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This is DAYBREAK. Asia. We’re counting down to Asia’s major market opens. Well, of course, it is the day after the Vijay the day before the Fed poll. And of course, we’re still sort of processing what the implications of
That, what is widely seen as a very dovish move from the Bank of Japan and whether we’ll see a much bigger move when it comes to Japanese assets, depending on the the narrative and the positioning of the DOT plot from the Fed. Yeah, we might not see a lot of movement
Today because of course Japanese markets closed, but we will have futures trading. But yeah, it’s all down to the Fed and hours in it. What we see happen from here is some other central bank decisions as well that we’re going to hear from the Bank
Of Indonesia. Also going to be staying on hold, though. So perhaps much less interesting. Yes, we did see look full steam ahead when it comes to the Japan equity rally. And take a look at whether that’s going to fade through for another adjacent
Market that is hoping for the same sort of narrative to take hold right with the belly up proposition in Korea. We are looking like a down day when it comes to the start of trading, when it comes to South Korean equities, of course, be continuing to extend that decline.
We’re down just about 1.1% there. We did see that weakness in the previous session as we saw a lot of the tech related and chip related stocks showing a little bit more of a vulnerability to that in the Kazakh has caused stock, I should say, is down by about 3/10 of 1%.
We’ll be watching the finance sector in particular. We’ve seen financial institutions pledging to provide over $313 billion through to the end of the decade when it comes to projects aimed at climate related and green funds. So some of those adjacent stocks could
Move to the positive today. We’re also watching some of these firms that may be impacted with the government, the finance minister, I should say, saying that they’ll be raising taxes for any firms that will be shown to be boosting shareholder returns are really part of this enhancement of
Return to shareholders to try and close that value gap hole for South Korean equities, really hoping to see similar types of reforms that we’ve seen and drive the gains in Japan. We’ve been trading here in Australia for a little over an hour now. Kind of a mixed picture here.
We are seeing financials performing pretty well, materials getting up off the canvas at the moment. One of the best performing sectors in Australia right now, though, is energy. That’s better. By 9/10 of 1%, we’ve got a Brent crude opening a little bit softer though, 8712. We did hear earlier from the Carlyle
Group, Steph Curry, He sees oil rising well above that. If the Fed cuts in June as expected. And of course we’re going to learn more about that a little bit later on. Take a look at Aussie ten year. Well, it’s found a little bit of support there just above the 4% level.
And this was after we had the RBA, of course, staying on hold as expected, keeping that cash rate at 4.35% yesterday. Let’s take a look at how we’re tracking in terms of Treasury futures as well. As we mentioned, there is no trade in Japan today.
However, futures are trading and we’ve got Treasury futures looking like this just moving a little bit higher as we count down to that Fed decision. Of course, we’re not expecting any movement today, but we will get a new
Dot plot and that’s going to give us an idea of where we’re heading, going ahead Heidi. And let’s get a better idea of how the markets are sort of figuring all this out. Audrey goes ahead of asset allocation. It said it Chartered Wealth Management
And she joins us now. And Audrey, did I guess the tenor of what we heard from Governor Awada yesterday, the Bank of Japan decision and the sort of repricing of expectations on what comes next, has that changed your view of Japanese risk assets or not? Really?
I think it struck a rather balanced tone, right, in terms of having this wall height for the time being normalise policy, but at the same time of striving to keep both policies as obvious as possible. But of course, keeping it open for another potential rate hike is price
Pressure with a spike up, you know, more than expected to the all of us monetary balance to fall one. And if you look at year end action, the reaction has been quite muted. I think you said of appreciation that a lot of people were expecting on the street.
I think we can actually modestly offer his announcements. So if we assume that sort of the low hanging fruit with the rally that’s taken us up to date has already been taken up, what are the further cut of the next leg opportunities that you see in Japan?
I think, for one, the ongoing corporate reforms that we are seeing in corporates in Japan is ongoing. And second of all, we are also continuing to see flaws, both from a foreign investor perspective, I suppose from perspective I can think of quite robust.
So that should continue to support the market in the near term and longer term. Actually, we do have a constructive view. Where comes the Japanese equities because the emergence from deflation of inflation will likely allow corporates to have better pricing power and hence more higher revenue and potentially profitability as well.
