Bloomberg Daybreak: Asia 01/02/2024

Welcome to DAYBREAK, Asia. We are counting down to Asia's major market opens. And Australia has just come online. The top stories this hour. Japanese firefighters are still battling blazes after a powerful earthquake killed at least four people. Authorities are warning of further aftershocks with tsunami alert still in force in some areas. Iran sends a warship to the Red Sea after the U.S. Navy sinks. 30 rival boats potentially ratcheting up tensions in the vital waterway. Plus, a Bloomberg scoop revealing that ASML canceling shipments to China ahead of a January deadline. Under pressure from the Biden administration. All right. Let's get you straight to the market open here in Sydney, of course, just coming online after that New Year's break. We're expecting volumes to be pretty steady. And of course, January is a very slow day when it comes to corporate activity here in Australia. But we are seeing just a modest upside as we get under way. Asian stocks more broadly, though, may be lacking that kind of need here as the new Year gets underway. We had, of course, in terms of topics of focus, a Chinese president pledging economic strengthening and and job creation from that speech from Xi Jinping. We have seen weakness are in the futures picture, at least for Australia. We're seeing about a 10th of 1% lower as we get into the start of that staggered cash open here. Also watching the Aussie dollar at 6813, we had a pretty bad year for the US dollar and whether that will continue and create further uplift for some of these Asian currencies, including the impact of commodity prices on the Aussie dollar, will be one to watch as a theme this year as well. Kiwi stocks are doing not much of anything at the moment, to be honest, just fluctuating between slightly lower and slightly higher this morning. We are watching, of course, when it comes to Japanese assets in the wake of that powerful earthquake that happened on New Year's Day that killed at least four people, triggering that widespread tsunami warning which has been partially lifted. Japanese markets are closed for a national holiday, but we are watching when it comes to the yen trading at just shy of that 141 level. Chicago Nikkei futures are looking a little bit softer at this point. And also watching China. China futures, they're up by about a 10th of 1%. And it was a lot of posturing when it comes to the guidance, I guess, or the messaging from President Xi Jinping, that finely balanced acknowledgement of some of the shortcomings and the challenges ahead, but also trying to project a picture of domestic strength as well. Yeah, I think that is the key question for many investors this year. When it comes to China, are we just going to muddle along when it comes to this economy? You mean those those PMI numbers certainly suggest that there continues to be this weakness in the economy. And then you can do you look at the geopolitics we're focusing on ASML in particular here this morning. The company now confirming a partial Dutch government ban of some China shipments. Of course, we have seen the likes, some of the chip makers aligning a little bit more with the U.S. and what they're doing to try to derisk, I guess, from China. In some ways, we're now getting that confirmation from ASML of this government ban. Certainly one to watch here as we count down to, of course, you know, this chip turnaround that everyone's been forecasting for this year and really how is going to play out in terms of U.S. and China tensions, of course, as well. All right. We'll get to that story a bit later on as we flesh things out of a more. Let's get to the latest. When it comes to Japan, authorities in the country are warning that there may be further aftershocks following Monday's powerful earthquake. The magnitude 7.6 quake on the northwest coast killed at least four people and triggered a widespread tsunami warning. We have learned, NHK, that parts of Japan have lifted that tsunami warning for now. Joining us for the latest in Tokyo is Isabel Reynolds as well. Just walk us through, bring us up to speed. What's the latest now? All right. Well, in fact, the latest we're seeing from NHK is that six people have now been confirmed dead in this enormous earthquake, in fact, which is 7.6 magnitude. It's very rare to see one of that size. If you look at the video that you see on social media and on the broadcasters here, it was an extremely powerful quake. You could see the buildings shaking. Some of them were falling over, Roads were buckling and falling away. It must have been a terrifying experience for those in that area. Obviously, the rescue process is ongoing. We can see there on the screen this massive fire broke out in the city of watching it, which is a rather sort of quaint old town with a lot of wooden buildings. More than 50 of them were involved in this fire, and it's still ongoing more than 12 hours after it broke out. And you mentioned some of the fires affecting more than 50 buildings. Still, we are seeing quite a bit of impact on local infrastructure. Yes, that's right. Trains on the Noto Peninsula, which is there's a little peninsula sticking out into the Japan Sea, have been stopped. Some other regional trains have also been stopped. The local airport has been closed due to cracks in the runway. So roads, obviously, some of them have had to be closed due to damage and that must be affecting the rescue attempt. So although we're only seeing six deaths at this point, sadly, I think it is quite likely that that number will continue to rise over the day now that we're getting into the daylight. And rescuers, which include the the armed forces, Japan's armed forces. We'll get into those more remote parts of the peninsula. As well. Of course, you know, Japan is is is is, I guess, prone to these sort of earthquakes before this. This brings us back to memories of Fukushima in some ways. But can you tell us what does it mean for the nuclear plants in the area and electricity supply more generally in Japan? Right. Well, what we have seen happen, which is a definite effect, is that one of the sample plants has been taken offline due to the damage. What this has meant is that we've seen we've seen power outages in the area, which is it's obviously a very cold time of year. So that's unpleasant for the people there. But it also could play into the power supply over the coming months. Japan has not had to call for people to cut back on their energy use because they thought they had enough power for this season that could affect those calculations and that could affect the way people get to use energy in the rest of the country As regards the nuclear plants. As of now, the nuclear authorities say that there has been no abnormality, right, as of now. So there's no need at this point to be concerned about a nuclear disaster of the type that ensued from the Fukushima disaster. Isabel Reynolds there in Tokyo with the latest. And Iran has dispatched a warship to the Red Sea after the US Navy destroyed three U.S. boats on Sunday. The move could be seen as a challenge to the US led maritime task force established to halt attacks in the area. It also risks ratcheting up tensions in the waterway that handles about 12% of global commerce. Bloomberg's Michael Hayes joins us now. So, Mike, how do you read into this situation? Yeah, look, I mean, that happened to as a as a Houthi representative was was in Iran. And in a sense, I guess it's it's Iran signaling that it's not going to be intimidated and it's going to make sure that its its waterways or its territorial waters are clear. But it's a real shadow play that's going on between the US and Iran. Now, the US is I mean, the Biden administration is trying very, very hard to ensure that the conflict does not spread, whether that's in southern Lebanon with Hezbollah, whether it's with the Houthis, it has its maritime group that's that's fighting over, sorry, trying to dissuade the Houthis and intervene with weapons. But but the whole aim is to avoid this ratcheting up. The temptation to strike Iran must be very strong because the you know, all of this sort of originates from Iran, all the funding in terms of Hezbollah, Hamas, the Houthis. But the Biden administration is trying hard not to do that. But Iran wants to keep its prestige up as well with its its axis of resistance that it calls this group. So, yeah, it's it's it's a lifting of tensions, but it's it's probably not at this stage going to send us any further, I think. Michael, can you tell us a bit more about the changes in Gaza as well with Israel withdrawing thousands of troops there? What does that signal to you? Yeah, Yvonne, I mean, the description from Israel is that it will it will allow these these soldiers to return to the economy. The Israeli Israeli economy has taken a real hit, obviously, from from this war. Not only is it costing billions of dollars to prosecute, but it's taken a lot of these reservists out of the workforce. So they're making the argument that that part of it is to is to sort of normalize things in terms of the economy. But it does sort of signal to me that or the suggestion is that it's it's part of Israel moving to a more targeted campaign. I mean, we've had the bombing of the strip. We've had large scale ground forces that have gone through. We've still got intensive fighting going on in them in the southern part of the strip. But at this stage, it looks like they're now moving to sort of more targeted operations where they're trying to eradicate certain leaders or clear certain districts, but not quite that that full war ground force that you see in sort of state to state kind of war. So I think it does herald the move to a new, new phase of the war that we're seeing, just the early part of it. At this stage, it's a few thousand troops, as is my understanding. All right, Michael, thank you, Michael. He's joining us in Sydney here with the latest. What we're hearing from the Middle East in sticking to Israel now is the Supreme Court there has overturned a law aimed at weakening judges powers in a blow to Prime Minister Benjamin Netanyahu. Eight judges voted to overturn with seven in favour of keeping the law, which would have barred them from voiding government decisions. The law was part of a populist overhaul, was split the nation with thousands of people taking to the streets to protest the planned changes. Ukraine says it shot down almost 90 Russian drones on New Year's Eve as a war grinds towards a third year. If all Russian missile attacks over the weekend, they killed at least 30 people in Ukraine. Moscow has said it would seek revenge for a missile strike on a border city that killed at least 24 people. A series of tit for tat aerial assaults have intensified recently with a ground conflict in a stalemate. China's president Xi Jinping has told his US counterpart, President Biden, that their countries should strive for a peaceful coexistence. And New Year's Day, a letter commemorating diplomatic ties. She