Right.
Welcome and hope you're all well. Just half an hour away from the opening
bell, Hong Kong in Shenzhen and in Shanghai.
You're watching the China show. I'm David Ingles, by the way.
Our top stories today, we're looking at shares of Alibaba towards the open here
after the company scrapping the IPO of its logistics arm cainiao, citing
economic headwinds and also regulatory uncertainty.
Now the baltimore bridge collapse is set to disrupt global logistics and supply
chains for weeks. Authoriti
es are suspending search and
rescue operations with six people presumed dead.
And we're headed to the Boao Forum live there, of course, Stephen Engle, our
chief North Asia correspondent is our man on the ground.
And we're looking at, of course, at the Asian version of the World Economic
Forum taking place and a conversation, conversations taking place there.
Investors certainly watching for signal from Chinese officials on the economy
and also the investment climate. It's quiet on the market fro
nts, at
least up until this moment. It's fairly busy still when you look at
the agenda ahead as far as just as various events and metrics and
indicators were tracking across Greater China today.
Industrial profits in about 28 minutes from now, in about an hour's time or 90
minutes time. Of course, there's a panel taking place
which will include the PBOC governor at the Boao Forum.
This reported meeting between the Chinese President Xi Jinping and US
business leaders. We'll talk about China in a
moment.
No reaction as far as Alibaba shares overnight were concerned.
We'll see what that looks like, of course, going into the session today.
Speaking of, earnings ought to be wide record year 2023, although missing
estimates there. You did get margin expansion there.
So we're looking at these we're looking at Apple related suppliers coming off,
of course, what came out to be, again, a weak month for the China business back
in February. And of course, in terms of data points,
occupancy out of
Macau, hotel occupancy comes out today.
Now, we talked about earnings, the biggest of the biggest coming out with
earnings these next couple of days or so.
So what do you look at today? For example?
You look at AG Bank, Bank of China and ICBC, three of the big four, if you
include the likes of Postal Savings Bank, you pretty much get a fairly good
representation of earnings, everything from net interest margins given of
course the the incentives to help aid this economic
recovery. And as it pert
ains to extending credit,
if you will, to this next group, as you can see on your screens of companies,
that we're also looking at property earnings coming out today, real estate
exposure. We'll unpack that in a moment with
Frances, China for us out of our Bloomberg
intelligence team. And that's certainly one to watch.
Futures are pointing down 4/10 of 1%. So do, of course, keep your eye on that.
No, this is coming against the backdrop of really it.
I think I alluded to this enough at the very t
op of the show here.
There's really nothing happening across these markets today.
So we are trading sideways, if not mixed.
US futures are still pushing higher in the Asian session, which I guess bodes
well going into the US session on Wednesday.
Although that being said, a quarter of 1% Nikkei 2 to 5 or 6/10 of 1%.
Class B index, as you can see, is coming off quite a good day, ASX 200.
So we have a big guest coming up, by the way, out of Belle Isle.
Andrew for us is joining us to stay too for t
hat interview.
Taiwan is coming online and we have this really good piece today out of our
Bloomberg News team talking about how the A.I.
team has really played out across some of these well, some of these markets in
the region that have a good air representation Taiwan and cost me I'm
looking at you there, two and ten year yield right now.
Nothing much happening as far as that's concerned.
The Chinese currency story has sort of faded back into the background as far as
the sort of dominant theme
is concerned. So we talked about the renminbi, for
example, Big then went big day Friday, big day, Monday, flat on Tuesday.
Although that being said, we're still looking at what the fix looks like
today. And if there's any sort of incremental
change from what we got yesterday out of the PBOC four day losing streak on the
Nasdaq gold and Dragon index within that, of course.
And the big news out of Alibaba on China is pulling that IPO.
We'll talk more about that in terms of early indications we s
hould not be
getting any pronounced moves in the early goings just simply based on how
these traded overnight. Very quickly, if 50 futures are doing
this. Also, when you look at China and your
big yields, of course, we're looking at about 2.3% there, 2.32%.
And we are trading at about these levels.
We're still trading near the highest of the year, if not at the highs of the
year here for dollar China dollar entrees.
What to watch because we have we have been flirting with the top end of that
all
owed trading by 2% to the upside of that midpoint which at midpoint of
course comes out in about just under 10 minutes from the Bloomberg dollar index.
Nothing much happening there. We'll take you straight back.
The Boao Forum, the annual one taking place, of course, there.
It's billed as the Asian version of the World Economic Forum in Davos.
Stephen Engle. Our man on the ground is there with our
next guest, Steve. All right, David.
Yes, we are back to normal because we have our guest that we u
sed to interview
all the time here at Boao. He's on the ball board.
He is none other than the Fortescue Metals Chairman, Andrew Forrest.
Thanks so much. Great to be here.
Five years long, five years since we last saw each other as we last saw each
other and can talk about China. Now, obviously you have been very
bullish on the China market and as selling iron ore into this market.
And we saw obviously the miraculous transformation over the last three or
four decades in China. Things are slowing
down right now.
There are geopolitical threats. How much of a threat and how much of a
competitor is China versus the opportunities that you've always seen
here? Look, maybe you're referring to the iron
ore price. I see it as a bit of support.
Steve goes up, it goes down. It's like a like a tennis game.
But I don't see China as a threat and I advise everyone to not see.
China is a threat. And I certainly said to everyone in
China, don't ever be a threat. The beauty of Asia, the beauty of the
bat
hroom, is that we can all compete. We're all technically very, very
capable, very professional. We love that energy of competition.
And when we obey human rights, when we look after the environment that lifts
the standard of all of us. And this is the bad form for Asia, the
Asian community working together, different politics, different religions,
different ways of doing things, different culture.
But we all get on. And when we compete successfully,
everyone wins. Okay, it's a bit of a sport.
Le
t's get into iron ore. I know you don't like projecting prices,
but it's been a volatile game, if you will.
And we are hearing, though, that iron ore inventories are piling up at the
ports. We know that steel rebar prices are at a
seven month low. Look, they're not building as much.
They are going into new productive forces, into AI and semiconductors and
some value add services, less roads, railways, bridges to nowhere and the
like. What does that mean for you, Steve, that
such a quick slip in
is that I'm not I'm just playing the devil's advocate here.
I love it. Look, I've been part of this country
about 35 years. I've just seen it change, evolve, Change
evolve now. Yeah, it had a big housing run then,
then big infrastructure run. And now it's got a big technology, green
energy run. It's still doing housing, it's still
doing infrastructure. Don't don't think for a second that 5%
growth that is like years back with a 5% pretty ho hum coming off a small
economy. This is a monster econo
my now, Steve.
5% of that volume metrically is massive. I challenge my country, Hey, we're
hardworking, we're super smart, we're determined, Why can't we do 5%?
That 5% will translate into huge demand for commodities now.
I don't mind if the iron ore price goes up or down set by a free market.
Anyone tries to meddle with that free market, they pay for it badly in the
long term. But while free markets exist, you will
always get supply equalling demand by that great agreement price.
So I'm very co
mfortable. But do you have more clarity than the
layman like me in a property market mess?
I mean, we have other bellwethers, Vancouver Country Garden and others who
are defaulting and potentially going under.
Yeah, this is a big problem. What's your idea?
I want to give you the inside scoop. Inside scoop.
Right. So if you're building out infrastructure
and housing the size of Australia every year, yeah.
Then you're going to overshoot non-issue.
I mean, just how it's going to happen, even if it'
s not going to work that out
for you. So I've seen China over three and half
decades go from undershooting and prices going through the roof, overshooting,
prices go down, but generally they get it right and the long term trend is just
kidding upwards. Now, green energy, that is a monster
consumer of everything. Right.
And such should because we're not taking all this rubbish to destroy the world
out of the ground where it should never move from.
We're making all the energy, all the metals just
from the air, moving from
the sun, shining that that's the future of humanity.
Well, how is the to this is taking a huge amount of metal.
How is that transition going though? Because most of your revenue still comes
from iron ore, I mean, the vast majority of it, but green hydrogen and other
projects that are dear to you, how is that transition going?
And it has been delayed. Does it potentially get delayed by I
know you're not going to say it's a slowing Chinese economy, but it's a
slowing pace
of growth in China. Oh, look, if you're talking globally,
there's a whole heap of fish swimming with the tide.
Now, very trendy of them just worked out.
There's a war in Ukraine. You're a genius.
How'd you figure that? Oh, by the way,
oil and gas is incredibly volatile, and Green Energy's not being supported by
politicians as they should be because they're not being held to account by
their populations. And Chevron say, saying, well, if you're
going into green, you're a little woke, etc., and w
ish you just stay practical
and say with oil and gas, I can tell you that will be no solution.
This will be like Covid where there is pent up demand.
We weren't able to see each other. You and I missed each other five years,
right? But the demand pent up, pent up.
And then once we could hey, when travel demand went through the roof, this will
be the same shape. There is this.