And this is something that we are also tracking quite closely in terms of the positive earnings revision that we’ve been seeing in Japanese corporate so far. So we do expect to continue to support Japanese equities. I know that we may see some bleeding
Short term because the market has done quite well yet with the solutions. Some short term consolidation from to four is entirely possible. And to me this may not be a bad thing for the market long term. But in terms of Japanese equities, though, we do have the situation where
The BOJ is now stepping away from ETF purchases and through that it’s holding about 7% of Japan’s stock market right now. How do we how does this all get unwound? What are the risks here? So the build you have will have to have a signal that they
Intend to take a pause in terms of the ETF purchases. So the market support, for that matter, we will step away at least from a price sensitive buyer. But I think more importantly is how they intend to probably look at these holdings.
I think for now, I think is something that the body will have to manage very, very carefully. In terms of the messaging, I think Penelope has not mentioned anything about the ETF allocations for now. By the same time, I think even if they were to do that subsequently a few
Forces, I think years down the road we should expect receipt of domestic as well as foreign investors picking up some of that slack for that matter, because domestically they’ve also made it easier to provide a tax incentive for domestic investors who actually invest in Japanese equities.
And even with the ongoing recovery in consumption as well happening in Japan. Hopefully that will feed into a fostered, positive, virtuous cycle where investors domestically, at the very least, will will feel greater confidence to invest locally in Japan because of the export actually creating their cash flows overseas to invest.
I think from a foreign investors perspective, I think that flows has been quite constructive because if you look at developed markets yesterday, one of the cheapest out there compared to the US for that matter, and fundamentals are also improving away from Japan.
I want to take a look at Hong Kong if we can. We have the Hang Seng sort of testing its 100 day moving average at the moment. What’s your outlook? Do we break higher or lower from here? I think we have seen a sort of a base
Forming for for the time being because of the policy that the Chinese authorities have introduced over the past few months. But having said that, the overall backdrop for Chinese equities remain quite lackluster, I would say. So from an economic perspective, I think
The way to characterize it would be one of stability in asset prices. I think we do need a bit more in terms of policy support from from the government to entice investors back to the market, which has been seeing a lot of selling pressure so far over the last three years.
I mean, with the ongoing recovery that we’re seeing elsewhere, maybe events in Japan, US and even Europe for that matter, I think Asia as a region for now us that lost the. But we’ll see if the rally continues. I think then there will be more of a relative sort of valuation being
Position by investors. And if the Fed cuts, as we expect sometime in June and second half of the year, then we may see more interest coming back to the emerging markets as we Asia. Now, Andre, how enthusiastic are you about Korean equities?
This is a value out proposition. The effort to try and close the discount and the value gap. But are you convinced that this is going to take hold? I think it is all the right steps in the right direction as well. So I think we are quite constructive on
It. And at the time they are also quite exposed to the ongoing momentum that we’ve seen for Sweden as well. Exports have also been improving as well. So we’ll see whether that translate more slowly into earnings positive upside and positive earnings revision.
But it is one market that looks very, very interesting given exposure to tech as well as cheap valuations that what we think of vis a vis the other Asian markets. Audrey, always great to chat with you. Audrey, go. Head of asset allocation at Standard
Chartered Wealth Management. Let’s take a look at some of the movers when it comes to the Korean and Australia equity sessions. We’re just about 10 minutes or so into the start of trading in Korea. Of course, defense stocks are in focus. We have reports that Kim Jong un
Supervised a test of a hypersonic missile engine. That’s according to reporting from CNA. This is a solid field engine for a new type of intermediate range hypersonic missile. And that reporting suggests that the test was successful. So we’re watching some of those defense stocks that are trading at the moment.
We’re also watching the moves when it comes to Aussie miners and some of those materials and energy names as well. On the oil front, Jeff Currie from Carlisle say that he sees rate cuts supporting commodities and that the upside here is significant. They are set to rise well above the
Current consensus view, which is between 70 to $90 a barrel. If if the Fed cuts interest rates in the coming months, according to Jeff Carr, of course, formerly of Goldman Sachs, he says he wants to be long oil and the rest of the commodity complex in this environment.
Speaking to Bloomberg TV, we’re also watching iron ore as well. It has been quite a rollercoaster ride. We’ve seen iron ore extending that rebound to back above $100, but we are seeing a little bit more weakness potentially to come. It has been volatile trading over the
Past few days, but for the minute we are seeing the iron ore and more broadly mining plays in Australia seeing some upside. Fortescue actually up by almost 2% though. All right. Still to come, we’re going to talk a bit more about the Bank of Japan, what’s coming up next after Tuesday’s historic
Mike Rogers investment adviser shares their insights. That’s coming up later this hour. First, though, we will hear exclusively from the Philippine president about his ambitious growth goals and why he thinks the country is still not ready for a rate cut. This is Bloomberg. Philippine President Ferdinand Marcos Junior says he’s not seeking
Confrontation with China, even as Manila works harder to assert its territorial claims in disputed waters. He spoke exclusively to Bloomberg’s Haslinda Amin, who joins us now from Manila and has it was a really elucidating conversation. Well, that’s right. As you know, the South China Sea is one of the biggest challenges for the
Philippines of late. And that’s because there’s been increasing tensions in the South China Sea from China in particular. That aggressive nature that we have seen. We’ve seen how Chinese ships have rammed into Jap and into Philippine ships causing damage as well as injuries to the crew.
