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Welcome to the Bloomberg Daybreak Asia podcast. I'm Dan Schwartzman in for Doug Prisner. We begin in China, where President Xi Jinping hosted a number of the country's most prominent tech entrepreneurs. She voiced support for the country's private sector, seen as integral to reviving China's economy. For more on the China story, we hear from How Hang, chief economists that Grow Investment Group. He spoke to Bloomberg Sherry On and Heidi Stroud Watts.
It's been a few years and so much volatility and ups and downs for the Chinese market since then. Do you think this is a sustainable romie.
It's a good rebound, so I think, you know, before it really wove into multi years of a rising trend, a lot needs to be done, and for now, I think many of us are still seeing fundamental problem with the Chinese economy. So as such, you know, the earning schools hasn't been sustainable for some time. For the past ten years, earnings per year in the Chinese markets more less the same r So basically the change in the stock price level has been the result of changing in valuation multiples. So if you really want a sustainable bull market for the long term, you really want a sustainable growth model going forward.
There's a lot of optimism about these cheaper AI models and perhaps a China could lead the way when it comes to the new tech revolution. Could that sustain in those expectations.
I think for now people are really insotistic and by the prospects of it. I think Deepstick did a really good job to break the technology Germany and the embargo from the US. Now, you know, having said that, though, I think it's still very difficult to see how to monetize from this app. And also you know, Chinese are renowned for not willing to pay for software. So I think if you look at back in the nineties, right, so when we was first introduced to China, so basically nine percent of the copies used in the market, says actually pirated copies all the way it until like ten fifteen years later, So you know, it's a difficult market to monetize. I think it's still very early stage. It's a huge breakthrough, but then at the same time, you know, for now, I don't see a good way to monetize it.
Does the season thing meeting the idea of Beijing's endorsement for the sect and now does that still have the same power that it would have used to as some sort of government put.
I think back in twenty eighteen, November twenty eighteen, there was a similar meeting with the private entrepreneurs in Beijing, and back then it was at the depth of the trade war back then, and the Chinese market didn't bottom until like two three months later in January twenty nineteen. So that is telling you a lot about you know, the signals from these meetings can be fleeting. And also yesterday, if you look at the market reaction, you know, firstly the market was rising strongly in Hong Kong, but then regurgitate a lot of the gains towards the end. And also yesterday's you know, the best performing sector is actually the SOE sectors. The private sectors for some reason, is legging substantially yesterday.
And I'm guessing you think that none of this exuberance or that we've seen so far is enough to counterbalance against the broader economic malays the property overhanging. You know, what more can the government do from a policy perspective to really change the mindset there.
Yeah, I think so far this technical rebound has been the result of the sentiment changed, right, So, because the deep Sik moment really woke up the Chinese investment communities. Wow, you know what is possible right going forward? And also the Chinese tech sector variation has been depressed for a long time, and some of the foreign investors have been buying, you know, for a sort of a trading opportunity, and I think that's sort of a set of the rally in the past months or so. I think right now, you know, we're running into a very strong resistance level, right, So these are key technical levels, and many of our technical indicators are actually running into very strong resistance. So for the market to go substantially high from here, a lot needs to be done, a lot of policies needs to be set, you know, in March in the coming twin.
Sessions, always with the voice of caution there. But I really find it interesting the timing that you have PRESIDENCYGMP putting all of these tech leaders in the forefront of what he's trying to achieve. How much is this to do with the Trump trade tensions, with potentially the rivalry that's just going to heat up in the next few years, and how Beijing needs to position for that. And given that sort of external threat, could you see it being more proactive in terms of helping the private sector.
I think to a certain extent, Chininese the private sector to be strong more than ever now. I think, you know, the government is indeed, you know, trying to help the private sector to a certain extent. But you know, having said that in the past few years, you know what gets really strong is the so E sectors, right, So the resources is really going into the S sectors, and because of the incentive system, the commercial banks are lending sort of towards the SE sectors rather than to the private sectors. You know, because if your longo sour, you have to be responsible, right, even if you left the job.
