China’s Stock Rout | Bloomberg Markets: China Commence 01/26

Good morning and hopefully a happyFriday ahead. It's 9 a.m.here in Hong Kong, in Beijing and in Shanghai.Welcome to Bloomberg Markets China open. I'm David Ingles.Our top stories this morning, Chinese stocks look set for a reality check asoptimism over rescue measures fades, threatening an end to the biggest threeday rally since 2022. Chipmakers in focus with Intel's sharessliding in late trade after giving a bleak forecast for the current quarter.Plus, a Bloomberg scoop. She, an investor, is trying to sellshares at a 30% discount as prospects.

For an IPO dim amid high competition andregulatory scrutiny that came out yesterday.But certainly we got to talk a little more about the broader implications ofall this as well. But certainly we've got to talk aboutthis week, Dave. What a week it was.Right. I wonder if it's a turning point or arethings going to fade pretty quickly today?Depends on the news flow, I guess. And I mean, we haven't even we weretalking about this right before the show started, Right.We haven't even gotten confirmation.

Whether or not the state backed rescueis actually happening. Yeah.But markets have obviously rallied on the news were up.Really, really good three days or so. Futures are pointing lower, as with mostmarkets that are up and running. Right now, we have two markets in theAsia-Pacific, by the way, not online today, Australia.And of course, later on, you don't have India as well.We're calling it sideways because you have some stock futures.Also, as you can see in Europe, still pushing higher as well.That being said, global stocks have been.

In a six or seven day run, so this wasbound to happen at some point. What's interesting over the last andflip the board's place over the last, what, 24, 48 hours is, you know, if I'mnot talking about Sheahan, for example, 30%, that's the discount that some ofthese asset managers are trying to discount some of their hard assets inChina, for example. It's almost a repricing of currentvaluations. Intel, we just showed you that Tesla wasdown about ten 11%. I digress.Back to markets right now, commodity markets, we're pulling back on Brent.We're playing some catch up on Shanghai.

Crude will watch out for some of theseenergy plays. We're up as a sector as we speak, butnot a lot. Bond markets, ECB overnight, PKI iscoming out of the US later today. And of course we were just coming offreally almost a confirmation of the US economy.No landing in 2020, 2023, the currency markets dollar in the dollar, China.And I guess when you look at this, we're looking ahead sue the renminbi fix ofthe day, which has averaged the spread, has averaged about 600 pips so far thisyear. So there has been some anchoring out ofthe PBOC, which might also act as.

Another sort of backstop for this rallyif we do get that today. Yep.So, I mean, if you take a look at the superlatives of this week, it's beenquite interesting, right? It's something that is, you know, Iguess quite refreshing for all of us to watch here.Just the amount of momentum behind the last three days has been quiteremarkable. Right.You take a look what the CSI 300 was doing.You know, MSCI China is were set for the best week in six months.Hang Seng China or index, I should say,.

That's seen the best week in a year.You have eight shares, also seen the best week in 14 months.So however you slice it, you know, there is at least some momentum behind thishere right now. The key thing I'm guessing is the followthrough. Right.If we see implementation, it's now time for more decisive sort of action frompolicymakers in order for this to really continue.But yeah, it certainly has been eventful, a whirlwind this week, David.Certainly I'm looking forward to talking to our guest later on out of BNP, ofcourse, head of Asia derivatives, Right.

Because to what extent has the rally, atleast in Hong Kong, been short covering? Yeah, you know, we've now sort of squarethat circle. Where does it leave us for next week?It's not just in China, right? So you're seeing some of the Chinaproxies out there. Fantastic week for mining stocks.Iron ore, as you can see, is up, what, 4.4% this week.And this is certainly one other parts of the Chinese market.We're tracking commodity markets which have also rallied of late.Let's begin lamenting to our Asia stocks.Managing editor in Singapore for us.

Her team has been extremely busycovering all the angles to the story lending.Let's start off with the this Morgan Stanley note, which dropped about 2hours back, give or take. They're paring their expectations,though, on these Chinese markets. Yeah, I mean, they first came out inAugust to say they're they're cutting China waiting to equal weighting frommore a bullish more of a bullish stance. And today they came out to say thatgiven the past few months, money flow and sentiment shift in Asia and evenspace in which we saw a lot of money actually came out of China to go intoIndia and Japan.

And that is sort of confirming theirview that this trend will continue. And that's why they're turning a littlebit more bearish on Chinese stocks by cutting that index targets by the end of2024. In the meantime, they are actuallyraising the target for Japan. And it stops thinking that the theyawning gap between China and Japanese shares or share performance willcontinue from here. Yeah, we're flashing those forecastshere right now, those targets, I should say.But I mean, what would you need to see for a day four of this rally today?I mean, I'm just wondering, what's your.