noted China-U.S. relations have contributed to global peace and stability. Ties between both countries have steadied since she and Biden met in San Francisco last November. Let's get some more. When it comes to our breaking news a bit earlier, ASML confirming that a Dutch government van of some of its charter shipments and of course, it is it really takes effect as we continue to watch as one of the key risks going into this year, these ongoing tensions between the US and China. So much of that has been focused on the text via and so much of that potentially further in focus as we get into this key election year with that U.S. presidential election in November as well. So let's bring in Addabbo, who has more details on this and about what do we know? Well, I think you've got to really understand the significance of how how important ASML is to the overall chip making. Process globally because it produces these so-called ultraviolet lithography machines. A lot of details to that. But really, just at the basic level, what you need to understand is that ASML has the capability to print tiny features that form the basis of a microchip. It's very, very important when you get into this a very advanced semiconductor phase. And so it's very unique as well in its capabilities in this sort of chip making process. Now, we know that the Biden administration really wants to be able to limit China's capabilities in producing advanced semiconductors. And so it's been putting pressure on allies like the Netherlands, like Japan, to restrict export or exports of chipmaking equipment to China. Now, these took effect January one, but what we understand and what we reported on, because actually Bloomberg was the first to report on this, that some countries got a head start on the process. So ASML actually had the licenses to ship three of its machines or devices to China. We understand that these were revoked or canceled. And so those actually haven't been sent across. And so ASML, as you just mentioned, they were really have just confirmed that news essentially that the Netherlands revoked their shipment license partially. A number of Chinese customers, we understand from the company are impacted by this. And so ASML also saying, though, that that license being revoked really won't impact its financials. But still, it really just is about saying that that there was that export restrictions that have taken effect and some countries have got ahead of it. And how important really assembly's two to the White House's ambitions to try and restrict China's capabilities in this field. Yeah, it's interesting that President Xi, you know, talked about this peaceful coexistence that he he strives with the hopes to have with the U.S. as well. I mean, he acknowledged also not just the geopolitics, but in his New Year's message, really the economic challenges that China is facing here right now. I want to play a clip real quick. Let's take a listen. On the road ahead. Wind and rain are normal high. Some enterprises are facing operational pressure and some people are counting difficulties in employment and life. And natural disasters such as floods, typhoons and earthquakes have occurred in some places, and they have, all of which I'm deeply concerned and what I see. We are not afraid of hardships. We will watch out for each other, face up to the challenges and overcome the difficulties. Yes. You spent quite a bit of time really admitting, you know, these difficulties, which is quite rare from the president and. Well, yeah, it's not really something. We hear that much from Xi Jinping. But of course, when you take a look or you really just think about the the issues that China's economy has faced over the course of 2024 or 2023, rather, it is a little bit unsurprising given you had things like the property sector slump, a high unemployment, particularly amongst the youth, the market rout as well that we saw in stocks. So yes, an element of concession to it, but still, it's important to think about how Xi Jinping is planning to respond to those challenges. And that really was a focus of his address, as well as the things like a pledge to strengthen the economy, to create more jobs and better opportunities as well for young people inside China. A little bit of grandstanding, as you might expect as well. So he reflected on some of the homegrown projects and successes for China over the course of last year. So things like a cruise ship that was made locally, that was space programs as well. There was the the developments that we saw in China's aviation ambitions because we had that sea 919 jet, two passenger jet from Comac making its first trip outside of mainland China. And about here in Sydney with the latest. More to come here on DAYBREAK. Asia, this is Bloomberg. All right. Happy New Year. We are in store for some pretty key data coming out this week as well. So we are kicking out 2024 on a pretty busy day, few days here. So kicking off first with the Australia December manufacturing PMI that came in at 47.6. So further contraction from November, there are signs of disappointment on that one. On tap, PMI is coming out of across Asia, a fourth quarter GDP and full year GDP figures coming out of Singapore just minutes on Wednesday got jolts. Data is the manufacturing numbers of the US and then more employment news for the Fed to digest on Thursday. Initial jobless claims and then of course that's a wrap up the week we got that non-farm payrolls coming up on Friday as well. Also keep in mind, we also got some inflation numbers out of Thailand, Taiwan, as well. Don't forget, we have that election in Taiwan happening in just about ten or 11 days or so from here. Alisha Garcia Herrero, chief Asia-Pacific economist and it takes us joins us from Taipei. Alisha, I'll talk I'll get to Taipei in a moment. Given what's going on over there. But, you know, we got to talk about this this year that we're about to start off and where, you know, this time last year, I just had a previous guest write that the three most popular trades out there was to sell U.S. stocks by China stocks and buy Treasuries. And all that didn't quite play out as planned. It is 2024 could be better than last year. Well, it was good for some 2023 those who actually played, you know, a very different year, as you said. And I think the play was, as we have now, everybody's, you know, short donor dollar was we we we heard that last year. So I think this chance is this year that the dollar will be weaker because the Fed will indeed cut no matter I think, the strength of the labor market, which will be in check next Friday. But but the key here for the Fed to be successful is really to make sure that real interest rates won't be won't become very high. And this is actually the situation in China. And so the key is not so much how quickly nominal rates come down, but how quickly inflation comes out at the same time so that you don't have very, very strong real interest rates which kill the economy. That's that's what we need to watch. I think that's the key even for equity markets to make sure that, you know, this this nice labor conditions continue and that the economy decelerates slowly but steadily without creating havoc. And I mean, how are you look at those risks right now. Are they looking more, you know, asymmetrical or is it more symmetrical? Now there's this, you know, the risk between inflation and then the recession risks out there. And what are some of those potential choke points that you're looking at for this year in raw meat? Trade is a huge choke point this year. I mean, the IMF has warned us in since their last annual meeting, and I think they're quite right in focusing on both trade fragmentation and frankly, increasingly financial fragmentation. But if we focus on trade beyond what we just heard, you know, from Bloomberg on ASML and the tech related trade fragmentation, where these export controls, you know, export licenses, you name it, we also have China trying to integrate vertically as a response, also rightly so, to the pressure from the rest of the world, whether it's a threat for protectionist measures on Chinese electric vehicles, all of the green tech that China produces, which is at the top of its exports. And and I think that's a big, big risk both for China but also for the rest of the world, because China will try to control imports as a response, because that is growth for China. External demand is going to be what China is going to be liable for Xi Jinping to really come up with these deliveries. It's promising its speech that China will grow fast in 2024. And we have seen these green shoots in trade, right? I mean, are these positive signs to you that we're seeing the bottoming out of this export cycle? What do you think? You know, global demand is going to look like? Well, for those who are really at the bottom, as you said, even like, say, you know, in Taiwan, South Korea, I mean, those really suffering from the humongous stoppage of ICP products or semiconductors, low end, especially right after during the pandemic, right after the pandemic, those are going to do better just because they were so low. But that's just one part of trade. I mean, if you are selling anything else, whether it's machinery, chemicals, combustion engine, cars that I mean, those are not going to do any better in 2024. So I do think that except for the ICD cycle, 2024 won't be a good year for trade, unfortunately. And you mentioned about these these shifts in trade. I mean, we saw it in the export numbers coming out of Korea, right. That they're actually exporting more goods to the US, more so than China now, where the U.S. is now their number one market. I mean, I know it's just one print, but is this a sign of of shifting trade patterns to you? And is it really just geopolitics related? I don't think it's only geopolitics. It's a great point because that part of that I mean, if you think about the US importing less from China because of IRA, you know, South Korea, for example, is by now really benefiting from IRA because of exemptions to EVs and and the like from Korea. But but more than that, I think in a way it it's also consumer preferences that are changing and and that's much harder to control. You know from from China's perspective that's more structural. There's also regionalization of train of trade. I mean, like climate change related, there's lots of things happening at the same time. And I think we need to realize that, yes, trade patterns are changing. And certainly Taiwan is caught in the middle of these geopolitics as well. And where you are, Alicia, we're just a few days away from this this national election. What would another four years of TPP rule mean if, in fact the polls suggest that there's still that lead that lightning to has? What would that mean for the economy there? The economy. And this might be related to the DPP because it was the pandemic really that that brought Taiwan to grow. Well, the boss well above potential in 2020, 2021, this was the huge demand for ice and semiconductors. 