Bloomberg Markets: Asia 05/06/2024

It's almost 1 p.m.in Sydney, 11 a.m. in Singapore, in Shanghai.Welcome to Bloomberg Markets Asia. I'm Paul Allen.Here are the top stories. Asian stocks treading water on freshsigns of slack in China. We're now hearing Beijing will startselling $138 billion in ultra long bonds on Friday.Trade tensions also hurting sentiment. President Biden set to quadruple sometariffs on Chinese goods this week. Plus, Australia's budget on Tuesday.It's set to predict inflation returning to target by year end.Our interview with Treasurer Jim.

Chalmers is coming up.All right, Well, let's take a look at how we are faring on the markets.We're going kind of sideways at the moment.April Hong is here with a closer look. April.Yeah. Paul, We're seeing the negativeterritory in some of these stock benchmarks.Couple of things happening here. I mean, we had China data on the creditfront raising some concerns about how it still looks pretty soft even on PBI thatwas out previously. We showed that deeper contraction andall this being wrapped up along with.

Concerns about how the Bidenadministration might be quadrupling tariffs on Chinese goods.And then along with that, don't forget, we also had U.S.data showing consumer sentiment declining, rising inflation expectationsbased on one Soviet at least. Of course, we'll be keeping an eye onthe US CPI numbers later in the week. So for now, Asia stocks are, as youmentioned earlier, treading water, although we're seeing a slight bump upon the Hang Seng. CSI 300 is flat, keeping an eye on theoffshore yuan as well as it moves towards the 724 and keeping an eye aswell on the Japanese currency along with.

JGBs we got the BOJ in today's purge isreducing the number of bonds for 5 to 10 year and this is some say perhaps a testballoon for scaling back of its bond purchases does so the board and take alook at the data out of China aggregate financing.This is a broad measure of credit and it's declined for the first time since2017. So this was when the data first startedbeing tracked. The concern here is, despite the PBOCsees ample liquidity that the households, the firms, they're notbiting, adding to the list of concerns related to China poll.All right, thanks very much for staying.

On China.Bloomberg's learned that Beijing plans to stop the sale of ¥1 trillion andultra long special central government bonds that will begin on Friday.Economist David Chu joins us now with more.So, David, $140 billion, ¥1,000,000,000,000 sounds much coolerthan yuan. What's the money going to be used for?And is the demand there to soak this up? Yeah, according to the statement fromthe government that the money will mainly be used for some key areas in theeconomy, such as the agricultural side and also thethe area for the long term sustainable.

Growth of the economy.So that is what we've got so far. But we actually we didn't have moredetails on that. Well, let's take a look at some of thedata that we had out of China on the weekend.Pie looking pretty weak, CPI staging somewhat of a tepid recovery.We have the stage for this warrants a policy response from the PBOC.Yeah, we have been calling for the PBOC to do more rate cut in this yearbecause of the softer inflation reading. We don't worry the more about theinflation is the CPI because the pie has been in negative four forin my mind this 19 months in the role so.

That it would be a drag to to profit toa company's profits. So that is the reason why we think thePBOC should do record. But obviously the PBOC is some kind ofconcerned of the renminbi exchange rate so that we think it has to cut rate, butit should be in June. That is our base case.And but to be honest, we are with the credit they've announced in the weekendthat we now think the the card in May is of higher times.Now you China's facing some externalpressures as well. Let's talk about tariffs and and howPresident Biden has a plan to raise.

Levies on EVs.How might that impact China's economy? Well, our assessment is that the theproposal, the tariff, it has limited impact to China's economy, that it'sbecause that the export of eve from China to the US is a very small sharecompared to the the total export package and also China's economy.And but it definitely will have some impact and the to the extreme caseto the extreme case, it can drag on the growth by a one percentage point.But on the other hand, we think that's a sign it's a very extreme case.And we think that for for the most of the case, you know,that the impact should be in the longer.

Term because it demonstrates the UStough attitude towards China export. Now David, your team there BloombergEconomics has got a new report out as well.It's a deep dive on China's economic challenges and a lengthy read.It is as well. Can you walk us through some of the keypoints? Well, I think for the recent fall, forthe near term, we think that the key is still to boost the economy's confidenceand that we have seen that at the PBOC. It took a lot of effort on this to toboost the credit growth. But as I say, that, you know, theconfidence, the thing we cannot rely on.

