tv Bloomberg Markets Asia Bloomberg October 5, 2021 10:00pm-11:01pm EDT
chinese stocks. david: interesting divergence in the markets. opportunities coming because of evergrande. the first taper, what they are doing with duration. yvonne: yields are rising once again. so we are seeing the selloff continue, despite the u.s. session. rishaad: gyrations, as well. we started off with a bright note. kind of went south a little bit. new zealand coming out of lifting the benchmark. we have ways to go. how the ease back on it. david: let's have a look at it. 20 minutes ago. then we turned red. equity markets across the region. we started out ok. we felt the tailwind up until about the hong kong open 15 minutes after that. this is what you are getting across most of the equity markets in the region. we talk more about hong kong and what is happening. kathleen hays will join us to
talk about new zealand and why the kiwi dollar is slightly weaker. that is the risk, it might be to the downside, as far as the kiwi dollar is concerned. commodity markets in focus, oil holding steady. here you go, as far as some of the sovereigns and futures. but hong kong very much in focus, especially as we hit the new lows on benchmarks. yvonne: h-shares, a five year low we are approaching. taking a look at the property developers. still the key focus after yesterday night we saw a series of downgrades from the likes of when it came to fantasia. so we see when it comes to the hang seng, down 233 points. hardware seems to be dragging the benchmark lower. property, as well. we are watching the hong kong property developers ahead of the policy address from carrie lam.
david: we will see what happens. it goes into the whole property conversation. it is a different story, but the same theme. yvonne: common prosperity. david: how you get property prices down here without causing disruptions, how you get the mainland without market disruptions. fantasia bonds are pretty much trading below $.30 on the dollar. rishaad: having a look at a move we have not had. the first time rbnz have raised rates. the last time we had a move was the downside by three quarters of 1%. that was march of last year. signaling further increases. they do expect it to recover. the biggest city, auckland, in lockdown. let's take a look at what happened before the decision came out. now on track to remove stimulus as they have, which -- how do
they do that? when will they do that? let's get over to our global economics and policy editor, kathleen hays. auckland is still under lockdown. they have decided to move. kathleen: i think a big reason is they do expect the lockdowns to end, the economy to rebound, but above all, inflation reaching the top of their 1% to 3% target. you can tell that they are worried, because not only do they say future moves will depend on the medium-term cpi, the implied rate they are looking for the november rate hike, no surprise. they point out that they expect inflation to rise above 4% in the near term before easing. they think it will ease because they will keep raising rates. another part of this story is home prices have surged. right now, house prices in the latest month, through august, up
26% annualized. in a statement, they said the level of house prices is unsustainable. another reason they feel it is time to move. they are confident activity will recover quickly as restrictions these. in terms of the little bit of weakness in the new zealand dollar, i would expect there are a couple of things. there may have been some foreign-exchange traders thinking they will do the 50 basis point hike they planned to do in august when the government put the economy back into lockdown because of a virus outbreak. maybe they are saying they were not quite that aggressive, but certainly the door is open. it doesn't seem like they are waiting to see what happens with inflation, as high it is is and expectations. i think the question as we get closer will be if it will be another 25, or maybe they get aggressive and go for the 50. yvonne: they are not alone when
it comes to concerns over higher inflation ahead. talk about storing cold prices, higher commodity prices. how will it change the reaction function among central banks? kathleen: i think what it is going to do is show that the early movers have been correct. bank of korea, bank of new zealand, iceland leading everyone in the world. when people see commodity prices doing what they do, i love these charts, reaching another record high. a lot of it is energy. about coal, all kinds of commodity prices are rising. but there are supply constraints around the world, where the manufacturing goods those commodities go into, people cannot move them. so many forces are pushing inflation higher. another thing we can look at, breakevens. inflation breakevens for the u.s. treasury. look at 3, 5, whatever you are looking at, they are pointing higher. we've got the jobs report on friday.
