Bloomberg Crack of crack of dawn: Australia 02/26/2024

Welcome to DAYBREAK Australia.Marty Stroud, what's in Sydney where markets have just come online?I'm out of old rulers in Hong Kong. We're counting down to Asia's majortrading. Opensthe top stories this hour. Asian stocks are set for a mixed open astraders brace for a barrage of economic data this week.The Fed's favorite inflation gauge expected to rise the most in a year.Berkshire's cash pile scales a new record as the conglomerate struggles tofind meaningful deals. Plus, Australia and the UAE expect toconclude their free trade agreements by.

This year.Our talks with the EU and India remain on hold for now.Well, this is a picture as we open trading for the week across the Asianmarkets. And of course what a week last week was.And one of the highlights today will be Japan coming back online after reachingthat December 1989 record. But of course, we did have the longweekend with the Emperor's birthday holiday.So perhaps a little bit of catch up or cash catch down.This is the picture when it comes to the trickling start to trading here inSydney.

We're seeing a pretty start, a prettyflat start at the moment. We're also watching the Aussie dollar.It's about 65, 63 at the moment. Broadly, Asian stocks set for mixed opentrade is bracing for what is expected to be a flood of economic data and reportsthis week. They include Chinese activity gaugesthat could kind of point the next direction when it comes to where Chineseequities go from here. Despite what we have seen as a flurry ofmore regulatory measures and policy makers trying to stem the flow ofnegative sentiment for Chinese stocks, we're also getting the Fed's preferredmeasure of inflation, which is.

Particularly key given the tone ofcaution that we've had from Fed speakers over the past few days and the factthat, of course we have seen both producer prices and consumer pricescoming in hotter than expected and that repricing taking place when it comes toFed cut expectations. Okay, We stocks on the back foot alreadyabout 3/10 of 1% lower. We are seeing a pretty muted picture forChicago Nikkei futures as they come back into the trading Friday.Again, now above that 150 level again. So perhaps we'll see some verbalinterventions, some commentary from the regulators in Tokyo today as well.Taking a look at 50 China futures.

And we're looking sort of modestly tothe upside there. Let's get some views from our next guestwho favors us. Large cap and Japan for investing.Kari Craig is a global market strategist at Jp morgan Asset Management.He joins us now from our Melbourne studio.So, Carrie, always great to have you with us.And I suppose, you know, when it comes to broader markets, the narrative hasbeen split between watching the Fed in terms of the repricing that we see foreasy expectations and also wondering on the back of an idea how much furtherthis related tech rally can go, where.

Are you seeing the opportunities forright now? Good morning, Heidi.And that is a very good summary of where we are right now, where the market haslargely sort of discounted the outlook for interest rates to come down over thecourse of this year, moving back into line with what central banks havelargely been telling us, and then at the same time seeing bond yields move up 45basis points in the last week, but yet equity markets have continued to movehigher on the outlook for greater earnings coming through and that softlanding narrative really becoming embedded.So we very much do have that base case.

Of thinking about an economy that isslowing around the world, that you are seeing inflation, which is flatteningout a little bit, but still hitting down.It's falling like a feather rather than a stone, and that should actually bequite positive for the equities outlook. So we were still thinking about thequality bias that comes with us large cap.We are looking at the structural changes in the Japanese market to say there isstill room for equities to perform in this environment.But again, it's about broadening out that exposure within those indices andperhaps thinking about a little bit of.

Growth coming through in other parts ofthe world which may offer opportunities. If we start to look towards Europe, wesee growth come back there and we'll see those relative valuation arguments.But for now, it is a case of still thinking about the quality bias with uslarge cap being slightly more defensive and the positioning in there, but alsothinking about those relative value opportunities that may presentthemselves as we get a clearer picture on growth and inflation.Carrie, how are you feeling about some of the obviously, Japan is still a verypopular play going into this new year, but we're also seeing a resurgence,quite a turnaround for Korean stocks as.

Well.And a lot of the same factors in the narrative for Korea or for Japan, Ishould say, seem to also apply for Korea.Do you see better opportunities in Asia right now?We are looking around the rest of the region for, say, Korea, Taiwan and Indiato a certain extent as well in terms of markets that are going to do well if wedo have a little bit more growth in the global economy.I mean, the PMI numbers that have been coming out for developed markets havebeen improving, particularly on the manufacturing side, which sort of leansinto the idea that we're going to get a.

Bit of an inventory cycle rebound comingthrough after a lot of inventory. He's got drawn down.You can look at the new orders to inventory ratio to sort of justify thatmove. And also a bit of a cycle when it comesthrough to handsets and they're feeding into a better outlook for these inputproduces to those good. So we are definitely looking at the sortof rest of Asia. While there are some concerns aroundChina in terms of how to position for that to be a better growth outlook anddefinitely that move away from recession in the USbeing cautious on China.

