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tv   Bloomberg Markets Asia  Bloomberg  July 16, 2017 9:00pm-12:00am EDT

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♪ haidi: it is 9:00 a.m. in hong kong. i am haidi lun. this is "bloomberg markets: asia." ♪ haidi: asia-pacific stocks edging higher as investors await data from china, new figures expected to show continued stability. some uber backers ready to cash scandals andhe headlines taken their toll. the rise of robot machines, prompting fears about jobs.
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day-to-day, awaiting the headline gdp number for the second quarter, but looking to scrutinize domestic activity numbers, fixed asset investment, industrial production, retail sales, all expected to show stability and she lower. given it is a key political year for beijing, we are looking at stability as the theme when it comes to growth. take a look at this chart that paints a picture of the boring trajectory when it comes to that headline gdp number over the past two years. we have been hovering around that 7% level. we really do want to look closely at the breakdown of the growth numbers are going to be. it the property markets slow
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down continuing to bode ill for the growth in the second half of the year. have we come off the peak in terms of input prices. we will take a look at the deleveraging drive and how that is affecting growth. we are 30 minutes away from the open in hong kong and china. singapore and malaysia coming online. we saw that interesting session in the u.s. where all that bad asian rallies. investors are shrugging off soft inflation data and weaker retail sales out of the states. asian stocks climbing for a sixth day. rise, bondsg stocks and asia mostly climbing as well. low,ollar at a 10 month that has put asian forex on the
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front foot, the korean won leading the pack, up .5% as the kospi is looking at a fresh high. take a look at the asx 200, weaker there, one of the only benchmarks in the red today. the aussie dollar snapping a .1%, butise, losing head of theve $.78 a hid china data. this morning, we did get nonoil exports rising 8.2 percent, helping to maintain the singaporean dollar momentum. in singapore, glp shares this morning gaining .3% after rising over 21% on friday. glp is at the center of china's biggest buyout which may see
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china vanke become the biggest shareholder, clobbering on real estate, you just ask, and asset management. taking it back to this big picture with btv 4274. despite the enthusiasm from global stocks in the turmoil facing bond markets, global equities have in trailing lawns when it comes to market value, the line in blue, so global stocks selling short. the last time was december 2, 2008, 2 weeks before lehman brothers filed for bankruptcy. we will see more on the central bank front this week on what that can mean for monetary global policy. >> absolutely. thank you for that. let's get you up-to-date with paul allen and first word news. paul: china said to have deposed the party chief, a man
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considered a rising star ahead of the leadership shuffle later this year. sources say he is under investigation for violating already regulations and severely damaging its interests. takenficials say he was away friday night while he was in beijing for the national financial work conference. the top democrat wants further investigation into donald trump's election campaign amid concern about russia directed misinformation. pointed tok warner the way false stories about hillary clinton were circulated. the president launched a fresh attack on the media as a new poll showed falling approval ratings. the ecb is on track to unwind its stimulus program next year. economists say it will drag the process out. a survey shows most think policymakers will hold fire this
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week and wait until september before slowing the pace of bond buying. the unwinding is seen starting in january and taking nine months, up from the previous seven months forecast. philip hammond says it is clear that british businesses are holding back on investment because of brexit. he told the bbc that most companies want more clarity about the trading relationship with europe. today, david davis called for progress on the issue of eu citizen rights in britain and those of britons living on the continent. global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. i am paul allen. haidi: thanks for that. markets waiting a major data release from beijing over the factoryr, headline gdp, output, retail sales, investment numbers, and it comes as china there twice a decade
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conference on financial regulation. president xi jinping backing a stronger role for the central bank. let's get it over to shanghai now. what with the conference? -- were the key takeaways from the conference? >> this is a significant twice a decade conference. this is the fifth time, focusing on preventing systemic risks, the eternal theme in the statement coming from the weekend conclave closed doors, but led by xi jinping, showing the importance of containing risks in the financial system and having the excessive debt in this economy, getting fat into the real economy as that is a big priority. there were a number of themes, about five of them. first, they will set up a commission, estate counsel level , a cabinet level position to
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coordinate regulation with the pboc taking a leadership role over the other regulatory bodies. they want to get more discipline and coordination and have more efficient policy enforcement, and perhaps the pboc can take a stronger role there. they will focus on accountability. there has been some regulatory arbitrage with the rolling out of creative financial products that have added to the risks in the off violence sheet liabilities here in china, so accountability is key. dereliction election of duty is a key designation in the state -- dispose of risks properly and timely. there will be dereliction of duty. lot of the fine details, who will lead up this new committee of coordination
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and how it will be run. again, risk reduction is a key for xi jinping. there are three main priorities. number one, getting the real economy involved, serving the real economy, preventing risks is number two. number three is deepening reforms and opening up. read that number three priority as opening up and reform being pushed down the agenda. also, state owned enterprise debt is a big issue, and neutral omission, the omission of the term neutral. it might be wonky as berdych, but they say they will take root in monetary policy. they have taken the word neutral out and replaced it by adding reduced lending costs for the real economy. people say that indicates that perhaps the tightening bias is no longer in place. it is china gdp day, but
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that headline number is probably the least interesting. we will never get a surprise when it comes to a china gdp print. >> yes. the last eight or so gdp numbers? 6.7, 6.7, six .7, six point eight, and 6.9, now the consensus is 6.8. that is stability, so we are not expecting a shock because they lack stability. far thiss how deleveraging campaign is biting into the real economy. at the tertiary sector, the services sector, taking up more than half of the gdp growth. there are a lot of concerns as well about the debt in the financial sector, the ppi inflation has started to wane a little bit, property has been overheating, residential property coming off.
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side of it, exports have been doing very well, so 6.8 is the consensus estimate. and we will probably get something right around that area. really in the heartland of the financial center in shanghai there, a beautiful shot. more analysis when it comes to china's national work conference and i look at the country's biggest economic challenges, quite a balancing act. later, the rise of the machines, beijing's plans for domination of the robotics industry. this is bloomberg. ♪
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♪ haidi: a quick check of the latest business flash headlines. li ka-shing renaming his property unit as he continues to diversify away from real estate
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into plane leasing and infrastructure. it will be renamed c.k. asset holdings. he is selling a 25% stake in canada's reliance. hong kong property shares have fallen since he spun off the business in 2015. toshiba agreed to hold off on the disposal of its flash chip memory unit. the sale is being contested i western digital, which is seeking an injunction. fish even needs to offset multibillion-dollar losses. toshiba needs to offset multibillion-dollar losses. includingholders benchmark have discussed selling stock to softbank. the talks represent a major turning point. uber has amassed 500 investors in the world's most bible start
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up, and the fact some backers want to reduce their stake suggest scandals and other troubles are starting to take a toll. let's get back to our top story, china's economic growth in the second quarter is expected to hold steady, but our next guest sees a slower gdp reading due to slowing housing transactions. he joins us now from beijing. btv 183,op this chart, it goes to the recovery we have seen when it comes to smaller cities. third tier cities seeing that uptick in yellow when we have seen the slowdown in first tear and second-tier cities. do think we have passed a peak when it comes to that housing market, and is it likely to be a harder landing than anticipated. market,pect the housing
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the marginal effects, especially through first to tear, second-tier to the lower tiers, something people have not been talking about. haveans local government fromying idle permits third tier cities, so their the major supply side reform for the housing market, but that stimulus is emanation. we expect q2 gdp will be softer. another thing that is important transactions only used to be associated with investment growth in china. if you look at the chart from
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november last year, this housing boom has affected consumption growth, so consumption surged and has been perfectly correlating with policy recovery and lower tier cities. while we see housing transactions start to slow down createat will transitional fx and consumption, so that's why we are expecting lower consumption growth, which will be a drag on gdp growth. out wei want to point have the pboc daily fixing, strengthening the fixing the most since june 28, the strongest in three weeks. this is largely u.s. dollar weakness story with the dollar index going back to december 2016 lows. xi jinping in his work conference spoke about the need for yuan reform, opening up
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internationalization of the yuan . is this just rhetoric at this stage? it seems you need more open city as opposed to more openness. >> i don't think that is correct. when the chinese talk about reform, were talking about all the reform progress will be conditional on actual conditions and domestic conditions. foreign investors will expect him to talk about openness of rnd, but that does not mean the reform will come in the next few months. it could come in the next few years, so we are talking about different reform schedules for president xi jinping. been behind the strength of renminbi at this point? a weaker dollar, but another point is the bond connect. ,he chinese government
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management of renminbi strength, they have shifted their strategy. they relied on stimulus, but we while it is inat favor for china at this point because of global recovery, but the strategy is china has placed more emphasis on portfolio inflows. connectlook at the bond , that is a great channel for more inflows of capital into china, and we expect china will more mattersement through portfolio inflows. chinese banks offshore are buying more chinese bonds, but that will create an impression to the outside world that there is a demand for renminbi and settlement for renminbi has improved. >> that is symbolic, isn't it?