Team looking at here today?What could keep it going for now? Yeah, I think right now all eyes are onthe official confirmation on our scoop, which is about a roughly 300 billionsort of dollar or rescue fund to prop up the Chinese stock market.I think the latest is that things are getting really close to the finishingline. So if that can be officially confirmedand that would definitely sort of propel the rally a little bit further.And we're also watching out for all those forecasts for the excuse me theexcuse me, the upcoming Chinese Lunar New Year spending.I think the expectation right now is for.

The spending to be actually a bit morelukewarm compared to last year. And one more thing I think people arewatching out for is Chinese earnings season.I think we just to kick started about two or three days ago with someeducation companies listed in the U.S. They actually reported a good earnings.But those are sort of very small companies.By now, the heavyweights will still come a few a few months later.So we'll get more clarity later on. Dancing to.Thank you so much, laying out the day for us.We're just getting started.

20 minutes to the open.So it's going to get busy as we head into this open later today.Way we've talked about the markets part of the conversation.Let's wrap up the rethinking and economics and trajectory.And I think you've seen the likes of Goldman say, look, this doesn't mean,you know, Pandora is not done. I think that was a lot of what peoplethought got out of that press briefing is how dovish she actually did sound,especially when you talked about deflation.Yeah. And so, you know, he's coming out withsome forecasts now.

We had Chang show on yesterday saying,look, this maybe does push forward their expectations of what comes out when itcomes to monetary policy. They were forecasting 100 basis pointsof cuts that we could be seeing, whether it's policy rates in the like in thenext few months or so. So certainly that is what people arethinking. I think the fiscal side might take sometime, but at least monetary policy that looks a bit more decisive now.Absolutely. And when you get those two things incoordination, right, fiscal and monetary first and then fiscal, you know, we'llyou know, we're moving into NPC.

Yeah, that's seven weeks away.So arguably the next eight week window are going to be crucial for the Chinesemarket. And, you know, we'll take a break,obviously, in between because of Lunar New Year.So we do have some momentum going into that.But anyway, we're just painting it out. What the possibilities lie ahead here.Now, speaking of, we're looking ahead to the open right now, just over 20 minutesaway here, BNP. We talked about this.He was talking to derivatives call options and what they're seeingunderneath the hood and how they're.

Trading this market this week.Jason Lui joins us at about the Open today.Also coming up, we'll hear from the founder and CEO of Quadratic Capital totalk us through. Well, it's a path for the Fed meetingnext week. I believe we are in the black out periodas we go into that crucial meeting. Yep.Also, when it comes to what happens in this market open, we're coming down toShanghai and Hong Kong. Futures are suggesting maybe we couldsee some downside here today. We're lower by 4/10 of 1%.This is where the market's trying to.

Open.Happy Friday. All right.Take a look at what it comes to. U.S.Treasuries. Yeah, we're pretty much stabilizing herein the Asia Session. You still see the ten year just belowthat 4% level. And really, that was despite this GDPnumber. That's really good, though.Sorry, my bad. Five year highs are really, really badright now. GDP numbers grew 3.3% last quarter.That really was a blowout number.

I think the market just kind of brushedit off and somewhat backward looking. Yeah, it does tell us, of course, thereis some momentum here going into this year.But I think if you look at the recent data, maybe you could make a strongerargument that there is some lending taking place.Certainly no lending took place there in in 2023.Nancy Davis is with us, Foundry, CIO, Quadratic Capital Management joining ustoday. Good morning from the Asia Pacific.So no landing last year, question mark landing this year.I look at the four well, this 4.1%.

Handle on the ten year, it doesn't Imean, do you think it's a possibility, Nancy, that we could also get no landingthis year in the U.S. economy?Well, things seem pretty pretty priced for perfection this year, unlike cominginto, if you remember, the start of 23, everybody was sobered up.You know, it was a real the sentiment was terrible.Now it's kind of opposite day where everybody is, you know, everybody'sbullish, everything is wonderful, the data is great.You know, it seems like the risks are skewed to the downside because theexpectations that everything is going to.

Be fine in the Fed's going to kind of alot are priced in. Yeah.And what does this mean for the positioning in this market?I think the long Treasuries trade was certainly something that was verypopular leading up to the end of last year.You know what happens? Those longs now that we're starting tosee some cracks for? Well, I think people need to rememberthat, you know, owning more duration is more risk.And right now, we still have an inverted yield curve in the US, unlike many othermarkets around the world that have a.

Positively shallow yield curve, giventhe ten years for 11 right now on your Bloomberg terminal and the policy rateis five and a quarter. That's not a very necessarily safe placeto be unless you think the Fed's going to cut a lot.And I think that's why people have been rushing into long duration becausethey're sort of with their hands out expecting the Fed to cut dramatically.And what if what if we're higher for longer?And what if the Fed doesn't cut as much as the market's pricing in?So, I mean, the debate is about March. Whether that's too soon or fits, right.Is the inflation debate conclusive.