What do you make of the recent rallythough? Would you consider buying back in atthese sort of levels? I mean, the valuation argument is verycompelling when you look at the Chinese market.And I think there is definitely opportunities they're are going topresent themselves. For now, the market is taking a bit of aview around, I guess, stabilization and the outlook rather than thereacceleration of the economy is how I would term it.We've seen obviously the loan prime rate for five year get cut last week.That should fade through into thinking.

About better mortgage pricing andhopefully some stability in the property market.But again, I think at the moment the market's coming off a very low level.You've seen probably what's more tactical than thinking about a sustainedimprovement in the economy, in the market.And so we're just a little bit cautious in terms of seeing how this progresses.We really want to see more of a turn in the economy to have a little bit morefaith that the outlook for the market is going to be supported rather than maybeperhaps seeing people potentially just selling these rallies at the moment.So I think it's a little bit early for.

Us to become an overweight towards Chinaat this moment. We want to see more on the economicoutlook really starting to improve and our mind before becoming more positiveon the equity market. You mentioned Korea, and that is a bitof a cyclical story. Are you still a little bit cautiousthere? I mean, the market's done really welllast year. Valuations have moved up.I think it does feed through into a lot of the secular theme you're seeingaround the demand for semiconductors as well as that inventory cycle starting tocome back through.

I mean, across equities around theworld, there's pockets of valuation that have moved up.I think that's more of a case of thinking about what drives the market'shigher from this point. It's not going to be a lot of valuationrerating in most cases. It is about that earnings outlook.And I think that you are seeing some justification to the earnings outlook inthose markets. And what would on that earnings front,what did you make so far really of of the US wrapping up Australia as wellfairly progressed. Yeah, there's a couple of consistentthemes across those markets.

The first is that, you know, companieshave done a pretty good job in terms of protecting those margins and controllingcosts. Again, that's been something that's beenquite positive in terms of thinking about the ability of margins to reallyadd to those earnings growth outlook last year and the continuation of that.So for the US case, we're not thinking about a big drop in the margins.We think about something that could be held if not move off a little bit andthat would deliver that earnings growth. We don't think our estimates of earningsgrowth for the US market match what we're seeing in terms of consensus therea little bit below that.

But we have seen some of those consensusearnings growth numbers come down and we are revising our own upwards a littlebit based on the strength of those earnings.So I think that that positive sort of high single digit earnings growth in theUS does justify being that overweight towards the market there.And then more broadly, we look into Australia and we are seeing somethingthat's a similar story around the costs of being controlled about the resilienceand the consumer playing through. But again, the earnings outlook here hasbeen relatively depressed compared to what we've seen around the world.We do see potential for that uplift,.

Thinking about very low single digits interms of that earnings growth, whereas consensus is closer to zero.So a little bit of surprise coming through for the Australian market thatwe remain relatively defensive, looking towards health care, looking towardssome of the industrials a little bit, but really thinking about some of therisks that come with the pricing in terms of financials, the miners and alsothinking about the energy stocks as well.Kerry, i.e., gaming out a scenario where there is a change in politicalleadership in the US next year. And I suppose that leads me to a broaderquestion about how you looking at the.

Risks and opportunities fromgeopolitical developments. I mean, the ever present and I thinkover the last couple of years, obviously investors have had to deal with a lot onthat front. When it comes to the US election, theoutlook, I mean, it does seem increasingly likely that you're going tohave a Republican nominee that is Donald Trump facing off against Joe Biden.There is still a long way to go in terms of thinking about the policyimplications of what that may mean for markets between now and the election orthe inauguration of a president in January next year.There's some takeaways we can think.

About in terms of the tax changes thatmay come through and how that may affect sort of corporate taxes and howcompanies have been benefiting from that.Some of the extensions that come through there.Should there be a change in leadership? But all of it does come down to whetherit is a a split Congress who is really in the White House and how that may playthrough in terms of what's done at a bipartisan level or a partisan level andwhat's done through executive orders. So I think that is a case building tothink about the ramifications of a change in leadership in the US.But there's still a lot of uncertainty.

Around how that structure of Congressmay actually look like to actually really dictate what the policy responsewould be. And so I think it's a case of watching,but not really adjusting portfolios just yet to think about those implications.Gary, always great to chat with Kerry Craig, global market strategist at J.P.Morgan Asset Management. Well, still ahead, we'll be hearing fromthe co-founder of the Startup. A team shares the firm that buys outcompany. Founders keep businesses going as theyset their sights on Japan. But before that, Berkshire Hathaway, thecash hold there, jumping to a record.