And that is the reason, according to Marcos, that they’ve had to respond in a bigger way. It is about defending national sovereignty. It is not about provoking China. In fact, he says he wants relations to go back to an even keel. He does not want to, in his words, poke the bear.
So you get a sense that he wants temperatures to be dialed down. He’s keeping communications open, he says, with China because he wants to do exactly that. He wants a peaceful way of dealing with the situation in the South China Sea now.
I did ask him what it would take for him to perhaps get the U.S. involved in countering all the pressures from China. And he says, you know what, It would take an existential threat to the country. So it would take a lot.
The bar is really high for the Philippines to get the US involved in this. And you know what? He also said you can’t always turn to Big Brother for help. So there you go. Pretty clear that he is more responsible. Isn’t wanting to get the US involved.
Or has in terms of domestic policies. We’ve got an economy that’s absolutely galloping at the in the Philippines. Looks like it’s going to hit that seven and a half percent growth rate. Target is doing it with some of the highest interest rates in the region as well.
What’s the rest of this year hold? Oh, well, that’s great news, right? This is one of the strongest growing economies in Asia, and it is expected to continue to do so. You talked about that seven and a half
Percent growth that is likely for the year and that is the higher end of the target that they have for 2024. It is between six and a half to seven and a half percent, as you said. A lot of things going for the country,
Lots of investment coming in. A lot of growth drivers. Take a listen to what he had to say. Much of that much of the policies that we that we’ve taken on are agreed to do to spur growth. That’s part of the most that’s the most important part, because it is only
Growth that will pull us out of this, the morass that was left after the pandemic. Even in terms of interest, even in terms of debt ratios, even in terms of unemployment, in terms of inflation, it really is growth. That seems to be the key.
Is it sustainable if we continue down this road, if we defend all of the things that we are doing? I believe it is. I believe it is. If we are also agile in terms of responding to the shocks that come up, come up
From other, from and from the outside, to put it that way in shocks that we cannot control or can have very little influence over, if any. So that’s that will be the key. It’s a six year term. Do you think you can get to 8% within the six years that you’re in office?
Sure. Why not? You know, there’s no we plan we always plan for the ideal. We don’t plan for a mediocre result. We plan for a very good result. And as I said, we just have to adjust along the way as we as we
Continue to to transform the economy. But, yes, I think it is I think it is doable. Central banks are currently in focus because of interest rates in the Philippines. Rates are at, I think, 17 year highs. How much room is there for you to cut
Rates or under the BSP to cut rates? We’re still battling inflation. Inflation is still our biggest problem. And when you when you separate core inflation to inflation, that involves agri product, for example, you can see that the core inflation, we’re doing rather well in terms of
Controlling it. But again, these these shocks that keep coming in, that’s still not quite the time to cut rates because inflation is still sticking more perhaps. We look at it almost every every week to see if it’s time to do to bring down the
Rates. We are not yet there and the peso at a three month high. Are you comfortable? I’m the person who at three months because it’s an indication of the strength of the economy. There is a downside to it for the Philippines because of our overseas workers where the dollar is worth a
Little less than it normally would be. But I see it as an affirmation that the economy has grown stronger. And that is that’s one of those obvious tests. And the dollar, I mean, of course, because it’s a relative, it’s a relative measure, the dollar has not depreciated. So if we are
If the value of the person is increasing, then that is a good indication that, again, the economy has gained strength. So optimism in the Philippine economy. Worth noting as well that part of that growth drivers could be that transition to clean energy.
Remember that its sovereign fund, Maharlika Fund, has been getting a lot of investments for green energy into the country, projects which could span several years, and that could drive growth as well Heidi. All right, Thanks very much. Shares. And, you know, as has Linda was talking about there, the Philippines is also
Right in the thick of it when it comes to the disputes in the South China Sea. And that’s something that doubtless is going to come up when Penny Wong and Wang Yi, the Chinese foreign minister meeting today in Canberra, going to discuss this is, I think, the sixth time that they’ve met.
Taking a look at the Ministry of Finance as translated statement, very positive for continuously increasing trust, dispelling doubts. But still a lot of those issues remain, don’t they? The South China Sea problem hasn’t gone anywhere. There’s China’s courtship of those Pacific island nations as well.