There is this period of time where because of volatility in prices, because
of uncertainty, thanks to Ukraine, Gaza, etc.
, everyone's jumping on the
bandwagon of weak character, of not having the courage to see over the
horizon. See, actually, we don't move away from
fossil fuels. Then we will be held completely
accountable when we're told, Oh, well, hang on.
It was it was uncertain time back in 2024, so we didn't do anything.
And people are going to say to us, what, you couldn't chew gum and walk now you
couldn't breathe. While you walked upstairs.
I mean, you should have moved away from fossil fuel and gone into
energy, which
is harmless as quick as you possibly could.
And that's what Fortescue's doing. Chinese Foreign Minister Wang Yi was
obviously in Australia a week ago. You were just in Beijing at the China
Development Forum. What's the key message you got from the
Chinese leadership, which has been fairly opaque in its policy messaging?
They're not having press conferences. They're reading from the same script
from the top man. Understandably so.
But what did you glean? Well, not really.
Understan
dably so. I mean, when we have media coming
through our organisations, we've got 20 plus thousand people.
We don't have a script. I mean, Bloomberg walks onto any sort it
likes and just speaks to any punter out there wearing the high vis and the proud
Fortescue helmet and they are pumped and they said, Well, this is what we're
doing and this is how we're going. When you all read off the script, then
people understand. We think, Well, hang on.
Where's the naturalness in this? Where's the spontane
ity in this?
So I would say, of course, just be natural.
This is a fantastic country. You're doing well.
Make sure you state peace with all your neighbours.
That is key. And also know that the best forum for
Asia is the boiling pot of great competition, great technology, great
business. And when we stick to minimum human
rights levels, which protects us all when we do as president, she's asked of
us all, which is to realize that humanity is nothing unless we have a
great environment. If you don'
t protect the environment and
see a lot of humanity. He gets that.
That's how he grew up. He saw the environment destroyed and he
saw poverty come into his community. So we've got to learn from that lesson
globally. And I'm saying this competition and this
collaboration and this friendship from the forum, and it's an example for all
of the world, different politically, different religions, yet we all get on.
Yeah, it does take two to tango. That's my devil's advocate approach.
You have to look a
t both sides, obviously.
All sides. Okay.
You're talking about the environment. You're also talking metals.
Are you glad you got out of nickel? I mean, why little metals?
You close down some of those mines. There have been allegations of Chinese
and Indonesians kind of flooding the market with lower grade nickel.
There's been environmental damage around Chinese mines.
Are you glad you got out? No.
I mean, I'm still in back in. I'm still sell on nickel.
It doesn't matter. I mean, I'm so long
and
look up. We'll continue to invest in nickel and
renewables everywhere. At Fortescue, it's corporate lithium.
It's the whole sweet, rare earths, obviously iron ore integral to the
energy transition. What I say about that particular
instance is I've watched China start to really protect its human rights and you
know, I'm talking the hot buttons like Xinjiang, etc., where more and more
audits are being done by companies like mine.
He just cannot touch anything to do with modern slavery and never wi
ll
consciously. I'm seeing the attitude coming to the
environment led from the top saying, Hey, we have got to lead the world to go
green. If we don't, this planet and every human
in it's cooked. So I'm saying that now that's working in
China. Now China is to take that additional
step. But you've if you're getting your human
rights right in your environment, right at home, that's going to be the same as
your supply chains. And when I look at Indonesia, what I'm
saying is very delicate and rare.
Tropical ecological systems get
destroyed at huge scale. I'm seeing coal mines get switched on,
coal fired power stations get switched on, I'm seeing tanks getting dumped in
the sea and washing hundreds of kilometres up, destroying marine
ecosystems, which I happen to be pretty close to.
And I'm saying, Well, thank God we didn't do that.
We were offered those opportunities, we didn't take them.
This is where countries got to say, Well, if I'm looking after my country at
home, I've got to have ex
actly the same standards when I'm overseas.
And that's not happening in Indonesia. And I'm saying to the London Metal
Exchange, Hey, you're getting people who are doing the right thing, competing
against people who are destroying the environment you let in middle exchange,
have to determine the difference of that.
Otherwise, you're part of the problem, you're part of the environmental crime.
And I'm saying to those Chinese investors, clean up your act, stop
rubbishing the oceans, stop destroying
the rainforests.
This is where we must all step up as humanity and do what president she's
asked of us. To those China investors, protect the
environment. You don't protect the environment, you
destroy humanity. And I'm saying
quickly, come back from where you are. You've had a really bad start.
You've produced really cheap nickel. Congratulations.
But you're destroying other people's future.
And I say to Tesla, I say to the Chinese car companies, I said to all those
battery makers, buy a nicke
l from there you to a part of that environmental
crime. And let's just say, okay, let's get
these. Mine's right.
Let's run them on green energy. Let's not destroy the marine
environment. Let's work out how to mine.
And reforest, but not destroy. Reforest.
Andrew Forrest, thanks so much. Always good to see you.
And we'll have a glass of Penfolds one of these days when those tariffs come
down on Australia. One we're on.
All right. All right, Andrew, for us, always
colorful, always a good guest her
e on Bloomberg Television.
Back to you guys. Yeah, well, why wait for the tariffs to
come down? Have one right now.
That's a beautiful location, of course, to enjoy.
Not just one. Steve, come on, live a little bit.
Maybe two. Reference rate for the day is out and
this one is actually quite newsworthy and substantial.
So this is the strongest so far this year as far as support.
So the midpoint of the day. And bear with me here, because this is a
bit near the midpoint of the day, has been set at t
he strongest two estimates
so far this year. We're talking nearly 1300 pips, that
difference between the two. So quite a sizeable support measure
coming through, counting down to the open up trade futures are pointing down
Shanghai, Shenzhen and Hong Kong be open 13 minutes away.
This is the China show. Oh, almost down to the second.
Just in time. Shares of Alibaba coming alive in the
pre markets were down. We're trading below 70 bucks.
The big news, of course, is the company calling off its pla
nned Hong Kong IPO
for China, blaming what it calls a pretty depressed market.
It's the latest change really to this planned massive overhaul announced a few
months back here of operations that actually included a six way split.
Now since then, it's also cancelled. Spinoffs of its cloud and grocery units
change the heads of its e-commerce and grocery business.
So I know it's a bit make your head spin, doesn't it?
Let's bring in sat down, of course, to talk us through, of course, why we're
here,
the reasons behind it and risking sounding like the Backstreet Boys.
Sarah. Tell me why.
Well, basically, we had Alibaba's chairman, Joe Tsai, come out last night
to try to explain their decision. He described it as basically two main
drivers. The first is, like you said, the
depressed IPO market. They're not getting the valuation that
they want or that they believe now to be strategically valued at.
So it's just not a good time now or in the foreseeable future.
And the second is that they say t
hat time now is really strategic to their
core operations. So that's the e-commerce side, both
domestically and internationally. They need to expand now internationally
in order to remain competitive in what's a very competitive e-commerce market,
Right. Patient capital, I think, is how they
phrased it. So they own about 64% of China and
they're buying back the rest of the shares that they don't already own.
What was behind the decision and how they plan to do that?
So that's exactly right. As p
art of their motivation to double
down on this high now investment as part of their core operations.
So that's why they want to buy back the rest of the shares for minority
shareholders and also from employees. They say it's also a way to return
value. Sure, some of those investors were
counting on an IPO to cash in, and that's another way to just boost morale
and return value to those shareholders. Okay.
Is the restructuring still happening or is this a restructuring of the
restructuring? I thi
nk that's a few months back.
Yeah, that's a good way to put it. I think there have been several hiccups
in the process since they announced this restructuring last year.
We saw, like you mentioned, the cancellation of the cloud IPO, also
freshippo the grocery on their IPO also being put on the back burner and lots of
just reshuffling of leadership in all the various units.
Their new CEO, Eddie Wu, he's now personally taken the helm of both cloud
and e-commerce, domestic e-commerce. And so they'r
e really just making strong
moves there. Also on this in terms of focusing on
their core operations and selling off non-core assets, they say they're making
good progress and really just focusing in on commerce and cloud.
Okay. Thank you so much.
Clarity. Clarity.
Granted, clarity has arrived here. Sara Jiang, our Bloomberg
China Tech reporter. Shares of Alibaba should be bottom of
your screens for down 2%. Free markets are doing this exercise
down half of 1%. Maybe that's the really the majorit
y of
the Alibaba effect. Lots of earnings reactions to unpack and
lots of earnings to preview. All that is just ahead.
The open 7 minutes away. You're watching the china show. OC futures and initial pricing on your
screens shortly. There we go.
Thank you so much. We are poised for a lower open, maybe
down to this incremental move we're getting out of Alibaba.
We're done. We'll show you the stock in a moment.
I believe 2%, a lot more support coming through 1300 pips was the difference
from the mi
d-point of the day, which came out a few minutes ago to the
estimates dollar. China, though, trading at 725, which
basically takes you back to November levels.