$167 billion.The billionaire investor saying that they're struggling to find deals thatare attractive valuations. We get the details next.This is Bloomberg. Taking a look at the week ahead, we'llbe watching the latest GDP and inflation readings out of the US, Of course,Bloomberg Economics expecting headline and core PC numbers to come in hard forthe fourth quarter. Japan also releasing CPI data.Core inflation seemed to undershoot the BOJ's 2% target for the first time sinceMarch 2022, against the backdrop of the economy slipping into recession and willalso be getting fresh PMI readings out.

Of China on Friday, likely to showactivity pulling back due to disruptions from the lunar New Year holiday.The Reserve Bank of New Zealand expects it to keep rates on hold as it waits formore evidence that inflation is under control.On the earnings front, we're watching Baidu and NetEase as China tightens itsgrip across tech companies. Meanwhile, lenders, ICBC and Maybankcould post stronger net income following on the footsteps of some of these otherSoutheast Asian banks that we've had so far.That is your week ahead. Well, Berkshire Hathaway's cash pile hita new record of 100 and a $167.6 billion.

In the fourth quarter.The conglomerate struggling to find meaningful deals.Bloomberg's finance editor Adam Hague, is with us.So what's your takeaway, other than valuations are high from these numbersthat we've gotten? Well, obviously really intriguing.That cash pile is so big now, but it's more about kind of the some of theexploring and deals that they have been looking at and kind of have shied awayfrom. So clearly, there's still kind of a lotgoing on. You know, we've had subdued dealactivity around the world, but there.

Have been, you know, deals goingthrough. And indeed, Berkshire has still beenspending money in certain areas. But of course, it does speak to not justelevated valuations in the equity market, but in some of the othermarkets. You know, there are still a number ofareas in private markets, particularly testing.So I think it tells us a few things really.But one is that it was a very notable comment about opportunities outside ofthe US being essentially zero and really not finding much opportunity beyond theborders of the US.

And Japan, of course, has been one ofthe big focuses for, for, for, for Berkshire and that's been an interestingmarket for the way that they've been buying businesses there, but also forthe broader impact that international capital flowing into Japan now hasbecome really a huge story. And of course, the Nikkei taking out thethe historical levels last week shows you just how much of a change insentiment there have been to to to to Japanese businesses in recent times.And in Berkshire's obviously one huge component of that they see and continueto see some really interesting ideas there.So I think Japan still stands out as a.

Key market for them there.Yeah. And in Japan, as well as places likeAustralia is interesting. We have seen deal activity picking up alittle bit. What does it tell you about, I guess,broader risk appetite right now? We have haven't we heard we've seen somedeals kind of coming through in the early part of this year.I mean, we're only kind of, you know, just almost getting into March.So just a couple of months. It is still early, but but there havebeen some pretty notable transactions. And especially if you if you look here,you know, some of the Japanese M&A.

Coming into Australia renaissance thatthat deal and indeed with some of these businesses that Berkshire's bought in inJapan, these trading houses, that's an $8 billion investment now and you knowthey're there for a far longer term turnaround story there.And of course, a lot of the reasons why they're there is because of some ofthese long term changes in shareholder attitude that, you know, changes thatdon't take a few months, it take many years to come through.We're starting to see the early signs of that in Korea, whether that becomesanother market for them in the future on those kind of terms or we'll have towait and see.

But yeah, clearly some deals are comingback now and you're starting to see some opportunity there for them.And there's Adam Hague here and later on, Berkshire Hathaway, you can get aroundup of some of those stories, including that one in your to get yourmorning going. In today's edition of DAYBREAK, Terminalsubscribers can find that at JP Go. It's also available on the mobile in theBloomberg anywhere app. You can customize those settings as wellso you just get the news on the industries and assets that matter toyou. This is Bloomberg.

Let's take a look at some of the latestheadlines we're tracking across politics.And President Vladimir Zelenskiy says Ukraine has lost 31,000 soldiers as thewar against Russia's invasion enters its third year.He also reiterated calls for US funding, saying that a decision from US Congressis needed in a month. Zelensky adding that 2024 will determinehow the war will end. President Biden and fellow G7 leadershave assured Zelensky of their support in a video conference call.They say that they're stepping up security assistance and working withKiev to meet its financing needs.

Michigan Governor Gretchen Whitmerwarning President Biden that risks warns that President Biden risks losingsupport among the US state's Arab and Muslim population over his support forIsrael. Democrats are worried that Biden'spro-Israel stance will alienate voters in Michigan, which is home to a largeArab-American population. A January poll showed Biden trailingRepublican frontrunner Donald Trump in a state in a hypothetical 2024 rematch.Nikki Haley is hoping for the 2024 Republican presidential nomination tookanother blow as Donald Trump swept the primary in her home state of SouthCarolina.