So there’s still plenty for these two had thorny issues here for them to remember. Yeah, and we kind of know some of the deliverables and the sort of last remaining tariffs on Australian goods. Obviously, one will be one of them. And we know that Wang Yi, after he wraps
Up in Canberra, we are getting that press conference. He will not be partaking in that. He will be, however, partaking in a meeting with the former Prime minister Paul Keating, much I assume, to the ire of the current government, because I know, as we know Paul Keating has been
Pretty critical of the way that the Albanese Government and even previous governments have approached the relationship with Beijing, but also questioning the decisions around orcas. Right. And questioning, you know, where sort of I guess the best interests for Australia should really lie.
Yeah, it’s going to be an interesting meeting and we await the statement at the end of it as well. Some of the rhetoric in the channel that comes out of that. Just want to get you across what with something we’re looking at on the terminal right now as the Japanese yen
Is continuing to weaken. One 5125 at the moment, if you take a look at it versus the euro one 6428. So that weakness really the yen falling to its lowest level there on future Bank of Japan policy bets. Of course, the normalization of rates in Japan came as no surprise.
But some of these currency movements are perhaps a little bit surprising. Plenty more to come on DAYBREAK. Asia, this is Bloomberg. Bank of America’s CEO, Brian Moynihan, says it’ll take time for the banking industry to work through issues with commercial real estate loans after a New
York regional lender alarmed investors with its exposure in the space. He told us exclusively how the travel sector is in a slow burn industry, is well capitalized, has good liquidity. Believe me, from last year to this year, people shored up their liquidity across industry. Commercial real estate is a slow burn.
It’s a classic burn. In other words, if you go back in the late eighties and early nineties, we had a rolling commercial real estate recession. And so there will be difficulties and we work in that. But, you know, the the trading attitude,
Which is these assets got to move at a price tomorrow morning isn’t the way the banking system works. And frankly that’s the value of the banking system. We work with clients, we figure out what the you know, you take a building and figure out what the ultimate end state
Rental rolls will provide. You refinanced it. Sometimes that wipes out the equity, sometimes it doesn’t work. Careful in how we underwrite as an industry. You know, the top 30 banks go through the stress test, which has a a in effect. It says, wait a second, if you’re
Underwriting outs in a bad way, that will you have to put up the capital, prove it right before you even get the chance to prove your right. So in other words, your capital requirements reflect your underwriting today, even though recession may never come and it reflects your underwriting
Commitments under scenario where commercial real estate dropped by 30 or 40% instantaneously, instantaneously. So there’s a effect on that on the industry, which is much more conservative building and much more middle of the road building, which is probably slowed down the capital
Provision to some of these companies. But on the other hand, is not a bad thing when you get to this point. So we feel very good. Does that mean banks might fail? There’s been thousands of banks have failed across the last 30, 40 years. That’s what happens.
Business models change. But on the other hand, the the quality of the banking system is strong. That’s Bank of America CEO Brian Moynihan speaking exclusively to Bloomberg Surveillance. Blackstone Mortgage Trust has responded to fresh concerns raised by its short seller Carson BLOCK. A trust spokesman says the Blackstone
Vehicle increased liquidity over the course of 2023 to near record levels and reduced leverage while maintaining strong earnings blocks. Muddy Waters revealed a short position in the Trust last year and says property market woes have since got worse. Yeah, actually we’re more bearish on
Blackstone Mortgage trust than we were when we announced the short in December of last year. And the reason for that is initially we were really only focused on office, but we’ve come to the view that a lot of multifamily real estate is probably quite troubled. All right. Here’s some of the latest corporate
Stories that we’re following. The New York Times says Saudi Arabia is planning a massive push into II. Sources say the kingdom is considering a fund of about $40 billion, which would make it among the biggest players in the sector. Representatives of the Saudi public
Investment funds have also reportedly discussed a potential partnership with Andreessen Horowitz and other financiers. Shami says it wants its first electric car, the issue seven, to become one of China’s three best selling luxury EV models. President Lu waving a sign of the internal target as the company prepares
To begin sales of the issue seven across China next week. Schamis move into EVs will test its technological capabilities amid a price war and sagging sales growth. Take a look at how futures in Europe opening up. Of course, it is a holiday kind of scene
Session that we’re getting any kind of carry through from here in Asia with Japan of today after the break. But we have seen European futures looking a little bit softer as we get into the start of trading there. The previous session, we did see it advance just ticking up and snapping
That three session losing streak, but not a great deal of conviction, of course, ahead of still quite significant event risk with the Fed later on this week as well. We’ve also seen a lot of those bets compiling when it comes to the pound, rallying to the highest since 2007 ahead
Of the. This is what, the third consecutive week of that positioning, according to CFTC data for the pound. For the pound. So we could potentially see a bit of a risk of sterling pull back if the risk of cuts is really being flagged by the bureau. German DAX futures looking pretty flat
At the moment, watching some of those key energy stocks in particular as we continue to see that climb in oil and also some flattering commentary on oil and other commodities from Jeff Currie. This is Bloomberg. To look at the archive. Well, there are at today’s meeting we
Took a thorough look at the recent economic, financial and price developments, particularly in wages and prices. The board members determined that recent data and information from hearings, including the current results of spring wage negotiations, have confirmed the strengthening of the virtuous cycle between wages and prices.
