China Markets Rally in Catch-Up Trade | Bloomberg: The China Show 5/6/2024
Monday morning from Hong Kong, half an hour away from the opening bell here in the city in Shanghai and also in Shenzhen. You’re watching the China show. I’m David Ingles with Yvonne Man. Our top stories this morning, onshore Chinese stocks in the U.S. set for gains as traders return from the holiday held by Beijing’s supportive policy stance. President Xi Jinping touching down in Paris to begin a three nation European tour aiming to boost ties even as trade tensions continue to rise. And I’m Stephen Engle live at the BNP Paribas Global EV and Mobility Conference here in Hong Kong, where leading industry players and analysts are discussing the future of electric vehicles, electric vehicles. And I’m sure if he’s going to make it to the discussion here when she steps down in ear up here. So certainly that’s going to be a key discussion throughout the next few days or so. But markets wise, you’re actually seeing this price action quite favorable towards risk assets here this morning. You got to think that U.S. jobs report where we finally saw some signs of cooling in the labor market that really helped set risk assets higher. If you take a look at how bond futures are still trading here in the U.S.. Mind you, Japan still closed today. Our slightly lower here this morning. But we saw basically treasuries surge, especially in that two year yield. We basically went from 5%, which was a 2024 high just last week, earlier last week to about 4.7%. So a 30 basis point drop of late. You’re seeing that basically across some of the Asia sovereign bonds here this morning, Aussie three year yield as well as the Aussie ten year slightly catching a bit here this morning. And we’re watching very closely what happens with dollar. Yeah, and we heard from Yellen talking about maybe a rumor that yen intervened but still had some pretty harsh words when it comes to intervention as well. We’re still trading around one 5342 here, but certainly the drop in the dollar post NFP, that certainly is helping Asia here this morning. We’re also watching John. Hi, There you go. At the Taiwan Open, April sales was pretty good. We’re up about 19% here and they said it was basically climbing to a record when it comes to revenue. So that helps in terms of the Apple story potentially as well. Brent, we’re watching very closely a little bit of a premium here this morning. You talk about what’s been going on over the weekend. There were some of these I guess the border and Gaza has been shut, the humanitarian crossing. There was a rocket barrage that was fired by Hamas. So that really puts a lot of these weeks long negotiations for a cease fire under jeopardy here right now. So our watching, of course, the geopolitics we talked about, the dollar has been pretty flat. U.S. futures also here this morning. But really, we’re really kind of down to the China reopened here today. Right. So given just how stellar Hong Kong was just last week, there is plenty of room, it seems, for a catch up. Mind you, they’ve been shut for three days. Hang Seng gained some 4% shares as well. Nasdaq and Dragon was surging as well all week. So basically the some of these ETF trackers are definitely showing how much room we could see in terms of positive gains here this morning, the renminbi as well. We had the best week of the year when it comes to the offshore rate. We’re hovering around that 720 level, but maybe we could see a bit of a catch up in bridging that gap between the onshore and offshore here today. Futures are pointing positive. Dave. Yeah, we will likely see a volunteer point there. The onshore rate jump. I mean, we closed at 724 or north of that, of course, before we went into this sort of five day hiatus here. So we’ll see that that updates in about 27 minutes from now. And certainly what we’ll get as far as the anchoring or the lack of it at this point in time is concerned. We’ll dig deeper into President Xi Jinping’s trip, of course, in Europe, touching down, of course. And in Paris, the stock rally in Hong Kong, just to give you a number, were nine straight days now on Hang Seng index benchmark. And to everyone’s earlier point three or 4% was the move in the CSI 300 ETF, at least one of the ones that tracked that CSI 300. The US since mainland went into that long holiday. A couple of PMIs are coming out this hour as well. And not to mention Hong Kong PMI. I was actually out about 30 minutes back 50.6 was the level to watch here but yet we’re looking ahead to the re-open today. Plenty of catch up catch up to do and what have they missed for the last three days. Right. So it’s not just what we see in Hong Kong. There was a, you know, the positive tones coming through from that Politburo meeting on housing supply. The like you also have of course, there’s better or worse than expected jobs report out the U.S. So there’s plenty of tailwinds, I think, today, too. Yeah, you’re right that the Politburo, the details of that came out Tuesday evening, Tuesday evening. And of course, that was a Tuesday was when this market last closed. A lot of the details you see on your screens right now, by the way. Right. So many of the analysts we’ve spoken to since that point in time last week have flagged better macro data, a more supportive regulatory regime as it pertains to the capital market to sort of nine point plan and perhaps stronger signaling from the powers that be in Beijing to really explore options that weren’t on the table actually as recently as two weeks back to try and address some of the the inventory issues in the housing market. Speaking up, by the way, a bit later on will be getting the sun on country garden. Of course, a big week here as well. It comes down to yeah, a lot of things here. The country garden is interesting. They got to bonds coupon payments that are due, I believe, on May nine. These are your own bonds. And they’ve been talking about basically these are some of the bonds have been guaranteed by the state. So it’s really putting things to the test, whether they can actually make those payments or not. Yeah, we’ll see. Okay. Is there enough cash to tell you about risk premium standing out? We’ll talk more about this later on. Effectively, you’re looking at earnings yield there less, of course, where you are in the benchmark rate. China standing out. That’s the purple line on your screens, MSCI China. Be more specific here. We’re coming off in terms of just a macro story. You want us pointing out on Friday the jobs report, of course, and really the biggest swing in US treasuries. So the Bloomberg Treasuries index total return actually had the best week last week on the back of that massive drop in yields. And yet there we go. As far as this conversation goes, I really see that clearly. But it was a dovish tilt. How many cuts are we talking now? But two, So almost fully priced in to. And September seems to be back in play according to what traders are looking at post this US jobs report because finally you’re starting to see maybe monetary policy is reasserting itself in this labor market. And can the Fed actually move now if the job market cools and inflation still says elevated? You know, some people like Citi, I think they’re still thinking you don’t need both of those things to come down for the Fed to cut. Now, I think they think 100 from July, I think is there. They still think a hard landing is a possible scenario. Let’s let’s see what other people think. Have a look. This couldn’t have been scripted better there. This report runs the tables for a good report, a Goldilocks report that will please the Fed and please the markets. This is a good report across the board for validating what we heard from Jay Powell on Wednesday. People were starting to be concerned that we needed more hawkishness from the Fed. We did not get it. On Wednesday, we got a more muted version of what’s going on. And I think that this data is starting to prove that out. Now we’re pricing in two cuts for the year. I think that’s about right. People were looking for a little bit of a slowdown because they don’t want to have to think about rates staying high for much, much longer. And they don’t want to think about a hike. They won’t start thinking about easing. This puts that back on the table. You’ve already seen those odds go higher this morning. I think the Fed would like to get a cut or two in this year and today opened the door for for them to get that done. Let’s bring in Gina Martin Adams, our Bloomberg intelligence chief equity strategist. She’s actually in the region this week. Gina, a pleasure to see you. And this time zone, of course, get us get us warmed up for the week. And I want to start with earnings, because that’s really been the key focus in these markets. I think a Disney out Uber and a couple of other this week as well. What’s the thinking right now? What are you seeing as far as this earnings season is concerned? Yeah, it’s been a captivating earnings season. And while the macro has certainly been part of the backdrop for stocks, what’s really driving equity, sort of risk tolerance right now in our view is the earnings beat. So far this season, you’ve got about 80% of companies beating expectations. You’ve got earnings on pace to nearly double the growth rate expected at the start of the season. Certainly, the Magnificent Seven are a huge part of that story. You also have a lot of announcements of buybacks and capital deployment really helping to fuel optimism in the equity markets. So we look for a continuation of that next week as we move into the the bulk of earnings season not related to the Magic seven. Can we continue to see this optimism really support stocks is the key question for this week. Couple of things that I’m looking for revenue growth. Certainly we want to continue to see stable volume sales that are definitely complemented by decelerating prices, which deplete the margin pressure somewhat on the index, allowing for a little bit of float up in margin expectations going forward. I think those are the keys to really watch. What about in terms of and you touched on this a little bit already, the delta and revisions, where are you seeing the best momentum there as far as changes to expectations and earnings? Yeah. Now this is so interesting because over the course of earnings season that one thing really stands out with respect to the outlook and that is a broad upward revision momentum across the index. So analysts were caught a little bit too cautious coming into the earnings season. And I think that really reflects this over captivation, if you will, with the macro climate, with the macro risks, which has really predominated index trends over the course of the last two years, getting too caught up in the macro left you wrong footed on earnings. And analysts over the course of the last several quarters have really played catch up on earnings realities. That’s happening again this season. Estimate revision has been more positive this season than any point since September 2023. EPS revisions are positive and sales revisions are positive. And importantly, this is not about the Magic seven. This is actually value stocks that are driving the estimate revision upwards. So I think we want to watch that really carefully as more industrials, energy materials, companies and even consumer companies report. Can they keep that momentum going over the next couple of weeks as we end the earnings season in the US? That’s interesting that maybe things are broadening out a little bit in this rally. Gina So do you think April was just a bit of a correction, a bit of a blip? You think that you know the rest of the year the outlook for equities in the U.S. are a little bit more clear now? Well, look, we came into April overbought system to a certain degree. Pairwise correlations gave us a really good hand by the end of. March that we were due for some form of correction. And then, of course, you got the volatility in the bond market affiliated with stickier than