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This is the Bloomberg Daybreak Asia podcast. I'm Doug Krisner. You can join Brian Curtis and myself for the stories, making news and moving markets in the APAC region. You can subscribe to the show anywhere you get your podcast and always on Bloomberg Radio, the Bloomberg Terminal, and the Bloomberg Business app.

This is the Bloomberg Daybreak Asia podcast. I'm Doug Krisner. You can join Brian Curtis and myself for the stories, making news and moving markets in the APAC region. You can subscribe to the show anywhere you get your podcast and always on Bloomberg Radio, the Bloomberg Terminal, and the Bloomberg Business app.

And joining us now for some discussion is Rebecca Cheng Wilkins, Bloomberg's Asia Government and Politics correspondent. And one of the other numbers that I think, well, there's another number that sounds quite impressive, that China plans more than half a trillion dollars worth of special local government pawns. But the other one that I think investors might be a little bit disappointed in is the budget deficits set at three percent of GDP. I think some were expecting more. Your thoughts on the mix of numbers that.

And joining us now for some discussion is Rebecca Cheng Wilkins, Bloomberg's Asia Government and Politics correspondent. And one of the other numbers that I think, well, there's another number that sounds quite impressive, that China plans more than half a trillion dollars worth of special local government pawns. But the other one that I think investors might be a little bit disappointed in is the budget deficits set at three percent of GDP. I think some were expecting more. Your thoughts on the mix of numbers that.

We got this morning, Yeah, let's talk about that. That deficit ratio three percent, I mean three percent is the sort of target that they've generally tried to stick to, but worth remembering, of course, we did have to raise that last year to three point eight percent.

We got this morning, Yeah, let's talk about that. That deficit ratio three percent, I mean three percent is the sort of target that they've generally tried to stick to, but worth remembering, of course, we did have to raise that last year to three point eight percent.

They can certainly exceeded and they don't really have to say anything, just do it.

They can certainly exceeded and they don't really have to say anything, just do it.

Yeah, absolutely, and it doesn't quite tell the full story. I think one of the big pieces of news coming so far is the unveiling of this one trillion un worth of Ultralong Special Central Government bonds. So it's a bit of a mouthful. It is the only the fourth time we've had these type of bond sales come in the last twenty six years or so. I mean, it's important because this is a is a potential source of funding for those infrastructure projects where it's just seen as a really key part of both funding for local government but also trying to get growth up and running again.

Yeah, absolutely, and it doesn't quite tell the full story. I think one of the big pieces of news coming so far is the unveiling of this one trillion un worth of Ultralong Special Central Government bonds. So it's a bit of a mouthful. It is the only the fourth time we've had these type of bond sales come in the last twenty six years or so. I mean, it's important because this is a is a potential source of funding for those infrastructure projects where it's just seen as a really key part of both funding for local government but also trying to get growth up and running again.

So I'm going to spitball this because it looks as though about thirty percent of that one trillion in Ultralong Special Government bonds is going to be allocated for science and technology research and development.

So I'm going to spitball this because it looks as though about thirty percent of that one trillion in Ultralong Special Government bonds is going to be allocated for science and technology research and development.

Yes true, And then that again interesting, right, we are seeing and center these other ambitions. If she didn't ping high end manufacturings focusing on strategic technologies, they shift to boost both domestic manufacturing and consumption as well. I mean, I think we'll expect to see more in that work report, but that emphasis again taking it back to these core aims that she didn't ping has laid out time and time again.

Yes true, And then that again interesting, right, we are seeing and center these other ambitions. If she didn't ping high end manufacturings focusing on strategic technologies, they shift to boost both domestic manufacturing and consumption as well. I mean, I think we'll expect to see more in that work report, but that emphasis again taking it back to these core aims that she didn't ping has laid out time and time again.

And it seems like the target of five percent for GDP growth will be a little ambitious or aggressive in that, you know, the comps will be more difficult this year than last year. Do they believe then that what they've rolled out, and you know, far be it for you to answer what they believe, But it is the thinking then that the initiatives that they've announced here will enable them to bump growth up without doing anything extra special.