Therefore, the bank has decided to review its large scale monetary easing programme this time. It was a break overnight because we’re aware that speaking after raising interest rates for the first time since 2007 and of course, perhaps after all that anticipation, a well deserved
Holiday, public holiday. When it comes to trading in Tokyo today, but we do have trading index futures as well as, of course, continuing to watch the moves that we see in the yen. Futures are pointing to the upside pretty firmly, 1.4% that higher. And this, of course, as we continue to
See just the extended moves in the yen falling to the lowest since 2008 against the euro after we really saw signalling that the BOJ path is being seen as gradual tightening such dovish a tightening anticipation going into the end of the year. So that really saw what was really the
Reversal of the fears for the currency. Talking about the cost base as we’re seeing that up by about 9/10 of 1%. So reversing some of the weakness that we saw earlier. And in fact, financials are doing very well in that session. We had a number of announcements from
The government, including the announcement that they would ease taxes for firms that are aimed at boosting shareholder returns. Following up on that pledge to improve valuations and boost the local equity market. So the government set to reduce corporate taxes for a portion of increased shareholder returns.
We’re seeing some broad based reaction to that as well. Also watching the latest when it comes to the doctor’s walk out as well, We’re expecting to see more of those allocations being announced today, as well as some pledges when it comes to green stocks.
We’ll see them reacting today as well. The finance sector promising about $313 billion in green funding. We’re also seeing a little bit of upside here when it comes to trading in Sydney. But Paul, of course, we’re still very firmly focused on how that potentially reacts.
We would need to get a super, super dovish note out of the Fed to see any kind of reversal. I think at these levels the the yen been losing ground all day and in fact is slumped to its lowest levels in 2024 so
Far after the Bank of Japan ended the world’s last negative interest rate regime. Currency traders focusing on the gap that remains between Japanese and US interest rates. And investors also expect further rate increases to be gradual. Building the case for Japanese equities to continue their advance course.
They’re not advancing today. It’s a holiday. But let’s talk to Ed Rogers, CEO and CIO at Rogers Investment Advisors. So when you look at those yen movements weaker again, does that suggest to you that the market thinks there’s one and done from the BOJ or is there more to
Come and if so, when and how much the recall hit? Yes, clearly the market is telling us what they think with the with the yen moves a little bit surprising, frankly I sort of expected the yen would appreciate a bit. But I think this is also very much a
Reflection of what people are interpreting as far as the Fed move at the end of this week. Yeah, that’s definitely the next big macro event here. But but just in terms of Japan, the BOJ seems now pretty confident in Japan’s recovery that the fight against
Inflation is going well. How confident are you feeling about those things? Right. Look, I think this is a very positive development for Japan. It is certainly a sign that the BOJ and I think many other actors here feel that we’re getting a return to normalcy, if you will.
So less need for the hand of the government, by the way, BOJ be providing free capital and that’s a very, very positive sign. This is a very, very good sign, I think, overall for the Japanese equities market and the Japanese economy in general, that there now that the BOJ’s
Comfortable will make this move. So you’ve got really that stand out performance when it comes to wage negotiations. But if you continue to have such a weak local currency, does that not negate some of the effect when it comes to household confidence and domestic asset valuations? That’s a good question.
Again, I think we’re all a little bit surprised at the dollar and move today to 151. So in an overall sense, yes, I do agree with your comments, but but I’ll stand by what I started off saying, which is this is overall a positive indication as far as where Japan is.
And so, look, they’ve started the move. They now have much more flexibility in a way to sort of put the kettle on the. Foot on the pedal, on the on the brakes, on the accelerator. Which one are you going to do? It’s a good thing now that the market
Gets to wonder about that a little bit and wonder about how the Japanese interest rate policies will. Well, they’ll be a little bit more volatility, and I think that’s a good thing, frankly. And that will well will play out over time as we see the situation in United
States. And I believe China is also very important to understand where a dollar yen in the overall Japanese economy is going. China is a huge factor in all this. And that factor is not just economic side. You’re talking about the geopolitical realities of the region.
