Examining China's Recent Tech Rally
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Welcome to the Bloomberg Daybreak Asia podcast. I'm Doug Krisner. In the last U.S. session, we had a rally in chipmakers led by Intel. Those shares jumped 16% on reports that Intel could be broken up in a deal involving TSMC and Broadcom. And in a moment, we'll take a look at the price action in the States with Jim Thorne. He is Chief Market Strategist

at Wellington Altus Private Wealth. But let's begin in Hong Kong. Joining us now is Jason Liu. He is head of APAC Equity and Derivative Strategy at BNP Paribas.

Jason, thanks for joining us. I'd like to start with a story on what we saw yesterday in Chinese tech stocks. According to what I was reading, much of this move higher was tied to President Xi Jinping's public meeting with some leaders of big tech in China. What do you make of what's been happening? Sure.

Sure. Thanks for having me on. Certainly yesterday's rally is quite impressive, especially on the back of already a very strong rally. So I think what we need to do is perhaps take a look back at what has happened over the past week, because I think all of these are a little bit interconnected.

You could argue that everything started around DeepSeek R1 model because they originally announced the V3 back in December but with less kind of global popularity. So I think the success of DeepSeek R1 has fundamentally changed investor perception on Chinese equity and tech in particular where there's now an understanding that Chinese tech company can be competent globally

and perhaps operating at a much lower cost than their global peers. I think the President Xi's meeting is also a continuation of that theme because previously, President Xi held a similar meeting with high-level private enterprise entrepreneurs back in 2018, and some local observer attributed this to the rally that we have seen subsequently in the market.

And so the way we interpret the latest situation is that I think the policymakers in China have also realized the power or the breakthrough that some of these recent technology announcement has came through and it greatly increased the confidence in the market. And so I think President Xi's meeting together with several high level officials

further confirm that the chinese policy makers are now very much embracing these technological breakthrough and so we should anticipate further policy support for the private enterprise and that perhaps like you said contributed to the further rally that we've seen yesterday i'm trying to understand whether or not the enthusiasm is more tied to artificial intelligence and by extension

cloud computing, maybe we can put that under the umbrella of software more so than on the hardware side. Do you think that's fair? I think at this stage of the rally, certainly investors are becoming more selective on how they are positioning. We have seen a similar transition like in the US. You may recall that when the chat GPT phenomenon first started, I think most investors were solely focusing on the hardware side of things because there's just so much demand on AI data center.

And now we're gradually moving to software. So what is happening in China at the moment is this very condensed version of what we experience in US and to some extent in Europe over the past one to two years. I think if some of you who have experienced these new Chinese AI, you would notice that there's still a little bit of that bottleneck when it comes to processing speed. So perhaps the cloud computing

has been raised to a higher urgency because they desperately need more bandwidth to handle this surprising demand globally as well. The other thing worth noting is from an index composition perspective, because there is a significant difference

in terms of the index composition of the companies listed in the Hong Kong market versus the China onshore market. The best example is that a lot of these well-known Chinese internet companies are only listed in Hong Kong, and some of them do have ADR listing, whereas in the onshore market, the major large cap indices tends to be overexposed to traditional industry like financials and consumer staples, which may have exacerbated that kind of difference in terms of price action that you're observing in Hong Kong relative to the China onshore market.

I'm hoping you can give me a little bit of insight into what's happening with the robotics industry in China and whether or not it's a place to look at closely when making the choice of putting capital to work.

You mentioned about robotics and certainly we have seen in industry trade shows and some of these promotional video in the social media that the Chinese companies are making very good progress. And in fact, at the so-called Spring Festival Gala, which is one of the most watched show by the Chinese kind of consumer, one of the segment actually feature

a robot doing a traditional Chinese dance, which actually gather a lot of attention. And going back to your earlier point about President Xi's meeting with private entrepreneur, one of the entrepreneur actually is the CEO of that particular robotic company that was featured at the Spring Festival Gala. So certainly from a policymaking standpoint, there seems to be a lot of policy support. I think the...