expected inflation, which now appears to be cooling. So those are the three things that I think you really want to watch. It’s not really about earnings. There was nothing in April that suggested the earnings outlook turned at all. It was really about those indicators creating a little bit of friction or churn, if you will, in the equity markets. So those are the things we watch. Pairwise correlations and the technicals have improved materially. We’ve certainly seen a bit of a cooldown in stocks allowing for a risk tolerance to potentially reemerge. The bond market has cooled down as well with last week’s payroll report suggesting, hey, maybe, maybe the prospects for a hike are not in the cards and maybe more neutral policy is likely in the short term with potential cuts coming later this year. So as long as those things remain relatively calm and we keep getting the positive earnings cues, then it is pretty great conditions for risk taking in equities right now. That does seem to be the case. Know, just a final question for you. I mean, here in the Asia Pacific, we’re busy trying to figure out this Chinese market rally. We’re just about entering the busy part of the earnings season here. And I’m wondering if you could compare and contrast what you’re seeing in the US. Big picture. How does how do you as equities stack up relative to, say, Europe e M next China and China as well? Gina Yeah, I think that U.S. equities generally are in pretty good condition but over overbought to a certain degree. Certainly valuations are trading at an enormous premium. They’re at a very different stage of their cycle than, say, China, which is just coming off of the lows, really celebrating policy inputs to the equity market policy supports. So very different stage of cycle. I think that this is really important for the global equity investor, which almost got a little too complacent with the idea that all things move at once. That’s definitely not the case anymore. We’re a somewhat decoupled world and we have to implement this in our this decoupling in our investment strategy. When we’re looking across the world, it does show up. Emerging markets at large do show up as tremendously valued with the potential for positive estimate revision, which we’re still steady PMI and economic signals. So it does show as a as a reasonably strong reason region for opportunity for the global equity investor, the US. I wouldn’t I wouldn’t count the US out necessarily. It’s just we’ve already had a year and a half rally. We’re well into that recovery phase. Moving into expansion phase. Now, gains may get a little bit more difficult to come by in the US. That doesn’t mean that you can’t take risk, but you have to be a little bit more opportunistic and selective in the US market. Whereas China sits on the other end of the spectrum. Incredibly oversold policy supports coming in really low expectations, set China up at a different stage of its cycle. Gina, great to have you here in the region. Gina martin Items are Bloomberg intelligence, U.S. equity strategist there, joining us, of course, this week in Asia. Still ahead, we’ll take you exclusively to the BNP Paribas Global Mobility Conference here in Hong Kong. Head of Global Automotive Research, Stuart Pearson joins us later on this hour. Yeah, but I had heard that their President, Xi Jinping, of course, is in France. He touched down, of course, kicking off a three nation trip through Europe designed to bolster ties, even as trade tensions. More details and a preview of that trip just ahead here. Counting down to the Monday open to reopen in Shanghai and Shenzhen. And of course, we’re coming off quite an eventful weatherwise, at least weekend here in Hong Kong. 15 minutes away. You’re watching the China show. Good morning. All right. First, folks, we’ve seen in a few sessions here and there you go. It is a stronger why were sub 710 at 709 94 I think is not a big surprise given the moves that we saw in the offshore rate last week since we did actually actually breach that 720 level at 719 at one point. So therefore you might see a bit of catch up here today after that re-open from the holidays. Yep. 13 minutes from now the spots probably are on seven 2719. Let’s preview the this big trip, of course, to Chinese President Xi Jinping has arrived in France, a three day nation trip, three nation trip rather, through Europe designed to bolster ties even as these trade tensions mount. Rebecca Choong Wilkins or Asia Economist Government Report is with us here to talk us through the preview. Let’s start. Why not in Paris and what the agenda looks like here? Yeah, absolutely. I mean, France is here, the leading nation in the European Union, among these three countries that she is going to visit. So a big part of this is trying to put a little bit more space between the EU position and the Washington position when it comes to all of these probes that we’ve seen into Beijing. State subsidies. We actually know France was was said to have backed that really key investigation that was launched last autumn into Chinese EVs. That was the sort of probe that seemed to start this sort of trickle and now this litany of other investigations into other forms of green tech. So that’s a big item on the agenda for both of them. France, too, just recently has announced that it’s trying to increase its amount of TV sales fourfold by 2027. So also making a very clear claim here to precisely its own agenda and its priority. But the other element between Xi Jinping and Emmanuel Macron is this personal touch, this belief on both sides. It seems that they can charm one another through this personal connection. We have Macron, for example, inviting President Xi Jinping to this corner of the Pyrenees Mountains, where he spent a lot of his childhood with his grandmother. That’s a reciprocal gesture for Xi Jinping, who invited Macron during his visit to China, to the Guangdong residence of the governor, which was a post held by Xi Jinping’s father. So we see both this sort of feeling on both sides, the ability to call one another. It’s hard to imagine another European leader doing something so personally. She. So what can she do? I mean, obviously Macron’s bring up the charm offensive. I mean, certainly. Is he going to play hardball, too? She or do you think he’s also going to be a bit on the charm offensive to try to, you know, mend these ties right now? I think what’s really interesting with both Xi Jinping and also his number two premier, Li Keqiang, is what we’ve seen is this very forthright and much more engaged approach to when it comes to these issues of overcapacity. And talking with Europe, we saw this during Shultz’s visit to Beijing instead of the more sort of terse and brief responses that we’ve seen China give to US officials. For example, there were seem to be more deeper engagement. And so I think there is a perspective from Beijing on the French side and perhaps other sympathetic European nations to their ability to really negotiate when it comes to explaining clearly what Beijing’s point of view is here. Of course, they have said that there is no overcapacity, that actually these goods are not just good for climate change, but also really important in helping lower inflation and so on. So we have seen this quite sort of forthright and detailed push back against these accusations of overcapacity. I think it speaks to a belief from Beijing side that there is room to negotiate, there is room to have a discussion. And, you know, just ahead of this, France just laid out its clean energy ambitions. It particularly with EVs. Right. It signed a pact with the auto but the autos. And I’m wondering what role China has could play for China and for it for France to achieve those targets, for example. Well, I think part of this is like that is the big issue, which is what role is China going to play when it comes to the EVs with with France? I know the European Union saying you’re playing too big a role and this is too much. We need to think about slowing it. We need to think about how to sort of encourage our own homegrown industries. But what we have seen, for example, is France looking to excuse me, is China looking to open more factories in Europe for the would be potentially opening in Hungary? We see there’s another deal potentially in Hungary. Recently we saw Chery, the Chinese auto maker, reusing or sort of re opening an old Nissan factory to open its own facilities. So with China going in to these individual European countries and actually creating jobs, actually using factories that already are in in in process in operating to try and create more local economic growth is one way that sort of China showcases the benefits of these economic ties. If they continue to keep these barriers, these trade barriers open, continue to allow Chinese EVs into that market, these are some of the benefits will create jobs, will create local economic growth. That latter part of the trip with Serbia and Hungary again speaks to the benefits. The rewards, clearly as Beijing sees it, outweighs the risks when it comes to doing business with China. Rebecca Choong Wilkins, our economy and government correspondent as well. We’re taking a look. When it comes to the free market in Hong Kong, it’s flat right now, but we were just we’re talking about the longest winning streak we’ve seen since 2018 for Hong Kong. Stock futures, though, when it comes to the onshore market, are certainly still quite positive here this morning. We’re up about a 10th of 1%. Plenty more ahead. This is Bloomberg. Right. Just approaching the opening bell here. So equity markets here in Hong Kong are slow to get out of bed now. Can’t blame them after what’s being kick out of it, really for nine days now, nine days of gains. We’re looking ahead, of course, to the reopening onshore in the mainland. And of course, that’s where we’re probably going to get this catch up rally taking place. Yeah, we’re taking a look at, of course, some analyst actions for you. So we’re watching the solar space. Lenovo, there’s a call they’re seeing the shares cut to reduce at HSBC. Are Fosun pharma also raised to overweight at Morgan Stanley. They’re saying supportive policies and as confidence on companies profitability step up, that may drive investors to growth stocks here in the note raised to a buy at CLSA. Yep looking at Macau casinos we have some data coming through this is based on local reports here. One well, one and a quarter million visitors during this almost week long holiday. And all that being said, we’re not seeing that play out, although that said, of course, this group has also rallied substantially in recent days. City says the City post a strong volumes during the labor holidays, powered by player count and higher wagers. So maybe more bets being played there over that weekend. But as you mentioned, you know, some of the stocks already rallying ahead of that data as well. There’s the property side of things are watching very closely. What goes on obviously with was going on with Country Garden. So, you know, these two bond payments that are due, there’s also these vows and study stuff to digest the home stockpiles as well. So we’re watching very closely. Seems like we’re still seeing quite a bit across all these property stocks with the exception of country garden services, which is down some 4% right now. Yeah, an IPO possibly of an even name that is backed by Geely, one to watch. Of course, we’re looking at quite a quite a bit of an amount here. And of course, Geely shares down about 8/10 of 1% in your premarket. We’ll talk more about this later. And of course, this rally has taken up this market, what, 25, 30% and take up ten cent, 40%, and that’s enough to make the company $0.10 back. Now, within the top 20, there’s elite group of the 20 biggest companies in the world by market cap. We’re back there. How long it last will see the open is next. Happy Monday. You’re watching the China show. Welcome back. And watching the China show, We’re kind of on the open