And obviously that may very well change after November this year, too. So in the short term, what you’d say is if we’re getting back to a true cost of capital model for the Japanese economy, you’ll have small and medium sized enterprises and even some large
Companies that we’ll see what what what the new interest rate environment looks like, how they perform. But in a very, very broad sense, the overall Japanese economy. China is the largest trading partner since 2004, but the GOP political realities of living in a kind of a we
Live in a tough neighborhood, you know, North Korea, China, the geopolitical realities of it since 2022 having changed indicate that certain parts of the Japanese economy will respond differently now than they did previously. When when China has ups and downs and when the United States has ups and downs
With China. It’s still a lot of work for the Bank of Japan. There is there are enormous balance sheets. We’ve got a chart on the Bloomberg terminal that illustrates that. There’s also the question of what it does with this great big pile of ETFs. I mean, how do you unwind both of these
Positions without destabilizing markets? Another fantastic question that we’ve all been pondering for the last ten years. My, my, my basic view is bonds are a little bit easier to deal with if you can just sort of hold bonds until they expiring, so be it.
Unwinding the ETF positions which have been which are substantial and have provided significant market support to Japanese equities. That’s a little bit more challenging. My gut is at the end of the day they’re going to find some form of government giveaway. Maybe this becomes part of your pension fund distributions.
This becomes part of your social welfare program. And they could in fact have a distribution in kind at some point to all of Japanese citizens and say, you’re all part of the Japanese economy now you’re all going to benefit. And that would be a more than likely the
Least disruptive way to solve the problem. Yeah, and there’s an interesting question around how Japanese citizens respond to this as well, because there was a huge pool of household savings and as Heidi mentioned earlier, a very, very weak yen with the eponymous Mrs.
Watanabe, very tempted to just keep some of that money at home and earn some interest at last, which is what she’s been doing for the last ten years. The account programs have not done what we’ve what the government has wanted them to do.
It’s not provided a similar to the 4001k vehicles in the United States where you provide tax free, frictionless trading and also when people buy more equities. It simply hasn’t happened in Japan. I think it’s about $0.63 of every dollar deposited in these accounts remains in cash.
So they’re going to they’re going to continue to experiment, I believe, find sort of hope. Ms.. Watanabe Find ways to help Ms.. Watanabe in getting more market exposure. They have not found the right cocktail. They have not found the right party juice, as it were, to serve to make that
An appealing drink for Mrs. Watson, albeit not yet anyway. Ed Rogers, CEO and CEO of Rogers Investment Advisors. Always great to have you with us. Coming up, though, we’ll be talking about the biggest opportunities for investors in China’s credit markets. And as international head of corporate finance shares their insights next.
This is Bloomberg. The US is running a 6% fiscal deficit. The largest deficit ever ran history in a peacetime non recessionary environment. Think about this. If they do it in a recession, it’s because of providing, let’s say, unemployment insurance. They’re doing it full employment, red hot economy, and they’re turbocharging
An environment that is already being stressed. That’s why Bitcoin and commodities are the two best performing asset classes out there. It’s called Chief Strategy Officer of Energy Pathways, Jeff Curry, speaking exclusively with Bloomberg on the Commodity rally. And if we take a look at some of those
Commodities right now, we’ve got Brent that’s a little bit softer, but still holding its ground, really 87.19 a barrel. Jeff Currie says he sees oil rising well above the consensus of 70 to 90 a barrel if the Fed goes ahead and cuts in June, as the expectation seems to be.
Europe rebuilding stockpiles, China’s move to support manufacturing. That’s what’s behind that call. They love not extending to iron ore, though, continuing its slide that we’ve seen so far in 2024, just above $105 a tonne at the moment. Notwithstanding that, though, we’re seeing some of Australia’s big iron ore names gaining today.
We’ve got Fortescue Metals up by nearly 2% Heidi. Yeah, some of the winners there has been a pretty volatile session there. Take a look at one sector that’s performing quite well in the Korean section in Seoul. We are seeing financials really leading
The gains there and in fact by as high as a 4% rally when it comes to the KB Financial and some of those associated names, we have had really just a flurry of announcements when it comes to what could contribute to this value up
Program at South Korea. And in fact, the finance ministry telling investors and bankers in a meeting that the tax burden for companies that are taking steps to enhance returns for shareholders will be eased. This is part of the broader pledge to improve valuations and boost the local stock market to reduce the so-called
Korea discount as being really a key priority for financial and market regulators. In South Korea, the government set to reduce corporate taxes for a portion of increased shareholder returns, according to the Finance Ministry. So a lot of these incentives and tax benefits are really coming through the corporate value up program.