Right.
So that's the reason why you know, the private sector is not getting enough credit and if they really want to grow, you know, they have to find a way to get credits from the banking system. Now with Diepsicek, you know, for some reason, you know, use deepsiy as an example, right, So the founder is actually a dh fund tycoon, right, He's loaded, right, so he he has money he's willing to burn. And also you know for his own business. You know, he's he's been using AI algorithm, you know, to trade to make money from trainese market and has been very successful. And so I think, you know, Deep is you know, one of those sort of accidental sort of fortune that the founder used his own money to burn and there's very limited government intervention and therefore, you know, Deepsey was able to flourish, you know, under such system. I think to replicate the success of Deep Sick really needs a really hands off approach from the government.
I wanted to get your views on Ali Barber because I do wonder with this sort of return to the fould with jackmar how much could we see a re reversal of Barber's fortunes. Right, Because you can take a look on that chart twenty twenty November when the ANTIPO was called off, we've not even seen with the recent recovery that stock price even halfway back to the previous levels. Do you think that this is the start of a meaningful improvement.
Yeah, I think Baba has done a lot of work in the past few years, right, so I think it is actually leading the AI makements in China, Right, so a lot of people didn't see the efforts endeavors that is being sort of undertaken by Baba. Having said that, though you know, the stocks has rarely for like more than fifty percent now, all right, So you know, even though it's down substantially from the peak in twenty twenty one, you know, people still need to see earnings growths from this company and also sort of a better sort of a reception from the government for BAB and also for the entire private enterprise, you know, for people to pick up confidence again in these sectors.
How Home always great to argue with US partner and chief economists at Grow Investment Group.
Welcome back to the Daybreak Asia podcast. Dan Schwort's been inaing for Doug Chrisner for a look at the broader market landscape in the Asia Pacific. We heard from me Katerina bigos Cio for Asia Extra Paan Core Investments at ACT Investment Managers. She spoke earlier with Bloomberg's David and Glass and Rebecca Chue Wilkins in Hong Kong.
Let's start with China. Now that this market's been liberated somewhat of the premium, what Now, how do you look at the market right now thirty percent into the rally, Yeah, of.
Course, I mean I think we have to break it down a little bit to look at where the rally is coming from. And again it's very concentrated. As we know. The positive since the beginning of the year has been the Deep Sick innovation. I think it's excited a lot of market participants and corporations in China about the potential implications of that on a corporate sector again a longer term, that kind of implication of productivity, again, new business, new revenue streams, and of course we've had the meeting of she with various tech leaders at the broader tech industry, and I think that's a positive. I think it shows that the goals are aligned. But again the market has in not taking it with additional let's say support in a raally sense, again, because we've had a meeting in twenty eighteen, and again the consequences of the evolution of that has been somewhat different to what was again stated in twenty eighteen. I think it's a positive, but I think we have to be cognizant that the aim for China. I think the goals are aligned and the aim for China is still common prosperity's technological advancement and the realization of the government that tech has a big contribution to that, and I think this.
Is a positive.
I want to ask about and sort of shift gears. So think about that a little bit more in the context of tariffs and Trump coming in. You know, in December we saw the PBOC shifting its monetary policy. Starts the most aggressive in fourteen years, promising triple our cut. The PBAC has sort of taught the talk, it hasn't worked the walk, and to some extent there's been this relentless focus on instead prioritizing the stability of the end. How do you think reactors have Investors are reacting to this? I mean, are they surprised, confused, disappointed.