And it seems like the target of five percent for GDP growth will be a little ambitious or aggressive in that, you know, the comps will be more difficult this year than last year. Do they believe then that what they've rolled out, and you know, far be it for you to answer what they believe, But it is the thinking then that the initiatives that they've announced here will enable them to bump growth up without doing anything extra special.

Well, we'll have to wait to see a little bit more of those details of figure out precisely how it is we are going to get to that five percent target, but I think it's safe to say that if they want to get there, they are going to have to roll out some kind of stimulus more forcefully and more swiftly than we have seen in the past, because, of course, twenty twenty three was coming up from that very low base of the pandemic. Twenty twenty four target of five percent is much harder for them to reach. Is worth bearing a mind though, despite sort of the pessimism around how we get there, policymakers did appear quite confident, actually quite cool, calm and collected last year, think about Lee and so on. Speaking about how they got to five percent last year, they seemed pretty comfortable with the fact that they were able to get that without any kind of big stimulus. That's a disappointment for some investors, but does suggest the kind of element of confidence in Beijing.

Well, we'll have to wait to see a little bit more of those details of figure out precisely how it is we are going to get to that five percent target, but I think it's safe to say that if they want to get there, they are going to have to roll out some kind of stimulus more forcefully and more swiftly than we have seen in the past, because, of course, twenty twenty three was coming up from that very low base of the pandemic. Twenty twenty four target of five percent is much harder for them to reach. Is worth bearing a mind though, despite sort of the pessimism around how we get there, policymakers did appear quite confident, actually quite cool, calm and collected last year, think about Lee and so on. Speaking about how they got to five percent last year, they seemed pretty comfortable with the fact that they were able to get that without any kind of big stimulus. That's a disappointment for some investors, but does suggest the kind of element of confidence in Beijing.

One of the other headlines that our team is moving in terms of this work report China vowing faster legislations on promoting private sector. I would imagine that that's a growth story, and this is going to come to the market in a way that's friendly. I would imagine because regulatory risk has been a big factory.

One of the other headlines that our team is moving in terms of this work report China vowing faster legislations on promoting private sector. I would imagine that that's a growth story, and this is going to come to the market in a way that's friendly. I would imagine because regulatory risk has been a big factory.

See what exactly the details are on this and how much meat is put on the bone here. But this is going to be a big story for investors if we get some substantive details. I would place this alongside this target or this emphasis for a year long push for consumption to try and boost that, as well as this focus on creating over twelve million jobs in urban areas. All of these factors are combined because the private sector the biggest employers in cities. Now it's worth saying that to really support both the property market and the private sector in China, you have to get urbanization going up and running again. Typically about twenty two million people move from the countryside into city centers in China. Over the last couple of years, we've seen just ten million moving. There is a twelve million shortfall in the number of people going. And you need to get the private sector hiring up and running to boost consumption, but also to provide some of that funding to property companies too.

See what exactly the details are on this and how much meat is put on the bone here. But this is going to be a big story for investors if we get some substantive details. I would place this alongside this target or this emphasis for a year long push for consumption to try and boost that, as well as this focus on creating over twelve million jobs in urban areas. All of these factors are combined because the private sector the biggest employers in cities. Now it's worth saying that to really support both the property market and the private sector in China, you have to get urbanization going up and running again. Typically about twenty two million people move from the countryside into city centers in China. Over the last couple of years, we've seen just ten million moving. There is a twelve million shortfall in the number of people going. And you need to get the private sector hiring up and running to boost consumption, but also to provide some of that funding to property companies too.

So creating twelve million new urban jobs arged and then urban unemployment getting it to around five and a half percent. How does that compare with where we sit at the moment.

So creating twelve million new urban jobs arged and then urban unemployment getting it to around five and a half percent. How does that compare with where we sit at the moment.

Yes, I mean five point five percent. It's worth saying it's a little higher than we have now five percent, but it is actually in expectation. There is a question mark, I would say here there is some skepticism from some corners over whether this is a truly accurate picture. And we know, for example, in addition to just the figure of unemployment, there are these other issues. For example, wages, are we seeing wages actually growing stalling, falling, benefits being pulled back? We know there are reports for example even among local government officials. These are the foot soldiers expected to roll out the findings in this report that they have actually had to repay their bonuses back to the government in past years because finances are so strained. So unemployment itself as a headline figure doesn't really tell the full picture or the full challenges that China faces here.