question of the day, what about the jobs report can move bond prices, move asset prices when it comes out in the u.s.? i would say super strong jobs report would be the risk. that will get more people fired up about the fed's may be tapering november, but for sure, and maybe moving up more voters to rate hikes in 2022. that is the bond markets'defensive -- market's defensive position. yvonne: thank you, kathleen hays. the antiviral covid drug for merck to supply, the first news we are getting of deals regarding the covid pill with asia. it could be quite. people saying it is quite significant in the fight against covid. the risk of hospitalizations has been reduced. that could be big news. rishaad: gets us back on the huge caseloads, as well.
records being infected. also these are a symptomatically must something like 90% of them, indeed very mild forms of the pathogen. we did hear about key issues driving institutional investment strategies from the bloomberg invest global conference guests. >> there are not a a lot of places to go >>. >>it is a very good time to be liquefying assets. >> markets are liquid. exiting makes sense. >> i'm not saying the market will go down 20% tomorrow, but there is sensitivity. >> do you still want to own equities? >> if we got reasonable growth equities, they are the only alternative for most people. >> what you don't want to own is long-duration fixed income. >> sitting long bonds feels like the wrong answer. >> because there, you are more vulnerable. there is no place to hide. >> many institutions see it in their portfolios.
>> what is across the chasm to mainstream. >> whether bitcoin and ethereum survive, i'm not sure. >> the risk reward potential far outweighs any of the other things they may be able to look at. david: there you go. a lot of voices in where you want to be across these asset classes and in the market. aaron brown joins us now. the portfolio manager. good morning from the asia-pacific. let's extend that string of soundbites. where will you be across asset classes? >> i still think you want to be invested in equities. more cyclically oriented equities, particularly those exposed to commodity inflation, will outperform as we move from midcycle into later cycle environments. yvonne: i'm taking a look at the third quarter. we saw stocks and bonds were out of favor, yet commodities outperformed. does it put the question, the 60/40 strategy portfolio, is it no longer attractive?
>> no, i definitely think it still is attractive in these environments. with respect to before, what you have seen is duration has moved off of the lows. i expect duration from here is likely to be more range bound. in real less held scenarios, where you see the risk being priced back into the market, bonds still performed like they should as a hedge against portfolios. you don't want to abandon the portfolio, but you want to take on more inflation hedge risk exposure in the portfolio. either through commodities or cyclical equities. rishaad: what lens are you looking at china through? we have heard from three saying they don't see any reason to invest more at the moment. what is the deal for you? >> wait and see is the right approach. valuation has become very
attractive, particularly looking at chinese assets relative to other global assets. so there are selective places, whether the tech sector within china, or specifically within some property bonds that still look attractive within china. we probably want to wait to get more clarity in terms of the regulatory regime before we can dip our to in and supply those assets. so it looks attractive, but right now we are in a wait and see mode. david: in terms of geographical preference, the u.s., you like japan, but you are cautious on europe. >> right now, you see inflation risk percolate. i do see that eating into margins as we go into 2022. the energy crisis that is starting to loom in europe will be a risk that it is -- that is being underestimated by the market. rishaad: does it shift you to
what you term as real assets? >> that is exactly right. that is why you need more commodity exposure, more inflation exposure in the portfolio. owning real assets is a good place. whether through real estate, commodities, i think both are well-positioned to outperform in this environment. yvonne: neutral on the u.s. dollar, as well. it is at a time where we see a lot of tension in the market. people are going into the greenback as a haven currency. people say if you will price in tapering, that transmission mechanism is going to go to the dollar. what makes you have a neutral view? >> i think the dollar right now -- it is probably likely to outperform relative to other developing market economies. probably underperform a little bit to some commodity oriented currencies. we are neutral the dollar, but
you see it probably range bound to slightly stronger versus some more em oriented commodity currencies. it can weaken a little bit. but i think there is better outflow trades, rather than trading fx. i think you will do better trading equities in this environment, or commodities. david: let's look at rates. you have two things happening. you have some em's well within the tightening cycle. that is great for carry opportunity. but then coming up against the taper wall. is that window of opportunity closing? >> i think right now, you are likely to see -- specifically looking at the 10 year, probably likely to be fairly range bound over the next year or so, with a slight bias to underweight duration. particularly in terms of nominal yield. real yields will remain fairly wealth in, particularly given the fact you have seen inflation rise and people continuing to break even.