We'll talk about the yuan story in a moment and really the story which we put
out earlier on conflicting signals. We'll talk more about what those signals
are and maybe how to read the tea leaves.
Speaking of tea leaves, we'll talk about Nongfu spring because tea sales actually
picked up and known for actually outperforming.
Before we get
to that, though, some changes in terms of analyst actions
here. And certainly within this, when you look
at AC Technologies almost did it on purpose.
All Apple suppliers are very much in focus today given, of course, another
week month in terms of China sales raised to buy the HSBC 33 bucks a pop as
a price target from the bank here. That takes us into what some of the
stocks we're tracking here. So it's a very big banks earnings day
today. ICBC, Bill.com, just two of the few more
coming out, D
on, for spring tea. Still strong profit beats Baba down 1%
in your pre markets among other things. Have a look at that on your screens.
Oh there we go again. This is Bloomberg. Welcome back.
Happy Wednesday morning. You're watching the China show.
40 seconds away from the midweek session.
If you had to pick your what was that series of books a few
years back, choose your own adventure. Remember growing up with that?
If you had to choose your own adventure, I'd pick Shanghai over Hong Kong
transi
t. The weather.
In terms of price action, though, I think you'd be pretty much not better
off either way. We are looking at weakness going into
the session today. The PBOC coming in with a lot more
support for the currency. 1300 pips, give or take was the support,
the estimates from the fix that's that spread there.
The other thing we want to mention is in about an hour's time at the Boao Forum,
the PBOC governor will be part of this panel.
So stay tuned for more perhaps headlines coming through
.
It's a big earnings day. Weakness, As we were pointing out,
Alibaba is down about 1%. Correct.
Myself, I thought I was down 2%. We were down 1% on Alibaba.
We're opening lower in the CSI 300. Hang Seng index, 65 down 7/10 of 1% were
led by tech, as you can see on those tiles left more sites at the very top,
1.3% to the downside we should be getting any moment now industrial
profits numbers. So these are year to date numbers,
right, Jan and Fab, we're still waiting on that as well.
Just keep in
mind, seasonal aberrations, you combine the two months.
All of that being said, if you compare what perhaps we will see from these
numbers today, we're down 17 straight months.
So possibly, quite possibly we get the first
expansionary prints. If that does come out.
Of course, we're still waiting for that as we speak.
So expansion compared to the period before, as it appeared before, because
it's a time of the year, it's January and fed off last year to January or a
fed up this year So far. Okay
, data should be out and we're
looking at okay, yeah, here we go. So we're up 10%, 10.2% year on year.
So this is actually a encouraging set of numbers, although aberration, nuanced,
this should be. And if you're looking to write a
headline, maybe this is it. This should be the first time we're
getting a growth or expansionary print on this specific metric going back to
mid 2020 to April 2022. I believe that we got the Boris police.
We can Alibaba be it 10 billion profits full year 2023, althoug
h that being said
missed estimates by a very slight margin that it SingTel and Haidi Lun actually
beat estimates of both these companies. In fact we've just organised this.
It's a bit more clear perhaps the next board actually shows you to four
companies, among others that have reported and all four companies coming
up on your screens actually missed estimates.
So usually all the way down to China Telecom, Honeywell down 8% on also that
earnings Miss. Okay.
We'll leave the China market story the
re for now.
We'll revisit this a bit later on and get a sense really of some of the other
big movers we're tracking. In the meantime, though, the other top
story we're continuing to track going into Wednesday in the Asia Pacific.
Here is as the Baltimore bridge collapse here, officials say active search and
rescue operations have been suspended. Six people unaccounted for, now presumed
dead. The disaster happened when a cargo ship
lost power and then rammed into the Francis Scott Key Bridge in t
he early
hours of Tuesday morning, destroying the span in a matter as you just saw there
in a matter of seconds. A state governor says a mayday call from
the ship allowed authorities to limit vehicle traffic on that bridge.
I spoke with Governor Moore this morning, as well as the mayor of
Baltimore, the county executive. You know, to both the United States
senators and the congressmen and my secretary of transportation is on the
scene. I told them we're going to send all the
federal resources th
ey need as we respond to this emergency.
I mean, all the federal resources. And we're going to rebuild that port
together. Bruce Einhorn is here with us on set to
talk us through the many facets of the story.
Bruce, I guess I'd start with the ship itself.
The ship itself is the dolly, its sails under a Singaporean flag.
There's a Singaporean company that is its operator.
It's manager and operator that's called Synergy Marine Group.
Synergy Marine says that the owner of the ship is also a Singapo
re based
company, Grace Ocean Private Limited. I'm sure we've all seen these pictures
of the ship. One thing keep in mind, as big as this
ship is, this is not one of the biggest ships out there.
This is actually sort of a mid-range ship.
It has about half the capacity of some of the really larger largest container
ships. It was only built back in 2015.
So not really that old. There were 22 crew members on board,
according to the manager of the ship, all of them Indian.
And all of them were fine
after the after the disaster.
Ship executives were company executives on their way to Baltimore to address the
situation. Right.
Talk to us about the other angles to the story that we should be keeping.
Well, we just saw President Biden talking about a determination to rebuild
the bridge. There was a bridge collapse of last year
in the Philadelphia area. I think it was in Philly itself, which
is some people have made comparisons to in that bridge
on a major route, I-95 collapse. They were able t
o rebuild it fairly
quickly. This is a far more complicated task
because, of course, it's over a harbor. It could take billions of dollars.
It could lead to it could take a very long time.
The port itself is extremely important. It's the largest port for for handling
autos and light trucks in the United States.
It has been for 13 straight years, is also one of the largest, I think the
second largest port for export of coal. There are a lot of companies that have
warehouses and other cities up ri
ver from the bridge, such as Amazon and
FedEx, BMW, Volkswagen, Under Armour. So a potential for supply chain chaos,
at least in the short term, is pretty high.
Separate from all that, you also have the traffic on the highway.
So there's now going to be a need to have traffic diverted,
potentially adding considerable time to people's commutes, also making it more
difficult for goods to go up and down the eastern seaboard.
So lots of potential for supply chain challenges that can go on for quite
a
while. We'll keep on top of the story.
Bruce, thank you so much. Bruce Einhorn there with the latest here
on that bridge collapse that took place, of course, on Tuesday, early hours of
Tuesday local time. Very, very quickly, a recap really is
and we're looking at markets right now. We're down about 9/10 of 1% an MSCI
China, Jan two Fed industrial profits coming through.
So we have the absolute value. We also have the change, absolute value
coming in just over 900 billion renminbi on a percenta
ge basis, year on year.
That's about a 10.2. There we go.
Thank you so much. 10.2% increase from the year before.
I believe this should be the first expansionary print going back nearly two
years. Plenty more ahead.
This is Bloomberg. We do expect the AOC will provide more
support to banks via ads like social responsibility.
For example, last year the PBOC expanded their balance sheet by more than 4
trillion and injected liquidity to banks via MF
and their lending tools. So this year we think th
at like, for
example, the structural, the structural tools used up by the PBOC could be could
expand in more than last year. That was huge.
And Chen Geoffrey's talking to us just over an hour back, in fact, 2 hours
back, actually. My mistake there on the upcoming bank
earnings coming through in that sort of broad theme of PBOC supports encouraging
to banks to lend to where it's needed. Speaking of what's coming out today,
there we go. ICBC, Bank of China, AG Banks are three
out of the big four p
lus other big two due out with earnings today.
Four what to watch, what to keep an eye on across just as countless metrics that
banks can come up with. Let's bring in Frances Chan to, of
course, is our senior banking and fintech analyst.
Take take your pick. So give me one indicator that you're
watching most closely. The most.
Yeah. The closest thing for the bank's
earnings prospects in 2024, we like to focus on the interest margins has been
they track to their revenue for our 2023 and it remain
s a big drag to their top
line this year. I think the the key will be about
their their funding calls, especially the deposit cost.
They didn't fall fast enough to cover up what Beijing is asking the banks to do,
which is to lower the borrowing raise for the overall economy, to stimulate
the economy. So this may still cap the top line
growth to maybe low single digits growth this year.
Otherwise, everyone is watching or scrutinizing the numbers about asset
quality. So far as we have seen for two
major
banks which have released the results, it has been surprisingly good, with
improvement in non-performing loans ratios, special mention loan ratio and
overdue ratios in particular for we as they are loans, right?
They have less exposure and low NPA ratio for that sector.
The $1 meaning question is like where has those bad loans gone?
Oh, it has been in the economy. Yeah, but it's not with the banks.
So where is it? Yeah, in fact, well, we'll talk about
real estate in a moment, because I wa
nt to ask you your thoughts on exposure
there. But can you talk to us a little bit more
about asset quality, in other words, from the two that have reported?
Are we does that then mean less provisioning?
Yeah. Okay.