Yes, I mean five point five percent. It's worth saying it's a little higher than we have now five percent, but it is actually in expectation. There is a question mark, I would say here there is some skepticism from some corners over whether this is a truly accurate picture. And we know, for example, in addition to just the figure of unemployment, there are these other issues. For example, wages, are we seeing wages actually growing stalling, falling, benefits being pulled back? We know there are reports for example even among local government officials. These are the foot soldiers expected to roll out the findings in this report that they have actually had to repay their bonuses back to the government in past years because finances are so strained. So unemployment itself as a headline figure doesn't really tell the full picture or the full challenges that China faces here.

Yeah, I'm trying to understand as I'm listening to the youth unemployment story when I think the last print because of the revision, was something closer to fifteen percent, thirteen and a half to fifteen I can't remember exactly, but I'm wondering how that correlates with a plan to target kind of an urban unemployment rate of around five and a half percent. Is a lot of that going to be, you know, in support of helping the youth find work?

Yeah, I'm trying to understand as I'm listening to the youth unemployment story when I think the last print because of the revision, was something closer to fifteen percent, thirteen and a half to fifteen I can't remember exactly, but I'm wondering how that correlates with a plan to target kind of an urban unemployment rate of around five and a half percent. Is a lot of that going to be, you know, in support of helping the youth find work?

To be frank, I don't think we know quite enough to make that comment. I think youth unemployment certainly is a big priority. One of the difficulties we have in understanding that figure is we cannot do a sort of apples apples comparison because they have fundamentally changed the way that they calculate that figure. So it has come up in the latest monthly revision. We can't really understand how that figure compares directly to the numbers that we've seen before, but anecdotally youth unemployment, it is still an issue, and of course is focused more on on urban centers.

To be frank, I don't think we know quite enough to make that comment. I think youth unemployment certainly is a big priority. One of the difficulties we have in understanding that figure is we cannot do a sort of apples apples comparison because they have fundamentally changed the way that they calculate that figure. So it has come up in the latest monthly revision. We can't really understand how that figure compares directly to the numbers that we've seen before, but anecdotally youth unemployment, it is still an issue, and of course is focused more on on urban centers.

And they set the CPI growth target rate at around three percent. We're under that now. But I saw a report yesterday that farmers were going to cut pork production expecting pork prices to go up. So that's one thing that will help. Where is China in the fight against deflation and inflation?

And they set the CPI growth target rate at around three percent. We're under that now. But I saw a report yesterday that farmers were going to cut pork production expecting pork prices to go up. So that's one thing that will help. Where is China in the fight against deflation and inflation?

Yeah, I mean this is going to be a prevailing issue. And part of this does, of course touch back to some of the other things that we're talking about, this issue of consumption and confidence, this issue of whether or not we see the property market come back up, whether we see wages starting to rise again and people willing to go out and spend. Some of these factors, though, it's worth saying with deflation, are sort of cyclical. So for example, you'd talk about pork, that will help the number, but it is something that is a cyclical factor rather than perhaps being truly representative as shifting sentiment.

Yeah, I mean this is going to be a prevailing issue. And part of this does, of course touch back to some of the other things that we're talking about, this issue of consumption and confidence, this issue of whether or not we see the property market come back up, whether we see wages starting to rise again and people willing to go out and spend. Some of these factors, though, it's worth saying with deflation, are sort of cyclical. So for example, you'd talk about pork, that will help the number, but it is something that is a cyclical factor rather than perhaps being truly representative as shifting sentiment.

Okay, Rebecca, out of time. Unfortunately, but thank you for coming into our studios Rebecca Chong Wilkins, Bloomberg Asia Government and Politics correspondent Robert Lee, who is Bloomberg Intelligence Senior Analyst, to take a closer look at AI and the tech aspect of the NPC meeting, because we no doubt got Robert quite a little bit from the NPC this morning, just talking generally about the type of special performance that they want in China going forward.

Okay, Rebecca, out of time. Unfortunately, but thank you for coming into our studios Rebecca Chong Wilkins, Bloomberg Asia Government and Politics correspondent Robert Lee, who is Bloomberg Intelligence Senior Analyst, to take a closer look at AI and the tech aspect of the NPC meeting, because we no doubt got Robert quite a little bit from the NPC this morning, just talking generally about the type of special performance that they want in China going forward.

