended their their easing cycle. How do we distill the tailwinds coming through out of loser policy and what does that mean for you know, the weaker dollar story which has helped and you know, the appetite for EMS sets next year.
Yeah, I think I think the dollar is a big story.
I think if the dollar continues to weaken, then obviously global investors interest down e ms as will will increase, so I think that can still be a factor. On the other hand, I think the fact will continuity to ease. We believe the US inflation will continue to fall, so
that will allow the fact to ease. And then it's still a lot of EM countries that are real interest rates are still very very high, right so I don't think the mindring easying tailwind will diminish much next year, especially for a lot of high yielding EM countries, especially like in Latin and South Africa in China.
In China, the mind rue easing may.
Not be a big story, but a lot of the major headwinds that we have had this year will diminish, right So, in housing has been in such a long deep slump, consumer confidence has been so weak for so long, uh and Chinese exports to the US this year contracted a lot.
So these are really the major headwinds for.
The Chinese economy this year, but most likely going into next year, all these three negative factors will either stabilize or even improve.
So I think on the China front, I.
Don't really think mindory policy easing will play an important role because you know, the problem now is demand for loans is very weak. It's not the prime it's not interest rate is not affordable. It's demand it's weak. But if these three headwinds will gradually turn into some kind of tail wind, then I think the Chinese economy will perform a lot better.
That's a big gift and I'm glad we end on that. Can I just ask you a little bit more on the housing market and consumer confidence. We know if that goes away, it doesn't matter if the PBOC is tightening interest rates. You know, the market will rally if those two things recover. What gives you the confidence, apartment based effects that the housing market and consumer confidence will be a better story in twenty twenty six, right.
I think the consumer story is probably easier to tell because if we look at over the past two years, there was this kind of uh self feeding vicious circle between the corporate sector and the consumer sector. Uh the corporate sector was not hiring, so consumer confidence was weak, and then consumer confidence week demand was weak, then corporate sector was not hiring. So now you have this kind of you know, very vicious circle between these two self feeding.
But now we are beginning to see some evidence that corporate sector hiens intention began to improve so across the board. You know, even when I was in China talking to some uh some to uh to the business community, my senses confidence is slightly better than my previous trips. So I think if that changes, I think I do think there are high hodds of this being changed. Uh, then the visious feedback between the corporate sector and consumer sector
will begin to uh to to to reverse. So I think that's to me, I think that's a kind of higher odds event. On the housing sector. The simple fact is the housing sector KaiA has contracted for over four years. Housing stars have contracted by over seventy eighty percent. So nothing false forever, right, So I think that's why we even we not consider this kind of you know, basic fact. I suspect we are very close. We are a lot closer to the bottom.
That was Ian Wang MACROCHIVM and China strategist at Alpine speaking to Bloomberg's David and Glass.
Thanks for listening to today's episode of the Bloomberg Daybreak Asia edition podcast. Each weekday, we look at the story shaping markets, finance, and geopolitics in the Asia Pacific. You can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel, or anywhere else you listen. Join us again tomorrow for insight on the market moves from Hong Kong to Singapore and Australia. I'm Doug Prisoner and this is Bloomberg
M