Haley has vowed to stay in the racethrough to Super Tuesday on March 5th, despite his mounting legal issues.Trump has triumphed in all contests held to date.Haley is his last remaining serious challenger.A Republican straw poll has found that either Kristi Noem or visit Swami areseen as favorites for Trump's potential running mate.Now on the South Dakota Gov and Ramesh Swamy, who ran unsuccessfully for theRepublican nomination, were both top picks from attendees at the ConservativePolitical Action Conference. The poll also found that Trump had a 94%support level.

This is just 5% for Nikki Haley.Australia and the United Arab Emirates are expecting to conclude a free tradeagreement by the end of the year. That's according to the Australian TradeMinister, Don Farrell. His remarks come as he heads to AbuDhabi for this week's meeting of the World Trade Organisation.Alan Joyce is now with more. So what else are we hearing from theTrade Minister about this deal and others in the works?Well, both sides are motivated here, Australia in the UAE and it looks prettystraightforward from Australia's perspective.Don Farrell would like the process to be.

Smooth for the UAE sovereign wealth fundto invest in Australia, particularly around the renewables area.For the UAE, it says the two sides are in a good position to start talkingabout a deal. This is Australia's largest tradingpartner in the Middle East and it could be a launchpad for the broader MiddleEast as well. Two way trade isn't huge, it's $6.1billion approximately. But if we take a look at what itinvolves, aluminium, aluminium meets education as well.Crucially, the two countries aren't competitors in this area, so it makes ita whole lot easier to get a deal done.

Than say with the EU, with India.Both those deals are stalled and we're probably not going to see anydevelopment this week. Australia is going to wait untilelections and both those jurisdictions are over.And Paul, WTO reform is going to be one of the key items on the agenda.Do we expect to see any sort of progress there?Yeah. At the risk of sounding cynical, it'salways on the agenda and it pretty much always ends with a tempered commitmentto just keep it on the agenda. It doesn't really seem to go anywhere.One of the things that all parties.

Really want to do is try and revive theappeals court, the appellate body, as it's known.Now, this hasn't really operated since 2019 under the Trump presidency.The US stopped or sort of blocking appointments to that appellate body, andthere's kind of a hesitancy to move the ball down the field, as it were, withthe possibility of another Trump presidency on the horizon.So that's likely to not see a great deal of movement until after November.Don Pharrell said that, look, WTO reform is always difficult, but it reallyshouldn't depend on who is or isn't in the White House, but also on thesidelines of this.

You know, Australia has used thisappeals body previously to get through some of its trade difficulties withChina, which have been pretty well publicised.Now. There's been a lot of movement on thatfront. DORNFELD is going to meet his Chinesecounterpart on the sidelines of this meeting at Abu Dhabi this week.Most of those trade strikes have been removed.There's still some in place against wine, but we're expecting some good newson that front. And Australian winemakers are quietlygearing up for a return to China.

It's been a challenging few years forAustralian winemakers. When China slapped tariffs of up to 200%on Aussie wines in 2020, it left the industry scrambling to find new markets.We lost everything overnight. We had built a business in China whenAustralia called for an international investigation into the origins of COVID19. China responded with a range of tradestrikes against Australian products. The relationship has since soared.Barriers against barley, coal and other exports are now gone and wine isexpected to be next. Australia suspended its appeal at theWorld Trade Organisation over the wine.

Tariffs when China announced a fivemonth review. That review ends on March 31st.Australia's Trade Minister will meet his Chinese counterpart on the sidelines ofthe WTO meeting in Abu Dhabi. We want the tariffs on Australian wineremoved and if we don't get that then we will resume the WTO application a.s.a.p.Our agreement to suspend the WTO process was based on the successful removal ofall of the tariffs. Shares in Australia's largest listedwinemaker Treasury wine Estates have slowly recovered since China imposed thetariffs in November 2020. In this month's earnings announcement,Treasury also signalled it is expecting.

Something to celebrate soon.The review of tariffs on Australian wine remains ongoing, with a determinationanticipated in late March. We are prepared and are well placed tore-establish ourselves and our Australian portfolio in China should thereview result in the removal of these tariffs.But there's a question about what Australia's exporters have learned fromthe whole experience when it comes to reliance on China.Take barley for example. China went from buying almost all ofAustralia's barley to buying none at all during the diplomatic deep freeze,forcing exporters to diversify and find.

New markets.Since tariffs were lifted, Australia's barley producers have gone straight backto their most lucrative buyer, with China accounting for 90% of exports inDecember. And of course, when wine begins to flow,memories can become hazy. Paul Allen Bloomberg.Take a look at how we're tracking when it comes to the effects side of things.And of course, it is a big week of potentially quite a lot of direction tobe set when it comes to what we see for the US dollar in particular, given thatwe do have the Fed's preferred gauge of inflation coming through and that wouldpossibly kind of add to the narrative.