Enough?Is the economy slowing down enough to justify that?Well, it's interesting because the data that's coming out on the inflation sidedefinitely looks like things are cooling.A lot of people are talking about the US importing deflation from China, thatthings are fine here and the Fed can really cut rates.I think the big the big risk is what if the Fed does cut rates and what ifinflation is not over? What if it's still a risk?Because if you look at the break even curves in the US looking at theinflation protected bond market, they're.

All right, hugging around 2%.You know, you can see the five year, the ten year, the 30 year.They're all around 2.27, 2.3. So the market is really expecting CPIinflation to be around 2%. And I think the question is, what if theFed does cut and what if inflation is not a story that they want?We also have the swap lines coming to an end in March.So if you remember it, it seems like so long ago, but there's less than a yearago that the US had the Silicon Valley banking crisis, and that's when the Fedcame out with this beats up the swap lines to give liquidity to banks.That's going to be pared back in March,.

Kind of phasing it out because a lot ofbanks are buying the market right now. And we're also going to see what doesthat do to liquidity? Does that make repo rates go higher?You know, how does that all play in? Because as you can see on your Bloombergterminal, the market is still pricing in some probability that we are going toget a cut from the Fed in March. Yeah, a 5050, in fact, almost looking atlooking at swaps here. And you guys are ten basis points.So yeah. Oh, there we go.Yeah, slightly, slightly below 50. Is there anything, what will you toimagine with March being so near.

Fine.We have another meeting. That's next weekduring the blackout period right now. So there is no guidance obviously atthis point in time. But, you know, looking at the rhetoricgoing into the blackout period, it it seems unimaginable that they can justflip the narrative and come out with a statement that that's dovish.Do you think that's a possibility still, though?I don't think so personally. But, you know, I think the Fed hasdefinitely told us. So talk out of one side of the mouth anddo something totally opposite.

You know, the thing that comes to mindis, you know, the old we're not even thinking about thinking about raisingrates and transient and all that stuff. So I just think we have to kind ofnobody can really predict policymakers and what they say is not always whatthey do. Talk to us about the the strong dollar.And, you know, you were flagging this to us during the ad break.The strong dollar is making U.S. firms do something.And why is that relevant to this conversation as you and what are theydoing? Well, the rhetoric in the US is thatwe're going to have a manufacturing.

Renaissance and that jobs are comingback to the U.S. and things are going to be made hereagain. Things that might have been madeoverseas over the last, say, you know, ten, 20, 30 decade past decades.But the big question in my mind is the dollar.Because if you're just a company irrational about the cost of labor, it'sa lot cheaper given the strong dollar to have labor be overseas.And so I think that's kind of my questioning of the perception, becauseeverybody in the United States or the talk that everybody's going is like,we're going to have this manufacturing.

Renaissance.That would be obviously wonderful if it does happen.But is it something that's not priced in?Is that a risk that everybody is thinking this way?When you hear the sell side research that equity strategists kind ofeverybody coming out and talking about how great things are in the U.S., well,what about the dollar? Because that does make labor as well asother types of services much cheaper overseas.Last question. I mean, how do you form some sort offixed income strategy now?.

I mean, given that you said a lot ofit's been priced for perfection, Western looks attractive to you, Nancy.So I personally I think if you're going to own regular Treasury bonds, I thinkT-bills are the way to go. That's a short dated Treasury.You get a much higher yield. Obviously, you have reinvestment risk.So the Fed cuts a lot more than expected.You might have a lower yield bond in the future.But I think given the unknowns, I think T-bills are pretty good place to behiding out. I wouldn't I do think inflationprotected bonds are also good value.

I think the one problem with inflationprotected bonds on their own is it's only the consumer price index.That's just one index. And it might not be the only way tomeasure inflation, especially, you know, today's GDP report was I think peoplejust threw it away. They're like, whatever, we're not evenbuying it because so many of the revisions fromthe BLS change. You know, the numbers come out great andthen they get revised down. So I think there's a lot of the emphasison the B and S in the BLS. Sorry, bad joke, but we think it's agood one.

Probably not appropriate for BloombergTelevision. Sorry about that.You got to keep things light. Well,but yeah, it's it's definitely a question of what the data can you relyon it. And I think inflation protected bonds dooffer value. But I think tips alone have the problemof just being CPI inflation. We didn't get to talk about the Fed'sbest balance sheet. That, Nancy, is one for you.Yes, quantitative tightening, to be morespecific or cute.