of markets, of course, and that reopened and mainland markets here today after being shut for three days for a holiday. And certainly just given the outperformance we saw in the Hang Seng last week, there’s plenty of reasons that maybe this equity market can really gain, especially when it comes to not just stocks but also the currency as well Dave. Yeah, you have two versions of one thing, right? So onshore and offshore rates and shares, we’re expecting quite a big dip at the open in China. Of course, we’ll get to that spot rate in in a moment. CSI 300 was actually trading at 3600 last I checked. So which would take that specific index if I’m back to the highest level here since October. So we’re now set to open at the highest. Since that point, we’re looking at 15% gains now in price on the CSI 300 at these levels, going to taking it from the bottom. A quick glance at well and some of the small caps on your screen, SGB is of course that’s a separate conversation to be had. Crude, of course, we’re down 5%. And of course, over these last few days or so, we’ve seen some pressure come through in the global oil market. A glance at some of the biggest stocks onshore maotai cattle pig on, of course, as you can see and as expected, really substantial gains there at the open 1% on the Shanghai composite here, flip the boards. Let’s have a look at Hong Kong. Nine days of gains on the Hang Seng index opening flat right now. The the price came out about an hour back, 50.6. We’re coming off a 50.9 reading on that specific benchmark as well. Glance at some of the big names, of course, here in Hong Kong. And we mentioned this early on in case you missed it so ten cent last week because of that 40% rally has now taken the stock back into the 20 biggest companies in the world by market cap. It’s not number 2365 a pop right now for shares of ten said very quickly, couple of movies we’re looking at right now. So casinos, we’re getting some numbers coming through on the sort of passenger flow and tourist flow into Macao. Some declines at the open there. Lenovo getting an upgrade. I think CLSA was the one that put out this call, the Geely Auto, 1% lower here on the back of news reports that some one of its TV plays might be seeking a listing in the U.S.. Okay. As promised, currency markets dollar China offshore and onshore rate. They had a big drop in the dollar last week. That’s your offshore rate is the yellow one you see on your screens that were opening just at about that level. Right now we’re at trading at 721. There we go on the spot rate. We’re trading at seven 2109 to almost parity in both seen at CNY. As far as that’s concerned, we had a fixing just below the 710 handle of course early on I believe there’s also some withdrawals on the PBOC but yeah well just a glance at this and of course Yvonne we’re looking at the equity markets and really to get a sense of flows, positioning volumes, turnover to get a sense really how much more upside short term at least this equity market rally has. Yeah. Who better to ask? And Sunil Koul, APAC Equity Strategist at Goldman Sachs. Sunil, good morning to you. Where are we in this China rally now? You think we’re nearing an end or you think you could actually keep running? Look, I mean, even within the rally can sustain for a bit. I mean, look, I think the moves have been pretty strong, as you know. I mean, from the from the bottom of April 16, hiding a message. I know that just she is already up 14, 15%. But if you go back since the Jan Laws, we seen more than 30% rally in the market. But do you think it can sustain because if you look at the valuation positioning, that is still pretty pretty low. I think even with the 30% plus rally valuations, pharmacy, China still times forward. Right. Which is still one of the most inexpensive market in the region. I think from all the positioning data we are tracking, it still seems that both hedge funds and the longer leads the positioning is at five year lows despite kind of the buying in the last few months. So I think those metrics still look pretty supportive. I was I was in the US and Europe last couple of weeks seeing investors and I would say there is still very strong interest from from people in the recent weeks to increase allocations to China. No, in fact I think we have we have become quite a bit of interest in upside ideas in China, both in terms of ETFs and an upside call option. So this is this is sort of encouraging, but it’s different from some of the prior rallies you’re seeing in China, which are much more driven by short covering. But this time around it seems we have some genuine investor demand brought from long rallies as well as hedge funds. So we think this could be the moment, Right. I mean, a perfect segue to Neil. Talk to us about alpha opportunities this deep into maybe a rally and where you think the money should be flowing into at this point. So. Neil Yeah, look, I think in general we do see pretty much across the region we are sort of seeing China obviously is seeing inflows in the last few weeks. I mean, if you look at the hedge fund data is being. Three or four months in a row where China is being net bought by hedge funds. But as I said, allocations are still low. So I think money is moving clearly in into China. If you look broadly across the region, some of the North Asian markets are also doing pretty well. I think there is obviously the broader value of program going on in Japan, going on in Korea. So I think those markets are also doing pretty well. Hang Seng obviously they’re doing strong as well. So I would say I think India on the margin has been a bit softer and some allocations going out of that. But I think broadly speaking, I would say most of the North Asian markets, Korea, Japan, Taiwan as well, including China, that’s where money is going to flowing in at the moment. What we are also noticing is that if you look outside of Asia, many of the China centric markets are sensitive. Markets actually going pretty, pretty well in terms of flows and performance. You’re seeing that in Australia, you’re seeing that in Brazil, Chile and some of the commodity export heavy markets as well. So I would say those are the focus where money is not, money is. How are you looking at the earnings picture? Because we get kind of mixed reviews of how, you know, less bad or I mean, I’m just wondering in terms of downgrades, what are you looking at right now in this China equity market? And if we’re still not seeing the fundamentals improve meaningfully, can this rally still continue? I mean, that’s a that’s a great question. I one, I would say, look, I mean, to some extent, part of the rally was obviously driven by undergoing a policy easing around the nine majors, but there was a bit of fundamentals to it as well. I mean, especially if you look at the one Q data in terms of macro expectations, they were pretty pretty strong. I mean, both we and Stuart actually raised our numbers in terms of the one could be expectations, right? The fourth quarter reporting season, which was undergoing until the last couple of weeks, they actually came in better than expected. The full year calendar 2023 earnings came in around 9% year on year, which was sort of certainly better than where the markets are describing. So I think both in terms of the macro numbers, in terms of GDP, but also I think the fourth quarter reporting season was strong. I think the early data from the first quarter reporting season have seen is around 1230, 40% end. And I would say the numbers have been about we got around 2 to 3% down year on year. But at least what we are seeing is that there are select sectors where things are starting to see some upgrades. I think consumer Internet would one pocket, but at least a number of them are starting to upgrade. I think it’s still we we need still more evidence but our sense is that if if you see the first quarter numbers also holding up better, that could use some legs to the rally into the fundamentals improving, as you said, still the market is seeing in aggregate downgrades. So those are the year to date. MSCI China has seen around 3% earnings cuts, but selectively, there are pockets of those said we just starting to see upgrade, I think consumer and internet workers. I would I would point to, but that would have to broaden out broaden out the conversation to the rest of the region. And I want to get your get a sense of where you head is as far as currency risk is concerned and how investor dollar investors should be looking at or the opposite, really how we should be looking at managing currencies, given where you are in exchange rates, you know, dollar yen we talked about that dollar parcel, $58, Indonesia, $60 and we can go on and on. Is that a risk to consider at this point or not? Look, I mean, we saw some of that play out, right? I mean, there was there was a period where and I think last few weeks, I would say sort of 3 to 4 weeks trading, you had both kind of rate expectations getting priced out in terms of Fed, but also kind of commodity prices going higher, your tenure increasing. And so that sort of dollar strength basically mean many of the currencies came under pressure. I think at this stage we are at a stage where and I think the bulk of those moves are behind us. I can be sort of getting to a place where both the market and us are baking in want to do very, very fast cuts into the year. Having said that, I would say there is still if you look across the region, there are there markets that are much more sensitive to your US rates and dollar strengthening and North Asian markets are sensitive somewhat. If you if you look at some of the South Asian currencies, India is a good example. I think one of the feedback you’re hearing from investors is that in this entire dollar cycle, India used to be one of the currencies which used to be sort of considered more vulnerable to 2013 taper tantrum. But the currency has been pretty stable. And part of that has to do with the fact that you got very strong social exports and very strong efficacy results from RBA. So I would I would say within the within the EAME or Asian markets in general, there are pockets which have been very resilient and I would put of India in. In that bracket. And then there are north ocean currents. They’re obviously much more cyclical. But we think some of that is already priced. And in terms in terms of how much the dollar has strengthened and how it sort of rates have moved and how much currencies have moved with, some of that is already in the price. So you have had a great week ahead, sir. Hi to the team for us, of course, there at Goldman in Singapore. Sunil Koul, APAC Equity Strategist at Goldman Sachs writes, We’re about 9 minutes into the re-open here. CSI 300 up one to even more than 2%. Last we checked here, one and a half percent there. We got my mistake to 3%. As far as real estate stocks are concerned, that’s playing a bit of catch up, one six, six, eight. That seems like a ticker That looks like that is South City Holdings. Okay, There we go. 24% to the upside. Plenty more ahead. This is Bloomberg. We’re seeing a lot of our clients in the region and globally actually looking for some diversification in their counterparty relations. But that need for diversification, we see a lot and we’re just gradually and gently expanding into that where we see opportunities to help them. They would like to see we’d like to have stronger relations with with a European provider. Some companies would not do as well as some others. So for the companies that do well, we’ll remain very competitive in terms of cost control, in terms of product function, quality and value for money. What they will have to do is to adapt to the changing environment. Consolidation. Pressure. Price war. Keep us posted to keep doing a better job. Just some of our guests this morning speaking to us exclusively at the BNP Paribas Annual Evian Mobility Conference taking place here in the city. In fact, continuing our coverage of the event. Stephen