For the for the other ones coming through today, can we make that
conclusion this early likely on a year on year basis.
That could be the last provisioning compare of last year.
They do have enough buffer like IPO coverage.
They have enough to lower provisions for 2020 free in 2024.
They may still have some room to to contain credit cards in order to boost
their earnings. So this is earnings at the very least,
it would be like positive growth right now.
I think it was late last year on real estate exposure.
Late last year, we've started to see less extension of, I think, credit in
terms of the overall loan book based on PBOC data.
As and I'm wondering as far as the exposure to real estate is concerned,
what are you watching closely here now? I think that the Beijing governm
ent is
asking the lenders to help out to finance the white whiting this property
projects. Yep, as I agree with the regional
officials and those will be the priorities.
But for the developers, like the parent or especially for those of us which are
in a distressed situation, they are far harder to to get funding.
Francis, thank you so much. Great stuff.
You can find Francis work by go for a couple more clients.
Senior banking and fintech analyst from one part of the earnings spectrum to
another.
Certainly yesterday BYU was a big one to
report record profit, though slightly missing estimates came in in line with
the company's own forecast. I think that's to qualify their shares
are down 2.2% in the first 12 minutes of trade here in Hong Kong.
Linda Liu, our Asia transport reporter, is with us to take us through so many
ways to look at this record profit, although they missed so but just to help
us understand what's important here, yeah, I think the profit machine really
shows that this
intense price war going on in China's EV market is eating into
its bottom line. And considering that they themselves
kicked off this latest round slashing prices on so many of the car models, it
really just shows they are probably intent on sacrificing some of these
profits for volumes to really maintain their market lead in China.
Well, what's in store this year, then? For this year, we're really watching for
what's the volume guidance they're going to set.
So last year they managed to just ach
ieve 3 million vehicle deliveries in
line with what they set. And that's an over about a 50% rise from
the goal they set the year before. And this year, we're definitely not
going to see another kind of massive increase in the deliveries goal.
And so the indication that they give from how much they expect to sell can
really show us what they think the Chinese EV market is going to develop.
Okay. The other theme here is sort of overseas
sales of Chinese makers. And I want to get your what's the l
atest
here? So China, we understand China's filed
this complaint at the WTO over I think it's the inflation act, if I'm not
mistaken, out of President Biden. What do we know about that latest
complaint? So, obviously, you know, China alleges
that these rules set up by the IRA, which has this restriction on foreign
entities of control, of which China is one, essentially kind of limiting the
amount of input that the supply chain and the US can have from these Chinese
companies. And I think with th
e WTO rules, it's an
interesting case given that the US will say, well, China, you've also, you know,
used protectionist measures in the early days of your auto industry and that when
foreign automakers wanted to enter the China market, they couldn't do so alone.
They needed to enter into a joint venture with a local partner,
essentially sharing profits and technology know how.
So I think it's going to be interesting how the WTO will deliberate this
complaint. Okay.
So it's been filed out of our
hands now. I guess it's up to us for report.
Linda, thank you so much. Linda Liu there with all things invited.
Stay slightly on theme here still. So Ford actually says it remains
confident on taking on growing competition.
To Linda's point just now here on the the market, a CFO, John Lawler, told us
where the US giant is actually focused in terms of matching its Chinese rivals.
Have a look. It's affordability.
They have a low cost structure. That's where our small EV comes in.
As well as that
skunk groups, groups that that skunk group that is working on
that low cost, very advanced architecture for EVs, where we
think we will be able to compete with the Chinese and other low cost
manufacturers. Well, it's going to be definitely
interesting to follow the developments there.
But let's get back to hybrids. I'm super interested in this space.
And it was interesting, actually, you had Morgan Stanley's Adam Jonas out with
a note this months that he sees the, quote, hybrid renaissance is re
ally a
direct competitor for that incremental EV buyer.
Do you see that within your own lineup? Do you see hybrids taking share from
EVs? We see hybrids as a duty cycle
alternative for customers, electric vehicles.
Duty cycle doesn't work for some. And those that don't want just pure gas
vehicles or diesel vehicles, they can go for a hybrid.
That's why we've continued to invest in hybrids.
We continue to offer hybrids. So you can see it as a bridge to full
electric. And we think it's something t
hat
consumers are really leaning into because of all of those factors I cited.
Do you have plans to roll out more hybrids?
Yes, we do. Well, we're launching a new escape.
We've just launched a new escape hybrid. We're launching a cougar hybrid in
Europe. And so we have the number one selling
truck hybrid in the Maverick and the number two selling truck hybrid in the
Ford F-150. So we're number three in the US in
hybrids. And we continue to plan on offering more
solutions to our customers. And th
at was John Lawler with Katie
Greifeld really on all the things and how they
really plan to position against the Chinese EV rivals their for one.
Coming up in the next hour, in fact, we'll be speaking with Matty Zhao at a
BofA Securities. So they actually specialize.
Well, well, well, well, well, well. We'll look under the hood.
We'll even unpack the battery itself. So they actually put out quite an
interesting report on what they like across not just the e v supply chain,
but when you unpack th
e batteries, which bit that goes into those batteries they
think makes a good investment proposal at this point in time.
So stay tuned for that interview. Coming up in the next hour of the China
show. Plenty more ahead.
This is Bloomberg. Right.
Both yuan's offshore and onshore, as you can see, are trading weaker
onshore, just coming on line about what's 20 minutes back here, 722 and the
spread between it's something certainly one other metric to watch here.
The other metric that we've been trac
king is really the spread between
the estimate and the midpoint of the day.
And certainly our producers are watching this very
closely. We're given a treat when the PBOC came
in with the strongest fixed yet relative to estimates, 1276, that's the number of
pips here relative to estimates. And you could really see that on this
chart, the biggest spread so far this year.
In fact, the biggest support, if you want to measure it by that standards,
going back to about October of last year.
Tanya Chen
is with us here to talk us through the significance of this fix
today and how this fits into everything else.
So what's with what's going on? Let's start with today.
Yeah, I love that chart because actually I feel like it kind of shows you that
even late last year they were doing even more to boost the yuan strength, right?
So we're not even at those levels yet. A couple of things.
I think the past couple of days, they've obviously done the rebuttal and it's
been kind of stronger fixes again. Ri
ght.
But one thing you've noticed is that they've kind of allowed the yuan to
weaken past the 7.2 line, which that was a line that they had previously held for
the last six months. Right.
So that's one interesting aspect of it. We have seen some state banks kind of
selling dollars again to kind of defend around 7.2.
But clearly right now the yuan on the onshore, 7.22.
And then I think the other question is, you know, what is the next line in the
sand? Right.
And 7.3 was kind of an area that they
were kind of capping it at late last
year, which is where you saw in that chart how much of a fix was kind of
being held at that level. And I think one one way to look at it is
actually implied volatility. We we haven't actually seen implied
volatility spike to the levels that we saw when the yuan was actually pushing
7.3. And that also hasn't really spoke to the
same level that we saw in the 2018 kind of trade war episode or when the yuan
was devalued in 2015. So actually in terms of the volat
ility
gauge, this actually doesn't seem too bad.
Well, okay, speaking about line in the sand here, so what are what are the
numbers now that people are talking about?
Yeah, the new numbers, it's actually quite funny.
So our team did a story today on kind of like the conflicting messages around
what the PBOC is saying. Right.
And it's actually led kind of to a divergence in what Wall Street is saying
about the yuan. We have some people who are still very
bearish on the yuan 7.4, and that's partia
lly due to the deflationary
concerns, the economic considerations around the economy, and also not to
mention just the Fed and the interest rate differential which has dragged out
other Asian currency as well, including the yen.
And I wanted to actually kind of go back to another spread that you were kind of
that I want to bring or go for in between the offshore and onshore.
And one way to also look at kind of where the market is testing that
direction of the currency right now, or at least in t
he previous sessions, we
saw the offshore and onshore spread around 300 pips.
And usually when that happens, you can see that means the onshore sentiment is
actually quite bearish. Yeah, you know what?
We're exactly at 300 pips, right? That's amazing.
Tanya, thank you so much. You can check out, of course, a story
that they put out today, the headline in Case You Need a
Search Clue. China Confuses yuan Traders with
surprise changes to the fixing stone Over the comment here.
Ambiguous messaging m
ay help the PBOC achieve its goals.
Strategic ambiguity. There we go.
Anyway, a look at markets 23 minutes into the session.
There's a very big earnings steam coming through today in terms of earnings
reaction and why quite a substantial move here in GDS, of course.
There we go. GDS Holdings traded here in Hong Kong,
down 27%. That's the biggest drop since 2022,
wider than expected loss coming through here at the company as well.
Citi out with some commentary here that overall the Chinese market
does not see
a noticeable recovery just yet. While it is expecting more air demand in
2025 when the chip supply does move to catch back up, it just keep in mind 80
hours overnight were down 27% as well. So no big surprise.
I guess in some ways we are seeing a substantial drop in that stock here.