I think there's a limited room I would say for BOC at the moment to move aggressively purely because again the FED is on extended pause, if you might say, the monetary policy. We had indications that again the economy in US stay is stronger, the inflation is still resisting another three point level in the core side. So again with FED being on pause again puts a little bit more restrained to China and the ability of China to continue easing without pressure on its currency. And I think the second part is what are going to be the next steps for the tariffs. I think the market is certainly not believing that this is the ten percent was the end of the tariffs between US and China, and I think this is somewhat preserving some omnistion to understand what are the implications of the next stage of this TYRFS to to continue to ease with the monetary policy. I think ultimately, and we've said it before, fiscal needs to do a lot more and fiscal needs to do a lot more in kind of demand side, are you doing more for the consumer? And I would say if you had to kind of expand a little bit the tech positive leaning towards tech, it's again it's somewhat in indication that they're willing to do a lot more demand time of support support a confidence, support invested confidence, but also support private sector and consumers.
That's a good.
Point that you make on trying to essentially trying to preserve ammunition when it comes to tariffs. Do you think that there's potential for tariffs or tariffs that we're expecting to see. Are they forcing the PBOC to break its promises and are we seeing a new playbook from the PBOC when it comes to dealing with the trade war.
Absolutely, I mean, look at there's a new playbook there, because there's no other playbook. You know, in the previous trade conflict there was the China was in a different state. It was in an economic state, but also the monetary policy in a different stage. So at the moment is certainly it's a wait and see. They need to see how the tariffs, what tifts, what the implication, what the size of those, the timing of that is to kind of of craft their own monetary and fiscal policy accordingly.
What are the things are happening right now? I mean, this exuberance in Chinese markets might be sort of overshadowing other market teams right now.
What else is on your mind?
Well, I think the tech broader tech it's staying as a theme that is drive is going to drive global investment. I think for the next couple of years of not a decade, because I think technology and innovation and advancement it's at the forefront of many economies, and I think what Diepsick has provided to investors is that there'll be more players to it, and clearly, particularly in eye development, when we'll look to build the models, US will build their own models in English. Probably there will be Chinese. They will build some models in English and in Chinese because again they need to cater to their own demand, right, So there will be certainly a lot more broader spectrum of players into this field that investment needs to capitalize on. And again the ramification of it at the moment is that it's still in a stage of development. Is still an page of training those models, and those still have implication on building system building thefrastructure, and I still has a positive impact on a broader Asian economies a place like Japan, places like Korea, a potential of Taiwan that are part of that supply chain of building dafrastructure and the ecosystem pro tech development.
We've already seen deep seak being banned from government officials phones in various countries, and of course this concern and this SI theme of sovereign AI. I just want to ask to what extent do you think these national security concerns are going to hamper the development of the diversity of what we see and also the ability for investors to be moving into new markets.
No, absolutely, and this is a key concern. And again the excitement is there. I think the potential for AI is certainly there certain terms of the ability of AI to enhance productivity, to provide new business lines and new revenues. But we need to look at again, data security will be a big concern. We have to look at dipstick as an open ended again, anybody can build on that platform, and that's a consideration and security and as we go further down the line, a national security, data security, data privacy. These are concerned that are still present, again beyond the fact that the excitement and the potential value of AI is still present. And then we have with the models themselves. You know, the data in which those models are getting trained, the hallucinations that they have, or the data output that they potentially have that could be misleading. So there's a lot of still things that needs to be hashed out till we get to the endpoint where AI is really manifesting in the industries. I think at the moment is still very much about tech infrastructure, building training and getting to that AI models that are right for particular industries or particular countries in a.
Katerina, thank you so much for joining us today. That's Ekaterina V. Got Cio for Asia Extra Pan Core Investments at Access Investment Managers.
Thanks for listening to today's episode of the Bloomberg Daybreak Asia Edition podcast. Each weekday, we look at the story shaping markets, finance, and geopolitics in the Asia Pacific.
You can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel, or anywhere else you listen.
Join us again tomorrow for insight on the market moves from Hong Kong to Singapore and Australia.
I'm Doug Prisoner and this is Bloomberg