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we had this conversation when we inclusion, incr terms of reforms, i would argue not much since then. if you want to use the bond connect as a way to control capital outflows or mitigate that situation, this is a longer-term ambition. >> the bond connect is different. offshore areught by chinese banks are chinese owned entities. you can create to the government power creating of oil demand for renminbi. also, all the bond connect transactions will be settled in cny, even though all trading will take place in hong kong. has is why the spread essentially disappeared, so that has created more demand for
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renminbi, but i don't believe the president will talk about more desirability for renminbi. that is merely party rhetoric. point is thatthe reform for china is different than for foreign investors. basically, the reform progress will depend on external and domestic risks. this year, we have a rate hike coming again this year, and we have this changing directions from other central banks on interest rate policy. ask you to pause on that thought. we will get more from you in a second. more in just a moment. this is bloomberg. ♪
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♪ haidi: let's pick up on our discussion. thank you for sticking around. i want to turn our attention to politics, the developments ahead of the 19th party congress. getting your reaction to these , thets of chongqing youngest sitting member of the politburo who was said to have been removed for investigation of the weekend. what does this tell you about what is going on with the political horse trading ahead of the congress? definitely the political uncertainty has been rising in china. we think the market has overlooked the risk of this power transition. is a special figure for china, because he is supposed to be the successor for president xi jinping before
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2013. if he is truly taken away, that will be a big blow for the current power dynamic or power balance in china, especially among the politburo committees. there is a harsh treating here because while chongqing has been removed from the post, but the newcomer comes cap.xi's this means he now controls 14 provinces out of 32 provinces in china, so he has a major majority at this new party is part of hisis path for power consolidation. previously he said he is
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not the one calling the shots, that there are many layers to this. does this change your view that he is in fact the one making these decisions? he is thethink driver. he is the guy who makes the final call, but this has to be a collective decision. is first thing he has to do talk to all of the stakeholders and make sure that have the one understands his decision and there is no apparent reason to reject the decision, so he has received some kind of agreement on the removal. remove him, this is a big consumption of president xi jinping's political capital.
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other factions will probably take other post. haidi: we have to leave it there. i appreciate your time. this is bloomberg. ♪
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across all your locations. hello, mr. deets. every branch running like headquarters. that's how you outmaneuver. ♪ kong, it is 9:29 in hong counting down to the hong kong open. we have the strengthening of the in theeflecting that dip dollar index. sales, consumer confidence numbers coming ,hrough from the u.s. on riding translating into another record high for the s&p. pboc andoking at the checking 140 billion yuan into the money market. some money market movement there.
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we are waiting for china data in half an hour. kong coming upng to the open. here is sophie. sophie: half an hour to that china data dump. rally in hong kong continuing unabated, the hang seng rallying, adding .7%, but weakness on the mainland. .1%,si 300 falling snapping a two day rise. fix from theonger pboc, the rally continues for the yuan, the offshore rate climbing for a fifth day. leading the drop ahead of that china gdp data was still holding above $.78, although on route to snap a six day rise. aussie shares bucking the trend, falling .2%, telcos stocks dragging the most in sydney. his stock to watch at the hong , popping at its debut
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in hong kong, opening at 130 hong kong dollars, now 138, a premium to its ipo price of $.86. a hold of trading has been halted for trading shares. this is around reports that criticized the company. next digitall -- has been suspended from trading pending a major transaction. -- sos a parent of something to watch here in hong kong and china. haidi: let's get you caught up with first word news with paul allen in sydney. jinpingesident xi supporting a stronger role for the pboc as part of efforts to safeguard china's financial system and modernize its regulatory framework.
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financiale national work conference that a stability committee will be formed, although he did not to find its relationship with the central bank. financial security is part of national security. a medical scare for john mccain has meant the postponement of the new health care bill. mcconnell said he put off the debate while john recovers from unexpected surgery. party leaders hope the congressional budget office report will be better than an earlier estimate which forecast 22 million people would lose health insurance by 2026. reports from korea say the minimum wage is to be raised despite fears it may hurt small businesses. it will increase to the equivalent of $6.64 from $5.70. the finance minister said the rise would address worsening employment and bolster falling growth. raiseae-in has pledged to
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the minimum wage to $8.80 write 2020. the japanese defense ministry seeking the largest budget next year. trillion orfor ¥5 $45 billion for a fourth year in a row. it comes in response to the recent missile test by north the dispute with china over a string of southern islands. separately, the self defense force will deploy a new antiship missile next year. global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. haidi: thanks for that. another report showing a key measure of u.s. inflation lost ground in june, adding to my knees among fed officials over their rate hike and balance sheet normalization path. to kathleen over hays, who is in tokyo ahead of the boj, but first, the fed.
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robert kaplan has been speaking to bloomberg. what did he have to say? >> his views have been accelerating or eve all thing has inflation decelerates. first, he was skeptical, then he seemed to be on board with one more rate hike. some isy, he said transitory, but not all of it. part of his conversation with bloomberg tv about technology and globalization. internet shopping help to keep a price lid. here's what he told bloomberg television. week, april and may were stronger, and i believe some of this is transitory, meaning there are some one-time factors in march numbers, but some is not transitory. rob kaplan is saying louder
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than he has in the last couple of runs that he wants to see more evidence of inflation before the fed continues to remove accommodation. lyle brainard fed governor said also on friday in a separate one has at no satisfactory answer for the current trajectory of inflation. it is not heading closer to 2%, it is pulling further away. let's look at world interest rate projections. fed funds futures traders seeming to get more doubtful. odds of a rate hike in september down to 10%. it had been 18% or more. 43%,ber rate hike odds are after having been well above 50%. the big question potentially because this could be temporary, what about balance sheet molestation fed officials cheap normalization?
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you have to wonder if there will be more conversation within the fed if they can actually start that this year. haidi: if you look at the numbers, how does that june cpi compare with the feds preferred gauge? >> these are two important gauges. there was an internal paid about the consumer price index, deflator, they settled on the are inlator, but they parallel to each other. if one is falling and the other is falling, that's not a great signal. flat,e, monthly cpi was down 0.1%. the june year-over-year cpi 1.6% from 1.7%, and core cpi and
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court ece can particular both show this turning over in inflation. 6030, you seetv that core cpi heading down. you see that core pce down to 1.4%, not what the fed wants to see. officials have been saying there was a big change in prices in march, a lot of competition, pushing down prices. theoesn't talk about anomalies in these industries, but if you look at that cpi report for june, clothing, electronic goods, a broad array, nearly all the categories were falling. core consumer goods prices in particular. this is a chart our bloomberg team put together. 14 of the past 16 months, those have been hitting lower. services prices are also
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decelerating year over year, higher, doing better, but the trend is lower, and that is what the fed is watching. haidi: what else are you watching this week, some big potential central-bank decisions? weekxt week, the fed, this the boj. this failure of inflation to rise was a japan problem, but does not look so special anymore. , will they acknowledge this or change the date when they hit that 2% target further into the future? ,n the other side of the ledger the boj is not getting to its inflation target fast enough, isn't really working, but gdp has been stronger in japan, wages starting to grow, will theirt low, growth forecasts acknowledge that part of the picture has gotten brighter?
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most anybody expects is a signal they are starting to buy fewer bonds. decision that will be closely watched later this week. thanks for coming on for us. coming up, speaking of what is feeding through to inflation and wage growth, robots taking on more work to help china transition to a higher value economy. what about people who need jobs? that is next. this is bloomberg. ♪
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♪ quick check of the business flash headlines. amazon's expansion plans including the deal for whole foods raising questions in washington. wall street is watching. torings on the acquisition
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assess implications for shoppers and staff. analyst has gone short saying antitrust concerns will erode value. last month, goldman question whether tech stocks were overvalued. backing can mackenzie as chairman of the hp, but continues to ask how best to its interest. bhp will publish quarterly production numbers wednesday, while rio tinto will released you numbers on tuesday. wall motor moving into new energy vehicles, taking in another auto company. a statement says it involves a capital injection, although no figures have been released. it says the two companies will cooperate on new energy vehicle technology, production, design, and auto parts and brand promotion.
