Bloomberg Markets China Delivery 01/23/2024

I did not have a Beijing and Hong Kong.Welcome to Bloomberg Markets China open. I'm Yvonne Man where David Ingles.Yet let's get to your top stories today. Stocks across the region getting apositive lead in with wall street building on record highs.Investors now weighing rates and economic outlook as earnings seasonkicks into high gear. China's premier ordering a more forcefulresponse to the country's stock market rout as the benchmark crumbles to a fiveyear low. It.Also ahead, we're live at a Goldman Sachs Global macro conference in HongKong with the bank's chief China.

Economist. And I'm Stephen Engle outside the Bankof Japan in Tokyo, where investors will be watching for any hints of rates.Liftoff from today's meeting. Amid, of course, easing inflation andsoft demand. Yep.Lots to talk about this hour. Welcome to the program.Hope you're all well. We'll start off with some breaking newsconcerning what's been happening in this Chinese market.And also we're Steve is also in Japan, hedge fund Asia.Genesis is shutting down after a big.

Mistake on China trade.They've lost a draw down 19% almost in just the first few weeks of January.Singapore base, of course, is fine. They're closing the macro fund aftersuffering unprecedented drawdown following the roots in China and alsothe rally that's taken place in Japan. On that very note, our starting pointthis Tuesday, futures in Singapore are pointing higher.Take note this time yesterday, that was also our starting point.Futures were pointing higher and then Monday happened.Effectively, the US futures are doing this.Japan continues that rally.

It's now 37,000 is very much at leastvery much and on the horizon, if you will, 300 points to that benchmark.Of course, we'll talk more about the prospects for the BOJ.Not today. In the meantime, though, the focuscertainly is with these Chinese markets with four one you had that that thatblow up in structured products onshore. You have more forceful measures promisedout of Beijing. We'll see what happens across the opentoday. Let's have a look at what we're seeingacross markets like Taiwan, Singapore and Malaysia coming on line.Taiwan, speaking of, we're within about.

4% of a record high on that specificindex. Currency markets, dollar, yen, dollar,China, euro very much in focus. The dollar's going to come up.Bottom of your screen. Yen is near at 148 and change near a twomonth low against the US dollar bond markets are tense.Japan, US, China and Australia are doing this and you now have a 4.22.4 handle onyour Chinese ten year yield. As I guess the prospects of morestimulus looms and looms quite large there.Quick large quantity markets doing this very, very briefly, oil and bottom fourscreens, of course, as some of the.

Cyclical equities tied to what's beenhappening in the commodity space. This has been on on equity wise, thesector has been your worst performer in the region so far year to date.Speaking of worst performer globally, the Hang Seng index is near bottom ofthe barrel globally. In fact, several measures going intotoday are screaming, at least on a technical level by right.Whether you act on that information is another thing altogether.Half the index is at a 52 month low. Nearly half is below this RSI of 30,which indicates maybe oversold conditions and on to in terms ofvaluation, about a fourth of this index,.

As you can see, has now book value belowone time. Okay.A couple of things we're also tracking today.We're very close to taking out on the Hang Seng China benchmark, the 2022 lowand also the GFC low below that where it's back to the levels last seen, Iguess 2005, 2006. And speaking of a possible valuationbottom, Hang Seng index, we talked about this on an index level is now below 0.9.So that's at least in the last ten years or so, has preceded major rallies, thethree biggest rallies the last last ten years or so just this fourthmonth indicate if on a possible bottom,.

I guess we have to wait and see about.Yeah. Yeah.We talked to Timo about that, right? That perhaps we have seen some sort of,you know, floor. Does it get any worse than this when itcomes to Hong Kong? That certainly is one big question, butit just came out of a report on the several factors need to be put in placebefore we see some sort of stabilization and consolidation here.Right now, Let's bring in our roundtable to talk more about this.Our Asia equities reporter Charlotte Yang, also our strategist MarkCranfield.

Charlotte, we talked about, you know, isthis capitulation. I mean, obviously, tell us more aboutwhat really happened yesterday, obviously, that these snowballderivatives had a bit of a snowballing effect to all of this.Yeah. So I think the number one, perhaps thenumber one thing that's keeping a lot of investors on edge is about the spillovereffect from these snowball products. And these structured products are mainlyso by brokerages to institutional investors as well as a qualified retailinvestor and predominantly tied to the small cap indexes, CSI 500, the CSI 1000and if based on C exceeds estimate.