2023 has been quite miserable for Taiwan. So role growth really around one and a half or so 2024 for the reason I mentioned before, same as South Korea will be better for Taiwan no matter who wins is just this cycle is actually a very similar even across the board except for China. So at least it will make a big difference. We're going to leave it there, but thank you so much, Lisa Alesia, Sara Herrero, the chief economist at Natixis. We've got plenty more to come on DAYBREAK. Asia, this is Bloomberg. You're watching DAYBREAK Asia I'm mad about rule is here with a check on markets. It's pretty steady going as we head into the first trading session of 2024. You can see behind me some very muted gains coming here across the board. But generally the session today looking quite rangebound. There are a couple of markets that are shut. Japan, New Zealand. They're the key ones really to note for this region here. But coming off the back really of some weakness that we saw in the prior session on Wall Street. So it tells us again that it could be pretty rangebound subdue trading activity. I just want to demonstrate that a little bit more in detail. If you bring up the Avatar function, check out Aussie stocks are trading so far 30 minutes into the session and you can see when you take a look at that, that trading activity is around 75% lower than where it would be at this point in time on a typical 20 day moving average basis. So a lot of investors and traders probably still away for the holiday break. It is, though, that question of how markets are going to be performing over the course of this year. There is some expectation that there are some strong things that are moving in favor of markets, even though at a fundamental level, valuations are perhaps a little bit toppy, a little bit stretch in the session. Let's change on. It does really depend on the direction of where the Fed goes from here. But as you can see from that terminal chart just behind me here, a lot of fake cuts are still priced in over the next 12 months. So traders and when you take a look at Fed fund futures positioning, saying about four cuts of on the air, do to see those rate cuts being priced in here today is because that's going to shape the direction of the dollar in chief rates. Correspondent for Asia and my contributor at Garfield Reynolds joins us now. You know Garfield, we continue to see this this weaker dollar story. I mean, are we likely to see that this is just the beginning of the decline in the dollar? There's a decent chance that that's the case, especially in the short term. The expectations are very strong that the Fed will be cutting and that it will end up cutting earlier than the Fed itself has said it expects to. Now, there's not a huge amount that can get in the way of that expectation. You're in the early running. So the year that is going to build the case for a weaker dollar, at least in the short term. A lot of that is going to be driven, you would think, too, by Japan. We had reports over the weekend of plans for some strong wage increases. Now that's on the anecdotal so far doesn't necessarily add up to a case for the DOJ to move to reduce its massive quantitative easing and its yield curve control. But that case has been building anyway. That's going to mean, you know, the yen is currently trading at about 149, just under 149 per dollar. Plenty of scope for that to go down towards 130 as the expectations build that the BOJ is finally going to move towards doing what many people were waiting years for and reduce the amount of money. It's just housing interest in the Japanese economy. That's going to drive dollar weakness and it's going to encourage that general anticipation that the US very much led the way up when it came ultimately to tightening policy. Now it's seen as leading the way towards loosening policy. That should bring a weaker dollar for the first few weeks, maybe even a few months of the year, if not further. Goff We saw the first what was the first Treasurys gain since 2020. Is that Fed narrative pretty well set going into 2024? Yeah, I mean that's part of the that's part of the same phenomenon that you know is expected to drive dollar weakness if bonds don't keep rallying from here, which means if you don't keep moving down, that dollar weakness narrative would lose a lot of its strength. And again, at the moment, when you've got a 150 basis points of rate cuts priced in for the Fed and the expectation, it's got to move for others to loss, you know, the fact that at 3.0, just under 3.9%, the ten year Treasury yields, that's pretty appetizing. You know, it's higher than anybody's had yet to play with for for a long time, especially in an environment where yields are expected to move down. So the expectation is going to be further declines in ten year yields. The big question remains, does the Fed engineer a soft landing? If it does, then we should expect a much shallower reduction in yields. I still think you'd argue they would go down from here, but say ten year yields might stabilize at about three and a half percent in a soft landing scenario. Maybe it's down towards 3.25. If you get a hard landing, then you're looking at 3% and then under 3% by the end of the year. Achieve rates corresponding for Asia animal have contributed Garfield for animals there were some tsunami warnings are still in effect in Japan after Monday's earthquake off the Noto Peninsula. More than 50 aftershocks have been reported, with broadcaster NHK saying at least six people are now confirmed dead. NHK also reporting that firefighters are still battling blazes in the city of Wood Jima, where around 50 buildings caught fire. The city was also hit by a tsunami of at least 1.2 metres, the largest reported as Fraser had called his a senior portfolio manager. Paid to join us and as I have before, we get into sort of the broader outlook when it comes to Japanese assets for 2024, of course we do have Japan markets are closed for a national holiday today. Do you expect to see much of an impact from this disaster and how does that potentially play out? I mean, it's really a terrible event, but fortunately, the tsunami so far hasn't been that large. You know, tsunamis caused the greatest destruction. So we're hopeful here that, you know, the worst of it is behind us. Japan tends to be a very resilient country and quite well prepared for these types of disasters. So hopefully the impact will not be that large. When it comes to broader Japan markets, it's sort of two camps as we round out the year on a pretty kind of tepid point for Japanese equities at least. There is a lot of people that still believe going into this year, a lot of the same themes have yet to kind of be fully played out. There are still opportunities for gains. Yes. So I think if you look at the Japanese market, unusual, nothing much changes then. I think it's fairly valued. It spitefully valued. I mean, it was up 25% last year in yen terms, 17% in dollar terms. So in that sense, I think the easy sort of, you know, just by a Japanese equity ETF and you make money is over, not maybe not over but the big returns on that are done. But as your previous commentator said, there's a lot of upside on the yen. It depends on when the BOJ moves and how the Fed moves. But I think if you look six, 12 months out, you have probably at least 15% upside from the yen. And then in within the Japanese equities market for stock pickers, it's I think an amazingly good market. If you look at the most recent earnings season, there was massive dispersion in the performance and returns of individual stocks. So you could make or lose a lot of money if you've got your stock picking right or wrong. So I think it's really moved into a stock pickers market right now. Yeah. And you mentioned how undervalued the yen as I mean, if we're still talking at least 15% upside to here. What is this going to mean for earnings then? So that is a great question. So I think it's going to have. Okay. It's not going to be as bad for earnings as it used to be because a lot of Japanese manufacturing is now done much closer to the end markets, whether it's in the U.S. or Southeast Asia or even Europe. But there will still be a translation impact. And so I think it's going to be a significant headwind for exporters. However, it's going to play quite positively for domestic Japanese companies and staples and foods and those sort of areas, furniture companies who import goods from overseas. So I think it'll be a nice tailwind for them. Obviously there's been a massive. But I'm just wondering, how are you assessing the portfolio now? You know, what looks overdone to you? What is still a buy right now? So I think there are two things that are quite overdone in the Japanese market. One, you know, because of the Tokyo Stock Exchange talking about low price to book companies and sort of a naming and shaming team. I think a lot of those companies have run up too much. A lot of them really don't have a good business model. An example of that would be regional banks in Japan. I mean, even with interest rates going up, their net interest margin spreads are so thin, there really isn't significant loan demand in Japan. You know, 60% of Japanese companies are cash rich, households are cash rate. So there isn't a lot of loan demand. So how do they raise their price to book multiple when they can't earn a high a decent return by lending money? Right. So that's one area where I think it's quite overdone. Another area is the inbound team. One of the things that's an issue for inbound, even though it hasn't really gone much beyond what it was in 2019. But the problem is there's a labor shortage and there's a capacity issue. So unless Japan solves that sort of labor issue, the inbound team is, you know, it's a peak inbound. There is there's little capacity to to add a lot more tourists into Japan. What would you be shorting? So there are three groups of companies we like to short right now. The first is companies with weak balance sheets. And an example of this is Japanese restaurants. They suffered a lot during the COVID period. They have very overleveraged balance sheets. They run up on sort of the inbound reopening theme. The valuations are very high, and I think most of their cash flows are going to go to repaying debt. And there's a significant risk of very dilutive equity issuance by them. So that's one thing that I think is a good thing to do. Short Right now. Second is sort of these companies without a business model, as I mentioned earlier, that have run up things like regional banks. And then the third is just bad governance in general with the market up 25%. There are a lot of companies in Japan, I'd say about 30% of companies that still have very poor governance practices. They do many things that are not really in shareholders interest and they've run up with the market and it's a good time to short them. All right. They're going to leave it there. But thanks so much for joining us. Very keen to see your portfolio manager at U.P. helping us kick off 2024. And a look in Japan. Of course, you can follow more on this story, all the day's trading on our Markets live blog that is on Bloomberg and live go our team. Back from the holidays and ready to go again. I run down one click. There's commentary. There's analysis from our extra editors. You can find out what's affecting your investments right now. Last year, a record deployments of renewables and electric vehicles around the world in the run up to COP 28 in Dubai, which delivered a historic deal to move away from fossil fuels, Lindbergh's head of a pack, Elliott Zaidi, joins us to take a look at what 2024 has in store. So, Ali, how you said your expectations of mature, clean technologies, solar, wind, it is going into this year. So we expect the growth to continue this year as well. Let's start with solar first. 