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It is time to check in with Bloomberg Opinion. We're joined by opinion columnist Schuli n who is writing about wang Ka, the Chinese developer that recently had its credit rating cut too junk Shuley, thanks very much for joining us. So there's a debt swap plan that is being considered, but it doesn't change the fact, does it that there's just no clarity on future sales here for these developers.
That's absolutely that's absolutely right, Brian, And that's why the Chinese cover and is perhaps nudging it's a state owned banks to consider a death swap. The thing with one cur is until basically this Monday, it was an investment graded real estate developer and it's not anything like a China Evergrant or country Garden. It has a professional management
and its balance sheet is fairly sound. However, because China's physical market is doing so badly that even one who's sales is being dragged down and it just looks like it may not be able to make the next bond repayment schedule.
Yeah, so you're facing a liquidity crunch. Do you think there will be some type of reorganization to try to remove some of that stress?
Well, investors probably hope not, because restricting usually means a very very little returns to the investments. But at this point you will have to because with one cur right. Last year, try this property market was doing very badly, but it was doing not too bad. It's a contracted sales was down only ten percent because it was taking some market share away from the likes of Country Garden and the evergrants. But this year, in the first two months this year, we are seeing a forty percent drop
from one year ago. That just shows that at this point it's not just about this or that developer, but about the overall market. Chinese households are just not willing to go into the primary property sales, and some of them are going into the secondary sales, in which case the developers are not getting any benefits.
Right, you say that a government bailout of one would actually be good for the government to explain.
Well, because just like Hong Kong, the Chinese government local governments, they rely heavily on land sales. Lens sales can account for up to one third of their total revenue. So what we're seeing is that the Chinese local government's revenue from lens sales is already down one third from it's twenty twenty one high.
Right, So if one still.
Goes down and the no developers are left in China, then how are they going to sell their land?
It is a big fiscal problem.
Like I think, if at this rate, even the likes of One can now survive, that means there will be no private sector developers left and the local governments can sell any land.
So if you're talking about a bailout, everyone is whole.
Right.
We're not talking about a cash infusion, maybe in a little bit of state sponsored reorganization to kind of get things more in line, but you're talking about a full blown rescue of the company.
Well, some one possibility is what Chinese government did to the distressed local governments, basically allowing one to issue that and a substantially to to refinance its public that a substantially lower rates, that's one possibility.
So that would be a sort of restructuring.
Then right, well it is.
It's a restructuring of that, but it's not a restructuring of the company's business operations.
Now you say that that one cub you know has a strong past and equality management, and then it's closely intertwined with shen Xen. Why does that make a.
Difference, Well, it's kind of one symbolic.
It went to it went public in Chanchang nineteen ninety one, and Chanchhan was basically the first city that adopted the private home ownership in China. Right before that, like you know, all the Chinese they lived in those crabby housing provided by the state owned employers, et cetera. So Hinxhuan was a pilot city for this new home ownership model, and
one was a pioneer in that pilot city. So if one goes down, it's quite symbolic in the sense that you know, then shall pains a sudden tour is getting reversed.
So it's almost like we're looking at the end of privatization of property developers in China is going to be state sponsored.
Yes, absolutely.
What's tricky though, is that when you look at Evergrand with the liquidator here in Hong Kong trying to sell assets in China, it's a mess. I mean, certainly the government doesn't want that.
Again right.
Evergrand is a complete different story. But the problem with liquidators in Hong Kong is they like Evergrand, the company that the shell company that is to those dollar bounds. It is a shell company and it didn't have a lot of operating assets overseas. So the liquidators in Hong Kong, their best case scenario is basically to call back whatever ever Grand has outside of mainland China when you go into mainland China are way down the packing ordering herself quite.
Absolutely, all right, Julie, thank you Bloomberg Opinion Colin Shuleyren. You can find her pieces on the terminal by typing OPI N go.
Mark Cranfield, he is our m live strategist. If you have a Bloomberg terminal, the function is m l I V than the green go key. Mark doesn't seem to be moving the needle here. On expectations that we're going to see fed raid cuts sometime midyear, right.
Well, people are waiting for the dot plots the next week FOMC. That's really the big issue, and you've heard a variety of FED voices over the past couple of weeks. Obviously they're in a blackout now, so there won't be any comments this week, but you can see there's a divergence between different people in the FED. We even had Neil Kashkai saying that maybe only one rate cut is necessary this year. There's a number of people that think
only two cuts is necessary. And then at the moment the dot plots, officially, they still show a median of three cuts. So another CPI number, which has come in slightly above Foe Coast obviously puts into question the whole outlook for the dot plots, and that's what traders are waiting to see, whether or not they drop the number
to two cuts for this year. Would they leave it at three or do we even have even maybe dropping even to one, But certainly a change to only two rate cuts this year is a distinct possibility, and that's keeping everyone a little bit on edge.