So to be sure, birdcages have differentdifferent packages, have different estimates.The CSI 500 has already fell to the level of the estimate that could thatcould trigger the massive knocking of snowball products.And because of the knock and the hedgesagainst those knocking levels, you have to be on Y, which could play sellingpressures for the bottom market. And if we're looking at C 1000 index,we're just four points away from that estimate based upon the ICC.So I think you know how these retail stocks have had us and the spillovereffect from that, if the indexes fail.

For that, that's keeping a lot of peopleon edge at the moment. Mark, I'll bring you in.You know, when we talk about market structure and we don't normally do thatin the rare case that we do like today, it brings to mind really the depths ofthis market. Just your thoughts really on it is a isa bottom close market. Probably a near-term bottom.I think there's a decent chance here of all those oversold indicators you talkedabout are all relevant. You had this massive selling yesterdayprobably related to snowboard derivatives.Also had comments overnight from the.

Chinese premier that he wants to seemore forceful action to support the market.So if you're walking in cold today, you probably think there's a chance of ashort term bounce. And it wouldn't be surprising if we havea Green Day today across the Hong Kong markets.But there are still a lot of things missing here.One of the interesting things was back in the fourth quarter of 2022 when wehad the start of a huge rebound in Hong Kong equities.We had a couple of days when turnover was above 5 billion shares.We haven't seen that either for the Hang.

Seng or the H-shares index yet.So we're still missing the sign in terms of people coming back into the market inbig numbers. That's still absent.We also don't have a real fix for the property market as well.There's lots of reports suggesting that the property malaise in China willcontinue at least through this year. So it's one thing for the authorities tosay they want to see action, but if they don't address the bigger issues such asproperty and stop doing ad hoc clampdowns on tech companies, investorswill still be very shy of putting serious money back into the market.Charlotte, I'll bring you in.

You know, a feature last year, the lasttwo or three months, you have a lot of sell side reports coming out and you hadanalysts calling almost calling a bottom to the market were ten or 15% lower inprice from that time. And it seems this time around not a lotof people are willing to call the bottom.What gives? Yeah.Right now, it's very high, even though, you know, from the technical sector likeindicators, you can see, for example, like half of the HCI members havingoversold and other indicators, it's getting harder and harder for people towilling to follow.

And what we're seeing is thatincreasingly they are more Wall Street shops calling for investors to a moredefensive, approaching this difficult environment, such as buying stocks withhigh dividends, that type of defensive play.I think the broader picture here is that, you know, it's really hard to callespecially a bottom in sentiment for China at the moment.It's really a confidence trap. And, you know, because of those big,bigger issues that wind softened and the investors really need to see more thanwords and actually real actions coming from policymakers to repair confidence.And also with us, you know, you have.

Also Trump may be coming on moreelections risks over there. A lot of this is getting as well take alot of actions, too. We reviewed the confidence well, we didhear from the Chinese premier, Li Chung, who I think oversaw a meeting to talkabout possibilities or options on this market.He called for more forceful measures. Yeah, I do think that the authoritiesare definitely paying a lot of attention to what's happening on the equity markethere, given this is also a lot of the retail investors, especially, I'm sureit is predominantly by retail investors, you know, how this market performs alsomeans a lot to their wealth effect.

And that's going to have a longer termimplications for consumption and investment as well.Mark, obviously, to broaden it out. We also have the O.J.day today. I mean, people most people think they'renot going to do anything. But are there any sort of marketimplications at all? Yeah, certainly the the press conferenceis really where the action is going to be.This is a governor who seems to be much more open and forthcoming with hisinformation than his predecessor was. We saw in that December press conferencethere with some moves in dollar, yen and.

JGB futures as well.He seems to provide a lot more forward looking information than we're used tofrom previous BOJ people. So it's quite likely there'll be someaction and he may well give some guidelines on his view of when the righttime is to exit negative rates. Unlikely to be today, but he may make ita little bit clearer whether it's going to be April or July or some other time,and traders will definitely latch on to that.And also from the Hong Kong point of view, they could do with the Japaneseequities finding a bit of a top because the Japanese momentum players go wherethe money is moving right now.

Japan, then the US equity markets stilllook very attractive and until they slow down, people from Hong Kong are notgoing to be putting their money there. They're going to be going back to thewhat's the low hanging fruit right now. Japan pushing the Nikkei about 37,000.That looks like the most obvious trade in the market.Sticking with the winners. Mark, thank you so much, my friend.Phil in Singapore, Charlotte Yang here in Hong Kong for us.Yvonne, I'll bring you back in. And certainly a quite a timelytime to have a conversation around China.You are of course you know the guys at.