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as we count down to china second-quarter gdp numbers, i look at the rise of an automated workforce and how it could impact growth and productivity. china needsst says more robots to counter its shrinking labor force. he is the cofounder and co-ceo of a financial services firm. great to have you on bloomberg with us. give us a gauge of the potential when it comes to industrial robotics in china. >> good morning. it is an interesting question. robotics, ai, and automation represents the single biggest challenge that china will have to face as we move into the medium and long-term of this automation wave. people will be losing their jobs, which is an awful rain, as more skilled and unskilled jobs we havemated in ways
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not imagined, but in addition, the productivity gains you get from that automation activity will help offset the massive problem china and all these economies in asia will face with declining or flattening this ison growth, so china's one opportunity to get it right and remain the manufacturing workshop for the world. is robotics the answer to avoiding the implication of china's economy and other asian economies that will inevitably end up in that aging population situation? >> it is coming whether we like it or not. china knows that and is being smart about that. as they move towards industry 4.0 and planning, they are thinking about how to intelligently use robotics, make themselves a leader in robotics automation before this wave creates issues in the economy
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and society they had not isicipated, so our view chinese companies engine general need to go out in the world and poll in the best thinking out there to make sure they are a leader in this area. haidi: how do you invest in that? what have you invested into be able to fulfill the potential you see in china for robotics? >> we are spending a lot of time going out into the west, i mean north america, europe, and israel and finding the best technology there being developed in some of the best labs in the , robotic it hardware arms, what have you, or software-based ai technology, and pulling that here to asia where we believe these technologies will have their best applications. processarms that can
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bits of food or machine parts aih faster than humans or and data analytics making sure manufacturing facilities are working better, all those things are being developed in the west and we need to bring those into china to make sure china can manage the transition properly. what would you say to in venture's who say we don't want our technology and china because there is a complete disregard for intellectual property protections? >> you are finding this is less of a concern as time goes by. a few years ago, that made it difficult to make this marriage between east and west. now what you are finding is china has done a much better job in protecting its intellectual large companies in china driving this transition to an automated economy, understands this is an issue. they are putting in protections in place to help protect
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intellectual property and make owners happy. on the other hand, they are saying if you are worried we will still intellectual-property, than by the whole company, and that is a trade we are excited about him a coming up. -- about coming up. how economically attractive is robotics in terms of if you are someone who runs a small midsized business in china , or how long would it take for that run-up to become a viable option as opposed to going out and hiring? it really depends on the subsector you are talking about. areas of thethose economy that need to be sped up quickly because there is outsized growth are exceptionally open to automation. for example, warehouse technology. e-commerce and china has been
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growing exceptionally fast, and what we are seeing in warehouse operators medium small is they are having hard time finding labor and automated warehouse technology in the state is highly applicable to what these guys are facing on a day to day basis. the cost of these things is quite cheap. were not just talking about a sophisticated broker that does everything a human does. we are talking about cooperative robots that work with the humans in the factory space or warehouse space to make their day to day more efficient, and there is a real multiplier on in permitting that kind of technology. role for thes the big tech players in china for all of this, alibaba, tencent, baidu? >> they are driving the entire adoption. the number of times we see the large players reaching out to some of the emerging technology players in the west is
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exceptionally frequent, and that is often getting a phone call from our friends saying, what do you know about these guys? how are they going to use our technology? are they a good partner? most the time the answer is yes. you say china as i imagine a lot of these emerging markets if you will, they can skip completely the older current generation of technology and go straight to what ever that cutting edge technology is? >> that's right. we have seen leapfrogging in the we are talking about industrialized automation, this ring the workshop of the world, and for china in particular, there is a massive opportunity and more motivation here to leapfrogged them there has an in the past. what we will see is a rapid adoption of these technologies to the point where a chinese
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factory will be different from what it was 1-2 years ago. haidi: we spend a lot of time talking about these structural shifts and why do you are not seeing inflation and wage growth around the world, and technology comes up time and time again, is that something you have given thought to? if robotics does fulfill his potential, will it change things --ocably >> that's right. a massive wave washing over the way everything is done in the world, and maybe it started with what we now think like the internet. one thing we have to focus on our productivity gains and that the society should be more productive with a little less labor. we have to become accommodative to the idea of a minimum-based
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income, frequent job training, job switching, but people will be working alongside robots, either physical metal robots or ai for many years to come. haidi: china comes up many times as being the major market in terms of potential, in terms of how much there is to go around. what other markets are you looking at as key ones for robotics? >> japan is a driver in a adoption of robotics and innovation in robotics. that is a country that should not be ignored because it is a place were there will be large-scale implementation and where there is massive scale research into advancement, so when we think about robotics, we spend a lot of time speaking to japanese friends to find out what is the latest there. anda is a huge manufacture
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they have been putting out robots as a percentage of the workforce faster than japan has. they have a similar issue. korea has staked it out as a manufacture and all those areas require robotic assistance. developed countries like indonesia, you will see robotics in used around things like warehousing technology to serve increasing e-commerce, so it depends on what country you are looking at. haidi: fascinating stuff. thank you for coming on for us. plenty more ahead, including china data in about eight minutes. this is bloomberg. ♪
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haidi: we are waiting for the latest gdp numbers out of china
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in a few minutes from now. also, june retail sales, industrial production, fixed asset investment. let's listen to what some of our guests have in saying about the chinese economy. decide to 2017 would be a beautiful year. they have succeeded beyond expectations, and it has been impressive, but you look at the , not lookinga good. the cash flow is continuing to deteriorate. there will be a reckoning on some of this stuff it does not have to be immediate or hard, but 2018 will be interesting because they have to do something about it. the lovers are running out. levers are running out. guest discussed the corporate sector and the difficulties of deleveraging.
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>> the problem with that is that for the last couple of years, improvement in return on equity is coming from increased leverage, so they use leverage to boost return, so now we are talking about decreased leverage. think about that. that will put pressure on returns from equities, but at the same time, the authorities are trying to control the equity market. we are trying to do two different things at the same time, and that's why it is difficult, because we are not ready to face the consequences. up, we break down those second-quarter gdp numbers out of china with citigroup joining us for analysis. those numbers will be live in just a couple of minutes. meantime, asian stocks surging higher, tracking that record close on wall street
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despite disappointing u.s. certainly that china data will be moving markets in a couple of minutes time. this is bloomberg. ♪
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we are awaiting these numbers. second-quarter gdp out of china and investment remailed sales -- investment retail sales. we are expecting to see a modest slowdown. we've got the numbers out at the moment. let's get you that number that's unchanged from the prior pace of six point -- 6.1% from the first quarter. quarter on quarter, seasonally adjusted coming in at 1.7%. that is as expected, and picking up the pace from the third quarter of 1.3%. gdp gives us a year to date , handily above the
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target of 6.5%. we also have industrial production numbers finally, that is 7.6%. -- they wereght expecting 6.5%, the same as the month of may. let's go to sophie for reaction on the markets. gdp numberpite that and other data, we are seeing relief when it comes to the tumble for chinese mail-in markets, deepening the day losses down 1.2%.
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it has been fluctuating throughout most of the morning. casino stocks drag in hong kong. the is six 200 also -- the a's hunching ishe looking at extending its rally we have seen so far in the past week or so. the china is falling, sticking to a 2015 low, its worst weekly loss in about a year. --s coming on concerns that
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the index has lost 14% this year , the lowest close since january 2015. while we are seeing weakness when it comes to chinese stocks, doesn't apply to asian stocks. asian shares rallying to the highest since 2008. this despite japanese markets being close to this monday. a bit mores get reaction and analysis on these numbers. our north asia correspondent was with us, and a citigroup chief economist. you've been looking at these numbers for so many years. what do you make of it? >> 6.9% is pretty good.
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it is above the full-year target of around 6.5%. it is better than the consensus estimate of 6.8%. we are really mincing words on a few decimal points here. it is solidified growth. that is what we are seeing. the interesting thing is to see other numbers we thought were going to be in line with previous months, like industrial production coming in quite strong. considerably higher at 7.6%. this economy, even though the authorities are trying to curb excessive debt and over leveraging, they are seeing still strong production and growth. urban investment also beating the survey, 8.6%, expecting 8.5%. it was the same pace of growth as the previous month in may.