When it comes to investing, however, there's also this divide between private market versus public market. A lot of these robotic companies are still in the startup phase. So I think most of the opportunity happens to be in the private space. But we have indeed seen investors trying to ask the question, what are the suppliers? And I think that is one area that for the listed market, people are also focusing on at

the movement trying to understand that supply chain dynamics because there's a lot of understanding about the EV supply chain. I think we're still at the stage of understanding a lot of these robotics supply chain as well. I think we can agree, Jason, that the one thing that continues to hold back economic activity in China and investment for that matter is the property market. And we're getting indications maybe, maybe that there's some type of nationalization when it comes to China's Vunker

And I'm wondering whether that would send a signal that policymakers in Beijing are really trying to do a lot more to bring stability, not only to the property market, maybe it's a little bit more than stability. It's something where it looks as though a solid floor has been put under the market. Is that too much to say? I think that's a great question because it is true that the AI development today will not...

resolve the property situation in the near term. But it does play a part of this overall confidence, kind of positive feedback loop, because part of the reason why the Chinese property market is struggling is because consumers as a whole are lacking confidence, not just about their own job prospects, but perhaps to the economic development as well. So if

part of that confidence can be raised thanks to the technological breakthrough. It certainly helped kind of change the narrative. I think it's also worth keeping in mind that the Chinese household in aggregate has actually increased their savings over the years. In fact, according to PBOC data, as of end of last year,

the Chinese household as a group actually have 150 trillion renminbi worth of savings. And so there's certainly some dry powder in the bank account, but I think they just don't feel confident enough to deploy that capital into the property market. And so if indeed, like you mentioned, there is some resolution of some of the troubled property developer, it can certainly play the other part of rebuilding that confidence.

Our view is that this process may take a little bit longer because there's still a lot of excess inventory to be digested. But if there's indeed a change in the feedback loop when it comes to confidence and consumer spending, I think this will certainly allow the broader market

to think about the valuation re-rating even further because currently it's very much concentrated on the technology sector. I want to talk a little bit about trade because on Tuesday we had President Trump saying that he is planning tariffs on auto, semiconductor and pharmaceutical imports of around $2.

25%. Maybe much of that is targeted toward Mexico, Canada. Certainly, China has to be involved in a portion of it. Now, we know that the Trump administration has already placed an additional 10% tariff, a blanket tariff, on all Chinese goods. How do you understand the risk right now of U.S. tariffs holding back the export economy in China?

That's a great question because if you look back at the Chinese economic growth over the past few years, export has played a very, very important part.

But at the same time, China also has the benefit of going through the trade war 1.0. So our observation is that both policymakers and the corporate themselves seems to be better prepared, at least initially. So when you saw the 10% tariff implementation, when we speak with our clients, when we speak with our corporate, I think they are actually saying that they have some plan to deal with that initial wave. So from our perspective,

research perspective, we do think that there will be a second round of tariff hike potentially in the second half of the year as well. So there will be some incremental headwind, but at least based on what we observed initially, the market, the corporates and the policymakers seems to be well prepared for that initial wave. I think what

What could be a little bit trickier for the rest of the region is that markets like Japan, Korea and Taiwan may not be fully prepared for these type of tariffs. You mentioned about pharmaceutical chips and all those. Those are also very important industry for those markets as well. And so we think there could be some interesting divergence starting to develop across those markets depending on how prepared they are or how sensitive they are to these new rounds of tariffs when it comes to the broader Asian equity market.

It's a very good point. Jason, thank you so much for lending your perspective. Jason Liu there, head of APAC Equity and Derivative Strategy at BNP Paribas, joining us from Hong Kong here on the Daybreak Asia podcast.