Goldman are of course with this macroconference. And I'm wondering if we've been talkingabout whether this market is a bottom. We've been focusing on, you know, youryour sort of usual market measures, right.Fundamentals, price to earnings, price to book.And we've been looking at that for many months.And for many months they've actually been saying buy.But we could be looking at are we looking in the in the right at the rightmetrics is what I'm trying to get to. As Charlotte was pointing out, thiscould be a sentiment issue.

What are you hearing on the ground?Yeah. And I think it seems to be that not justsentiment, but also the structural challenges of this economy.You know, given that this is going to be dominated, the conversations, I believe,here at the Goldman Global Macro Conference is that where is this economyheaded here right now? And we talked to several guest, Tim Moe,who covers, obviously, Asia equities, you know, and why we've seen thisintense selling pressure in China. For one thing, he mentioned he did blameon on some of these snowball derivatives, really exacerbating some ofthese losses.

But also there's needs of severalfactors before we can set a floor on these markets.The policy is one thing you need geopolitical tensions to to come down alittle bit as well for us to establish some sort of floor.And then Hatzius also talking about, look, yes, we might see somestabilization on the property market, but that that's a still these theseheadwinds are going to linger. Take a listen.There's a clear recognition that China is facing significant structuralchallenges. Those are, I'm sure, well known, butthey're, I guess, broadly more in.

Concern, concerns over the propertymarket, over dam, over demographics, over slowing growth and so forth.There's also been concern that there has not been as forceful a policy responseas people have been hoping for. And so there's been this progressiveslide in the market punctuated by occasional rallies.But when the actual policy, which has been hinted at, doesn't fully comethrough, then people have been selling that.Our team has argued that the impact on annual growth from property weaknessprobably diminishes somewhat over time, in part because the property sector, thestrength and then it's going to have a.

Smaller impact on the macro economy.But these headwinds are still out there. That's the main reason for thedeceleration in growth. I we have plenty of conversations comingup here at the Four Seasons Hotel. Still ahead, Goldman Sachs chief Chinaeconomist Wei Shawn explaining their operative forecast for GDP growth thisyear. She'll be joining us here at the GlobalMacro Conference. In our next hour, we'll also hear fromGoldman's APAC, ex-Japan president, Kevin Shearer.Stay tuned for that do. We have lots of good voices coming uphere and set in a couple of minutes.

The head of Franklin Templeton in theregion and Tariq Ahmad joining us to talk about the business and theiroutlook and what they see, of course, as the best opportunities right now.We're counting down to the Tuesday open just under 16 minutes away in a freezingHong Kong this morning. The boots are out.Are the bullets out? Futures are pointing higher.50 minutes of the open. This is Bloomberg Markets, China open.Good morning. All right.Welcome back to the show. Can hardly wait to see what is open.Looks like futures are pointing higher.

We're looking at the fix of the day at735. Well, seven, 11, 11, 17 there.Okay. I looked at a different line there notto give anyone a panic. 720 was the estimates are stillsubstantial a gap there being why is that with anote, in fact, just dropping these last few minutes or so, they see that youwant depreciating to between. Well, the bottom is 735 and China at thetop is 742. Futures are now mixed there we go aheadof this open. So looking like a softer opening.Few minutes.

Joining us here on set to talk allthings China all things Japan looking at the alternatives as well.Joining us is the head of APAC at Franklin Templeton, Tariq Ahmad.Nice to see you. Good morning.Morning. How's how's business?Business had been good. We had a really good year last year.Fantastic year. In fact, a record year for FranklinTempleton, Asia Pacific in almost a decade.What measure? So in terms that flows.So we look at the person that flows in.

That new money that's coming in acrossthe region. Talk about China.How's that business doing? It's been a concern for so on showbusiness. So, you know, as you know with the JVjoint venture with land and that's been a successful venture for us for a longtime. So that's ongoing.You know, onshore, offshore, you know, we've been pretty active in themarketplace and I would say that continues.Will that continue in its current form? What are the you guys talked aboutoptions you're looking at with that JV?.

What are the options?I mean, China is a very, very important market.Franklin Templeton You know, we exploring various options, CNN included.So that's an ongoing conversation. You know, we're having and we exploring,we be exploring. I think it's an important market for us.And just looking at China and the growth of China looking ahead, I mean, David,that's a $25 trillion market in addressable assets, retail andinstitutional. So, you know, for us, I mean, that'sgoing to be a market want to be in there for some time.What the market's been trying to figure.