The PBOC only to boost the confidence.I think now the ball is more in the at the side of the government.They need to do more and we think that the ¥1 trillion ultra long bond could bea way to help. But we think it needs more actions andmore than that. All right.Bloomberg economist David Chiu there in Hong Kong.And subscribers can read more of that. Bloomberg Intelligence deep dive intoChina's economy on the Bloomberg terminal.Now let's take a quick look at the week ahead.And it's going to be a big week for the.

Global economy.Key data coming out from the US and China.Bloomberg Economics expects April's US CPI MPI numbers to show a marginalimprovement from March. They also see core CPI moderating andthe headline figure rising due to higher gasoline and food prices.Here in Asia, meanwhile, China is going to be releasing more economic data onFriday, and that's set to show a production later rebound.And the PBOC also expected to keep its one year MLF rate unchanged on Wednesdayto avoid further yuan weakness. All right, let's get a bit more onmarkets now.

Bring in our first guest who thinks thedollar is going to stay strong. And she only expects one rate cut fromthe Fed this year. Joey Chu is head of Asia effectsresearch at Asia. HSBC joins us now from Singapore.Joey, thanks so much for joining us. I'll get your calls on the Fed in aminute. But I just want to pick up on what Davidthere was saying about China. And in the light of those weak PRnumbers and sort of tepid CPI numbers we had as well over the weekend, Davidthinks that this invites a policy response from the PBOC.Are you expecting anything meaningful in.

That regard?Yeah. I mean, I think our sense is that, youknow, privacy has been keeping the currency very stable againstexpectations, against the external challengers all through April.So it seems like the tolerance level for, you know, be it domestic issues oreven external issues like yen and the valuation is very, very high.So we don't think that, you know, the recent data point, it itself willtrigger necessarily an immediate change in policy.We've had a lot of shots. Team has been very busy with Chinatoday.

A lot of data out that we've beenillustrating, including seeing China is having its first credit extension dropsince 2005. We've also seen government borrowingfall. Demand for mortgages is very low aswell. What can shake the animal spirits out ofhibernation? Well, I think definitely more governmentpolicies, government vision for the longer term growth prospects I think arevery important. And for this, I think we have to lookforward to the third plenum, possibly in the in the month of July for some ofthis more and more medium term.

Directions.And I just want to talk about the directionof the yuan as well. It's weakened about one and a halfpercent this year, the offshore yuan. How much more depreciation do you expectto see or how much more might be tolerated?Well, to be frank, actually, the depreciation pressure has been immense.And so the actual depreciation that has materialised is actually quite small.So this goes to show that the currency stability is a very important policyfocus for the policy. So to the extent that we get more of thesame for the rest of this year, I think.

They will continue to keep the currencystable. The risk, however, is that geopoliticaltensions become a much bigger risk in the second half of the year.We are really getting a flavour of that with the tariffs coming from this week.But I think the broader test is that if we have broad based terrorist, you know,like the what we had in 2018 list, one list to list three, those will be theone that I think could potentially shake the R&B out of its current stabilitymode. Yeah, it's not just potential tariffsfrom the US as well, but it's what's going on in the broader macro picturethere.

And particularly in terms of inflation.I mean, we've seen super core inflation remaining very sticky.We're going to get US and CPI numbers in just a couple of days time.What are your expectations around that? Do you think there's another chance hereof an upside surprise? One thing about inflation in the US isthat it's been surprisingly on the upside for three times in a row.And so expectations in the market consensus, they really adjust at higherrate. So our economists are expecting about0.3.3 4% month on month this month. And I think that's reflected in themarket expectations already.

So the bar is getting higher for usinflation data to keep beating, but does not mean that the dollar willnecessarily soften because at the end of the day, objectively inflation is stillat a high level, even if it's not surprising any more.The upside. Yeah, that suggests that the Fed isgoing to be higher for longer. And I guess the question is how high?How long? I know you've still got one rate cuts inyour forecast, but is there a nonzero chance that the next move from the Fedcould be tightening? Yeah, that is true.So we have to, you know, indeed.

Investigate it.What are the potential implications for the dollar if the Fed actually forgetsabout cutting and actually does hike? Now, for for what it's worth, Powellactually dismissed that that possibility already.Right. And that actually caused the dollar tosoften a bit. So if that possibility was to come back,then obviously the dollar will strengthen again.And obviously you'll be at the peril of low yielding currencies in Asia, whichare already, you know, saving, having this significant interest ratedifferential with the US.