We see some of that reaction in the session in Seoul today. Well, China’s property debt crisis has entered a new stage as tensions increasingly shift to developers, court battles with creditors over debt restructuring plans and the once unthinkable consequence of liquidation orders. Let’s get some insight into what happens
Next. Bloomberg is hosting us and we’ll go to China Credit Forum, which kicks off in just a few minutes time. Let’s get over to Hong Kong. Annabel is standing by with our next guest, who is a speaker at the event, Bo. Thanks, Heidi. Yeah, really excited for this event
Kicking off in about 15 minutes, but now going to be broadcast live on Bloomberg Television as well. So you can stay glued to your screens for that one. But let’s bring in one of the speakers from today, and that’s John Cochrane. He’s head of Corporate Finance
International at ANZ. And John, you’re going to be speaking to us today about the the opportunities and the future landscape as well for what’s happening in China’s credit market. But your loans, man, and you know a lot about this market, so let’s just kick it off with the present day.
What are we seeing and where are we at in the credit cycle? You know, it’s been a relatively quiet couple of years in China, mostly because the interest rates in US dollars have been much higher than in renminbi interest rates.
So as a result of that, their focus has been recently on renminbi loans. I think that’s going to change a little bit as interest rates start to come down in the second half of this year. And also one of the interesting
Developments I think that we’re going to see a lot of is the offshore renminbi market. It’s still pretty small at the moment, but I think that’s going to be something that’s going to take off later in the year. And a lot of Hong Kong borrowers are
Going to take access to to that renminbi market, yet want to really get into the details of that one offshore yuan lending who who are the sort of issuers and who’s also going to take out those loans. Yeah, at the moment there’s about 240 billion USD of issuance last year in the
Loan market in China, of which just under 40 billion of that was was offshore. Most of that offshore market was in US dollars I think 65% of that and about another 25% in Hong Kong dollars. The renminbi offshore market, the card market, as we call it, represented about
One and a half percent of that market. So it has an awful lot of room to grow. And already this year, we’ve seen a very interesting deal come to the market in respect of a take private for a tissue manufacturer called Vinda, listed here
In Hong Kong, and that has a 15 billion renminbi financing attached to it. The first time we’ve seen this sort of financing use for offshore companies. And even particularly more interesting than that is the fact that this is a take private by an Indonesian company. So very interesting to see people.
Or with no direct connection. Borrowing in the renminbi market offshore. Yeah, because I think that there’s sort of geopolitical overhangs really here in the Hong Kong market. So would that be something that would sort of dent the appeal perhaps, or what are you sort of expecting?
Yeah, it’s a bit of a it’s a bit of a mixed message, I think. The loan market in China is coming off a fairly low base. So of course geopolitical considerations are always going to be relevant. But the market’s been quiet largely as a result of some of the restrictions
During the COVID times. So that’s going to rebound a bit. And I think a lot of borrowers have been delaying accessing the market just because they do feel that interest rates will come down in the third or fourth quarter. You know, business confidence is still a
Little bit shaky and I think many people feel that it’s a good idea to defer CapEx as long as they can. And the M&A market is still very quiet, if you look specifically at China. I think the M&A market was about 20% down last year, which was coming from an extremely low base.
And this year it’s been extremely quiet in the first couple of months. Yeah, I think that really points to credit demand because we haven’t seen it’s been so weak amongst corporates and also households alike. So when are you expecting that credit expansion then to pick up?
Yeah, I think it’ll probably be third or fourth quarter, perhaps fourth quarter more likely because it takes a little while for the interest rate reductions whenever they happen to flow through. But we are seeing some bright spots. I mean, there’s a lot more activity from Chinese borrowers in South and Southeast
Asia. We’re seeing, of course, many Chinese borrowers very active in renewables and wind and solar. And we’re seeing a lot of activity from from the electric vehicle manufacturers and battery manufacturers. So those are definitely bright spots in the market. Yeah, that’s the role here really, that the creditors can play.
I mean, how much is that going to be on those more of those sort of new growth drivers in China? Yeah, I think pretty much every investor wants to get a bigger share of the renewables and sustainable finance business. So I think that’s a great opportunity
For people at the moment. I think it’s only about 10% of Chinese loans are either sustainable or green. That clearly has a huge way to grow and there’s a massive opportunity there and every investor in the bank world is looking for those opportunities. So I think that’s going to be something
Which will only grow and continue to grow very strongly over the next couple of years. So much of China’s credit crisis has been down to the woes in the property sector, and we’ve just continued to chart the sheer number of builders or related companies.