Out is, you know, is the current JV, isthat the right vehicle to take advantage of the future?And I know you've been talking about options.Is the JV partner, are they open to options?Are they willing to sell? For example?We are in discussions. We are in discussions.I mean, they've been a great partner. So I would say that is, you know, one ofthe focus for us, you know, looking ahead.Okay. I need to ask you about flows as well,because you oversee, of course, this.

Channel that allows mainland investorsto take their money out. Given the market rout that we're seeing,what are you seeing as far as flows as well is still coming out longer term?So let's a longer term perspective. China, I know the headlines today arenegative in terms of looking at the growth valuations.I mean, China long term has a structure story.You look at the macro, I mean, longer term days, there's a play here.Investors are looking at options. So, you know, we are seeing flows comingout of China into global investments. So investors are looking at multi-assetalternative solutions and that's kind of.

Repositioning our business to kind ofreally have conversations with clients to provide them with a solution toadvice, you know, in those asset classes is helping diversify away from China,which from any kind of classic portfolio allocation perspective, you wanna bediversified across market cycles. And that's really been the question.I mean it's hard to ignore. Fine.I mean headlines can change day to day. It's hard to ignore and mark a majormarket though, that's down 60 70% with no willing buyer so far.Do you get a sense based on what's your house view on is something is that morecyclical than structural or is that is.

This simply a cyclical point of weaknessright now and what we'll get out of it? So we look at this, we look at the shortterm and the long term. So I would say structurally, you know,China has is a great story by the demographic story.You look at the reforms coming through. I think, David, more importantly, whenwe look at China for years ahead, I mean, that is an investable asset classto be in, right? Right.Fixed income and equities valuations, you know, dispersion.I mean, the dispersion coming in, you look at a p e measures, you look at theprice to book measures, the dispersion.

So for an active manager, that createsgood opportunity for us to kind of really capture a story we think in alonger term is compelling, right? Is you mentioned alternatives, is thesort of product solution. How important is alternatives to justmanaging wealth and overseeing assets? Of course, because you guys are quitebig, of course, in that. And what are your plans there?And Franklin Templeton took a very strategic and important decision toensure that we build a platform to give clients access to public and privatemarkets. Okay, Alternatives is an increasinglyimportant asset class.

And what we've done is, David, kind ofbuild a platform that can kind of cater for clients across liquid alternatives,private debt, private equity, secondly, private equity, real estate.And that's going to be something is going to be important for us.A look at sort of asset location activity is happening in the region.I would say there has been allocation that's increased across secondaryprivate equity. In fact, one of our managers inLexington Partners had one of the best ever in a record raise last year interms of secondary raise of. What's the region?And globally.

Right.I mean, that was, I think, north of $20 billionand almost, you know, I would say a significant portion came from Asianinvestors. So you see that trend continue to growinto the year as well. But I would just say fixed income thisyear will be probably more of an important topic in terms of where we areat this cycle. Dovish monetary policies.An easing policy cycle means fixed income should do really, really well.Right. You go back in history, David, it was 30years.

We've never had an entry point likethis. If you look at the Fed in terms of entrypoints, so when the Fed goes when tightening to an easing some stance,fixed income does really very well. In fact, if you look at the US indices,the US Treasury, for instance, majority of the return comes at this point.Now what was the best entry point? We say, look, I think it's about beinginvested and staying invested. And now I think in this cycle, beingmore active is going to be important because, you know, we're back to kind ofreal rates, normal policy environments and therefore economy.Just by the data you go to buy the alpha.

And therefore specialist solutions comein from, you know, Franklin Templeton, other managers.Maybe we can provide bespoke advice and solutions to navigate the cycle, bediversified and stay invested. David I think that can be important.You've got to stay invested to go, think long term.You've got to kind of avoid the headlines, the important but look longterm from a portfolio and a macro perspective.Very quickly, Japan's come up in a very big way.What are your plans there as a final question?I mean, Japan is a $6 trillion market.

One of the biggest markets out of theUS, almost $3 trillion is passive to the active opportunities.Immense, I would say. I mean, Japan is now, you know,initiated NESA, you know, which is the investment savings plan is a bit likethe UK Isa. I mean for us that creates anopportunity in wealth. I would say institutional market isgrowing at a fast pace. Alternatives are still under-invested.More to come over there as well. Tariq will pick up on that next time.Of course we speak. Tariq Ahmed there, of course, out ofFrankel Temple, head of Asia Pacific.