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were expectinge a slight dip, but everything i have seen is that retail sales and consumption continues to be fairly robust. 11% growth in june. it was expected to be 10.6%. it was 10.7% in may. the economy, at least the numbers reported, seems to be doing fairly well. predictions that the first quarter was the peak of this recovery may be a little bit exaggerated. it seems as though they have stabilized. you.: thank let's continue the conversation in beijing with the chief citigroup china economist. in light of this very robust showing, do we need to be revising our forecast for the second half of the year? yes indeed. in thech a strong number
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first half, china can easily achieve its 6.5% growth on the year as a whole. it is very likely for the whole year we may see much better than 6.5%. --rall i think all members all numbers suggest that the economy has stabilized, led by strong fiscal policy and the height monetary policy condition. this leaves the question as to whether the pboc will continue to tighten regulations with the new financial structure that is going to be set up in the coming year. this growth is coming from? detractors would say this is still a trip -- still a credit driven growth model we have seen.
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we have seen a surge when it comes to property prices to stop her going off best to start tapering off -- to start tapering off. infrastructure has been moving at more than 20% year on year. couldty investment, which stop the flow with property tightening policies, has also remained rather robust. retail sales are more or less in line with expectations. that thetill say current recovery is still driven by rather strong investment growth. half wherethe second we need to worry about inflation food prices could go up,
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and china's inflation could move from the first half around 1.4% 3%2.2%, still below the government target. rate we remainge relatively stable, even with appreciation buyers. the main reason so far china has opened its bond market for foreign participation, the bonds has shown interest .nternationally by the end of the year, china make increased estimate experience increased -- may experience increased inflow. the numbers look quite steady.
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this is what the authorities want. everything should be steady and smooth. haidi: that's exactly what it is. stability was always going to be the case, and now we've got a little better than stability. a little bit of a pickup in growth. does it matter? these underlying issues of the chinese economy is what we should be focusing on in terms oee -- eform -- so reform. we need to watch what the national financial conference said. are threethere important policy agenda for the tot five years for china
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make financial systems better. engagele, china needs to in financial sector reform. the have a will have to be done after this year with the further consolidation of power. that is the reason the 19th party congress is very important. overall, if you look at china's policy challenges, there are economic solutions to head off those challenges as long as there is political will to tackle those challenges. going to talk more about the political will and how things are shaping up ahead of that congress in a moment. in the meantime, let's get you caught up to date with the
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upfront news. join sources say the child qing's the c -- the chong chief has been detained. senator mark warner pointed to the way false stories about hillary clinton recirculated. "#fakenewsnt tweeted is destroying democracy and our country."
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u.k. chancellor philip hammond says it is clear that is industry is holding back on investment because of brexit. companies want more clarity about the company's future relationship with europe. davis called for progress on the issue of eu citizens rights in britain and those of britons living on the comment. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. i'm paul allen. this is bloomberg. ♪ haidi: fix for that. -- we wouldhe msci
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take a closer look later on. this is bloomberg. ♪
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♪ retail sales, industrial production, investment all coming in above expectations. is talk more with a citigroup -- let's talk more with a citigroup chief china economist. when it comes to some of these more difficult reforms, do we look beyond the 19th party congress into next year? 's next year when we actually get some of these reforms coming through mark -- coming through -- is next year when we actually get some of these reforms coming
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through? guest: the overall data we are hearing is very huge. think soe's will be able to use future earnings to repay the huge debt. the only solution is to engage in reform. the state would have to deleverage its shares, using the money raised to honor those debts so that china can regain to the best of its ability. in addition, we need to look at what kind of financial sector reform china will need to have. we do see very visible policy shifts from previously focusing
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accounts toapital allow freedom of capital flow, two more foreign participation in china's capital market. we think this is the right strategy in the future. china's financial liberalization will be less risky than the previous strategy that allows faster capital account liberalization. we think that was more foreign dissipation in china's financial system -- foreign participation in china's financial system, the capital market will develop faster. we will see more financing done through the capital markets rather than relying on the banking system, which has very limited meaning to the economy.
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haidi: i want to get back to politics. many have said this year that the risk for china is not economic, but politics. the developments over the with thewhat happened youngest sitting matter of the , and also see that i rising star of china's politics apparentlyor, he has been hauled off under investigation, replaced by an ally of president xi. what does that tell you about the consolidation of power moving forward? it shows that the corruption investigation will not stop leading to the 19th party congress. they are bound by two implicit rules. what is the age limit, the other is term limits. means age limit rule, it
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five existing committee members of the politburo will have to retire, allowing five younger standing committee members to step in. powerst that mr. xi's will further consolidate, if this is used to push for policy reform in the next five years, m.d. we should not worry about china's economic sustainability. china could maintain around 5% 2022.growth by the chinese gdp could be as large as the u.s. gdp in nominal u.s. dollar terms. haidi: always a pleasure. chief china economist at citigroup reluctant to that -- reacting to that latest data. toing up, we are going
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investigate the impact of china's deleveraging drive on the property sector, in particular. this is bloomberg. ♪
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♪ sheba has agreed to hold off on the disposal of his flash memory unit until a court hearing on july 28. the sale is being contested by partner western digital -- toshiba has agreed to hold off on the sale of its flash memory unit until a court hearing on july 28. the sale is being contested by partner western digital. said to haveders discussed selling some of their stock to softbank. the talks represent a major in what has become
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the world's most valuable startup. some of these backers now want to reduce their stakes suggests that scandals and other troubles this year have taken a toll. renaming billionaire his property unit as it continues to diversify away from real estate and into plane leasing and infrastructure. it will be renamed c.k. asset holdings. -- property shares have fallen since 2015. of reallion purchase estate assets could signal a return to record-breaking deals in china's property sector. asiaoomberg's chief north correspondent reports, the push is having a disproportionate impact on chinese developers. reporter: get your shovel and biggest andor the
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most ravenous developers spending on $14 billion in the second quarter. .ome pushed even higher it is mega consolidation on the government's deleveraging campaign. >> [indiscernible] >> a lot of developers, small or large, are going to change their strategy slightly to a more asset like treasury. europe -- asset like strategy. you will see moving that capital into different areas that have high growth potential or cutting down debts.