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Welcome back to the Daybreak Asia podcast. I'm Doug Prisner. So the U.S. equity market returned from the holiday and set a record high. We had a rally among chip makers, also a bit of optimism tied to the potential for the end of war in Ukraine. We had the S&P picking up just two-tenths of one percent. That was enough for a record at 61.29. Joining me now for a closer look at the action, Jim Thorne. He is the chief market strategist and

At Wellington Alters Private Wealth, Jim joins us from Toronto. Good of you to make time to chat with us. What did you make of today's price action? I think we're just, you know, climbing the wall of worry. And it just seems to me that we're having this rolling bull market where a section or a sector takes a breather and another one comes to the forefront. Today it was, you know, semiconductors. I think we're going to get a nice bid going into the NVIDIA earnings call. And, you know, now that all the fears of the deep seek have

you know, popping of the AI bubble is over. You know, semis can run here. And I also think at the same point in time, very interesting things happening in the Ukraine. And, you know, Doug, you know, I think the cornerstone to President Trump's second term is going to be peace and a peace dividend coming back. And, you know, Ukraine, we're going to get a deal there. And I honestly think that we're going to get a deal in China.

And so I think, you know, investors have to start looking at the fact that the cornerstone to President Trump's economic policy is peace throughout the world. Well, Jim, I'm wondering if you are as optimistic about President Trump's trade policy today, even he floated the idea of 25 percent tariffs on autos, pharmaceuticals and semiconductors.

Maybe we'll get some clarity by the time that April 2nd has arrived. That's when he said he would possibly make an announcement. You're speaking to me from Toronto. I know that the Canadians are very upset about these proposed tariffs. I mean, is this a net positive, do you think? Will it lead to some kind of constructive negotiations where there will be a win-win?

Doug, I'm a trained economist. I have a PhD and I'm also American living up here in Toronto. So I have a very interesting view. First, look, the post-World War II era is over.

to use an economic term, you know, the Ricardian trade theory of comparative advantage no longer works if China and India and Europe are going to practice mercantilist trade policies. And Mr. Trump is right to implement tariffs. Having said that, Doug, only 14% of goods and services, total, 14% of the total goods and services in the United States are imported.

So we're going to work through this. It's going to be a shock. It's not going to be inflationary. Nobody should be surprised. But as I say up here to my Canadian friends, I really don't think Mr. Trump is talking about tariffs to protect Wisconsin cheese. I think he's really, we really have to start thinking about this in the geostrategic space where Mr. Trump wants to have security for the United States and he does not want to have business as usual.

So I look at it as a very positive. My target for the S&P 500 this year is 7,000. I think by the end of President Trump's second term, we could be up to 14,000. Mr. Trump gets his piece. We have a really good shot of getting the golden age that Mr. Trump is talking about. So I'm constructive and I take the noise of the tariffs as just a negotiation point.

Well, it's interesting that you don't feel as though even the potential for tariffs would be inflationary. Right now, the Fed is still on hold when it comes to drawing a conclusion on that front. We've heard from a number of policymakers. The Fed is clearly not in a rush to cut interest rates. Do you think there is a risk that we do on the rate front remain higher for much longer? I think the risk, Doug, is a hard landing.

in 26. And so if we use, if we, Doge is going to be more successful than people think. We're transitioning from an economy that is hooked on government spending to an economy where the private sector takes the lead. Typically, Doug, when that happens, we get an air pocket for growth after World War I, after World War II. So look,

Up here in Canada, the lag for monetary policy is about two years. And this economy up here is much more interest rate sensitive. Back in the States, it's around three years. So what I find so frustrating, Doug, is we're talking about they should be normalizing to 275. And yet what do we hear continually is that if the Fed cuts rates now, today,

that is going to affect inflation today. It's not. If it's three years, Doug, we're talking late 27 and into 28, which I think the Fed is on the wrong side of history again. They should be normalizing. And what we talked to our clients at Wellington is the fact that we've got to expect a growth scare coming into 26 and into 27. So we talked about the possibility that inflation will prove sticky here in the U.S., but

What about where you are in Canada? Consumer prices reaccelerating for the first time in three months. Does that concern you in the slightest? No, because as an old economics professor, interest rate hikes in particular points of the cycle are inflationary. So if you take out mortgage interest costs up here, that's the Bank of Canada rate hikes, over nine months, inflation is negative.