Plenty more ahead.This is woman. Okay welcome back to shows the futuresare well defense. We look onshore we're slightly weakerwe're higher here in Hong Kong where really most of the losses wereyesterday. So give or take, about half to a half of1% to 1% gains. We're looking at some weakness in thecurrency, although we did get a stronger fix out of the PBOC earlier on.We are poised to open higher in Hong Kong.We're still waiting for potential measures to stabilize this market afterthat order from the Chinese premier,.

Various measures of this market and alsoupdates on that Xinjiang earthquake which took place early on Tuesday.The open is next. This is Bloomberg. Okay.The Tuesday session is just ahead, half of 1% to the upside.All that being said, and this was a we saw this coming.It was a slow ship coming. The declines we've seen in Hong Kongmean that as of the close, Hong Kong is now the fifth largest market in theworld. It's been it's been overtaken by India,which has now taken that place.

We're measuring this by market cap.We'll show you a chart later on in the show.Welcome back to shows. 20 seconds to the opening bell.I'm. Yeah, exactly what we heard from Timofrom Goldman Sachs here at the Global Macro Conference here in Asia, that thisintra regional disparity is something that, you know, was so wide in some wayswhere North Asia really outperformed. We have Hong Kong, China and Thailandunderperforming last year. He's not seeing that changing anytimesoon, is still his favorite markets are still those North Asia's and Indiaparticular day.

Yep.Okay. We'll see longer term whether this is atrend or whether or not you can fade this, I guess, in some ways.Let's have a look at the open place, 3/10 of 1% to the downside.CSR 300. Half of 1%.We're back above the 15,000 handle where the well the next one on MSCI China's 50at 49. I mean this this takes us also very nearthis the Hang Seng China index are both extremely close to taking out the GFClows. We are seeing a bounce today.We'll see how long it last.

We're waiting for many, many things.We're looking at volumes on index futures on the back of thatblow up in some of those structured products.Of course, onshore, we're looking at potentially more measures coming out ofthe coming out of officials. Today we heard from the Chinese premiervowing more forceful measures to stabilise confidence in this in thismarket, flip the board's place across sectors.Here's how things look. Have the major sector groups, financialsare down. Most are still down on shore.As you can see, most of the constituents.

Offshore here in Hong Kong are seeingsome upside. So some of your consumer services names,consumer discretionary names are catching a bid.Developers are also seeing a little bit of upside today.Let's have a look underneath the hood. And really coming off a day whereeverything was virtually down in Hong Kong.This is how the opening bell looks. That's a split within the Hang Sengindex. And we are seeing some decent, smallsome decent buying left side of your screens.At the moment, breath is favouring.

Gainers.At the moment we're looking at about 50 up.A good portion, though, still still down for the day.Let's give this market time to want to warm up and see where we are in a coupleof minutes here. Let's take a longer term view here.The value of the stock market has never been this far behind.In fact, that of the US, you've lost this piling up.We just talked about, of course, Hong Kong.These are the India. Let's bring in let's bring in ourtraditional our Asia equity senior.

Reporter who has been looking at thespecific valuation gap, Abhishek with the US and what can you tell us and howhow wide is that gap right now? Well, David, the gap is at a recordhigh. The gap between the US and China andactually put together is about 38 trillion right now, and that is as ofthe close of 21st. The falls that we have seen in theprevious session are yet to be accounted for.And, you know, it's it's it's also a record valuation dispersion between thetwo markets. MSCI China has never been this cheapagainst the US equities right now.

And this just shows, you know, thedivergence between the outlook of the two markets, the presence of MagnificentSeven in the US market, the turn of fed towards easing while the potential toneand China's you know unique issues and geopolitical tensions.To some investors it's also pointing towards, you know, the crumbling orcrumbling of the narrative that China would be overtaking U.S.GDP in a matter of a few decades, that that narrative is sort of crumblingdown, that that's what you know, these are records and valuation, dispersionsrecord and market value gap are showing to some of the investors.So I was shocked.

I mean, given just how extreme thisdisparity is that we're seeing, whether it's us, China markets, whether it'sIndia and Hong Kong about where U.S. reached this milestone.Are there any signs of a turnaround? Is there a light at the end of thistunnel now? Well, the signs of turnaround, you know,from valuation points are already there. We have, you know, reported time andagain how cheap market is. But, you know, the market keeps gettingcheaper. Now, the context here is that thegovernment needs to walk the talk as far as China is concerned.There needs to be a lot more stimulus.