Engle, our chief North Asia correspondent is there on the ground for us. Steve. Take it away. Yeah, Dave. Our next guest is Stuart Pearson. He is the head of global automotive research at BNP Paribas, the host, of course, of this EV E-mobility conference in Hong Kong, the second annual one. Thanks for having us. Let’s talk about your latest research as well into the EV space. There’s been a bit of an EV winter that starting to see, you know, some clawing of success, at least here in Hong Kong, some of the big EV makers. The prices are up since February. But where are we in that evolution of the downturn? And you you’re quite bullish compared to others. Yeah, for sure. There’s definitely been an EV slowdown over the last year or so, and we actually think we’re approaching probably near the trough of that slowdown. Actually, when we look at the drivers of that, I mean, there’s been subsidies removed in various markets such as in Europe. But I think one of the biggest issues has really been some of the macroeconomic headwinds, in other words, high interest rates impacting affordability. But we’re starting to see that moderate. And actually we think you’re starting to see an inflection and an acceleration in growth, which I think you’ll see come through as soon as some of the April figures and certainly into next year, we think driven by regulation in Europe, but also the huge cost compression that’s going on driving prices. Now you’re seeing the cost parity to the internal combustion engine cars starting to level out by 2028. Is that. Yeah, I think by 2028. And some carmakers will get there sooner. When we look at across the whole value chain from the battery cell makers in mining up so EV assembly all throughout this value chain there’s a huge amount of work going on to drive cost down performance improvements and that’s really going to end up in much lower prices for the consumer basically. So I think by 2027, 2028, we should be able to make certainly medium range cars at the same price as ice. And at that point they should sell themselves. It’s not about regulation. So this is sort of an investor conference as well in Hong Kong, looks at where the invest ability is in this space. But a lot of these Chinese automakers I was just at the Beijing Auto show, they dominated the buzz. Definitely whether it’s a show me as you seven BYD taking over the top spot over Tesla. But a lot of these most of them are not profitable and there’s a price war domestically that’s driving things down. So where does the investor who looks at this space looks at your bullish report and says, Where do I get into the game? Yeah, that’s the difficult part and that’s what we’re here. And I confess to try and find out. And look, there is excess capacity for this value chain right from the certainly from the mining side, right up towards the forward side and even assembly of things. How much is it. Well, on the battery cell side, you’ve probably got 40 to 50% oversupply on the EV assembly side, probably 30 to 40%. But that part is growing pretty fast. And we’re talk about overcapacity in EVs, but there’s huge overcapacity in ice as well. And there always has been in the car industry. I think it’s a direction that’s important and we think EV sales are going to quadruple by the time you get to 2030. So that overcapacity should dissipate over time. And actually we think the utilization of that capacity is going to be improving over the next few years. So in terms of where to invest, of course, you have to tread carefully and there’s different companies at each stage of the value chain that can be attractive. But that forward side, some of the EV assemblers, we think you’ll see some of those margins start to inflect positively pretty soon. Is it going to be driven by these Chinese makers at the expense of the legacy automakers who have not kept up either on the autonomous driving space or in, you know, the gadget laden cars that the Chinese, as you said, even from Xiaomi and others have offered. But I think it’s undeniable the huge progress that China has made. And there’s been a huge shift of gravity of the industry towards China. But I think the answer to that question depends on which region you’re talking about, because certainly in the West, the brands do still count for something in the European and US markets. And of course, it’s not necessarily easy from a trade perspective to move cars and cars around the world. So I think it’s less about where you’re from, but how you compete going forward. Well, let’s talk Europe, though, then. What’s going to be the strategy for the Chinese makers if they’re going to be faced with 20% tariffs, as is likely? Lee Motor just said, we’ve been planning for it. It’s going to happen in the US. It’s a different ball game. Probably not going to be allowing the Chinese makers to come in. But Europe, what are the legacy carmakers have to do to fend off that competition? Yeah, look, I think firstly whether we have tariffs on that, ultimately the Chinese will need to produce in Europe to sell in Europe, in the mass market. You know, mass cars don’t travel globally that well because of the price point. So we will see local production for the Chinese and at which point the cost advantage narrows a little bit because of the labor rights. But in the meantime, the incumbent car makers need to use that time to drive down their fixed costs and be very lean on their labor costs, on their R&D costs, reduce complexity, and also partner with others and think about where in the value chain do they want to compete? Do you want to be super vertically integrated, like be wide, or do you want to work with the best in the industry to benefit from the best costs, the best technology? Because at the auto show Mercedes. CEO and they’ve had joint ventures. They pared back their joint venture with Boyd and Denzel down to 10%. They also have a partnership with Geely, but he was essentially saying, we’re not looking at doing more joint ventures with actual carmakers, but technology partners. Yeah. Is that the key there? Because the big buzz at the auto show was the CEO seven from Xiaomi technology companies coming in and making a play. I think it’s looking about what is the gap in your skill set and your your R&D processes as a as a company like Mercedes or any other Western firm and who can help you plug that gap. So Mercedes doesn’t need to learn anything properly about manufacturing its cars. It’s not aiming to be a huge volume maker. So yes, it makes sense for them to team up with technology partners for somebody else. So we’re looking at Stellantis teaming up with Leap Motor, getting access to low cost EV platform and manufacturing. Then there’s a different rationale. So I think it’s a different strategy for different carmakers. So the big buzz last week as well was Elon Musk flying in to Beijing, signing basically getting approval for FSD, full self-driving with his partner Baidu. Is that a game changer or a watershed moment? Who needs whom more? Obviously, Elon Musk and Tesla need China, but does China need FSD? Yeah, look, that was clearly a positive development for Tesla because others were starting to get ahead of them in terms of self-driving capabilities that they’re offering in China. So our view on that is I wouldn’t call it a watershed moment, but I think it certainly helps Tesla Tesla catch up where the competition are. But Tesla really needs China. It sees biggest car market in the world. They want to lead on full self-driving globally and they weren’t doing that in China. So this at least helps them close that gap to the peers which are starting to open. But they still have a lot of work to do to really become a leader on that and test charge China. That wouldn’t say Tesla is in trouble in China at all. They were still selling a huge amount of cars here, but they need to prove that they can catch up on the self-driving equation. And we can talk about cars all afternoon, all morning, but we’re out of time. Thanks so much. Thanks for having us here at the conference. Thank you for having. All right, Yvonne, back to you. All right. We’ll have more from the BP PowerBar E-mobility conference later on the next hour. We’ll hear from Joe Bloomberg Technology on their business strategy as well. Right. Just some data that came through a couple of minutes back. So we’re looking at the numbers. This is composite and also service numbers, both for April 52 and a half, 52.5. If you want to be pedantic about this, the survey was also for that amount and also composite coming in at 52.81 was slightly better than the previous month, which was composite services coming down a little bit as well. These are, of course sequential in nature fairly. There we go. Plenty more ahead. This is Bloomberg. Here’s all the stories we’re tracking for you today. Bloomberg has learned that 60 is plan to demote some of its senior bankers and cut their pay. The unusual move could lead to voluntary departures and one of the country’s largest investment banks. Sources say Cisco has told staff internally that some individuals could lose their managing director titles and be relegated to lower ranks under a new performance rating system. HSBC, its largest shareholder, has vetoed or voted, I should say, against keeping outgoing CEO Noel Quinn as a director, suggesting his campaign against the lender will continue ping on insurance group. Also largest protest vote during that HSBC shareholder meeting on Friday. Now that’s after Quinn announced plans to retire. Hang on. Has called for HSBC to spin off its Asia operations. That proposal was defeated during last year’s AGM on his strong growth, and April sales is helping to boost expectations for iPhone sales. The company, also known as Foxconn, assembles most of Apple smartphones and posted a 19% jump in monthly sales from a year ago. Foxconn’s revenue rose to a record for the month as a diversifies as a business to focus on equipment tied to AI. And Quanta has agreed to pay a fine of 100 million AUD and compensate customers over claims the airline sold tickets on thousands of flights it had already decided to cancel. The agreement was. Australia’s competition watchdog also includes a remediation program expected to cost them $20 million. Payments to affected customers will range from about 225 to $450. Yeah. Shares of Quantas flat there over in Sydney were going the opposite way as far as onshore and offshore rates. So a 1.3% CSR 350 upside about 240 stocks and that seems like 300. So 300 are actually on the way up. So there’s good breadth. Also in terms of sector movers, most sectors are up seven out of the ten. This is interesting. So across the stock index, which reopened today, already 12% of the daily quota on the northbound routes. So you’re seeing a lot of money come through. Heading north here have been used up in the first 30 minutes trading, which of course this has been closed. So you are getting some catch up there playing up to. Yeah, it seems like there’s that, but a profit taking in Hong Kong and a bit across onshore here this morning. Coming up on the China show as President Xi starts his year of visit. We’ll be looking at what he’s aiming to achieve and the challenges standing in his way. The president emeritus at the European Chamber of the Chamber of Commerce in China is among those sharing his views. Plus, we’ll be back live at the BNP Paribas Global IBM Mobility Conference with autonomous driving tech firm Domo. We have a lot more coming up in the next hour here watching the China show. Welcome back to the China show. Here’s a look at the CSI 300 just a half hour into the session. And there you go. There’s your catch up tray here. There’s warning coming back from that three day holiday and really trying to match the what we saw in Hong Kong last week. Mind you, that was about 4% gain in two days on Thursday and Friday on the Hang Seng and shares. So certainly there’s still a bit more catching up to do. But you mentioned about the northbound flows have been quite substantial, Dave, so