Yeah.In terms of that, I'll give you exhibit A, the yen which is weakening again.One 5576 Do you see that sliding much further?And not that the Ministry of Finance has said that it's intervened, but do youthink we might see some more policy to support the yen?Interest rate differential is definitely to the disadvantage of the of Japan.And we have seen in history in the historical intervention episodes that acouple of things are necessary for intervention to be sustainablyeffective. One is that the BOJ probably needs tohike rates as well.

And actually a good thing is that we areexpecting the BOJ to do another rate hike in the third quarter of this year.The other thing that is also very important historically is that a fitnesscut. And then the third thing is that we needto get some kind of verbal endorsement from the US Treasury or US officials.We already had a softer version of that, but I think maybe market is expecting amore ringing endorsement in that form. Are there any m currencies out therethat are looking undervalued to you at the moment?Frankly speaking, the most undervalued currency in the world is yen.Second to that, I think there are some.

In Asia.So looking a little bit on the low side of the valuations.For example, the Korean wine, the ringgit, Taiwan dollar.But a lot of these currencies have been undervalued for a long time, just likethe yen. So at the end of the day, valuationcannot direct us to the direction of the currency.We still need, you know, some policies to fall into place, namely the Fed'smonetary policy. You mentioned geopolitics a bit earlieras a key risk there. Are there any other risk factors you'rewatching at the moment?.

Well, you know, we already talked aboutsome of the risk we're watching out for.For example, the potential for Fed to hike rates, geopolitical tensions.I think the third thing is that geopolitical tensions in the Middle Eastbring back that kind of oil price increases, too, to further raise therisk of stagflation in the economy, in the global economy, that is also apotential risk to think about. All right, Joey Chu, head of Asiaeffects research at HSBC. Thanks so much for joining us today.Still to come this hour, we're going to be joined by the president of India'slargest engineering and construction.

Firm, Allen T.And we're going to discuss what's next for the company after it reported afourth quarter profit beat. Also, we're going to discuss the West'sefforts for chip supremacy over China. A big tech discussion just ahead.This is Bloomberg. Let's take a look at some of our topgeopolitical stories. Russian President Vladimir Putin hasreplaced his long serving defense minister in a surprise move.Sergei Shoigu had been in the post since 2012.The reshuffle is the first major shakeup of the Kremlin's military leadershipsince the Ukraine invasion.

And it comes as Russian forces seek tocapitalize on a better battlefield advantage in the war.The US says Israel risks fueling a postwar insurgency in Gaza, withthousands of armed militants remaining in the territory.Even if Israeli forces invade Rafah, Israel says it now has evacuated theeastern third of the city as it prepares to expand its military operation.Last week the US said it would withhold weapons that may be used in Rafah andcited evidence that Israel had breached international laws protecting civilians.Australia's government is set to release its annual budget on Tuesday and there'spotentially some good news on inflation.

So for more on this, let's bring in ourAustralian Government reporter Ben Westcott here in Sydney.And Ben, thanks for joining us. And April, you had the pleasure ofsitting down with the Treasurer on Sunday morning.I did indeed, yes. What did he tell us?So he told us that we should expect more in this budget for critical mineralsthat's already been announced. There's been about 500 million inexploration for general resources, but with a specific focus on criticalminerals. So it'll also be more in the budget forthat.

And he also told us that he's notbacking down on his RBA legislation, which will split the single board intotwo boards governance and monetary policy.So it's about three things now. We don't know left from the budget.We don't know whether the government's going to have a second consecutivesurplus, although we suspect they probably will.We don't know exactly what the future made in Australia industrial policy willlook like. And finally, we don't know exactly whatthe subsidies for households in terms of energy and rent will look like.But we covered all of this with the.

Treasurer, who I spoke to just on theweekend. I think we've got to strike a finebalance in this budget between the near term and the longer term.Also making sure we can provide that cost of living relief for people who aredoing it really tough at the moment. At the same time as we invest in afuture made in Australia. So it'll be a responsible budget.It will ease cost of living pressures, but it will also invest in the future.And obviously forecasting inflation at the moment is is tricky.It's tricky at the best of times. But what the budget will do is it willput downward pressure on inflation.