That we've seen not just from Fedspeakers talking about caution when it comes to maintaining the fight againstinflation. But of course, what we've seen with someof those inflation numbers out of the US coming in hotter than expected, thedollar rally is kind of looking pretty at pretty tepid, I should say, at thispoint. Of course, it notched the first weeklydecline of the year last week. Again, it was these comments from Fedspeakers on the timing to start rate reductions that weighed pretty heavily.We did see some of the outperformers in this part of the world, including theKiwi dollar and the Aussie dollar this.

Morning, also maintaining a little bitof resilience. The dollar, China looking pretty steadyand again is the one to watch. One 5051 is where we're at.Some of that volatility, though, is seen to start to falling as we have again,this kind of dueling force, curbing the trading range that we see against thattrading range. It has been weighing on optionsvolatility here as that sort of expected measure of volatility and movementfalling to the lowest since March 2022. This is Bloomberg. You're watching DAYBREAK, Australia atthe latest corporate stories for you.

Today.And KKR is said to be nearing a deal worth about $4 billion to buy a softwarebusiness from Broadcom. Sources say the deal could be closed bythe start of the week. Broadcom is selling its end usercomputer unit, which is inherited through its acquisition of VMware.The business provides software enabling users to access desktops andapplications remotely. They were unveiled its most expensivesupercar on Sunday. The fully electric Yellow one U9 costsover $233,000 and the initially for the Chinese Chinese market.But it says the supercar can hit 100.

Kilometers per hour in about 2 secondsand reach a top speed of 309 kilometres per hour.The vehicle aims to rival the gas guzzling options offered by Ferrari andLamborghini. Disney and Reliance Industries are saidto have signed a binding part to merge their media operations in India.Sources say the media unit of Reliance and its affiliates are expected to ownat least 61% in the merged entity, with Disney holding the rest.They say details of the deal are likely to be announced this weekor Standard Chartered CEO Bill Winters says the bank took no impairments fromthe Chinese real estate market for the.

Last quarter.He told Bloomberg he sees a long recovery ahead for the sector.I think we've seen now several quarters of stability, but that's with aconsistent level of stimulus that has just kept it from falling.So, look, we've got 88% coverage on our at risk Chinese commercial real estateportfolio. So, I mean, we've written it off the.I hope we get some recoveries one day, but I think it's going to be a longrecovery. Just as a practical matter, we were wayahead of the market in taking those provisions as we were way ahead of themarket and taking other provisions.

Related to other businesses that havebeen impaired. We also set the target two years ago oftripling, sorry, doubling our profits in China over three years.We've almost done it into doubling the profits now.The juxtaposition of China's having a tough time with we doubled our profits.That's a pretty good outcome. And it's a good outcome because we'regenerating good, strong top line growth, because we connect China to the worldand the world to China. That's what we do.And those connections are stronger than ever.Are the major impediments coming through.

From the China exposure for StandardChartered? No.We took virtually no exposure, no impairments on our China real estate inthe fourth quarter we did in earlier quarters.We've also taken impairments in earlier quarters on our stake in Bohai Bank,which we took a relatively small impairment in the fourth quarter.You know, this is a kind of a mechanical calculation value and use.We're properly provided. Commercial real estate, of course, andfocus as well in the West and Europe in the US.Do you see opportunities there given the.

Valuation drops?Yeah, there could be. I mean, we're going to be heroes in thecommercial real estate market, but we're relatively underweight commercial realestate. We're relatively underweight leveragedfinance, two areas that have been hit quite hard on the back of higherinterest rates. Will there be opportunities for us toimprove the quality of our franchise using our balance sheet in a prudentway? Getting some of that asset growth thatactually has been a bit elusive for us, getting that back in through some of theareas where our prudence has kept us out.

Of harm's way.That's why we have such low loan impairments.Yeah, this is great. Starting to look attractive to you now.Look, I'm not calling the bottom of any of that.I've also been in the hire for longer rate category.Right? And I'm no pundit when it comes tointerest rates, but it has felt to me that the US job market is particularlystrong. Wage growth is strong.That means higher for longer. And obviously that's what the market issaying now.

That was sad to try to see over wintersthere. Speaking to Bloomberg's Tom Mackenzie inLondon. Take a look at our trading went justabout half an hour into the start of the session here in Sydney.A little bit of upside, about 4/10 of 1% here.We did see sort of a pretty flat start to trading.So we're starting to incrementally see a little bit more gains.But broadly across the region, we are expecting perhaps a bit of adirectionless session or perhaps struggling for conviction here in Asia.We had U.S.