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reporter: property developments like this one behind me are popping up all across china. it begs the question, do we have king decade -- a new debt in the making and china? soared.ares some say the transaction raises financial risk. sunac has made 15 acquisitions since the start of last year, raising their footprint to now 44 cities. surging prices at local land auctions, it is a big reason why nac woulds like su rather fork out for existing lower yield properties, perhaps for redevelopment when billy and underneath is more valuable than
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what is sitting on top. >> in the first half of this year we have completed 10 major national market transactions on mature assets. that was more than double for all of last year. reporter: fewer available seats at the table at an increasingly exclusive dinner party. there's one feature on the bloomberg we would like to break your attention, the interactive tv function at tv go. watch us live and the deeper into interviews. you can also become part of the conversation. send us instant messages during our shows for bloomberg's a cry for's -- bloomberg subscribers only. another senior official toppled
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from power in the chinese city of chongqing. a look at the latest political maneuvering and china. this is bloomberg. ♪
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♪ increased 6.9 percent, matching the pace of expansion. industrial output up 7.6%, beating expectations. fixed asset investment and retail sales edged forecast. brother of the iranian president detained over unspecified financial issues. in state media says he is custody, but is eligible for
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bail. he served as a presidential aide during the 2015 nuclear talks and it is not clear why he was arrested. some opponents have condemned the deal was saying the president and his team were too lenient. south korea proposing separate talks with the north on military ties and family reunions. the south alson wants to meet its northern counterpoint on august 1 to discuss a resumption of deeply emotional family reunions, perhaps in october. president moon jae-in was reduce to a press tensions. global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. haidi: thanks for that. digesting a robust beat when it comes to chinese ona, but the focus is
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politics. china is said to have deposed the party chief of chongqing ahead of this leadership reshuffle later this year. he is under investigation for violating party regulations. thisis part of anticorruption crackdown. he is a former party boss of chongqing and considered a rising star. many said he was considered the heir apparent to xi jinping as future leader of china. replaced bytingly someone considered a close ally of the president. let's get over to bloomberg's china government reporter with more analysis. what do we think happened? >> there is no official announcement yet, but according
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, he was takenng away by authorities on friday evening while he was in beijing attending the national financial work conference. the allocation was he was violating party regulations. that could mean corruption allegations or political incorrectness. first sitting the politburo member to be taken when a party12 chief was taken down due to an abuse of power allegations. , the parallels are pretty stunning in terms of the popularity of these two politicians has a perceived jinping. xi what does it tell us about the desire to consolidate and what
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is coming from the very top? >> we need to step back a little bit to five years ago. then, when they were elevated to the politburo in 2012 has the two youngest initburo members, both born 1963, and that was a clear indication that these two young asicials were being groomed potential successors for xi catching whenakage they retire. not only threatening existing arrangements, but launching an investigation into a potential successor. this is like a king taking down one of the crown princes, so it
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is a major move that show xi jinping is not only consolidating power, but is fully in charge of the succession process. haidi: ahead of this party congress, what else do we watch out for now? for theld watch out politburo members. many china watchers would agree is role is significantly reduce. another party chief, he has all the certain to land a seat in the politburo, and some would argue he has a chance to advance to the politburo senate committee later this year. haidi: fascinating stuff, and something we will continue to watch. ass is probably not the last
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we head into that 19th party congress. just recapping on the economic side, a bit of a description, a big day today, gdp for the second quarter, fixed asset investment, retail sales, and industrial production come all beating estimates quite handily. you are not seeing that reaction among some small caps in china. sophie has the latest. ofhie: despite the be out china, that is not lifting the downbeat mood when it comes to chinese markets. farng some of the drop so when it drops over 1% in the wake of the data there. markets, perhaps an investor anxiety over the prospects of intensifying deleveraging. at the weekend conference,
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leaders pointing to financial stability being at the heart of their mandate. that potentially hurt earnings for small-cap stocks. in the currency space, the yuan is maintaining momentum, the onshore rate climbing for a sixth straight day. this against the weakness of the dollar, trading at a 10 month low, prompting the pboc to fix the daily fixing somewhat higher. is nowsie dollar deepening losses, down .2% in the wake of that gdp data out of china. we did see a brief pop for the aussie come up a resistance seen for the aussie at 78.49, so weakness for the currency. the kiwi leading the drop when theomes to the g10 space in asia-pacific region, down .3% after the deputy governor of the
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central bank set a lower currency would help rebalance growth in the kiwi, snapping a three-day advance. in hong kong, we do have the hang seng managing to shake off the days of doldrums, extending its rally for a sixth straight day. upa and ip stocks on the way , tracking the rise in oil prices, brent holding $49 a barrel. casino stocks dragging in hong kong come up .8% lower, and consumer discretionary segment, galaxy entertainment losing over 2% after dropping as much as 3.7% earlier, and sands china dropping almost 2% as well today inynn macau also sliding hong kong. haidi: hit by the departure of a string of senior executives of the past 18 months as it tries
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to change the city's culture of deals. hong kong's cartel cop sees staff exited. -- exit. turnover and how is it playing out in terms of performance? terms of turnover, we spoke to a few former staff and lawyers, the competition commission field, certainly there were personality problems, which has contributed to the turnover. people talked about the difficulty of lending, international lawyers, hong kong government culture, enforcement culture. bringing got into a new agency has been problematic. there is a new chief executive from the department of justice in the u.s. coming in. people felt this was a chance to start again. haidi: right, in terms of key industries that the regulators
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are looking to tackle first? >> they have spoken about doing investigations in retail and financial services. the big area from a market education point of view has been the construction sector bid rigging, and that will be a popular topic for hong kong given its apparent prevalence and renovation of all buildings, where construction companies get together to rig the bids. haidi: thank you so much for that. up, time to buy asian sovereign and corporate bonds according to western asset-management. we find out why in the real yield segment, up next. this is bloomberg. ♪
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has stocks rally, bonds facing turmoil on concerns central banks are paring back on their debt or juices. let's get more from western asset-management. and our global economics and policy editor kathleen hays in tokyo ahead of the boj meeting. we had that taper tantrum, but things are looking ok. interesting,at is if you are starting with the federal reserve and the fact thathave made it clear they want to get on this normalization of the balance sheet, unwinding, getting smaller. the bond market does not seem to be perturbed. it is interesting how many people say what if.
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this has never happened before. no big reaction, no taper tantrum like summer 2013. nevertheless, when it starts happening, that's when a lot of people in the market are nervous roilingd have a lor effect. haidi: i'm one to bring in our guest to talk more about the outlook. even these jitters we have had in the market, you actually see them as an opportunity to buy. you stop buying the dips because it will be an actual correction? >> we have seen this playbook before. what we see is the reaction of the markets is much more muted than the taper tantrum mentioned.
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learnednvestors have what to expect, how to react. secondly, this run off in the balance sheet, i would not call it an unwind. the fed just stops reinvesting the maturing proceeds, a very benign kind of certain area that would take a number of years before the balance sheet will 2.5 billion dollars, which we assume is the target they are after, so a fairly benign environment. yes? go ahead. >> i did not mean to interrupt you. why don't you finish with your thought, then i would jump in with mine. >> the last point i want to make is we have seen quantitative easing in the three major economies, and central banks about $14 trillion in money.ty in m1
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the money is still there and has hole somewhere. therefore, we are still rather with interest sensitive sectors. markets true, the bond -- only the federal reserve is not outright selling bonds, but they will stop buying bonds they have been buying. source of demand steps to one side is what people are saying, less demand relative to supply could upset the balance. if the is the federal reserve doing this at a time that is good for them? a disorienting inflation environment, so that spurs demand from bond investors
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because inflation is falling and the fed cap hike rates as much. at the same time, there is going to be more supply for the market to absorb. if you are bullish on bonds, you may want to hold bonds, maybe buy some? >> you are absolutely right. bonds,g-term demand for long dated bonds, is driven more by the inflation outlook rather of a federceptions policy, so the non-reinvestment may cause the yield to firm slightly. like only about five basis points, the impact in terms of the non-investment, so fairly benign. the strongt regulatory environment in the insurance industry and banking industry has forced buyers into buying aaa treasury bonds. , anotherr being strong
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demand for u.s. bonds comes to you cannot have a situation where the dollar is strong and long-term interest rates in the u.s. are going up. when you have a strong currency, you should have low interest rates, not the other way around. problemas an inflation and the currency is weak, then you see surging bond yields, so something we have to bear in mind that a strong currency will coexist with a fairly benign and low bond yields. you see that play out when it comes to australia as an example, but outside the sovereign space, if you look at corporate's in asia, you said it is important to be fairly judicious in the space. >> yes. credit spreads and with u.s.together
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credit spreads as well. morganmple, the j.p. asian credit index, the spreads have tightened at the start of there is ao tightening of about 20 basis points. this is an environment whereby treasury yields are set for the ,ear, but from their lows currently 2.3, so there is a bit of rise in the treasury risk free yields. the ratio of the credit spreads the comes less attractive, and therefore it is important in a rich valuation environment to creditjudicious in your picks and avoid risks. >> let's turn our attention to the ecb. markets global bond have been sensitive to changes in wording from mario draghi suggesting the reflationary
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period is starting. let's pull up a chart, btv 1171. it shows the ecb purchases of some of the major bond market have started to taper a bit because they are running up against supply limits, so that is to illustrate this is coming, but the bottom line is we have the ecb meeting on thursday. isn't this the bond market that is hypersensitive to anything the central bank says, gets ready to do, or does on its balance sheet? >> yes, you are right. this correction in global bond yields is led by the ecb, sorry, bunds after hawkish comments from mario draghi. taperingthink the ecb from the current 60 billion to , wething like 40 billion
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don't think it will make a material change. what is important is that has real yields continue to be low on the sovereign front, that perhaps it is time to move further into the credit curve. for example, i cited india sovereign bonds, 6.8% on the tenure spot. indonesian bonds, we have also been buying, more than 7% currently, trading at 6.9%. as you move up to emerging markets, you get more cushion for higher yields and avoid the more sensitive sovereign markets. that is not classic bond investment analysis. thank you so much for your time. western asset management