but not a nominal yield will follow that path. but i think real yields will remain fairly well bid, particularly in light of the fact that while central banks responsive, starting to taper, will be fairly reluctant to really get ahead of the moves and still be fairly gradual and patient, in terms of their path plan in terms of normalization. rishaad: erin browne, good stuff. we will turn to have a look at the first word news. u.s. national security adviser jake sullivan meeting with china's top diplomat in switzerland. they will follow up on the phone call between president biden and xi. haidi: possible summit -- a possible summit reportedly on the agenda. trade also this week. talks planned between u.s. representative and the chinese premier. we have xi jinping's plan to
skip the g20 summit in rome. won't attend the meeting in person. already blaming china's covid protocols as a reason why he is not leaving the country. she has not been outside of china since january 2020. he has attended meetings virtually. the g20 meeting summit begins on october 30. democrat senator elizabeth warren criticized the leadership, saying jay powell shows bad judgment by failing to stop unusual trading activity by top officials. speaking on the senate floor, she questioned why jay powell did not prevent officials from making the investments. in a later interview, she repeated her opposition to powell's reappointment. >> i can't support jay powell for renomination. my view is he ends his term with somebody else in place. i think the fed will be better off and that economy will be safer. rishaad: the securities and
exchange commission chair saying the u.s. will not follow china's lead in banning digital tokens. the government focuses on ensuring the crypto industry adheres to consumer protection rules and keep money laundering regulations also part of that. beijing also with a sweeping ultimatum against crypto trading, all transactions. that is a look at the headlines. yvonne: still ahead, gicc ceo says he doesn't face a risk from evergrande's debt crisis. that is next. hong kong's chief executive the last policy speech of her term. this is bloomberg.
yvonne: equity markets in china right now. china is closed. they still exclude that. hang seng and h-shares doing this. some downside pressure as we count down to carrie lam's policy address. we have seen the property sector in the mainland, perhaps why we see the contagion risk heading into hong kong. you take a look at the highly leveraged property stocks, bonds and stocks tumbled as we heard from fantasia. the series of credit downgrades from the agencies last night. when it comes to the banks, that is when you see where things are looking bad. this is what we saw when it came out of fantasia. they are reducing the ratings. rishaad: a lot of this has been the pain inflicted on junk dollar bonds.
the biggest selloff in at least eight years amid these reports of authorities doing little to alleviate the credit crisis for those investors abroad. are those holders of that debt effectively sacrificial lambs? looking at the exposure for these banks, david, i think you have a chart, it perhaps tells the whole story of you can look at the various measures, but you also have to take into account their loan quality. david: i could be mistaken, that when you look at how financials are classified on the mainland, it used to be properties were part of financials. it brings it into why it was important. why are chinese banks traded so cheap? a good reminder of one of the reasons, perhaps why investors have a perennial discount on banks. the big four are now trading at
we'll have times. it goes back to the conversation on what is investable when it comes to the mainland, given the opportunities, what do you take advantage of? rishaad: exactly, you do it selectively. we have gic doing that with these evergrande bonds and chinese bonds, generally. lim chow kiat is the ceo. he talked about the strategy at the bloomberg invest global conference. >> we believe -- actually the problem has been quite --, as well. you might recall for a number of years china, talked about the need to rein in financial leverage. on top of eliminating poverty, on top of environmental pollution, these are the three big evils we have to tackle.
so i guess it is another case that first big challenge they are trying to wrestle. if you look at the balance sheet the central government has, and the regulatory power, we think they have significant control over their situation. so we don't expect it to be systemic. there will be some pain inflicted on certain segments of the value chain. but we don't expect it to be a big systemic problem. >> would you by chinese bonds right now? would you buy evergrande bonds right now? >> do the homework. >> is yes or a no? >> selectively, yes. it cannot be a brash thing. any market, you cannot approach it on a top-down broad basis.