Shares really closing little changed onFriday, but still pretty close to those record highs.And perhaps you can't blame a little bit of profit taking or a breath of beingtaken after just the big rally that we had following those immediate numbers.We've seen Treasury yields falling as well after we heard from John Williamson Friday talking about the probability that Fed will probably cut rates at somepoint this year. A bit of a mixed picture there for thedollar as well as Singapore Nikkei futures looking like a 10th of 1%.We could see the Nikkei. Did you five looking to add a bit moregains when it comes to demand from.

Foreign investors in particular?Of course, on Thursday, we did see just before that public holiday and the longweekend in Japan that the Nikkei 2 to 5 did finally manage to clinch thatDecember 1989 record high. A big day for earnings for Japan aswell. We've got the likes ofquite a few numbers coming through, but in particular, some news for when itcomes to Nippon Steel, Toyota and Kyocera in particular, TSMC is one towatch today with the Japanese government announcing additional subsidies for thecompany. US futures fell looking pretty flat atthis point.

Here.But, Heidi, I mean, you mentioned those gains we've seen in in Japan.We're also seeing a lot of foreign inflows in South Korea and it's going tobe unveiling more details of its corporate reform plan called Value up inthe next hour. It's a program that aims to encouragelisted companies to come up with measures to boost their corporate value.The reform bets have encouraged global investors to pile into South Koreanstocks. And you can see that that outperformancewe have with the Cosby over the broader Asian benchmark.Well, let's get more on it now with our.

Asia stocks report.As you can see here in Seoul. And you can just kick off by telling usa little bit more about the value up program.Yes. Good morning.So this corporate value program to be announced in about an hour with moredetails as part of the broader initiative led by the president.I use used song yell in South Korea to end this Korea stop discount, whichrefers to this persistent undervaluation of South Korean stocks.Compare what is global peers in Taiwan or Japan because of this poor corporategovernance and also because of this.

Meager shareholder returns.Now, the current administration in South Korea wants to change that, and it hasbeen introducing several steps to do that.And this corporate value program is one of this most important feature in thisinitiative to end the Korea stock discounts.Now, since South Korean government hinted that it's going to unveil thismeasures of corporate value program, which sounds very similar to what Japanhas done with naming and shaming the companies that are not doing enough toreturn to investors. Global investor has been piling intoSouth Korea's stock market, so South.

Korea's benchmark cost has been one ofthe like art in January. But since after this valuable programhas been hinted by the South Korean government, the cost has become one ofthe best performing index in the world because foreign investor has been pilinginto adding more than 10 trillion won or more than 7 billion US dollar intobenchmark cost piece since late late January.So what would be the key criteria for the value up program in being seen assuccessful right to end the Korea discount?Yes, sure. So this value program success probablyhinges on how much participation you can.

See from the South Korean companies.South Korea's government already has. That is going to expect voluntarymeasures, voluntary participation from the South Korean companies, rather thanmaking the making the making making to shareholder improvement measures arequirement or mandatory to these South Korean companies.Now, there are a lot of South Korean conglomerates that are controlled by thefounding family stills. And in order to in order to make thisfounding families act more, do more for the broader shareholders rather thanjust a smaller founding controlling families, all South Korea's governmentmust be giving a lot of incentives if it.

Is expecting the South Korea's companyto participate in this measure voluntarily.So the key to success will be seeing the broader and active participation fromthe South Korean companies, which some say may not be enough if the measure isnot a compulsory one. But we are going to get more detailsabout what kind of measures it's going to contain within the value program inabout an hour. And we'll see about the market reactionsto these details. Asia stocks are poor.You can see that in Seoul. Well, a widespread walkout by SouthKorean trainee doctors is headed into.

Its second week, but there are no signsthat the government will back down from its plan to boost the number ofphysicians in the country. Families Brain East Asia Governmenteditor John Herskovitz. And John, we spoke about this with youlast week. Does it look like this is going to bequite a prolonged and extensive Labor action now?Well, we're seeing both sides really digging in.I think this week we going to see a bit of an intensification.The graduate graduates who are going into internships are saying that they'renot going to take their post, which is.

The next step.Doctors are looking to do a protest maybe over the weekend.And the government is threatening even more and more to do investigations,possibly arrests. And they have a really powerful tool inthat they can suspend the licenses of doctors who are taking part in a laboraction that is seen illegal as because it's hurting the medical system.So this week, we're going to see both sides really trying to dig in a bitmore. And it has the potential to go on forquite a bit. But this will be, I think, a crucialweek in deciding if it's going to be a.