Your thoughts, No, that's absolutely right, and I suppose it's still early days in this Sorry, we're into the first few hours the MPC session. So far they've sort of confirmed they're going to increase spending national level on science and technology research by around ten percent, which to think is sort of no great surprise to anyone and broadly in line. But the key priorities for the investment are going to remain semiconductors in AI, both for national reasons and also to try and put their stamp more globally that China is a you know, to reinforce the view that China is a major play on the global technology stage. So those areas will remain in focus. I think we'll probably hear some more details as the two day event unfolds. But China's greatest challenge going forward is clearly on the semiconductor side, given the US export restrictions and given the sort of embargos that the likes of ASML in Europe and the issue or the impact that that's happening on their domestics semiconductor business. So can no doubt talk.

Your thoughts, No, that's absolutely right, and I suppose it's still early days in this Sorry, we're into the first few hours the MPC session. So far they've sort of confirmed they're going to increase spending national level on science and technology research by around ten percent, which to think is sort of no great surprise to anyone and broadly in line. But the key priorities for the investment are going to remain semiconductors in AI, both for national reasons and also to try and put their stamp more globally that China is a you know, to reinforce the view that China is a major play on the global technology stage. So those areas will remain in focus. I think we'll probably hear some more details as the two day event unfolds. But China's greatest challenge going forward is clearly on the semiconductor side, given the US export restrictions and given the sort of embargos that the likes of ASML in Europe and the issue or the impact that that's happening on their domestics semiconductor business. So can no doubt talk.

About yeah, clearly. I mean, the export controls are beginning to bite. I think they have been for a while, and that's certainly going to limit a lot of the advancement on the AI front. But is there a way for China to kind of home grow if you will, I mean a semiconductor industry that I think it's going to take years, But I mean, you know, we've talked, Brian just mentioned the AMD chip. I mean, if you speak to industry analysts looking at the time frame that it would take for China establish an industry that could rival what the West has, and I'm thinking of a company like in Video. I mean, this is years long process. This is not anything where you can just simply throw some money and flip a switch.

About yeah, clearly. I mean, the export controls are beginning to bite. I think they have been for a while, and that's certainly going to limit a lot of the advancement on the AI front. But is there a way for China to kind of home grow if you will, I mean a semiconductor industry that I think it's going to take years, But I mean, you know, we've talked, Brian just mentioned the AMD chip. I mean, if you speak to industry analysts looking at the time frame that it would take for China establish an industry that could rival what the West has, and I'm thinking of a company like in Video. I mean, this is years long process. This is not anything where you can just simply throw some money and flip a switch.

No, that's absolutely right. And let's briefly look at a place like Taiwan. I'm not sure of the exact year, but I think at some point in the nineteen sixties, did you know Taiwan's number one export was sugarcane. So that country has evolved from agricultural based economy to the world's leading semiconductor region for semiconductors and not just mainstream semi conductors, advanced semiconductors. But that is a path through you know, national investment and you know prioritization on education and producing the high quality engineers. That's taken the best part of fifty sixty years to get there. Now I'm not saying it's going to take half a century for China to get there, but you know, it's an immense task that China faces. Having said that, another quick fact at you if you just pay with yeah, now right, if you go on to Google, you google how many engineers does China you know, come out of Chinese universities. You get a lot of different stats, you know, so it's quite hard to pin down exact number. But just looking at a South China Morning Post article from the last year, in terms of PhD so doctorates students trying to produce seventy seven thousand PhD students or graduating with PhDs and doctorates. That's the projection for twenty twenty five versus forty thousand in the US. So my point I'm trying to make here is, I mean, like everything related to China, there's a huge domestic population and there's a bit of a number game, numbers game at the end of the day. So whilst it's very difficult to put a finite timeline on how quickly they may narrate a gap, they are their domestic universities are producing a lot of engineers and I think, I mean, that's the only option to throw money at the problem and throw bodies at the problem, and I think in time they will.