All right, Nancy, thank you so much.Founder, CEO, Quantitative Capital Management.Happy, Happy Thursday evening. Happy Friday.Of course, our viewers out there. Okay, what do we have?Renminbi fix for two days out, bottom of your screen.So still quite a spread over 600 pips on the stronger side.Futures are pointing down 10 minutes, an opening bell.This is Bloomberg. And. Okay.Welcome back.

So, yeah, futures were on points.Some weakness coming through after three days of fairlybig gains on price volumes are coming back as well.So maybe it's time to to take stock, take stock and maybe look into someother things that have been in the pipeline here, especially when it comesto IPOs. We've learned that investors and Sheehanare trying to sell shares in the private market deals.The value of the online retailer as low as $45 billion.And the firm achieved a valuation of roughly 66 billion during last year'sfund raising.

So that's where that discount comes out.Let's bring in our deals. Reporter Manuel Delgado joining us.I mean, the perceptions of this company certainly have been dwindling now anddefinitely it's been happening for quite some time.I mean, we saw the latest round in May at $66 billion.And and then in the private market, it seems to be getting even even worse.And that's down from a kind of like first big valuation of $90 billion in apotential IPO in the US. Right.So we'll see. I think I think valuation is really,really the main hurdle for for these.

Company.They have very high value expectations and investors came in at the very topvaluation in the past and I think it's going to be really hard for them to pullthat off, it seems, because so 66 was made, but, you know, 66 is coming off100 billion. Exactly right.A few years. So I guess they're trying to cash outbefore this thing corrects even further. But the question is, how liquid is this?Is this private market anyway? Right.This is things that trade every day, for example.Yeah, it is actually a good point.

If it is not very liquid at this pointin time, because I mean, the bid ask is just too wide and I think some of theinvestors gaming really high and then now they're trying to exceed andmonetize that those shares and they're not just finding buyers that are willingto buy at that level. I mean I think I think she is beingcaught in a perfect storm with intensifying competition from the likesof of tomorrow from Utah and all their international players.On top of that, you have the regulatory crackdown, which is kind of happening aswe speak with Chinese regulators trying to weigh in on whether or not they areready to go ahead with the IPO in the.

U.S.The SCC is also kind of waiting for them to kind of like see whether they can goahead or not. The investors in the meantime trying toto look for a liquidity event in the in any way.So yeah, let's see how it plays out. I think the next few months are going tobe quite important and we'll see how the market also whether it stabilizes ornot, because for these sizable IPOs is key.Yeah, okay. We've got a few hurdles aheadto say the least. But after three days of gains, it'sslightly, slightly better.

Mike Emanuel, thank you so much.Happy, happy Friday. Okay.A couple of things as far as the your Friday agenda is concerned here.So we did see, of course, early weakness already coming in, permeating acrossthese markets, 8/10 of 1% towards the the more growth side of the conversationhere. Now, we're also looking at commodityprices. Metals prices have been a bit up thisweek. Yeah, I think industrial metals aresaying copper, aluminum, Yeah, best best week we've seen in a while.And you're certainly seeing that copper.

Prices are still edging slightly higherhere, but the rest are seeing a little more of a tempered sort of sentimenthere today. But in terms of the agenda watching veryclosely, if we get to get another day of this rally, so far, the free market andthe like, we're not seeing that right now, but certainly surging turnover,those volumes, whether that can actually last, watching some of these propertyassets, luxury goods, stock, giving a bit of resilience that we saw in thoseLVMH earnings as well. We'll see if that helps the likes ofthese luxury goods that are listed here in Hong Kong.And of course, more signs of stimulus.

Possibly.Yeah, which we could actually get later. I'm not saying that that's you know,that that's a home run. But, you know, certainly investors arelooking at these afternoon briefings that we have one today out of theMinistry of Commerce following the the pleasant surprise we got out of the PBOCin Pangong sharp over in the week. LVMH warned that in fact so one of thelines coming through on China here is that the company says that the Chinesemarket is still absorbing high cognac inventory.So yeah, there we go. And hence we're looking at Pradafragrances up 1%.

I'm going to watch likes of child typefolk, the like. And then we're looking at, of course,some of these gaming stocks. There was another a few games or atleast a batch of them that were approved by regulators are Tencent being one ofthem. But that stock down about 9/10 of 1%,paring back some of the big gains that we saw overnight or yesterday.The open is next. This is Bloomberg and. Get us to the weekend.Get us there. What a week it's been.Weakness coming through on price on an.

Index level.As you can see, a50 futures down about 2/10 of 1%.Hang seng is down about 3/10 of 1%. We're coming off.What? What?At these levels, we're still on track for the best weeks in months.I think some of these benchmarks haven't even go back to I think in more than ayear. All of Europe meeting in July comes tomind, too, because you had a good week there.And in the week that was really good. Before that was this reopening rally.Yeah, we all know what happened.