Shorter action or a prolonged action.And really, as you said, it could be something that is is quite a prolongedstrike. But but the public sentiment really doesseem to favor the government on this issue.Exactly. And South Korea has one of the fastestaging countries in the world. The government's plan is to add 2000seats in medical schools, to bring more doctors in to alleviate a shortage.About 75% of the public supports the plan.The government has seen its approval rating go up because of this.And while doctors are complaining that.

This will this plan doesn't address someof their working conditions, it doesn't. It doesn't correct fundamental problems.The public is seeing waiting times that have grown longer because of thissurgeries that have been canceled allow the emergency medical care system is ona high state of crisis and the public is seeing health care that's not beingdelivered, which is not something that is helping the doctors, especially whenthree quarters of the public sides with the government in the plan to increasemedical enrollment. John, you talk about one of the thebugbears being the doctors say just adding more doctors is not going to fixthe structural problems with the health.

Care system, the labor conditions and soon and so forth as a government have got any plan to actually address theseissues or the government's thinking is that ifthere are more doctors, they're more they're they're more people who can gointo specialty fields which haven't been able to attract a lot of people, that ifthey're more doctors, they can go to rural areas which are sometimesunderserved. The doctors are arguing that we'll justsee an intensification of the urban concentration of doctors that pay needsto be increased in some of these specialties, which aren't seen as higherpaying.

That the government's plan won't addressthese problems. So we're seeing different sides of this.But the idea is now we have South Korea has about 3000 people a year admitted tomedical school, and with this plan there would be 5000.So over time, there'll be more and more doctors in there hoping that the supplywill help meet the demand and fill the slots which aren't being filled now.That was our East Asia government editor John Herskovitz there.And up next, our interview with the co-founder of U.S.startup Team shares about how they're bringing their employee ownershipsuccession model to Japan.

This is Bloomberg. I thinkit's time for Japan ahead. And we're watching January paper on datadue out in the next few minutes. Economists surveyed by Bloombergforecasting that business survey price growth holding steady at a three decadehigh, will also be watching chip related shares.The government announcing an additional $4.86 billion in subsidies for TSMC toexpand its plant in the country. Toyota and some of the other auto stocksare also on the radar. Japan's transport minister askingcarmakers to conduct internal probes for.

Any misconduct amid scandals that havebeen rocking Toyota's units in Japanese markets will come back online after thelong weekend at the top of the next hour.And a little bit of catch up, but also potentially a little bit of catch downgiven we had very muted moves in the US session on Friday.But of course, still so much of that huge tech related rally that we sawafter the NVIDIA numbers came out. But Japanese equity markets coming backwith investors really looking for the Nikkei 2 to 5 to breach the 40,000 levelfor the first time. So if notch that December 1989 high40,000 is a number that we're watching.

Now in the meantime we've seen againremaining firmly above what, 150 that flags, of course, a risk of more verbalintervention, at least from Ministry of finance officials, to try and supportthe yen, that kind of pull of, you know, tug of war within the drivers of wherewe see going for the yen really playing out at the moment.This is a picture as we though get into the start of trading in just about 15minutes or so in Japan. Yeah, Heidi, big rally in the largecaps, but where we've actually seen some challenges in Japan for smaller firmsbecause they've struggled for years to hand their businesses off to a buyer ora successor.

Our next guest is the co-founder of USStartup Team Shares, which buys out company founders and owners to keeptheir businesses going. Backed by Mitsubishi Mitsubishi USA, thefirm is bringing its model to Japan in its first overseas foray.Joining us from Tokyo is Kevin Ricky Toshiba, the co-founder and head ofJapan Team shares. And Kevin.Yeah, gave a few details there so it was a little bit difficult to hear my voicetoday. So why don't you just kick us off bytelling us a little bit more about what team shares does and also why you'rechoosing to enter the Japan market?.

Yeah.Thank you so much for having me. It's great to be here.As a team shares, this is an entirely new employee ownership succession modelfor a small business. So we work with retiring business ownersof traditional successful small businesses and we help them retire bypurchasing the business. We install employee ownership andgradually transition the business to majority employee ownership within 20years. So 80% employee ownership.And we do this because we're trying to end the succession problem for good.And so these businesses end up being.

Permanently co-owned by team shares andthe employee owners, which means that the business never has to face asuccession challenge again. The business never needs to sell againin the future. And as of today, team shares over thepast four years has acquired 90 small businesses in the US across 31 of the 50United States, 42 different industries, and we've created over 2500 new employeeshareholders at all of our businesses and many of whom are becomingshareholders in their business for the very first time.And we know that this works. Employee ownership, you know, employeeowned company is in the US, have been.