far. Yeah, I mean, the first first 30 minutes of trade, we’re already seeing a drawdown of about 13. We’re probably moving into 14% as we speak, which by the way, we don’t normally get. But you know, we’re not usually coming off, you know, three days of holiday but certainly want to know it, right? So there has been money waiting on the sidelines to get back into onshore markets via the stock panic. And you’re really seeing that play out more pronounced there than usual at this point in time. Right. A couple of sectors onshore that are outperforming the broader benchmark in the early goings. First 30 minutes trade, you’re getting property names coming through. You had a massive week last week, of course, on the back of, I guess, expectations of policy and how the policy regime has shifted in favour of perhaps addressing some of the structural issues in the sector here. So you’re getting CSI 300 real estate Index and also the Shanghai Property Index, which are obviously have overlapping, overlapping constituents, consumer staples up 3.1, 3.2%. So these are your now ties of the world, some of the liquor makers, of course, and some of the hardware plays also playing out 2.4% on the CSI 300. Right. That’s broadly speaking, though, it’s by the way, we don’t have trading in many markets in the region here. Many I mean, I think three Thailand, Korea and also Japan are shut today. Extra pound. They were up 7/10 of 1%. S&P futures are just hovering just above water right now. We’re coming off a big drop in the US dollar and also a big rally in Treasury markets last week. In fact, the biggest week for treasuries on price so far this year. We’re getting some weakness coming through in the twos and the ten so far. But broadly speaking, as you can see, it’s a generally risk, one with most markets in favor, of course, or less in favor of the dollar. And a couple of markets coming online already. And Taiwan. I should also mention, when you look at that market, Hon Hai is up 6%. We’ll talk more about that later. That’s helping lift that specific index, up one and a half percent in about 60 minutes. Yeah, we were just talking to Goldman, so no call about this, right, that, you know, all the volatility and affects and the like. There seems to be something in the past now that the market can kind of move away from. And they’re starting to see signs of maybe, you know, fundamentals looking pretty good, especially when it comes to China. Risk appetite is is getting better after his trip to Europe in the US as well. He talk a little bit more about the fund flow situation and how things are running out, not just for China but even some of these China sensitive sort of sectors as well. There is still very strong interest from from people in the recent weeks to increase allocations to China now. In fact, I think we are we are picking quite a bit of interest in upside ideas in China, both in terms of ETFs and an upside call options. This is this is sort of encouraging, but it’s different from some of the prior rallies we’re seeing in China, which are much more driven by short covering. But this time around it seems we have some genuine investor demand brought from long on as well as hedge funds. Our strategist Mary Nicola joins us now from Singapore to talk us more about this rally. It seems like, you know, from Goldman’s perspective, we still see some more upside to go. What’s your team looking at this morning? Yeah, we were looking at the fact that we could see a tailwind obviously from such a stellar week in Hong Kong. So the expectation that the onshore markets would follow suit and so far the opening has been strong. And of course there is some of the catalysts coming from the very positive Politburo meeting where it released its some of the announcements at the end of the Tuesday after the Tuesday market close. So there is some upside. There’s a tailwind from there as well that is going to that looks like it’s going to support China equities right now. One of the pieces you put out to get us started for this week, the rally, to your point, is getting very hard to ignore at this point in time. You’ve put certain metrics very much in focus in front of viewers right now and investors. We’re looking at risk premium and why this market stands out. Why is this important? If you could give us a one on one as well, what we’re looking at here, Mary? Yeah, absolutely. So we know that China valuations have been cheap, right? But there’s more to it, to it than that. So there’s this equity risk premium that we like to focus on, where you’re looking at, how much you’re getting paid for, take for taking risk. So essentially, what is the difference between the earnings yield from China equities and in this case we use the MSCI China over the government bond yields, and that tells you roughly how much compensation you are taking for going into something risky like equities versus staying in something like government bond yields. And that’s starting to look a little bit more attractive in China and stands out especially against its regional peers. So that’s something to keep in mind that you are getting compensated for taking risk. Also, earnings, as you mentioned earlier about Hon Hai, there’s there’s there’s some catalysts there and movements showing that earnings are moving in the right direction for China. So it’s not just that it’s cheap but and, and arguably it could be cheap for a reason. But there’s also the fact that earnings are moving in the right direction and you’re getting compensated for moving into equities versus staying into government bonds. And it seems like even if you go broader, the macro picture seems to have shifted a little bit more. You know, the Fed’s been leaning a little bit more dovish. You got that moderate sort of jobs report on Friday. I mean, is there a chance now that this everything rally can reignite itself again? Yeah. So there’s there’s there’s a bit more broader, even even for China where we had the services PMI there showing signs of stability. Same thing with the manufacturing PMI, all these are showing signs of stability from a macro perspective for China. But then when you look at the broader picture and what’s happening in macro markets, so for example, the the fact that Jay Powell pushed back on on on expectations of a hike or even going for a hike, we know that the next move is going to be a cut, even though inflation is a little bit sticky, but there’s still a next move for a cut. And then, of course, the jobs report showing some cracks that are coming through into the system. Of course, it’s only one data report, but it’s it’s showing that there’s some cracks in the system where we could see that everything rally coming through and reigniting that vigor that was lost because of concerns about Fed hiking or Fed hikes being delayed. So they are still going to warrant patience. But it now it’s about the fact that hikes have been completely put out of the put off the agenda yet. Mary, just a quick note, I guess, as a final thought on that last note you mentioned here, we’re looking at a softer dollar this week. How much does that help? Yeah, the softer dollar, especially for Asian, US, Asian, Asian currencies, Asian risk assets should be absolutely supportive. One of the things that has really brought down the region obviously has been the rise in the rise in U.S. Treasury yields, the strength of the dollar, the resilience of the dollar. That’s obviously weighed on this region as a whole. So once you start seeing that the dollar is losing some of its steam, some of these currencies can start making up ground. And that, of course, includes the yen, where everything has been all eyes have been fixated on the yen, and especially in terms of how much that, you know, that back and forth between traders and and officials are going to continue in terms of whether it’s it is a one way bet or is it going to is there’s going to be some back and forth on the yen. Mary Nicola in Singapore for us right just ahead here and shows our deep dive into President Xi Jinping’s Europe tour as trade tensions mounts. We talked about that with the European Chamber of Commerce in China next. Stay tuned for that conversation. Happy Monday, by the way, this is Bloomberg. Well, China’s president, Xi Jinping, has arrived in France on a three nation trip through Europe designed to try to at least bolster ties, even as trade tensions do mount. We talked about just the significance of this. This is the first visit to the region in five years for the president. And Xi’s tour comes as the EU forges a more unified voice with Washington in opposing China’s capacity for cheap exports and perceived national security risks. Now, during its European leg, now Xi Jinping aims to highlight some of these economic opportunities for the EU. Maybe some optimism, Chinese investment certainly, and seeking France’s support and encouraging the EU to adopt a more pragmatic approach in return. French President Emmanuel Macron also hopes she can facilitate peace efforts in the Ukraine war and address issues over China’s investments in France’s EV battery sector. So a lot on the agenda. A lot, yeah. And of course, France and then the president, of course, moves to Hungary and of course a non EU member Serbia to lead. Delve deeper into all of this. The significance of this of course there’s a of new ones per place. And the big picture, geopolitically speaking. We’re joined right now by your president emeritus at the European Chamber of Commerce in China. And also joining us to is war Apollo adjunct professor at the Queensland University of Technology. Let me start with you. You’ve been on the ground, of course, in many years in China. Just perfect person to really set this up for us. Initially, my thought when I heard the news was why France and Germany? But maybe you could add to the significance of that. Why France? Well, first of all, we have chants of France and China just about two weeks ago. So it doesn’t really make sense that Schultz and Xi Jinping beat again two weeks. Nothing really happened. As a matter of fact, the Charles visit was not really very fruitful. So it really makes sense to look up the biggest other nation in Europe, which is France. And my call placed it quite well. He has invited EU Commission President von der Leyen to join him. And so it’s a good sequence. And of course then he moves on into Serbia to the anniversary of the bombing of the Chinese Embassy in Belgrade in 1999, and then, of course, to the closest friend they have in the European Union, which is Hungary. So it’s quite a very symbolic visit. War time in here. I mean, do you think there’s anything that the Chinese president can do to avoid its relationship with Europe, to deteriorate the way that it has with the US? Well, China just needs to put its own best foot forward. China will advance its own interests and its own perspectives on what is in the mutual interests of all concerned. And ultimately, it will be up to other parties as to how they respond to that. China has made it very clear for a long time that it seeks win win co-operative relationships with other countries. And certainly I don’t think fundamentally there are any conflicts of interest between these countries. So the objective material foundations for solid relationships are there. It’s just a question of whether psychologically and emotionally the Europeans and the transatlantic powers able to come to the party of a changing multipolar world. Yeah, and, you know, work just to follow up on that, I mean, these meetings are taking place not in a vacuum and certainly a lot of geopolitical events. Of course, you have the war in Ukraine. You what’s taken place, of course, between Hamas and Israel. It’s a it’s an election are in the US. And I’m wondering, Warrick, what role does each one play or give the other as far as their geopolitical strategy is concerned? So what does France offer China and vice versa? Yeah, I think it’s important to take a step back and probably not look at these