I mean, given up, what, 8% and the HangSeng this week, it's nuts. So, you know, I think it makes sensethat maybe we're seeing a little bit of a a paring back here today, really, aswe call it, a reality check across these markets after the volatility that we'veseen, a surge in turnover and the like here.So we are at least ending this Friday. Still a positive note to end the week.But then again, a little bit of tempered optimism.You take a look at how the open is faring out here in Shanghai as well asHong Kong. We are still seeing a more downsidepotentially here.

And the onshore market, CSI 300, we'redown about half of 1%. But mind you, we saw plenty of momentumin the onshore markets, more so than Hang Seng yesterday.In some ways, Asia's tech, though, we're down about 1%.And we're watching very closely what happens when it comes to some of thesemetal prices as well, which we're seeing is the iron ore pair back a little bit.Shanghai crude, though, take that. We're up some 3%, Right?I think the best week since October for oil prices amidst all these geopoliticalconcerns. Obviously, this prospect of more Chinesestimulus is really kind of bringing up.

The price of crude as well.So we're watching very closely what this means for oil producers.You're watching sector by sector. It's still mostly in the red at the getgo here. Developers are catching that slight bithere today, particularly the CSI 300 and what we're seeing with our index fromBuy. So, yeah, it w as looking for more signsof that follow through. Right?Implementation is now key. Now, you know, it seems like thissynchronized, coordinated sort of response has been laid out as we talk toour colleague landing, too.

We're still waiting for thatconfirmation of that stop stabilization fund if we actually get it today, Doesthat mean, you know, buy a rumor, sell a news, or can we actually see moreconfirmation of this? That could give some more momentumbehind this rally. But watching very closely, gamingstocks, we saw China approving more domestic games despite what we saw withthose harsh gaming curbs in December. Does that reassure the market in someways? You're looking at Tencent, which wasactually getting a green light on one of their games, is still lower by 9/10 of1%.

Prada, of course, we talked about theLVMH story that's helping that stock just slightly here today.We're watching Child Eye folk as well. But yes, saleswoman resilient when itcomes to LVMH amid this broader luxury slowdown, the China factor certainlydoes play a part of that as well. And we're watching oil producers,miners, the like here. So, yes, it is a little bit of paringback. So even an energy that was up doubledigits yesterday. We're paring back now by about 5%.But Petro China still catching a slight there.Surging mining Jiangxi copper all down.

This morning China was quite was big.Oh yeah. Up quite a bit yesterday right.Yes. You rarely see moves like that andthat's what we really see in a week like this over the last few months or so.All right, Morgan Stanley, just a reminder, viewers came out with thisnote, just dropped in our inboxes about about 2 hours back, their new targets onChinese benchmarks. And they've needed to really pair thatback and really upgrade Japan, which they previously thought was 2600.And the topics they now see to 2802 Hang Seng this is and 2020 for 16,000 MSCIChina.

In case you're curious where we are,we're at 53. Okay, it's quite 53.They now see that basically remaining flat for the year.What's also picked up so this is the next 12 months would pick up yesterdayperhaps worth noting moving forward trading activity.Right. So volumes on the Hang Seng topping4,000,000,042 on the Shanghai comp number of shares.Number of shares and turnover, though nearly ¥900 billion.That's overall on the on shore market. So things have certainly woken up thisweek.

Joining us here on set to talk usthrough what really took place underneath the hood, Jason Louis, headof equity derivatives strategy at BNP. Good morning.Good morning. Thanks for having me.Tell us a story. What happened this week?What did you see? Sure.I think you mentioned about derivative. What is interesting to us is that whenyou look at what's happening on the cash market being the index level versuswhat's happening in derivative market, you actually get a slightly differentpicture.

So if you look at the past three or fourweeks, we have seen the overall index continue to drift lower and lower,partly because the market were a little bit worried about the policyimplementation and also the policy coordination.Now, for the past few days, we have seen a little bit of that changing, which ispositive development. You would have thought that as the indexcontinued to drift lower and lower. There needs to be more fear in themarket. I think in the US people look at the VIXas a fear gauge. So market goes down, fear goes up.What we have noticed in the Hong Kong.

Space is that yes, when the market goesdown, volatility goes up to reflect the fact that the market is more volatile.But the course of protection in this case, people willing to pay for theseso-called out of the money put. It hasn't increased to the samemagnitude that you would expect it. So, for example, if you thought that themarket is down 15, 20%, you would think that people want to pay more to protectthat downside. What we have observed is that debtdrawdown perhaps is due to people simply liquidating their position.So if you do not have a position, then you may not need to protect them.And so we ended up seeing a scenario,.