No, that's absolutely right. And let's briefly look at a place like Taiwan. I'm not sure of the exact year, but I think at some point in the nineteen sixties, did you know Taiwan's number one export was sugarcane. So that country has evolved from agricultural based economy to the world's leading semiconductor region for semiconductors and not just mainstream semi conductors, advanced semiconductors. But that is a path through you know, national investment and you know prioritization on education and producing the high quality engineers. That's taken the best part of fifty sixty years to get there. Now I'm not saying it's going to take half a century for China to get there, but you know, it's an immense task that China faces. Having said that, another quick fact at you if you just pay with yeah, now right, if you go on to Google, you google how many engineers does China you know, come out of Chinese universities. You get a lot of different stats, you know, so it's quite hard to pin down exact number. But just looking at a South China Morning Post article from the last year, in terms of PhD so doctorates students trying to produce seventy seven thousand PhD students or graduating with PhDs and doctorates. That's the projection for twenty twenty five versus forty thousand in the US. So my point I'm trying to make here is, I mean, like everything related to China, there's a huge domestic population and there's a bit of a number game, numbers game at the end of the day. So whilst it's very difficult to put a finite timeline on how quickly they may narrate a gap, they are their domestic universities are producing a lot of engineers and I think, I mean, that's the only option to throw money at the problem and throw bodies at the problem, and I think in time they will.

Narrate a gap.

Narrate a gap.

The question is is that going to be a two or three year process, is it five year? Is it going to be in multi decades? It's very very difficult to answer.

The question is is that going to be a two or three year process, is it five year? Is it going to be in multi decades? It's very very difficult to answer.

One thing we have to remember, though, is that for a lot of Chinese tech companies, the market is China and they don't have US competitors there for the most part. Now, you know, it depends on whether you're talking smartphones or whether you're talking about Internet services and such. But for instance, on the E commerce front, there's there's not US. There's not big US competition for JD dot Com and Ali Baba and such. So, you know, as we look now at this environment, because investors listening to the program, they want to they want to find some successes. I mean, where are there some areas here that investors can mine for our performance by Chinese companies.

One thing we have to remember, though, is that for a lot of Chinese tech companies, the market is China and they don't have US competitors there for the most part. Now, you know, it depends on whether you're talking smartphones or whether you're talking about Internet services and such. But for instance, on the E commerce front, there's there's not US. There's not big US competition for JD dot Com and Ali Baba and such. So, you know, as we look now at this environment, because investors listening to the program, they want to they want to find some successes. I mean, where are there some areas here that investors can mine for our performance by Chinese companies.

Okay, again, you know there are obviously huge technical barriers to entry on the semiconductor side. You know, you're working at the cutting edge of physics, you know, building the devices at the atomic scale. That's an incredibly, incredibly different, sorry, difficult problem to overcome, whereas the barriers on the software side and much lower. At the end of the day, quite simply, you need a desktop, a high powered desktop, and the right skill set to do it. So I think it's far easier for China to develop its domestic software business and internet business. I think that's the direction of travel and the most easy route that China can drive new global leaders on that front.

Okay, again, you know there are obviously huge technical barriers to entry on the semiconductor side. You know, you're working at the cutting edge of physics, you know, building the devices at the atomic scale. That's an incredibly, incredibly different, sorry, difficult problem to overcome, whereas the barriers on the software side and much lower. At the end of the day, quite simply, you need a desktop, a high powered desktop, and the right skill set to do it. So I think it's far easier for China to develop its domestic software business and internet business. I think that's the direction of travel and the most easy route that China can drive new global leaders on that front.

I can see people sharpening their pencils now looking for the best software companies to get their hands on. Robert, Thank you, Robert Lee, Bloomberg Intelligence Senior Analyst.

I can see people sharpening their pencils now looking for the best software companies to get their hands on. Robert, Thank you, Robert Lee, Bloomberg Intelligence Senior Analyst.

Let's get to our guest. Ron Temple joins us. He is chief market strategist at Lazard Asset Management on theline from Hong Kong. Ron, thanks for being with us. We're talking a lot about what we're getting out of the NPC here. Let's begin with a five percent growth target. It's not really five percent, it's at around five percent, so there's some plus and minus there just but generally speaking, what's your takeaway?

Let's get to our guest. Ron Temple joins us. He is chief market strategist at Lazard Asset Management on theline from Hong Kong. Ron, thanks for being with us. We're talking a lot about what we're getting out of the NPC here. Let's begin with a five percent growth target. It's not really five percent, it's at around five percent, so there's some plus and minus there just but generally speaking, what's your takeaway?