Here in Hong Kong, Hang Seng index, there seems to be it is, I want to say,
an imaginary line into said, speaking of 17,000, still seems to be a distant
dream. Every time we get very close to that,
that
seems to pull back deep ever so slightly.
So we're pulling back about 9/10 of 1% from the cut off yesterday, 9/10 of 1%
as well. When you look at that today, the rally,
ten year yield, the 30 year yield pushing lower as well.
As far as Asia goes, though, and speaking of government bonds, the big
event coming up, at least as far as Bonds is concerned, is a 40 year bond
auction in Japan. So we'll look at things like.
Biddeford's majority, for example, paid to cover.
Just to get a sense of what ap
petite is like post BOJ for longer dated Japanese
Japanese debt coming up in two shows here we'll talk all things China.
Williams will be joining us of course he's a former MGM chairman.
Sentiment on the ground and we're talking to all things ABC TV materials
with matija. This is Bloomberg. Welcome back to the China Show.
Just an hour, half an hour into the session on shore, CSI 300 on your right.
It's a beautiful morning in Shanghai on your left.
4/10 of 1%. And the broader MSCI gauge, we're co
ming
of lows. And most of these benchmarks going into
the thick of the morning of the morning session.
As you can see, this bounce off lows. We're down about 11 points on the CSI
300, as we've been talking about so far in the show.
There's a very big earnings theme really permeating across these markets today.
So everything from a lot of these sort of consumer facing
names, Nongfu Spring. Tsingtao Brewery was out.
Heidi Lao also came out with earnings as well.
AIG is very much a theme. And when
you look at GDS Holdings, for
example, 27% down overnight, 27% down. Right now.
Mengniu dairy maker is 7.4%. Speaking of beverages, Nongfu spring not
on your screens. That was actually a beat down to tea
sales coming through as well. Be it,
I guess this is the the bane of every successful public company record record
year in 2023. But they missed forecasts or miss from
analysts they'll buy ever so ever so slight margin there 1.7% we're trading
below again 70 HKD a pop in Alibaba on the back of n
ews that a company was
scrapping its plan to take one of its units China public.
Okay. The broader read across not just equity
markets in the region across assets dollar everything from commodity markets
given of course what took place in Baltimore overnight the Nikkei 2 to 5
9/10 of 1% to the upside. S&P futures really, if you had to pick
the big winner so far this this Wednesday morning is really still US
assets I guess to highlight that very view
simply on the currency front right weakness ac
ross most of the Asian
affects euro is trading lower as well which I guess in some ways gives you an
indication of risk appetite. In fact, in terms of on the data front
today, we just flashed on your screens the print out of Australia.
Let's start with that. In fact, in fact on this very now let's
bring in Darcy Reynolds is with us right now.
He's what I am live. Chief Garfield, let's start with why
don't we talk about Aussie inflation so we're steady for a third month.
Any read through as far a
s the RBA might be concerned here?
Well, I think it's going to leave the RBA, David, very much sticking with that
neutral setting that they that they moved to in the most recent in this
month's RBA meeting. Because on the one hand it's encouraging
that there was some expectation it might rebound a bit further a bit in February.
It did and it stayed where to come in for January.
And on the sort of core readings, the news was also, you know, kind of good,
but only kind of good in the background th
at there have been concerns that
inflation was going to prove not sticky from the point of view.
It would take back up noticeably. It hasn't picked up noticeably.
But that rapid deceleration that had been in train, that's not being seen.
So the RBA is going to look at this and say, hey, you know, we don't really see
the case for fresh hikes. We certainly don't see the case for any
rapid pivot to cuts. So you had the Aussie dollar down, but
only a bit. Aussie bond yields also subsided, but
rates
traders stuck with August as their base case for when the RBA will move.
That might even prove aggressive again, depending on how the data develops.
And in a lot of ways the RBA is amongst those central banks.
It's very much saying waiting until the Fed makes the first move.
Right. Well, let me let me bring into P, B or C
to that part of the conversation, because certainly the pressure on the
PBOC to continue keeping rates low and perhaps even to ease further
is somewhat Garfield contingent on w
hat the Fed does, particularly when you look
at the exchange rate and signals that they do want to keep their rates steady.
But monetary policy and that gap between where rates are in China and the US
certainly is counter to anything that might be even mildly yuan positive.
We have the PBOC governor. He's I believe he's set to speak this
hour at a panel at the Boao Forum. What are markets looking at there as far
as he's concerned? Well, I mean, the most immediate
question for markets is, okay, w
hat is the new line in the sand?
Seven ¥7.20 per US dollar was seen as where the the PBOC was willing to defend
the currency. They let that go.
It was a big washing sound. End of last week when the yuan really
tumbled in the wake of that line being removed.
So then China stepped in to stop it going from too much further.
You had Mary Nicola on our blog saying, you know, she sees that 7.24 as about as
weak as the yuan should go based on the interest rate for interest rate
differential differentia
ls. The bigger picture is that the yuan,
like a lot of currencies, especially in currencies, you know, is laboring under
the burden of continued dollar strength. And that dollar strength wasn't
something the market was really looking for.
To the extent that we've had it, because the Fed was saying we expect to cut
rates this year, we expect to cut them three times.
So I was like, okay, game over. The dollar should fall.
However, the strong push back from the Fed and the data backing that earlier
this year have meant that the dollar the clients people were looking for have not
come. They may yet come, but as long as the
Fed is in a not yet mode when it comes to rate cuts, you're going to have the
dollar being in not yet mode when it comes to, you know, sustained US dollar
weakness. That puts pressure on a lot of economies
around the globe, a lot of especially emerging market central banks for whom
the currency channel is such a vital part of their policy economic asset mix.
So the PBOC
just stands out more than most as facing that difficulty.
And a lot of ways, you know, they probably have the thought that we if we
defend the yuan strongly enough around where it is now, we don't let it run
away. Later on in the year we will get that
relief. And that balancing act for the BBC is
they want to ease policy, they need to ease policy, but they also don't want
the yuan to run away to the downside. You know, there are many ways to say it,
but many of the central banks, to your point,
Garfield, are simply buying time
until the Fed starts to take rates sideways becomes clear when when they'll
do so. It's similar, but the DOJ is perhaps the
perfect example of that. In the last two years they had to buy
time. Well, rates were the opposite way.
In the US, there's a 40 year bond option.
I think results are coming out in about 90 minutes from now.
There's a 40 year bond auction. I think it says ¥700 billion.
We're looking at I think the. The last one had a yield of about 1.92.
I'm
just scrapping my brain for numbers there.
How good of an indication would this auction be in terms of demand for longer
term Japanese debt today post BOJ, of course.
Yeah, well, it will be very interesting because of that.
The one concern is that we've got Tokyo CPI numbers coming out tomorrow that
casts a bit of a shadow on the, you know, like the long term bond yields.
I mean, the other thing that casts a shadow on long term bond yields is
precisely that you wait and his board, when they elim
inated
negative rates, they pushed this very strong line that we're not about to
start making a series of hikes. The immediate that immediate pushback
was seen as being quite dovish. However, there is a growing constituency
that says the BOJ is likely to either be forced or choose to carry out more rate
hikes at some stage, especially depending on how their current policy
shift is absorbed. So amid all of that, I'd be surprised.
Wouldn't be the first time. If there's a very strong 40 year
auctio
n, it might turn out to be weak. Given those concerns, I raised a bat
raised about where DOJ policy might go, and in particular that looming Tokyo CPI
rating. GARFIELD Thank you so much, Carlos
Reynolds there on all things rates out of Sydney for us.
Almost right on cue, as we were talking about the BOJ there, the BOJ boss is at
parliament talking about really how well for one at the March meeting that they
did judge that a price target was was in sight.
Other things, of course, too, I guess to
note as you look at this tomorrow and
this is more really the piping and the mechanics of the specific market is that
there's a massive expiry coming through in dollar in options level 150 spot five
nearly $3 billion of dollar yen options expiring there.
So perhaps the risk there is crushing traders as perhaps intervention looms.
And you know what, speaking of intervention, 152 very close to that as
we speak. Okay.
We'll leave the Japanese story there for now.
Coming up, head here on the China s
how and get the market outlook for producers
and suppliers in the China EV space. BofA securities tells us how China will
continue to be a dominant or if not the dominant player across this specific
market. So this year.
And just ahead, the Cohen Group senior counselor William Zara joins us from to
Bill. A forum in Asia will, of course they
provide consulting services for multinationals operating in China.
We'll dig into their business strategies, what they're hearing from
their clients as well.
That's coming up shortly.
This is Bloomberg. I don't see China as a threat.
I advise everyone to not see China as a threat.
And I certainly said everyone in China don't have to be a threat.
In the last number of years, we have brought our medicines to China to help
patients. For the last four or five years,
innovation has boomed in China and it has given many opportunities for us, but
also other global pharma companies to partner with Chinese biotech companies.