This so-called relative cost of puts andcosts, of course, actually drifted lower and lower.On the flip side, you have people saying, hey, Hong Kong, China is down15, 20%. Perhaps there's a short squeeze, whichwe did see a couple of days ago. And we continue to see people justwilling to spend a little bit of premium on the upside just in case, because oneof the lessons we learned from last year is that even though the market overallwas down, we have episodes of these very concentrated 5 to 10% rally.And so for the fast money, they don't want to miss that.So they're willing to spend a little bit.

Of premium just to protect themselves.On the other end of the distribution, which resulted in the rather uniquesituation where you have the index going down, but the derivative market is notnecessarily showing the same level of concern.Simply looking at the relative cost of protection versus upside.So what does that tell you about whether this rally can come to last?Sure it does. It does.It isn't sustainable in that way. There's not as much fearthat you're seeing in the derivatives market.Sure.

Allow me to maybe take a step back tomaybe dissect why we're in the situation to begin with.If we rewind the clock about two months ago, heading into the Central EconomicConference in December, there were expectations that perhaps the governmentwill give us some hint whether or not they would introduce more stimulus forthe year 2024. The outcome of that meeting was ratherneutral at best, and then heading into the beginning of the year, people whenbut wondering, hey, maybe started the new year, more policy.And there were some rising expectation of a move rate cut which we did not get.Yeah.

So it created this negative feedbackloop that you had expectation of policy. It didn't deliver.And then you get into that, hey, maybe the government is actually do not wantto spend too much money this year and they kind of spiral downwards.And for the past two days it seems to us that the policymakers acknowledged thatthere could be some confusions in the market regarding their commitment tostabilize growth. And so our view is that and similar towhat you reported earlier, one of our peers have changed their target.Obvious has been that we are neutral on the Hong Kong China market because wethink at the end of the day it all.

Depends on the implementation of thepolicy. What you are seeing right now is thisnormalization of this extremely bearish sentiment that accumulated over the pastfew weeks. So if you look at some of those in thatmovement, we are probably just returning back to where we started.And then the next leg will have to be whether or not they introduce a crediblesets of policy at the National People's Congress, which we believe will start inearly March. Right.So whether it's news, flow announcements, indexes, second order,market metrics.

Name, name one thing you're watchingclosely that if that changes the complexion of this, markets now changefrom this bearish downtrend we're still in right now.What could it be? Sure.I think in this case, what we need to look at is the consistency of theirpolicy, because right now we have seen specific sectors that come out withpolicy. You mentioned about gaming, right.So for the past two months, it has been a roller coaster ride when it comes tomobile gaming company. You had a negative shock in December andthen there seems to be some course.

Correction over the past few weeks, butonly one sector is not enough. We have seen for the past few days thereare more narrative on helping the property developer getting financing aswell. But what we need is a coordinated with atop down message and say these are the few things that we need to tackle.So, for example, this year one of the new initiatives is still called threemajor projects where they need to solve public housing.They need to develop somewhat the inner city redevelopment and the dual useinfrastructure. If we get more clarity on how much moneythe government is willing to spend on.

These projects, we can get a bettersense of can this project become a new growth driver?Because we do need some new growth driver for the year 2024.Thought I ask you about why the sell off really exposed.You know, these these snowball derivatives that which we really haven'ttalked about until now this week basically of these you know, you buyinto this, you get a coupon if it stays in some sort of range or not, that meansthat basically that's all these knock on effects.How popular are these products really in the market right now?Sure.

I mean, they cause they reallyexacerbate the sell off in many ways. So I think, first of all, these kind ofsnowball products are typically we categorize as auto callable structurethat is actually fairly popular across Asia in markets like Japan and Korea,and also in European markets where interest rate tends to be quite low.So the retail investor is trying to gain higher coupon by purchasing thesestructured products. So snowboard itself is not necessarilysomething that is completely new when it comes to derivative market.I think what is slightly different is that it's becoming a lot more, I wouldsay, mainstream in terms of news.

Reporting.I think you mentioned your colleagues been very on top of these kind ofsituation. And so it created a feedback loop wherepeople are looking at these key levels on this structure and they look at themarket to say, Hey, the market is trending down.We are. We're not.These are derivative players trying to hedge themselves.So you created this negative feedback loop.Why is the market down? Because you have these trigger level.And why do you have these trigger level?.

Because the market is down.So what we've seen over the past few days is that with these kind ofcoordinated message, at least you stop that negative feedback loop.And we have seen yesterday the small midcap indices actually rebound a littlebit. And so I would say that snowball is partof the reason why people amplified or exacerbated the negative view.But it's not necessarily the only trigger.Sure. Because I think the main driver for thedecline this year do with that lack of policy content coordination and the lackof visibility on the new growth drivers,.