1.3% and over six months it's oh, it's negative 3% We're following China into deflation And if you look at the United States you do the same thing take out shelter right and you're you're below target And so, you know, there are unique times in the cycle where right hikes are inflationary and when inflation is driven by

by shelter costs, which it is. And you've got, I think, the 30-year... I mean, when I was living in D.C. for 15 years, I had a $175 mortgage. A mortgage right now, I think I checked today, is 7%. A jumbo is, I think, $730. That's going to create inflation in the housing market, in the Fed. The counterintuitive...

move that the Fed should be doing right now, which is frustrating, is the fact that they should be cutting rates to bring inflation down, bring the cost of housing down. Inflation will fall. I was looking at a survey today from Bank of America. It found that global stocks have become the most popular asset class among investors. And B of A strategist Michael Hartnett was saying that investors are long stocks

short everything else. If that is true, are you a little concerned that maybe the boat is somewhat lopsided? No, I think you've got the demographics of the millennials and the younger generation just entering into

family formation and saving years. So we're in a secular bull market. So no, I don't see that. And I think, you know, when you look at action in Alibaba and the action in the Chinese market or in the Han Seng, or you look at action in the, you know, the Europe and the Euro SOX 50, you're getting good action. And what I just keep saying to clients is,

you know first off i think the united states is the place to invest i think technology is the place to be i think mr trump is going to usher in four years of really solid economic growth

And it's really about not owning cash. Right. And so I had a big discussion today about Alibaba and, you know, she is doing this big pivot. And I don't think we should be could be surprised that that China and Mr. Trump come up with an early deal. China has to cut a deal. And so, you know, do you want to buy the K-Web?

Right. Or do you want to buy Alibaba? And typically for asset allocators in North America, you know, your exposure to, you know, China or to emerging markets outside of the maybe it's 5 percent, maybe it's 10 percent. So I'm advocating to do that. But I still think the preponderance or the significant portion of your portfolio should be focused on a secular growth names in the United States, because that's the place where all the action is.

But, Jim, I'm wondering if there is one thing that concerns you to the extent that it would kind of reverse your optimism. Is there one thing that you're worried about and you're looking at very closely where if the needle on that, whatever it happens to be, moves, you're going to change your strategy? Well, it's never say never, right? I mean, you've got to check your biases at the door and continually, you know,

change your thesis if something major happens. I mean, I think in the United States, it's fine, right? I think you've got the set, you know, you've got a dynamite cabinet. I mean, it's, you know, Howard Ludnick just got, uh,

voted in, you've got percent. I mean, the treasury secretary is a superstar, right? You've got Elon Musk doing Doge and you're finding waste. I mean, Doug, my non-consensus view coming into this year is that they would find more waste and cut the deficit quicker, right? Which is a complete and total non-consensus call. So I'm happy with the United States. Up here north of the border,

I'm worried about the Liberals getting in. And I really think that those countries that don't understand that we are in this generation, historic pivot away from progressive left policies,

much more towards the center, and I would say towards economic policies coming out of the University of Chicago and Milton Friedman, you know, a libertarian, small government, big private sector. For those countries that do not understand that, they're going to be left behind. Jim, we'll leave it there. Thank you for joining us. Jim Thorne there. He is the chief market strategist at Wellington Altus Private Wealth, joining us from Toronto here on the Daybreak Asia podcast.

Thanks for listening to today's episode of the Bloomberg Daybreak Asia Edition podcast. Each weekday, we look at the stories 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 Krisner, and this is Bloomberg.

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