Yeah, I might take away from the first read and watching the speech this morning is really that this is there's no surprise, let's put it simply, and probably no surprise is not good enough. If we look at the targets, they are generally the same as last year. You know, there's some minor cement differences. For example, this year the target is over twelve million new urban jobs. Last year it was about twelve million, so again minor differences there. But when it really comes to getting the Chinese economy moving again, there's there's nothing in this NPC announcement that seems like it'll be terribly effective in that regard. And I would say the biggest issue facing China really still is the real estate industry and housing issues and I don't see anything here that's going to materially move the needle.

Yeah, I might take away from the first read and watching the speech this morning is really that this is there's no surprise, let's put it simply, and probably no surprise is not good enough. If we look at the targets, they are generally the same as last year. You know, there's some minor cement differences. For example, this year the target is over twelve million new urban jobs. Last year it was about twelve million, so again minor differences there. But when it really comes to getting the Chinese economy moving again, there's there's nothing in this NPC announcement that seems like it'll be terribly effective in that regard. And I would say the biggest issue facing China really still is the real estate industry and housing issues and I don't see anything here that's going to materially move the needle.

Is it more time that is need did here ron as opposed to a large stimulus package or do you think investors are right in expecting and hoping for more?

Is it more time that is need did here ron as opposed to a large stimulus package or do you think investors are right in expecting and hoping for more?

Yeah, I think you've just put your finger on the really big issue on the housing market. I think this is going to take two to three years to basically find a new equilibrium on housing. And just keep in mind this all really started three and a half years ago when the Chinese government announced the three Red Lines policy, where it basically said if you're a property or a real estate developer and you exceeded certain key metrics in regards to leverage, that your ability to access additional credit was significantly curtailed. So they effectively shut off additional credit for highly levered developers, and then you started having a series of rolling defaults from the developers. And the problem with that is as developers defaulted, consumers lost confidence that they should be buying apartments from these people because if you buy the apartment, it might not be delivered. If you fast forward to today, out of the top one hundred real estate developers in China, over eighty five percent of the private developers are in default, and over thirteen percent of the state owned developers are in default. And so effectively, you've had a sharp decline in new housing sales. You have a sharp decline of new housing starts. It's going to take time for the supplies that we're started over the last two to three years to work their way through the system and to find some kind of new equilibrium on demand and supply in this market. And I do worry, by the way that the longer this persists, the more damaging it is to consumer confidence and optimism and willingness to take risk in China.

Yeah, I think you've just put your finger on the really big issue on the housing market. I think this is going to take two to three years to basically find a new equilibrium on housing. And just keep in mind this all really started three and a half years ago when the Chinese government announced the three Red Lines policy, where it basically said if you're a property or a real estate developer and you exceeded certain key metrics in regards to leverage, that your ability to access additional credit was significantly curtailed. So they effectively shut off additional credit for highly levered developers, and then you started having a series of rolling defaults from the developers. And the problem with that is as developers defaulted, consumers lost confidence that they should be buying apartments from these people because if you buy the apartment, it might not be delivered. If you fast forward to today, out of the top one hundred real estate developers in China, over eighty five percent of the private developers are in default, and over thirteen percent of the state owned developers are in default. And so effectively, you've had a sharp decline in new housing sales. You have a sharp decline of new housing starts. It's going to take time for the supplies that we're started over the last two to three years to work their way through the system and to find some kind of new equilibrium on demand and supply in this market. And I do worry, by the way that the longer this persists, the more damaging it is to consumer confidence and optimism and willingness to take risk in China.

And do you have a sense as to what might might the government do to help this situation to turn it in any way? I mean, it seems like more stimulus is required, but given the GDP to debt story in China, that doesn't seem to be forthcoming.

And do you have a sense as to what might might the government do to help this situation to turn it in any way? I mean, it seems like more stimulus is required, but given the GDP to debt story in China, that doesn't seem to be forthcoming.