Rather than upward pressure oninflation. Now, we've made substantial progresshere in Australia in the fight against inflation, but it's not missionaccomplished because people are still doing it tough.And so the budget will be very focused on that policy.Over the past six, six months or so since you've been putting this budgettogether. The outlook for inflation is has changedquite a lot. Has that changed your thinking on theway you put the budget together? We're making that progress in the fightagainst inflation.

We know that it needs to be the primaryfocus, particularly at the front end of the budget, and that's why you'll seesubstantial spending restraint. You'll see our cost of living measuresdesigned in a way that takes the edge off inflation rather than adds toinflation, so that overall our budget will be part of the solution toinflation rather than part of the problem.Now, moving on to a future made in Australia that's going to be a big partof this budget. How does the future made in Australia,does that differ from the IRA in the United States?Yeah, what we're trying to do here is to.

Make sure that Australia grabs the vasteconomic and industrial opportunities from the global shift to net zero andthe sorts of things that we are contemplating are not out of place inwhether it's in the United States or indeed in most of the developed world.But for Australia we've got some huge advantages.Yeah, we've been dealt some incredible cards, our resources by say, ourindustrial base energy, our human capital base, our attractiveness as aninvestment destination. And so what a future made in Australiais all of that is not replacing private investment in the opportunities of thefuture but attracting more of it.

That will require some public investmentand we need to make sure we get value for money.For that, we've got our own unique set of advantages as the economy changes,the global economy and the pace of that change accelerates.We want to make the most of it. We want to create good, secure,well-paid jobs and prosperity into the future.And that requires us to renew and broaden and deepen our industrial base.But you mentioned, obviously Australia's unique advantages, but isn't Australiacoming to light to this? I mean, a lot of the people will becompeting against a lot of the other.

Countries.Our partners have put, haven't they have had these policies in place for quitesome time. Well, we better get cracking then and wewill on Tuesday. We have made substantial investmentsalready in our ambitions to become a renewable energy superpower, which isreally at the core of the future made in Australia, that the global economy ofthe future will be powered by cleaner and cheaper energy and we've got a bigrole to play in supplying that to become a reliable supplier of that energy.But there is more that needs to be done. I.Combination of tax incentives, targeted.

Grants, making sure that we've got thearchitecture to attract, to attract and absorb and deploy all of this privateinvestment. You'll see a lot of that on Tuesday.Now, on critical minerals, which is part of this, you've missed $500 million sofar for exploration for critical minerals.Is that all that we're expecting for critical minerals in this budget orshould we expect more on Tuesday? You should expect more on on Tuesday.Critical minerals are the opportunity of a century for Australia.This is genuinely a golden opportunity for Australia.Our critical minerals base is one of the.

Reasons why there is so muchattention from global and domestic investors that we need to make sure thatwe can attract and deploy, that the exploration is an important part ofthat. That geoscience opens open sourcescience to map Australia. Our groundwater, our critical mineralsopportunity is a big important part of it, but there'll be more.Speaking of grab opportunities, China, we're saying see a few green shoots intheir economy, but for Australia we'd like to see a lot more.I'm sure from your conversations around the world ahead of US head of thisbudget, but ahead of the rest of the.

Year, are you expecting to see morestimulus in the Chinese economy as the year goes forward?I think there's certainly a prospect of that.Our budget will forecast Chinese growth with a four in front of it, four in thenear term, and if that eventuates, that'll be the weakest period of growthof of that length since Australia, since China began opening up in the late1970s. And so the Chinese economy has beensoft. The property sector has been a big partof that, but not the only part of that. And and that weakness has kind of offsetin our global forecast the strength.

We've seen in the US.Yeah. So we're sorry.That was the interview with Jim Chalmers.And there's a possibility this could be an election, but it's certainlysomething that he wasn't ruling out on Sunday.Yeah, he was coy with that wasn't his family.Scottish government reporter there. Okay, stay with us.We have plenty more ahead. This is Bloomberg. All right.Just got some breaking news on the.

Terminal, although it was kind of usthat broke it a little while ago. Confirmation of this Bloomberg reportingnow that China is going to sell 20, 30 and 50 year special sovereign bonds.So some ultra long dated bonds that are going to be sold to the tune of¥1,000,000,000,000. That's $138 billion.And this is China as it seeks to raise funds to support its economy.So 20, 30, 50, government bonds are going to be going on sale.Confirming Bloomberg's earlier report. Okay, We've got China markets justheading to lunch. Let's take a look at how we're trackingwith some of those benchmarks.