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there for us in singapore, and kathleen hays in tokyo. coming up, pakistan's recent em status may put it ahead of vietnam, but the numbers tell a different story. find out who is really on top. this is bloomberg. ♪
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despite a political tosis, mcsi decided upgrade pakistan to emerging-market status. china, is asia's next the potential for that market, but why is it considered a front to market well pakistan is ahead is an emerging market? when msci looks at the markets, it looks at liquidity. for vietnam, there is this foreign investment limit here . how to trade with each other, not local brokerages, so that is why vietnam is considered frontier, where as pakistan with fewer
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liquidity limits is considered emerging. at the: if you look political side of things, pakistan stocks have in sold off politicalngoing crisis. the rest of emerging-market asia has rallied, so is this making pakistan a good place when it comes to stockpicking? >> pakistan has traded down to the previous frontier market valuation, but if investors are risk averse, the pakistan stock market has not been pricing in any black swan event. it is still more expensive than 2013 when there was a huge dip. during the great financial crisis, pakistan shut down its bond market briefly. didn't we see investors get into pakistan after that msci decision? >> a lot of times investors like
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to follow the decision. it was announced it would becoming an emerging market year ago, so a lot of the flow already came in. pakistan's currency is considered unstable. 10% to 20%siders it overvalued, so when there is a lot of currency risk, global investors may not want to dip their toes in. haidi: buying on the rumor, i should say. great to have that. ahead, and she and david updating the big stories of the day so far. the big story is china, which ever way you cut it. >> let's start with gdp, absolutely agreed, as was industrials and fixed asset investment in retail, but what
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does this mean in terms of transparency and the second to ber, is it going enough to really upgrade expectations of growth out of china? we talk about that with mcquarrie, about what he likes and china and second half outlook. byna stocks slumping, led small cap shares amidst concern about the outcome of the closed-door conference on regulation over the weekend. it looks like regulatory arbitrage might be going away. the toshiba drama continues, all the latest. this is bloomberg. ♪
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angie: it is almost 11:00 in hong kong. in the middle of the first asian trading session of the week. welcome to "bloomberg markets: asia." ♪ asia-pacific markets edge higher as investors the just died of from china. all beating forecast last quarter. ,avid: shanghai, shenzhen slightly down on fears of deleveraging and more
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regulations hurting the outlook for equities there. angie: toshiba pressing pause on its chip sale. it will resume at the end of the month. david: tourism, a rare bright spot when you look at the thailand economy. visitors being urged to stay longer and spend more. i hitched we do the show there to help out thailand's tourism. nobody taking a vacation today. , lot of eight out of china digesting all that in the markets. dive and put it into context for everyone, btv 8577 is what we are looking at when it comes to industrial production and retail sales it was the 2016-27 story. growth at 7%. that we from xi jinping
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will see lower growth out of china this year. we definitely solve that, but integral to the story is what we are seeing here, the edge of the graph showing stabilization. this is important because politically stabilization is the economic,ial, political stability all in the run-up to the 19th party congress. david: i hate to bring it in, but it's what donald trump says, jobs, jobs, jobs. a slight pickup, beating estimates. gdp 6.9%, fairly uneventful, but steady as she goes. let's have a look at markets. you get this gdp number out of china, you don't see a lot of reaction. long story short, have a look at the equity space. csi the exception of the 300, which is reversing earlier
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losses in the we are doing very ok across equity markets. philippines up. strength across the korean market, record high there. straight times index also leading gains. of course, hong kong. open of ther the chinese markets, especially the mainland, the next 40 minutes saw a sharp drop in shanghai and shenzhen. we will be fleshing out that small cap story for you in a moment. we recovered about half of those losses. we are not there yet. have a look at some of the things we are following. equity markets back to levels last seen 10 years ago. just to recap, when you look at major currencies, sterling at 114, the dollar
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withred on friday inflation of 1.6%. this red vertical really shows you when inflation started to turn and win real rates started pickup. is why btv 4347 and it are starting point early this monday really comes down to a u.s. dollar, and that's why when you look at the aussie, yes, weaker today, but back to levels last seen going 2014, sooughly 2015, where do we go from here? retracement from the peak in 2014 to the trough early in 2016. little resistance between 7850 and the $.81 level. a lot of people are saying that when you look at the bearish
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sentiment around the u.s. dollar, we could easily get there. you have rate decisions this week, boj and ecb. have a look at this, the gdp report out of china about an hour or so back. tomorrow, a supplemental report comes out out of the national bureau of statistics. that will show a breakdown between the main areas of the economy, secondary, primary, and tertiary. we are expecting services continue to lead the economy in terms of growth. latest read in terms of growth for that sector are it next 24 hours very interesting and china. we did get the headline read. tomorrow, we get a breakdown and see where growth is coming from in the economy. angie: that is one of the growing sectors for china. thanks, david. now let's get first word news with paul allen.
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philip hammond says it is clear that british is misses holding back investment because of brexit. companiese bbc that want more clarity about future relationships with europe. negotiations resumed today with david davis calling for progress on the issue of eu citizens rights and written and a those of britons living on the continent. the ecb is on track to unwind its stimulus program next year, but economists say it is likely to drag process out. a bloomberg survey shows most think policy makers will hold fire at their meeting this week and wait until september before slowing the pace of bond buying. is seen asng starting in january and taking nine months, up from the seven months previously forecast. proposing separate talks with the north on military ties and family reunions. it suggested the two sides meet on friday to lower tensions.
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the red cross in the south also wanted to meet its northern counterpart on august 1 to discuss a resumption of family reunions, perhaps in october. president moon jae-in was elected on the pledge to improve relations. the japanese defense ministry will seek its largest budget next year, asking for at least ¥5 trillion for a fourth year in a row. the request comes in response to the recent the sole test by north korea and a dispute over china over southern islands. the self the fence force will deploy a new antimissile ship next year. global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. angie: second-quarter gdp data show the world's second-largest economy continuing to grow at that rate of 6.9%, definitely a
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beat and slightly ahead of estimates, so overall good news. stephen engle is joining us right now. walk us through the details. you have the good news and bad news. just which one the market is reacting to? let's get to the good news. , gdp betterers beat than expected, six point 9%, expecting 6.8% the consensus estimate. actories pumping out goods at faster clip, so industrial production at 7.6%, a full percentage point more than the previous month and the estimate. the factories are doing well. we got a hint of that with export numbers for june better than expected as well. retail sales better than expected, 11%. we were expecting 10.6%. they fasted urban investment just above estimate.
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why is the market of plotting that? the work conference we had over the weekend with xi jinping helming this closed-door today meeting with a map out financial priorities and containing systemic risks for the next five years, that is taking precedence and what is on everybody's mind. perhaps that's why markets are jittery. perhaps they will see more financial regulation in the industry here and a deleveraging push to take out the risk in the economy. that is that the economy of the news flow out of china this morning. -- the dichotomy of the news flow out of china this morning. there was a lot coming out of that work report, from the work conference statement. you have this cabinet level committee with the pboc also with more teeth in enforcing the regulators. regulator,n umbrella
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not a super regulator, but the pboc will have more strength reining in the regulators. to hold thesent bodies accountable to identifying the risks and limiting those risks. financialing up services and the financial industry and reforms seems to have moved down the priority list. the financial system, priority number one. priority number two, preventing risks. three, deepening reform and opening up. this tells economists that renminbi reform is a slower process. right now, containing risks is number one. levels, 260% of gdp, 60% is corporate and state owned enterprises debt. they need to start deleveraging.
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there is concern there will be more emphasis on getting the soe 's to deleverage quicker. i want to get more wonky on the policy wording. they had stated they need to take prudent monetary policy. why is that important? they took the word neutral out of the wording and added reducing lending calls for the real economy. that says the tightening policy might be over. , there is also a lot of speculation that there will be further regulation in areas like fintech that will make it much more difficult. angie: let's bring it back to growth. retail sales was a beat. because as the economy transitions to a consumer led economy, people spending is critical, but property curbs from that takes
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money out of most people's pockets. what are you seeing on the ground there in shanghai? off aperty has come little bit in the first tier and second-tier cities. that's not necessarily a bad thing. you have seen sales come down, but that has not affected many property developers because they have those contracts in the early part of the year and last year, so they are sitting on some cash and you are seeing consolidation there. the retail front is better than andcted, never below 10%, services as well, a strong part of the economy since 2015. the services sector has provided more than half of the gdp growth , so there is a transition going on in the chinese economy. david: absolutely. good reporting there. that's the rooftop of
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the ritz-carlton. up, more analysis on china with mcquarrie investment management. angie: we will do that, and later we take a look at what has brought china small cap stocks to their lowest since 2015. this is bloomberg. ♪
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angie: this is "bloomberg markets: asia." i am angie lau. david: have a look at small cap chair shares in china. down 5.3% over three days. it is not as bad. insight on what
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is happening here. at executive director macquarie management. here to chinaalso in on what is happening here. what happened? >> there are a few things going against china small caps. valuations have always been a bit too expensive. is question last week was china done with this deleveraging campaign? if anything, after this financial oversight meeting, the conclusion seems to be the deleveraging campaign is still going on, and that is what people are worried about. angie: how does that surprise anyone? we have seen the deleveraging and yet gdp growth, growth in retail sales, industrial output, fixed asset investment. we are seeing that growth
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despite deleveraging, but the concern perhaps is the regulatory tightening as well. >> you have just had the worknal financial conference where regulation was one of the key topics. one thing i want to note, no super regulatory oh board. it allows the pboc to have influence over the banking, insurance, and securities regulator, but no super regulatory board. deleveraging was also covered. talking about the state owned enterprises and how they deliver, so it does not link to the comments with regard to small caps, but deleveraging will be a big focus in the pboc is in a better position to play that supervisory role. angie: do you think this is a good time to get back into a-shares?