Yeah, I mean, I actually give some credit to the Chinese government. I think what they've recognized is, don't you do not solve the debt problem with a lot more debt, And so they've been quite disciplined in trying to de lever the property segment and actually right size it. I do think when you look at the other stimulus measures you just mentioned, the Ultralong bond, the local government special bonds, those are largely unchanged amounts from last year, especially as it relates to local government bonds. But I do think when you go through the dozens of stimulus measures announced in the last six to nine months, including in most recent weeks, the twenty five basis point reduction and the prime loan rate for the five year LPR, those will all cumulatively add to economic momentum in my view and other parts of the economy. So importantly, that five year LPR is the benchmark for mortgage rates, and so by lowering that rate twenty five basis points, for example, it reduces payments on existing mortgages, which should lead the consumers having extra disposable income that of their mortgage payments, and they should be able to spend morning on more money on things other than real estate. So I think you put all these together, the government is announcing kind of a drip feed of stimulus measures. Do you think over the next six to twelve months that will start to perk up growth?

Yeah, I mean, I actually give some credit to the Chinese government. I think what they've recognized is, don't you do not solve the debt problem with a lot more debt, And so they've been quite disciplined in trying to de lever the property segment and actually right size it. I do think when you look at the other stimulus measures you just mentioned, the Ultralong bond, the local government special bonds, those are largely unchanged amounts from last year, especially as it relates to local government bonds. But I do think when you go through the dozens of stimulus measures announced in the last six to nine months, including in most recent weeks, the twenty five basis point reduction and the prime loan rate for the five year LPR, those will all cumulatively add to economic momentum in my view and other parts of the economy. So importantly, that five year LPR is the benchmark for mortgage rates, and so by lowering that rate twenty five basis points, for example, it reduces payments on existing mortgages, which should lead the consumers having extra disposable income that of their mortgage payments, and they should be able to spend morning on more money on things other than real estate. So I think you put all these together, the government is announcing kind of a drip feed of stimulus measures. Do you think over the next six to twelve months that will start to perk up growth?

Yeah, well, we need a story. I think we don't really have a story for China. We've got a story in Japan, We've got a story in India, and the AI story in the US. Let's talk a little bit about the US. The equity market has been grinding higher. Some would say that it's likely to continue in this direction until we see either economic data signal a slowdown, or maybe if inflation looks so sticky that the FED has to change course. What do you views on whether or not to stay the course inequities in the US.

Yeah, well, we need a story. I think we don't really have a story for China. We've got a story in Japan, We've got a story in India, and the AI story in the US. Let's talk a little bit about the US. The equity market has been grinding higher. Some would say that it's likely to continue in this direction until we see either economic data signal a slowdown, or maybe if inflation looks so sticky that the FED has to change course. What do you views on whether or not to stay the course inequities in the US.

I think the story of the US equity market is a very different one. We've obviously had a narrowly led market rally. We've all talked about the Magnificence seven, the Fab five, all the different kind of names we've given these stocks. But the reality is, if you look back, say from January of twenty twenty two, from the prior market peak to where we are today, the bulk of the earnings growth and the price action has really been in a narrow group of tech stocks and maybe GOLP one inhibitors around the healthcare space. But you know, when I look at the market going forward, to me, the only way that AI tech juggernaut can be sustained is if the companies buying those goods and services from the tech providers get a return on investment. And I think where you're going to see that return on investment is a broadening out of productivity and earnings growth in the other parts of the market where people successfully deploy these tools. And so I think you're going to see a a broadening of earnings growth. But b let's just keep in mind that the geography of the earnings within the us P five hundred has been really dispersed. Over the last two years. You've seen major declines and energy earnings in the most recent year, declines in healthcare earnings, big increases in tech earnings. I think over twenty twenty four and twenty twenty five, you're going to see some real moving parts around. For up, perhaps the financial sector see lower earnings, whereas you might see higher earnings and energy. So to me, this is going to be more of a stock picker's market, less of a beta trade. And very importantly, by the way, I think the discount rate trade meaning buying equities writ large because ten year yields are going to go down. I think that trade's largely over. It's really all about earnings growth from here, not PE expansion, not lower discount rates. Ron.