That's a kind of a match day, reallywhat the CSI 300 just tracking sideways at the moment.But I mentioned earlier that some of those China biotechnology names aredoing reasonably well. We did hear the news earlier thatthere's going to be a US bill aimed at blocking foreign tech biotech companiesfrom accessing federal context. But contracts.But it hasn't really hurt. Wu Chee.It's rising at the moment because it got an eight year grace period to get us getus game wrapped around that. So some of those Chinese stocks doingpretty well.

The Hang Seng tech index performingokay. Also got the yuan, though, strengtheninga little against the greenback. Sorry, weakening a little against thegreenback. Seven 2336 at the moment.But most of those indexes for equities that week and territory.All right. Let's get a bit more on markets now.Let's bring in Bloomberg live strategist Mark Cranfield.And Mark, I want to start on that story that we were reporting on earlier aboutthose ultra long bond sales in China. What is that money going to be used forspecifically?.

And is there the demand there to soak upthis debt? Well, on the first part, I thinkeveryone would like to know where the money is going.I don't think that's clear just yet. In terms of demand, that is certainly avery important question for investors, especially for that 50 year sector.But is the part of the curve that really gets tested?You don't. Very few governments around the worldever sell bonds as long as 50 years. So it's a little bit unknown what kindof demand you would expect. And if you look at the way the Chinesecurve is currently set up, you would.

Extrapolate and expect that the yearwould probably be slightly below 3%, which doesn't sound very exciting for avery, very long duration bond. But of course, if people expect there'sgoing to be further triple R cuts in the future from China and other forms ofeasing in a stable currency, then it might not look so bad.You'll probably have domestic investors probably in the insurance sector whoneed to buy very long duration bonds and they would probably be keen on it.But of course, people will also want to see if that affects the Chinese creditrating as well. They are in total selling a pretty largeamount of bonds here and the rating.

Agencies are said to be looking at itvery carefully, particularly as China's fiscal situation has been deterioratingslightly over the past couple of years. So it's a little bit of an unknown howthe market is going to receive it in total.It's good for the Chinese economy in the sense that it is clearly a term of as akind of a liquidity injection to the overall economy.But investors want to know how quickly is that money being deployed and whatkind of final demand do we see, especially for the longest durationbonds? We've also had the news, of course,today.

We've been talking about the USincreasing tariffs, particularly on China EVs.What's the impact of this going to be and is it symptomatic of it being anelection year in the US? I think nobody is surprised that there'sa threat of more tariffs coming between the United States and China.I think everybody has been following the election cycle in the United States onthe general news would have seen that coming.I think that's why the market hasn't been too shocked about it.If you look at what Bloomberg Economics is saying, the market would be mostconcerned if they go after the future.

Generation products, which China iscurrently trying to to put together, is apparently is a key platform ofPresident Xi is the country has been putting money into those areas.Now, if the United States does target those, that's probably even more seriousthan the current round. But in terms of the market, yes, it wasvery well prepared. You can see the Chinese currency hasweakened a bit, but not dramatically. The U.S.still has a pretty good grip on the currency.But certainly if if these tariffs get even more substantial and it continuesfor a long time, the safety valve is a.

Weaker Chinese currency.And that's a question the markets haven't fully addressed yet because it'sbeen under relatively low volatility for a few weeks.But it's certainly somewhere where the PBOC could allow it to move quite a bit.We are, of course going to get inflation data out of the US this week, possiblythe most eagerly awaited data of the week.Stocks have been performing pretty well, mainly off the back of earnings.But if this high inflation, weak growth narrative really starts to take hold.What's the future for equities? Well, that the equity market has beenabsorbing it pretty easily because.

Exactly for that reason is that theinflation numbers. Yes.That maybe they they're slightly higher, but they're not dramatic.And if you look at the overall state of the American economy is doing very well.The employment numbers are still very good.So you've always got to go with that scenario in terms of equities.They're very focused on air. They can absorb slightly higherinflation numbers as long as the job situation stays strong.So they're not too worried. Is the bond market that's mostconcerned.