To some of our guests so far toda
y at the Boao Forum there in China.
In fact, let's take it straight back. Stephen Engle is our man on the ground
there, our chief North Asia correspondent.
And what's looking like, Steve, a beautiful day, although I would imagine
the camera does not do the humid justice humidity just to stay where you are.
Well, after covering the DOJ in Tokyo and then the embassy in Beijing, I
welcome the heat and the humidity. Obviously not so much for our next
guest. Williams there, his senior counselor at
th
e Cohen Group. Also the what the chairman emeritus at
the American Chamber of Commerce of China and former chairman of that.
You're not speaking on behalf of the board.
You're here as a Cohen group. You advise multinational companies on
doing business in China. Yeah, it is sweaty here, isn't it?
A bit a bit hot and it's warm. It's a it's a nice change, though, from
Beijing. Yeah.
The political temperature temperament also is a little bit hot right now.
Obviously, it is something that the America
n businesses have to navigate
quite delicately. FDI is down, you know, in 2023 to levels
we have not seen since 1993. There's a bit of a caution.
What's the biggest piece of advice you give to companies wanting advice and
what advice do you give me? Sure.
Yes. The relationship has gone through a bad
period and we're still, I think, just coming out of that valley since San
Francisco summit meeting between President Biden and Chairman Xi, we've
confirmed that we're going to start talking in a numb
er of different areas
commercial, cultural, military, all very important.
We haven't really seen those dialogues get up and running in a strong way, but
I'm optimistic we will, and I'm optimistic that they will be helpful.
Having said that, I don't see any dramatic improvement in the relationship
in the near future. If we can just get it on a steady basis,
a balanced basis, I think that businesses will be able to make better
decisions about investment. Well, how do we get better business to
busi
ness ties when the geopolitical temperature is so chilly right now?
Obviously, the rhetoric geopolitically is quite strong still, even though
there's a bit of a thaw after San Francisco, as you said.
Now, look, we might be getting a meeting between us business leaders and Xi
Jinping today. That's what we're hearing reading.
We have to read the tea leaves that will go take another step in helping improve
the commercial climate, don't you think? I hope so.
And I think part of it depends on what he
says.
But I think what he's going to be saying is maybe quite similar to what the
Premier said at the opening of the China Development Forum, which was, you know,
the Chinese economy basically. Yes.
And uncharacteristically, he admitted there are some problems in the real
estate and government debt, especially in the provinces, but that
the Chinese economy plan is on track. And I think we'll probably be hearing
similar things. Also, there's a charm offensive going on
because the Chinese do unde
rstand that foreign investment
over the last 30, 40 years has been instrumental in their growth and they
understand they need that. And right now, as you mentioned, it's
falling off because folks don't know what future Chinese
policy is going to be. Folks are also watching what Washington
policy is going to be. And so they're keeping their powder dry
and waiting to see what happens geopolitically.
Do you feel that those in the United States are getting the accurate story
about China? That's I'm
not necessarily pointing the
spotlight on my industry, but that has been the allegations leveled by Lee
Chang and others who essentially say, you know, again, Lee Chong said the
property market is not as bad as it's being reported.
We have data that suggests otherwise. Obviously, it is.
There is a problem. But do you think there is an issue of
essentially the narrative coming from China is not representing a true
situation? In a word, I agree with you.
And it's complicated. And I think the press
is doing its best.
The Western press is doing its best to represent what they're seeing.
Part of the problem is there is not a lot of Western press in China.
If we could get more press folks in China, I think we would be seeing a
broader picture rather than focusing on areas that are kind of controversial or
where China is put in a negative light. I think folks in in Washington,
especially on the Hill and maybe even somewhat in the executive branch,
are being very sensitive right now To what?
I
s being done in China. Chinese policies So much China policy is
based on China domestic consumption. Now, just like in America, domestic
consumption and you know, there can be misunderstandings about where China is
going and so forth. Having said that, I think there is some
basis on both sides for lack of trust. Yeah, and it's an election year.
So some of that suspicion obviously gets amped up on both sides.
Recently, I did talk to Ambassador Nicholas Burns.
He talked about the biggest concerns
that American businesses have.
He hears them directly. And it's the issues that don't get a lot
of press because there are not a lot of details, the opacity, whether it's
policy, but also the arrests and the raids of consultancy firms.
There is a concern that the geopolitics could lead to retribution against U.S.
businesses. How much of a concern is that and how do
you advise companies about that? Well, I think that the fear coming from
companies and individual persons in America about coming to
China is
overblown a bit, that if you're not involved in anything
nefarious, you have nothing to worry about.
However, like you say, there have been some raids on companies,
consulting companies, companies doing due diligence, Western companies, and we
haven't really heard clearly why. And folks that have been apprehended,
some are still in jail in China. So you don't need too many of those
anecdotes for people to, you know, the risk assessment to go up.
So it's really almost like the right han
d and the left hand.
Don't know what each is doing with this charm offensive coming out, wanting more
Western involvement in the economy and some of these cases where, no, that
can't be right. So can the charm offensive work.
I guess that's my last question to you, because, again, the Biden administration
is stacking up the export controls on advanced technologies.
China is very much. Every time I listen to them, they
mention these kinds of things as far as trying to essentially contain China's
rise. I mean, this seems like irreconcilable
differences. Well, it's interesting because I think
our Chinese friends forget sometimes or conveniently when they talk about
protectionism. A wait a minute.
Who started protectionism? National security.
Who started broadening national security to almost every aspect of life.
And so I'm not saying that what the US, the US, I think is responding.
And, you know, some of the work that the committee on what is it, the House
committee on security in on Chi
na. Yeah.
You know they're very aggressive. But there are some reasons for that.
I'm not saying everything they do is spot on.
So that's our situation. I think the Chinese leadership is full
of very reasonable people, very smart people.
And I think in the US there are some smart people in charge as well.
And what I'm hoping is that we will come to a balance.
While the rhetoric sometimes in an election year in particular kind of
rises above the reason. Yes, sir.
So, Eric, thanks so much. Cohen Gr
oup senior counselor.
Enjoy the rest of the time. Okay.
Back to you guys. All right, Steve, jump to a room and
some AC, Then we'll maybe drag you back out into humidity in a couple of
minutes. A market roundup coming up.
And by the way, we're talking about how do you play in Asia?
That's coming up next. This is Bloomberg.
All right. Welcome back.
We're looking now at this AIG frenzy and certainly some
specific equities have just really outperformed the benchmark so far year
to date. What's drivi
ng this?
Let's bring in our Asia stocks reporter Yuki, only to maybe take us through
chapter two of where this goes next. So, yeah.
Talk to us about the what's driving the outperformers, this side of the world
here. Yeah.
So if you look at some of the nation's benchmarks in Asia this month, the
noticeable patterns in some of the outperformers, which are Japan, Taiwan
and South Korea, the common theme among these markets are the eye trades.
And what's interesting this month is that we're not we'r
e not seeing the
usual winners so far this year, but also those outside the usual winners driving
the gains in the market during the month of March, for example, the usual winner
in Asia has been TSMC, SK, Hynix and Tokyo Electron.
But we're seeing gains outside of these stocks such as Samsung Electronics or
Hon Hai, Precision Maker and other stocks also rallying this month after
they after they gave strong forecasts on AI, for example.
Is it too late to to join in? Yeah.
So investors and analys
ts seem to think that it's probably not too late to join
the trades in Asia, even though some of the benchmarks are trading above the ten
year average in terms of their price to earnings ratio, because Asia seems to be
the key beneficiary for this ongoing and growing infrastructure investment.
You can't really talk about eight eight without some of the supply chain
companies that are existing in Asia. So a lot of people seem to believe that
there's still a lot of room to run for a lot of these s
tocks that are seen as
beneficiary and crucial for the supply chain in the global world.
Well, speaking of stocks that are moving just today and I'm sorry to crowbar this
in, but since we're talking to you anyway, one stock that's really moving
there in Seoul is Hybe. Can you tell us why?
What's behind this move today? Sure.
This K-Pop star hype has been rising almost 10% this morning just after to
develop interesting developments from the company overnight.
One is that the company signed a dist
ribution deal with Universal Music
to distribute music labels such as the Beats and New Jeans and Under
Development was one of its major girl group new Jeans has and that made
announcement of a new album and is holding its first ever fan meeting in
Tokyo tome which would be the first ever debut by a non Japanese artist.
So which is very significant. So that has been driving the hive stock
price gain. Yeah.
New jeans also announcing a new album overnight.
Sink your teeth into that ukulele. And so
for us, the Tokyo lunch break is
just ahead. This is Bloomberg. And gold is. Just in case you don't have a watch like
myself or have given up watches altogether.
1129 is at the local time in Tokyo, where certainly markets are headed into
the lunch break. And by the way, really outperforming so
far today might have to do with the fact that dollar yen actually saw a slight
leg up these last, what I think 45 minutes or so.