yvonne: here is your latest business flash headlines. japan's -- corporation is planning more overseas acquisitions in a drive to achieve profit growth of 70%. the ceo told us the company aims to expand services to help governments and companies digitize operations with buyouts planned in the u.s. and europe. they are also betting on the
adoption of wireless 5g technology, which will compete with eric's and nokia, and while wa -- huawei. >> i wanted to ride on the new wave of the new market. that means the open markets of 5g. yvonne: working capital management is set to be planning an asian based spinoff that could become one of the biggest hedge fund firms of 2021. it will be run by -- partner and have more than 3.5 billion dollars in assets under management. david: let's take stock, if you will. looking at the markets. the reason we are doing this, japan going into the lunch break. it entered a correction yesterday. have a look at the common dominator between these markets. look at japan, the chunk on i.t. the kospi also took a quick
chunk -- big chunk. taiwan, also a big chunk exposed to tech. if you are long these markets, you are by virtue long tech, and probably not performing well. yvonne: it is interesting the change of fortunes in a north asia. it seemed the first part of this year, everyone was rotating there. now with the tech selloff, it seems southeast asia might be where they are turning things. rishaad: if you look at -- the nikkei down nine straight days. the longest losing streak since 2009. it gives you an idea, that was actually nine days. we can be approaching that if we have another day of losses tomorrow. let's see what happens. certainly under a lot of pressure. not much action on the yen. a tight range. you find quite often, if you see that move one way or another, doesn't really affect exporters or the domestic economy. yvonne: he was talking about the
potential capital tax rate. rishaad: general sentiment being underwhelmed. let's see what we've got coming up at the moment. soros fund management, it's moving day. and while her friends are doing the heavy lifting, jess is busy moving her xfinity internet and tv services. it only takes about a minute. wait, a minute? but what have you been doing for the last two hours? ...delegating? oh, good one. move your xfinity services without breaking a sweat. xfinity makes moving easy. go online to transfer your services in about a minute. get started today. baaam. internet that doesn't miss a beat. that's cute, but my internet streams to my ride. adorable, but does yours block malware? nope. -it crushes it. pshh, mine's so fast, no one can catch me.
>> if you think about education, you think about health care, you think about housing, things that impact lower, and middle income chinese people, those are issues that you have to be more selective. the same thing around some of the businesses that have more consumer data, but broadly speaking, as china gets traded off, i think it could create some interesting opportunities. >> areas that china needs to make sure it has the right expertise.
i think investors will look at those favorably simply because the policy is behind. just like other investors, the gip needs to reposition. >> we don't have the answers yet because i think that story is still tbd, if you well, and still developing. we are still trying to figure out where it will land, but we are still investing and still holding capital in china, and we think the main sectors are still pretty strong. rishaad: do you actually then look at some of the parts of the economy as the economy wants to trade national champions within? if you are a national bondholder, you are probably a bit worried, but major funds as well also turning a bit sour.
yvonne: i think it goes to show, the farther you are, you are a little more risk averse to the opportunities and risks in china at the moment as opposed to what we hear from some of the guests in hong kong, but that is where we see smart money going as well. steering clear of investing in china for now. some investors are surprised by the economic damage china is willing to tolerate. >> china is incredibly interesting. if you think about where they are, they had residential investment, depending on if you could count just first quarter, something around 10% to 29% of gdp, but they have a shrinking
population, so that is definitively unsustainable growth. if you think about what xi is trying to do, he is trying to rebalance his economy and not in a way you or i would argue is not smart -- >> he is doing the same things people here were doing, which is difficult because they are so politically divisive. >> i have no doubt there are politicians around the world doubtful about the degrees of freedom that he has, but what has caught investors by surprise is the fashion he is doing it in and the economic damage he is willing to tolerate to get from here to there. as an investor, one of the things is based on what has happened the past couple of months, it is pretty clear, you know, every chinese company is
viewed to be a state-owned enterprise to one degree or another. the other thing from an investor perspective that is really interesting and has gotten a lot of attention is the v i.e. or shell company structure of chinese companies that are listed here, and i think that those companies will largely have to delist. it's not as if there is mechanism for them to just port to hong kong. but for 20 years, chinese tech companies having western capital and a western vested interest in their success very much suited china's goals. they don't need that anymore, so they can take their $700 billion and take it back on shore into hong kong, and i think that is what they are going to do. when it comes to the u.s.