That's helped make some of our viewerssome money here. And here's your plug.You have a you have a BNP charging infrastructure basket that's talk to usabout that and also talk to us about the Upstream Midstream index, too.Sure. No problem.I think earlier you mentioned some of the rise in the commodities prices.And so what we've observed is that over the past year, while people are downbeaton China's economic growth, some of the upstream industry, like energy materialengineering, actually has done quite well.The main reason is because these part of.

The segments are still quite sensitiveto commodity price, and commodity price has been quite resilient relative to thegrowth expectation of China last year. And we think if people continue toimprove this year, then these upstream industry should continue to do well andthey have outperform quite a bit and I think that may attract more flow intothat. Very quickly, 5 seconds or so, does thismarket need some version of QE from China?I think it is. Depends on the definition of kill you ifyou look massive amount of money. I don't think at this point the Chinesepolicymakers are ready for that because.

If you look at some of the statementsthat they have made in the past few years, I think they are quite cognizantof the fact that when the Western economy deployed a new style, you endedup creating some unintended consequences.And I think they are very well aware of that.So at this moment, based on their statement, we don't think it's a highlikelihood. Jason, great to have you.Jason Lloyd, their head of equity and derivatives strategy at BNP Paribas.We have plenty more ahead. This is Bloomberg.

I'm. Okay.The milestone overnight is Microsoft was flirting with this level.It closed above the $3 trillion market cap level.So it's now joined Apple, of course, in that.So just to right now, according to my count, the Apple of Microsoft Aramco isget this about a trillion below. It's a very weird sentence.But yeah I mean there's a lot of the news for Microsoft, too.You know, they announced these job cuts, of course, as it pertains to thatacquisition they had with Activision.

Blizzard.And now a few months after that, they've now managed to come out with somealigning of resources, if you will, and what that actually.All right. That we got a loan to in that club.We're watching Intel, of course, the fallout, I guess, from the stock overallon chip makers here this morning. I mean, it fell some 10% or so.An extended trade. Yeah, the bleak forecasts.So maybe this comeback is coming back a little bit more slowly than firstthought. It was a 11% sales miss in the firstquarter as well.

They're not really playing in this wholeAIG story. In some ways.They're actually kind of a bit behind. So maybe that means chip makers herecertainly could be seeing some pressure here today, but just goes to show theheadwinds that we're seeing still when it comes to PCs, when it comes toservers, the like here as well. But then we're going to have more ofthose questions to the intel CEO, Pat Gelsinger, joining us in US TV a littlebit later on for more on his companies and the industry outlook that is comingup on Bloomberg Technology. Yep, certainly that interview is one towatch.

And the stock, of course, as we approachthe open in the US. If the Tesla analogy is any indication,yesterday was that 10%, that's not going to be a good thing later today anyway.Stay in tech through the biggest firms in the industry.Alphabet Amazon and Microsoft have received inquiries from a US regulatorabout their investment in partnerships in AI.Su Keenan is with us in New York for the story with the story.Sue, what's so we're talking about the FTC here, aren't we?What what's, what's, what's bothering them?Yeah, the Federal Trade Commission.

It appears they're concerned that asmall number three major tech companies are funneling billions of dollars intoopen air startups, and they want to make sure that they're closely monitoringthis. The trade FTC made clear in a publicworkshop. In fact, we heard from FTC chair LinaKhan that these air companies, in her view, quote, cannot use claims ofinnovation as cover for law breaking. So they're concerned about thecompetitive landscape. The FCC said it sent subpoenas to fivecompanies to gather information, and the probe focuses on more than 19 billioninvestments by Microsoft, Amazon and.

Alphabet's Google, a series oftransactions that cemented alliances between the world's cloud server giantsand the leading developers of AI software.So usually the Justice Department conducts these antitrust investigations.What's changed here? What what's changed is probably acombination of both politics and the fact that the FTC has the authority toreally get involved here. We do know that one member of the FTChas criticized the tech giants for structuring their transactions in a waydesigned to avoid the US merger law. The merger law requires companies tonotify antitrust enforcers when they're.

Creating partnerships.So the agency is using its authority to issue subpoenas to gather information inwhat's considered to be a market study. But it then has the authority to launchprobes or aid in existing probes. Microsoft, for instance, invested morethan 13 billion in chat maker Open I Google back in October committed to backanthropic. That is another startup started in 2021from a lot of employees from open A.I.. They committed about 2 billion.Amazon last year also agreed to an investment of as much as 4 billion.So again, there's a concern that perhaps the relationships between thesecompanies is not clear.

They want information to make it clear.Back to you. Right, Sue.Thank you, Su Keenan there. The latest when it comes to, of course,these big tech companies and what the FTC is looking at, let's focus on I heara really a Taiwan to the island is building its own AI language model tocounter China's influence and establish a foothold in the budding ecosystem.Joining us now from Taipei is our bureau chief there, a Samsung ally.Samsung, tell us about this model. Well, if you want an indication of whythis is so important for Taiwan to have its own solution to this, if you knowthe options for you, if you're using.