I think there’s more than 20 at this point that have received winding up petitions in Hong Kong. Does that tell you that we’re entering a new phase in the property cycle? Yeah, I think mostly the if you if you take away the property sector, the credit environment in China is
Reasonably benign. There haven’t been too many defaults where borrowers have access to the public markets offshore. And a lot of that real estate has already sort of filtered through the system. Banks have provided for those loans where borrowers have got into difficulty.
So I think perhaps we’re going into a new a new phase. And many of the investors were not actually exposed in the loan market to to those loans. I mean, there’s been a lot of caution for a number of years from many loan investors.
So, you know, sometimes I think in the loan market, some of those real estate issues may be overexaggerated a little bit, but it is something which clearly does impact upon confidence of investors. All right, John, thanks for your time. That was John Carney, the head of
Corporate finance at ANZ. Really looking forward to your panel coming up later today. Because, Paul, as we said, it is the first Bloomberg China credit forum taking place in Hong Kong and also the first that we’re going to be broadcasting live on Bloomberg Television. All right, thanks very much, Bill.
Anabelle, Jill is there, of course, in Hong Kong. And we’re going to be live in just a few minutes at the inaugural China Credit Forum. It is hosted by Bloomberg News. And the focus is going to be the future of Chinese of China’s $13 trillion credit market. We’ve got more ahead on DAYBREAK.
Asia. This is Bloomberg. Hong Kong’s fast track domestic security law is prompting new warnings from the US and EU that it could muzzle open discussion in the global finance hub. From all this, bring our Asia government and economy correspondent Rebecca Chong Wilkins from Hong Kong. So Rebecca, what are the broader
Concerns about this are not necessarily to do with this one article, but the broad sort of direction of travel that we’ve seen? Yes, that’s right. So we have seen quite critical statements coming from the US, the UK and the EU.
The EU is pointing particularly to the harsher penalties, but also a sort of partial retroactive ability. But the US statement point to sort of this general potential that we could see fundamental freedoms eroded in the city too. And the UK has echoed similarly some of
Those worries. And as you say, though, comes part of a sort of broader criticism that the Hong Kong sort of openness, once this sort of free wheeling bastion of free speech and so on, is shifting and changing under way. It is worth saying that some of the
Local domestic business institutions in Hong Kong, like the Hong Kong Chamber of Commerce, have come out saying this will ultimately help improve the business environment. Okay. So, Rebecca, there’s been criticisms on both sides. As Heidi mentioned, there’s been some criticisms that this law is vague, the
Wording is vague, but then we hear that it might improve the environment. Let’s hear a little bit more about that, how it could improve things in Hong Kong. Well, in some ways, this perhaps does present both an opportunity and a challenge for chief executive John Lee.
The sort of passing of this legislation, which is had to be was required and mandated under the basic law after the handover. And in fact, is actually sort of the last piece of major national security legislation that has to be passed after we saw the government move to crack down
On those pro-democracy protests back in 2019. And I think there is this desire among the business community and the foreign business community to in Hong Kong for the government to move beyond national security, to start focusing on Hong Kong’s status as an international
Financial center, to focus more on trying to boost the economy, particularly as we face the sort of ripple through effect of that slowdown in China’s economy, too. So this is, I think, this desire, an opportunity to sort of move on with the agenda now remains to be seen precisely
How we see that happen. All right. Bloomberg’s Rebecca Wilkins welcomes that. Let’s take a look at some of the stocks that we’re going to be watching. We markets open in Hong Kong and mainland China. Keep an eye on Shami after it reported a revenue beat for the fourth quarter.
The company also declared its ambition for its new RSU seven to become one of China’s three bestselling luxury EV models. Next, Fung also in focus in that space after flagging a bumpy outlook despite better than expected quarterly earnings Heidi.
And of course, we’re taking a look at US futures after what was a second day of pretty convincing gains in the US. Of course, quite a lot of caution now. A lot of investors stay on the sidelines until we get perhaps that updated report
From the Fed and any sort of commentary around the Fed’s path forward. We are seeing futures up by just about a 10th of 1%, looking cautiously optimistic when it comes to China, futures there as well. We are also getting some of these lines through from the foreign minister of
China, Wang Yi, here in Australia, saying that China hopes to have a fair environment from Australia when it comes to firms. He’ll be meeting with members of the business community and going forward.