lifting the byword for investors, we have to be really careful here. >> what about early stage investments? chinese major capital, for example. >> there are some really big names that might go public near term in hong kong and make a point, but i think overall, that path from private to public in china is just going to take longer, and valuations, i think, are permanently at lower multiples because of effectively the state tax and state utilities. eric: that sounds to me like potentially a big problem for firms like square, for example, or tiger global, that have done so well investing in early-stage chinese enterprises and then riding their evolution to the public market.
>> i think they have plenty of dollars raring to go right now, but my guess is there's a lot of debates going on in boardrooms about how aggressively to invest going forward. the other thing i would say about the asset management industry overall is that they are a little bit economically compromised. china has invested a lot of money in western asset managers, so it is hard for them to take to heart a stance when it comes to forward investments. eric: are you allocating toward china or away from china? >> we are not putting money into china right now. rishaad: don fitzpatrick -- dawn fitzpatrick speaking exclusively to bloomberg. jay powell receiving the backing
of more than half of republicans on the trade committee. they also has broad support from democrats. a facebook whistleblower testified the social media giant is well aware of the mental health risks posed by the platform. she said internal documents show the company prioritized profit over correcting misinformation and mental health.
moody's investment service cut india's credit rating from stable to negative, still at the lowest investment grade, on par with russia and romania. the agency saying downside risks are in essence receding. the son of the late dictator marcus -- marcos announcing his candidacy in the philippines presidential race. he joins a crowded field including boxer turned senator many packing up. that is a look at the first word headlines.
yvonne: brent still above 82 bucks, four days of solid gains we are seeing when it comes to crude prices. after we saw that opec decision where they did raise production but not exactly enough to ease the concerns we are seeing when it comes to energy right now. goldman sachs saying this energy crunch is just going to add to the consumption of crude this year. when it came to fuel switching, he talked about how a lot of these asian buyers are paying premium just to buy a bunch of fuels to switch away from natural gas, which is looking very pricey. david: it looks cheap if we compare what we see in the ice. this goes into the oil story. we're looking at technicals, so i will make this quick. we are at 11, which would
normally tell you this market is overbought. we compare this which shows momentum and it shows momentum is there, but the lines are still trending or sloping higher. as far as traders are concerned, there is no cell signal just yet. rishaad: how does that situation come to pass, and what is this in the background here? >> this is something that has been building -- brewing for a while. demand during the pandemic tapered off. supplies of gas and coal just have not kept up. you are seeing supplies of gas in europe right now that are the equivalent of $250 for a barrel of oil.
yvonne: i think we may have lost dan murtaugh. there he is again. can you hear us, dan? dan: diesel, propane, fuel, oil, all of these oil products that would typically be too expensive to burn for power, now because natural gas is so expensive, they are the better option. yvonne: you guys wrote a piece about how asian buyers are paying top dollar because they have to have an alternative away from natural gas. is that likely to continue for some time? dan: yeah, we are looking right now at this -- these prices lasting easily through the winter. india's measure predicts for the next six months. china will probably be short at least through lunar new year, so they will be scrambling to find any kind of fuel to keep power
alive for at least the foreseeable future. david: it seems that everything we know about the market now do we think is priced properly at this time? dan: prices are incredibly high now. it is on one hand difficult to see them going higher because we are stuck in these historical constructs of where they should be, especially with natural gas and coal, and china is definitely pushing for more oil -- sorry, more coal production, which could help tamp things down, but there's just you know, nowhere to turn to for energy right now, so there's going to be a lot of pressure to keep prices high throughout the winter. rishaad: lots more coming up here on bloomberg including
addressed in just under half an hour's time, the final speech of her term. her focus is realigning hong kong with the mainland. we have heard increases -- increased references to china in her annual addresses. david: just to put the housing conversation in context, what we are showing you now is the percentage of your average median household income that people usually pay on mortgage, really, when you take the data coming out here, for a 500 square-foot average apartment, 70% of monthly income on average .