Chinese for the for large languagemodel, say this, GPT does have a Chinese language option.It's not particularly good. The most used one in Chinese is Baidu'sonly bot. But if you type in, for example, intoErnie or you ask Ernie, who won the recent election in Taiwan, it will giveyou the correct answer, it will say relating to.But then it also adds on top of that, no matter what how the situation in Taiwanchanges, there will always be one China. So this really crystallizes the concernsfor Taiwan around relying too heavily on these kinds of solutions and these kindof software developed in in China.

And so that's why the government has setaside around 550 million USD to develop its own A.I.tools. And part of that will go towards a largelanguage model like TPP, but a Taiwanese one, so that they can have confidencethat Taiwanese businesses, banks, hospitals, government agencies can use,you know, a GPT like functionality without concerns over politicalinfluence. And of course, if you're sitting inTaiwan, that's a huge concern. You know, you see the likes of theChinese software guys like take talk show hosts or have an increasinginfluence in Taiwan.

So Taiwan does want to develop its ownsolutions for these kinds of things. So the developers say it's likely tocome on line or be ready for testing at least by April.And they're fully aware that the amount of money they're dedicating to thisisn't enough to make it a rival to Baidu or to GPT.But they say for Taiwan's needs, decent is good enough.Hmm. Well, okay.Well, that's. That's great.Okay, Sam, thank you so much. Sam Ellis in Taipei for us about 20minutes into the Friday session.

And we're slightly weak in the kneeshere, particularly when you look at business growth and tech names, interesttech leading declines right now, although on price, not a lot.I mean, 4/10 of 1%. That barely takes us back toone point in the afternoon yesterday. Any more ahead?This is Bloomberg. And. Well, the ones we're working on at themoment is how do we charge back into Ukraine as soon as the Europeanauthorities say it's safe to fly in Ukraine again?Nobody knows when that is going to be.

But we were Ukraine's second largestairline when the Russians invaded on the 24th of February last year.We would be Ukraine's biggest airline. The week after, they tell us it's safeto go back in there because we're going to charge back in there.Initially, we have a plan to open up about 30 routes from four Ukrainianairports back into the European Union. And then we want to, I think in thefirst within 6 to 12 months, open up three or four large bases in Ukraine.And we're talking to the Ukrainian authorities about creating anenvironment cost agreement on which we could lead the charge of air travel intoa war, Ukrainian recovery.

All right, Yvonne, what are you doing onthis date? It's my sister's birthday.Is it? Yeah.I'll probably be celebrating another year, though, so.Well, it will still be her birthday if analysts are correct.And the methodology here is we've taken a look at the implied upside on HCIstocks. We've put that on an index level 47%over 12 months. And if we do 47%, 47%, and an incrementthat gets us back to that high that we hit back in 2015.So that's 913 days away, assuming.

Analysts are correct.So I mean, it's rough math and obviously you don't supposedly have to wait morethan two and a half years. Yeah.Okay. But took me longer to get overheartbreak anyway. So put that into context.Oh, you romantic. Yeah.So that's just giving you some size and scope on really how pessimistic thismarket is right now. But certainly we've seen the wheelsturning a little bit the last few days. I cannot continue.That's still the key question here.

Today.Take a look at some of these movers that we're seeing.Gaming stocks certainly one thing. So trying to prevent more domesticgames, that's not really doing too much when it comes to some of these stockshere. But look at times that we're down to 1%.But it's really more about paring back story from yesterday.I think that is was that the one that we talked about that we're back to levelsbefore before December 22 as harsh gaming curbs came about.Yeah so that just goes to show there is a bit of a turnaround story for thatstock.

And we're watching some of these oilplays as well, just given where we are with oil prices.The best week since October as casino goes up some 2%.Okay. Other things to look ahead to today.So US PC data is coming out. As far as China is concerned.We're obviously on the lookout for any sort of announcement.And, you know, that could possibly that does not have a specific fix timeattached to it. Although that being said, possible sortof landmark to watch today is this Ministry of Commerce briefing that'scoming up in the afternoon.

So watch out for that.That takes place after the close on shore.It typically still goes on with about an hour left of trade here in Hong Kong.And of course, we're also watching things like volumes which explodedyesterday. We got a 42 billion share day on theShanghai Composite. We get that today.Do we get a 1 trillion turnover day? Asia Pacific, 4/10 of 1%.US futures are pulling back and perhaps a lot of what you're seeing in thefutures market is reflecting the pullback in Intel ten 11% in Asia in theafter hours trade.

Jakarta comes online next.This is Bloomberg.

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