All right, let's get to our guess now. Generally is ce IO for Power Sustainable Investment Management joining us from Shanghai. So a lot to talk about when we look at the towards the Party Congress and whether or not we could see a change in COVID zero policy. But also wanted to start with the sell off that we are seeing in chip makers this route spreading to t s MC Samsung after the US curbs on China. Does this just increase some of the head winds around China businesses um,
That definitely is a factor. I think the U s sanction on the China chip industry does have a very fundamental and potentially long term impact on the development of the chip industry in China, and also major suppliers to the Chinese players also got hurt, like t SMC and
the leading chip makers in the US. So where we are analyzing the situation, we think it is pretty severe because in the only constraints chip exports to China, it also constrains the equipment providers are provided to the Chinese chipmaking industries, which will negatively impact the fabulous capacity increase in China. We had anticipated very fast expansion of the chip industry in China now things may get worse than that.
And also um there is a very restrictive terms on U S citizens participating in the chipmaking industries in China. So overall we see a very big negative factor on the overall chip industries globally. So I'm wondering, I think that would be the intent of the Biden administration right to curtail growth in certain industries like military surveillance or
artificial intelligence. Are there companies in China now whose growth depends on access to these high technology I mean cutting edge chips that are and maybe that's now in question. Is that the way you're viewing it. I think a Bidence uh administration's intent is really to cut the development of for example, military use of the most advanced chips and also AI development in general in China, despite the fact that these areas require the most advanced chips and
AI trips. I think some other industries that's used by electric vehicles, et cetera may also be actively impacted. That is what investors are concerned about, because you will need to have database data centers, you will need to have UH the AI systems to facilitate the future development of the electric vehicles for example, and other related industries for
the general public. Let's talk about what we're saying elsewhere in the China economy, and as I mentioned, we're looking ahead to whether or not there could be a pivot away from dynamic zero. But we're still got a lot of weaknesses in the property sector and real estate market pressure. You're looking at real estate sales which declined over the Golden Week holidays. So what does that tell us in terms of adjusting some of these earnings grow its potential
for Yeah, I think real estate is a very big sector. Historically, the growth of real estate really supported strong economic growth in China in the past ten to twenty years. However, I think given currently we have a lot of pressure and the leveraging on the real estate sector, we see a big drag on economic growth. The Golden Week, at the top thirty cities registered the nective real estate sales due to the fact that UM, a lot of buyers do not have enough confidence in the future outlook. So
um this may continue for a while. We believe that this is still the weakness in the Chinese economic growth for the next two months, and then we love to see more policies or stimulus to support the real estate market in China. These may include, you know, the lowering of the mortgage rates and the lowering of the triple
our rates to support liquidity. However, looking into the earning growth, due to the real estate market weakness as well as the COVID zero policy which constrained traffic UH and the consumptions of the people in China UH, the earning growth in the second quarter was really weak. We see milder recovery for the third quarter to twenty two, but looking into future, we are anticipating a mild recovery from there
as well. UM, but there are still uncertainties, like I said, depending on the COVID zero policies and also depending on how strongly the Chinese government will support the resting market. So a mild or modest recovery of the Chinese consumer, A big deal of risk that remains where the property market is concerned, and very strong headwind when it comes to technology visa vi A semiconductor. So there is a lot to be negative on when you look at China overall.
How are you able to put money to work in the Chinese market right now? Are there areas or themes that you feel represent value or strategy that makes sense. Yeah, I think, like you mentioned, there are a lot of bad news for the Chinese economy, for the equity market, I think things are looking difficult globally as well. Uh so, but it is fair to say that both the Asian market and a share market trading at very low valuation. UH.
They are at very low levels at this moment. So looking into the future, I think investors are looking for more certainties, things like domestic consumption. Like I mentioned, UH, this year is a really low based due to COVID. Next year, if things get better, if the COVID policy gets relaxed a little bit, you will easily see improvement from here. We are also see investors interested into high
yield companies in the areas of utilities, etcetera. UH. And also we see investors getting into the value stocks as well. We just saw China September retail passenger vehicle sales rights twenty one percent year on year, according to UH data from authorities the p c A. I mean, we know that's coming off a very low base from from the prior year, but is that an encouraging sign on consumption?
I think definitely. It is electric vehicle and the auto cells is another big aspect of the economic growth, so it is good to see uh continuous growth from that sector. Like you mentioned, it is from a very low base from a prior year, and also it is driven by
policies such as tax cuts for the automobile buyers. Looking into the future, we think the Chinese government will continue to support the growth of the automobile industry, which is pretty much domestic consumption driven and it's related to a lot of uh O E M s and suppliers that are all China manufacturers. Alright, June, great to have you with us on on day brac Asia Today. Jun Lee is c IO for Power Sustainable Investment Management, joining us from Shanghai.