issues so much in transactional terms, but look at them in broad historical transitional times. And what’s going on is that globally the the the epicentre of economic power, if you will, and economic growth is shifting towards Asia and it’s concentrating in Asia and the European and transatlantic countries in general and need to adapt to that changing environment. Now in terms of the conflicts, in some ways they’re symptomatic of a changing global order and they’re symptomatic because we’re starting to see the traditional powers fighting tooth and nail to hold on to what they think they’ve got. Your you’ve worked in in China for decades. You’ve worked in the auto industry. So you maybe you know what what’s really happening on the ground. Is there a growing sense of frustration now of these concerns about China’s overcapacity and exporting too aggressively? Or is there still some sentiment out there that still thinks that China is a market of plenty of opportunities? Well, first of all, I guess Schultz has mentioned this. Michael will mention it, as Janet Yellen said. So in going forward, China has huge overcapacity problems, which of course, are challenging as trading partners, not just Europe and the U.S., but also, of course, Brazil and other countries. But China doesn’t deny that, says there is no overcapacity. So she just has to bear this and listen to it all over again. I think that also she has to realize that Europe is basically using the new toolbox they built up. There has been new anti-dumping cases. There has been a subsidy case going on on EVs, which possibly will come to conclusion in June already. And then you have also procurement that they’re more less skilled to the Chinese in Bulgarian trade. So China has to realize that Europe has its own policy, its own trade policy, and will actually use its new toolbox. So the time of good voice and one voice is over. China has to do something about more opening up in order to balance the kind of trade that we wish we would have with China. Warwick Let me get your thoughts in the same topic. I know you have some views here on overcapacity. Well, whether or not there is overcapacity, whether or not it’s a relevant topic to a conversation to be had. Just give us your thoughts there where the idea of overcapacity is a furphy. It’s raised largely by countries with incumbent industries that have failed to adapt to technological change, and they’re obviously facing competition. The fact is, is that trading nations around the world have under capacity and overcapacity in different areas, depending on what they’re capable of and what they’re good at. The fact of the matter is, is that the European Union needs to find ways to adapt to the changing technological and market landscape. And one of the ways in which it can actually do that is to welcome foreign investment, to build up its own productive capacity so that it can be competitive. Your What about you? Tariffs on Chinese exports. Is that a real risk now? How close are we really when it comes to a possible trade war between the EU and China now? We are not very far away and overcapacity is an issue as China produces 2.5 times global demand to in the sort of solar panels. For example, China can produce 50 million cars. It itself consumes 23 million actually. What I was also telling Janet Yellen and Gwangju is that overcapacity is already a huge problem within China because everybody produces stuff and nobody makes money. And Europe is the last big market open for cars and for other items. And China should be very interested to actually maintain that trade imbalances as an all time high. We had three years ago 3.4 ships, containers going to Europe for only one came back. This year we will face 4 to 1. China is indeed an export powerhouse, but it has to realize that Europe is not going to stay open forever. Yeah, and you’re the other side of the wall. The other side to that same coin is, you know, the lack of FDI into China in recent years or the drop off we’ve seen from trend. Do you think that is a function of overcapacity in sectors that were actually magnets for FDI? And if you think so as well, what opportunities do you have? Do you see for foreign capital to play a part in it? In Chinese, which sectors do you see the most runway ERG? Well, first of all, in the equities side, as I said, nobody makes fun of very few companies make money. Actually, China in many ways sustained investible. The market has been underperforming quite a bit. But in the real economy, China remains extremely interesting. And the car industry, you see European in particular, German companies pouring billions into this economy. Still, the chemical industry is pouring billions into this economy. So when it comes to real investment into concrete and steel, Europe is not letting go. Actually, they are doing more in order to actually catch up with China. And as I was saying, we actually in Europe are very keen to have Chinese investors putting up shop in Europe. The Seattle has two plants, one already running in the East Germany, one is building in Hungary. We want Biden to operate there. So unlike in the US, Europe is very keen in order to have the Chinese investors actually helping us to bridge the gap, because in many ways the Chinese have gone already much more ahead of us, particularly the car industry. So work from the China perspective. Is there any sort of room for concessions in this trip? And is it more going to be on the trade side or what about the strategic partnership with Russia? Is there any sort of leeway there either? Look, on the trade side, I think the the objective is to maintain open trade. And open trade will drive the the allocation of capital, hopefully with the ability for the new capabilities to augment European production systems. I mean, over the last 10 to 15 years, European production systems have in terms of some of these new areas, the new energy areas have fallen be fine. Having said that, you know, European car manufacturers continue to export substantially into markets like China, particularly in the internal combustion engine space. So, you know, we haven’t had a lot of complaints about overcapacity in European manufacturers for the last 15 years. So, you know, let’s be fair about this. What we’ve what we’re witnessing at the moment is just transformation, industrial transformation that requires upskilling and the adoption of new technologies and know how. And by working together, there’s actually a much better chance of achieving that and achieving the investment and trade flows that deliver better living standards for people all across the Eurasian continent. Warwick Just if you could elaborate on that, that’s an important point, I believe. Do you think well, let me rephrase it simply. Do you think the Chinese are coming, are coming into this conversation from a perspective, you know, from, from a position of expertise in bringing in that technology? And you’re like, I want you to respond to that just after that. But yeah, go ahead, Mark. Well, certainly in some of the areas that have been identified as a particular concern, it’s incumbent industries in the traditional markets that have fallen behind. And yet that is the direction of the world. Green development, decarbonization, new energy technologies, whether it’s in transportation or energy storage or energy generation, are going to be critical to achieving the climate change objectives that pretty much all nations have agreed to. Now, if we’re serious about those transitions and the least cost. Fastest way is the way that people should be going. And if we can do that, it will actually catalyze downstream industrial development opportunities, taking advantage of low cost, cleaner energies. Yeah. Your your thoughts on that and and also how, you know, how does Macron sell that domestically that, you know, the Chinese are coming in with good stuff? Yeah, well, first of all, China has 60% of global manufacturing capacity. They are standing for 31% of global manufactured added value. So virtually every product worldwide being produced is made in China. But China stands for only 40% of global consumption. So there’s a serious mismatch in what they are pushing through the international markets and they actually want to consume. And that will be mentioned by my call clearly. And the fact of that is we have under 26 car companies in China, which is already China finds not sustainable. So something has to give and China has to actually let market forces rate companies have to go bankrupt then or get off the market in order to also let the top players get a little bit of more price margins. And that’s going to be very, very difficult in the process. But it has to be done also for the sake of the Chinese domestic economy. And let’s see if Xi Jinping is listening. Obviously remains to living denied, but overcapacity. When you live in France, your maybe your last question now, if Donald Trump returns to office, does it change the game in any way, the relationship between the EU and China? I don’t think so. I mean, we have Trump one and we really have both suffered tremendously from the Trump administration. We had to trade more Europeans with the US, and China didn’t give us anything. I don’t think that actually China took advantage of that in many ways. I think, yes, we’re both in the doldrums. If Trump gets elected and Lighthizer is going to implement what he has been outlining in his book, which is interesting to read, There’s no free trade. Chapter 11 is all about what you will do to China. And he has also reserved a chapter for Europe. So we are going to be in a hotspots together, but I think there will be no alliance building between Europe and China in that circumstances. Worry. Final thoughts. If it’s a Trump 2.0, how does this change things are not Well, I think one of the problems is, is that it’s largely anticipated to be somewhat unpredictable and rocky. So it is a little bit hard to put on the crystal ball and and see it clearly into the future. But let me just say one thing about this question of capacity, because I don’t think that the description has been accurate. Chinese manufactured outlets have grown substantially over the last 30 years. But the fact of the matter is, is that 87% of outputs are consumed by the domestic economy, 13% are exported. So this idea of overcapacity is actually an absolute nonsense. There is exports, of course, but the majority of Chinese manufactures, including the growth across all sectors, is being consumed by domestic industry and domestic households. Yeah, as you say, there’s a bit of an under capacity issue going to work where it is. Great to have you. Thank you so much. And your work President emeritus at European Chamber of Commerce in China, where Powell, adjunct professor at Queensland University of technology markets looking like this year, of course, we’ve been tracking what’s been going on on Shanghai and certainly that return from the holidays has been looking very good and we’re watching very closely these chip sales as well. Take a look at how high and high. So revenue was up 19%. It wasn’t just the the iPhone story, which was there were certain wobbles and concerns there, but really about air servers and really how they pivoted to tap into that sort of demand here. So Goldman Sachs is saying is really second quarter is looking pretty good given just that prospects there as well, up some 6%. That’s really lifting some of these tech names here this morning. TSMC also up close to two and a half or 2%, I should say, in Taipei. Yep. We’re looking at some of these tourism related stocks as well. There we go. Tourism Holdings, to be more specific, there were up 37% were down the most. And this is down to good old fashioned plain vanilla guidance. Disappointing Markets were down 38% on that specific stock. MSCI China on your screens coming up as well in terms of sector group. So just about every single sector is up. You’re getting some weakness coming through. And I think the nuance here is