Just coming up, maybe some of the commentary coming through out of the
BOJ.
The governor is speaking at parliament
or was speaking at parliament there over in Tokyo.
There's a 40 year bond auction and we should get the details of that bond
auction in about an hour's time. So demand for long dated Japanese debt
post BOJ would be the narrative there. Flip the page.
We're looking at commodity markets. So on your screens, iron ore in Dalian,
copper in Shanghai, Shanghai, crude gold futures bottom of the screens copper LME
price 9000 and coming up should be iron ore in Sing
apore.
We did bounce off what I think it was 100 bucks.
1 to 4 is where we are currently right now.
A lot of themes to unpack as you look at these individual commodities.
Let's bring in Matty Zhao. No better person really to talk us
through these key themes. The co-head of China Equity research,
head of APAC, basic materials, oil and gas research, many hats at BofA
Securities. Should we Cyberdyne or.
Yeah, why not? Okay.
We were talking during the during the break and you told us you were actual
ly
in China last week. You were visiting some of these steel
mills. What did you find?
Yeah. So we we bought around ten U.S.
clients to Tangshan. So first of all, like I said, us flying
all the way to Tangshan is already a lot of efforts.
Well, what we find is construction demand still remain weak.
It is not only on the property front, but also infrastructure.
A lot of the traditional infrastructure, especially those 12 provinces, are also
considered quite weak as well. So on the steel demand fr
om the order
books still not that good in a way. And then also the steel mills are saying
that there is no government mandatory production cut at this moment.
And given the iron ore and also the coking coal prices decline largely
recently, the steel mills are making good profits compared to last time I
come here like last time, I think they're making about 300 to 500 losses
currently. They are already making one to 100 to
200 profits, so they are not thinking of more voluntary production cuts.
Y
ou may see more production coming back as well.
So on one thing, we may see that the that the iron ore has a little bit
rebound with the production coming back. But on the other hand, the steel mills
are also the profits may be temporary with the production coming back as well.
Most of the steel mills are expecting iron ore range bounding between 95 to
110 in a near term given on the one hand, demand is weak and on the other
hand because they are making profit, they may be resuming as well.
So p
robably need a little bit more restocking on the iron ore fronts as
well. Yes.
Okay. Just to pivot, and I know there's a lot
to talk about on this, but before we get to that, can you talk about going a
little bit further? Yeah, of course.
Gold is one of the areas together with copper that we are pushing.
We're more positive from BofA. One reason, of course, we are expecting
rate cut us still. Oh goodness.
But on the other hand, we are also seeing investments and also physical
pouches, very stron
g in in in both China and India as well.
Physical purchases has been quite strong.
They even talking about, you know, the Chinese New Year wrap packages instead
of giving money, we actually giving gold beans instead as well in China last
week. And then also so it's interesting
finding also that is that look at the government's purchase investment has
been quite strong because of obviously this year is the election year globally.
And also we are seeing a lot of political issues this year as well.
So central government purchases another lag.
They're pushing the gold prices to be higher.
Okay, let's pivot to, if you don't mind, because I know you guys have done
extensive research, not just any of these, but the value chains, I think
that start off with. And this week we had BYU reporting
earnings. We also spoke with Seattle to quite
timely. How large is the the value chain the
global globally. Yes.
So currently we are expecting first of all, the penetration rate, we are
expecting global p
enetration rate to go to 40% by 2030 and for China to go to
70% by 2030 as well. So we are expecting the value chain to
currently about 400 billion us to grow to about 1 to 1.2 trillion by 2030 as
well. So it's a is a very big value chain and
China is basically a dominant role now in this value chain.
Right. So that's.
Up three, three times, if you're correct, market cap, anything.
Market cap gross by 3x2. Not necessarily depends.
It really, of course, depends on, you know, your competitive adva
ntages and
and also technology improvement as well whether we can go to the prices lower,
etc.. Yeah.
Okay. So let's talk let's break down the value
chain because it's very complicated and I would battery Seattle.
That's one of your picks, if I'm not mistaken as well.
How much visibility do you have over revenue the next, let's say the next
three year window. Yeah.
So our house is a positive on on Seattle and we are actually expecting volume
growth to continue. So currently China is accounting f
or
about 68% of the global battery cells and 13 out of the 20 top batteries from
China as well. I know that CTO and also Chinese battery
is facing a lot of the hurdles on the on the trade barriers as well.
But currently we are still expecting our battery growth, export growth to be
about 25 to 30% per annum this year and next year as well.
In Seattle, of course within it gaining market share.
Also that we are seeing with some of the raw material prices declining, it's also
helping to what for th
is China value chain to be more competitive as well.
Okay. Battery pack so cathode, anodes,
electrolytes, I know that sounds like great to some people but what among that
in that bit do you do you prefer for example.
Well we are actually cautious amount for all of the battery materials.
So cathode, cathode, electrolyte separators and anode, we are all
cautious. So we we prefer battery and also we
prefer we are selective in DV, but for battery mature, we are cautious.
Overall, China accounts for
80 to 95% of the global share in this ENDESA battery
materials already. Again, some of them are also facing the
trade barriers and also a lot of the capacity addition.
That's the main reason that we are relatively cautious compared to the
battery. For example, I take cathode as an
example. Capacity growth is more than two times
in the next two years as well. So it's basically not giving them enough
bargaining power on the prices. And at the same time you are also having
the exports more, more ex
port thresholds and
barriers. And within CATHODES, is it a consistent
story or is it a preference? Copper Oh, lithium, for example.
Sorry to get down to that. Yeah, yeah, yeah.
In terms of the models, we, we are positive on copper, we are more neutral
on the lithium. So for the copper front we believe on
the one go it is a green energy transition angle you have to create on
one side you have these give you growth and at the same time also the solar
growth to support it, the volume as well as wha
t we are expecting copper demand
growth to be about 2.5 to 3% per annum this year and next year.
And at the same time the mines are very tight.
So far globally we are seeing 6 to 7% global mine disruption.
So we saw for the first quantum, we saw Angle America that resources a lot of
them announcing mine disruptions. Yeah.
So so you have demand driver and supply tightness so that's very different
versus lithium lithium. We have great demand growth however
supply growth as a lot as well. So we are
kind of neutral after the big
decline of lithium prices. Currently, we do expect that lithium
prices are more range bounding at the cost of around 100 to 120000.
So it's still still too early, I believe, for lithium.
Now, something that's come up consistently in your answers just now, I
think every single answer you almost gave is the regulatory risk.
Yes. And the trade barriers that are coming
up across almost the entire supply chain.
Right. How do you model something like that?
So what assump
tions are you making? Does it to things get worse?
And also, since China is such an important part of
almost every bit of this supply chain. Yes.
Are some of the trade partners almost shooting themselves in the foot because
they also have their own easy targets to to hit themselves?
Yeah. Yeah.
Yes, that's a great question and a lot of debate on that as well.
So so to give you a sense, China accounts for 64% of global.
It accounts for 68% of the U.S. battery.
We account for 80 to 95% of the batt
ery materials like cathode, anode,
electrolytes and separators. We also account for about 50 to 70% of
the metals like copper, cobalt, lithium, etc..
So we are very, very important now, or you can even say dominant in some areas.
So you can't grow the global Yili without China in our base cases that we
are expecting, so that the heavy growth, we expect growth to be about 20 per.
Per annum. Currently, China is already the biggest
exporter. We account for 15%.
We overtake Japan and Germany last ye
ar as well.
So. So we are expecting a 20% growth per
annum this year and next year. However, we do know that there may be
potential of higher tariff from from Europe and also more than from the US as
well. So we do provide a better case scenario,
just assuming a lot higher tariff from the EU and also Exactly.
Ben from the US. So that's not our base cases but our
base cases. And in that front we are expecting maybe
the export growth will drop from currently 20% to probably around 5 to
10% per ann
um and also for us probably by a04 to the US export by 2025 as well.
But of course we don't hope that to happen as well.
It is just depending on how serious U.S. and Europe getting to to own their own
value chain. And are they close to that at all?
No, no, no, we don't think so. We are just saying they are more
conflict or they are more risk. But in our base cases, we still don't
see that's coming. Given that, like I said, China is very
important and it takes time to build the whole value chain.
And also China have a more advanced in some technology.
We also have cost saving and a lot of the cost advantages and labor advantages
as well. Fantastic.
Matti, it's always great to see you. I'm amazed how you just pull things out
of your head, just just like that. Patti Zhao, Co-Head China Equity
Research, head of AFAC Basic Materials Oil and Gas Research at B of A
securities Right. Have a look at some of the other stories
we're tracking across China. China this morning or today, at least,
Ch
ina is taking its dispute with the US over TV subsidies to a World Trade
Organization here. Beijing says the elements of President
Biden's signature climate law passed in 2022 are discriminatory and seriously
distorts global supply chain. Now Washington's top trade official,
Katherine Tai, hit back, saying China continues to unfairly undermine
competition and dominate global markets. Now, Bloomberg has learned some U.S.
executives in Beijing for a business summit are actually extending their
vis
it after receiving an invitation to meet a top Chinese leader.