That the market has been asking for andgovernment has not been delivering. Piecemeal approach is not going to work.That's number one. The second thing is that, you know, thisis a very liquidity driven market and this means, you know, the net flow ofliquidity is negative for China. So, you know, that needs to turnpositive. The signs of that are are still notthere. Western world is still selling Chinastocks. They don't want to own it because ofwhatever reasons. And the sentiment back home and onshoreas well as you know, offshore like HK.

Market is not that great.So you know that buying needs to come in without government intervention fromlocal residents first. As you know, at this point in time,those signs are not there. One more thing.You know, in this whole context of valuation, you know, it is cheap, but,you know, right now China needs to be compared with how Japan was.If you go back in history, look at 2007 and five years from that, Japan traded,you know, under book for a long time. And same for Korea as well.I mean, so right now the context is that, you know, valuations may remaincheap or earnings and government.

Measures will drive the market.So these two things, coupled with sentiments of what is required for themarket to move I. All right.I think you have a shot, commissioner there, Asian equity senior reporterjoining us out of Singapore. Let's bring it back to here in HongKong. The annual Goldman Sachs Global MacroConference is underway here. Joining us now is where Asia and thebank's chief China economist here with me.Good to see you again. Let's talk about the sell off, though.I mean, it's quite intense in terms of.

The selling pressure we've seen of late.At what point does this actually start hurting and constraining growth in termsof consumption and investment now? It is quite frustrating to see themarket underperforming and outright decline.I think that the channels through which the equity market declines impactingreal GDP might not be what you think A lot of people ask us about the wealthof. Right.If individuals are hoarding stocks, their stock value decline is going tohurt consumption. But in China, we have found that thewealth, in fact, is not that big.

The main factor on consumption isincome. People need to have income to consume.So what we do worry about is a sentiment and competence impact and a reinforcedmarket going down, reinforcing the bearish sentiment.I think that that might be a bigger channel in terms of affecting growth.So you're trying to reach 5.2% without massive stimulus last year.How hard is it going to be to achieve 5% this year?I think, very hard. I think last year, 5.2 around 5% andthis year we're forecasting 4.8%. Also around 5%.But we think of this around 5% is going.

To be a lot harder than the last year, a5.2%. The reason is that if you look at lastyear's growth, we estimate about two points of that, 5.2 was one offreopening. And that's not going to help you thisyear. So all else equal, you might only get3.2% this year without that reopening boost.And that's why we we think we think that policymakers are really has a lot ofwork to do to get even close to 5% this year.Should we be looking at MDC as maybe signs of maybe more forceful stimuluscoming through?.

They certainly need to create moredemand. I don't think a monetary policy is thatthe fourth center of the stimulus that people should be pay attention to.Investors were asking me about PR yesterday, but I don't think that's thekey focus of whether you cut ten basis points or not cup ten basis points,maybe as a signal value. I think the key is a physical.You need to directly introduce demand, increase demand in theeconomy, increasing liquidity a bit or cutting or raising interest rate ishelpful, but it's not essential. How difficult is it now to, you know,given where deflation is?.

Right.I mean, this is some of the longest run we've seen.I think I was speaking to your one of your counterpart, your colleagues, Ishould say, your rivals, I guess, at Morgan Stanley.They say that it's the longest run of deflation we've seen since the Asianfinancial crisis. Is this something that you that's it'smore entrenched now? Is it cyclical or is it something that'sstructural that's going to take some years to get out ofit? Is that the long as we have threequarters of GDP deflator declining and.

That is the longest since the Asianfinancial crisis? It is hard to judge how long that'sgoing to persist. You can certainly argue that there arecyclical factors, whether it's commodity prices or whether it's import prices,and that should fade eventually. But at the same time, we do see somestructural issues. And for example, we have overcapacity ina lot of industries, including electric vehicles.And so if industrial sectors will continue to invest in manufacturingcapacity, continue to produce without stimulating demand, then certainlyprices are going to be weak.

Yeah, Hatzius was saying at least thedrag from the property market is a lot less on China, maybe is moving forward.But, you know, have we seen at least the tail risks related to the real estatemarket? Has that started to fade a little bitnow? Right on the property market?I think when I talk to clients a lot of times that people are still uncertainbecause if you look around the world in historical housing cycle, it takes along time to get housing market to bottom.Think about the in the US housing market peak in 2006.When do the markets realize the housing.