2023 was a record year for solar. We actually have to revise offer our forecast a few times during the year, primarily due to significant growth in China, which installed more than 200 gigawatts of solar. And in 2023, for 2024, we expect our global installations will exceed 500 gigawatt. To give you the 2023 number we estimate globally, our number was around 413 gigawatts, a significant growth. And China, of course, remains the biggest market this year. Do we expect a growth rate to be higher in the rest of Asia, particularly South and Southeast Asia? Wind has had a lot of challenges since the pandemic, but still had a fairly healthy growth last year. So we estimate that last year annual installations reached just above 103 gigawatts, so about 17% core growth year on year. And for this year, we expect that number to reach 115 gigawatt again in China will remain the largest market, although we see significant activity in India, in South Asia and Japan and Korea. Electric vehicle sales. Despite some of the negative headlines that we saw throughout the year last year, still have very healthy growth. Annual sales, we estimate, just exceeded about 14 million units globally. That's only about 2% lower. Our our original forecast for 2024, we are expecting ourselves to exceed 16.7 million. Again, China will be the largest. China may have sales reaching close to 10 million in 2024. And then in the rest of APAC, Japan will see healthy growth. It will be the first year we expect that EV sales will exceed 200,000 units. Wow. What about some of the more challenging areas? Right. You talked about clean hydrogen production and, for example, carbon capture and storage. Are we seeing improvement in some of these technologies? So there's definitely a lot of talk, but we are seeing now more action for clean hydrogen production, for example. To put the numbers in context, in 2022, we tracked ELECTROLYZER shipments of about 2.9 gigawatt. So just under one gigawatt this year, May we may see shipments reach as high as five gigawatts over four or five times that growth. And that growth is now spreading all across the world. China used to be the largest electrolyzer market. It still will be the single largest market, but we are seeing growth all across the world, but also in other parts of Asia. So we are expecting activities in South Asia and India in particular, but also Japan and Korea. CCS carbon capture and storage a little bit more difficult. Most of the action still in North America, where there is a generous incentives in play here and a positive one to watch will be Japan, where they're expected to actually release regulations that are on storage. That's part of their CCS roadmap this year. Ali, we touched on this a little bit earlier. Obviously, a massive election year. What are you watching for in terms of key events? So, yeah, elections will be very critical for the progress of energy transition, even though technologies such as solar, wind and electric vehicles are now becoming more and more economically competitive in many markets. Still, the pace of deployments as well as, of course, the investments in scaling up of new technologies such as cars, will require policy action. On downloading a park, The first one to watch will be the Taiwan elections on January 13 if the opposition wins. We may see a shift on the current government's anti-nuclear stance, so we may see a revival of nuclear power in Taiwan. Then the next one to watch will be the February 14 general election in Indonesia. Among the contenders there, if, for example, the former Jakarta governor and his past one wins, he's the most progressive and we'll likely see an acceleration towards energy transition. On the other hand, if one of the other traditional candidates win there, we'll probably see a continued challenge of dependence on coal in that market. There are several other elections. For example, Lobby India will head to the polls from mid April, and South Korea also have legislative elections in April. Those are unlikely to have a significant impact on the direction of energy policy in those countries, regardless of the results. The one that globally will be very critical is, of course, the US elections on November 5th, just days before COP 29 is set to start in Baku on November 11th. If we see Trump 2.0, then we may have some challenges with the US again shifting away from climate diplomacy. Plenty at stake, it seems, Ali. Thank you so much for highlighting all that for us. Ali is out of there. Our Bloomberg NRF, AIPAC head joining us out of Seoul. We got plenty more to come on DAYBREAK. Asia. This is Bloomberg. You're watching DAYBREAK, Australia. The top corporate stories we're tracking for you this morning. Saudi Arabia's public investment fund was the world's most active sovereign investor last year. Singapore's GIC and Temasek slash spending. Data from consultancy Global SWL shows the PIF deployed more than $31 billion in 2023. State owned funds invested $125 billion last year. That's down by a fifth from the previous 12 months. The decline was led by the GC, which invested 46% less. Chinese automaker BYD sold over 526,000 fully electric vehicles in the fourth quarter. That means Tesla will need a record showing to maintain its number one status when unveils its own sales figures later on Tuesday. In total, BYD sold more than 3 million electric and hybrid vehicles last year. Carnival CEO Josh Weinstein says that the cruise operator is already two thirds booked for 2024. He told us the demand is coming from shifting consumer priorities rather than just post-pandemic revenge tourism. 2023. You know, we wrapped in November, on November 30th. And you know, the one word that we like to use as a as a summer is record. We had record demand, record yields, record pricing, record bookings, forward bookings, record onboard spending levels. So really across the board. Our business has really thrived in 2023 and we expect much more in 2024. It can continue because you're such a great gauge of how customers are feeling. You know, you just have a great read on it. Are they continuing to spend? Are they continue to do advance bookings? And then once they're on their ships, Josh continuing to spend as well? Yeah, that is exactly what we see. You know, as a matter of fact, our our Q4 was and from a pricing standpoint, the highest all year. So is accelerating. It's not decelerating. And then when we look when we look forward, we're actually two thirds booked for all of 2024 already. It's nice visibility. It's not too bad. We were about ten points higher than we were last year. And on top of the ticket bookings, we've actually started pulling forward onboard spend. So we have about us more or less about a third of our onboard spend being pre-paid in advance. So we have a really good amount of visibility. And those booking trends, they just haven't slowed down, you know, every quarter this year. You know, people expect the it's got to it's got to slow down. It's got to we're going to we're going to see something. The consumer is going to get impacted. And the fact is, with our business, we haven't seen it. It's record after record. And as a matter of fact, we just ended the two weeks of, you know, Cyber Monday and Black Friday at more records. And it's not just coming from one brand, it's not coming from the United States. It's global. It's with our global portfolio of brands, which is really, really encouraging. Do you think we're moving? Good morning. Good to meet you. And do you think we're moving from many CEOs similar to yourself that as I sat with that run global airlines and global businesses have said we've lived through a period of revenge tourism. We were all locked up for a period of time. This is something we had this parabolic reopening and you had a parabolic rebooking. Are we evolving into some kind of new cycle? You say there's no end in sight in this demand. So if we've ended revenge tourism, how would you describe the next evolution? Yeah, that's a great question. So we don't think this is revenge anymore. This is not pent up demand. It's two years on from when we really got back in full as a as a as a corporation. This is people who have decided what's meaningful for them. How do I want to spend my life? And experiences are what they're looking for, you know, unforgettable memories and creation with friends and family. And that's exactly what cruising has to offer. And that's what I sat down with the Accor CEO, and he said, Look, I haven't got enough hotel rooms. All right. Let's take a look at how we're tracking in this early part of trading in 2024. Pretty quiet, as you can imagine. Volumes particularly thin on the ground when it comes to trading in Sydney. Of course, January is a very quiet period for this market. But of course, in addition, we have Japanese markets closed for a public holiday. We are seeing Sydney stocks advancing about a quarter of 1%, 2/10 of 1% there, I should say, in New Zealand. We're really not seeing that market do much of anything. It's been stuck at, you know, just a marginal gain pretty much all morning session. Nikkei futures are pointed to a bit of muted downside, perhaps not as much given We are still taking into account the aftermath of the earthquake of the tsunami warning, some of which is still in place in parts of Japan. Market opens in Seoul is next. This is bloomberg. This is DAYBREAK Asia. We were talking about the Asia's major market opens. Good morning, everyone. Happy New Year. It's the first trading day of 2024. Of course, the key question for investors is, can we continue what we saw in the last month or so, this sort of rest rally that has been really quite broad based, maybe with the exclusion of China, but certainly, you know, is there still that much cheer as we count down more? We're not done. We're done counting down. We're starting a new year now, Heidi. Look, I'm still somewhere around Christmas, to be honest, Still catching up to the fact that we to 24, as you mentioned, not a great deal of cheer for China, Right. Will that change? Will that stimulus effect finally start to gain some traction? We