It seemed like this report, the CPI report, was a little bit like the Jobs report, and that there was something in there for both the bulls and the bearers. In the end, the equity market shows to kind of set it aside and to rally on it. Is that because wasn't anything all that surprising in the data? Or is it more just that equities are moving more on earnings than on the FED and macro.
I think where you have to take into account when you particularly for the US equity market, you have to see, okay, what is really driving the US equity market and how much whether twenty five basis point rate cut change to the picture. Well, whether the Federal Reserve cuts by twenty five basis points now in three months, in six months, it is not going to make any difference whatsoever to
the drivers of the US equity market. They've got use to having short term interest rates about five percent for a long time. They can live with it because the underlying US economy is doing so well. As you say, earnings in many places are extremely good. And one of the other main drivers of the US market right now is the AI narrative, and that has got nothing to do with interest rates. It doesn't matter whether interest rates
are five, six seven, They can live with it. The AI story is a completely different set all together, and as long as people think that that is a strong medium term drive of equities, it doesn't really matter what interest rates do.
You're absolutely right about that. I was looking at Oracle today the stock hit a record. I was up about twelve percent. Yeah, the cloud computing businesses on growing very well. But yesterday the company said what it announced quarterally results. Demand for that Gen two AI infrastructure is substantially above where supply is right now. But in the time that we have left with you, I want to get your view on the BOJ because we've got these wage increases
that will be reported through the week. I guess there's a very heavy dock at today. The big number will be reported on Friday. Do you think we're going to get kind of the preponderance of data that's will force the boj's hand as soon as next week's meeting.
Yeah.
I mean we've had a big story on Bloomberg saying that the meeting is too close to cool. I think you have to take you face value, and I think it's really just a question of whether the bankage or paying feel was ready to go all in March or whether to do a step by step move so some in March and some in April. So what we could see, we could see yel curve control removed at the March meeting, and probably a message to say no more ETF buying.
That would be the end of one part of the policy, and then they leave exiting negative rates till April or till later. They may go all in for March as well. I suspect it will be staggered because they're trying to limit the impact to financial markets in Japan, and they do have the fiscal year end coming up on the thirty first of March, so I suspect they won't want to cause too many ripples in March, and they will
leave something on the table for April. But certainly changes are coming, and it's going to be over the next couple of meetings you'll see the Bank of Japan make some very big steps.
Mark I tipped this a few moments ago. Perhaps you can squeeze in a quick answer. The Hanks Hang Tech index powering up twenty percent now from its lows. It had a big jump yesterday, So technically in a bull market, is that in believing in the story from China, from the NPC or something else.
He's probably got more to do with Navidia, Navidia making record highs after record hise and just accentuating the whole tech and AI story. I mean, who could ignore something like a juggernaut like that has global impact, and I suspect it's got a lot more to do with that than anything going on locally in Asia.
Yeah, we had Nvidia shares today jumping by more than seven percent. So to go back to that AI narrative that you were talking about earlier, it's not yet faded. Perhaps it won't anytime soon. Mark, It's always a pleasure. Thanks for joining us, So, Mark Cranfield, Bloomberg m Live strategist joining from Singapore here on daybreak Asion.
Joining us now in our studios is Daniel Lamb, head of Equity strategy at Standard Chartered Wealth Management. For a closer look at markets. Daniel I mentioned that the Hanksan Tech indecks passed twenty percent higher from the lows or came up twenty percent from the lowest here of late, so technically puts it in the bull market. It has people,
I think scratching their heads. The one thing I might say is that in China, the NPC did approve a ten percent increase in the budget for science and technology up to fifty one point six billion dollars. Is it possible that that is part and parcel of these big gains we've seen in tech in Hong Kong.
Thanks, that's part of it, although I believe that more of it is the fact that investors, some of the investors begin to look for opportunities outside the megacap us gross docks. That's what's been happening, connecting all the dots. So you've seen that. Of course, within this seven magnificent seven, people are trying to narrow that down to six, five or four stocks, So that's become a narrow and narrow and investors have been branching out to look for opportunities
outside that set of names. Now, if you're looking at a tailwind from say, you know, lower inflation numbers, well you're not You're not really getting the full lower inflation right because it's still past the sticky So the ten year yield becomes, you know, more solid in terms of
level and maybe grinding higher. So investors are naturally looking for other areas to park their money outside the seven stocks, at least for the short term, so naturally they're looking at you know, like China for example, because it's so cheap right in variation, And you said that, yes, it rebounded twenty percent from the lows, but you know, buying large these stocks are still at a massive discount to the counterparts.