Sources say the meeting on Wednesday is widely expected to be with Chinese
President Xi Jinping. Chief executives of firms including
Pfizer, FedEx and Amway are in the Chinese capital for the China
Development Forum, which, by the way, ended on Monday.
Now turning to the US and certainly the search and rescue efforts in Baltimore
have now been suspended. That's after a massive bridge collapsed
when it was hit by a container ship and
that's actually forced the closure of a
major US port. It's trapped about a dozen large vessels
in the Baltimore Harbor. S&P Global Insights Commodity Insights.
Rahul Kapoor told us that the disaster is likely to have a big impact on coal
exports specifically. For us at this moment, I think it's very
difficult to put a timeline to it. Right.
It could be out for months at a time. And the waterways, as all of the ports,
what should be what could be shut down for that period of time.
Right. We're j
ust coming back to the impact.
I think if you look at the coal exports, particularly right at the port of
Baltimore last year, sent around 25 million tons of US coal exports.
That's the biggest market in our view, which is going to be impacted.
That's probably going to have an impact on the coal prices in the global
markets. On the supply chain.
Like I said, it's something which can be doubted as a lot.
The containers and other segments for sale, Right.
But not a not a big impact. It's an unfort
unate incident, but the
bigger impact in our view is on the coal exports out of the US East Coast.
And what about what we see for cars and light trucks?
Because it also is important for European carmakers, for instance, how
easy is it for them to also make adjustments?
Oh, certainly it will have an impact.
But like I said, the supply chains are agile, right?
So they will be able to divert ships. They will look at the port of Savannah,
New York, New Jersey, and so on. Right.
So in the medium term
, there's an impact.
But if you look at a slightly longer term time frame, I think they will be
able to basically basically able to absorb the impact of what we are seeing
right now in the port of Baltimore. In terms of other supply chain
disruptions that we're monitoring. What are you most focused on at the
moment? Is it still what we see in the Red Sea?
Yeah, I think that for us is still a pretty big one, right?
What we're calling it is essentially what we call it as weaponization of the
globa
l shipping choke point. Right.
We have to understand that, two, these have disrupted close to on 50% of the
trade through the Suez Canal Red Sea. The container shipping traffic has been
out there. You're looking at what's happening with
the tanker markets with the bulk of the flows as well.
Right. So for us, it's a it's a concern that
this could be a template for the future conflicts.
It could be Strait of Hormuz, China Sea and whatnot.
Right. Would this have essentially succeeded in
raising the
ir political voice and showing it to the world that this can be
done? Rahul Kapoor there.
On the potential impact we're seeing across will see across commodity and
logistics after that Baltimore bridge collapse.
Apologies if I'm not looking into the camera right now.
We have some breaking news coming to dollar yen.
It's not gone red on your Bloomberg terminal has now hit the lowest or
weakest level here in 24 years. It's taken out the previous high and
dollar yen. And we're now currently trading
, of
course, at the levels last seen back in 1990.
On your screens right now. There we go, 151, not 92 against the US
dollar euro yen. Just in case you're curious, we are
trading in about the one 6436 levels as we speak.
All that being said, immediately my mind goes to intervention and intervention.
Watch. And almost right on cue, implied vol
overnight spiking 4.2 points. It's double where we were yesterday.
So certainly this is one part to watch in terms of this options market.
And by the way,
we were talking about this too, right?
There's a massive option expiry at one 5150.
We have an entire story on that on the Bloomberg for you guys nearly ¥3
billion. The expiry is on Thursday.
So watch out for some of these key levels.
But the headline for you is written bottom of your screens.
The Japanese currency has now weakened to the US dollar to the lowest level
since 1990. Plenty more ahead.
This is Bloomberg. Welcome back to watching the China show.
The CEO of AstraZeneca says the pharma
ceutical giant will continue to
support China's biotech industry. That's even as the US pushes for
decoupling of global supply chains. Speaking to us at the Boao Forum, Pascal
Soriot actually told us that while he sees innovation actually growing in
China, Have a look. In the last number of years, we have
brought our medicines to China to help patients.
But the last four or five years, innovation has boomed in China and it
has given many opportunities for us, but also other global pharma compani
es to
partner with Chinese biotech companies, take these products and bring them to
patients around the world, in Europe, in the US, in Japan, everywhere.
So, you know, we really focus on making sure we bring patient patients, new
medicines. Before we get into some of the
geopolitical issues. How fundamental has China become in the
global pharmaceutical industry? Well, actually, it's not yet
tremendously fundamental, if you want to say that way.
But it is becoming rapidly very important.
Certain
ly, the US will continue to dominate innovation in our sector,
there's no question, for quite some time.
But I think in the world the second biggest provider or innovator in
pharmaceuticals will be China, especially with new technologies.
Cell therapy, gene therapy, what we call an antibody drug, conjugates
oligonucleotides. In the old days, we were bringing small
molecules, antibodies, and that's what we did for
many, many years. In the last few years, a large number of
new technologies have em
erged. And that's where the biotech companies
here in China have focused on what is going to be the ramification, the
biggest ramification of the bio secure act in the United States if it does
become law. And essentially this legislation that's
going through Congress would essentially ban Chinese pharmaceuticals from getting
federal contracts if they are deemed to be of concern on national security
grounds. Does this benefit you or does this is
this bad for the global pharmaceutical industry?
Be
cause it essentially, at the end of the day, will limit access for patients
who need particular drugs? Well, you know, I think it is always
important to try and facilitate collaboration in science and the
exchange of information and and the sharing of new data and the sharing of,
you know, new inventions. So I don't think it will necessarily
affect us because we are sourcing those products.
We are basically developing them. We're going to manufacture them.
And so we will manufacture them in Chin
a for China and some countries, but we
also manufacture them in the US or in Europe for the Western world.
So those will be very, very segmented activities.
The fact that the product was invented here doesn't mean the product is
necessarily sourced from China for for the entire.
So that's an important delineation, essentially, because this law could
prevent Chinese pharmaceuticals that are developed here from going into the
world's largest markets, and that is the United States.
Yeah, we have a
very large supply chains and we are organizing ourselves so that
we can actually supply the United States and Europe
independently. And that's what we do.
And we also are building our presence here in China so we can actually supply
Chinese patients independently. So I think I think the fact that again,
the fact that a product is invented here doesn't mean it won't be manufactured
and supplied out of China. There was Stephen Engle and also the
Boss ad, Astra Zeneca executive director as well, an
d CEO Pascal Soriot there at
the Boao Forum that's taking place. In fact, we'll have more from the forum
a bit later on in the show. Right.
Just ahead, we've got a spicy story that's perhaps why two secret teeth
ensue here. Mala Yeah.
How one Chinese city is looking to capitalize on hungry tourists and how
one firm is actually benefiting from that.
The China brief is just ahead. This is Bloomberg. It's time for today's China brief for a
check really on making headlines in papers and also trendin
g online.
We'll start things off with a look at the People's Daily and focusing there,
at least the People's Daily, focusing on the Boao Forum taking place in Hainan.
And certainly after the conference released its report for 2024, it says
the momentum for Asia's growth remains relatively strong and cites expressing
confidence in the resilience of the Chinese economy.
Meanwhile, you have an editorial in the Economic Daily calling on authorities to
crack down on false reports and inappropriate co
mments that damage
private enterprises. Now, this does come in context.
Here is after Chinese beverage giant Nongfu Spring and its founder actually
faced boycotts this month. Now let's turn to a Chinese city that's
actually gone viral over its dry hotpot dish.
We're talking with the CEO of Chen Shui. That's in northern west northwestern
province of Gansu. Gained traction and stable after its
Mala town. A spicy soup and a dish like a soup list
version of hot pot. Cantonese variety features a sauc
e made
of dried pepper that only grows actually in Gansu, which is one of China's
poorest provinces. Some users note that the irony of a
historical city like Chen Shui becoming famous for Mala Tang, the city is an
ancient Silk Road hub, home to just under 3 million people.
Others, of course, think it's just another PR move, which much like the
barbecue craze that gripped the city of Seville last year.
Either way, a taste for this has sent the shares of a local producer of
mushrooms. Jumping mush
rooms are, of course, a very
popular multi-ton ingredient, also jumping.
Comments
Yen intervention and then weakness to continue but that was a sweet drop. I've been hearing complaints about the weak yen and they'd be wise to fix it before it becomes an even bigger headache.
What platform internet accessibility vs US?
Where the concepts ideas came about to proceeding, ect?
The discussion will be, concerning the ocean mining for mineral in Asian seas. The gating of ocean materials and what means regionally, etc?
What aspects eco- energies? Ocean minerals?
IPOs and Ma,? capital earns that came from Ma discouraged thus by China's leader!
Fisheries regionally gating
Statistical moves?