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not alwaysares are trading on fundamentals. you have to look at liquidity events that occurred. you have the southbound and northbound trade here it if i ,ook at h-shares and small-caps they have underperformed mid-cap and large cap. inn you look at that rally how cheap or expensive small mid-cap andsmall ca small-cap. it is outperforming mid-caps and small-caps as well. you have to look at the passive money, the etf money buying the bench, buying the large cap bench over any small-cap bench. david: what we tend to see an today might be an exception, it is almost a direct function of
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liquidity, last in, first out .ort of dynamic through fundamentals of the window. is that something you would be looking at in the second half for beta? >> the a-shares not so much as the h-shares, but you need to be stock specific and selective, how cheap or expensive stocks are within themselves. you can isolate the small cap benchmark. we also have a tangible point coming out, the earnings season, and you are starting to see a few announcements in areas outperforming as a whole, some of the industrial stocks, profits larger than expectations, and the print of the 6.9 percent gdp goes to show that across the board regardless of the market capitalization that things in china are not too
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bad. again, the fundamentals will be delivered in this reporting season, and i won't predict that people want buyback small cap in the day-shares, but reporting will be pretty good. angie: in terms of the reporting firms, whenll-cap you take a look at it being risk off, investors seem to be worried that they are so highly leveraged that if you have liquidity issues as such, the ripple effect could be very fast, and that is the concern, the speed. >> exactly. we have seen the money market rate climbed the whole year because the pboc has 10 trying to push them up. the question is, what will the pboc do? there are some bullish signals people picked up from the conference, the pboc reinserting language about lowering real economies financing costs, but
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at the end of the day, you're talking about deleveraging. much is a limit to how lower the financing costs can get, and that is really the concern. david: i know you can't talk names, but from the pool of stocks you guys do own, have you seen a pickup in borrowing costs? >> it depends where. -- official interest rate they are doing some tightening. it has been good for insurers and banks in terms of potential asset yield if we have an official interest rate increase, it will be good for them as well. the communication from the recent financial work conference is a positive, a win-win for everybody.
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the majority of the bargaining power, over $200 trillion in assets, insurance, and then securities, and the banks woulds dictate to securities and insurance what would happen, potentially nonperforming loan securitization where you could amortize them over the schedule. i think it is a win-win and i like it that this regulatory be led by the pboc. people seeing the silver lining in this cloud hitting shenzhen and shanghai stocks today stay with us. more coming up after this break, including the second half outlook. this is bloomberg. ♪
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angie: let's continue talking about china with cohead of asian equities for macquarie investment management asia. when you talk to clients and they say, property bubble in china. what is going on? let's dive into our bloomberg to tell the story, btp 3881. residential price growth shrinking in china, beijing, shenzhen, shanghai, a huge dip, especially after property curbs. here is the underlying story. when you compare them, it is the third tiers that look interesting in the yellows as it beats out the second and first tiers. so what do you say? property still a good thing to
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put in your portfolio? >> i will not give a recommendation. if you superimpose the fourth tier cities, they are higher than the third, so up 20% to 30% your today. last year, it was a second and third tier story. have the cooling measures they put in place been enough for the whole property market? it has been a solid rally. in the same breath, it is good for the government. if you look at excessive investment in property, it has been a robust number and the gdp print has come through slightly better than expectations, i would guess property has helped to that. you have seen industrial profits and retail sales, but there is a mentality if property prices are going up and you are making
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money, you go out and's and more. gaming revenues are up in macau so there is an optimistic view when property prices are going up and you are more willing to spend, so property has been important. david: india, a market that has been very optimistic. have a look at a chart, standard deviation closer to two. they are not known to have german like efficiency. this is expensive for you? >> i would say 1.5 is expensive, and now it is two. it is more expensive. of the rupeezation notes, i guess you move from a great economy to digital economy with the banking system. , loants went up
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advancements, and mutual funds have had a lot of liquidity and they are buying lots of stocks as well. has india gone up on fundamentals or a liquidity event? angie: always good to see you. this is bloomberg. ♪
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>> 11:29 p.m. in hong kong. i am poll: with the latest first word news. economy maintain momentum has global trade and demand spurred a pickup in factories. , matching the6.9% pace of expansion in the first quarter. industrial output in june was up 7.6%, beating expectations. fixed asset investment and retail sales edged forecast. china on track to produce the least oil this year since 2009 with a bear market weighing. first half output fell more than
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5% to average 3.9 million barrels a day. is turning to imports to meet demand and topped the u.s. as the leading buyer in the first half. china said to have deposed the party chief of chongqing, a man considered a rising star, ahead of the leadership shuffle. he is under investigation for violating party regulations and damaging its interests. officials say he was taken away while in beijing for the twice a decade national financial work conference. reports from korea say the minimum wage will be race. -- raised. will increase to the equivalent of $6.64 from $5.70. the finance minister said the rise will address worsening employment. president moon jae-in has
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pledged to raise the hourly minimum wage to $8.80 by 2020. global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. sophie: a check on the markets. asian stocks tracking wall straightet for a sixth day of gains. but stocks up .2%, in shenzhen falling over 2% today. eying a fresh record, and won higher against a backdrop of dollar weakness, trading at a 10 month low. nze kiwi sliding after the rb comments. rallying. shares in singapore climbing alongside the dollar,
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maintaining momentum falling that better than expected report this morning. the aussie snapping a six-day advance despite upbeat china data. steel adding about 2%. david: lucky number six. thank you. midmorning, the gdp report out of china. tomorrow, a supplemental report which breaks down growth across key sectors. btv 5613. it is no surprise that the top line, you're white line, your tertiary index, services. that to remaing the same. guidance,ting some basically saying for tertiary services, 54.1% and it comes to its reflection of the gdp, another huge thing is the
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correlation to tdebt. debt? service its it takes a third of its gdp. and everyone24, following along at home on your bloomberg terminals, you can see corporate debt represented in driverte is the biggest of china's rising debt picture. 2.5 times the size of the economy right now. it is about deleveraging, david, so the concern is that when we are talking about deleveraging, which companies are most at risk? you are seeing that with the small cap selloff, these of the firms the most highly leveraged. david: is it dollar denominated debt? we are looking at the renminbi
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slightly stronger against the dollar. it is that growth story. will that continued to be the story over the next few years? let's move things along. is not done yet, the story. angie: what chapter are we on? mid-novel are close to the end of the novel? david: it's him is like the bible. i hope we are entering the new testament here. it is holding off selling its chip unit until july 28. western digital trying to block that sale. angie: trying to block that sale, and that's why they are waiting to the july 28 court date. our bloomberg technology reporter joins us live from tokyo. we saw the superior court of california delay the injunction ruling by two weeks. what does this mean for toshiba? >> it means we have to wait
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another two weeks, some more chapters in the toshiba story. there was a lot of attention on this ruling on friday california time, but we had reporters in tokyo saturday morning monitoring it closely. get a in, we did not clear indication either way. both western digital and toshiba came out afterwards saying this is looking ok for us. they both tried to put a good spin on it. deal is wens for the have to wait until july 28. it is still upat in the air whether california has jurisdiction over this at all. western digital is based in san jose, which is why it filed with the court their, but toshiba's main factory is in japan. theoes sell chips all over
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world, but whether california has any jurisdiction, i don't think anybody knows yet. if the ruling goes against toshiba, i don't know if that means anything. i think the parties involved do want to see how that plays out. they are not completely ignoring it, so it means more chapters in the toshiba story. david: and perhaps another addition, we had a report that wantnix in the mix now voting rights in exchange for providing liquidity. does that change the calculus of work? >> a little bit. it is a nod to western digital. western digital said if you let deal there isthe the potential that as a competitor you could see the technology leak over to assk
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hynix. if this is true, it means they will provide just loans, no voting rights. it looks like it would take a step back and make it more politically digestible, so it will be part of the deal from an economic perspective, just in providing funds. it will not get any voting rights, at least for now. digital odd to western and the deal is more likely to come together, but we will see. angie: it sounds like a compromise there. thank you so much. let's move on to pakistan. an interesting decision we got last month with msci despite that political crisis in pakistan.