So what are the risk Daniel?
The risk is that the economy is still not very solid in China, right, So you've seen that the latest CPI figure in China. Yes, it's kind of stopped the deflation trend one print, but is this going to be sustainable? I mean, the PPI was still relatively tough, right the latest number. So I guess you know, the question now is that, you know, if we do see another print of CPI being in the positive space in China, then this rarey could continue, but it could be just a blip.
Yeah. I think there's a lot of wisdom in what you said, because I noted that the other day when you had Netflix selling off ten percent, in the day, you had tech stocks going up in Hong Kong. So among the companies that had a big balance yesterday was shell Me. This is a little puzzling too, I mean, up eleven percent, the company saying it will sell electric
vehicles this month. So it's going into a market which itself has been sort of churning down a little bit, and you're going in and competing against Tesla and BYD and the stock goes up eleven percent.
Explain that to me, well, basically, I would.
I would.
I would say that the the stock's been beaten down a lot, right, not just you know the stocks they mentioned, but you know, a whole the whole EXHS Tech index, right,
every single one of them has been beaten down. So you know, when there's flow of funds coming, you don't need that much for a fund to make them go up by ten percent a day, right, because it's so beaten down, right, So I would say that, you know, in terms of China, the stocks that actually have been working even during the direst diarist of time back in February, right, are the ones where you know investors could be considering okay.
So the banks, they have got high dividends and they were actually pretty solid during that January February you know, dire times, those of course would be underperforming in you know, big rebound day like yesterday. But then you know, I would argue that you know, for the medium to long term investors. They would be the ones that investors could be looking at given the fact that you know the Sasak said that the SOOE management should have market cap management as their KPI i e. They need to boost
the market caps. So sees are looking pretty good.
Can we turn to Japan and we've got the BOJ meeting next week, We've got the wage data coming through the end of this week, and maybe that's the determinant, the factor that will let us know whether or not the BOJ intends to change policy for the first time since two thousand and seven, at least where the policy rate is concerned. We've and a negative ten basis points for it was like a long, long time eternity. Yet are you still seeing opportunities in the Japanese secuity market?
That's an opportunity. Definitely opportunity because our view is that they will be tightening this year, right, may not be this time, but eventually they will be tightening this year, right, So of course that would lead to volatility in the market. Yen's going to strengthen when that time comes or just before, and the equities will be selling off right on the back of that. But the improvement in the corporates have
definitely been there. The corporate governance improvement, earnings have been decent. Foreign interest has been picking up, you know, since the middle.
Of last year.
So you know, all that factors combined means that the pullback is a good opportunity for Japan.
But here's a caveat.
Caveat is that for the investors, they need to be looking to rotate the sectors. So high interest rate, heighten manatory policy, right, that can improve the U curve there in Japan bank and that like the banks, yeah yeah, yeah, yeah, those, So look at those, look at those sectors.
Given the heavy exposure to robotics and to efficiency levels in manufacturing and such. In some ways in the past we've talked about the Japanese companies being a sort of warrant on global growth, and the fact that Japan has been rallying, is there perhaps a little bit of an indication in there that you might see the global economy hold steady or actually turn around and start to gain again.
Well, certainly, the no lending probability in the US, for example, has been gaining gaining this year. The proberlity of death has been rising so you know, we could well see that the economy may escape that you know, long long pitch recession narrative, right, in which case is certainly you know,
good for equities. And that's probably the reason why you're seeing that, you know, the US market has been pulling back and then people buying on dips, and I would expect the same to be for Japan and use this you know, volatility in the Japanese esa as an opportunity to buy Japanese stocks.
I'm sure it would be a very different world for Japanese equities if the Chinese economy were firing on all cylinders to what extent very quickly, Daniel, is a weak China holding back Japan.
Yeah, well, in areas like you said, in automation, we've seen that because of these slowing Chinese demand, it does hurt the you know, the robotics or the automation sector for example. Also the fact that you know, slow in China perhaps less it's too risks in the Japan and that's the lowest the japan domestic comedy. But all that can improve if China improves.
All right, thanks very much, Daniel. We see here here today the nick Kay has advanced almost eleven percent. Daniel Lamb has been with a set of equity strategy at Standard Chartered Wealth Management.
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 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.