I think the story of the US equity market is a very different one. We've obviously had a narrowly led market rally. We've all talked about the Magnificence seven, the Fab five, all the different kind of names we've given these stocks. But the reality is, if you look back, say from January of twenty twenty two, from the prior market peak to where we are today, the bulk of the earnings growth and the price action has really been in a narrow group of tech stocks and maybe GOLP one inhibitors around the healthcare space. But you know, when I look at the market going forward, to me, the only way that AI tech juggernaut can be sustained is if the companies buying those goods and services from the tech providers get a return on investment. And I think where you're going to see that return on investment is a broadening out of productivity and earnings growth in the other parts of the market where people successfully deploy these tools. And so I think you're going to see a a broadening of earnings growth. But b let's just keep in mind that the geography of the earnings within the us P five hundred has been really dispersed. Over the last two years. You've seen major declines and energy earnings in the most recent year, declines in healthcare earnings, big increases in tech earnings. I think over twenty twenty four and twenty twenty five, you're going to see some real moving parts around. For up, perhaps the financial sector see lower earnings, whereas you might see higher earnings and energy. So to me, this is going to be more of a stock picker's market, less of a beta trade. And very importantly, by the way, I think the discount rate trade meaning buying equities writ large because ten year yields are going to go down. I think that trade's largely over. It's really all about earnings growth from here, not PE expansion, not lower discount rates. Ron.

I think that's an important point to get back to the AI productivity story. Yes, we have a CAPEC spending up, a lot of companies investing in AI, but it's to be seen whether or not they really benefit that in the way in which kind of the spending would justify, right, I mean we've yet to really see that play out.

I think that's an important point to get back to the AI productivity story. Yes, we have a CAPEC spending up, a lot of companies investing in AI, but it's to be seen whether or not they really benefit that in the way in which kind of the spending would justify, right, I mean we've yet to really see that play out.

Yeah, And I do think, you know, there's no question in my mind that AI is going to be revolutionary for the economy. I mean, when I think about the two biggest changes in the global economy in our lifetimes, it's likely to be the energy transition. In the question is the timing right? And if you're thinking about it, if you're in the C suite of a major corporation and you've invested X million dollars or even billions in some cases into AI technology, if you don't see rewards or fruits from those investments, what you tend to do is ring that spinning back in and say, let's figure out how to make sure we're getting a return on this, and then maybe you resume the spending later when you figure out how to build it into business flows. So I think it's all about timing here. The market's been quite enthusiastic that it's going to be a hockey stick on the upside. I'm a little more cautious on that front, but I do think it will ultimately translate to better earnings and productivity for a broad swath of the market.

Yeah, And I do think, you know, there's no question in my mind that AI is going to be revolutionary for the economy. I mean, when I think about the two biggest changes in the global economy in our lifetimes, it's likely to be the energy transition. In the question is the timing right? And if you're thinking about it, if you're in the C suite of a major corporation and you've invested X million dollars or even billions in some cases into AI technology, if you don't see rewards or fruits from those investments, what you tend to do is ring that spinning back in and say, let's figure out how to make sure we're getting a return on this, and then maybe you resume the spending later when you figure out how to build it into business flows. So I think it's all about timing here. The market's been quite enthusiastic that it's going to be a hockey stick on the upside. I'm a little more cautious on that front, but I do think it will ultimately translate to better earnings and productivity for a broad swath of the market.

We'll leave it there on that cautious note, Ron Temple, thank you so much. Ron as chief investment strategist at Lazard Asset Management, joining from Hong Kong. This has been the Bloomberg Daybreak Asia podcast, bringing you the stories making news and moving markets in the Asia Pacific. Visit the Bloomberg Podcast channel on YouTube to get more episodes of this and other shows from Bloomberg. Subscribe to the podcast on Apple, Spotify, or anywhere else you listen, and always on Bloomberg Radio, the Bloomberg Terminal, and the Bloomberg Business app.

We'll leave it there on that cautious note, Ron Temple, thank you so much. Ron as chief investment strategist at Lazard Asset Management, joining from Hong Kong. This has been the Bloomberg Daybreak Asia podcast, bringing you the stories making news and moving markets in the Asia Pacific. Visit the Bloomberg Podcast channel on YouTube to get more episodes of this and other shows from Bloomberg. Subscribe to the podcast on Apple, Spotify, or anywhere else you listen, and always on Bloomberg Radio, the Bloomberg Terminal, and the Bloomberg Business app.