Finally bottom and the start to move up?2011. So it took a long time for the housingmarket to turn around. We only had a housing peak in 2021.So I think in with this magnitude of a decline, investors are certainlyjustified to sit on the sidelines. I am trying to watch for signs thatthings are bottoming. So how do we get out of this viciouscycle of companies trimming their debt? They're cutting CapEx and hiring, andthat's going to lead to more jobs. And in terms of wage growthdeterioration, I mean, how do we get out of this vicious cycle now?I think we need to take a bit more.

Balanced view.And as it's true, there are a lot of a vicious cycle going on and some risks ofit to the downside. But the same time, when you look at thedata, you'll also see 2013, 2023 was a year of a China recovery.You look at largest cities unemployment rate versus a small city.Unemployment rate used to be largest city has a stronger labour market,unemployment rate being lower. But during COVID they had a higherunemployment rate and now finally their unemployment is coming down.So there's also a cyclical component of it.We need for that to play out and we need.

To see how policymakers address thosedownside risks should we be start even thinking about what, you know, a U.S.election outcome with with Trump coming back in office, potentially, what doesthat mean for China? How disruptive could it be?Certainly, this is a key point of decline conversations.Our market is always the forward looking.And with a Trump waning Iowa, this is the coming to sort of people'sattention, I think for Chinese investors or investors interest in China, it is arisk, but I think it goes beyond that. I think looking at what Trump has beensaying is not just tariffs on China,.

Also potentially has trade barriersincreased for other economies? And what does that mean?How does that? Because a trade is always a comparativecompetitive advantage. So I think it's going to be quite messyand quite complicated to figure out what how China's role is going to evolve.In 20 1890, it was a US-China trade war. But going forward, if Trump doesincrease tariffs, a broader set of economies is going to be differentequation. Great to talk to you, Chief Chinaeconomist at Goldman Sachs joining us here at the Global Macro Conferencehere.

We have plenty more coming up in termsof guests here and a big one coming up as well with Kevin Snyder.He is, of course, Goldman Sachs, APAC, ex-Japan president, joining us here atthe top of the hour. So I'll get to some of other your otherstories that we're tracking today. A very powerful earthquake actuallyrocks in Jiang Region 7.1 magnitude rocked the western Sinjar region earlyon Tuesday. According to state media, the quake hitMucci County, a county in Aksu prefecture around two a AM.At least two houses were destroyed and dozens of trains in the region weresuspended.

There were no immediate reports ofcasualties. More than a dozen aftershocks have sincebeen recorded. Now China has released a pilot plan todevelop Shanghai Pudong district. That's, of course, where the financialdistrict already is. According to Chinese media.The move is aimed at encouraging the development of venture capital in angelinvestor groups. Now Beijing is trying to boost investorconfidence that as markets like the CSI 300 or the Shanghai Composite you see onyour screens have hit multi year lows. Right.Just ahead, we're live out of the Bank.

Of Japan and headquarters there.We'll be talking about the prospects. And ahead of that, of course, a brieflook at markets in the Chinese mainland. There you go.You have Japan and of course, it's BOJ day as well.So lots to consider. Not in a plate for investors.Plenty more ahead. This is Bloomberg.I'm. And. If you think about it.So what would happen to the next then? Then we would like to confirm this asfar as the fundamentals are concerned.

It is going so toward the directiontoward the DOJ is looking at it. So so that sort of thing.I would like to to confirm with today's monetary policy.So as you talk as I get there, the former research chief at the Bank ofJapan really saying, Dave, it's been quite interesting, right?He said, you know, the fundamentals are there for the day to start pivoting.He was actually forecasting it into the January camp.But then because of the scandals, because of this earthquake, there arestill some uncertainties that maybe that will hold off the Bank of Japan herelater on today.

But certainly, he says, economicallyspeaking, they should be ready to go. And that is where we're going to bringin our chief North Asia correspondent, Stephen Engle, joining us outside theBank of Japan here this morning. And Steve, it seems like it's aconsensus that they're not going to do anything this time around.We mentioned, though, some of the factors that have happened in the lastfew weeks or months. But what are we expecting?Well, we're not expecting much as far as, of course, any kind of hike or moveon the main policy rate, that's pretty much a foregone conclusion.I'm willing to be surprised.