The last two inflation reports, the onesthat came out in March and April, jolted the Treasury market considerably.And that was where the biggest impact that fed also into the US dollar, whichrose as well. So it really is a bigger story forcurrency and bond markets. Equities can probably deal with itunless it's a really shockingly high number and that puts the Fed back in thepicture for a potential rate cut, which, of course, Jerome Powell has said hedoesn't want to do. But you never know if the inflation datais really hot, even the Fed may need to reconsider.I'm just want to ask you about the live.

Pulse question or the Manulife Pulsesurvey this week threw up a kind of an interesting result.30% of respondents saw a US tech stocks as an inflation hedge.I mean, gold still out in front of 46%. But how do these two compare when itcomes to an inflation hedge? Well, that really is the narrative thatthere's a lot of investors who think that the story is immune really to whathappens in the broader economy, what happens to interest rates wherevermonetary policy happens to be going. These companies are generatingsufficient numbers and the prospects are so good for the future take up of they.You've got Apple again, they're talking.

About putting on their iPhones, which isanother increment in the whole story. So as long as there is tremendousinterest and potential in that respect, then tech companies do look quiteoutstanding relative to the rest of the market.Gold, of course, is being supported by central banks and as long as theycontinue to build reserves via that route, then gold will also continue tobe a good outperformer. All right.And we'll have strategist, my friend Cranfield.Thanks as always for joining us. Asia's earnings spotlight's going toshift this week to China's Internet.

Giants.Alibaba and Tencent could report single digit revenue growth last quarter.This is according to analyst estimates. Bloomberg Intelligence is also expectingslower first quarter ad growth for Baidu and better margins for JD.com.Now, we're also going to hear from Japan's mega banks.They could see a jump in their annual profits.And later on Monday, SoftBank will probably report trimmed losses as itsvision funds return to profit. Well, let's stay on tech.And of course, superpowers led by the US and the European Union funneled nearly$81 billion into producing the next.

Generation of semiconductors.And this escalates a global showdown with China for chip supremacy.US industrial policy reporter Mackenzie Hawkins has more on today's big take.So. MACKENZIE truly enormous amounts ofmoney being spent here. Can you give us a sense of the scale ofthe spending and how it's being deployed?So we've got governments from Washington to Brussels to Tokyo and Seoul pouringbillions and billions of dollars into semiconductor production.This is because the pandemic revealed that there was an overconcentration ofsupply chains, especially for the most.

Advanced semiconductors in East Asia andparticularly Taiwan. And so you had this push led by the USand then quickly followed by a lot of US allies to not just make sure that wehave these supply chains safe at home, but also catch up to decades ofindustrial policy in the sector. From Beijing.So there's very long timelines involved here.It takes an awfully long time to build a chip fab.When can we expect to see all of this spending bear some fruit?So right now we're in what the Commerce secretary, Gina Raimondo, has describedas the bottom of the second inning in.

The global race for semiconductorsupremacy. The US has allocated around $32 billionof a total $39 billion fund to lure chip companies to American soil.But none of that money has actually gone out the door.We only have preliminary agreements contingent on due diligence andcompanies hitting certain benchmarks, like actually building the facility andactually starting production. Right now, estimates show that companiesare going to bring those facilities online, starting in some of the earliestcases in late 2024, early 2025. You're going to see a big surge inAmerican chipmaking capacity in 2027 and.

2028.And the Semiconductor Industry Association predicts that by 2032, ifall of these facilities actually come online, as promised, you could see theUS taking 28% of global advanced Logic's semiconductor capacity.Those are the chips that serve as the brains of devices that would make thecountry second to only Taiwan and up from 0% today.So it could be really a massive realignment of global semiconductorsupply chains. All right.US industrial policy reporter Mackenzie Hawkins there.And subscribers can read more on today's.

Big take on the terminal.And I big take as your function. Or you can head over to Bloomberg dotcom. This is Bloomberg and. Welcome back to Bloomberg Markets Asia,watching the India focus. Let's check in on India's pre-marketsession. So we've got futures shaping up in kindof negative territory, and that's perhaps not surprising.That's very much the theme that we're seeing around the Asia Pacific today.Very much a risk off theme. We are going to get April CPI numbersout of India a little later on.