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msci decided to reinstate the country as an emerging market, but the anon remained a frontier market, so a lot of people scratching their heads today. we are joined on set by our gadfly columnist to look at the bet right now. why is the considered a front to market when you look at pakistan and that is considered an emerging market? saudi arabia is also considered a frontier market trade they look at liquidity, whether foreigners can trade their stocks, and vietnam is an ex-communist country, so a tate entities. vietnam says foreigners cannot own more than 50% of a state-owned company.
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popular andare so ownership is hitting 45% from they cannot get shares on the local brokerages. pakistan is more liberal, so that is why msci considered pakistan and emerging-market. angie: four a lot of global investors, there was a huge run-up on pakistani equities to the tune of 17%. once it got that emerging market status completely sold off, and it is all political. you have the prime minister under this graft investigation. you still have concerns about terrorism there. is this even a safe that here? pakistan currency is 10% to 20% overvalued by the imf in a report last week. the rest of asia has been doing so well, why do you want to wade into political uncertainty?
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a lot of times it is just settling on news. investors ramp-up, then dump the stock when the msci does make that move. david: they were crowding already before the decision. >> exactly, yes. david: good point there. it is really about liquidity. when we get to a certain level in vietnam, it does not make sense to get in. >> except vietnam is changing. more stocks have $1 million in daily turnover right now. we are waiting for msci to upgrade vietnam to emerging. david: even korea is an emerging market, but that is another conversation. angie: thank you so much for that. on the showg up come we look at what is next for the fed.
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about a tennisg player. the challenges posed by week inflation and consumer spending. this is bloomberg. ♪
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♪ angie: this is "bloomberg markets: asia." i am angie lau. david: a check of the business flash headlines. expansion plans include a $13 billion deal for whole foods, raising questions in washington and wall street, watching what is happening there. there are calls for hearings on the acquisition to assess implications shoppers. one hedge fund manager has gone short amazon stock saying concerns will erode its value. goldman question whether tech stocks are overvalued as a whole. angie: elliott management's
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campaign for restructuring has backed can mackenzie as chairman, but continues to ask bhp will move forward. china's great wall motor .aking a 25% in a company a statement says it involves capital injection, although no figures have been released. cooperatempanies will on new energy vehicle technology, production, design, as well as auto parts supply and brand promotion. agie: another report showing key measure of u.s. inflation lost ground in june, adding to my knees among that officials. global economics and
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policy editor kathleen hays joins us now in tokyo. we heard from the dallas fed president robert kaplan speaking to bloomberg, key takeaways and how does the fold into this low inflation story? the bank of japan and ecb this week. next week, the fed meats. ets.fed -- fed me we have the cpi number on friday underscoring that, an important gauge of inflation in the u.s., so people like robert kaplan seeming to evolve on this. what he said is much as fed officials included janet yellen eave been saying there ar temporary factors there, mobile but thosee contracts,
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are not telling about the trend of the economy inflation. nevertheless, robert kaplan said maybe it is not all transitory and he sees structural factors like globalization and internet technology to keep a lid on prices and inflation. some of these impacts are transitory, but not all of them are. he is waiting to see more evidence that inflation is starting to move higher and this is only transitory. he if we are on that removal of accommodation path, a fed governor lyle brainard said something very interesting. no one has a satisfactory answer for the current inflation trajectory. it is a bit of a mistry. ystery. -- of a mistr
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december hike, those odds are one into.%, less than for a fed doubts the need third rate hike, is there any chance it will slow down the balance sheet normalization? that is the question that will be asking. angie: it is about this inflation numbers. when we look directly at june cpi, how does it correlate with the pce that the fed takes a close look at? how do these two compare and contrast? >> when the fed started targeting inflation years ago, should we use the consumer price index or the deflator? both are comprehensive and closely followed indices.
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alan greenspan preferred the deflator. it tells you the same message comes cpi monthly flat in june, down 0.1% in may. rising one point 6%, down from 1.7% in may, and the same trend core cpi, same 63.age, be tv whichever one you choose, those numbers have rolled over and the question is whether this rollover is done and they will start turning around. mobile phone prices may be one time, lower drug prices. this is a simple bar chart our bond team put together and it shows you core consumer good prices. months corest 16 consumer good prices have fallen. if i want to show you more charts, i will stop now, year-over-year court services have peaked and have started to come off.
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that is important to the fed because the services are such an important part of the economy. david: we have to leave it there. we will be talking about thailand now. angie: are we going? david: we should. angie: we do have better lighting here. david: how can you compare to that? a rare but lucrative bright spot in thailand, change of strategy when it comes to tourism in the country. this is bloomberg. ♪
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♪ angie: this is "bloomberg markets: asia." week, earnings how this and that will be in the spotlight. reported a 14% drop
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in trading revenue on friday. we have more details from new york. ,> j.p. morgan chase, citigroup and wells fargo disappointed on the earnings front, although there were some silver linings -- linings. all banks were down friday, j.p. morgan trading revenue worse than warned, so that set the negative tone. second quarter earnings were at a record pace. earned $26.5 billion in profit in the last 12 months. it increase loans to customers double what analysts anticipated. the takeaway is whether the bond rebound is that risk of stalling out your the cfo did lower expectations for trading revenue going forward citing muted
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volatility. , they are closing in on j.p. morgan chase in the bond trading revenue and investment banking. results were the strongest in seven years. operations helped clients merge with rivals and raised money by selling stocks and bonds, and that in boosted investment banking. .rading revenue slipped 6% wells fargo in the spotlight as it announces its cost-cutting in the wake of its bank account scandal. the ceo also saying they are doing ok and like many banks they are keeping and i on washington. >> for the largest banks, including ours, that enjoy the globally important status, there is not an expectation the
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regulation looks different in the near our medium-term future. it is the world we are living in. we are prospering in it. to serve customers, employees team members, and earning a very fair profit and return on equity. >> we have bank of america and goldman in the spotlight in the week ahead is banking earnings continue. right, david and i have both been to thailand. a top tourist destination with 35 million visitors this year. the government is shifting strategy and wants quality not quantity. it wants to see an increase in revenue instead of visitor numbers. our bangkok. chief is joining us right now. ok, what is so different about this new plan? to target an
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increase in visitor numbers, but are now looking to increase revenue about 5% a year from foreign tourists, and that breaks down to people staying longer and spending more each day while they are here. foreign tourism has more than doubled in the past decade come the number of tourists from overseas has more than doubled in the past decade, and some people argue that that increase is hard to absorb. time thatt tylan east up on pursuing volume -- that thailand eased up on pursuing volume. at 35 million, that is half the population of the country already, which speaks to your point that it is time to lift the margins.
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the next couple of years, how many tourists and how important is it to the economy? about 37orecast million tourists next year. tourism accounts for 18% of the economy, and it is really important for jobs. others because right now parts of the economy are sluggish, consumer spending, investment by business domestically is not as good as it could be, so tourism and exports are important for economic impetus and thailand. in that context, the plan to increase revenue is important. tourism wasoreign about $50 billion. angie: who flashes the most cash around when they visit? very and led by
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middle eastern visitors. the numbers don't breakdown the between tourism and medical tourism. she could be that medical tourism has a part to play. amongst the top 10, the longest stayers were here for about 14 days. visitors, europe, domestic tylan tourism. the mystic chinese spend about $200 a day on average last year. spend aboutchinese $200 a day on average last year. tourists account for 20% of foreign tourism. angie: incredible. maybe we will meet you there. thank you so much for that. that is it for us. david: first one of the week.
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, bloomberg markets: middle east coming up -- up next, bloomberg markets: middle east coming up. asian stocks at a 10 year high. this is bloomberg. ♪
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