Shown to grow 2 to 3% faster than theirpeers, be more resilient during downturns and are just overall happierplaces to work and and team shares is really excited to be bringing thisemployer ownership succession model to Japan specifically because, you know,Japan arguably is, as you know, in the middle of an even more severe successionproblem than in the US. So in the US, you know, 70% of smallbusiness owners that look to sell and of failing to sell, which is a huge lossfor the community because these businesses often end up shutting down inJapan by 2025, 2.4 or 5 million small business owners will end up end uphaving to, you know, be 37 to 37 years.

Or older, which is average age ofretirement, which means that about half of those business owners who haven't, Iguess sorry, but you mentioned those variousindustries for the U.S., those 90 plus acquisitions.Are there any key sectors or business models that you're looking for in Japan?Would they be the same as what you've done in the U.S.so far? Yeah.So we are we are definitely looking across, you know, a broad base of ussmall businesses. Our mission is to create employerownership in as many small businesses as.

Possible.So that means we're not focused on very narrow sectors like potentially otherfirms. So in the US we have six core sectorsbusiness services, consumer services, distribution, light manufacturing,restaurants and retail. And so we're we are looking across awide breadth of of Japan small businesses to make sure that we can helpand bring the impact to as many any small businesses as possible.And, you know, for Japanese small business owners, you know, they'rethey're seeing a very similar trend like we're seeing in the US, which is thesebusiness owners, their children have.

Gone off to have other careers.They don't necessarily want to take over the family business in the same way.And increasingly, you know, these business owners are looking to try tofind a successor. Half of those 2.4 or 5 million smallbusiness owners in Japan have yet to identify a successor yet.And if they can't find that successor, it could be a huge impact on theJapanese economy. It could result in potentially 6.5million jobs that are lost, over ¥22 trillion of GDP that could bepotentially lost. And so we believe that our model, ouremployee ownership succession model in.

Japan is one that is really a great fitin between traditional employee succession and M&A and traditionalemployee succession. Typically, it's 1 to 2 managers buyingout the business and they often have trouble coming up with the capital.And so team shares. The reason why we started was really tohelp the employees inherit a majority of the business.And you know, my co-founders, Alex and Michael, they they worked in smallbusiness for, you know, for many, many years.They owned eight of them before we started teams together and deeplyunderstand the challenges that small.

Business owners face when they'relooking for a successor. And so when we started Team shares, wereally wanted to create a model that allows these businesses to be moredurable, and it allows us also to make a small dent in wealth inequality as wellby expanding access to small business employees to own shares in thebusinesses, which many of them haven't had the opportunity to before.Kevin, I understand this is such a big play on the inevitable demographics ofJapan. Does that mean you look at other marketsas, as well beyond the US and Japan now? Yes, our ambition has always been alwaysbeen to create employee owned.

Businesses, you know, and to help sortof a generation of small business owners transition those businesses and.To the next generation and their employees become shareholders in thebusiness. And while we started the US, we trulybelieve that this is a global problem. And when we looked at Japan, thirdlargest economy, arguably even more severe succession crisis in Japan, wereally were excited to by the response of when we started toactually announce what we were doing In the US.Over half of the discourse online was actually in Japan, and a lot of peoplereached out to us saying You should.

Bring your model to Japan.We had already been researching entering the market and so that was reallyconfirmation to us that we could really make an impact here.So to answer your question, we're focused on us in Japan right now, andwe're looking for other, you know, financial parties and other people whoreally share our mission and passion for helping this generation of smallbusinesses transition, change hands and the employees ultimately, you know,receiving shares in the businesses that they work in.Kevin, really great to have you with us. Kevin Rikishi, co-founder at TeamShares.

And you can, of course, catch Japanahead every week. That's every Monday at 8:48 a.m..If you're watching in Tokyo, 740 in the evening on Sunday, if you're watching inNew York, Bloomberg subscribers can watch us live on the terminal two.That's at the TV go function. This is Bloomberg. These are the stocks we're watching whentrade opens in Korea and Japan shortly. Keep an eye out on chip shares.Japan announcing an extra $4.8 billion in subsidies for TSMC for plantexpansion in the country. We're also watching trading in two yearshere and some of those auto peers.

Japan's transport ministry ordering anindustry investigation amid safety scandals at two of Toyota's units.Samsung, LG and Tech are also on watch. The news that Jeff Bezos and Nvidia areinvesting in the startup figure A.I.. They're developing humanlike robots.Samsung has invested $5 million while LG in a tech has invested eight and a halfmillion into that business. Coming up in the next hour of DAYBREAK,Morgan Stanley says Asia and and equity markets have had a highly divergentstart to 2024. We'll be taking a look at their marketstrategy next. We'll also be speaking with the HeinrichFoundation about what to expect from the.

World Trade Organization's ministerialconference taking place in Abu Dhabi. The market opens in Seoul and Tokyo arenext. This is Bloomberg.

Sharing is caring!