really there’s this interesting overlap between constituents because you are getting one part of this market catching up and doing very well and one part, of course, that has been doing very well nine straight days now, the Hang Seng index going into today. So we could be stopping that. But as you can see, property leading this 2.3% to the upside about an hour into the session. You’re watching the China show. All right. Welcome back. Happy Monday. And finally, some. Yeah, some vision. You can see something after what was really a bit of a crazy Was it Saturday? Yeah, there was a red rainstorm on Saturday. Yeah. I could barely see anything do anything at that one and a half percent to the upside on shore. That market is reopening today. Of course, we’re flat on the Hang Seng index. Just a look at some of the sector groups as well there. So things like property leading the gains on shore to be more specific and you’ll getting things like consumer staples or liquor makers. But here in Hong Kong, mostly some weakness coming through as well. Yep. We’re following a scoop here this morning. Bloomberg has learned that CIC is demoting some senior bankers and cutting their pay in an unusual move to reduce costs. Look at the details now from our reporter Paley. Really? Why are they doing this? Thank you for having me this morning. It’s very basic. You know, it’s very simple. The thinking that if you if I give demotions to some of the underperforming bankers is going to prompt voluntary departures. I mean, it’s quite difficult, more difficult in Hong Kong to lay off some of the people. And this is a smart way to them, to, you know, make some to let some of the people leave without making them redundant, which will result in very hefty fees and severance packages. Right. And this is broadly part of a cost cutting drive, isn’t it? Right. Yes, exactly. As we as we have seen in Hong Kong and also mainland China, you know, a big a big chunk of the business is IPO round that has been going that’s been down quite drastically. So deal making is not is is volume is down. And over the years because of the when the time is booming they over hired a lot of people said now CEOs this is apparently the biggest investment bank in China that hire more than 2000 bankers across the country. Right. So this new scheme actually would help them to get those 10% of the bankers as, like really underperforming. And they would see their title to be demoted. For example, for a managing director, ten, 10% of them would be demoted to exact director. And then there is another 10%, 20 sorry, 20% of the bankers. Those are regarded as underperforming. They will see a small demotion, which means, for example, for an associate to you’ll be demoted to associate one. Hmm. Wow. Yeah. I mean, just talk a little bit more about this specifically. So, I mean, this was once a bank that paid as much as Goldman does, but then they’ve also had to scale back this whole hedonistic lifestyle. So we kind of saw this coming maybe before, too. Right. Yeah. At one point, I think says this is really like, you know, considered as the Goldman Goldman Sachs of China. Right. Like they the bankers, the higher lot of bankers all across China there every deal pretty much not every deal. You know a lot of those deals you know you click on them right And they are also like the worst hits bank in the past few years, right? I mean, not only dealmaking wise, but also politically. I think some of the bankers, you know, especially the junior banks, make some like flat, they post some flashy lifestyle on the social media. Right. And got criticized on social media, became like a huge hit. And then the regulator, I think Beijing was unhappy about it and then, you know, pounded the bank. And some of the bankers say, hey, you know, you guys should really stop, you know, the the hedonistic lifestyle right now. So, you know, get rid of the image of that, the so-called financial elitism. Right. So, you know, if you’re if you’re young, young graduate, you graduate real well graduate from to our better. And then you go to you go to finance work at the SCC. Well, you know, that’s you shouldn’t you should really not take that for granted right Yeah. Yeah. That’s a blessing and an opportunity, isn’t it? There we go. Hailey, thank you so much. Our Bloomberg reported there one of our top read stories, of course, on a c, C demoting senior bankers and cutting their pay to slash their costs. Very briefly, we’re looking at market still Treasury futures. We’re coming off of a really, really good week, by the way. Last week, Thursday and Friday in particular, following the data points and the team from the US. So the biggest rally on a weekly basis for U.S. treasuries this year so far, some weakness coming through, by the way, you know, cash treasuries today because you’ve had a shot. So you’re looking at futures and the futures curve curve on your screens. Dollar is on balance weaker, although you are getting some currencies pushing the benchmark up a little bit. For example, dollar yen, as you can see, we’re back to what, one, just the start of the week or the week or so to one 5050 and dollar trying to 722. Right on the Fed conversation so you have a Chicago Fed president Austan Goolsbee says that the latest jobs report in the US is actually giving them confidence that the economy is not overheating but when it comes. Two possible rate cuts this year. He says he still really needs to see more data confirming that inflation is headed under control. 175. Thousands of very solid report. The sum of the root of our of our frictions here might be there’s a it’s kind of a day traders timetable and there’s an economic timetable for setting monetary policy. Of course, you got to take a longer arc view on inflation, on employment. And we’re just trying to figure out after the excellent dual mandate performance of 2023, let’s call it where inflation fell almost as much as it has fallen on record, and it did so without a recession. How much can we continue that into 2024? We hit a bump for sure at the start of the year on the inflation front. And now everybody’s just got to take a step back and try to figure out, is that a sign that the economy’s overheating or is that a sign of some other thing? The more jobs reports you get like this where they’re solid, but it’s clearly moving back into something that looks like pre-COVID and conventional times, the more confident we can be that the economy’s not overheating. But we just got to we got to just got to watch this. You are one of the I don’t want to use the word dovish, but more optimistic people about the possibility that rates could be cut this year. How do you feel now? We do see this slow down. The ICM numbers show slowdowns spending numbers were lower than anticipated and lower than in the last quarter. Are we setting up to go back to the idea that rate cuts are going to happen this year? I don’t like to committing to in our hands of even for the next meeting, much less when it comes to the fall and going into next year. I will say the I was optimistic in 2023 that we could hit what I was calling the Golden Path, that there were reasons why in an unprecedented way we potentially could get inflation down significantly without having a big recession, which previous to 2023. That really doesn’t happen. We did that in 23 as we’re looking in 24. Like I said, we clearly hit a bump at the start of this year and we’ve just got to get comfort that it’s not a sign of of a re acceleration of the economy. And that was the Chicago Fed president, Austan Goolsbee, speaking with our colleague Mike McCarthy. And take a look at really the big events to watch this week and that Fed pricing repricing is certainly one thing we’re watching very closely as well. Right. Because after that jobs report, you basically are seeing that this is a market that is inching more towards two rate cuts or at least full two rate cuts this year versus the one that was priced in just last week. So certainly September is back into play. That’s when we’re looking at maybe as when we could see the first cut this year. The week ahead is interesting, right? Because you got the RBA and you got the BOJ as well following what we heard from the Fed last week. So the RBA is certainly one interesting one to watch right now given that the first quarter CPI numbers were pretty strong, are we likely to see a bit of, I guess, hawkishness from the RBA this time around? It’s more about hikes I think, or at least the possibility of ruling them out there. Really the prospect of rate cuts right now? Yes, I think most economists think that they’re going to hold. But interestingly enough, to your point, one, because of hot inflation, there’s one economist who will go unnamed. It just on my data point here that actually thinks the RBA moves higher this week. So cash rate, in case you care is 4.25% is where we are. Of course, Bank of England, as you is pointing out. Of course, that’s that’s Thursday, among other things, of course, on deck, as you can see there on your screen. So Thursday is looking particularly busy. So I guess if either you or me are thinking of a day off or calling in, take it or that’s probably it’s work day. All recording. Okay. Anyway, plenty more ahead. This is Bloomberg. Happy Monday. I think one of the biggest issues has really been some of the macro economic headwinds. In other words, high interest rates impacting affordability. But we’re starting to see that moderate. And actually we think you’re starting to see an inflection and an acceleration in growth, which I think you’ll see come through as soon as some of the April figures and certainly into next year, we think driven by regulation in Europe, but also the huge cost compression that’s going on. We know the world’s focused on AI. It’s natural. It’s been a very strong performing sector. But here at BNP, our research is truly believe that there are some incredible opportunities in the EV space, but that need for diversification we see a lot and we’re just gradually and gently expanding into that where we see opportunities to help them. They would like to see we’d like to have stronger relations with with a European provider. Some companies will not do as well as some others. So for the companies that do well, we’ll remain very competitive in terms of cost control, in terms of product function and quality. And value for money. What they will have to do is to adapt to the changing environment. Consolidation. Pressure of Price. War. Keep us posted to keep doing a better job. So our exclusive guests from the BNP Paribas EV and Mobility Conference now underway in Hong Kong, continuing our exclusive coverage of the conference. Let’s get back to our very own Stephen Engle who’s on the ground there, Steve? Yes, our next guest is Ray Tang or Ray, as he likes to be called, founder and CEO of John Lu Technology. He joins us right now. You are an autonomous driving company, but you do a lot of things with advanced assisted driving as well. ADAS, tell me, where are you right now in the evolution of the EV space? We were and you were there as well at the Beijing Auto Show. There’s lots of new technology and a lot of capacity in the space, a lot of great funky new technology loaded into these cars. But how far away are we from full autonomous driving? That’s a key part of your business. I think that we are witnessing a lot of progress in the space for sure, right? A lot of OEMs are now launching into new products, you know, with featuring that with they call it no you know and GP or you know highway and city and navigation driver got in pilot type of product definitely is exciting and then customers are getting more and more you know this kind of features equipped in their new cars. So at DEMO we are working very actively along with the OEM sadly especially are some of our key customers to improve their you know, equipment rates are attach rate for our products are we are doing both level two plus ADAS and also especially in the parking space, they