saw a fairly nuanced, balanced view from President Xi Jinping in his televised address, really acknowledging some of the shortfalls, some of the challenges going forward. We know that for the global economy and certainly the geopolitical space as well, it is a big year filled with elections kicking off with Taiwan in the coming weeks. And then, of course, all the way through to November, where we have the US presidential election. And of course, all of this happening at a crucial time for central banks. Have I missed anything when it comes to some of these challenges? Let's get straight to the market open. It is pretty holiday themed in terms of these trading volumes and interest that we're seeing. Japan on a public holiday, of course, was watching these latest developments when it comes to the New Year's Day earthquake and the tsunami warning. Some of that still taking effect across large parts of Japan as well. We'll take a look at what we're seeing when it comes to trading in South Korea at the moment. The costs be just coming online. We are seeing upside of about 1.6% at the start of trading. We're also watching, of course, the impact when it comes to the weakness and some of the volatility that was saw in the dollar and whether that will potentially play into a bit of a better year for Asian currencies, which we saw Asian dollar currencies at least going into a third straight year of declines. Right. This is a picture as we see the open of trading in Korea. We're also watching Singapore assets today. We did already have an indication of what to expect from that full year number. Singapore's economy avoiding a recession in 2023. We heard that from this end. Long warning, though, of a troubled international environment that will weigh on growth and security, particularly for an externally vulnerable economy like Singapore's. We're getting that a seasonally adjusted quarter on quarter fourth quarter number for the GDP number 1.7%. That is better than expectations of 0.7% and also a bit of a strengthening from that 1.4% GDP number year on year 2.8%, a bit of a beat on expectations. But of course, as we heard from Nissan Long, a lot of external vulnerabilities there. Yeah, retail in Australia markets as well. You take a look at how the ASX is doing here right now. I mean it is pretty slow going and we're just about seeing gains about a third of 1% or so at least when it comes to stocks are seeing a bit up here today. Ten year yields on Australia were up about one basis point, ever close to that 4% level here right now. But we are heading for that one week high when it comes to some of these real yields in Australia as well. So something to keep in mind, Aussie dollar is flat, Crude is pretty much flat as well. We're only up about half of 1%. But really, you know, it is slow going. It's pretty tepid to start the week again, as you talked about with Japan, markets closed. Certainly that is certainly leading to some virus being quite low here right now, Heidi. Yeah. Let's bring Mark Mathews, head of Asia research at Julia's Baron. Mark, you know, going into the start of this year, it's been much ado about valuations, particularly when it comes to some of these exceptional markets like the US where we are seeing levels pretty high. But you've been crunching the numbers and potentially see more value to come. Yes, I think so, Heidi. The earnings bottomed in the third quarter of last year. And in the fourth quarter, they they they grew, I'm sure. And looking forward, we're looking for about 10% earnings growth in the S&P both this year and next year. So that would put the S&P on around 17 times by the end of next year. And that's not an expensive multiple. Mark, how much? You know, we were just talking and we'll have a little bit more kind of two, two to fill out the picture when it comes to geopolitics and the political risk really globally. Right. With so many elections, is that something as a theme that you're paying attention to? Most certainly the biggest one, of course, is the election in the United States. That's a geopolitical risk for sure. And right now, if you just go by the polls and the betting websites, it looks like it's going to be Trump 2.0. But I would simply say that as much as that could cause a lot of what's the word chaos in politics. If you just think back to Trump 1.0, it was good for the stock market. The first three years he was in office, the market returned 35%. It wasn't until COVID came along that things got rocky for the stock market. And so, yes, there's lots of geopolitical noise, but I think that overriding that is the fact that the economy will still grow. Inflation has come down, and therefore so too will interest rates. And what's been dominating the narrative is, of course, Fed cuts this year potentially. Mark, you know, what does it mean for U.S. stocks in particular? I mean, lower rates obviously good for valuations, but but what if there's a recession within 12 months or so? You know, will the economy remain strong? And do you think earnings expectations, can they actually hold Mark? Well, it really depends on what kind of recession. Even so, there's big ones and little ones. A big one like 2008. All bets are off. The market's going to go down no matter how much the Fed cuts. But I can remember kind of embarrassed to say I can remember the recession in the early nineties and 91, 92. And actually the market was was fine. If you take it on a two year view, it was up about 25%, despite the fact there was a mild recession in 1992. So anyway, yes, I mean, I think that that well, let me just say that if you look at all the major economic indicators and compare them to what they did after yield curve inversions in previous episodes, the economy today is incredibly strong relative to those previous times. And I, I mean, I do think it's going to soften because of these high interest rates. But as rates come down, we should get the economy growing faster again in the second half of this year. You know, obviously, it seems that you're still quite bullish on the U.S. Is it just the Magnificent Seven, you think? I mean, what does this whole AIG rally going to be? You know, how is it going to play out for 2024 now? Or are there parts of the market going to catch up? Well, we like health care, specifically these obesity drugs, which have done very well, no doubt about it, and biotechnology, which has done really, really badly but should benefit from lower rates. But I have to confess that the thing we still like is the big technology stocks. And the reason for that is very simply that their revenue and earnings growth will be significantly above the other stocks for the next couple of years. And usually stocks outperform when their earnings are rising faster than the broader market. Mark, I've got to ask about China. Of course, just on the other end of the spectrum in terms of the doldrums that we've seen. And take a look at, you know, we've sort of compiled what certainly at least private economists are expecting from the Chinese economy in 2024, just, I guess, sort of a muddling through year. Do you see this as 20, 24 or a year of more the same and no big policy measures, no big structural changes, or is it more of a fork in the road? What policy choices do they have at this point for the outlook to materially improve? Heidi, I think it's going to be another tough year for the Chinese economy because President Xi has made it very clear that on the economic front, his priority is bringing down the size of the property sector and its importance in the economy. And it and it is too important he's right about that and there's too much excess inventory. And that process is painful. Now, if it ever became such a big deal that it had the possibility of creating a systemic risk, I'm sure they would step back. But I'm not really thinking it's going to be a great year and growth rise maybe, you know, 4 to 5%. Let me just throw in, though, that from a stock market perspective, Hong Kong has an extremely clear link to the Fed funds rate because of the Hong Kong dollar peg. So irrespective of what the Chinese economy does, I think that possibly the best market in the first half of this year is going to be Hong Kong as the Fed cuts rates. All right. Well, we'll see how those property stocks do. Mark, thank you so much for joining us. Happy New Year. Mark Mathews there from Asia Research at Julius Baer. Let's get to one of our top stories here this morning as well. Authorities in Japan are warning that there may be further aftershocks following Monday's powerful earthquake. The magnitude 7.6 quake on the northwest coast killed at least six people and triggered a widespread tsunami warning. Joining us now from Tokyo is Bloomberg's Isabel Reynolds. Isabel, what's the latest? Right. As you say, yes, there have been six reported deaths so far in Ishikawa Prefecture, which is on the north west coast of Japan. Fortunately, this area of Japan, the northwest coast, is relatively little populated, which I think is one reason that's contributed to this small number of casualties so far. However, obviously, roads have been damaged. Transport links are very much damaged by this earthquake. So it's very possible that the number of casualties could rise in the future going forward during the day. Also, we've seen like several dozens of people taken to hospital. We're hearing that water supply has been cut off in some areas, which is making treatment difficult. And about 40,000 households have been cut off from electricity. The significant impact on infrastructure, Isabel. Yes, it certainly is. And we're seeing, as I said, those roads are blocked. If you look on television and social media, the extent of the damage to the roads seems to be enormous. It's already it's a rather sort of picturesque and touristy area. In fact, the city of watching the waves that we've seen this huge fire. And that's probably partly because these areas have a lot of sort of old wooden buildings which can catch fire quite easily. As of this morning, the firefighters were still trying to tackle that blaze, which is spread across more than 50 buildings in this sort of well-known fishing market area that tourists like to frequent. Well, tell us about There are some nuclear plants in that area. It all just tell us more about them. And really, is there a risk now to the electricity supply? More generally there in Japan, right? Yes, you're correct. There are two nuclear plants in this vicinity. One of them, Shika, has been offline for a long time and was nowhere near being restarted for the moment after the Fukushima nuclear disaster more than a decade ago. But also in the area we have the Cashew Ozaki Katwa plant, which is the largest one in Japan. And this is a key one for Japan's energy policy going forward for its climate change policy. Japan very much wanted to restart this plant, but with this huge quake, although there hasn't been significant damage to either of the plants, as we as we know at this moment, it will cast