We are expecting the CPI and April tosoften just a little down to 4.8%. Wholesale prices expected to pick up.That's that rating coming out tomorrow to 1.1%, So keep an eye out for thoseApril CPI numbers. So 2 minutes thereabouts until the openin India. Well, Larsen and Toubro is India'slargest engineering and construction firm, and last week it reported itshighest quarterly profit in four years. So let's get over to Mumbai now.When Bloomberg's Manika Doshi is standing by with the company's CFO,Manika. Hi.Good morning, Paula.

You're right.This is the country's largest construction and engineering firm andhence a great barometer when it comes to public spending, infrastructureprojects, which have been a big theme for India's economy over the last fewyears and also potentially the return of private investment.Now, you pointed out the quarterly profit, but I should note here that itsguidance for FY 25, that's April to March this year is lower than what mostpeople expected on account of a disruption in infrastructure orders bythe central government in India because of the ongoing election and the troublesthat we're seeing in the West.

Now to get some more insight on how allof that will pan out through the course of the year, I'm joined by ShankarRahman, the president and group CFO of Larsen Toubro.Mr. Shankar Rahman, good morning.Thank you for your time this morning. And let me get straight to my topquestion, which is that this is this last year you booked more than half yourorders from outside India. 54% of your orders were from outsideIndia, most of them from the Middle East, and then a sizable amount fromU.S. and Europe.Talk us through the sustainability of.

That for the next year.Good Morning America and good running viewers.I think we operate in business which has large orders per ticket, so there isevery likelihood of the percentages going to some misleading directions interms of, you know, whether it's 54% or 43% or whatever it is.But the fact of the matter is, during the first nine months of the year, whichwent by, if I 24 and talk over the period April 23 to December 23, wedidn't expect a larger share of orders to come through because we knew thequarter four of every 2324 was always likely to be disrupted by the elections,union elections and few state elections.

And so it did, and consequently that thetrajectory of orders that we got in quarter four of the year was pointing amore towards international and less towards domestic.So consequently, as a year as a whole, we had some big events in the MiddleEast, both in the space of renewable energy as well as in the space ofhydrocarbon. The the start of the refreshingdevelopment insofar as Middle East is concerned.It used to be almost, you know, a single point, a trick interms of just hydrocarbon orders. But over the last few years, we see thatthere's been considerable broad base of.

Investments that's happening downstream.Industries are getting invested into industries which consume a lot of boardfor value added products and services are being invested into.The cities are getting developed, they connected through railway network.The Middle East is now aiming to become a tourist destination for reasons otherthan Dubai. So all of this means that the kingdomthere is thinking about enlarging the footprint of infrastructure in thatplace to strength of LNG LNG. Fortunately, thanks to its years andyears of work in India, has acquired pre-qualification in most part of theinfrastructure plan.

And when this gets replicated in MiddleEast, it does become a relatively easy pre-qualification criteria.You expect this to continue? Mr.Shankar Rahman In terms of the quantum of orders from the Middle East and alsothe increase we've seen in U.S. and Europe.The increase in the US and Europe. America is last year raising all of itsservices. So when we report our consolidatedfinancials, even though these two companies are listed subsidiaries, we dohave to aggregate their revenues and results in DO and hence the geographicaldistribution.

I would like you to look at it a littledifferently. Just look at the projects andmanufacturing business and the geographic distribution.The services will continue to be you, US, UK, Europe heavy in so far as theMiddle East investments are concerned. I see that the redistribution ofinvestment priorities are beginning to happen.For example, Saudi Aramco is one of our largest customers and there is a move,at least that's what we heard in the press, that they would like to notexceed 12 billion barrels a day of production and at the rate at which theywere moving on their investment program,.

It could have well taken them to closeto 15 billion barrels. So possibly there is some pause to makesure that the wealth created through oil and gas is getting redistributed.And today we see renewable energy, a large investment, almost 18 gigawattsworth of renewable power projects being in.Yeah. Forgive me for interrupting you, buttime is short, so I want to get in a couple of quick questions.You know, what's the verdict on the return of private investment?The last time we spoke, which was a year ago.You said that was 32% of your.

Manufacturing segment.Are you seeing a build up on that? Can we sort of confidently say theprivate sector has come back to investment more than India?They've been very stable, Monica. Just very brief on this.I think the sectors that we're investing last time in, we spoke or continue toinvest largely led by industries which see growth in their products andservices. All right, fine.New businesses. I've got to ask you this.You know, hydrogen electrolysers. I think you've started the functioningof the first one.