have a lot of advanced features for like parking, you know, technology. And in the meantime, we are also thinking that even though, you know, we are getting a lot of exciting features on the highway and the city, it is still maybe I would say, taking a little more time to evolve to from today to level two to beyond level two, because our open roads, it is hard to get across that level two to level three bedroom due to those technical and non-technical users and their environmental hazards that can surely be accounted for when you get up to level three and level four or beyond. Yeah, there’s a safety issue. There’s liability issue. Exactly. Exactly. So that’s why that in within doing that, we have a vision that we believe that level four could potentially first happen in to close compound because in this code come on you have you know basically your driving speed is lower so you don’t have, you know, fatal accident there in the meantime that you are already pretty much arriving the final destination within walking distance. So you want the driver want to get relieved from the car. So we have been pushing for level of massive production first in the close combo. So we are working with our some of our OEM customers on that. And in the meantime, we are also launching new exciting, you know, business to deploy what we have developed for level five of driving close command into our robot as well so that you can once you go into that close compound, you drive into that part, you can just as we we call it, dropping and go, you drop off, go away, and then the car can pass off. And then our entity robot that we are going to launch will have to do car to have video of it. Hopefully we do have your new mobile charging robots that go around and that is something you’re launching right now. Yes, right. But how competitive is the autonomous driving space in China? There’s so much was made last week when Elon Musk flew in and signed the deal with Baidu essentially to develop or to bring FSD, full self-driving to China. So you have that competitor, but then NIO Expo hallway, everyone else is also doing what you’re doing. So there might be consolidation coming, continue consolidation in the EVs, in the units. But how about in your autonomous driving space? Let me put this. We are, you know, autonomous. I mean, definitely you’ll see a lot of buzz. A lot of big giant guys are trying to push, you know, beyond the, you know, what you see on a few on the road. But but if you do a reality check, the overall attach rate in the overall, you know, space market space is still relatively new and it’s only right now happening on the high end premium cars as of today. And people are trying to drive it down. But then the cost of this technology is huge. So we have in a certain way that our own strategy to compete in this current situation is that we are working with our OEM customers and then help them to, you know, to improve their attach to the. But we are focusing on close common parking and then helping them to build their own capability into high level, you know, autonomous driving. But in the meantime, we are focusing on becoming. A ecosystem partner for them in a close compound. And I guess you’re you’re a kind of legacy car maker, agnostic. He’ll sell your Jackson to whomever it suits, right? Yes. But you do have your key cornerstone. Investors will like Changan as well as sell me. Yeah, sell me. Had a lot of buzz at the auto show launching their SUV seven They kind of loaded with technology and I hear by August they’re going to have autonomous driving capabilities. Have you signed a deal with your main cornerstone investor? Well, you know, both are very important, You know, investors and and the hype is I’ve been supporting us a lot. And then like like I said, you know, for and we are basically working with them on their next, you know, platform, you know, you know, products. So that essentially we think that a lot of new China and cars will be equipped with our unified driving our parking system you know rolling out very soon starting from the middle of this year. Their next platform, we expect to see a lot of, you know, you know, installation where as regarding to show me I think that we’ve been constantly discussing their first one right now is our you know, is our in-house design. But then moving forward in our future, you know, models, we be, you know, we want to work with them. Yeah. I have to ask you, I know we’re running out of time, but we hear that you have filed for an IPO here in Hong Kong. Less are in March. When do you see that possibly happening and how much do you need to raise? I’m sorry, an IPO listing here in Hong Kong. Yeah, well, I can’t talk too much about that because this is supposed to be a non talking topic. Okay. You’re not supposed to get into those speculations out there. But again, you talked about the need for a lot of costs for R&D. It’s an expensive process. It is. It is. Everybody is doing that. Okay. Thanks so much. I appreciate your time. And we’ll be looking forward to hearing more from John. Okay. Thanks so much. All right, back to you guys. More from the VIP every EMOBILITY conference here. Yep, absolutely. Almost. We almost got some some use there. Almost not quite at that point. Okay. As Steve was just pointing out. Yeah. We have more coming up. They’re part of the forum. Of course, we’ll be speaking with the head of the Mahindra Mahindra Automotive Division, of course, exclusively. I should also note there we go at those times on your screen. So that’s in about 40 minutes or so. Plenty more ahead. This is Bloomberg. You’re watching the China show. Some top global stories we’re tracking at this point. Panama’s ex-security minister, Jose Molina, has been declared the winner of the country’s presidential elections. Now, Molina was the stand in candidate for disqualified ex-president Ricardo Martinelli, and Molina will take office in July. That’s after pledging to revive Panama’s once stellar economy and a crackdown on drug cartels and also shut down migration routes into the United States. Now, Israel has closed a humanitarian crossing into Gaza after a rocket attack by Hamas. Israel’s military says three of its soldiers were killed and three others were seriously injured. The armed wing of Hamas claimed responsibility for the attack on Kerem Shalom. It came as weekend talks in Egypt on a potential truce ended inconclusively. And turning to the China brief now, a look at what’s making headlines in national newspapers. And not surprisingly, there’s been growing coverage of President Bush’s visit to France in Chinese state media, Xinhua quoted. She is saying he hopes China and France will light up their way forward with a torch of history for a brighter future. Meanwhile, the China Daily says she’s visit will solidify robust ties while better managing differences. The Global Times also wrote an interesting editorial touting how China and France could complement each other economically. They highlighted Beijing’s competitive advance in sectors such as manufacturing and electronics, while noting France excels in industries including aerospace and nuclear energy. The piece says that provides both countries with trade and investment opportunities. So there’s a bit of a glow and how they’re really covering this right now in the areas of cooperation. But no doubt, certainly these will still be the sticking points, right? So there are areas where they can complement each other. But certainly in the tariffs that we were having, the conversation earlier will dominate. We’ll see what happens with that story. Now, over in Chinese financial papers, the Shanghai Securities News citing several analysts who are bullish on these markets and on these stocks, saying the major benchmarks are set to rise even further this month after hitting their year to date highs in April. And that’s actually due to factors including some upbeat data in on the economy and also the looser monetary policies overseas. Now, the China Securities Journal, meanwhile, is reporting that more a-share firms have set or are set for delistings as policy makers strengthen oversight of zombie companies and bad actors in this market. The report estimates at least 24 will be delisted this year, redirecting resources to higher quality businesses. Speaking of markets, we’re better off by 1.6%. A 30 6661. That should take us back to the highest levels here in the CSI 300 going back to about October of last year. So that’s about about a six month high, high speed really in focus. There’s a plan and hiking tariffs there on price hikes. So we’re looking at ticket prices will be adjusted effective June 15th. And you’re seeing some of these well, some of the companies in that ecosystem rallying substantially right onto property. And one of the certainly sectors that are enjoying the tailwinds of policy and news flow and as you can see, substantial gains still. And by the way, these are some of the big gains are actually in Hong Kong, which have been rallying so far. You are getting those are movement on like kind of fortune land, which is up 3.3% in that market. And also liquor stocks in focus. I can’t seem to figure out why, but maybe on the back of spending, who knows? But this is really one of the outperformers today here. Yeah, I mean, it doesn’t have anything to do with I’m suspect festivities she she in France maybe. I don’t know. I mean there’s there’s all talk Let’s talk about what this means if there’s this probe on cognac and that that’s true there is a I don’t know if there might be some something booze related in this trip as well. Yeah. We take a look at what it comes to your benchmarks here this morning. So Azure continue to see that catch up here this morning. And Hong Kong take a step back, in fact, at least from a flat now and the Hang Seng. So we’re paring back some of the initial losses here, but we’re seeing gains of 1.6% or more on the Shanghai Composite and CSI 300, I should say, right now, showing a positive up some 1% lower. Small caps are also catching a bit here this morning. And China watching very closely what goes on the onshore right here, continue to see those gains and that catch up in the currency as well. That’s it for us here on the Chinese capital markets. Asia is next. Stay with us.
“Bloomberg: The China Show” is your definitive source for news and analysis on the world’s second-biggest economy. From politics and policy to tech and trends, Yvonne Man and David Ingles give global investors unique insight, delivering in-depth discussions with the newsmakers who matter.
00:00:00 Bloomberg: The China Show opens
00:00:15 Onshore China stocks, yuan primed for gains
00:01:22 US stock bulls back in charge as jobs data fuel rate cut bets
00:15:05 Xi begins Europe tour in Paris
00:25:49 MSCI China still attractively priced relative to history, says Goldman Sachs’s Sunil Koul
00:34:40 Exclusive: BNP Paribas Head of Global Automotive Research Stuart Pearson
00:45:26 What’s moving Asian markets today
00:54:48 Roundtable: China’s Xi visits Europe
01:10:57 China’s property revival hinges on home sales
01:11:27 Bloomberg scoop: CICC said to be demoting senior bankers to cut costs
01:11:27 Exclusive: Chicago Fed President Austan Goolsbee
01:21:44 Exclusive: Zongmu Technology Founder & CEO Rui Tang
01:29:47 The China Brief: Xi in France
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5 Comments
Real estate downturn, fewer babies, consumers not spending, less investment, fewer exports. . . These arguments have been used in the news over the past year to talk about the near collapse of China's economy. . . What happened to the rebound? 😂
Surprising considering the dangerous products they export, Tofu time anyone ?.
Exactly Chinese never complained abt Europe overcapacity and export to China😂 Prof Powell does have some unbiased views
this recent china markets rally is just the beginning of a multi year bull run. Load up as much as you can while its still at decades low price.
Electric scooters the ultimate bike upgrade