fresh doubts over whether restarting these plants is a good idea. Isobel Reynolds there in Tokyo. Much to come here on DAYBREAK, Asia. This is Bloomberg. We're watching Korean ship makers this morning with a plan based group revealing new steps from the U.S. to limit Beijing's ambitions across a key tech sector. Dutch semiconductor equipment manufacturer ASML has now confirmed that it canceled shipments of some of its machines to China. Addabbo is following these developments. And actually we were just talking about it earlier and how, you know, started the new year. And we're seeing these policy measures really continue to take effect. Yeah, that's right. So the U.S. had put in place these export restrictions on semiconductor manufacturing equipment to China. And so they took effect on January one, and it was also involving its allies, key allies in that process, the Netherlands and also Japan. What we're understanding, though, is that certain companies got ahead of those restrictions taking effect. And the one really in focus this morning is ASML. So it's really important to understand just how significant ASML is on a global scale to semiconductors because they produce extreme ultraviolet lithography machines. Now, there's a lot of details in that. But what you need to understand about an EUV lithography machine is that it has that capability to print tiny features that go into microchips. And ASML has a complete monopoly over this market on an international scale. So it's extremely vital to the Chipmaking process overall. As I said, we know that the US wants to limit China's advancements in producing semiconductors, and we saw really the effects of that at the end of last year because while we put out a smartphone that had that seven animated chip, it was seen as a bit of a breakthrough, but they actually importantly had produced that. That's that chip with the aid of assembles machines. What we understand is that ASML had in place three licenses or licenses to export three of its ultraviolet lithography machines to China by January. Those shipments have not actually gone ahead. They were canceled at the behest of the Dutch government. But we understand that the Biden administration was certainly pivotal in pushing for the Dutch government ban. ASML has confirmed that Bloomberg's group that came out over the weekend saw something very significant to watch in terms of just how seriously the US is taking China's capabilities in this field. Yeah, it's interesting. You know, she even, you know, telling Joe Biden that he hopes the two nations can co-exist peacefully. But you know, there you see the tensions here between corporates now. And we also heard from President Xi in this New Year's address and really kind of addressing some of his economic challenges. Let's take a listen. On the road ahead. Wind and rain are normal high. Some enterprises are facing operational pressure and some people are counting difficulties in employment and life. And natural disasters such as floods, typhoons and earthquakes have occurred in some places. And so they have, all of which I'm deeply concerned what I see. We are not afraid of hardships. We will watch out for each other, face up to the challenges and overcome the difficulties. So do spend some time in the alleys talking about those tough times. It is certainly a sort of a rare omission for the president. Yeah, that's right. We don't really hear this too much from from G. But of course, it's pretty hard to ignore that backdrop that we had in China over the course of last year as well, because there was the persistent property sector slump, for instance, there were issues with unemployment that high youth unemployment in particular, with those figures eventually being pulled as well around the midpoint of last year, the market rout. So yeah, you do have that element of concession coming through, but it's equally important as well to consider just how she plans to respond to those challenges. And that was another focus of the address that came through as if, for instance, there was a pledge to strengthen the economy, to create more jobs, to to provide better opportunities for young people. And as well, just a little bit of grandstanding on some of the progress that China has made in terms of its homegrown projects. We spoke about the chip sector. That's really a key one to watch. But there was other things that he mentioned as well, locally made cruise ship space programs, passenger jet. So so some of the the achievements really that were touted as well, that was a good on on the flipside that the economic weaknesses persist. Yeah that's right. I mean, we really saw it over the weekend because we had the PMI data that came out on Sunday and it just really showed those persistent challenges that are coming through. So factory activity, big contraction there, shrinking to its lowest level that we've seen in about six months. You can see in this terminal chart here, you've got the manufacturing side coming in at 49. Actually, economists had seen a reading of 49.6. You've also got to the non-manufacturing side as well, a little bit. Not better numbers coming through there, but really pointing to more of the fiscal support that's come through. Not really a sort of pickup in any sort of genuine activity there. Services as well. That activity is still in contractionary territory. So below that 50 rating. So really what economists are saying out of this is it just puts more pressure now on policymakers and some, including ANZ and Bloomberg intelligence team there saying that we could actually start to see rate cuts as early as January, so this month. All right. Well, thanks so much. Of course, we're still waiting for those pricing numbers to come out to out of China. The president also told his US counterpart, President Biden, that their countries should strive for a peaceful coexistence. In a New Year's Day letter commemorating diplomatic ties, she noted China U.S. relations have contributed to global peace and stability. Ties between both countries have steadied, and she and Biden met in San Francisco last November. Ukraine says has shot down almost 90 Russian drones on New Year's Eve as a war grinds towards a third year. Now, four Russian missile attacks over the weekend that killed at least 30 people in Ukraine. Moscow has said it would seek revenge for a missile strike on a border city that killed at least 24 people. A series of tit for tat aerial assaults has intensified recently with a ground conflict and a stalemate. Meanwhile, Israel's Supreme Court has overturned a law aimed at weakening judges powers. In a blow to Prime Minister Benjamin Netanyahu, a judge has voted to overturn with seven in favor of keeping a law which would have barred them from voiding government decisions. The law was part of a populist overhaul. It was split the nation with thousands of people taking to the streets to protest the planned changes. Iran has dispatched a warship to the Red Sea after the US Navy destroyed three Hoti boats on Sunday. The move could be seen as a challenge to the US led maritime task force established to halt attacks in the area. It also visits ratcheting up tensions in the waterway that handles about 12% of global commerce. Bloomberg's michael, he joins us now. Does this does it seem to you like an escalation of the risks in the area? Yeah, it can't not be, Heidi. I mean, if you have I mean, Iran and the US have been opposed for, you know, more than four decades. You've got US warships there and also some of their allies patrolling this to try to protect shipping from the Houthi rebels, then to have an Iranian warship, you know, conduct a tour across across those straits. It just has you know, accidents can happen in these sort of tense situations. So obviously, it does it does increase tensions. But whether whether we go any further, I mean, unless there's an accident, whether things go any further, I think is highly unlikely because the US and Iran have been conducting almost a shadow play during the course of this entire conflict between Israel and Hamas in Gaza and their enemies. They there and everyone understands who's backing who. Iran provides finance and support for Hamas, for Hezbollah in southern Lebanon, for the Houthis who have been shooting at these ships as well in what's called the axis of. Resistance, but no one, the US side certainly doesn't want to see this escalate because it can support Israel and Israel can conduct its operations, whether everyone can, you know what, it spins out of control. No one knows what will happen there. And in Gaza, we're hearing, you know, Israel is pulling troops out of the area. You know, is this a sign of a change in a new phase in this war now, Michael? Yeah, it look, it seems so evolved. The the reporting is basically saying that Israel is very keen to do this because it wants to support its economy, which has been hit very, very hard, obviously, by withdrawing 300,000 reservists who were called up. And that obviously withdraws a lot of labor from the economy. So outside of the costs of the war, that's obviously hit the economy as well to support that. But yes, in terms of the war, it does it does suggest the beginnings of a change. And it's only a few thousand troops we're talking about. But what it suggests is we're now moving to the to a more targeted approach of more precision strikes. I mean, that's difficult to, you know, to actually undertaken war. But the difference between that sort of wide scale, large scale ground campaign that we've been seeing, that's created a lot of a lot of civilian casualties to more sort of targeted approach, which the US has certainly been pushing Israel to to adopt. And in terms of the international reaction we saw in the last few days, South Africa, Africa bringing the case before the International Court of Justice, in addition to, of course, the ongoing investigations at the ICC as well. This is not going to necessarily impact the outcome of the war. But what does that tell you here? Look, I mean, you're right. It's a little bit like the UN in a way, Heidi. It's I mean, it's it's just a symbolic sort of issue, but it is an interesting one. I mean, you know, the court could rule that this does constitute genocide. I mean, genocide is so difficult to actually define because it requires intent and all these sorts of issues. But it is and it's very worrying, I think, for Israel in terms of international opinion. And they responded harshly. They accused and they said it was a blood libel, which sort of goes back to the Middle Ages. But the the the history between Israel and South Africa is fascinating. Israel obviously was allied to the apartheid regime. The ANC were allowed to the PLO, Palestinian Liberation Authority. And it's almost organization. And that's almost sort of continued through to now. But yes, it doesn't help Israel's public relations campaign internationally. Mark, wait. They're here in Sydney. Much more to come here on DAYBREAK. Asia. This is Bloomberg. You're