But the economists surveyed by survey byBloomberg, all of them 51, I believe it is all say, nope, it's not going tohappen at this meeting. We're going to get those you know, thatdecision momentarily within the next couple of hours, followed by what'sprobably more important if indeed they they do not move and that will begovernor. Others comments coming at the pressconference at 330 local time. So, you know, investors, economists,everybody, including myself, will be listening to any clues as to changes inthe outlook for inflation, because keep in mind, the inflationary environmenthas been above 2% since essentially mid.

2020 to the target of 2%.And right now it's still above that. Yes, it's going to be coming off alittle bit. We might get a revision, according tothe Nikkei newspaper, on fiscal 2024 and 2025 for the BOJ's outlook forinflation. But right now, still, the inflationaryenvironment, as that guest just said, is probably good enough to see an exit fromnegative rates right now. But again, the dovish stance of the BOJ,it's probably just being a little bit more cautious.They want sustainability even further, maybe until April as well.Most of the economists are forecasting.

For any kind of rate hike from the BOJon the main policy rate. They want to see not only stableinflation but stable inflation backed by wage gains.That's why we're going to be watching the imminent beginning of thenegotiations for the annual summit, which is the negotiations between thelabor unions and companies. And if they do get the kind of gains theBOJ gets, the kind of wage gains from the in negotiations, that would bemid-March. So then an April hike, if those wagegains come through, would probably be most likely.Then.

Steve It almost shifts the conversationand we just show that graphic that you alluded to that in April seems to becurrently the the preferred meaning for economists.Might we be talking about July come April?If we don't get anything, then. Well, 45 of the 50 economists surveyedby Bloomberg say it's going to happen by July.Okay. So 68%.So 34 of those 50 feel April's probably the right time.And April, you know, the timing, again, is perhaps in lockstep with the ECB andFed if the ECB and Fed are going to be.

Soon, midyear, perhaps cutting interestrates. The Bank of Japan, if they do a hike byApril, the timing would probably be better to have some sort of hike fromthe BOJ before the ECB and the Fed start cutting.Okay. So, again, July, most likely90% of the economists surveyed say it's going to happen by July as long as thosewage gains come through. Yeah.Okay. See, let me pick up here and your finalquestion. Wondering how it feels.How does it feel to be on on the ground?.

I mean, we talk about, you know, webrought you in with a setup that effectively said theeconomy's there, right? It the fundamentals are there.It's now about the mindset, You know, how do we get over two or three decadesof a mindset where prices are falling? You know, we're not going to make babiesyet. Have mindsets changed on the ground?Are people going to go forth and multiply?Are they going to hire? Are they going to hike wages?How does the economy feel? Well, that's why I think the DOJ boardof directors is essentially being.

Cautious right now.They don't want to get the political blowback for basically removing stimulustoo soon. That's happened in the past.So, again, households are a little bit skittish right now because you've hadtwo years of inflation after several decades of deflation.It's been a shock to the to the system. And of course, the energy prices havehave raised the prices at the household level, essentially with wage gainslagging prices, households have seen their real incomes fall for 20 straightmonths through November. So they're feeling their pocketbook alittle thinner right now.

So, again, yes, the stock market rallyhas been great for sentiment, obviously. And again, the weaker yen has been goodto a certain degree, but it is led to essentially higher input costs on energyand the like. So weekend at 148 has raised that importbill for the Japanese. And I talked to one shop owner out ofthe Amazon Echo Temple out near Mount Fuji on the weekend.And I would say, wow, everything is cheap here.It's great. He goes, It's not great for us.I went to the U.S. and everything was so expensive.I need to save money.

So again, that's what we're talkingabout here. As far as the household sentiment.Yeah, well, the two sides of the toilet at 148, certainly Stephen Engle, who Iimagine is taking advantage of a weekend.There we go in Tokyo for us ahead of the BOJ, which should be out within the next2 hours or so. Okay.Now back to the markets here. This side of the world, we're hearingfrom Hong Kong chief executive John Lee. He is speaking at a briefing, which Iimagine is the weekly briefing, and it's ready to talk about markets.But why not, given the moves we've seen.

This week so far, that markets areoperating in an orderly manner? There is no unusual activity, accordingto the Hong Kong chief executive. Plenty more ahead.This been. Okay, there we go.The benchmark situation is looking better here in Hong Kong.Not much better onshore where we're still reeling really from the blow up insome structured products there, Of course, taking out some key levelsthere. CSI 300 to 500 inches focus to 1000.In terms of index futures underneath the hood, Emily, it looks like there's 51 upon the Hang Seng, 29 down to unchanged,.

Broadly higher, half of 1%.This is Bloomberg.

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