rishaad: the founder and ceo of an independent pin asian think tank is with us now in the studios. thank you so much for joining us. this territory needs housing and needs it badly to cool arguably a lot of the tensions we have seen in recent years. is it something which will be delivered, and if so, is it too little, too late in some ways? is it better than doing nothing at all? >> i have to say it will be a key part of the policy addressed, but we will find out in a little while. is it too late? never. we could argue about why people are leaving, but despite that, the majority will not leave.
we are going to have to deal with it, and i believe the government is going to take it very seriously. i think what has changed is the political environment that will allow for strong intervention. in terms of what is the public good, you cannot just allow markets to reign supreme. markets do play a part, but public policy to protect public interest, the government will have to intervene strongly in a political system. yvonne: who do you blame for restoring housing prices? do you think that it is the tycoons and the private sector has a responsibility as well? >> kind of don't want to get into the blame game, but let's just say it is a legacy issue. essentially a hangover from the colonial period.
these are old issues in terms of land sales. of course, the government has had 23 years since that handover to do something about it. the political system did not allow for the type of intervention, but if you look at the singapore model where they don't have this problem, it was essentially strong political intervention without disrupting the market too much. all of us share equal responsibility for what has happened. there are no administrative measures the government can use in the different political environment to intervene and therefore not sort of over rely on the law say there, but if you want social justice and do not want people to leave and you want to be fair to the next generation, you will have to
intervene strongly. in that sense, i believe the central government has already sent strong signals. david: since you brought up the singapore example and the success of the public housing exercises taking place, why do you think that has not worked yet in hong kong, or should we give it more time? >> it has not worked because it has never been that model, but the state was very strong, interventionist, and essentially understood that housing could not be left to the markets, so this is very important to understand, that it has not been the case in hong kong to intervene and therefore has not been left to a laissez-faire model that allows land to
accumulate. this is the opportunity for hong kong to completely change. when you confront it, you have something so dramatically unfair , and the issue of land affects everything, you will have to intervene very strongly. markets cannot do that. ivanka: beijing has always said the housing crisis is the reason why we saw unrest and social injustice two years ago. do you think once we introduce affordable housing, that alleviates the tension and maybe reverses the trend we are seeing of people leaving hong kong? >> i do agree with you. i think it has fueled the protests, the anger, the resentment. it was all to do with the lack of social mobility. if you are 25 years old and do
not work for one of the premium banks or financial institutions, you have very low hold. hong kong has been very good to me, but you still could see a sort of future, and here, you cannot. for me,nderlying issue is the bigger social issue of hong kong. you address that, your address lots of problems. rishaad: there's the problem of the so-called poverty trap, which is certainly in evidence, but you've got to think that some of the policies over there are going to be here. would we see something which perhaps would be part and parcel and central to this and would be perhaps the mechanism to get people out of that trap? >> absolutely right.
i have been saying that the biggest issue in hong kong is the lack of access to basic, fair, dignified shelter, if i can use that word, and if you want to solve that problem, the only way to solve it is intervention from the chinese government to bring these contacts together, but you will need to take draconian measures to solve what is the biggest challenge in hong kong, and common prosperity is something i have written about previously. how do you do that, how do you make this redistribution of wealth without suggestion that you are going back to a communist social system? i think it is revolutionary in many ways what china is doing, and some of that will need to be
essentially understood and implemented in hong kong. young people and future generations have essentially their dignity. as your colleague pointed out, a system like this should not be one that forces people to pay half $1 million for a small flat. yvonne: we have plenty more ahead. this is bloomberg. ♪
official getting the most heat right now is also a central bank chief. we are talking jerome powell. elizabeth warren spoke about her decision to oppose his renomination. >> last week, i said that i would not support chair powell's renomination because in one decision after another, he has consistently failed to serve, but that is not his only failure. chair powell has also failed as a leader. yvonne: i think we heard from biden saying he still would support him. rishaad: he said he showed that she said he had confidence but would not necessarily put his name forward again. yvonne: not yet, right.