watching DAYBREAK, Asia. The top corporate stories we're tracking for you this morning. Saudi Arabia's public investment fund was the world's most active sovereign investor last year, and Singapore's GIC and Tomaso slashed the spending data from consultancy Global. As WEF shows, APF deploy more than $31 billion in 2023. State owned funds invested $125 billion last year. That's down by a fifth from the previous 12 months. The decline was led by the ICI, which invested 46% less. Chinese automaker BYD sold over 526,000 fully electric vehicles in the fourth quarter. That means Tesla will need a record showing to maintain its number one status. What unveiled its own sales figures later on Tuesday. In total, BYD sold more than 3 million electric and hybrid vehicles in 2023 at almost as many as the previous five years combined. And the U.S. is cutting the number of electric vehicle models eligible for a 70 $500 consumer tax credit as new rules kick in from January. The narrower criteria have slashed the number of qualifying models to 13 from about 24. And the new rules exclude EVs that use battery components made by Chinese manufacturers. We got plenty more to come on DAYBREAK. Asia. This is Bloomberg. Take a look at the state of play when it comes to trading around the region. Of course, Japanese markets are still on holidays today, so it is pretty thin volumes and interest that we're seeing, particularly here in Australia. We are looking pretty flat at the moment, about 4/10 of 1%. We are seeing quite a bit of strength when it comes to energy and oil stocks. Energy up by over 1%. That is really the outperformer of the day. We're seeing crude prices advancing. We saw the Iran warship entering the Red Sea following those boat attacks, the US Navy sinking those who do boats. And that is sort of creating quite a bit of concern over the risk of energy markets. WTI, though, for the year 2023, declining about 11%. That was the first annual drop since 2020. The cost is up by 1.6% at the moment. The clear outperformer across the region, we're also seeing really not much when it comes to trading direction out of New Zealand either. Yeah, we're dealing with some players that are breaking here across Asia. Heidi, I'll start with the good news, at least when it comes to the December. So Indonesia and Vietnam, I would say actually showing some improvement here, 52.2 for Indonesia PMI. So that is well into expansion there and improving Vietnam also 48.9, but still improving but then still in contraction. What has disappointed, at least in a cooling down, you have South Korea, Malaysia, Philippines, Thailand and Taiwan all seeing signs of maybe slowing when it comes to manufacturing floors. Although Philippines, we're still talking about 51.5%. So that's still expansionary, but the rest are still now seeing further contraction as well. All right. And of course, this also in the backdrop of what we saw in those China PMI numbers was really disappointing in December. And you got to wonder what investors are thinking for 2020. For Bell Bellwether, it's now time to call time on this rout and Chinese assets and buy this dip. Yeah it's a big question of course because we've seen so much speculation. Have we seen the worst for Chinese equities? But every time that investors seem to pile in over the course of 2023, they just seem to get disappointed again. So the question, of course, as we head into 2024 and yeah, how much of that economic malaise will the issue in China's economy has really been priced in at this stage? This is the results coming through from our latest live polls survey asking investors about their allocation priorities over the course of the next year or this coming 12 months. And you can see here the results about more than a just under a third of them are expecting to actually increase their exposure to Chinese equities. Of course, when they're just so low. Really, the room is only to grow at this point in time. But still, it does point to a sense perhaps that investors could look to come back to mainland equities, especially when you consider prior ratings. For instance, when we ran this survey back in August or a similar survey at just 19% were saying that they would look to increase their exposure. Let's change on, though, because the risks or investing into Chinese equities does come with some risks. And we also asked investors or survey respondents about this, and around half of them are saying that real estate really does remain the elephant in the room. It is the biggest question mark hanging over the health of China's economy a local government, debt, investment, trust, disinflation or deflation. They're also some of the key challenges facing the economy. Here's what else Some of our some of our investors that we spoke to had to say about the outlook for Chinese equities. Take a listen. We currently don't have any direct exposure to China. For us, our preference is still to find global conglomerates with exposure to China rather than investing directly into that Chinese equity market. I'll increase I'll trade it down based on what we see. Our allocation is likely to go higher. It was higher this year than it was last year, and we think that that would be the case next year as well. China is a good market for relative outperformance. It is also good market for absolute performance, not just this year, but it has been for years and we think it will continue to be that way. So we expect more reserve rate cuts next year and some more policy easing, but not bazooka style stimulus. Right now, China equity market is priced for a slowdown, growth below 5%. So expectations are low, positioning is very low. So we would be gradual buyers as the property market bottoms into next year. China has got some good ideas, but the visibility is missing. And as a result, a lot of investors don't want to stay, don't want to commit to China on a longer term basis, preferring kind of shorter term trades, tactical trades. All right. Let's ask that question to Raymond Yan, chief at Greater China economies at ANZ. Raymond. Obviously, the PMI numbers were a bit of a disappointment once again. I'm just wondering how the economy bottomed. That's one thing. And then, you know, can China really achieve some sort of soft landing this year? Very disappointing. Disappointing PMI number over the weekend is 49. I don't think that a lot of people can expect a drop of PMI December. We looking at the GDP growth this year below the actually official target of 5%, if we're looking at 4.2% in 2024. At the same time, we try to characterize this type of Chinese slowdown as this structurally driven slowdown in a very controlled manner, which means that from time to time the government is trying to support the growth momentum through a countercyclical policy. At the same time, within the cross cyclical adjustment framework, which means that we don't see a free for all the Chinese economy. But at the same time we have to expect that Chinese economy is not going to grow back to 5% era. But even by this year we look at four one 2% by next year we are also looking at 4.0%, 2025 as well. So we see this as a gradual slowdown in terms of the Chinese economy. At the same time, I believe that the authorities are trying to buy time to support more structural reform and nurture some growth sector so that you can be assured the cultural sector productivity will be improved. But I believe that that would be the policy framework that will support this type of control is sending, I would say, over you can call it a soft landing, you know, through sunset to some extent. What you know, how are you gauging, you know, how this economy is going to play? I mean, it sounds like it's just things are going to muddle through, right, Raymond? If you're talking about, you know, 4% or so growth, is there anything that policy is going to do to at least reinvigorate the private sector in any way? Yeah, I think that the same part of it that the Chinese policymakers tried to support see some sort of growth momentum through a more proactive fiscal policy with even with this official deficit budget of 3% of GDP. If they see the growth momentum drop too fast, they will issue more local government bonds in order to support the infrastructure project. And even at this central government level, they started to have a bond issue in order to support some special projects as well. So these are they want to support about 5% growth and they don't have to be very precise. In fact, to us both, number is not really the primary concern right now is more about the inflation story. That is still a major concern because over the weekend we look at the PMI number, we also look at the price indexes of those PMI survey has actually dropped below 50% of 3% of the first consecutive month as well. So I think that now what's phase the the major concern facing the Chinese economy is the downward price pressure. I think that's the policy priority that the government will need to address, you know, immediately. And so we don't rule out the imminent, you know, interest rate cuts as well. We looking at the 20 basis point cut for the whole year. But I think the first interest rate cuts can be as soon as this month or next month. So is is China, in your view, already pretty deep in that deflationary demand down spiral? And what are the risks that the policy support isn't big enough to be able to drag, you know, the private sector, households, businesses out of that confidence slump? Yeah, I think that's that's I think the key concern right now is the private sector confidence in the household confidence. If we look at the property market, we have seen no signs of recovering. And in fact, in this year 2024, we don't expect a major recovery of the property market. We might see some one or two months of stabilization. But overall, I think this is more a structural concern about how the households are looking at the future of what real estate is and investment vehicle, where that is still a good way to store the household wealth. So I think that's is a major structural issue. As long as the government is not going to change their overall headline policy towards housing. Then it's hard to see a major rebound in the housing market. All the government would do is just to try to assure some completion anti-Castro developers so that they offer a push for major developers to go bust and try to rescue the financial capacity and the cash flow. But it is still difficult to see how they're going to change the hopes or expectation of the future demand of all of us. That would would direct payments help at this point? I think that repayment can also be odious, affordable to somebody, for example, consumption during the holiday season and perhaps support some subsidy platform so that they will offer some voucher holders on discount for small ticket item kinds of household spending. So we look at retail sales will still be growing at a single digit, not a double digit growth. It's hard to see that these households or cash