What's the ramp up there?And chip design. I believe you are in the hiring processagain. What's the time to market that?The product that we have manufactured, the one megawatt electrolyzer hasbehaved well so far. We are putting it through extensivetesting before we actually announced it to the market.It stood the test well so far. So we do think it's very 24, 25, we willbegin to ramp up the production. We are also focusing on trying toincrease the capacity from one megawatt to four megawatts.We are in discussion with our technology.

Partners and we expect to track somedevelopments during the course of the year in so far as chip design isconcerned. I think we have marked our territorieswell. Time will tell as to how successful weare, but at the moment we are trying to assemble a crack team which will help usboth design the chips as well as marketing them to the customers.India has a lot of talent on chip design, so we are counting on thattalent to work for our brand. Okay.Let me finish up with the last question on our hurdles or challenges.You've mentioned for the year gone by.

That logistics and supply chain is oneof the big reasons for why you EBITA was lower than anticipated.And you also spoke to me in the past about not being able to find enoughtalent in India. Do I?Do I take cognizance of the fact that you've added about 10% to yourengineering workforce? So can you talk us through both of thosevery quickly? Yeah, sure.I mean, I think the fact that we are constrained by both bandwidth as well astalent is getting addressed. And one of the reasons why our marginshave also declined as we are investing.

Some portion of that profits andbuilding capability for delivering the huge order book that we have excess of$60 billion to be executed over the next three, three and a half years would meanthat we would require a skill set of a much larger magnitude and andcapability. So we are investing in the growth, andthat does take about 20, 30 basis points out of our margins.And secondly, with growing mix of international business, I think the costof engaging workforce is also going up. And so consequently, the company isdoing everything possible to take advantage of the opportunity ahead ofthis and to mean to me that it would.

Mean investing some portion of theprofits. I think it's well worth investing.So how much more do you hope to hire this fiscal year?It all depends on the execution plan, so there is no specific number in our mind.But I do think that we could possibly keep working anywhere between 5000 to6000 people of different competencies. All right.I'm going to have to leave it there, Mr. SHAPIRO, and thank you for joining usthis morning on Bloomberg TV. And with that call, I'm going to hand itback to you. All right.Thanks so much, America.

We do have plenty more to come.Stay with us. This is Bloomberg. Over six decades, Singapore hastransformed itself from a colonial trading port to a buzzing financialcentre that's envy the world over. Its GDP per capita itself has surpassedthe likes of the UK, the US, France and other developed countries.And it's held up as an example for any country seeking to grow a robust hightech economy. This is a wealthy economy withwell-established institutions of good governance, efficiency and long termplanning.

While Singapore has been an economicsuccess, its leadership is criticised by some for the restrictions on civilliberties and the media. The build up of wealth has broughtproblems of its own. Housing prices have increased.The cost of living has gone up. This is the Singapore that Lawrence Wongis inheriting as the country's new prime minister.So whether it's managing discontent or guiding Singapore's continued evolutioninto a tech hub. Wong's job is to sustain the citystate's hard earned success. All right.That's our very own avery long looking.

At Singapore's formula for success forBloomberg Originals as Deputy Prime Minister Lawrence Wong prepares to takepower. And we'll have special coverage of thathistoric leadership handover this week. All right.Let's take a look at how we are tracking on markets at the moment as kind of arisk off day around the region at the moment.We do have a few bright spots, though. Markets in Hong Kong particularly haverecovered on that news that Bloomberg first reported, but has since beenconfirmed that China's government is going to auction off ¥1,000,000,000,000of ultra long special bond issuance.

That's going to include a 20, 30 and 50year securities. So we did see a something of a rally offthe back of of that news as well. Rob, we've got some big interviewscoming up that we want to tell you about.So we're going to be hearing about the state of US-China relations and China'sovercapacity issues as well from Treasury Secretary Janet Yellen.We'll also be speaking exclusively to French President Emmanuel Macron abouttrade, geopolitics and international investment.That's at 1 a.m. Tuesday, Hong Kong time.And we'll have an exclusive interview.

With Goldman Sachs chairman and CEODavid Solomon. He's going to be joining us from theChoose France Summit, which will be hosted by President Macron in the side.And that is it's from a Bloomberg Markets, Asia Horizons, Middle East andAfrica. Up next, stay tuned for that.This is Bloomberg.

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