has all had a meaningful impact on household spending, appetite and investment appetite as well. So at the moment, I think that the government will only be trying to assure that the price will not be dropping too fast so that they may in the consumer market, they may also encourage a seller not to cut price too fast in the housing market and puppy market. They would definitely want to secure the price levels so that developers will not face a very stressful scenario. And if we see a free fall of the price or the price to pass, that would easily create a systemic event in financial markets because of the importance of of these values in the banking system and also in the entire financial system as well. So I think that, you know, just the cash handout is still just a won't have a major significant impact on the overall economic outlook in the near term. No easy options. Of course, Raymond. Really great to have you with us. And happy New Year. Raymond Young, Achieve Greater China economist at ANZ. Plenty more to come here on DAYBREAK. Asia. This is Bloomberg. The reunification of China is a historical inevitability, and compatriots on both sides of the Taiwan Strait should join hands and share the great glory of national rejuvenation. Our goal is grand and simple. Yes and yes. I hope that both sides of the Taiwan Straits can return to healthy and constructive exchanges. We will not provoke or submit, but we will earn the international community's trust and deepen our cooperation with democratic partners, tangling with them so that we can confidently and calmly face the world. And China will go, Where can we go? Thanks to the presidents of China and Taiwan, they're giving their New Year messages and Xi Jinping, as you heard there, reiterating that reunification is inevitable, while Taiwan calling for Beijing to help maintain peace in the region. Taiwan, of course, heading to the polls in under just two weeks to pick its next president. Let's bring in our deputy Taipei bureau chief anyway and joining us now with the latest. You know, it's interesting what we heard from Xi Jinping. Let's start with that. First, talking about how reunification with Taiwan is inevitable. This seems to be kind of stronger language that we've heard from Xi in the past. How do you read it? Do you read it? Hi. Good morning, Yvonne. Yes. So Taiwan's President Tsai Ing wen deliver her final New Year's address on Monday. And she need to step down and office in May after two four year terms. So in response to Chinese President Xi Jinping's remarks that China will be reunified eventually, Taiwan's President Tsai Ing Wen said the final decision on what kind of relationship Taiwan should form with China in the future should be decided based on the Commonwealth of the 23 million Taiwanese people, and it should be decided in a democratic way. Presidents have also said during her New Year remark that she hoped that the both sides of the Taiwan Strait can return to healthy and constructive exchanges. She said Taiwan will continue to deepen cooperation with democratic allies and the world and to face China and the world calmly and confidently presents High said trade and economic exchanges should not be used as a political tool, and business opportunity should not be used as a political threat. She said it's important for Taiwan to have communication with China, but it would be too much a price to pay if that means Taiwan has to exchange its sovereignty for such communication. Cindy We're just about, what, over ten days out, just until Taiwanese voters head to the polls. How's the race shaping up? What should global onlookers, investors be watching for? Yeah, I'm telling it like it's the next president and legislature on January 13. This is going to be an election that policymakers from Washington to Beijing will monitor very closely because Taiwan is the biggest flashpoints in the US-China relations. This is basically a three way race, and the election is essentially about two competing roads. The ruling party's candidate, vice president like Chengdu, who said Taiwan shouldn't go back to the old paths of relying on China economically. The only way, the right way for Taiwan going forward is to move closer to the world. And that's that sort of ride paths to reduce the risk by the opposition. Can candidates are can Tokyo and Taiwan People's Party is Cohen they call for closer ties with China and criticized deep peace lies previous comments on support for Taiwan independence risk triggering a war across the Taiwan Strait. The opposition candidates believe that only by deterrence and dialogue can de-escalate the tension across the Taiwan Strait. But so far, this is the final day we can mention polls. So far, DPP Slice is leading in most of the opinion polls, has enjoyed a solid but not insurmountable victory over his rivals. There are just less than two weeks to go to the elections. Anything could happen. But if DPJ wins the election again, it's going to be a record, a third term, and it will send a very strong message to a row that Taiwan decides to move away from China. And so China's. Any following reaction will be worth watching. Yep. 11 days ago, Sydney, you and I have a very busy that during that time our Deputy bureau chief Antiparasitic Wang there of course you get more on the election time. And besides a special reports featuring Bloomberg's exclusive interviews with all three presidential candidates, catch it on Bloomberg TV every Thursday in Asia. Wednesday in the US is also available on YouTube. And yes, we as dividend goal will be there next week. This is Bloomberg. All right, Yvonne. This is a time of the year when we start taking a look at 2024 expectations. And, you know, I think you said it in the last couple of hours that a lot of the 2023 expectations really never materialized and things turned out very, very differently. Of course, on the Fed, the US economy, treasuries, and even that great rebound in the Chinese economy post reopening that never quite managed to take hold. And these are sort of some of the expectations, almost everything that Wall Street is lining up for in terms of what they're looking for for 2024. So, of course, time will tell as to whether they will, you know, prove to be right. But let's let's take a look at just some of them. Right. In terms of what we are actually expecting. Yeah. Comes to us that if we. The china. Right. That's the big one. Yeah. Yeah. And we've been talking about this idea that maybe the economy just keeps muddling along, right? Jefferies doesn't see a big bazooka, and investors are hoping for a new normal of lower, but potentially a higher quality growth. There are sort of, you know, a little bit more green shoots of optimism, though. If you take a look at some of the other investment houses. Yeah, a little bit. I mean, you talk about, you know, at least the Fed pictures look a bit better. You know, stimulus might finally gain some traction in China. Maybe we see some signs of stability and maybe, you know, there's you know, there's pessimism has been already, you know, in positioning and all of that has really been too excessive. Right. You move on to the, you know, the popular trades of Japanese stocks. Right. And you got to wonder, you know, what? How do you look at Japan after this massive rally? I think it was the best one we've seen in a decade. And we're at 1990 highs right now. You have Deutsche Bank basically saying they're actually moving to a underweight now. And there's a lot of questions on what are going to be those catalysts to see further gains move forward. HSBC, though, still quite bullish, could be an outperformer among JDM posit opportunities according to Fulcrum, when it comes to Japanese banks, for example, obviously the BOJ still very much that wild card, Heidi. Yeah, the BOJ is the wild card. And some of those expectations, you know, exiting negative rates from the first quarter, PIMCO seeing underweight duration policy could tighten quite notably. So that is really one of the big risk factors. We're also hearing from Japanese Prime Minister Fumio Kishida, speaking now to reporters, of course, talking about that New Year's Day earthquake, the ensuing tsunami, a tsunami warning that is still actually in place for parts of Japan, speaking to reporters saying they've set up a local task force for the earthquake. We're hearing confirmation from NHK now that the quake has killed eight people in Japan's Fukushima city, where we also know there's a lot of disruption ongoing. We'll continue to watch that. But of course, one of the big calls going into this year, one of the big uncertainties, I should say, is also where the greenback is headed for more weakness this year. Markets widely expecting the Fed to start cutting rates as we're able. And love strategist Mary Nicholas. So it was quite the year, not in a good way necessarily if you were long the greenback and there does look like a lot more sort of structural challenges to come. Yeah absolutely. I mean it looks like the outlook for the dollar looks like there's more weakness to come. If we look at some of the key factors that the Fed is looking at. For example, inflation, we had PCE numbers for November and inflation showing that, you know, the six month annualized basis is making progress. Another key factor that we were looking at in terms of what the trajectory of the dollar looks like has to do with where where real rates are. So let's say take central bank rates adjusted for inflation. Actually, real rates in the U.S. are the highest among, you know, its peers amongst, let's say, the ECB, the Bank of England and of course, the Bank of Japan. So that actually offers the Fed greater flexibility to start cutting rates, especially if it wants to ensure some sort of soft landing or a no landing scenario. It would be better for them to start cutting rates early, proactively, and especially if they've seen some progress on their inflation and inflation mandate. So very I mean, the last few months have been quite interesting, right, with all this kind of broad based euphoria and people just taking out so much risk, is that likely optimism to carry over into 2024 and how sustainable will it be? Yeah, we think so. We think there's not much standing in the way right now. You know, for example, let's say you take projections and economist forecasts for the non-farm payroll on Friday or for ISI, you're expected to see some sort of softening in the data or that is just going to feed into that dovish Fed narrative where and of course, once the Fed does start cutting, the market is going to just be very exuberant that the Fed won't stop. And that's what brings the dollar further lower time love strategist Mary Nicolau. They're looking at the trajectory for the greenback going into 2024. Well, that is it for DAYBREAK. Asian markets coverage continues next. This is Bloomberg.

Channel: Bloomberg Television

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Length: 103min 32sec (6212 seconds)

Published: Tue Jan 02 2024